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Appendix A
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 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 of organization) Identification No.)
21 NORTH AVENUE
BURLINGTON, MA 01803
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 229-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Rights to Purchase Series A Participating Cumulative Preferred Stock
--------------------------------------------------------------------
$.00001 par value
-----------------
Common Stock $.00001 par value
------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. \__\
Aggregate market value of Registrant's voting stock held by non-affiliates
of the Registrant as of June 24, 1997 was $43,590,708. As of June 27, 1997,
there were issued and outstanding 5,535,328 shares of the Registrant's Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following document has been incorporated by reference in the following
part of the Form 10-K: Definitive Proxy Statement for the August 29, 1997 Annual
Meeting incorporated by reference (to the extent specified) in Part III.
================================================================================
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CONCENTRA CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
TABLE OF CONTENTS
PART I
<CAPTION>
ITEM DESCRIPTION PAGE(S)
- ---- ----------- -------
<S> <C> <C>
1 Business ....................................................................................... 3-18
2 Properties ..................................................................................... 18
3 Legal Proceedings .............................................................................. 18
4 Submission of Matters to a Vote of Security Holders ............................................ 19
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters .......................... 20
6 Selected Financial Data ........................................................................ 21
7 Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 22-30
8 Financial Statements ........................................................................... 31-50
9 Changes and Disagreements with Accountants on Accounting and Financial Disclosure .............. 51
PART III
10 Directors and Executive Officers of the Registrant ............................................. 51
11 Executive Compensation ......................................................................... 51
12 Security Ownership of Certain Beneficial Owners and Management ................................. 51
13 Certain Relationships and Related Transactions ................................................. 51
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................... 52
</TABLE>
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PART I
ITEM 1. BUSINESS
- ----------------
Concentra Corporation was incorporated under the laws of Delaware in 1984
as ICAD, Inc. and changed its name to Concentra Corporation in 1995. Unless the
context otherwise requires, references herein to the "Company" or "Concentra"
include Concentra Corporation and its subsidiaries. Concentra develops, markets
and supports software products that automate the processes that underlie
engineering and selling complex products. A significant portion of the time it
takes to develop and sell new products goes into performing well-defined,
repetitive tasks. The Company has developed an innovative approach based on
capturing and applying knowledge through generative technology which addresses
the full scope of the problems encountered in selling and engineering complex
products. This new approach enables companies to capture the way sales and
engineering practices are performed and generate new designs, configurations,
pricing and complete sales proposals directly from unique and specific customer
requirements for how the product will be used. As a result, sales and
engineering productivity is improved and the time it takes to respond to market
opportunities is substantially decreased.
INDUSTRY BACKGROUND
Businesses that develop, manufacture and market products must compete based
on response time, quality, cost, service, innovation and flexibility. These
competitive pressures have forced companies to seek technological solutions to
improve their business processes. The Company provides technological solutions
that help manufacturers compete in the areas of product development and sales
force effectiveness.
PRODUCT DEVELOPMENT
The product development process involves several phases including
conceptual design, detail design, analysis, testing and manufacturing.
Traditionally, engineers developed sketches of design concepts from which
draftsmen generated two-dimensional (2-D) drawings that served as the basis for
engineering analysis and prototype construction. Product design modifications
were usually undertaken only after a prototype had been constructed and tested.
As computer-aided design (CAD) technology became available, companies began
replacing drafting boards with this electronic means of drawing and editing the
geometry and dimensions representing the physical aspects of a product. As CAD
products evolved from 2-D drafting tools to three-dimensional (3-D) geometric
tools, users were able to build 3-D solid models of their products. As the use
of CAD products became widespread, the productivity of engineers involved in
certain aspects of the design process improved as specific tasks were performed
more easily and quickly. Modern CAD systems that are based on parametric
geometry represent the most sophisticated and time-saving generation of these
tools.
Despite the advances represented by CAD products, problems remain because a
significant portion of engineering work involves more than geometry creation and
manipulation. The Company believes that these issues have been inadequately
addressed by geometry-centric systems:
Too much time lost on repetitive tasks. The performance of repetitive and
well-defined tasks contributes substantially to the time required for the
product design cycle. The Company believes that engineers, even with the
assistance of CAD systems (which primarily address geometric tasks), devote
a majority of their product design time to these routine tasks, limiting
time for creative design and problem solving.
No automatic method to optimize across multiple disciplines. The design
process involves the interaction of numerous, often conflicting,
disciplines (e.g., conceptual design, engineering, manufacturing, marketing
and finance). CAD systems do not have an automatic mechanism to
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balance and optimize design across these disciplines because CAD systems
limit their scope of focus to design and geometry.
Too much time lost building, testing and modifying prototypes. Today,
manufacturers seek to reduce the number of design iterations involved in
the product development process. While CAD systems and analysis tools allow
users to test geometric feasibility and structural integrity during the
design process, testing for other factors (including manufacturability,
serviceability and conformance to customer requirements) must be performed
after a design has been completed and a prototype has been manufactured.
Manufacturers are forced to spend extensive time engaged in building and
testing costly prototypes and then redesigning products based on the
results of such tests because there is no available tool to rapidly
evaluate the manufacturing impact or the performance of design
alternatives. As a result, manufacturers must forego the opportunity to
explore multiple "what-if" scenarios because they have no mechanism for
looking at all aspects of a design, let alone a range of designs, in the
time frame that the market demands.
Difficulty in responding to changes. CAD systems generally document the end
result of a designer's work, not the process itself. CAD systems with
parametric capabilities provide a methodology to change geometric
relationships, but do not capture the full spectrum of engineering
decisions that go into the design of a complex product or process. Because
of these limitations, engineers must spend time and effort re-thinking and
checking all aspects of designs whenever requirements change. This
re-evaluation may create extended delays or compromise quality because the
engineer must spend a significant amount of time on manually validating the
integrity of the non-geometric impact of each change.
No automatic mechanism to apply engineering expertise and best practices.
As businesses recognize the importance of quality, they try to capture
design know-how as well as the best practices of the company's most
accomplished employees in disciplines that are integral to product
development. CAD systems and databases do not record a company's best
practices in a manner that allows automatic application of the engineering
knowledge gained in the design of earlier products. This limitation results
in repeated mistakes and the loss of valuable time.
The Company believes that an opportunity exists for applying
knowledge-based technology to the practice of product development and providing
solutions that automate the engineering process. Today's engineering automation
systems must enable agile and responsive design, allowing companies to rapidly
respond to market changes and deliver quality products in shorter time frames.
SALES FORCE EFFECTIVENESS
The process of selling configured-to-order products entails performing
needs assessment, applying engineering knowledge to perform product
configuration, and generating a quote and proposal. In most cases, salespeople
perform an ad hoc needs assessment as part of the qualification process which
requires subsequent sales calls involving a technical sales specialist who
extracts detailed vocational needs from the customer and maps those to the
company's ability to configure the most advantageous solution, based on the
engineer's experience or a detailed analysis. The technical sales specialist
then transfers his or her understanding of the "solution" to a cost engineer who
figures out the pricing and maybe even the manufacturing schedule. This
information is either given back to the salesperson or to a proposal specialist,
who creates a complex document, recapping the prospect's needs and proposing the
manufacturer's best product configuration, price, delivery date and any other
relevant terms.
Since the late 1980s, Sales Force Automation (SFA) or Technology-Enabled
Selling (TES) tools have been improving the administrative productivity of
salespeople by automating tasks such as sales contact management, sales
forecasting, call reporting, and order entry validation. Despite the
productivity advances represented by SFA technology, little has been done to
improve the effectiveness of salespeople in the area of increasing sales volume,
trimming sales cycle time and lowering the cost per sale. The Company believes
that issues that have been inadequately addressed include:
Too much time lost translating prospect needs into product specifications.
As industrial products have become more complex, customers are more likely
to purchase from salespeople who have the ability to understand their needs
and quickly respond with the best custom-configured product their company
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has to offer. Although Sales Configuration Systems (SCS) have been
available for several years, they do not assist a salesperson in selecting
the best configuration for the customer's needs; they merely determine
whether or not the selected configuration is valid. The cost of failing to
address the customer's unique vocational needs can range from poor customer
satisfaction to lost sales and market share.
Excessive cost of pre-sales technical support. One technique for addressing
the issue of translating prospect needs into product specifications is the
increased use of technical sales specialists during the pre-sale phase of
the sales process. Generally, technical sales specialists have better
knowledge of the capabilities of the entire product line and a better
understanding of how these capabilities meet prospects needs. While
somewhat effective, this technique drives up the cost of selling and simply
shifts the burden of expertise from the salesperson to the technical sales
specialist.
Excessive time consumed preparing complex sales quotes and proposals. Sales
proposals are becoming more important in today's sales process as a result
of increased customer demand for custom-fit product configurations, rapidly
changing product lines and increased product complexity. At the same time,
the cost of preparing high-quality, accurate quotes and proposals is
rising. Companies that fail to systematically address the quality and
turnaround time associated with their sales quotes and proposals are likely
to lose sales and market share.
The increasing cost of order errors. The increased technical sophistication
of industrial products has resulted in an overall increase in the cost and
frequency of order errors. Order errors occur throughout the sales and
delivery cycle. At the point of sale, an error can be made by simply
proposing a product configuration that does not actually meet a customer's
technical requirements or that is not manufacturable. Errors occur in order
entry because incompatible options are not rejected or ancillary equipment
has not been included in the order. In manufacturing, an invalid or
unbuildable configuration can shut down the production line. If a
misconfigured order is actually shipped to a customer, the cost of
correcting the mistake in the field can be excessive, if not irrecoverable.
No matter where the errors occur in the sales cycle, companies lose money
as a result.
Global markets have created intense competition where industrial products
companies gain competitive advantage by offering customized, high-quality
products delivered in short time frames and accompanied by superior service
levels. Speedy delivery and responsiveness to customers' needs can impact the
buyer's decision-making process, in some cases almost as much as price. Today's
intensely competitive marketplace is putting increased pressure on manufacturers
to automate their front office and change the way that customer's buy their
products.
THE CONCENTRA SOLUTION
The Company has developed innovative approaches in both Design Process
Automation (DPA) and Sales Engineering Automation (SEA) to solve the problems
facing today's manufacturers.
Design Process Automation
The Company is addressing the needs of the mechanical design industry by
automating the engineering process, specifically by capturing and applying
knowledge through generative technology. Generative technology is an approach in
which the details of a fully engineered product design are automatically
generated from a customer's functional requirements. The Company's products,
collectively known as The ICAD System, utilize generative technology to
complement a customer's existing CAD tools.
Using The ICAD System, a company develops a Generative Model which
incorporates the full spectrum of engineering rules, industry standards,
governmental regulations, manufacturing constraints, cost and scheduling
constraints, experience and other factors applicable to that customer's design
process. As a result, engineering productivity increases as engineers automate
repetitive, time-consuming tasks and spend more time on product innovation.
Because product requirements fundamentally drive the design process, the
need and effort to test against the satisfaction of those requirements is
reduced or eliminated. Adjustments and changes can be more readily accommodated
and complex designs can be created faster and with higher quality. Over time,
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organizational productivity rises as Concentra's customers build Generative
Models which re-use engineering expertise derived from prior product experience.
Users are able to build enterprise-wide practices and constraints into the
design process, optimizing the resulting product across all applicable
disciplines and departments. Companies that employ this approach are able to
reduce the occurrence of errors, shorten the overall product development cycle
and reduce costs associated with both. Generative Models are created and
deployed using The ICAD System. The ICAD System consists of a development
environment, which contains all of the programming utilities used to create a
Generative Model and a production environment, which is the end-user application
that is used to generate new product designs from a given set of functional
requirements.
The Development Environment. The core application development technology in
The ICAD System is the ICAD Design Language (IDL). IDL is an
object-oriented language specifically developed to enable manufacturing
companies to capture and manipulate geometric and non-geometric information
in a consolidated product model. Users construct a Generative Model by
codifying their engineering product development and manufacturing practices
in IDL. IDL's unique ability to model non-geometric information is
augmented with a full family of geometric modeling tools that enable the
Generative Model to construct full 3-D wireframe, surface and solid model
representations of generated product designs.
The Production Environment. Once a product's engineering design practices
have been defined using IDL, they are available to designers through a
Generative Model. The Generative Model enables designers to automatically
generate a new design by varying a pre-determined set of functional
requirements (e.g., size, weight, amount of power, geographic or
environmental requirements, legislative constraints, etc.). The production
environment provides a robust set of integration tools and enables the
Generative Model to read from and write to the user's business and
engineering systems. Through IDL the user can create a wide variety of
customized user interfaces for the Generative Model. Additionally, the
production environment enables direct user access to the Generative Model
from The ICAD System, leading CAD systems or custom-developed user
interfaces developed with commercially available graphical user interface
tool kits. The ICAD System supports a client/server architecture enabling
users to work on remote UNIX workstations or personal computers.
SALES ENGINEERING AUTOMATION
The Company has been aware for many years that its customers have been
addressing their sales engineering challenges informally in the "back office" of
the sales organization by applying generative technology through the use of The
ICAD System. Sales engineers have been taking customer requirements gathered by
the salesperson and using The ICAD System to generate custom-configurations, and
associated costs and manufacturability, to produce an accurate bid or proposal.
As sales forces were becoming increasingly mobile and as technical improvements
increased chip speed, storage size and memory capacity increased the usefulness
of PCs, the company identified an opportunity to develop a PC-based deployment
of generative technology to support the needs of remote or mobile salespeople
who were selling customized products. The Company believes that its technology
for consultative selling, SellingPoint, addresses the challenges cited above --
at the point of sale (or "front office") -- and provide manufacturers and their
distributors with a sales engineering-based SFA solution that will help them
sell more product, more effectively and in shorter time frames.
SellingPoint increases sales effectiveness by applying consultative selling
to each sales opportunity. The system allows global sales forces to quickly zero
in on a customer's functional requirements, custom configure the ideal solution
and generate a highly specific, tailored proposal at the point of sale.
SellingPoint takes critical back office information about products, pricing,
manufacturability and delivery and makes it available to the front office in
real time, on a laptop or via the Internet, to increase sales throughput and
order accuracy.
SellingPoint features a highly interactive object-oriented modeling
environment to more effectively encapsulate the knowledge of the entire
organization (product marketing, engineering, costing, inventory, manufacturing,
scheduling, etc.) and deploy it in a laptop-based consultative selling system.
This unique object-oriented modeling environment allows companies to build
reusable libraries of corporate knowledge objects that can be extended or
modified as their business and products change. This allows companies to
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build an easy-to-maintain sales force automation tool for that supports both
what and how they sell, ultimately increasing sales effectiveness and improving
the quality of the buying experience.
The SellingPoint modeling environment goes beyond the current state of
configuration technologies based on feature/option validation that have become
commodity in the Technology-Enabled Selling market. Typically, sales engineers
and engineering departments have developed rules of thumb for how products will
perform in the prospective customer's environment. This information, along with
detailed competitive product performance metrics, is made available in real time
to the customer at the point of sale.
SellingPoint allows manufacturers and distributors who sell
custom-configured products to integrate logical and functional modeling enabling
them to perform interactive customer needs assessments based on the intended use
of the product, to analyze price/performance tradeoffs, to generate proposal
drawings, to instantly solve engineer-to-order problems and generate a proposal
during the sales session. This engineering power at the point of sale should
eliminate order errors and returns; expedite new product launch; reduce the need
for in-depth sales training; minimize the amount of technical support associated
with each sale; and generally lower the cost per sale.
SellingPoint is licensed separately for developers and end users with
significant differences between the development environment and the production
environment.
The Development Environment
SellingPoint's development environment is a range of tools, technologies
and utilities used by developers and sales/marketing management to build
product models. The development environment includes an interactive
drag-and-drop programming environment, the configuration modeling language
and a series of object libraries, templates and utilities that can be used
for building and deploying product models and the associated user
interface.
