-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MyDf6Hx/WLKb4Q4NPl5Vs28o95O8/D/2DtOroNQKE8hDlSxJzBP7o4UzaTsOidg9 VAzVHudhK5oOiwBQNFB3ww== /in/edgar/work/20000814/0000908180-00-000017/0000908180-00-000017.txt : 20000921 0000908180-00-000017.hdr.sgml : 20000921 ACCESSION NUMBER: 0000908180-00-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFI PROSERVICES INC CENTRAL INDEX KEY: 0000908180 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 930704365 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21980 FILM NUMBER: 700908 BUSINESS ADDRESS: STREET 1: 400 S W SIXTH AVE STREET 2: SUITE 200 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032747280 MAIL ADDRESS: STREET 1: 400 S W SIXTH AVE STREET 2: STE 200 CITY: PORTLAND STATE: OR ZIP: 97204 10-Q 1 0001.txt PERIOD ENDED 06/30/00 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------- FORM 10-Q -------------------------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 0-21980 CONCENTREX INCORPORATED (Exact name of registrant as specified in its charter) Oregon 93-0704365 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 400 SW Sixth Avenue, Portland, Oregon 97204 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 503-274-7280 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock without par value 5,605,651 (Class) (Outstanding at July 31, 2000) ================================================================================ CONCENTREX INCORPORATED FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets - As of June 30, 2000 and December 31, 1999 2 Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2000 3 and 1999 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
CONCENTREX INCORPORATED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, December 31, 2000 1999 ------------------- ------------------- (Unaudited) ASSETS Current Assets: Cash $ 139 $ - Restricted cash 1,318 1,289 Receivables, net of allowances of $3,582 and $3,268 32,592 40,938 Inventory 550 583 Deferred tax asset 2,843 2,843 Prepaid expenses and other current assets 3,246 4,342 Income taxes receivable 2,876 1,653 ------------------- ------------------- Total Current Assets 43,564 51,648 Property and equipment, net of accumulated depreciation of $14,144 and $12,894 8,486 7,532 Software development costs, net of accumulated amortization of $5,825 and $4,561 4,019 5,283 Purchased software costs, net of accumulated amortization of $1,512 and $803 7,098 7,808 Goodwill, net of accumulated amortization of $8,707 and $6,928 56,753 59,133 Deferred tax asset 9,438 9,438 Other assets, net 3,029 3,924 =================== =================== Total Assets $ 132,387 $ 144,766 =================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Drafts payable $ - $ 728 Accounts payable 6,231 7,424 Accrued expenses 9,521 15,181 Deferred revenues 15,858 18,026 Customer deposits 5,578 5,823 Line of credit 8,149 3,482 Current portion of long-term debt, less debt discount 62,616 4,570 ------------------- ------------------- Total Current Liabilities 107,953 55,234 Commitments and Contingencies Long-term debt, less current portion 194 59,036 Other long-term liabilities 998 1,399 Convertible Subordinated Notes 5,957 5,647 Mandatory Redeemable Class A Preferred Stock 722 728 Shareholders' Equity: Series preferred stock, 5,000,000 shares authorized, none issued and outstanding - - Common stock, no par value, 10,000,000 shares authorized, 5,411,212 and 5,250,781 shares issued and outstanding 26,929 25,703 Accumulated deficit (10,366) (2,981) ------------------- ------------------- Total Shareholders' Equity 16,563 22,722 ------------------- ------------------- Total Liabilities and Shareholders' Equity $ 132,387 $ 144,766 =================== ===================
The accompanying notes are an integral part of these consolidated balance sheets 2 CONCENTREX INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- -------------- REVENUE Software Products and Services Group License Revenue $ 12,779 $ 14,795 $ 27,491 $ 23,164 Service and Support Revenue 11,848 8,102 23,803 16,582 Other Revenue 2,580 1,872 5,541 3,017 e-Commerce Group License Revenue 387 621 808 1,116 Service and Support Revenue 2,629 2,439 5,594 4,003 ------------- ------------- ------------- -------------- Total Revenue 30,223 27,829 63,237 47,882 COST OF REVENUE 13,182 10,259 25,766 18,006 ------------- ------------- ------------- -------------- Gross Profit 17,041 17,570 37,471 29,876 OPERATING EXPENSES Sales and marketing 6,153 4,814 11,565 8,546 Product development 8,547 5,988 16,596 10,267 General and administrative 4,992 4,306 10,209 6,742 GOODWILL amortization 956 406 2,004 816 Acquired in-process research and development - 3,800 - 3,800 ------------- ------------- ------------- -------------- Total Operating Expenses 20,648 19,314 40,374 30,171 ------------- ------------- ------------- -------------- Loss