UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number: 33-15370-D
-----------
CUSA Technologies, Inc.
------------------------------------------------------------
(Exact name of the registrant as specified in charter)
Nevada 87-0439511
---------------------------- -------------------------------
State of Incorporation IRS Identification Number
986 West Atherton Drive, Salt Lake City, Utah 84123
-----------------------------------------------------------
(Address of principal executive offices)
(801) 263-1840
-----------------------------------------------------------
(Telephone of registrant including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the Issuer was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes ___X___ No ________
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by court.
Yes _______ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 14, 1997 the Issuer had 15,404,204 shares of its common stock, par
value $0.001 per share, issued and outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUSA Technologies, Inc. (the "Company"), has included the consolidated balance
sheets of the Company and its subsidiaries as of March 31, 1997 (unaudited) and
June 30, 1996 (the end of the Company's most recent fiscal year), the unaudited
consolidated statements of operations for the three months ended March 31, 1997
and 1996 and the unaudited consolidated statements of operations and cash flows
for the nine months ended March 31, 1997 and 1996, together with unaudited
condensed notes thereto .
In the opinion of management of the Company, the financial statements reflect
all adjustments, all of which are normal recurring adjustments, necessary to
fairly present the financial condition of the Company for the interim periods
presented. The financial statements included in this report on Form 10-Q should
be read in conjunction with the audited financial statements of the Company and
the notes thereto included in the annual report of the Company on form 10-K for
the year ended June 30, 1996.
"CUSA TECHNOLOGIES, INC."
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
1997 1996
Assets ----------- ---------
------
Current Assets:
Cash $ 896,962 583,080
"Trade accounts receivable, net of allowance for"
doubtful accounts 3,118,693 2,666,345
Inventories 386,763 140,402
Prepaid expenses and other assets 176,763 422,029
Net assets of discontinued operations -- 5,627,221
----------- ---------
Total current assets 4,579,181 9,439,077
Property and equipment :
Leasehold Improvements 143,863 13,808
"Furniture, fixtures and equipment" 2,899,754 2,463,946
Other 673,480 668,405
----------- ---------
Total property and equipment 3,717,097 3,272,159
Less accumulated depreciation and amortization 1,418,477 933,428
----------- ---------
Net property and equipment 2,298,620 2,338,731
"Equipment under capital lease obligations, net" 299,726 233,816
Receivables from related parties 359,069 362,849
"Software development and acquisition costs, net" 1,524,486 1,398,510
Other assets 133,921 208,178
----------- ---------
$ 9,195,003 13,981,161
=========== =========
The accompanying notes are an integral part of these financial statements.
"CUSA TECHNOLOGIES, INC."
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
1997 1996
-------------- ------------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Line of credit with bank $ -- 891,022
Current installments of long-term debt 36,183 1,446,930
Current installments of obligations under capital leases 210,598 205,888
Accounts payable 1,472,828 3,600,904
Accrued liabilities 1,407,281 3,309,086
Customer deposits 984,951 1,690,973
Income taxes payable 10,657 18,081
Payables to related parties -- 1,167,398
Net liabilities of discontinued operations 437,206 --
Deferred revenue 5,785,121 4,816,596
-------------- ------------
Total current liabilities 10,344,825 17,146,878
Long-term debt with related parties -- 2,445,000
"Long-term debt, excluding current installments" -- 430,894
"Obligations under capital leases, excluding current installments" 147,023 193,977
-------------- ------------
Total liabilities 10,491,848 20,216,749
Commitments and contingent liabilities -- --
Stockholders' deficit:
"Series A convertible preferred stock, $.001 par value;"
"authorized 1,500,000 shares; issued and outstanding 1,000,000 shares" 1,000 1,000
"Common stock, $.001 par value; authorized 25,000,000 shares;"
"issued and outstanding 15,404,204 shares at March 31, 1997 and"
"8,916,438 shares at June 30, 1996" 15,404 8,916
Additional paid-in capital 16,523,820 10,530,308
Accumulated deficit (17,837,069) (16,775,812)
-------------- ------------
Total stockholders' deficit (1,296,845) (6,235,588)
-------------- ------------
$ 9,195,003 13,981,161
============== ============
The accompanying notes are an integral part of these financial statements.
