UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1995
Commission File Number 33-15370-D
CUSA Technologies, Inc.
State of Incorporation: Nevada
IRS Identification Number: 87-0439511
Adress of principle executive officers:
986 West Atherton Drive
Salt Lake City, Utah 84123
Telephone: (801) 263-1840
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the Issuer was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes ___X___ No ________
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court.
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 17, 1995, the Issuer had 8,509,918 shares of its common
stock, par value $0.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ________ No ___X____
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUSA Technologies, Inc. (the "Company"), has included the condensed
consolidated balance sheets of the Company and its subsidiaries as of September
30, 1995 (unaudited) and June 30, 1995 (the Company's most recent fiscal year),
unaudited condensed consolidated statements of operations and cash flows for
three months ended September 30, 1994 and 1995, together with unaudited
condensed notes thereto. In the opinion of management of the Company, the
financial statements reflect all adjustments, all of which are normal
recurring adjustments, necessary to fairly present the financial
condition of the Company for the interim periods presented. The financial
statements included in this report on form 10-QSB should be read in conjunction
with the audited financial statements of the Company and the notes thereto
included in the annual report of the Company on form 10-KSB for the year ended
June 30, 1995.
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
September 30, June 30,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash $ 371,810 818,883
Trade accounts receivable, net of allowance for
doubtful accounts 5,205,454 5,141,582
Inventories 1,143,403 1,274,088
Prepaid expenses and other assets 311,976 288,310
Total current assets 7,032,643 7,522,863
Property and equipment
Land 297,688 297,688
Buildings and improvements 2,447,409 2,431,778
Furniture, fixtures and equipment 2,399,763 2,133,952
Other 274,342 230,427
Total property and equipment 5,419,202 5,093,845
Less accumulated depreciation and amortization 1,202,879 988,663
Net property and equipment 4,216,323 4,105,182
Equipment under capital lease obligations, net 414,977 461,834
Receivables from related parties 330,054 330,054
Software development and acquisition costs, net 3,425,581 3,084,047
Excess of purchase price over fair value of net tangible
and identifiable intangible assets acquired, net 13,170,036 13,431,054
Other assets 205,751 183,842
$ 28,795,365 29,118,876
The accompanying notes are an integral part of these statements.
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
September 30, June 30,
1995 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit with banks $ 494,454 373,247
Current installments of long-term debt 848,553 870,668
Current installments of obligations under capital leases 146,945 170,334
Accounts payable 3,157,818 3,235,658
Accrued liabilities and deposits 2,728,547 2,841,168
Income taxes payable 30,195 50,256
Payables to related parties 1,554,102 1,962,155
Deferred revenue 4,635,044 5,515,623
Total current liabilities 13,595,658 15,019,109
Long-term debt with related parties 2,245,000 1,145,000
Long-term debt, excluding current installments 1,807,494 1,852,471
Obligations under capital leases, excluding current installments 203,467 226,356
Deferred income taxes 1,090,466 956,266
Total liabilities 18,942,085 19,199,202
Minority interest (1,079) (1,323)
Commitments and contingent liabilities - -
Stockholders' equity:
Series A convertible preferred stock, $.001 par value;
authorized 1,500,000 shares; issued 1,000,000 shares 1,000 1,000
Common stock, $.001 par value; authorized 25,000,000 shares;
issued 8,509,846 shares at September 30, 1995 and
8,509,516 shares at June 30, 1995 8,510 8,510
Additional paid-in capital 9,117,350 9,116,807
Retained earnings 727,499 794,680
Total stockholders' equity 9,854,359 9,920,997
$ 28,795,365 29,118,876
The accompanying notes are an integral part of these statements.
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
Three months ended September 30,
1995 1994
Net sales, service revenue, and rental income $ 10,730,199 4,957,468
Cost of goods sold and other direct costs 5,605,131 2,405,595
Gross profit 5,125,068 2,551,873
Product development costs 634,611 239,219
Selling, general and administrative expenses 4,274,701 1,996,051
Operating income 215,756 316,603
Other income (expense):
Interest expense (120,663) (82,288)
Interest income 2,170 14,188
Other, net (244) (915)
Income before income taxes 97,019 247,588
Income taxes 134,200 67,858
Net earnings (loss) $ (37,181) 179,730
Earnings (loss) per common and common
equivalent share
Primary $ (0.01) 0.03
Fully diluted $ (0.01) 0.03
Weighted average common and common
equivalent shares
Primary 8,509,697 5,722,173
Fully diluted 8,509,697 5,722,173
The accompanying notes are an integral part of these statements.