From Operations (3,607) (1,744) (2,903) (295) NON-OPERATING INCOME (EXPENSE) Interest expense (3,717) (211) (6,848) (315) Interest income 21 49 42 144 Other, net 136 24 276 27 ------------- ------------- ------------- -------------- Total Non-operating Income (Expense) (3,560) (138) (6,530) (144) ------------- ------------- ------------- -------------- LOSS BEFORE BENEFIT FROM INCOME TAXES (7,167) (1,882) (9,433) (439) BENEFIT FROM INCOME TAXES (825) (926) (2,094) (305) ------------- ------------- ------------- -------------- NET LOSS (6,342) (956) (7,339) (134) PREFERRED STOCK DIVIDEND 23 23 46 46 ------------- ------------- ------------- -------------- NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (6,365) $ (979) $ (7,385) $ (180) ============= ============= ============= ============== BASIC NET LOSS PER SHARE $ (1.19) $ (0.19) $ (1.39) $ (0.04) ============= ============= ============= ============== DILUTED NET LOSS PER SHARE $ (1.19) $ (0.19) $ (1.39) $ (0.04) ============= ============= ============= ==============
The accompanying notes are an integral part of these consolidated statements. 3 CONCENTREX INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Six Months Ended June 30, --------------------------------------- 2000 1999 ----------------- ----------------- Cash flows from operating activities: Net loss applicable to common shareholders $ (7,385) $ (180) Adjustments to reconcile net loss applicable to common shareholders to cash provided by (used in) operating activities: Depreciation and amortization 5,946 4,126 Interest accreted on mandatory redeemable preferred stock 46 46 Interest accreted on notes payable 335 48 Write off of in process research and development - 3,800 Amortization of debt discount and deferred loan costs 1,746 - (Increase) decrease in assets, net of effects from purchase of businesses: Receivables, net 8,346 1,909 Inventories, net 33 93 Prepaid expenses and other assets 818 (1,675) Income taxes receivable (1,220) - Increase (decrease) in liabilities, net of effects from purchase of businesses: Drafts payable (728) - Accounts payable (1,193) 94 Accrued expenses (5,394) (2,768) Deferred revenues (2,155) 2,063 Customer deposits 226 (1,471) Income taxes payable - (473) ----------------- ----------------- Net cash (used in) provided by operating activities (579) 5,612 Cash flows from investing activities: Expenditures for property and equipment (2,491) (1,299) Investment in Ultradata stock - (2,658) Proceeds from long-term note receivable 91 76 Cash paid for acquisition of Modern Computer Systems, Inc., net of cash received - (5,520) Cash received in acquisition of MECA Software, LLC - 1,595 ----------------- ----------------- Net cash used in investing activity (2,400) (7,806) Cash flows from financing activities: Net proceeds from line of credit 4,667 11,093 Payments on long-term debt (1,487) (7,827) Payments on mandatory redeemable preferred stock (52) (51) Proceeds from issuance of common stock 19 905 Repurchase of common stock - (1,145) ----------------- ----------------- Net cash provided by financing activities 3,147 2,975 ----------------- ----------------- Increase in cash and cash equivalents 168 781 Cash and cash equivalents (including restricted cash): Beginning of period 1,289 3,589 ----------------- ----------------- End of period $ 1,457 $ 4,370 ================= =================
The accompanying notes are an integral part of these consolidated statements. 4 CONCENTREX INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR AS OTHERWISE INDICATED) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The financial information included herein for the three and six months ended June 30, 2000 and 1999 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 1999 is derived from the audited financial statements contained in the 1999 Annual Report on Form 10-K as filed by CFI ProServices, Inc., d/b/a Concentrex Incorporated ("Concentrex" or the "Company"). The Company formally changed its name to Concentrex Incorporated in May 2000. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 1999 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform to the current presentation. NOTE 2. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information is as follows: Six Months Ended June 30, ----------------------------------------- 2000 1999 ----------------- -------------------- Cash paid during the period for income taxes $ 75 $ 1,647 Cash paid during the period for interest and dividends 4,453 171
