SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended..................September 30, 1995
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: 0-15457
C.I.S. TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 73-1199382
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6100 South Yale, Suite 1900, Tulsa, Oklahoma 74136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918/496-2451
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
The Registrant has one class of common stock, $0.01 par value. The number of
shares of common stock outstanding as of November 9, 1995 was 30,200,111.
Page 1 of 14 pages
C.I.S. TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1995
(Unaudited) and December 31, 1994 (Unaudited) . . . . . . . . . .3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1995 (Unaudited) and 1994 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 (Unaudited) and 1994 (Unaudited) 5
Notes to the Consolidated Financial Statements (Unaudited) . .6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . .8-11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Exhibit 11 Computation of Earnings Per Share . . . . . . . . . . . . . . . .14
Page 2 of 14 pages
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
1995 1994
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,177 $ 11,416,151
Accounts receivable:
Trade, net of allowance for doubtful accounts 11,690,542 6,837,580
Charge recovery 5,386,415 4,917,913
Related party receivables 244,645 191,335
Prepaid expenses 875,366 385,082
Other current assets 1,351,969 834,569
Total current assets 19,564,114 24,582,630
NON-CURRENT ASSETS:
Related party receivables 32,061 106,205
Property and equipment, net 14,313,634 9,814,762
Intangible assets, net 27,390,810 13,640,804
Deferred tax asset 900,000 900,000
Other non-current assets 608,228 457,481
Total non-current assets 43,244,733 24,919,252
TOTAL ASSETS $ 62,808,847 $ 49,501,882
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,362,496 $ 3,435,862
Borrowings under line of credit 3,876,135 43,877
Current maturities of long-term debt 5,752,024 980,816
Current portion of capital leases 430,602 180,208
Related party payables -- 16,709
Deferred revenue 1,333,106 898,111
Total current liabilities 14,754,363 5,555,583
NON-CURRENT LIABILITIES:
Long-term debt 4,378,804 3,518,863
Capital lease obligations 35,641 --
Deferred income taxes 407,963 157,963
Total non-current liabilities 4,822,408 3,676,826
STOCKHOLDERS' EQUITY:
Preferred stock 23,842 23,842
Common stock 317,165 316,065
Paid in capital in excess of par 52,841,458 52,698,023
Treasury stock, at cost (1,778,206) (1,768,544)
Accumulated deficit (8,172,183) (10,999,913)
Total stockholders' equity 43,232,076 40,269,473
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,808,847 $ 49,501,882
See accompanying notes to consolidated financial statements.
Page 3 of 14 pages
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE $ 12,694,952 $ 7,656,890 $ 32,158,694 $ 22,758,145
EXPENSES:
Technical operations 1,318,385 674,750 3,074,019 2,061,991
Sales and client service 6,826,568 3,540,922 17,301,634 11,915,448
General and administrative 1,558,955 2,013,382 4,518,238 5,107,232
Depreciation and amortization 1,351,243 783,951 3,330,302 1,967,117
Total operating expenses 11,055,151 7,013,005 28,224,193 21,051,788
OPERATING INCOME 1,639,801 643,885 3,934,501 1,706,357
OTHER INCOME (EXPENSE) (305,264) (30,428) (393,175) (105,966)
INCOME BEFORE INCOME TAXES 1,334,537 613,457 3,541,326 1,600,391
Provision for income taxes 375,104 109,686 713,596 63,347
NET INCOME $ 959,433 $ 503,771 $ 2,827,730 $ 1,537,044
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 33,070,873 26,908,439 32,711,511 26,921,277
EARNINGS PER COMMON SHARE,
PRIMARY AND FULLY-DILUTED: $ .03 $ .02 $ .09 $ .06
See accompanying notes to consolidated financial statements.