"CUSA TECHNOLOGIES, INC."
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
------------------------------ --------------------------
1997 1996 1997 1996
-------------- ------------ ----------- ------------
Net revenues:
Hardware and software sales $ 2,451,019 2,495,118 6,719,816 9,485,987
"Support, maintenance and other services" 5,148,774 4,894,056 13,526,985 12,214,546
Other revenue 103,562 104,747 366,920 314,749
-------------------------------------------- ------------
Total revenues 7,703,355 7,493,921 20,613,721 22,015,282
-------------------------------------------- ------------
Cost of goods sold and other direct costs:
Hardware and software 932,440 1,210,440 2,685,106 4,299,813
"Support, maintenance and other services" 3,392,435 2,843,004 8,762,810 7,238,754
Other 63,035 47,554 216,670 121,316
-------------------------------------------- ------------
Total cost of goods sold and other direct costs 4,387,910 4,100,998 11,664,586 11,659,883
-------------------------------------------- ------------
Gross profit 3,315,445 3,392,923 8,949,135 10,355,399
Product development costs 614,707 120,385 1,702,435 611,460
"Selling, general and administrative expenses" 1,740,648 3,437,466 6,713,527 9,351,110
-------------------------------------------- ------------
Operating income (loss) 960,090 (164,928) 533,173 392,829
Other income (expense):
Interest expense (26,019) (98,055) (220,907) (242,544)
"Other, net" (28,719) (67,186) (29,305) (43,034)
-------------------------------------------- ------------
Income (loss) from continuing operations
before income taxes 905,352 (330,169) 282,961 107,251
Income tax expense (benefit) -- (87,236) -- 167,763
-------------------------------------------- ------------
Income (loss) from continuing operations 905,352 (242,933) 282,961 (60,512)
"Loss from discontinued operations, net of income taxes" (108,687) (1,231,763) (310,132) (1,347,536)
"Loss from disposal of discontinued operations,"
net of income taxes (783,908) -- (944,083) --
-------------------------------------------- ------------
Net Income (loss) $ 12,757 (1,474,696) (971,254) (1,408,048)
============================================ ============
Income (loss) per common and common equivalent share:
Primary
From continuing operations $ 0.08 (0.03) 0.02 (0.02)
From discontinued operations $ (0.08) (0.14) (0.04) (0.16)
Fully Diluted
From continuing operations $ 0.06 (0.04) 0.01 (0.02)
From discontinued operations $ (0.06) (0.14) (0.08) (0.16)
Weighted average common and common equivalent shares:
Primary 11,224,024 8,775,494 9,675,264 8,653,093
Fully Diluted 15,404,204 8,775,494 15,404,204 8,653,093
The accompanying notes are an integral part of these financial statements.
