UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission File Number: 33-15370-D
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CUSA Technologies
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(Exact name of the registrant as specified in charter)
Nevada 87-0439511
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(State of Incorporation) (IRS Identification Number)
986 West Atherton Drive, Salt Lake City, Utah 84123
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(Address of principle executive offices)
(801) 263-1840
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(Telephone of issuer including area code)
Securities registered under section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under section 12(g) of the Exchange Act:
Common Stock, Par Value $0.001
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 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days.
Yes ___X___ No ________
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___X___
As of November 12, 1996, there were 8,928,218 shares of the Issuer's common
stock, par value $0.001, issued and outstanding. The aggregate market value of
the Issuer's voting stock held by nonaffiliates of the Issuer was approximately
$5,982,989 computed at the closing bid for the Issuer's common stock of $1.00 as
of November 12, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-K (e.g., part I, part II, etc.) into which
the document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to rule
424(b) or (c) under the Securities Act of 1933. The list documents should be
clearly described for identification purposes. None.
Page 1 of ____ consecutively numbered pages,
including exhibits pages __ through __ (bound in a separate volume)
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TABLE OF CONTENTS
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Item Number and Caption Page
PART I
1. Business 3
2. Properties 13
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of
Financial Condition and Reuslts of Operations 16
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 21
PART III
10. Directors and Executive Officers of the Registrant 22
11. Executive Compensation 24
12. Security Ownership of Certain Beneficial Owners
and Management 30
13. Certain Relationships and Related Transactions 32
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
Signatures 43
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ITEM 1. BUSINESS
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General
CUSA Technologies, Inc. (referred to herein, along with its subsidiaries, as the
"Company" or "CTI"), incorporated in 1986, is a leading developer of
computerized information systems for credit unions. The Company's software
packages are sold as part of a complete data processing solution including
hardware, software, operating systems, installation, training, software support
and hardware maintenance. The Company's workstation products, which are sold as
add ons to the core information processing systems, increase the accessibility
and usability of strategic information by credit union employees and members
through the application of modern computing technology. The Company's statement
processing, disaster recovery, credit bureau reporting, microfiche and optical
storage and other services complement the Company's core credit union data
processing system products.
The Company, formerly known as Mountain Surgical Centers, Inc., entered the
credit union software market through the acquisition of CUSA, Inc. in June of
1994 and contemporaneously changed its name to CUSA Technologies, Inc. From
September of 1994 to July of 1995 the Company consolidated its distribution
network through the acquisition of six independent resellers of the CUSA credit
union software package (the "Acquired Resellers"). As a result of these
acquisitions, the Company controls the support and maintenance of nearly all of
the 1,200 users of its credit union systems and is well positioned to provide
these users with future enhancements, software and hardware upgrades, and
related products.
In addition to distributing credit union software, each of the Acquired
Resellers were distributors of certain other software packages and related
support services to the healthcare industry and/or Users of customizable
commercial open accounting systems. Through the acquisition of the Acquired
Resellers and other medical related acquisitions accomplished in 1995 and 1996
(SEE Item 1, Description of Business, Acquisitions, Fiscal 1995 and 1996), the
Company obtained control of a customer base of over 1,100 medical practice
management users and 250 commercial accounting package users (the "Medical and
Commercial Users") and the related hardware and software maintenance contracts,
and the ownership of certain software packages for the medical industry
("Medical Software").
In addition to the credit union business, and the medical business described
above, the Company provides integrated computer systems to the equipment and
party rental and the medical records industries. The Company also owns and
operates two outpatient surgery centers, and four office buildings located in
Sparks, Nevada.
Plan of Disposition
In June of 1996, the Company's Board of Directors decided to dispose of the
Company's medical and commercial operations. In the first step of the Board's
plan of divestiture, on July 2, 1996, the businesses and assets of the Company's
Medical and Commercial division, including the Medical and Commercial Users and
Medical Software (except for the Company's medical records package known as
eCLINIC) (SEE Item 1, Description of Business, Principal Products and Services,
Medical Records Software), were sold by the Company to Physician's Computer
Network, Inc. ("PCN") pursuant to an Asset Purchase Agreement (the "Divestiture
Agreement") for $10,100,000, the forgiveness of a payable owed by the Company to
PCN of approximately $1,730,000, and the assumption of certain related
liabilities estimated at $2,315,000 (SEE Item 1, Description of Business,
Dispositions). In October of 1996 the Divestiture Agreement was amended to
provide for the reduction of the cash payment from $10,100,000 to $9,350,000 in
consideration for PCN's assumptions of certain of the liabilities that were to
be retained by the Company pursuant to the original Divestiture Agreement. As
part of the plan of divestiture, the Company is looking at a number of
opportunities related to its medical records product. This plan of divestiture
will allow the Company to focus its efforts on its core business of providing
computer systems to Credit Unions.
Principal products and services
Credit Union
The Company's credit union management solutions consist of the
fourth-generation-language Reliance(TM) Software and the CUSA System(TM). the
Company's credit union management systems are installed in approximately 10% of
America's credit unions, representing a customer base of over 1,100. The CUSA
System, developed in 1977, was one of the first software products to be designed
specifically for the computerization of credit union's data processing
functions. Through over 17 years of refining, the Company's management believes
that CUSA has become the most popular software system for small to medium sized
credit unions (credit unions with total assets between 5 and 100 million
dollars).
The CUSA System is a very mature and functional product. It was developed in a
language which was designed for use with proprietary hardware. Proprietary
systems such as the CUSA System are often referred to in the software industry
as "legacy systems." As the industry moved away from proprietary hardware and
software and new standards were developed, CUSA developed operating system
bridges which allowed the CUSA System to operate under a UNIX environment on
standard hardware platforms. While these measures have allowed the Company to
provide the Users with important strategic advantages, the Company became
concerned that the proprietary nature of the product would limit the future
application of current and emerging technologies such as graphical user
interface (GUI), relational database, client/server architecture and fourth
generation programming languages. In order to allow CTI to extend its product
offerings to larger credit unions and to provide its current customers with the
advantages of current and emerging software and hardware technologies, CTI
purchased the Reliance Software package in November of 1994 through the
acquisition of Outside Force, Inc. (SEE Item 1, Description of Business,
Acquisitions Fiscal 1995) Since that time, as part of a steady product migration
strategy, CTI has focused its new sales efforts on sales of the Reliance System
while encouraging its current base of CUSA System users to take advantage of the
superior technology of Reliance. The CUSA System Software and the Reliance
Software are sold as part of fully integrated systems, including hardware,
applications software, operating systems, installation, training,
post-installation hardware maintenance, and software training and support. Post
installation hardware maintenance and software support contracts provide annual
recurring revenues of approximately 15% of the sales price of the system,
depending on the size and complexity of the system.
In addition to its core credit union management systems, CTI is developing a
number of workstation products which integrate with both the CUSA System and
Reliance and are sold as add-on products to enhance functionality. Since these
workstation products are designed to integrate with either the CUSA System or
the Reliance system, these workstation products allow CUSA System users to
increase the functionality of their current system. The workstation products are
an important part of CTI's strategy to offer a cost effective migration path to
modern computing technology. Also, through an internal division, the CTI
Resource Group (the "Resource Group"), CTI provides services to credit unions to
assist them in their governmental reporting, credit bureau inquiries, microfiche
storage, statement processing, disaster recovery, and custom form printing.
The CUSA System
The CUSA System has been refined through 17 years of tailoring its functions to
meet the needs and suggestions of its users which now number over 1,100. The
CUSA System consists of a series of fully integrated modules, constructed so
that the proper combination of products can be supplied to meet the specific
requirements of each credit union in cost-efficient configuration. The product
is designed so that the user can move quickly throughout the system using a
combination of menus, windows and user-defined access keys. On-screen prompts,
"help" functions, and pop up windows make the system user friendly. The features
of the system include: online teller transactions, loan processing, online loan
application, charged-off loan mortgage lending, 360/365 day interest calculation
options, share draft processing, certificate management, IRA processing, club
accounts, safe deposit box control, travelers check management, electronic
payroll processing, ATM processing, credit card processing, audio response,
optical disk records management, customized report writer, job queing system,
bank reconciliation, full branch accounting, shared branching/service center,
asset/liability management, bill payer system, credit bureau inquiry, credit
bureau reporting, laser statement processing, government reporting, call
reporting and automated clearinghouse transmission processing.
As complementary products to its CUSA System, CTI offers peripheral products,
such as credit/debit cards; CUSAPLAN Plus, a PC based financial analysis and
reporting package for credit unions; CUSA Talk II, a PC based audio response
account inquiry system; an Automated Clearinghouse Debit/Credit Processing
Module for automated funds transfer; CUSANet Batch & CUSANet Online, modules
which allow credit union members to participate in established ATM networks;
CUSACard, an in-house credit card system which interfaces with the credit
unions' Visa processor; CUSAPay, an online payroll module; and Credit Bureau
Inquiry, a software package which allows credit unions to pull credit reports on
their members from any of the major credit reporting institutions.
Reliance System
Reliance is currently installed in approximately 45 credit unions. It was
developed from inception in Progress (registered trademark of Progress
Software), a fourth generation language system, and utilizes the latest open
systems technologies of the software industry. This fourth-generation
development environment allows for rapid product fixes and shortened development
cycles for new features and functionality. In addition, it allows for
flexibility in modification, implementation and hardware platform choices.
Reliance is designed for use in any size of credit union, though many of its
functions have been developed specifically to meet the requirements of
large-to-medium-sized credit unions with assets over 100 million dollars. Its
functions include: online teller transactions, online teller services, travelers
checks, safe deposit boxes, vault teller, loan processing, online loan
application, complete online or hard copy "what if" calculations for payment,
interest and amortization, 360/365 day interest calculation, options online
credit bureau interface, detailed loan tracking, share draft processing,
application integration into general ledger, member CDs, member IRAs, credit
union customized member statements, easy sort functions for bulk mailings of
statements, unlimited electronic payroll distribution and processing, inventory
tracking of all fixed assets, comprehensive report system, credit union-defined
security features, back office automation, electronic mail system for staff,
complete "to do" list for any user, infinite calendar with Easy-Date feature,
voice information processing, distributed branch processing, ATM interface
software, mortgage loans, collections, staff tracking, accounts payable
disbursements, complete tracking of credit union investments, touchscreen
teller, fax interface, word processing capabilities, optical disk, signature
verification, report warehousing, document storage and retrieval, automated
clearinghouse transmission processing, and report creation for custom reports.
Both credit union systems are marketed as a complete package including hardware,
software, installation, and post-installation training and support. The
Company's credit union software offerings run on a variety of computers, ranging
from personal computers to the IBM RS 6000. System prices typically range from
$30,000 to $200,000 for the CUSA System and $100,000 to over $1,000,000 for the
Reliance system, in each case depending on the size and sophistication of the
system. During the past two years, the collective businesses acquired by the
Company have installed approximately 240 new and upgraded CUSA Systems and 41
new Reliance Systems.
Workstation products
In addition to its core credit union management systems, CTI has developed a
number of workstation products which integrate with both the CUSA System and
Reliance and are sold as add-on products to enhance functionality. Since these
workstation products are designed to integrate with either the CUSA System or
the Reliance system, these workstation products allow CUSA System users to
increase the functionality of their current system. The workstation products are
an important part of CTI's strategy to offer a cost effective migration path to
modern computing technology.
Recently CTI released its Archive Management System ("AMS 5.0"), a product
designed to archive customer account information from the credit union system
onto an optical disk system. AMS 5.0 works with both the CUSA and Reliance
Systems. To date CTI has completed approximately 20 installations of AMS 5.0
with an approximate average sales price of approximately $25,000 per
installation.
In the last quarter of fiscal 1996, the Company rolled out its Lotus Notes
R-based credit union workstation. This product includes groupwear functionality
tailored to meet credit union internal information processing needs. To date the
Company has installed versions of its Lotus Notes-based product in 6 Credit
Unions at an average sales price of approximately $45,000 per installation.
In August of 1996, CTI released the Reports Workstation product for the CUSA
System. This workstation product is based upon a product called Crystal
Reports(TM), which is owned by Seagate Software. The Reports Workstation allows
users of the CUSA System to produce ad hoc reports from the information
contained in the database files of the CUSA System. The Reports Workstation for
Reliance is currently in development and should be available for shipment in the
first quarter of 1997.
In 1997 CTI plans to release its Loan Origination workstation product. Currently
in development, this workstation product will allow credit union loan officers
to automate the loan origination process. The product's graphical user interface
and point and click capabilities simplify the process of entering and processing
information.
In addition to those workstation products specifically discussed above,
workstation products currently scheduled for development and deployment in
calendar 1997 include Asset Liability Management (ALM), and Graphical Teller
Platform, Imaging, and Home Financial Services (PC Home Banking). In addition to
these new products, the Company plans to redeploy its existing audio and Kiosk
products, which are currently designed to operate with the CUSA System, as
workstations which operate with both CUSA System and Reliance System.
Support
Once a system is installed, the Company provides ongoing software support
pursuant to annual support contracts for a fee equal to approximately 16-25% of
the total cost of the software. CTI's support department maintains offices in 3
cities in the United States. Through a sophisticated frame relay call tracking
system, support calls are logged at a central location and dispatched to the
appropriate service representatives in CTI's offices across the country. Support
call tracking reports, which detail the number of calls per customer, per system
function and per support representative, provide useful data to management,
sales and programming. The Company currently has software support contracts with
99% of its clients, representing approximately 20 percent of the Company's
revenues in fiscal 1996.
CTI Resource Group
The Company, through the Resource Group, provides services to credit unions to
assist them in their monthly, quarterly, and annual customer laser statement
processing, governmental reporting, credit bureau reporting, microfiche printing
and storage, and disaster recovery. CTI processed over 11.3 million monthly,
quarterly, and annual customer statements in fiscal 1996, including
government-required 1099 printing and processing in the third fiscal quarter.
CTI's laser statement processing services consist of the electronic receipt and
reformatting, printing, and mail handling of account data from the CUSA or
Reliance System. The Resource Group's disaster recovery system is tested and
certified annually and includes a complete hot site backup facility, disaster
planning assistance, data retention services and microfiche document storage and
retrieval. In fiscal 1996, revenues from laser statement printing, microfiche
services, credit bureau reporting and disaster recovery accounted for
approximately 22 percent of CTI's total revenues.
Equipment Rental Software
With the February, 1995, acquisition of Computer Ease, the Company obtained
ownership of its equipment rental software product known as the Computer Ease
Rental Center System which was formerly marketed by RK & DR Concepts, Inc. dba
Versyss Data Systems (a wholly owned subsidiary of CTI) (SEE Item 1, Description
of Business, Acquisitions Fiscal 1995). Under an exclusive distributorship
license with Computer Ease, the system controls the scheduling and billing for
rental companies. The average price for the system is approximately $25,000. The
Company currently has an installed base of 315 systems. The Company has 18
employees who provide sales and technical support to the users of the Rental
Center System.
Medical Records Software
In July of 1995, CTI entered into a software ownership and development agreement
with Pacific Intesys Corporation ("PI") regarding the development and marketing
of an electronic patient records system known as Carepoint(TM) for Clinics(TM).
Carepoint(TM) is a trademark of PI. The product runs on a Windows NT operating
system and utilizes pen-based PCs. Pursuant to the agreement, CTI has the
exclusive right to market the product to the ambulatory care market, including
clinics and emergency rooms. The agreement provides for the payment by CTI to PI
of certain royalties. On April 24, 1996, CTI acknowledged general acceptance of
the product, subject to completion of certain specified items by PI. Following
general acceptance, CTI is required to pay minimum royalties of $10,000 per
month for twelve months. The agreement also required CTI to issue 50,000 shares
of common stock to PI following general acceptance. CTI is engaged in further
development and enhancement of the product and has recently changed the name of
the product to eCLINIC. CTI has installed eCLINIC in five sites. These
installations should be considered beta sites because of the unique
modifications that are being made to the product at each site. Pursuant to a
plan of disposition (See PLAN OF DISPOSITION above) the Company plans to dispose
of the eCLINIC software by March 31, 1997.
Sales of hardware and software, consisting mainly of the CUSA System, the
Reliance system, the workstation products and the Rental Center System were
approximately 41 percent, 50 percent and 12 percent of total revenues in the
fiscal years ended 1996, 1995 & 1994, respectively. Support, maintenance and
other services, which consist of software support, hardware maintenance,
training, and revenues from the Resource Group, were 56 percent, 47 percent and
zero percent of total revenue in the fiscal years ended 1996, 1995 & 1994,
respectively.
Distribution
The Company's products are marketed primarily through a direct sales
organization. Once a sale is made, the hardware is shipped to the customer site
with certain of the software and operating components pre-loaded. The product is
then installed on-site by a member of the Company's installation staff and the
customer's employees are trained to operate the system. Custom modifications,
bug fixes, and minor enhancements are completed at the Company's corporate
offices and distributed via modem or some other form of electronic media.
Manufacturing and suppliers
The Company's computer systems are assembled using various standard purchased
components such as PC Monitors, minicomputers, communications equipment, and
other electronic and computer components. As part of the Divestiture Agreement
(SEE Item 1, Description of Business, Dispositions) CTI agreed to purchase
$10,000,000 of computer hardware from Physicians Computer Network, Inc. for a
discounted rate over a five year period. The agreement calls for yearly minimum
purchases of $2,000,000. The Company's currently projected hardware purchases
for the next five years exceed the required yearly minimum purchase obligation.
The Company believes that the hardware prices set by the Divestiture Agreement
are at least as favorable as would be available to the Company from other
computer hardware suppliers.
If the supply of certain components of hardware were interrupted without
sufficient notice, an interruption or delay in product deliveries could result.
The Company does not foresee any difficulty in obtaining the necessary
components or subassemblies.
Seasonality
Credit unions generally plan expenditures based on a calendar year budgeting
cycle. Consequently, in the past a greater portion of computer software and
hardware purchasing decisions have been made toward the end of the calendar
year. In addition, the volume of laser statements and government reports
(including year end governmental processing for Form 1099's) processed by the
Company is greater in the first quarter of the calendar year. The Company's
historical operating results reflect these trends and it is anticipated that the
results from operations for the 1997 fiscal year will continue to reflect these
seasonal factors.
Significant Customers
No single customer or contract accounts for more than ten percent of the
Company's annual revenues for the 1996, 1995 or 1994 fiscal years.
Backlog
The Company's backlog of orders for its products was approximately $932,303 as
of September 30, 1996 compared to approximately $613,940 as of September 30,
1995.
The Company's backlog excludes contracts for recurring hardware and software
maintenance and support contracts. The Company's backlog is subject to
fluctuation due to various factors, including the size and timing of orders for
the Company's products and is not necessarily indicative of future revenue.
Acquisitions
As summarized below, through various acquisitions, CTI successfully consolidated
the management and sales capabilities and support operations of all major
distributors of its credit union systems, and moved its developmental
environment to the open systems fourth generation language world. CTI plans to
grow at a controlled pace through the acquisition of entities having products
and client bases that fit into the Company's current product strategy and strong
financial synergy.
FISCAL 1995
Credit Union
In June of 1994, the Company acquired the credit union sales, marketing,
installation and support business of the Boston, Massachusetts-based VERSYSS,
Inc., which distributed the Company's CUSA Credit Union System in most of the
North-Eastern United States. In July of 1994, the Company completed the
acquisition of 100% of the stock of CUSA, Inc., the developer of the CUSA Credit
Union System and related peripherals and services. In September of 1994, the
Company acquired RK&DR Concepts, Inc. dba VERSYSS Data Systems ("VDS"), a
California distributor of credit union, medical and rental equipment systems,
including software, hardware, installation, software support and training.
In 1995, the Company also acquired Benchmark Computer Systems, Inc., of Omaha,
Nebraska ("Benchmark Nebraska") (January 27, 1995), and Benchmark Computer
Systems, Inc., of Wisconsin ("Benchmark Wisconsin")(July 18, 1995). Both were
distributors of credit union, medical and commercial open systems accounting,
including software, hardware, installation, support and training, in certain
geographical territories of the United States.
In November of 1994, the Company acquired Outside Force, Inc., the Texas-based
developer of the Reliance Credit Union System. At the time of acquisition,
Outside Force, Inc. had installed and was supporting approximately 30 customers
using the Reliance System.
