UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
Commission File Number: 33-15370-D
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CUSA Technologies, Inc.
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(Exact name of the registrant as specified in charter)
Nevada 87-0439511
--------------------------- --------------------------------
State of Incorporation IRS Identification Number
986 West Atherton Drive, Salt Lake City, Utah 84123
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(Address of principal executive offices)
(801) 263-1840
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(Telephone of registrant including area code)
Check 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 Issuer was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes ___X___ No ________
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by court.
Yes _______ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 10, 1996 the Issuer had 8,917,718 shares of its common stock, par
value $0.001 per share, issued and outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUSA Technologies, Inc. (the "Company"), has included the consolidated balance
sheets of the Company and its subsidiaries as of December 31, 1996 (unaudited)
and June 30, 1996 (the end of the Company's most recent fiscal year), the
unaudited consolidated statements of operations for the three months ended
December 31, 1996 and 1995 together with unaudited condensed notes thereto and
the unaudited consolidated statements of operations and cash flows for the six
months ended December 31, 1996 and 1995.
In the opinion of management of the Company, the financial statements reflect
all adjustments, all of which are normal recurring adjustments, necessary to
fairly present the financial condition of the Company for the interim periods
presented. The financial statements included in this report on Form 10-Q should
be read in conjunction with the audited financial statements of the Company and
the notes thereto included in the annual report of the Company on form 10-K for
the year ended June 30, 1996.
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
1996 1996
----------------- -------------------
Assets
Current Assets:
Cash $1,163,102 583,080
Trade accounts receivable,
net of allowance for
doubtful accounts 4,793,485 2,987,680
Inventories 252,488 140,402
Prepaid expenses and other 468,344 425,148
assets
Net assets of discontinued - 5,081,383
operations
----------------- -------------------
Total current 6,677,419 9,217,693
assets
Property and
equipment :
Land 297,688 297,688
Buildings and improvements 2,516,223 2,423,416
Furniture, fixtures and 2,863,539 2,672,653
equipment
Other 645,086 668,405
----------------- ------------------
Total property and 6,322,536 6,062,162
equipment
Less accumulated depreciation 1,764,761 1,371,761
and amortization
----------------- --------------------
Net property and 4,557,775 4,690,401
equipment
Equipment under 146,816 233,816
capital lease
obligations, net
Receivables from 499,277 362,849
related parties
Software 1,457,379 1,531,158
development and
acquisition costs,
net
Other assets 190,125 220,084
================= ===============
$ 13,528,791 16,256,001
================= ===============
The accompanying notes are an integral part of these financial
statements.
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
1996 1996
------------------ -----------------
Liabilities and Stockholders' Deficit
Current
liabilities:
Line of credit with bank 229,017 891,022
Current installments of 2,609,312 3,258,269
long-term debt
Current installments of 183,982 205,888
obligations under capital
leases
Current installments of long 100,000 -
term debt with related parties
Accounts payable 2,617,673 3,823,560
Accrued liabilities 2,299,351 3,309,083
Customer deposits 3,480,742 1,690,973
Income taxes payable 12,676 18,081
Payables to related parties - 1,167,398
Net liabilities of 687,072 -
discontinued operations
Deferred revenue 5,999,210 5,057,444
--------------- ------------------
Total current 18,219,035 19,421,718
liabilities
Long-term debt 2,445,000 2,445,000
with related
parties
Long-term debt, - 430,894
excluding current
installments
Obligations under 144,356 193,977
capital leases,
excluding current
installments
----------------- -----------------
Total liabilities 20,808,391 22,491,589
Commitments and - -
contingent
liabilities
Stockholders'
deficit:
Series A convertible
preferred stock, $.001 par
value; authorized 1,000 1,000
1,500,000 shares; issued and outstanding
1,000,000 shares Common stock,
$.001 par value; authorized 25,000,000 shares;
issued and outstanding 8,917,718 shares
at December 31, 1996 and 8,916,438 shares at
June 30, 1996 8,918 8,916
Additional paid-in capital 10,530,307 10,530,308
Accumulated deficit (17,819,825) (16,775,812)
----------------- ---------------
Total (7,279,600) (6,235,588)
stockholders'
deficit
================= ===============
$ 13,528,791 16,256,001
================= ===============
The accompanying notes are an integral part of these financial
statements.