The Production Environment
Product SellingPoint applications are the run-time version of the product
model, the user interface and the configuration engine used by salespeople
to sell customized products. These applications are commonly integrated
with enterprise databases and other enterprise systems upon which
configuration and selling are interdependant. Production applications can
be deployed on laptop and desktop machines, and over the World Wide Web.
CONCENTRA'S STRATEGY
The Company's goal is to be the leader in engineering and sales automation
by promoting the widespread acceptance of generative technology, delivering
strategic advantage by empowering the knowledge-based organization from product
conception through delivery. Key elements of the Company's strategy for
achieving this goal include:
Focus on major market segments. The Company has recently organized into
three strategic business units on a global basis: the Aerospace and
Automotive Business Unit, the Industrial Products and High Technology
Business Unit, and the OEM Business Unit. The Company believes that this
structure will better focus the organization around the specific needs of
the target market segments, enable the creation and deployment of global
strategies, and improve customer satisfaction within the target market
segments.
Technological leadership. The Company believes that technological
leadership is a result of the quality of its core technologies, its ongoing
product development activities and its understanding of and responsiveness
to the design and manufacturing issues faced by its customers. The Company
plans to build upon its technology base by adding new features and
functionality to its existing products and expanding its product line.
Ease of developing Generative Models. To gain acceptance by a broader range
of users, the Company plans to continue to develop products that reduce the
time and skill required to build Generative
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Models. This may include language enhancements, improved user interface
capabilities and expanded sets of application libraries. The Company
believes that reducing the amount of time it takes for a new user to
develop a Generative Model will lead to increased implementation of and
demand for its products.
Focus on customer relationships. The Company has instituted a large account
management program to focus internal Company resources on assisting
customers in achieving measurable success from their use of the Company's
products and services. Key accounts represent a loyal customer base, help
provide strategic product direction and serve as a foundation for future
sales.
Consultative engagement methodology. The Company believes that its
customers' strategic implementation of generative technology can be
accelerated through application development consulting. Accordingly, the
Company has developed a set of implementation methodologies and dedicated
resources to provide its customers with this fee-based service.
Strategic expansion into the automotive conceptual design market. The
Company believes that an opportunity exists to apply generative technology
to the process of automobile conceptual design. The company has entered
into a joint venture with Lotus Engineering in the United Kingdom and Tata
Technologies of India to address this opportunity. This venture has
resulted in the development of a conceptual vehicle design system called
the Integrated Car Engineer (I.C.E.). The I.C.E. product was launched at
the Geneva Auto Show on March 6, 1996 and reviewed by many of the world's
largest automotive suppliers.
Vertically focused consultative selling systems packages for the Industrial
Products market. The Company believes that it holds a significant
competitive advantage over its SFA competitors in the Industrial Products
marketplace as a result of its engineering heritage and its history of
providing configuration capability with The ICAD System. To that end, the
Company has taken the core SellingPoint technology and bundled it with
industry-specific templates and object libraries to give Industrial
Products companies a custom-tailored software solution that delivers more
"out-of-the-box" functionality and speeds implementation. The Company
believes that vertically focused applications in SFA will follow the
success model established by vertically focused ERP systems.
Complementary relationships with third parties. The Company's strategy is
to develop and market software that addresses the specific requirements in
design process automation and sales engineering automation. Accordingly,
the Company has developed a series of complementary relationships with CAD,
SFA, enterprise software and systems integration consulting organizations
to help meet the broader requirements of the market place. Neither the
Company nor any of these parties is subject to any specific performance
obligations or goals, and any amounts payable by or to the Company in the
form of referral fees, sales commissions or the like are not material. The
Company believes, however, that these relationships may enhance its sales
and marketing efforts and add further value for its customers. In addition,
the Company believes that by working closely with systems integrators,
consulting firms and VARs, its own growth may be enhanced. Accordingly, the
Company is pursuing relationships with appropriate third parties who have
expertise in certain market segments which are incremental to the Company's
current business.
PRODUCTS
THE ICAD SYSTEM
The ICAD System is available as a development or production system.
Development systems licenses give engineers the necessary tools to capture and
apply product design and engineering in a Generative Model. Production systems
are the ICAD applications employed by end-users to execute these Generative
Models without having to perform any programming.
Four major system components comprise The ICAD System:
* The ICAD Design Language (IDL) for defining Generative Models
* Geometry modeling and drawing tools for creating rule-based
definitions of complex surfaces, solids, and drawings
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* User interfaces for developing and interacting with Generative Models
* Data integration tools for linking to other software products
including CAD systems, relational databases, analysis systems and
manufacturing equipment
THE ICAD DESIGN LANGUAGE
The ICAD Design Language (IDL), the foundation of The ICAD System, is an
object-oriented development language that enables users to design
engineering methods and procedures that encompass both geometric and
non-geometric objects. The language includes features for defining product
structures, part interdependencies, assembly relationships, manufacturing
methodologies, and 2-D and 3-D geometry. The language's object-oriented
structure streamlines application development and simplifies application
enhancement and maintenance. In addition, the structure of the language
itself promotes scalability, which is essential to handling very large and
complex engineering problems.
GEOMETRIC MODELING AND DRAWING CREATION
The ICAD System includes tools for surfaces and solids advanced modeling
that is required for applications in the automotive and aerospace
industries. All of these tools are fully integrated within IDL to provide
the powerful combination necessary to capture both the geometric aspects of
the engineering process, as well as the critical non-geometric logic such
as product structure, engineering analysis, cost, and manufacturing
constraints.
The Surface Designer extends The ICAD System's method and rule-based design
capabilities to complex 3-D curve and surface modeling. It provides
geometric modeling capabilities similar to those found in the most advanced
CAD systems.
The Solids Designer allows ICAD developers to create feature-based,
parametric solid models of mechanical parts and assemblies with complex
part shape geometry. Underlying this module is Parasolid(R), a widely used
double-precision B-rep solid modeling kernel from EDS.
GenDesigner, an interactive design tool to create 2-D parametric sketches,
can be directly integrated with either the Solids Designer or Surface
Designer. Specifically designed for ease-of-use, GenDesigner provides a
Motif-compliant user interface that incorporates industry standard
pull-down menus along with a customizable icon-based toolbar.
The Drawing Tools enable ICAD users to generate complete drawing sets
directly from a Generative Model. After specifying the geometry
relationships and characteristics for the model, users can employ this
module to define drawing layout and content, including dimensions, labels,
and notes. The Drawing Tools support all major drafting standards including
ANSI, DIN, JIS, and ISO.
DEVELOPMENT AND DEPLOYMENT USER INTERFACES
The ICAD System provides both a development user interface (the ICAD
Browser) for building Generative Models and a deployment user interface
toolkit (ICAD Production UI Toolkit) for creating end-user interfaces to a
Generative Model. In addition, the ICAD Kernel Interface gives the
application developer the ability to use a third-party user interface
toolkit for a deployment environment. Also, the GII Access Facility allows
a production user to access a Generative Model from within an interactive
CATIA session.
The ICAD Browser is an interactive graphical interface for developing,
testing, debugging, and applying Generative Models. The module lets users
display 3-D representations of products and components, view product
structures, modify input values, and generate outputs to CAD systems and
engineering reports.
The ICAD Production UI Toolkit enables ICAD application developers to
create a custom, menu-driven user interface for their specific application
to resemble those interfaces used by engineers, enabling them to work in a
familiar production environment.
The ICAD Kernel Interface is a development toolkit that provides an API for
integration of The ICAD System as a server with an external process in a
client/server mode. For example, this functionality
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allows the customer to develop a custom user interface external to The ICAD
System or run the application in batch mode from a PC.
The GII Access Facility allows a production user to access a Generative
Model from within an interactive CATIA session. A production user can
supply numerical and text input and can select existing geometry in the
CATIA model to use as a top-level input to the Generative Model. Geometric
selections can supply input parameters such as dimensions and attributes as
well as information about position and orientation. Geometry produced by
the Generative model is placed directly into the model active within the
CATIA session. The GII Access Facility allows multiple designs produced by
the Generative model to be active simultaneously, allowing production users
to switch among them.
DATA INTEGRATION TOOLS
Integrating The ICAD System with a company's information systems is
critical to the success of an automation application. These information
systems can include CAD systems, corporate databases, and existing
engineering analysis routines. The ICAD System includes modules for sharing
geometric data with popular CAD packages such as AutoCAD, CADDS, CATIA,
Pro/ENGINEER, and EDS Unigraphics. Users can also generate IGES files, STEP
files, and generate information for reports and analysis.
The AutoCAD Output Tools allows users to generate a DXF file, Autodesk's
published format for AutoCAD, from their Generative Model.
The CADDS Integration Tools consists of a set of software tools that enable
the data integration of a Generative Model with a CADDS system (CADDS 4X &
CADDS 5) from Computervision.
The CATIA Integration Tools enable the data integration of a Generative
Model with a CATIA system from Dassault. In addition, Concentra offers the
GII Access Facility which allows operation of a Generative Model, developed
using IDL, from within an interactive CATIA session.
The Pro/Engineer Integration Tools provide interactive and batch access to
a Generative Model from within Parametric Technology Corporation's (PTC)
CAD solution.
The UG II Integration Tools is a set of integration tools that link a
Generative Model with the Unigraphics (UG) CAD System from EDS. EDS has
developed a complementary user interface module, GenConnect, designed to
allow UG users to access the Generative Model from within the UG menu
system.
The IGES Interface Tools provide an easy means of reading or writing an
IGES file, an industry standard format that provides data translations
between most CAD systems.
The STEP Interface Tools provide the ability to read and write a STEP AP203
file for data exchange. The implementation of AP203 supports configuration
management information, product structure, and wireframe, surface, and
advanced b-rep solid geometry.
The Network Services Facility provides a simple mechanism for users to
automatically generate a remote procedure call (RPC) interface which can be
linked into their external (i.e., non IDL) applications to provide the
ability to make function calls from IDL to the external server programs.
The Oracle Interface provides access for Generative Models to an Oracle
database.
The ICAD System operates on various industry-standard UNIX workstations
from Sun Microsystems, Hewlett Packard, Silicon Graphics, and IBM. The Company's
software is network licensed through FlexLM by Globetrotter. The domestic,
end-user list price for a single development seat ranges from $70,000 to
$100,000 depending on modules licensed; a production seat is approximately
one-third the price of the corresponding development seat. A development seat
typically includes a greater number of modules and features and can be used for
production as well as development, while a production seat is specifically
limited to run-time operation. The Company also offers volume pricing to
customers who license multiple copies.
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SELLINGPOINT
SellingPoint technology is able to bring back office information to the
point of sale (front office) because of its unique component-based architecture
and resultant flexible enterprise integration scheme. SellingPoint consists of a
generative specification language that is used to build product configuration
models, a generative specification environment that is a graphical
object-oriented development environment used for programming the models, a
generative configuration engine that powers the models, and a flexible user
interface facility that allows a salesperson to input customer information and
receive sales and product information from the model and data sources.
Generative Specification Language
The Generative Specification Language (GSL) is a high-level,
object-oriented modeling language for expressing functional definitions,
product structure, market packaging, quotations, proposals, catalogs,
pricing options, physical relationships, and generic outputs.
Unlike other configuration languages that can only model logical
relationships among product components (e.g., this part fits with
that/requires this part/is not compatible with that part) the GSL is able
to model functional relationships (i.e., how the configuration will perform
under given conditions) and can also take into account geometric
information (e.g., space, fit, etc.) within a single modeling environment.
Other solutions must rely on multiple technologies to model the entire
range of configuration scope, resulting in degraded throughput, limited
scalability, and hidden short- and long-term maintenance costs.
GSL uses a "building block" approach to construct models. SellingPoint
ships with a base set of building blocks that can be used to construct
object libraries that are specific to a customer's product needs.
SellingPoint includes building blocks for logical configuration, functional
descriptions, geometric modeling, graphical display, report input and
output, and database connectivity. Models are constructed by assembling
reusable building blocks from customized libraries. GSL delivers rapid
development power by allowing customers to group select objects to create
new, more comprehensive objects. The new objects inherit the collective
properties of the combined building blocks and can by further refined by
modifying or adding properties.
Generative Specification Environment
The Generative Specification Environment (GSE) is an interactive
development and maintenance environment integrated with GSL and delivered
with building block object libraries. The building block object libraries
supplied with the system include utilities to generate valid product
configurations, geometric constraints, 3D photorealistic product
visualizations, schematic drawings, and product outputs. End user
interfaces are developed either with Visual Basic, or other third-party
products. This environment greatly reduces the time it takes to build a
comprehensive Consultative Selling System for a mobile sales force. These
tools also make it feasible to provide a much richer set of functionality
to field selling teams. Applications for sizing and simulating the
performance of products such as motors, generators, compressors or even
complex communications networks can now be fully integrated into the sales
configuration system. Rules of thumb and heuristics developed by sales
engineers and R&D departments determining how products will perform in the
customer's environment, along with detailed competitive product performance
data can be displayed in real time to the customer at the point of sale.
The GSE provides multiple views which enable an application developer to
selectively focus and debug specific aspects of a model. Views are provided
for navigating model structure, displaying shaded graphics, evaluating
property definitions, generating report output, and locating object
libraries. GSE's graphical Sketcher allows users to construct
two-dimensional constrained profiles using an interactive point and click
user interface. This graphical approach substantially reduces the time it
takes to create geometric profiles and schematic diagrams.
Generative Configuration Engine
SellingPoint's Generative Configuration Engine uses a combination of
demand-directed attribute
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evaluation and bi-directional constraints. Demand-directed attribute
evaluation allows companies to map what their customer wants to possible
configurations that meet those requirements. This "what if" functional
needs assessment capability is referred to as "mission-driven"
configuration. Bi-directional constraints ensure component compatibility as
a customer fine tunes their selections. This real-time capability enforces
proper configurations even when the customer makes a series of choices and
changes their mind about selections. The Generative Configuration Engine is
the power behind a SellingPoint model's ability to provide application
flexibility, allowing geometry, reports, drawings and renderings to be
created on the fly, and thus reducing product data storage requirements.
User Interface Generation Library
The User Interface Generation Library contains functions for easily
communicating information from an end user interface to a SellingPoint
model. The library is packaged as a Dynamic Link Library (DLL) which can be
called from an external user interface development tool such as Visual
Basic. This approach allows application developers to leverage industry
standard development tools for building end user interfaces. SellingPoint
includes custom controls in Visual Basic for displaying product renderings.
This control interfaces with the Graphics Building Block Library which is
used for defining graphics viewports and their contents.
Comprehensive Function Library
The comprehensive function library contains over 250 functions for modeling
calculated properties such as mathematical equations, string and character
manipulations, pricing algorithms, and transportation costs. Traditional
configurators require a third-party programming environment to perform
these calculations which results in a fragmented model with high
maintenance overhead. Customers can combine and extend the system-supplied
functions to meet their unique business requirements.
Database Connectivity Library
The Database Connectivity Library contains objects for reading and writing
data from and to external data sources. The Building Blocks are architected
to use any formatted data source. Data sources can be flat files, Excel,
relational or customer proprietary. There are specific utilities provided
for communicating with ODBC-compliant data bases.
Report Library
The Report Library contains objects for reading information from external
file formats and generating formatted output to other software systems such
as word processors and spreadsheets. Output capabilities include simple
character based strings, integers, and various floating point formats. In
addition, higher level formats such as tabular, fixed-line-width, automatic
line-feed, and page-feed are also supported. The Library can also be used
to generate high-quality proposals by directly integrating with word
processors and publishing systems using Object Linking and Embedding (OLE).
CatalogPoint
CatalogPoint, an electronic product catalog, provides an easy-to-use
graphical environment for browsing, searching and ordering a company's
products and services. Engineered for both standalone or Web-based use,
CatalogPoint is easily customized by inserting marketing information
(images, text, sound, video) in a simple, pre-defined data schema.
