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 September 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission File Number 1-9812 TENERA, INC. (Exact name of registrant as specified in its charter) Delaware 94-3213541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Maritime Plaza, Suite 750, San Francisco, California 94111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 273-2705 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --------- ---------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X . -------- ----------- The number of shares outstanding on September 30, 2003, was 9,984,259. TABLE OF CONTENTS PAGE PART I -- FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) ............................................. 1 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ..... 9 Item 3. Quantitative and Qualitative Disclosures of Market Risk.................................... 14 PART II -- OTHER INFORMATION Item 1. Legal Proceedings ......................................................................... * Item 2. Changes in Securities ..................................................................... * Item 3. Defaults Upon Senior Securities ........................................................... * Item 4. Submission of Matters to a Vote of Security Holders ....................................... * Item 5. Other Information ......................................................................... * Item 6. Exhibits and Reports on Form 8-K .......................................................... 15 _______________________________ * None. i PART I -- FINANCIAL INFORMATION Item 1. Financial Statements TENERA, INC. Condensed Consolidated Statement of Net Liabilities in Excess of Assets in Liquidation (Liquidation Basis) (Unaudited) -------------------------------------------------------------------------------------------------------- In thousands, except share data September 30, 2003 -------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents ............................................. $ 517 Restricted cash ....................................................... 275 Trade receivables, less allowance of $539 Billed .............................................................. 51 Other current assets ................................................. 41 Prepaid Expenses...................................................... 388 ---------------- Total Assets ................................................... $ 1,272 LIABILITIES Accounts payable ...................................................... 234 Accrued expenses and other liabilities ................................ 1,296 Accrued compensation and related expenses ............................. 224 ---------------- Total Liabilities .............................................. 1,754 ---------------- Net LIABILITIES IN EXCESS OF ASSETS in liquidation ...................... $ (482) i ================ i: The Company presently anticipates that the total contracted amount of liabilities will exceed the net assets available in liquidation and accordingly any per share information is not meaningful and has not been presented. ===========================================================================================================See accompanying notes. 1 TENERA, INC. Condensed Consolidated Statement OF changes IN net Liabilities in Excess of Assets in Liquidation (Liquidation Basis) (Unaudited) ----------------------------------------------------------------------------------------------------- (In thousands) Three Months Ended September 30, 2003 ----------------------------------------------------------------------------------------------------- Net Assets on a Going Concern Basis as of June 30, 2003 ................... $ 2,025 Adjustments to Reflect Liquidation Basis Accounting Write-down to net realizable value of property and equipment .......... 4 Write-down to net realizable value of other current assets .......... 4 Write-down to net realizable value of other assets................... 37 Accrual of remaining executory lease obligations ..................... 1,003 Estimated expenses to be incurred through liquidation................ 495 -------------- Net Adjustments to Reflect Liquidation Basis Accounting.................... 1,543 -------------- Net Liabilities in Excess of Assets in Liquidation as of June 30, 2003..... $ (482) ============== 2 TENERA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS) (Unaudited) (In thousands, except per share amounts) ------------------------------------------------------------------------------------------------------------------ Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ----------------------------- 2003 2002 2003 2002 ------------------------------------------------------------------------------------------------------------------ General and Administrative Expenses ...... $ 374 $ 252 $ 525 $ 377 ------------ ------------- ------------ ------------- Loss from Continuing Operations .......... (374) (252) (525) (377) Discontinued Operations: Loss from Discontinued Operations ..... (436) (1,221) (1,402) (2,221) Gain on Sale of GoTrain Assets ......... 4,879 -- 4,879 -- Income Tax Expense (Benefit) .......... 1 (174) 7 (159) ------------ ------------- ------------ ------------- Earnings (Loss) from Discontinued Operations ............................... 4,442 (1,047) 3,470 (2,062) ------------ ------------- ------------ ------------- Net Earnings (Loss)..................... $ 4,068 $ (1,299) $ 2,945 $ (2,439) ============ ============= ============ ============= Net Earnings (Loss) per Share - Basic and Diluted: Net Loss from Continuing Operations ... $ (0.04) $ (0.03) $ (0.05) $ (0.04) Net Earnings (Loss) from Discontinued Operations .............................. $ 0.45 $ (0.10) $ 0.35 $ (0.20) ------------ ------------- ------------ ------------- Net Earnings (Loss).................... $ 0.41 $ (0.13) $ 0.30 $ (0.24) ============ ============= ============ ============= Weighted Average Number of Shares Outstanding-- Basic and Diluted................................... 9,984 9,984 9,984 9,984 ============ ============= ============ ============= ------------------------------------------------------------------------------------------------------------------See accompanying notes. 