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended March 31,
1997 1996
------------ -----------
Cash flows from operating activities:
Income (loss) from continuing operations $ 282,961 (60,512)
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities:
Depreciation and amortization 817,419 1,466,087
Provision for doubtful accounts 83,867 48,162
Net change in current assets and liabilities:
Trade accounts receivable (536,215) (1,570,935)
Inventories (246,361) 92,402
Prepaids expenses and other assets 24,266 (156,396)
Accounts payable and accrued liabilities (4,029,883) 1,318,050
Customer deposits (706,022) (187,084)
Income taxes payable (74,240) 28,792
Deferred income taxes -- (456,067)
Deferred revenue 968,525 987,179
------------ ------------
Net cash provided by (used in) continuing operating activities (3,127,868) 1,509,678
Net cash provided by (used in) discontinued operations 974,248 (289,567)
------------ ------------
Net cash provided by (used in) operating activities (2,153,620) 1,220,111
Cash flows from investing activities:
Software development costs (41,003) (717,097)
Capital expenditures (557,192) (1,340,270)
Advances to related parties 3,780 --
Decrease in other assets 74,257 (96,163)
Net cash provided by (used in) investing activities of discontinued operations 7,232,630 (973,444)
------------ ------------
Net cash provided by (used in) investing activities 6,341,472 (3,126,974)
Cash flows from financing activities:
Net borrowings under lines of credit (891,022) 1,012,877
Repayments of obligations under capital leases (160,809) (166,805)
Repayment of long-term debt with related parties (1,167,398) --
Reduction of payables to related parties -- (893,265)
Proceeds from long-term debt with related parties -- 1,300,000
Proceeds from long-term debt -- 600,000
Net borrowings under capital lease obligations 118,565 --
Issuance of common stock and exercise of stock options 6,000,000 2,818
Payments to acquire common stock -- (75,500)
Repayments of long-term debt (4,286,640) (339,029)
Net cash used in financing activities of discontinued operations (3,396,666) (132,273)
Preferred dividend distributions (90,000) (90,000)
------------ ------------
Net cash provided by (used in) financing activities (3,873,970) 1,218,823
Net increase (decrease) in cash 313,882 (688,040)
Cash at beginning of period 583,080 818,883
------------ ------------
Cash at end of period $ 896,962 130,843
============ ============
The accompanying notes are an integral part of these financial statements
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of CUSA
Technologies, Inc. (the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. These financial statements and footnote disclosures should
be read in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's latest report on Form 10-K for the
year ended June 30, 1996. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to fairly present the Company's
consolidated financial position as of March 31, 1997 and its consolidated
results of operations and cash flows for the nine months ended March 31, 1997
and 1996. The results of operations for the three and nine months ended March
31, 1997 may not be indicative of the results that may be expected for the year
ending June 30, 1997.
(2) Liquidity
During the nine months ended March 31, 1997, the Company had income from
continuing operations of $282,961, incurred a net operating loss from
discontinued operations of $310,132, a loss on disposal of discontinued
operations of $944,083, used cash in operating activities of $2,153,620 and at
March 31, 1997 had a stockholders' deficit of $1,296,845. These losses have also
resulted in violations of certain debt covenants with the Company's primary
financial institution, which had been waived by the financial institution
through September 30, 1996. The Company has been negotiating to amend such
covenants to conform to currently anticipated future operating results.
Management has begun to implement plans to return the Company to profitable
operations and a positive cash flow. During the three months ended March 31,
1997, the Company had income from continuing operations of $905,352 and a net
income (including a combined loss on disposal of discontinued operations and
loss from discontinued operations of $892,595) of $12,757. In the opinion of
management, full implementation of these plans will permit the Company to meet
its operating and debt cash requirements, at least through the next year. The
Company is subject to many uncertainties over which management has limited
control, any one of which could adversely affect the Company's operating cash
flows, and thus create cash flow problems for the Company. In January of 1997,
the Company agreed to sell 8.6 million shares of common stock for $8.0 million
in cash to its Chairman and Chief Executive Officer. During February of 1997,
the Company received $6.0 million of the commitment. (See foot note 6).
(3) Discontinued Operations
(a) Medical and Commercial Divisions
In June 1996, the Board of Directors of the Company committed to
dispose of the business and assets of the medical and commercial
divisions. On July 2, 1996, the Company consummated an asset purchase
agreement with Physician Computer Network, Inc. (PCN) whereby PCN
agreed to acquire substantially all of the assets and assume certain
liabilities of the medical and commercial divisions.
