UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number
1-9812
TENERA, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3213541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Bush Street, Suite 850, San Francisco, California 94104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 445-3200
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy as information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 1, 2002, the aggregate market value of the Registrant's Common
Stock held by nonaffiliates of the Registrant was $2,731,716 based on the last
transaction price as reported on the American Stock Exchange. This calculation
does not reflect a determination that certain persons are affiliates of the
Registrant for any other purposes.
The number of shares outstanding on March 1, 2002 was 9,984,259.
(This page intentionally left blank.)
PART I
Item 1. Business
Except for historical information, the following description of the Company's
business contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
set forth in these forward-looking statements as a result of a number of
factors, including those set forth in this Annual Report under the heading,
"Risk Factors".
General
TENERA, Inc. (including its subsidiaries, "TENERA", or the "Company")
provides a broad range of technology-based professional and technical services,
and business-to-business web-based e-Learning services. The Company's
professional and technical services are designed to solve complex management,
engineering, environmental, health and safety challenges associated with the
management of federal government properties, energy assets, and petrochemical
and manufacturing concerns. TENERA's web-based e-Learning products and services
are designed to provide a suite of on-line, interactive, compliance and
regulatory-driven training applications for use by clients' employees.
TENERA, Inc., a Delaware corporation, is the parent company of the
subsidiaries described below.
In 1995, the Company formed TENERA Rocky Flats, LLC ("Rocky Flats"), a
Colorado limited liability company, to provide professional and technical
services in connection with participation in the Performance Based Integrating
Management Contract ("Rocky Flats Contract") at the Department of Energy's
("DOE") Rocky Flats Environmental Technology Site ("Site"). In August 2000,
Closure Mission Support Services, LLC ("CMSS"), a Colorado limited liability
company, was formed by Rocky Flats as a majority-owned joint venture to provide
professional and technical services in connection with a recompete of the
professional support services at the Site. In the fourth quarter of 2000, the
Company was awarded a new contract for an initial three (3) year period followed
by three one-year renewal options exercisable by the prime contractor.
In 1997, the Company formed TENERA Energy, LLC ("Energy"), a Delaware
limited liability company, to consolidate its commercial electric power utility
business into a separate legal entity. Energy offers professional environmental
and ecological services, and risk management services to nuclear and fossil
plant operators.
In 1999, the Company formed TENERA GoTrain.Net, LLC ("GoTrain"), a
Delaware limited liability company, initially as a joint venture operation with
a minority interest partner, SoBran, Inc., an Ohio corporation, specializing in
Internet technologies. In February 2000, the Company purchased certain
Internet-based development assets of SoBran, Inc., including SoBran's minority
interest in TENERA GoTrain, LLC. GoTrain, now a wholly-owned subsidiary, is an
e-Learning application service provider offering Web-based, e-Learning solutions
to selected industries needing regulatory-driven environmental, safety, and
health (ES&H) training, specifically manufacturing, utilities, petrochemical,
and Fortune 1000 companies. In March 2000, GoTrain and EnviroWin Software, LLC,
a Delaware limited liability company, an ES&H desktop solutions provider, formed
Training, LLC, a joint venture to produce certain Web-based ES&H training
products for delivery via the GoTrain distance learning platform. In June 2001,
Training, LLC was dissolved with GoTrain free to use the training courses
developed by the joint venture. Also in June 2001, GoTrain entered into a
five-year co-development and distribution agreement with SmartForce, a leader in
e-Learning solutions and content. The agreement provides for collaborating in
the creation of ES&H and regulatory content, and the co-marketing and
distribution of such content and other e-Learning offerings via the SmartForce
internet platform (see Note 6 to Consolidated Financial Statements). As of
January 1, 2002, TENERA GoTrain.Net, LLC changed its legal structure and all of
the assets and liabilities were transferred to GoTrain Corp, a Delaware
corporation.
The Company is principally organized into two operating segments:
Professional and Technical Services and e-Learning (see Note 7 to Consolidated
Financial Statements for additional information regarding Company segments).
1
Markets and Business Strategy
Professional and Technical Services Segment. TENERA provides professional
and technical services to DOE owned sites and national research laboratories,
commercial electric generating plants and other regulatory-impacted industries
to solve complex management, engineering, environmental, health and safety
issues associated with their properties and energy assets. TENERA's services
primarily focus on environmental and ecological services, and risk management,
which assist its commercial clients with respect to their nuclear and fossil
plant operations, maintenance, and safety. TENERA provides its governmental
clients, the DOE and DOE prime contractors with assistance in devising,
implementing, and monitoring strategies to improve performance and cost
effectiveness from an operational, safety, and environmental perspective at
DOE-owned nuclear reactor sites and national research laboratories.
TENERA has developed expertise in providing solutions to complex technical
and regulatory issues facing the commercial electric power generation industry.
Over the past several years, commercial electric utilities have experienced
increased competitive pressure due to continued deregulation of the electric
industry. For example, utilities are no longer able to recover capital
expenditures through rate increases, due to mandated rate changes, and
increasing competition from independent power producers, alternative energy
production, and cogeneration. During the same period, utilities and independent
power producers have responded to continued regulatory pressures to comply with
complex safety and environmental guidelines.
Safety problems and environmental issues have also emerged at
government-owned weapons production facilities. The end of the "Cold War" has
prompted DOE to shut down many of its aging weapons production facilities and
begin the challenging task of dismantling, disposal, and clean-up of the
facilities. A massive program is underway throughout the DOE complex of nuclear
weapons production facilities and national laboratories to implement this new
shutdown mission, while complying with health, safety, and environmental
requirements similar to those applicable to commercial facilities, principally
in the areas of hazardous wastes, decontamination, decommissioning, and
remediation. Electric power generators, as well as a variety of other
industries, have been subjected to extensive regulation regarding
environmentally safe handling of hazardous materials.
The Company's principal markets are the DOE-owned nuclear materials
production sites and national research laboratories, and the electric power
generation industry, including regulated and deregulated producers. The
Company's largest business area, DOE-owned nuclear weapons production sites,
faces close scrutiny resulting from public concern over health, safety, and the
environment. The Company believes that DOE's mission of closing aging weapons
plants, coupled with increased enforcement of environmental laws and regulations
continues to be prompted by publicity and public awareness of environmental
problems and health hazards posed by hazardous materials and toxic wastes. The
dismantlement and cleanup of the aging DOE weapons complex represents a
significant market for the Company's service offerings.
The DOE has begun programs to address safety problems and environmental
concerns, which have emerged at its nuclear facilities. These programs are
designed to bring the operations into compliance with a variety of health,
safety, and environmental requirements, similar to those applicable to the
commercial electric utility industry. The DOE's decontamination,
decommissioning, and remediation programs are also aimed at achieving
significant cleanup of its hazardous waste production and storage facilities and
the partial shutdown of nuclear operations at a number of its sites.
The electric utility industry has undergone considerable change in recent
years and faces a complex mix of economic and regulatory pressures. There is
continuing deregulation of the production and distribution of electricity,
accompanied by the desire of utilities to meet demand for electricity through
higher operating efficiency. Some of the Company's largest electric utility
clients have responded to a more competitive environment by implementation of
significant cost control measures and activity in the merger and acquisition
arena.
Economic pressures have resulted in certain changes in the focus of
electric utility management. For example, the ratemaking process now represents
a significant area of risk to utilities. This has highlighted the importance of
careful planning and documentation in connection with rate case preparation.
2
Furthermore, utilities appear to be shifting their emphasis to ongoing
performance reviews in making their rate base decisions, related to such
measures as plant capacity factors. These changes in the ratemaking process
subject the utilities to substantial economic penalties for extended plant
outages and have stimulated actions by them to assure more reliable operations.
The markets for electric utility and DOE facility professional and
technical services cover a broad range of activities. Typical markets include
waste management, outage support, operating plant services, licensing support,
safety and health management, maintenance and information services,
decommissioning consulting, risk assessment, quality assurance and control,
organizational effectiveness, engineering support, records management,
fuel-related services, plant security, and surplus asset disposal.
It has been TENERA's strategy to provide solutions to these issues by
providing clients with a high level of professional skills and a broad range of
scientific, technological, and management resources. These include software and
databases, which are used in support of consulting projects. The Company assists
its clients in the initial identification and analysis of a problem, the
implementation of a feasible solution that the client believes will be sensitive
to business and public interest constraints, and the ongoing monitoring of that
solution.
e-Learning Segment. The Company, through its GoTrain subsidiary, develops,
markets, and delivers an extensive library of e-Learning products designed to
provide cost-effective solutions to regulatory mandated ES&H-related training
needs for its clients. The Company also provides custom e-Learning products and
services in response to all aspects of enterprise and workforce effectiveness,
safety, compliance, and performance. The Company's proprietary Training
Management Operating System ("Training System") is designed to provide a set of
e-Learning tools that is generally scalable to any size client.
e-Learning courses and tools are applicable to large companies, often with
geographically distributed work forces involved in complex "around-the-clock"
operations, as well as, small companies that lack dedicated training resources.
The Company believes that the transition to internet-based training will replace
a substantial portion of instructor-led training, currently representing 70% of
all training programs.
The Company serves clients required to comply with a wide range of Federal
and state laws and regulations governing environmental, health, and safe work
practices in the workplace. The Company applies its expertise in adult learning,
regulatory processes, performance improvement techniques, and Web designed and
delivered interactive content, to improve the competitive position for its
clients by supporting a safe, productive, and compliant work environment.
The Company believes many factors affect the ES&H Web-based e-Learning
market. Highly competitive marketplaces encourage many companies to seek
performance gains from lowered costs and improved competitive positioning.
e-Learning provides opportunities to lower training costs and establish a safer,
more productive, and compliant work force spending more time at their respective
workstations, leading to improved competitive positioning. Recently promulgated
standards from OSHA, EPA, DOT and ISO 9000 present new opportunities for the
e-Learning products that contain, manage and report the training data necessary
to demonstrate compliance.
Services and Products
The following table reflects the percentage of revenues derived for each
of these segments for the period indicated during the fiscal years ended
December 31, 1999 through 2001:
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Year Ended December 31,
--------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Professional and Technical Services ................................... 94.5% 98.7% 98.1%
e-Learning ............................................................ 5.5% 1.3% 1.9%
- ----------------------------------------------------------------------------------------------------------------
3
Professional and Technical Services Segment. Services performed by the
Company typically include one or more of the following: consultation with the
client to determine the nature and scope of the problem, identification and
evaluation of the problem and its impact, development and design of a process
for correcting the problem, preparation of business plans, preparation of
reports for obtaining regulatory agency permits, and analysis in support of
regulatory and legal proceedings. The Company's professional and technical
services involve determining a solution to client problems and challenges in the
design, operation, and management of large facilities. Focus is also placed on
providing expertise in the wide range of disciplines required to resolve complex
legal and regulatory issues and offering executives guidance in strategic
planning and implementing a coordinated, effective response to such issues. The
Company applies its professional skills, software, and specialized databases to
all aspects of these problems and challenges in the following general areas:
o Environmental and ecological issues at DOE and electric utility facilities
o Risk management
o Operations and maintenance performance improvement
o Plant safety
o Nuclear safety and criticality at DOE facilities
o Engineering design review and verification
e-Learning Segment. The Company's products include a suite of on-line
interactive, compliance and regulatory-driven training applications for business
clients' use with their employee base. The applications support a suite of
automated back office functions and tools that manage training curriculum and
records for business clients. These training applications are provided from a
Company-owned library of courses, or are customized to clients' specifications.
