<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997
-------------------
Commission File Number 0-25498
CONCENTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2827026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 NORTH AVENUE
BURLINGTON, MA 01803-3301
(Address of principal executive offices)
(781) 229-4600
(Registrant's telephone number, including area code)
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
--- ---
AS OF FEBRUARY 12, 1998, THERE WERE ISSUED AND OUTSTANDING 6,074,341 SHARES OF
THE REGISTRANT'S COMMON STOCK.
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<PAGE> 2
CONCENTRA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Balance Sheets as of December 31, 1997
(unaudited) and March 31, 1997................................. 3
b) Condensed Consolidated Statements of Operations for the three-
and nine-months ended December 31, 1997 and 1996 (unaudited)... 4
c) Condensed Consolidated Statements of Cash Flows for the nine-
months ended December 31, 1997 and 1996 (unaudited)............ 5
d) Notes to Condensed Consolidated Financial
Statements.................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................. 12
Signatures........................................................ 13
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
(Unaudited)
----------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,532 $ 3,890
Marketable securities -- 203
Accounts receivable, net of allowance for doubtful accounts of $1,224
and $125, respectively 4,181 13,128
Other current assets 1,819 1,615
-------- --------
Total current assets 8,532 18,836
Property and equipment, net 2,079 2,612
Capitalized software costs, net 1,965 1,878
Intangible assets, net 611 1,333
Other assets 290 372
-------- --------
Total assets $ 13,477 $ 25,031
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,830 $ 1,551
Accrued expenses 3,203 4,123
Income tax payable 263 273
Deferred revenue 1,631 2,898
Current portion of capital lease obligations 347 423
-------- --------
Total current liabilities 7,274 9,268
Capital lease obligations 549 611
Deferred revenue 58 84
Commitments and contingencies (Note B) -- --
Stockholders' equity:
Preferred stock - $.01 par value; 4,000,000 shares authorized, no
shares issued or -- --
outstanding
Common stock - $.00001 par value; 40,000,000 shares authorized,
6,074,341 and 5,499,211 shares issued and outstanding at
December 31, 1997 and March 31, 1997, respectively -- --
Additional paid-in capital
27,736 25,578
Accumulated deficit (21,721) (10,099)
Cumulative translation adjustment (419) (411)
-------- --------
Total stockholders' equity 5,596 15,068
-------- --------
Total liabilities and stockholders' equity $ 13,477 $ 25,031
======== ========
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Software licenses $ 622 $ 6,327 $ 3,524 $ 14,654
Services 1,983 1,604 7,146 5,242
Related party software and services 143 3 789 96
-------- -------- -------- --------
Total revenues 2,748 7,934 11,459 19,992
Operating expenses:
Cost of software licenses 411 531 1,840 1,502
Cost of services 1,351 1,000 3,511 2,641
Sales and marketing 3,401 3,839 10,005 10,297
Research and development 996 972 2,685 2,426
General and administrative 1,858 627 3,229 1,921
Restructuring charge -- -- 283 --
-------- -------- -------- --------
Total operating expenses 8,017 6.969 21,553 18,787
Income (loss) from operations (5,269) 965 (10,094) 1,205
Interest income 37 75 157 250
Interest expense (23) (26) (75) (79)
Other (expense) income (79) 55 (70) 462
Loss on investment (933) -- (1,510) --
-------- -------- -------- --------
Income (loss) before income taxes (6,267) 1,069 (11,592) 1,838
Provision for income taxes 10 267 30 460
-------- -------- -------- --------
Net income (loss) $ (6,277) $ 802 $(11,622) $ 1,378
======== ======== ======== ========
Basic income (loss) per common and
common equivalent share $ (1.10) $ 0.14 $ (2.08) $ 0.24
======== ======== ======== ========
Weighted average number of
common shares outstanding 5,693 5,852 5,582 5,700
======== ======== ======== ========
Diluted income (loss) per common and
common equivalent share $ (1.10) $ 0.14 $ (2.08) $ 0.24
======== ======== ======== ========
Weighted average number of diluted
common and common equivalent shares
outstanding 5,693 5,858 5,582 5,705
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(11,622) $ 1,378
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,867 1,708
Foreign exchange (gain) loss 79 (62)
Write off of intangible assets 372 --
Provision for bad debt 1,101 --
Loss on sale of marketable securities 14 --
Write down of other asset 82 --
Changes in operating assets and liabilities:
Accounts receivable 7,841 (5,140)
Other assets (191) (105)
Accounts payable 280 (370)
Accrued expenses (980) 172
Deferred revenue (1,302) (672)
Income taxes payable (10) 429
-------- -------
Net cash provided by (used in) operating activities (2,469) (2,662)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment (163) (326)