CatalogPoint is integrated with product configuration for order validation
and with ProposalPoint for inserting catalog information into customized
proposals.
ProposalPoint
ProposalPoint generates custom-tailored sales proposals for
customer-configured products. Fully integrated with the other SellingPoint
modules, ProposalPoint simply "reads in" all of the details of a custom
product configuration and then allows salespeople to drag and drop
predefined templates into an electronic "table of contents" to layout and
create custom sales proposals.
QuotePoint
QuotePoint generates quotations on custom-configured products. QuotePoint
provides salespeople with the ability to quickly generate multiple product
quotation alternatives incorporating customer information, complex
discounting and pricing methods, taxes, and shipping costs. The salesperson
can
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then either generate a finished quote directly out of QuotePoint or use the
quote as a part of a full proposal from ProposalPoint.
FinancePoint
FinancePoint enables salespeople to develop and present customized
purchasing alternatives to their customers. FinancePoint supports purchase
by acquisition or lease, and can include linked multiple capital equipment
quotations. By simply varying the customer's lease objectives, FinancePoint
can quickly perform "what-if" scenarios to close in on the most appropriate
purchasing plan for the customer.
WebPoint WebPoint brings the power of a SellingPoint consultative selling
system to the Web. WebPoint utilizes an open architecture to take
continuous advantage of both JAVA and ActiveX technologies.
SellingPoint Industrial uses SellingPoint's base technology in
conjunction with additional building block libraries and application modules
specific for the Industrial Products industry. Unlike traditional product
configurators that require extensive customization to meet the vocational
requirements of industrial products companies, SellingPoint Industrial comes
with a complete set of modules that support both what and how these types of
companies sell. Based on SellingPoint's unique functional modeling capability,
SellingPoint Industrial allows MIS organization can rapidly build and deploy
applications that meet the most pressing needs of industrial products sales
forces.
SellingPoint Industrial includes these modules:
SolidPoint
SolidPoint contains objects for performing complex geometric operations.
The geometry is a solid boundary representation that allows applications
easily to detect component-to-component interference problems, calculate
mass-properties such as volumetric properties or moments of inertia, and
generate detailed product visualizations. Products which have physical
components are defined by describing how their physical properties relate
to one another. The library includes a full suite of geometric features
such as extrusions, revolutions, blocks, cylinders, and cones.
SketchPoint
SketchPoint is a easy but powerful tool to quickly and easily sketch out
two-dimensional geometry. Using industry-standard technology, SketchPoint
can create parametric component geometry, accelerating the time it takes to
put new products into the hands of your sales force and ultimately reducing
time to market. SketchPoint integrates directly with SolidPoint to turn
those two-dimensional sketches into three-dimensional solid models.
CAD Point
CAD Point utilizes industry standard data exchange technology to output
two- and three-dimensional geometry and drawings, in the form of DXF or DWG
files, to leading CAD systems.
EngineerPoint
EngineerPoint gives salespeople a point-of-sale capability that guides them
through the right questions, performs all of the necessary engineering
computations, and provides feedback about the possible product/option
combinations that would meet the customer's needs. This ability is a key
enabler of consultative selling and dramatically reduces pre-sale technical
resources and the number of calls required to close the sale.
StartingPoint
StartingPoint contains a set of fully reusable component building blocks
and user interface templates that allow Industrial Products companies to
rapidly develop and deploy consultative selling systems without starting
from scratch.
DrawingPoint
DrawingPoint provides a comprehensive set of drawing and annotation objects
to automatically generate proposal drawings that can include notes,
dimensions, labels, title blocks and other information that is unique to
each customer proposal. At the push of a button, salespeople can have
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<PAGE> 14
custom drawings that slash response time, improve proposal quality, and
ultimately increase sales "hit rate."
RenderPoint
RenderPoint contains objects for displaying three-dimensional geometric
renderings and engineering drawings during runtime. Renderings can range
from outlines to photorealistic textures. Graphics generated from this
library are displayed in the custom control provided in SellingPoint. Using
the custom control, end users have full multi-view display and graphical
manipulation capabilities such as rotating, zooming, and panning.
SellingPoint and SellingPoint Industrial are sold per seat for both runtime
and development. The domestic, end-user list price for a single development seat
ranges from $35,000 to $68,000 depending on modules licensed; a single runtime
seat ranges from $4,500 to $9,800. Since SEA applications generally involve a
very large number of users, the Company offers volume pricing.
SALES AND MARKETING
The Company distributes its products and provides related services through
a direct sales organization covering North America, Europe and Asia and through
independent distributors and value-added resellers (VARs) in certain
geographies. The Company has also established marketing relationships with
leading CAD, SFA vendors and systems integrators. The Company's marketing
strategy focuses on expanding sales to its existing customers, developing new
customers and expanding its international sales.
The Company markets products and services in North America, Europe and the
Pacific Rim through a direct sales force. In addition to sales and marketing
infrastructure at the Company's Burlington, Massachusetts corporate
headquarters, the Company has established sales offices in the Atlanta, Detroit,
Houston, San Jose and Seattle metropolitan areas. Through European subsidiaries,
the Company also maintains offices in the United Kingdom, Germany and France to
conduct sales and provide technical support.
In certain foreign markets, the Company has entered into agreements with
independent distributors to market products to customers not served by the
Company's direct sales organization or to expand sales at lower cost. Currently,
the Company uses independent distributors as its principal distribution channel
in Asia, with representatives covering Japan, Korea and Singapore. The Company
also has distributor relationships in Italy and Denmark.
The Company has instituted a strategic account management program to assist
key customers in their use of the Company's software. These key strategic
accounts represent a loyal customer base, help provide strategic product
direction and serve as a foundation for future revenues. The Company's largest
customers have historically accounted for a significant percentage of the
Company's revenues in any fiscal period. During the year ended March 31, 1997,
sales of products and services to Boeing, IPTN and British Aerospace accounted
for 20.9%,19.3% and 14.9%, respectively, of the Company's revenues during that
period. Revenues from Boeing and Tata Technologies constituted 16.0% and 10.1%,
respectively, of the Company's revenues in fiscal 1996. Revenues from EDS,
Boeing and San Giorgio S.A. (a principal stockholder of the Company) constituted
17.2%, 12.6% and 10.7%, respectively, of the Company's revenues in fiscal 1995.
The Company's agreements with all of its current principal customers are
master licenses or distribution agreements pursuant to which the Company has
agreed to provide products and services against issuance from time to time by
the customer of purchase orders, but none of the Company's agreements with its
principal customers provides for any minimum purchases or obligates the customer
to issue any purchase orders. Except for pricing and volume discounts, the terms
of the Company's agreements with its principal customers (including affiliates
of the Company) do not differ from the terms generally offered by the Company to
its other customers.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing its customers with support, training,
consulting and other customer services helps ensure that customers maximize the
benefits offered by their products as quickly as
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possible. In addition, the demand by customers for various support services
provides the Company with incremental revenue opportunities.
The Company's customers have access to the following services and benefits:
Customer Support. Maintenance, enhancements and support are provided for
annual fees equal to approximately 15% of the initial license fees for the
supported products. The Company believes such fees are comparable to other
such fees within the industry. These services consist of periodic updates,
functional and operational problem remedies and hot-line support for simple
help and general feedback. Feedback from customers also provides important
input for the Company's product planning process.
Training. Initial training consists of a three-week class at the Company's
headquarters or, when appropriate, at a customer site. After initial
training, the Company provides continuing education for special product
modules and advanced features of the system.
Consulting Services. Consulting services are provided by the Company's
Worldwide Client Services group. After initial purchases of software, the
Company usually recommends that customers purchase consulting services to
assist in planning and implementation of the system. The Company generally
charges between $1,200 and $1,800 per day for consulting services.
User Groups. User groups in the United States, Europe and Japan are
independently organized and supported by users in each of those areas. User
groups also exist internally at certain large customers. These user groups
provide a valuable means for the Company to communicate with customers
about its strategy and product direction and to obtain feedback on these
topics.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend upon its ability
not only to enhance existing products, but also to develop and introduce new
products that keep pace with technological developments in the marketplace and
address the increasingly sophisticated needs of its customers. The Company
intends to expand existing product offerings and to introduce new applications.
While the Company expects that certain new products will be developed
internally, the Company may, based on timing and cost considerations, acquire or
license technology and/or products from third parties or consultants.
Historically, the Company has released enhanced versions of its software
modules periodically and has introduced a number of new product modules each
year. Most of the Company's software modules share the same object-oriented
foundations which have made enhancement of the entire product line more
efficient.
During the fiscal years ended March 31, 1997, 1996 and 1995, the Company
spent $3.6 million, $2.8 million and $2.4 million, respectively, on research and
development.
PROPRIETARY RIGHTS
The Company believes that, due to the rapid pace of technological
innovation, the Company's ability to establish and maintain a position of
technological leadership in its industry is more dependent upon the skills and
expertise of its development personnel than upon the legal protections afforded
its technology. In addition, the Company employs a combination of contracts,
copyright law and trade secret law to protect its proprietary technology.
The Company has a program in effect to facilitate copyright registration of
its software and documentation with the U.S. Copyright Office. Source codes of
the Company's products are protected both as trade secrets and as unpublished
copyrighted works. The Company also has internal policies and systems to ensure
limited access to, and confidential treatment of, its trade secrets. The Company
distributes its products under software license agreements, which grant
end-users licenses to use (rather than ownership of) the Company's products and
which contain various provisions to protect the Company's ownership and the
confidentiality of the underlying technology. The Company's software is
distributed with a software lock that requires an authorization code generated
by the Company's internal systems to enable the
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<PAGE> 16
software to function on a particular workstation. It is the Company's policy to
require its employees and other parties with access to its confidential
information to execute agreements prohibiting the unauthorized use or disclosure
of the Company's technology. Furthermore, the Company periodically reviews its
proprietary technology for patentability. Despite these precautions, it may be
possible for a third party to misappropriate the Company's technology by reverse
engineering or otherwise or independently to develop similar technology. In
addition, effective copyright and trade secret protection may not be available
in every foreign country in which the Company's products are distributed and the
licenses may be unenforceable in certain jurisdictions.
Certain technology used in the Company's products is licensed from third
parties. The Company licenses Allegro CL, a compiler embedded in IDL, from
Franz, Inc. on a perpetual, royalty-bearing basis. In the event the compiler
becomes unavailable to the Company, the Company believes that it would be able
to obtain or develop an alternative. The costs of such an effort and the time
required could, however, be significant and, until an alternative compiler is
developed or obtained, the Company's ability to market The ICAD System would be
substantially impaired. The Company also licenses on a perpetual,
royalty-bearing basis from EDS software permitting an interface between IDL and
EDS's Parasolid software product, which is embedded in a widely used module of
The ICAD System. Although loss of the right to use such software could reduce
the attractiveness of the Company's products to certain customers, it would not
impair the overall operation of such products. The Company does not believe that
any of the Company's products are significantly dependent upon any other
licensed technologies due to the availability of other sources of similar
products or due to the Company's ability to build or maintain, through source
code escrow agreements, any integral source code which may in the future become
unsupported by a third party. The Company believes that the cost associated with
technology licensed from third parties is not material to its results of
operations and does not constitute a significant portion of the total cost of
the Company's products into which such third party technology is incorporated.
The Company has a trademark program to promote proper use and registration
of its primary trademarks. "Concentra," "ICAD" and "SellingPoint" and their
respective marks are registered trademarks of the Company in the United States
and certain foreign jurisdictions.
The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology and the
Company believes that no basis for any such dispute exists. However, as the
number of software products in the industry increases and the functionality of
these products increasingly overlaps, the Company believes that software may
become the subject of frequent claims of infringement of the rights of others.
There can be no assurance that other parties will not assert technology
infringement claims against the Company in the future. Such a claim would
involve significant litigation expense and management time and the Company could
be required to pay monetary damages and either refrain from distributing an
infringing product or obtain a license from a party asserting a claim (which
license may not be available to the Company on commercially reasonable terms).
COMPETITION
The Company believes that the principal bases for competition in its market
are product functionality, product reliability, price/performance
characteristics, ease of product use, customer support and service, distribution
networks and corporate reputation. Competitive pressures faced by the Company
could force the Company to reduce its prices, resulting in slower revenue growth
and reduced profitability. No assurance can be given that the Company will be
able to compete successfully against current and future sources of competition
or that the competitive pressures faced by the Company will not adversely affect
its business, operating results or financial condition.
Competition in both the CAD and SFA industry is intense. While major CAD
companies, including EDS (Unigraphics division), IBM, Dassault, PTC and
Computervision are involved in cooperative marketing relationships with the
Company and currently offer products that complement those of the Company, there
can be no assurance that these or other companies will not develop products or
provide services which compete with those of the Company. Most of these
companies have significantly greater financial, technological and marketing
resources than those of the Company.
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The Company also faces competition for SellingPoint from companies such as
Trilogy Development, Antalys, Calico Technologies and Clear With Computers
(CWC). There can be no assurance that competitors will not develop products or
provide services equivalent or superior to those of the Company or that achieve
greater market acceptance.
MANUFACTURING
The Company's manufacturing operation consists of assembling, packaging and
shipping its software products and the documentation needed to fulfill each
order. All manufacturing is currently performed in the Company's Burlington,
Massachusetts facility. Outside vendors provide media (tape or CD-ROM)
duplication, printing of documentation and manufacturing of packaging materials.
BACKLOG
The Company generally ships its products within 30 days after acceptance of
a customer purchase order and execution of a software license agreement.
Accordingly, the Company does not believe that its backlog at any particular
point in time is indicative of future sales levels.
EMPLOYEES
As of June 26, 1997, the Company had 139 employees, including 60 in sales
and marketing (including 27 international), 24 in technical support, 35 in
product development and 20 in general and administrative functions. The
Company's employees are not represented by a labor union and the Company
believes its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
Certain information with respect to Executive Officers of the Company, as
of June 26, 1997, is set forth below:
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence W. Rosenfeld (1) ...... 44 Chairman of the Board of Directors, Chief
Executive Officer and President
David I. Lemont ................. 39 Senior Vice President and Chief Operating Officer
Alex N. Braverman ............... 37 Vice President, Chief Financial Officer and
Treasurer
Peter T. Lanell ................. 45 Vice President, Business Units Industrial Products and
High Technology
Garreth P. Evans ................ 48 Senior Vice President, Business Units
Aerospace and Automotive
Robert E. Phillips, Ph.D ........ 41 Vice President, Engineering
Noreen H. Brochu ................ 42 Vice President, Worldwide Client Services
<FN>
- --------------------------------
(1) Member of the Executive Committee
</TABLE>
Mr. Rosenfeld, a founder of the Company, has been Chief Executive Officer
and a director since the Company's inception in 1984, Chairman of the Board of
Directors since March 1993 and President from inception through March 1993 and
again since July 1994. From 1982 to 1984, Mr. Rosenfeld was an independent
CAD/CAM consultant. From 1974 to 1981, Mr. Rosenfeld was employed in various
positions at Hood Sailmakers, Inc.
Mr. Lemont joined the Company in June 1994 as Senior Vice President and
Chief Operating Officer. From February 1992 to May 1994, Mr. Lemont held several
Vice President positions in the sales organization at Computervision
Corporation. From January 1981 to February 1992, he held various sales and sales
management positions with the Unigraphics Division of McDonnell Douglas.
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Mr. Braverman has been Vice President, Chief Financial Officer and
Treasurer since November 1996. From July 1994 to November 1996, he was Corporate
Controller. Mr. Braverman was Controller of Artel Communications Corporation, a
manufacturer of computer networking and video products, from 1988 until it was
merged with Chipcom Corporation in February 1994, and was employed thereafter by
Chipcom Corporation until July 1994. From 1982 to 1988, he held various
financial and managerial positions with BTU Engineering and the William Carter
Company.
