UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDEDJUNE 30, 1995
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 33-15370
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CUSA TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
NEVADA 87-0439511
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
986 WEST ATHERTON DRIVE, SALT LAKE CITY, UTAH 84123
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (801) 263-1840
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Securities registered under section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the 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. Yesx Noo
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. x
As of October 12, 1995, there were 8,584,516 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
$12,654,024 computed at the closing bid for the Issuer's common stock of $6.00
as of October 12, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (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 (e.g., annual report to
security holders for fiscal year ended December 24, 1990). NONE.
Transitional Small Business Disclosure Format (check one): Yes o No x
Page 1 of consecutively numbered pages,
including exhibits pages through .
TABLE OF CONTENTS
Item Number and Caption Page
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PART I
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1. Description of Business.................................. 3
2. Description of Property.................................. 14
3. Legal Proceedings........................................ 15
4. Submission of Matters to a Vote of Security Holders...... 15
PART II
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5. Market for Common Equity and Related Stockholder Matters. 16
6. Management's Discussion and Analysis or Plan of Operation 17
7. Financial Statements..................................... 20
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure...................... 20
PART III
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9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a)
of the Exchange Act...................................... 21
10. Executive Compensation................................... 25
11. Security Ownership of Certain Beneficial Owners and
Management............................................... 29
12. Certain Relationships and Related Transactions........... 32
PART IV
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13. Exhibits and Reports on Form 8-K......................... 34
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
CUSA Technologies, Inc., incorporated in the State on Nevada on October 27, 1986
("CTI" or the "Company"), is a full service provider of integrated computer
systems, including hardware, software, installation, training, software support
and hardware maintenance, to the financial industry (primarily credit unions),
the healthcare industry and the equipment and supplies rental industry. Through
the completion of nine acquisitions since June 22, 1994, the Company has
combined strong development expertise, proven products, and the software
industry's latest technologies, with an experienced sales and marketing team and
accomplished leadership, to market and support CTI's product lines to a
committed base of current CTI customers, and a promising market of potential
future CTI customers.
CTI entered the software market in June of 1994 through a series of
acquisitions. Prior to its entry into the software market, CTI was engaged in
the surgical center business. (See "ITEM 1. DESCRIPTION OF BUSINESS: Surgery
Center Business.") The acquired companies have been active in the software
industry for an average of approximately 15 years. Unless the context otherwise
requires, the "Company" or "CTI" refers to CUSA Technologies, Inc., its
operating entities and its subsidiaries.
BACKGROUND
Over the past two decades, the rapid advancement of software development and
hardware technologies has had a substantial impact on the data management
capacity of business organizations. As computer processor speed increased,
application development cycles shortened, and system prices decreased, it became
increasingly vital for businesses to utilize computer-automated processes to
achieve cost efficiencies. Cutting costs through the automation of data
processing is only one reason for the shift toward computerization. In many
industries, the increasing flow of information and the governmental and
industrial regulations governing the storage and transfer of information, have
necessitated the automation of certain functions.
The software applications which have been developed to help organizations become
more efficient can be divided into two broad categories: those applications
which streamline processes of nearly all organizations ("horizontal
applications"), such as word processors and spreadsheets, and those applications
which are written specifically for a particular industry ("vertical
applications"), such as CTI's AMOS physician practice management system. CTI
develops applications for, and provides system integration services to, several
vertical markets.
Beginning in the 1970s and into the late 1980s, many proprietary software
applications were developed for vertical markets. A proprietary [or "legacy"]
application is an application that is developed for a specific type or brand of
hardware and is not compatible with other hardware platforms. As the industry
moved toward open systems solutions, vertical software application developers
were faced with the challenge of porting their "legacy" software to faster, less
expensive, open systems platforms. Some vendors developed "emulators" of their
legacy systems to allow their software to operate on modern open-ended systems.
As price competition increased, these proprietary applications, including those
with emulators, became increasingly expensive to develop, install, upgrade and
support.
In the 1990s, advances in hardware, networking, database technology, fourth
generation programming languages and operating systems have fundamentally
changed the business of programming and marketing software designed for vertical
markets. With the advent of programming tools and fourth generation languages,
the cost to create, install, and support vertical applications has declined and
applications have become "portable" across hardware platforms. Additionally,
new client/server technology has allowed the user to take advantage of the power
and flexibility of a network environment. Because of the nature of most
proprietary applications, they are unable to take advantage of the cost savings
of modern development technologies, and are unable to operate in a client/server
environment.
As these technological advancements have become more widely used and less
expensive, resultant increases in efficiency have allowed organizations to
decrease personnel and other costs associated with data administration with
minimal effects on production capacity. One of the largest obstacles facing an
organization seeking to automate through the application of today's computer
technologies, is the complexity associated with the selection, installation and
maintenance of system technology. This general lack of intra-organizational
computer expertise requires a customer-centered "turnkey" (complete, hardware,
software, networking, installation, training and support) approach to vertical
software sales and development.
Keeping pace with these changes, CTI is committed to helping its customers
become more efficient through the application of the latest technologies. CTI
utilizes fourth generation languages, graphical user interfaces, relational
database structure, and open architecture to provide its customers with
portable, open products, and cost effective update programming, installation,
training and support.
BUSINESS STRATEGY
CTI employs an aggressive strategy for internal and external growth. Internal
growth plans center in the Company's commitment to apply the most advanced
technologies available to meet the information management demands of the
expanding healthcare, financial services and equipment rental vertical markets.
Advanced technology, experienced sales and marketing staff and versatile
products are core components of this strategy.
Many of CTI's current products emphasize open architecture portability and
utilize the computer industry's most advanced technologies, including fourth
generation language development environment, relational database management
system (RDBMS), graphical user interface (GUI), structured query language (SQL),
and open database connectivity (ODBC). The application of these technologies
significantly enhances CTI's competitiveness in its current markets by expanding
the ability of CTI's products to interface and integrate with third party
products and data, reducing the costs of ongoing maintenance, increasing
processing speed and data management capabilities, and adding full client/server
compatibility. Additionally, such advanced technologies have allowed CTI to
attract programming talent, shorten development cycles, and improve productivity
in training, installation and support.
CTI has an experienced sales force of 80 sales people marketing software to the
healthcare, credit union, and equipment rental businesses. Of CTI's nine
acquisitions, five had a significant distribution organization. CTI has
combined the selling expertise of the former distributors into a focused team.
This experienced sales team, coupled with CTI's high technology products,
provide a basis for CTI's objective to increase revenues at 20-25% over the
course of the next fiscal year.
ACQUISITIONS
In addition to its focus on internal growth through technologically advanced
product offerings and aggressive sales and marketing, CTI plans to continue to
increase shareholder value by external growth through synergistic acquisitions.
In a concerted effort to bring together talent, products and resources, CTI
completed nine computer-related acquisitions since June 22, 1995. (See Note B
to the Company's Financial Statements, included herein.) As summarized below,
through these acquisitions, CTI successfully completed its external growth
objectives; to consolidate the management and sales capabilities and support
operations of all major distributors of its credit union systems; to build a
sales team, customer base and product suite to address the healthcare vertical
market; and to move 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 a client base that fit into the
Company's current product strategies and strong financial synergies with solid
potential for future growth.
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
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, healthcare and rental equipment systems (mostly the
CUSA System, MENDS ICF and the Rental Center System), including software,
hardware, installation, software support and training.
In 1995, the Company also acquired Benchmark Computer Systems, Inc., of Omaha,
Nebraska (January 1995), Benchmark Systems of VA, Inc. (June 30, 1995), and
Benchmark Computer Systems, Inc., of Wisconsin (July 18, 1995). Each of these
companies was a distributor of credit union and healthcare software (primarily
the CUSA System, Reliance, MENDS ICF and AMOS), including software, hardware,
installation, support and training, in certain geographical territories of the
United States.
In addition to the sales force, executive leadership, and client base obtained
through the acquisitions discussed above, CTI completed three acquisitions
during the fiscal year which focused on the expansion of CTI's product lines and
development technologies. 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. 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 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.
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 a fourth generation
language-based software solution for managed care organizations known as MCARE.
(See "Products" and Healthcare Management Software," below for further
discussion of the MCARE product.) In conjunction with the acquisition
agreement, CTI signed employment agreements with each of the three principles of
PHS, Marc McCabe, Steve Jones and Joseph Hughes, who will assist CTI in
marketing its products to managed care organizations, and integrating the MCARE
product into CTI's integrated healthcare solutions. PHS had no sales in the
year ended June 30, 1995 and the book value of total assets and liabilities is
not significant to CTI's consolidated financial statements. Management believes
that the 75,000 shares represents the fair value of the software acquired in
this transaction.
Additionally, 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.")
PRODUCTS
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HEALTHCARE MANAGEMENT SOFTWARE
CTI's integrated healthcare solutions are designed for today's healthcare
paradigm. CTI provides all the software necessary for an Integrated Delivery
System (IDS) in a managed care environment. The suite of products include the
Automated Medical Office System (AMOS) and the VERSYSS Incorporated owned MENDS
ICF, both comprehensive physician practice management systems, the CAREPOINT for
Clinics pen-based medical records system, the newly-acquired MCARE managed care
solution for independent physician associations and independent provider
organizations, a healthcare focused integrated financial system, and the Alpha
II procedure and diagnosis coding tool. In addition to its integrated
healthcare software, CTI offers many peripheral services, including complete
service bureau operations, statement processing, electronic claims processing,
digital dictation systems, and disaster recovery services.
CTI's healthcare products and client base have been built through an acquisition
strategy focused on creating a complete suite of products developed in state of
the art languages running on relational database engines. In September of 1994,
with the acquisition of VDS, CTI gained national distribution rights to the
CAREPOINT for Clinics product. On August 9, 1995, CTI renegotiated the license
agreement with the owners of CAREPOINT for Clinics to provide for the worldwide
license of CAREPOINT for Clinics through a combination of cash, stock, and
future royalties. In May of 1995, with the purchase of Medical Computer
Management, Inc., the Company obtained ownership of the AMOS patient billing
system written in Progress Software Corporation's fourth generation language.
On September 29, 1995, CTI purchased PHS, the owner and developer of MCARE, a
product for managed care organizations. During this same period of time, CTI
purchased several companies with total medical software customers of over 1,000,
including approximately 200 users of AMOS and 800 users of the MENDS ICF system.
The pricing of these products, including hardware, software, and installation,
typically ranges from $15,000 to $200,000, with an average price of
approximately $50,000.
CTI is considering the purchase of other software products related to the
healthcare profession to strengthen its current offerings and to enter into new
segments of the healthcare information systems market.
FINANCIAL SERVICES
CTI's current financial services product offerings focus on the credit union
portion of the financial services industry. CTI's business plan includes future
application of their systems integration, development and sales expertise to the
banking segment of the financial services industry by acquiring or developing an
integrated banking software system similar to its current credit union offering.
CTI feels that expansion into the banking industry will increase its potential
for internal revenue growth and customer base expansion.
CTI's current credit union management solutions consist of the fourth-
generation-language RelianceTM Software and the CUSA SystemTM. 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.
Additionally, through its operating subsidiary, CTI Resource Group, Inc. (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.
CTI's credit union management systems are installed in approximately 10% of
America's credit unions, representing a customer base of over 1,200. Reliance
is currently installed in approximately 30 credit unions. It was developed from
inception in Progress, 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 large-to-medium-sized credit unions. 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.
The CUSA System has been refined through 17 years of tailoring its functions to
meet the needs and suggestions of its wide user base. The system is a fully
integrated, yet modular approach, so that the proper combination of products
can be supplied to meet the specific requirements of each credit union in a
cost-effective configuration. The product design utilizes a flexible and
powerful combination of menus, windows and user-defined access keys which allow
fast and easy movement throughout the system. This allows a user to temporarily
leave a process or transaction to access other functions and information, and
then quickly return to the original record or task. 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 tracking, variable interest rate loans, student
loan system, delinquency tracking, collateral tracking, 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.
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 $100,000 depending on the size and sophistication of the system.
