FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Operations:
Revenue $ 43,227,339 $ 31,689,204 $ 33,284,893 $ 30,523,284 $ 17,766,464
Operating income (loss) $ 3,893,304 $ 2,336,771 $ (225,723) $ 3,098,208 $ 1,239,200
Net income $ 2,674,149 $ 2,197,002 $ 1,221,007 $ 3,095,455 $ 1,430,546
Per Share Data:
Earnings $ 0.08 $ 0.08 $ 0.05* $ 0.12 $ 0.06
Market price: High $ 4.50 $ 4.00 $ 7.75 $ 7.88 $ 7.94
Market price: Low $ 2.00 $ 1.94 $ 3.00 $ 4.00 $ 3.50
Weighted average shares outstanding 32,806,712 27,617,091 27,053,698 26,864,844 25,894,710
Common shares outstanding 30,188,589 30,093,706 26,857,049 26,722,502 26,349,851
Capital Position:
Current assets $ 19,752,717 $ 24,582,630 $ 11,607,244 $ 11,579,626 $ 9,501,313
Current liabilities $ 11,078,058 $ 5,555,583 $ 4,360,412 $ 3,234,032 $ 3,197,140
Long-term liabilities $ 7,850,757 $ 3,676,826 $ 486,753 $ 614,205 $ 1,246,473
Working capital $ 8,674,659 $ 19,027,047 $ 7,246,832 $ 8,345,594 $ 6,304,173
Total assets $ 62,352,934 $ 49,501,882 $ 29,087,361 $ 26,520,830 $ 22,903,143
Stockholders' equity $ 43,424,119 $ 40,269,473 $ 24,240,196 $ 22,672,593 $ 18,459,530
Investment Spending:
Capital expenditures $ 4,476,932 $ 4,557,854 $ 4,000,131 $ 3,192,393 $ 1,322,542
Acquisitions $ 10,059,539 $ 1,075,000 $ -- $ -- $ 2,647,864
Financial Ratios:
Current ratio 1.8 4.4 2.7 3.6 3.0
Debt to equity 32% 12% 2% 3% 7%
Net profit margin 6% 7% 4% 10% 8%
Return on equity 6% 5% 5% 14% 8%
Operating Statistics:
Clients 1,075 700 562 550 478
Employees 469 414 396 530 313
Claims processed 27,515,000 24,050,000 22,163,000 18,137,000 12,500,000
*Includes effect of adopting Statement No. 109 - $0.03 per share.
1
CIS TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
CIS Technologies, Inc. is a full-service healthcare reimbursement and business
management company. The Company offers technology-based products and services
that enable healthcare organizations to realize their full financial potential.
Participants in a healthcare delivery system realize benefits through proven
methods to enhance business office efficiency, creative financing alternatives,
state-of-the-art managed care and clinical practice management systems, and EDI
tools to reduce paperwork and administrative costs. In 1995, the Company
continued to grow and expand its presence in the healthcare industry with the
strategic acquisition of Pleasanton, California-based Hospital Cost Consultants,
Inc. ("HCC"). As a result of the internal growth initiatives implemented in 1994
and the strategic acquisitions of HCC in June 1995, and AMSC, Inc. ("AMSC") in
November 1994, the Company enjoyed a year of record revenue. Revenue in 1995
reached $43.2 million, a 36% increase over 1994 revenue. The Company's products
and services are currently delivering value to healthcare organizations in the
United States and around the world, with more than 220 third-party payers in the
United States and 1,075 clients in 38 states, Canada, Great Britain, Australia,
and New Zealand.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
Revenue increased $11.5 million, or 36%, over 1994 due to both internal growth
and acquisitions. The increase is primarily attributable to the acquisitions of
HCC and AMSC. These new business units contributed revenues of $6 million and
$5.5 million, respectively, constituting 27% of total revenue for 1995.
Professional Services and EDI revenues also contributed to overall growth.
Professional Services revenue was up $2.2 million, or 96%, over the prior year.
EDI revenue grew $483,000, or 3%, from prior year. These increases were
partially offset by a decrease in Audit Services revenue of $1 million, or 9%,
due to lower charge recovery sales.
Overall operating expenses increased 34%, or $10 million, in 1995. However,
total operating expenses as a percent of revenue declined to 91% in 1995 from
93% in 1994, the result of management's commitment to decreasing operating
expenses. The increase in operating expenses is the result of an additional $4.9
million in expense from HCC, $6.5 million from a full year of AMSC offset by a
9% reduction in general and administrative expenses, and decreases in technical
operations and sales and client service expenditures due to the harvesting of
cost saving strategies initiated in 1994. Included in the $11.4 million in
operating expenses from the two new acquisitions are $921,000 (HCC) and $584,000
(AMSC) in expenses related to the depreciation of the assets acquired and
related amortization of intangible assets.
The Company's operating income increased 67% to $3.9 million in 1995. Net income
also increased 22% to $2.7 million.
The effective income tax rate rose to 18% in 1995. The Company's effective
income tax rate in recent years has been significantly impacted by the financial
statement recognition of its net operating loss carryforwards. As of December
31, 1995 the Company's operating loss carryforwards have been fully recognized
for financial reporting purposes. Due to the full utilization of such
carryforwards, the Company's effective tax rate in future years will be in
excess of the statutory tax rate (federal and state) due to the effect of
non-deductible amortization of intangible assets. Realization of the Company's
net deferred tax asset of $2.3 million at December 31, 1995 is dependent on
generating sufficient taxable income prior to expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
17
CIS TECHNOLOGIES, INC.
RESULTS OF OPERATIONS - 1994 COMPARED TO 1993
Revenue decreased $1.6 million, or 5%, primarily due to the October 1993
discontinuation of the Company's business office outsourcing operation which
generated revenues of $3.8 million in 1993. Excluding business office
operations, 1994 revenues increased $2.2 million, or 7%, due to $1.5 million in
revenues related to AMSC, acquired in October 1994, and an additional $1.5
million attributable to new service offerings and an increasing customer base
for recurring services. These increases were offset by an $800,000 reduction in
licensing and installation revenues.
