CIS TECHNOLOGIES 1994 ANNUAL REPORT
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FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA EXHIBIT 13
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CIS Technologies, Inc. and Subsidiaries
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1994 1993 1992 1991 1990
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OPERATIONS:
Revenue $ 31,689,204 $ 33,284,893 $ 30,523,284 $ 17,766,464 $ 10,204,824
Operating Income (loss) $ 2,336,771 $ (225,723) $ 3,098,208 $ 1,239,200 $ (425,982)
Net Income $ 2,197,002 $ 1,221,007 $ 3,095,455 $ 1,430,546 $ 121,451
PER SHARE DATA:
Earnings $ 0.08 $ 0.05* $ 0.12 $ 0.06 $ -
Market price: High $ 4.00 $ 7.75 $ 7.88 $ 7.94 $ 6.19
Market price: Low $ 1.94 $ 3.00 $ 4.00 $ 3.50 $ 2.50
Weighted average shares outstanding 27,617,091 27,053,698 26,864,844 25,894,710 26,357,051
Common shares outstanding 30,093,706 26,857,049 26,722,502 26,349,851 25,993,393
CAPITAL POSITION:
Current assets $ 24,582,630 $ 11,607,244 $ 11,579,626 $ 9,501,313 $ 8,741,426
Current liabilities $ 5,555,583 $ 4,360,412 $ 3,234,032 $ 3,197,140 $ 913,633
Long-term liabilities $ 3,676,826 $ 486,753 $ 614,205 $ 1,246,473 $ 531,768
Working capital $ 19,027,047 $ 7,246,832 $ 8,345,594 $ 6,304,173 $ 7,827,793
Total assets $ 49,501,882 $ 29,087,361 $ 26,520,830 $ 22,903,143 $ 13,532,177
Shareholders' equity $ 40,269,473 $ 24,240,196 $ 22,672,593 $ 18,459,530 $ 12,086,776
INVESTMENT SPENDING:
Capital expenditures $ 4,557,854 $ 4,000,131 $ 3,192,393 $ 1,322,542 $ 799,003
Acquisitions $ 1,075,000 $ - $ - $ 2,647,864 $ -
FINANCIAL RATIOS:
Current ratio 4.4 2.7 3.6 3.0 9.6
Debt to equity 12% 2% 3% 7% 12%
Net profit margin 7% 4% 10% 8% 1%
Return on equity 5% 5% 14% 8% 1%
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OPERATING STATISTICS:
Clients 700 562 550 478 306
Employees 414 396 530 313 97
Claims processed 24,050,000 22,163,000 18,137,000 12,500,000 7,272,000
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*Includes effect of adopting Statement No. 109 ($0.03 per share).
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition
The Company's financial position was strengthened during 1994 as a result
of earnings, issuance of common stock and a new credit agreement. At
December 31, 1994, working capital was $19.1 million and the current ratio
was 4.4, compared to $7.2 million and 2.7 at December 31, 1993. The increase
in working capital and the current ratio primarily reflects the increase in
cash and cash equivalents as a result of the sale of the Company's stock.
Property and equipment at December 31, 1994, was $9.8 million, an
increase of 45%, or $3.1 million, from December 31, 1993. The majority of
the increase is due to software development related primarily to the latest
version of the PREMIS product. In addition, intangible assets, net of
amoritization, totaled $13.7 million, an increase of $5.1 million, or 59%,
which reflects goodwill recognized in the acquisition of AMSC, Inc. (See Note
13 to the Financial Statements).
Liquidity
The Company's 1994 cash requirements were met primarily through internally
generated funds and borrowings under its credit facility. At December 31, 1994,
the Company has $11.4 million in cash and cash equivalents and a $5.0 million
revolving credit facility which expires October 31, 1997. As of December 31,
1994, there were borrowings of $44,000 under the credit facility. The Company
has $4 million of long-term debt, $2 million which was part of the GE Capital
Agreement and $2 million which was issued as part of the AMSC acquisition.
Cash provided from operating activities increased $800,000 from 1993 to 1994
due to a $976,000 increase in net income and increased depreciation and
amortization as products were released to customers, offset by increases in
trade and charge recovery receivables. In addition, in 1993, the Company wrote
off $620,000 in capitalized software due to a contract termination (see
"Contract Termination," below) which was offset by the cumulative effect of
adopting Statement of Financial Accounting Standards No. 109.