GoTrain products and services include:
o Training Management Operating System (Web-based delivery platform)
o Library of ES&H Web-based e-Learning
o Custom Web-based e-Learning
o Courseware tools
o Multi-lingual e-Learning
Marketing
Professional and Technical Services Segment. The Company's marketing
strategy emphasizes its ability to offer a broad range of services designed to
meet the needs of its clients in a timely and cost-efficient manner. The Company
can undertake not only small tasks requiring a few professionals but also the
management, staffing, design, and implementation of major projects that may last
for many months and involve large numbers of professionals and subcontractors in
several geographic locations. Characteristic of TENERA's marketing strategy are
significant projects in which initial contracts have been only a fraction of the
ultimate sale.
The Company provides financial incentives to attract senior technical
professionals with extensive utility industry experience and to encourage these
individuals to market the complete range of TENERA's services throughout
existing and potential customer organizations.
TENERA's marketing efforts are facilitated by the technical reputation and
industry recognition often enjoyed by its professional staff. TENERA's
reputation in the electric power industry and as a DOE contractor often leads to
invitations to participate at an early stage in the conceptualization of a
project. During this phase, the Company assists clients in developing an
approach for efficiently and productively solving a problem. If new services or
products are developed for a client, they generally are marketed to other
clients with similar needs.
4
The Company's reputation also leads to invitations to participate in
multi-company teams assembled to bid on large DOE or utility projects.
e-Learning Segment. The Company uses a multiple sales channel strategy to
penetrate targeted markets. The Company uses a sales channel approach to connect
products to markets. Field salesmen activity currently accounts for a majority
of sales, however, other channels used by the Company include a customer service
center and via-Internet sales. In late 2000, the Company began its marketing and
communications campaign designed to gain market attention, generate sales leads,
achieve brand recognition, and grow market share. This campaign continued
through the first half of 2001 and was reduced considerably in the second half
of the year to conserve cash. The Company expects to increase its marketing and
sales program during 2002, having completed $1.5 million of convertible debt
financing in March 2002 (see Note 9 to Consolidated Financial Statements).
Multiple venues used in implementing the strategy include direct advertising,
publication interviews and reviews, speaking circuits, trade shows, and industry
and trade associations.
The Company has developed, and has opportunities to expand, a number of
strategic alliances. Alliances form an integral component in the Company's
ability to obtain product content and in establishing its full-service
e-Learning approach. Alliances pursued by the Company can be categorized into
the following three primary groups: teaming agreements, distributorships, and
content or technology partners. In June 2001, GoTrain entered into a five-year
co-development and distribution agreement with SmartForce, a leader in
e-Learning solutions and content. The agreement provides for collaborating in
the creation of ES&H and regulatory content, and the co-marketing and
distribution of such content and other e-Learning offerings via the SmartForce
internet platform (see Note 6 to Consolidated Financial Statements).
Clients
During the year ended December 31, 2001, TENERA provided services to
approximately 60 clients involving over 70 contracts. During the year ended
December 31, 2000, TENERA provided services to over 40 clients involving over 50
contracts. Over 60% of TENERA's clients during the year ended December 31, 2001,
had previously used its services. Less than 1% of all revenues were from clients
outside of the United States.
Professional and Technical Services Segment. During the year ended
December 31, 2001, one Professional and Technical Services Segment client,
Kaiser-Hill Company, LLC ("Kaiser-Hill"), prime contractor of the Rocky Flats
Contract, accounted for 71% of the Company's total revenue. During the year
ended December 31, 2000, Kaiser-Hill accounted for 70% of the Company's total
revenue. The Company has maintained a working relationship with Kaiser-Hill for
six years, during which time various contracts have been completed and replaced
with new or follow-on contracts. The existing contract, awarded in the fourth
quarter of 2000, is for a lower value than the Company's prior contract,
reflecting Kaiser-Hill's decision to discontinue use of lower-tier subcontractor
teams at the Site. There can be no assurance that this relationship will be
maintained beyond the existing contract, and the loss of this client would have
a material adverse effect on the Company (see "Risk Factors").
e-Learning Segment. The Company provided services to fifteen e-Learning
Segment clients during 2001 versus ten clients during 2000. At December 31,
2001, ten e-Learning Segment clients had contracted access for over 200,000
learners in the Company's Web-based Training System for use within the next
twelve months.
Operations
TENERA generally receives payments on amounts billed 30 to 90 days after
billing, except for retention under contracts. TENERA has historically
experienced a low percentage of losses due to poor credit risks since the
majority of TENERA's clients are utility companies, DOE, or DOE prime
contractors,.
Professional and Technical Services Segment. The Company primarily
contracts for its services in one of three ways: time and materials ("T & M"),
time and materials plus incentive fee ("TMIF"), or fixed price. T & M and TMIF
contracts, which cover the majority of TENERA's revenues, are generally billed
monthly by applying a multiplier factor to specific labor costs or by use of a
fixed hourly labor rate charged to each project. T & M and TMIF contracts are
generally structured to include "not-to-exceed" ceilings; however, if after
5
initial review or after work has started, it is noted that additional work is
required, the contract normally can be renegotiated to include such additional
work and to increase the contract ceiling accordingly. Fixed-price contracts are
generally applicable where TENERA has been requested to deliver services and/or
products previously developed by it or deliverable to multiple customers. At
December 31, 2001, of the total outstanding contracts, less than 10% were
fixed-price.
e-Learning Segment. The typical medium and large business contract for
GoTrain products has annual renewal options and is volume priced based on the
individual learner annual subscriptions. Custom training course development is
provided to clients on a non-refundable fixed-price contract basis, with
entitlement to unlimited client use of the product. However, a per-use fee
(learner seat) is charged in custom training course contracts for use of the
Training System. For small businesses and individual learners, the buying
process typically involves use of credit cards or pre-established task orders.
Backlog
As of December 31, 2001, TENERA had contracted a backlog of approximately
$13.9 million, all of which is cancelable by the clients. The Professional and
Technical Services and e-Learning segments account for $10.2 million and $3.7
million, respectively, of the backlog. Contracted backlog represents the
aggregate of the remaining value of those active contracts entered into by
TENERA for services that are limited by a contractual amount and does not
include any estimates of open-ended services contracts or unfunded backlog that
may result from additions to existing contracts.
Since all outstanding contracts are cancelable, there is no assurance that
the Company will realize the revenues from these contracts. If any contract is
canceled, there is no assurance that the Company will be successful in replacing
such contract (see "Risk Factors").
Competition
The markets for professional and technical services, and e-Learning are
highly competitive. TENERA competes with several larger firms with significantly
greater resources (see "Risk Factors").
The primary competitive factor in the market for Professional and
Technical Services is price, and certain of TENERA's competitors are able to
offer similar services at prices that are lower than those offered by TENERA.
In the e-Learning marketplace, the most significant competitive factors
are product features and price. Although many larger competitors offer
broad-based e-Learning solutions for various industries, no competitors
currently dominate the Company's targeted niche of the e-Learning marketplace:
ES&H compliance and regulatory driven training.
Product Development
Professional and Technical Services Segment. TENERA's policy is to
undertake development projects of software, systems, and databases only if they
can be expected to lead directly to proprietary products that may be generally
marketable. A portion of TENERA's product development effort may be funded
through customer-sponsored projects, although the rights to the systems and
databases generally remain with TENERA. Because TENERA's development activities
involve the integration of customer-funded, cost sharing, and TENERA-funded
projects, it is not possible to segregate, on a historical basis, all of the
specific costs allocable as development costs. Over the past three years, costs
associated with TENERA funded projects were immaterial.
e-Learning Segment. In 2001, TENERA spent approximately $800,000 in
acquiring and developing products related to its e-Learning business. In 2000
and 1999, the Company spent approximately $700,000 and $100,000, respectively,
on development for similar activities. These development efforts were
responsible for the Company's successful launch, operation and access to its
Web-based Training System and accompanying training course library.
6
Patents and Licenses
The Company does not hold any patents material to its business. TENERA
relies upon trade secret laws and contracts to protect its proprietary rights in
software systems and databases. The service and license agreements under which
clients acquire certain rights to access and use TENERA's e-Learning software
technologies generally restrict the clients' use of the systems to their own
operations and prohibit disclosure to others.
Personnel
At December 31, 2001, the Company employed a total of 144 consultants,
engineers, scientists and software developers, and a supporting administrative
staff of 18 employees. Many employees hold advanced degrees. TENERA also retains
the services of numerous independent contractors in order to fulfill specific
needs for particular projects. None of TENERA's employees are represented by a
labor union.
Item 2. Properties
The Company's headquarters are located in San Francisco, California, and
consist of approximately 5,400 square feet of leased office space, expiring in
December 2005. TENERA also leases approximately 12,800 square feet in Knoxville,
Tennessee, expiring in January 2004, 6,500 square feet in Louisville, Colorado
on a month-to-month basis, and approximately 5,300 square feet in San Luis
Obispo, California, with 26% of the space expiring in December 2002 and 74%
expiring in December 2004.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of the Company's Common Stock are listed for trading on AMEX under
the symbol TNR. The first trading day on AMEX was June 30, 1995, at which time
10,417,345 shares were outstanding. There were approximately 500 shareholders of
record as of March 1, 2002.
- ----------------------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------------- -------------------------
Price Range of Price Range of Price Range of
TENERA, Inc. Shares TENERA, Inc. Shares TENERA, Inc. Shares
------------------------- ------------------------- -------------------------
High Low High Low High Low
- ----------------------------------------------------------------------------------------------------------------
First Quarter ...... $0.875 $0.250 $2.250 $0.8125 $2.000 $1.0625
Second Quarter ..... 0.490 0.355 1.625 0.875 1.625 1.000
Third Quarter ...... 0.590 0.300 1.250 0.750 1.500 1.000
Fourth Quarter ..... 0.440 0.210 0.875 0.500 1.125 0.750
- ----------------------------------------------------------------------------------------------------------------
The Board of Directors of the Company determines the amount of cash
dividends that the Company may make to shareholders after consideration of
projected cash requirements and a determination of the amount of retained funds
necessary to provide for growth of the Company's business. The Company has made
no distributions since 1991. The Company does not anticipate resumption of
dividends in the foreseeable future.