During the past two years, the collective businesses acquired by the Company
have installed approximately 200 new and upgraded CUSA Credit Union Systems. In
addition, since its incorporation in 1991, Outside Force has installed
approximately 30 Reliance systems, including 15 since its acquisition by the
Company in November of 1994, with an average sales price of approximately
$250,000 per system.
Complementary to its core management product offerings and services, CTI offers
peripheral products, such as Automated Touch Screen Kiosk machines; 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.
CTI RESOURCE GROUP
The Company, through the Resource Group 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
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. CTI prints
over 12 million laser statements and processes 14 million pieces of mail
annually, including government-required 1099 printing and processing in the
first quarter of each calendar year. In August of 1995, CTI's Resources Group
acquired a new microfiche machine which allows CTI to download data directly
from a client's system and produce copies on microfiche for archival purposes.
EQUIPMENT RENTAL PRODUCT
With the February, 1995, acquisition of Computer Ease, the Company obtained
ownership and control over its equipment rental product known as the Computer
Ease Rental Center System. Formerly marketed by VDS (acquired by the Company in
September of 1994) under an exclusive distributorship license with Computer
Ease, the system controls the scheduling and billing for rental companies and
has been particularly popular with retail equipment rental businesses. The
price for the system typically ranges from $10,000 to $40,000. The Company
currently has an installed base of 418 systems. The Company has 14 employees
who provide sales and technical support to our rental customers.
SALES AND MARKETING
Products for each vertical segment are marketed through experienced nationwide
sales teams according to carefully-planned product marketing strategies. CTI
divides its sales teams by geographic area and by the size of the sale. CTI's
medical products are marketed by a 34 member sales team, including a strategic
accounts sales team of 6 experienced salespersons, who handle larger sales.
Credit Union products are marketed by a sales team of 20, 4 of whom are
concentrated on larger sales of CTI's Reliance system. The Rental Center System
is marketed nationwide by a staff of five salespersons. Product upgrades and
migrations are conducted according to carefully researched strategies developed
by CTI's six-member product marketing team. CTI's ten-member corporate
marketing department provides collateral support, such as product specification
sheets and brochures, and advertising.
PROGRAMMING
CTI's programming department consists of 58 full-time employees divided into
core product development, documentation, quality assurance, operating systems,
custom programming and affiliated products divisions. In the past three months,
Company executives have implemented programs which are designed to increase
communication between marketing and development, to streamline the organization
of the programming department and to provide incentives to CTI's programmers to
increase their programming skills. Programming teams for each product are
organized into small, relatively autonomous groups with defined project
deadlines and objectives. The Company's product marketing department works
closely with programming in deciding the features to be included in product
updates.
In order to meet its customers' ever-changing requirements and to expand its
product base, the Company must continue to enhance its existing products and
develop new products. Expenditures for research and product development, before
capitalization of computer software development costs, were approximately
$2,634,000 (8.1% of total revenues) in the fiscal year ended June 30, 1995. In
addition to the above costs, the Company capitalized a total of approximately
$993,000 representing software acquired through acquisitions in fiscal 1995.
SUPPORT
Once a system is installed, the Company provides ongoing software support
pursuant to annual support contracts for a fee equal to approximately 15% of the
total cost of the software. CTI's support department maintains offices in 13
cities across the United States, thus providing a local support presence.
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 support contracts with 90% of its
clients, representing recurring annual revenue of approximately $8,000,000.
GOVERNMENT REPORTING
Although CTI's software business is not directly subject to material industry or
governmental regulation, CTI's customers in both the financial services and
healthcare industries are subject to extensive governmental and industrial
regulations. 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 our client 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 IN SOFTWARE PRODUCTS
The market for selling data processing services to medical facilities, 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 hospitals, and independent service
firms, as well as direct competitors such as Medic, Inc., Physician Computer
Network, Inc., FiServ, Inc., Medicus, 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 remain 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 is profitable and helps the
Company's healthcare management software keep pace with the dynamic healthcare
market. Altogether, the surgery center business represents less than 1% of the
Company's total assets, and 2% of the Company's total revenues. The Company has
decided not to pursue 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 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.")
Pursuant to the terms of the merger, the director 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 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. and Dr. Thomas McMeckin, D.P.M.. The
Surgery Centers are built to stringent Medicare specifications and are equipped
with up-to-date surgical equipment, including laser surgery. Access to the
Surgery Centers is shared with the general practices of Drs. Ford, Bean and
McMeckin.
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 quarterly profit requirements. As of the quarter ended
September 30, 1995, the Sierra Center had met the requirements for the release
of the 415,000 shares from escrow. The Sierra Center had total net revenues of
approximately $115,000 for the eight months ended June 30, 1995, and total
assets of $123,000 at June 30, 1995, and has three full time employees.
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 Dr. Kim Bean, D.P.M. and Dr. Thomas McMeckin,
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 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 September 30, 1995, the Company had 412 employees, including 80 in sales
and marketing, 62 in installation, training, and production, 112 in customer
support, 61 in product development, and 80 in administration. The Company
believes that its ability to attract and retain qualified employees is an
important factor in its growth and development, and that its future success will
depend, in large measure, on its ability to continue to attract and retain
qualified employees. 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.
One of CTI's core values is to make every employee an owner/stockholder. In
fiscal 1995, CTI distributed 255,995 shares of CTI common stock and granted
1,538,800 options to employees and management to purchase CTI common stock
through stock purchase and stock option plans.
During the 1995 fiscal year, 125 CTI employees invested $368,301 to purchase
254,635 shares of CTI common stock through CTI's 1994 Employee Stock Purchase
Plan. Most shares were purchased for $1.70 (85% of the $2.00 market value on
the date of the inception of the plan), with the Company contributing one third
of the price toward the purchase of the employees' first 1,000 shares under the
plan.
Pursuant to the 1993 and 1995 Employee Stock Option Plans, the Company
distributed a total of 480,000 incentive options to its employees at prices from
$1.30 to $3.00 during the 1995 fiscal year. Approximately three-fourths of the
options distributed to employees provide for a 5 year, straight line vesting
period.
Of the options distributed, 395,700 were coupled with stock appreciation rights
(SARs). The coupling effectively allows the holder to choose between exercising
the option by tendering cash to exercise the option, or exercising the SAR. If
the SAR is elected, the Company has the option to (a) pay the employee an amount
of cash equal to the current price of the shares being exercised less the
exercise price, or (b) issue to the employee common shares to the Company with a
total market value equal to the current price of the shares being exercised less
the exercise price. The Company believes that it is not likely that the holders
of tandem options/SARs will choose to exercise the stock appreciation rights. As
an incentive to encourage exercise the option, the Company's board of directors
has passed resolutions stating that no cash will be distributed in conjunction
with the exercise of SARs, that tandem option/SAR shares which are exercised as
options will include special registration rights, and that employees will not be
given future options unless they have committed, in writing, to choose to
exercise the option instead of the SAR.
In order to further increase employee incentive through ownership, the board of
directors, upon recommendation of the board's stock option committee, has
authorized the issuance of 300,000 options under the 1995 Employee Stock Option
Plan of which 58,500 had been granted as of October 12, 1995, and 500,000 non-
statutory options to be issued to management employees, with an exercise price
equal to the fair market value of the underlying stock on the date of grant
based on merit and current share ownership. The board of directors resolution
authorizing the issuance of the non-statutory options directs management to
distribute the options to meritorious management employees who did not obtain
ownership in the Company through the sale of their business to CTI. Following
the distribution of the non-statutory options, each of the 10 members of CTI's
senior management team will have at least 50,000 shares or options to purchase
common stock. (See "ITEM 10. EXECUTIVE COMPENSATION: Stock Option and
Purchase Plans.")
The Company is not subject to any union or collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains core offices in Salt Lake City, Utah; San Francisco
(Hayward), California; Boston, Massachusetts, and Richmond, Virginia. CTI's
core offices each have over 20 employees and at least one member of CTI's Senior
Management. Additional CTI locations include: Phoenix, Arizona; San Diego,
Novato, Torrance, and Ventura, California; New Haven, Connecticut; Tampa,
Florida; Kansas City, Kansas; Chicago, Illinois; Flint, Michigan; Minneapolis,
Minnesota; Omaha, Nebraska; Syracuse, New York; Portland, Oregon; Arlington,
Texas; and Milwaukee, Wisconsin.
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 12.
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.
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 30,880 sq. ft. of rental space. The property has
19 tenants, one of which is the Ford Center, owned by the Company.
Most of the tenants in the Company's professional office buildings are medical
professionals who rent between 500 and 2,000 sq. ft. of space. The initial
lease terms expire from 1996 through the year 2005 and generally contain a rent
escalation clause of approximately 2% to 5% per year. The total annual rent
receivable under the existing leases, including the rent from the Ford Center,
is approximately $450,000. Since June 30, 1995, CTI has put the office buildings
on the market in anticipation that the capital represented by the buildings can
be better utilized by the Company in the financing and expansion of its core
business of providing integrated computer systems.
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.
ITEM 3. LEGAL PROCEEDINGS
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 of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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. Both Mr. Beckstrand and Mr. Jensen were
re-elected to a new three-year term by the affirmative vote of all of the
6,831,794 shares voted at the meeting. 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., Debbie Sanich, Mark Scott, Gary L. Leavitt, and David J. Rank continue
to serve as members of the board of directors subsequent to the meeting. (See
"ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.")
PART II
28
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
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 October 12, 1995, there were 8,584,516 shares of common
stock issued and outstanding and 3,725,240 reserved for issuance upon the
exercise of outstanding options and the conversion of preferred stock and
convertible debentures. Of this amount, only approximately 386,000 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 information
provided by certain market makers in the Company's common stock and, subsequent
to November 1994, by the National Association of Securities Dealers. 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 1994 Fiscal 1995
High Low High Low
---- --- ---- ---
First Quarter N/A N/A $2.25 $0.90
29
Second Quarter N/A N/A $4.00 $1.66
Third Quarter $1.50 $0.55 $4.00 $2.50
Fourth Quarter $1.50 $1.19 $3.50 $2.50
On October 12, 1995, the Company's common stock was quoted in the over-the-
counter market at approximately $6.00 bid, $6.875 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 October 12, 1995,
there were approximately 264 holders of the Company's common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
As set forth in ITEM 1. BUSINESS, the Company has, through a series of
acquisitions, expanded its customer base and product offerings in all of its
vertical markets. After accounting for these acquisitions, the 1994 results of
30
operations principally include only the results of operations of the Ford Center
and MCMI. Otherwise, the results of operations for 1994 essentially include no
results of operations for any of the acquisitions completed from June 22, 1994,
through June 30, 1995, which represent over 95% of the current operations.
These acquisitions were completed at various dates through June 30, 1995, and,
with the exception of MCMI, were accounted for according to the rules of
purchase accounting. Thus, the reported results of operations for 1995 include
only the results of operations of the acquired companies (with the exception for
MCMI) since their acquisition dates. These acquisitions have resulted in steady
external growth for CTI as reflected by the quarterly increases in revenues and
total assets.
This external growth should be considered when comparing 1994 historical results
of operations to the results of operations for the year ended June 30, 1995.
RESULTS OF OPERATIONS
Revenues
- --------
The Company's revenues increased from $3,101,389 in fiscal 1994 to $32,539,715
for the year ended June 30, 1995. The increase is the result of revenue of the
businesses acquired in fiscal 1995, since the acquisition dates. On a
consolidated pro forma basis, which reports all of the annual revenue of CTI
after elimination of intercompany revenues and the acquired companies for the
fiscal years ending June 30, 1994 and 1995, revenues grew from $39,749,000 for
the year ended June 30, 1994, to $43,748,000 for the year ended June 30, 1995,
representing a 10.1% increase. Revenues primarily consist of computer system
sales, amounts earned pursuant to hardware maintenance and software support
agreements, and the sale of related products such as statement printing,
disaster recovery, and microfiche services through the CTI Resources Group.
Cost of Goods Sold
- ------------------
Costs of goods sold and other direct costs increased from $1,683,182 in 1994 to
$16,862,596 for the year ended June 30, 1995. The increase reflects the addition
of the acquired businesses and the change in the character of CTI's main
business from medical services to software sales, development and support.
