SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended................................June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from....................to.......................
Commission File Number: 0-15457
C.I.S. TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 73-1199382
(State or other jurisdiction of (I.R.S.Employer Identification
incorporation or organization) Number)
6100 South Yale, Suite 1900, Tulsa, Oklahoma 74136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918/496-2451
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
The Registrant has one class of common stock, $0.01 par value. The number of
shares of common stock outstanding as of August 4, 1995 was 30,090,111.
Page 1 of 13 pages
C.I.S. TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1995
(Unaudited) and December 31, 1994 (Unaudited)................. 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1995 and 1994 (Unaudited)............... 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1995 and 1994 (Unaudited)............... 5
Notes to the Consolidated Financial Statements (Unaudited).... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 11
Item 6. Exhibits and Reports on Form 8-K.............................. 12
Signatures................................................................ 13
2
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
(Unaudited) (Unaudited)
----------- ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 275,322 $ 11,416,151
Accounts receivable:
Trade, net of allowance for doubtful accounts 9,957,161 6,837,580
Charge recovery 5,237,236 4,917,913
Related party receivables 240,902 191,335
Prepaid expenses 709,542 385,082
Other current assets 942,689 834,569
----------- ------------
Total current assets 17,362,852 24,582,630
----------- ------------
NON-CURRENT ASSETS:
Related party receivables 32,061 106,205
Property and equipment, net 14,089,156 9,814,762
Intangible assets, net 27,137,429 13,640,804
Deferred tax asset 900,000 900,000
Other non-current assets 566,692 457,481
----------- ------------
Total non-current assets 42,725,338 24,919,252
----------- ------------
TOTAL ASSETS $60,088,190 $ 49,501,882
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,989,757 $ 3,435,862
Borrowings under line of credit 2,896,003 43,877
Current maturities of long-term debt 5,965,629 980,816
Current portion of capital leases 224,564 180,208
Related party payables -- 16,709
Deferred revenue 2,124,358 898,111
----------- ------------
Total current liabilities 14,200,311 5,555,583
----------- ------------
NON-CURRENT LIABILITIES:
Long-term debt 3,301,590 3,518,863
Capital lease obligations 50,220 --
Deferred income taxes 407,961 157,963
----------- ------------
Total non-current liabilities 3,759,771 3,676,826
----------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock 23,842 23,842
Common stock 316,065 316,065
Paid in capital in excess of par 52,698,023 52,698,023
Treasury stock, at cost (1,778,206) (1,768,544)
Accumulated deficit (9,131,616) (10,999,913)
----------- ------------
Total stockholders' equity 42,128,108 40,269,473
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $60,088,190 $ 49,501,882
=========== ============
See accompanying notes to consolidated financial statements.
3
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
REVENUE $11,067,629 $ 7,300,260 $19,463,742 $15,101,255
----------- ----------- ----------- -----------
EXPENSES:
Technical operations 899,261 599,052 1,755,634 1,387,241
Sales and client service 6,466,806 4,452,099 10,475,066 8,374,526
General and administrative 1,213,594 1,317,009 2,959,283 3,093,850
Depreciation and amortization 1,082,006 582,102 1,979,059 1,183,166
----------- ----------- ----------- -----------
Total operating expenses 9,661,667 6,950,262 17,169,042 14,038,783
----------- ----------- ----------- -----------
OPERATING INCOME 1,405,962 349,998 2,294,700 1,062,472
OTHER INCOME (EXPENSE) (103,486) (30,717) (87,911) (75,538)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,302,476 319,281 2,206,789 986,934
Provision (benefit) for income taxes 286,800 (95,253) 338,492 (46,339)
----------- ----------- ----------- -----------
NET INCOME $ 1,015,676 $ 414,534 $ 1,868,297 $ 1,033,273
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 32,548,659 26,937,171 32,531,565 26,949,866
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE,
PRIMARY AND FULLY-DILUTED: $ .03 $ .02 $ .06 $ .04
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months Six months
ended ended
June 30, 1995 June 30, 1994
(Unaudited) (Unaudited)
------------- -------------
OPERATING ACTIVITIES:
Net income $ 1,868,297 $ 1,033,273
Noncash items:
Depreciation and amortization 1,979,059 1,183,166
Provision for (recovery of) doubtful accounts (48,956) (66,888)
Deferred income taxes 249,998 --
Other (27,523) (34,707)
Net change in operating assets and liabilities (5,792,581) (823,968)
------------ ------------
