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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
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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 August 7, 1998, there were issued and outstanding 6,087,394 shares of the
Registrant's Common Stock.
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<PAGE>
CONCENTRA CORPORATION
FORM 10-Q
For the quarter ended June 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Balance Sheets as of June 30, 1998
(unaudited) and March 31, 1998............................... 3
b) Condensed Consolidated Statements of Operations for the three-
months ended June 30, 1998 and 1997 (unaudited).............. 4
c) Condensed Consolidated Statements of Cash Flows for the three-
months ended June 30, 1998 and 1997 (unaudited).............. 5
d) Notes to Condensed Consolidated Financial
Statements................................................... 6-9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 10-13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................ 14
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 14
ITEM 6. Exhibits and Reports on Form 8-K................................. 14
Signature ................................................................ 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, March 31,
--------- ---------
ASSETS 1998 1998
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,216 $ 1,067
Accounts receivable, net of allowance for doubtful
accounts of $795 3,053 4,507
Other current assets 2,747 959
-------- --------
Total current assets 8,016 6,533
Property and equipment, net 1,822 1,874
Capitalized software costs, net 1,394 1,986
Intangible assets, net 421 516
Other assets 185 303
-------- --------
Total assets $ 11,838 $ 11,212
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,510 $ 3,481
Accrued expenses 2,632 3,469
Income tax payable 221 302
Deferred revenue 1,577 2,714
Current portion of capital lease obligations 348 348
-------- --------
Total current liabilities 7,288 10,314
Capital lease obligations 401 473
Commitments and contingencies
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, 6,094,022 and 6,093,806 shares issued and
outstanding at June 30, 1998 and March 31, 1998,
respectively - -
Additional paid-in capital 27,791 27,789
Accumulated deficit (23,343) (27,002)
Cumulative translation adjustment (299) (362)
-------- --------
Total stockholders' equity 4,149 425
-------- --------
Total liabilities and stockholders' equity $ 11,838 $ 11,212
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
-------- --------
Revenues:
<S> <C> <C>
Software licenses $ 494 $ 936
Services 1,631 2,251
Software royalties from distributors 7,700 -
Related party software and services - 546
-------- --------
Total revenues 9,825 3,733
Operating expenses:
Cost of software licenses 308 1,000
Cost of software royalties from distributors 232 -
Cost of services 1,390 1,689
Sales and marketing 3,138 4,063
Research and development 1,292 908
General and administrative 735 681
Provision for bad debts - 100
Restructuring charge - 283
-------- --------
Total operating expenses 7,095 8,724
Income (loss) from operations 2,730 (4,991)
Interest income 8 66
Interest expense (39) (26)
Other income 970 21
-------- --------
Income (loss) before income taxes 3,669 (4,930)
Provision for income taxes 10 10
-------- --------
Net income (loss) $ 3,659 $ (4,940)
======== ========
Net income (loss) per common share - basic $ 0.60 $ (0.90)
======== ========
Weighted average number of common shares
outstanding - basic 6,094 5,506
======== ========
Net income (loss) per common share - diluted $ 0.59 $ (0.90)
======== ========
Weighted average number of common shares
outstanding - diluted 6,247 5,506
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,659 $ (4,940)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 604 658
Foreign exchange loss (gain) 19 (98)
Write off of intangible assets - 372
Provision for bad debt - 100
Valuation of marketable securities - 55
Changes in operating assets and liabilities:
Accounts receivable 1,461 7,461
Other assets (927) (105)
Accounts payable (935) (11)
Accrued expenses (900) (609)
Deferred revenue (1,090) (487)
Income taxes payable (81) (30)
-------- --------
Net cash provided by operating activities 1,810 2,366
-------- --------
Cash flows from investing activities:
Capitalized software costs (365) (225)
Purchase of property and equipment (196) (175)
Purchase of intangible assets - (102)
-------- --------
Net cash used in investing activities (561) (502)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 2 71
Principal payments under capital lease obligations (72) (94)
-------- --------
Net cash used in financing activities (70) (23)
-------- --------
Effects of exchange rates on cash and cash equivalents (30) (8)
Net increase in cash and cash equivalents 1,149 1,833
Cash and cash equivalents at beginning of period 1,067 3,890
-------- --------
Cash and cash equivalents at end of period $ 2,216 $ 5,723
======== ========
Supplemental disclosure of cash flow information:
Interest paid $39 $26
Income taxes paid $26 $40
Supplemental disclosure of non-cash investing and
financing activities:
Equipment acquired under capital lease obligations - $91
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
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 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, 1998. Operating results for the three-month period ended June 30, 1998
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 adopted Statement of Financial Accounting Standards No. 130
("SFAS 130") "Reporting Comprehensive Income," effective April 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company's only item of other
comprehensive income relates to foreign currency translation adjustments, and is
presented separately on the balance sheet as required. If presented on the
statement of operations for the three-months ended June 30, 1998 and June 30,
1997, comprehensive income would have been $3,722,000 and $(4,899,000),
respectively.