Page 4 of 14 pages
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Nine months
ended ended
September 30, 1995 September 30, 1994
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 2,827,730 $ 1,537,044
Noncash items:
Depreciation and amortization 3,330,302 1,967,117
Provision for (recovery of) doubtful accounts (99,304) 544
Deferred income taxes 249,998 40,000
Other 15,717 (14,570)
Net change in operating assets and liabilities (8,643,148) (777,480)
Cash provided by (used in) operating activities (2,318,705) 2,752,655
INVESTING ACTIVITIES:
Additions to property and equipment (2,840,561) (3,704,620)
Sales of property and equipment -- 3,140
Acquisition of subsidiary (10,685,616) --
Cash provided by (used in) investing activities (13,526,177) (3,701,480)
FINANCING ACTIVITIES:
Borrowings on line of credit 11,649,725 24,144,000
Repayment of line of credit (7,817,467) (23,220,000)
Book overdrafts -- 225,678
Proceeds from term note 1,250,000 --
Repayment of long term debt (640,059) (33,499)
Payment of capital lease obligations (142,826) (151,264)
Proceeds from exercise of employee stock options 144,535 30,541
Cash provided by (used in) financing activities 4,443,908 995,456
Net (decrease) increase in cash and cash
equivalents during the period (11,400,974) 46,631
Cash and cash equivalents at the beginning of
the period 11,416,151 385,313
Cash and cash equivalents at the end of
the period $ 15,177 $ 431,944
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 388,153 $ 86,479
Income taxes paid $ 144,743 $ 88,694
Capital lease obligation for computer equipment $ 176,692 $ --
See accompanying notes to consolidated financial statements.
Page 5 of 14 pages
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, all of which were of a normal recurring
nature, necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the three and nine months
ended September 30, 1995 may not be indicative of the results that may be
expected for the year ending December 31, 1995. The December 31, 1994
consolidated balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 1994.
2. Acquisition of Hospital Cost Consultants, Inc.
Effective June 1, 1995, the Company acquired 100% of the common stock of
Hospital Cost Consultants, Inc. ("HCC"), of Pleasanton, California, for
$15,000,000 (plus acquisition costs and certain contingent consideration)
consisting of:
Cash $10,000,000
Short-term note $ 5,000,000
$15,000,000
The acquisition was accounted for as a purchase. Under the purchase method, the
net assets of HCC were recorded at their estimated fair values and the excess of
cost over net assets acquired was recorded as goodwill. The operating results of
HCC are included in the Company's consolidated results of operations from
June 1, 1995.
The following unaudited pro forma information shows the consolidated operating
results of the Company as though the purchase of HCC had been made at the
beginning of 1995 and 1994:
September 30, December 31,
1995 1994
Revenue $34,443,000 $39,686,000
Net Income (loss) $ (705,000) $ (817,000)
Earnings (loss) per share $ (.02) $ ( .03)
The pro forma information should be read with the financial statements and notes
of CIS and HCC for the year ended December 31, 1994 and the nine months ended
Page 6 of 14 pages
September 30, 1995. HCC results of operations for 1994 included expenses
related to the re-engineering of its software products, which re-engineering
increased the sales cycle time and negatively impacted revenues. These pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
3. Income Taxes
Income taxes are recognized based on the Company's estimated effective annual
tax rate. This rate is based upon the Company's projected taxable income
for the year ended December 31, 1995 and anticipated changes in deferred tax
assets, the related valuation allowance, and deferred tax liabilities.
Page 7 of 14 pages
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
Capital Position. At September 30, 1995 working capital was $4.8 million and the
current ratio was 1.3, compared to $19 million and 4.4 at December 31, 1994. The
decrease in the current ratio was primarily due to the acquisition of HCC for
$10 million in cash and the Company's guarantee of a $5 million short-term note
from HCC to the seller.
The Company's total capitalization (long-term obligations plus stockholders'
equity) was $48.1 million at September 30, 1995 compared with $43.9 million at
December 31, 1994. This increase was principally the result of the net income
for the nine months of 1995 and the addition of a $1.25 million term note due
October, 1997.
