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 March 31, 2003
[ ] 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 .
--------- ----------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes No X .
-------- -----------
The number of shares outstanding on March 31, 2003, 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 ..... 13
Item 3. Quantitative and Qualitative Disclosures of Market Risk ................................... 16
Item 4. Controls and Procedures ................................................................... 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ......................................................................... *
Item 2. Changes in Securities ..................................................................... *
Item 3. Defaults Upon Senior Securities ........................................................... *
Item 4. Submission of Matters to a Vote of Security Holders ....................................... *
Item 5. Other Information ......................................................................... *
Item 6. Exhibits and Reports on Form 8-K .......................................................... 18
_____________________________
* 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 March 31,
------------------------------
2003 2002
- ----------------------------------------------------------------------------------------------------------------
Revenue ................................................................... $ 2,631 $ 4,132
Direct Costs .............................................................. 2,232 3,633
General and Administrative Expenses ....................................... 1,486 1,607
Other Expense ............................................................. -- 3
------------- ------------
Operating Loss .......................................................... (1,087) (1,111)
Interest Expense, net ..................................................... (30) (14)
------------- ------------
Net Loss Before Income Tax Expense....................................... (1,117) (1,125)
Income Tax Expense ........................................................ 6 15
------------- ------------
Net Loss .................................................................. $ (1,123) $ (1,140)
============= ============
Net Loss per Share-- Basic ................................................ $ (0.11) $ (0.11)
============= ============
Net Loss per Share-- Diluted .............................................. $ (0.11) $ (0.11)
============= ============
Weighted Average Number of Shares Outstanding-- Basic ..................... 9,984 9,984
============= ============
Weighted Average Number of Shares Outstanding-- Diluted ................... 9,984 9,984
============= ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
1
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
- ----------------------------------------------------------------------------------------------------------------
March 31, December 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 427 $ 1,277
Trade receivables, less allowance of $539 at Mar 31, 2003 and Dec 31, 2002
Billed ................................................................ 489 620
Unbilled .............................................................. 812 635
Other current assets .................................................... 228 185
------------- ------------
Total Current Assets ................................................ 1,956 2,717
Property and Equipment, Net ............................................... 152 243
Other Assets .............................................................. 473 576
------------- ------------
Total Assets ..................................................... $ 2,581 $ 3,536
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable ........................................................ $ 1,316 $ 1,068
Accrued compensation and related expenses ............................... 1,195 1,397
Deferred revenue ........................................................ 394 391
Subordinated debt and accrued interest .................................. 1,635 1,605
Subordinated debt and accrued interest payable to related party.......... 85 --
------------- ------------
Total Current Liabilities ........................................... 4,625 4,461
Stockholders' Deficit
Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued,
and 9,984,259 outstanding at Mar 31, 2003 and Dec 31, 2002................ 104 104
Paid in capital, in excess of par ....................................... 5,697 5,693
Acummulated deficit...................................................... (7,352) (6,229)
Treasury stock-- 433,086 shares at Mar 31, 2003 and Dec 31, 2002 ........ (493) (493)
------------- ------------
Total Stockholders' Deficit ....................................... (2,044) (925)
------------- ------------
Total Liabilities and Stockholders' Deficit ...................... $ 2,581 $ 3,536
============= ============
See accompanying notes.