In June 1996, upon adoption of the plan to dispose of the medical and
commercial divisions, the Company recorded a provision for the
estimated loss on the disposal of the divisions in the amount of
$2,494,451 (net of income tax benefit of $-0-). This provision relates
to the expected loss on the sale to PCN, net of disposal costs,
severance benefits to division employees, certain occupancy costs under
non-cancelable leases, and anticipated future losses related to assets
and operations not sold to PCN until their ultimate disposition is
completed. The estimation of the loss on the disposal of the divisions
requires management to make estimates and assumptions that affect the
reported amount of the loss on disposal. Actual results could differ
from those estimates. As such estimates are adjusted or as actual
results occur, the adjustments to the estimates are reported in the
current period as additional gain or loss on disposal. During the three
and nine month periods ended March 31, 1997, the Company recorded
additional losses on the disposal of the divisions in the amount of
$783,908 and $944,083 respectively, (net of income tax benefit of
$-0-).
(b) Rental Software and Real-estate Rental Divisions
In March of 1997, the Board of Directors of the Company committed to
dispose of the business and assets of the Rental software and
Real-estate rental divisions. A gain on disposal of these divisions is
anticipated, but has not been recognized in the accompanying financial
statements, such gain will be recognized when realized. The
consummation of the disposals is expected during the quarter ending
June 30, 1997. The Company recorded a net loss from these discontinued
operations for the three month and nine month periods ending March 31,
1997 of $108,687 and $310,132, respectively, net of income taxes of
$-0- in the accompanying consolidated statements of operations under
the caption Loss from discontinued operations, net of income taxes.
The medical, commercial, rental software, and real-estate rental divisions
have been accounted for as discontinued operations, and accordingly, the
results of their operations are segregated from continuing operations in
the accompanying statements of operations. Revenue, operating costs and
expenses, other income and expense, and income taxes of these divisions for
the three and nine month periods ended March 31, 1997 and 1996, have been
reclassified as discontinued operations. No allocation of general corporate
overhead has been made to discontinued operations related to these
divisions.
Summary operating results of discontinued operations for the medical,
commercial, rental software, and real-estate rental divisions for the nine
months ending March 31, 1997 and 1996 are as follows:
1997 1996
----------- ----------
Revenues $ 1,437,382 13,016,663
=========== ==========
Gross Profit $ 750,473 5,700,226
============ ==========
Loss before income taxes $ (310,132) (1,818,105)
Income tax benefit $ -0- 470,569
------------- ----------
Loss from discontinued operations $ (310,132) (1,347,536)
============= ==========
The remaining assets and liabilities related to the discontinued operations have
been separately classified on the balance sheets as net assets (or net
liabilities) of discontinued operations. A summary of the net liabilities as of
March 31, 1997 is as follows:
Assets:
Trade accounts receivable, net $ 327,760
Other receivables 200,000
Inventory 27,064
Prepaid expenses and other assets 29,281
Software development costs, net 95,938
Fixed assets, net 2,043,068
---------
Total assets 2,723,111
---------
Liabilities:
Accounts Payable and accrued liabilities 205,575
Customer deposits 28,682
Liability for estimated loss on disposal 972,090
Deferred revenue 258,069
Notes payable 1,683,542
Obligation under capital lease 12,359
----------
Total liabilities 3,160,317
----------
Net liabilities of discontinued operations $ 437,206
==========
(4) Income (loss) per Share
Income or loss per common and common equivalent share is computed by dividing
net income (loss) by the weighted average common shares outstanding during the
period, including common equivalent shares (if dilutive). Common equivalent
shares include stock options, convertible preferred stock and convertible debt.
Income used in this calculation is reduced (loss is increased) by the dividends
paid to preferred stockholders.
(5) Contingent Liabilities
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, such matters will not
have a material effect on the financial position or results of operations of the
Company.