Medical, Commercial and Other
In June of 1995, the Company acquired Benchmark Systems of VA, Inc. ("Benchmark
VA," together with Benchmark Wisconsin and Benchmark Nebraska, the "Benchmark
Entities"), a distributor of medical and commercial open systems accounting
software, including software, hardware, installation, support and training in
the State of Virginia. The Benchmark Entities were all distributors of medical
and commercial open systems software which was licensed from VERSYSS
Incorporated (acquired by PCN in September of 1995). In May of 1995, the Company
acquired Medical Computer Management, Inc. ("MCMI"), a developer and distributor
of the AMOS Physician Practice Management System, headquartered in Omaha,
Nebraska, and its 90% owned subsidiary, Healthcare Business Solutions of
Arizona, Inc. The medical and commercial open systems accounting software
businesses of the Benchmark Entities and MCMI and its subsidiary were sold to
PCN on July 2, 1996 (SEE Item 1, Description of Business, Dispositions).
In February of 1995, the Company acquired Computer Ease, the developer of the
Rental Center System for which the Company previously had exclusive distribution
rights.
In November of 1994, pursuant to the terms of an agreement in principle entered
into prior to CTI's entrance into the software industry in June of 1994, CTI
acquired the Sierra Center for Foot Surgery (the "Sierra Center"). This surgery
center acquisition was entered into in accordance with a prior agreement, and
CTI has decided not to pursue further acquisitions of surgery centers. (SEE
"Item 1. Description of Business, Surgery Center Business.")
FISCAL 1996
Credit Union
Effective December 22, 1995, the Company acquired 100% of the equity interest in
Workgroup Design, Inc., a Lotus Notes application development company. In
connection with the acquisition, the Company issued 25,000 shares of restricted
common stock and a note payable in the amount of $42,000. The former employees
of Workgroup Design have developed lotus notes-based applications for the credit
union industry which are marketed by the Company to its credit union customers
(SEE Item 1, Description of Business, Principal Products and Services).
Medical and Commercial
On September 29, 1995, CTI exchanged 75,000 shares of its restricted common
stock for the equity of Preferred Health Systems, Inc., a Nevada corporation
based in Phoenix, Arizona ("PHS"). PHS is the owner and developer of MCARE, a
fourth generation language-based software solution for managed care
organizations.
Effective January 1, 1996, the Company acquired 100% of the equity interest in
Medfo Systems of America, Inc. ("Medfo"). Medfo is a business engaged in the
distribution and support of software, principally in the medical industry. In
connection with the acquisition of Medfo, the Company issued 40,267 shares of
its restricted common stock and agreed to issue options to the former owner and
the employees of Medfo to acquire 150,000 shares of its common stock at fair
market value. The former owner of Medfo is also an employee and shareholder of
the Company.
Effective February 1, 1996, the Company acquired 100% of the equity interest in
Automated Solutions, Inc. and Automated Systems of Arizona, Inc. and 40% of the
equity interest in Automated Solutions of California, Inc. (collectively "ASI").
ASI is a business engaged in hardware and software distribution and related
support services, principally to the medical industry. In connection with the
acquisition of ASI, the Company issued 50,000 shares of its restricted common
stock to the two former owners of ASI and options to the former owner and the
employees of ASI to acquire 70,000 shares of its common stock at fair market
value and agreed to settle certain liabilities of ASI in the approximate amount
of $114,000.
Effective February 1, 1996, the Company acquired 100% of the equity interest in
Source Computing, Inc., Medical Clearing Corporation, and certain assets of a
proprietorship, all of which were under common ownership (collectively
"Source"). Source is a business engaged in the development, distribution, and
support of software, principally in the areas of practice management and
electronic claims processing for the medical industry. In connection with the
acquisition of Source, the Company issued an aggregate of 160,000 shares of its
restricted common stock and agreed to pay an aggregate of $300,000, of which
$125,000 was paid at closing. The Company agreed to issue options to the former
owner and the employees of Source to acquire 25,000 shares of its common stock
at fair market value.
The assets of PHS, Medfo, ASI and Source were sold to PCN on July 2, 1996 (SEE
Item 1, Description of Business, Dispositions).
Dispositions
Pursuant to an Asset Purchase Agreement dated July 2, 1996, CUSA Technologies,
Inc. and certain of its subsidiaries sold the business and assets of the
Company's medical and commercial divisions to Physicians Computer Network, Inc.
for $10,100,000 plus the assumption of certain liabilities. The assets sold
included the accounts receivable, goodwill, customer lists, hardware and
software maintenance agreements, workforce-in-place, and intellectual property
related to the medical and commercial divisions. The Company retained all of the
assets of its credit union software, credit union statement processing, medical
records software (eCLINIC), rental equipment software and surgery center
businesses, and its real property holdings. (SEE Item 3, Description of
Property, Sparks, Nevada Buildings). The Agreement contains certain non-compete
and non-solicitation provisions whereby the Company and its Affiliates are
restricted from selling any product to any of the end-users of the medical and
commercial divisions or participating in the medical practice management
software business for a period of five years and from selling its eCLINIC
medical records product to any end user who was a PCN practice management
software customer as of the closing, for a period of two years following the
closing. As part of the Agreement, PCN will become the Company's exclusive
provider of IBM hardware for the next five years. Under such arrangement, the
Company committed to purchase a minimum of $2,000,000 of hardware each year at a
discount from PCN's reseller prices upon favorable credit terms.
Pursuant to a October 15, 1996 amendment to the asset purchase agreement, of the
remaining purchase price of $900,000, $750,000 will be retained by PCN in
consideration of their assumption of certain additional liabilities related to
the medical and commercial customer accounts. The remaining $150,000 will be
paid to the Company upon the delivery of certain assets which are currently
subject to a court order restricting such transfer pending the settlement of
certain judgments.
Government Reporting
Although CTI's software business is not directly subject to material industry or
governmental regulation, CTI's credit union customers are subject to extensive
governmental and industrial regulation. CTI's software is designed to help our
customers conform to governmental and industrial standards of reporting and data
collection. From time to time, regulation of the Company's clients or businesses
necessitates the development and release of upgrades which are specifically
constructed to meet the specifications of a new government regulation.
Generally, CTI charges its customers a fee for the purchase and installation of
such compliance upgrades.
Competition
The market for selling data processing services to financial institutions and
the other businesses serviced by the Company is highly competitive. The
Company's competitors include internal data processing departments, affiliates
of large banks, and independent service firms, as well as direct competitors
such as Ultradata Corporation, Users Incorporated, XP Systems, Synitar
Incorporated, FiServ, Inc., and Electronic Data Systems, Inc. Some of these
companies possess greater financial and managerial resources than those of the
Company.
The competitive factors for the Company's software services include product
technology, product features and functionality, flexibility and compatibility
with other products, continuity of product enhancement, ease of installation and
use, reliability and quality of technical support, documentation and training,
the experience and financial stability of the vendor, and price. While the
Company believes that it has competed effectively to date, competition in the
industry is likely to intensify as current competitors expand their product
lines and new companies enter the market. To be successful in the future, the
Company must respond promptly and effectively to the challenges of technological
change, evolving standards, and its competitors' innovations, by continually
enhancing its own product and support offerings, as well as its marketing
programs.
Surgery Center Business
Though not central to the Company's core business of selling information systems
technology, the Company's surgery center business generates positive cash flow.
In fiscal 1996, the surgery center business represented less than 2% of the
Company's total assets or revenues. Since November of 1994 the Company has not
pursued further acquisitions in the surgery center business.
At June 30, 1993, the Company was a small publicly-held company searching for
business opportunities. On December 14, 1993, the Company combined with Mountain
Surgical Centers, Inc. ("Mountain Surgical"). Mountain Surgical owned and
operated the Ford Surgery Center and had letters of intent to acquire three
additional in-office surgery centers, including the Sierra Surgery Center. The
Company simultaneously completed a placement of its securities for aggregate
gross proceeds of $500,000. Control of the Company changed in connection with
these transactions, and the former officers and directors of Mountain Surgical
became officers and directors of the Company. Richard N. Beckstrand became the
majority owner of the Company and its chief executive officer. (SEE Item 13,
Certain Relationships and Related Transactions)
Contemporaneously with the merger, in connection with a private placement of the
Company's securities, the directors and the shareholders of the Company approved
the consolidation of the issued and outstanding common stock of the Company on
the basis of 84.2125-to-1, resulting in a reduction of the issued and
outstanding stock to approximately 385,934 shares of common stock. The Company
then issued 1,589,030 shares of common stock to the former shareholders of
Mountain Surgical on the basis of one share of stock for each share of Mountain
Surgical formerly issued and outstanding. In its equity placement, the Company
issued 500,000 shares of common stock, and options to acquire an additional
1,000,000 shares of common stock at an option exercise price ranging from $1.50
to $3.00 per share, to two individual investors for a total purchase price of
$500,000.
From December 14, 1993, to June 22, 1994, the Ford Center for Foot Surgery was
the Company's main operating entity. On June 22, 1994, the Company acquired
CUSA, Inc., and announced its entry into the software industry.
The Company acquired the Sierra Center effective November 1, 1994, fulfilling
its obligations pursuant to an agreement in principle which pre-dates CTI's
entrance into the software business (pre-June 1994), in exchange for 415,000
shares of its common stock. The agreement called for the shares to be issued
into escrow, to be distributed to the former owners of the Sierra Center upon
the attaining of certain requirements, some of which were met in December of
1995 and some of which were waived by the Company's disinterested directors.
The Company owns the Ford Center for Foot Surgery, located in Reno, Nevada (the
"Ford Center") and the Sierra Surgery Center, located in Carson City, Nevada
(the "Sierra Center") (collectively "the Surgery Centers"). The Ford Center is
located adjacent to the general office of L. Bruce Ford, D.P.M., for the
practice of podiatry, and consists of 860 square feet of leased space. The
Sierra Center consists of 1,000 square feet of leased space, contiguous with the
general offices of Dr. Kim Bean, D.P.M. The Surgery Centers are built to
stringent Medicare specifications and are equipped with up-to-date surgical
equipment, including laser surgery.
The affiliated doctors perform surgical procedures in the Surgery Centers for
foot problems that include bunions, hammer toes, neuromas (pinched nerves), and
heel spurs. Patients are billed separately for the professional services of the
physician performing the surgery and for the use of the surgical facilities. The
Surgery Centers are reimbursed only for the facility fee. The Ford Center was
licensed by Medicare in September, 1992, and has been in operation since
approximately February, 1991. The Sierra Center has been in operation since
April of 1994 and was licensed by Medicare in May of 1994.
The Ford Center has an agreement with the professional corporation of L. Bruce
Ford, D.P.M., a director and principal shareholder of the Company, whereby his
professional corporation provides professional services, manages the surgery
center, pays all the expenses, supervises all employees, some of whom are shared
with his general practice, and pays for supplies necessary for the successful
operation of the Ford Center. The parties allocate the salaries of nursing and
other staff, the cost of insurance, supplies, utilities, and similar items. The
Company's share of those costs ranges from 20-33% of the total costs incurred.
Rent for space and equipment, legal and accounting, and outside professional
fees are borne separately by the parties. The Company has a similar arrangement
for professional services, management, expenses, and staffing for the Sierra
Center with the corporations of Kim Bean, D.P.M.
The Company's surgery center business is subject to a number of risks, including
adverse regulatory changes or regulatory non-compliance and the
highly-competitive market for surgery services.
Copyrights, Trademarks, Patents and Licenses
In accordance with the industry practice, the Company relies upon a combination
of contract provisions and copyright, trademark and trade secret laws to protect
its proprietary rights in its products. The Company distributes its products
under software license agreements which grant customers a perpetual,
non-exclusive license to use the Company's products, and which contain terms and
conditions prohibiting the unauthorized reproduction or transfer of the
Company's products. In addition, the Company attempts to protect its trade
secrets and other proprietary information through agreements with employees and
consultants. Although the Company intends to protect its rights vigorously,
there can be no assurance that these measures will be successful.
The Company seeks to protect the source code of its products as a trade secret
and as an unpublished copyright work. The Company does not believe that patent
laws are a significant source of protection for the Company's software products.
Where possible, the Company seeks to obtain protection of its names and logos
through trademark registration and other similar procedures.
The Company believes that, due to the rapid pace of innovation within its
industry, factors such as the technological and creative skills of its personnel
are more important in establishing and maintaining a leadership position within
the industry, than are the various avenues of legal protection for its
technology. In addition, the Company believes that the nature of its customers,
the importance of the Company's products to them, and their need for continuing
product support reduce the risk of unauthorized reproduction.
Employees
As of June 30, 1996, the Company had 257 employees (not including the employees
in the medical and commercial divisions which were sold to PCN). To date, the
Company has been successful in recruiting and retaining sufficient numbers of
qualified personnel to conduct its business successfully. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes its relations with employees are good.
Industry Segments
See Item 8, Financial Statements and Supplementary Data for financial
information regarding the Company's industry segments.
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ITEM 2. PROPERTIES
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The Company maintains core offices in Salt Lake City, Utah; Dedham,
Massachusetts; and Omaha, Nebraska. CTI's core offices each have
over 20 employees. Additional CTI locations include: Novato, Torrance,
Hayward, and Ventura, California; Eden Prairie, Minnesota;
Fayetteville, New York; Clackamas, Oregon; and Arlington, Texas.
The Company's home office is located in Salt Lake City, Utah, where it leases
approximately 32,885 square feet from an entity controlled by a related party.
The monthly rent under the terms of this lease is currently $24,383 (subject to
escalators), and the primary term expires February 1, 2005. (SEE Item 13,
Certain Relationships and Related Transactions)
The Company rents its other facilities from third parties under the terms of
leases expiring through April, 2000. The Company believes that its existing
facilities are adequate to meet its current and anticipated requirements.
In addition to the active office locations listed above, pursuant to the
Divestiture Agreement, the Company through certain of its subsidiaries, retained
its obligations under certain real property leases (the "Retained Leases") which
were related to the medical and/or commercial divisions. The Retained Leases are
located in Appleton and New Berlin, Wisconsin, Phoenix, Arizona, Hayward,
California, Las Vegas, Nevada, Virginia Beach, Virginia and Lenexa, Kansas. Each
of the Retained Leases are being subleased to PCN until certain specified dates
as prescribed in the Divestiture Agreement. In cases where the lease term
extends past the prescribed period of sublease to PCN, the Company plans to
sublease the space, or renegotiate the lease terms.
The Company acquired four professional office buildings located in Sparks,
Nevada, in June, 1994. The property is located on approximately three acres of
land and has an aggregate of 30,800 square feet of rental space. The property
has 19 tenants, one of which is the Ford Center, a wholly owned subsidiary of
the Company.
Most of the tenants in the Company's professional office buildings are medical
professionals who rent between 500 and 2,000 square feet of space. The initial
lease terms expire from 1996 through the year 2005 and generally contain a rent
escalation clause of approximate 2% to 5% per year. The total annual rent
receivable under the existing leases, including the rent from the Ford Center,
is approximately $400,000.
The Company owns office equipment, including sophisticated computer systems, in
amounts which management believes are appropriate and which are located at the
Company's offices.
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ITEM 3. LEGAL PROCEEDINGS
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The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, such matters will not
have a material effect on the financial position or results of operations of the
Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Company held an annual meeting of its shareholders on April 6, 1995, to
approve the 1995 Employee Stock Option Plan and to elect Richard N. Beckstrand
and L. James Jensen, Jr. to new terms as members of the board of directors. The
Company did not solicit proxies in connection with this meeting. However,
holders of 6,831,794 votes, approximately 85% of the 8,047,521 votes entitled to
be cast as of the record date for the meeting, March 24, 1995, were in
attendance at the meeting and voted. The 1995 Employee Stock Option Plan was
approved by the same number of affirmative votes, with no shareholders
dissenting or abstaining from any action proposed by management. L. Bruce Ford,
D.P.M., Mark Scott, Gary L. Leavitt, and David J. Rank continued to serve as
members of the board of directors subsequent to the meeting. The Company has not
held a meeting of its security holders since April 6, 1995.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
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Commencing in January of 1994, the Company's common stock has been traded on a
limited basis in the over-the-counter market and is listed on the Electronic
Bulletin Board of the National Association of Securities Dealers, Inc. under the
symbol "C-SAT." On November 12, 1996 there were 8,928,218 shares of common stock
issued and outstanding and 3,216,710 reserved for issuance upon the exercise of
currently vested outstanding options, and the conversion of preferred stock and
convertible debentures. Of this amount, only an estimated 750,000 shares are
believed to currently be available for trading. As a result, there is a limited
amount of activity in the market for the Company's common stock and the prices
quoted may not be indicative of the prices that could be obtained in actual
transactions.
The following table sets forth, for the periods indicated, the approximate range
of high and low bids for the Company's common stock based on historical trading
information. The quotations represented reflect interdealer prices, without
retail markup, markdown, commissions or other adjustments. The prices shown do
not necessarily reflect actual transactions in the common stock of the Company.
Fiscal 1995 Fiscal 1996
High Low High Low
First Quarter $2.25 $0.90 $5.00 $3.00
Second Quarter $4.00 $1.66 $8.00 $4.25
Third Quarter $4.00 $2.50 $6.00 $4.00
Fourth Quarter $3.50 $2.50 $4.25 $3.00
On November 12, 1995, the Company's common stock was quoted in the
over-the-counter market at approximately $1.00 bid, $1.50 asked.
No dividends have been paid on the Company's common stock. The Company is
subject to contractual restrictions on the payment of dividends in connection
with its bank lines of credit. Even if the Company were to be released from
these restrictions and generate the necessary earnings, it is not anticipated
that dividends will be paid in the foreseeable future. At June 30, 1996, there
were approximately 400 holders of the Company's common stock.
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ITEM 6. SELECTED FINANCIAL DATA
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The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this annual
report on Form 10-K. The Statement of Operations data for the periods presented
are not necessarily indicative of future results from operations because of the
Company's high level of acquisition activity over the past three years.
Statement of Operations Data* 1996(4) 1995(4) 1994(2) 1993(1) 1992(1)
------- ------- ------- ------- -------
(in thousands, except per share data)
Net Revenues $29,464 24,126 546 505 178
Earnings (loss) from continuing operations (9,850) 1,147 8 164 75
Earnings (loss) from continuing operations per
common share (1.15) 0.13 0.00 0.10 0.06
Weighted average shares outstanding 8,695 7,655 2,419 1,589 1,334
Balance Sheet Data* 1996 1995 1994(3) 1993(1) 1992(1)
---- ---- ------- ------- -------
(in thousands)
Total assets 16,256 26,090 12,238 236 233
Long term obligations
3,070 3,224 1,766 61 31
*reflects continuing operations
(1) Prior to December 14, 1993, CUSA Technologies Inc. fka Dimension Capital
Corporation ("Dimension") was a business development company and did not
have significant operations. On December 14, 1993 Dimension merged with
Mountain Surgical Centers, Inc. ("MSC") with MSC as the surviving
corporation (SEE Item 1, Description of Business, Surgery Center Business).
From its inception, February 20, 1991, until the date of the merger with
Dimension, MSC's operations consisted of a single surgery center, The Ford
Center for Foot Surgery, Inc. (the "Ford Center"), a wholly owned
subsidiary of MSC (SEE Item 1, Description of Business, Surgery Center
Business). The merger was treated as a reverse acquisition for financial
reporting purposes, similar to a recapitalization of MSC, and the Statement
of Operations and Balance Sheet data for the periods prior to the merger
reflect the business and activities of MSC, and its wholly owned subsidiary
the Ford Center.
(2) On June 22, 1994, the Company acquired the Sparks Buildings, the VERSYSS
Credit Union Division and CUSA, Inc. Thus, the Statement of Operations Data
for the year ended June 30, 1994 reflects a full year of operations of MSC
and the Ford Center and the operations of the VERSYSS Credit Division,
CUSA, Inc. and the Sparks Buildings, from June 22, 1994 to June 30, 1994.
(3) The Balance Sheet Data as of June 30, 1994 reflects the assets and
liabilities of MSC, the Ford Center and the entities acquired
on June 22, 1994.