2
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Paid-In
Common Stock Capital in Accumulated
Excess Deficit Treasury
----------------------------- of Par Stock Total
Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 2002 ...... 9,984 $ 104 $ 5,693 $ (6,229) $ (493) $ (925)
Fair Value of Stock
Compensation to Consultant -- -- 4 -- -- 4
Net Loss ............... -- -- -- (1,123) -- (1,123)
------------ -------------- ---------------- --------------- -------------- ---------------
March 31, 2003 ......... 9,984 $ 104 $ 5,697 $ (7,352) $ (493) $ (2,044)
============ ============== ================ =============== ============== ===============
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
3
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
2003 2002
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................ $ (1,123) $ (1,140)
Adjustments to reconcile net losses to cash used by operating activities:
Depreciation and amortization.......................................... 144 225
Net loss on disposal of assets ........................................ -- 3
Stock compensation to consultant ...................................... 4 --
Changes in assets and liabilities:
Trade receivables, net of allowance ................................. (46) (234)
Income tax receivable ............................................... -- 884
Other current assets ................................................ (14) --
Other assets ........................................................ 21 (81)
Accounts payable .................................................... 248 (69)
Accrued compensation and related expenses ........................... (202) 15
Deferred revenue .................................................... 3 (14)
Accrued interest expense ............................................ 30 15
------------- ------------
Net Cash Used By Operating Activities ............................. (935) (396)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ................................... -- (17)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of subordinated debt ............................ 85 1,500
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................... (850) 1,087
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 1,277 1,286
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 427 $ 2,373
============= ============
NON-CASH FINANCING AND INVESTING ACTIVITIES
Sale of assets in exchange for note receivable........................... $ 41 $ --
============= ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
4
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003 and 2002
(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. 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 6 to Consolidated
Financial Statements).
As previously reported, in early 2003, the Company determined it is in the
best interest of the Company to either sell or dispose of its operating segments
as quickly as possible this year or permit its operating units to dispose of
their assets. Management has undertaken efforts to accomplish this. The Company
reached agreement in March 2003 to transfer the ownership and operations of
TENERA Energy, LLC, part of the Professional and Technical Services segment, to
the former employees of that subsidiary. This transfer has been achieved through
the assumption of certain liabilities by the new owners, for which the Company
would otherwise be obligated. The Company retains certain receivables. The
impact of this transaction on revenue, net income, and future cash flow is not
expected to be significant. Additionally, the Company is in discussions to
attempt to dispose of its remaining business operations and it is anticipated
that any transaction involving these units will be consummated in the second or
third quarters of 2003.
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 March 31,
2003, and the results of operations and cash flows for the three month periods
ended March 31, 2003 and 2002, 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, 2002, filed with the
Securities and Exchange Commission ("SEC"). The results of operations for the
three months ended March 31, 2003 and 2002 are not necessarily indicative of
results that may be expected for any other interim period or for the full year
ending December 31, 2003.
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. At March 31, 2003 and December 31, 2002, the
Company's cash and cash equivalents included deposited cash and money market
accounts at a banking institution. Historically and from time to time, the
Company has invested in commercial paper issued by companies with strong credit
ratings. There were no such investments at March 31, 2003 and December 31, 2002.
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
5
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. Included in accounts receivable are
certain trade receivables related to U.S. government contracts and included in
the net balance of accounts receivable are allowances of $539,000 for doubtful
accounts, which includes approximately $400,000 for disputed amounts arising
from government audits related to the government contract receivables. At March
31, 2003, three clients accounted for 26%, 19%, and 13%, respectively, of the
Company's trade receivables. At December 31, 2002, three clients accounted for
19%, 17%, and 13%, respectively, of the Company's trade receivables. During the
first quarter of 2003, one client accounted for 59% of the Company's total
revenue. For the same period in 2002, two clients accounted for 64% and 11%,
respectively, of total revenue. All the above concentrations relate to
Professional and Technical Services Segment clients.
Property and Equipment. Property and equipment are stated at cost
($2,980,000 and $3,368,000 at March 31, 2003 and December 31, 2002,
respectively), net of accumulated depreciation ($2,828,000 and $3,125,000 at
March 31, 2003 and December 31, 2002, 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 internet-based 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
through the second quarter of 2002, a limited license was granted to our clients
to access the Company's training system via the internet. The proprietary
software resides on the Company's computers and prior to the third quarter of
2002, clients had no other rights to the software. All training and maintenance
costs are expensed as incurred. At March 31, 2003 and December 31, 2002, the
Company had $436,000 and $526,000, respectively, of capitalized software costs,
net of accumulated amortization of $867,000 and $785,000, respectively. The
estimated remaining useful life of costs capitalized is 14 months. For the first
three months of 2003, the amortization of capitalized software costs totaled
$82,000.