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131") "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), effective April 1, 1998. SFAS 131 does not need to be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application. SFAS 131 establishes standards for the way that
public business enterprises report selected information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company adopted Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP 97-2"), effective April 1, 1998. SOP 97-2 provides guidance
on applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 supercedes SOP 91-1, Software Revenue
Recognition, the AICPA's previous guidance on software revenue recognition.
<PAGE>
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
currencies and the euro. The participating countries have agreed to adopt the
euro as their common legal currency on that date. The Company is assessing the
potential impact from the euro conversion in a number of areas, including the
following: (1) the competitive impact of cross-border price transparency, which
may make it more difficult for businesses to charge different prices for the
same products on a country-by-country basis; (2) the impact on currency exchange
costs and currency exchange rate risk; and (3) the impact on existing contracts.
At this stage of its assessment, the Company can not yet predict the anticipated
impact of the euro conversion on the Company.
Certain fiscal year 1998 balances have been reclassified to conform to
fiscal year 1999 presentation.
B. COMMITMENTS AND CONTINGENCIES
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. As a consequence of
the Source License and Exclusive Distributorship Agreement, the payment of the
minimum commitment fee for the last three years of the contract will be shared
equally between the Company and Knowledge Technologies International ("the
Distributor"), a new company formed by Electra Fleming Investment Trust, plc
("Electra Fleming"), a UK based investment management firm. The Company's policy
is to recognize the consulting service expenses as the expenses are 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 be met, thus requiring the Company to record a charge in excess of the
services utilized. At June 30, 1998, the Company has used both the minimum first
and second-year commitments of $250,000 and $500,000 and has $342,000 remaining
to be used on the third-year commitment, which it expects to fully utilize by
the end of Fiscal 1999. Accordingly, the Company has recorded this unused
balance in prepaid assets.
C. NET INCOME PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the sum of the
weighted-average number of common shares outstanding for the period plus the
number of common shares issuable upon the assumed exercise of all dilutive
securities, such as stock options. The following table reconciles the numerator
and denominator of the basic and diluted earnings per share computations shown
on the Condensed Consolidated Statements of Operations.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
Basic EPS:
Numerator:
Net Income (loss) $ 3,659 $ (4,940)
Denominator:
Common Shares Outstanding 6,094 5,506
Basic EPS $ 0.60 $ (0.90)
======== ========
Diluted EPS:
Numerator:
Net Income (loss) $ 3,659 $ (4,940)
Denominator:
Common Shares Outstanding 6,094 5,506
Common Stock Equivalents 153 -
-------- --------
6,247 5,506
Diluted EPS: $ 0.59 $ (0.90)
======== ========
</TABLE>
Options to purchase 251,283 shares at June 30, 1998 were excluded from the
calculation of diluted earnings per share because the exercise prices of those
options exceeded the average market price of common stock for the three-month
period ended June 30, 1998.