Noncash investing and financing activities were as follows: Six Months Ended June 30, ----------------------------------------- 2000 1999 ----------------- -------------------- Tax benefit from exercise of nonqualified stock options $ 3 $ -- Reclassification of long-term debt, less debt discount, to current liabilities 58,182 -- Decrease in ULTRADATA acquisition goodwill related to reduction in accrued liabilities 471 -- Increase in goodwill for accrued acquisition related contingent royalties 494 227 Issuance of common stock in connection with the acquisition of Modern Computer Systems, Inc. -- 650 Issuance of common stock in connection with the acquisition of MECA Software, LLC -- 569 Assumption of debt in connection with the acquisition of MECA Software, LLC -- 7,500 Fair value of common stock issued in connection with the Company's ESSOP 1,204 --
5 NOTE 3. EARNINGS PER SHARE Following is a reconciliation of basic earnings per share ("EPS") and diluted EPS:
Three Months Ended June 30, 2000 1999 --------------------------------------- ---------- --------- ----------- ---------- -------- ---------- Per Per Share Share BASIC EPS Loss Shares Amount Loss Shares Amount --------- ---------- --------- ----------- ---------- -------- ---------- Net loss applicable to common shareholders $ (6,365) 5,365 $ (1.19) $ (979) 5,068 $(0.19) =========== ========== Effect of dilutive securities: Stock options -- -- ---------- --------- ---------- -------- DILUTED EPS ----------- Net loss applicable to common shareholders $(6,365) 5,365 $ (1.19) $ (979) 5,068 $ (0.19) =========== ==========
Six Months Ended June 30, 2000 1999 --------------------------------------- ---------- --------- ----------- ---------- -------- ---------- Per Per Share Share BASIC EPS Loss Shares Amount Loss Shares Amount --------- ---------- --------- ----------- ---------- -------- ---------- Net loss applicable to common shareholders $ (7,385) 5,325 $ (1.39) $ (180) 5,054 $(0.04) =========== ========== Effect of dilutive securities: Stock options -- -- ---------- --------- ---------- -------- DILUTED EPS ----------- Net loss applicable to common shareholders $(7,385) 5,325 $ (1.39) $ (180) 5,054 $ (0.04) =========== ==========
The number of options and warrants to purchase shares of common stock and the assumed conversion of convertible subordinated notes that were excluded from the tables above (as the effect would have been anti-dilutive) were 2,557,411 and 1,103,079 for the three and six months ended June 30, 2000 and 1999, respectively. NOTE 4. CLASSIFICATION OF REVENUE The Company has reorganized itself into two product groups: Software Products and Services Group and e-Commerce Group. Prior period revenues have been reclassified for all periods included herein to reflect the new product groups. Total revenues did not change as a result of this reclassification. NOTE 5. LOAN DEFAULT As of June 30, 2000 the Company was not in compliance with certain financial covenants under its loan agreements. Because waivers for noncompliance were not received from the lenders, indebtedness of the Company under the loan agreements has been classified as current in the accompanying balance sheet. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." 6 NOTE 6. ACQUISITIONS Effective January 1, 1999 the Company acquired substantially all of the assets of Modern Computer Systems, Inc. and certain related corporations (collectively, MCS). MCS offers hardware and software solutions for the back office accounting needs of community banks and credit unions. The acquisition was accounted for as a purchase, resulting in approximately $7.0 million of goodwill, intangibles and purchased software. The purchase price was $6.0 million in cash and $650,000 of common stock. The operations of MCS have been included in the Company's results of operations since January 1, 1999. Effective May 17, 1999 the Company and Moneyscape Holdings, Inc. (a wholly owned subsidiary of Concentrex) acquired 99% and 1%, respectively, of the equity in MECA Software, L.L.C. ("MECA") in exchange for 50,000 shares of Concentrex common stock. The acquisition was accounted for as a purchase. The net purchase price approximated $12.3 million and consisted of the common stock issued, assumption of net liabilities and accrued acquisition costs. The liabilities assumed included $7.5 million of debt owed to certain former members of MECA and was repaid by the Company from proceeds from bank borrowings. The purchase price was allocated to the estimated fair value of the assets acquired, which included the expensing of $3.8 million of in-process research and development and the recognition of approximately a $9.9 million deferred tax asset. The excess of the fair value of the assets acquired over cost (negative goodwill) was allocated to reduce acquired non-current assets. The operations of MECA have been included in the Company's results of operations since May 17, 1999. Unaudited pro forma results of operations for the three month and six month periods ended June 30, 1999, assuming the MECA acquisition occurred at the beginning of 1999 and including the process research and development charge related to the MECA acquisition in the periods when incurred.