Mr. Lanell has been Vice President, Business Units Industrial Products and
High Technology since April 1996. From April 1993 to April 1996, he was Vice
President, North American Field Operations. From April 1992 to April 1993, he
was the Company's Vice President, North American Sales. Mr. Lanell joined the
Company in 1988 and has held various positions within North American Sales since
that time. Prior to joining the Company, Mr. Lanell was a salesman for
Intellicorp, Inc. from 1986 to 1988. From 1982 to 1986, he held positions in
sales and technical sales support at Calma, a division of General Electric.
Mr. Evans has been the Company's Senior Vice President, Business Units
Aerospace and Automotive since April 1996. Mr. Evans joined the Company in June
1994 and served as the Company's Senior Vice President, European Operations
until April 1996. From May 1993 to April 1994, Mr. Evans was Vice President and
General Manager, Worldwide Sales at Computervision Corporation. From August 1990
to May 1993, Mr. Evans managed European and U.K. operations for Computervision
Corporation and from 1983 to July 1990, he managed the Unigraphics and GDS U.K.
operations of McDonnell Douglas.
Dr. Phillips has been Vice President, Engineering since April 1994. He was
the Company's Director of Product Engineering from February 1993 through April
1994. Dr. Phillips was previously employed by the Company during 1986 and 1987
as an application engineer. From 1987 to 1993, he was employed at General
Electric Aircraft Engine division as a Senior Engineer. Dr. Phillips was an
Assistant Professor of Mechanical Engineering at the University of New Hampshire
from 1985 to 1986. Prior to that time, he held various engineering positions in
the field of nuclear and fossil fueled power generation systems.
Ms. Brochu has been Vice President, Worldwide Client Services since June
1995. From June 1993 to June 1995, she was Director of Technical Services. Ms.
Brochu joined the Company in 1988 and held the position of Director of Technical
Sales Support until June 1993. Prior to joining the Company, Ms. Brochu was
employed by Computervision in various positions. Her final position was as the
director of their applied technology center. She was employed by Computervision
from 1979 to 1988.
Officers of the Company are elected by, and serve at the discretion of, the
Board of Directors.
There are no family relationships among any of the executive officers of
the Company.
IITEM 2 - PROPERTIES
- --------------------
The Company's headquarters and principal operations are located in
approximately 30,000 square feet of office space in Burlington, Massachusetts
under a lease expiring in June 2000. The Company also leases additional sales
offices in the Atlanta, Detroit and San Jose metropolitan areas and, through its
wholly owned subsidiaries, in the United Kingdom, France and Germany. While the
Company believes its facilities are adequate for its present needs, it is
continually evaluating its headquarters facilities and believes that suitable
alternative space would be available on commercially reasonable terms.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Company is not engaged in any material legal proceedings.
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year ended March 31, 1997.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
<TABLE>
The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on the NASDAQ National Market System under the symbol CTRA.
The following table sets forth, for the period indicated, the high and low sales
prices for the Company's Common Stock as reported by NASDAQ from April 1, 1995
through March 31, 1997. This information reflects inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1997:
First Quarter $ 7 $4 1/2
Second Quarter $ 7 3/8 $4 9/16
Third Quarter $11 3/4 $6 1/4
Fourth Quarter $15 1/4 $4 1/4
Fiscal 1996:
First Quarter $14 $9 1/8
Second Quarter $12 1/4 $8 1/2
Third Quarter $11 $7 1/4
Fourth Quarter $ 9 1/4 $4 1/8
</TABLE>
On June 26, 1997, there were 102 holders of record of the Company's Common
Stock. The Company believes the actual number of beneficial owners of the Common
Stock is greater than the stated number of holders of record because a large
number of the shares of the Company's Common Stock is held in custodial or
nominee accounts for the benefit of persons other than the record holder.
No dividends have been paid on the Company's Common Stock to date, and the
Company does not anticipate paying dividends in the foreseeable future.
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<PAGE> 21
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
The selected consolidated financial data below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this filing.
<CAPTION>
CONSOLIDATED FINANCIAL SUMMARY Year Ended March 31,
(In thousands, except per share data) --------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses $17,670 $13,133 $10,050 $ 7,894 $ 7,474
Services 6,797 7,135 8,004 6,356 4,547
Related party software and services 104 452 2,163 1,459 --
------- ------- ------- ------- -------
Total revenues 24,571 20,720 20,217 15,709 12,021
Operating expenses:
Cost of software licenses 2,073 1,337 1,328 1,193 1,581
Cost of services 4,410 2,677 1,928 1,472 1,511
Sales and marketing 14,541 11,622 8,887 6,309 6,020
Research and development 3,558 2,849 2,423 2,840 2,716
General and administrative 2,655 2,511 1,971 1,778 1,530
Provision for bad debts 1,544 101 173 53 --
Restructuring charge 239 196 -- -- --
Charge for purchased research and development -- -- -- 3,711 --
------- ------- ------- ------- -------
Total operating expenses 29,020 21,293 16,710 17,357 13,358
------- ------- ------- ------- -------
(Loss) income from operations (4,449) (573) 3,507 (1,648) (1,337)
Interest income (expense), net 191 628 (149) (318) (345)
Other income (expense) 458 (10) 300 (4) (99)
------- ------- ------- ------- -------
(Loss) income before income taxes (3,800) 45 3,658 (1,970) (1,781)
Provision for income taxes 140 9 559 264 102
------- ------- ------- ------- -------
Net (loss) income $(3,940) $ 36 $ 3,099 $(2,234) $(1,883)
======= ======= ======= ======= =======
Net (loss) income per common and common equivalent share (1) $ (0.73) $ 0.01 $ 0.80 $ (0.76) $ (0.93)
======= ======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding (1) 5,391 5,750 3,865 2,947 2,029
======= ======= ======= ======= =======
<CAPTION>
As of March 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,890 $ 9,121 $17,010 $ 1,558 $ 908
Working capital (deficit) 9,568 12,179 15,137 114 (1,492)
Total assets 25,031 25,109 26,462 7,706 5,543
Total debt (including current portion) 1,034 1,161 221 3,638 3,012
Redeemable common stock -- -- -- 1,777 --
Total stockholders' equity (deficit) 15,068 18,307 17,907 (4,458) (3,119)
</TABLE>
- --------------------------------------------------------------------------------
(1) See Note B of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
common and common equivalent share.
21
<PAGE> 22
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, markets and supports software products that automate
the engineering and sales process. The Company was founded in 1984 and initially
provided consulting services for customers relating to the automation of the
product design process. In the course of performing these consulting services,
the Company recognized a market opportunity for software tools to automate the
engineering process, and began the development of tools which became the
foundation for The ICAD System. The Company's proprietary software products
enable customers to reduce design cycle time and improve quality by automating
repetitive engineering processes.
The Company funded its early product development efforts and operations
through a combination of consulting service revenues and license fees from early
customers. As the Company grew, it funded its operations through private equity
transactions with corporate partners and product development agreements with
computer hardware vendors.
During fiscal 1995, the Company began development of its new sales
engineering automation product called Selling Point. The initial version of
Selling Point was released on June 30, 1995. This development continued through
fiscal 1997 and will continue as an ongoing development activity.
The Company distributes its products and provides related services through
a direct sales organization covering North America and has international direct
sales organizations in the United Kingdom, Germany and France. The Company has
also entered into distribution agreements covering certain other countries in
Europe and Asia.
Historically, a significant portion of the Company's revenues in any
particular period has been attributable to sales to a limited number of
customers. During fiscal 1997, the Company's largest five customers represented,
in the aggregate, approximately 62.6% of the Company's revenues during the
period. In fiscal 1996 and fiscal 1995, the Company's largest five customers
represented, in the aggregate, approximately 44.1% and 50.1%, respectively, of
the Company's revenues in those years. This concentration of customers can cause
the Company's revenues and earnings to fluctuate from quarter to quarter, based
on major customers' requirements and the timing of their orders. Sales to
affiliates represented 0.4% of the Company's revenues during fiscal 1997. In
fiscal 1996 and fiscal 1995, sales to affiliates represented 2.2% and 10.7%,
respectively, of the Company's revenues for such years.
The Company has experienced and may experience in the future significant
quarter-to-quarter fluctuations in its operating results. Factors such as the
timing of significant orders, the timing of new product introductions and
upgrades, the length of customer product evaluation periods, the mix of products
sold and the mix of domestic versus international revenues could contribute to
this quarterly variability. A substantial portion of the Company's revenues in a
quarter are derived from purchase orders received in that quarter, which makes
the Company's financial performance more susceptible to an unexpected downturn
in business and more unpredictable. In addition, the Company's expense levels
are based in part on expectations of future revenue levels and a shortfall in
expected revenues could therefore result in a disproportionate decrease in the
Company's net income.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as other portions of this document, 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.
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<PAGE> 23
Any such statements are subject to risks that could cause the actual results or
needs to vary materially. These risks are discussed later in "Risk Factors."
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
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 19% to $24.6 million for the year ended
March 31, 1997 from $20.7 million for the year ended March 31, 1996. This
increase resulted from an increase in software licenses partially offset by a
decrease in services, as discussed below. See "Liquidity and Capital Resources"
for discussion on extended payment terms granted to customers to close business.
SOFTWARE LICENSES. Software license fees increased 35% to $17.7 million for
the year ended March 31, 1997 from $13.1 million for the year ended March 31,
1996, and increased as a percentage of revenues to 71% from 63%. Contributing to
the increases were the increased adoption of the Company's products by both new
and existing customers.
SERVICES. Service fees decreased 5% to $6.8 million for the year ended
March 31, 1997 from $7.1 million for the year ended March 31, 1996, and
decreased as a percentage of revenues to 28% from 35%. Service revenues are
derived from consulting, training and customer support services. The decreases
in revenues were primarily due to more consulting services that were contracted
by the Company's customers to other consulting companies during fiscal 1997, as
compared to fiscal 1996. The Company does not expect this trend to continue.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
decreased 77% to $0.1 million for the year ended March 31, 1997 from $0.5
million for the year ended March 31, 1996, and decreased as a percentage of
revenues to approximately 1% from 2%. The dollar and percentage decrease in
revenues was due to lower maintenance revenues for related party customers.
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, increased 55% to $2.1 million for
the year ended March 31, 1997 from $1.3 million for the year ended March 31,
1996, and increased as a percentage of software license fees to 12% from 10%.
The increases in cost of software licenses were primarily due to royalties
associated with higher software license revenues and the amortization of
intangible assets for a full year and capitalized software.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 65% to
$4.4 million for the year ended March 31, 1997 from $2.7 million for the year
ended March 31, 1996, and increased as a percentage of service revenues to 65%
from 38%. The increases in cost of services were primarily due to the
contracting of additional personnel at higher rates and consulting companies to
support consulting services previously performed by personnel who were
transferred to sales and marketing.
SALES AND MARKETING. Sales and marketing expenses increased 25% to $14.5
million for the year ended March 31, 1997 from $11.6 million for the year ended
March 31, 1996, and increased as a percentage of revenues to 60% from 56%. The
increases were primarily due to the transfer and addition of sales and marketing
employees and increased marketing and promotional activities, all of which
occurred in anticipation of increased selling activities.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development tools, increased 25%
to $3.6 million for the year ended March 31, 1997 from $2.8 million for the year
ended March 31, 1996, and increased as a percentage of revenues to 15% from 14%.
The increases were primarily due to the addition of research and development
employees
23
<PAGE> 24
associated with the development of the Company's new product, Selling Point, and
the utilization of consulting services from an outside engineering firm. The
Company intends to increase its research and development expenditures over the
next twelve months to keep pace with the technological needs of the marketplace.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 6% to $2.7 million for the year ended
March 31, 1997 from $2.5 million for the year ended March 31, 1996, and
decreased as a percentage of revenues to 11% from 12%. The dollar increase is
primarily due to higher legal costs in the current period.
PROVISION FOR BAD DEBTS. Provision for bad debts increased to $1,544,000
for the year ended March 31, 1997 from $101,000 for the year ended March 31,
1996. The Company increased their provision for bad debts after repeated
unsuccessful attempts were made to collect certain receivables. This increased
provision is principally made up of two large domestic receivables and two
international receivables. Notwithstanding this fourth quarter provision, the
Company is continuing to pursue collection of these receivables.
RESTRUCTURING. Restructuring expenses, consisting of severance costs
associated with the termination of fourteen employees, were $239,000 for the
year ended March 31, 1997. Restructuring expenses, consisting of severance costs
associated with the termination of twelve employees, were $196,000 for the year
ended March 31, 1996.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, decreased 57% to $296,000 for the year ended March 31, 1997 from
$682,000 for the year ended March 31, 1996. This decrease was attributable to
lower cash balances during the year ended March 31, 1997.
INTEREST EXPENSE. Interest expense, consisting of interest on debt,
increased 94% to $105,000 for the year ended March 31, 1997 from $54,000 for the
year ended March 31, 1996. This increase was attributable to a full year of
interest expense associated with capital leases during the year ended March 31,
1997.
OTHER INCOME (EXPENSE). In fiscal year 1997, other income of $458,000
consisted primarily due to marking to market certain trading securities and
foreign exchange losses on intercompany transactions. In fiscal year 1996, other
expense of $10,000 consisted primarily of foreign exchange losses on
intercompany transactions.
PROVISION FOR INCOME TAXES. The income tax provision for the year ended
March 31, 1997 was $140,000 which primarily represents foreign withholding and
state taxes. The income tax provision for the year ended March 31, 1996 was
$9,000 representing an effective tax rate of approximately 20%. The effective
tax rate in 1996 is lower than the statutory rate principally due to the
utilization of net operating loss carryforwards and other reductions in the
valuation allowance against otherwise recognizable deferred tax assets. At March
31, 1997, the Company had net operating loss carryforwards of approximately $6.3
million which expire in the years 2008 through 2012 of which approximately $2.7
million is subject to an annual limitation of approximately $150,000. The
Company also has federal, state and foreign tax credit carryforwards of $.9
million, $.3 million and $.5 million, respectively, available to reduce taxable
income in future periods.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
TOTAL REVENUES. The Company's total revenues increased 2% to $20.7 million
for the year ended March 31, 1996 from $20.2 million for the year ended March
31, 1995. This increase resulted from an increase in software licenses partially
offset by a decrease in services and related party software and services, as
discussed below.
SOFTWARE LICENSES. Software license fees increased 31% to $13.1 million for
the year ended March 31, 1996 from $10.0 million for the year ended March 31,
1995, and increased as a percentage of revenues to 63% from 50%. Contributing to
the increases were the increased adoption of the Company's products by both new
and existing customers.
24
<PAGE> 25
SERVICES. Service fees decreased 11% to $7.1 million for the year ended
March 31, 1996 from $8.0 million for the year ended March 31, 1995, and
decreased as a percentage of revenues to 34% from 40%. Service revenues are
derived from consulting, training and customer support services. The decreases
in revenues were primarily due to consulting services that were outsourced to
consulting companies during fiscal 1996.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
decreased 79% to $0.5 million for the year ended March 31, 1996 from $2.2
million for the year ended March 31, 1995, and decreased as a percentage of
revenues to 2% from 11%. The dollar and percentage decrease in revenues was the
result of revenues recognized upon the delivery to San Giorgio of master copies
of enhanced versions of certain products during fiscal 1995. No additional
license revenue is due from related parties recognized under the original
agreement and the amount of revenue from related parties recognized for fiscal
1995 and 1996 is not necessarily indicative of revenues likely to be derived
from related parties in future periods.