(6) Stock Purchase Agreement
In January of 1997, the Company agreed to sell approximately 8.6 million shares
of its common stock, representing 49% of the common stock to be outstanding
after the completion of the sale, to its Chairman and Chief Executive Officer
for $8.0 million in cash. During the quarter ending March 31, 1997, the Company
received $6.0 million of the $8.0 million commitment. The Company used
approximately $4.3 million of the proceeds to retire long-term debt during the
quarter ending March 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
In June of 1994, the Company entered into the credit union software business
through the acquisition of CUSA, Inc. ("CUSA") and the credit union software
division of CUSA's largest distributor. From June of 1994 to July of 1996, the
Company acquired all of the significant distributors of the CUSA software, some
of which were distributors of software products in the medical and commercial
open systems markets. In June of 1996, the Board of Directors voted to dispose
of the business and assets of the Company's medical and commercial divisions
through a sale of assets to Physician Computer Network, Inc. ("PCN"). On March
27, 1997, the Board of Directors voted to dispose of the business and the assets
of the Company's rental software division and to approve a sale of the Company's
commercial rental property to an officer and shareholder of the Company. The
divestiture of the medical, commercial, and rental software divisions and the
sale of the commercial real property have been part of the Company's plan to
devote its resources to the development and expansion of its credit union
software business.
Third quarter and first nine months of fiscal 1997 compared to the third quarter
and first nine months of fiscal 1996
Net revenues
Net revenues are derived from hardware and software sales, hardware maintenance
and software support services, and sales of products and services which are
related to the Company's computer systems such as credit union statement
printing, disaster recovery, and microfiche services.
The Company's net revenues increased 2.8 percent from $7,493,921 in the third
quarter of fiscal 1996 to $7,703,355 in the third quarter of fiscal 1996 and
decreased 6.4 percent from $22,015,282 in first nine months of fiscal 1997 to
$20,613,721 in the first nine months of fiscal 1997.
Revenues from hardware and software sales decreased 1.8 percent from $2,495,118
in the third quarter of fiscal 1996 to $2,451,019 in the third quarter of fiscal
1997 and 29.2 percent from $9,485,987 in the first nine months of fiscal 1996 to
$6,719,816 in the first nine months of fiscal 1997. The decrease in hardware and
software sales in first nine months of the fiscal year was the result of
increased management focus in the first and second quarters of the fiscal year
on the profitability over the volume of hardware and software sales shipped in
the fiscal year.
Revenues from support, maintenance and other services increased 5.2 percent from
$4,849,056 in the third quarter of fiscal 1996 to $5,148,774 in the third
quarter of fiscal 1997 and 10.7 percent from $12,214,546 in the first nine
months of fiscal 1996 to $13,526,985 in the first nine months of fiscal 1997.
The increase was due to increased sales of the Company's statement processing
services and the addition of software and hardware maintenance accounts through
new system sales.
Other revenues did not vary significantly in the periods reported.
Gross margin
Costs of goods sold consist of the cost of hardware and software purchased for
resale, the amortization of capitalized software development costs, the expense
of installing and training the customer to use the Company's computer systems
and the expense of providing support and maintenance services to users of the
Company's products.
The hardware and software gross margin increased from 51.5 percent in the third
quarter of fiscal 1996 to 62.0 percent in the third quarter of fiscal 1997 and
from 54.7 percent in the first nine months of fiscal 1996 to 60.0 percent in the
first nine months of fiscal 1997. In the same period, the gross margin from
support, maintenance and other services revenue decreased from 41.9 percent in
the third quarter of fiscal 1996 to 34.1 percent in the third quarter of fiscal
1997 and from 40.7 percent in the first nine months of fiscal 1996 to 35.2
percent in the first nine months of fiscal 1997. The increases in the hardware
and software gross margin are primarily attributable to increased management
emphasis on the profitability of orders over the volume of orders written and
shipped in fiscal 1997 and an increase in software as a percentage of hardware &
software sales in the third quarter and first nine months of fiscal 1997 when
compared with the same periods in fiscal 1996. The decreases, in the first and
second quarters of fiscal 1997, in the gross profit margin from support,
maintenance and other services revenue are due to decreased software and
hardware sales, resulting in a decrease in the amount of revenue to cover the
fixed costs of the Company's installation and training departments, increased
software support expenditures to build up resources for software support, and
increased lower margin statement processing services as a percentage of support,
maintenance and other services
Product development costs
Product development costs include funds used for research and development,
system operational error fixes and maintenance software upgrades. As expected,
product development costs increased from $120,385 in the third quarter of fiscal
1996 to $614,707 in the third quarter of fiscal 1997 and from $611,460 in the
first nine months of fiscal 1996 to $1,702,435 in the first nine months of
fiscal 1997. The increase reflects the Company's commitment to continue to
improve current products and to invest in the development of new products, with
an increased emphasis on research and development, which is expensed in the
period incurred, over capitalized expenditures.