8
Item 6. Selected Financial Data
The following consolidated selected financial data of the Company for the
five prior years should be read in conjunction with the consolidated financial
statements and related notes included elsewhere.
TENERA, INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per share and statistical amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------
2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS DATA
Revenue ......................................... $20,065 $32,443 $37,922 $27,445 $21,121
Operating (Loss) Income.......................... (3,100) (19) 2,336 1,874 (2,139)
Net (Loss) Earnings.............................. (2,030) 100 1,342 1,674 (1,890)
(Loss) Earnings per Share-- Basic ............... (0.20) 0.01 0.13 0.17 (0.19)
(Loss) Earnings per Share-- Diluted ............. (0.20) 0.01 0.13 0.16 (0.19)
Weighted Average Shares-- Basic.................. 9,984 9,960 10,050 10,124 10,123
Weighted Average Shares-- Diluted................ 9,984 10,195 10,409 10,450 10,123
CASH FLOW DATA
Net Cash (Used) Provided by Operating Activities $(1,052) $ (164) $ 631 $ 906 $(2,681)
Net (Decrease) Increase in Cash and Cash
Equivalents ..................................... (1,201) (1,006) 132 1,069 (1,672)
FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents ....................... 1,286 2,487 3,493 3,361 2,292
Working Capital ................................. 2,087 4,443 5,467 4,474 2,831
Total Assets .................................... 6,978 10,074 10,710 9,206 6,052
Total Liabilities ............................... 3,113 4,181 4,950 4,538 3,065
Stockholders' Equity............................. 3,865 5,893 5,760 4,668 2,987
OTHER INFORMATION
Number of Employees ............................. 162 192 187 196 187
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9
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Forward-Looking Statements
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor
provisions created by that statute. Certain statements contained in the
following Management's Discussion and Analysis of Results of Operations and
Financial Condition, including, without limitation, statements containing the
words "believes", "anticipates", "estimates", "expects", "future", "intends",
and words of similar import, constitute forward-looking statements that involve
risks and uncertainties. Such statements are based on current expectations and
are subject to risk, uncertainties and changes in condition, significance, value
and effect, including those described in the Risk Factors section of this report
and other recent documents the Company files with the Securities and Exchange
Commission, specifically forms 10-Q and 8-K. Such risks, uncertainties and
changes in condition, significance, value and effect could cause the Company's
actual results to differ materially from those anticipated events.
Critical Accounting Policies
The Company considers certain accounting policies related to revenue
recognition, allowance for doubtful accounts, and cost capitalization and
impairment to be critical policies due to the estimation processes involved in
each.
Revenue Recognition. A significant portion of the Company's e-Learning
Segment revenue relates to sales of custom training courses, set-up fees, and
subscription licensing arrangements. Revenue is recognized ratably over the term
of the contract and begins when delivery of product occurs. In some cases, the
term of the contract is not a fixed time period and management must estimate the
expected revenue recognition period based upon cancellation provisions in the
contract, as well as experience with similar contracts. Changes in these factors
could have a significant effect on e-Learning revenue recognition. Additionally,
a portion of the Professional and Technical Services Segment revenue is derived
from fixed-price contracts. Revenue for these contracts is recognized using the
percentage-of-completion method, which relies on estimates of total expected
contract revenue and costs. Recognized revenues are subject to revisions as the
contract progresses to completion. Revisions in revenue estimates are made in
the period in which the facts that give rise to the revision become known.
Allowance for Doubtful Accounts. The Company is required to estimate the
collectibility of its trade receivables. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables, including
the credit-worthiness of each client. If the financial condition of the
Company's clients were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
Cost Capitalization and Impairment. The Company has significant assets
related to the capitalization of costs of internal-use e-Learning operating
system software and costs related to the development of e-Learning training
courses. The determination of related estimated useful lives and whether or not
these assets are impaired involves significant judgments. Changes in strategy
and/or market conditions could significantly impact these judgments and require
adjustments to recorded asset balances.
10
TENERA, INC.
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Percent of Revenue
-----------------------------------------
Year Ended December 31,
-----------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Revenue ............................................................. 100.0% 100.0% 100.0%
Direct Costs ........................................................ 78.2 78.5 77.4
General and Administrative Expenses ................................. 37.3 21.6 16.4
Other Income ........................................................ -- * *
-------- --------- ----------
Operating (Loss) Income........................................... (15.5) (0.1) 6.2
Interest Income, net ................................................ 0.1 0.6 0.3
-------- --------- ----------
Net (Loss) Earnings Before Income Tax (Benefit) Expense ............. (15.4%) 0.5% 6.5%
======== ========= ==========
- -----------------------------------------------------------------------------------------------------------------
* Less than 0.05%
Year Ended December 31, 2001 versus Year Ended December 31, 2000
Net losses before income tax benefit for the year ended December 31, 2001
were $3,100,000, compared to net earnings before tax expense of $163,000 for the
same period in 2000. The decrease in earnings primarily results from lower
Professional and Technical Services Segment revenue, coupled with higher sales
and marketing expenses in the e-Learning Segment.
Professional and Technical Services Segment revenue for the period ended
December 31, 2001 decreased 41% ($13.0 million) from 2000, primarily due to a
lower allocation at the Rocky Flats Site of work to lower-tier subcontractor
teams, including the Company under its new contract effective October 1, 2000,
as previously reported, and closure of the Company's commercial strategic
consulting business area. For the year 2001, the concentration of revenue from
government projects decreased to 73% of total Company revenue, from 85% in 2000.
Revenue in the e-Learning Segment increased by 156% ($671,000) for the
period ended December 31, 2001, as compared to 2000, mainly due to a greater
number of new contracts.
Direct costs were lower in 2001, compared to a year ago, primarily as a
result of decreased revenue generation. Gross margin was 22% in 2001, the same
as in 2000.
General and administrative costs were 8% higher for the year ended
December 31, 2001, compared to a year ago, primarily as a result of increased
business development costs in the e-Learning Segment and costs associated with
pursuit of a DOE contract at Grand Junction, Colorado for Professional and
Technical Services. In March 2002, the DOE announced the award of the Grand
Junction contract to another team of companies.
The lower net interest income in 2001, as compared to a year ago, is
primarily due to lower average cash balances and lower interest rates, together
with the impact of a receivables assignment in the third quarter of 2001. As
reported previously, an electric utility client in the Company's Professional
and Technical Services Segment initiated bankruptcy proceedings in early April
2001. The Company assigned all of its pre-petition receivables to a third party
in August 2001 in return for 75% of the amounts owed. For the third quarter of
2001, the Company reported the 25% finance charge discount as interest expense.
Year Ended December 31, 2000 versus Year Ended December 31, 1999
Net earnings before income tax expense for the year ended December 31,
2000 were $163,000, compared to $2,455,000 for the same period in 1999. The
decrease in earnings primarily resulted from lower Professional and Technical
11
Services Segment revenue, coupled with higher sales and marketing expenses in
the e-Learning Segment.
Professional and Technical Services Segment revenue for 2000 decreased 13%
($5.2 million) from 1999, primarily due to a decline in the use of the Company's
subcontractor teams at the Site, and closure of the commercial strategic
consulting business area, partially offset by increased contract activity in the
commercial environmental and ecological services business area. For the year
2000, the concentration of revenue from government projects increased to 85% of
total Company revenue from 81% in 1999.
Revenue in the e-Learning Segment decreased by $280,000 in 2000, as
compared to 1999, mainly due to less fixed-priced contract work in 2000 than
1999. The majority of the contracts in 2000 were based on a per-use structure
(see Item 1, "Business"), which began in the fourth quarter.
Direct costs were lower in 2000, compared to the year before, primarily as
a result of decreased revenue generation. Gross margin decreased to 22% in 2000
from 23% in 1999, mainly due to an increase in the proportion of revenue derived
from lower margin government business.
General and administrative costs were 12% higher in 2000, compared to
1999, primarily reflecting increased costs associated with the infrastructure
and business development of the e-Learning Segment, and the purchase of the
Internet-based development and support business of SoBran, Inc. (see Note 1 to
Consolidated Financial Statements). General and administrative expenses, as a
percentage of revenue, increased to 22% in 2000 from 16% in 1999.
Net interest income in 2000 and 1999 related to earnings from the
investment of cash balances in short-term, high quality, money market accounts
and corporate debt instruments. The higher net interest income in 2000, as
compared to a year ago, primarily reflects larger average cash balances and
higher interest rates. The Company had no borrowings under its line of credit
during 2000 and 1999.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $1,201,000 during 2001. The
decrease was primarily due to cash used by operations ($1,052,000) and
acquisition of property and equipment ($151,000).
Trade receivables, net of sales allowance, decreased by $2,641,000 from
December 31, 2000, primarily due to a decrease in the rate of revenue generation
in 2001. The allowance for sales adjustments decreased by $417,000 from December
31, 2000, related to the closure and settlement of old government contracts.
Income tax receivable increased by $723,000 during 2001 related to the
carryback of 2001 tax losses to 1999. In early February 2002, the Company filed
its 2001 federal tax return and application for refund of $884,000 of 1999 taxes
paid. The tax refund was received in March 2002.
Other current assets decreased $169,000 from December 31, 2000, reflecting
a reduced amount of custom development of e-Learning courses for clients in
2001. Other assets increased by $793,000 in 2001, primarily relating to
increased development of library training courses and operating system
enhancements in the e-Learning Segment (see Note 2 to Consolidated Financial
Statements).
Accounts payable decreased by $1,117,000 since the end of 2000 primarily
resulting from lower direct costs supporting decreased revenues. Accrued
compensation and related expenses decreased by $81,000 during the period,
primarily reflecting fewer employees than at the end of the prior year.
No cash dividend was declared in 2001.
The impact of inflation on project revenue and costs of the Company was
minimal.
In May 2001, the Company's $3,000,000 revolving loan facility expired and
was not renewed. To meet and deal with the aggregate liquidity issues of the
Company as a whole, the Company implemented a plan in August 2001 to reduce its
cash requirements in all business segments through a salary reduction program
and furloughing non-essential personnel. The Company also postponed certain
planned non-essential infrastructure and marketing costs in its e-Learning
segment.
12
At December 31, 2001, the Company has operating lease commitments through
2005 totaling $2,465,000, principally for real property (see Note 5 to
Consolidated Financial Statements). Additionally, the Company has other
long-term obligations through 2006, totaling $1,302,000, related to an agreement
with SmartForce to co-develop and distribute ES&H and regulatory content via the
SmartForce internet platform (see Note 6 to Consolidated Financial Statements).