Capitalized software costs (700) (720)
Purchase of intangible assets (104) (96)
Proceeds from sale of marketable securities 189 --
-------- -------
Net cash used in investing activities (778) (1,142)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance cost 2,052 --
Proceeds from exercise of stock options 106 407
Principal payments under capital lease obligations (242) (190)
-------- -------
Net cash provided by (used in) financing activities 1,916 217
-------- -------
Effects of exchange rates on cash and cash equivalents (27) (302)
Net increase (decrease) in cash and cash equivalents (1,358) (3,889)
Cash and cash equivalents at beginning of year 3,890 9,121
-------- -------
Cash and cash equivalents at end of period $ 2,532 $ 5,232
======== =======
Supplemental disclosure of cash flow information:
Interest paid $ 75 $ 79
Income taxes paid $ 40 $ 31
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired under capital lease obligations $ 104 $ --
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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CONCENTRA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Concentra Corporation (the "Company") and its wholly-owned foreign subsidiaries.
All significant intercompany transactions and balances have been eliminated. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present such information fairly. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to Securities and Exchange Commission rules and
regulations. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997. Operating results for the three-month and nine-month periods
ended December 31, 1997 may not necessarily be indicative of the results to be
expected for any other interim period or for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates in the financial statements
include but are not limited to accounts receivable, sales and return, and income
tax valuation allowances. Actual results could differ from those estimates.
The Company has adopted the standards for calculating earnings per share
("EPS") pursuant to Statement of Financial Accounting Standards No. 128 ("SFAS
128") which supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion 15")
and replaces the presentation of primary EPS with a presentation of basic EPS.
Basic EPS is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the year of
computation. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15 with some modifications and is not materially different for the
three-month and nine-month periods ended December 31, 1997 and 1996. The
condensed consolidated financial statements for the three-month and nine-month
periods ended December 31, 1997 and 1996 have been restated to conform to SFAS
128.
Options to purchase 1,467,880 shares of common stock at prices ranging from
$1.375 to $11.25 were outstanding during the three and nine-month periods ended
December 31, 1997, but were not included in the computation of diluted EPS
because of their anti-dilutive nature. Options to purchase 903,862 and 1,026,679
shares of common stock at prices ranging from $4.875 to $11.25 were outstanding
during the three and nine-month periods ended December 31, 1996, respectively,
but were not included in the computation of diluted EPS because of their
anti-dilutive nature.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -----------------
Description 1997 1996 1997 1996
- ----------- ----- ----- ----- -----
(in thousands of shares)
<S> <C> <C> <C> <C>
Basic weighted average
shares outstanding 5,693 5,852 5,582 5,700
Weighted average effect of
dilutive stock options -- 6 -- 5
Dilutive weighted average
shares outstanding 5,693 5,858 5,582 5,705
</TABLE>
Certain fiscal year 1997 balances have been reclassified to conform to
fiscal year 1998 presentation.
B. COMMITMENTS AND CONTINGENCIES
Lines of Credit
The Company's demand line of credit of $2,500,000 expired on June 30, 1997.
This line of credit contained financial covenants consisting of minimum tangible
capital base, ratio of total liabilities to tangible capital base and debt
service coverage. The Company would not currently be in compliance with these
covenants were the line of credit in effect and is negotiating with the
commercial lender to extend and amend the line of credit. The Company's
$1,750,000 equipment line of credit, collateralized by equipment, expired on
March 31, 1997. The Company is negotiating with the commercial lender to extend
and amend this line of credit. As of December 31, 1997, the Company had borrowed
$1,413,000 under the equipment line of credit. There can be no assurance the
Company will be successful in extending and amending the lines of credit, nor
can there be any assurance that such extended and amended lines of credit
6
<PAGE> 7
will be on similar terms as the existing agreements. Additionally, there can be
no assurance that alternative funding will be available if required.
