UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 .
--------- ----------
The number of shares outstanding on June 30, 2002, was 9,984,259.
TABLE OF CONTENTS
PAGE
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited) ............................................. 1
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ..... 12
Item 3. Quantitative and Qualitative Disclosures of Market Risk.................................... 16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ......................................................................... *
Item 2. Changes in Securities ..................................................................... *
Item 3. Defaults Upon Senior Securities ........................................................... *
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 17
Item 5. Other Information ......................................................................... *
Item 6. Exhibits and Reports on Form 8-K .......................................................... 17
___________________________
* None.
i
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -----------------------------
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Revenue .................................. $ 3,489 $ 5,301 $ 7,621 $ 11,174
Direct Costs ............................. 3,301 4,112 6,934 8,636
General and Administrative Expenses ...... 1,637 2,162 3,244 4,256
Other Income (Expense).................... 1 -- (2) --
------------ ------------- ------------ -------------
Operating Loss ......................... (1,448) (973) (2,559) (1,718)
Interest (Expense) Income, Net ........... (25) 13 (39) 34
------------ ------------- ------------ -------------
Net Loss Before
Income Tax Benefit...................... (1,473) (960) (2,598) (1,684)
Income Tax Benefit ....................... (174) (278) (159) (489)
------------ ------------- ------------ -------------
Net Loss ................................. $ (1,299) $ (682) $ (2,439) $ (1,195)
============ ============= ============ =============
Net Loss per Share-- Basic ............... $ (0.13) $ (0.07) $ (0.24) $ (0.12)
============ ============= ============ =============
Net Loss per Share-- Diluted ............. $ (0.13) $ (0.07) $ (0.24) $ (0.12)
============ ============= ============ =============
Weighted Average
Number of Shares Outstanding-- Basic...... 9,984 9,984 9,984 9,984
============ ============= ============ =============
Weighted Average
Number of Shares Outstanding-- Diluted.... 9,984 9,984 9,984 9,984
============ ============= ============ =============
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes.
1
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
- ----------------------------------------------------------------------------------------------------------------
June 30, December 31,
2002 2001
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 1,919 $ 1,286
Trade receivables, less allowance of $539 (2001 - $547)
Billed ................................................................ 1,119 1,533
Unbilled .............................................................. 1,097 1,259
Income tax receivable ................................................... -- 884
Other current assets .................................................... 338 238
------------- ------------
Total Current Assets ................................................ 4,473 5,200
Property and Equipment, Net ............................................... 389 546
Other Assets .............................................................. 1,117 1,232
------------- ------------
Total Assets ..................................................... $ 5,979 $ 6,978
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 993 $ 1,136
Accrued compensation and related expenses ............................... 1,748 1,751
Deferred revenue ........................................................ 252 226
------------- ------------
Total Current Liabilities ........................................... 2,993 3,113
Long-Term Liabilities
Convertible debt and accrued interest ................................... 1,545 --
Commitments and Contingencies
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 ....................................... 5,692 5,677
Accumulated deficit...................................................... (3,862) (1,423)
Treasury stock-- 433,086 shares (2001 - 433,086 shares).................. (493) (493)
------------- ------------
Total Stockholders' Equity ........................................ 1,441 3,865
------------- ------------
Total Liabilities and Stockholders' Equity ....................... $ 5,979 $ 6,978
============= ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
2
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
- -------------------------------------------------------------------------------------------------------------
Paid-In
Capital in
Common Stock Excess Accumulated Treasury
of Par Deficit Stock Total
------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------
December 31, 2001 ...... 9,984 $ 104 $ 5,677 $ (1,423) $ (493) $ 3,865
Net Loss ............... -- -- -- (1,140) -- (1,140)
----------- ------------ ------------ ----------------- ----------- -------------
March 31, 2002 ......... 9,984 $ 104 $ 5,677 $ (2,563) $ (493) $ 2,725
Fair Value of Stock
Compensation to Consultant -- -- 15 -- -- 15
Net Loss ............... -- -- -- (1,299) -- (1,299)
----------- ------------ ------------ ----------------- ----------- -------------
June 30, 2002 .......... 9,984 $ 104 $ 5,692 $ (3,862) $ (493) $ 1,441
=========== ============ ============ ================= =========== =============
- -------------------------------------------------------------------------------------------------------------
See accompanying notes.