3 TENERA, INC. CONSOLIDATED BALANCE SHEETS (GOING CONCERN BASIS) (Unaudited) (In thousands, except share amounts) -------------------------------------------------------------------------------------------------- December 31, 2002 -------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents ............................................... $ 1,277 Restricted cash ......................................................... -- Trade receivables, less allowance of $539 at June 30, 2003 and Dec 31, 2002 Billed ................................................................ 620 Unbilled .............................................................. 635 Other current assets .................................................... 185 ------------ Total Current Assets ................................................ 2,717 Property and Equipment, Net ............................................... 243 Other Assets .............................................................. 576 ------------ Total Assets ..................................................... $ 3,536 ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable ........................................................ $ 1,068 Accrued compensation and related expenses ............................... 1,397 Deferred revenue ........................................................ 391 Subordinated debt and accrued interest .................................. 1,605 ------------ Total Current Liabilities ........................................... 4,461 Stockholders' Equity (Deficit) Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued, and 9,984,259 outstanding at June 30, 2003 and Dec 31, 2002............... 104 Paid in capital, in excess of par ....................................... 5,693 Accumulated deficit...................................................... (6,229) Treasury stock-- 433,086 shares at June 30, 2003 and Dec 31, 2002 ....... (493) ------------ Total Stockholders' Equity (Deficit) .............................. (925) ------------ Total Liabilities and Stockholders' Equity (Deficit) ............. $ 3,536 ============ --------------------------------------------------------------------------------------------------See accompanying notes. 4 TENERA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS) (Unaudited) (In thousands) ------------------------------------------------------------------------------------------------ Six Months Ended June 30, 30, -------------- 2003 ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) ..................................................... $ 2,945 Adjustments to reconcile net earnings (losses) to cash used by operating activities: Depreciation and amortization.......................................... 238 Net (gain) loss on sale of assets ..................................... (4,881) Stock compensation to consultant ...................................... 7 Changes in assets and liabilities: Trade receivables, net of allowance ................................. 852 Income tax receivable ............................................... -- Other current assets ................................................ 10 Other assets ........................................................ 27 Accounts payable .................................................... (707) Accrued compensation and related expenses ........................... (604) Deferred revenue .................................................... 62 Accrued interest expense ............................................ (105) ------------ Net Cash Used By Operating Activities ............................. (2,156) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ................................... -- Proceeds from sale of assets ............................................ 4,502 ------------ Net Cash Provided (Used) in Investing Activities .................. 4,502 CASH FLOWS FROM FINANCING ACTIVITIES Sale (repayment) of subordinated debt ................................... (1,500) Return of investor capital in subsidiary ................................ (2) ------------ ------------ Net Cash (Used) Provided by Financing Activities ................. (1,502) ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 844 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 1,277 ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 2,121 ============ NON-CASH FINANCING AND INVESTING ACTIVITIES Sale of assets in exchange for note receivable........................... $ 41 ============ ------------------------------------------------------------------------------------------------See accompanying notes. 5 TENERA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2003 (Unaudited) Note 1. Cessation of Operations and Orderly Wind Down On July 15, 2003, the Board of Directors unanimously deemed advisable the liquidation and dissolution of TENERA and unanimously adopted the plan of dissolution which was approved and ratified by the shareholders in a Special Meeting held on November 14, 2003. In reaching this decision, the Board considered that the Company has been unable to return to profitable quarterly results since the quarter ended September 30, 2000. The Company recorded net losses of $4.8 million and $2.0 million in 2002 and 2001, respectively. The Company's businesses have been adversely affected by the general economic downturn in the United States over the past couple of years. The economic slowdown, combined with the "melt-down" of the fortunes of the power-generating and power-trading industry, has resulted in less demand for new and existing power plant capacity, which had a direct effect on the Company's environmental consulting business. The Board of Directors has not established a firm timetable for winding up the affairs of the Company. The Company faces several uncertainties that could affect the ultimate outcome of the dissolution including, but not limited to: the negative impact on cash flow due to inability to collect or realize remaining accounts receivables in a timely fashion or at all; favorable settlement of outstanding obligations; and minimizing further costs attendant with the Company's liquidation process. Given these unknowns, at the present time, any distribution to the shareholders is uncertain. The Company has ceased its operating activities and has commenced the orderly wind down of its affairs; including the release of its employees, selling assets and settling obligations including leases for office space. The