-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DRE188KWcftz/pihlWgcrlfCcjMfYu45nw6a36R++4PpVk1MpHKt4eMbhQaxlQCv uTQ/+KhOCCwI+U2PGAS1mw== 0000804731-02-000004.txt : 20020514 0000804731-02-000004.hdr.sgml : 20020514 ACCESSION NUMBER: 0000804731-02-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENERA INC CENTRAL INDEX KEY: 0000804731 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 943213541 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09812 FILM NUMBER: 02646387 BUSINESS ADDRESS: STREET 1: ONE MARKET, SPEAR TOWER STREET 2: SUITE 1850 CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1018 BUSINESS PHONE: 4155364744 MAIL ADDRESS: STREET 1: ONE MARKET, SPEAR TOWER STREET 2: SUITE 1850 CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1018 FORMER COMPANY: FORMER CONFORMED NAME: TENERA LP DATE OF NAME CHANGE: 19920703 10-Q 1 q1200210q.txt QUARTER ENDED MARCH 31, 2002 10Q 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, 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 March 31, 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 ..... 11 Item 3. Quantitative and Qualitative Disclosures of Market Risk ................................... 14 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 .......................................................... 15
______________________ * 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, ------------------------------ 2002 2001 - ---------------------------------------------------------------------------------------------------------------- Revenue ................................................................... $ 4,132 $ 5,873 Direct Costs .............................................................. 3,633 4,524 General and Administrative Expenses ....................................... 1,607 2,094 Other Expense ............................................................. 3 -- ------------- ------------ Operating Loss .......................................................... (1,111) (745) Interest (Expense) Income, net ............................................ (14) 21 ------------- ------------ Net Loss Before Income Tax Expense....................................... (1,125) (724) Income Tax Expense (Benefit) .............................................. 15 (211) ------------- ------------ Net Loss .................................................................. $ (1,140) $ (513) ============= ============ Net Loss per Share-- Basic ................................................ $ (0.11) $ (0.05) ============= ============ Net Loss per Share-- Diluted .............................................. $ (0.11) $ (0.05) ============= ============ 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, 2002 2001 - ---------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents ............................................... $ 2,373 $ 1,286 Trade receivables, less allowance of $539 (2001 - $547) Billed ................................................................ 1,900 1,533 Unbilled .............................................................. 1,126 1,259 Income tax receivable ................................................... -- 884 Other current assets .................................................... 198 238 ------------- ------------ Total Current Assets ................................................ 5,597 5,200 Property and Equipment, Net ............................................... 472 546 Other Assets .............................................................. 1,216 1,232 ------------- ------------ Total Assets ..................................................... $ 7,285 $ 6,978 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable ........................................................ $ 1,067 $ 1,136 Accrued compensation and related expenses ............................... 1,766 1,751 Deferred revenue ........................................................ 212 226 ------------- ------------ Total Current Liabilities ........................................... 3,045 3,113 Long-Term Liabilities Convertible debt and accrued interest ................................... 1,515 -- 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 ....................................... 5,677 5,677 Acummulated deficit...................................................... (2,563) (1,423) Treasury stock-- 433,086 shares (2001 - 433,086 shares).................. (493) (493) ------------- ------------ Total Stockholders' Equity ........................................ 2,725 3,865 ------------- ------------ Total Liabilities and Stockholders' Equity ....................... $ 7,285 $ 6,978 ============= ============ - ----------------------------------------------------------------------------------------------------------------
See accompanying notes. 2 TENERA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (In thousands)
- ----------------------------------------------------------------------------------------------------------------------------- Paid-In Common Stock Capital in ----------------------------- Excess Accumulated Treasury Shares Amount of Par Deficit Stock Total - ----------------------------------------------------------------------------------------------------------------------------- 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 ============ ============== ================ =============== ============== =============== - -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes. 3 TENERA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