Operating expenses decreased 12%, or $4.2 million, in 1994 due to $5.9 million
in non-recurring 1993 expenses and a net reduction in ongoing personnel costs of
$300,000 mostly due to bringing previously contracted programming services
in-house. These decreases were offset by depreciation, amortization, computer
lease, and communication expense increases of $900,000; and by the 1994 addition
of AMSC operating expenses of $1.2 million. Non-recurring 1993 expenses included
$4.4 million related to the discontinued business office operation, and a $1.5
million charge related to the termination of a software development contract
with a third-party vendor.
In February 1993, the Company discontinued its relationship with a third-party
software vendor because of delivery postponements and the discovery of numerous
software defects and performance and support deficiencies. The Company recorded
$1.5 million in costs relating to the discontinuance of the software enhancement
and development arrangements in the first quarter of 1993 as a contract
termination expense.
During October 1993, the Company sold its business office outsourcing operation
at Straub Clinic & Hospital. The Company had been operating the Straub business
office since August 1992 and this client accounted for $3.8 million of total
revenue and $4.4 million of total sales and client service expense during 1993.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" effective January 1, 1993. Statement No. 109
requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards and of deferred tax liabilities for
taxable temporary differences. The cumulative effect of this change in
accounting for income taxes as of January 1, 1993 increased net income by
$900,000 ($0.03 per share) and is reported separately in the consolidated
statements of operations.
FINANCIAL CONDITION
The Company's financial position changed significantly during 1995 as a result
of the acquisition of HCC for $10 million cash and the assumption of a $5
million note. At December 31, 1995, working capital was $8.7 million and the
current ratio was 1.8, compared to $19 million and 4.4 at December 31, 1994.
These decreases reflect the decrease in cash and cash equivalents as a result of
the purchase of HCC.
Property and equipment at December 31, 1995 was $15 million, an increase of 53%,
or $5.2 million, from December 31, 1994. The majority of the increase is due to
the acquisition of HCC. In addition, intangible assets, net of amortization,
totaled $24.7 million, an increase of $11.1 million, or 81%, which primarily
reflects goodwill, acquired customer list, and non-compete agreement recognized
in the acquisition of HCC. At December 31, 1995, the Company had $24.7 million
of intangible assets, including $21.8 million of goodwill, net of accumulated
amortization. Goodwill of acquired entities is evaluated annually for impairment
based on estimated undiscounted cash flows of the acquired entities and written
down to net realizable value if necessary. No impairment had been recorded at
December 31, 1995. Such estimated future cash flows are regularly revised as
actual results are obtained, which revision could necessitate a future reduction
in the near term of the goodwill associated with the acquired entities.
18
CIS TECHNOLOGIES, INC.
LIQUIDITY
The Company's 1995 cash requirements were met primarily through cash reserves,
the result of private stock issuances to two institutional investors in 1994,
external financing, and internally generated funds. At December 31, 1995, the
Company had $598,000 in cash and cash equivalents and a $5 million revolving
credit facility which expires October 31, 1997. As of December 31, 1995, there
were borrowings of $3.7 million under the credit facility. In February 1996, the
line of credit was increased to $6 million. The Company has $9.6 million of
debt; $7.4 million from a term loan ($5 million related to the HCC acquisition)
with GE Capital and $2.2 million which was issued as a part of the AMSC
acquisition.
Cash used in operating activities was $520,000, a change of $4.6 million from
1994 to 1995. The increase in cash used in 1995 was primarily the result of the
net change in operating assets and liabilities offset by increased net income of
$477,000, depreciation and amortization of $2 million, and deferred taxes of
$578,000. The net change in operating assets and liabilities (which excludes the
effect of the HCC acquisition) was due primarily to: (1) an increase in trade
receivables of $4 million; (2) a decrease in deferred revenue of $2 million
related to completion of installations in process; and (3) a decrease in
accounts payable and accrued liabilities of $2.1 million.
Cash used in investing activities increased $8.9 million from 1994 to 1995. Of
the $4.5 million in additions to property and equipment, $3.7 million was
capitalized for software development. The Company develops internally the
majority of the products it provides to its customers. During 1995, development
activity was focused on two primary areas: (1) the completion of version 2.1 of
the Premis product which was released in August 1995 and includes additional
functionality; and (2) the development of a host edit clearinghouse which allows
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. The Company also used $10 million to purchase HCC in 1995.
Cash provided by financing activities was $4.2 million for the year ended 1995,
which resulted principally from borrowings associated with the purchase of HCC.
The Company obtained an additional term loan of $1.25 million in July 1995. The
Company utilized $2 million on the line of credit facility to acquire HCC and
increased the usage of the line of credit by an additional $1.7 million to fund
the Company's growth in operations, offset by an increase in debt repayments. In
February 1996, GE Capital refinanced the Company's short-term note to the seller
of HCC in order to extinguish the $5 million note related to the acquisition.
Capital resources available should be sufficient to meet the needs of the
Company's business on both a short- and long-term basis. The Company expects
future software development costs and working capital requirements will be
provided by internally generated cash flow and its line of credit facility.
CAPITAL EXPENDITURES
The Company has spent $4.5 million, $4.6 million and $4 million on additions to
property and equipment during 1995, 1994, and 1993, respectively. The majority
of the expenditures were for software development costs as discussed above. The
1996 capital budget anticipates capital expenditures of $4.1 million, with $3.7
million planned for continuing software development and the remainder budgeted
for computer equipment and leasehold improvements.
ACQUISITIONS
Effective November 3, 1994, the Company acquired 100% of the common stock of
AMSC, Inc. for $5 million plus acquisition costs, consisting of cash, stock and
notes. Effective June 1, 1995, the Company acquired 100% of the common stock of
Hospital Cost Consultants, Inc. for $15.4 million plus acquisition costs,
consisting of cash, stock options and a $5 million note. (See Note 13 to the
Financial Statements.) Certain additional consideration in the HCC acquisition
may be payable based on the achievement of specified earnings levels of the
acquired entity, such consideration which will be recorded as additional cost of
the acquisition when it is determinable.
19
CIS TECHNOLOGIES, INC.