0 0
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
December 31, December 31,
----------------------------------------------------
1996 1995 1996 1995
----------------------------------------------------
Net revenues:
Hardware and software $ 2,758,924 4,428,857 4,556,540 7,707,872
sales
Support, maintenance 4,566,848 3,932,889 8,777,740 7,704,380
and other services
Other revenue 251,620 269,137 433,113 485,551
----------------------------------------------------
Total revenues 7,577,392 8,630,883 13,767,393 15,897,803
----------------------------------------------------
Cost of goods sold
and other direct
costs:
Hardware and software 1,105,374 2,130,425 1,906,635 3,526,048
Support, maintenance 2,842,953 2,397,403 5,599,628 4,607,049
and other services
Other 103,047 77,079 186,014 162,806
----------------------------------------------------
Total cost of goods sold and other 4,051,374 4,604,907 7,692,277 8,295,903
direct costs
----------------------------------------------------
Gross profit 3,526,018 4,025,976 6,075,116 7,601,900
Product development 692,174 257,132 1,293,993 545,588
costs
Selling, general and 2,579,527 3,336,583 5,306,031 6,319,264
administrative
expenses
----------------------------------------------------
Operating income (loss) 254,317 432,261 (524,908) 737,048
Other income
(expense):
Interest expense (137,566) (96,590) (298,278) (178,641)
Other, net 5,888 22,676 (649) 24,152
----------------------------------------------------
Income (loss) from continuing
operations before income taxes 122,639 358,347 (823,835) 582,559
Income tax expense - 200,878 - 335,749
----------------------------------------------------
Income (loss) from 122,639 157,469 (823,835) 246,810
continuing operations
Loss from - (53,640) - (180,162)
discontinued
operations, net of
income taxes
Loss from disposal
of discontinued
operations,
net of income taxes (78,455) - (160,176) -
====================================================
Net Income (loss) $ 44,184 103,829 (984,011) 66,648
====================================================
Income (loss) per
common and common
equivalent share:
Primary
From continuing operations $ 0.01 0.01 (0.10) 0.02
From discontinued operations $ (0.01) (0.01) (0.02) (0.02)
Fully Diluted
From continuing operations $ 0.01 0.01 0.02
From discontinued operations $ (0.01) (0.01) (0.02)
Weighted average
common and common
equivalent shares:
Primary 8,917,718 9,814,539 8,917,718 9,721,645
Fully Diluted 9,917,718 9,921,639 9,885,194
The accompanying notes are an integral part of these financial
statements.
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended December 31,
1996 1995
_______________ ____________
Cash flows from
operating
activities:
Income (loss) from $ (823,835) 246,810
continuing
operations
Adjustments to
reconcile income
(loss) from
continuing
operations
to net cash used
in operating
activities:
Depreciation and 763,859 1,072,687
amortization
Provision for 35,749 22,222
doubtful accounts
Net change in
current assets
and liabilities:
Trade accounts receivable (1,841,554) (948,099)
Inventories (112,086) 222,006
Prepaids expenses and other (43,196) (154,421)
assets
Accounts payable and accrued (2,215,619) 846,682
liabilities
Customer deposits 1,789,769 909,170
Income taxes payable (5,405) (20,061)
Deferred income taxes - 406,376
Deferred revenue 941,766 731,664
----------------- ------------------
Net cash provided by (used in) (1,510,552) 3,335,036
continuing operating activities
Net cash used in (2,091,721) (1,233,159)
discontinued
operations
------------------ -------------------
Net cash provided by (used in) (3,602,273) 2,101,877
operating activities
Cash flows from
investing
activities:
Software (210,081) (352,414)
development costs
Capital (260,374) (800,804)
expenditures
Cash paid for - -
acquisitions
Advances to (136,428) -
related parties
Decrease in other 29,959 (3,664)
assets
Net cash provided 7,700,000 (617,617)
by (used in)
investing
activities of
discontinued
operations
------------------ -----------------
Net cash provided by (used in) 7,123,076 (1,774,499)
investing activities
Cash flows from
financing
activities:
Net borrowings (662,005) (329,211)
under lines of
credit
Repayments of (71,527) (104,437)
obligations under
capital leases
Repayment of (1,167,398) (439,026)
long-term debt
with related
parties
Proceeds from - 1,300,000
long-term debt
with related
parties
Issuance of - 2,009
common stock and
exercise of stock
options
Payments to - (50,000)
acquire common
stock
Repayments of (979,851) (148,492)
long-term debt
Preferred (60,000) (60,000)
dividend
distributions
---------------- ----------------
Net cash provided by (used in) (2,940,781) 170,843
financing activities
Net increase in cash 580,022 498,221
Cash at beginning 583,080 818,883
of period
================= ==================
Cash at end of $ 1,163,102 1,317,104
period
================= ==================
The accompanying notes are an integral part of these financial
statements.