- ---------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, ------------------------------ 2002 2001 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ................................................................ $ (1,140) $ (513) Adjustments to reconcile net earnings to cash provided (used) by operating activities: Depreciation and amortization.......................................... 225 172 Loss on disposal of assets ............................................ 3 -- Changes in assets and liabilities: Trade receivables, net of allowance ................................. (234) 1,746 Income tax receivable ............................................... 884 -- Other current assets ................................................ -- (216) Other assets ........................................................ (81) (249) Accounts payable .................................................... (69) (701) Accrued compensation and related expenses ........................... 15 82 Deferred revenue .................................................... (14) 32 Accrued interest expense ............................................ 15 -- ------------- ------------ Net Cash (Used) Provided By Operating Activities .................. (396) 353 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ................................... (17) (112) CASH FLOWS FROM FINANCING ACTIVITIES Sale of convertible debentures........................... 1,500 -- ------------- ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 1,087 241 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 1,286 2,487 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 2,373 $ 2,728 ============= ============ - -----------------------------------------------------------------------------------------------------------------
See accompanying notes. 4 TENERA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 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, 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 March 31, 2002, and the results of operations and cash flows for the three month periods ended March 31, 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 March 31, 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. 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 March 31, 2002, two clients accounted for 47% and 18% of the Company's trade receivables. At March 31, 2001, one client accounted for 67% of trade receivables. All the above concentrations relate to Professional and Technical Services Segment clients. Property and Equipment. Property and equipment are stated at cost ($3,362,000 and $3,360,000 at March 31, 2002 and 2001, respectively), net of accumulated depreciation ($2,890,000 and $2,814,000 at March 31, 2002 and 2001, respectively). Depreciation is calculated using the straight-line method over the estimated useful lives, which range from three to five years. 5 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 three month period ended March 31, 2002, the Company capitalized $81,000 of developed software costs, compared to $249,000 for the same period in 2001. The estimated useful life of costs capitalized is three years. For the first quarter of 2002 and 2001, the amortization of capitalized costs on the Company's books totaled $97,000 and $44,000, respectively. In the future, the Company expects to continue to capitalize costs relating to new course development, as well as costs associated with material enhancements and functionality of the existing software, as dictated by the marketplace. This is a new business model and segment for the Company and to date, management believes there have been no indicators of impairment for these assets. Revenue. The Company's Professional and Technical Services Segment primarily offers its services to the United States electric power industry and the DOE. Revenue from time-and-material and cost plus fixed-fee contracts is recognized when service is performed and costs are incurred. Revenue from fixed-price contracts is recognized on the basis of percentage of work completed (measured by costs incurred relative to total estimated project costs) under compliance with Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". The Company's e-Learning Segment's nonrefundable upfront subscription/license fees are recognized ratably over the contractual term, which is typically one year. Revenue recognition commences when delivery of product occurs. Usage fee revenue is recognized on an actual usage basis. Reserves are maintained for potential sales adjustments and credit losses; such losses to date have been within management's expectations. Actual revenue and cost of contracts in progress may differ from management estimates and such differences could be material to the financial statements. During the first quarter of 2002, two clients accounted for 64% and 11%, respectively, of total revenue. For the same period in 2001, one client accounted for 78% of the Company's total revenue. All the above concentrations relate to Professional and Technical Services Segment clients. Income Taxes. The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense recorded in the first quarter of 2002 reflects minimum taxes due in certain states for 2001 activity. Accounting for Stock-Based Compensation. The Company accounts for employee stock options in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"). 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. 6 The following table sets forth the computation of basic and diluted earnings per share as required by Financial Accounting Standards Board Statement No. 128: (In thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------- Three Months Ended March 31, -------------------------------- 2002 2001 - -------------------------------------------------------------------------------------------------------- Numerator: Net loss ...................................................... $ (1,140) $ (513) ============= ============ 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) $ (0.05) ============= ============ Diluted loss per share .......................................... $ (0.11) $ (0.05) ============= ============ - --------------------------------------------------------------------------------------------------------
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 is required to adopt FAS 144 for its fiscal year beginning 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 in the first quarter of 2002 and the Company does not expect any material effects in the future. Reclassifications. Certain reclassifications of prior year amounts have been made to conform with the current presentation. 7 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 $181,000 for the quarter ended March 31, 2002 ($173,000 in the first quarter of 2001). As of March 31, 2002, minimum rental commitments under operating leases, principally for real property, are as follows (in thousands): (Year Ending December 31)