Costs of goods sold for the current year reflect mainly the cost of hardware and
software purchased for resale, the amortization of capitalized software
development costs and the expense of supporting and installing the systems sold.
Product Development Costs
- -------------------------
Product development costs represent the uncapitalized cost of software
development. Uncapitalized costs include the time and materials required for
fixing system operational errors and maintenance software upgrades. Product
development and maintenance costs were $1,790,823 in 1995 and $225,015 in 1994.
Selling, General, and Administrative Expenses
- ---------------------------------------------
The selling, general, and administrative expenses for the Company increased from
$1,303,961 for the year ended June 30, 1994, to $12,016,136 for the year ended
June 30, 1995. This increase is consistent with the expansion of CTI's business
through acquisitions over the past year. CTI is continually taking steps to
recognize cost synergies from acquisitions. In March of 1995, CTI moved its
corporate offices to a new Salt Lake City location. The move resulted in an
increase in available office space to accommodate the growth of the Company at a
reduced monthly cost.
Amortization of Certain Intangible Assets
- -----------------------------------------
Significant portions of the purchase price of the acquisitions have been
allocated to intangible software acquisition costs and excess of the purchase
price over the fair value of the net tangible and identifiable intangible assets
acquired. The excess of the purchase price relates principally to the customer
base of the acquired businesses. The software acquisition costs are amortized
over the estimated life of the software (principally three to five years). The
excess of the purchase price related to the customer base of the acquired
companies is amortized on the straight line method over an estimated life of 15
years. During the year ended June 30, 1995, total amortization of the excess of
the purchase price was $594,989 (none in 1994) and amortization of software
development and acquisition costs was $563,660 ($10,636 in 1994).
Net Earnings and Income Taxes
- -----------------------------
Loss before income tax benefit for the year ended June 30, 1994, was $109,934 as
compared to earnings before income taxes of $1,562,898 for the year ended June
30, 1995. The increase reflects the greater volume and the greater
profitability of the combined operations of the acquired companies. Income tax
expense for 1995 was $786,872, the payment of which is substantially all
deferred into future periods because of the utilization of acquired net
operating losses or other income tax elections that allow for such deferral.
The effective income tax rate for 1995 was 50.3%, which exceeds the federal
statutory rate of 35% principally due to the nondeductibility of the
amortization of the excess purchase price over the fair value of assets acquired
associated with all of the acquisitions, except the VERSYSS Credit Union
Division. The results of operations for the three months ended June 30, 1995,
showed a small loss, partly caused by the pooled operations of MCMI for the
quarter. Historically, the profitability of the acquired businesses is lower
during the quarters ended June 30 and September 30. Management anticipates that
the levels of profitability of the Company should substantially increase in the
quarters ending December 31, 1995, and March 31, 1996, as compared to the June
30 and September 30, 1995, quarters.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 1995, the Registrant had current assets of $7,522,863 and current
liabilities of $15,019,109. Thus, current liabilities exceeded current assets
by $7,496,246. The current liabilities include $5,515,623 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).
In December of 1994, the Company obtained two loans and a line of credit with a
bank. The first loan, in the amount of $1,700,000 is secured by a trust deed on
real estate and an assignment of rents, earns interest at prime plus 1.5% and is
payable in monthly installments over a twelve year term. The second loan of
$300,000 is secured by a second trust deed on real estate, carries an interest
rate of prime plus 1.5% and is payable in monthly installments over a five year
period. The line of credit for up to $500,000, bears interest at a rate of
prime plus 2% and is secured by accounts receivable, inventory and a trust deed
on real estate and matures on November 30, 1995. In addition to the financing
described above, CTI has been advanced $995,000 from certain individual
investors through a company affiliated with an officer and director of the
Company pursuant to a subordinated line of credit secured by accounts
receivable, with a rate of 5.86% per annum, payable monthly, with the principal
due on December 31, 1997. As part of the loan arrangement, CTI issued warrants
to purchase an aggregate of 100,000 shares to the individual investors for cash
consideration of $5,000. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.")
From June 20, 1995, to October 6, 1995, CTI received $1,450,000 pursuant to the
issuance of debentures to an entity controlled by an officer and director of the
Company. The debentures, due June 30, 1998, are convertible into CTI common
stock at any time at the discretion of the holders at a rate of $3.00 per share,
and bear an interest rate of 8% per annum, payable quarterly. The board of
directors has authorized the issuance of up to $3,000,000 of similar convertible
debentures, but there can be no assurance that the rest of the convertible
debentures can be placed. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.")
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 June 1996. The Company will continue to seek ways to increase its
working capital and to provide the necessary cash for the operation of its
businesses, but does not currently have any other arrangements in place.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included beginning at page . See page
for the index to the financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The board of directors of the Company elected to change auditors from Joseph B.
Glass & Associates to Grant Thornton LLP, the former auditors of CUSA, Inc. The
reports of Joseph B. Glass & Associates for the last 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, Joseph
B. Glass & Associates 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 March 24, 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
At the end of fiscal 1994, the Board of Directors consisted of Richard N.
Beckstrand, chairman, Debbie Sanich, secretary, L. Bruce Ford, D.P.M., Mark
Scott, and L. James Jensen, Jr. In connection with the acquisition of CUSA and
VDS, Gary L. Leavitt and David J. Rank were appointed to the board of directors
on July 6, 1994, and August 24, 1994, respectively. On May 11, 1995, Mark Scott
was elected as Associate Chairman of the Board. In this capacity, Mr. Scott
will organize and conduct CTI board meetings under the direction of Richard N.
Beckstrand. Richard N. Beckstrand and L. James Jensen, Jr., were re-elected for
additional three year terms at the Company annual meeting of shareholders held
in Salt Lake City on April 6, 1995.
Michael Hirano, the former chief financial officer of VDS, became the chief
financial officer of the Company in connection with the acquisition of VDS as a
wholly-owned subsidiary on September 19, 1994, and Craig Allen, a former senior
manager with Grant Thornton LLP was appointed to be the Company's controller.
In June 1995, L. James Jensen, Jr., became a full-time employee of CTI, acting
as an assistant to Richard N. Beckstrand until his appointment in September of
1995, as acting treasurer of the Company pending board approval. As treasurer,
Mr. Jensen will be responsible for CTI's accounting, human resources, and legal
departments.
The current board of directors and executive officers of the Company are as
follows:
Name Age Position with Company Term Expires
- ------------------------------ --- ------------------------------------ ------------------------
Richard N. Beckstrand 53 Chief Executive Officer, 1997 Annual Meeting
Chairman of the Board, Director
Mark Scott 46 Associate Chairman of the Board, 1996 Annual Meeting
Director
David J. Rank 41 President, Chief Operating 1997 Annual Meeting
Officer, Director
Debbie Sanich 42 Secretary, Chief Operating Officer of 1995 Annual Meeting
Surgery Center Business, Director
L. James Jensen, Jr. 40 Treasurer, Director 1997 Annual Meeting
L. Bruce Ford, D.P.M. 47 Vice President of Medical 1995 Annual Meeting
Services, Director
Gary L. Leavitt 53 Director 1996 Annual Meeting
Richard A. Pedersen 48 Senior Vice President, Healthcare N/A
Division
Bruce D. Matthews 46 Senior Vice President, Corporate N/A
Planning
Mark R. Stevens 36 Senior Vice President, Financial N/A
Services Division
Joseph F. Jerkovich 57 Senior Vice President, Rental N/A
Division
Lynn Jones 49 Senior Vice President, CTI N/A
Resources Division
Roger L. Kuhns 49 Executive Vice President, N/A
Marketing
Mark Kirpatrick 37 Senior Vice President, Product N/A
Marketing and Software Development
Michael Hirano 38 Chief Financial Officer N/A
Craig Allen 43 Controller N/A
There is no family relationship amongst the executive officers and directors of
the Company. 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 and Aspen Business Company.
Mark Scott is a Director of the Company. For the past five years, Mr. Scott has
been president of the Mid-Columbia Medical Center and Health Care for the Mid-
Columbia Region, located in The Dalles, Oregon. He has been a director of
surgical services for the University of Oregon and an Associate Director of
Surgery for LDS Hospital in Salt Lake City, Utah.
David J. Rank, former president of VERSYSS Data Systems, 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 to be Contel Corporation's Vice President of
Sales. In 1990, Messrs. Rank, Kuhns, and Jerkovich acquired VDS where he served
as president.
Debbie Sanich has been employed by the Company since 1993 and is the Company's
secretary, a member of the board of directors, and the chief operating officer
of the Company's surgery center business. Ms. Sanich has been a consultant in
the medical industry for the last 15 years. Ms. Sanich is also Executive Vice-
President of Beckstrand Management.
L. James Jensen, Jr., serves on the board of directors and as the Treasurer of
CTI. 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., in Las Vegas, Nevada, from 1990, 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 Services 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.
Richard A. Pedersen is the Senior Vice-President of CTI's Healthcare Division.
Mr. Pedersen, who has 25 years of experience in computer industry sales and
management, was employed by Burroughs (1970), Desco Computers (1980), Dataflow
(1985), and Benchmark of Virginia, which he purchased in 1990, along with Mr.
Matthews. He has been employed by CTI since May of 1995.
Bruce D. Matthews, as the Senior Vice-President of Corporate Planning, works in
managing and blending the synergies that exist between the different
organizations that have been merged into CTI through acquisitions. Mr. Matthews
has 24 years in the computer industry: Burroughs (1972) Data Systems of
Connecticut (1982), and Benchmark of Virginia, where he served as Executive
Vice-President (1987) until he and Mr. Pederson purchased Benchmark of Virginia
in 1990. He has been employed by CTI since May of 1995,
Mark R. Stevens has been the Senior Vice President of CTI's Financial Services
Division since June 1994. Mr. Stevens was the Director for the Credit Union
Business Unit of VERSYSS prior to its acquisition by CTI in June of 1994. Mr.
Stevens has been in the credit union software industry for 13 years.
Joseph F. Jerkovich is the Senior Vice-President of the Rental Division of CTI.
Mr. Jerkovich began with CTI in September of 1994, and has 33 years of
experience in information management systems sales. Mr. Jerkovich was Executive
Vice-President of VDS for the four years prior to its acquisition by CTI and has
been selling software solutions to the rental industry since 1977.
Lynn Jones was appointed as the Senior Vice President of Resource Group in
August of 1994. Lynn began working with CUSA, Inc. in 1985 as its Vice
President of Finance.
Roger L. Kuhns, former shareholder of VERSYSS Data Systems, is currently serving
as CTI's Executive Vice President of Marketing. Mr. Kuhns is responsible for
CTI's Marketing Division as well as ensuring overall customer satisfaction. For
the past 24 years, Mr. Kuhns has accumulated experience working with various
vertical applications including credit unions, fuel oil, construction, wholesale
distribution, and healthcare at Burroughs Corporation (1971), Lehigh Data
Systems (1979) Contel Corporation (1986) and VDS (1990).
Mark Kirkpatrick began working with CTI in June of 1995 as Senior Vice President
of Product Marketing and recently as Vice-President of Software Development.
Mr. Kirkpatrick worked at VERSYSS, Inc., for 12 years and, for the past three
years, he served as VERSYSS, Inc.'s Vice-President of Product & Services
Marketing. Mr. Kirkpatrick started his career with CADO Systems in 1983.
Michael Hirano was appointed to the position of Chief Financial Officer for CTI
in September of 1994. Prior to this responsibility, Mr. Hirano was the Chief
Financial Officer for VERSYSS Data Systems (1993) and worked in various
accounting related functions at MAI Basic Four, Inc. (1992), and VERSYSS (1984).
Craig Allen became the Controller in September 1994. Mr. Allen received
bachelor and masters degrees in accounting from Brigham Young University in 1976
and 1978, respectively. Mr. Allen is a licensed certified public accountant and
was employed by the accounting firm of Grant Thornton LLP from 1978 to 1994.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company does not have a class of securities registered under section 12(b)
or 12(g) of the Securities and Exchange Act of 1934, as amended, and as a
consequence, neither it nor its executive officers, directors, or principal
shareholders are subject to the reporting requirements of section 16(a).