In the third quarter of 2002, the Company modified its business model in
response to changes in the e-Learning marketplace. In addition to hosting
training courses on its internal e-Learning operating system, the Company began
offering content only and perpetual licenses to its customers, whereby courses
can be run on third-party operating systems. Because of this change, any new
development costs associated with this product offering must be accounted for
under the guidelines of Statement of Financial Accounting Standards (SFAS) No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed. Under SFAS No. 86, software development costs subsequent to
the decision to allow certain products to be licensed and run on third-party
operating systems, generally will be expensed as incurred, as the time between
achieving technological feasibility and general release of the product is not
significant. For the first quarter of 2003, the Company expensed $81,000 of
software development costs.
Due to a history of losses, the Company has periodically assessed the
impairment of long-lived assets, in accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. At March 31, 2003, the Company
estimated the sum of undiscounted net operating cash flows of its business
segments over the expected useful lives of the remaining long-lived assets and
determined that they exceeded the net carrying value of these assets.
Accordingly, no asset impairment exists at March 31, 2003. Given the history of
losses, the Company will perform an assessment of potential long-lived asset
impairment each quarter.
Revenue. The Company's Professional and Technical Services Segment
primarily offers its services to 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). The Company's fixed-price
contracts are typically less than six months in duration and are billed at
project completion.
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
6
commences when delivery of initial access to the Company's learning management
system and course(s) occurs in accordance with Staff Accounting Bulletin 101
(SAB 101). In addition, usage fee revenue is recognized on an actual usage
basis.
For perpetual license sales of learning courses to customers, whereby the
Company may not be the application service provider, the Company must recognize
revenue in accordance with Statement of Position (SOP) 97-2, as amended by SOP
98-4 and SOP 98-9. As noted above, prior to the change in the business model,
the Company capitalized costs related to the development of the e-Learning
training courses under SOP 98-1. In accordance with that statement, before
revenue can be recognized from any non-hosted sales of e-Learning training
courses for which the development costs have been capitalized, the carrying
value of the training course capitalized costs must be reduced to zero by the
value of the non-hosted sales. At March 31, 2003, the remaining net capitalized
costs of the e-Learning courses was $84,000, net of $23,000 of non-hosted sales.
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.The Company's
Professional and Technical Services Segment primarily offers its services to 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".
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. Income tax expense recorded in the first quarter of 2003 reflects
minimum taxes due for certain states.
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 employee stock options generally vest over a three
year period and expire six years from date of grant. The outside director
options vest over a one year period and expire ten years from date of grant. As
of March 31, 2003, options for 1,379,500 TENERA shares were outstanding and
options for 1,277,000 shares were exercisable.
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 Subsidiary Stock options generally vest over a four
year period and expire ten years from date of grant. In 2002, GoTrain's board of
directors granted Subsidiary Stock options to employees and directors to acquire
1,800,557 shares of Subsidiary Stock at $0.31 per share. GoTrain management
believes the exercise price per share of Subsidiary Stock options approximated
the fair value per share, or above fair value, on the dates of the grants, 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 $0.36 per share. These Subsidiary Stock options were granted
in exchange for services through April 16, 2004 and cliff vest on that date. The
Subsidiary Stock options were revalued, subsequently, 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 $.14 per
share, risk-free interest rate of 4.0%, 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 first quarter of 2003,
$4,000 of stock compensation expense was recognized and charged to general and
administrative expenses.
7
As of March 31, 2003, options for 1,902,387 GoTrain shares were
outstanding and options for 330,477 shares were exercisable.
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 and
convertible debentures, 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 1,379,500 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 1,902,387 shares,
respectively, to GoTrain common stock.