LOOKING FORWARD
1995 resulted in revenue of $43.2 million, an increase of $11.5 million or 36%;
operating income of $3.9 million, an increase of $1.6 million or 67%; and net
income of $2.7 million, an increase of $477,000 or 22%. The acquisition of HCC
and AMSC contributed significantly to the growth in revenue and improved
operating results despite increased operating expenses due to these
acquisi-tions. The additional operating costs incurred related to these
acquisitions should be viewed as an investment in the future of the Company. In
an effort to realize the synergies between the Company's core products and
services and those offered by HCC and AMSC, management has devoted and will
continue to devote significant resources to integrate these acquisitions into
the Company. The Company believes these operating costs will decrease in the
future as it capitalizes on potential synergies. The Company believes the
products acquired are essential to the Company meeting the demands of the
ever-changing healthcare industry.
Through the acquisition of HCC, the Company has gained access to the managed
care marketplace, a segment of the healthcare industry it had previously
untapped. Sales opportunities for the Company now include: Electronic Data
Interchange Services; Financial Services which include billing services,
accounts receivable resolution, business office management, and retrospective,
defense, and concurrent auditing; Integrated Physician Services; and Managed
Care Services including a cost system, a managed care system, and a data
management package. All of these healthcare industry products and services will
allow the Company to take full advantage of cross-selling opportunities among
existing clients and newly acquired clients.
The Company released version 2.1 of its PREMIS product in August 1995 which has
been well accepted by our customers and has translated into many conversions and
upgrades. The Company is beta testing 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. The Company's core product line has been complemented
by the products provided by HCC and AMSC. The cross-selling opportunities
provided by this full suite of products is 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.
INFLATION
To date, inflation has not had a material effect on the Company's operations. In
management's opinion, inflation should not have a significant impact upon its
future operating results.
IMPACT OF FINANCIAL ACCOUNTING PRONOUNCEMENTS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. The statement allows
companies the option of recording or disclosing compensation expense for grants
of stock, stock options, and other equity instruments issued to employees based
on fair value. The Company will elect the disclosure method of complying with
the new statement. Under existing accounting rules, the Company's stock option
grants have not resulted in compensation expense. Accordingly, under the
provisions of the new statement, pro forma net income to be disclosed will be
lower than net income reported in the financial statements.
In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of"
was issued. The statement establishes accounting standards for the impairment of
long-lived assets, such as property and equipment and goodwill, and will be
effective for the Company beginning with the year ending December 31, 1996. The
Company does not believe the new standard will significantly impact its
financial statement evaluation of impairment of long-lived assets.
20
CIS TECHNOLOGIES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
CIS TECHNOLOGIES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of CIS
Technologies, Inc. and Subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CIS
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during 1993.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
February 6, 1996
21
CIS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
At December 31, 1995 and 1994
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 598,072 $ 11,416,151
Accounts receivable:
Trade, net of allowance for doubtful accounts of $473,588 in 1995
and $320,668 in 1994 12,607,913 6,837,580
Charge recovery 4,476,270 4,917,913
Related party receivables 97,733 191,335
Prepaid expenses 650,288 385,082
Deferred tax asset (Note 8) 599,309 --
Other current assets 723,132 834,569
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 19,752,717 24,582,630
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Current Assets:
Related party receivables 54,228 106,205
Property and equipment, net 14,990,925 9,814,762
Intangible assets, net 24,737,423 13,640,804
Deferred tax asset (Note 8) 1,940,181 900,000
Other non-current assets 877,460 457,481
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-current assets 42,600,217 24,919,252
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 62,352,934 $ 49,501,882
====================================================================================================================================
Liabilities And Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 3,265,416 $ 3,435,862
Borrowings under line of credit 3,738,169 43,877
Current maturities of long-term debt 2,230,568 980,816
Current portion of capital leases 192,462 180,208
Related party payables -- 16,709
Deferred revenue 1,651,443 898,111
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 11,078,058 5,555,583
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Current Liabilities:
Long-term debt 7,413,806 3,518,863
Capital lease obligations 166,498 --
Deferred income taxes (Note 8) 270,453 157,963
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 7,850,757 3,676,826
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments And Contingencies (note 6)
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock: $0.01 par value, 20,000,000 shares authorized,
2,384,182 shares issued and outstanding at December 31, 1995 and 1994 23,842 23,842
Common stock: $0.01 par value, 50,000,000 shares authorized,
31,722,334 shares issued and 30,188,589 shares outstanding at December 31, 1995
31,611,451 shares issued and 30,093,706 shares outstanding at December 31, 1994 317,173 316,065
Paid in capital in excess of par 53,236,381 52,698,023
Treasury stock, at cost: 1,533,745 shares at December 31, 1995 and
1,517,745 shares at December 31, 1994 (1,827,513) (1,768,544)
Accumulated deficit (8,325,764) (10,999,913)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 43,424,119 40,269,473
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 62,352,934 $ 49,501,882
====================================================================================================================================
See notes to consolidated financial statements.
22
CIS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue $ 43,227,339 $ 31,689,204 $ 33,284,893
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Technical operations 4,262,078 2,357,321 3,017,637
Sales and client service 23,979,427 17,275,767 19,590,114
General and administrative 6,388,757 7,017,674 7,110,794
Contract termination -- -- 1,500,000
Depreciation and amortization 4,703,773 2,701,671 2,292,071
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 39,334,035 29,352,433 33,510,616
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 3,893,304 2,336,771 (225,723)
Interest expense, net (643,985) (49,278) (70,726)
Other income (expense) 21,350 (76,527) 61,065
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of change in accounting principle 3,270,669 2,210,966 (235,384)
(Provision) benefit for income taxes (Note 8) (596,520) (13,964) 556,391
- ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 2,674,149 2,197,002 321,007
Cumulative effect of change in accounting principle (Note 8) -- -- 900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,674,149 $ 2,197,002 $ 1,221,007
====================================================================================================================================
Weighted average common and common equivalent shares outstanding 32,806,712 27,617,091 27,053,698
====================================================================================================================================
Earnings Per Common Share, Primary And Fully-Diluted:
Income before cumulative effect of change in accounting principle $ 0.08 $ 0.08 $ 0.02
Cumulative effect of change in accounting principle -- -- 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.08 $ 0.08 $ 0.05
====================================================================================================================================
See notes to consolidated financial statements.