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information regarding the compensation
earned during fiscal 1995 and, where applicable 1994 and 1993, by CTI's Chief
Executive Officer and each of CTI's four other most highly compensated executive
officers (based on salary and bonuses earned during fiscal 1995).
Long-Term Compensation
Annual Compensation Awards Payout
s
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securitie
Year Annual Restricte s All
Ended Compen- d Stock Underlyin LTIP Other
Name and Principal June Salary Bonus sation Award(s) g Payout Compen-
Position 30 ($) ($) ($) ($) Options/ s ($) sation
SARs ($)
(no.)
Richard N. 1995 $0 -- -- -- 2,500(1) -- --
Beckstrand(4)
Chief Executive 1994 $0 -- -- -- 5,000 -- --
Officer
1993 $0 -- -- -- -- -- --
David J. Rank 1995 $140,000 -- -- -- 302,500 -- (2)
President
Chief Operating
Officer
Roger L. Kuhns 1995 $100,000 -- -- --
Executive Vice-
President of
Marketing
Joseph F. Jerkovich 1995 $100,000 -- -- --
Senior Vice-
President of
Rental Division
Mark R. Stevens(3) 1995 $112,500 -- -- -- 112,500
Senior Vice-
President of
Financial
Services
Division
(1) Mr. Beckstrand was also granted options to purchase 190,000 shares at an
exercise price of $2.50 per share in connection with his personal guarantee
of lines of credit 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
for costs associated with the costs of maintaining two households prior to
this family relocation to Salt Lake City and making his personal residence
available for out-of-town Company employees. This was not treated as payment
for personal services to the Company. (See "ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.")
(3) Mark R. Stevens participated in the Employee Stock Purchase Plan during
fiscal 1995, acquiring 12,500 shares of the Company's common stock. These
shares were purchased at $1.70 per share, 85% of the fair market value of the
common stock as of the date of the establishment of the plan. The Company
paid one-third of the acquisition cost of the first 1,000 shares acquired by
Mr. Scott under this plan.
(4) The Company also reimburses Beckstrand Management for one-half of the base
salary of Debbie Sanich in consideration for the time she spends on the
Company's surgical center business. This reimbursement is in the amount of
$3,333 per month. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.")
OPTIONS/SAR GRANTS DURING FISCAL 1995
The following table sets forth information respecting all individual grants of
options and stock appreciation rights ("SARs") made during the last completed
fiscal year to the chief executive officer of the Company and the four most
highly paid executive officers of CTI.
(a) (b) (c) (d) (e)
% of
Number of Total
Securitie Options/S
s ARs
Underlyin Granted Exercise
Name g to or Base Expiration
Options/S Employees Price Date
ARs During ($/share)
Granted Fiscal
(no.) Year
Richard N. 2,500(1) 0.2% $3.57 07/01/99
Beckstrand(1)
Chief
Executive
Officer
David J. Rank 2,500 0.2% $3.25 07/01/99
President, 100,000 6.5% $1.80 09/18/99
Chief 200,000 13.0% $2.25 12/07/99
Operating
Officer
Roger L. Kuhns 0 0.0% N/A
Executive
Vice-President
of Marketing
Joseph F. 0 0.0% N/A
Jerkovich
Vice-President
of
Rental
Division
Mark R. 37,500 2.4% $1.80 09/01/99
Stevens 10,000 0.7% $2.25 11/02/99
Senior Vice- 65,000 4.2% $2.75 05/16/00
President of
Financial
Services
Division
(1) In addition to the options reflected in the foregoing table, Mr. Beckstrand
was granted an option to purchase 190,000 shares at an exercise price of
$2.50 per share in connection with his personal guarantee of lines of credit
made available to the Company by a commercial financial institution. These
options expire December 31, 1997. (See "ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.")
EXECUTIVE COMPENSATION AND BENEFITS
The Company has employment agreements with most of its management personnel.
These agreements generally provide for a one year guaranteed term and continue
thereafter for an additional four years unless terminated by the employee or by
the Company. The agreements generally provide for salary continuation for a
limited period of time after termination. In the case of two executives, their
employment agreements provide employment terms of ten and five years,
respectively, although the Company may terminate the agreements for payments of
$500,000 and $200,000, respectively.
Each of the Company's executive officers is covered by the Company's
medical health insurance program, vacation and sick leave policies, and the
Employee Stock Purchase Plan. Executive officers receive benefits under these
plans on the same terms as other employees of the Company.
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 provided him with a
relocation agreement. The terms of the relocation agreement have been amended
and, under the current agreement, the Company is advancing $4,000 per month to
Mr. Rank in order to enable him to make the mortgage payments on his home in
Pennsylvania (to be repaid on September 30, 1997), will pay Mr. Rank a bonus for
each of the next five years, and will grant Mr. Rank options to purchase 200,000
shares of common stock at $2.25 per share. (See "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.")
STOCK OPTION AND PURCHASE PLANS
1993 Employee Stock Option Plan
- -------------------------------
The Company adopted its 1993 Employee Stock Option Plan in November 1993,
as subsequently amended in July 1994, which permits the issuance of options
covering a total of 500,000 shares of common stock. These options can be
granted to key employees of the Company, including executive officers,
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 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 October 12, 1995, the Company has
granted 480,000 options to employees under the terms of this plan at exercise
prices ranging from $1.30 to $3.00 per share, of which 55,000 options were
granted to executive officers.
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, at the direction of Senior Management. 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
5
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 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. To date, the Company has granted 55,700 options to
employees under the terms of this plan at exercise prices ranging from $2.75 to
$3.25 per share.
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 the fiscal year of the Company. The
exercise price for these options are 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. Options to purchase an aggregate of 17,500 shares of
common stock at an exercise price of $3.25 per share ($3.57 per share for 10%
holders) were granted under the terms of this plan to the seven directors of the
Company as of June 30, 1995. To date the Company has granted 47,500 options out
of 62,500 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.
Employee Stock Purchase Plan
- ----------------------------
The Company recently completed an Employee Stock Purchase Plan which permits
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 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.
NON-STATUTORY PLAN
The board of directors has authorized the issuance of options to purchase up to
500,000 shares of common stock to management employees. These options will 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. The options
will be issued to members of management who did not receive (or who received
minor amounts) of stock of the Company in connection with the acquisition of a
business to give such employees an opportunity to participate as an owner of the
Company. Following the distribution of the non-statutory options, each of the
ten members of CTI's senior management team will have at least 50,000 shares or
options to purchase common stock of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of October 12, 1995, 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 8,584,516 shares of common stock and
the 1,000,000 shares of preferred stock issued and outstanding as of October 12,
1995.
Name of Person Amount and Nature
or Group of Ownership(1) Percent of Class(2)
------------ ------------ ----------------
PRINCIPAL SHAREHOLDERS
Richard N. Beckstrand Common Stock(3) 2,747,621 32.0%
5156 Cottonwood Lane Options 897,500 38.4%
Salt Lake City, Utah 84117
David J. Rank Common Stock 500,000 5.8%
969 East 4800 South Options 302,500 9.0%
Salt Lake City, Utah 84118
Gary L. Leavitt Common Stock(4) 714,330 8.3%
969 East 4800 South Options 255,000 11.0%
Salt Lake City, Utah 84118
Aspen Business Company Common Stock 510,000 5.9%
151 East 5600 South, #300
Murray, Utah 84107
Joseph F. Jerkovich Common Stock 500,000 5.8%
26252 Eden Landing Road
Hayward, California 94545
Roger L. Kuhns Common Stock 500,000 5.8%
26252 Eden Landing Road
Hayward, California 94545
L. Bruce Ford, D.P.M. Common Stock 482,062 5.6%
Pyramid Prof. Center, Options 7,500 5.7%
Suite 26 Preferred Stock 97,432 9.7%
2321 Pyramid Way
Sparks, Nevada 89106
Kim Bean, D.P.M. Common Stock 215,000 2.5%
1801 North Carson Preferred Stock 175,270 17.5%
Carson City, Nevada 89701
Val Jensen Pension Plan Preferred Stock 175,270 17.5%
1001 North Mountain
Street Suite 2D
Carson City, Nevada
89701
Hannum Pension Plan Common Stock 9,437 0.1%
990 South 550 West Preferred Stock 83,513 8.4%
Brigham City, Utah
84302
Roderick Sage Common Stock 3,937 0.0%
975 Ryland Street Preferred Stock 208,513 20.9%
Reno, Nevada 89502
The Roberts Family Trust Common Stock 4,793 0.1%
890 Mill Preferred Stock(5)208,513 20.9%
Reno, Nevada 89502
OFFICERS AND DIRECTORS
Richard N. Beckstrand ------------------------See Above-----------------
David J. Rank ------------------------See Above-----------------
Roger L. Kuhns ------------------------See Above-----------------
Joseph F. Jerkovich ------------------------See Above-----------------
L. Bruce Ford, D.P.M. ------------------------See Above-----------------
Michael Hirano Common Stock 1,000 0.0%
Options 85,000 1.0%
Gary L. Leavitt ------------------------See Above-----------------
Mark Scott Common Stock 28,661 0.3%
Options 7,500 0.4%
Debbie Sanich Common Stock 34,401 0.4%
Options 7,500 0.5%
L. James Jensen, Jr. Common Stock 50,000 0.6%
Options 57,500 1.2%
Craig Allen Common Stock 12,500 0.2%
Options 25,000 0.4%
Lynn Jones Common Stock 81,000 0.9%
Bruce D. Matthews Common Stock 152,000 1.8%
Mark R. Stevens Common Stock 12,500 0.2%
Options 112,500 1.4%
Richard A. Pedersen Common Stock 228,000 2.7%
Mark Kirkpatrick Options 50,000 0.6%
All Executive Officers
and Directors as a Group Common Stock 6,044,075 70.4%
Options 1,807,500 75.6%
(16 persons) Preferred Stock 97,432 9.7%
(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.
(2) The percentage ownership for the options held by the indicated shareholders
is based on an adjusted total of issued and outstanding common stock, giving
effect only to the exercise of each individual shareholder's options.
(3) Mr. Beckstrand's shares includes 185,300 shares held by Mountain
Diagnostics, Inc., of which Mr. Beckstrand is the president and a principal
shareholder; 510,000 shares held by Aspen Business Company, which is wholly-
owned by Mr. Beckstrand; and 345,306 shares held by Beckstrand Management that
is wholly-owned by Mr. Beckstrand. Since Mr. Beckstrand is an officer,
director, and principal shareholder of both Mountain Diagnostics, Inc., and
Aspen Business Company, he may be deemed to have voting and dispositive power
over the shares and hence be the beneficial owner of the shares.
(4) Includes 114,970 shares held by the Lyman Leavitt Family Trust and 100,000
shares held by the Lynette Leavitt Family Trust.
(5) Includes shares held by the Roberts Family Trust and Frank Roberts.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RICHARD N. BECKSTRAND
In December 1993, Richard N. Beckstrand became the chief executive officer, a
director, 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 an officer,
director, or principal shareholder of CUSA, Inc., 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.
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
monthly, 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.
Mr. Beckstrand and Debbie Sanich, both directors of the Company, have an
existing and ongoing business relationship to physicians through Beckstrand
Management and Aspen Business Company which provide financial consulting and
management services to physicians. These companies provided such services prior
to the involvement of Mr. Beckstrand and Ms. Sanich with the Company and will
continue to provide such services in the future. Beckstrand Management pays the
salary of Ms. Sanich and is reimbursed for one-half of such amount by the
Company at the rate of $3,333 per month in consideration of the services
provided to the Company by Ms. Sanich.
The Company entered into an agreement with GlydNet, an entity controlled by Mr.
Beckstrand, granting GlydNet the exclusive right for a five-year period to
identify and assist the Company in acquiring in-office surgical centers. Since
the change of the principal business of the Company, it is not anticipated that
the Company will pursue any future acquisitions of surgery centers and,
consequently, no payments are expected to be made under this agreement in the
foreseeable future.