Selling, general and administrative costs
The selling, general, and administrative expenses for the Company decreased 49.4
percent from $3,437,466 in the third quarter of fiscal 1996, to $1,740,648 in
the third quarter of fiscal 1997 and 28.2 percent from $9,351,110 in the first
nine months of fiscal 1996 to $6,713,527 in the first nine months of fiscal
1997. This decrease was due to the reduction, over the first nine months of
fiscal 1997, of selling and general corporate overhead expenses and the
elimination of the amortization of goodwill, which was written off as a
nonrecurring charge in fiscal 1996. These expense reductions have been achieved
through the gradual reduction of overhead and administrative personnel.
Interest and income tax expense
Interest expense decreased 73.5 percent in the third quarter of fiscal 1997 when
compared to the third quarter of fiscal 1996 and 8.9 percent in the first nine
months of fiscal 1997 when compared to the first nine months of fiscal 1996. The
decreases were due to the retirement, in the first quarter of fiscal 1997, of
certain interest-bearing related party obligations and, in the third quarter of
fiscal 1997, of approximately $4.3 million of long term obligations. The Company
anticipates an additional reduction of interest expense to result from the
retirement of a term loan upon the completion of the proposed sale of the
Company's commercial rental property to an officer and shareholder of the
Company (see ITEM. 5. OTHER INFORMATION).
Income tax expense was zero in the third quarter of fiscal 1997 compared to a
recorded tax benefit of $87,236 in the third quarter of fiscal 1996. In the
first nine months of fiscal 1997 income tax expense was zero compared to a tax
expense of $167,763 (resulting in an effective tax rate of 156.4%) in the first
nine months of fiscal 1996. The difference in the tax expense is due to the
losses incurred in the first and second quarters of fiscal 1997, for which no
income tax benefit has been recorded, and the loss incurred in the third fiscal
quarter of 1996. .
Discontinued Operations
In June of 1996, the Company adopted a plan to dispose of the assets of its
medical and commercial software divisions (the "1996 Discontinued Operations").
The liability for the estimated loss on the disposal of the 1996 Discontinued
Operations was established in June of 1996. The disposal of the assets of the
1996 Discontinued Operations (except those assets related to the medical records
software) was completed on July 2, 1996. In the third quarter of fiscal 1997, it
was determined that the costs to dispose of the 1996 Discontinued Operations
would exceed the original estimates. The excess costs are primarily the result
of the Company's failure to find a buyer for the medical records software
division and consist primarily of employee severance and customer settlements.
As a result, the Company accrued additional expenses associated with the
disposal of the 1996 Discontinued Operations of $783, 908 for the third quarter
of fiscal 1997 and 944,083 for the first nine months of fiscal 1997. No
additional, material adjustments to the estimated loss on disposal of the 1996
Discontinued Operations are currently anticipated.
The losses from discontinued operations in the third quarter and first nine
months of fiscal 1996 of $1,231,763 and $1,347,536, respectively, reflect the
net operating results of the 1996 Discontinued Operations, and the rental
software and commercial rental property divisions (the "1997 Discontinued
Operations") prior to their disposal. The losses in the third quarter and the
first nine months of fiscal 1997 of $108,687 and $310,132, respectively, reflect
the net operating results of the 1997 Discontinued Operations.
Capital Resources and Liquidity
At March 31, 1997, the Company had current assets of $4,579,818 and current
liabilities of $10,344,825. The current liabilities include $5,785,121 of
deferred revenue which primarily represents billings for services to be provided
over the remaining term of software and hardware maintenance contracts
(generally one year).