Cash used in investing activities increased $1.6 million from 1993 to 1994.
Of the $4.6 million in additions to property and equipment, $3.8 million was for
software development. The Company develops internally the majority of the
products it provides to its customers. During 1994, development activity was
focused on two primary areas: (1) a major enhancement of the PREMIS product
released in July which included additional functionality; and (2) development of
payer-specific edits. The Company capitalized $3.7 million in software
development costs during 1993, primarily associated with its PREMIS product.
Cash provided from financing activities during 1994 of $12.6 million
resulted principally from the issuance of stock. Borrowing and repayment
activities on long-term debt and lines of credit, as well as other financing
activities, largely offset each other. Positive financing cash flows in 1993
were the result of proceeds from the exercise of stock options and book
overdrafts at December 31, 1993.
Capital resources available should be sufficient to meet the needs of the
Company's business on both a short- and long-term basis. The Company expects
future software development costs and working capital requirements will be
provided by cash investments, internally generated cash flow and its line of
credit facility.
Capital Expenditures
The Company has spent $4.6 million, $4.0 million and $3.2 million on
additions to property and equipment during the last three years. The majority of
the expenditures were for software development costs as discussed above. The
1995 capital budget anticipates capital expenditures of $3.7 million, with $2.8
million planned for continuing software development and the remainder budgeted
for computer equipment and leasehold improvements.
Results of Operations - 1994 compared to 1993
Revenue decreased $1.6 million, or 5%, primarily due to the October 1993
discontinuation of the Company's business office operations with revenues of
$3.8 million in 1993 (see "Discontinuation of Outsourcing Contract," below).
Excluding business office operations, 1994 revenues increased $2.2 million, or
7%, due to $1.5 million in revenues related to AMSC, acquired in October 1994,
and an additional $1.5 million attributable to new service offerings and an
increasing customer base for recurring services. These increases were offset by
an $800,000 reduction in licensing and installation revenues.
Operating expenses decreased 12%, or $4.2 million, in 1994 due to $5.9
million in non-recurring 1993 expenses and a net reduction in ongoing personnel
costs of $300,000 mostly due to bringing previously contracted programming
services in-house. These decreases were offset by depreciation, amortization,
computer lease, and communication expense increases of $900,000; and by the 1994
addition of AMSC operating expenses of $1.2 million. Non-recurring 1993 expenses
included $4.4 million related to the discontinued business office operation, and
a $1.5 million charge related to the termination of a software development
contract with a third-party vendor (see "Contract Termination," below).
Results of Operations - 1993 compared to 1992
Revenue increased $2.8 million, or 9%, primarily due to the Company's
outsourcing contract (see "Discontinuation of Outsourcing Contract," below). The
majority of the Company's other 1993 revenues was consistent with prior year.
Growth in these other revenues was constrained primarily due to software
delivery delays associated with the contract terminated in early 1993 (see
"Contract Termination," below). In addition, fewer short-term consulting and
billing projects negatively impacted 1993 revenues by approximately $1.7
million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Operating expenses for 1993 increased 22%, or $6.1 million, over 1992. $1.5
million of the increase was due to the contract termination (see "Contract
Termination," below), with $4.4 million of the remaining increase attributable
to the Company's outsourcing contract which began in August 1992 (see
"Discontinuation of Outsourcing Contract," below). Development and operations
expenses increased $429,000 due to increased personnel and office space for
customer and development support. General and administrative expenses increased
$444,000 as a result of additional personnel and marketing expenditures related
to new products. The income tax benefit of $556,000 in 1993 resulted primarily
from a refund of taxes paid in prior years.
Acquisition of AMSC
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Effective November 3, 1994, the Company acquired 100% of the common stock of
AMSC, Inc. ("AMSC") for $5 million plus acquisition costs, consisting of cash,
stock and notes (see Note 13 to the Financial Statements).
Equity Partner
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On November 21, 1994, Bankers Trust acquired 2,384,182 shares of non-voting
convertible preferred stock and 1,615,818 shares of the Company's common stock
for $10 million. In addition, Bankers Trust acquired warrants to purchase
500,000 shares of non-voting convertible preferred stock exercisable at $3.25
per share over 3 years.