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of CUSA
Technologies, Inc. (the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. These financial statements and footnote disclosures should
be read in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's latest report on Form 10-K for the
year ended June 30, 1996. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to fairly present the Company's
consolidated financial position as of December 31, 1996 and its consolidated
results of operations and cash flows for the six months ended December 31, 1996
and 1995. The results of operations for the three and six months ended December
31, 1996 may not be indicative of the results that may be expected for the year
ending June 30, 1997.
(2) Liquidity
During the six months ended December 31, 1996, the Company incurred a loss from
continuing operations of $823,835, incurred a net loss of $984,011, used cash in
operating activities of $3,602,273 and at December 31, 1996 had a stockholders'
deficit of $7,279,600. The losses have resulted in a violation of certain debt
covenants with the Company's primary financial institution, which have been
waived by the financial institution through September 30, 1996. The Company is
negotiating to amend such covenants to conform to currently anticipated future
operating results. During the second quarter of the fiscal year, management has
partially implemented a plan to return the Company to profitable operations and
a positive cash flow. As a result of the operations for the three months ended
December 31, 1996, the Company had income from continuing operations of $122,639
and net income (including a loss on disposal of discontinued operations of
$78,455) of $44,184. In the opinion of management, full implementation of these
plans will permit the Company to meet its operating and debt cash requirements
through the next 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 flow, and thus create cash flow problems for the
Company. Subsequent to December 31, 1996 the Company agreed to sell 8.6 million
shares of common stock for $8.0 million in cash to its Chairman and Chief
Executive Officer. (See foot note 6).
(3) Discontinued Operations
In June 1996, the Board of Directors of the Company committed to dispose of the
business and assets of the medical and commercial divisions. On July 2, 1996,
the Company consummated 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.
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 three and six months ended December 31, 1996 and 1995,
have been reclassified as discontinued operations. No allocation of general
corporate overhead has been made to discontinued operations related to these
divisions.
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 loss on the sale to PCN, net of
disposal costs, severance benefits to division employees, certain occupancy
costs under non-cancelable leases, and anticipated future losses related to
assets and operations not sold to PCN until their ultimate disposition is
completed. The estimation of the loss on the disposal of the divisions requires
management to make estimates and assumptions that affect the reported amount
of the loss on disposal. Actual results could differ from those estimates.
As such estimates are adjusted or as actual results occur, the adjustments to
the estimates are reported in the current period as additional gain or loss
on disposal. During the three and six month periods ended December 31, 1996,
the Company recorded additional losses on the disposal of the
divisions in the amount of $78,455 and $160,176, respectively, (net of income
tax benefit of $-0-).
The remaining assets and liabilities related to the discontinued operations have
been separately classified on the balance sheets as net assets (or net
liabilities) of discontinued operations. A summary of these assets and
liabilities as of December 31, 1996 is as follows:
Assets:
Trade accounts receivable, net $ 140,453
Prepaid expenses and other assets 200,000
-------
Total assets 340,453
Liabilities:
Customer deposits 50,491
Liability for estimated loss on disposal 977,030
Total liabilities 1,027,521
Net liabilities of discontinued operations $ 687,072
=========
(4) Income (loss) per Share
Income or loss per common and common equivalent share is computed by dividing
net income (loss) by the weighted average common shares outstanding during the
period, including common equivalent shares (if dilutive). Common equivalent
shares include stock options, convertible preferred stock and convertible debt.