Company has retained the services of one employee to conduct these activities. Note 2. Summary of Significant Accounting Policies Basis of Presentation. As described in Note 1 above, on July 15, 2003 the Company's Board of Directors approved the cessation of the Company's operations and the liquidation of the Company, subject to required stockholder approval. On November 14, 2003, the Company's Shareholders ratified and approved the plan of dissolution proposed by the Board of Directors. The Company has ceased its operating activities and has commenced the orderly wind down of its affairs. As a result, the Company has adopted the liquidation basis of accounting for the presentation of its consolidated financial statements for periods subsequent to June 30, 2003. This basis of accounting is appropriate when, among other things, liquidation of a company appears imminent and the net realizable values of its assets are reasonably determinable. Under the liquidation basis of accounting, the Company has stated its assets at their net realizable values, contractual liabilities at contractual amounts, and estimated costs through the liquidation date are recorded to the extent they are reasonably determinable. The liquidation basis of accounting requires many estimates and assumptions, and there are substantial uncertainties in carrying out the orderly wind down of operations. The actual values and costs are expected to differ from the amounts shown herein and could be higher or lower than the amounts recorded. Changes in the estimated net realizable value of assets, contractual liabilities and estimated costs through the liquidation date will be recorded in the period such changes are known. Differences between the estimated net realizable values and actual values based on cash transactions will be recognized in the period in which the cash transactions occur. As a result of the adoption of the liquidation basis of accounting, during the quarter ended September 30, 2003, the Company recorded charges of $45,000 to write-off the lease deposits for abandoned facilities and the prepaid fees for annual admittance to the American Stock Exchange due to the reported steps underway to delist the Company, as well as to reflect the estimated net realizable value expected to be realized upon sale or abandonment of the property and equipment, and $1,003,000 for the accrual of the estimated contractual costs for its leased office space. The Company is presently in negotiations with the landlord and the actual obligation incurred may vary from the gross contractual obligation. These changes reflect the immediate impact of the liquidation of assets and recognition of contractual lease obligations rather than the realization through the ordinary course of operations. During the quarter ended September 30, 2003 and in connection with the cessation of the Company's operating activities and the release of its employees, the Company 6 recorded an accrual for estimated compensation and related expenses of $495,000 including: $170,000 for full-time and associate staff compensation, legal fees ($80,000), other professional fees ($80,000), office expenditures ($40,000), accounting fees ($80,000), proxy ($30,000) and other costs ($15,000) associated with cessation of operations and the orderly wind down of the Company. The accompanying condensed consolidated financial statements are unaudited and, in the opinion of management, contain all adjustments that management considers necessary to present fairly the liabilities in excess of assets in liquidation at September 30, 2003, and the changes in net liabilities in excess of assets in liquidation for the period from July 1, 2003 through September 30, 2003. The accompanying condensed consolidated balance sheet as of December 31, 2002 and statement of operations and cash flows for the six months ended June 30, 2003 are presented on a going concern basis reflecting the Company's actual operations prior to the adoption of the liquidation basis of accounting. These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002 and related notes which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Accordingly, significant accounting policies and other disclosures necessary for complete financial statements in conformity with generally accepted accounting principles have been omitted since such items are reflected in the Company's audited consolidated financial statements and related notes thereto. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from these estimates. Cash and Cash Equivalents. At September 30, 2003 and December 31, 2002, the Company's cash and cash equivalents included deposited cash and money market accounts at a banking institution. Historically and from time to time, the Company has invested in commercial paper issued by companies with strong credit ratings. There were no such investments at September 30, 2003 and December 31, 2002. The Company includes in cash and cash equivalents, all short-term, highly liquid investments, which mature within three months of acquisition. Restricted Cash. At September 30, 2003, the Company had $275,000 of cash held in escrow pursuant to the asset purchase agreement with SkillSoft Corporation (see Notes 1 and 5 to Consolidated Financial Statements). Under the agreement, the remaining $275,000 in escrow secures certain indemnification obligations of the Company, which remain until June 4, 2004. Assets Held for Sale. The remaining assets held for sale at September 30, 2003 consist primarily of office equipment with no realizable value. Other Current Assets. Included in this assets category is a note receivable ($41,000) associated with the purchase of the Energy subsidiary. Prepaid Expenses. Included in this asset category are the prepaid costs ($349,000) associated with the maintenance of certain insurance policies for the Company through the completion of a three year runout period of activity following the end of the 2003 calendar year. Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities at September 30, 2003 include provision for known liabilities including the lease obligations discussed more fully in Note 3 below, and the estimated costs of the liquidation of the Company including costs of the cessation of operations and orderly wind down of the Company's affairs. These estimated costs include legal and accounting fees, other professional fees, proxy and other office expenses expected to be incurred during the period of liquidation and include the following (in thousands): Lease costs ........................ $ 971 Professional fees .................. 240 Proxy and office expenses........... 85 ---- $1,296 7 Income Taxes. The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense recorded in the first nine months of 2003 reflects minimum taxes due for certain states. No provision for taxes has been made for the gain associated with the sale of e-Learning assets (see Note 5 to Consolidated Financial Statements) as this gain is offset by carryforward losses of the Company. Accounting for Stock-Based Compensation. Under the provisions of the TENERA 1992 Option Plan, 1,500,000 shares of TENERA common stock are reserved for issuance upon the exercise of options granted to key employees and consultants. TENERA's 1993 Outside Directors Compensation and Option Plan reserves 500,000 shares for issuance upon exercise of options granted to non-employee directors. The employee stock options generally vest over a three year period and expire six years from date of grant. The outside director options vest over a one year period and expire ten years from date of grant. As of September 30, 2003, options for 910,750 TENERA shares were outstanding and options for 884,500 shares were exercisable. In April 2002, GoTrain adopted the GoTrain Corp. 2002 Stock Option and Stock Plan ("GoTrain Plan") to provide additional incentive to GoTrain employees, directors, and consultants. Under the provisions of the GoTrain Plan, 2,500,000 shares of GoTrain Corp. common stock ("Subsidiary Stock") are reserved for issuance upon exercise of Subsidiary Stock options and Subsidiary Stock purchase rights granted. The Subsidiary Stock options generally vest over a four year period and expire ten years from date of grant. In 2002, GoTrain's board of directors granted Subsidiary Stock options to employees and directors to acquire 1,800,557 shares of Subsidiary Stock at $0.31 per share. GoTrain management believed the exercise price per share of Subsidiary Stock options approximated the fair value per share, or above fair value, on the dates of the grants, and accordingly, no compensation expense was recorded. Subsequent to the sale of its assets and cessation of operations, no employees remain in GoTrain at September 30, 2003. During the second quarter of 2002, GoTrain also granted 250,000 Subsidiary Stock options to a former officer of, and now consultant to, GoTrain at an exercise price of $0.36 per share. These Subsidiary Stock options were granted in exchange for services through April 16, 2004 and cliff vest on that date. The Subsidiary Stock options were revalued quarterly under the guidance of Statement of Financial Standards No. 123 ("FAS 123") using a Black-Scholes option pricing model. In the first nine months of 2003, $7,000 of stock compensation expense was recognized and charged to general and administrative expenses. As of September 30, 2003, options for 250,000 GoTrain shares were outstanding and exercisable. Going Concern Basis - Per Share Computation. Basic earnings per share shown on the Going Concern Basis Statements of Operations for the period ended June 30, 2003 is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options and convertible debentures, in the weighted average number of common shares outstanding for a period, if dilutive. The determination of fully diluted earnings per share excludes the impact of additional shares of TENERA common stock, issuable upon the exercise of outstanding stock options, because they are antidilutive. Also excluded from the computation of fully diluted earnings per share as antidilutive are GoTrain Subsidiary Stock options for GoTrain shares of common stock. The following table sets forth the computation of basic and diluted loss per share for the Going Concern Basis Statement of Operations for the period ended June 30, 2003 as required by Financial Accounting Standards Board Statement No. 128: 8 (In thousands, except for per share amounts) ------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, ------------------------------- -------------------------------- 2002 2002 2003 2002 ------------------------------------------------------------------------------------------------------------------- Numerator: Net Earnings (loss) ................... $ 4,068 $ (1,299) $ 2,945 $ (2,439) ============= ============== ============= ============== Denominator: Denominator for basic earnings per share-- weighted-average shares 9,984 9,984 9,984 9,984 outstanding............................ Effect of dilutive securities: Employee & Director stock options (Treasury stock method) ............. -- -- -- -- ------------- -------------- ------------- -------------- Denominator for diluted earnings per share--weighted-average common and common equivalent shares ............... 9,984 9,984 9,984 9,984 ============= ============== ============= ============== Basic Earnings (loss) per share ......... $ 0.41 $ (0.13) $ 0.29 $ (0.24) ============= ============== ============= ============== Diluted Earnings (loss) per share ....... $ 0.41 $ (0.13) $ 0.29 $ (0.24) ============= ============== ============= ============== ------------------------------------------------------------------------------------------------------------------- Comprehensive Income. The Company does not have any components of comprehensive income. Therefore, comprehensive income is equal to net earnings reported for all periods presented. Disclosures about Segments of an Enterprise. Upon the cessation of operations, the Company does not have any reportable operating segments. Note 3. Commitments and Contingencies Leases. In the third quarter of 2003, the Company abandoned certain of its leased office facilities in accordance with its cessation of operations. As a result of the adoption of the liquidation basis of accounting, during the quarter ended September 30, 2003, the Company recorded charges of $45,000 to write-off the lease deposits for abandoned facilities and $1,003,000 for the accrual of the estimated contractual costs for its leased office space. The Company is presently in negotiations with the landlord and the actual obligation incurred may vary from the gross contractual obligation. These changes reflect the immediate impact of the liquidation of assets and