Liquidity. The Company's short-term cash requirements are currently being met
through internally generated funds and borrowings under its revolving line of
credit facility. The Company's $5 million line of credit facility will expire
October, 1997. At September 30, 1995, $3.9 million was borrowed under this line
of credit facility. Included in short-term debt is a $5 million note related to
the acquisition of HCC. This note is due December 29, 1995. The Company
anticipates the note will be funded through cash flows from operations, the
existing line of credit facility or other sources of long-term debt.
Cash used in operating activities was $2.3 million for the nine months ended
September 30, 1995, compared to cash provided by operations of $2.8 million for
the same period in 1994. The cash used in 1995 was primarily the result of the
net change in operating assets and liabilities offset by increased net income,
depreciation and amortization. The net change in operating assets and
liabilities (which excludes the effect of the HCC acquisition) was due to:
1) an increase in receivables of $2.4 million related to the acquisitions of
HCC and AMSC; 2) an increase in receivables of $900,000 at RSD due to the
aging of accounts; 3) an increase of $200,000 due to increased sales activity
for Professional Services; 4) a decrease in deferred revenue of $2.3 million
primarily related to annual license renewal fees and completion of installations
in process; and 5) a decrease in accounts payable of $1.5 million.
Cash used in investing activities increased $9.8 million from the same period in
1994 primarily due to the payment of $10.7 million cash to acquire HCC. This
increase in investing activity was partially offset by a decrease in software
development costs of $838,000 due to 1994's first half development of PREMIS
2.0, UB-92, and other lines of business. These costs are capitalized in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Page 8 of 14 pages
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Cash provided by financing activities was $4.4 million during the first nine
months of 1995 compared to $995,000 for the same period in 1994. The net change
of $3.4 million is primarily due to: 1) utilization of $2 million on the line of
credit facility to acquire HCC, and 2) increased usage of the line of credit
facility of $1.8 million to fund the Company's growth in operations, offset
by an increase in debt repayments of $606,000. Net borrowings on the
Company's line of credit facility and book overdrafts were $3.8 million
during the first nine months of 1995 compared to net borrowings of $924,000 in
the first nine months of 1994.
The Company expects future software development costs and working capital
requirements will be provided by the Company's internally generated cash flow
and funds available under its revolving line of credit facility.
Results of Operations for the quarters ended September 30, 1995 and 1994
Revenues. In the third quarter of 1995, the Company had revenue of $12.7
million, an increase of $5 million, or 66%, over the same quarter in 1994. This
increase is principally related to the two newly acquired companies, AMSC and
HCC. The third quarter of 1995 included $1.4 million and $2.7 million in revenue
from AMSC and HCC, respectively. Excluding the revenue from these new
subsidiaries, revenue increased by $863,000, or 11%, over the quarter ended
September 30, 1994. This core business increase was the result of signing
several significant national accounts from the EDI and Professional Services
business units, as well as the addition of payer revenue (revenue from sources
other than customers for claims) in the quarter ending September 30, 1995.
Operating Expenses. Operating expenses for the third quarter of 1995 increased
$4 million, or 58%, compared with the third quarter of 1994. This increase was
the result of $1.6 million in operating expenses related to AMSC and $2.1
million related to HCC, with core business expenses remaining relatively
consistent between the periods ending September 30, 1995 and 1994.
Provision for income taxes. The three months ended September 30, 1994 and 1995
include tax expense of $110,000 and $375,000, respectively. As of September 30,
1995 the Company continues to have net operating loss carryforwards which have
not been fully recognized for financial reporting purposes. Subsequent to the
full utilization of such carryforwards, the Company's effective tax rate is
expected to be in excess of the statutory tax rate (federal and state) due to
the effect of non-deductible amortization of intangible assets. The Company
anticipates that all financial reporting benefits of its net operating loss
carryforwards may be recognized by December 31, 1995.