In addition to arranging for the line of financing from Aspen Business Company,
Mr. Beckstrand has personally guaranteed the bank financing that has been made
available to the Company. The Company issued 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, in connection with these
guarantees. 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 totalled $131,560 at June 30, 1995.
The Company has recently authorized the issuance of convertible debentures
bearing interest at an annual rate of 8%, convertible into shares of common
stock at the election of the holder at a conversion price of $3.00 per share.
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 1,747,621 shares of common stock of the
Company and options to purchase an additional 897,500 shares of common stock
with exercise prices ranging from $1.30 to $3.57. 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.
ACQUISITIONS
The Company has short-term obligations to related parties of $1,962,155 at June
30, 1995. The bulk of these obligations are debts that arose out of the
acquisitions of VDS, Benchmark of Omaha, Computer Ease, and Benchmark of
Virginia. Each of these transactions was structured as an acquisition of the
entity in exchange for shares of restricted common stock and cash payments, a
portion of which was delayed and is reflected on the financial statements as
related party payables. The Company owes $700,000 to the former owners of VDS,
which includes David J. Rank, the chief operating officer and a director of the
Company, $150,000 to the former owners of Benchmark of Omaha, $75,000 to the
former owners of Computer Ease, and $1,000,000 to the former owners of Benchmark
of Virginia.
RELOCATION AGREEMENT
The Company entered into a relocation agreement with Mr. Rank in connection with
the acquisition of VDS pursuant to which the Company is loaning Mr. Rank the
$6,000 monthly mortgage payment on his home in Bethlehem, Pennsylvania, to be
repaid on September 30, 1997, has agreed to pay Mr. Rank $100,000 in cash, and
has agreed to issue to Mr. Rank options to purchase 200,000 shares of common
stock of the Company at an option exercise price of $2.25. 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. Prior to moving his family to Salt Lake City, Utah, the location of
the principal offices of the Company, Mr. Rank under his Salt Lake City home
available to out-of-town employees of the Company and was reimbursed $28,000
during the year ended June 30, 1995, to cover his costs in doing so.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included as part of this report:
SEC
Exhi Refer
bit ence Title of Document Location
Number Number
ITEM 3. ARTICLES OF INCORPORATION AND BYLAWS
- -----------------------------------------------------
3.01 3 Articles of Incorporation of CUSA Registrat
Technologies, Inc., as amended ion
February 7, 1994, and July 15, Statement
1994 filed
on Form
SB-2,
Exhibit
3.01,
SEC File
No.
33-71150-
D
3.02 3 Bylaws of CUSA Technologies, Registrat
Inc., as amended ion
February 9, 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 Report on
and Preferences of 1994 Series Form
Preferred Convertible Stock 8-K dated
June 22,
1994
3.04 3 Registration Agreement between Report on
the Company and the holders of Form
the 1994 Series Convertible 8-K dated
Preferred Stock June 22,
1994
ITEM 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
- --------------------------------------------------------------------
4.01 4 Investor's Rights Agreement Registrat
between Mountain Surgical ion
Centers, Inc., and Dimension Statement
Capital Corporation, dated March filed
31, 1993 on Form
SB-2,
Exhibit
4.03,
SEC File
No.
33-71150-
D
4.02 4 Stock Option Agreement between Registra
Dimension Capital Corporation tion
and Howard S. Landa, dated June Statemen
30, 1993 t filed
on Form
SB-2,
Exhibit
4.04,
SEC File
No.
33-
71150-D
4.03 4 Stock Option Agreement between Registra
Dimension Capital Corporation tion
and Richard N. Beckstrand, dated Statemen
June 30, 1993 t filed
on Form
SB-2,
Exhibit
4.05,
SEC File
No.
33-
71150-D
4.04 4 Letter Agreement from Howard S. Registra
Landa to Dimension Capital tion
Corporation Statemen
t filed
on Form
SB-2,
Exhibit
4.06,
SEC File
No.
33-
71150-D
4.05 4 Letter Agreement from Richard N. Registra
Beckstrand to Dimension Capital tion
Corporation Statemen
t filed
on Form
SB-2,
Exhibit
4.07
SEC File
No.
33-
71150-D
ITEM 10. MATERIAL CONTRACTS
- -----------------------------------
10.01 10 CUSA Technologies, Inc., 1993 Registra
Employee Stock Option Plan tion
Statemen
t filed
on Form
SB-2,
Exhibit
10.01,
SEC File
No.
33-
71150-D
10.02 10 CUSA Technologies, Inc., 1993 Registra
Directors' Stock Option Plan tion
Statemen
t filed
on Form
SB-2,
Exhibit
10.02,
SEC File
No.
33-
71150-D
10.03 10 CUSA Technologies, Inc., 1995 Report
Employee Stock Option Plan on Form
10-QSB
for
March
31, 1995
10.04 10 CUSA Technologies, Inc., Employee Report
Stock Purchase Plan on Form
10-KSB
for
June 30,
1994
10.05 10 Agreement and Plan of Registra
Reorganization between Mountain tion
Diagnostics, Inc., Mountain Statemen
Surgical Centers, Inc., Surgery t filed
Subsidiary No. 1, and Ford Center on Form
for Foot Surgery, Inc., dated SB-2,
October 21, 1992, as amended Exhibits
March 31, 1993, and September 1, 10.03
1993 and
10.04,
SEC File
No.
33-
71150-D
10.06 10 Escrow Agreement between Mountain Registra
Diagnostics, Inc., Mountain tion
Surgical Centers, Inc., Ford Statemen
Center for Foot Surgery, Inc., t filed
Richard N. Beckstrand, Bruce L. on Form
Ford, D.P.M., and Terrell W. SB-2,
Smith Exhibit
10.05,
SEC File
No.
33-
71150-D
10.07 10 Development Agreement between Registra
CUSA Technologies, Inc., and tion
GlydNet, Inc., dated March 31, Statemen
1993 t filed
on Form
SB-2,
Exhibit
10.09,
SEC File
No.
33-
71150-D
10.08 10 Subscription Agreement between Registra
Dimension Capital Corporation, tion
Howard S. Landa, and Richard N. Statemen
Beckstrand t filed
on Form
SB-2,
Exhibit
10.10,
SEC File
No.
33-
71150-D
10.09 10 Agreement between Dimension Registra
Capital Corporation and Clayton tion
T. Perkins, dated October 20, Statemen
1993 t filed
on Form
SB-2,
Exhibit
10.11,
SEC File
No.
33-
71150-D
10.10 10 Independent Contractor Agreement Registra
between Mountain Surgical tion
Centers, Inc., and Debbie Sanich, Statemen
dated October 1, 1992 t filed
on Form
SB-2,
Exhibit
10,12,
SEC File
No.
33-
71150-D
10.11 10 Agreement and Plan of Report
Reorganization entered into by on Form
and between CUSA Technologies, 8-K
Inc., and CUSA, Inc. dated
July 21,
1994
10.12 10 Executive Employment Agreement Report
with Gary L. Leavitt on Form
8-K
dated
July 21,
1994
10.13 10 Agreement and Plan of Report
Reorganization entered into by on Form
and among CUSA Technologies, 8-K
Inc., RK&DR Concepts, Inc. dba dated
VERSYSS Data Systems, and Roger Septembe
L. Kuhns, Joseph F. Jerkovich, r 19,
and David J. Rank 1994
10.14 10 Employment Agreement between CUSA Report
Technologies, Inc., and David J. on Form
Rank 8-K
dated
Septembe
r 19,
1994
10.15 10 Relocation Agreement between the Report
Registrant and David J. Rank on Form
8-K
dated
Septembe
r 19,
1994
10.16 10 Lease Agreement between CUSA, Report
Inc., and Beckstrand Management on Form
Corporation dated October 5, 10-KSB
1987, as amended December 13, dated
1988, September 1, 1989, June 8, June 30,
1990, September 1, 1990, June 25, 1994
1991, October 20, 1992, and March
12, 1993
10.17 10 Exchange Agreement by and among Report
CUSA Technologies, Inc., and on Form
Pioneer Office Building "D" 8-K
Limited Partnership, Doctors' dated
Building Limited Partnership II, June 22,
and Pioneer Office Building 1994
Limited Partnership
10.18 10 Exchange Agreement by and among Report
CUSA Technologies, Inc., Gary on Form
Leavitt and the Leavitt Family 8-K
Trusts dated
June 22,
1994
10.19 10 Asset Acquisition Agreement by Report on
and between CUSA Technologies, Form
Inc., and VERSYSS Incorporated 8-K dated
June 22,
1994
10.20 10 Agreement between the Registrant Report on
and Pioneer Building "D" Limited Form
Partnership regarding 10-KSB
indemnification for building dated
repair costs June 30,
1994
10.21 10 Agreement and Plan of Report on
Reorganization dated November 15, Form
1994, between CUSA Technologies, 10-QSB for
Inc., New Outside Force, Inc., September
Outside Force, Inc., and Richard E. 30,
McFarland 1994
10.22 10 Employment Agreement With Richard Report on
E. McFarland Form
10-QSB for
September
30,
1994
10.23 10 First Right of Refusal Agreement Report on
dated November 15, 1994, between Form
Richard E. McFarland and CUSA 10-QSB for
Technologies, Inc. September
30,
1994
10.24 10 Agreement and Plan of Report on
Reorganization dated December 19, Form
1994, between CUSA Technologies, 10-QSB for
Inc., Surgery Subsidiary No. 2, December
Inc., and Bean Center for Foot 31,
Surgery, Inc. dba Sierra Surgery 1994
Center, H. Kim Bean, D.P.M., and
Richard N. Beckstrand
10.25 10 Agreement and Plan of Report on
Reorganization dated January 27, Form
1995, between CUSA Technologies, 10-QSB for
Inc., New Benchmark Computer December
Systems, Inc., Benchmark Computer 31,
Systems, Inc., Mark J. Vanderloo, 1994
Diane Vanderloo, and Mark A. Boyer
10.26 10 Acquisition Agreement dated Report on
February 7, 1995, between CUSA Form
Technologies, Inc., Pamela R. 10-QSB for
Richards, and Janet E. Frisbey December
31,
1994
10.27 10 Purchase and Loan Agreement dated Report on
September 30, 1994, between CUSA Form
Technologies, Inc., CUSA, Inc., 10-QSB for
RK&DR Concepts, Inc. dba VERSYSS December
Data Systems, and Aspen Business 31,
Company on behalf of certain 1994
beneficial owners, including
related Promissory Note, Security
Agreement, Form of Option, and
Subordination Agreement
10.28 10 Term Loan Agreement dated December Report on
16, 1994, between Zions First Form
National Bank, CUSA Technologies, 10-QSB for
Inc., CUSA, Inc., and RK&DR December
Concepts, Inc. dba VERSYSS Data 31,
Systems, including related 1994
Promissory Note, Continuing
Guaranty of 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 Report on
amount of $300,000 to Zions First Form
National Bank, N.A. and related 10-QSB for
Business Loan Agreement, Commercial December
Security Agreement, Deed of Trust, 31,
and Commercial Guaranty of Richard 1994
N. Beckstrand and Carol Beckstrand
10.30 10 Promissory Note in the principal Report on
amount of $500,000 to Zions First Form
National Bank, N.A. and related 10-QSB for
Loan Agreement, Commercial Security December
Agreement, Revolving Credit Deed of 31,
Trust Security Agreement and 1994
Assignment of Rents, and Commercial
Guaranty of Richard N. Beckstrand
and Carol Beckstrand
10.31 10 Employment Agreement dated January Report on
31, 1995, between CUSA Form
Technologies, Inc., and Mark J. 10-QSB for
Vanderloo December
31,
1994
10.32 10 Employment Agreement dated Report on
September 1, 1994, between CUSA Form
Technologies, Inc., and Michael K. 10-QSB for
Hirano December
31,
1994
10.33 10 Employment Agreement dated Report on
September 19, 1994, between CUSA Form
Technologies, Inc., and Craig E. 10-QSB for
Allen December
31,
1994
10.34 10 Stock Option Agreement dated Report on
January 20, 1994, between CUSA Form
Technologies, Inc., and Richard N. 10-QSB for
Beckstrand December
31,
1994
10.35 10 Employee Stock Option dated Report on
September 1, 1994, between CUSA Form
Technologies, Inc., and Michael K. 10-QSB for
Hirano December
31,
1994
10.36 10 Employee Stock Option dated Report on
September 19, 1994, between CUSA Form
Technologies, Inc., and Craig E. 10-QSB for
Allen December
31,
1994
10.37 10 Agreement and Plan of Report on
Reorganization between Form
CUSA Technologies, Inc., New 10-QSB for
Medical Computer March 31,
Management, Inc., Medical Computer 1995
Management Inc., and Phillip R.