23
CIS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock:
Beginning balance $ 23,842 $ -- $ --
Issuance of preferred stock -- 23,842 --
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance 23,842 23,842 --
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock:
Beginning balance 316,065 283,698 282,340
Exercise of stock options 1,108 418 1,358
Issuance of common stock -- 24,561 --
Common stock issued in connection with acquisition of subsidiary -- 7,388 --
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance 317,173 316,065 283,698
- ------------------------------------------------------------------------------------------------------------------------------------
Paid-In Capital:
Beginning balance 52,698,023 38,921,957 38,544,873
Exercise of stock options 146,078 72,126 377,084
Issuance of common stock -- 5,890,399 --
Stock options issued in connection with acquisition of subsidiary 392,280 -- --
Common stock issued in connection with acquisition of subsidiary -- 1,992,612 --
Issuance of preferred stock -- 5,753,329 --
Issuance of common stock warrants -- 67,600 --
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance 53,236,381 52,698,023 38,921,957
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Stock:
Beginning balance (1,768,544) (1,768,544) (1,736,698)
Purchase of treasury stock (58,969) -- (31,846)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance (1,827,513) (1,768,544) (1,768,544)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Deficit:
Beginning balance (10,999,913) (13,196,915) (14,417,922)
Net income 2,674,149 2,197,002 1,221,007
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance (8,325,764) (10,999,913) (13,196,915)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 43,424,119 $ 40,269,473 $ 24,240,196
====================================================================================================================================
See notes to consolidated financial statements.
24
CIS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 2,674,149 $ 2,197,002 $ 1,221,007
Noncash items:
Depreciation and amortization 4,703,773 2,701,671 2,292,071
Provision for bad debts 89,928 -- 51,325
Cumulative effect of accounting change -- -- (900,000)
Writeoff of capitalized software-contract termination -- -- 620,533
Deferred income taxes 528,000 (50,000) 123,449
Other -- 13,783 (30,102)
Changes in operating assets and liabilities:
Accounts receivable (4,079,234) (1,570,242) 109,485
Related party receivables 86,610 (24,091) 83,291
Prepaid expenses and other current assets (35,640) 315,289 (298,351)
Other assets (412,802) 685,689 (475,963)
Accounts payable and accrued liabilities (2,098,350) (551,423) 344,670
Deferred revenue (1,959,464) 307,567 88,114
Related party payable (16,709) 16,709 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities (519,739) 4,041,954 3,229,529
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property and equipment (4,476,932) (4,557,854) (4,000,131)
Acquisition of subsidiaries (10,059,539) (1,075,000) --
Reductions in (additions to) other assets -- -- (57,683)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (14,536,471) (5,632,854) (4,057,814)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings on line of credit 17,709,978 32,162,478 23,185,036
Repayments of line of credit (14,015,686) (32,118,602) (23,185,036)
Proceeds from issuance of stock, net of costs -- 11,692,131 --
Proceeds from term note 1,250,000 2,000,000 --
Book overdrafts 551,576 (618,023) 618,023
Repayment of long-term debt (1,105,305) (329,320) (44,106)
Payment of capital lease obligation (250,071) (197,467) (232,111)
Proceeds from exercise of stock options 97,639 30,541 336,442
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 4,238,131 12,621,738 678,248
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during the period (10,818,079) 11,030,838 (150,037)
Cash and cash equivalents at the beginning of the period 11,416,151 385,313 535,350
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 598,072 $ 11,416,151 $ 385,313
====================================================================================================================================
Supplemental Disclosures:
Interest paid $ 786,339 $ 127,198 $ 104,660
Income taxes paid $ 254,372 $ 51,772 $ 158,060
Capital lease obligations for computer equipment
and furniture and fixtures $ 176,692 $ -- $ 141,146
====================================================================================================================================
See notes to consolidated financial statements.
25
CIS TECHNOLOGIES, INC.
A REVIEW BY QUARTERS
(Unaudited)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
First Quarter ended March 31 $ 8,396,113 $ 7,800,995 $ 7,944,256
Second Quarter ended June 30 11,067,629 7,300,260 8,915,777
Third Quarter ended September 30 12,694,952 7,656,890 8,592,844
Fourth Quarter ended December 31 11,068,645 8,931,059 7,832,016
Operating Income (Loss)
First Quarter ended March 31 $ 888,738 $ 712,474 $ (2,562,901)
Second Quarter ended June 30 1,405,962 349,998 862,901
Third Quarter ended September 30 1,639,801 643,885 767,773
Fourth Quarter ended December 31 (41,197) 630,414 706,504
Net Income (Loss)
First Quarter ended March 31 $ 852,621 $ 618,739 $ (1,685,002)(1)
Second Quarter ended June 30 1,015,676 414,534 1,422,657)(2)
Third Quarter ended September 30 959,433 503,771 758,246
Fourth Quarter ended December 31 (153,581) 659,958 725,106
Earnings (Loss) Per Share(4)
First Quarter ended March 31 $ 0.03 $ 0.02 $ (0.06)(3)
Second Quarter ended June 30 0.03 0.02 0.05
Third Quarter ended September 30 0.03 0.02 0.03
Fourth Quarter ended December 31 0.00 0.02 0.03
Closing Market Price Per Share
March 31 $ 2.00 $ 2.88 $ 4.81
June 30 2.94 2.13 4.75
September 30 3.88 2.44 5.00
December 31 3.25 2.31 3.19
(1) Includes the effect of $1,500,000 of contract termination costs and
cumulative effect of adopting Statement No. 109 of $900,000.
(2) Includes the effect of $600,000 of income tax benefit.
(3) Loss per share before cumulative effect of adopting Statement No. 109 was
$(0.09).
(4) Due to the effect of rounding, earnings per share for a year's four
quarters, which are based on income (loss) and average shares outstanding
during each quarter, does not equal the annual earnings per share, which
are based on the net income and average shares outstanding for the year.