The following table sets forth the computation of basic and diluted loss
per share as required by Financial Accounting Standards Board Statement No. 128:
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
--------------------------------
2003 2002
- --------------------------------------------------------------------------------------------------------
Numerator:
Net loss ...................................................... $ (1,123) $ (1,140)
============= ============
Denominator:
Denominator for basic loss per share--
weighted-average shares outstanding............................. 9,984 9,984
Effect of dilutive securities:
Employee & Director stock options (Treasury stock method) ... -- --
------------- ------------
Denominator for diluted loss per share--
weighted-average common and common equivalent shares ........... 9,984 9,984
============= ============
Basic loss per share ............................................ $ (0.11) $ (0.11)
============= ============
Diluted loss per share .......................................... $ (0.11) $ (0.11)
============= ============
- --------------------------------------------------------------------------------------------------------
Proforma Disclosures of the Effect of Stock-Based Compensation. Pro forma
interim information regarding net earnings (loss) and earnings (loss) per share
is required by SFAS 148 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
the options has been estimated at the date of grant using a Black-Scholes option
pricing model.
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.
8
Pro forma information regarding the Company's net loss and loss per share
follows:
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
---------------- -- ------------
2003 2002
- --------------------------------------------------------------------------------------------------------
Net Loss -- As Reported .................................... $ (1,123) $ (1,140)
Stock-Based Compensation Expense-- FAS 123 ................. (21) (4)
------------- ------------
Pro Forma Net Loss -- FAS 123 .............................. $ (1,144) $ (1,144)
============= ============
Net Loss per Share-- As Reported Basic ..................... $ (0.11) $ (0.11)
============= ============
Net Loss per Share-- As Reported Diluted ................... $ (0.11) $ (0.11)
============= ============
Pro Forma Net Loss per Share-- FAS 123 Basic ............... $ (0.11) $ (0.11)
============= ============
Pro Forma Net Loss per Share-- FAS 123 Diluted ............. $ (0.11) $ (0.11)
============= ============
- --------------------------------------------------------------------------------------------------------
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 December 2002, the FASB issued
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, or SFAS 148. This statement amends
FASB Statement No. 123 (FAS 123), Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. This
statement also amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The provisions of this statement relating to
alternative transition methods and annual disclosure requirements are effective
for fiscal years ending after December 15, 2002. The provisions of this
statement relating to interim financial information are effective for the
quarter ending March 31, 2003. The transitional provisions did not have an
impact on the Company's financial statements as it did not elect to change from
the intrinsic value method to the fair value method.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, or FIN 46.
FIN 46 clarifies existing accounting principles related to the preparation of
consolidated financial statements when the equity investors in an entity do not
have the characteristics of a controlling financial interest or when the equity
at risk is not sufficient for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 requires a
company to evaluate all existing arrangements to identify situations where a
company has a "variable interest" (commonly evidenced by a guarantee arrangement
or other commitment to provide financial support) in a "variable interest
entity" (commonly a thinly capitalized entity) and further determine when such
variable interests require a company to consolidate the variable interest
entities' financial statements with its own. The Company is required to perform
this assessment by September 30, 2003 and consolidate any variable interest
entities for which it will absorb a majority of the entities' expected losses or
receive a majority of the expected residual gains. The company has not yet
performed this assessment; however the Company is not aware of any material
variable interest entities that it may be required to consolidate.
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 $167,000 for the quarter ended March 31, 2003 ($181,000 in the first
quarter of 2002).
As of March 31, 2003, minimum rental commitments under operating leases,
principally for real property, are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2003 ......................................................................................... $ 523
2004 ......................................................................................... 469
2005 ......................................................................................... 382
------------
Total Minimum Payments Required .............................................................. $ 1,374
============
- ----------------------------------------------------------------------------------------------------------------
Note 4. Long-Term Obligations
In June 2001, GoTrain entered into a five-year agreement with SkillSoft
(formerly SmartForce) to co-develop and distribute Environmental, Safety and
Health 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.
In June 2002, SmartForce announced that it had entered into an agreement
to merge with SkillSoft, another e-Learning company, which was completed in
September 2002. The surviving entity, known as SkillSoft, assumed GoTrain's
agreement with SmartForce. GoTrain is currently in negotiations with SkillSoft
to restructure the SmartForce agreement. The Company made no payments to
SkillSoft under the agreement in the first quarter of 2003.