The table below schedules these contractual obligations:
- ----------------------------------------------------------------------------------------------------------------
Contractual Obligations Payments Due By Period
---------------------------------------------------------
(In thousands) Total Less Than 1 - 3 4 - 5 After 5
1 Year Years Years Years
- ----------------------------------------------------------------------------------------------------------------
Capital Lease Obligations ....................... $ 2,465 $ 902 $ 1,181 $ 382 $ --
Other Long-Term Obligations...................... 1,302 274 548 480 --
-------- -------- -------- -------- --------
Total Contractual Cash Obligations .............. $ 3,767 $ 1,176 $ 1,729 $ 862 $ --
- ----------------------------------------------------------------------------------------------------------------
In March 2002, the Company's GoTrain subsidiary sold subordinated
convertible debentures to private investors for a total principal amount of
$1,500,000. Each debenture bears simple interest at the rate of 8% per annum,
with cumulative interest payable only if the debenture is not converted into
preferred stock of GoTrain, pursuant to the debenture terms. The maturity date
of each debenture is July 31, 2003. The larger debenture, in the amount of
$1,000,000, can be converted at any time by the holder into convertible
preferred stock of GoTrain. The other debenture, in the amount of $500,000 can
be repaid or converted into preferred stock at any time by GoTrain. Otherwise,
the debentures will automatically convert into preferred stock at the earlier of
the maturity date, or upon an underwritten public offering of GoTrain common
stock. At maximum conversion, the holders would own approximately 33% of GoTrain
(see Note 9 to Consolidated Financial Statements).
Management believes that cash expected to be generated by operations of
the Company's Professional and Technical Services Segment, coupled with the tax
refund in March 2002, should be sufficient to enable the Company to support its
Professional and Technical Services Segment operations as currently structured
through the end of 2002. The funds generated by the issuance of the GoTrain
convertible debentures can only be used for GoTrain operations pursuant to the
terms of the debentures. Management believes this private placement financing
will provide necessary support for GoTrain's business development activities
based upon its simultaneous conversion to a self-sufficient mode of operation.
The Company is currently seeking bank lines of credit for each of its segment
operations to provide additional working capital support of their respective
business activities. There can be no assurance that such sources of capital will
be available in sufficient amounts or on terms favorable to the Company, or at
all (see "Risk Factors").
Risk Factors
The following risk factors and other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones the Company faces. Additional risks and
uncertainties not presently known to the Company or that management currently
deems immaterial, also may impair the business operations. If any of the
following risks occur, the Company's business, financial condition, operating
results and cash flows could be materially adversely affected.
Uncertainty of Access to Capital. Management currently believes that cash
expected to be generated from operations and the Company's working capital will
not be adequate to support the cash requirements of a desired significant
expansion of its e-Learning Segment. The Company is seeking new lines of credit
and additional equity financing of its e-Learning business. There can be no
guarantee that such sources will be available in sufficient amounts or on terms
favorable to TENERA, or at all.
Reliance on Major Customers; Concentration of Revenue from the Government
Sector. During 2001 and 2000, one customer, Kaiser-Hill, accounted for 71% and
70%, respectively, of the Company's total revenues. Additionally, for 2001 and
2000, the concentration of the Company's total revenue from the government
13
sector was 73% and 85%, respectively. This level of concentration of revenues
from the lower margin government sector is expected to continue and possibly
increase in the future. However, the new contract awarded to the Company by
Kaiser-Hill in the fourth quarter of 2000 was a lower value and margin than the
Company's prior contract, reflecting Kaiser-Hill's decision to discontinue use
of lower-tier subcontract teams at the Site. Further, all outstanding customer
contracts are cancelable upon notice by either party, and therefore, there can
be no assurance that relationships with customers will be maintained at existing
levels, or at all. The discontinuation or material reduction of business
relations with any of these customers would have a material adverse impact on
TENERA's business (see Item 1, "Business -- Clients").
History of Losses; Uncertainty of Future Profitability; Market for Shares.
The Company recorded a net (loss) of $(2.2 million) in 2001. And although the
Company had net earnings of $0.8 million in 1992, $1.7 million in 1998, $1.3
million in 1999, and $0.1 million in 2000, net (losses) over the period 1991
through 1997 were $(6.4 million) in 1991, $(0.3 million) in 1993, $(1.2 million)
in 1994, $(0.9 million) in 1995, $(1.1 million) in 1996, and $(1.9 million) in
1997. There can be no assurance of the level of earnings, if any, that the
Company will be able to derive in the future, or the effect such losses will
have on the Company's ability to meet exchange listing requirements, and the
associated creation of a public market for its shares.
Competition. The market for professional and technical services, and
e-Learning is highly competitive and TENERA competes with several larger firms
with significantly greater resources. Significant competitive factors in the
market for the Company's offerings are price and the ability to offer new
products and services designed to meet changing customer demand. A number of
TENERA's competitors are able to offer such services at prices that are lower
than those offered by TENERA, and to devote far greater resources toward the
development of new products and services. This competition has had, and is
expected to continue to have, a material adverse impact on TENERA's business.
Reliance on Key Personnel. Due to the nature of the consulting and
professional services business, the Company's success depends, to a significant
extent, upon the continued services of its officers and key technical personnel
and the ability to recruit additional qualified personnel. The Company has
experienced a historically high rate of turnover as revenue and earnings have
declined. Further loss of such officers and technical personnel, and the
inability to recruit sufficient additional qualified personnel, could have a
material adverse effect on the Company.
Uncertainty Regarding Industry Trends and Customer Demand. As a result of
the slowdown in the construction of power plants and the absence of new power
plants scheduled for construction, as well as the gradual deregulation of the
production and distribution of electricity, the market for engineering services
relating to licensing and construction of power plants has contracted, and the
market for services related to efficient and profitable operation of existing
capacity has expanded. There can be no assurance that (i) TENERA will have the
financial and other resources necessary to successfully research, develop,
introduce, and market new products and services, (ii) if, or when, such new
products or services are introduced, they will be favorably accepted by current
or potential customers, or (iii) TENERA will be otherwise able to fully adjust
its services and products to meet the changing needs of the industry (see Item
1, "Business -- General").
Government Contracts Audits. The Company's United States government
contracts are subject in all cases to audit by governmental authorities. In
1994, an audit was concluded, which began in 1991, of certain of its government
contracts with the DOE relating to the allowability of certain employee
compensation costs. The Company made a special charge to earnings in 1991 for a
$2.4 million provision for the potential rate adjustments then disputed by the
Company and the government. As a result of resolving certain issues in the
dispute, the Company recognized increases to earnings of $500,000 in 1994,
$250,000 in 1996, $150,000 in 2000, and $150,000 in 2001. Remaining cash
payments to clients associated with the settlement are estimated to be
approximately $300,000, which were accrued for in a prior year, and are expected
to be made as government contracts with individual clients are closed out. There
can be no assurance that no additional charges to earnings of the Company may
result from future audits of the Company's government contracts.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
14
The Company has minimal exposure to market and interest risk as the
Company invests its excess cash in instruments, which mature within 90 days from
the date of purchase. The Company does not have any derivative instruments.
15
Item 8. Financial Statements and Supplementary Data
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Revenue .................................................... $ 20,065 $ 32,443 $ 37,922
Direct Costs ............................................... 15,697 25,465 29,351
General and Administrative Expenses ........................ 7,487 7,001 6,236
Other Income ............................................... -- 4 1
------------- ------------ ------------
Operating (Loss) Income.................................. (3,119) (19) 2,336
Interest Income, net ....................................... 19 182 119
------------- ------------ ------------
Net (Loss) Earnings Before Income Tax Expense ........... (3,100) 163 2,455
Income Tax (Benefit) Expense ............................... (1,070) 63 1,113
------------- ------------ ------------
Net (Loss) Earnings ........................................ $ (2,030) $ 100 $ 1,342
============= ============ ============
Net (Loss) Earnings per Share-- Basic ...................... $ (0.20) $ 0.01 $ 0.13
============= ============ ============
Net (Loss) Earnings per Share-- Diluted .................... $ (0.20) $ 0.01 $ 0.13
============= ============ ============
Weighted Average Number of Shares Outstanding-- Basic....... 9,984 9,960 10,050
============= ============ ============
Weighted Average Number of Shares Outstanding-- Diluted..... 9,984 10,195 10,409
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
16
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 1,286 $ 2,487
Trade receivables, less allowances of $547 (2000 - $964)
Billed ................................................................ 1,533 3,290
Unbilled .............................................................. 1,259 2,143
Income tax receivable.................................................... 884 161
Other current assets .................................................... 238 543
------------ ------------
Total Current Assets ................................................ 5,200 8,624
Property and Equipment, Net ................................................ 546 759
Other Assets ............................................................... 1,232 691
------------ ------------
Total Assets ...................................................... $ 6,978 $ 10,074
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................................................... $ 1,136 $ 2,253
Accrued compensation and related expenses ............................... 1,751 1,832
Deferred revenue ........................................................ 226 96
------------ ------------
Total Current Liabilities ........................................... 3,113 4,181
Stockholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued . 104 104
Paid in capital, in excess of par ....................................... 5,677 5,675
Retained earnings (Accumulated deficit) ................................. (1,423) 607
Treasury stock-- 433,086 shares (2000 - 433,086 shares) ................. (493) (493)
------------ ------------
Total Stockholders' Equity .......................................... 3,865 5,893
------------ ------------
Total Liabilities and Stockholders' Equity ........................ $ 6,978 $ 10,074
============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
17
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Paid-In Retained
Common Stock Capital in Earnings
----------------------------- Excess (Accumulated Treasury
Shares Amount of Par Deficit) Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1998 ...... 10,129 104 5,699 (835) (300) 4,668
Repurchase of Stock .... (195) -- -- -- (250) (250)
Net Earnings ........... -- -- -- 1,342 -- 1,342
------------ -------------- ---------------- --------------- -------------- ---------------
December 31, 1999 ...... 9,934 104 5,699 507 (550) 5,760
Exercise of Stock Options 50 -- (24) -- 57 33
Net Earnings ........... -- -- -- 100 -- 100
------------ -------------- ---------------- --------------- -------------- ---------------
December 31, 2000 ...... 9,984 104 5,675 607 (493) 5,893
Capital Contribution ... -- -- 2 -- -- 2
Net (Loss) Earnings .... -- -- -- (2,030) -- (2,030)
------------ -------------- ---------------- --------------- -------------- ---------------
December 31, 2001 ...... 9,984 $ 104 $ 5,677 $ (1,423) $ (493) $ 3,865
============ ============== ================ =============== ============== ===============
See accompanying notes.