Credit and Equity Partner
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On October 31, 1994, the Company entered into agreements with GE Capital
receiving a $2 million term loan and a $5 million, three-year revolving credit
facility. In addition, GE Capital acquired 840,336 shares of the Company's
common stock for $2 million. The two companies have entered into a strategic
alliance, Precision Funding, to provide receivable financing for hospitals.
Cumulative Effect of Accounting Change
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The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" effective January 1, 1993. Statement No. 109
requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards and of deferred tax liabilities for
taxable temporary differences. The cumulative effect of this change in
accounting for income taxes as of January 1, 1993, increased net income by
$900,000 ($.03 per share) and is reported separately in the consolidated
statements of operations.
Contract Termination
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In February 1993, the Company discontinued its relationship with a third-
party software vendor because of delivery postponements and the discovery of
numerous software defects and performance and support deficiencies. The Company
recorded $1.5 million in costs relating to the discontinuance of the software
enhancement and development arrangement in the first quarter of 1993 as contract
termination expense.
Discontinuation of Outsourcing Contract
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During October 1993, the Company sold its business office operation at
Straub Clinic & Hospital. As part of the transaction, the Company's trade
accounts receivable from Straub were converted into a note receivable. The
Company had been operating the Straub business office since August 1992 and this
client accounted for $3.8 million and $1.6 million of total revenue and $4.4
million and $1.4 million of total field operations expense during 1993 and 1992,
respectively.
Looking Forward
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1994 was an exciting year as the Company increased earnings, sought and
obtained new equity partners and strategic alliances, and completed an
acquisition. The Company believes 1995 will be a year of change and growth, as
the Company seeks new alliances and acquisitions, converts existing clients to
PREMIS 2.0 and sells its expanded services to new and existing clients. The
Company continues to stay well informed on healthcare reform initiatives and is
an integral part of the healthcare electronic information highway.
Inflation
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To date, inflation has not had a material effect on the Company's
operations. In management's opinion, inflation should not have a significant
impact upon its future operating results.
- - -18-
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REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders
CIS Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of CIS
Technologies, Inc. and Subsidiaries (the "Company") as of December 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
(included on pages 20 through 23 and 25 through 32) present fairly, in all
material respects, the consolidated financial position of CIS Technologies, Inc.
and Subsidiaries as of December 31, 1994 and 1993 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during 1993.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
February 7, 1995
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CONSOLIDATED BALANCE SHEETS
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CIS Technologies, Inc. and Subsidiaries
At December 31, 1994 and 1993
1994 1993
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,416,151 $ 385,313
Accounts receivable:
Trade, net of allowance for doubtful accounts of $320,668 in 1994 and $318,920 in 1993 6,837,580 5,366,747
Charge recovery 4,917,913 4,370,901
Related party receivables 191,335 56,244
Prepaid expenses 385,082 303,530
Other current assets 834,569 1,124,509
Total current assets 24,582,630 11,607,244
NON-CURRENT ASSETS:
Related party receivables 106,205 97,149
Property and equipment, net 9,814,762 6,747,604
Intangible assets, net 13,640,804 8,552,652
Deferred tax asset (Note 8) 900,000 900,000
Other non-current assets 457,481 1,182,712
Total non-current assets 24,919,252 17,480,117
TOTAL ASSETS $ 49,501,882 $ 29,087,361
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,435,862 $ 3,413,313
Borrowings under line of credit 43,877 -
Current maturities of long-term debt 980,816 152,096
Current portion of capital leases 180,208 204,459
Related party payables 16,709 -
Deferred revenue 898,111 590,544
Total current liabilities 5,555,583 4,360,412
NON-CURRENT LIABILITIES:
Long-term debt 3,518,863 105,574
Capital lease obligations - 173,216
Deferred income taxes (Note 8) 157,963 207,963
Total non-current liabilities 3,676,826 486,753
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock: $0.01 par value, 20,000,000 shares authorized, 23,842 -
2,384,182 shares issued and outstanding at December 31, 1994
Common stock: $0.01 par value, 50,000,000 shares authorized, 316,065 283,698
31,611,451 shares issued and 30,093,706 shares outstanding at December 31, 1994
28,374,794 shares issued and 26,857,049 shares outstanding at December 31, 1993
Paid in capital in excess of par 52,698,023 38,921,957
Treasury stock, at cost: 1,517,745 shares at December 31, 1994 and 1993 (1,768,544) (1,768,544)
Accumulated deficit (10,999,913) (13,196,915)
Total stockholders' equity 40,269,473 24,240,196
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,501,882 $ 29,087,361
See notes to the consolidated financial statements.