(4) The Statement of Operations Data for the period ending June 30,1996 and
1995 includes the results from the continuing operations of the businesses
acquired in fiscal 1995 and 1994, respectively, from the acquisition dates.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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General
In June of 1994, the Company entered into the credit union software business
through the acquisition of CUSA, Inc. ("CUSA") and the credit union software
division of CUSA's largest distributor. From June of 1994 to July of 1995, the
Company acquired most of the distributors of the CUSA software, some of which
were distributors of software products in the medical and commercial open
systems markets. In June of 1996, the Board of Directors voted to dispose of the
business and assets of the Company's medical and commercial divisions, through a
sale of assets to Physician Computer Network, Inc. ("PCN"). With the divestiture
of the medical and commercial divisions, the Company plans to devote its
resources primarily to the development and expansion of its credit union
software business, which posted a revenue increase in 1996. (Unless otherwise
specified all references to years in this Item 7. refer to the corresponding
fiscal year.)
The Company experienced significant losses from continuing operations in fiscal
1996, partially as a result of the inclusion of all of the general corporate
overhead expenses incurred in 1996 in continuing operations in accordance with
generally accepted accounting principles. The high selling, general and
administrative expenses and product development costs associated with the
retained divisions also contributed to the losses. Although the Company believes
that the selling, general and administrative expenses will be reduced in fiscal
1997 through the reduction of personnel and increased efficiencies, no assurance
can be given that such efforts will be successful. As a result of the current
year loss and the uncertainty as to when the Company will return to
profitability, management reevaluated the carrying value of certain of the
intangible assets carried on its balance sheet, determining that significant
impairment has occurred. Intangible assets which were determined to be impaired
have been revalued to reflect management's expectations of future cash flow from
such assets. The write down of intangible assets is listed as a nonrecurring
expense on the Company's statement of operations.
1996 compared to 1995
Net revenues
The Company's total revenues from continuing operations increased 22 percent
from $24.1 million in 1995 to $29.5 million in 1996. Revenues from hardware and
software sales increased 2 percent from $12.0 million in 1995 to $12.2 million
in 1996. The increase was less than expected primarily because of slower than
anticipated new sales related to the continuing operations of entities acquired
in 1995, and delays in product delivery at the end of 1996. Revenues from
support, maintenance and other services increased 44% from $11.4 million in 1995
to 16.4 million in 1996. The increase was due to increased sales of the
Company's statement processing services and the addition, in 1996 of support,
maintenance and other service revenue of entities acquired during 1995. On a pro
forma consolidated basis, which reports the revenue of the Company as if each of
the consolidated entities were acquired, or disposed of, as the case may be, at
the beginning of the periods reported, the total revenue was $27.1 million for
fiscal 1995 and $29.5 million for fiscal 1996, representing a 9% increase.
Revenues are derived from computer system sales, hardware maintenance and
software support, and the sale of products which are related to the Company's
core computer systems such as statement printing, disaster recovery, and
microfiche services.
Gross margin
The hardware and software gross profit margin decreased from 54 percent in 1995
to 46 percent in 1996. In the same period, the gross profit margins from
support, maintenance and other services revenues decreased from 45 percent to 40
percent. The decrease in the hardware and software gross margin is attributable
to decreased hardware margins due to customer demand for less profitable
personal computers. The decrease in the gross profit margin from support,
maintenance and other services revenue is due to increased software support
personnel, and an increase of lower margin statement processing services as a
percentage of support, maintenance and other services revenue in 1996 when
compared to 1995. Costs of goods sold consist of 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.
Product development costs
Product development costs represent the uncapitalized cost of software
development. Uncapitalized costs include research and development, system
operational error fixes and maintenance software upgrades. Product development
costs were $1.1 million in 1995 and $1.4 million in 1996. The Company expects
that development expenditures will increase in fiscal 1997 as the Company
continues to improve current products and to invest in the development of new
products, with an increased emphasis on research and development over
capitalized expenditures.
Selling, general and administrative costs
The selling, general, and administrative expenses for the Company increased 57%
from $8.7million in 1995, to $13.7 in 1996. This steep increase is partly the
result of the incremental selling, general, and administrative expenses of the
entities acquired in 1995 and 1996, which were not reduced to the extent
anticipated through cost reduction plans implemented in 1995 and 1996.
Additionally, as required by generally accepted accounting principles, all of
the Company's general corporate overhead was included in continuing operations,
with no allocation of corporate overhead to the discontinued operations. Since a
majority of the assets of the disposed divisions were acquired in the fourth
quarter of 1995 and in 1996, the dollar volume of incremental general corporate
overhead attributable to the disposed divisions was greater in 1996 than 1995.
The incremental general corporate overhead attributable to the disposed
divisions was eliminated in the first quarter of 1997. In 1997, the Company
plans to reduce selling, general and administrative expenses related to the
continuing operations as part of an overall plan to decrease corporate overhead
expenses. These expense reductions will be achieved through the gradual
reduction of overhead and administrative personnel. Although the Company
believes that these efforts will result in reduced selling, general and
administrative costs in fiscal 1997, no assurance can be given that such efforts
will be successful.
The amortization of the excess of purchase price over the fair value of the net
tangible and identifiable intangible assets acquired ("Acquired Goodwill') is
included in selling, general and administrative expenses. The Acquired Goodwill
is amortized using the straight line method over an estimated life of 15 years.
During 1996, total amortization of the Acquired Goodwill was $360,209 compared
to $364,146 in 1995. Amortization of the Acquired Goodwill related to the
entities acquired will be reduced in 1997 due to the write down of the Acquired
Goodwill through a nonrecurring charge incurred in 1996. (See discussion of
nonrecurring charges below.)
Portions of the purchase price of certain acquisitions completed in 1995 and
1996 were allocated to software acquisition costs. The amortization of the
acquired software acquisition costs is included in the cost of goods sold.
Software acquisition costs are amortized over the estimated life of the software
(principally three to five years). During 1996, amortization of software
development and acquisition costs were $834,509 compared to $414,124 in 1995.
Amortization of the software acquisition costs related to the entities acquired
will be reduced in 1997 due to the write down of the software acquisition costs
through a nonrecurring charge recorded in 1996. (See discussion of nonrecurring
charges below.)
Nonrecurring charges
In 1996, the Company reported nonrecurring charges of $7.1 million which are
primarily related to certain restructuring charges and the reduction of the
carrying value of the Acquired Goodwill and software development and acquisition
costs.
Pursuant to a limited restructuring plan adopted in June of 1996, the employment
contract of a shareholder and member of the board of directors will be
terminated in the second fiscal quarter of 1997. As a result, compensation and
severance fees of approximately $611,100 have been accrued in 1996 as a
nonrecurring charge.
As discussed in the Company's reports on Form 10Q dated December 31, 1995 and
March 31, 1996, over the past six months, management has studied the
relationship between the carrying value of the Acquired Goodwill and the
expected future cash flows related thereto. The Acquired Goodwill relates
primarily to certain customer contracts and customer lists. As evidenced by the
loss from continuing operations incurred in 1996, the costs of servicing the
contracts acquired were higher than anticipated. Additionally, the profitability
of sales to the customer base acquired was lower than anticipated. Therefore, in
the opinion of management, the expected future discounted cash flows net of
related expenses from the Acquired Goodwill of credit union assets are
insufficient to support the recorded value. Consequently, a nonrecurring charge
of $5.4 million has been recorded in 1996.
The Company evaluated the realizability of the capitalized software, comparing
the amount capitalized for each product to the expected future undiscounted cash
flow from the sale of such product. The study showed that, at expected sales
volumes, the costs associated with the sale and installation of certain software
products capitalized were higher than expected discounted cash flows from such
sales. Consequently, management has determined that the expected cash flows of
such products were insufficient to support the amounts capitalized. Accordingly,
a one time charge of approximately $1.0 million has been recorded in 1996 to
adjust capitalized software to be consistent with the estimated future cash
flows from the sales of the related products.
Interest and income tax expense
Interest expense increased 82 percent in 1996 due primarily to an increase in
average debt outstanding.
Income tax expense was $888,536 in 1995 (resulting in an effective tax rate of
43.7 percent) compared to a tax expense of zero in 1996. The difference in the
tax expense is due to the losses incurred in 1996 for which no income tax
benefit has been recorded.
Discontinued Operations
The loss from discontinued operations, net of income taxes increased from $.4
million in 1995 to $5.1 million in 1996. The increased loss in 1996 is the
result of the inclusion of a full year of operations of the medical and
commercial divisions of businesses acquired in 1995 and the loss from operations
of the medical and commercial portions of businesses acquired in 1996 from the
respective dates of acquisition. The 1996 loss from discontinued operations
reflects the unprofitability of the acquired medical and commercial operations
and the Company's inability to recognize expected cost synergy and revenue
targets in its medical and commercial business units.
The estimated loss from the disposal of discontinued operations, net of income
taxes includes the estimated costs for the disposal of the medical records
software product through the anticipated date of disposition. The estimated loss
from the disposal also includes the costs incurred for contractually specified
severance payments to employees not hired by PCN subsequent to PCN's purchase of
the medical division, the cost of closing facilities, (including estimated
future lease obligations, which were not assumed by PCN in connection with the
sale), and the estimated loss from the discontinued eCLINIC product line through
the anticipated disposition date.
1995 Compared to 1994
Total revenues from continuing operations increased from $.5 million in fiscal
1994 to $24.1 million in fiscal 1995. This increase reflects the Company's
entrance into the credit union software market in June 1994 through the
acquisition of CUSA, the CUSA distributors, and Outside Force.
Total costs of goods sold and other direct costs increased from $182,860 in 1994
to $12.1 million in 1995. Product development costs were $1.1 million in 1995.
No product development costs were incurred in 1994. Selling, general and
administrative costs were $8.7 million in 1995 compared to $350,626 in 1994.
Income tax expense for 1995 was $888,536 compared to $2,074 in 1994. These
increases in expenses reflect the addition of the acquired businesses and the
change in CTI's main business from surgery services to software sales,
development, installation and support.
Loss from discontinued operations increased from $92,423 in 1994 to $370,869 in
1995. The loss incurred in 1994 reflects the results of the operations of
Medical Computer Management, Inc. ("MCMI") which was acquired by the Company in
May of 1995 and accounted for as a pooling of interests. The increased loss in
1995 reflects the addition of the operations of the medical and commercial
business units which were acquired in 1995, from the effective dates of the
acquisitions (except the results of operations for MCMI which were included for
the full year).
Capital Resources and Liquidity
At June 30, 1996, the Company had current assets of $9.2 million and current
liabilities of $19.4 million. The current liabilities include $5.1 million of
deferred revenue which primarily represents payments received for services to be
provided over the remaining term of software and hardware maintenance contracts
(generally one year).
The Company has two term loans in the original aggregate amount of $2,000,000
and a line of credit with its principal bank (the "Bank"). The line of credit,
$891,022 as of June 30, 1996, secured by accounts receivable, inventory, general
intangibles and a trust deed on real estate, bears an interest rate of prime
plus one and one half percent, and matures in January of 1997. In December of
1994, the Company was advanced $995,000 from certain individual investors
through a loan company which is affiliated with an officer, director and major
shareholder of the Company pursuant to a subordinated line of credit which is
secured by accounts receivable.
From June 20, 1995 to October 6, 1995, the Company received $1,450,000 pursuant
to the issuance of debentures to an entity controlled by an officer, director
and major shareholder of the Company. The debentures, which are due June 30,
1998, are convertible into shares of the Company's common stock at the
discretion of the holder at a rate of $3.00 per share through June 1996, $3.50
per share through June 1997, and $4.00 per share through June 30, 1998, and bear
an interest rate of 8 percent per annum, payable quarterly.
From March to May of 1996, the Company received $1,481,023 from the Bank to
finance the purchase of computer equipment. The loan, which bears interest at a
rate of prime plus 1.5% is secured by a first lien on all assets purchased with
the proceeds of the loan plus accounts receivable and inventory.
On July 2, 1996 the Company sold its medical and commercial divisions to PCN for
$10,100,000 cash and the assumption of certain related liabilities. To date, the
Company has received $9,200,000 of the total cash consideration. Pursuant to an
October 15, 1996 amendment to the asset purchase agreement, of the remaining
purchase price of $900,000, $750,000 will be retained by PCN in consideration of
their assumption of certain additional liabilities related to the medical and
commercial customer accounts. The remaining $150,000 will be paid to the Company
upon the delivery of certain assets which are currently subject to a court order
restricting such transfer pending the settlement of certain judgments. The cash
received pursuant to the asset purchase agreement has been used to settle a
$500,000 note owed to a hardware maintenance company to pay amounts owed to
certain former owners of entities acquired in 1995 and 1996 in accordance with
the applicable acquisition documents, to pay restructuring costs, severance
fees, certain bonuses and professional fees related to the sale, and to reduce
accrued liabilities and accounts payable.
On October 21, 1996 pursuant to a promissory note, the Company was advanced
$100,000 from a director, officer and major shareholder of the Corporation. The
note bears interest at 10% per annumand is due on December 20, 1996.
The Company anticipates that these financing sources, together with cash flow
from operations, will be sufficient to permit it to meet its cash requirements
through at least June 30, 1997.
The loan documents pursuant to which funds were advanced by the Bank for the
line of credit, term loans, and equipment loan (the "Loans"), each include
certain covenants related primarily to the Company's quarterly income before
interest, depreciation, amortization and taxes. Pursuant to such covenants, the
Bank has the right to demand full and immediate payment of amounts outstanding
on the Loans upon violation of any of the covenants. In the past when the
Company was not in compliance, the Bank has waived its right to exercise its
rights under such covenants, but there is no assurance that the Bank will not
exercise its rights under such covenants in the future. However, the Company is
negotiating with the Bank to amend such covenants to conform to currently
anticipated future operating results. Additionally, in 1997 the Company expects
operating results to improve as the Company turns its focus from acquisition
activity to operations, with an emphasis on improving staging, delivery,
installation and training processes and on implementing an overall plan to
reduce selling, general and administrative expenses. As current loan covenants
are renegotiated and anticipated improvements in the results from operations are
realized, management expects to comply with such covenants in the second, third
and fourth quarters of 1997.
In 1996, the Company recorded nonrecurring charges of approximately $7 million
in connection with the revaluation of certain balance sheet intangible assets
and the accrual of restructuring costs. Also in 1996, the Company recorded a
total loss from discontinued operations of $7.6 million. As a result of the
nonrecurring charges, the loss from discontinued operations and a loss from
continuing operations in 1996, retained earnings decreased from $.8 million at
June 30, 1995 to a $16.8 million accumulated deficit at June 30, 1996, resulting
in a shareholders' deficit of $6.2 at June 30, 1996. The Company is exploring
various options to increase its equity in 1997, including private and public
financing.
- -------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------------------------------------------
CUSA TECHNOLOGIES, INC.
Consolidated Financial Statements
June 30, 1996, 1995, and 1994
(With Independent Auditors' Report Thereon)
CUSA Technologies, Inc.
Index to Consolidated Financial Statements
Page
Independent Auditors Reports:
Report of KPMG Peat Marwick LLP, Independent F-2
Auditors (as to the fiscal year ended June 30, 1996)
Report of Grant Thornton LLP, Independent Certified Public Accountants
(as to the fiscal year ended June 30, 1995) F-3
Report of Joseph B. Glass & Associates, Independent Certified Public Accountants
(as to the fiscal year ended June 30, 1994) F-4
Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1995 F-5
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995, and 1994 F-7
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended June 30, 1996, 1995, and 1994 F-8
Consolidated Statements of Cash Flows for the
years ended June 30, 1996, 1995, and 1994 F-9
Notes to Consolidated Financial Statements F-10
Schedules:
Report of KPMG Peat Marwick LLP, Independent Auditors F-31
Schedule II-Valuation and Qualifying Accounts F-32
F-1
Independent Auditors' Report
Board of Directors and Stockholders
CUSA Technologies, Inc:
We have audited the accompanying consolidated balance sheet of CUSA
Technologies, Inc. and subsidiaries as of June 30, 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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
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
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CUSA Technologies,
Inc. as of June 30, 1996, and the results of their operations and their cash
flows for the year ended in conformity with generally accepted accounting
principles.
We also audited the reclassifications that were applied to restate the 1995 and
1994 financial statements as a result of the discontinued operations as
described in note 4. In our opinion, such reclassifications are appropriate and
have been properly applied.
KPMG Peat Marwick LLP
Salt Lake City, Utah
November 8, 1996
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
CUSA Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of CUSA
Technologies, Inc. and subsidiaries as of June 30, 1995, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended (before restatement for the discontinued
operations of the medical and commercial divisions as discussed in note 4 to the
consolidated financial statements). These 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CUSA Technologies, Inc. and
subsidiaries as of June 30, 1995, and the consolidated results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
Grant Thornton LLP
Salt Lake City, Utah
September 15, 1995
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
CUSA Technologies, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of CUSA Technologies, Inc. and
subsidiaries for the year ended June 30, 1994, (before restatement for the
discontinued operations as described in note 4 to the consolidated financial
statements). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and consolidated
cash flows of CUSA Technologies, Inc. and subsidiaries for the year ended June
30, 1994, in conformity with generally accepted accounting principles.
Joseph B. Glass & Associates
Salt Lake City, Utah
July 12, 1995
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
June 30, 1996 and 1995
1996 1995
-------------- --------------
Assets
Current assets:
Cash $ 583,080 818,883
Trade accounts receivable, net of allowance for doubtful accounts of $572,000 in 1996
and $136,000 in 1995 (notes 5, 6, and 7) 2,987,680 3,378,562
Inventories (notes 5 and 7) 140,402 469,457
Prepaid expenses and other assets 425,148 232,452
Net assets of discontinued operations (note 4) 5,081,383 8,237,814
-------------- --------------
Total current assets 9,217,693 13,137,168
Property and equipment (notes 5 and 7):
Land 297,688 297,688
Buildings and improvements 2,423,416 2,361,214
Furniture, fixtures and equipment 2,672,653 1,216,527
Other 668,405 155,580
-------------- --------------
Total property and equipment 6,062,162 4,031,009
Less accumulated depreciation and amortization 1,371,761 493,548
-------------- --------------
Net property and equipment 4,690,401 3,537,461
Equipment under capital lease obligations less accumulated amortization of $420,125 in 1996
and $159,828 in 1995 (note 12) 233,816 367,610
Receivables from related parties (note 13) 362,849 330,054
Software development and acquisition costs less accumulated amortization of $457,421 in 1996 and
$409,808 in 1995 (notes 3, 4, and 17) 1,531,158 2,212,372
Excess of purchase price over fair value of net tangible and identifiable
intangible assets acquired less accumulated amortization of $364,146 in 1995
(notes 3, 4, and 17)
- 6,331,384
Other assets 220,084 174,194
============== ==============
$ 16,256,001 26,090,243
============== ==============
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets (continued)
June 30, 1996 and 1995
1996 1995
--------------- --------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Lines of credit with banks (note 5) $ 891,022 373,247
Current installments of long-term debt (note 7) 3,258,269 772,982
Current installments of obligations under capital leases (note 12) 205,888 170,334
Accounts payable 3,823,560 2,177,605
Accrued liabilities 3,309,083 1,610,713
Customer deposits 1,690,973 1,024,981
Income taxes payable (note 11) 18,081 50,256
Payables to related parties (note 13) 1,167,398 1,962,155
Deferred revenue 5,057,444 3,846,880
--------------- --------------
Total current liabilities 19,421,718 11,989,153
Long-term debt with related parties (note 6) 2,445,000 1,145,000
Long-term debt, excluding current installments (note 7) 430,894 1,852,471
Obligations under capital leases, excluding current installments (note 12) 193,977 226,356
Deferred income taxes (note 11) - 956,266
--------------- --------------
Total liabilities 22,491,589 16,169,246
Commitments and contingent liabilities (notes 2, 4, 5, 7, 12, and 14) - -
Stockholders' equity (deficit) (notes 3, 6, 8, and 9):
Series A convertible preferred stock, $.001 par value. Authorized 1,500,000
shares; issued and outstanding 1,000,000 shares ($2.00 liquidation value)
1,000 1,000
Common stock, $.001 par value. Authorized 25,000,000 shares; issued and
outstanding 8,916,438 shares at June 30, 1996 and 8,509,516 shares at June
30, 1995
8,916 8,510
Additional paid-in capital 10,530,308 9,116,807
Retained earnings (accumulated deficit) (16,775,812) 794,680
--------------- --------------
Total stockholders' equity (deficit) (6,235,588) 9,920,997
--------------- --------------
$ 16,256,001 26,090,243
=============== ==============
See accompanying notes to consolidated financial statements.