- ---------------------------------------------------------------------------------------------------------------- 2002 ......................................................................................... $ 677 2003 ......................................................................................... 713 2004 ......................................................................................... 468 2005 ......................................................................................... 382 2006 and Thereafter .......................................................................... -- ------------ Total Minimum Payments Required .............................................................. $ 2,240 ============ - ----------------------------------------------------------------------------------------------------------------
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 day thereafter), for platform license and maintenance, and integration of existing GoTrain content. The Company paid $68,500 to SmartForce under the agreement in the first quarter of 2002. As of March 31, 2002, minimum net payments are as follows (in thousands): (Year Ending December 31)
- ---------------------------------------------------------------------------------------------------------------- 2002 ......................................................................................... $ 206 2003 ......................................................................................... 274 2004 ......................................................................................... 274 2005 ......................................................................................... 274 2006 and Thereafter .......................................................................... 206 ------------ Total Minimum Payments Required .............................................................. $ 1,234 ============ - ----------------------------------------------------------------------------------------------------------------
8 Note 5. Convertible Debt In March 2002, The Company's GoTrain subsidiary sold subordinated convertible debentures to private nvestors for a total principal amount of $1,500,000 ("Series 1 Debenture" - $1,000,000; "Series 2 Debenture" - $500,000). Each debenture bears simple interest at the rate of 8% per annum, with cumulative interest payable only if the debenture is not converted into convertible preferred stock of GoTrain, pursuant to the debenture terms. The maturity date of each debenture is July 31, 2003. The holders of the Series 1 Debenture have the option at any time to convert some or all of the debenture principal balance into preferred stock of GoTrain. Otherwise, the debenture will be automatically converted into preferred stock upon the earlier of July 31, 2003, or in the event of an underwritten public offering of GoTrain common stock. At full conversion, the holders will own approximately 22% of GoTrain. GoTrain has the option at any time to repay some or all of the Series 2 Debenture at face value or convert some or all of the debenture into preferred stock. Otherwise, the debenture will automatically convert into preferred stock under the same terms as the Series 1 Debenture. In the event of full conversion, the holders of the Series 2 Debenture would own approximately 11% of GoTrain. The Company accrued $15,000 of interest expense in the first quarter of 2002. 9 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, 2002 and 2001, and reconciliation to the Consolidated Statements of Operations, are as follows: (In thousands)
- ----------------------------------------------------------------------------------------------- Quarter Ended March 31, ----------------------------- 2002 2001 - ----------------------------------------------------------------------------------------------- REVENUE Professional and Technical Services...................... $ 3,721 $ 5,665 e-Learning ............................................... 411 208 ------------- ------------ Total ................................................. $ 4,132 $ 5,873 ============= ============ NET LOSS BEFORE INCOME TAX Professional and Technical Services ..................... $ (61) $ 379 e-Learning .............................................. (939) (952) Corporate and Other ..................................... (125) (151) ------------- ------------ Total ................................................. $ (1,125) $ (724) ============= ============ DEPRECIATION AND AMORTIZATION EXPENSE Professional and Technical Services ..................... $ 13 $ 17 e-Learning .............................................. 208 148 Corporate and Other ..................................... 4 7 ------------- ------------ Total ................................................. $ 225 $ 172 ============= ============ - -----------------------------------------------------------------------------------------------
Revenues outside of the United States have been less than 1% of total Company revenues in each of the quarters ended March 31, 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. 10 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. 11 TENERA, INC. Results of Operations (Unaudited)
- ---------------------------------------------------------------------------------------------------------------- Percent of Revenue ----------------------- Quarter Ended March 31, ----------------------- 2002 2001 - ---------------------------------------------------------------------------------------------------------------- Revenue ......................................................................... 100.0% 100.0% Direct Costs .................................................................... 87.9 77.0 General and Administrative Expenses ............................................. 38.9 35.7 Other Expense ................................................................... 0.1 -- ---------- ---------- Operating Loss ................................................................ (26.9) (12.7) Interest (Expense) Income, net .................................................. (0.3) 0.4 ---------- ---------- Net Loss Before Income Tax Expense (Benefit)..................................... (27.2)% (12.3)% ========== ========== - ----------------------------------------------------------------------------------------------------------------