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, remained constant at $1.3 million
for the fiscal years ended March 31, 1995 and 1996, but decreased as a
percentage of software license fees to 10% from 13%. The decline in cost of
software licenses as a percentage of software license fees was primarily due to
a lower mix of software licenses requiring the payment of third party fees and
lower third party royalty rates.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 39% to
$2.7 million for the year ended March 31, 1996 from $1.9 million for the year
ended March 31, 1995, and increased as a percentage of service revenues to 38%
from 24%. The increases in cost of services were primarily due to the
contracting of additional personnel and consulting companies to support
consulting services previously performed by personnel who were transferred to
sales and marketing.
SALES AND MARKETING. Sales and marketing expenses increased 31% to $11.6
million for the year ended March 31, 1996 from $8.9 million for the year ended
March 31, 1995, and increased as a percentage of revenues to 56% from 44%. The
increases were primarily due to the transfer and addition of sales and marketing
employees and increased marketing and promotional activities, all of which
occurred in anticipation of increased selling activities.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development tools, increased 18%
to $2.8 million for the year ended March 31, 1996 from $2.4 million for the year
ended March 31, 1995, and increased as a percentage of revenues to 14% from 12%.
The increases were primarily due to the addition of research and development
employees associated with the development of the Company's new product, Selling
Point, and the utilization of consulting services from an outside engineering
firm.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 27% to $2.5 million for the year ended
March 31, 1996 from $2.0 million for the year ended March 31, 1995, and
increased as a percentage of revenues to 12% from 10%. The increases in general
and administrative expenses were primarily due to the increased costs of being a
public company.
PROVISION FOR BAD DEBTS. Provision for bad debts decreased to $101,000 for
the year ended March 31, 1997 from $173,000 for the year ended March 31, 1996.
The decrease was due to a lower provision for bad debts within the current
period.
RESTRUCTURING. Restructuring expenses, consisting of severance costs
associated with the termination of twelve employees, for the year ended March
31, 1996 were $196,000.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, increased to $682,000 for the year ended March 31, 1996. Interest
income, for the year ended March 31, 1995 was $174,000. This increase was
attributable to the proceeds received from the completion of the Company's
initial public offering "IPO."
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<PAGE> 26
INTEREST EXPENSE. Interest expense, consisting of interest on debt,
decreased to $54,000 for the year ended March 31, 1996. Interest expense, for
the year ended March 31, 1995 was $323,000. This decrease was attributable to
the repayment of debt with the proceeds received from the completion of the IPO.
OTHER (EXPENSE) INCOME. In fiscal year 1996, other expense of $10,000
consisted primarily of foreign exchange losses on intercompany transactions. In
fiscal year 1995, other income of $300,000 consisted primarily of foreign
exchange gains on intercompany transactions.
PROVISION FOR INCOME TAXES. The income tax provision for the year ended
March 31, 1996 was $9,000 representing an effective tax rate of approximately
20%. The income tax provision for the year ended March 31, 1995 was $559,000
representing an effective tax rate of approximately 15%. The effective tax rate
in 1996 and 1995 is lower than the statutory rate principally due to the
utilization of net operating loss carryforwards and other reductions in the
valuation allowance against otherwise recognizable deferred tax assets. At March
31, 1996, the Company had net operating loss carryforwards of approximately $3.5
million which expire in the years 2008 through 2011 of which approximately $2.9
million is subject to an annual limitation of approximately $150,000. The
Company also has federal, foreign and state tax credit carryforwards of $0.8
million, $0.8 million and $0.2 million, respectively, available to reduce
taxable income in future periods.
LIQUIDITY AND CAPITAL RESOURCES
In February of 1995, the Company raised $17.7 million (net of expenses)
from an initial public offering ("IPO") of its common stock. As of March 31,
1997, the Company had cash and cash equivalents of $3.9 million. The Company
also has a line of credit with a commercial lender. Under this credit line, as
amended, the Company has a $2,500,000 unsecured working capital line of credit.
This line of credit bears interest at the bank's base lending rate, and expires
on June 30, 1997. The line of credit contains financial covenants which consist
of minimum tangible capital base, ratio of total liabilities to tangible capital
base and debt service coverage. The Company is currently in violation of these
covenants and is negotiating with the commercial lender to extend and amend the
line of credit. The Company also has a $1,750,000 equipment line of credit,
collateralized by the equipment, bearing interest at the bank's base lending
rate and expires on March 31, 1997. The Company is also currently negotiating
with the commercial lender to extend and amend the equipment line of credit.
There can be no assurance that the Company will be successful in extending and
amending the line of credit nor can there be any assurance that such extended
and amended line of credit will be on similar terms as the existing agreement.
Additionally, there can be no assurance that alternative financing will be
available if required. As of March 31, 1997, the Company had borrowings under
the equipment line of credit of $1,322,000.
During fiscal 1997, the Company had a net loss of $3.9 million and used
cash of $5.2 million. The decrease in cash was primarily due to $4.2 million
used from operations and $1.4 million used in investing activities. The
Company's operating activities included a net increase in accounts receivable of
$6.8 million, an increase in accrued expenses of $1.9 million and a increase in
deferred revenue of $0.9 million. Investing activities included the purchase of
property and equipment for $0.3 million, the purchase of intangible assets for
$0.1 million and capitalized software costs of $1.0 million. The Company
regularly extends payment terms with new and existing customers to close
business in a particular reporting period.
During fiscal 1996, the Company had net income of $36,000 but used cash of
$7.9 million. The decrease in cash was primarily due to $3.9 million used from
operations and $4.1 million used in investing activities. The Company's
operating activities included a net increase in accounts receivable of $2.5
million, a decrease in accrued expenses of $0.9 million and a decrease in
deferred revenue of $1.6 million. Investing activities included the purchase of
property and equipment for $1.9 million, the purchase of intangible assets for
$1.3 million and capitalized software costs of $0.9 million.
During fiscal 1996, the Company relocated its corporate headquarters. The
terms of the five year lease for the new facility provide that the Company will
make annual rental payments of approximately $202,000. Also, during fiscal 1996,
the Company entered into a $5,000,000 five year applications
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<PAGE> 27
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 is
current with all payments under this commitment. Pursuant to this reciprocal
buying agreement, the Company recognized revenue and collected cash in the
amount of $1,805,000 upon the execution and delivery of software with respect
to the software license agreement for the year ended March 31, 1996. The
Company's policy is to record 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 March 31, 1997, the Company did
not use the minimum first-year commitment of $250,000 and has recorded an asset
for the unused portion, that can be carried forward under the contract, of
$88,000. The Company has included such amount in other current assets and
expects to recognize this amount, along with the fiscal 1998 minimum
commitment, during the next fiscal year.
During fiscal 1995, the Company had net income of $3.1 million and
generated a net cash increase of $15.5 million. The increase in cash was due
primarily to $1.7 million generated in cash from operations offset by $0.9
million used in investing activities, and $14.8 million in financing activities.
The Company's operating activities included an increase in accounts receivable
of $1.7 million. Investing activities included the purchase of property and
equipment for $0.4 million and capitalized software costs of $0.4 million.
Financing activities included the $17.7 million from the net proceeds from the
IPO, $2.3 million for the repayment of advances from corporate partners and $0.7
million for the repayment of a related party note payable.
During fiscal 1995, the Company entered into a three year agreement to
purchase consulting services from an outside engineering firm. Under the terms
of the agreement, the Company's total purchase commitment ranges from $700,000
to $1,500,000. Also, in connection with the Company's agreement to license a
software module, the Company paid $1,000,000 in four quarterly installments
during fiscal 1996.
The Company believes that existing sources of liquidity and funds from
operations will satisfy the Company's working capital and capital expenditure
requirements through at least fiscal 1998.
In the normal course of business, the Company evaluates potential
acquisitions of businesses, products or technologies that complement the
Company's business. The Company has no present plans, agreements or commitments
and is not currently engaged in any negotiations with respect to any material
acquisitions of other businesses, products or technologies. However, the Company
may acquire businesses, products or technologies in the future.
Inflation is not expected to have a significant effect upon the Company's
business in the near future.
Newly Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier application is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed using SFAS
128 in the notes to financial statements in periods prior to adoption. SFAS 128
requires restatement of all prior-period earnings per share data presented after
the effective date. SFAS 128 specifies the computation, presentation and
disclosure requirements for earnings per share and is substantially similar to
the standard recently issued by the International Accounting Standards Committee
entitled International Accounting Standard, Earnings per Share ("IAS 33"). The
Company plans to adopt SFAS 128 in Fiscal 1998 and has not yet determined the
impact.
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<PAGE> 28
RISK FACTORS
Dependence on Principal Products. The Company currently derives
substantially all of its revenues from licenses of the ICAD System, Selling
Point and related products and services. As a result, any factor adversely
affecting sales of the Company's core group of products would have a material
adverse effect on the Company. The Company's future financial performance will
depend in part upon the successful development, introduction and customer
acceptance of new or enhanced versions of its existing products and other
products. There can be no assurance that the Company will continue to be
successful in marketing the ICAD System, Selling Point and related products or
any new or enhanced products the Company may develop in the future. In addition,
competitive pressures or other factors may result in price erosion that could
have a material adverse effect on the Company's results of operation. See
"Business - Products."
Broader Market Acceptance. Broader market acceptance of the Company's
products is critical to the Company's future success. The Company believes that
broader market acceptance of its products will depend on a number of factors
including: product functionality, product reliability, price/performance
characteristics, ease of use and the displacement of existing design approaches.
For many potential customers, the methodology represented in the Company's
products generally represents a new approach to the design process. As a result,
a decision by a customer to purchase the Company's products often involves a
significant evaluation period. Failure or material delay of the Company's
products to achieve broader market acceptance would have a material adverse
effect on the Company's business and financial results. Although the Company has
established a user base of large manufacturing companies, there can be no
assurance that the Company will be able to broaden that base and attain critical
market penetration. In addition, any factor adversely affecting the overall CAD
software market could have a material adverse effect on the Company's business
and financial results. See "Business - Industry Background."
History of Losses. Although the Company has been profitable for the fiscal
years ended March 31, 1995 and 1996, the Company has experienced net losses in
the fiscal years ended March 31, 1997, 1994 and 1993. As a result, as of March
31, 1997, the Company had an accumulated deficit (including acquisition-related
expenses) of approximately $10.1 million. There can be no assurance that sales
of the Company's existing products will either continue at historical rates or
increase, or that new products introduced by the Company will achieve broad
market acceptance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Concentration of Customers. Historically, a significant portion of the
Company's revenues in any particular period has been attributable to sales to a
limited number of customers. During the fiscal year ended March 31, 1997, three
customers each accounted for greater than ten percent of the Company's revenues,
and revenues from the Company's five largest customers during such period
represented, in the aggregate, approximately 62.6% of the Company's revenues
during such period. In fiscal 1996, two customers each accounted for greater
than ten percent of the Company's revenues, and revenues from the Company's five
largest customers represented approximately 44.1% of the Company's revenues for
such year. In fiscal 1995, three customers each accounted for greater than ten
percent of the Company's revenues, and revenues from the Company's five largest
customers (including two affiliated entities related to the Company which,
considered together as a single customer, accounted for 10.7% of the Company's
revenues), represented approximately 50.1% of the Company's revenues for such
year. This concentration of customers can cause the Company's revenues and
earnings to fluctuate from quarter to quarter, based on major customers'
requirements and the timing of their orders. Although the Company believes it
has good relationships with its largest customers and has in the past received a
substantial portion of its revenues from repeat business with established
customers, none of its major customers has any obligation to purchase additional
products or services and, thus, there can be no assurance that any of the
Company's major customers will continue to purchase products and services in
amounts similar to previous years. Furthermore, no additional license revenue is
due from related parties. The loss of business from one or more of these
customers may have a material adverse impact on the Company. See "Business -
Sales and Marketing" and "Certain Transactions."
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<PAGE> 29
Competition. The market in which the Company offers its products is highly
competitive. While several major CAD companies are involved in cooperative
marketing relationships with the Company and currently offer products that
complement those of the Company, there can be no assurance that these or other
companies will not develop products or provide services that compete with those
offered by the Company and that are superior to the Company's products or
services or that achieve greater market acceptance. In addition, many of the
Company's competitors and potential competitors have significantly greater
financial, technological and marketing resources than the Company. Competitive
pressures faced by the Company could force the Company to reduce its prices,
resulting in slower revenue growth and reduced profitability. There can be no
assurance that the Company will be able to compete successfully against current
and future sources of competition or that competition will not have a material
adverse effect on the Company's business, operating results or financial
condition. See "Business - Competition."
Variability of Quarterly Operating Results. The Company has experienced and
may experience in the future significant quarter-to-quarter fluctuations in its
operating results. Factors such as the timing of significant orders, the timing
of new product introductions and upgrades, the length of customer product
evaluation periods, the mix of products sold and the mix of domestic versus
international revenues could contribute to this quarterly variability. A
substantial portion of the Company's revenues in a quarter are derived from
purchase orders received that quarter, which makes the Company's financial
performance more susceptible to an unexpected downturn in business and more
unpredictable. In addition, the Company's expense levels are based in part on
expectations of future revenue levels and a shortfall in expected revenues could
therefore result in a disproportionate decrease in the Company's net income.
Dependence on Third Party Licensed Technology. Certain technology used in
the Company's products is licensed from third parties. The Company licenses
Allegro CL, a compiler embedded in The ICAD System, from Franz, Inc. Should this
compiler become unavailable to the Company, the Company believes that it would
be able to develop or obtain an alternative compiler; however, the costs of such
an effort and the time required could be significant and, until an alternative
compiler is developed or obtained, the Company's ability to market its products
would be substantially impaired. The Company also licenses from Electronic Data
Systems ("EDS"), a principal customer and marketing partner of the Company, a
solid modeling software module called Parasolid, which is one of the most widely
used of The ICAD System modules. The loss of the right to use such software
could reduce the attractiveness of the Company's products to certain customers.
The Company believes that alternative solid modeling software is available.
However, there can be no assurances that such alternatives would achieve market
acceptance or be available on a timely basis or on similar terms. The Company
believes that the cost associated with technology licensed from third parties is
not material to its results of operations and does not constitute a significant
portion of the total cost of the Company's products into which such third party
technology is incorporated. See "Business - Proprietary Rights."
Technological Demands of the Marketplace. The market in which the Company
competes is characterized by rapid technological changes and advances. The
Company's future success will depend upon its ability to enhance its existing
products and introduce new products which keep pace with technological
developments in the marketplace and address the increasingly sophisticated needs
of its end-users. There can be no assurance that the Company will be successful
in introducing and marketing product enhancements or new products on a timely
basis, or that enhancements or new products will achieve market acceptance. See
"Business - Products" and "- Product Development."
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary technology. The Company does not have patents on
any of its technology and relies on contracts and the laws of copyright and
trade secrets to protect such technology. The Company maintains a trade secrets
program, enters into confidentiality or license agreements with its employees,
resellers and end-users and limits access to and distribution of its software,
documentation and other proprietary information. Effective copyright and trade
secret protection may not be available in every foreign country in which the
Company's products are distributed. There can be no assurance that the steps
taken by the Company to protect its proprietary technology will be adequate to
prevent misappropriation of its technology by third parties, or that third
parties will not be able to develop similar technology independently. Although
the Company is not aware that any of its technology infringes the rights of
third
29
<PAGE> 30
parties, there can be no assurance that other parties will not assert technology
infringement claims against the Company, or that, if asserted, such claims will
not prevail. See "Business - Proprietary Rights."
Dependence on Key Personnel. The Company's success depends in large part
upon a number of key management and technical employees. The loss of the
services of one or more key employees, including Lawrence W. Rosenfeld, the
Company's Chairman and Chief Executive Officer, could have a material adverse
effect on the Company. In addition, the Company's success will depend in
significant part upon its ability to attract and retain highly-skilled
management, technical, and sales and marketing personnel. Competition for such
personnel is intense and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. See "Executive Officers
of the Registrant."