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
Years ended June 30, 1996, 1995, and 1994
1996 1995 1994
Net revenues:
Hardware and software sales $ 12,226,361 11,972,244 66,366
Support, maintenance and other services 16,357,843 11,370,358 -
Other revenue 880,255 783,121 479,320
---------------- -------------- --------------
Total revenues 29,464,459 24,125,723 545,686
---------------- -------------- --------------
Cost of goods sold and other direct costs:
Hardware and software 6,590,010 5,501,162 32,813
Support, maintenance and other services 9,796,938 6,298,448 -
Other 286,914 285,252 150,047
---------------- -------------- --------------
Total cost of goods sold and other direct costs 16,673,862 12,084,862 182,860
---------------- -------------- --------------
Gross profit 12,790,597 12,040,861 362,826
Product development costs 1,359,189 1,088,323 -
Selling, general and administrative expenses 13,735,707 8,731,808 350,626
Nonrecurring charges (note 17) 7,068,749 - -
---------------- -------------- --------------
Operating income (loss) (9,373,048) 2,220,730 12,200
Other income (expense):
Interest expense (439,232) (240,943) (11,609)
Other, net (37,434) 55,644 9,780
---------------- -------------- --------------
Income (loss) from continuing operations before income taxes (9,849,714) 2,035,431 10,371
Income tax expense (note 11) - 888,536 2,074
---------------- -------------- --------------
Earnings (loss) from continuing operations (9,849,714) 1,146,895 8,297
Loss from discontinued operations, net of income taxes (note 4) (5,106,327) (370,869) (92,423)
Estimated loss from disposal of discontinued operations, net of income taxes (2,494,451) - -
(note 4)
================ ============== ==============
Net income (loss) $ (17,450,492) 776,026 (84,126)
================ ============== ==============
Earnings (loss) per common and common equivalent share:
From continuing operations $ (1.15) 0.13 0.00
From discontinued operations $ (0.87) (0.05) (0.04)
Weighted average common and common equivalent shares 8,695,419 7,655,280 2,418,837
See accompanying notes to consolidated financial statements.
===================================================================================================================================
CUSA TECHNOLOGIES, INC.
===================================================================================================================================
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended June 30, 1996, 1995, and 1994
Retained
Preferred Stock Common Stock Earnings Total
-------------------------- ------------------------- Additional (accumulated Stockholders'
Number of Number of paid-in deficit) equity
shares Amount shares Amount capital (deficit)
------------- ------------- ------------ ------------ ------------- --------------- ---------------
Balances at July 1, 1993 - $ - 1,889,030 $ 1,889 14,311 231,594 247,794
Merger with Dimension
Capital Corporation (note 3) - - 385,934 386 160,120 - 160,506
Sale of common stock (note 3) - - 500,000 500 499,500 - 500,000
Shares issued under stock
option plans (note 9) - - 250,000 250 374,750 - 375,000
Shares issued to acquire
real property (note 3) 1,000,000 1,000 1,000,000 1,000 2,319,888 - 2,321,888
Shares issued in business
acquisition (note 3) - - 714,330 714 713,616 - 714,330
Net loss for the year - - - - - (84,126) (84,126)
------------- ------------ ------------- --------- ------------- --------------- ---------------
Balances at June 30, 1994 1,000,000 1,000 4,739,294 4,739 4,082,185 147,468 4,235,392
Shares issued in business
acquisitions (note 3) - - 3,514,227 3,514 4,593,046 (6,148) 4,590,412
Sale of shares to employees
under stock purchase plan
(note 9) - - 254,635 255 434,730 - 434,985
Shares issued under stock
option plans (note 9) - - 1,360 2 1,846 - 1,848
Proceeds from common stock
warrants (note 6) - - - - 5,000 - 5,000
Preferred stock dividends - - - - - (122,666) (122,666)
Net income for the year - - - - - 776,026 776,026
------------- ---------- -------------- --------- ------------ --------------- ---------------
Balances at June 30, 1995 1,000,000 1,000 8,509,516 8,510 9,116,807 794,680 9,920,997
Shares issued in business
acquisitions (note 3) - - 350,267 350 1,336,239 - 1,336,589
Shares issued for software
development - - 50,000 50 149,950 - 150,000
Shares issued under stock
option plans (note 9) - - 20,905 20 2,798 - 2,818
Shares redeemed from former
employees - - (14,250) (14) (75,486) - (75,500)
Preferredsstock dividends - - - - - (120,000) (120,000)
Net loss for the year - - - - - (17,450,492) (17,450,492)
============= =========== ============= ======== ============ =============== ===============
============= =========== ============= ======== ============ =============== ===============
Balances at June 30, 1996 1,000,000 1,000 8,916,438 8,916 10,530,308 (16,775,812) (6,235,588)
============= =========== ============= ======== ============ =============== ===============
See accompanying notes to consolidated financial statements.
===================================================================================================================================
CUSA TECHNOLOGIES, INC.
===================================================================================================================================
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995, and 1994
1996 1995 1994
---------------- ---------------- -------------
Cash flows from operating activities:
Earnings (loss) from continuing operations $ (9,849,714) 1,146,895 8,297
Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by (used in) operating activities:
Depreciation and amortization 2,341,261 1,482,694 12,084
Provision for doubtful accounts 548,979 85,047 10,651
Nonrecurring charges 7,068,749 - -
Net change in current assets and liabilities
Trade accounts receivable (842,513) (1,903,521) (198,062)
Inventories 317,139 238,637 -
Prepaid expenses and other current assets (192,696) (118,836) -
Accounts payable 1,387,093 650,339 (71,445)
Accrued liabilities 822,645 435,125 73,656
Customer deposits 665,992 653,533 -
Deferred revenue 1,132,964 (555,994) 215,992
Income taxes (91,181) 8,936 (34,977)
Deferred income taxes - 767,508 11,708
---------------- ---------------- -------------
Net cash provided by continuing 3,308,718 2,890,363 27,904
operating activities
Net cash provided by (used in) discontinued operations (3,412,223) (1,083,438) 130,213
---------------- ---------------- -------------
---------------- ---------------- -------------
Net cash provided by (used in) operating (103,505) 1,806,925 158,117
activities
---------------- ---------------- -------------
Cash flows from investing activities:
Purchase of property and equipment, net (1,887,500) (771,458) (52,801)
Cash paid for business acquisitions, including acquisition costs,
less cash acquired (2,743) (353,286) (599,665)
Software development costs (932,387) (490,227) -
Advances to related parties (20,909) (134,208) (294,264)
Increase in other assets (58,253) (15,836) (10,977)
Net cash used in investing activities of discontinued operations (200,732) (92,419) (95,851)
---------------- ---------------- -------------
Net cash used in investing activities (3,102,524) (1,857,434) (1,053,558)
---------------- ---------------- -------------
Cash flows from financing activities:
Proceeds from debt with related parties 1,300,000 1,145,000 -
Proceeds from long-term debt 1,981,023 2,000,000 -
Repayment of debt with related parties - (1,405,000) -
Net borrowings (repayments) of lines of credit 517,775 (285,820) -
Repayments of obligations under capital leases (224,320) (172,109) (6,075)
Repayment of long-term debt (917,313) (192,268) -
Reduction of payables to related parties (994,257) (868,717) -
Sale of common stock, exercise of stock
options, and merger with Dimension 2,818 441,832 1,035,506
Capital Corporation
Preferred dividend distributions (120,000) (122,666) -
Redemption of common stock (75,500) - -
Net cash provided by (used in) financing
activities of discontinued operations 1,500,000 (49,951) (19,808)
---------------- ---------------- -----------
Net cash provided by financing activities 2,970,226 490,301 1,009,623
---------------- ---------------- -------------
Net increase (decrease) in cash and cash equivalents (235,803) 439,792 114,182
Cash and cash equivalents at beginning of year 818,883 379,091 264,909
---------------- ------
================ ================ =============
Cash and cash equivalents at end of year $ 583,080 818,883 379,091
================ ================ =============
See accompanying notes to consolidated financial statements.
================================================================================
================================================================================
F-40
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
June 30, 1996, 1995, and 1994
(1) Description of Business Operations and Summary of Significant Accounting
Policies
(a) Description of Business Operations
The principal business operations of CUSA Technologies, Inc. (CTI)
and its subsidiaries (collectively, "the Company") are the
development, sale, and support of computer software technology and
resale and maintenance of hardware for the credit union,
healthcare, commercial, and rental industries, and other ancillary
services such as statement and microfiche processing, and disaster
recovery services. As described in note 4, in June 1996, the Board
of Directors of CTI committed to dispose of the business and
assets of the medical and commercial divisions. Certain amounts in
the prior years' consolidated financial statements and related
notes have been reclassified to conform to the current year's
presentation as required with respect to discontinued operations.
Unless otherwise specified, disclosures in the following footnotes
relate to assets, liabilities, and operations of continuing
operations.
The Company also owns and operates two surgical centers and an
office building complex in Nevada.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of CTI and all of its subsidiaries, substantially all of
which are wholly-owned at June 30, 1996. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
Revenue on hardware and software sales is generally recognized
upon shipment. A portion of the revenue is deferred on certain
sales when the Company has a significant obligation for future
services. Software support and hardware maintenance services are
billed in advance. Revenue from software support and hardware
maintenance is deferred and recognized ratably over the
maintenance period (generally one year). Revenue for other goods
and services is recognized when the goods are shipped or when the
services are rendered.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments
with an original maturity to the Company of less than ninety days.
(e) Financial Instruments
The carrying value of the Company's financial instruments at June
30, 1996 approximates fair value.
================================================================================
CUSA TECHNOLOGIES, INC.
================================================================================
Notes to Consolidated Financial Statements
(f) Inventories
Inventories, which consist principally of computer hardware held
for resale and spare parts used for maintenance services, are
stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives. Leasehold improvements are amortized over the lives
of the respective leases or the service lives of the improvements,
whichever is shorter.
The estimated lives used in determining depreciation and
amortization are:
Buildings and improvements 5-32 years
Furniture, fixtures and equipment 3-10 years
Other 3-5 years
Equipment under capital leases is amortized over the lives of the
respective leases or, for those leases which substantially
transfer ownership, over the service lives of the assets.
Amortization expense for capital leases is included with
depreciation and amortization expense.
The straight-line method of depreciation and amortization is
followed for substantially all assets for financial reporting
purposes. Certain assets are depreciated under accelerated methods
for tax purposes. A provision for deferred income taxes relating
to the temporary differences in depreciation has been recognized.
(h) Intangible Assets
All research and development costs incurred by the Company in the
development and acquisition of computer software to be sold to
customers is charged to expense until the technological
feasibility of the software is established. After technological
feasibility has been established, software development and
acquisition costs are capitalized until the software is available
for general release to customers. Software development and
acquisition costs are recorded at the lower of unamortized
historical cost or estimated net realizable value. Software
development and acquisition costs are amortized on a
product-by-product basis using the straight-line method over their
estimated useful lives of three to five years. Amortization of
software development and acquisition costs was $834,509 and
$414,124 for the years ended June 30, 1996 and 1995, respectively
(none in 1994).
The excess of purchase price over fair value of net tangible and
identifiable intangible assets acquired in certain business
acquisitions is amortized using the straight-line method,
principally over fifteen years. Amortization expense was $360,209
and $364,146 for the years ended June 30, 1996 and 1995,
respectively (none in 1994).
On an ongoing basis, management reviews the valuation and
amortization of software development and acquisition costs and the
excess purchase price to determine possible impairment by
comparing the carrying value to the undiscounted estimated future
cash flows of the related businesses (note 17).
(i) Income Taxes
The Company accounts for income taxes under the asset and
liability method, under which deferred taxes are determined based
on the difference between the financial statement and the tax
bases of assets and liabilities using enacted tax rates in effect
in the years in which the deferred tax assets or liabilities are
expected to be paid or recovered. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. An
allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will not be realized.
(j) 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.
(k) 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 each year, including common
equivalent shares (if dilutive). Common equivalent shares include
stock options, convertible preferred stock and convertible debt.
Earnings used in the calculation are reduced (loss in increased)
by the dividends paid to preferred stockholders. Fully diluted
earnings (loss) per share is not materially different from primary
earnings (loss) per share.
(l) Accounting Standards Not Yet Adopted
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation (SFAS 123). The Company is required
to adopt the provisions of this statement for years beginning
after December 15, 1995. This statement encourages all entities to
adopt a fair value based method of accounting for employee stock
options or similar equity instruments. However, it also allows an
entity to continue to measure compensation cost for those plans
using the intrinsic-value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income
and earnings per share as if the fair value based method of
accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to measure
compensation costs in accordance with APB 25 and provide the
disclosures required by SFAS 123.
(m) Reclassifications
Certain reclassifications have been made in the 1994 and 1995
consolidated financial statements to conform with classifications
adopted in 1996.
(2) Liquidity
During the year ended June 30, 1996, the Company incurred a loss from
continuing operations of $9,849,714, a net loss of $17,450,492, cash used
in operating activities of $103,505, and at June 30, 1996 a stockholders'
deficit of $6,235,588. These losses have also resulted in violations of
certain debt covenants with the Company's primary financial institution
which have been waived by the financial institution through June 30,
1996. However, the Company anticipates that it may be in violation of
these covenants in the future until the debt covenants are changed or the
debt is restructured. A significant portion of the net loss during 1996
relates to the noncash write down of the excess of purchase price over
fair value of net tangible and identifiable intangible assets acquired
and software development and acquisition costs to their estimated fair
value (note 17). Since June 30, 1996, management has formulated plans to
return the Company to profitable operations and positive cash flow. In
the opinion of management, implementation of these plans will permit the
Company to meet its operating and debt cash requirements, at least
through the next fiscal year. The Company is subject to many
uncertainties over which management has limited control, any one of which
could adversely affect the Company's operating cash flows, and thus
create cash flow problems for the Company.
(3) Business Acquisitions
During the last three fiscal years, CTI has acquired various entities. In
each acquisition where CTI issued its stock as part or all of the
purchase consideration, the stock has been valued at the average of the
bid and ask prices on the date of closing, less an appropriate discount
for restrictions on marketability.
(a) Fiscal 1996
Preferred Health Systems, Inc.
Effective October 1, 1995, CTI acquired 100 percent of the equity
interest in Preferred Health Systems, Inc. (PHS), a software
development company. In connection with the acquisition, CTI
issued 75,000 shares of restricted common stock (valued at
$262,500) in exchange for all of the outstanding stock of PHS. PHS
is the owner and developer of a fourth generation language
software application for managed healthcare organizations. Results
of operations of PHS are included in the financial statements of
the Company since October 1, 1995. The acquisition has been
accounted for using the purchase method and the excess of purchase
price over fair value of net tangible assets acquired was
allocated to software development and acquisition costs and is
being amortized over five years.
Workgroup Design, Inc.
On December 22, 1995, CTI acquired 100 percent of the equity
interest in Workgroup Design, Inc. (WGD), a Lotus Notes
application development company. In connection with the
acquisition, CTI issued 25,000 shares of restricted common stock
(valued at $100,000) and a note payable in the amount of $42,000.
The financial statements of the Company include the results of
operations of WGD since the effective date of the acquisition. The
acquisition has been accounted for using the purchase method and
the excess of purchase price over fair value of net tangible
assets acquired is being amortized over five years.
(3) Business Acquisitions (continued)
Medfo Systems of America, Inc.
Effective January 1, 1996, CTI acquired 100 percent of the equity
interest in Medfo Systems of America, Inc. (Medfo). Medfo is a
business engaged in the distribution and support of software,
principally in the healthcare industry. In connection with the
acquisition of Medfo, CTI issued 40,267 shares of its restricted
common stock (valued at $134,089) and agreed to issue options to
the former owner and the employees of Medfo to acquire 150,000
shares of its common stock at fair market value as of the closing
date. Results of operations of Medfo are included in the financial
statements of the Company since January 1, 1996. The acquisition
has been accounted for using the purchase method and the excess of
purchase price over fair value of net tangible assets acquired is
being amortized over fifteen years.
The former owner of Medfo is a shareholder of CTI and was an
officer until September 1996. Prior to the acquisition, Medfo and
the medical division of CTI jointly conducted business pursuant to
a subcontract and assignment agreement under which CTI provided
software, hardware, and other resources to customers of Medfo, for
which CTI earned revenues. CTI had also advanced Medfo $256,312
for its business operations prior to the acquisition.
Automated Solution, Inc.
Effective February 1, 1996, CTI acquired 100 percent of the equity
interest in Automated Solutions, Inc. and Automated Systems of
Arizona, Inc., and 40 percent of the equity interest in Automated
Solutions of California, Inc. (collectively, ASI). ASI is a
business engaged in hardware and software distribution and related
support services, principally to the healthcare and certain
commercial industries. In connection with the acquisition of ASI,
CTI issued 50,000 shares of its restricted common stock (valued at
$200,000) to the former owners of ASI and agreed to settle certain
liabilities of a former owner of ASI in the approximate amount
of $114,000 related to his prior purchase of stock in ASI. CTI
also agreed to issue options to a former owner and the employees
of ASI to acquire 70,000 shares of its common stock at fair market
value as of the closing date. Results of operations of ASI are
included in the financial statements of the Company since February
1, 1996. The acquisition has been accounted for using the purchase
method and the excess of purchase price over fair value of net
tangible assets acquired is being amortized over fifteen years.
Source Computing
Effective February 1, 1996, CTI acquired 100 percent of the equity
interest in Source Computing, Inc., Medical Clearing Corporation,
and certain assets of a proprietorship, all of which were under
common ownership (collectively, Source). Source is a business
engaged in the development, distribution, and support of software,
principally in the area of practice management and electronic
claims processing for the healthcare industry. In connection with
the acquisition of Source, CTI issued an aggregate of 160,000
shares of its restricted common stock (valued at $640,000) and
agreed to pay an aggregate of $300,000 in cash. CTI also agreed to
issue options to the former owners and the employees of Source to
acquire 25,000 shares of its common stock at fair market value as
of the date of closing. Results of operations of Source are
included in the financial statements of the Company since February
1, 1996. The acquisition has been accounted for using the purchase
method and the excess of purchase price over fair value of net
tangible assets acquired is being amortized over fifteen years.
(3) Business Acquisitions (continued)
(b) Fiscal 1995
VERSYSS Data Systems
Effective September 1, 1994, CTI acquired 100 percent of the stock
of RK & DR Concepts, Inc. dba VERSYSS Data Systems (VDS) in
exchange for 1,500,000 shares of restricted common stock (valued
at $1,800,000) and a cash payment of $700,000. VDS markets
software, hardware and support services to the credit union,
healthcare, and rental industries. Results of operations of VDS
are included in the financial statements of the Company since
September 1, 1994. The acquisition has been accounted for as a
purchase and the excess purchase price over fair value of net
tangible assets acquired is being amortized over fifteen years.
Outside Force
Effective November 15, 1994, CTI acquired 100 percent of the stock
of Outside Force, Inc. (Outside Force) in exchange for 200,000
shares of restricted common stock (valued at $333,333) and a cash
payment of $250,000. Outside Force is the developer of a credit
union management software system written in a fourth generation
software language. Results of operations of Outside Force are
included in the financial statements of the Company since November
15, 1994. The acquisition has been accounted for as a purchase and
the excess purchase price over fair value of net tangible assets
acquired was allocated to software acquisition costs and is being
amortized over five years.
Benchmark Computer Systems of Omaha
Effective February 1, 1995, CTI acquired 100 percent of the stock
of Benchmark Computer Systems, Inc., (Benchmark of Omaha) in
exchange for 205,000 shares of restricted common stock (valued at
$410,000) and a cash payment of $200,000. Benchmark of Omaha
markets software, hardware and support services to the credit
union and healthcare industries. Results of operations of
Benchmark of Omaha are included in the financial statements of the
Company since February 1, 1995. The acquisition has been accounted
for as a purchase and the excess purchase price over fair value of
net tangible assets acquired is being amortized over fifteen
years.
Computer Ease
Effective February 1, 1995, CTI acquired 100 percent of the stock
of Computer Ease for cash of $350,000. Computer Ease is the
developer of a rental center management software system. Results
of operations of Computer Ease are included in the financial
statements of the Company since February 1, 1995. The acquisition
has been accounted for as a purchase and the excess purchase price
over fair value of net tangible assets acquired was allocated to
software acquisition costs and is being amortized over three
years.