Common equivalent shares are calculated on stock options and convertible debt
only when the market price of the common stock obtainable has been in excess of
the exercise price for substantially all of the three consecutive months ending
with the last month of the period reported. No common stock equivalent shares
related to stock options or convertible debt have been included in the earnings
per share calculation for the three months ended December 31, 1996. No fully
diluted loss per share has been reported for the six month period ending
December 31, 1996, since the inclusion of such shares would be anti-dilutive.
Income used in this calculation is reduced (loss is increased) by the dividends
paid to preferred stockholders.
(5) Contingent Liabilities
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, such matters will not
have a material effect on the financial position or results of operations of the
Company.
(6) Subsequent Event
Subsequent to December 31, 1996 the Company agreed to sell approximately 8.6
million shares of its common stock, representing 49% of the common stock to be
outstanding after the completion of the sale, to its Chairman and Chief
Executive Officer for $8.0 million in cash. Approximately $3.8 million will be
used to retire long-term debt, $2.0 million will be used to redeem the
outstanding preferred stock and the remainder will be added to the working
capital of the Company. The following unaudited condensed consolidated pro forma
balance sheet as of December 31, 1996, represents an estimate of how the balance
would have appeared if the transaction had occurred on that date. The above
information was used to estimate the Pro forma adjustments listed below:
Pro forma
Balance Balance
December 31, Pro forma December 31,
1996 Adjustments 1996
------------------ ----------- ------------
Assets $ 13,528,791 2,000,000 15,528,791
============== =========== ============
Liabilities and Stockholders' Deficit:
Liabilities $ 20,808,391 (4,000,000) 16,808,391
Stockholders' Deficit ( 7,279,600) 6,000,000 (1,279,600)
---------------- ------------ ---------------
$ 13,528,791 2,000,000 15,528,791
================ ============ ===============
As of the date of this report the agreement had not been consummated. As a
result the above estimated Pro forma adjustments may not represent the actual
results of the transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 all of the significant 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.
Net revenues
The Company's net revenues decreased 12.0 percent from $8,630,883 in the first
quarter of fiscal 1996 to $7,577,392 in the first quarter of fiscal 1997 and 7.3
percent from $15,897,803 in first six months of fiscal 1996 to $13,767,393 in
the first six months of fiscal 1997.
Revenues from hardware and software sales decreased 48.1 percent from $4,428,857
in the first quarter of fiscal 1996 to $2,758,924 in the first quarter of fiscal
1997 and 45.9 percent from $7,707,872 in the first six months of fiscal 1996 to
$4,556,540 in the first six months of fiscal 1997. The decrease in system
revenues was the result of increased management focus on the profitability of
system sales and the increase in the lead times for procuring certain components
of hardware from the Company's major hardware vendor, both of which increased
the length of sales cycle for new systems sales. As would be expected, the
Company's backlog for hardware/software deliveries increased from approximately
$1,100,000 at December 31, 1995 to approximately $2,200,000 at December 31,
1996. Additionally, revenues from system sales in the Company's rental division
were significantly less in the first and second quarters of 1997 when compared
to 1996.
Revenues from support, maintenance and other services increased 18.6 percent
from $3,932,889 in the first quarter of fiscal 1996 to $4,566,848 in the first
quarter of fiscal 1997 and 21.5 percent from $7,704,380 in the first six months
of fiscal 1996 to $8,777,740 in the first six months of fiscal 1997. The
increase was due to increased sales of the Company's statement processing
services and the addition of software and hardware maintenance accounts through
new system sales.