3
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................ $ (2,439) $ (1,195)
Adjustments to reconcile net losses to cash provided (used) by operating
activities:
Depreciation and amortization.......................................... 449 349
Net loss on disposal of assets ........................................ 2 --
Stock compensation to consultant ...................................... 15 --
Changes in assets and liabilities:
Trade receivables, net of allowance ................................. 576 1,166
Income tax receivable ............................................... 884 --
Other current assets ................................................ (157) (279)
Other assets ........................................................ (104) (488)
Accounts payable .................................................... (143) (920)
Accrued compensation and related expenses ........................... (3) 88
Deferred revenue .................................................... 26 21
Accrued interest expense ............................................ 45 --
------------- ------------
Net Cash Used By Operating Activities ............................. (849) (1,258)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ................................... (19) (144)
Proceeds from sale of assets ............................................ 1 --
------------- ------------
Net Cash Used in Investing Activities ............................. (18) (144)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of convertible debentures.......................................... 1,500 --
Issuance of equity in subsidiary ........................................ -- 2
------------- ------------
Net Cash Provided by Financing Activities ........................ 1,500 2
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 633 (1,400)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 1,286 2,487
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 1,919 $ 1,087
============= ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
4
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001
(Unaudited)
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, environmental, safety and health ("ES&H")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 6 to Consolidated
Financial Statements).
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated interim financial
statements include the accounts of the Company and its subsidiaries and are
unaudited. All intercompany accounts and transactions have been eliminated. In
the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position at June 30,
2002, and the results of operations and cash flows for the three and six month
periods ended June 30, 2002 and 2001, have been made. For further information,
refer to the financial statements and notes thereto contained in TENERA, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2001, filed with the
Securities and Exchange Commission ("SEC").
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.
Cash and Cash Equivalents. As of June 30, 2002, the Company's cash and
cash equivalents included money market accounts and commercial paper issued by
companies with strong credit ratings. Cash and cash equivalents at December 31,
2001 consist of deposited cash and money market accounts at a banking
institution. 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, and provides services directly and
indirectly for federal government agencies. 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 June 30, 2002, three clients
accounted for 45%, 13%, and 12% of the Company's trade receivables. At June 30,
2001, two clients accounted for 55% and 14% of the Company's trade receivables.
All the above concentrations relate to Professional and Technical Services
Segment clients.
Property and Equipment. Property and equipment are stated at cost
($3,365,000 and $3,409,000 at June 30, 2002 and 2001, respectively), net of
accumulated depreciation ($2,976,000 and $2,690,000 at June 30, 2002 and 2001,
5
respectively). Depreciation is calculated using the straight-line method over
the estimated useful lives, which range from three to five years.
6
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. For the six month period ended June 30, 2002, the Company capitalized
$104,000 of developed software costs, compared to $488,000 for the same period
in 2001. The estimated useful life of costs capitalized is three years. For the
first six months of 2002 and 2001, the amortization of capitalized costs on the
Company's books totaled $219,000 and $103,000, 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 business model and segment for the Company that is in its
early stage 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 Department of Energy ("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. License and subscription revenue recognition
commences when delivery of initial access to the learning management system and
course(s) occurs. In addition, 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.
During the first six months of 2002 and 2001, one Professional and
Technical Services Segment client accounted for 66% and 74%, respectively, of
total Company revenue.
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.
The Company recorded a tax benefit of $174,000 in the second quarter of
2002, reflecting federal tax refunds received for years 1999 and 1998 due to
enactment in 2002 of the Economic Growth and Tax Relief Reconciliation Act. For
the six month period ended June 30, 2002, the net tax benefit of $159,000
reflects the above refund, partially offset by minimum taxes due in certain
states related to 2001 activity.