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended September 30,
1995 1994
Cash flows from operating activities:
Net earnings (loss) $ (37,181) 179,730
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization 684,400 345,623
Minority interest in loss of subsidiary 244 915
Net change in assets and liabilities:
Accounts receivable (63,872) (666,435)
Inventories 130,685 (142,307)
Prepaid expenses and other assets (38,666) (80,608)
Accounts payable (45,926) 64,251
Accrued liabilities and deposits (112,621) 178,941
Deferred revenue (920,905) 51,465
Income taxes payable (5,061) 10,015
Deferred income taxes 134,200 (219,704)
Net cash used in operating activities (274,703) (278,114)
Cash flows from investing activities:
Purchase of property and equipment (325,357) (96,504)
Cash paid for business acquisitions, including
acquisition costs, less cash acquired (52,765) 260,428
Software development costs (437,666) (200,322)
Decrease (increase) in other assets (26,909) 11,809
Net cash used in investing activites (842,697) (24,589)
Cash flows from financing activities:
Proceeds from debt with related party 1,100,000 950,000
Net Increase in lines of credit 121,207 -
Repayment of obligations under capital leases (46,278) (38,510)
Repayment of long-term debt (67,092) (7,006)
Reduction of payables to related parties (408,053) (184,817)
Proceeds from exercise of stock options 543 -
Preferred stock dividends (30,000) (32,666)
Net cash provided by financing activities 670,327 687,001
Net increase (decrease) in cash and cash equivalents (447,073) 384,298
Cash and cash equivalents at beginning of period 818,883 379,091
Cash and cash equivalents at end of period $ 371,810 763,389
The accompanying notes are an integral part of these statements.
CUSA TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of CUSA
Technologies, Inc. (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, these financial statements do not include all of the information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements. These financial statements and footnote
disclosures should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's latest
report on Form 10-KSB for the year ended June 30, 1995. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to fairly present the Company's consolidated financial
position as of September 30, 1995, and its consolidated results of operations
and cash flows for the three months ended September 30, 1995 and 1994. The
results of operations for the three months ended September 30, 1995 may not be
indicative of the results that may be expected for the year ending
June 30, 1996.
(2) Reclassifications and Restatement
Certain reclassifications have been made to the consolidated statement of
operations for the three months ended September 30, 1994 to conform to the
1995 presentation. Furthermore, the consolidated statements of operations and
cash flows for the three months ended September 30, 1994 have been restated to
reflect the acquisition of Medical Computer Management, Inc., which has been
accounted for as a pooling of interests.
(3) Earnings (loss) per Share
Earnings or loss per common and common equivalent share is computed by dividing
net earnings (loss) by the weighted average common shares outstanding during
the period, including common equivalent shares (if dilutive). Common
equivalent shares include stock options, convertible preferred Earnings or
loss used in this calculation are reduced by the dividends to preferred
stockholders.
(4) Convertible Debentures
The Company has issued debentures to an entity controlled by an officer and
director of the Company. Total receipts under the debenture agreement are
$150,000 at June 30, 1995, an additional $1,100,000 during the quarter ended
September 30, 1995, and an additional $200,000 subsequent to September 30, 1995.
The debentures bear interest at 8%, payable quarterly, and are convertible into
common stock of the Company at $3.00 per share. The debentures, which mature
June 30,1998, are included in the balance sheet under the caption "Long-term
debt with related parties."
(5) Contingent Liabilities
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, the ultimate
resolution of these matters will not have a material adverse effect on the
financial position or results of operations of the Company.
(6) Subsequent Event
Effective October 1, 1995, the Company acquired 100% of the equity interest in
Preferred Health Systems, Inc. (PHS), a software development company. In
connection with the acquisition, the Company issued 75,000 shares of restricted
common stock. PHS is the owner and developer of a fourth generation language
software application for managed healthcare organizations. The assets,
liabilities, and operations of PHS are not significant to the consolidated
financial statements of the Company.
ITEM 2. MANAGMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company develops and markets information systems, including
software, hardware, installation, training, and software and
hardware maintenance, to the financial industry (primarily
credit unions), the healthcare industry, and the equipment
rental business. Since June of 1994, the Company has
significantly expanded its customer base and software offerings
through the acquisition of a number of business entities. These
acquisitions were completed at various dates through September
30, 1995, and, with the exception of Medical Computer
Management, Inc. ("MCMI"), all were accounted for according to
the rules of purchase accounting. (For a discussion of these
acquisitions please refer to the Company's report on Form 10-KSB for
the year ended June 30, 1995.) Thus, except for MCMI, the results of
operations for the three months ended September 30, 1994, do not
include the results of the operations of the entities acquired
during the 12 months ending September 30, 1995.
Net sales, service revenue, and rental income
Net sales, service income and rental income primarily consist of
new and upgrade computer system sales (including hardware,
software, installation and training), amounts earned pursuant to
hardware maintenance and software support agreements, and the
sale of related products such as statement printing, disaster
recovery and microfiche preparation and archival services. The
Company's revenues increased 116 percent from $4,957,468 for the
three months ended September 30, 1994 to $10,730,199 for the
three months ended September 30, 1995. This increase is the
result of the inclusion of the revenues for the entities
acquired during the 12 months ended September 30, 1995 in the
results from operations for the three months ended September 30,
1995 and of increased sales of computer systems, maintenance and
support agreements and related products caused by the synergy
of the acquired entities.