Krieg, Scott D.
Brown, David W. Rathbun, and
Robert R.
Mitchell, dated May 18, 1995
10.38 10 Employment Agreement between Report on
Phillip R. Krieg, Form
CUSA Technologies, Inc., and 10-QSB for
Healthcare Business March 31,
Solutions of Arizona, Inc., dated 1995
May 18, 1995
10.39 10 Employment Agreement between Scott Report on
D. Brown, Form
CUSA Technologies, Inc., and 10-QSB for
Medical Computer March 31,
Management, Inc., dated May 18, 1995
1995
10.40 10 Employment Agreement between David Report on
W. Form
Rathbun, CUSA Technologies, Inc., 10-QSB for
Medical March 31,
Computer Management, Inc., dated 1995
May 18, 1995
10.41 10 Employment Agreement between Report on
Robert R. Form
Mitchell, CUSA Technologies, Inc., 10-QSB for
Medical March 31,
Computer Management, Inc., dated 1995
May 18, 1995
10.42 10 Atherton Plaza Lease Agreement Report on
between Form
Beckstrand and Associates and 10-QSB for
CUSA, Inc., dated January 5, 1995, March 31,
as amended February 22, 1995 1995
10.43 10 Agreement and Plan of Report on
Reorganization between CUSA Form
Technologies, Inc., New Benchmark 8-K dated
Systems of VA., Inc., Benchmark June 30,
Systems of VA., Inc., and Richard 1995
A. Pedersen and Bruce D. Matthews,
dated April 24, 1995
10.44 10 Employment Agreement With Richard Report on
A. Pedersen Form
8-K dated
June 30,
1995
10.45 10 Employment Agreement With Bruce D. Report on
Matthews Form
8-K dated
June 30,
1995
10.46 10 Agreement and Plan of Report on
Reorganization between CUSA Form
Technologies, Inc., New Benchmark 8-K dated
Systems of Wisconsin, Inc., July 21,
Benchmark Systems of Wisconsin, 1995
Inc., and Van Gusdorff, dated July
21, 1995
10.47 10 Employment Agreement With Van Report on
Gusdorff Form
8-K dated
July 21,
1995
10.48 10 Non-Qualified Stock Option Granted Report on
to Van Gusdorff Form
8-K dated
July 21,
1995
10.49 10 Agreement and Plan of This Filing
Reorganization between CUSA Page
Technologies, Inc., Preferred
Health Systems, Inc., Marc L.
McCabe, Steven R. Jones, and
Joseph J. Hughes, dated September
29, 1995
ITEM 16. LETTER ON CHANGE IN CERTIFYING ACCOUNTANT
- ----------------------------------------------------------
CONTRACTS
- ---------
16.01 16 Letter from Joseph B. Glass & Report on
Associates Form
8-K dated
March 24,
1995
ITEM 21. SUBSIDIARIES OF CUSA TECHNOLOGIES, INC.
- --------------------------------------------------------
21.01 21 Subsidiaries of CUSA Technologies, This Filing
Inc. Page
---
ITEM 27. FINANCIAL DATA SCHEDULE
- ----------------------------------------
27.01 27 Financial Data Schedule This Filing
Page
---
REPORTS ON FORM 8-K
The Company filed a report on form 8-K dated May 19, 1995, with respect to
the acquisition of Medical Computer Management, Inc., and a report dated June
30, 1995, with respect to the acquisition of Benchmark Systems of VA, Inc.
Since June 30, 1995, the Company has filed a report on form 8-K dated July 21,
1995, with respect to the acquisition of Benchmark Computers Systems, Inc.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
CUSA TECHNOLOGIES, INC.
Dated: October 12, 1995 By /s/ Richard N. Beckstrand
---------------------------------
Richard N. Beckstrand, President
(Principal Executive Officer and
Principal Financial and Accounting
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: , 1995 By
--------- ----------------------------
L. Bruce Ford, D.P.M., Director
30
Dated: October 12, 1995 By /s/ Richard N. Beckstrand
---------------------------------
Richard N. Beckstrand, Director
Dated: , 1995 By
--------- ----------------------------
Mark Scott, Director
Dated: , 1995 By
--------- ----------------------------
L. James Jensen, Jr., Director
Dated: October 12, 1995 By /s/ Debbie Sanich
----------------------------
Debbie Sanich, Director
Dated: October 12, 1995 By /s/ Gary L. Leavitt
----------------------------
Gary L. Leavitt, Director
Dated: October 12, 1995 By /s/ David J. Rank
----------------------------
David J. Rank, Director
31
Dated: October 12, 1995 By /s/ Mike Hirano
----------------------------
Mike Hirano, Chief Financial Officer
Dated: October 12, 1995 By /s/ Craig Allen
----------------------------
Craig Allen, Controller
CUSA Technologies, Inc.
Index to Consolidated Financial Statements
Page
Report of Grant Thornton LLP, Independent Certified Public
Accountants (as to the fiscal year ended June 30, 1995) F-2
Report of Joseph B. Glass & Associates, Independent Certified
Public Accountants (as to the fiscal year ended June 30, 1994) F-3
Consolidated Balance Sheets as of June 30, 1995 and 1994 F-4
Consolidated Statements of Operations for the years ended
June 30, 1995 and 1994 F-6
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1995 and 1994 F-7
Consolidated Statements of Cash Flows for the years ended
June 30, 1995 and 1994 F-8
Notes to Consolidated Financial Statements F-9
F-1
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 and cash flows
for the year then ended. 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 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
- --------------------------
GRANT THORNTON LLP
Salt Lake City, Utah
September 15, 1995
F-2
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
CUSA Technologies, Inc.
We have audited the consolidated balance sheet of CUSA Technologies, Inc. and
Subsidiaries as of June 30, 1994 and the related consolidated statements of
operations, stockholders' equity, 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 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 consolidated financial
position of CUSA Technologies, Inc. and Subsidiaries at June 30, 1994 and
the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Joseph B. Glass & Associates
- -------------------------------------
Joseph B. Glass & Associates
Salt Lake City, Utah
July 12, 1995
F-3
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
June 30,
ASSETS 1995 1994
---------- -----------
Current assets
Cash and cash equivalents $ 818,883 $ 379,091
Trade accounts receivable, net of
allowance for doubtful accounts
of $327,000 in 1995 and $52,600 in
1994 (Notes C, E and F) 5,141,582 1,067,140
Inventories (Notes C and F) 1,274,088 297,004
Refundable income taxes (Note J) - 20,831
Prepaid expenses and other assets 288,310 75,279
---------- -----------
Total current assets 7,522,863 1,839,345
Property and equipment, at cost (Notes
C and F)
Land 297,688 297,688
Buildings and improvements 2,431,778 2,079,682
Furniture, fixtures and equipment 2,133,952 1,021,815
Other 230,427 138,751
---------- -----------
Total property and equipment 5,093,845 3,537,936
Less accumulated depreciation and
amortization 988,663 377,710
---------- -----------
Net property and equipment 4,105,182 3,160,226
Equipment under capital lease obligations
less accumulated amortization of
$169,168 in 1995 and $9,438 in 1994
(Note K) 461,834 389,127
Receivables from related parties (Note L) 330,054 255,563
Software development and acquisition costs
less accumulated amortization of
$568,292 in 1995 and $10,436 in 1994
(Note B) 3,084,047 1,832,401
Excess of purchase price over fair value
of net tangible and identifiable
intangible assets acquired less
accumulated amortization of
$594,989 in 1995 and none in 1994
(Note B) 13,431,054 4,480,877
Other assets 183,842 85,876
----------- -----------
$29,118,876 $12,043,415
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets - Continued
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
----------- -----------
Current liabilities
Lines of credit with banks (Note C) $ 373,247 $ 260,000
Current installments of long-term debt
(Note F) 870,668 84,506
Current installments of obligations under
capital leases (Note K) 170,334 128,386
Accounts payable 3,235,658 1,674,312
Accrued liabilities and deposits (Note D) 2,841,168 721,222
Income taxes payable (Note J) 50,256 -
Payables to related parties (Note L) 1,962,155 41,028
Deferred revenue 5,515,623 2,486,055
----------- -----------
Total current liabilities 15,019,109 5,395,509
Long-term debt with related parties (Note E) 1,145,000 1,405,000
Long-term debt, excluding current installments
(Note F) 1,852,471 126,039
Obligations under capital leases, excluding
current installments (Note K) 226,356 234,712
Deferred income taxes (Note J) 956,266 19,987
----------- -----------
Total liabilities 19,199,202 7,181,247
----------- -----------
Minority interest (Note B) (1,323) 626,776
----------- -----------
Commitments and contingent liabilities
(Notes C, K and M) - -
Stockholders' equity (Notes B, E, G, and H)
Series A convertible preferred stock, $.001
par value; authorized 1,500,000 shares;
issued 1,000,000 shares 1,000 1,000
Common stock, $.001 par value; authorized
25,000,000 shares; issued 8,509,516
shares in 1995 and 4,739,294 shares
in 1994 8,510 4,739
Additional paid-in capital 9,116,807 4,082,185
Retained earnings 794,680 147,468
----------- -----------
Total stockholders' equity 9,920,997 4,235,392
----------- -----------
$29,118,876 $12,043,415
=========== ===========
The accompanying notes are an integral part of these statements.
F-5
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
Year ended June 30,
1995 1994
----------- ----------
Net sales, service revenue, and
rental income $32,539,715 $3,101,389
Cost of goods sold and other direct costs 16,862,596 1,683,182
----------- ----------
Gross profit 15,677,119 1,418,207
Product development costs 1,790,823 225,015
Selling, general and administrative
expenses 12,016,136 1,303,961
----------- ----------
Operating income (loss) 1,870,160 (110,769)
Other income (expense)
Interest expense (388,617) (15,197)
Interest income 67,658 12,228
Other, net 13,697 3,804
----------- ----------
Income (loss) before income taxes
(benefit) 1,562,898 (109,934)
Income taxes (benefit) (Note J) 786,872 (25,808)
----------- ----------
Net earnings (loss) $ 776,026 $ (84,126)
=========== ==========
Earnings (loss) per common and common
equivalent share
Primary $ .09 $ (.03)
Fully diluted $ .08 $ (.03)
Weighted average common and common
equivalent shares
Primary 7,655,280 2,418,837
Fully diluted 8,020,584 2,418,837
The accompanying notes are an integral part of these statements.
F-6
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1995 and 1994
Preferred stock Common stock
------------------ ------------------ Additional Total
Number of Number of paid-in Retained Stockholder's
shares Amount shares Amount capitol earnings equity
--------- ------ --------- ------ ---------- -------- --------
Balance at July 1, 1993 - $ - 1,889,030 $1,889 $ 14,331 $231,594 $247,794
Merger with Dimension Capital
Corporation (Note B) - - 385,934 386 160,120 - 160,506
Sale of common stock (Note B) - - 500,000 500 499,500 - 500,000
Shares issued under stock option
plans (Note H) - - 250,000 250 374,750 - 375,000
Shares issued to acquire real
property (Note B) 1,000,000 1,000 1,000,000 1,000 2,319,888 - 2,321,888
Shares issued in business
acquisition (Note B) - - 714,330 714 713,616 - 714,330
Net loss for the year - - - - - (84,126) (84,126)
--------- ------ --------- ------ ---------- --------- ----------
Balance 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 B) - - 3,514,227 3,514 4,593,046 (6,148) 4,590,412
Sale of shares to employees
under stock purchase plan
(Note H) - - 254,635 255 434,730 - 434,985
Shares issued under stock
option plans (Note H) - - 1,360 2 1,846 - 1,848
Proceeds from common stock
warrants (Note E) - - - - 5,000 - 5,000
Preferred stock dividends
(Note G) - - - - - (122,666) (122,666)
Net earnings for the year - - - - - 776,026 776,026
--------- ------ --------- ------ ---------- --------- ----------
Balance at June 30, 1995 1,000,000 $1,000 8,509,516 $8,510 $9,116,807 $794,680 $9,920,997
========= ====== ========= ====== ========== ========= ===========
The accompanying notes are an integral part of these statements.