26
CIS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
CIS Technologies, Inc. is a full-service healthcare reimbursement and business
office management company. CIS offers technology-based products and services
that enable healthcare organizations to realize their full financial potential.
CIS products and services are delivering value to healthcare organizations in
the United States and around the world, with more than 220 third-party payers in
the United States and 1,075 clients in 38 states, Canada, Great Britain,
Australia and New Zealand.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of CIS Technologies,
Inc. and all majority-owned subsidiaries (collectively, "the Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid investments
with a maturity when acquired of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. All material property and equipment additions are capitalized and
depreciated on a straight-line basis over the estimated useful life of the
assets.
SOFTWARE DEVELOPMENT COSTS
Software development costs are capitalized in accordance with Financial
Accounting Standards Board Statement No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed." Costs incurred
during the initial design phase of software development are expensed. Once the
software has been clearly defined and technological feasibility has been
established, software development costs are capitalized and amortized on a
straight-line basis over an estimated useful life of five years. Software
development costs are carried at their net realizable value and, as such, an
annual review of software development costs is conducted and the costs of
obsolete software are written off.
INTANGIBLE ASSETS
Purchased contracts and customer lists are stated at cost (net of accumulated
amortization) and are amortized on a straight-line basis over 15 years.
Non-compete agreements are stated at cost (net of accumulated amortization) and
are amortized on a straight-line basis over three to five years. Goodwill
represents the excess of the cost of acquired businesses over the fair value of
the net assets and is amortized on a straight-line basis over 20 years. Goodwill
of acquired entities is evaluated annually for impairment based on estimated
undiscounted cash flows of the acquired entities and written down to net
realizable value if necessary. No impairment had been recorded at December 31,
1995. Such estimated future cash flows are regularly revised as actual results
are obtained, which revision could necessitate a future reduction in the near
term of the goodwill associated with the acquired entities.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Statement No. 109 requires the
measurement of deferred tax assets for deductible temporary differences and
operating loss carryforwards, and of deferred tax liabilities for taxable
temporary differences. Measurement of current and deferred tax assets and
liabilities is based on provisions of tax law; the effects of future changes in
tax laws or rates are not included in the measurement. Valuation allowances are
established when necessary to reduce deferred tax assets to the
27
CIS TECHNOLOGIES, INC.
amount expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
REVENUE RECOGNITION
EDI Services. Initial license fees are recognized upon execution of the
contract. Installation fees are recognized upon completion of the installation.
Revenue from claims processing and software maintenance is recognized monthly
based upon the terms of the contract.
Audit Services. Charge recovery revenue is recognized monthly based upon a
contracted percentage of the total lost charges identified and billed to
insurance companies. Other types of audit services revenue are recognized in the
period the services are performed.
Integrated Physician Services. All software sales fees are recognized upon the
completion of the installation. Revenue from software maintenance is recognized
monthly based upon the terms of the contract.
Managed Care Services. Initial software license fees are recognized upon
execution of the contract. Installation fees are recognized as the work is
performed on a percentage-of-completion basis.
Hardware and Software Sales. Revenue is recognized upon delivery.
Other Services. Revenue is recognized monthly based upon the terms of the
contract.
EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of common
shares outstanding during the periods presented, including, if dilutive, shares
issuable under the stock option plans, warrants and convertible preferred stock.
RECLASSIFICATIONS
Certain reclassifications were made to prior year financial statements to
conform to the 1995 financial statement format.
CONCENTRATIONS OF CREDIT RISK
Trade and charge recovery receivables with hospitals potentially subject the
Company to concentrations of credit risk. Such credit risk, however, is
considered by management to be limited because of the Company's sizable and
geographically diverse client base. The Company performs ongoing credit
evaluations of its clients and generally does not require collateral. At
December 31, 1995 and 1994, the Company had cash in one bank of approximately
$500,000 and $1.1 million, respectively.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
28
CIS TECHNOLOGIES, INC.
IMPACT OF FINANCIAL ACCOUNTING PRONOUNCEMENTS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. The statement allows
companies the option of recording or disclosing compensation expense for grants
of stock, stock options, and other equity instruments issued to employees based
on fair value. The Company will elect the disclosure method of complying with
the new statement. Under existing accounting rules, the Company's stock option
grants have not resulted in compensation expense. Accordingly, under the
provisions of the new statement, pro forma net income to be disclosed will be
lower than net income reported in the financial statements.
In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of," was issued. The statement establishes accounting standards for the
impairment of long-lived assets, such as property and equipment and goodwill,
and will be effective for the Company beginning with the year ending December
31, 1996. The Company does not believe the new standard will significantly
impact its financial statement evaluation of impairment of long-lived assets.
2. PROPERTY AND EQUIPMENT
1995 1994
- --------------------------------------------------------------------------------
Computer hardware and purchased software $ 4,375,186 $ 3,000,955
Computer hardware under capital lease 880,593 454,708
Software development costs 16,695,285 10,525,606
Furniture and fixtures 868,992 741,160
Furniture and fixtures under capital lease 497,023 423,807
Leasehold improvements 986,214 715,013
Equipment 171,768 146,731
Vehicles 42,244 93,367
- --------------------------------------------------------------------------------
$ 24,517,305 $ 16,101,347
Accumulated depreciation and amortization (9,526,380) (6,286,585)
- --------------------------------------------------------------------------------
Property and equipment, net $ 14,990,925 $ 9,814,762
================================================================================
The following table details software development cost information for the years
ended December 31, 1995, 1994 and 1993:
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Unamortized software development costs, beginning balance $ 7,374,827 $ 4,896,443 $ 2,581,203
Capitalized software development costs 3,651,261 3,759,784 3,676,971
Software acquired in acquisition 2,660,000 113,700 --
Amortization of software development costs (2,160,385) (1,282,096) (741,198)
Write-off of software development costs (52,527) (113,004) (620,533)
- ------------------------------------------------------------------------------------------------------------------------------------
Unamortized software development costs, ending balance $ 11,473,176 $ 7,374,827 $ 4,896,443
====================================================================================================================================
29
CIS TECHNOLOGIES, INC.