Consulting Arrangements
During fiscal 1996, the Company entered into a $5,000,000 five-year
applications consulting services contract with a significant customer of the
Company. The five-year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 for outside applications services to be used by
the Company over a five-year period. The minimum commitment of $2,500,000 will
be paid in five yearly payments commencing December 31, 1996. These yearly
payments are $250,000, $500,000, $550,000, $600,000 and $600,000 for the five
calendar years beginning December 31, 1996, respectively. The Company recognizes
the consulting service expenses as incurred. The Company believes that the
minimum payment accruals will be fully utilized based on current forecasts.
However, given the significant sales fluctuations which may occur in any given
period, it is possible the minimum commitments would not be met, thus requiring
the Company to record a charge in excess of the services utilized. At December
31, 1997, the Company had fully used the minimum first-year commitment of
$250,000.
C. INVESTMENT IN LOANDATA.inc.
During fiscal 1997, the Company made an investment of $82,000 in
Loandata.inc., an e-commerce company developing the electronic underwriting of
car leases and loans using the SellingPoint product. Additional investments of
$143,000, $200,000 and $425,000 were made in the three-month periods ended June
30, 1997, September 30, 1997 and December 31, 1997, respectively. The Company
has recorded this as a majority owned subsidiary which it has consolidated in
the Company's results. Prior to the quarter ended December 31, 1997, the
Company, under the equity method, recognized its share of loss each reporting
period. Accordingly, the Company recorded a loss of $50,000 in the three-month
period ended June 30, 1997, a loss of $527,000 for the three-month period ended
September 30, 1997 and a loss of $933,000 for the three-month period ended
December 31, 1997. Such losses are recorded in loss on investment. Additionally,
included in the $527,000 loss and the $933,000 loss recorded for the three-month
periods ended September 30, 1997 and December 31, 1997 are operating expenses of
$152,000 and $79,000 respectively which represent cross-functional work
performed on the Loandata.inc. product. These operating expenses have been
reclassified primarily from cost of services and research and development
expenses.
On December 24, 1997, the Company entered into an agreement to acquire a
53.4% majority interest in a newly-created limited liability company that will
be the successor to the business of Loandata.inc. Loandata.inc. will contribute
all of its assets, including its proprietary technology, to the
newly-established subsidiary of the Company, in exchange for a minority interest
in the subsidiary.
Prior to December 24, 1997, the Company had an ownership percentage of 15%
in Loandata.inc. and used the equity method of accounting based upon its
significant influence on the operations of Loandata.inc.
D. PRIVATE PLACEMENT
On December 3, 1997, the Company completed a private placement of 470,589
shares of common stock at $4.25 per share, providing gross proceeds of $2.0
million. The Company intends to use the net proceeds of the private placement
for working capital and general corporate purposes.
E. AGREEMENT IN PRINCIPAL TO LICENSE ICAD SYSTEM
On December 30, 1997, the Company announced that it had agreed in principal
to license its ICAD System to a company created and financed by Electra Fleming,
a leading UK-based investment house. The new company will become the exclusive
worldwide distributor of the ICAD System and will be led by members of the ICAD
business unit team.
7
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements about the Company's
business and new products, revenues, expenditures and operating and capital
requirements. In addition, forward-looking statements may be included in various
other Company documents to be issued in the future and in various oral
statements by Company representatives to security analysts and investors from
time to time. Any such statements are subject to risks that could cause the
actual results or needs to vary materially. The Company discusses such risks in
detail in its Annual Report on Form 10-K for the year ended March 31, 1997.
RESULTS OF OPERATIONS
TOTAL REVENUES. Substantially all of the Company's revenues are derived
from the licensing of software products and the performance of related services.