recognition of contractual lease obligations rather than the realization through the ordinary course of operations. Note 4. Subordinated Debt In March 2002, the Company's GoTrain subsidiary sold subordinated convertible debentures to private investors for a total principal amount of $1,500,000 ("Series 1 Debenture" - $1,000,000; "Series 2 Debenture" - $500,000). Each debenture bore simple interest at the rate of 8% per annum, with cumulative interest payable only if the debenture is not converted into convertible preferred stock of GoTrain, pursuant to the debenture terms. The maturity date of each debenture was July 31, 2003. In March 2003, the Company issued subordinated debt of $85,000 to an officer of the Company to provide additional working capital. The debt bore simple interest at the rate of 8% per annum, had no maturity date, and was secured by the trade receivable assets of GoTrain. The Company accrued $55,000 of interest expense in the first six months of 2003 related to these debts. In June 2003, all outstanding subordinated debt and accrued interest was repaid. Note 5. Gain on Sale of GoTrain Assets As previously announced, in June 2003, the Company sold all of the assets of the e-Learning business of its subsidiary, GoTrain Corp to SkillSoft Corporation for approximately $5,000,000 in cash, plus assumption of certain liabilities related to the business. Of the total cash amount, $275,000 reflects the amount held in escrow as security for post closing indemnification obligations (see Note 2 to Consolidated Financial Statements). The net gain on sale from this transaction was $4,879,000. 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Forward-Looking Statements With the exception of historical facts, the statements contained in this discussion are forward-looking statements, including statements concerning the value of the net assets, the anticipated liquidation value per share of common stock as compared to its market price absent the proposed liquidation, the timing and amounts of distributions of liquidation proceeds to shareholders, and the likelihood of shareholder value resulting from the sale of certain of the significant assets. For this purpose, any statement that is not a statement of historical fact and any statement using the term "believes," "expects," "plans," "anticipates," "estimates" or any similar expression is a forward-looking statement, including without limitation statements concerning the estimated amount and timing of any distribution(s) to stockholders, the timing of our dissolution, liquidation and closure of our stock transfer books and the future operation and wind-down of our business. Those statements include statements regarding our intent, belief, or current expectations, as well as the assumptions on which such statements are based. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements, or industry results, to differ materially from the expectations of future results, performance or achievements expressed or implied by such forward-looking statements. These risks include the risk that the Company may incur additional liabilities, that the sale of the non-cash assets could be lower than anticipated, and that the settlement of the liabilities could be higher than expected, all of which would substantially reduce or eliminate the distribution to the shareholders. Although the Company believes that the expectations reflected in any forward-looking statements are reasonable, the Company cannot guarantee future events or results. Except as may be required under federal law, the Company undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur. Additional risks are detailed in the Company's filings with the Securities and Exchange Commission, including its most recent Form 10-K filed on April 15, 2003 and its Definitive Proxy Statement filed on October 23, 2003. Cessation of Operations and Orderly Wind Down As previously discussed, TENERA, Inc. (including its subsidiaries, "TENERA", or the "Company") has historically provided a broad range of professional and technical services, and web-based e-Learning solutions. The Company's professional and technical services are designed to solve complex management, engineering, environmental, health and safety challenges associated with the management of federal government properties. TENERA's web-based e-Learning products and services, provided through the Company's GoTrain Corp. subsidiary (`GoTrain"), are designed to provide a suite of on-line, interactive, compliance and regulatory-driven training applications for use by clients' employees. The Company has historically been principally organized into two operating segments: Professional and Technical Services and e-Learning (see Note 6 to Consolidated Financial Statements). As previously announced, TENERA, Inc.'s (including its subsidiaries, "TENERA", or the "Company") shareholders ratified and approved a plan of dissolution and liquidation proposed by the Board of Directors at a Special Meeting of shareholders held on November 14, 2003. In reaching this decision, the Board considered that the Company has been unable to return to profitable quarterly results since the quarter ended September 30, 2000. The Company recorded net losses of $4.8 million and $2.0 million in 2002 and 2001, respectively. The Company's businesses have been adversely affected by the general economic downturn in the United States over the past couple of years. The economic slowdown, combined with the "melt-down" of the fortunes of the power-generating and power-trading industry, has resulted in less demand for new and existing power plant capacity, which had a direct effect on the Company's environmental consulting business. The economic slowdown has also put budgetary pressure on the federal government, with the result that certain programs of the Department of Energy in which the Company participates have been constrained. Additionally, the pressure of corporate cost-cutting by many U.S. corporations has resulted in reduced training opportunities for the Company's e-Learning activities; many clients and potential clients had not expanded their training activities to the levels originally expected because of reduced manpower and/or lower funding for training. Starting in 2001, responding to these economic conditions, the Company took steps to reduce its cash requirements through staff reductions, which further constrained the Company's ability to develop its businesses. 