D. THE SOURCE LICENSE AND EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
On June 1, 1998 the Company entered into a Source License and Exclusive
Distributorship Agreement, ("the Agreement"), to license the ICAD System(R), a
knowledge-based engineering software product, to Knowledge Technologies
International ("the Distributor"), a new company formed by Electra Fleming
Investment Trust, plc ("Electra Fleming"), a UK based investment management
firm. The Agreement grants the Distributor an exclusive world-wide license to
use the key software and intellectual property rights of the ICAD business and
assigns to the Distributor certain assets and contracts relating to the ICAD
business. Under the terms of the Agreement, the Distributor has agreed to pay
the Company fixed and variable royalties consisting of (a) eight fixed quarterly
royalty installments, totaling $18.7 million, and (b) a variable royalty in
1999, 2000, and 2001 equal to 10% of the amount by which gross revenues of the
Distributor related to the licensed software, calculated on a cumulative basis
from the date of the closing of the Agreement, exceed $17.5 million for the year
ending March 31, 1999, $35.0 million for the two-year period ending March 31,
2000 and $52.5 million for the three-year period ending March 31, 2001, in each
case less the aggregate variable royalties paid in respect of prior periods. The
Company will record revenue in the period in which the payments have been
received and the related services have been performed. Electra Fleming has
agreed to guarantee only the payment of the fixed royalty payments under the
Agreement. For the three-month period ended June 30, 1998, the Company received
$7.7 million in royalty payments from the Distributor.
E. TRANSITION AGREEMENT
Contemporaneous with the execution and delivery of the Agreement, the
Company and the Distributor entered into a Transition Agreement. The Transition
Agreement is designed to enable the Distributor to be operate with a minimum of
disruption during the transition period and provides for the transfer of certain
assets of the Company, including equipment, furniture and other agreed-upon
items in connection with the operation of the ICAD business. The Transition
Agreement also provides for the continuing provision of services by the Company
to the Distributor on a short-term basis, including shared use of the Company's
office facilities, networking and computing resources currently utilized by the
ICAD business and corporate services, in return for payment of the appropriate
allocated costs incurred. The Company will account for all payments received
from the Distributor for shared occupancy of facilities and use of computing
resources and corporate services as a reduction in the Company's expenses
associated therewith. For the three-month period ended June 30, 1998, the
Company received $1.0 million in payments from the Distributor related to the
Transition Agreement.
<PAGE>
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, 1998.
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 increased 163% to $9.8 million for the three-month
period ended June 30, 1998, from $3.7 million for the three-month period ended
June 30, 1997. The increase was due to software royalties from Knowledge
Technologies International ("the Distributor"), one of the Company's major
distributors, in relation to the Source License and Exclusive Distributorship
Agreement, ("the Agreement"), which the Company entered into on June 1, 1998.
SOFTWARE LICENSES. Software license revenues decreased 47% to $0.5 million
for the three-month period ended June 30, 1998, from $0.9 million for the
three-month period ended June 30, 1997, and decreased as a percentage of
revenues to 5% from 25%. The decreases were primarily due to the decrease in
ICAD software license revenues as a result of the Agreement.
SERVICES. Service revenues decreased 28% to $1.6 million for the
three-month period ended June 30, 1998, from $2.3 million for the three-month
period ended June 30, 1997, and decreased as a percentage of revenues to 17%
from 60%. Service revenues are derived from customer support, consulting, and
training services. The decreases were primarily due to lower consulting and
maintenance revenues related to lower software license revenues.
RELATED PARTY SOFTWARE AND SERVICES. There were no related party software
and services revenues for the three-month period ended June 30, 1998. Revenues
from related parties were $0.5 million for the three-month period ended June 30,
1997 and represented 15% of total revenues.
SOFTWARE ROYALTIES FROM DISTRIBUTORS. Software royalties from distributors
were $7.7 million for the three-month period ended June 30, 1998 and represented
78% of total revenues. There were no software royalties from distributors for
the three-month period ended June 30, 1997.
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 69% to $0.3 million for
the three-month period ended June 30, 1998, from $1.0 million for the
three-month period ended June 30, 1997, and decreased as a percentage of
software license revenues to 62% from 107%. The dollar decrease for the
three-month period ended June 30, 1998 was primarily due to lower amortization
costs associated with intangible assets, due to the write-off of one large, ICAD
related, intangible asset in the three-month period ended June 30, 1997.