Three Months Ended Six Months Ended June 30, 1999 June 30, 1999 ------------------ ---------------- Total revenues $ 29,720 $ 56,930 Net loss applicable to common shareholders (798) (153) Loss per share - Basic (0.16) (0.03) Loss per share - Diluted $ (0.16) $ (0.03)
Effective August 13, 1999 Concentrex acquired all of the outstanding common stock of ULTRADATA Corporation ("ULTRADATA"). ULTRADATA provides information management software and solutions for relationship-oriented financial institutions. The acquisition was accounted for as a purchase, resulting in approximately $53.6 million of goodwill, intangibles and purchased software. These amounts are being amortized over a period of 6 to 20 years. The purchase price was $66.3 million, including acquisition-related expenses. The purchase price was allocated to the estimated fair value of the assets acquired, which included the expensing of $5.2 million of in-process research and development. The Company is still obtaining certain data related to the acquisition, and, accordingly, the purchase price allocation remains open. The operations of ULTRADATA have been included in the Company's results of operations since August 13, 1999. NOTE 7. SUBSEQUENT EVENT On July 17, 2000 the Company and John H. Harland Company ("Harland") reached an agreement for Harland to purchase all of the outstanding common stock of the Company and assume all of its obligations. The transaction is in the form of a tender offer. The tender offer price is $7.00 per share. The transaction is expected to close in late August 2000. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO SHOULD BE READ IN CONJUNCTION WITH THE FOLLOWING DISCUSSION. THIS DISCUSSION AND CERTAIN OTHER PARTS OF THIS REPORT CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF CONCENTREX'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS DISCUSSION SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. CONCENTREX'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE QUARTERLY FLUCTUATIONS IN ORDERS RECEIVED, CHANGES IN THE FINANCIAL INSTITUTIONS MARKETPLACE AND TECHNOLOGICAL ADVANCES, CHANGES IN RELATIONSHIPS WITH KEY CUSTOMERS AND PARTNERS, NEED FOR ADDITIONAL CAPITAL, MANAGEMENT OF GROWTH, SOFTWARE ERRORS AND ADDITIONAL FACTORS DISCUSSED ELSEWHERE IN THIS REPORT, AS WELL AS IN CONCENTREX'S FILINGS ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IN OTHER FILINGS BY CONCENTREX WITH THE SECURITIES AND EXCHANGE COMMISSION. OVERVIEW Concentrex Incorporated is a leading provider of technology-powered solutions to the financial services industry. During 1999 we reorganized ourselves into two product groups: the Software Products and Services group and the e-Commerce group. Our Software Products and Services group supports a financial institution's mission critical functions including back office "core" processing, loan origination, new account opening, branch automation and cross selling. We support the key sales functions a financial institution traditionally relies on to make money, which are usually delivered face-to-face or over the telephone. We believe that financial institutions will need to offer those same functions over the Internet. Thus, we have focused our efforts on both Internet banking software for account servicing and Internet-enabled versions of our traditional software for lending and account opening. These integrate with other points of customer contact and enable a financial institution to serve its customers, both in person and over the Internet, with consistent, integrated solutions. Our backlog as of June 30, 2000 was $15.6 million, compared to $15.9 million at June 30, 1999. Our backlog consists of firm signed orders taken and not yet converted to revenue, but expected to be converted to revenue within the next 12 months. Orders constituting our backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. The stated backlog is not necessarily indicative of our revenue for any future period. 8 RESULTS OF OPERATIONS The following table sets forth our statements of operations data expressed as a percentage of total revenue.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Software Products and Services Group License Revenue 42.3 % 53.2 % 43.5 % 48.4 % Service and Support Revenue 39.2 29.1 37.6 34.6 Other 8.5 6.7 8.8 6.3 e-Commerce Group License Revenue 1.3 2.2 1.3 2.3 Other 8.7 8.8 8.8 8.4 --------- --------- --------- --------- Total revenue 100.0 100.0 100.0 100.0 Gross profit 56.4 63.1 59.3 62.4 Operating expenses Sales and marketing 20.4 17.3 18.3 17.8 Product development 28.3 21.5 26.2 21.4 General and administrative 16.5 15.5 16.1 14.2 Amortization of intangibles 3.2 1.5 3.2 1.7 In process research and development 0.0 13.6 0.0 7.9 --------- --------- --------- --------- Total operating expenses 68.3 69.4 63.8 63.0 --------- --------- --------- --------- Loss from operations (11.9) (6.3) (4.6) (0.6) Non-operating expense (11.8) (0.5) (10.3) (0.3) --------- --------- --------- --------- Loss before income taxes (23.7) (6.8) (14.9) (0.9) Benefit from income taxes (2.7) (3.4) (3.3) (0.6) Preferred stock dividend 0.1 0.1 0.1 0.1 --------- --------- --------- --------- Net loss applicable to common shareholders (21.1)% (3.5) % (11.7) % (0.4) % ========= ========= ========= =========