The Company has a term loan in the original principal amount of $1,700,000,
which matures December 1, 2006, bears interest at a rate of 9.75% per annum, and
is secured, primarily, by a trust deed on the Company's commercial rental
property located in Sparks, Nevada. Management anticipates the retirement of
this loan in the fourth quarter of fiscal 1997 upon the completion of the
planned sale of the commercial rental property to an officer and shareholder of
the Corporation.
On July 2, 1996 the Company sold its medical and commercial divisions to PCN for
$9,450,000 cash and the assumption of certain related liabilities. Of the
purchase price, $150,000 had not been received as of May 14, 1997 and will be
paid to the Company upon the delivery of certain assets which are currently
subject to a court order restricting such transfer pending the settlement of
certain judgments.
In February of 1997, pursuant to a Purchase and Sale Agreement the Company sold
approximately 8.6 million shares of its common stock, par value .001, to a
director, officer and shareholder of the Company (the "Purchaser) for $8,000,000
at a price of $0.975 per share. To date, the Company has issued 6,153,846 shares
of common stock in exchange for $6,000,000, of which approximately $4.3 million
was used to retire certain long term obligations. The Company expects to receive
the remaining $2,000,000 before the end of the 1997 fiscal year. When received
the $2,000,000 will be used by the Company to redeem all of the Company's 1994
Series Preferred Stock as required by the Purchase and Sale Agreement.
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 the coming year.
In fiscal 1996, the Company recorded nonrecurring charges of approximately $7
million in connection with the revaluation of certain balance sheet intangible
assets and the accrual of restructuring costs. Also in fiscal 1996, the Company
recorded a combined loss from disposal and from discontinued operations of $7.6
million. As a result of these nonrecurring charges and the losses from
continuing operations in fiscal 1996, the Company's retained earnings decreased
from $.8 million at June 30, 1996 to a $16.8 million accumulated deficit at June
30, 1996 and further decreased to a $17.8 million accumulated deficit as of
March 31, 1997.
PART II
OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and in-house legal counsel, the ultimate
resolution of these matters will not have a material effect on the financial
position or results of operations of the Company.
ITEM 5. OTHER INFORMATION
Purchase and Sale Agreement
On January 24, 1997 the Company entered into a Purchase and Sale Agreement (the
"Agreement") whereby it agreed to sell on February 10, 1997 at the offices of
the Company or at such other time and place as mutually agreed upon by the
parties, approximately 8.6 million shares of its common stock, representing 49%
of the common stock to be outstanding after the completion of the sale, to its
Chairman and Chief Executive Officer (the "Investor") for $8.0 million in cash.
In February of 1997 the Company received $6,000,000, approximately $4.3 million
of which was used to retire long term debt. It is anticipated that the remaining
$2,000,000 will be received in fiscal 1997. When received, the $2,000,000 will
be used by the Company to redeem all of the Company's 1994 Series Preferred
Stock as required by the Agreement.
Rental Division
On March 27, 1997, the Board of Directors of the Company voted to sell the
Company's Rental Software Division to an employee and shareholder of the Company
(the "Buyer")for $400,000. The purchase price will be paid over three years, and
will be secured by the assets of the Rental Software Division, a personal
guarantee and 200,000 of the Buyer's common stock of the Company. The
transaction is subject to, among other conditions, the negotiation and execution
of a final purchase agreement by the parties.
Commercial Rental Property
On March 27, 1997, the Board of Directors of the Company voted to sell the
Company's commercial rental property located in Sparks, Nevada for the appraised
price of $3,125,000 less commissions and fees. The completion of the sale is
subject to the negotiation and execution of a final purchase and sale agreement
by the parties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included as part of this report:
Exhibit SEC Ref
Number Number Title of Document
- ------- ------- -------------------
None.
(b) Reports on Form 8K.
None.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934 as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 15, 1997
CUSA Technologies, Inc.
/s/ D. Jeff Peck
- ------------------------------------------------------
D. Jeff Peck, Principal Accounting Officer