F-7
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Year ended June 30, 1995 and 1994
1995 1994
---------- ----------
Cash flows from operating activities
Net earnings (loss) $ 776,026 $ (84,126)
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities
Depreciation and amortization 1,957,629 112,999
Gain on sale of property and equipment (7,158) -
Minority interest in loss of subsidiary (6,539) (3,804)
Net change in assets and liabilities
Trade accounts receivable (2,217,938) (162,394)
Inventories 285,981 (1,866)
Prepaid expenses and other assets (72,116) (682)
Accounts payable (379,810) (36,301)
Accrued liabilities and deposits 768,338 73,656
Deferred revenue (81,090) 313,514
Income taxes payable 8,936 (64,587)
Deferred income taxes 767,508 11,708
---------- ----------
Net cash provided by operating
activities 1,799,767 158,117
---------- ----------
Cash flows from investing activities
Purchase of property and equipment (798,187) (66,387)
Cash paid for business acquisitions,
including acquisition costs, less
cash acquired (Note N) (79,366) (599,665)
Software development costs (843,314) (87,400)
Advances to related parties (134,208) (294,264)
Proceeds from sale of property and
equipment 20,635 -
Increase in other assets (15,836) (5,842)
---------- ----------
Net cash used in investing
activities (1,850,276) (1,053,558)
---------- ----------
Cash flows from financing activities
Proceeds from debt with related party 1,145,000 -
Repayment of debt with related party (1,405,000) -
Proceeds from long-term debt 2,000,000 -
Repayment of long-term debt (207,039) (7,795)
Net decrease in lines of credit (Note C) (321,000) -
Repayment of obligations under capital
(172,109) (18,088)
Reduction of payables to related parties (868,717) -
Sale of common stock, exercise of stock
options and merger with Dimension
Capital Corporation 441,832 1,035,506
Preferred stock dividends (122,666) -
---------- ----------
Net cash provided by financing
activities 490,301 1,009,623
---------- ----------
Net increase in cash and cash equivalents 439,792 114,182
Cash and cash equivalents at beginning
of year 379,091 264,909
---------- ----------
Cash and cash equivalents at end of year $ 818,883 $ 379,091
========== ==========
The accompanying notes are an integral part of these statements.
F-8
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying consolidated
financial statements follows:
1. Description of Business Operations
The principal business operations of CUSA Technologies, Inc. (CTI) and
its subsidiaries (collectively, the Company ) is the development, sale,
and support of computer software technology for the credit union,
healthcare, and rental industries, including related hardware
maintenance and other ancillary services such as disaster recovery
services, and statement and microfiche processing. The Company also
owns and operates two surgical centers and an office building complex
in Nevada.
2. 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, 1995. All significant intercompany balances
and transactions have been eliminated in consolidation.
3. 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.
4. Cost of Goods Sold
Cost of goods sold includes the amortization of software development
and acquisition costs ($563,660 in 1995 and $10,436 in 1994) and costs
related to software support and hardware maintenance, installation, and
training such as personnel costs, travel and lodging.
5. Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with an
original maturity of less than ninety days.
6. Concentrations of Credit Risk
The Company markets its products and services to customers principally
the credit union, healthcare and rental industries located throughout
the United States. No single
F-9
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
customer represents more than 10% of sales or accounts receivable. The
Company performs ongoing credit evaluations of its customers financial
condition.
7. Inventories
Inventories, which consist principally of computer hardware for resale
and for maintenance services, are stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
8. Property and Equipment
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.
The straight-line method of depreciation and amortization is followed
for substantially all assets for financial reporting purposes. For tax
purposes, certain assets are depreciated under accelerated methods.
A provision for deferred income taxes relating to the temporary
differences in depreciation has been recognized.
9. 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 useful lives of
three to five years.
The excess of purchase price over fair value of net tangible and
identifiable intangible assets acquired in certain business
acquisitions is amortized on the straight-line method over fifteen
years. On an ongoing basis, management reviews the valuation and
amortization of the excess purchase price to determine possible
impairment by comparing
F-10
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
the carrying value to the undiscounted estimated future cash flows of
the related businesses.
10. Income Taxes
The Company utilizes the liability method of accounting for income
taxes as set forth in Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. Under the liability method,
deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the deferred tax
liabilities or assets are expected to be paid or recovered. An
allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will not be realized.
11. 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 (loss) used in the
calculation are reduced by the dividends paid to preferred
stockholders.
12. Reclassifications
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 presentation.
NOTE B - BUSINESS ACQUISITIONS
1. Fiscal 1995
During the year ended June 30, 1995, CTI acquired the following
entities.
VERSYSS Data Systems
Effective September 1, 1994, CTI acquired 100% 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 the
payment of $700,000 on or before September 1, 1995. 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 and identifiable
intangible assets acquired, representing the customer base of VDS, is
being amortized over fifteen years.
F-11
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE B - BUSINESS ACQUISITIONS - CONTINUED
Outside Force
Effective November 15, 1994, CTI acquired 100% of the stock of Outside
Force, Inc. (Outside Force) in exchange for 200,000 shares of
restricted common stock (valued at $333,333) and the payment of
$250,000 ($125,000 at closing and $125,000 on or before March 31,
1995). 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% 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 the payment
of $200,000 ($50,000 at closing and $150,000 on or before June 30,
1995). 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 and identifiable intangible assets acquired,
representing the customer base of Benchmark of Omaha, is being
amortized over fifteen years.
Computer Ease
Effective February 1, 1995, CTI acquired 100% of the stock of Computer
Ease for $350,000, payable $200,000 at closing and two equal
installments of $75,000 each on July 1, 1995 and January 2, 1996.
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.
Benchmark Systems of Virginia
Effective May 1, 1995, CTI acquired 100% 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 the payment
of $1,000,000 ($100,000 at closing, $150,000 on June 15, 1995, and
$750,000 on or before January 10, 1996). 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
F-12
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE B - BUSINESS ACQUISITIONS - CONTINUED
and the excess purchase price over fair value of net tangible and
identifiable intangible assets acquired, representing the customer base
of Benchmark of Virginia, is being amortized over fifteen years.
Benchmark Computer Systems of Wisconsin
Effective June 1, 1995, CTI acquired 100% of the stock of Benchmark
Computer Systems, Inc. (Benchmark of Wisconsin) in exchange for 192,667
shares of restricted common stock (valued at $981,668). 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
and identifiable intangible assets acquired, representing the customer
base of Benchmark of Wisconsin, is being amortized over fifteen years.
Medical Computer Management, Inc.
On May 18, 1995 CTI acquired 100% of the stock of Medical Computer
Management, Inc. and its 90%-owned subsidiary, Healthcare Business
Solutions of Arizona, Inc. (collectively, MCMI) in exchange for 300,000
shares of restricted common stock. MCMI developes, 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.
Separate results of operations for the periods prior to the acquisition
of MCMI are as follows:
Nine months ended Year ended
March 31, 1995 June 30, 1994
-------------- -------------
(Unaudited)
Net sales
CTI $20,224,134 $ 545,686
MCMI 2,364,797 2,555,703
---------- ----------
Combined $22,588,931 $ 3,101,389
========== ==========
Net earnings (loss)
CTI $ 838,430 $8,297
MCMI 182,355 (92,423)
---------- -----------
Combined $ 1,020,785 $ (84,126)
========== ===========
F-13
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE B - BUSINESS ACQUISITIONS - CONTINUED
Sierra Surgery Center
Effective November 1, 1994 CTI acquired 100% 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 was
an entity 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.
2. Fiscal 1994
During the year ended June 30, 1994, CTI acquired the following
businesses and properties:
Dimension Capital Corporation
On December 14, 1993, CTI (formerly known as Mountain Surgical Centers,
Inc.) 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% of the equity interest
in Dimension and the repurchase of 14,066 shares held by dissenting
shareholders 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 restricted
common stock to certain private investors (including an officer and
director of CTI) in exchange for $500,000 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 at exercise prices
which escalate 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%
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, representing the
customer base of CUSA, is being amortized over fifteen years.
F-14
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE B - BUSINESS ACQUISITIONS - CONTINUED
Credit Union Division of VERSYSS, Inc.
Effective June 22, 1994, CTI acquired the credit union 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 and
identifiable intangible assets acquired, representing the customer base
of the Division, is being amortized over fifteen years.
Office Rental Complex
On June 22, 1994, CTI acquired 100% 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 shareholder 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.
Assuming all of the acquisitions completed in fiscal years 1995 and
1994 described above had occurred on July 1, 1993, the Company s
unaudited pro forma condensed consolidated results of operations would
have been approximately as follow:
Year ended June 30,
---------------------------
1995 1994
---- ----
Revenues $43,747,962 $39,748,628
========== ==========
Net earnings (loss) $ 35,255 $(1,021,080)
16
========== ==========
Earnings (loss) per share $ - $ (0.14)
========== ==========
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 July
1, 1993 and are not necessarily indicative of future results.
F-15
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE C - LINES OF CREDIT WITH BANKS
Lines of credit with banks are as follows:
1995 1994
------ ------
Line of credit, interest at prime plus 2%
(11% at June 30, 1995), maximum available
$500,000 secured by accounts receivable,
inventories and trust deed on real estate,
personally guaranteed by an officer and
director of the Company, due November 1995 $ - $ -
Line of credit, interest at prime plus 1/2%
(9.5% at June 30, 1995), secured by accounts
receivable and inventories of Benchmark
of Virginia, due December 1995 229,500 -
Line of credit, interest at prime plus 2%
(11% at June 30, 1995), secured by accounts
receivable, inventories, and equipment of
Benchmark of Omaha, due July 1995 99,711 -
Line of credit, interest at prime plus 1.5%
(10.5% at June 30, 1995), due January 1996 44,036 -
Two lines of credit, interest at prime plus
2.99%, maximum available $260,000, secured
by accounts receivable, inventories and
and equipment of CUSA, paid in December 1994 - 260,000
-------- --------
$373,247 $260,000
======== ========
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 its $500,000 line of credit to help meet 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. Total borrowings and repayments under all lines of credit
are as follows:
Total borrowings $1,007,432 $ -
Total repayments 1,328,432 -
------------ -----------
Net decrease $ (321,000) $ -
============ ===========
F-16
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE D - ACCRUED LIABILITIES AND DEPOSITS
Accrued liabilities and deposits consist of the following:
1995 1994
--------- ---------
Customer deposits $1,117,950 $350,481
Salaries and wages 460,990 6,925
Vacation payable 366,007 128,325
Sales commissions 285,295 38,676
Payroll taxes and withholdings 216,076 83,456
Sales and use taxes 210,745 204
All other 184,105 113,155
--------- ---------
$2,841,168 $721,222
========= =========
NOTE E - 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, 1995. This line
of credit accrues interest at 5.86% and is due December 31, 1997. The
line is secured by accounts receivable and is subordinated to long-term
debt with a bank in the amount of $1,935,595 (Note F). In connection
with this line, the Company issued warrants to purchase 100,000 shares
of the Company s restricted common stock at $2.50 per share on or
before December 31, 1997 in exchange for $5,000.
The Company has issued debentures to an entity controlled by an officer
and director of the Company in the principal amount of $150,000. The
debentures bear interest at 8%, payable quarterly, and are convertible
into common stock of the Company at $3.00 per share. 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% and was paid in December 1994 from the proceeds of
other long-term debt with a bank.