Results of Operations Net loss before income tax expense for the quarter ended March 31, 2002 was $1,125,000, compared to net loss before tax benefit of $724,000 for the same period in 2001. The increase in loss primarily results from lower Professional and Technical Services Segment revenue, specifically reduced government projects. During the first quarter of 2002, the Company received written contracts and orders having an estimated value of approximately $1.1 million, $.9 million associated with the Professional and Technical Services Segment and $.2 million related to the e-Learning Segment. The activity in the Professional and Technical Services Segment primarily reflects additional work with existing commercial clients and the additional funding of the Company's contract at the Department of Energy's Rocky Flats site . The contract activity in the e-Learning Segment mainly relates to work with new clients and orders under the SmartForce agreement (see Note 4 to Consolidated Financial Statements). Contracted backlog for current, active projects totaled approximately $11.2 million as of March 31, 2002, down from $13.9 million at December 31, 2001. The Professional and Technical Services and e-Learning segments account for $7.7 million and $3.5 million, respectively, of the backlog at March 31, 2002. Professional and Technical Services Segment revenue for the first three months of 2002 decreased 34% ($1.9 million) from the same period in 2001, primarily due to a lower allocation of work to lower-tier subcontractor teams at the Rocky Flats site. For the first quarter of 2002, the concentration of revenue from government projects decreased to 69% of total Company revenue from 79% in the comparable period in 2001. Revenue in the e-Learning Segment increased by $203,000 in the first quarter of 2002, as compared to the same period in 2001, mainly due to a greater number of new contracts. Direct costs were lower in the first three months of 2002, compared to a year ago, primarily as a result of decreased revenue generation. Gross margin decreased to 12% in the first quarter of 2002 from 23% in the first quarter of 2001, mainly due to a decrease in margin on government business, increased integration expenditures related to the SmartForce e-Learning agreement, and higher employee healthcare costs . 12 General and administrative costs, in the first quarter of 2002, were 23% lower compared to a year ago, primarily reflecting a salary reduction program and furloughing non-essential personnel under a plan implemented in August 2001. 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 the 2001 period. Liquidity and Capital Resources Cash and cash equivalents increased by $1,087,000 during the first three months of 2002. The increase was due to the sale of convertible debentures ($1,500,000), partially offset by cash used by operations ($396,000), and acquisition of property and equipment ($17,000). Trade receivables, net of sales allowance, increased by $234,000 from December 31, 2001, primarily due to decreased 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. Other assets increased by $81,000 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 $69,000 since the end of 2001 primarily resulting from lower direct costs supporting decreased revenues. Accrued compensation and related expenses increased by $15,000 during the period, primarily reflecting fewer holiday and vacation days in the first quarter of the year. Accrued interest expense increased by $15,000 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 three months of 2002. The impact of inflation on project revenue and costs of the Company was minimal. At March 31, 2002, the Company had operating lease commitments through 2005 totaling $2,240,000, principally for real property (see Note 3 to Consolidated Financial Statements). Additionally, the Company has other long-term obligations through 2006, totaling $1,234,000, 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) Less Than 1 1 - 3 4 - 5 After 5 Total Year Years Years Years - ---------------------------------------------------------------------------------------------------------------- Capital Lease Obligations ....................... $ 2,240 $ 899 $ 1,055 $ 286 $ -- Other Long-Term Obligations...................... 1,234 274 548 412 -- -------- -------- -------- -------- -------- Total Contractual Cash Obligations .............. $ 3,474 $ 1,176 $ 1,603 $ 698 $ -- - ----------------------------------------------------------------------------------------------------------------
13 In March 2002, the Company's GoTrain subsidiary sold subordinated convertible debentures to private investors for a total principal amount of $1,500,000. Each debenture bears simple interest at the rate of 8% per annum, with cumulative interest payable only if the debenture is not converted into preferred stock of GoTrain, pursuant to the debenture terms. The maturity date of each debenture is July 31, 2003. The larger debenture, in the amount of $1,000,000, can be converted at any time by the holder into convertible preferred stock of GoTrain. The other debenture, in the amount of $500,000 can be repaid or converted into preferred stock at any time by GoTrain. Otherwise, the debentures will automatically convert into preferred stock at the earlier of the maturity date, or upon an underwritten public offering of GoTrain common stock. At maximum conversion, the holders would own approximately 33% of GoTrain (see Note 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 refund in March 2002, should be sufficient to enable the Company to support its Professional and Technical Services Segment operations as currently structured through the next twelve months. The funds generated by the issuance of the GoTrain convertible debentures can only be used for GoTrain operations pursuant to the terms of the debentures. Management believes this private placement financing will provide necessary support for GoTrain's business development activities based upon its simultaneous conversion to a self-sufficient mode of operation. The Company is currently seeking bank lines of credit for each of its segment operations to provide additional working capital support of their respective business activities. There can be no assurance that such sources of capital will be available in sufficient amounts or on terms favorable to the Company, or at all. 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. 14 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. (b) Reports on Form 8-K None. 15 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, 2002 TENERA, INC. By /s/ JEFFREY R. HAZARIAN ----------------------------------------------------------- Jeffrey R. Hazarian Executive Vice President and Chief Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----