The Company's total revenues decreased 65% to $2.7 million for the three-month
period ended December 31, 1997, from $7.9 million for the three-month period
ended December 31, 1996. The Company's total revenues decreased 43% to $11.5
million for the nine-month period ended December 31, 1997, from $20.0 million
for the nine-month period ended December 31, 1996. These decreases were
primarily due to the decrease in ICAD software license fees within the
aerospace sector.
SOFTWARE LICENSES. Software license fees decreased 90% to $0.6 million for
the three-month period ended December 31, 1997, from $6.3 million for the
three-month period ended December 31, 1996, and decreased as a percentage of
revenues to 23% from 80%. Software license fees decreased 73% to $4.0 million
for the nine-month period ended December 31, 1997, from $14.7 million for the
nine-month period ended December 31, 1996, and decreased as a percentage of
revenues to 35% from 73%. The decreases were primarily due to the decrease in
ICAD software license fees within the aerospace sector.
SERVICES. Service fees increased 24% to $2.0 million for the three-month
period ended December 31, 1997, from $1.6 million for the three-month period
ended December 31, 1996, and increased as a percentage of revenues to 72% from
20%. Service fees increased 28% to $6.7 million for the nine-month period ended
December 31, 1997, from $5.2 million for the nine-month period ended December
31, 1996, and increased as a percentage of revenues to 58% from 26%. Service
revenues are derived from customer support, consulting, and training services.
The increases were primarily due to higher consulting revenues.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
increased to $0.1 million for the three-month period ended December 31, 1997
from $3,000 for the three-month period ended December 31, 1996, and increased as
a percentage of revenues to 5% from less than one percent. Revenues from related
parties increased to $0.8 million for the nine-month period ended December 31,
1997 from $0.1 million for the nine-month period ended December 31, 1996, and
increased as a percentage of revenues to 7% from less than one percent. The
increases were due to a software license sale and consulting agreement with a
related party.
COST OF SOFTWARE LICENSES. Cost of software licenses, consisting of the
amortization of capitalized software, license fees to third-party suppliers and
software duplication and fulfillment costs, decreased 23% to $0.4 million for
the three-month period ended December 31, 1997, from $0.5 million for the
three-month period ended December 31, 1996, and increased as a percentage of
software revenues to 66% from 8%. The dollar decrease for the three-month period
ended December 31, 1997 was primarily due to lower license fees to third
parties. This decrease was partially offset by an increase in the amortization
of capitalized software. Cost of software licenses increased 23% to $1.8 million
for the nine-month period ended December 31, 1997, from $1.5 million for the
nine-month period ended December 31, 1996, and increased as a percentage of
software revenues to 46% from 10%. The dollar and percentage increases for
8
<PAGE> 9
the nine-month period ended December 31, 1997 were primarily due to a write off
of an intangible asset amounting to $372,000 during the three-month period
ending June 30, 1997 and amortization of capitalized software.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 35% to
$1.4 million for the three-month period ended December 31, 1997, from $1.0
million for the three-month period ended December 31, 1996, and increased as a
percentage of service revenues to 68% from 62%. Cost of services increased 33%
to $3.5 million for the nine-month period ended December 31, 1997, from $2.6
million for the nine-month period ended December 31, 1996, and increased as a
percentage of service revenues to 53% from 50%. The increases for the three -
and nine-month periods ended December 31, 1997 were due primarily to the
outsourcing of additional personnel at higher rates to support consulting
services and increased headcount.
SALES AND MARKETING. Sales and marketing expenses, which include
distribution, pre-sales support and marketing costs, decreased 11% to $3.4
million for the three-month period ended December 31, 1997, from $3.8 million
for the three-month period ended December 31, 1996, and increased as a
percentage of revenues to 124% from 48%. The dollar decrease was primarily due
to decreased commissions associated with decreased revenues and a decrease in
salary related expenses due to a decrease in sales and marketing headcount.
Sales and marketing expenses decreased 3% to $10.0 million for the nine-month
period ended December 31, 1997, from $10.3 million for the nine-month period
ended December 31, 1996. As a percentage of revenues, sales and marketing
expenses increased to 87% for the nine-month period ended December 31, 1997,
compared to 52% for the comparable period in 1996. The dollar decrease for the
nine-month period ended December 31, 1997 was primarily due to the decreased
commissions associated with decreased revenues and decreased marketing. These
decreases were offset by an increase in marketing and promotional activities
during the three month period ended December 31, 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development costs remained
constant at $1.0 million for the three-month period ended December 31, 1997 and
December 31, 1996, but increased as a percentage of revenues to 36% from 12%.