Accounting for Stock-Based Compensation. Under the provisions of the
TENERA 1992 Option Plan, 1,500,000 shares of TENERA common stock are reserved
for issuance upon the exercise of options granted to key employees and
consultants. TENERA's 1993 Outside Directors Compensation and Option Plan
reserves 500,000 shares for issuance upon exercise of options granted to
non-employee directors. The stock options generally vest over a three year
period and expire ten years from date of grant.
In April 2002, GoTrain adopted the GoTrain Corp. 2002 Stock Option and
Stock Plan ("GoTrain Plan") to provide additional incentive to GoTrain
employees, directors, and consultants. Under the provisions of the GoTrain Plan,
2,500,000 shares of GoTrain Corp. common stock ("Subsidiary Stock") are reserved
for issuance upon exercise of Subsidiary Stock options and Subsidiary Stock
purchase rights granted. The Subsidary Stock options generally vest over a five
year period and expire ten years from date of grant. Concurrent with
7
implementation of the GoTrain Plan, GoTrain's board of directors granted
Subsidary Stock options to employees and directors to acquire 1,156,250 shares
of Subsidiary Stock.
TENERA and GoTrain account for their respective employee and director
stock options in accordance with Accounting Principles Board Opinion No. 25
("APB 25"). All of the TENERA stock options have been granted at an exercise
price equal to the market price of the underlying stock on the date of grant.
Therefore, no compensation expense has been recognized for TENERA stock options.
GoTrain management believes the exercise price per share approximated the fair
value per share of Subsidiary Stock on the date of the grant, and accordingly,
no compensation expense was recorded.
During the second quarter of 2002, GoTrain also granted 250,000 Subsidiary
Stock options to a former officer of, and now consultant to, GoTrain at an
exercise price of $.36 per share. These Subsidiary Stock options were granted in
exchange for services through April 16, 2004 and cliff vest on that date. The
$36,000 value of the Subsidiary Stock options was determined under the guidance
of Statement of Financial Standards No. 123 ("FAS 123") using a Black-Scholes
option pricing model with the following assumptions: market price of $.31 per
share, risk-free interest rate of 5.0%, dividend yield of 0%, volatility factor
of .8, and a 10 year contractual term. Under FAS 123, these options will be
revalued at the end of each reporting period and stock compensation expense will
be recognized ratably over the vesting term. In the quarter ended June 30, 2002,
$7,000 of stock compensation expense was recognized and charged to general and
administrative expenses.
Additionally, as part of the consulting arrangement entered into with the
same former GoTrain officer mentioned above, this consultant was allowed to
retain 45,000 vested TENERA stock options under the same terms as originally
granted, rather than be subject to the forfeiture provisions of the plan related
to employee terminations. The 45,000 TENERA stock options are comprised of two
grants: 25,000 options expiring March 2005 with an exercise price of $1.36 and
20,000 options expiring April 2006 with an exercise price of $1.26. Because the
terms of the grants were modified upon the change from employee to consultant,
the modified stock options were accounted for as new grants and the fair value
method (FAS 123) was used to determine the values. The valuations of the 25,000
and 20,000 option grants were calculated using the Black-Scholes option pricing
model with the following assumptions: market price of $.49 per share for both
grants, risk-free interest rate of 3.0% and 3.5%, respectively, dividend yield
of 0% for both grants, volatility factor of .8 for both grants, and 3 years and
4 years contractual terms, respectively. The combined value of these modified
grants was $8,000 and was charged to TENERA's general and administrative
expenses in the quarter ended June 30, 2002.
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 determination of fully diluted
earnings per share excludes the impact of 1,664,000 additional shares of TENERA
common stock, issuable upon the exercise of outstanding stock options, because
they are antidilutive. Also excluded from the computation of fully diluted
earnings per share as antidilutive are the potential impact of the conversion of
GoTrain convertible debentures (see Note 5 to Consolidated Financial Statements)
and GoTrain Subsidiary Stock options of 3,333,000 shares and 1,406,250 shares,
respectively, to GoTrain common stock.