- - -20-
CONSOLIDATED STATEMENTS OF OPERATIONS
CIS Technologies, Inc. and Subsidiaries
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
REVENUE:
Service revenue $ 30,203,268 $ 33,284,893 $ 30,523,284
Hardware and software sales 1,485,936 - -
Total revenue 31,689,204 33,284,893 30,523,284
OPERATING EXPENSES:
Development and field operations 18,382,113 22,272,139 18,780,026
General and administrative 7,559,732 7,446,406 7,002,564
Depreciation and amortization 2,701,671 2,292,071 1,642,486
Cost of hardware and software sales 708,917 - -
Contract termination - 1,500,000 -
Total operating expenses 29,352,433 33,510,616 27,425,076
Operating income (loss) 2,336,771 (225,723) 3,098,208
Other income (expense) (125,805) (9,661) 79,166
Income (loss) before income taxes and
cumulative effect of change of accounting principle 2,210,966 (235,384) 3,177,374
(Provision) benefit for income taxes (Note 8) (13,964) 556,391 (81,919)
Income (loss) before cumulative
effect of change in accounting principle 2,197,002 321,007 3,095,455
Cumulative effect of change in
accounting principle (Note 8) - 900,000 -
Net income $ 2,197,002 $ 1,221,007 $ 3,095,455
Weighted average common and common
equivalent shares outstanding 27,617,091 27,053,698 26,864,844
EARNINGS PER COMMON SHARE, PRIMARY
AND FULLY-DILUTED:
Income before cumulative effect of
change in accounting principle $ 0.08 $ 0.02 $ 0.12
Cumulative effect of change in
accounting principle - 0.03 -
Net income $ 0.08 $ 0.05 $ 0.12
See notes to the consolidated financial statements.
-21-
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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CIS Technologies, Inc. and Subsidiaries
Years ended December 31, 1994, 1993, and 1992
----------------------------------------------------
1994 1993 1992
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PREFERRED STOCK
Beginning balance $ - $ - $ -
Issuance of preferred stock 23,842 - -
Ending balance 23,842 - -
COMMON STOCK
Beginning balance 283,698 282,340 278,499
Exercise of stock options 418 1,358 3,841
Issuance of common stock 24,561 - -
Common stock issued in connection with acquisition of subsidiary 7,388 - -
Ending balance 316,065 283,698 282,340
PAID-IN CAPITAL
Beginning balance 38,921,957 38,544,873 37,829,597
Exercise of stock options 72,126 377,084 715,276
Issuance of common stock 5,890,399 - -
Common stock issued in connection with acquisition of subsidiary 1,992,612 - -
Issuance of preferred stock 5,753,329 - -
Issuance of common stock warrants 67,600 - -
Ending balance 52,698,023 38,921,957 38,544,873
TREASURY STOCK
Beginning balance (1,768,544) (1,736,698) (1,679,043)
Purchase of treasury stock - (31,846) (57,655)
Ending balance (1,768,544) (1,768,544) (1,736,698)
GUARANTEED ESOP OBLIGATION
Beginning balance - - (456,146)
Payment of ESOP obligation - - 456,146
Ending balance - - -
ACCUMULATED DEFICIT
Beginning balance (13,196,915) (14,417,922) (17,513,377)
Net income 2,197,002 1,221,007 3,095,455
Ending balance (10,999,913) (13,196,915) (14,417,922)
TOTAL STOCKHOLDERS' EQUITY $ 40,269,473 $ 24,240,196 $ 22,672,593
---------------------------------------------------
See notes to the consolidated financial statements.