Page 9 of 14 pages
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Results of Operations for the nine months ended September 30, 1995 and 1994
Revenues. Revenue for the nine months ended September 30, 1995 increased $9.4
million or 41%, over the same period in 1994. The nine months ended September
30, 1995 included approximately $4 million and $4.3 million in revenue from the
Company's recently acquired subsidiaries AMSC and HCC, respectively. Excluding
the revenue from these subsidiaries, revenue increased by $1.1 million, or 5%,
over the nine months ended September 30, 1994. This core business increase was
the result of signing several significant national accounts from the EDI and
Professional Services business units, as well as the addition of payer revenue
(revenue from sources other than customers for claims) in the period ending
September 30, 1995.
Operating Expenses. Operating expenses for the nine months ended September 30,
1995 increased $7.2 million, or 34%, compared with the same period in 1994.
This increase was the result of: 1) $4.3 million in operating expenses
related to AMSC; 2) $2.9 million in operating expenses related to HCC; 3) an
increase of $500,000 in amortization expense from the release of several
software products and amortization of additional goodwill; offset by a
decrease in core business operating expenses of $500,000 in 1995, due
primarily to cost reductions and quality improvements implemented during 1994.
Provision for income taxes. The nine months ended September 30, 1994 and 1995
include tax expense of $63,347 and $713,596, respectively. As of September 30,
1995 the Company continues to have net operating loss carryforwards which have
not been fully recognized for financial reporting purposes. Subsequent to the
full utilization of such carryforwards, the Company's effective tax rate is
expected to be in excess of the statutory tax rate (federal and state) due to
the effect of non-deductible amortization of intangible assets. The Company
anticipates that all financial reporting benefits of its net operating loss
carryforwards may be recognized by December 31, 1995.
Looking Forward
The Company's 1995 performance has been in line with management's expectations
and closely reflects the internal operating plan through the third quarter. The
Company expects future results to be consistent with operating successes to
date. The initiatives put in place during the past year have allowed the
Company to both grow its core business and expand its product lines with the
acquisition of HCC and AMSC. These acquisitions position the Company to
capitalize on the ever-changing healthcare industry. The economies of scale and
synergies provided by the combining of these organizations with the Company is
intended to reduce
Page 10 of 14 pages
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
overall operating costs. These cost savings strategies will be utilized in the
future to strengthen operating results.
The Company's product line has been complimented by the products provided by HCC
and AMSC. In addition, the Company released version 2.1 of its PREMIS product in
August, 1995 which has been very well accepted. The Company also released an
internal software application that will allow the Company's clearinghouse to
process claims from hospitals, physicians, and other healthcare providers, even
if they are not currently using the Company's PREMIS product. This full suite of
products provides cross-selling opportunities expected to result in continued
and steady revenue growth. In addition, the Company continues to identify and
pursue acquisition opportunities to fill unrepresented market niches and to
broaden market penetration in the physician and hospital markets.
The Company expects its effective tax rate to increase in the future as it
completes the utilization of its existing operating loss carryforwards.
Page 11 of 14 pages
C.I.S. TECHNOLOGIES, INC.
OTHER INFORMATION
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule.
B. Forms 8-K
1. On August 14, 1995, the Company filed a Form 8-K/A
reporting audited financial statements and proforma financial
information for Hospital Cost Consultants, Inc. and the Company,
respectively.
Page 12 of 14 pages
C.I.S. TECHNOLOGIES, INC.
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.
C.I.S. Technologies, Inc.
/s/ Rebecca L. Speight
Rebecca L. Speight
Director, Finance and Accounting
(Principal Accounting Officer)
Date: November 13, 1995
Page 13 of 14 pages
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
Exhibit 11
Computation of Per Share Earnings
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Common shares outstanding 30,200,111 26,898,794 30,200,111 26,898,794
Effect of using weighted average common and
common equivalent shares outstanding 2,278,965 (8,786) 2,275,794 (21,207)
Effect of shares issuable under stock option plans
based on the treasury stock method 591,797 18,431 235,606 43,690
Shares used in computing primary and
fully-diluted earnings per share 33,070,873 26,908,439 32,711,511 26,921,277
Page 14 of 14 pages