COST OF SOFTWARE ROYALTIES FROM DISTRIBUTORS. Cost of software royalties
from distributors was $0.2 million for the three-month period ended June 30,
1998. There was no cost of software royalties from distributors for the
three-month period ended June 30, 1997.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, decreased 18% to
$1.4 million for the three-month period ended June 30, 1998, from $1.7 million
for the three-month period ended June 30, 1997, and increased as a percentage of
service revenues to 85% from 75%. The dollar decrease for the three-month period
ended June 30, 1998 was due primarily to the decrease in service revenues.
<PAGE>
SALES AND MARKETING. Sales and marketing expenses, which include
distribution, pre-sales support and marketing costs, decreased 23% to $3.1
million for the three-month period ended June 30, 1998, from $4.1 million for
the three-month period ended June 30, 1997, and decreased as a percentage of
revenues to 32% from 109%. The dollar decrease was primarily due to decreased
commissions associated with decreased software license revenues and a decrease
in salary-related expenses due to a decrease in sales and marketing headcount.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development costs increased 42%
to $1.3 million for the three-month period ended June 30, 1998 from $0.9 million
for the three-month period ended June 30, 1997, and decreased as a percentage of
revenues to 13% from 24%. The dollar increase for the three-month period ended
June 30, 1998 was primarily due to the addition of research and development
costs associated with the Company's Loandata subsidiary.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, were $0.7 million for the three-month periods ended
June 30, 1998 and 1997.
BAD DEBT EXPENSE. There was no bad debt expense for the three-month period
ended June 30, 1998. Bad debt expense for the three-month period ended June 30,
1997 was $0.1 million.
RESTRUCTURING. There was no restructuring charge for the three-month period
ended June 30, 1998. Restructuring charges for the three-month period ended June
30, 1997 were $0.3 million.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, for the three-month period ended June 30, 1998 was $8,000. Interest
income for the three-month period ended June 30, 1997 was $66,000. The decrease
was attributable to lower cash balances during the period.
INTEREST EXPENSE. Interest expense for the three-month period ended June
30, 1998 was $39,000. Interest expense for the three-month period ended June 30,
1997 was $26,000.
OTHER INCOME. Other income, for the three-month period ended June 30, 1998,
was $1.0 million, compared with income of $21,000 for the three-month period
ended June 30, 1997. During the three-month period ended June 30, 1998, the
Company recorded other income related to expenses of the Company reimbursable
under the Transition Agreement between the Company and the Distributor, ("the
Transition Agreement"). A portion of the amount funded pertains to expenses
incurred by the Company on behalf of the Distributor for the three-month period
ended March 31, 1998.
PROVISION FOR INCOME TAXES. The income tax provision for the three-month
period ended June 30, 1998 and June 30, 1997, was $10,000 in each year, and
relates to foreign taxes.
YEAR 2000 COMPLIANCE. The Company recognizes that it must ensure that its
products and operations will not be adversely impacted by year 2000 software
failures (the "Year 2000 issue") which can arise in time-sensitive software
applications which utilize a field of two digits to define the applicable year.
In such applications, a date using "00" as the year may be recognized as the
year 1900 rather than the year 2000. In general, the Company expects to resolve
Year 2000 issues through planned replacement or upgrades. In addition, the
Company expects that any costs incurred to modify its internal systems will not
be material. Although management does not expect Year 2000 issues to have a
material impact on its business or future results of operations, there can be no
assurance that there will not be interruptions of operations or other
limitations of system functionality or that the Company will not incur
significant costs to avoid such interruptions or limitations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had cash and cash equivalents of
approximately $2.2 million.
During the three-month period ended June 30, 1998, the Company recorded net
income of $3.7 million and generated a net cash increase of $1.1 million. The
Company's operating activities included a decrease in accounts receivable of
$1.5 million, a decrease in other assets, accounts payable and accrued expenses
of $0.9 million each, and a decrease in deferred revenue of $1.1 million.