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- - -22-
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
CIS Technologies, Inc. and Subsidiaries
Years ended December 31, 1994, 1993, and 1992
----------------------------------------------
1994 1993 1992
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OPERATING ACTIVITIES:
Net income $ 2,197,002 $ 1,221,007 $ 3,095,455
Noncash items:
Depreciation and amortization 2,701,671 2,292,071 1,642,486
Provision for bad debts - 51,325 120,363
Cumulative effect of accounting change - (900,000) -
Writeoff of capitalized software - contract termination - 620,533 -
Deferred income taxes (50,000) 123,449 -
Other 13,783 (30,102) (43,749)
Changes in operating assets and liabilities:
Accounts receivable (1,570,242) 109,485 (3,979,944)
Related party receivables (24,091) 83,291 138,540
Prepaid expenses and other current assets 315,289 (298,351) 30,823
Other assets 685,689 (475,963) (387,205)
Accounts payable and other accrued liabilities (551,423) 344,670 (177,020)
Deferred revenue 307,567 88,114 125,758
Related party payable 16,709 - -
Cash provided by (used in) operating activities 4,041,954 3,229,529 565,507
INVESTING ACTIVITIES:
Additions to property and equipment (4,557,854) (4,000,131) (3,192,393)
Sales of property and equipment - - 502,471
Acquisition of subsidiary (1,075,000) - -
Sales of marketable securities - - 287,890
Reductions in (additions to) other assets - (57,683) (44,761)
Cash provided by (used in) investing activities (5,632,854) (4,057,814) (2,446,793)
FINANCING ACTIVITIES:
Borrowings on line of credit 32,162,478 23,185,036 470,000
Repayments of line of credit (32,118,602) (23,185,036) (470,000)
Proceeds from issuance of stock, net of costs 11,692,131 - -
Proceeds from term note 2,000,000 - -
Book overdrafts (618,023) 618,023 -
Repayment of long-term debt (329,320) (44,106) (40,924)
Payment of capital lease obligation (197,467) (232,111) (163,218)
Proceeds from exercise of employee stock options 30,541 336,442 677,116
Cash provided by (used in) financing activities 12,621,738 678,248 472,974
Net increase (decrease) in cash and cash equivalents during the period 11,030,838 (150,037) (1,408,312)
Cash and cash equivalents at the beginning of the period 385,313 535,350 1,943,662
Cash and cash equivalents at the end of the period $ 11,416,151 $ 385,313 $ 535,350
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SUPPLEMENTAL DISCLOSURES:
Interest paid $ 127,198 $ 104,660 $ 92,603
Income taxes paid $ 51,772 $ 158,060 $ 759,175
Capital lease obligations for computer equipment and furniture and fixtures $ - $ 141,146 $ 172,067
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See notes to the consolidated financial statements.
-23-
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A REVIEW BY QUARTERS
- - --------------------
(Unaudited)
----------------------------------------------
1994 1993 1992
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REVENUE
First Quarter ended March 31 $ 7,800,995 $ 7,944,256 $ 6,412,426
Second Quarter ended June 30 7,300,260 8,915,777 7,398,557
Third Quarter ended September 30 7,656,890 8,592,844 7,975,071
Fourth Quarter ended December 31 8,931,059 7,832,016 8,737,230
OPERATING INCOME
First Quarter ended March 31 $ 712,474 $(2,562,901) $ 411,475
Second Quarter ended June 30 349,998 862,901 1,113,761
Third Quarter ended September 30 643,885 767,773 746,072
Fourth Quarter ended December 31 630,414 706,507 826,900
NET INCOME
First Quarter ended March 31 $ 618,739 $(1,685,002)* $ 411,873
Second Quarter ended June 30 414,734 1,422,657** 1,065,083
Third Quarter ended September 30 503,771 758,246 798,053
Fourth Quarter ended December 31 659,958 725,106 820,446
EARNINGS PER SHARE
First Quarter ended March 31 $ 0.02 $ (0.06)*** $ 0.02
Second Quarter ended June 30 0.02 0.05 0.04
Third Quarter ended September 30 0.02 0.03 0.03
Fourth Quarter ended December 31 0.02 0.03 0.03
MARKET PRICE PER SHARE
March 31 $ 2.88 $ 4.81 $ 5.00
June 30 2.13 4.75 4.50
September 30 2.44 5.00 5.00
December 31 2.31 3.19 7.75
---------------------------------------------
* Includes the effect of $1,500,000 of contract termination costs and
cumulative effect of adopting Statement No. 109 of $900,000.
** Includes the effect of $600,000 of income tax benefit.
***Earnings per share before cumulative effect of adopting Statement No.
109 was $(0.09).
- - -24-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of CIS Technologies,
Inc. and all majority-owned subsidiaries (collectively, "the Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid investments
with a maturity when acquired of three months or less.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. All material property and equipment additions are capitalized and
depreciated on a straight-line basis over the estimated useful life of the
assets.