Cash provided by (used in) operating activities (1,771,706) 1,290,876
------------ ------------
INVESTING ACTIVITIES:
Additions to property and equipment (1,754,593) (2,589,718)
Sales of property and equipment -- 1,805
Acquisition of subsidiary (9,917,810) --
------------ ------------
Cash provided by (used in) investing activities (11,672,403) (2,587,913)
------------ ------------
FINANCING ACTIVITIES:
Borrowings on line of credit 4,930,813 16,126,000
Repayment of line of credit (2,078,687) (14,852,000)
Book overdrafts -- 155,791
Repayment of long term debt (462,446) (22,342)
Payment of capital lease obligations (86,400) (106,387)
Proceeds from exercise of employee stock options -- 30,541
------------ ------------
Cash provided by (used in) financing activities 2,303,280 1,331,603
------------ ------------
Net (decrease) increase in cash and cash
equivalents during the period (11,140,829) 34,566
Cash and cash equivalents at the beginning of
the period 11,416,151 385,313
------------ ------------
Cash and cash equivalents at the
end of the period $ 275,322 $ 419,879
============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 145,028 $ 67,127
Income taxes paid $ 100,594 $ 62,918
Capital lease obligation for computer equipment $ 176,692 $ --
See accompanying notes to consolidated financial statements.
5
C.I.S. TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, all of which were of a normal recurring
nature, necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the three and six months
ended June 30, 1995 may not be indicative of the results that may be expected
for the year ending December 31, 1995. The year end consolidated balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1994.
2. ACQUISITION OF HOSPITAL COST CONSULTANTS, INC.
Effective June 1, 1995, the Company acquired 100% of the common stock of
Hospital Cost Consultants, Inc. ("HCC"), of Pleasanton, California, for
$15,000,000 (plus acquisition costs and certain contingent consideration)
consisting of:
Cash $10,000,000
Short-term note $ 5,000,000
-----------
$15,000,000
===========
The acquisition was accounted for as a purchase. Under the purchase method, the
net assets of HCC were recorded at their estimated fair values and the excess of
cost over net assets acquired was recorded as goodwill. The operating results
of HCC are included in the Company's consolidated results of operations from
June 1, 1995.
The following unaudited pro forma information shows the consolidated operating
results of the Company as though the purchase of HCC had been made at the
beginning of 1995 and 1994:
June 30, 1995 December 31, 1994
------------- -----------------
Revenue $21,748,000 $39,686,000
Net Income (loss) $(1,664,000) $ (817,000)
Earnings (loss) per share $ (.05) $ (.03)
The pro forma information should be read with the financial statements and notes
of CIS and HCC for the year ended December 31, 1994 and the six months ended
June 30, 1995. HCC results of operations for 1994 included expenses related to
the re-engineering of their software products, which re-engineering increased
the sales cycle time and negatively impacted revenues. These pro forma results
are not necessarily indicative of what actually would have occurred if the
acquisition had been in effect for the entire periods presented. In addition,
they are not intended to be a projection of future results and do not reflect
any synergies that might be achieved from combined operations.
3. INCOME TAXES
Income taxes are recognized based on the Company's estimated effective annual
tax rate. This rate is based upon the Company's projected taxable income for the
year ended December 31, 1995 and anticipated changes in deferred tax assets, the
related valuation allowance, and deferred tax liabilities.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company achieved record revenue and operating income for the second quarter
as a direct result of the Company's focus on customers and the growth strategy
that was implemented in 1994. That strategy included the acquisition of
Orlando, Florida-based AMSC, Inc. ("AMSC") in November of 1994. AMSC is the
nation's leading reseller of The Medical Manager(R) physician practice
management software that provides complete automated business office solutions
for medical service organizations, physician-hospital organizations, as well as
individual physicians. The Company continued this growth initiative in the
second quarter 1995, with the acquisition of Pleasanton, California-based
Hospital Cost Consultants, Inc. ("HCC") effective June 1, 1995. This addition
will provide the Company with managed care products including a managed care
contract modeling and management product, a hospital cost accounting product,
and a data management product. These new subsidiaries combined with the
continued growth from the Company's core business has enabled the Company to
achieve the revenue and operating income milestones previously mentioned.