(3) Business Acquisitions (continued)
Benchmark Systems of Virginia
Effective May 1, 1995, CTI acquired 100 percent of the stock of
Benchmark Systems of VA, Inc., (Benchmark of Virginia) in exchange
for 380,000 shares of restricted common stock (valued at $950,000)
and a cash payment of $1,000,000. Benchmark of Virginia markets
software, hardware and support services to the credit union and
healthcare industries. Results of operations of Benchmark of
Virginia are included in the financial statements of the Company
since May 1, 1995. The acquisition has been accounted for as a
purchase and the excess purchase price over fair value of net
tangible assets acquired is being amortized over fifteen years.
Benchmark Computer Systems of Wisconsin
Effective June 1, 1995, CTI acquired 100 percent of the stock of
Benchmark Computer Systems, Inc. (Benchmark of Wisconsin) in
exchange for 192,667 shares of restricted common stock (valued at
$481,668). Benchmark of Wisconsin markets software, hardware and
support services to the credit union and healthcare industries.
Results of operations of Benchmark of Wisconsin are included in
the financial statements of the Company since June 1, 1995. The
acquisition has been accounted for as a purchase and the excess
purchase price over fair value of net tangible assets acquired is
being amortized over fifteen years.
Medical Computer Management, Inc.
On May 18, 1995 CTI acquired 100 percent of the stock of Medical
Computer Management, Inc. and its 90 percent-owned subsidiary,
Healthcare Business Solutions of Arizona, Inc. (collectively,
MCMI) in exchange for 300,000 shares of restricted common stock.
MCMI develops, sells, and supports a medical management software
system written in a fourth generation software language. The
acquisition has been accounted for as a pooling of interests and,
accordingly, all prior period financial statements presented have
been restated as if the acquisition took place at the beginning of
the earliest period presented.
Sierra Surgery Center
Pursuant to an amended agreement in principle dated March 31,
1993, and effective November 1, 1994, CTI acquired 100 percent of
the stock of the Sierra Surgery Center (Sierra) in exchange for
415,000 shares of restricted common stock. Sierra operates a
surgery center in Nevada. Sierra and CTI were entities under
common control and accordingly the transaction has been accounted
for on an as if pooled basis. However, the financial statements of
the Company prior to the acquisition have not been restated due to
the insignificance of the historical results of operations of
Sierra.
(3) Business Acquisitions (continued)
(c) Fiscal 1994
Dimension Capital Corporation
On December 14, 1993, CTI completed a merger with Dimension
Capital Corporation (Dimension). The merger was accomplished
through the exchange of 1,589,030 shares of CTI's common stock for
100 percent of the equity interest in Dimension and the repurchase
of 14,066 shares held by dissenting stockholders of Dimension.
This transaction was accounted for as a recapitalization of CTI in
a manner similar to a reverse purchase. Accordingly, the
historical financial statements presented for the period prior to
the merger with Dimension are those of CTI. Concurrently with the
merger with Dimension, CTI issued 500,000 shares of restricted
common stock to certain private investors (including an officer
and director of CTI) at $1 per share. As part of this stock sale,
options to purchase an additional 1,000,000 shares of common stock
were also issued to these investors exercisable at fair market
value at the date of grant, with the exercise prices escalating
annually from $1.50 to $3.00 per share over the subsequent
five-year period.
CUSA, Inc.
In a series of transactions in June and July, 1994, CTI acquired
100 percent of the stock of CUSA, Inc. (CUSA) and the minority
interest in its subsidiaries held by third parties in exchange for
1,335,890 shares of restricted common stock (valued at
$1,335,890). CUSA develops credit union management software
systems and markets this software along with hardware and software
support services to the credit union industry. Results of
operations of CUSA are included in the financial statements of CTI
since June 30, 1994. The acquisition has been accounted for as a
purchase and the excess purchase price over fair value of net
tangible and identifiable intangible assets acquired is being
amortized over fifteen years.
Credit Union Division of VERSYSS, Inc.
Effective June 22, 1994, CTI acquired the software distribution
operations and certain assets of the credit union division of
VERSYSS, Inc. (the Division). The Division was a major distributor
of CUSA's credit union management software system. The purchase
price of the acquisition was approximately $3,122,000 consisting
of $2,100,000 in cash and $1,022,000 in assumed liabilities.
Results of operations of the Division are included in the
financial statements of the Company since June 22, 1994. The
acquisition has been accounted for as a purchase and the excess
purchase price over fair value of net tangible assets acquired is
being amortized over fifteen years.
Office Rental Complex
On June 22, 1994, CTI acquired 100 percent of the assets and
operations of an office complex (the Complex) located in Nevada.
The Complex, consisting of four separate buildings, was owned and
operated by three separate limited partnerships. One of the
general partners of these partnerships is an officer, director,
and major stockholder of the Company. Accordingly, the acquisition
has been accounted for as a transfer of assets between entities
under common control and was recorded at depreciated historical
cost. The Complex was acquired through the exchange of 1,000,000
shares of the Company's restricted common stock and 1,000,000
shares of the Company's Series A convertible preferred stock. The
results of operations of the Complex are included in the financial
statements of the Company since June 22, 1994.
(3) Business Acquisitions (continued)
Pro forma Results of Operations
Assuming all of the acquisitions described above had occurred at
the beginning of each period presented below, the Company's
unaudited pro forma condensed consolidated results of operations,
exclusive of nonrecurring charges, would have been approximately
as follows:
Year ended June 30,
----------------------------------------------------
1996 1995
--------------------- ----------------------
Revenues $ 29,464,459 27,095,289
===================== ======================
Earnings (loss) from continuing $ (2,780,965) 802,903
operations
===================== ======================
Earnings (loss) per share $ (0.33) 0.08
===================== ======================
The unaudited pro forma condensed consolidated results of
operations are not necessarily indicative of the actual results
that would have been achieved had the aforementioned acquisitions
taken place at the dates set forth above and are not necessarily
indicative of future results.
(4) Discontinued Operations
In June 1996, the Board of Directors of CTI committed to dispose of the
business and assets of the medical and commercial divisions. On July 2,
1996, CTI entered into an asset purchase agreement with Physician
Computer Network, Inc. (PCN) whereby PCN agreed to acquire substantially
all of the assets and assume certain liabilities of the medical and
commercial divisions. Terms of the purchase agreement, as subsequently
modified on October 15, 1996, provided for the purchase of certain
specified assets for $9,350,000, payable as follows: 1) $4,500,000 at
closing, 2) cancellation of $1,500,000 note payable to PCN incurred on
June 13, 1996, 3) $3,150,000 within five business days of receipt of
audited financial statements, and 4) $200,000 due upon transfer of
certain assets of one of the subsidiaries of CTI which were subject to a
court ordered receivership at the date of closing.
Also, according to the asset purchase agreement, PCN 1) assumed the
balances of the Company's liabilities related to accounts and notes
payable to Versyss, Inc., a subsidiary of PCN, deferred software support
and hardware maintenance obligations, accrued liabilities, and customer
deposits associated with the medical and commercial divisions, and 2)
assumed liability for certain real and personal property leases of the
Company with terms through October 1999.
Under the asset purchase agreement, CTI agreed to purchase from PCN not
less than $2,000,000 of hardware and software products during each
twelve-month period commencing July 1, 1996, for an aggregate commitment
of $10,000,000.
The medical and commercial divisions have been accounted for as
discontinued operations, and accordingly, the results of their operations
are segregated from continuing operations in the accompanying statements
of operations. Revenue, operating costs and expenses, other income and
expense, and income taxes of these divisions for the fiscal years ended
June 30, 1995 and 1994, have also been reclassified as discontinued
operations. No allocation of general corporate overhead has been made to
discontinued operations related to these divisions.
(4) Discontinued Operations (continued)
In June 1996, upon adoption of the plan to dispose of the medical and
commercial divisions, the Company recorded a provision for the estimated
loss on the disposal of the divisions in the amount of $2,494,451 (net of
income tax benefit of $-0-). This provision relates to the expected gain
on the sale to PCN, net of disposal costs, severance benefits to division
employees, certain occupancy costs under noncancelable leases, and
anticipated future losses related to assets and operations not sold to
PCN until their ultimate disposition is completed. Interest expense has
been allocated to discontinued operations in the same percentage as
assets of discontinued operations compared to total assets.
Summary operating results of discontinued operations for the fiscal years
ended June 30, 1996, 1995, and 1994, excluding the above loss on
disposal, are as follows:
1996 1995 1994
------------------ ----------------- -----------------
Revenues $ 13,949,298 8,413,992 2,555,703
=================== ================== =================
Gross profit $ 4,293,687 3,636,258 905,334
=================== ================== =================
Loss before income taxes $ (5,106,327) (472,533) (120,305)
Income tax benefit - (101,664) (27,882)
=================== ================== =================
Loss from discontinued operations $ (5,106,327) (370,869) (92,423)
=================== ================== =================
The assets and liabilities related to the discontinued operations have
been separately classified on the balance sheets as net assets of
discontinued operations. A summary of these assets and liabilities as of
June 30, 1996 and 1995, are as follows:
1996 1995
--------------- ---------------
Assets:
Trade accounts receivable, net $ 2,185,928 1,763,020
Other current assets 277,681 860,489
Property and equipment, net 536,552 661,945
Software development and acquisition costs, net 1,276,593 871,675
Excess of purchase price over fair value of net tangible and
identifiable assets acquired, net 8,827,260 7,099,670
Other noncurrent assets 156,997 9,648
--------------- ---------------
Total assets 13,261,011 11,366,447
--------------- ---------------
Liabilities:
Accounts payable, accrued liabilities, and customer deposits 2,142,351 1,262,204
Deferred revenue 1,945,140 1,668,743
Notes payable 1,597,686 97,686
Liability for estimated loss on disposal 2,494,451 -
--------------- ---------------
Total liabilities 8,179,628 3,028,633
=============== ===============
Net assets of discontinued operations $ 5,081,383 8,237,814
=============== ===============
(5) Lines Of Credit With Banks
Lines of credit with banks are as follows:
1996 1995
--------------- ------------------
--------------- ------------------
Line of credit, interest at prime plus 1.5% (9.75% at June 30,
1996), maximum available $1,500,000 secured by accounts
receivable, inventories, general
intangible assets and trust deed on real estate, $ 891,022 -
personally guaranteed by an officer and director of
the Company, due January 1997
Lines of credit, interest at prime plus 1/2% to prime plus 2%
secured by accounts receivable, inventories
and equipment, paid December 1995 and January 1996 - 373,247
=============== ==================
$ 891,022 373,247
=============== ==================
Certain of the lines of credit contain conditions including, but not
limited to, requirements that the Company maintain certain levels of
profitability and meet certain financial ratios, and restrictions on
dividend payments and acquisitions without bank approval. The Company is
either in compliance with these conditions or has obtained a waiver in
the event of noncompliance.
The Company uses the $1,500,000 line of credit to assist in meeting its
daily principal cash requirements. The Company borrows on this line to
pay for certain operating costs, debt service, and other costs. The
Company deposits all daily cash collections from accounts receivable and
other sources against the line to minimize amounts outstanding on the
line. The weighted average interest rate on the line of credit was 10.15
percent in 1996 and 11.00 percent in 1995. Total borrowings and
repayments under all lines of credit are as follows:
1996 1995
-------------------- -------------------
-------------------- -------------------
Total borrowings $ 12,636,603 1,007,432
Total repayments 12,118,828 1,293,252
==================== ===================
Net increase (decrease) $ 517,775 (285,820)
==================== ===================
(6) Long-term Debt With Related Parties
The Company is indebted to a company affiliated with an officer and
director of the Company for a long-term line of credit in the amount of
$995,000, all of which has been drawn at June 30, 1996 and 1995. This
line of credit accrues interest at 5.86 percent and is due December 31,
1997. The line is secured by accounts receivable and is subordinated to
the line of credit with a bank in the amount of $891,022 (note 5) and to
long-term debt with a bank in the amount of $1,320,148 (note 7). In
connection with this line, the Company issued warrants in exchange for
$5,000 to purchase 100,000 shares of the Company's restricted common
stock at $2.50 per share on or before December 31, 1997.
(6) Long-term Debt With Related Parties (continued)
The Company has issued debentures to an entity controlled by an officer
and director of the Company in the principal amount of $1,450,000 at June
30, 1996 ($150,000 at June 30, 1995). The debentures bear interest at 8
percent, payable quarterly, and are convertible into common stock of the
Company at $3.00 per share through June 30, 1996, $3.50 per share through
June 30, 1997, and $4.00 per share through June 30, 1998. The debentures
mature June 30, 1998.
In connection with the acquisition of the credit union division of
VERSYSS, Inc. in June of 1994, an officer and director loaned the Company
$1,405,000 in the form of an unsecured note. This obligation bore
interest at 9 percent and was paid in December 1994 from the proceeds of
other long-term debt with a bank.
(7) Long-term Debt
Long-term debt is summarized as follows:
1996 1995
--------------- ---------------
--------------- ---------------
Prime plus 1.5% (9.75% at June 30, 1996) note to a bank, payable in
monthly installments of $20,817 including interest, due December
2006, secured by trust deed on real
estate and assignment of rents, and personally guaranteed by $ 1,571,678 1,657,012
an officer and director of the Company (A)
Prime plus 1.5% (9.75% at June 30, 1996) note to a bank, payable in
monthly installments of $90,427 including interest, due October
1997, secured by inventories, accounts
receivable, equipment, and general intangible assets of the 1,320,148 -
Company (A)
9% note to a hardware maintenance company, payable in quarterly
installments of $41,667 plus interest, due October 1999, secured by
hardware maintenance agreements, and related
accounts receivable, paid in July 1996 500,000 -
Prime plus 1.5% (9.75% at June 30, 1996) note to a bank, payable in
monthly installments of $6,371 including interest, due December
1999, secured by a trust deed on real
estate and personally guaranteed by an officer and director 224,347 278,583
of the Company (A)
Prime plus 2.25% note to a commercial lender, payable in monthly
installments of $5,560 including interest, due February 2001,
secured by equipment, inventories, and trade
accounts receivable of Benchmark of Wisconsin, purchased by - 285,790
CTI in April 1996
Prime plus 2.25% note to a bank, payable in monthly installments of
$7,139 including interest, paid January
1996, secured by inventories, accounts receivable, and - 272,613
equipment of Benchmark of Omaha
Other notes and obligations, payable through March 1999 72,990 131,455
--------------- ---------------
3,689,163 2,625,453
Less current installments 3,258,269 772,982
=============== ===============
Long-term debt, less current installments $ 430,894 1,852,471
=============== ===============
(A) The Company was in violation of certain debt covenants related to the
three notes payable to the bank at June 30, 1996, which violation has
been subsequently waived by the bank through September 30, 1996. Because
the bank has not changed the covenants or agreed to waive future
violations of those covenants, the debt has all been classified as
current installments of long-term debt at June 30, 1996.
(7) Long-term Debt (continued)
Maturities of long-term debt are as follows:
Year ending June 30:
1997 $ 3,258,269
1998 175,546
1999 172,015
2000 83,333
Thereafter -
------------------
==================
$ 3,689,163
==================
(8) Convertible Preferred Stock
The 1994 Series A Convertible Preferred Stock (Preferred Stock) has a
preferential liquidation rate of $2.00 per share plus unpaid dividends
and may be redeemed at the Company's option at $2.00 per share. The
Preferred Stock pays dividends at the rate of $.12 per share per annum
and dividends are cumulative. The Preferred Stock is convertible into
common stock of the Company (subject to certain adjustments) at the rate
of three shares of the Preferred Stock for two shares of common stock.
The Preferred Stock is convertible into common stock at the option of the
preferred stockholder or automatically upon the occurrence of either of
the following:
The filing of a public offering of the securities of the Company
for a minimum of at least $2,000,000 in cash, or
The listing of the Company's common stock on the NASDAQ market at
a price of not less than $3.00 per share for at least 20 days prior
to the conversion date.
The Preferred Stock has voting rights based on the number of shares of
common stock that would be outstanding if the Preferred Stock were
converted.
(9) Employee Stock Option and Purchase Plans
(a) Stock Options
The Company has three stock option plans under which stock options
are granted at fair market value on the date of the grant. Options
are generally exercisable for a period of five years following the
date of grant and may include vesting provisions and/or stock
appreciation rights. Under the 1993 Employee Stock Option Plan,
the Company authorized the issuance of options to acquire up to
500,000 shares of the Company's common stock, of which 459,890
have been granted at June 30, 1996. Under the 1995 Employee Stock
Option Plan, the Company authorized the issuance of options to
acquire up to 300,000 shares, of which 195,450 have been granted
at June 30, 1996. The Director Stock Option Plan authorizes
options up to 82,500 shares, of which 65,000 have been granted at
June 30, 1996, and provides for the grant to each director serving
at the end of the fiscal year of an option to acquire 2,500 shares
of common stock. In addition to the options authorized under the
plans described above, the Board of Directors has also authorized
the issuance of 500,000 shares of common stock to be granted as
nonstatutory options to certain individuals, including certain
officers, directors, and stockholders, in conjunction with their
employment, equity and debt financing or personal guarantees.
(9) Employee Stock Option and Purchase Plans (continued)
The following is a summary of stock options for the three years
ended June 30, 1996:
Number of shares Price per share
------------------ ---------------------
------------------ ---------------------
Outstanding at July 1, 1993 - $ -
Granted 1,293,200 1.30 to 2.00
Exercised (250,000) 1.50
------------------
Outstanding at June 30, 1994 1,043,200 1.30 to 2.00
Granted 1,538,800 1.80 to 3.57
Exercised (1,360) 1.30 to 1.80
Forfeited (5,400) 1.30 to 1.80
------------------
Outstanding at June 30, 1995 2,575,240 1.30 to 3.57
Granted 553,256 1.63 to 6.12
Exercised (20,905) 1.30 to 3.00
Forfeited (258,285) 1.30 to 5.37
------------------
Outstanding at June 30, 1996 2,849,306 1.30 to 6.12
==================
Exercisable at June 30, 1996 2,008,065
==================
Available for grant at June 30, 1996 162,160
==================
(b) Employee Stock Purchase Plan
During the year ended June 30, 1995, the Company sponsored the
1994 Employee Stock Purchase Plan, under which the Company
reserved 400,000 shares of common stock. Under the terms of the
plan, any employee who was customarily employed for more than
twenty hours per week and more than five months in a calendar year
was eligible to participate. Eligible employees could purchase up
to 12,500 shares of the Company's common stock at 85 percent of
fair market value. The Company paid one-third of the purchase
price for the first 1,000 shares purchased. The stock purchase
plan terminated on June 30, 1995. Under the plan, 125 employees
purchased 254,635 shares of common stock for an aggregate purchase
price of $434,985 (including $66,684 paid by the Company).
(10) Retirement Plan
The Company sponsors a retirement plan under Section 401(k) of the
Internal Revenue Code. To participate an employee must meet certain
minimum age and length of service requirements. Company contributions to
the 401(k) plan are at the discretion of the Board of Directors. The
Company made no contribution to the 401(k) plan during 1996, 1995, or
1994.
(11) Income Taxes
Income (loss) from continuing operations before income taxes and the
related income tax expense consists of the following:
1996 1995 1994
================ =============== ===============
Income (loss) from continuing
operations before income taxes $ (9,849,714) 2,035,431 10,371
================ =============== ===============
Current:
Federal $ - 20,140 (9,634)
State - 1,725 -
Deferred:
Federal - 798,248 11,708
State - 68,423 -
================ =============== ===============
Total $ - 888,536 2,074
================ =============== ===============
Differences between income taxes attributable to continuing operations at
the statutory federal income tax rate and the Company's effective tax
rate of 34 percent are as follows:
1996 1995 1994
------------------ ---------------- -----------------
------------------
Tax at federal statutory rate $ (3,348,903) 692,047 3,526
State income taxes, net of federal tax - 46,298 -
benefit
Amortization and impairment of certain
intangible assets 1,325,588 96,734 -
Change in valuation allowance 1,984,975 - -
Other, net 38,340 53,457 (1,452)
================== ================ =================
$ - 888,536 2,074
================== ================ =================
Effective income tax rate 00.0 % 43.7 % 20.0 %
Components of deferred income tax assets and liabilities at June 30, 1996
and 1995, are as follows:
1996 1995
--------------- ---------------
Deferred tax assets:
Net operating losses $ 3,874,398 216,389
Certain accrued liabilities 1,588,166 120,983
Allowance for uncollectible accounts 616,853 28,098
Differences in deductible goodwill 844,960 -
Other, net 4,839 -
--------------- ---------------
6,929,216 365,470
Less valuation allowance (5,754,884) (96,614)
--------------- ---------------
1,174,332 268,856
--------------- ---------------
Deferred tax liabilities:
Capitalized software costs (902,312) (765,794)
Depreciation of property and equipment (272,020) (220,140)
Differences in deductible goodwill - (212,800)
Other, net - (26,388)
--------------- ---------------
--------------- ---------------
(1,174,332) (1,225,122)
--------------- ---------------
=============== ===============
Net deferred tax asset (liability) $ - (956,266)
=============== ===============
(11) Income Taxes (continued)
The Company has net operating loss carryforwards of approximately
$10,200,000 for income tax purposes which expire in years through 2011.