10 Revenues have continued to decline over each succeeding quarter until the revenue in the quarter ended December 31, 2002 totaled less than 40% of the revenues in the third quarter of 2000. The declines in revenue were spread across the Company's Professional and Technical Services segment; however it was most characteristic of the substantial decline in services requested by the Company's largest multi-year Professional and Technical Services contract with the Department of Energy's Rocky Flats Site (the "Site"). The decline in scope was consistent with budgetary pressure on the DOE as well as shifting needs at the Site as the remediation work was continuing along towards scheduled completion in 2006. Even with the greatly diminished roles for the Company at the Site, the contract itself was scheduled to complete its initial period of performance on September 30, 2003 and would be subject to a determination by the client as to the first of three possible annual extensions of the period of performance. As reported previously, management anticipated that in light of the current business environment, the Company would experience further reduction in revenues expected to be recognized in its Professional and Technical Services Segment during the remainder of 2003. The decrease in consolidated revenues during this period was only slightly offset by the increase in e-Learning Segment activity; however the increased revenues in that Segment came at a significant cost in cash resources. Cash reserves were being depleted to fund ongoing operating losses, since e-Learning revenue was insufficient to cover expenses, such as costs of e-Learning course and platform development, sales and marketing and administration. Initial funding of the e-Learning Segment came from the cash generated by the Company's Professional and Technical Services Segment. As previously reported, management believed that the cash expected to generated from the Professional and Technical Services Segment would be insufficient to provide funding necessary for further development of its e-Learning Segment. Also as previously reported, the Company's efforts seeking new lines of credit have been unsuccessful to date. Due to declining revenues, net losses, and declining cash balances, the Company's auditors issued "going concern" opinions at the end of the 2001 and 2002 calendar years. There has been uncertainty on how long the current downturn will last and when a sustained recovery may occur. Any further decline in the clients' markets or in general economic conditions would likely result in a further reduction in demand for the Company's products and services. Additionally, there has been a concern that the Company may have difficulty in collecting outstanding trade receivables from cash constrained clients, causing its own cash flow to be adversely affected. Also, in such an environment, pricing pressures could continue, negatively impacting gross margins. The Company has made considerable efforts to identify and evaluate strategic alternatives, including strategic partnerships. In June 2001, the Company's e-Learning subsidiary, GoTrain Corp. entered into a five-year strategic partnership agreement with SmartForce (now merged with SkillSoft) to co-develop and distribute ES&H and regulatory content via the SmartForce internet platform. Under the agreement, GoTrain retained ownership of its proprietary content and shared in the revenue of any GoTrain content sold by SmartForce. As part of the agreement, GoTrain was required to make an initial and quarterly payment SmartForce for platform license and maintenance, and integration of existing GoTrain content. Minimum net payments due by GoTrain over the remaining period of the agreement totaled $1.2 million at December 31, 2002. In June 2002, SmartForce announced that it had entered into an agreement to merge with SkillSoft, another e-Learning company, which was completed in September 2002. The surviving entity, know as SkillSoft, assumed GoTrain's agreement with SmartForce. In late 2002, due to the lack of achieving expected revenue growth over the first 18 months, GoTrain notified SkillSoft of a desire to restructure the agreement. Separately, GoTrain was able to raise $1.5 million in subordinated debt in early 2002; however, the cash infusion proved insufficient in light of slower-than-expected revenue growth. In the third quarter of 2002, the Company sought unsuccessfully additional external equity or working capital funding for the e-Learning enterprise. As previously reported, although management believed that the e-Learning segment has significant future potential, it was unable to identify funding sources beyond what it had previously raised in capital for that segment. To address the diminishing cash resource generation within the Professional and Technical Services Segment, management also contacted numerous potential debt and equity financial investors, including existing investors. However, such discussions failed to generate necessary funding for the Company or its subsidiaries. After completing their respective due diligence processes, all potential and existing investors declined to enter into meaningful negotiations. 11 As previously announced, the Board of Directors then concluded, in light of the extensive and unsuccessful efforts to locate a strategic or an investment partner for the Company, that it would be in the best interest of the shareholders to pursue the possibility of a merger, sale of assets or closure of the operating subsidiaries, collectively or individually. Management then contacted a number of companies that it thought might have an interest in merging or purchasing assets from the subsidiaries. The list of prospects represented the collective knowledge of companies that were either currently active in the e-Learning or Professional and Technical Services markets or which the Company believed could have an interest in that market. Management attempted to schedule meetings with each of the prospective parties and subsequently solicited indications of interest from such parties. The Company did not receive any expressions of merger interest from the parties for the e-Learning business, but an offer was received from its strategic partner, SkillSoft, for the e-Learning assets. The initial agreement to