Research and development expenses increased 11% to $2.7 million for the
nine-month period ended December 31, 1997, from $2.4 million for the nine-month
period ended December 31, 1996, and increased as a percentage of revenues to 23%
from 12%. The increases for the nine-month period ended December 31, 1997 were
primarily due to the addition of research and development employees associated
with the development of the Company's SellingPoint product.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 196% to $1.9 million for the three-month
period ended December 31, 1997, from $0.6 million for the three-month period
ended December 31, 1996, and increased as a percentage of revenues to 68% from
8%. The increase was primarily due to a bad debt provision of $1.0 million to
protect against currency issues in Asia and for a United Kingdom VAT receivable
that has aged significantly, and an increase in higher legal costs associated
with the transition of ICAD during the three-month period ended and December 31,
1997. The Company views the bad debt provision as an isolated occurrence and
does not expect this trend to continue. General and administrative expenses
increased 68% to $3.2 million for the nine-month period ended December 31, 1997,
from $1.9 million for the nine-month period ended December 31, 1996, and
increased as a percentage of revenues to 28% from 10%. These increases for the
nine-month period ended December 31, 1997 were primarily due to higher legal
costs and an increase in the bad debt provision during the nine-month period
December 31, 1997.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, for the three- and nine-month period ended December 31, 1997 was
$37,000 and $157,000, respectively. Interest income for the three - and
nine-month period ended December 31, 1996 was $75,000 and $250,000,
respectively.
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<PAGE> 10
INTEREST EXPENSE. Interest expense for the three- and nine-month period
ended December 31, 1997 was $23,000 and $75,000, respectively. Interest expense
for the three - and nine-month period ended December 31, 1996 was $26,000 and
$79,000, respectively.
OTHER INCOME (EXPENSE). Other income (expense), consisting primarily of
foreign exchange gains (losses) on intercompany transactions, and marking to
market certain trading securities, for the three-month period ended December 31,
1997, was an expense of $79,000, compared with income of $55,000 for the
three-month period ended December 31, 1996. Other income for the nine-month
period ended December 31, 1997, was an expense of $70,000 compared with income
of $462,000 for the nine-month period ended December 31, 1996. During the three
month period ended September 30, 1997, the Company sold its marketable security.
LOSS ON INVESTMENT. Loss on investment consists of the recording of losses
related to an investment in Loandata.inc. During the three and nine-month
periods ended December 31, 1997, the Company adjusted the investment in
Loandata.inc. to expense the amounts funded of $933,000 and $1,510,000,
respectively, due to uncertainty related to the realizability of the investment.
PROVISION FOR INCOME TAXES. The income tax provision for the three- and
nine-month periods ended December 31, 1997, was $10,000 and $30,000,
respectively, and relates to foreign taxes. The income tax provision for the
three- and nine-month period ended December 31, 1996, was $267,000 and $460,000,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of
approximately $2.5 million. The Company completed a private placement on
December 5, 1997 providing gross proceeds of $2.0 million. The Company had a
line of credit with a commercial lender, bearing interest at the bank's base
lending rate, which expired on June 30, 1997. Under this line of credit, as
amended, the Company had a $2,500,000 unsecured working capital line of credit.
The line of credit contained financial convenants, which consisted of minimum
tangible capital base, ratio of total liabilities to tangible capital base and
debt service coverage. The Company would not currently be in compliance with
these covenants were the line of credit in effect and is negotiating with the
commercial lender to extend and amend the line of credit. The Company's
$1,750,000 equipment line of credit, collateralized by equipment, expired on
March 31, 1997. The Company is negotiating with the commercial lender to extend
and amend the equipment line of credit. As of December 31, 1997, the Company had
borrowed $1,413,000 under the equipment line of credit. There can be no
assurance that the Company will be successful in extending and amending the
lines of credit nor can there be any assurance that such extended and amended
lines of credit will be on similar terms as the existing agreements.