FINANCIAL CONDITION
Capital Position. At June 30, 1995 working capital was $3.2 million and the
----------------
current ratio was 1.2 compared to $19 million and 4.4 at December 31, 1994. The
decrease in the current ratio in the second quarter was due to the acquisition
of HCC for $10 million in cash and the Company's guarantee of a $5 million
short-term note from HCC to the seller. In addition, the Company increased the
borrowings on the line of credit facility to fund operations.
The Company's total capitalization (long-term obligations plus stockholders'
equity) was $45.9 million at June 30, 1995 compared with $43.9 million at
December 31, 1994. This increase was principally the result of the net income
for the first six months of 1995.
Liquidity. The Company's short-term cash requirements are currently being met
---------
through internally generated funds, borrowings under its revolving line of
credit facility and cash reserves on hand. The Company's $5.0 million line of
credit facility will expire October, 1997. At June 30, 1995, $2,896,000 was
borrowed under this line of credit facility. Included in short-term debt is a
$5 million note related to the acquisition of HCC. This note matures August 31,
1995, but may be deferred until December 29, 1995. The Company anticipates the
note will be funded through cash flows from operations, the existing line of
credit facility, other sources of long-term debt, or an equity issuance.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash used in operating activities was $1,772,000 for the six months ended June
30, 1995, compared to cash provided by operations of $1,291,000 for the same
period in 1994. The cash used in 1995 was the result of increased net income
offset by the net change in operating assets and liabilities. The change in
operating assets and liabilities (which excludes the effect of the HCC
acquisition) was due to: 1) an increase in receivables of $1,731,000 primarily
related to increased sales activity of AMSC; 2) a decrease in deferred revenue
of $1,487,000 related to annual license renewal fees and completion of
installations in process; and 3) the decrease in accounts payable of
$1,822,000.
Cash used in investing activities increased $9,084,000 from the same period in
1994 due to the payment of $9.9 million cash to acquire HCC. Software
development costs decreased by $1 million due to 1994's first half development
of PREMIS(R) 2.0, UB-92, and numerous other lines of business. These costs are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed."
Cash provided by financing activities was $2,303,000 during the first six months
of 1995 compared to $1,332,000 for the same period in 1994. The net change of
$971,000 is due to: 1) utilization of $2 million on the line of credit facility
to acquire HCC; 2) increased usage of the line of credit facility of $896,000
to fund the Company's growth in operations; and 3) increase in debt repayments
of $440,000. Net borrowings on the Company's line of credit facility and book
overdrafts were $1,430,000 during the first six months of 1994 compared to net
borrowings of $2,852,000 in the first six months of 1995.
The Company expects future software development costs and working capital
requirements will be provided by the Company's internally generated cash flow,
cash reserves on hand, or funds available under its revolving line of credit
facility.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 1995 AND 1994
Revenues. In the second quarter of 1995, the Company had record revenue of
--------
$11,068,000, an increase of $3,768,000, or 52%, over the same quarter in 1994.
This increase is principally related to the two newly acquired companies, AMSC
and HCC. The second quarter of 1995 included $1,523,000 and $1,579,000 in
revenue from AMSC and HCC, respectively. Excluding the revenue from these new
subsidiaries, revenue increased by $582,000, or 8%, over the quarter ended June
30, 1994. This
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
core business increase was the result of signing several significant national
accounts from the EDI and Professional Services business units, as well as the
addition of payer revenue in the quarter ending June 30, 1995.
Operating Expenses. Operating expenses for the second quarter of 1995 increased
------------------
$2,711,000, or 39%, compared with the second quarter of 1994. This increase was
the result of $1,779,000 in operating expenses related to AMSC and $896,000
related to HCC, with core business expenses remaining relatively consistent for
the periods ending June 30, 1995 and 1994.
Provision for income taxes. The three months ended June 30, 1994 includes a
--------------------------
benefit of $75,000 for 1993 income tax refunds. As of June 30, 1995 the Company
continues to have net operating loss carryforwards which have not been fully
recognized for financial reporting purposes. Subsequent to the full utilization
of such carryforwards, the Company's effective tax rate is expected to be in
excess of the statutory tax rate (federal and state) due to the effect of
non-deductible amortization of intangible assets. The Company anticipates that
all financial reporting benefits of its net operating loss carryforwards may be
recognized by December 31, 1995.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Revenues. Revenue for the six months ended June 30,1995 increased $4,362,000,
--------
or 29%, over the same period in 1994. The six months ended June 30, 1995
included approximately $2,534,000 and $1,579,000 in revenue from the Company's
recently acquired subsidiaries AMSC and HCC, respectively. Excluding the
revenue from these subsidiaries, revenue increased by $249,000, or 2%, over the
six months ended June 30, 1994.