The utilization of approximately $3,100,000 of these net operating losses
were obtained from the acquisition of businesses and is subject to
limitation under the Internal Revenue Code Section 382, although
management believes that these net operating losses will become available
for utilization prior to their expiration.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax assets, CTI will
need to generate future taxable income of approximately $18,200,000 prior
to the expiration of the net operating loss carryforwards in 2011.
However, due to the uncertainty of the ultimate realization of the
deferred tax assets, the Company has increased its valuation allowance
against these assets to $5,754,884 at June 30, 1996. There was no change
in the valuation allowance for the year ended June 30, 1995.
(12) Leasing Arrangements
The Company leases substantially all of its office facilities under
noncancelable operating leases. One of these leases is with a company
controlled by an officer and director of the Company. The Company also
leases certain of its property and equipment under both capital and
noncancelable operating leases.
Future minimum lease payments under capital and noncancelable operating
leases as of June 30, 1996, are as follows:
Operating leases
------------------------------------------------------
Discontinued
operations
Continuing operations
--------------------------------------------------- ---------------
Capital Third parties Related party Third
leases parties
------------- --------------- ----------------- ---------------
Year ending June 30:
1997 $ 260,121 777,187 335,399 273,268
1998 157,575 497,545 347,685 161,830
1999 48,710 152,430 360,585 167,062
2000 507 8,460 374,132 99,209
2001 - - 388,355 -
Thereafter - - 1,555,548 -
------------- =============== ================= ===============
Total minimum 466,913 1,435,622 3,361,704 701,369
lease payments
=============== ================= ===============
Less amount representing 67,048
interest
-------------
Present value of
net minimum 399,865
capital lease
payments
Less current installments
of obligations under
capital leases 205,888
=============
$ 193,977
=============
(12) Leasing Arrangements (continued)
Total rent expense under operating leases from continuing operations was
$1,253,000 in 1996, $1,084,000 in 1995, and $117,000 in 1994, including
rent expense of $324,000 in 1996, $364,000 in 1995, and $-0- in 1994
under the lease with the company controlled by an officer and director of
the Company.
The Company owns an office complex consisting of four adjacent buildings
which are leased to various tenants under noncancelable operating leases.
Future minimum lease payments due from tenants as of June 30, 1996, are
as follows:
Year ending June 30:
1997 $ 372,836
1998 218,639
1999 182,042
2000 124,217
2001 49,408
Thereafter 167,012
-------------
$ 1,114,154
=============
(13) Related Party Transactions
(a) Receivables from related parties consist of the following:
1996 1995
------------- ---------------
12% note with a stockholder of the Company, payable
in monthly installments of $2,040, due in July $ 147,088 153,494
2005
10% obligation with a stockholder and director of
the Company, payable in monthly installments of
$1,297, until paid (A) 122,060 -
Receivable for costs incurred for water damage to
one of the buildings owned by the Company, amount
guaranteed by an officer and director of the - 131,560
Company (A)
8.5% note with a stockholder and employee of the Company,
interest payable annually, principal due upon termination of
employment, secured by 10,000
shares of CTI stock 49,315 45,000
Noninterest bearing advances to a stockholder of the
Company, repaid in August 1996 44,386 -
------------- ---------------
$ 362,849 330,054
============= ===============
(A) In 1996, the officer and director of the Company exchanged the
receivable for costs incurred for water damage for the ten percent
obligation that he held with another stockholder/director of the Company,
plus cash to equalize the exchange. The officer and director has
indemnified the Company against loss on the obligation received by the
Company in the exchange.
(13) Related Party Transactions (continued)
(b) Payables to related parties
At June 30, 1996 and 1995, payables to related parties principally
consist of amounts remaining to be paid on the acquisitions of
Versyss Data Systems ($540,384 at June 30, 1996 and $700,000 at
June 30, 1995), Benchmark of Virginia ($424,014 at June 30, 1996
and $1,000,000 at June 30, 1995), Source Computing ($175,000 at
June 30, 1996 and $-0- at June 30, 1995), Workgroup Designs
($28,000 at June 30, 1996 and $-0- at June 30, 1995), Benchmark of
Omaha ($-0- at June 30, 1996 and $150,000 at June 30, 1995), and
Computer Ease ($-0- at June 30, 1996 and $75,000 at June 30,
1995), respectively. All of these amounts have been paid
subsequent to June 30, 1996.
(c) Relocation agreement
In conjunction with the acquisition of VDS, the Company entered
into a relocation agreement with a current officer, director, and
stockholder under which the Company 1) has agreed to advance
$6,000 per month to be repaid on September 30, 1997, 2) has agreed
to pay additional compensation of $100,000, and 3) has agreed to
issue him options to purchase 200,000 shares of common stock at an
exercise price of $2.25 per share.
(14) Commitments and Contingent Liabilities
(a) Employment contracts
The Company has employment agreements with certain of its
management personnel. These agreements generally continue until
terminated by the employee or by the Company, and generally
provide for salary continuation for a limited period of time after
termination. In the case of three executives, their employment
agreements provide remaining employment terms of three to eight
years, although the Company may terminate the agreements for
payments ranging from $200,000 to $500,000. Additionally, in the
event of termination of one employment agreement, the Company
would be required to 1) cause all loans guaranteed by the employee
to be repaid or to obtain releases of the guarantees (notes 5 and
7), and 2) to redeem 500,000 shares of common stock held by the
employee at the bid price of the stock. As of June 30, 1996, the
Company has agreed to the termination of two of the executives.
Related severance compensation of $200,000 for one executive is
accrued in loss on disposal of discontinued operations (note 4)
and $500,000 has been recorded as a nonrecurring charge for the
other executive (note 17).
(b) Legal matters
The Company is involved in certain legal matters in the ordinary
course of business. In the opinion of management and legal
counsel, such matters will not have a material effect on the
financial position or results of operations of the Company.
(15) Supplemental Cash Flow Information
The Company has completed several business acquisitions during the years
ended June 30, 1996, 1995, and 1994. For all acquisitions described in
note 3 accounted for using the purchase method, a summary of the purchase
prices paid, fair value of assets acquired, and liabilities assumed
related to all acquisitions is as follows:
1996 1995 1994
---------------- --------------- -----------------
Fair value of assets acquired $ 2,988,610 15,051,322 11,825,081
Less cash acquired (133,293) (633,081) (150,335)
Liabilities assumed and minority (1,470,494) (10,370,022) (8,038,863)
interest
Issuance of common and preferred stock (1,336,589) (3,968,853) (3,036,218)
================ =============== =================
Cash paid for business acquisitions,
including acquisition costs, less $ 48,234 79,366 599,665
cash acquired
================ =============== =================
1996 1995 1994
--------------- ---------------- -----------------
Cash paid during the year for:
Interest $ 419,410 348,663 15,197
Income taxes 70,450 - 31,228
During the year ended June 30, 1996, the Company entered into the
following additional noncash financing and investing activities:
(a) The Company entered into an obligation under capital lease in
the amount of $214,425, and
(b) The Company issued stock with a market value on the date of
issuance equal to $150,000 in exchange for software development.
(16 ) Industry Segments
Information related to the Company's industry segments for the years
ended June 30, 1996, 1995, and 1994, is as follows:
1996 1995 1994
---------------- --------------- -----------------
Net revenues:
Computer information management
systems:
Credit Union $ 26,822,759 21,608,140 66,366
Rental 1,761,445 1,682,262 -
Real estate rental 480,420 428,292 10,019
Surgery centers 399,835 407,029 469,301
================ =============== =================
$ 29,464,459 24,125,723 545,686
================ =============== =================
Income (loss) from continuing operations
before income taxes (benefit):
Computer information management
systems:
Credit Union $ (4,412,674) 4,618,406 (6,034)
Rental (613,543) 44,428 -
Real estate rental 215,049 217,790 4,683
Surgery centers 103,180 120,848 251,776
---------------- --------------- -----------------
(4,707,988) 5,001,472 250,425
Corporate and other (1) (5,141,726) (2,966,041) 240,054
================ =============== =================
$ (9,849,714) 2,035,431 10,371
================ =============== =================
Identifiable assets (2):
Computer information management
systems:
Credit Union $ 7,115,242 13,123,864 8,421,345
Rental 395,828 728,181 -
Real estate rental 2,424,851 2,510,948 2,394,340
Surgery centers 187,352 254,937 416,345
---------------- --------------- -----------------
10,123,273 16,617,930 11,232,030
Corporate and other 1,051,345 1,234,499 252,531
Net assets of discontinued operations 5,081,383 8,237,814 67,379
================ =============== =================
$ 16,256,001 26,090,243 11,551,940
================ =============== =================
Depreciation and amortization:
Computer information management
systems:
Credit Union $ 2,143,667 1,301,688 -
Rental 50,546 47,891 -
Real estate rental 127,668 117,670 -
Surgery centers 19,380 15,445 12,084
================ =============== =================
$ 2,341,261 1,482,694 12,084
================ =============== =================
Capital expenditures:
Computer information management
systems:
Credit Union $ 1,878,911 746,653 -
Rental - - -
Real estate rental 5,877 15,054 49,835
Surgery centers 2,712 9,751 2,966
---------------- --------------- -----------------
$ 1,887,500 771,458 52,801
================ =============== =================
(16) Industry Segments (continued)
(1) Corporate and other includes corporate general and administrative
expenses, net interest expense, minority interests, and other
nonoperating income and expenses.
(2) Identifiable assets by industry segment exclude intercompany
receivables and investments. Corporate assets are principally
cash, deferred charges and certain notes receivable.
(17) Nonrecurring Charges
As previously discussed in the Company's quarterly report on Form 10-Q
dated March 31, 1996 and as a result of current operating losses, the
Company has completed an evaluation of impairment of its software
development and acquisition costs, and the excess of purchase price over
fair value of net tangible and identifiable intangible assets acquired in
business combinations. In this evaluation, the carrying value of these
assets were compared to the specific future estimated discounted cash
flows net of expenses to which these assets relate. Based on this
analysis, the following nonrecurring charges, principally related to the
credit union segment, have been provided in the accompanying consolidated
statement of operations for the year ended June 30, 1996:
Impairment of excess of purchase price over fair value of assets
acquired
$ 5,447,810
Impairment of software development and acquisition costs
1,009,839
--------------
$ 6,457,649
==============
Prior to June 30, 1996, the Board of Directors committed the Company to
terminate the employment contract of an employee/director (note 14(a)).
The Company has agreed to pay the required severance of $500,000 over a
two-year period commencing at approximately December 31, 1996. At June
30, 1996, the Company has accrued $611,100 as a nonrecurring charge,
representing the severance, one half of his annual salary, plus related
payroll taxes and benefits.
Independent Auditor's Report
The Board of Directors and Stockholders
CUSA Technologies, Inc.
Under date of November 8, 1996 we reported on the consolidated balance sheet of
CUSA Technologies, Inc. (the Company) and subsidiaries as of June 30, 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year ended June 30, 1996. In connection with
our audit of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein
KPMG Peat Marwick LLP
Salt Lake City
November 8, 1996
===================================================================================
===================================================================================
CUSA Technologies, Inc.
Schedule II
Valuation and Qualifying Accounts(1)
Year ended June 30, 1996(2)
Additions
Balance at charged to Charges Balance at
beginning cost and against end of
of year expenses allowance of year
--------------- --------------- ---------------- ----------------
Allowance for doubtful accounts $ 136,000 548,979 112,979 572,000
receivables
=============== =============== ================ ================
Accumulated amortization of software
development and acquisition costs $ 409,808 834,509 786,896 (3) 457,421
=============== =============== ================ ================
Accumulated amortization of excess
of purchase price over fair
value of net tangible and $ 364,146 360,209 724,355 (3) -
identifiable intangible assets
acquired
=============== =============== ================ ================
Deferred tax asset valuation $ 96,614 5,658,270 - 5,754,884
allowance
=============== =============== ================ ================
(1) Disclosures included in this Schedule II relate to assets and operations
of continuing operations as described in the footnotes to the financial
statements.
(2) Disclosures are presented only for the year ended June 30, 1996. For the
years ended June 30, 1995 and 1994, the Company reported pursuant to
Regulation S-B and was not required to include Schedule II in its
filings.
(3) As discussed in note 17 to the financial statements, the Company wrote
off excess of purchase price over fair value of net tangible and
identifiable intangible assets acquired and certain software development
and acquisition costs.
------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------------
In fiscal 1996, the board of directors of the Company elected to change auditors
from Grant Thornton LLP to KPMG Peat Marwick LLP. The reports of Grant Thornton
LLP for the 1995 fiscal year did not contain an adverse opinion or disclaimer
and were not modified as to uncertainty, audit scope, or accounting principles.
The Company and its former accountants, Grant Thornton LLP, did not disagree on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The change in auditors was reported
on Form 8-K dated May 10, 1996.
PART III
- -------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
- -------------------------------------------------------------------------------
At the end of fiscal 1996, the board of directors consisted of Richard N.
Beckstrand, chairman, Mark Scott, associate chairman, David
J. Rank, president, L. James Jensen, secretary/treasurer, L. Bruce Ford,
Gary L. Leavitt, and Jonathan S. Beckstrand.
The current board of directors and executive officers of the Company are as
follows:
Name Age Position With Company Term Expires
Richard N. Beckstrand 55 Chief Executive Officer, Chairman of the 1997 Annual Meeting
Board, Director
Mark Scott 47 Associate Chairman of the Board, Director 1997Annual Meeting
David J. Rank 42 President, Chief Operating Officer, 1997 Annual Meeting
Director
L. James Jensen, Jr. 41 Secretary/Treasurer, CEO Resource Group, 1997 Annual Meeting
Director
L. Bruce Ford, D.P.M. 48 Vice-President of Medical Services, 1996 Annual Meeting
Director
Gary L. Leavitt 54 Director 1996 Annual Meeting
Jonathan S. Beckstrand 28 Director 1996 Annual Meeting
D. Jeff Peck 41 Chief Financial Officer N/A
Roger Kuhns 50 CEO, Credit Union Division N/A
Set forth below is certain biographical information for each executive officer
and director of the Company:
Richard N. Beckstrand is currently serving as the Chief Executive Officer and
Chairman of the Board for CTI, positions he has held since December 1993. For
the three years prior to the acquisition of CUSA, Inc. by the Company in June of
1994, Mr. Beckstrand was an active member of CUSA, Inc.'s board of directors.
Mr. Beckstrand received a Masters of Business Administration from the University
of Utah in 1969 and became a Certified Public Accountant in May of 1983. For the
past 20 years, Mr. Beckstrand has provided personal financial consulting and
investment advice to medical professionals and medical imaging, and surgery
centers through Beckstrand Management Corporation and Aspen Business Company.
Mark Scott is a Director of the Company. For the past six years, Mr. Scott has
served as president of the Mid-Columbia Medical Center and Health Care for the
Mid-Columbia Region, located in The Dalles, Oregon. Before his tenure at
Columbia Medical, he held the position of Director of Surgical Services for the
University of Oregon and Associate Director of Surgery for LDS Hospital in Salt
Lake City, Utah.
David J. Rank, former president of VERSYSS Data Systems ("VDS"), was appointed
to the board of directors of CTI in August of 1994, and currently serves as
CTI's President and Chief Operating Officer. His computer industry career began
with The Burroughs Corporation in 1975 in the commercial computer products
division. In 1986 Mr. Rank was appointed as Contel Corporation's Vice-President
of Sales. In 1990, Messrs. Rank and Kuhns acquired VDS where Mr. Rank served as
president until VDS was acquired by CTI in September of 1994.
L. James Jensen, Jr., serves on the board of directors and as the
Secretary/Treasurer of CTI. He is currently the CEO of CTI's Resource Group
where he oversees the operations of the Company's statement processing, credit
bureau, and microfiche services. Mr. Jensen received a Bachelor of Arts degree
in both Accounting and Finance in 1980 from the University of Utah and a Masters
of Business Administration from the University of Utah in 1987. Before joining
CTI in June of 1995, Mr. Jensen was the Chief Operations Officer of Mountain
Diagnostics, Inc., a diagnostic imaging center located in Las Vegas, Nevada, and
served in various capacities, including Chief Executive Officer, of the Utah
Chapter of the American Red Cross.
L. Bruce Ford, D.P.M., is the Company's Vice-President of Medical Sales and has
been a member of the board of directors since December 14, 1993. Dr. Ford has
been a podiatrist in private practice since 1971.
Gary L. Leavitt is a Director of the Company. Mr. Leavitt founded CUSA, Inc.
in 1982, and served as its president until July of 1994. He has been employed
by CTI since its acquisition of CUSA, Inc., in July 1994, and has served the
credit union community for over 17 years.
Jonathan S. Beckstrand, is a Director of the Company. Mr. Beckstrand assists
in acquisition/disposition, SEC reporting, and investor relations matters of
the Company. He passed the CPA exam in 1994 and has been a member of the Utah
State Bar since 1995 (J.D. Brigham Young University, 1995). Mr. Beckstrand is
the son of Richard Beckstrand, Chief Executive Officer of the Company.
D. Jeff Peck is the Chief Financial Officer of the Company. Mr. Peck, a
Certified Public Accountant since 1981, is a member of the AICPA and the UACPA
and has 17 years of accounting experience. Prior to joining CTI, Mr. Peck was
a partner with the firm of Joseph B. Glass & Associates and participated in
the audits of several entities acquired by the Company in 1994 and 1995.
Roger L. Kuhns is the Chief Executive Officer of the Credit Union Division of
CTI. Mr. Kuhns has a B.A. in both Marketing and Finance from the University of
Maryland. His career in the computer industry began in 1971 with the Burroughs
Corporation. In 1979 Mr. Kuhns co-founded Lehigh Data Systems, which was later
sold to Contel Corporation. Mr. Kuhns served as Vice President of Canadian
sales, and later as the Vice President of Strategic Planning for Contel
Corporation. In 1990 Messrs. Kuhns and Rank acquired Benchmark Computer
Systems, presently VERSYSS Data Systems.
- -------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
Summary Compensation
The following table sets forth certain information regarding the compensation
earned during fiscal 1996 and, where applicable, 1995 and 1994, by CTI's Chief
Executive Officer and each of CTI's three other most highly compensated
executive officers (based on salary and bonuses earned during fiscal 1996).
Long Term Compensation
----------------------------------- ----------------------- -----------------------
Annual Compensation Awards Payouts
----------------------------------- ----------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Name and Principal Position Year Other Stock Underlying LTIP All Other
Ended Salary Bonus Annual Award(s) Options/ Payouts Compensation
June 30 ($) ($) Compensation ($) SARs (no.) ($) ($)
($)
- ---------------------------- ----------- ----------- --------- ------------- ---------- ------------ --------- -------------
Richard N. Beckstrand(3) 1996 $90,367 - - - 2,500 - (1)(3)
Chief Executive Officer
1995 - - - - 2,500 - (1)
1994 - - - - 5,000 - -
David J. Rank 1996 $180,000 200,000 - - 2,500 - (2)
President
Chief Operating Officer 1995 $140,000 - - 200,000 - -
100,000
2,500
Roger L. Kuhns 1996 $129,000 2,029 - - - -
CEO Credit Union Division
1995 $120,000 - - - - -
L. James Jensen, Jr. 1996 $105,000 2,029 - - 2,500 - -
Treasurer
CEO, Resource 18,000
Group Division
1995 8,750 - - - 57,000 - -
50,000
2,500
1994 - - - - 5,000 - -
(1) Mr. Beckstrand was also granted options to purchase 190,000 shares at an
exercise price of $2.50 in fiscal 1995 and options to purchase 68,400
shares at $5.00 per share in fiscal 1996 in connection with his personal
guarantees of a line of credit and an equipment loan made available to the
Company from a commercial financial institution.