Software Development Costs
Software development costs are capitalized in accordance with Financial
Accounting Standards Board Statement No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed." Costs incurred
during the initial design phase of software development are expensed. Once the
software has been clearly defined and technological feasibility has been
established, software development costs are capitalized and amortized on a
straight-line basis over an estimated useful life of five years. Software
development costs are carried at their net realizable value and, as such, an
annual review of software development costs is conducted and the costs of
obsolete software are written off.
Purchased Contracts and Goodwill
Purchased contracts are stated at the lower of cost (net of accumulated
amortization) or net realizable value and are amortized on a straight-line basis
over 15 years. Goodwill represents the excess of the cost of acquired businesses
over the fair value of the net assets and is amortized on a straight-line basis
over 20 years. Goodwill is evaluated annually for impairment based on estimated
undiscounted cash flows of the acquired entities and written down to net
realizable value if necessary. No impairment has been recorded at December 31,
1994.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Statement No.
109 requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards, and of deferred tax liabilities
for taxable temporary differences. Measurement of current and deferred tax
liabilities and assets is based on provisions of enacted tax law; the effects
of future changes in tax laws or rates are not included in the measurement.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
Revenue Recognition
EDI Services. Initial license fees are recognized upon execution of the
contract. Installation fees are recognized upon completion of the installation.
Revenue from claims processing and software maintenance is recognized monthly
based upon the terms of the contract.
Audit Services. Charge recovery revenue is recognized monthly based upon a
contracted percentage of the total lost charges identified and billed to
insurance companies. Other types of audit services revenue are recognized in the
period the services are performed.
Other Services. Revenue is recognized monthly based upon the terms of the
contract.
Hardware and Software Sales. Revenue is recognized upon delivery.
Earnings Per Share
Earnings per share are computed using the weighted average number of common
shares outstanding during the periods presented, including, if dilutive, shares
issuable under the stock option plans, warrants and convertible preferred stock.
-25-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
Reclassifications
Certain reclassifications were made to prior year financial statements to
conform to the 1994 financial statement format.
Concentrations of Credit Risk
Trade receivables with hospitals potentially subject the Company to
concentrations of credit risk. Such credit risk, however, is considered by
management to be limited because of the Company's sizable and geographically
diverse client base. The Company performs ongoing credit evaluations of its
clients and generally does not require collateral. At December 31, 1994, the
Company had cash in one bank of approximately $1.1 million.
2. PROPERTY AND EQUIPMENT
-------------------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------------
Computer hardware and purchased software $ 3,000,955 $ 3,464,777
Computer hardware under capital lease 454,708 454,708
Software development costs 10,525,606 6,677,667
Furniture and fixtures 741,160 662,553
Furniture and fixtures under capital lease 423,807 423,807
Leasehold improvements 715,013 502,433
Equipment 146,731 -
Vehicles 93,367 -
$ 16,101,347 $ 12,185,945
Accumulated depreciation and amortization (6,286,585) (5,438,341)
Property and equipment, net $ 9,814,762 $ 6,747,604
------------ ------------
The following table details software development cost information for the
years ended December 31, 1994, 1993 and 1992:
------------------------------------------------------------
1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
Unamortized software development costs, beginning balance $ 4,896,443 $ 2,581,203 $ 693,290
Capitalized software development costs 3,759,784 3,676,971 2,127,828
Software acquired in acquisition 113,700 - -
Amortization of software development costs (1,282,096) (741,198) (239,915)
Write-off of software development costs (113,004) (620,533) -
Unamortized software development costs, ending balance $ 7,374,827 $ 4,896,443 $ 2,581,203
- - -26-
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. INTANGIBLE ASSETS
---------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------------
Purchased Contracts $ 1,300,000 $ 1,300,000
Goodwill:
Teleclaim 1,270,089 1,270,089
HBA 7,426,297 7,426,297
AMSC 5,701,931 -
Other intangible assets 37,667 449,951
---------------------------------
$ 15,735,984 $ 10,446,337
Accumulated amortization (2,095,180) (1,893,685)
---------------------------------
Intangible assets, net $ 13,640,804 $ 8,552,652
---------------------------------
Purchased contracts and Teleclaim goodwill resulted from the purchase of the
Teleclaim Processing Division ("Teleclaim") of Medaphis Corporation in 1988. The
HBA goodwill resulted from the purchase of Hospital Billing Analysis, Inc.