REVENUE Total revenue increased $2.4 million, or 8.6%, to $30.2 million for the three months ended June 30, 2000 compared to $27.8 million for the comparable period in 1999. Total revenue increased $15.3 million, or 32.1%, to $63.2 million for the six months ended June 30, 2000 compared to $47.9 million for the comparable period in 1999. During 1999 we reorganized ourselves into two product groups: the Software Products and Services group and the e-Commerce group. Accordingly, we have reclassified our operating revenue data for all periods included in this report to reflect the new groups. Total revenue did not change as a result of this reclassification. 9 REVENUE BY GROUP (IN $MILLIONS)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------------- ---------------------- 2000 1999 2000 1999 ------------ ---------- --------- ---------- SOFTWARE PRODUCTS AND SERVICES GROUP License Revenue $12.8 $14.8 $27.5 $23.2 Service & Support Revenue 11.8 8.1 23.8 16.6 Other Revenue 2.6 1.9 5.5 3.0 ------------ ---------- --------- ---------- Group Total 27.2 24.8 56.8 42.8 E-COMMERCE GROUP License Revenue 0.4 0.6 0.8 1.1 Service & Support Revenue 2.6 2.4 5.6 4.0 ------------ ---------- --------- ---------- Group Total 3.0 3.0 6.4 5.1 TOTAL REVENUE $30.2 $27.8 $63.2 $47.9 ===== ===== ===== =====
SOFTWARE PRODUCTS AND SERVICES GROUP Software Products and Services license revenue decreased $2.0 million, or 13.6%, to $12.8 for the three month period ended June 30, 2000 from $14.8 million in the comparable period in 1999. For the six month period ended June 30, 2000 license revenue in the Software Products and Services group increased $4.3 million, or 18.7%, to $27.5 million from $23.2 million for the respective comparable period in 1999. The increases were due primarily to our acquisition of ULTRADATA Corporation ("ULTRADATA") in August 1999. Service and support revenue in the Software Products and Services group increased $3.7 million, or 46.2%, to $11.8 million for the three months ended June 30, 2000 from $8.1 million for the comparable period in 1999. Service and support revenue in the Software Products and Services group increased $7.2 million, or 43.6%, to $23.8 million for the six months ended June 30, 2000 from $16.6 million for the comparable period in 1999. The increases resulted primarily from the ULTRADATA acquisition and from an increase in the installed base of our products. Service and support revenue consists primarily of recurring software support charges and revenue from training customers in the use of our products. Substantially all of our software customers subscribe to support services, which provide for the payment of annual or quarterly maintenance fees. Other revenue in the Software Products and Services group increased $0.7 million, or 37.8%, to $2.6 million for the three months ended June 30, 2000 from $1.9 million for the comparable period in 1999. For the six months ended June 30, 1999, other revenue in the Software Products and Services group increased $2.5 million, or 83.6%, to $5.5 million from $3.0 million for the comparable period in 1999. The increase resulted primarily from the acquisition in May 1999 of MECA Software, LLC ("MECA"), which added revenue from its legacy personal financial management product and from its fulfillment operations. We anticipate that revenue from the personal financial management product will decline in future periods. 10 E-COMMERCE GROUP Total revenue in the e-Commerce group was unchanged at $3.0 million for the three months ended June 30, 2000 compared to the comparable period in 1999. Total revenue increased $1.3 million, or 25.0%, to $6.4 million for the six months ended June 30, 2000 compared to $5.1 million for the comparable period in 1999. The increase was principally due to the acquisition of MECA. License revenue in the e-Commerce group decreased $0.2 million, or 37.7%, to $0.4 million for the three months ended June 30, 2000 from $0.6 million for the comparable period in 1999. License revenue in the e-Commerce group decreased $0.3 million, or 27.6%, to $0.8 million for the six months ended June 30, 2000 from $1.1 million for the comparable period in 1999. Service and support revenue in the e-Commerce group increased $0.2 million, or 7.8%, to $2.6 million for the three months ended June 30, 2000 from $2.4 million for the comparable period in 1999. Service and support revenue in the e-Commerce group increased $1.6 million, or 39.7%, to $5.6 million for the six months ended June 30, 2000 from $4.0 million for the comparable period in 1999. The increases resulted primarily from the acquisition of MECA's technical support operations. COST OF REVENUE Cost of revenue increased to $13.2 million, or 43.6% of revenue and $25.8 million, or 40.7% of revenue for the three and six month periods respectively, ended June 30, 2000 compared to the same periods in 1999. Gross profit was 56.4% and 63.1% for the three months ended June 30, 2000 and 1999, respectively and 59.3% and 62.4% for the six months ended June 30, 2000 and 1999, respectively. Cost of revenue primarily consists of amortization of internally developed and purchased software, royalty payments, compliance warranty insurance premiums, software production costs, costs of product support, training and implementation, costs of software customization, materials costs for forms and supplies, and bill payment processing costs. Software amortization was $1.0 million and $2.0 million for the three and six month periods ended June 30, 2000 respectively, compared to $0.8 million and $1.6 million for the respective comparable periods in 1999. The increase in amortization is a result of software acquired in connection with acquisitions. Capitalized software costs, net of accumulated amortization, were $11.1 million at June 30, 2000. As a result of acquisitions, costs associated with royalty payments will increase in future periods. We are obligated to pay royalties ranging from 3% to 18% of revenue related to certain products acquired in various acquisitions. In addition, we are obligated to pay MicroBilt Corporation a fixed amount for each OnLine Branch Automation product customer that converts to our branch automation products. The royalty obligations generally extend three to five years from the acquisition date. OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses increased to $6.2 million, or 20.4% of revenue, for the three month period and to $11.6 million, or 18.3% of revenue, for the six month