(2) Mr. Rank was reimbursed an aggregate of $28,000 during the 1995 fiscal year
and $65,500, during the 1996 fiscal year for costs associated with the
maintenance of two households prior to his family relocation to Salt Lake
City and making his personal residence available for out-of-town Company
employees. The reimbursement was not treated as payment for personal
services to the Company. (SEE Item 13, Certain Relationships and Related
Transactions)
(3) The Company also reimbursed Beckstrand Management for $3,333 per month in
consideration for certain consulting services provided to the Company's
surgery centers by an employee of Beckstrand Management through September
of 1996. (SEE Item 13, Certain Relationships and Related Transactions)
Options/SAR Grants During Fiscal 1996
The following table sets forth information respecting all individual grants of
options and stock appreciation rights ("SARs") made during the last completed
fiscal year to the chief executive officer of the Company and the three most
highly paid executive officers of CTI.
(a) (b) (c) (d) (e)
% of Total
Number of Options/SARs
Securities Granted to
Underlying Employees During
Options SARS Fiscal Year Exercise of Base
Name Granted (no.) Price ($/share) Expiration Date
Richard N. Beckstrand(1) 2,500 - $3.57 July 1, 2000
Chief Executive Officer
David J. Rank 2,500 - $3.57 July 1, 2000
President, Chief
Operating Officer
Roger L. Kuhns 0 - - -
CEO, Credit Union
Division
L. James Jensen, Jr. 2,500 - $3.57 July 1, 2000
Treasurer 18,000 3% $3.00 June 28, 2001
CEO, Resource Group
(1) Mr. Beckstrand was also granted options to purchase 68,400 shares at $5.00
per share in fiscal 1996 in connection with his personal guarantees of an
equipment loan made available to the Company from a commercial financial
institution.
In November 1993, the Company adopted its Director Stock Option Plan that
provides for the grant of options to acquire 2,500 shares of common stock to
each director serving at the end of each fiscal year. The exercise price for
these options is fixed at the closing bid price for the common stock on the date
of grant or, in the event of a grant to a holder of 10% or more of the voting
power of the issued and outstanding stock of the Company, 110% of such bid price
(SEE Item 11, Executive Compensation, Stock Option Plans, Directors Stock
Options). The directors are reimbursed for direct expenses incurred in
connection with attending board meetings and completing their responsibilities.
Employment agreements
On March 15, 1996, the Company entered into a five year employment agreement
with Richard N. Beckstrand to serve as the Company's Chief Executive Officer.
The agreement provides for annual compensation of $320,000 per year. The
agreement may be terminated upon six months notice by either party after the
first anniversary of the contract. Upon termination Mr. Beckstrand is entitled
to a severance payment equal to one year's compensation, the release, by the
Company's lenders, of all loan guarantees executed by Mr. Beckstrand, and the
redemption, at the average bid price during the twenty days prior to the notice
of termination, of 500,000 shares of the Company's common stock held by Mr.
Beckstrand.
On June 10, 1994, in connection with the acquisition of CUSA, Inc., the Company
entered into a ten year employment agreement with Gary L. Leavitt, former
president and founder of CUSA, Inc. The agreement provides for an annual salary
of $200,000, the issuance of options to purchase 50,000 shares of the Company's
common stock at an exercise price of $1.30, and the issuance of options to
purchase 200,000 shares of the Company's common stock at an exercise price of
$2.00 The agreement may be terminated upon 30 days notice and the payment of a
$500,000 termination fee. In June of 1996, Mr. Leavitt was given notice of
management's intention to terminate the agreement in fiscal 1997.
On September 19, 1994, in connection with the acquisition of VDS, the Company
entered into a five year employment agreement with David J. Rank to serve as the
Company's Chief Operating Officer. The agreement provides for annual
compensation of $180,000 per year and the issuance of options to purchase
100,000 shares of the Company's common stock for a price of $1.80 per share.
After the first two years of the employment period, the Company may terminate
the agreement upon 30 days notice and the payment of $200,000. In order to
facilitate Mr. Rank's move to Salt Lake City, Utah (the location of the
principal business offices of the Company), the Company and Mr. Rank entered
into a relocation agreement. The terms of the relocation agreement was amended
on December 7, 1994 and, under the current agreement, through August of 1996,
the Company advanced $6,000 per month to Mr. Rank for the mortgage payments on
his home in Pennsylvania. Repayment of the amount advanced is due on the earlier
of December 7, 1999, the effective date of an offering of the Company's common
stock (in which case CTI will be obligated to allow Mr. Rank to register a
portion of his common shares equal in value to the amount owed pursuant to the
advances), the sale of a portion of Mr. Rank's restricted securities, or the
termination of Mr. Rank's employment agreement with CTI. The relocation
agreement also called for the immediate issuance to Mr. Rank of options to
purchase 200,000 shares of common stock at $2.25 per share and, in connection
with the agreement, the Company agrees to pay additional compensation of
$100,000 to Mr. Rank.. (SEE Item 13, Certain Relationships and Related
Transactions)
Each of the Company's executive officers is covered by the Company's medical
health insurance program, vacation and sick leave policies. Executive officers
receive benefits under these plans on the same terms as other employees of the
Company.
Compensation Committee Interlocks and Insider Participation
The Company does not have an active Compensation Committee. Compensation issues
are decided by the Board of Directors. Richard N. Beckstrand, David J. Rank,
L. James Jensen, Jr., and Gary L. Leavitt participated in deliberations of the
board of directors concerning executive officer compensation in fiscal 1996.
Board of Directors Report on Executive Compensation
Under the supervision of the Board of Directors, the Company has developed and
implemented compensation policies, plans, and programs that seek to enhance the
profitability and growth of the Company. The Company provides incentive to
management and employees through stock purchase plans, stock options and a
company-wide bonus program.
Salary
The Company seeks to attract and retain qualified employees by offering
competitive compensation packages. Base salaries are set to competitive levels
taking into account position, experience and geographic area. Sales
representatives are paid a base salary plus a commission percentage which
escalates as certain revenue targets are obtained by the individual. Sales
representatives achieving pre-determined revenue targets attend an expenses paid
winners circle trip.
Bonuses
The Company believes in allowing employees to share in its successes. In fiscal
1995 the Company instituted a bonus program whereby employees receive a bonus at
the end of profitable quarters. Approximately $50,000 was paid to employees
under this plan in fiscal 1995. No bonuses were awarded in 1996 as performance
goals were not achieved.
From time to time the Company pays bonuses to employees or teams of employees
based on the accomplishment of predetermined objectives such as development
milestones, the completion of a strategic transaction, exceptional customer
service, etc. Subsequent to the fiscal year end, the Company paid out bonuses to
certain employees, including some members of senior management, totaling
$152,803 in connection with the disposition of the medical and commercial
division.
Stock Option Plans
The Company seeks to provide ownership incentive to its employees through stock
options and stock purchase plans.
1993 Employee Stock Option Plan
The Company adopted its 1993 Employee Stock Option Plan in November of 1993, as
subsequently amended in July 1994, permitting the issuance of options covering a
total of 500,000 shares of common stock. Under the plan options can be granted
to key employees of the Company, including executive officers, as designated by
the board of directors. The options are intended to qualify as incentive stock
options under the provisions of the Internal Revenue Code of 1986, as amended,
and, as a consequence, the exercise price is fixed at the fair market value
(110% of the fair market value for options granted to holders of 10% or more of
the Company's voting stock) of the underlying common stock as of the date of
grant as determined by the board of directors of the Company. Options granted
under the plan generally vest at 20% per year over 5 years and expire if not
exercised within 90 days of termination, unless the termination is the result of
death or disability, and can be exercised by the delivery of cash, previously
owned common stock, or the surrender and cancellation of options. As of June 30,
1996, the Company has granted 459,890 options to employees under the terms of
this plan at exercise prices ranging from $1.30 to $3.00 per share. Of the
options granted, 22,315 had been exercised, and 119,815 have lapsed because of
terminations as of November 12, 1996.
1995 Employee Stock Option Plan
The Company adopted its 1995 Employee Stock Option Plan on April 6, 1995, which
permits the issuance of options covering a total of 300,000 shares of common
stock. These options can be granted to key employees of the Company, including
executive officers. The options are intended to qualify as incentive stock
options under the provisions of the Internal Revenue Code of 1986, as amended,
and as a consequence, the exercise price is fixed at the fair market value (110%
of the fair market value for options granted to holders of 10% or more of the
Company's voting stock) of the underlying common stock as of the date of grant
as determined by the board of directors of the Company. To date, the Company has
granted 220,450 options to employees under the terms of this plan at exercise
prices ranging from $2.25 to $6.12 per share. Of the options granted, 250 had
been exercised, and 108,808 have lapsed because of terminations as of November
12, 1996.
Director Stock Option Plan
In November 1993, the Company adopted its Director Stock Option Plan that
provides for the grant of options to acquire 2,500 shares of common stock to
each director serving at the end of each fiscal year. In fiscal 1996, through
the adoption of a Unanimous Consent, the Board of Directors increased the total
number of shares authorized for issuance under the plan from 62,500 to 82,500.
The exercise price for these options is fixed at the closing bid price for the
common stock on the date of grant or, in the event of a grant to a holder of 10%
or more of the voting power of the issued and outstanding stock of the Company,
110% of such bid price. To date the Company has granted 65,000 options out of
85,000 available under this plan. The options granted under the Director Stock
Option Plan can be exercised by the delivery of cash, shares of previously held
common stock, or the surrender or cancellation of options. None of the options
issued under the Director Stock Option Plan had been exercised as of October 1,
1996. Options to purchase an aggregate of 17,500 were granted on October 1, 1996
to the directors as of June 30, 1996 at an exercise price of $1.63 per share
($1.79 for 10% holders)
Non-Statutory Options
From time to time the Board of Directors has authorized the issuance of
non-statutory options in connection with financing arrangements, acquisitions,
and as part of an incentive program for management and key employees. As of
November 12, 1996, a total of 2,684,866 nonstatutory options had been granted,
of which 254,000 had been exercised and 58,000 had lapsed. Of the non-statutory
options granted, 1,358,400 were granted in connection with financing
arrangements, 759,466 were granted pursuant to acquisition documents to former
owners of acquired entities, and 567,000 were granted to management and key
employees. Generally, the non-statutory options have an exercise price equal to
the fair market value of the underlying common stock as of the date of grant as
determined by the board of directors. Options granted to management and key
employees, and to some of the former owners of acquired entities, generally vest
at 20% per year over 5 years and expire if not exercised within 90 days of
termination, unless the termination is the result of death or disability, and
can be exercised by the delivery of cash or previously owned common stock.
Employee Stock Purchase Plan
In 1995 the Company completed an Employee Stock Purchase Plan which permitted
employees, other than owners of 5% or more of the Company's common stock, to
purchase shares of common stock at 85% of the trading price for the common stock
as of the date of purchase. 125 employees purchased a total of 254,635 shares
under the plan, representing $368,301 in employee investment in the Company. The
plan called for a Company contribution of one third of the cost of the first
1,000 shares per employee. Pursuant to this provision, the Company contributed a
total of $66,684 toward employee stock purchases. The plan terminated on June
30, 1995.
The Company provides a group health, dental, and life insurance plan for its
employees consistent with self-funded group plans offered by other companies its
size. Generally, a portion of the monthly premium is paid by plan participants.
All employees, including executive officers and senior management, pay premiums
on the same basis.
CEO and Executive Officer Compensation
The Board of Directors establishes base compensation for executive officers,
including the CEO, by reference to surveys of similar companies as discussed
above, adjusted as deemed appropriate for variations in the talent and
experience of the individual, industry type, size, geographic location, and
profitability. Generally, bonuses and stock options are awarded on the same
basis as other employees, except for the non-statutory options, of which 500,000
were authorized by the Board of Directors for distribution to members of senior
management in fiscal 1995 and 1996. Some of the Company's employment agreements
call for guaranteed bonuses which are paid when due regardless of the Company's
profitability. In fiscal 1994, 1995 and 1996, the Company did not meet its
profitability objectives and with the exception of those bonuses which were
guaranteed pursuant to employment agreements, no bonuses were paid to the
Company's CEO or executive officers. However, subsequent to the fiscal year end,
bonuses totaling $100,458 were paid to certain executive officers in connection
with the sale of the assets of the Company's medical and commercial divisions to
PCN.
In fiscal, 1994 and 1995, the CEO, Richard N. Beckstrand, did not receive
compensation for his services to the Company as Chief Executive Officer. In the
second quarter of 1996, the Board of Directors decided that it would be in the
best interests of the Company to enter into a long-term employment agreement
with Mr. Beckstrand. Board Member Mark Scott and former Board Member Debbie
Sanich were assigned to survey the salaries of CEOs of companies of similar
size, industry and geographic location and to report the results to the Board,
with a recommended range for Mr. Beckstrand's compensation. After such a study
and some deliberation, the Board chose to enter into a five year employment
agreement with Mr. Beckstrand at a rate of $320,000 per year.
The foregoing report was furnished by: Richard N. Beckstrand
Mark Scott
L. James Jensen, Jr
David J. Rank
L. Bruce Ford, D.P.M.
Gary L.Leavitt
Jonathan S. Beckstrand
Performance Graph
Common Share Price Performance Graph
The following graph compares the cumulative total return of the Company's Common
Stock with the Nasdaq Stock Market (US Companies) and the Nasdaq Computer and
Data Processing Stocks during the fiscal years 1994 thru 1996*, assuming the
investment of $100 on April 1, 1990 and the reinvestment of dividends. Since the
Company's Common Stock did not start trading until January of 1994, return
information is not available for 1993 and 1992.
(Line graph of data table shown below)
6/30/94 6/30/95 6/30/96
CUSA Technologies, Inc. 100 133 171
Nasdaq Stock Market (U.S. Companies) 100 136 145
Nasdaq Computer and Data Processing Stocks 100 233 200
Source: Center for Research in Security Prices
*The Company's fiscal year end is June 30.
- -------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------------
The following table sets forth, as of June 30, 1996, the number of shares of the
Company's common stock, par value $0.001, held of record or beneficially by each
person who held of record or was known by the Company to own beneficially, more
than 5% of the Company's common or preferred stock, and the name and
shareholdings of each officer and director and of all officers and directors as
a group. All percentages are based on the 8,916,438 shares of common stock and
the 1,000,000 shares of preferred stock issued and outstanding as of June 30,
1996.
Name of Person or Group Amount and Nature of Ownership(1) Percent of Class(2)
Principal Shareholders
Richard N. Beckstrand Common Stock(3) 2,915,649 39.19%
5156 Cottonwood Lane Options 1,218,400
Salt Lake City, UT 84117
David J. Rank Common Stock 500,000 8.75%
986 West Atherton Drive Options 307,500
Salt Lake City, UT 84123
Gary L. Leavitt Common Stock(4) 709,330 10.54%
986 West Atherton Drive Options 257,600
Salt Lake City, UT 84123
Aspen Business Company Common Stock(5) 963,328 10.32%
1006 W. Atherton Drive
Salt Lake City, UT 84123
Joseph F. Jerkovich Common Stock 500,000 5.61%
26252 Eden Landing Road
Hayward, CA 94545
Roger L. Kuhns Common Stock 500,000 5.61%
986 West Atherton Drive
Salt Lake City, UT 84123
L. Bruce Ford, D.P.M. Common Stock(6) 344,318 3.97%
Pyramid Prof. Center Options 10,000
Suite 26 Preferred Stock 64,995 6.50%
2321 Pyramid Way
Sparks, NV 89106
Kim Bean, D.P.M. Common Stock 218,096 2.45%
1801 North Carson Preferred Stock 175,270 17.53%
Carson City, Nevada 89701
Val Jensen Pension Plan Common Stock 2,778 *
1001 North Mountain Street Preferred Stock 125,270 12.53%
Suite 2D
Carson City, Nevada 89701
Hannum Pension Plan Common Stock 11,500 *
990 South 550 West Preferred Stock 83,513 8.35%
Brigham City, Utah 84302
Roderick Sage
975 Ryland Street Preferred Stock(7) 208,513 20.85%
Reno, Nevada 89502
The Roberts Family Trust
890 Mill Preferred Stock (8) 208,513 20.85%
Reno, Nevada 89502
Officers and Directors
Richard N. Beckstrand ------See Above------
David J. Rank ------See Above-----
Roger L. Kuhns -----See Above-----
L. Bruce Ford, D.P.M. -----See Above-----
Gary L. Leavitt -----See Above-----
Mark Scott Common Stock 45,661 *
Options 10,000
L. James Jensen, Jr. Common Stock - 1.49%
Options 135,200 *
D. Jeff Peck Common Stock - *
Options 30,000 *
Jonathan S. Beckstrand Common Stock 29,000 *
Options 3,000
All Executive Officers and Common Stock 5,043,958 46.54%
Directors as a Group (9 persons) Options 1,971,700
Preferred Stock 64,995 6.50%
* Indicates less than 1% ownership
(1) Except as otherwise noted, to the best knowledge of the Company, all stock
is owned beneficially and of record by the indicated owner, and each
shareholder has sole voting and investment power over the stock. The total
beneficial ownership of common stock includes securities, except stock
options, which the shareholder has the right to acquire beneficial
ownership within 60 days. Stock options have been listed separately for
presentational convenience and unless otherwise noted, the beneficial
ownership of the common stock underlying each stock option listed may be
obtained within 60 days.
(2) The percentage of beneficial ownership for each shareholder is based on an
adjusted total of issued and outstanding common stock, equal to the total
common stock issued and outstanding at June 30, 1996 plus any security of
which the shareholder has the right to beneficial ownership within 60 days.
(3) Mr. Beckstrand's shares include 577,614 shares and $1,450,000 debentures
convertible into 414,286 shares held by Aspen Business Company, which is
wholly-owned by Mr. Beckstrand; 345,306 shares held by Beckstrand
Management that is wholly-owned by Mr. Beckstrand; and 264,000 shares
held by Firethorn Investment, Ltd. in which Mr. Beckstrand is a partner.
Since Mr. Beckstrand is an officer, director, and principal shareholder
of each of these entities, he may be deemed to have voting and
dispositive power over the shares and hence be the beneficial owner of
the shares.
(4) Includes 109,970 shares held by the Lyman Leavitt Family Trust and 100,000
shares held by the Lynette Leavitt Family Trust which are deemed
beneficially owned by Mr. Leavitt by virtue of his position as Trustee.
(5) Includes 1,450,000 debentures convertible into 414,286 shares of CTI
common stock.
(6) Includes 14,000 shares held by children of Dr. Ford.
(7) Includes shares held by the Roderick Sage, M.D., Ltd., Pension Plan and
Defined Benefit Plan and Roderick Sage.
(8) Includes shares held by the Roberts Family Trust and Frank Roberts.
- -------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------------------------
Richard N. Beckstrand
In December 1993, Richard N. Beckstrand became the chief executive officer,
chairman of the board of directors, and a principal shareholder of the Company.
Since that time, Mr. Beckstrand has been, and continues to be, the primary force
in identifying, negotiating, and completing the acquisitions undertaken by the
Company and in seeking and making arrangements for the financing necessary for
such acquisitions and the operations of the Company. Mr. Beckstrand was a
director of CUSA, Inc. and a principal shareholder of the Ford Center and the
Sierra Center prior to their acquisition by the Company. In addition, Mr.
Beckstrand had an ownership interest in the four professional office buildings
located in Nevada prior to their acquisition by the Company. Mr. Beckstrand is
also the owner of the real property leased by the Company for its principal
executive offices located at 986 West Atherton Drive, Salt Lake City, Utah
84123. The leased premises consist of 32,885 square feet with current monthly
rent of $24,383 and a primary term expiring February 1, 2005.
In December of 1994, Aspen Business Company, a corporation controlled by Mr.