3. INTANGIBLE ASSETS
1995 1994
- --------------------------------------------------------------------------------
Purchased contracts $ 1,300,000 $ 1,300,000
Goodwill:
Teleclaim 1,270,089 1,270,089
HBA 7,426,297 7,426,297
AMSC 5,313,271 5,201,931
HCC 10,555,463 --
Acquired customer list 1,521,000 --
Non-compete agreements 1,000,000 500,000
Other intangible assets 37,667 37,667
- --------------------------------------------------------------------------------
$ 28,423,787 $ 15,735,984
Accumulated amortization (3,686,364) (2,095,180)
- --------------------------------------------------------------------------------
Intangible assets, net $ 24,737,423 $ 13,640,804
================================================================================
Purchased contracts and Teleclaim goodwill resulted from the purchase of the
Teleclaim Processing Division of Medaphis Corporation in 1988. The HBA goodwill
resulted from the purchase of Hospital Billing Analysis, Inc. in 1991. The AMSC
goodwill resulted from the purchase of AMSC, Inc. in 1994. The HCC goodwill and
intangibles resulted from the purchase of Hospital Cost Consultants, Inc. in
1995 (See Note 13).
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
1995 1994
- --------------------------------------------------------------------------------
Accounts payable, trade $ 885,892 $1,736,782
Book overdrafts 551,576 --
Wages, bonus and commissions payable 278,996 745,420
Employee benefits payable 323,129 166,910
Accrued income taxes payable 28,337 121,350
Accrued interest payable 238,379 29,137
Other accrued liabilities 959,107 636,263
- --------------------------------------------------------------------------------
Accounts payable and accrued liabilities $3,265,416 $3,435,862
================================================================================
5. LONG-TERM DEBT
1995 1994
- --------------------------------------------------------------------------------
Term loan, due 1997(a) $7,444,444 $2,000,000
Convertible notes, due 2007(b) 500,000 500,000
Non-convertible notes, due 2007(b) 1,500,000 1,500,000
Other 199,930 499,679
- --------------------------------------------------------------------------------
$9,644,374 $4,499,679
Current maturities 2,230,568 980,816
- --------------------------------------------------------------------------------
Long-term debt $7,413,806 $3,518,863
================================================================================
30
CIS TECHNOLOGIES, INC.
(a) In October 1994, the Company entered into a new Credit Agreement which
provided for a $2,000,000 term loan and a $5,000,000 line of credit. This
Agreement was used to replace the existing credit agreement and indebtedness,
and provided funding for the acquisition of AMSC, Inc. In July 1995, the Company
obtained an additional term loan of $1,250,000 to fund operations related to the
HCC acquisition. In February 1996, the Company increased this term loan by $5
million to $7.4 million, replacing the debt assumed as part of the HCC
acquisition. In addition, the line of credit was increased to $6 million. The
term loan portion of the revised Agreement is payable in quarterly principal
installments of $618,056, with interest payments on the outstanding balance due
monthly, and bears interest at a floating rate equal to an index rate plus 4%
(9.8% at December 31, 1995). A balloon payment of $3,125,000 will be due upon
maturity in October 1997. The revolving credit facility accrues interest,
payable monthly, at a floating rate equal to an index rate plus 3.75% (9.55% at
December 31, 1995). As of December 31, 1995, borrowings under this facility were
$3,738,169. This Credit Agreement is collateralized by virtually all assets of
the Company, and the Agreement expires in October 1997. Under this Agreement,
the Company is required to maintain certain financial ratios. In addition, this
Agreement limits reductions of the collateralized asset base, places
restrictions on investments permitted and additional indebtedness, and includes
a subjective acceleration clause.
(b) Convertible promissory notes, provided as partial consideration in the AMSC
acquisition, are convertible to shares of the Company's common stock at market
value on the date of the conversion in minimum amounts of $50,000. These notes
bear interest at 7.5%, and are payable in monthly installments of $7,373
commencing December 1997 and maturing November 2007. Non-convertible promissory
notes were also provided as partial consideration in the AMSC acquisition. These
notes bear interest at 7.5%, and are payable in monthly installments of $22,120
commencing December 1997 and maturing November 2007. The notes are
collateralized by stock in AMSC held by the Company.
The aggregate maturities of all long-term debt are $2,230,568, $5,336,902,
$203,761, $220,291 and $232,114, respectively, for each of the years ending
December 31, 1996, through 2000.
Based on borrowing rates currently available to the Company for debt with
similar terms and maturities, long-term debt at December 31, 1995 approximates
its fair value.
6. COMMITMENTS AND CONTINGENCIES
The Company leases computer hardware, office space and furniture under various
capital and operating lease agreements.
The following table summarizes the future minimum lease payments for the next
five years:
OPERATING CAPITAL
LEASES LEASES
- --------------------------------------------------------------------------------
1996 $2,410,088 $ 223,340
1997 1,944,453 139,600
1998 1,644,890 39,002
1999 865,055 --
2000 401,189 --
- --------------------------------------------------------------------------------
Minimum payments for the next five years $7,265,675 $ 401,942
================================================================================
Interest on capital leases 42,982
- --------------------------------------------------------------------------------
Net present value of capital leases 358,960
Current portion of capital leases 192,462
- --------------------------------------------------------------------------------
Capital lease obligation $ 166,498
================================================================================
31
CIS TECHNOLOGIES, INC.
For the years ended December 31, 1995, 1994, and 1993, rental expense on
operating leases was $2,751,368, $2,319,523, and $1,142,028, respectively.
The Company is a party to various legal proceedings arising in the ordinary
course of business, none of which, in the Company's opinion, should result in a
judgment which would have a material adverse effect on the Company.
7. PREFERRED STOCK AND WARRANTS
The Company has issued 2,384,182 shares of convertible preferred stock. The
stock is non-voting, has no dividend, includes a liquidation preference of $.01
per share and is convertible into common stock on a share for share basis
(subject to certain adjustments) on or after the occurrence of one of several
triggering events. At December 31, 1995, the Company had warrants outstanding to
acquire 500,000 shares of non-voting convertible preferred stock exercisable at
$3.25 per share over three years. The Company also has outstanding warrants to
acquire 200,000 shares of common stock at $3.0625 per share through February
1999, 40,000 of which are currently exercisable.
8. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" as of January 1, 1993. The cumulative effect of
this change in accounting for income taxes as of January 1, 1993 increased net
income by $900,000 ($0.03 per share) and is reported separately in the
consolidated statements of operations. Prior years' financial statements were
not restated.
The components of income tax benefit (expense) are as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Federal:
Current $ -- $ 108,656 $ 723,449
Deferred (410,967) -- --
State:
Current (68,520) (172,620) (43,609)
Deferred (117,033) 50,000 (123,449)
- --------------------------------------------------------------------------------
Total $(596,520) $ (13,964) $ 556,391
================================================================================
Income tax expense differed from the amounts computed by applying the U.S.
federal statutory tax rates to pre-tax income as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Federal statutory regular taxes $(1,112,027) $ (751,725) $ 80,030
Amortization of goodwill (410,436) (171,136) (156,876)
Recognition of tax assets 1,234,929 1,031,405 795,949
State income taxes (185,553) (80,929) (167,058)
Other (123,433) (41,579) 4,346
- --------------------------------------------------------------------------------
Income tax benefit (expense) $ (596,520) $ (13,964) $ 556,391
================================================================================
32
CIS TECHNOLOGIES, INC.
The components of the net deferred tax asset at December 31, 1995 and 1994
include:
1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 5,600,104 $ 4,636,032
Allowance for doubtful accounts 195,020 121,117
Accrued expenses 75,004 --
Alternative minimum tax credit carryforward 23,057 21,365
Deferred revenue 329,195 --
- --------------------------------------------------------------------------------
$ 6,222,380 $ 4,778,514
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment (3,306,147) (2,801,548)
Intangibles (647,196) --
- --------------------------------------------------------------------------------
$(3,953,343) $(2,801,548)
Valuation allowance -- (1,234,929)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 2,269,037 $ 742,037
================================================================================
The net deferred tax asset at December 31, 1995 and 1994 is reflected in the
consolidated balance sheets as a current tax asset of $599,309 and $0,
respectively, and a long-term deferred tax asset of $1,940,181 and $900,000,
respectively, for those tax jurisdictions where the Company has operating loss
carryforwards, and a deferred tax liability of $270,453 and $157,963 as of
December 31, 1995 and 1994, respectively, for those states in which the Company
does not have operating loss carryforwards. Realization is dependent on
generating sufficient taxable income prior to expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
At December 31, 1995, the Company has unused net operating loss carryforwards of
$16.4 million for tax purposes and $16.0 million for alternative minimum tax
purposes, expiring from 2002 to 2009.
9. RELATED PARTY TRANSACTIONS
Receivables from officers and management at December 31, 1995 and 1994 were
$151,961 and $297,540, respectively, and consisted of principal and accrued
interest at 6.66% and 7% on unsecured notes. The notes are to be repaid in
annual installments through July 1997.
10. EMPLOYEE BENEFIT AND STOCK OPTIONS PLANS
EMPLOYEE STOCK PURCHASE PLAN
All full-time employees may purchase common stock of the Company at market price
through the Employee Stock Purchase Plan. The Company matches purchases in an
amount equal to 25% of the purchase price.
CIS THRIFT AND PROFIT SHARING 401(K) PLAN
All full-time employees with at least 90 days of service are eligible to
participate in the CIS 401(k) Plan, to which employees may contribute up to 23%
of their gross salary with a cap of $9,500. The Company matches 50% of the
contribution up to 6% of the employee's base salary. The cost of this benefit
plan to the Company for the years ended December 31, 1995, 1994 and 1993 was
$132,421, $115,912 and $108,548, respectively.
33
CIS TECHNOLOGIES, INC.
STOCK OPTION PLAN
At the Annual Shareholders Meeting held in April 1995, the shareholders approved
the changes to create the Stock Incentive Plan and the creation of a Directors'
Stock Option Plan. The Stock Incentive Plan replaced the Stock Option Plan and
Employee Stock Option Plan. In May 1995, the HCC Management Stock Option Plan
was created to provide options to certain former shareholders of HCC as part of
the HCC acquisition.
Key employees, as determined by the Board of Directors, may participate in the
Stock Incentive Plan (formerly the Stock Option and Employee Stock Option
Plans), for which the Company has reserved 5,000,000 shares for the grant of
options. The exercise price for tax qualified "incentive stock options" may be
no less than the market value of CIS common stock on the date of grant. Exercise
prices and exercise and expiration dates are subject to determination by the
Board for non-qualified options. All options expire no later than 10 years from
the date of grant.
During 1995, the Company did not grant any options to non-employee members of
the Board of Directors. The Company did, however, grant 20,000 options to
Bankers Trust in lieu of Director's fees for a Board member, over which Bankers
Trust has sole power to exercise once such options are vested. During 1994, the
Company granted 45,000 options at an exercise price of $3.25 per share to
non-employee members of the Board of Directors. All of the options granted in
1994 and prior years are exercisable one year from the date of grant.
The following table details stock option activity for the years ended December
31, 1995, 1994 and 1993:
STOCK INCENTIVE PLAN 1995 PRICE RANGE 1994 PRICE RANGE 1993 PRICE RANGE
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning balance 2,327,627 $1.06-$7.00 1,999,449 $1.06-$7.00 1,262,447 $1.06-$6.81
Options granted 1,370,299 2.00-4.13 625,119 2.25-3.25 1,024,375 3.75-7.00
Exercised (110,833) 1.19-2.63 (25,943) 1.09-1.38 (127,142) 1.38-6.81
Expired or forfeited (435,499) 2.13-6.00 (270,998) 1.38-6.81 (160,231) 1.38-6.81
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance 3,151,594 1.06-7.00 2,327,627 1.06-7.00 1,999,449 1.06-7.00
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable 1,415,170 1.06-7.00 1,397,916 1.06-7.00 870,487 1.06-6.81
- ------------------------------------------------------------------------------------------------------------------------------------
HCC STOCK OPTION PLAN 1995 PRICE RANGE
- --------------------------------------------------------------------------------
Beginning balance -- --
Options granted 281,418 2.25
Exercised -- --
Expired or forfeited (68,340) 2.25
- --------------------------------------------------------------------------------
Ending balance 213,078 2.25
- --------------------------------------------------------------------------------
Exercisable 91,790 2.25
- --------------------------------------------------------------------------------
DIRECTORS'
STOCK OPTION PLAN 1995 PRICE RANGE
- --------------------------------------------------------------------------------
Beginning balance -- --
Options granted 20,000 2.32
Exercised -- --
Expired or forfeited -- --
- --------------------------------------------------------------------------------
Ending balance 20,000 2.32
- --------------------------------------------------------------------------------
Exercisable -- --
- --------------------------------------------------------------------------------
The outstanding options expire between November 1998 to August 2005.