Investing activities included capitalized software costs of $0.4 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 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. As a consequence of
the Agreement, the payment of the minimum commitment fee for the last three
years of the contract will be shared equally between the Company and the
Distributor, a new company formed by Electra Fleming Investment Trust, plc
("Electra Fleming"), a UK based investment management firm. The Company's policy
is to recognize the consulting service expenses as the expenses are 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 be met, thus requiring the Company to record a charge in excess of the
services utilized. At June 30, 1998, the Company has used both the minimum first
and second-year commitments of $250,000 and $500,000 and has $342,000 remaining
to be used on the third-year commitment, which it expects to fully utilize by
the end of Fiscal 1999. Accordingly, the Company has recorded this unused
balance in prepaid assets.
On June 1, 1998 the Company entered into a Source License and Exclusive
Distributorship Agreement, ("the Agreement"), to license the ICAD System(R), a
knowledge-based engineering software product, to the Distributor. The Agreement
grants the Distributor an exclusive world-wide license to use the key software
and intellectual property rights of the ICAD business and assigns to the
Distributor certain assets and contracts relating to the ICAD business. Under
the terms of the Agreement, the Distributor has agreed to pay the Company fixed
and variable royalties consisting of (a) eight fixed quarterly royalty
installments, totaling $18.7 million, and (b) a variable royalty in 1999, 2000,
and 2001 equal to 10% of the amount by which gross revenues of the Distributor
related to the licensed software, calculated on a cumulative basis from the date
of the closing of the Agreement, exceed $17.5 million for the year ending March
31, 1999, $35.0 million for the two-year period ending March 31, 2000 and $52.5
million for the three-year period ending March 31, 2001, in each case less the
aggregate variable royalties paid in respect of prior periods. The Company will
record revenue in the period in which the payments have been received and the
related services have been performed. Electra Fleming has agreed to guarantee
only the payment of the fixed royalty payments under the Agreement. For the
three-month period ended June 30, 1998, the Company received $7.7 million in
royalty payments from the Distributor.
Contemporaneous with the execution and delivery of the Agreement, the
Company and the Distributor entered into a Transition Agreement. The Transition
Agreement is designed to enable the Distributor to be operate with a minimum of
disruption during the transition period and provides for the transfer of certain
assets of the Company, including equipment, furniture and other agreed-upon
items in connection with the operation of the ICAD business. The Transition
Agreement also provides for the continuing provision of services by the Company
to the Distributor on a short-term basis, including shared use of the Company's
office facilities, networking and computing resources currently utilized by the
ICAD business and corporate services, in return for payment of the appropriate
allocated costs incurred. The Company will account for all payments received
from the Distributor for shared occupancy of facilities and use of computing
resources and corporate services as a reduction in the Company's expenses
associated therewith. For the three-month period ended June 30, 1998, the
Company received $1.0 million in payments from the Distributor related to the
Transition Agreement.
The Company believes that existing sources of liquidity and anticipated
funds from operations will satisfy the Company's working capital and capital
expenditure requirements through the next 12 months. There can be no assurance
that the Company's existing sources of liquidity will be adequate to fund the
future capital needs of the Company.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On June 12, 1998, the Company entered into a settlement agreement with one
of the Company's software customers related to a sale made in fiscal 1996. The
agreement called for the Company to pay the customer a settlement amount of
$450,000. The Company reserved for this liability during the fourth quarter of
Fiscal 1998.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 1, 1998 the Company held a special meeting of stockholders and
approved the licensing of the software and intellectual property rights of the
Company's ICAD business to Knowledge Technologies ("the Distributor") pursuant
to a Source License and Exclusive Distributorship Agreement and a Transition
Agreement. Under the terms of the agreements, the Company will receive royalty
payments totaling $18.7 million over the next two years, of which $8.2 million
was paid in June 1998. The Company is also entitled to receive variable royalty
payments through March 31, 2001 if the Distributor meets certain milestones.
The following votes were tabulated on the aforementioned proposal:
Number of Shares
For 4,060,405
Against 27,650
Abstain 7,850
Broker non-votes 0
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) There were no reports filed on Form 8-K during the period.
(b) 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.
+++10.28 Amendment to Loandata LLC Operating Agreement
+++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.