Operating Expenses. Operating expenses for the six months ended June 30, 1995
------------------
increased $3,130,000, or 22%, compared with the same period in 1994. This
increase was the result of: 1) $2,796,000 in operating expenses related to AMSC;
2) $896,000 in operating expenses related to HCC; 3) an increase of $420,000 in
amortization expense from the release of several software products and
amortization of additional goodwill; offset by a decrease in operating expenses
of $982,000 in 1995, due primarily to cost reductions and quality improvements
implemented during 1994.
Provision for income taxes. The six months ended June 30, 1994 includes a
--------------------------
benefit of $109,000 for 1993 income tax refunds. As of June 30, 1995 the
Company continues to have net operating loss carryforwards which have not been
fully recognized for financial reporting purposes. Subsequent to the full
utilization of such carryforwards, the Company's effective tax rate is expected
to be in excess of the statutory tax rate (federal and state) due to the effect
of non-deductibe amortization of intangible assets. The Company anticipates that
all financial reporting benefits of its net operating loss carryforwards may be
recognized by December 31, 1995.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LOOKING FORWARD
The Company's expectations for the future include increased revenues and
earnings, as it expects to capitalize on the acquisition of HCC and the
synergies between the Company's diverse products and services. Through the
acquisition of HCC, the Company has gained access to the managed care
marketplace, a segment of the healthcare industry that was previously untapped
by the Company. Sales opportunities for the Company now include: electronic
data interchange services, professional services, decision support services,
financial services, physician office management software, managed care software
including a cost system, a managed care system, and a data management package.
All of these healthcare industry products and services will allow the Company to
take advantage of the cross-selling opportunities among existing clients and
newly acquired clients.
During the second quarter, the Company began beta testing of an internal
software application that will allow the Company's clearinghouse to process
claims from hospitals, physicians, and other healthcare providers, even if they
are not currently using the Company's PREMIS(R) product. This will allow
clients using The Medical Manager(R) product, sold by AMSC, to process their
claims through the Company's clearinghouse, thus increasing EDI revenues. In
addition, the Company's core business continues to grow due to the signing of
several national accounts in the first six months that sets the stage for future
growth in the second half of 1995 and beyond.
10
CIS TECHNOLOGIES, INC.
OTHER INFORMATION
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on April 27,
1995, the following proposals which were included in the Proxy
Statement dated March 27, 1995, were voted upon and approved:
Proposal 1: Election of Directors - The proposal was approved as
----------------------------------
follows:
For: 21,378,728
Against: 718,940
Abstain: 0
Unvoted: 2,535,226
Proposal 2: Replacement of Existing Stock Option Plans with 1995 Stock
----------------------------------------------------------------------
Incentive Plan - The proposal was approved as follows:
--------------
For: 17,884,277
Against: 2,110,043
Abstain: 199,770
Unvoted: 4,439,804
Proposal 3: Adoption of 1995 Directors' Stock Option Plan - The
----------------------------------------------------------
proposal was approved as follows:
For: 19,097,598
Against: 2,299,955
Abstain: 243,005
Unvoted: 2,993,336
Proposal 4: Ratification of Independent Public Accountants - The
-----------------------------------------------------------
proposal was approved as follows:
For: 21,814,805
Against: 139,068
Abstain: 144,795
Unvoted: 2,535,226
11
CIS TECHNOLOGIES, INC.
OTHER INFORMATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
--------
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule
B. Forms 8-K
---------
1. The Company filed a Form 8-K, dated May 19, 1995,
concerning a definitive purchase agreement with First Financial
Management Corporation to acquire 100% of the outstanding capital
stock of Hospital Cost Consultants, Inc.
2. The Company filed a Form 8-K, dated June 15, 1995,
reporting the completion of the acquisition of Hospital Cost
Consultants, Inc. and the amendment to the Company's revolving credit
facility agreement with General Electric Capital Corporation.
12
C.I.S. TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
C.I.S. Technologies, Inc.
/s/ Rebecca L. Speight
--------------------------------
Rebecca L. Speight
Director, Finance and Accounting
(Principal Accounting Officer)
Date: August 14, 1995
13