18
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings ..................................... $ (2,030) $ 100 $ 1,342
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation and amortization ......................... 752 392 151
Gain on sale of assets ................................ -- (4) (1)
Changes in assets and liabilities:
Trade receivables, net of allowance.................. 2,641 1,122 (1,129)
Income tax receivable ............................... (723) (11) --
Other current assets ................................ 169 (396) (144)
Other assets ........................................ (793) (598) --
Accounts payable .................................... (1,117) (857) 596
Accrued compensation and related expenses ........... (81) (6) (86)
Deferred revenue .................................... 130 94 2
Income taxes payable ................................ -- -- (100)
------------- ------------ ------------
Net Cash (Used) Provided by Operating Activities . (1,052) (164) 631
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ................... (151) (756) (250)
Acquisition of application development software ......... -- (125) --
Proceeds from sale of assets ............................ -- 6 1
------------- ------------ ------------
Net Cash Used by Investing Activities ............. (151) (875) (249)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of equity .................................... -- -- (250)
Issuance of equity in subsidiary ........................ 2 -- --
Issuance of common stock from Treasury .................. -- 33 --
------------- ------------ ------------
Net Cash Provided (Used) by Financing Activities .. 2 33 (250)
------------- ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ....... (1,201) (1,006) 132
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............. 2,487 3,493 3,361
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 1,286 $ 2,487 $ 3,493
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
19
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
Note 1. Organization
TENERA, Inc. (including its subsidiaries, "TENERA", or the "Company")
provides a broad range of professional and technical services, and web-based
e-Learning solutions. The Company's professional and technical services are
designed to solve complex management, engineering, environmental, health and
safety challenges associated with the management of federal government
properties, energy assets, and petrochemical and manufacturing concerns.
TENERA's web-based e-Learning products and services, provided through the
Company's GoTrain Corp. subsidiary (`GoTrain"), are designed to provide a suite
of on-line, interactive, compliance and regulatory-driven training applications
for use by clients' employees.
The Company is principally organized into two operating segments:
Professional and Technical Services and e-Learning (see Note 7 to Consolidated
Financial Statements).
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company experienced a
consolidated profit of $100,000 in 2000 and a consolidated net loss of
approximately $2 million in 2001, with cash balances declining to approximately
$1.3 million at December 31, 2001 from $2.5 million at December 31, 2000. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
The principal factor for the Company's consolidated profit-and-loss
performance in recent years and its reduced cash position has been the
dedication of resources to the Company's e-learning subsidiary, GoTrain Corp.,
and the resultant losses from the start-up phase of this new business segment.
In 2001, management explored financing alternatives that could address the
reduction of the Company's working capital resulting from this internal
investment strategy. Additionally, in 2001, the Company took steps to reduce its
cash requirements through a salary reduction program and furloughing personnel.
These actions allowed the Company to maintain a higher working capital position
at the end of 2001 than would have otherwise been the case. Further, in March
2002, GoTrain Corp. issued convertible debentures in the amount of $1,500,000 to
an investment fund to permit it to continue to develop its business without
requiring further significant financial resources from the Company, which
previously had been the sole source of GoTrain's funding.
Subsequent to the close of 2001, GoTrain Corp. is positioning itself to be
able to generate sufficient cash flow to fund working capital to the end of 2002
primarily through continuing cost reduction plans, use of the newly invested
private venture funding, and expansion of its business. In March 2002, the
Company received approximately $900,000 of federal income tax refunds for taxes
paid in prior years. Management believes that these resources will be adequate
to fund its operating and capital requirements through the end of 2002. For
additional liquidity, the Company is currently pursuing individual secured lines
of credit for each of its business segments to support the short-term funding
requirements associated with meeting working capital needs. However, there can
be no assurance that such sources of capital will be available in sufficient
amounts or on terms favorable to the Company, or at all.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
these estimates.
20
Cash and Cash Equivalents. Cash and cash equivalents at December 31, 2001
consist of deposited cash and money market accounts at a banking institution. At
the end of the previous year, the Company's cash and cash equivalents included
money market accounts and commercial paper issued by companies with strong
credit ratings. Cash equivalents are carried at cost, which approximates fair
value. The Company includes in cash and cash equivalents, all short-term, highly
liquid investments, which mature within three months of acquisition.
Concentrations of Credit Risk and Credit Risk Evaluations. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and accounts receivable.
Cash and cash equivalents consist principally of money market accounts. Cash and
cash equivalents are held with a domestic financial institution with high credit
standing. The Company has not experienced any significant losses on its cash and
cash equivalents. The Company conducts business with companies in various
industries primarily in the United States. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral.
Allowances are maintained for potential credit issues, and such losses to date
have been within management's expectations. At December 31, 2001, three clients
accounted for 42%, 12%, and 10% of the Company's trade receivables. At December
31, 2000, one client accounted for 75% of trade receivables. All the above
concentrations relate to Professional and Technical Services Segment clients.
Property and Equipment. Property and equipment are stated at cost
($3,360,000 and $3,265,000 at December 31, 2001 and 2000, respectively), net of
accumulated depreciation ($2,814,000 and $2,506,000 at December 31, 2001 and
2000, respectively). Depreciation is calculated using the straight-line method
over the estimated useful lives, which range from three to five years.
Other Assets. Included in this asset category are the costs of
internal-use e-Learning operating system software, both acquired and developed
by the Company, and certain costs related to the development of the Company's
e-Learning training courses used in its application service provider business.
These costs have been capitalized in accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". Under the Company's business model, the Company grants a limited
license to its clients to access the Company's training system via the internet.
The proprietary software resides on the Company's computers and clients have no
other rights to the software. All training and maintenance costs are expensed as
incurred. The Company capitalized $793,000 of acquired and developed software
costs during 2001, compared to $723,000 (included $125,000 of acquired software)
in 2000. The estimated useful life of costs capitalized is three years. In 2001
and 2000, the amortization of capitalized costs on the Company's books totaled
$252,000 and $88,000, respectively.
In the future, the Company expects to continue to capitalize costs
relating to new course development, as well as costs associated with material
enhancements and functionality of the existing software, as dictated by the
marketplace. This is a new business model and segment for the Company and to
date, management believes there have been no indicators of impairment for these
assets.
Revenue. The Company's Professional and Technical Services Segment
primarily offers its services to the United States electric power industry and
the DOE. Revenue from time-and-material and cost plus fixed-fee contracts is
recognized when service is performed and costs are incurred. Revenue from
fixed-price contracts is recognized on the basis of percentage of work completed
(measured by costs incurred relative to total estimated project costs) under
compliance with Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts".
The Company's e-Learning Segment's nonrefundable upfront
subscription/license fees are recognized ratably over the contractual term,
which is typically one year. Revenue recognition commences when delivery of
product occurs. Usage fee revenue is recognized on an actual usage basis.
Reserves are maintained for potential sales adjustments and credit losses;
such losses to date have been within management's expectations. Actual revenue
and cost of contracts in progress may differ from management estimates and such
differences could be material to the financial statements.
21
During 2001 and 2000, one client accounted for 71% and 70%, respectively,
of total revenue. In 1999, three clients accounted for 32%, 26%, and 17% of the
Company's total revenue. All the above concentrations relate to Professional and
Technical Services Segment clients.
Income Taxes. The Company uses the liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Accounting for Stock-Based Compensation. The Company accounts for employee
stock options in accordance with Accounting Principles Board Opinion No. 25
("APB 25") and has provided the pro forma disclosures required by Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS
123") in Note 3.
Per Share Computation. Basic earnings per share is computed by dividing
net earnings by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
by adding other common stock equivalents, including stock options, warrants and
convertible preferred stock, in the weighted average number of common shares
outstanding for a period, if dilutive.
The following table sets forth the computation of basic and diluted
earnings per share as required by Financial Accounting Standards Board Statement
No. 128:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Numerator:
Net (loss) earnings ..................................... $ (2,030) $ 100 $ 1,342
Denominator:
Denominator for basic earnings per share--
weighted-average shares outstanding....................... 9,984 9,960 10,050
Effect of dilutive securities:
Employee & Director stock options (Treasury stock
method) ............................................... -- 235 359
Denominator for diluted earnings per share--
weighted-average common and common equivalent shares ..... 9,984 10,195 10,409
============= ============ ============
Basic (loss) earnings per share ........................... $ (0.20) $ 0.01 $ 0.13
============= ============ ============
Diluted (loss) earnings per share ......................... $ (0.20) $ 0.01 $ 0.13
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
Comprehensive Income. The Company does not have any components of
comprehensive income. Therefore, comprehensive income is equal to net earnings
reported for all periods presented.
Disclosures about Segments of an Enterprise. The Company has two
reportable operating segments, which are: Professional and Technical Services
and e-Learning (see Note 7 to Consolidated Financial Statements).
Recent Accounting Pronouncements. In October 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"), which supersedes FAS No. 121, and Accounting Principles Board No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
22
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". FAS 144 also amends Accounting Research Bulletin No.
51, "Consolidated Financial Statements". FAS 144 requires that long-lived assets
that are disposed of by sale be measured at the lower of book value or fair
value less cost to sell. The statement also significantly changes the criteria
required to classify an asset as held-for-sale. Additionally, FAS 144 expands
the scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. The Company is required to adopt FAS 144 for its fiscal year
beginning January 1, 2002. The Company does not anticipate that the adoption of
FAS 144 will have a material effect on the Company's consolidated financial
position, results of operations, or cash flows.
Reclassifications. Certain reclassifications of prior year amounts have
been made to conform with current presentation.
Note 3. Employee Benefit Plans
401(k) Savings Plan. The 401(k) Savings Plan is administered through a
trust that covers substantially all employees. During 2001, employees could
contribute amounts to the plan up to 15% of salary. The Company matches employee
contributions equal to 50% of the first 4% of salary deferred. The Company, at
its discretion, may also contribute funds to the plan for the benefit of
employees. In 2001, 2000, and 1999, charges to earnings for the 401(k) Savings
Plan were $117,000, $143,000, and $164,000, respectively. During 2001, 2000, and
1999, the Company contributed no discretionary amounts to the plan.
Stock Option Plans. The Company has elected to follow APB 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Under the provisions of the Company's 1992 Option Plan, 1,500,000 shares
are reserved for issuance upon the exercise of options granted to key employees
and consultants. In 2001, options were granted for 260,000 shares at an exercise
price of $0.48, the then fair market value, expiring August 13, 2007. During
2000, options were granted for 30,000 shares at an exercise price of $1.2625,
the then fair market value, expiring on April 18, 2006. In 1999, options were
granted for 285,000 shares at an exercise price of $1.3625, the then fair market
value, expiring on March 9, 2005. During 2001, options for 38,000 shares were
forfeited (70,000 and 94,000 in 2000 and 1999, respectively). No options were
exercised in 2001 (15,000 in 2000 and none in 1999). As of December 31, 2001,
options for 1,439,500 shares were outstanding and options for 1,302,000 shares
were exercisable.