Management of Growth. The Company's business has grown significantly over
the past several years as a result of both internal growth and business and
product acquisitions. The Company may make additional acquisitions in the
future. Managing this growth and integrating acquired products and businesses
require a significant amount of management time and skill. There can be no
assurance that the Company will be effective in managing its future growth or in
assimilating acquisitions or that any failure to manage growth or assimilate an
acquisition will not have a material adverse effect on the Company's business,
operating results or financial condition.
International Operations. The Company's international revenues were $12.0
million, $7.7 million and $6.7 million in the fiscal years ended 1997, 1996 and
1995 respectively, representing 50.0%, 37.3% and 33.2%, respectively, of the
Company's revenues in such years. Although the Company expects that
international revenues will fluctuate from period to period, it expects such
revenues to account for a significant percentage of its revenues in the future.
The international portion of the Company's business is subject to a number of
inherent risks, including difficulties in building and managing international
operations, difficulties in managing distributors, difficulties in translating
products into foreign languages, fluctuations in the value of foreign
currencies, import/export duties and quotas and unexpected regulatory, economic
or political changes in international markets. There can be no assurance that
these factors will not adversely affect the Company's international revenues or
its overall financial performance. See "Business - Sales and Marketing."
Forward-Looking Statements. The Private Securities Litigation Reform Act of
1995 contains certain safe harbors regarding forward-looking statements. From
time to time, information provided by the Company or statements made by its
directors, officers or employees may contain "forward-looking" information
subject to numerous risks and uncertainties. Any statements made herein that are
not statements of historical fact are forward-looking statements including, but
not limited to, statements concerning the characteristics and growth of the
Company's markets and customers, the Company's objectives and plans for future
operations and products and the Company's expected liquidity and capital
resources. Such forward-looking statements are based on a number of assumptions
and involve a number of risks and uncertainties, and, accordingly, actual
results could differ materially. Factors that may cause such differences
include, but are not limited to: the continued and future acceptance of the
Company's products; the rate of growth in the industries of the Company's
products; the presence of competitors with greater technical, marketing and
financial resources; the Company's ability to promptly and effectively respond
to technological change to meet evolving customer needs; risks associated with
sales in foreign countries; and the Company's ability to successfully expand its
operations.
30
<PAGE> 31
ITEM 8 - FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
CONCENTRA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants ............................................................. 32
Consolidated Balance Sheets as of March 31, 1997 and 1996 ..................................... 33
Consolidated Statements of Operations for the years ended March 31, 1997, 1996 and 1995 ....... 34
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended March 31, 1997,
1996 and 1995 ............................................................................ 35
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995 ....... 36
Notes to Consolidated Financial Statements .................................................... 37-50
</TABLE>
31
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Concentra Corporation:
We have audited the accompanying consolidated balance sheets of Concentra
Corporation as of March 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Concentra
Corporation as of March 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 7, 1997
32
<PAGE> 33
<TABLE>
CONCENTRA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 31,
---------------------------
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,890 $ 9,121
Marketable securities 203 --
Accounts receivable, net of allowance for doubtful accounts of $125 and $190 14,050 8,284
Other current assets 693 628
-------- --------
Total current assets 18,836 18,033
Property and equipment, net 2,612 3,241
Capitalized software costs, net 1,878 1,268
Intangible assets, net 1,333 2,232
Other assets 372 335
-------- --------
Total assets $ 25,031 $ 25,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,551 $ 1,173
Accrued expenses 4,123 2,177
Income tax payable 273 200
Deferred revenue 2,898 1,848
Deferred revenue from related parties -- 93
Current portion of capital lease obligations 423 363
-------- --------
Total current liabilities 9,268 5,854
Capital lease obligations 611 798
Deferred revenue 84 150
Commitments and contingencies (Note E) -- --
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, 5,499,211
and 5,333,651 shares issued and outstanding at March 31, 1997 and 1996 -- --
Additional paid-in capital 25,578 24,809
Accumulated deficit (10,099) (6,159)
Cumulative translation adjustment (411) (343)
-------- --------
Total stockholders' equity 15,068 18,307
-------- --------
Total liabilities and stockholders' equity $ 25,031 $ 25,109
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 34
<TABLE>
CONCENTRA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<CAPTION>
Year Ended March 31,
--------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Software licenses $17,670 $13,133 $10,050
Services 6,797 7,135 8,004
Related party software and services 104 452 2,163
------- ------- -------
Total revenues 24,571 20,720 20,217
Operating expenses:
Cost of software licenses 2,073 1,337 1,328
Cost of services 4,410 2,677 1,928
Sales and marketing 14,541 11,622 8,887
Research and development 3,558 2,849 2,423
General and administrative 2,655 2,511 1,971
Provision for bad debts 1,544 101 173
Restructuring charge 239 196 --
------- ------- -------
Total operating expenses 29,020 21,293 16,710
(Loss) income from operations (4,449) (573) 3,507
Interest income 296 682 174
Interest expense (105) (54) (323)
Other income (expense) 458 (10) 300
------- ------- -------
(Loss) income before income taxes (3,800) 45 3,658
Provision for income taxes 140 9 559
------- ------- -------
Net (loss) income (3,940) 36 3,099
Accretion of redeemable common stock -- -- 223
------- ------- -------
Net (loss) income available to common stockholders $(3,940) $ 36 $ 2,876
======= ======= =======
Net (loss) income per common and common equivalent share $ (0.73) $ 0.01 $ 0.74
======= ======= =======
Weighted average number of common and common equivalent
shares outstanding 5,391 5,750 3,865
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE> 35
<TABLE>
CONCENTRA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(In thousands, except share data)
<CAPTION>
SERIES A
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
------------------------------------------ PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 220,953 $ 3,766 2,803,701 -- $ 1,121 $ (9,294) $ (51) $(4,458)
-------- ------- --------- ----- ------- -------- ----- -------
Shares issued in connection
with initial public offering -- 1,700,000 -- 17,718 17,718
Shares issued in connection
with conversion of preferred
stock to common stock (220,953) (3,766) 401,732 3,766 --
Conversion of redeemable
common stock into common
stock 271,968 2,000 2,000
Stock options exercised 69,774 171 171
Accretion of redeemable
common stock to
redemption value (223) (223)
Translation adjustment (400) (400)
Net income -- -- -- -- -- 3,099 -- 3,099
-------- ------- --------- ----- ------- -------- ----- -------
Balance at March 31, 1995 -- -- 5,247,175 -- 24,553 (6,195) (451) 17,907
-------- ------- --------- ----- ------- -------- ----- -------
Stock options exercised 79,152 224 224
Shares issued in connection with
employee stock purchase plan 7,324 32 32
Translation adjustment 108 108
Net income -- -- -- -- -- 36 -- 36
-------- ------- --------- ----- ------- -------- ----- -------
Balance at March 31, 1996 -- -- 5,333,651 -- 24,809 (6,159) (343) 18,307
-------- ------- --------- ----- ------- -------- ----- -------
Stock options exercised 142,070 667 667
Shares issued in connection with
employee stock purchase plan 23,490 102 102
Translation adjustment (68) (68)
Net loss -- -- -- -- -- (3,940) -- (3,940)
-------- ------- --------- ----- ------- -------- ----- -------
Balance at March 31, 1997 -- -- 5,499,211 -- $25,578 $(10,099) $(411) $15,068
======== ======= ========= ===== ======= ======== ===== =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE> 36
<TABLE>
<CAPTION>
CONCENTRA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Year Ended March 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(3,940) $ 36 $ 3,099
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 2,413 1,362 715
Foreign exchange loss (gain) 166 38 (308)
Provision for bad debts 1,544 101 173
Change in net unrealized holding gain on trading security (203) -- --
Changes in operating assets and liabilities:
Accounts receivable (7,288) (2,546) (1,666)
Other assets (102) (244) (228)
Accounts payable 382 48 491
Accrued expenses 1,883 (890) (585)
Deferred revenue 875 (1,591) (262)
Income taxes payable 73 (212) 315
------- -------- --------
Net cash (used in) provided by operating activities (4,197) (3,898) 1,744
------- -------- --------
Cash flows used in investing activities:
Capitalized software costs (970) (865) (416)
Purchase of property and equipment (326) (1,928) (422)
Purchase of intangible assets (96) (1,322) (61)
------- -------- --------
Net cash used in investing activities (1,392) (4,115) (899)
------- -------- --------
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of issuance cost 102 32 17,718
Proceeds from exercise of stock options 667 224 171
Repayment of advances from corporate partners -- -- (2,276)
Principal payments under capital lease obligations (230) (243) (98)
Repayment of related party note payable -- -- (746)
------- -------- --------
Net cash provided by financing activities 539 13 14,769
------- -------- --------
Effects of exchange rates on cash and cash equivalents (181) 111 (162)
Net (decrease) increase in cash and cash equivalents (5,231) (7,889) 15,452
Cash and cash equivalents at beginning of year 9,121 17,010 1,558
------- -------- --------
Cash and cash equivalents at end of year $ 3,890 $ 9,121 $ 17,010
======= ======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 106 $ 54 $ 260
Income taxes paid 67 221 244
Supplemental disclosure of non-cash investing and financing activities:
Purchase of intangible asset -- -- 1,000
Equipment acquired under capital lease obligations 139 1,183 242
Conversion of redeemable common stock to common stock -- -- 2,000
Conversion of preferred stock to common stock -- -- 3,766
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE> 37
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Description of Business
Concentra Corporation, formerly ICAD, Inc. (the "Company") was incorporated
in April 1984 and operates in one business segment. The Company develops,
markets and supports software products that automate the engineering and sales
process.
The Company is subject to a number of risks similar to other companies in
the industry, including dependence on two principal products, concentration of
customers, competition from substitute products and larger companies, rapid
technological change, uncertainty of market acceptance of products, dependence
on third-party licensed technology and proprietary technology, dependence on
key personnel, dependence on domestic and international distributors and
resellers, the need to obtain additional financing, and the risks associated
with international operations.
The Company has experienced and may experience in the future significant
quarter-to-quarter fluctuations in its operating results. Factors such as the
timing of significant orders, the timing of new product introductions and
upgrades, the length of customer product evaluation periods, the mix of products
sold and the mix of domestic versus international revenues could contribute to
this quarterly variability. A substantial portion of the Company's revenues in a
quarter are derived from purchase orders received in that quarter, which makes
the Company's financial performance more susceptible to an unexpected downturn
in business and more unpredictable. In addition, the Company's expenses levels
are based in part on expectations of future revenue levels and a shortfall in
expected revenues could therefore result in a disproportionate decrease in the
Company's net income.
B. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Use of Accounting Estimates
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. Actual results could differ from those estimates and would
impact financial position, results of operations and cash flows.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents. Those
instruments with maturities between three months and twelve months are
considered to be short-term marketable securities and investments with
maturities of greater than one year are classified as long-term marketable
securities.
Cash equivalents, which include debt securities, are carried at amortized
cost plus accrued interest which approximates fair value.
37
<PAGE> 38
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Upon being subject to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
classified a previously owned common stock investment as a trading security.
Trading securities are carried at their fair market value based upon the quoted
market prices in effect at the balance sheet date. Net unrealized gains on
trading securities of approximately $203,000 are included in other income
(expense) for the year ended March 31, 1997.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the following estimated useful lives:
Computer equipment 3-5 years
Furniture and fixtures 5-7 years
Amortization of leasehold improvements is computed on a straight-line
method over the shorter of the estimated useful life of the leasehold
improvements or the remaining term of the lease.
Expenditures for maintenance, repairs and renewals that neither materially
add to the value of the property nor appreciably prolong its life are charged to
expense as incurred. When assets are retired or disposed of, the assets and
related allowances for depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in operations.
Research and Development and Capitalized Software Costs
Costs incurred prior to the establishment of technological feasibility are
charged to research and development expense. Software production costs incurred
subsequent to the establishment of technological feasibility are capitalized
until the product is available for general release to customers. Amortization of
capitalized software costs are recognized on a straight-line basis over the
estimated economic lives of the related products of three years, which amount is
greater than the amount computed using the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues for that
product.
Amortization of capitalized software costs, included in cost of software
licenses, amounted to approximately $360,000, $290,000 and $174,000 for the
years ended March 31, 1997, 1996 and 1995, respectively.
Intangible Assets
Intangible assets, which represent various software licenses, are recorded
at cost and are amortized over their estimated useful lives of three to five
years. Amortization of intangible assets amounted to approximately $995,000,
$317,000 and $141,000 for the years ended March 31, 1997, 1996, and 1995,
respectively, and are included in cost of software licenses.
During 1995, the Company entered into a five year software license
agreement with a significant customer and marketing partner. The agreement
required an upfront fee of $1,000,000, as well as additional payments (See Note
E) for the use of software which is embedded in certain of the Company's
products. This asset is being amortized over the five year life of the
agreement.
38
<PAGE> 39
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
Revenue from software license agreements is recognized upon shipment of the
license provided that no significant vendor obligations remain outstanding and
collection of the related receivable is deemed probable by management. Revenue
from annual or multi-year maintenance agreements, including maintenance bundled
in initial software licenses, is recognized ratably over the term of the
agreements. Revenue from consulting and training agreements is recognized as the
services are performed.
Income Taxes
The Company provides taxes for income based on the liability method, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred taxes are determined
based on the difference between the income tax bases of assets and liabilities
and the corresponding financial reporting amounts using enacted tax rates in
effect in the years in which the differences are expected to reverse. The
Company provides a valuation allowance against net deferred tax assets if, based
upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Foreign Currency
Assets and liabilities of the Company's foreign subsidiaries are translated
at the exchange rates in effect at year end. Revenues and expenses are
translated using currency exchange rates in effect during the year. Gains or
losses resulting from translation adjustments are reported as a separate
component of stockholders' equity. Foreign exchange (losses) gains resulting
from intercompany foreign currency transactions of approximately $(166,000),
$(38,000) and $308,000 for the years ended March 31, 1997, 1996 and 1995,
respectively, are included in other income and expense.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments and trade
receivables.
The Company invests its cash balances with banks and other financial
institutions. As of March 31, 1997 and 1996, the Company had $0 and $3,962,000,
respectively, of cash equivalents invested in commercial paper which are
considered to be cash equivalents due to their short-term maturity. The Company
also has cash equivalents which are comprised of a repurchase agreement with a
bank and U.S. Treasury Securities. The carrying amount of these cash equivalents
approximates fair value because of their short-term maturity. The Company does
not require collateral on its repurchase agreements.
Credit risk with respect to trade receivables is concentrated due to the
limited amount of large orders recorded in any particular reporting period. The
Company regularly extends payment terms with new and existing customers to close
business in a particular reporting period. The Company does not require
collateral, letters of credit, or other security to support customer
receivables. The Company's credit review procedures are generally more limited
for overseas customers and the Company has experienced greater credit losses
with such overseas customers than anticipated. In some cases, the Company does
have private foreign credit insurance to protect against foreign credit losses.
Due to the factors discussed above, it is reasonably possible that the Company's
estimate for doubtful accounts could differ from actual experience and adversely
impact the Company's financial position, results of operations and cash flows.
39
<PAGE> 40
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based upon the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares are included in the per share calculations where the
effect of their inclusion would be dilutive.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83 ("SAB No. 83"), all common and common equivalent shares issued
during the twelve month period prior to the initial public offering ("cheap
stock") which was completed on February 6, 1995, have been included in the
calculation as if they were outstanding for all periods. As permitted under SAB
No. 83, these common equivalent shares, which consist of stock options, were
determined using the treasury stock method and the initial public offering
("IPO") price of $12.00 per share. In the computation of net income (loss) per
common and common equivalent share, accretion of redeemable common stock is
included as a decrease in net income or increase in net loss available to common
stockholders. Series A Preferred Stock is not considered a common stock
equivalent based on its effective yield to maturity.