period ended June 30, 2000 compared to $4.8 million, or 17.3% of revenue, and $8.5 million, or 17.8% of revenue, in the respective comparable periods of 1999. The increases in dollar amount in 2000 resulted from increased commissions associated with increased revenues, salary increases, additional personnel and higher advertising costs. PRODUCT DEVELOPMENT. Product development expenses include costs of enhancing existing products and developing new products. Product development expenses were $8.5 million, or 28.3% of revenue, and $16.6 million, or 26.2% of revenue, respectively, for the three month and six month periods ended June 30, 2000, compared to $6.0 million, or 21.5% of revenue, and $10.3 million, or 21.4% of revenue, respectively, in the same periods in 1999. Increases in dollar amount of product development expenses resulted primarily from increased personnel retained in connection with the 1999 MECA and 11 ULTRADATA acquisitions, additional costs for integrating acquired products and accelerating development of our online banking products. We plan to continue to commit significant resources to product development efforts. GENERAL AND ADMINISTRATIVE. General and administrative expenses were $5.0 million, or 16.5% of revenue, for the quarter ended June 30, 2000 and $10.2 million, or 16.1% of revenue, for the first six months of 1999 compared to $4.3 million, or 15.5% of revenue, and $6.8 million, or 14.2% of revenue, respectively, for the same periods in 1999. The increase in dollar amount in 2000 is due mainly to the acquisitions of MECA and ULTRADATA. Results for the three and six month periods ending June 30, 2000 include the reversal of approximately $1.0 million in previously accrued bonuses. It was determined in the quarter ended June 30, 2000 that these amounts would not be paid. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the acquisition of MECA in May of 1999, the Company recorded expense of $3.8 million in the second quarter of 1999 for in-process research and development efforts in process at the date of acquisition. The values assigned to the in-process research and development efforts were determined by independent appraisal and represent those efforts in process at the date of acquisition that had not yet reached the point where technological feasibility had been established and that had no alternative future uses. Accounting rules require these costs be expensed as incurred. GOODWILL AMORTIZATION Goodwill acquired in acquisitions is amortized over periods ranging from five to 20 years. Goodwill amortization was $1.0 million and $2.0 million, respectively, for the three and six month periods ended June 30, 2000 compared to $0.4 million and $0.8 million for the comparable periods in 1999. The increase in 2000 is due principally to the goodwill resulting from the ULTRADATA acquisition. We recorded approximately $49 million of goodwill in the ULTRADATA acquisition, which is being amortized over 20 years. Goodwill, net of accumulated amortization, was $56.8 million and $10.2 million at June 30, 2000 and 1999, respectively. LOSS FROM OPERATIONS Loss from operations for the three and six month periods ended June 30, 2000 was ($3.6) million, or 11.9% of revenue and ($2.9) million, or 4.6% of revenue respectively, compared to ($1.7) million, or 6.3% of revenue, and ($0.3) million, or 0.6% of revenue for the comparable periods in 1999. NON-OPERATING INCOME (EXPENSE) Non-operating income (expense), which consists primarily of interest expense, was a net expense of ($3.6) million and ($6.5) million for the three and six month periods ended June 30, 2000 compared to a net expense of ($0.1) for the comparable periods in 1999. The increase in net interest expense in 2000 is attributable to the debt we incurred to finance the ULTRADATA and MECA transactions. BENEFIT FOR INCOME TAXES Our effective tax rate for the three and six month periods ended June 30, 2000 was a benefit of 11.5% and 22.2% respectively, compared to a benefit of 49.2% and 69.6% for the comparable periods in 1999. The difference between federal and state statutory tax rates and our effective tax rates results primarily from amortization of nondeductible intangibles (primarily goodwill) related to acquisitions. MARKET RISK We have not entered into any derivative financial instruments for speculative purposes. We may be exposed to future interest rate changes on our debt. During 1999 we incurred significant indebtedness related to acquisitions. A hypothetical 10% increase in interest rates on our level of debt existing at June 30, 2000 would increase cash interest expense by approximately $0.9 million per year. We have 12 purchased an interest rate cap for a substantial portion of our long-term debt. The interest rate cap will become effective if the prime rate of interest exceeds 10% per year. LIQUIDITY AND CAPITAL RESOURCES Net cash used by operations was $0.6 million for the six months ended June 30, 2000 compared to net cash provided by operations of $5.6 million for the comparable period in 1999. The decrease was primarily due to the increased loss in 2000. Working capital decreased to a deficit of ($64.4) million at June 30, 2000 from a deficit of ($3.6) million at December 31, 1999. The decrease in working capital occurred principally because the debt incurred to finance the MECA and ULTRADATA acquisitions has been classified as current liabilities as of June 30, 2000 due to the occurrence of defaults under certain financial covenants in our loan agreements. See Note 5 of Notes to Consolidated Financial Statements. Net cash used in investing activities for the six months ended June 30, 2000 was $2.4 million compared to $7.8 million for the comparable period in 1999. Expenditures for property and equipment of $2.5 million in the first six months of 2000 were primarily attributable to investments in infrastructure necessary