8
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 for per share amounts)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Numerator:
Net loss .............................. $ (1,299) $ (682) $ (2,439) $ (1,195)
============= ============== ============= ==============
Denominator:
Denominator for basic earnings per
share-- weighted-average shares 9,984 9,984 9,984 9,984
outstanding............................
Effect of dilutive securities:
Employee & Director stock options
(Treasury stock method) ............. -- -- -- --
------------- -------------- ------------- --------------
Denominator for diluted earnings per
share--weighted-average common and
common equivalent shares ............... 9,984 9,984 9,984 9,984
============= ============== ============= ==============
Basic loss per share .................... $ (0.13) $ (0.07) $ (0.24) $ (0.12)
============= ============== ============= ==============
Diluted loss per share .................. $ (0.13) $ (0.07) $ (0.24) $ (0.12)
============= ============== ============= ==============
- -------------------------------------------------------------------------------------------------------------------
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 6 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
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 adopted FAS 144 for its fiscal year on January 1, 2002.
The adoption of FAS 144 did not have a material effect on the Company's
consolidated financial position, results of operations, or cash flows during the
first half of 2002. The Company will continue to assess the impact of FAS 144 on
the carrying value of its long-lived assets.
9
Note 3. 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 $361,000 for the six month period ended June 30, 2002 ($346,000 for
the same period in 2001).
As of June 30, 2002, minimum rental commitments under operating leases,
principally for real property, are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2002 ......................................................................................... $ 457
2003 ......................................................................................... 717
2004 ......................................................................................... 468
2005 ......................................................................................... 382
2006 and Thereafter .......................................................................... --
------------
Total Minimum Payments Required .............................................................. $ 2,024
============
- ----------------------------------------------------------------------------------------------------------------
Note 4. 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 days thereafter), for platform
license and maintenance, and integration of existing GoTrain content. The
Company has paid $137,000 to SmartForce under the agreement in 2002.
As of August 8, 2002, minimum net payments are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2002 ......................................................................................... $ 137
2003 ......................................................................................... 274
2004 ......................................................................................... 274
2005 ......................................................................................... 274
2006 and Thereafter .......................................................................... 206
------------
Total Minimum Payments Required .............................................................. $ 1,165
============
- ----------------------------------------------------------------------------------------------------------------
10
Note 5. 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 would
own approximately 22% of GoTrain, subject to potential dilution from Subsidiary
Stock options and Subsidiary Stock purchase rights granted under the GoTrain
Plan.
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,
subject to potential dilution from Subsidiary Stock options and Subsidiary Stock
purchase rights granted under the GoTrain Plan.
On June 30, 2002, upon full conversion of the Series 1 and Series 2
debentures and the outstanding Subsidiary Stock options, the holders of the
debentures would own approximately 29% of GoTrain.
The Company accrued $45,000 of interest expense in the first half of 2002
related to these debentures.
11
Note 6. 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
("CODM") 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 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. There are no intersegment revenues on transactions between reportable
segments.