Fully diluted net income (loss) per common and common equivalent share did
not differ materially from primary net income (loss) per common and common
equivalent share.
Newly Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier application is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed using SFAS
128 in the notes to financial statement in periods prior to adoption. SFAS 128
requires restatement of all prior-period earnings per share data presented upon
adoption. SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share and is substantially similar to the standard
recently issued by the International Accounting Standards Committee entitled
International Accounting Standard, Earnings per Share ("IAS 33"). The Company is
required to adopt SFAS 128 in the fourth quarter of 1997 and has not yet
determined the impact.
C. CASH AND CASH EQUIVALENTS
<TABLE>
Cash and cash equivalents consist of the following investments (in
thousands):
<CAPTION>
March 31,
-------------------
1997 1996
<S> <C> <C>
Demand Deposits and CDs $1,762 $1,387
U.S. Treasury Securities 2,128 3,772
Commercial Paper - 3,962
------ ------
$3,890 $9,121
====== ======
</TABLE>
40
<PAGE> 41
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following (in thousands):
<CAPTION>
March 31,
-------------------
1997 1996
<S> <C> <C>
Computer equipment $4,353 $4,054
Furniture and fixtures 1,615 1,538
Leasehold improvements 1,142 1,091
------ ------
7,110 6,683
Less accumulated depreciation and amortization 4,498 3,442
------ ------
$2,612 $3,241
====== ======
</TABLE>
Depreciation and amortization expense was approximately $1,056,000,
$761,000 and $400,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
Fully depreciated assets of $240,000 were retired during fiscal year 1996
pursuant to the Company's relocation of facilities.
<TABLE>
Property and equipment under capital leases consists of the following (in
thousands):
<CAPTION>
March 31,
-----------------
1997 1996
<S> <C> <C>
Computer equipment $1,109 $ 988
Furniture and fixtures 739 721
------ ------
1,848 1,709
Less accumulated amortization 1,067 572
------ ------
$ 781 $1,137
====== ======
</TABLE>
E. COMMITMENTS AND CONTINGENCIES
Line of Credit
On June 20, 1996, the Company renewed its demand line of credit of
$2,500,000 with a commercial bank pursuant to the terms under the unsecured
working capital line of credit. This line of credit bears interest at the bank's
base lending rate, and expires on June 30, 1997. There were no amounts
outstanding under the working capital line of credit at March 31, 1997 or 1996.
The line of credit contains financial covenants which consist of minimum
tangible capital base, ratio of total liabilities to tangible capital base and
debt service coverage. The Company is currently in violation of these covenants
and is negotiating with the commercial lender to extend and amend the demand
line of credit. There can be no assurance that the Company will be successful in
extending and amending the line of credit nor can there be any assurance that
such extended and amended line of credit will be on similar terms as the
existing agreement. Additionally, there can be no assurance that alternative
funding will be available if required.
41
<PAGE> 42
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital and Operating Leases
The Company has a $1,750,000 equipment line of credit, collateralized by
the equipment, bearing interest at the bank's base lending rate and expired on
March 31, 1997. The Company is currently negotiating with the commercial lender
to extend and amend the equipment line of credit. As of March 1997, the Company
purchased $1,322,000 of furniture and computer equipment under the equipment
line of credit.
The Company has entered into certain operating lease agreements for
computer equipment and its office and sales facilities, expiring through fiscal
2001. The Company also leases certain computer equipment and furniture and
fixtures under capital leases. Under the terms of certain operating lease
agreements, the Company may be required to pay for utilities, real estate taxes,
insurance and maintenance expenses.
On June 2, 1995, the Company signed a new five year operating lease for its
corporate headquarters. The terms of the new lease provide that the Company will
make annual rental payments of approximately $202,000.
<TABLE>
At March 31, 1997, approximate future minimum lease payments under capital
and operating leases are as follows (in thousands):
<CAPTION>
Year ended March 31, Capital Leases Operating Leases
-------------------- -------------- ----------------
<S> <C> <C>
1998 $ 400 $ 438
1999 339 413
2000 339 252
2001 122 84
2002 25 -
------ ------
Total future minimum lease payments 1,225 $1,187
======
Amount representing interest (191)
------
Present value of future minimum lease
payments on capital leases 1,034
Current portion (423)
------
$ 611
======
</TABLE>
Rental expense under operating leases was approximately $588,000,
$1,005,000 and $1,191,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
42
<PAGE> 43
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Royalty and 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 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 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 March 31,
1997, the Company did not use the minimum first-year commitment of $250,000 and
has recorded an asset for the unused portion, that can be carried forward under
the contract, of $88,000. The Company has included such amount in other current
assets and expects to recognize this amount, along with the fiscal 1998 minimum
commitment, during the next fiscal year. Pursuant to this reciprocal buying
agreement, the Company recognized revenue and collected cash in the amount of
$1,805,000 upon the execution and delivery of software with respect to the
software license agreement for the year ended March 31, 1996.
If the Company does not make the Fixed Payments in a timely manner, the
customer or its assigns may, at their option, gain access to the source code
through an escrow arrangement and may market KBCar to others or require the
Company to market to others in order to regain any shortfall in the Fixed
Payments. This remedy is not available in the event of a failure to make the
Variable Payments.
During fiscal 1996 the Company entered into a distribution agreement with
this same significant customer to exclusively distribute the Company's products
to the customer's group of companies. The Company also licensed, through this
customer as a distributor, $500,000 of ICAD software. In addition, the Company
licensed through the distributor use of 100 copies of the software application
known as Obedient Mannequin ("OM") for $1,265,000, in addition to the continuing
rights to OM for $50,000 on an exclusive, perpetual basis. Additionally, the
Company licensed to the customer for $50,000, an unlimited number of copies of
the product known as Concept Car ("CC"). The customer also granted to the
Company the exclusive rights to distribute the product known as KBCar which
property includes both CC and OM. The customer also agreed to continue the
development and enhancement of KBCar. The royalty paid to the customer is 50% of
the net revenue after payment of all royalties to third parties. To date, there
have been no revenues generated from KBCar.
During fiscal 1995 the Company entered into a five year license and royalty
agreement, as amended, with a significant customer and marketing partner of the
Company (See Note H). Pursuant to this agreement, the Company recognized revenue
and collected cash in the amount of $1,000,000 upon the execution and delivery
of software with respect to this software license arrangement. In addition, the
Company, in connection with an arrangement to license a software module from
this significant customer, has paid $1,000,000 in prepaid royalties to be
amortized over the life of the five year agreement, commencing January 1, 1995.
Also, during fiscal 1996 the Company paid additional royalty amounts of
$1,000,000 in four quarterly installments. The Company amortizes these
additional royalty payments to cost of software licenses based upon
predetermined percentages of revenues generated from the sale of product.
F. INCOME TAXES
<TABLE>
The components of the provision for income taxes consist of the following
(in thousands):
<CAPTION>
Year Ended March 31,
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $344
Foreign 120 -- 108
State 20 9 107
---- ---- ----
140 9 559
Deferred:
Federal -- -- --
State -- -- --
---- ---- ----
-- -- --
---- ---- ----
$140 $ 9 $559
==== ==== ====
</TABLE>
43
<PAGE> 44
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
Income (loss) before income taxes for domestic and foreign operations are
as follows (in thousands):
<CAPTION>
Year Ended March 31,
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Domestic $(2,240) $ 828 $3,668
Foreign (1,560) (783) (10)
------- ----- ------
$(3,800) $ 45 $3,658
======= ===== ======
</TABLE>
<TABLE>
The following is a reconciliation between the U.S. federal statutory rate
and the effective tax rate:
<CAPTION>
Year Ended March 31,
---------------------------
1997 1996 1995
<S> <C> <C> <C>
U.S. federal statutory rate (34.0)% 34.0% 34.0%
State taxes, net of applicable federal tax benefit .3 13.2 1.9
Foreign withholding tax 3.2 -- 2.9
Losses not benefited 33.5 -- --
Net operating loss utilized -- -- (12.8)
Other reductions in valuation allowance -- (60.1) (12.4)
Non-deductible meals and entertainment .7 32.9 1.7
---- ----- -----
3.7% 20.0% 15.3%
==== ===== =====
</TABLE>
<TABLE>
The following represents the significant components of the Company's net
deferred tax assets (in thousands):
<CAPTION>
March 31,
--------------------
1997 1996
<S> <C> <C>
Deferred tax assets (liabilities):
Federal net operating losses $ 2,144 $ 1,196
Tax credit carryforwards 1,426 1,398
Foreign net operating loss 1,793 1,272
Deferred revenue -- 68
Difference in cost recognition basis, accrual
for books and cash for tax 456 402
Depreciation and amortization 200 103
State tax credits and net operating
losses, net of federal benefit 717 440
Capitalized software (756) (510)
Valuation allowance for deferred tax assets (5,980) (4,369)
------- -------
$ -- $ --
======= =======
</TABLE>
The Company believes there is uncertainty surrounding the realization of
favorable tax benefits in future tax returns; accordingly the net deferred tax
assets at March 31, 1997 and 1996 have been fully offset by a valuation
allowance.
44
<PAGE> 45
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of March 31, 1997, the Company had approximately $6,305,000 of net
operating loss carryforwards for federal income tax purposes which begin to
expire in the years 2008 through 2012. Approximately $737,000 of the Company's
net operating loss is attributable to the exercises of stock options which, when
utilized, will be credited to additional paid in capital. Pursuant to a change
in ownership, $2,700,000 of the federal net operating loss is subject to an
annual limitation of approximately $150,000. The Company has research and
development credits for federal and state income tax purposes of approximately
$860,000 and $314,000, respectively, that begin to expire in 2000. Foreign tax
credit carryforwards of approximately $507,000 expire in the years 1998 through
2001. Alternative minimum tax credits of approximately $60,000 carries forward
indefinitely. The Company has net operating loss carryforwards in foreign
jurisdictions of approximately $4,924,000 of which approximately $1,083,000
expire in the years 1997 through 2001.
G. SIGNIFICANT CUSTOMERS
<TABLE>
The following represents significant customer revenue:
<CAPTION>
Year Ended March 31,
-------------------------
1997 1996 1995
<S> <C> <C> <C>
Customer A 20.9% 16.0% 12.6%
Customer B 19.3% -- --
Customer C 14.9% -- --
Customer D 4.2% -- --
Customer E 3.3% 6.5% 17.2%
---- ---- ----
62.6% 22.5% 29.8%
==== ==== ====
</TABLE>
H. RELATED PARTY TRANSACTIONS
The Company acquired Wisdom Systems, Inc. ("Wisdom"), a developer of
mechanical design automation software products in June 1993, from its parent
(the "Parent").
In June 1993, the Company and an affiliate of the Parent (the
"Distributor"), entered into a fixed fee distribution license agreement for the
Italian market. The Distributor purchased for resale 40 licenses totaling
$1,200,000, payable in four equal quarterly installments of $300,000, commencing
on July 1, 1993.
In June 1993, the Company and the Parent entered into a fixed fee license
agreement for 60 licenses totaling $2,800,000, which agreement was subsequently
assigned to an affiliate of the Parent (the "End-User"). License fees totaling
approximately $600,000 were paid based upon the shipment of the master version
of the licensed products. In September 1994, the Company shipped the master
version of the enhanced licensed products as required under the agreement and
the remaining fixed fee amount of $2,200,000 became payable over one year which
was repaid in full during fiscal 1995.
45
<PAGE> 46
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has recognized approximately $104,000 and $452,000 in service
revenues during fiscal 1997 and 1996 respectively under the aforementioned fixed
fee arrangements. The Company has deferred revenue for the product enhancement
privileges which include and extend to any replacement products introduced prior
to installation of the respective licenses. The deferred amounts were determined
using the Company's standard European maintenance fee. These fees are being
amortized over three years based upon the Distributor contract term of three
years and the installation schedule of the End User. The Company delivered the
master versions of the licensed products. There is no right of refund or
adjustment to the amounts received or remaining significant obligations.
I. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
On November 18, 1994, the Board of Directors authorized 4,000,000 shares of
$.01 par value Preferred Stock. The Board of Directors is authorized, subject to
certain limitations prescribed by law, without further stockholder approval, to
issue from time to time up to an aggregate of 4,000,000 shares of Preferred
Stock in one or more series and to fix the designations, preferences,
qualifications and limitations on restrictions of the shares of each said
series, including the dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights and the number of shares constituting any series.
Preferred Share Purchase Rights
On April 21, 1997, the Board of Directors declared a dividend of one Right
for each outstanding share of Common Stock, par value $0.00001 per share, of the
Company. The Rights were distributed on April 24, 1997, to holders of record on
that date. The rights will expire on April 24, 2007. Each Right will entitle
shareholders to buy 1/1000 of a share of Series A preferred stock at an exercise
price of $30.00. Initially, no separate Rights certificates will be distributed.
The Rights will trade with the Company's Common Stock and will not be
exercisable until one of the following conditions occur: 1) the Company receives
notice of the acquisition of 20 percent or more of the Company's Common Stock by
a person or group; or 2) such date as the Company's Board of Directors
determines following the commencement of a tender offer for 20 percent or more
of the Company's Common Stock. At the discretion of the Board of Directors, the
Rights can be redeemed at any time prior to the date that the Rights become
exercisable. If the Rights are not redeemed by the Board, and the Company is
acquired, holders of the Rights (other than an "Acquiring Person") will be
entitled to purchase shares of Preferred Stock of the Company equivalent to
shares of Common Stock having a fair market value of twice the exercisable
price.
Stock Options
On September 15, 1987 and June 11, 1993, the Board of Directors and
stockholders approved the Company's 1987 Stock Plan and 1993 Stock Plan (the
"Plans"), respectively. The Plans provide for the granting of incentive stock
options to officers and employees, to purchase shares of the Company's common
stock at a price not less than fair value, as determined by the Board of
Directors, on the grant date. The Plans also provide for the granting of
non-qualified stock options or awards of Common Stock to employees, officers and
directors of and consultants to the Company. Options expire 10 years from the
date of grant. Certain executive officers have options that vest eight years
from the date of grant. If certain performance targets are met, 20% of these
options will vest linearly over three years annually from the time of
achievement so long as the executive officer continues to be employed by the
Company. At March 31, 1997, 1,794,477 shares of Common Stock are reserved for
issuance under the Plans.
46
<PAGE> 47
10-K
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
Information related to stock options granted under the Plans is as follows:
<CAPTION>
EXERCISABLE
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE NUMBER EXERCISE
SHARES OPTION PRICE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
Outstanding at March 31, 1994 719,385 $1.375 - $ 5.500 $3.91 281,205 $2.88
--------- ------ ------- ----- ------- -----
Granted 254,730 5.500 - 11.250 8.05
Canceled (110,273) 1.375 - 6.875 2.80
Exercised (24,319) 1.375 - 4.125 2.29
--------- ------ ------- -----
Outstanding at March 31, 1995 839,523 1.375 - 11.250 $5.25 305,540 $3.61
--------- ------ ------- ----- ------- -----
Granted 369,033 5.500 - 11.000 9.14
Canceled (52,061) 4.125 - 11.250 8.01
Exercised (79,152) 1.375 - 6.875 9.96
--------- ------ ------- ----- ------- -----
Outstanding at March 31, 1996 1,077,343 1.375 - 11.250 $6.44 464,004 $4.83
--------- ------ ------- ----- ------- -----
Granted 440,750 4.875 - 14.500 5.64
Canceled (135,304) 4.125 - 14.500 7.21
Exercised (142,070) 1.375 - 11.250 9.34
--------- ------ ------- ----- ------- -----
Outstanding at March 31, 1997 1,240,719 $1.375 - $14.500 $6.33 476,107 $5.55
========= ================ ===== ======= =====
</TABLE>
At March 31, 1997, options for 553,758 shares of Common Stock were
available for future grants.