Cost of goods sold and other direct costs
Cost of goods sold and other direct costs reflect mainly the
cost of hardware and software purchased for resale, the
amortization of capitalized software development costs, and the
expense of supporting and installing the systems sold. Costs of
goods sold increased 133 percent from $2,405,595 for the quarter
ended September 30, 1994 to $5,605,131 for the three months
ended September 30, 1995. Cost of goods sold as a percentage of
revenues was 49 percent for the three months ended September
30, 1994 and 52 percent for the three months ended September 30,
1995. The increase in cost of goods sold as a percentage of
revenue reflects a change in product mix toward lower margin
hardware upgrade sales in the three months ended September 30,
1995 as compared with the previous year.
Product development costs
Product development costs represent the uncapitalized cost of
software development. Uncapitalized costs include the time and
materials required for fixing system operational errors and
maintenance software upgrades. Product development and
maintenance costs were $239,219 and $634,611 for the three
months ended September 30, 1994 and 1995 respectively. The
increase reflects the expanded product development efforts of
the combined acquired entities.
Selling, general and administrative expense
Selling, general and administrative expenses increased 114
percent from $1,996,051 for the three months ended September 30,
1994 to $4,274,701 for the three months ended September 30,
1995. Selling, general and administrative expenses were 40
percent of revenues in the three months ended September 30, 1994
and 1995. This increase is consistent with the expansion of the
Company's business through acquisitions.
Amortization of intangible assets
Significant portions of the purchase price of the acquisitions
have been allocated to intangible software acquisition costs and the
excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired. The software
acquisition costs are amortized over the estimated life of the software
acquired (principally three to five years). The excess of the purchase
price, which relates primarily to the customer base of the acquired companies,
is amortized using the straight line method over an estimated life
of 15 years. During the three months ended September 30, 1994
and 1995, total amortization of the excess purchase price was
$86,913 and $214,287 respectively, and amortization of software
development and acquisition costs was $40,488 and $209,040
respectively.
Net Earnings and Income Taxes
Net income before income taxes was $97,019 for the three months
ended September 30, 1995 compared to $247,558 for the three
months ended September 30, 1994. Income taxes for 1995 were
$134,200, the payment of which is substantially all deferred
into future periods because of the utilization of acquired net
operating losses or other income tax elections that allow for
such deferral. The effective income tax rate for 1995 was 138
percent, which exceeds the federal statutory rate of 35 percent
principally due to the nondeductibility of the amortization of
the excess purchase price over the fair value of assets acquired
associated with all of the acquisitions except the VERSYSS
Credit Union division. Historically, the profitability of the
Company's acquired businesses is lower during the quarters ended
June 30 and September 30. Management anticipates that the
levels of profitability of the Company should substantially
increase in the quarters ending December 31, 1995, and March 31
1996, as compared to the quarters ended June 30 and September
30, 1995.
Capital resources and liquidity
At September 30, 1995 the Company had current assets of $7,032,643
and current liabilities of $13,595,658. Thus, current
liabilities exceeded current assets by $6,563,015. Current
liabilities include $4,635,044 of deferred revenue which
primarily represents customer prepayment of hardware and
software maintenance services.
The Company principally uses a line of credit of $500,000 to meet
its short term liquidity needs. The line bears an interest rate
of prime plus two percent and is secured by accounts receivable,
inventory and a trust deed on real estate and matures on
November 30, 1995. The Company has applied with a bank for an increase
in this line of credit commensurate with increased available collateral.
The bank is currently reviewing the Company's application.
From June 20, 1995 to November 20, 1995, the Company received
$1,450,000 pursuant to the issuance of debentures to an entity
controlled by an officer and director of the Company. The
debentures, due June 30, 1998, are convertible into the
Company's common stock at any time at the discretion of the
holders at a rate of $3.00 per share during the first year,
$3.50 per share during the second year, and $4.00 per share
during the final year, and bear an interest rate of 8 percent
per annum, payable quarterly. The board of directors has
authorized the issuance of up to $3,000,000 of similar
convertible debentures, but there can be no assurance that the
rest of the convertible debentures can be placed.
The Company anticipates that its current and anticipated future
financing sources, together with cash flow from operations will be
sufficient to meet the cash requirements of current operations through
September of 1996. The Company will continue to seek ways to
increase its working capital and to provide necessary cash for
the operation of its business, but does not currently have any
other arrangements in place.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and in-house legal counsel, the ultimate
resolution of these matters will not have a material effect on the financial
position or results of operations of the Company
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included as part of this report
Exhibit SEC Ref.
Number Number Title of Document
- ------- ------- ------------------------------------
10.01 4 Amended Relocation Agreement between CUSA
Technologies, Inc. and David J. Rank dated
December
10.02 10 Form of Convertible Debenture
10.3 27 Financial Data Schedule
(b) Reports on Form 8K. NONE
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934 as amended, the Company has duly caused this reprot to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 20, 1994 CUSA Technologies, Inc
By /s/ David J. Rank
-----------------------------------
David J. Rank, President