Beckstrand, provided the Company with an accounts receivable line of credit in
the amount of $995,000, for which the holders receive interest at the rate of
5.86% per annum, payable quarterly, with the principal amount due December 31,
1997. The holders also purchased, for $5,000, warrants to purchase options in
connection with this transaction for an aggregate of 100,000 shares of
restricted common stock of the Company at an exercise price of $2.50 per share
at any time on or before December 31, 1997.
Additionally, Mr. Beckstrand has an existing and ongoing business relationship
to physicians through Beckstrand Management and Aspen Business Company, both of
which provide financial consulting and management services to physicians, some
of whom are shareholders of the Company. These companies provided such services
prior to the involvement of Mr. Beckstrand with the Company and will continue to
provide such services in the future.
In addition to arranging for the line of credit from Aspen Business Company, Mr.
Beckstrand has personally guaranteed the bank financing that has been made
available to the Company. In connection with these guarantees Mr. Beckstrand has
been granted options to acquire 68,400 shares of common stock at the lesser of
$5.00 or the market price on the date of exercise at any time prior to December
31, 1998, and options to acquire 190,000 shares of its common stock to Mr.
Beckstrand at an exercise price of $2.50 per share, exercisable at any time
prior to December 31, 1997.
Additionally, Mr. Beckstrand has agreed to indemnify the Company from any loss
resulting from water damage to one of the buildings owned by the Company that
was discovered shortly after the acquisition of the building by the Company.
These costs totaled $131,560 at June 30, 1996. In 1996, in satisfaction of
the amounts owed by Mr. Beckstrand pursuant to such indemnity, Mr. Beckstrand
transferred cash and a receivable (the "Receivable") due to a partnership
controlled by Mr. Beckstrand from Mr. L. Bruce Ford, D.P.M., who is a director
and shareholder of the Company. In November of 1996, Mr. Beckstrand indemnified
the Company with respect to any portion of the Receivable which the Company is
unable to collect.
The Company has authorized the issuance of convertible debentures, due on June
30, 1998, which bear interest at 8% and are convertible into shares of common
stock at a conversion price of $3.00 per share if exercised in 1996, $3.50 per
share in 1997 and $4.00 in 1998. The Company has issued an aggregate of
$1,450,000 of such debentures to Aspen Business Company, an entity controlled by
Richard N. Beckstrand.
As a result of the foregoing relationships, including his ownership interest in
acquired entities, Mr. Beckstrand holds, directly or indirectly, 2,915,649
shares of common stock of the Company and options to purchase an additional
1,218,400 shares of common stock with exercise prices ranging from $1.75 to
$5.00. The Company considers the terms of the transactions with Mr. Beckstrand
to be as favorable to the Company as would be available from third parties.
David J. Rank
The Company entered into a relocation agreement, which was amended on December
7, 1994 with Mr. Rank in connection with the acquisition of VDS. Pursuant to the
relocation agreement the Company is loaning Mr. Rank the $6,000 monthly mortgage
payment on his home in Bethlehem, Pennsylvania, has agreed to pay Mr. Rank
$100,000 in cash, and has agreed to issue Mr. Rank options to purchase 200,000
shares of common stock of the Company at an option exercise price of $2.25.
Repayment of the amount advanced is due on the earlier of December 7, 1999, the
effective date of an offering of the Company's common stock (in which case CTI
will be obligated to allow Mr. Rank to register a portion of his common shares
equal in value to the amount owed pursuant to the advances), the sale of a
portion of Mr. Rank's restricted securities, or the termination of Mr. Rank's
employment agreement with CTI. In addition, under the terms of the acquisition
of VDS, which terminated its election to be treated as a small business under
Subchapter S of the Internal Revenue Code of 1986, the Company agreed to cause
VDS to distribute $600,000 to the three former owners of VDS, including Mr.
Rank, and to repay Mr. Rank's capital contribution to VDS of $142,500.
Richard Pedersen
Effective January 1, 1996, the Company acquired 100% of the equity interest in
Medfo Systems of America, Inc. ("Medfo"). The sole shareholder of Medfo was at
the acquisition date, President of the Company's medical division and a
shareholder of the Company. Medfo is a business engaged in the distribution and
support of software, principally in the medical industry. In connection with the
acquisition of Medfo, the Company issued 40,267 shares of its restricted common
stock and agreed to issue options to the former owner and the employees of Medfo
to acquire 150,000 shares of its common stock at fair market value.
PART IV
- -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------------
For Financial Statements Schedules see Item 8 of this Report.
The following exhibits are included as part of this report:
Exhibit SEC Reference Title of Document Location
Number Number
- ------------ ---------------- ------------------------------------------------------------ -----------------
Item 3 Articles of Incorporation and Bylaws
3.01 3 Articles of Incorporation of CUSA Technologies, Inc., as Registration
amended February 7, 1994, and July 15, 1994 Statement filed
on Form SB-2,
Exhibit 3.01,
SEC File No.
33-71150-D
3.02 3 Bylaws of CUSA Technologies, Inc., as amended February 9, Registration
1995 Statement filed
on Form SB-2,
Exhibit 3.04,
SEC File No.
33-71150-D and
Report on Form
10-QSB for
March 31, 1995
3.03 3 Designation of Rights, Privileges and Preferences of 1994 Report on Form
Series Preferred Convertible Stock 8-K dated June
22, 1994
3.04 3 Registration Agreement between the Company and the holders Report on Form
of the 1994 Series Convertible Preferred Stock 8-K dated June
22, 1994
Item 4 Instruments Defining the Rights of Security Holders
4.01 4 Investor's Rights Agreement between Mountain Surgical Registration
Centers, Inc., and Dimension Capital Corporation, dated Statement filed
March 31, 1993 on Form SB-2,
Exhibit 4.03,
SEC File No.
33-71150-D
4.02 4 Stock Option Agreement between Dimension Capital Registration
Corporation and Howard S. Landa, dated June 30, 1993 Statement filed
on Form SB-2,
Exhibit 4.04,
SEC File No.
33-71150-D
4.03 4 Stock Option Agreement between Dimension Capital Registration
Corporation and Richard N. Beckstrand, dated June 30, 1993 Statement filed
on Form SB-2,
Exhibit 4.05,
SEC File No.
33-71150-D
4.04 4 Letter Agreement from Howard S. Landa to Dimension Capital Registration
Corporation Statement filed
on Form SB-2,
Exhibit 4.06,
SEC File No.
33-71150-D
4.05 4 Letter Agreement from Richard N. Beckstrand to Dimension Registration
Capital Corporation Statement filed
on Form SB-2,
Exhibit 4.07,
SEC File No.
33-71150-D
4.06 4 Amended Relocation Agreement between CUSA Technologies, Report on Form
Inc. and David J. Rank dated December 7, 1995 10-QSB dated
September 30,
1995
Item 10 Material Contracts
10.01 10 CUSA Technologies, Inc., 1993 Employee Stock Option Plan Registration
Statement filed
on Form SB-2,
Exhibit 10.01,
SEC File No.
33-71150-D
10.02 10 CUSA Technologies, Inc., 1993 Directors' Stock Option Plan Registration
Statement filed
on Form SB-2,
Exhibit 10.02,
SEC File No.
33-71150-D
10.03 10 CUSA Technologies, Inc., 1995 Employee Stock Option Plan Report on Form
10-QSB for
March 31, 1995
10.04 10 CUSA Technologies, Inc., Employee Stock Purchase Plan Report on Form
10-KSB for June
30, 1994
10.05 10 Agreement and Plan of Reorganization between Mountain Registration
Diagnostics, Inc., Mountain Surgical Centers, Inc., Statement filed
Surgery Subsidiary No. 1, and Ford Center for Foot on Form SB-2,
Surgery, Inc., dated October 21, 1992, as amended March Exhibits 10.03
31, 1993, and September 1, 1993 and 10.04, SEC
File No.
33-71150-D
10.06 10 Escrow Agreement between Mountain Diagnostics, Inc., Registration
Mountain Surgical Centers, Inc., Ford Center for Foot Statement filed
Surgery, Inc., Richard N. Beckstrand, L. Bruce Ford., on Form SB-2,
D.P.M., and Terrell W. Smith Exhibit 10.05,
SEC File No.
33-71150-D
10.07 10 Development Agreement between CUSA Technologies, Inc., and Registration
GlydNet, Inc., dated March 31, 1993 Statement filed
on Form SB-2,
Exhibit 10.09,
SEC File No.
33-71150-D
10.08 10 Subscription Agreement between Dimension Capital Registration
Corporation, Howard S. Landa, and Richard N. Beckstrand Statement filed
on Form SB-2,
Exhibit 10.10,
SEC File No.
33-71150-D
10.09 10 Agreement between Dimension Capital Corporation and Registration
Clayton T. Perkins, dated October 20, 1993 Statement filed
on Form SB-2,
Exhibit 10.11,
SEC File No.
33-71150-D
10.10 10 Independent Contractor Agreement between Mountain Surgical Registration
Centers, Inc., and Debbie Sanich, dated October 1, 1992 Statement filed
on Form SB-2,
Exhibit 10.12,
SEC File No.
33-71150-D
10.11 10 Agreement and Plan of Reorganization entered into by and Report on Form
between CUSA Technologies, Inc., and CUSA, Inc. 8-K dated July
21, 1994
10.12 10 Executive Employment Agreement with Gary L. Leavitt Report on Form
8-K dated July
21, 1994
10.13 10 Agreement and Plan of Reorganization entered into by and Report on Form
among CUSA Technologies, Inc., RK&DR Concepts, Inc., dba 8-K dated
VERSYSS Data Systems, and Roger L. Kuhns, Joseph F. September 19,
Jerkovich, and David J. Rank 1994
10.14 10 Employment Agreement between CUSA Technologies, Inc., and Report on Form
David J. Rank 8-K dated
September 19,
1994
10.15 10 Relocation Agreement between the Registrant and David J. Report on Form
Rank 8-K dated
September 19,
1994
10.16 10 Lease Agreement between CUSA, Inc., and Beckstrand Report on Form
Management Corporation dated October 5, 1987, as amended 10-KSB dated
December 13, 1988, September 1, 1989, June 8, 1990, June 30, 1994
September 1, 1990, June 25, 1991, October 20, 1992 and
March 12, 1993
10.17 10 Exchange Agreement by and among CUSA Technologies, Inc., Report on Form
and Pioneer Office Building "D" Limited Partnership, 8-K dated June
Doctors' Building Limited Partnership II, and Pioneer 22, 1994
Office Building Limited Partnership
10.18 10 Exchange Agreement by and among CUSA Technologies, Inc., Report on Form
Gary L. Leavitt and the Leavitt Family Trusts 8-K dated June
22, 1994
10.19 10 Asset Acquisition Agreement by and between CUSA Report on Form
Technologies, Inc., and VERSYSS Incorporated 8-K dated June
22, 1994
10.20 10 Agreement between the Registrant and Pioneer Building "D" Report on Form
Limited Partnership regarding indemnification for building 10-KSB dated
repair costs June 30, 1994
10.21 10 Agreement and Plan of Reorganization dated November 15, Report on Form
1994, between CUSA Technologies, Inc., New Outside Force, 10-QSB for
Inc., Outside Force, Inc., and Richard E. McFarland September 30,
1994
10.22 10 Employment Agreement with Richard E. McFarland Report on Form
10-QSB for
September 30,
1994
10.23 10 First Right of Refusal Agreement dated November 15, 1994, Report on Form
between Richard E. McFarland and CUSA Technologies, Inc. 10-QSB for
September 30,
1994
10.24 10 Agreement and Plan of Reorganization dated December 19, Report on Form
1994, between CUSA Technologies, Inc., Surgery Subsidiary 10-QSB for
No. 2, Inc., and Bean Center for Foot Surgery, Inc. dba December 31,
Sierra Surgery Center, H. Kim Bean, D.P.M., and Richard N. 1994
Beckstrand
10.25 10 Agreement and Plan of Reorganization dated January 27, Report on Form
1995, between CUSA Technologies, Inc., New Benchmark 10-QSB for
Computer Systems, Inc., Benchmark Computer Systems, Inc., December 31,
Mark J. Vanderloo, Diane Vanderloo, and Mark A. Boyer 1994
10.26 10 Acquisition Agreement dated February 7, 1995, between CUSA Report on Form
Technologies, Inc., Pamela R. Richards, and Janet E. 10-QSB for
Frisbey December 31,
1994
10.27 10 Purchase and Loan Agreement dated September 30, 1994, Report on Form
between CUSA Technologies, Inc., CUSA, Inc., RK&DR 10-QSB for
Concepts, Inc. dba VERSYSS Data Systems, and Aspen December 31,
Business Company on behalf of certain beneficial owners, 1994
including related Promissory Note, Security Agreement,
Form of Option, and Subordination Agreement
10.28 10 Term Loan Agreement dated December 16, 1994, between Zions Report on Form
First National Bank, CUSA Technologies, Inc., CUSA, Inc., 10-QSB for
and RK&DR Concepts, Inc. dba VERSYSS Data Systems, December 31,
including related Promissory Note, Continuing Guaranty of 1994
Richard N. Beckstrand and Carol Beckstrand, Term Loan
Trust Deed, Assignment of Rents and Security Agreement,
and Assignment of Leases for Security
10.29 10 Promissory Note in the principal amount of $300,000 to Report on Form
Zions First National Bank, N.A. and related Business Loan 10-QSB for
Agreement, Commercial Security Agreement, Deed of Trust, December 31,
and Commercial Guaranty of Richard N. Beckstrand and Carol 1994
Beckstrand
10.30 10 Promissory Note in the principal amount of $500,000 to Report on Form
Zions First National Bank, N.A. and related Loan 10-QSB for
Agreement, Commercial Security Agreement, Revolving Credit December 31,
Deed of Trust Security Agreement and Assignment of Rents, 1994
and Commercial Guaranty of Richard N. Beckstrand and Carol
Beckstrand
10.31 10 Employment Agreement dated January 31, 1995, between CUSA Report on Form
Technologies, Inc., and Mark J. Vanderloo 10-QSB for
December 31,
1994
10.32 10 Employment Agreement dated September 1, 1994, between CUSA Report on Form
Technologies, Inc., and Michael K. Hirano 10-QSB for
December 31,
1994
10.33 10 Employment Agreement dated September 19, 1994, between Report on Form
CUSA Technologies, Inc., and Craig E. Allen 10-QSB for
December 31,
1994
10.34 10 Stock Option Agreement dated January 20, 1994, between Report on Form
CUSA Technologies, Inc., and Richard N. Beckstrand 10-QSB for
December 31,
1994
10.35 10 Employee Stock Option dated September 1, 1994, between Report on Form
CUSA Technologies, Inc., and Michael K. Hirano 10-QSB for
December 31,
1994
10.36 10 Employee Stock Option dated September 19, 1994, between Report on Form
CUSA Technologies, Inc., and Craig E. Allen 10-QSB for
December 31,
1994
10.37 10 Agreement and Plan of Reorganization between CUSA Report on Form
Technologies, Inc., New Medical Computer Management, Inc., 10-QSB for
Medical Computer Management, Inc., and Phillip R. Krieg, March 31, 1995
Scott D. Brown, David W. Rathbun, and Roger R. Mitchell,
dated May 18, 1995
10.38 10 Employment Agreement between Phillip R. Krieg, CUSA Report on Form
Technologies, Inc., and Healthcare Business Solutions of 10-QSB for
Arizona, Inc., dated May 18, 1995 March 31,1995
10.39 10 Employment Agreement between Scott D. Brown, CUSA Report on Form
Technologies, Inc., and Medical Computer Management, Inc. 10-QSB for
dated May 18, 1995 March 31, 1995
10.40 10 Employment Agreement between David W. Rathbun, CUSA Report on Form
Technologies, Inc., Medical Computer Management, Inc., 10-QSB for
dated May 18, 1995 March 31, 1995
10.41 10 Employment Agreement between Robert R. Mitchell, CUSA Report on Form
Technologies, Inc., Medical Computer Management, Inc., 10-QSB for
dated May 18, 1995 March 31, 1995
10.42 10 Atherton Plaza Lease Agreement between Beckstrand and Report on Form
Associates and CUSA, Inc. dated January 5, 1995, as 10-QSB for
amended February 22, 1995 March 31, 1995
10.43 10 Agreement and Plan of Reorganization between CUSA Report on Form
Technologies, Inc., New Benchmark Systems of VA., Inc., 8-K dated June
Benchmark Systems of VA., Inc., and Richard A. Pedersen 30, 1995
and Bruce D. Matthews, dated April 24, 1995
10.44 10 Employment Agreement with Richard A. Pedersen Report on Form
8-K dated June
30, 1995
10.45 10 Employment Agreement with Bruce D. Matthews Report on Form
8-K dated June
30, 1995
10.46 10 Agreement and Plan of Reorganization between CUSA Report on Form
Technologies, Inc., New Benchmark Systems of Wisconsin, 8-K dated July
Inc., Benchmark Systems of Wisconsin, Inc., and Van 21, 1995
Gusdorff, dated July 21, 1995
10.47 10 Employment Agreement with Van Gusdorff Report on Form
8-K dated July
21, 1995
10.48 10 Non-Qualified Stock Option Granted to Van Gusdorff Report on Form
8-K dated July
21, 1995
10.49 10 Agreement and Plan of Reorganization between CUSA Report on Form
Technologies, Inc., Preferred Health Systems, Inc., Mark 10-KSB dated
L. McCabe, Steven R. Jones, and Joseph J. Hughes, dated June 30, 1995
September 29, 1995
10.50 10 Form of Convertible Debenture Report on Form
10-QSB dated
September 30,
1995
10.51 10 Agreement and Plan of Merger between CUSA Technologies, Report on Form
Inc. and Automated Systems, Inc. and Automated Solutions, 10-QSB dated
Inc. dated January 19, 1996 December 31,
1995
10.52 10 Agreement and Plan of Merger between CUSA Technologies, Report on Form
Inc. and Source Computing, Inc. dated February 10, 1996 10-QSB dated
December 31,
1995
10.53 10 Agreement and Plan of Merger between CUSA Technologies, Report on Form
Inc. and Medical Clearing Corporation dated February 10, 10-QSB dated
1996 December 31,
1995
10.54 10 Asset Purchase Agreement between Physician's Computer Report on Form
Network, Inc. and CUSA Technologies, Inc. dated July 2, 8-K dated July
1996 17, 1996
10.52 10 Employment Agreement of Richard N. Beckstrand This Filing
Item 16 Letter on Change in Certifying Accountant Contracts
16.01 16 Letter from Joseph B. Glass & Associates Report on Form
8-K dated March
24, 1995
16.02 16 Letter from Grant Thornton LLP Report on Form
8-K dated May
10, 1996
Item 21 Subsidiaries of CUSA Technologies, Inc.
21.01 21 Subsidiaries of CUSA Technologies, Inc. Report on Form
10-KSB dated
June 30, 1995
Item 27 Financial Data Schedule
27.01 27 Financial Data Schedule This Filing
Page 45
Reports on Form 8-K
The Company filed a report on Form 8-K dated May 10, 1996 with respect
to the change in certifying accountants, and a report on Form 8-K dated July 17,
1996 with respect to the disposition of the medical and commercial divisions of
the Company to Physicians Computer Network, Inc.
Upon request, the Company will provide a copy of this Form 10-K free of charge.
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SIGNATURES
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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 report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 20, 1996 CUSA Technologies, Inc.
/s/ Richard N. Beckstrand
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Richard N. Beckstrand, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Dated: November 20, 1996 By: /s/ Richard N. Beckstrand
_____________________________________
Richard N. Beckstrand, Principal
Executive Officer, Director
Dated: November 20, 1996 By: /s/ D. Jeff Peck
_____________________________________
D. Jeff Peck, Principal Financial
Officer
Dated: November 20, 1996 By: /s/ Craig Allen
_____________________________________
Craig Allen, Controller
Dated: November 20, 1996 By: /s/ L. James Jensen, Jr.
_____________________________________
L. James Jensen, Jr., Director
Dated: November 20, 1996 By: /s/ Jonathan S. Beckstrand
_____________________________________
Jonathan S. Beckstrand, Director
Dated: ____________, 1996 By: _____________________________________
Gary L. Leavitt, Director
Dated: November 20, 1996 By: /s/ David J. Rank
_____________________________________
David J. Rank, Director
Dated: ____________, 1996 By: _____________________________________
Mark Scott, Director
Dated: ____________, 1996 By: _____________________________________
L. Bruce Ford, D.P.M., Director