purchase the assets from GoTrain was struck at a level which was expected to generate sufficient working capital for the Company to possibly redeploy its resources within other operating environments. However, after further contemplation of the general economic conditions, recent purchase prices paid for similar assets within the e-Learning market, and due diligence efforts by the buyer, the price offered was reduced prior to finalization of the agreement. Although the offered proceeds were considered by the Company to be a reasonable price for the assets sold, they did not provide surplus working capital. Similarly, the Company did not receive any expressions of merger interest from the independent parties approached for the Professional and Technical Services Segment's two subsidiaries: TENERA Energy, LLC ("Energy") and TENERA Rocky Flats., LLC ("Rocky Flats"). Thereafter, late in the first quarter of 2003, the Company reached agreement to transfer the ownership and operations of management of Energy to the former employees of the subsidiary. Late in the second quarter of 2003, a Rocky Flats joint venture partner, The S.M. Stoller Corporation, advised the Company that it was interested in assuming the obligations of certain Professional and Technical Services Rocky Flats site contracts and joint venture interests. As a result of these three separate sets of negotiations, the Company completed the sales of each of the subsidiary business operations by June 30, 2003. On July 15, 2003, the Board determined, based upon the expected net cash proceeds from the completed sales and management's belief that the Company would not be able to reduce expenses and personnel further, that the Company would not able to fund the reestablishment of an operating entity in order to profitably sell and market a product or service. The Board also reviewed projected estimates of expenses associated with an orderly liquidation of TENERA, as well as the cash on hand as of June 30, 2003. Since the Company did not have any offers to purchase the remaining non-operating assets, such as trade and note receivables, furniture, and office equipment, at this time or to terminate favorably its long-term obligations, the Company was unable to effectively estimate the value of the net assets upon liquidation. The Board also considered other bankruptcy alternatives (such as provided for by the U.S. Bankruptcy Code) but believed that such alternatives would likely result in higher transaction costs and longer delays, further minimizing any possible distributions to shareholders. Also previously announced, the Company was notified on June 13, 2003 that it may not meet certain of the American Stock Exchange's ("AMEX") continued listing standards. On June 25, 2003, the Company submitted a response acknowledging the notification and stating that it would conduct a review of the alternatives available to the Company. The Company also announced on July 1, 2003 in a press release that there could be no assurance however that the Company would be able to present a plan that will meet the continued AMEX listing standards, or if it did not, would be able to provide an alterative market for its outstanding shares. Subsequent to July 15, 2003, the Company notified the AMEX of the Board of Directors resolution to wind up and dissolve the Company and its recommendation for approval from the Company's shareholders. On July 16, 2003, the AMEX contacted the Company to announce that in light of the information received from the Company, it had halted trading of the common stock on the Exchange pending a move to delist the Company. For these reasons, on July 15, 2003 the Board of Directors concluded that the dissolution and liquidation would have the highest probability of returning the greatest value to the shareholders. However, liquidation and dissolution may not create value to the shareholders or result in any remaining capital for distribution to the shareholders. The Company cannot assure you of the precise nature and amount of any distribution to the shareholders pursuant to the plan of dissolution. Uncertainties as to the precise net value of the non-cash assets 12 and the ultimate amount of liabilities make it difficult to predict with certainty the aggregate net value, if any, ultimately distributable to the shareholders. The actual nature and amount of all distributions will depend in part upon the ability to convert the remaining non-cash assets into cash. The Company cannot be certain of the final amount of the liabilities. The following factors will affect the amount of cash that will be available for distribution to shareholders: The proceeds from escrowed assets may be less than anticipated if GoTrain does not enjoy favorable outcomes in the completion of the outstanding obligations from the sale of the e-Learning assets. GoTrain is obligated under the asset purchase agreement for the e-Learning assets (the "SkillSoft Agreement") to indemnify the warranties and representations of the SkillSoft Agreement for a period of one year. Funds totaling $275,000 were set aside in escrow to meet these commitments and will be released to the parties in accordance with the terms of the SkillSoft Agreement. There can be no assurance that the indemnity period will close without drawing down on escrowed funds. The actual nature and amount of all distributions will depend in part upon our ability to release the remaining escrowed funds to TENERA. If the Company does not enjoy favorable outcomes in the completion of the outstanding escrowed obligations, it may not generate meaningful cash, if any to return to the shareholders. The Company many not be able to collect all of the retained receivables. The Company has retained receivables of approximately $240,000 related to the Energy subsidiary's business that have remained unpaid in excess of six months. Although the Company maintains that the amounts outstanding are due and payable under the terms of the client agreements and has delivered a written demand for payment, there can be no assurance that the client will honor the agreement. If necessary, the Company may pursue legal recourse to affect collection; however such a course of action would also utilize cash resources to pay for litigation support costs while not providing a guaranteed successful outcome. Any litigation could delay or even prevent the Company