to accommodate our growth. Net cash provided in financing activities of $3.1 million for the six months ended June 30, 2000 was principally proceeds on our line of credit of $4.7 million offset by payments on long-term debt of ($1.5) million. Days sales outstanding (DSO's) in accounts receivable, including both billed and unbilled accounts receivable, was 97 days at June 30, 2000 compared to 100 days at June 30, 1999. Our project-oriented business often requires unbilled accounts receivable and milestone billings, both of which often have longer collection cycles. Unbilled accounts receivable were $6.3 million, or 19.4% of total accounts receivable, at June 30, 2000 compared to $7.1 million, or 22.9% of total accounts receivable, at June 30, 1999. In connection with the MECA and ULTRADATA acquisitions in 1999, we substantially increased our outstanding debt. At June 30, 2000, we had the following debt under our loan agreements: Gross Stated Interest Rate At Amount June 30, 2000 ---------------- ----------------------- Revolving Line of Credit $ 8.1 million 10.5% 3-year Term A Loan 34.0 million 11.5% 3-year Term B Loan 30.0 million 14.5% Debt Discount (2.5) million --------------- Total $ 69.6 million In connection with the ULTRADATA acquisition, we also issued convertible subordinated notes with an original face amount of $7.4 million with original issue discount of $1.9 million. We received gross proceeds of $5.5 million upon issuance of the notes. We are highly leveraged. Our loan agreements contain financial covenants that we must abide by. As of June 30, 2000, we were not in compliance with certain financial covenants. As a result, our lenders have communicated to us that they believe we are in default under our loan agreements and that they have elected, for the time being, to charge us a default rate of interest beginning July 1, 2000. The default rate of interest is 4 percentage points higher than the interest rate would otherwise be. As a result, the stated rate of interest for our debt, including the default rate provisions, is now 14.5% for the Revolving Line of Credit, 15.5% for the Term A Loan and 19.5% for the Term B Loan. 13 On July 17, 2000 the Company and John H. Harland Company ("Harland") reached an agreement for Harland to purchase all of the outstanding common stock of the Company and assume all of its obligations. The transaction is in the form of a tender offer. The tender offer price is $7.00 per share. We anticipate that the transaction will close in late August 2000. We anticipate that Harland will pay off all outstanding indebtedness under our loan agreements soon after closing, and we have provided notice of early payment to the lenders in anticipation of that event. However, if for any reason the transaction with Harland does not close, the lenders may exercise additional remedies they have under the loan agreements, including without limitation, acceleration of all outstanding indebtedness. In such an event, our options would include attempting to renegotiate the terms of our loans with the lenders, attempting to renegotiate our transaction with Harland, and filing for protection under federal bankruptcy law. The Company has been advised by its independent public accountants that if these uncertainties are not resolved prior to completion of their audit of the Company's financial statements for the year ending December 31, 2000, their auditors' report on those financial statements would be modified for a going concern uncertainty. Our loan agreements also contain significant restrictions on our activities. For example, we must obtain the consent of our lenders before we purchase or sell significant assets. Additionally, the terms of our loan agreements prohibit us from incurring additional indebtedness or issuing new equity securities without the consent of the lenders. These restrictions may make it difficult or impossible to raise additional funds if we need to do so. Future cash requirements could include, among other things, purchases of companies, products or technologies, expenditures for internal software development, capital expenditures necessary to the expansion of the business, and installment payments on debt related to acquisitions. Available cash resources include cash generated by operations plus a revolving line of credit up to $15.0 million, subject to borrowing base restrictions related to our accounts receivable. From time to time we receive contract claims from our customers and other parties, including requests for full or partial refunds of moneys paid. Although there can be no assurance that such claims, either alone or in the aggregate, will not have a material adverse effect on our results of operations or financial position, we believe that as of the date of this filing no such claims will have such an effect. From time to time, we initiate contract claims against our customers and other parties, including claims for payment of unpaid invoices. We will require additional funds to support our working capital requirements, future acquisitions or for other purposes and may seek to raise such additional funds through one or more public or private financing of debt or equity, or from other sources. No assurance can be given that additional financing will be available or, that, if available, such financing will be obtainable on terms favorable to us or our shareholders. YEAR 2000 The Year 2000 issue identifies problems that may arise in computer equipment and software, as well as embedded electronic systems, because of the way these systems are programmed to interpret certain dates that will occur around the change in century. In the computer industry this is primarily the result of computer programs being designed and developed using or reserving only two digits in date fields (rather than four digits) to identify the century, without considering the