Information about the operating segments for the three and six month
periods ended June 30, 2002 and 2001, respectively, and reconciliation to the
Consolidated Statements of Operations, are as follows:
(In thousands)
- -----------------------------------------------------------------------------------------------------------------
Quarter Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2002 2001 2002 2001
- -------------------------------------------------------------------- ----------- ----------- -----------
REVENUE
Professional and Technical Services.............. $ 3,218 $ 5,064 $ 6,939 $ 10,730
e-Learning ...................................... 271 237 682 444
----------- ----------- ----------- -----------
Total ......................................... $ 3,489 $ 5,301 $ 7,621 $ 11,174
=========== =========== =========== ===========
NET (LOSS) INCOME BEFORE TAX
Professional and Technical Services ............. $ (220) $ 154 $ (281) $ 532
e-Learning ...................................... (1,001) (1,006) (1,940) (1,958)
Corporate and Other ............................. (252) (108) (377) (258)
----------- ----------- ----------- -----------
Total ......................................... $ (1,473) $ (960) $ (2,598) $ (1,684)
=========== =========== =========== ===========
DEPRECIATION AND AMORTIZATION EXPENSE
Professional and Technical Services ............. $ 12 $ 15 $ 25 $ 32
e-Learning ...................................... 208 159 416 304
Corporate and Other ............................. 4 3 8 13
----------- ----------- ----------- -----------
Total ......................................... $ 224 $ 177 $ 449 $ 349
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------
Revenues outside of the United States have been less than 1% of total
Company revenues in each of the periods ended June 30, 2002 and 2001,
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.
12
Item 2. 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 risks, uncertainties and changes in condition,
significance, value and effect could cause the Company's actual results to
differ materially from those anticipated events. Such risks and uncertainties
include uncertainty of access to capital; the reliance on major customers and
concentration of revenue from the government sector; the uncertainty of future
profitability; uncertainty regarding competition; reliance on key personnel;
uncertainty regarding industry trends and customer demand; and government
contract audits. Additional risks are detailed in the Company's filings with the
SEC, including its Form 10-K for the year ended December 31, 2001.
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.
13
TENERA, INC.
Results of Operations
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Percent of Revenue Percent of Revenue
--------------------------- -------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Revenue ................................................ 100.0% 100.0% 100.0% 100.0%
Direct Costs ........................................... 94.6 77.6 91.0 77.3
General and Administrative Expenses .................... 46.9 40.8 42.6 38.1
Other Income ........................................... * -- * --
--------- --------- --------- ---------
Operating Loss ...................................... (41.5) (18.4) (33.6) (15.4)
Interest (Expense) Income, Net ......................... (0.7) 0.3 (0.5) 0.3
--------- --------- --------- ---------
Net Loss Before Income Tax Benefit ..................... (42.2)% (18.1)% (34.1)% (15.1)%
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------
* Less than 0.05%
Results of Operations
Net loss before income tax benefit for the three and six-month periods
ended June 30, 2002 were $1,473,000 and $2,598,000, respectively, compared to
net loss before income tax benefit of $960,000 and $1,684,000, respectively, for
the same periods in 2001. The increase in loss primarily results from lower
Professional and Technical Services Segment revenue. Specifically, a combination
of a reduced number of federal government projects and lower labor billing rates
for work at the DOE's Rocky Flats site (the "Rocky Flats Contract").
Professional and Technical Services Segment revenue for the three and
six-month periods ended June 30, 2002 decreased 36% and 35%, respectively, ($1.8
million and $3.8 million, respectively) from the same periods in 2001, primarily
due to a lower allocation of work to the Company at the Rocky Flats site. For
the second quarter and first six months of 2002, the concentration of revenue
from government projects was 73% and 71%, respectively, of total Company revenue
compared to 72% and 76%, respectively, in the same periods in 2001.
Revenue in the e-Learning Segment increased by $34,000 and $238,000,
respectively, in the quarter and first half ended June 30, 2002, as compared to
the same period in 2001, mainly due to a greater number of new clients.
Direct costs were lower in the three and six-month periods of 2002,
compared to a year ago, primarily as a result of fewer Professional and
Technical Services Segment projects. Gross margin decreased to 5% and 9%,
respectively, in the quarter and first half of 2002 from 23% in the same periods
of 2001, mainly due to client-mandated lowered labor billing rates for the
ongoing Rocky Flats Contract activity, increased integration expenditures
related to the SmartForce e-Learning agreement, and higher employee healthcare
costs .
General and administrative costs, in the quarter and six months ended June
30, 2002, were 24% lower compared to a year ago, primarily reflecting
furloughing non-essential personnel under a plan implemented in August 2001.