Under the provisions of the 1993 Outside Directors Compensation and Option
Plan, which was approved by the Board of Directors, effective March 1, 1994, as
amended in 1998, 500,000 shares are reserved for issuance upon the exercise of
options granted to non-employee directors. In 2001, options were granted for
50,000 shares at an exercise price of $0.57, the then fair market value,
expiring on March 1, 2011. During 2000, options were granted for 46,000 shares
at an exercise price of $2.125, the then fair market value, expiring on March 1,
2010. In 1999, options were granted for 62,500 shares at an exercise price of
$1.375, the then fair market value, expiring on March 1, 2009. During 2001 and
2000, no options were forfeited (12,500 share options were canceled in 1999). No
options were exercised in 2001 and 1999 (35,500 share options were exercised in
2000). As of December 31, 2001, options for 314,500 shares were outstanding and
264,500 were exercisable.
23
The combined stock option activity of the Company's two option plans is
summarized below:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------
Outstanding--
Beginning of Year .. 1,482 $ 1.06 1,526 $ 1.00 1,285 $ 0.91
Granted ............ 310 0.49 76 1.78 347 1.36
Exercised .......... -- -- (50) .67 -- --
Forfeited .......... (38) 1.26 (70) .87 (106) 1.05
---------- ---------- ---------- ---------- ---------- ----------
Outstanding--
End of Year ........ 1,754 $ 0.95 1,482 $ 1.06 1,526 $ 1.00
========== ========== ========== ========== ========== ==========
Exercisable at
End of Year ........ 1,567 $ 1.01 1,319 $ 1.02 1,125 $ 0.99
- ----------------------------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 2001, ranged
from $0.5625 to $2.125. The weighted-average remaining contractual life of those
options is 3.3 years.
Proforma Disclosures of the Effect of Stock-Based Compensation. Pro forma
information regarding net earnings (loss) and earnings (loss) per share is
required by FAS 123 and has been determined as if the Company had accounted for
its stock options under the fair value method of FAS 123. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 2001, 2000,
and 1999: risk-free interest rates of 5.5% and 5.0% for March and August 2001
grants,respectively, 6.25% for the March and April 2000 grants, and 5.3% for the
March 1999 grants; dividend yield of 0% for all years; volatility factors of the
expected market price of the Company's common stock of 0.695, 0.65, and 0.56 for
the years 2001, 2000, and 1999, respectively; and a weighted-average expected
life of the option of five years for all employee grants and seven years for
director grants.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, options valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Since the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting periods of the options. The
Company has elected to base its initial estimate of compensation expense on the
total number of options granted. Subsequent revisions to reflect actual
forfeitures are made in the period the forfeitures occur through a catch-up
adjustment.
24
Pro forma information regarding the Company's net earnings (loss) and
earnings per share follows:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings -- As Reported ......................... $ (2,030) $ 100 $ 1,342
Pro Forma Net (Loss) Earnings--FAS 123 ..................... (2,119) (2) 1,278
Net (Loss) Earnings per Share-- As Reported Basic .......... $ (0.20) $ 0.01 $ 0.13
============= ============ ============
Net (Loss) Earnings per Share-- As Reported Diluted ........ $ (0.20) $ 0.01 $ 0.13
============= ============ ============
Pro Forma Net (Loss) Earnings per Share-- FAS 123 Basic .... $ (0.21) $ -- $ 0.13
============= ============ ============
Pro Forma Net (Loss) Earnings per Share-- FAS 123 Diluted .. $ (0.21) $ -- $ 0.12
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
The weighted-average grant-date fair value of options granted, which is
the value assigned to the options under FAS 123, was $0.32, $1.20, and $0.75 for
grants made during years ended December 31, 2001, 2000, and 1999, respectively.
Note 4. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 2001 and
2000 are as follows, using the liability method:
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------
Current Deferred Tax Assets
Net Operating Loss .................................................... $ 456 $ --
Accrued Expenses Not Currently Deductible ............................. 545 640
Differences Between Book and Tax Depreciation and Amortization ........ 146 74
Other ................................................................. 129 19
------------ ------------
Total Current Gross Deferred Tax Assets ........................... 1,276 733
------------ ------------
Less: Valuation Allowance ............................................ (791) (695)
Current Deferred Tax Liabilities
Software Development Costs............................................. 485 --
Other ................................................................. -- 38
------------ ------------
Net Current Deferred Tax Liabilities .............................. $ -- $ --
============ ============
- ----------------------------------------------------------------------------------------------------------------
25
The current tax benefit/provision for the years ended December 31, 2001,
2000, and 1999, are as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Current:
Federal ..................................................... $ (1083) $ 42 $ 927
State ....................................................... 13 21 186
----------- ------------ ------------
Tax (Benefit) Provision ..................................... $ (1,070) $ 63 $ 1,113
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $96,000 for the year ended December 31, 2001 and
decreased by $32,000 during the year ended December 31, 2000 for those deferred
tax assets that may not be realized. Utilization of the Company's net operating
loss may be subject to substantial annual limitations due to ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
Such limitations could result in the expiration of the net operating loss before
utilization.
The benefit/provision for income taxes differed from the amount computed
by applying the statutory federal and state income tax rate for the years ended
December 31, 2001, 2000, and 1999, as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Federal Statutory Rate ........................................... 34% 34% 34%
State Taxes, Net of Federal Benefit .............................. 0% 8% 5%
Permanent Differences ............................................ (1%) 12% 1%
Increase in Valuation Allowance .................................. (3%) (20%) (2%)
Other ............................................................ 5% 5% 7%
----------- ------------ ------------
Income Tax Benefit/Provision ..................................... 35% 39% 45%
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
The Company paid no income taxes in 2001 and $64,000 in 2000.
26
Note 5. Commitments and Contingencies
Leases. The Company occupies facilities under noncancelable operating
leases expiring at various dates through 2005. The leases call for proportionate
increases due to property taxes and certain other expenses. Rent expense
amounted to $710,000 for the year ended December 31, 2001 ($537,000 in 2000 and
$349,000 in 1999).
Minimum rental commitments under operating leases, principally for real
property, are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2002 ......................................................................................... $ 902
2003 ......................................................................................... 713
2004 ......................................................................................... 468
2005 ......................................................................................... 382
2006 and Thereafter .......................................................................... --
------------
Total Minimum Payments Required .............................................................. $ 2,465
============
- ----------------------------------------------------------------------------------------------------------------
Revolving Loan Agreement. A loan agreement with the Company's bank expired
in May 2001 and was not renewed. The Company is currently pursuing a new credit
facility with its bank and others. During 2001, 2000, and 1999, the Company paid
no interest expense, as there were no borrowings.
27
Note 6. Long-Term Obligations
In June 2001, GoTrain entered into a five-year agreement with SmartForce
to co-develop and distribute ES&H and regulatory content via the SmartForce
internet platform. Under the agreement, GoTrain retains the ownership of its
proprietary content and GoTrain shares in the revenue of any GoTrain content
sold by SmartForce. As part of the agreement, GoTrain was required to make an
initial payment of $50,000 to SmartForce at inception and quarterly payments of
$68,500 commencing September 30, 2001 (due sixty day thereafter), for platform
license and maintenance, and integration of existing GoTrain content. The
Company paid $118,500 to SmartForce under the agreement in 2001.
Minimum net payments are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2002 ......................................................................................... $ 274
2003 ......................................................................................... 274
2004 ......................................................................................... 274
2005 ......................................................................................... 274
2006 and Thereafter .......................................................................... 206
------------
Total Minimum Payments Required .............................................................. $ 1,302
============
- ----------------------------------------------------------------------------------------------------------------
28
Note 7. Segment Information
Based on the criteria established by Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131"), the Company operates in two business segments based on
product/service differentiation. In accordance with FAS 131, the Company is
required to describe its reportable segments and provide data that is consistent
with the data made available to the Company's Chief Operating Decision Maker to
assess performance and make decisions.
The measure of profit or loss used for each reportable segment is net
earnings (loss) before the effect of income taxes. The accounting policies for
the segments are the same as for the Company taken as a whole. Certain corporate
expenses are allocated to these operating segments and are included for
performance evaluation. Annual employee bonuses, if any, are recorded at the
corporate level. Assets are not allocated to operating segments for reporting to
the Company's Chief Operating Decision Maker ("CODM") and the Company does not
prepare segmental balance sheets. Depreciation and amortization expenses are
allocated to the operating segments based on the fixed assets in the underlying
subsidiaries comprising the segments. Depreciation and amortization expenses for
the e-Learning segment were combined with the Professional and Technical
Services Segment in 1999. There are no intersegment revenues on transactions
between reportable segments.
Information about the operating segments for the years 2001, 2000, and
1999, and reconciliation to the Consolidated Statements of Operations, are as
follows:
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
REVENUE
Professional and Technical Services...................... $ 18,964 $ 32,013 $ 37,212
e-Learning ............................................... 1,101 430 710
------------- ------------ ------------
Total ................................................. $ 20,065 $ 32,443 $ 37,922
============= ============ ============
NET (LOSS) EARNINGS BEFORE INCOME TAX
Professional and Technical Services ..................... $ 815 $ 2,981 $ 3,977
e-Learning .............................................. (3,542) (1,827) (109)
Corporate and Other ..................................... (373) (991) (1,413)
------------- ------------ ------------
Total ................................................. $ (3,100) $ 163 $ 2,455
============= ============ ============
DEPRECIATION AND AMORTIZATION EXPENSE
Professional and Technical Services ..................... $ 59 $ 88 $ 108
e-Learning .............................................. 671 281 NA
Corporate and Other ..................................... 22 19 43
------------- ------------ ------------
Total ................................................. $ 752 $ 388 $ 151
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
Revenues outside of the United States have been less than 1% of total
Company revenues in each of the years ended December 31, 2001, 2000, and 1999,
respectively. Therefore, no enterprise-wide geographical data has been provided.
The Company provides services and products to clients throughout the United
States, and the geographical location of the client is not used for
decision-making or performance evaluation.
29
Note 8. Selected Quarterly Combined Financial Data (Unaudited)
A summary of the Company's quarterly financial results follows.