At March 31, 1997, fully vested options not issued pursuant to the
Company's Plans to purchase an aggregate of 32,923 shares of Common Stock at a
weighted average exercise price of $0.00006 are outstanding.
On October 24, 1995, the stockholders approved the Company's 1995 Employee
Stock Purchase Plan (the "Stock Purchase Plan"), which is intended to qualify as
an employee stock purchase plan under Section 423 of the Internal Revenue Code.
The Stock Purchase Plan covers up to 440,000 shares of the Company's Common
Stock. At March 31, 1997, 30,814 shares of Common Stock were issued under the
Stock Purchase Plan.
Stock Compensation Plan
At March 31, 1997, the Company has several stock-based compensation plans,
which are described above. The Company applies Accounting Principles Board
Opinion No. 25 ("APB Opinion 25"), "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan. Had compensation cost for the Company's two stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the
47
<PAGE> 48
10-K
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
method prescribed by Statement of Financial Accounting Standards No. 123 ("SFAS
123") "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
---- ----
<S> <C> <C>
Net (loss) income
As reported $(3,940) $ 36
Pro forma* $(4,791) $ (635)
Primary earnings per share
As reported $ (0.73) $ 0.01
Pro forma* $ (0.88) $(0.11)
</TABLE>
*SFAS No. 123 requires pro forma disclosure of the effect of all options
granted in fiscal years after March 31, 1995; therefore, there are no pro forma
amounts required for fiscal 1995. The pro forma effect of the compensation cost
determined using the fair value-base method are not indicative of future amounts
when the new method will apply to all vested and non-vested awards.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. In computing these pro forma amounts,
the Company has assumed weighted-average assumptions used for grants in 1997 and
1996, respectively; dividend yield of 0.0%; expected volatility of 80 percent;
weighted average risk-free interest rates of 5.96% and 5.96%; and expected lives
of five years. The average fair value of the options granted during 1997 and
1996 is estimated as $3.84 and $6.23, respectively, on the date of the grant.
Fixed Stock Option Plans
The Company has two fixed option plans. Under the 1987 Employee Stock
Option Plan, the Company may grant options to its employees for up to 909,091
shares of common stock. Under the 1993 Employee Stock Option Plan, the Company
may grant options to its employees for up to 1,159,091 shares of common stock.
Under the plans, the exercise price of each option equals the market price of
the Company's stock on the date of grant and option's maximum term is 10 years.
Options are granted throughout the year and typically begin vesting at the end
of the first year under the Plans.
The following table summarizes information about fixed stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 3/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 3/31/97 EXERCISE PRICE
--------------- ---------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$0.0001 - $ 2.7500 73,959 2.09 $1.2503 73,595 $ 1.2496
$4.1250 - $ 4.1250 318,413 5.96 $4.1250 266,470 $ 4.1250
$4.8750 - $ 4.8750 327,400 9.01 $4.8750 -- --
$5.0000 - $ 9.2500 225,494 7.88 $6.9141 75,450 $ 6.8034
$9.5000 - $14.5000 328,376 7.18 $9.9613 93,515 $10.0367
</TABLE>
This table includes 32,923 options that are not part of either stock
option plan.
48
<PAGE> 49
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. FOURTH QUARTER ADJUSTMENTS AND CHARGES
The Company recorded net adjustments affecting receivables of approximately
$1,544,000 in the fourth quarter of fiscal 1997. Of this amount, $1,026,000
relates to an increase in the provision for doubtful accounts which the Company
recorded after repeated unsuccessful attempts were made to collect certain
receivables. This provision is principally made up of one large domestic
receivable and two international receivables. Notwithstanding this fourth
quarter provision, the Company is continuing to pursue collection of these
receivables. The remaining $518,000 relates to a receivable recorded in the
first quarter to a new customer. This customer experienced turnover of the key
officer who committed their respective company to the license agreement. In the
fourth quarter of fiscal 1997, the Company recorded the provision based upon the
customer's refusal to honor the prior contract.
The Company recorded a restructuring charge of approximately $239,000 in
the fourth quarter consisting of severance costs associated with the termination
of fourteen employees for fiscal 1997. At March 31, 1997, the outstanding unpaid
balance of $216,000 is included in accrued expenses.
The Company also recorded in other income a gain of $203,000 based upon
classifying a common stock investment as a trading security.
K. ACCRUED EXPENSES
<TABLE>
Accrued expenses consist of the following (in thousands):
<CAPTION>
Year Ended March 31,
---------------------
1997 1996
<S> <C> <C>
Compensation $1,347 $ 767
Value-added tax 922 255
Other 1,854 1,155
------ ------
$4,123 $2,177
====== ======
</TABLE>
L. DEFINED CONTRIBUTION PLAN
In 1991, the Board of Directors adopted the Company's 401(k) Plan (the
"401(k) Plan"), which is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). All employees who are at
least 21 years of age and have been employed by the Company for at least six
months are eligible to participate in the 401(k) Plan. Each eligible employee
may elect to contribute to the 401(k) Plan, through payroll deductions, up to
15% of his or her salary, subject to statutory limitation.
The Company may at its discretion make matching contributions on behalf of
each participating employee in an amount equal to some uniform percentage fixed
from time to time by the Board of Directors. The Company is not currently making
matching contributions. If the Company were to do so in the future, under the
current terms of the 401(k) Plan, employees would become vested in such Company
contributions at the rate of 25% per year of service.
49
<PAGE> 50
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. GEOGRAPHIC DATA
The Company has subsidiaries in various foreign countries in Europe, which
sell the Company's products and services in their respective geographic areas.
Revenues are reflected in the geographic areas from which the sales are made.
Financial information, summarized by geographic area, is as follows (in
thousands):
<TABLE>
<CAPTION>
North America Europe Eliminations Consolidated
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Total revenues:
Unaffiliated customers $ 17,491 $ 6,976 $ -- $ 24,467
Affiliated customers (Note H) 104 -- -- 104
Intercompany transfers 3,526 -- (3,526) --
-------- ------- ------- --------
Total $ 21,121 $ 6,976 $(3,526) $ 24,571
======== ======= ======= ========
Net income (loss) $ (2,380) $(1,560) $ -- $ (3,940)
======== ======= ======= ========
Identifiable assets $ 19,738 $ 5,293 $ -- $ 25,031
======== ======= ======= ========
Year ended March 31, 1996
Total revenues:
Unaffiliated customers $ 16,822 $ 3,446 $ -- $ 20,268
Affiliated customers (Note H) 452 -- -- 452
Intercompany transfers 1,297 -- (1,297) --
-------- ------- ------- --------
Total $ 18,571 $ 3,446 $(1,297) $ 20,720
======== ======= ======= ========
Net income (loss) $ 819 $ (783) $ -- $ 36
======== ======= ======= ========
Identifiable assets $ 21,903 $ 3,206 $ -- $ 25,109
======== ======= ======= ========
Year ended March 31, 1995
Total revenues:
Unaffiliated customers $ 14,696 $ 3,358 $ -- $ 18,054
Affiliated customers (Note H) 2,163 -- -- 2,163
Intercompany transfers 1,283 -- (1,283) --
-------- ------- ------- --------
Total $ 18,142 $ 3,358 $(1,283) $ 20,217
======== ======= ======= ========
Net income (loss) $ 3,110 (11) -- $ 3,099
======== ======= ======= ========
Identifiable assets $ 23,669 $ 2,793 $ -- $ 26,462
======== ======= ======= ========
</TABLE>
- --------------------------------------------------------------------------------
Intercompany transfers primarily represent shipments of software to
international subsidiaries and are eliminated from consolidated revenues.
Export sales to unaffiliated customers were approximately $5,400,000,
$3,829,000 and $1,197,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
50
<PAGE> 51
ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
- -------------------------------------------------------------------------------
DISCLOSURE
----------
None.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report an certain information included therein
is incorporated herein by reference. Only those sections of the Proxy Statement
that specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee Report
or the Performance Graph included in the Proxy Statement.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information concerning the Company's directors required by this Item is
incorporated by reference to the sections entitled "Proposal No.1 - Election of
Directors," "Meetings of the Board of Directors and Committees," and "Director
Compensation" in the Company's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on August 29, 1997.
The information concerning the Company's executive officers required by
this Item is incorporated by reference herein to this section of this Report in
Part I, Item 1, entitled "Executive Officers of the Registrant."
There is incorporated herein by reference to the discussion under
"Principal and Management Stockholders" in the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on August 29, 1997
the information with respect to delinquent filing of reports pursuant to section
16(a) of the Securities Exchange Act of 1934.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Executive Compensation" in the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on August 29, 1997.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Principal and Management Stockholders" in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
August 29, 1997.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held on August 29, 1997.
51
<PAGE> 52
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are included as part of this report:
(1) FINANCIAL STATEMENTS
The following financial statements of the Company and the report
of the independent accountants are filed as part of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
(3) EXHIBITS
Certain of the exhibits listed hereunder have been previously
filed with the Commission as exhibits to certain registration
statements as indicated in the footnotes below and are
incorporated herein by reference pursuant to Rule 411 promulgated
under the Securities Act of 1933 and Rule 24 of the Commission's
Rules of Practice. The location of each document so incorporated
is indicated by footnote.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------------------------------------------------------------------------
+3.01 -- Restated Certificate of Incorporation of the Registrant, as
amended.
+ 3.02 -- Restated By-Laws of Registrant.
++++++ 3.03 -- Certificate of Designations.
+ 4.01 -- Specimen Stock Certificate for Common Stock, $.00001 par
value.
++++++ 4.02 -- Rights Agreement dated April 24, 1997 between the
Registrant and the First National Bank of Boston.
++++++ 4.03 -- Form of Rights Certificate representing Right to Purchase
shares of Series A Participating Cumulative Preferred
Stock.
+10.01 -- Noncompetition and Termination Agreement dated June 16, 1993
between the Registrant and Lawrence W. Rosenfeld.
+10.03 -- Employee Non-competition, Nondisclosure and Developments
Agreement between the Registrant and Garreth P. Evans.
+10.04 -- Employment Agreement between ICAD Engineering Automation
Ltd. and Garreth P. Evans.
+10.05 -- Letter Agreement amending Employment Agreement and Employee
Non-competition, Nondisclosure and Developments Agreement
of Garreth P. Evans
52
<PAGE> 53
+10.07 -- Employee Non-competition, Nondisclosure and Developments
Agreement between the Registrant and David I. Lemont.
+10.08 -- Form of Employee Non-competition, Nondisclosure and
Developments Agreement.
+10.09 -- Form of Indemnity Agreement between the Registrant and
each director and executive officer of the Registrant.
**+10.10 -- 1987 Stock Plan, together with forms of Stock
Option Agreements.
**+++++10.11 -- 1993 Stock Plan, together with forms of Stock
Option Agreements, as amended.
**+10.12 -- 1994 Non-Employee Directors Stock Option Plan.
**+++10.13 -- 1995 Employee Stock Purchase Plan.
+10.14 -- Registration Rights Agreement dated as of June 16, 1993 by
and among the Registrant, Elsag International N.V., Toyo
Corporation, Avrum P. Belzer, Steven J. Cucchiaro, Patrick
M. O'Keefe, David F. Place, and Lawrence W. Rosenfeld.
+10.15 -- Stock Option Agreement between the Registrant and Philip G.
Greenspun, together with Partial Assignment of Stock Options
to Mark A. Stull.
+++10.16 -- Credit Facility Agreement dated August 11, 1995 between the
Registrant and United States Trust Company.
++10.17 -- Lease dated June 2, 1995 between MTP Limited Partnership
and the Registrant for premises located at 21 North Avenue,
Burlington, Massachusetts, together with supplements.
++++10.18 -- Developer Software License Agreement between Franz, Inc. and
the Registrant, together with Amendment No. 1 (previously
filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550) and Amendment No. 2 dated February
16, 1996 (filed herewith).
++*10.19 -- License Agreement dated June 21, 1989 between the Registrant
and McDonnell Douglas Corporation, together with Amendment
No. 1, Amendment No. 2 and letter agreement dated October
21, 1991 regarding the assignment of contracts to Electronic
Data Systems Corporation (previously filed as an Exhibit to
the Registrant's Registration Statement No. 33-86550) and
Amendments dated March 31, 1995 and June 26, 1995 (filed
herewith).
+10.20 -- Form of Software License Agreement.
+10.22 -- Corporate Software License Agreement dated September 29,
1990 between the Boeing Company and the Registrant, together
with Addendum No. 1 and Addendum No. 2.
+10.23 -- Corporate Software License Agreement dated June 16, 1993
between the Registrant and Elsag International N.V.,
together with letter agreement dated November 15, 1993
assigning rights to San Giorgio S.A.
+10.23.1 -- Letter agreement dated December 15, 1994 assigning rights
under Corporate Software License Agreement (Exhibit 10.23)
to Finmeccanica S.p.A.
+10.24 -- Exclusive Distributor Agreement dated June 16, 1993
between the Registrant and San Giorgio System Technology
S.p.A.
++21.01 -- Subsidiaries of Registrant.
+++++++23.01 -- Consent of Coopers & Lybrand L.L.P.
- -----------------
+ Previously filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550.
++ Previously filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.
+++ Previously filed with the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
++++ Previously filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996.
+++++ Previously filed with the Registrant's Definitive Proxy Statement
dated July 26, 1996.
++++++ Previously filed as an exhibit to the Registrant's Registration
Statement on Form 8-A filed on May 6, 1997.
+++++++ Filed herewith.
* Confidential treatment as to certain portions.
** Indicates an exhibit which constitutes an executive compensation plan.
53
<PAGE> 54
(b) Reports on Form 8-K
None.
54
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Alex N. Braverman
----------------------------------------
Alex N. Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
- -------------------------- ------------------------ -------------
<S> <C> <C>
/s/ Lawrence W. Rosenfeld
- -----------------------------
Lawrence W. Rosenfeld Chairman of the Board of June 27, 1997
Directors, President
and Chief Executive
Officer (Principal
Executive Officer)
/s/ Alex N. Braverman
- -----------------------------
Alex N. Braverman Vice President, June 27, 1997
Chief Financial
Officer and Treasurer
(Principal Financial
and Accounting Officer)
/s/ A. William Berkman, Jr.
- -----------------------------
A. William Berkman, Jr. Director June 27, 1997
/s/ Vincenzo Cannatelli
- -----------------------------
Vincenzo Cannatelli Director June 27, 1997
/s/ Stephen J. Cucchiaro
- -----------------------------
Stephen J. Cucchiaro Director June 27, 1997
/s/ Alberto de Benedictis
- -----------------------------
Alberto de Benedictis Director June 27, 1997
/s/ William E. Kelly
- -----------------------------
William E. Kelly Director June 27, 1997
</TABLE>
55
<PAGE> 56
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Balance at Charged to Additions Balance at
Beginning of Costs and Charged to End of
Description Period Expenses Other Accounts Deductions Period
- ----------- ------ -------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>8
Allowance for
Doubtful Accounts
March 31, 1997 $190,000 1,026,000 $ -- $1,091,000 $125,000
March 31, 1996 169,000 101,000 -- 80,000 190,000
March 31, 1995 100,000 173,000 -- 104,000 169,000
</TABLE>
56
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,890
<SECURITIES> 203
<RECEIVABLES> 14,050
<ALLOWANCES> 125
<INVENTORY> 0
<CURRENT-ASSETS> 18,836
<PP&E> 2,612
<DEPRECIATION> 4,498
<TOTAL-ASSETS> 25,031
<CURRENT-LIABILITIES> 9,268
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,068
<TOTAL-LIABILITY-AND-EQUITY> 25,031
<SALES> 24,571
<TOTAL-REVENUES> 24,571
<CGS> 6,483
<TOTAL-COSTS> 6,483
<OTHER-EXPENSES> 22,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> (3,800)
<INCOME-TAX> 140
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,940)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