Included in general and administrative expenses for the second quarter 2002 is
$15,000 of stock option compensation to a former officer of GoTrain, who
provided and will provide e-Learning consulting services (see Note 2 to
Consolidated Financial Statements).
14
Net interest expense in 2002 represents accrued interest on the
convertible debentures sold in March 2002 by the Company's GoTrain subsidiary
(see Note 5 to Consolidated Financial Statements), partially offset by earnings
from the investment of cash balances in money market accounts and short-term
corporate debt instruments. Net interest income in 2001 represents earnings from
the investment of cash balances in money market accounts and short-term
corporate debt instruments and was higher than 2002 due to higher average cash
balances and higher interest rates during 2001.
Contract Backlog
During the second quarter of 2002, the Company received written contracts
and orders having an estimated value of approximately $1.5 million; $2.0 million
associated with the Professional and Technical Services Segment, $.5 million in
new e-Learning Segment contracts, and partially offset by a $1.0 million
negative adjustment related to a single e-Learning Segment client's revised
usage expectations. The activity in the Professional and Technical Services
Segment primarily reflects additional work with existing commercial clients and
the additional funding of the Rocky Flats Contract . The e-Learning contract
activity reflects expansion of work with existing clients and new orders under
the SmartForce agreement (see Note 4 to Consolidated Financial Statements). The
$1 million adjustment lowering the e-Learning Segment contract value for
training course usage was due to a cost reduction program implemented by the
Company's client, Motorola, that included significant layoffs of the client's
workforce.
Contracted backlog for current, active projects totaled approximately $9.3
million as of June 30, 2002, down from $13.9 million at December 31, 2001. The
Professional and Technical Services and e-Learning segments account for $6.6
million and $2.7 million, respectively, of the backlog at June 30, 2002.
Liquidity and Capital Resources
Cash and cash equivalents increased by $633,000 during the first six
months of 2002. The increase was due to the sale of convertible debentures
($1,500,000), partially offset by cash used by operations ($849,000), and net
acquisition of property and equipment ($18,000).
Trade receivables, net of sales allowance, decreased by $576,000 from
December 31, 2001, primarily due to lower revenues and increased collections
during the period. The allowance for sales adjustments decreased by $8,000 from
December 31, 2001, related to the closure and settlement of old government
contracts.
Income tax receivable decreased by $884,000 from December 31, 2001 due to
the receipt in March 2002 of a federal tax refund of 1999 taxes paid.
Additionally, the Company received federal tax refunds totaling $174,000 in June
2002 related to years 1999 and 1998 due to enactment in 2002 of the Economic
Growth and Tax Relief Reconciliation Act.
Other current assets increased by $157,000 from the end of 2001,
reflecting increased prepaid expenses associated with insurance renewals.
Other assets increased by $104,000 from December 31, 2001, primarily
relating to training course and operating system development in the e-Learning
Segment (see Note 2 to Consolidated Financial Statements).
Accounts payable decreased by $143,000 since the end of 2001 primarily
resulting from lower direct costs supporting decreased revenues. Accrued
compensation and related expenses decreased by $3,000 during the period,
primarily reflecting the reduction in the vacation accrual related to terminated
employees.
Deferred revenue increased by $26,000 from December 31, 2001 due to a
higher level of upfront billing in the e-Learning Segment related to library
course subscription fees and custom course fees.
Accrued interest expense increased by $45,000 from December 31, 2001 due
to the sale of convertible debentures in March 2002 (see Note 5 to Consolidated
Financial Statements).
No cash dividend was declared in the first six months of 2002.
The impact of inflation on project revenue and costs of the Company was
minimal.