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended
--------------------------------------------- ---------------------------------------------
12/31/01 9/30/01 6/30/01 3/31/01 12/31/00 9/30/00 6/30/00 3/31/00
- ----------------------------------------------------------------------------------------------------------------
Revenue ..... $ 4,450 $ 4,441 $ 5,301 $ 5,873 $ 6,784 $ 7,673 $ 8,339 $ 9,647
Direct Costs 3,512 3,549 4,112 4,524 5,082 5,987 6,675 7,721
General and
Administrative
Expenses .... 1,512 1,719 2,162 2,094 1,962 1,639 1,619 1,781
Other Income -- -- -- -- -- -- -- 4
-------- ------- -------- -------- -------- -------- -------- --------
Operating
(Loss) Income (574) (827) (973) (745) (260) 47 45 149
Interest
Income, net . 3 (18) 13 21 45 49 37 51
-------- ------- -------- -------- -------- -------- -------- --------
Net (Loss)
Earn Before
Inc. Tax
(Benefit) Exp (571) (845) (960) (724) (215) 96 82 200
Income Tax
(Benefit) Exp (336) (245) (278) (211) (88) 38 33 80
-------- ------- -------- -------- -------- -------- -------- --------
Net (Loss)
Earn......... $ (235) $ (600) $ (682) $ (513) $ (127) $ 58 $ 49 $ 120
======== ======= ======== ======== ======== ======== ======== ========
Net (Loss)
Earn Per
Share-Basic.. $ (0.02) $ (0.06) $ (0.07) $ (0.05) $ (0.01) $ 0.01 $ 0.01 $ 0.01
======== ======= ======== ======== ======== ======== ======== ========
Net (Loss)
Earn Per
Share-Diluted $ (0.02) $ (0.06) $ (0.07) $ (0.05) $ (0.01) $ 0.01 $ 0.01 $ 0.01
======== ======= ======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
30
Note 9. Subsequent Event
Convertible Debt. In March 2002, The Company's GoTrain subsidiary sold
subordinated convertible debentures to private investors for a total principal
amount of $1,500,000 ("Series 1 Debenture" - $1,000,000; "Series 2 Debenture" -
$500,000). Each debenture bears simple interest at the rate of 8% per annum,
with cumulative interest payable only if the debenture is not converted into
convertible preferred stock of GoTrain, pursuant to the debenture terms. The
maturity date of each debenture is July 31, 2003.
The holders of the Series 1 Debenture have the option at any time to
convert some or all of the debenture principal balance into preferred stock of
GoTrain. Otherwise, the debenture will be automatically converted into preferred
stock upon the earlier of July 31, 2003, or in the event of an underwritten
public offering of GoTrain common stock. At full conversion, the holders will
own approximately 22% of GoTrain.
GoTrain has the option at any time to repay some or all of the Series 2
Debenture at face value or convert some or all of the debenture into preferred
stock. Otherwise, the debenture will automatically convert into preferred stock
under the same terms as the Series 1 Debenture. In the event of full conversion,
the holders of the Series 2 Debenture would own approximately 11% of GoTrain.
31
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
TENERA, Inc.
We have audited the accompanying consolidated balance sheets of TENERA,
Inc. at December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TENERA, Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole presents fairly, in all material respects, the information set forth
therein.
The accompanying financial statements have been prepared assuming that
TENERA, Inc. will continue as a going concern. As more fully described in Note
1, the Company has experienced declining revenues, a consolidated net loss for
the year ended December 31, 2001, and a declining cash balance. The Company has
incurred a consolidated net loss and declining cash balance primarily as a
result of the Company's e-Learning segment. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
San Francisco, California
January 25, 2002
Except for Note 9, as to which the date is
March 19, 2002
32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
33
PART III
Item 10. Directors and Executive Officers of the Registrant
The following tables set forth certain information with respect to the
directors and executive officers of the Company.
The directors of the Company are as follows:
William A. Hasler, 60, has served as a Director of the Company since his
election in March 1992 and Chairman of the Board of the Company since July 1998.
Mr. Hasler is Co-Chief Executive Officer of Aphton Corporation, a international
biotechnology firm. Previously, Mr. Hasler was Dean and Department Chair of the
Haas School of Business at the University of California, Berkeley. Prior to his
appointment as Dean in 1991, Mr. Hasler was Vice Chairman of Management
Consulting for KPMG Peat Marwick from 1986 to 1991. Mr. Hasler is also a
director of Solectron Corporation, Aphton Corporation, Walker Interactive
Systems, Inc., DiTech Corporation, The Schwab Funds, and DMC Stratex Networks.
Jeffrey R. Hazarian, 46, has served as a Director of the Company since his
election in October 1996, and was named its Executive Vice President in November
1997. He has also served as its Chief Financial Officer and Corporate Secretary
since 1992. Previously, Mr. Hazarian held the position of Vice President of
Finance from 1992 to 1997.
Thomas S. Loo, Esq., 58, was elected as a Director of the Company in
February 1997. He previously served as a Director of the Company from August
1987 to September 1993. Mr. Loo is a partner of Greenberg Traurig, LLP, general
counsel to the Company since November 2001. Previously, Mr. Loo had been a
partner, since 1986, of Bryan Cave LLP, which was general counsel to the
Company. Mr. Loo has also served as a director of Teknekron Corporation since
March 1989.
Robert C. McKay, 50, has served as a Director of the Company since his
election in June 1997, and was appointed its Chief Executive Officer and
President in November 1997. Previously, Mr. McKay was Chief Operating Officer of
the Company since April 1997. He was elected Senior Vice President of the
Company in December 1992.
Andrea W. O'Riordan, 31, has served as Director of the Company since her
election in June 1998. Ms. O'Riordan is Communications Manager of field sales,
process and automation, and core technologies training for Oracle Corporation.
Prior to her joining Oracle Corporation in 1996, Ms. O'Riordan was Marketing
Coordinator, Latin America, for a Reuters Company, from 1993 to 1995.
George L. Turin, Sc.D., 72, has served as a Director of the Company since
his election in March 1995. Previously, Mr. Turin served as a Professor of
Electrical Engineering and Computer Science at the University of California at
Berkeley from 1960 to 1990. Mr. Turin also served as Vice President, Technology
for Teknekron Corporation from 1988 to 1994.
Officers of the Company hold office at the pleasure of the Board of
Directors. There are no familial relationships between or among any of the
executive officers or directors of the Company.
34
Item 11. Executive Compensation
The following tables set forth certain information covering compensation
paid by TENERA to the Chief Executive Officer ("CEO") and each of the Company's
other executive officers, other than the CEO, whose total annual salary and
bonus exceeded $100,000 (the "named executives") for services to TENERA in all
their capacities during the fiscal years ended December 31, 2001, 2000, and
1999.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Awards
------------------------------ -------------
Securities All Other
Name and Underlying Compensa-
Principal Position Year Salary Bonus Options(1) tion(2)
- ---------------------------------------------------------------------------------------------------------------
Robert C. McKay, Jr. 2001 $ 215,147 $ -- 30,000 $ 3,400
Chief Executive Officer 2000 231,469 -- -- 3,400
President 1999 223,958 90,000 40,000 3,200
Jeffrey R. Hazarian 2001 167,336 6,000 30,000 3,335
Executive 2000 180,031 7,000 -- 3,400
Vice President and 1999 181,064 67,500 40,000 3,200
Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------
(1) Reflects the number of options granted under the Company's 1992 Option
Plan. The options expire at the earlier of the end of the option period,
generally six years, or three months after employment termination.
(2) These amounts represent the amounts accrued for the benefit of the named
executives under the Company's 401(k) Plan.
The following table sets forth certain information concerning options
granted during 2001 to the named executives:
OPTIONS GRANTS IN 2001
- ----------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
---------------------------------------------------- -----------------------
% of
Total
Options
Number of Granted
Name Securities to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Granted Year ($/Share) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------
Robert C. McKay, Jr. ..... 30,000 11.5 $ 0.48 8/13/07 $ 4,897 $ 11,110
Jeffrey R. Hazarian....... 30,000 11.5 0.48 8/13/07 4,897 11,110
- ----------------------------------------------------------------------------------------------------------------
35
Other Compensation Arrangements
The Company's 1992 Option Plan provides that options may become
exercisable over such periods as provided in the agreement evidencing the option
award. Options granted to date, including options granted to executive officers
and set forth in the above tables, generally call for vesting over a four-year
period. The 1992 Option Plan provides that a change in control of the Company
will result in immediate vesting of all options granted and not previously
vested.
Directors Compensation
Except as described below, the directors of the Company are paid no
compensation by the Company for their services as directors. William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George L. Turin as non-employee
directors, are paid a retainer of $1,000 per month. These non-employee directors
are also paid a fee of $1,000 for each meeting of the Board, and any Board
Committee meeting not held on the same day as a Board meeting, which they
attend. Since March of 2001, the non-employee directors have deferred payment of
their fees as part of the Company's working capital preservation program (see
"Liquidity and Capital Resources"). The 1993 Outside Directors Compensation and
Option Plan was approved by the Board effective March 1, 1994, as amended by the
Board in 1998, and reserves up to 500,000 options for issuance to non-employee
directors. During 2001, 12,500 stock options were granted to each of Messrs.
Hasler, Loo, Turin, and Ms. O'Riordan. In 2000, 11,500 stock options were issued
to each of Messrs. Hasler, Loo, Turin, and Ms. O'Riordan. During 1999, 12,500
stock options were issued to each of Messrs. Hasler, Loo, Turin, Bunch (resigned
in July 1999), and Ms. O'Riordan. The options expire ten (10) years after the
date of the grant, vest one (1) year after the date of grant, and have an
exercise price equal to the fair market value of the shares of the Company's
Common Stock on the date of grant. Upon exercise of the options, a director may
not sell or otherwise transfer more than 50% of the shares until six (6) months
after the date on which the director ceases to be a director of the Company. Due
to his resignation, Mr. Bunch's 1999 options did not vest and were forfeited.
Compensation Committee Interlocks and Insider Participation
During 2001, the Compensation Committee was composed of William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George Turin. Thomas S. Loo is a partner
in the law firm of Greenberg Traurig, LLP, general counsel to the Company and
Teknekron Corporation, and is a director of Teknekron Corporation. Mr. Loo is
co-trustee of the Andrea Wagner 1996 Trust, the Nina Wagner 1996 Trust, and the
Charles Wagner 1996 Trust (see Item 12, "Security Ownership of Certain
Beneficial Owners and Management"). Andrea W. O'Riordan is the daughter of
Harvey E. Wagner, who holds a beneficial interest in the Company's largest
stockholder, The Wagner Family Trust (see Item 12, "Security Ownership of
Certain Beneficial Owners and Management"). Mr. Wagner is also the sole
stockholder and a director of Teknekron Corporation.