from completing the plan of dissolution. If the Company does not enjoy favorable outcomes in the collection of the outstanding receivables, it may not generate meaningful cash, if any to return to the shareholders. The Company may not be able to settle all of the obligations to creditors. The Company has current and future obligations to creditors. These include, without limitation, long-term contractual obligations associated with business agreements with customers and other third parties. As part of the wind down process, the Company will attempt to settle the obligations with the creditors. If the Company cannot reach an agreement with a creditor concerning an obligation, including its landlord, that creditor may choose to bring a lawsuit against the Company. Any litigation could delay or even prevent the Company from completing the plan of dissolution. Moreover, amounts required to settle the obligations to creditors will reduce the amount of remaining capital available for distribution to shareholders. The Company will continue to incur claims, liabilities and expenses which will reduce the amount available for distribution to shareholders. Claims, liabilities and expenses from administrative activities (such as general and administrative costs, salaries, directors' and officers' insurance, payroll and local taxes, legal, accounting and consulting fees and miscellaneous office expenses) will continue to be incurred as the Company winds down. These expenses will reduce the amount of assets available for ultimate distribution to shareholders. If available cash and amounts received on the sale of non-cash assets are not adequate to provide for the obligations, liabilities, expenses and claims, the Company may not be able to distribute meaningful cash, or any cash at all, to the shareholders. The Company may continue to incur the expense of complying with public company reporting requirements. The Company has an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended (the "Act"), even though compliance with such reporting requirements is economically burdensome. In order to curtail such expenses, after the filing the Company's certificate of dissolution, management intends to seek relief from the Securities and Exchange Commission from a substantial portion of the periodic requirements under the Act. In the event such relief is granted, we will continue to file current reports on Form 8-K to disclose material events relating to our liquidation and dissolution alogn with any other reports that the Securities and Exchange Commission may require. 13 The Company may not have fully reserved for or identified all obligations owing to third parties, including obligations to government agencies. Although the Company has continuously maintained an adequate system of reporting to identify and reserve for obligations owing to third parties, there can be no assurance that all obligations, including those to government agencies are known at this time. If additional third party obligations are identified, the Company may not be able to distribute meaningful cash, or any cash at all, to the shareholders. Distribution of assets, if any, to the shareholders could be delayed. The Company is currently unable to predict the precise timing of any distribution pursuant to the wind down. The timing of any distribution will depend on and could be delayed by, among other things, the timing of sales of the non-cash assets, conversion of outstanding receivables, claim settlements with creditors and the successful closure of the escrowed funds described above. Additionally, a creditor could seek an injunction against the making of distributions to the shareholders on the ground that the amounts to be distributed were needed to provide for the payment of the liabilities and expenses. Any action of this type could delay or substantially diminish the amount available for distribution to the shareholders. Item 3. Quantitative and Qualitative Disclosures of Market Risk The Company has minimal exposure to market and interest risk as the Company invests its excess cash in short-term instruments which mature within 90 days from the date of purchase. The Company does not have any derivative instruments. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The chief executive officer and chief financial officer, after evaluating the "disclosure controls and procedures" (as defined in Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly report on Form 10-Q has concluded that as of the Evaluation Date, the disclosure controls and procedures are effective to ensure that information the Company is required to disclose in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in internal controls. Subsequent to the Evaluation Date, the Company has ceased operations and has begun the process of liquidating and dissolving. The Company has retained only one regular employee and a small number of associate employees to attend to the orderly disposition of its assets and liabilities. The internal control structure has been modified to adapt to the changes. 14 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.0 Statement regarding computation of per share earnings: See Notes to Consolidated Financial Statements 99.1(1) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (Jeffrey R. Hazarian - Chief Executive Officer and Chief Financial Officer) (b) Reports on Form 8-K A Form 8K, dated November 14, 2003, was filed on November 20, 2003, reporting on the results of the Special Meeting of the Shareholders and the Shareholder's approval of the resolution to ratify and approve the plan of dissolution and liquidation of the Company. __________________________ (1) Filed herewith 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 30, 2003 TENERA, INC. By /s/ JEFFREY R. HAZARIAN --------------------------------------------------- Jeffrey R. Hazarian Chief Executive Officer and Chief Financial Officer 16 CERTIFICATION I, Jeffrey R. Hazarian, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TENERA, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: December 30, 2003 /s/ JEFFREY R. HAZARIAN --------------------------------------------------- Jeffrey R. Hazarian Chief Executive Officer and Chief Financial Officer 17 EXHIBIT INDEX Ex. 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (Jeffrey R. Hazarian - Chief Financial Officer and Executive Vice President)