15
At June 30, 2002, the Company had operating lease commitments through 2005
totaling $2,024,000, principally for real property (see Note 3 to Consolidated
Financial Statements). Additionally, the Company has other long-term obligations
through 2006, totaling $1,165,000, related to an agreement with SmartForce to
co-develop and distribute ES&H and regulatory content via the SmartForce
internet platform (see Note 4 to Consolidated Financial Statements). The table
below schedules these contractual obligations:
- ----------------------------------------------------------------------------------------------------------------
Contractual Obligations Payments Due By Period
---------------------------------------------------------
(In thousands) Total Less Than 1 1 - 3 4 - 5 After 5
Year Years Years Years
- ----------------------------------------------------------------------------------------------------------------
Operating Lease Obligations ..................... $ 2,024 $ 909 $ 1,055 $ 60 $ --
Other Long-Term Obligations...................... 1,165 274 548 343 --
-------- -------- -------- -------- --------
Total Contractual Cash Obligations .............. $ 3,189 $ 1,183 $ 1,603 $ 403 $ --
- ----------------------------------------------------------------------------------------------------------------
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, subject to potential dilution from Subsidiary Stock options and
Subsidiary Stock purchase rights granted under the GoTrain Plan. At June 30,
2002, upon full conversion of the debentures and the outstanding Subsidiary
Stock options, the holders of the debentures would own approximately 29% of
GoTrain (see Note 5 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
refunds received in March and June 2002, should be sufficient to enable the
Company to support its Professional and Technical Services Segment operations as
currently structured through the next twelve months. However, there can be no
assurance that the cash generation from the Professional and Technical Services
Segment operations will materialize in quantities or timeframes projected by
management. The reliance on one major customer in this segment for significant
cash receipts, coupled with the likely impact of lowered billing rates for that
customer, discussed under Results of Operations, highlights the uncertainty and
risks associated with achieving the Company's liquidity targets.
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 expects this private placement financing will support GoTrain's
operations through the balance of 2002. There can be no assurance that the cash
receipts from the e-Learning Segment will materialize in quantities or
timeframes projected by management. The slower than anticipated revenue growth
in this segment, which management believes results from a lengthening of the
sales cycle and lower projected course usage primarily due to a broad-based
economic slowdown in the markets served, highlights the uncertainty and risks
associated with achieving the Company's liquidity targets.
The Company is currently seeking additional private placement financing
for GoTrain. Furthermore, the Company is 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.
16
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company has minimal exposure to market and interest risk as the
Company invests its excess cash in short-term instruments which mature within 90
days from the date of purchase. The Company does not have any derivative
instruments.
17
PART II -- OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
On June 28, 2002, the Company held its Annual Meeting of Stockholders. The
following individuals were elected to the Board of Directors:
- ----------------------------------------------------------------------------------------------------------------
Votes Votes
For Withheld
- ----------------------------------------------------------------------------------------------------------------
William A. Hasler ......................................................... 6,072,108 2,712,086
Robert C. McKay ........................................................... 6,064,108 2,720,086
- ----------------------------------------------------------------------------------------------------------------
The following proposals were approved at the Company's Annual Meeting:
- ----------------------------------------------------------------------------------------------------------------
Votes Votes Broker
For Against Abstained Non-Votes
- ----------------------------------------------------------------------------------------------------------------
Proposal to ratify the selection of
the Company's independent auditors . 8,752,333 21,511 10,350 0
- ----------------------------------------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.5 (1) GoTrain Corp. 2002 Stock Option and Stock Plan
11.0 Statement regarding computation of per share earnings: See Notes
to Consolidated Financial Statements
99.1 (1) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
(Robert C. McKay - Chief Executive Officer and President)
99.1 (1) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002
(Jeffrey R. Hazarian - Chief Financial Officer and Executive Vice
President)
(b) Reports on Form 8-K
None.
________________________________
(1) Filed herewith
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 13, 2002
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
------------------------------------------------------
Jeffrey R. Hazarian
Executive Vice President and Chief Financial Officer
19
EXHIBIT INDEX
Ex. 4.5 GoTrain Corp. 2002 Stock Option and Stock Plan
Ex. 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
(Robert C. McKay - Chief Executive Officer and President)
Ex. 99.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
(Jeffrey R. Hazarian - Chief Financial Officer and Executive
Vice President)