34
CIS TECHNOLOGIES, INC.
11. REVENUE FROM SIGNIFICANT CUSTOMERS
For the year ended December 31, 1993, 11% or $3.8 million of total revenue was
derived from one customer, relating to an outsourcing contract that was
terminated in October, 1993.
12. EARNINGS PER SHARE
The following table reconciles the number of common shares outstanding as shown
in the Consolidated Balance Sheets with the weighted average common shares
outstanding as shown in the Consolidated Statements of Operations for the years
ended December 31, 1995, 1994, and 1993:
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding 30,188,589 30,093,706 26,857,049
Effect of using weighted average common and common
equivalent shares outstanding 2,313,606 (2,514,586) (44,536)
Effect of shares issuable under stock option plans
based on the treasury stock method 304,517 37,971 241,185
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares outstanding 32,806,712 27,617,091 27,053,698
====================================================================================================================================
Earnings per share was computed by dividing net income by weighted average
common and common equivalent shares outstanding for each year.
13. ACQUISITION OF HOSPITAL COST CONSULTANTS, INC.
Effective June 1, 1995, the Company acquired 100% of the common stock of
Hospital Cost Consultants, Inc., of Pleasanton, California, for $15,392,000
(plus acquisition costs) consisting of:
Cash $10,000,000
Note payable $ 5,000,000
Stock options issued $ 392,000
- --------------------------------------------------------------------------------
$15,392,000
================================================================================
Certain additional consideration may be payable based on the achievement of
specified earnings levels of the acquired entity, such consideration which will
be recorded as additional cost of the acquisition when it is determinable.
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 $5 million note has been refinanced as of February 1, 1996.
35
CIS TECHNOLOGIES, INC.
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:
1995 1994
- --------------------------------------------------------------------------------
Revenue $ 45,511,000 $ 39,686,000
Net income (loss) $ 580,000 $ (1,386,000)
Earnings (loss) per share $ .02 $ (.05)
================================================================================
HCC results of operations for 1994 included expenses related to the
re-engineering of their software products, which re-engineering increased the
sales cycle time and negatively impacted revenues. These pro forma results of
operations 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 the combined operations.
36
CIS TECHNOLOGIES, INC.
SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
Philip D. Kurtz
Chairman of the Board and
Chief Executive Officer
CIS Technologies, Inc.
Elected in 1985
James L. Hersma
President and
Chief Operating Officer
CIS Technologies, Inc.
Elected in 1993
Samuel L. Jacob
Managing Director
Bankers Trust
Elected in 1995
John D. Platt
President
Platt Interests
Elected in 1986
Dennis D. Pointer
John J. Hanlon Professor of Health
Services Research and Policy
San Diego State University
Elected in 1986
Robert J. Simmons
President
RJS Healthcare, Inc.
Elected in 1986
N. Thomas Suitt
Former President
Hospital Billing Analysis, Inc.
Elected in 1992
OFFICERS
Philip D. Kurtz
Chief Executive Officer
James L. Hersma
President & Chief
Operating Officer
Richard A. Evans
Chief Financial Officer & Treasurer
Kathleen Harris Pena
Senior Vice President, Financial
Services Division
Ralph J. Riccardi, Jr.
Senior Vice President, Technology &
Applications Division
John P. Indrigo
Senior Vice President, General
Manager, AMSC
John Booth
Vice President, General Manager,
HCC
Angela K. Lux
Vice President, Chief Technology
Officer
Thomas G. Noulles
Vice President,
Chief Legal Counsel &
Secretary
INDEPENDENT PUBLIC
ACCOUNTANTS
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
TRANSFER AGENT
REGISTRAR
Chemical Mellon Shareholder
Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660-2104
LEGAL COUNSEL
Pray, Walker, Jackman,
Williamson & Marlar
Tulsa, Oklahoma
TRADEMARKS
CIS(R) is a registered trademark of CIS, Inc. PREMIS(R) is a registered
trademark of CIS, Inc. POSTPRO(TM) is a trademark of CIS, Inc. The Medical
Manager(R) is a registered trademark of Personalized Programming, Inc.
Microsoft(R) is a registered trademark of Microsoft Corporation. Windows(TM) is
a trademark of Microsoft Corporation.
COMMON STOCK
CIS Technologies, Inc. common stock is traded on The Nasdaq Stock Market
(National Market) under the symbol CISI. No cash dividends have ever been
declared or paid on the Company's common stock. The terms of the Company's debt
contain substantial restrictions on the Company's ability to pay dividends. As
of March 15, 1996, CIS Technologies has 1,818 shareholders of record.
Fiscal Year 1994
Stock Price
High Low
First Quarter 4.00 2.50
Second Quarter 3.44 2.13
Third Quarter 2.56 1.94
Fourth Quarter 3.00 2.25
Fiscal Year 1995
Stock Price
High Low
First Quarter 2.50 2.00
Second Quarter 3.63 2.00
Third Quarter 4.50 2.75
Fourth Quarter 4.38 2.88
FORM 10-K
The Company's Annual Report on Form 10-K will be sent free of charge upon
written request to Investor Relations, CIS Technologies, Inc.
CORPORATE
HEADQUARTERS
CIS Technologies, Inc.
6100 South Yale, Suite 1900
Tulsa, OK 74136-1903
NOTICE OF ANNUAL
MEETING
The annual meeting of stockholders will be held on May 9, 1996, at 2:00 p.m. at
the Doubletree Hotel, 6100 S. Yale, Tulsa, Oklahoma.