36
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of March 1, 2002,
with respect to beneficial ownership of the shares of Common Stock of the
Company by each person who is known by the Company to own beneficially more than
5% of the shares of Common Stock:
- ----------------------------------------------------------------------------------------------------------------
Approximate
Shares Percent
Beneficially Beneficially
Name and Address Owned Owned
- ----------------------------------------------------------------------------------------------------------------
Wagner Family Trust........................................................ 2,052,671 20.6%(1)
P.O. Box 7370
Incline Village, NV 89452
Andrea Wagner 1996 Trust................................................... 551,996 5.5%(1)(3)
P.O. Box 7370
Incline Village, NV 89452
Nina Wagner 1996 Trust .................................................... 551,996 5.5%(1)(3)
P.O. Box 7370
Incline Village, NV 89452
Charles Wagner 1996 Trust ................................................. 551,996 5.5%(1)(3)
P.O. Box 7370
Incline Village, NV 89452
Peter S. Lynch............................................................. 782,000 7.8%
82 Devonshire Street, S8A
Boston, MA 02109
Dr. Michael John Keaton Trust ............................................. 1,106,887 11.1%(2)
C/O Greenberg Traurig, LLP
2450 Colorado Avenue, Suite 400E
Santa Monica, CA 90404
- ----------------------------------------------------------------------------------------------------------------
(1) An additional 37,461 shares, as to which Mr. Harvey Wagner disclaims
beneficial ownership, are held by The Leslie Kipnis Wagner Separate
Property Trust. Leslie Wagner is Mr. Harvey Wagner's spouse. Mr. Wagner
disclaims beneficial ownership of all shares held in family member trusts,
except shares held by the Wagner Family Trust. Andrea Wagner O'Riordan, a
director of the Company, disclaims beneficial ownership of all shares held
in family member trusts, except shares held by the Andrea Wagner 1996
Trust.
(2) Mr. Keaton has sole voting and investment power with respect to all
shares shown as beneficially owned by him, subject to community property
laws where applicable.
(3) Mr. Thomas S. Loo, a director of the Company, is co-trustee of the trusts
created for the children of Mr. Harvey Wagner and Leslie Kipnis Wagner.
The other co-trustees are Andrea Wagner of the Andrea Wagner 1996 Trust,
Nina Wagner of the Nina Wagner 1996 Trust, and Leslie Kipnis Wagner of
the Charles Wagner 1996 Trust (see Item 12(b), "Security Ownership of
Management").
37
(b) Security Ownership of Management
The following table sets forth information as of March 1, 2002, with
respect to current beneficial ownership of shares of Common Stock by (i) each of
the directors of the Company, (ii) each of the named executive officers (see
Item 11. "Executive Compensation"), and (iii) all current directors and
executive officers as a group.
- -------------------------------------------------------------------------------------------------------------------
Shares Shares
Beneficially Acquirable Percentage
Name Owned(1) Within 60 Ownership(2)
Days(3)(4)
- -------------------------------------------------------------------------------------------------------------------
William A. Hasler ............................................. 55,500 59,000(3) 1.1%
Jeffrey R. Hazarian ........................................... 7,186 170,000(4) 1.7%
Thomas S. Loo (5).............................................. 1,655,988 57,000(3) 16.1%
Robert C. McKay, Jr............................................ 1,789 235,000(4) 2.2%
Andrea W. O'Riordan (6)........................................ 551,996 49,000 5.6%
George L. Turin................................................ 45,504 84,500(3) 1.2%
------------ ------------- ------------
All Directors and Executive Officers as a Group (6 persons) ... 2,317,963 654,500 27.9%
- -------------------------------------------------------------------------------------------------------------------
(1) The persons named above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them, subject
to community property laws where applicable.
(2) Based on the number of shares outstanding at, or acquirable within 60 days
of March 1, 2002.
(3) Represents options under the Company's 1993 Outside Directors Compensation
and Option Plan, which are exercisable on March 1, 2002, or within 60 days
thereafter.
(4) Represents options under the Company's 1992 Option Plan which are
exercisable on March 1, 2002, or within 60 days thereafter.
(5) Mr. Loo is co-trustee of the Andrea Wagner 1996 Trust, the Nina Wagner
1996 Trust, and the Charles Wagner 1996 Trust (see Item 12(a), "Security
Ownership of Certain Beneficial Owners")
(6) Ms. O'Riordan is the daughter of Harvey E. Wagner, who holds a beneficial
interest in the Company's largest stockholder, The Wagner Family Trust
(see Item 12(a), "Security Ownership of Certain Beneficial Owners").
Beneficial ownership as shown in the tables above has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Under this
Rule, certain securities may be deemed to be beneficially owned by more than one
person (such as where persons share voting power or investment power). In
addition, securities are deemed to be beneficially owned by a person if the
person has the right to acquire the securities (for example, upon exercise of an
option or the conversion of a debenture) within 60 days of the date as of which
the information is provided; in computing the percentage of ownership of any
person, the amount of securities outstanding is deemed to include the amount of
securities beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the preceding tables does not necessarily reflect the
person's actual voting power at any particular date.
Item 13. Certain Relationships and Related Transactions
See "Compensation Committee Interlocks and Insider Participation."
38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following financial statements of the Company are filed with this
report and can be found in Part II, Item 8, on the pages indicated below:
PAGE
Consolidated Statements of Operations-- Years Ended December 31, 2001, 2000, and 1999 ....... 16
Consolidated Balance Sheets-- December 31, 2001 and 2000 .................................... 17
Consolidated Statements of Stockholders' Equity--
Years Ended December 31, 2001, 2000, and 1999 ............................................... 18
Consolidated Statements of Cash Flows-- Years Ended December 31, 2001, 2000, and
1999 ........................................................................................ 19
Notes to Consolidated Financial Statements .................................................. 20
Report of Independent Auditors .............................................................. 31
(a)(2) Financial Statement Schedules
The following financial statement schedules with respect to the Company
are filed in this report:
Schedule II-- Valuation and Qualifying Accounts and Reserves ................................ 40
All other schedules are omitted because they are either not required or not applicable.
(a)(3) Exhibits
2.1 Agreement and Plan of Merger dated as of June 6, 1995 among the
Registrant, Teknekron Technology MLP I Corporation,
TENERA, L.P., and TENERA Operating Company, L.P. (a form of
which is attached as Annex A to the Registrant's Consent
Solicitation Statement/Prospectus included in the Registration
Statement on Form S-4 (Registration No. 33-58393) declared
effective by the Securities and Exchange Commission ("SEC") on
June 2, 1995 (the "Registration Statement"), and is
incorporated herein by reference).
2.2 Asset Acquisition Agreement dated November 14, 1997, between the
Registrant and Spear Technologies, Inc. (filed as Exhibit
2.1 to the Registrant's Form 8-K filed with the SEC on
November 14, 1997 and incorporated by reference herein (the
"Form 8-K")).
2.3 Series C Preferred Stock Purchase Agreement dated April 6, 2000
between the Registrant and Spear Technologies, Inc.
(filed as Exhibit 2.3 to the Registrant's 1999 Form 10-K and
incorporated herein by reference).
2.4 Asset Acquisition Agreement dated February 10, 2000 between the
Registrant and SoBran, Inc. (filed as Exhibit 2.4 to the
Registrant's 1999 Form 10-K and incorporated herein by
reference).
3.1 Certificate of Incorporation of the Registrant dated October 27,
1994 (filed by incorporation by reference to Exhibit 3.3 to
the Registration Statement).
3.2 By-Laws of the Registrant (filed by incorporation by reference to
Exhibit 3.4 to the Registration Statement).
4.1 Form of Certificate of Common Stock of the Registrant (filed by
incorporation by reference to Exhibit 4.5 to the Registration
Statement)
39
4.2(1) Securities Purchase Agreement dated February 13, 2002 between
GoTrain Corp. and Columbia Nova Investments, AVV and
Polmeroy Limited.
4.3(1) GoTrain Corp. Series 1 Convertible Subordinated Debenture Issued
February 15, 2002 Due July 31, 2003.
4.4(1) GoTrain Corp. Series 2 Convertible Subordinated Debenture Issued
February 15, 2002 Due July 31, 2003.
10.1 Registrant's lease, dated May 3, 2000, for its property located
in Knoxville, Tennessee (filed as Exhibit 10.1 to the
Registrant's June 30, 2000 Form 10-Q and incorporated herein
by reference).
10.2 Registrant's lease, dated May 30, 2000, for its headquarters
located in San Francisco, California filed as Exhibit 10.2 to
the Registrant's June 30, 2000 Form 10-Q and incorporated
herein by reference).
11.1 Statement regarding computation of per share earnings: See "Note
5 to Consolidated Financial Statements."
21.1(1) List of Subsidiaries of the Registrant.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last
quarter of 2001.
(c) Exhibits (see Item 14(a)(3) above.)
(d) Financial Statement Schedules
The schedules listed in Item 14(a)(2) above should be used in conjunction
with the Consolidated Financial Statements of the Company for the year ended
December 31, 2001.
_______________________
(1) Filed herewith.
40
SCHEDULE II
TENERA, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Additions Deductions
------------ ---------------------------
Balance Charged to
Beginning Costs and Credited to Balance at
Description of Year Expenses Special Item Other End of Year
- ----------------------------------------------------------------------------------------------------------------
1999
Reserve for Sales Adjustment
and Credit Losses ............. $ 1,300 $ -- $ -- $ 2 $ 1,298
2000
Reserve for Sales Adjustment
and Credit Losses ............. 1,298 -- -- 334 964
2001
Reserve for Sales Adjustment
and Credit Losses ............. 964 -- -- 417 547
- ----------------------------------------------------------------------------------------------------------------
41
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.
Dated: March 29, 2002
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
---------------------------------------
Jeffrey R. Hazarian
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM A. HASLER Director March 29, 2002
- --------------------------
(William A. Hasler)
Director, Chief Financial Officer,
Executive Vice President, and
Corporate Secretary
/s/ JEFFREY R. HAZARIAN (Principal Financial Officer) March 29, 2002
- --------------------------
(Jeffrey R. Hazarian)
/s/ THOMAS S. LOO Director March 29, 2002
- --------------------------
(Thomas S. Loo)
Director,
Chief Executive Officer, and President
/s/ ROBERT C. MCKAY (Principal Executive Officer) March 29, 2002
- --------------------------
(Robert C. McKay)
/s/ ANDREA W. O'RIORDAN Director March 29, 2002
- --------------------------
(Andrea W. O'Riordan)
Controller and Treasurer
/s/ JAMES A. ROBISON, JR. (Principal Accounting Officer) March 29, 2002
- --------------------------
(James A. Robison, Jr.)
/s/ GEORGE L. TURIN Director March 29, 2002
- --------------------------
(George L. Turin)
42
EXHIBIT INDEX
Ex. 4.2 Securities Purchase Agreement dated February 13, 2002 between
GoTrain Corp. and Columbia Nova Investments, AVV and Polmeroy
Limited
Ex. 4.3 GoTrain Corp. Series 1 Convertible Subordinated Debenture
Issued February 15, 2002 Due July 31, 2003
Ex. 4.4 GoTrain Corp. Series 2 Convertible Subordinated Debenture
Issued February 15, 2002 Due July 31, 2003
Ex. 21.1 List of Subsidiaries of the Registrant
Ex. 23.1 Consent of Ernst & Young LLP, Independent Auditors