F-17
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE F - LONG-TERM DEBT
Long-term debt is summarized as follows: 1995 1994
-------- ---------
Prime plus 1.5% (10.5% at June 30, 1995) 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 an officer and director of the Company $1,657,012 $ -
Prime plus 1.5% (10.5% at June 30, 1995) note
to a bank, payable in monthly installments
of $6,371 including interest, due December 1999,
secured by trust deed on real estate and
personally guaranteed by an officer and director
of the Company 278,583 -
Prime plus 2.25% (11.25% at June 30, 1995) note to
a commercial lender, payable in monthly installments
of $5,560 including interest, due February 2001,
secured by equipment, inventories, and accounts
receivable of Benchmark of Wisconsin 285,790 -
Prime plus 2.25% (11.25% at June 30, 1995) note to
a bank, payable in monthly installments of
$7,139 including interest, due March 1999,
secured by inventories, accounts receivable,
and equipment of Benchmark of Omaha 272,613 -
Noninterest bearing notes to a supplier,
due in April and June 1996, unsecured 97,687 -
Obligation to an individual, payable in
quarterly installments of $11,094 including
imputed interest at 9%, due December 1996,
unsecured 63,203 107,016
Other notes and obligations, payable through
March 1999 68,251 103,529
--------- ---------
2,723,139 210,545
Less current installments 870,668 84,506
--------- ---------
$1,852,471 $126,039
========= =========
F-18
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE F - LONG-TERM DEBT - CONTINUED
The notes identified above that are secured by the inventories,
accounts receivable and equipment of Benchmark of Wisconsin and
Benchmark of Omaha are guaranteed by the Small Business Administration.
The lenders on these notes have indicated that the Company will need
to refinance these loans within the next year since the Company is not
a small business. The Company expects that these notes will be repaid
within the next year and accordingly has included the entire balance
of these notes in current installments of long-term debt.
Maturities of long-term debt are as follows:
Year ending
June 30,
1996 $ 870,668
1997 175,104
1998 168,017
1999 182,024
2000 166,091
Thereafter 1,161,235
---------
$2,723,139
=========
NOTE G - CONVERTIBLE PREFERRED STOCK
The 1994 Series A Convertible Preferred Stock (the 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:
o The filing of a public offering of the securities of the
Company for a minimum of at least $2,000,000 in cash, or
o 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.
F-19
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE H - EMPLOYEE STOCK OPTION AND PURCHASE PLANS
1. 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 480,000 have been granted at June
30, 1995. Under the 1995 Employee Stock Option Plan, the Company
authorized the issuance of options to acquire up to 300,000 shares, of
which 44,500 have been granted at June 30, 1995. The Director Stock
Option Plan authorizes options up to 62,500 shares, of which 47,500
have been granted at June 30, 1995 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 granted under
the plans described above, the Company has also granted non-statutory
options to certain individuals, including certain officers, directors
and stockholders, in conjunction with their employment, equity and debt
financing or personal guarantees.
The following is a summary of stock options for the two years ended
June 30, 1995:
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
Cancelled (5,400) 1.30 to 1.80
---------
Outstanding at June 30, 1995 2,575,240 1.30 to 3.57
=========
Exercisable at June 30, 1995 1,958,600
=========
Available for grant at June 30, 1995 290,500
=========
2. 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% 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).
F-20
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE I - 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 1995 or
1994.
NOTE J - INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standard #109, Accounting for Income Taxes.
This standard requires that taxes be recorded based upon the tax rate
at which the items of income and expense are expected to be settled in
the Company s tax return.
The provision (benefit) for income taxes consists of the following:
1995 1994
------- -------
Current:
Federal $ 17,836 $ (9,634)
State 1,528 -
Deferred:
Federal 706,915 (11,992)
State 60,593 (4,182)
-------- --------
Total $786,872 $ (25,808)
======== ========
Differences between income taxes (benefit) at the statutory Federal
income tax rate and the Company s effective tax rate are as follows:
1995 1994
-------- --------
Tax at Federal statutory rate $547,014 $ (38,477)
State income taxes, net of
Federal tax benefit 46,887 (7,218)
Amortization of certain
intangible assets 170,052 -
Non-deductible portion of
meals and entertainment 29,653 5,025
Change in valuation allowance - 14,403
Other, net (6,734) 459
-------- --------
Income taxes (benefit) $786,872 $(25,808)
======== ========
Effective income tax rate 50.3% 23.5%
======== ========
F-21
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE J - INCOME TAXES - CONTINUED
Deferred taxes are recorded based upon differences between financial
statement and tax bases of assets and liabilities. The following
deferred taxes were recorded at June 30, 1995:
1995
---------
Deferred tax assets
Net operating losses $ 216,389
Certain accrued liabilities 120,983
Allowance for uncollectible accounts 28,098
Less valuation allowance (96,614)
---------
268,856
---------
Deferred tax liabilities
Capitalized software costs (765,794)
Depreciation of property and equipment (220,140)
Differences in deductible goodwill (212,800)
Other, net (26,388)
----------
(1,225,122)
----------
$ (956,266)
==========
CUSA has net operating loss carryforwards of approximately $570,000 for
income tax purposes which expire in years through 2009. The
utilization of net operating losses arising from the acquisition of
another business is subject to limitation under the Internal Revenue
Code Section 382. Additionally, certain net operating loss
carryforwards are further limited when those losses arose prior to the
Company owning 80% or more of the equity interest in the loss
corporation.
The Company has not yet completed its evaluation of deferred income
taxes or net operating losses on certain of the acquired companies
described in Note B. Accordingly, the purchase price allocation for
these companies is subject to change based on the Company's final
evaluation of differences between tax and financial statement bases of
acquired assets and liabilities.
NOTE K - LEASING ARRANGEMENTS
The Company leases substantially all of its office facilities under
non-cancelable 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
non-cancelable operating leases.
F-22
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE K - LEASING ARRANGEMENTS - CONTINUED
Future minimum lease payments under capital and non-cancelable
operating leases as of June 30, 1995 are as follows:
Operating leases
------------------------------
Year ending June 30, Capital leases Third parties Related party
-------------------- -------------- ------------- ---------------
1996 $208,299 $ 934,020 $ 296,430
1997 163,854 755,553 308,132
1998 88,493 549,381 320,419
1999 11,339 422,502 333,319
2000 507 239,570 346,866
Thereafter - - 1,821,859
-------- --------- ---------
Total minimum lease
payments 472,492 $2,901,026 $3,427,025
Less amount representing
interest 75,802
--------
Present value of net
minimum capital lease
payments 396,690
Less current installments
of obligations under
capital leases 170,334
--------
$226,356
========
Total rent expense under operating leases was $1,462,000 in 1995 and
$117,000 in 1994, including rent expense of $364,000 in 1995 and none
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 non-cancelable
operating leases. Future minimum lease payments due from tenants as
of June 30, 1995 are as follows:
Year ending
June 30,
-----------
1996 $ 350,262
1997 274,286
1998 150,814
1999 132,280
2000 134,028
Thereafter 421,000
---------
$1,462,670
F-23
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE L - RELATED PARTY TRANSACTIONS
1. Receivables from related parties
Receivables from related parties consist of the following:
1995 1994
---------- ---------
12% note to a stockholder of the Company,
payable in monthly installments of $2,000,
due in July 2005 $153,494 $ -
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 Company 131,560 -
8.5% note to a stockholder and
employee of the Company, interest
payable annually, principal due upon
termination of employment, secured by
10,000 shares of CTI stock 45,000 -
Non-interest bearing advances to the Sierra Surgery
Center for construction and preliminary
operations prior to its acquisition by CTI - 255,563
======== ========
$330,054 $255,563
2. Payables to related parties
At June 30, 1995, payables to related parties principally consist of
amounts remaining to be paid on the acquisitions of VDS ($700,000),
Benchmark of Omaha ($150,000), Computer Ease ($75,000), and Benchmark
of Virginia ($1,000,000). As described in Note B, all of these amounts
are scheduled to be paid through January 1996.
At June 30, 1994, payables to related parties consisted of advances and
a bonus in the aggregate amount of $41,028 due to the former majority
stockholder of CUSA.
3. Relocation agreement
In conjunction with the acquisition of VDS, the Company entered into a
relocation agreement with a current officer, director, and shareholder of
under which the Company 1) has agreed to advance $6,000 per month for the
monthly mortgage payment on his house in Pennsylvania to be repaid on
September 30, 1997 and 2) has agreed to issue him options to purchase
200,000 shares of common stock at an exercise price of $2.25 per share.
F-24
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES
1. 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 two executives, their employment agreements provide employment
terms of ten and five years, respectively, although the Company may
terminate the agreements for payments of $500,000 and $200,000,
respectively.
2. 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 of
the Company.
NOTE N - SUPPLEMENTAL CASH FLOW INFORMATION
As described in Note B, the Company has completed several business
acquisitions during the years ended June 30, 1995 and 1994. A summary
of the purchase prices paid, fair value of assets acquired and
liabilities assumed are as follows:
1995 1994
----------- ----------
Fair value of assets acquired $15,051,322 $11,825,081
Less cash acquired (633,081) (150,335)
Liabilities assumed and minority interest (10,370,022) (8,038,863)
Issuance of common and preferred stock (3,968,853) (3,036,218)
Cash paid for business acquisitions, ----------- ----------
including acquisition costs, less
cash acquired $ 79,366 $ 599,665
=========== ==========
1995 1994
----------- -----------
Cash paid during the year for:
Interest $ 348,663 $ 15,197
Income taxes - 31,228
F-25
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE O - INDUSTRY SEGMENTS
Information related to the Company s three industry segments for the years
ended June 30, 1995 and 1994 is as follows:
1995 1994
----------- ----------
Net sales, service revenue, and rental income:
Computer information management systems $31,704,394 $2,622,069
Real estate rental 428,292 10,019
Surgery centers 407,029 469,301
---------- ---------
Consolidated totals $32,539,715 $3,101,389
========== =========
Income (loss) before income taxes (benefit):
Computer information management systems $ 2,610,408 $ (122,969)
Real estate rental 217,790 4,683
Surgery centers 120,848 251,776
---------- ---------
2,949,046 133,490
---------- ---------
Corporate and other (1) (1,386,148) (243,424)
---------- ---------
Consolidated totals $ 1,562,898 $ (109,934)
========== =========
Identifiable assets (2):
Computer information management systems $25,160,226 $ 8,778,432
Real estate rental 2,510,948 2,394,340
Surgery centers 254,937 416,345
---------- ----------
27,926,111 11,589,117
Corporate and other 1,192,765 454,298
---------- ----------
Consolidated totals $29,118,876 $12,043,415
========== ==========
Depreciation and amortization:
Computer information management systems $ 1,824,514 $ 100,915
Real estate rental 117,670 -
Surgery centers 15,445 12,084
---------- ----------
$ 1,957,629 $ 112,999
========== ==========
F-26
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTE O - INDUSTRY SEGMENTS - CONTINUED
Capital expenditures:
Computer information management systems $ 773,382 $ 13,586
Real estate rental 15,054 49,835
Surgery centers 9,751 2,966
---------- -----------
$ 798,187 $ 66,387
========== ===========
(1) Corporate and other includes corporate general and administrative
expenses, net interest expense, minority interests, and other non-
operating 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.
NOTE P - SUBSEQUENT EVENTS (UNAUDITED)
On September 29, 1995, CTI acquired 100% of the equity interest in
Preferred Health Systems, Inc. (PHS), a software development company.
In connection with the acquisition, the Company issued 75,000 shares
of restricted common stock. PHS is the owner and developer of a fourth
generation language software solution for managed health care
organizations. PHS had no sales during the year ended June 30, 1995
and the assets and liabilities of PHS are not significant to the
consolidated financial statements of the Company.
From July 1, through October 6, 1995, the Company issued additional
debentures to an entity controlled by an officer and director in the
aggregate amount of $1,300,000.
In August 1995, the Company renegotiated an agreement with the owners of
a healthcare software system being developed for the Company. Under this
agreement the software development will be completed and the Company will
receive a worldwide license to distribute this product in exchange for
cash, common stock, and future royalties.
Subsequent to June 30, 1995, the Company has placed the Office Complex up
for sale anticipating that the capital represented by the buildings can be
better utilized by the Company in financing the expansion of its core
business of providing integrated computer services.
F-27