Additionally, there can be no assurance that alternative financing will be
available if required.
During the nine-month period ended December 31, 1997, the Company had a net
loss of $11.6 million and generated a net cash decrease of $1.4 million. The
decrease in cash and cash equivalents was due primarily to $2.5 million used in
operating activities. The Company's operating activities included a decrease in
accounts receivable of $7.8 million. Investing activities included the private
placement of $2.0 million, capitalized software costs of $0.7 million and the
purchase of property and equipment for $0.2 million consisting primarily of
computer equipment.
During fiscal 1996, the Company entered into a $5,000,000 five-year
applications consulting services contract with a significant customer of the
Company. The five-year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 of outside applications services that will be
used by the Company over a five-year period. The minimum commitment of
$2,500,000 will be paid in five yearly payments commencing December 31, 1996.
These yearly payments are $250,000, $500,000, $550,000, $600,000 and $600,000
for the five calendar years beginning December 31, 1996, respectively. The
Company's policy is to recognize the consulting service expenses as incurred.
The Company believes that based on current forecasts the minimum payment
accruals will be utilized. However, given the significant sales fluctuations
which may occur in any given period, it is possible that the minimum commitment
would not
10
<PAGE> 11
be met, thus requiring the Company to record a charge in excess of the services
utilized. At December 31, 1997, the Company had used the minimum first-year
commitment of $250,000.
On December 24, 1997, the Company entered into an agreement to acquire a
53.4% majority interest in a newly-created limited liability company that will
be the successor to the business of Loandata.inc., an e-commerce company
developing the electronic underwriting of car leases and loans using the
SellingPoint product. Loandata.inc. will contribute all of its assets, including
its proprietary technology, to the newly-established subsidiary of the Company,
in exchange for a minority interest in the subsidiary.
On December 30, 1997, the Company announced that it had agreed in principal
to license its ICAD System to a company created and financed by Electra Fleming,
a leading UK-based investment house. The new company will become the exclusive
worldwide distributor of the ICAD System and will be led by members of the ICAD
business unit team.
The terms of the offer submitted by Electra Fleming call for the Company to
receive fixed payments of approximately $18.7 million over the next two years
plus variable payments until March 2001, based on ICAD revenues. Negotiations
and due diligence are progressing in anticipation of the execution of a formal
agreement. The transaction is subject to a number of conditions, including
completion of due diligence, commercial negotiations and final approval by
Electra's board of directors and Concentra's board of directors and
shareholders.
The Company believes that existing sources of liquidity and anticipated
funds from operations will satisfy the Company's working capital and capital
expenditure requirements at least through fiscal 1998 and fiscal 1999 provided
that the Electra Fleming transaction is completed. The Company is continuing to
explore alternative sources of financing.
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PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
+3.01 Restated Certificate of Incorporation of the Registrant, as
amended to date
+3.02 Restated By-Laws of the Registrant.
++3.03 Certificate of Designations.
+4.01 Specimen Stock Certificate for Common Stock, $.00001 par value.
++4.02 Rights Agreement dated as of April 24, 1997, between the
Registrant and The First National Bank of Boston, as Rights
Agent.
++4.03 Form of Right Certificate.
++++10.25 Loandata LLC Operating Agreement.
+++10.26 Stock Purchase Agreement dated as of December 3, 1997 by and
between Concentra Corporation and the Purchasers named on the
signature page thereto.
++++27 Financial Data Schedule.
- -------------------------------------------------------------------------------
+ Previously filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550.
++ Previously filed as an Exhibit to the Registrant's Form 8-K dated
April 24, 1997.
+++ Previously filed as an Exhibit to the Registrant's Form 8-K dated
December 3, 1997.
++++ Filed herewith.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated December 3, 1997
reporting the completion of a private placement of 470,589 shares of the
Company's common stock, $.00001 par value per share, at a purchase price of
$4.25 per share, in a transaction led by Special Situations Fund.
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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.
CONCENTRA CORPORATION
Date: May 12, 1998
By: /s/ Alex Braverman
--------------------
Alex Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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