As of March 31, 2003, minimum net payments, which are being accrued when
due, are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2003 ......................................................................................... $ 480
2004 ......................................................................................... 274
2005 ......................................................................................... 274
2006 and Thereafter .......................................................................... 205
------------
Total Minimum Payments Required .............................................................. $ 1,233
============
- ----------------------------------------------------------------------------------------------------------------
10
Note 5. Subordinated 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 convertible
preferred stock of GoTrain at a conversion price of $0.45 per share. Otherwise,
the debenture will be automatically converted into convertible 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's outstanding capital stock, 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
convertible preferred stock at a conversion price of $0.45 per share. Otherwise,
the debenture will automatically convert into convertible 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's
outstanding capital stock, subject to potential dilution from Subsidiary Stock
options and Subsidiary Stock purchase rights granted under the GoTrain Plan.
On March 31, 2003, 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.
In March 2003, the Company issued subordinated debt of $85,000 to an
officer of the Company to provide additional working capital. The debt bears
simple interest at the rate of 8% per annum, has no maturity date, and is
secured by the trade receivable assets of GoTrain.
The Company accrued $30,000 of interest expense in the first quarter of
2003 related to these debts.
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 quarters ended March 31,
2003 and 2002, and reconciliation to the Consolidated Statements of Operations,
are as follows:
(In thousands)
- -----------------------------------------------------------------------------------------------
Three Months Ended March 31,
-----------------------------
2003 2002
- -----------------------------------------------------------------------------------------------
REVENUE
Professional and Technical Services...................... $ 2,202 $ 3,721
e-Learning ............................................... 429 411
------------- ------------
Total ................................................. $ 2,631 $ 4,132
============= ============
NET LOSS BEFORE INCOME TAX
Professional and Technical Services ..................... $ (392) $ (61)
e-Learning .............................................. (575) (939)
Corporate and Other ..................................... (150) (125)
------------- ------------
Total ................................................. $ (1,117) $ (1,125)
============= ============
DEPRECIATION AND AMORTIZATION EXPENSE
Professional and Technical Services ..................... $ 6 $ 13
e-Learning .............................................. 135 208
Corporate and Other ..................................... 3 4
------------- ------------
Total ................................................. $ 144 $ 225
============= ============
- -----------------------------------------------------------------------------------------------
Revenues outside of the United States have been less than 1% of total
Company revenues in each of the quarters ended March 31, 2003 and 2002,
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, 2002.
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, in the third quarter of 2002, the Company began offering
non-hosted e-Learning licensing arrangements to distributors and clients. These
types of sales are accounted for under the AICPA Statement of Position 97-2,
"Software Revenue Recognition" (SOP 97-2). Prior to this change in the business
model, the Company capitalized costs related to the development of the
e-Learning training sources under SOP 98-1. In accordance with that statement,
before revenue can be recognized from any non-hosted sales of e-Learning
training courses for which the development costs have been capitalized, the
carrying value of the training course capitalized costs must be reduced to zero
by the value of the licensed sales. Through the first quarter of 2003, the
capitalized costs have been reduced by $23,000 from the sale of a non-hosted
courseware license. The remaining net capitalized costs of the e-Learning
courses were $84,000 at March 31, 2003. Because the Company to date has had very
limited activity in non-hosted license sales, it is unable to predict when the
Company will be able to recognize revenue from this type of sales.
Furthermore, 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
13
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.
TENERA, INC.
Results of Operations
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------
Percent of Revenue
------------------------
Three Months Ended
March 31,
------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------
Revenue ........................................................................ 100.0% 100.0%
Direct Costs ................................................................... 84.8 87.9
General and Administrative Expenses ............................................ 56.5 38.9
Other Expense .................................................................. -- 0.1
---------- ----------
Operating Loss ............................................................... (41.3) (26.9)
Interest Expense, net .......................................................... (1.1) (0.3)
---------- ----------
Net Loss Before Income Tax Expense ............................................. (42.4)% (27.2)%
========== ==========
- -----------------------------------------------------------------------------------------------------------------
Results of Operations
Net loss before income tax expense for the quarter ended March 31, 2003
was $1,117,000, compared to net loss before tax expense of $1,125,000 for the
same period in 2002.