ability of the program to properly distinguish the Year 2000 century change. Likewise, other dates may present problems because of the way the digits are interpreted. We experienced no material Year 2000 problems with our products at the century change. Costs incurred through June 30, 2000 to assess Year 2000 issues were not significant and were funded through operating cash flows. Based on information gathered to date, we are not presently aware of any product related Year 2000 issue that would materially affect our operations, either self-originated or caused by third-party service vendors or providers. We do believe that concerns over Y2K have caused customers to materially suspend purchases of software beginning in September 1999, and that this effect has resulted in the major shortfalls of revenues that the Company has faced since then. There can be no assurance that we will not experience product related Year 2000 problems or further Year 2000 impact on sales going forward. If they occur, these difficulties could cause us 14 to incur unanticipated costs to remedy the problems or suffer reduced revenues, and, either individually or collectively, have a material adverse effect on us. QUARTERLY RESULTS We have experienced, and expect in the future to experience, significant quarterly fluctuations in our results of operations. These fluctuations may be caused by various factors, including, among others: the size and timing of product orders and shipments; the timing and market acceptance of new products and product enhancements introduced by us and our competitors; our product mix, including expenses of implementation and royalties related to certain products; the timing of our completion of work under contracts accounted for under the percentage of completion method; customer order deferrals in anticipation of new products; aspects of the customers' purchasing process, including the evaluation, decision-making and acceptance of products within the customers' organizations; the sales process for our products, including the complexity of customer implementation of our products; the number of working days in a quarter; federal and state regulatory events; competitive pricing pressures; technological changes in hardware platform, networking or communication technology; changes in company personnel; the timing of our operating expenditures; specific economic conditions in the financial services industry and general economic conditions. Our business has experienced, and is expected to continue to experience, some degree of seasonality due to our customers' budgeting and buying cycles. Our strongest revenue quarter in any year is typically our fourth quarter and our weakest revenue quarter is typically our first quarter. Customers' purchases are tied closely to their internal budget processes. For some of our customers, budgets are approved at the beginning of the year and budgeted amounts often must be utilized by the end of the year. In addition, our incentive sales compensation plan provides for increases in commission percentages as sales people approach or exceed their annual sales quotas. As a result of these two factors, we usually experience increased sales orders in the fourth quarter. PART II - OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES As of June 30, 2000, the Company was not in compliance with certain financial covenants under its loan agreements. See Note 5 of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Operations -- Liquidity and Capital Resources." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the shareholders of the Company was held on May 19, 2000 at which the following actions were taken: 1. The shareholders elected three nominees for Class 1 Director to the Board of Directors of the Company. The three Class 1 Directors elected, along with the voting results, are as follows:
Name Voting No. of Shares Voting For No. of Shares Witheld - ----------- ------------------------ --------------------- Matthew W. Chapman 3,571,318 499,651 Frank E. Brawner 3,947,708 123,261 Robert B. Witt 3,949,798 121,171
2. The shareholders approved an amendment to the Company's Amended and Restated Articles of Incorporation changing the Company's name to Concentrex Incorporated (4,037,730 shares were voted affirmatively, 30,134 shares were voted negatively, 3,105 shares abstained from voting and there were no broker non-votes). 3. The shareholders approved the appointment of Arthur Anderson LLP as the independent accountants of the Company for the year ending December 31, 2000 (4,029,033 shares were voted affirmatively, 40,392 shares were voted negatively and 1,544 shares abstained from voting). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits filed as part of this report are listed below: EXHIBIT NUMBER AND DESCRIPTION 27 Financial Data Schedule (b) Reports on Form 8-K Concentrex filed a report on Form 8-K with the Securities and Exchange Commission on July 17, 2000 relating to the execution of an Agreement and Plan of Merger with John H. Harland Company ("Harland") and a tender offer from Harland to Concentrex's shareholders. Concentrex filed a report on Form 8-K with the Securities and Exchange Commission on July 27, 2000 relating to the commencement of Harland's tender offer. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2000 CONCENTREX INCORPORATED BY: /S/ MATTHEW W. CHAPMAN -------------------------- Matthew W. Chapman Chairman and Chief Executive Officer (Principal Executive Officer) BY: /S/ KURT W. RUTTUM ---------------------- Kurt W. Ruttum Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 Jan-01-2000 6-MOS Dec-31-2000 Jun-30-2000 1,457 0 36,174 3,582 550 43,564 22,630 14,144 132,387 107,953 6,151 722 0 26,929 (10,366) 132,387 5,541 63,237 1,917 25,766 40,374 (2,903) (6,848) (9,433) (2,094) (7,385) 0 0 0 (7,385) (1.39) (1.39)
-----END PRIVACY-ENHANCED MESSAGE-----