+++ Filed herewith.
<PAGE>
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: August 11, 1998
By: /s/ Alex Braverman
-------------------
Alex Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Amendment to Loandata LLC Operating Agreement
Pursuant to Section 9.5 of the Loandata LLC Operating Agreement (the
"Agreement"), Section 3.7.1 of the Agreement (as heretofore amended) is hereby
amended and restated to read in its entirety as follows:
3.7.1. At any time prior to the date on which the Company
has received an aggregate of $7,500,000 in Capital Contributions (other
than by way of contributions in the form of property) and capital from
the funding of the Vaults as contemplated in Section 3.9.1 (except prior
to the End of Offer Period relating to an Offer Notice pursuant to
Section 3.7.2, during the pendency of a Third Party Offer pursuant to
Section 3.7.3, or prior to the End of New Offer Period relating to a New
Offer Notice pursuant to Section 3.7.4, in any of which cases the rights
of the Class A Member to make additional Capital Contributions under
this Section 3.7 shall be governed by the provisions of Sections 3.7.2,
3.7.3 or 3.7.4, as the case may be), and subject to the provision set
forth in the last sentence of this Section 3.7.1, the Class A Member
may, in its sole discretion, by written notice to the Company elect to
make additional Capital Contributions to the Company on the terms set
forth in this Section 3.7.1. Until the dates indicated, the Class A
Member may acquire the following additional Percentage Interests in the
Company pursuant to this Section 3.7.1 (or lesser Percentage Interests
on a proportionate basis for lesser Capital Contributions) by making the
additional Capital Contribution set forth opposite the respective
Percentage Interests (with prior Capital Contributions from all Members
after the initial Capital Contributions made as of the date of this
Agreement and all capital received by the Company through the funding of
the Vaults as contemplated in Section 3.9.1 treated as Capital
Contributions solely for purposes of valuing the New Interest):
$1,500,000 an additional 21.868% July 31, 1998
$2,250,000 an additional 11.765% October 31, 1998
$3,150,000 an additional 6.666% January 31, 1999;
provided, however, that the Class A Member may not make an additional
Capital Contribution pursuant to this Section 3.7.1 after the date on
which the Company has received an aggregate of $2,100,000 before October
27, 1998 (or $4,350,000 afterwards) in Capital Contributions (other than
by way of contributions in the form of property) and capital from the
funding of the Vaults as contemplated in Section 3.9.1 without the
consent of a majority of the Board of Managers, which majority includes
at least one member who is not designated by the Class A Member.
Notwithstanding anything to the contrary in this Agreement, it is
anticipated that the Class A Member may loan the Company money or
provide services or property to the Company, at the Class A Member's
option (in addition to its capital contribution of $1,500,000 in July
1998) and this loan will be evidenced by a note or notes from the
Company. If on or before September 30, 1998 the Company has not entered
into a definitive agreement with an investor to make an investment of at
least $1,000,000 at a valuation equal to or greater than the valuation
step then in effect under this section 3.7.1 and if (i) any portion of
the loan remains outstanding and unpaid on September 30, 1998; or (ii)
any investor has agreed in writing to make an investment in the Company
at a valuation or terms less favorable to the Company than the valuation
step then in effect under this section 3.7.1; or (iii) approved by a
majority of the Board of Managers, which majority includes at least one
member who is not designated by the Class A Member, then all or any
portion of the outstanding loan (including accrued interest) may at the
option of the Class A Member be converted on or before January 31, 1999
to equity at a rate of 7.144% per $250,000.
<PAGE>
This amendment restatement supersedes all other amendments to this Agreement
which are dated before the effectiveness of this Amendment.
In all other respects the Agreement shall remain in full force and effect
without alteration. Effective as of the 17th day of July 1998.
Agreed and acknowledged by their authorized representatives:
/s/ Lawrence W. Rosenfeld
- -------------------------
Class A Member - Concentra Corporation
/s/ J. Tobias Reiley
- --------------------
Class B Member - Loandata.inc
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
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AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AS FILED ON FORM 10-Q FOR
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SUCH FINANCIAL STATEMENTS.
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