Professional and Technical Services Segment revenue for the first three
months of 2003 decreased 41% ($1.5 million) from the same period in 2002,
primarily due to a lower allocation of work to lower-tier subcontractor teams at
the Rocky Flats site. For the first quarter of 2003, the concentration of
revenue from government projects decreased to 68% of total Company revenue from
69% in the comparable period in 2002.
Revenue in the e-Learning Segment increased by $18,000 in the first
quarter of 2003, as compared to the same period in 2002, mainly due to a greater
number of new contracts.
Direct costs were lower in the first three months of 2003, compared to a
year ago, primarily as a result of decreased revenue generation in the
Professional and Technical Services Segment. Gross margin increased to 15% in
the first quarter of 2003 from 12% in the first quarter of 2002, mainly due to
an increase in e-Learning Segment margins and lower employee healthcare costs.
General and administrative costs, in the first quarter of 2003, were 8%
lower compared to a year ago, primarily reflecting higher utilization of
personnel.
Net interest expense in 2003 and 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 2003 was lower than 2002 due
to lower average cash balances and lower interest rates during the first quarter
of 2003 as compared to the same period in 2002.
14
Contract Backlog
During the first quarter of 2003, the Company received written contracts
and orders having an estimated value of approximately $1.7 million; $1.5 million
associated with the Professional and Technical Services Segment, $0.2 million in
new e-Learning Segment contracts. 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
partnerships and new orders under the SkillSoft agreement (see Note 4 to
Consolidated Financial Statements). Additionally, the Company renegotiated a
contract with a large e-Learning client, resulting in the reduction of $0.5
million of backlog in the first quarter of 2003.
Contracted backlog for currently, active projects totaled approximately
$8.7 million as of March 31, 2003, down from $12.3 million at December 31, 2002.
The decrease in backlog reflects the transfer of ownership and operations of
TENERA Energy, LLC, part of the Professional and Technical Services Segment, to
the former employees of that subsidiary in March 2003. The backlog transferred
in the transaction was approximately $2.1 million.
The Professional and Technical Services and e-Learning segments account
for $6.6 million and $2.1 million, respectively, of the backlog at March 31,
2003.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $850,000 during the first three
months of 2003. The decrease was due to cash used by operations ($935,000),
partially offset by the issuance of subordinated debt to a Company officer
($85,000) in March 2003 (see Note 5 to Consolidated Financial Statements).
Trade receivables, net of sales allowance, increased by $46,000 from
December 31, 2002, primarily due to higher unbilled receivables during the
period in the Professional and Technical Services Segment.
Other current assets increased by $14,000 due to the reclassification of a
refundable security deposit from long-term to current based on the expiration
date of the underlying facility lease. Included in other current assets is a
note receivable from the purchaser of TENERA Energy, LLC (see Note 1 to
Consolidated Financial Statements) related to the sale of property and equipment
($41,000). The note accrues interest at the published prime rate with accrued
interest and principal due March 31, 2004.
Other assets decreased by $21,000 from December 31, 2002 mainly due to the
reclassification mentioned above of a refundable security deposit from long-term
to current based on the expiration date of the underlying facility lease.
Accounts payable increased by $248,000 and accrued compensation and
related expenses decreased by $201,000 since the end of 2002. The majority of
the changes relate to the sale of TENERA Energy, LLC (see Note 1 to Consolidated
Financial Statements), whereby the employee vacation accrual ($134,000) was
transferred to the new owners, offset by an amount payable to the new owners by
the Company tied to the collection of existing receivables as of the transaction
date. The balance of the accounts payable increase is associated with accruals
made under the SkillSoft agreement (see Note 4 to Consolidated Financial
Statements). The balance of the accrued compensation and related expenses
decrease results from a reduction in the number of employees during the quarter.