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 margin increased from 51.9 percent in the first
quarter of fiscal 1996 to 59.9 percent in the first quarter of fiscal 1996 and
from 54.3 percent in the first six months of fiscal 1996 to 58.2 percent in the
first six months of fiscal 1997. In the same period, the gross margin from
support, maintenance and other services revenue decreased from 39.0 percent in
the first quarter of fiscal 1996 to 37.8 percent in the first quarter of fiscal
1997 and from 40.2 percent in the first six months of fiscal 1996 to 36.2
percent in the first six months of fiscal 1997. The increases in the hardware
and software gross margin are primarily attributable to increased management
emphasis on the profitability of systems shipped in 1997. The decreases, in the
first and second quarters of fiscal 1997, in the gross profit margin from
support, maintenance and other services revenue are due to decreased software
and hardware sales, resulting in a decrease in the amount of revenue to cover
the fixed costs of the Company's installation and training departments,
increased software support costs from the build up of support resources for the
Reliance product, and increased lower margin statement processing services as a
percentage of support, maintenance and other services. 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 include funds used for research and development,
system operational error fixes and maintenance software upgrades. As expected,
product development costs increased from $257,132 in the first quarter of fiscal
1996 to $692,174 in the first quarter of fiscal 1997 and from $545,588 in the
first six months of fiscal 1996 to $1,293,993 in the first six months of fiscal
1997. The increase reflects the Company's commitment to continue to improve
current products and to invest in the development of new products, with an
increased emphasis on research and development, which is expensed in the period
incurred, over capitalized expenditures.
Selling, general and administrative costs
The selling, general, and administrative expenses for the Company decreased 22.7
percent from $3,336,583 in the first quarter of fiscal 1996, to $2,579,527 in
the first quarter of fiscal 1997 and 16.0 percent from $6,319,264 in the first
six months of fiscal 1996 to $5,306,031 in the first six months of fiscal 1997.
This decrease was due to the reduction, in the first and second quarters of
fiscal 1997, of selling and general corporate overhead expenses and the
elimination of the amortization of goodwill, which was written off as a
nonrecurring charge in fiscal fiscal 1996. These expense reductions have been
achieved through the gradual reduction of overhead and administrative personnel.
Although the Company believes that continued efforts will result in additional
redirections of selling, general and administrative expenses in the remainder of
fiscal fiscal 1997, no assurance can be given that such efforts will be
successful.
Interest and income tax expense
Interest expense increased 42.4 percent in the first quarter of fiscal 1997 when
compared to the first quarter of fiscal 1996 and 67.0 percent in the first six
months of fiscal 1997 when compared to the first six months of fiscal 1996. The
increase was due primarily to an increase in average debt outstanding. In the
third quarter of fiscal 1997, the Company expects interest expenses to decrease
as long term obligations are retired with the capital received from the
scheduled private placement of the Company's common stock (see ITEM. 5 OTHER
INFORMATION).
Income tax expense was $200,878 in the first quarter of fiscal 1996 (resulting
in an effective tax rate of 56.1 percent) compared to a tax expense of zero in
the first quarter of fiscal 1997. In the first six months of fiscal 1996 income
tax expense was $335,749 (resulting in an effective tax rate of 61.1 percent)
compared to a tax expense of zero in the first six months of fiscal 1997. The
difference in the tax expense is due to the losses incurred in the first and
second quarters of fiscal 1997, for which no income tax benefit has been
recorded.
Discontinued Operations
In June of 1996, the Company adopted a plan to dispose of the assets of its
medical and commercial software divisions (the "Discontinued Operations"). The
liability for the estimated loss on the disposal of the Discontinued Operations
was established in June of 1996. The disposal of the assets of the Discontinued
Operations (except those assets related to the medical records software) was
completed on July 2, 1996. No material adjustments to the estimated loss on
disposal previously provided for in June of 1996 are currently anticipated. The
losses from discontinued operations in the first quarter and the first six
months of fiscal 1997 of $78,455 and $160,176 reflect the operating results of
the Discontinued Operations prior to their disposal.
Capital Resources and Liquidity
At December 31, 1996, the Company had current assets of $6,677,419 and current
liabilities of $18,219,035. The current liabilities include $5,999,210 of
deferred revenue which primarily represents billings for services to be provided
over the remaining term of software and hardware maintenance contracts
(generally one year).
The Company has a term loan in the original principal amount of $1,700,000
($1,525,461.51 as of December 31, 1996), which matures December 1, 2006, bears
interest at a rate of 9.75% per annum, and is secured, primarily, by a trust
deed on the Company's real property located in Sparks, Nevada.