Accrued interest expense increased by $30,000 from December 31, 2002
related to the subordinated debt (see Note 5 to Consolidated Financial
Statements).
No cash dividend was declared in the first three months of 2003.
The impact of inflation on project revenue and costs of the Company was
minimal.
15
At March 31, 2003, the Company had operating lease commitments through
2005 totaling $1,374,000, principally for real property (see Note 3 to
Consolidated Financial Statements). Additionally, the Company has other
long-term obligations through 2006, totaling $1,233,000, related to an agreement
with Skillsoft (formerly SmartForce) to co-develop and distribute Environmental,
Safety and Health and regulatory content via their 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 ..................... $ 1,374 $ 644 $ 730 $ -- $ --
Other Long-Term Obligations...................... 1,233 549 547 137 --
-------- -------- -------- -------- --------
Total Contractual Cash Obligations .............. $ 2,607 $ 1,193 $ 1,277 $ 137 $ --
- ----------------------------------------------------------------------------------------------------------------
In March 2003, the Company issued subordinated debt of $85,000 to an
officer of the Company to provide additional working capital (see Note 5 to
Consolidated Financial Statements) . The debt bears simple interest at the rate
of 8% per annum, has no maturity date, and is secured by the trade receivable
assets of GoTrain.
Management anticipates that in light of the current business environment,
the Company will experience further reduction in revenues expected to be
recognized in its Professional and Technical Services Segment during the
remainder of 2003. As a result, management believes that the cash expected to be
generated by operations of the Company's Professional and Technical Services
Segment will not be sufficient to enable the Company to support those segments
and to provide funding necessary for further development of its e-Learning
Segment. Although management believes that the e-Learning segment has
significant future potential, it is unable to identify funding sources beyond
what it has previously raised in capital for that segment.
Accordingly, in early 2003, the Company determined it is in the best
interest of the Company to either sell or dispose of its operating segments as
quick as possible this year or permit its operating units to dispose of their
assets. Management has undertaken efforts to accomplish this. As reported
previously, the Company reached agreement in the first quarter of 2003 to
transfer the ownership and operations of TENERA Energy, LLC, part of the
Professional and Technical Services segment, to the former employees of that
subsidiary. This transfer has been made by an assumption of certain liabilities
by the new owners for which the Company would otherwise be obligated. The
Company retains certain receivables. The future net cash proceeds to the Company
as a result of this transfer is not expected to be significant. Additionally,
the Company is in discussion to possibly dispose of its remaining business
operations and it is anticipated that any transaction involving these units will
be consummated in the second or third quarter of 2003.
At the present time, the Company is unable to determine the level the net
proceeds, if any, from the disposition of its remaining businesses after
settlement of the Company's obligations to third parties creditors, for taxes
and the cost of winding down its operations. Accordingly, the Company is unable
to determine whether funds will be available for distribution to shareholders.
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.
16
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our chief executive officer and our chief financial officer, after
evaluating our "disclosure controls and procedures" (as defined in Securities
Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and 15-d-14(c)) as of
a date (the "Evaluation Date") within 90 days before the filing date of this
quarterly report on Form 10-Q have concluded that as of the Evaluation Date, our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls.
Subsequent to the Evaluation Date, there were no significant changes in
our internal controls or in other factors that could significantly affect our
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
17
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: May 14, 2003
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
-----------------------------------------------------
Jeffrey R. Hazarian
Executive Vice President and Chief Financial Officer
19
CERTIFICATION
I, Robert C. McKay, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TENERA,
Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: May 14, 2003 /s/ ROBERT C. McKAY
------------------------------------------------
Robert C. McKay
Chief Executive Officer and President
20
CERTIFICATION
I, Jeffrey R. Hazarian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TENERA,
Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Dated: May 14, 2003 /s/ JEFFREY R. HAZARIAN
-------------------------------------------------------
Jeffrey R. Hazarian
Executive Vice President and Chief Financial Officer
21
EXHIBIT INDEX
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)