The Company has a second term loan in the original principal amount of $300,000
($196,756.84 as of December 31, 1996) matures December 2, 1999, bears interest
at 9.75% per annum, and is secured primarily by a trust deed on the Company's
real property located in Sparks, Nevada. Additionally, the Company has an
equipment loan (the "Equipment Loan") and a line of credit (the "Line of
Credit") with its principal bank. The Equipment Loan in the original aggregate
amount of $1,481,023 ($834,435.99 as of December 31, 1996) matures on September
1, 1997, bears interest at a rate of prime plus 1.5% and is secured by a first
lien on all assets purchased with the proceeds of the loan plus accounts
receivable and inventory. The Line of Credit, which had a maximum availability
of $1,128,063 as of December 31, 1996 (of which $229,017.04 was advanced as of
December 31, 1996), is 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 February of 1997.
From June 20, 1995 to October 6, 1995, the Company received $1,450,000 pursuant
to the issuance of debentures (the "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 $3.50 per share through June 1996
and $4.00 per share through June 30, 1998, and bear an interest rate of 8
percent per annum, payable quarterly. 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 (the "Subordinated Line") which is
secured by accounts receivable. The Equipment Loan, the Line of Credit, the
Subordinated Line, and the Debentures will be retired in the third quarter of
fiscal 1997 with funds received pursuant to the Purchase and Sale Agreement (see
ITEM 5 OTHER INFORMATION).
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. Of the
purchase price, $200,000 had not been received as of February 7, 1997 and 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 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 December 31, 1997.
In fiscal 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 fiscal 1996, the Company
recorded a combined loss from disposal and from discontinued operations of $7.6
million. As a result of these nonrecurring charges and the losses from
continuing operations in fiscal 1996 and the first quarter of fiscal 1997,
retained earnings decreased from $.8 million at June 30, 1995 to a $16.8 million
accumulated deficit at June 30, 1996 and further decreased to a $17.8 million
accumulated deficit as of December 31, 1996, resulting in a shareholders'
deficit of $7.3 at December 31, 1996. This deficit will be reduced by
approximately $6,000,000 upon the receipt of the $8,000,000 in cash from the
private placement, of which $2,000,000 will be used to redeem the Company's 1994
Series Preferred Stock in accordance with the Purchase and Sale Agreement (see
ITEM 5. OTHER INFORMATION).
PART II
OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and in-house legal counsel, the ultimate
resolution of these matters will not have a material effect on the financial
position or results of operations of the Company.
ITEM 5. OTHER INFORMATION
On January 24, 1997 the Company entered into a Purchase and Sale Agreement (the
"Agreement") whereby it agreed to sell on February 10, 1997 at the offices of
the Company or at such other time and place as mutually agreed upon by the
parties, approximately 8.6 million shares of its common stock, representing 49%
of the common stock to be outstanding after the completion of the sale, to its
Chairman and Chief Executive Officer (the "Investor") for $8.0 million in cash.
In accordance with the terms of the Agreement, the cash received will be used to
retire the Equipment Loan, the Line of Credit, the Debentures, and the
Subordinated Line and to redeem the outstanding 1994 Series Preferred Stock. The
remaining cash, approximately $2.0 million, will be added to the working capital
of the Company. The transaction was negotiated between the CEO and an
independent committee of the Board of Directors.
Also pursuant to the Agreement, the Investor will surrender approximately
1,208,400 five year options to purchase shares of the Company's common stock
at prices from $1.50 to $5.00 in exchange for the grant of 1,000,000 five year
options to purchase the Company's common stock at $1.00 per share for the first
year, with the option price increasing by $.25 each year on the anniversary
date of the grant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included as part of this report:
Exhibit SEC Ref
Number Number Title of Document
- ------- ------- -------------------
10.53 10 Stock Purchase and Sale Agreement
27.1 27 Financial Data Schedule
(b) Reports on Form 8K.
None.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934 as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 12, 1997
CUSA Technologies, Inc.
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D. Jeff Peck, Principal Accounting Officer