("HBA") in 1991. The AMSC goodwill resulted from the acquisition of AMSC, Inc.
("AMSC") in 1994 (See Note 13).
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
---------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------------
Accounts payable, trade $ 1,736,782 $ 1,914,488
Book overdrafts - 618,023
Wages, bonus and commissions payable 745,420 409,787
Employee benefits payable 166,910 296,530
Accrued income taxes payable 121,350 -
Other accrued liabilities 665,400 174,485
---------------------------------
Accounts payable and accrued liabilities $ 3,435,862 $ 3,413,313
---------------------------------
5. LONG-TERM DEBT
---------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------------
Term Loan, due 1997 (a) $ 2,000,000 $ -
Convertible notes, due 2007 (b) 500,000 -
Non-convertible notes, due 2007 (b) 1,500,000 -
Other 499,679 257,670
---------------------------------
$ 4,499,679 $ 257,670
Current maturities 980,816 152,096
---------------------------------
Long-term debt $ 3,518,863 $ 105,574
---------------------------------
(a) In October 1994, the Company entered into a new Credit Agreement which
provided for a $2,000,000 term loan and a $5,000,000 line of credit. This
Agreement was used to replace the existing credit agreement and indebtedness,
and provided funding for the acquisition of AMSC, Inc. This note is
collateralized by virtually all assets of the Company, and the Agreement expires
in October 1997. Under this Agreement, the Company is required to maintain
certain financial ratios. In addition, this Agreement limits reductions of the
collateralized asset base, places restrictions on investments permitted and
additional indebtedness, and
-27-
- - ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
includes a subjective acceleration clause. The term loan portion of this
agreement is payable in quarterly principal installments of $166,667, with
interest payments on the outstanding balance due monthly, and bears interest at
a floating rate equal to an index rate plus 4% (9.66% at December 31, 1994). The
revolving credit facility accrues interest, payable monthly, at a floating rate
equal to an index rate plus 3.75% (9.41% at December 31, 1994). As of December
31, 1994, borrowings under this facility were $43,877, leaving an available
balance of $4,956,123.
(b) Convertible promissory notes, provided as partial consideration in the AMSC
acquisition, are convertible to shares of the Company's common stock at market
value on the date of the conversion in minimum amounts of $50,000. These notes
bear interest at 7.5%, and are payable in monthly installments of $7,373
commencing December 1997 and maturing November 2007. Non-convertible promissory
notes were also provided as partial consideration in the AMSC acquisition, and
are not convertible to common stock. These notes bear interest at 7.5%, and are
payable in monthly installments of $22,120 commencing December 1997 and
maturing November 2007. The notes are collateralized by stock in AMSC held by
the Company.
The aggregate maturities on all long-term debt are $980,816, $717,247,
$721,740, $203,761 and $220,291, respectively, for each of the years ending
December 31, 1995, through 1999.
6. COMMITMENTS AND CONTINGENCIES
The Company leases computer hardware, office space and furniture under various
capital and operating lease agreements.
The following table summarizes the future minimum lease payments for the next
five years:
---------------------------------------
Operating leases Capital leases
- - ---------------------------------------------------------------------------------------------------------------------------------
1995 $ 1,731,505 $ 206,149
1996 1,046,971 -
1997 707,051 -
1998 656,863 -
1999 432,650 -
-------------------------------------
Minimum payments for the next five years $ 4,575,040 $ 206,149
Interest on capital leases 25,941
-------------------------------------
Capital lease obligation, current $ 180,208
-------------------------------------
For the years ended December 31, 1994, 1993, and 1992, rental expense on
operating leases was $2,319,523, $1,142,028, and $882,298 respectively.
The Company is a party to various legal proceedings arising in the ordinary
course of business none of which, in the Company's opinion, should result in
a judgement which would have a material adverse effect on the Company.
7. PREFERRED STOCK AND WARRANTS
The Company issued 2,384,182 shares of convertible preferred stock. The stock is
non-voting, has no dividend, includes a liquidation preference of $.01 per share
and is convertible into common stock on a share for share basis (subject to
certain adjustments) on or after the occurrence of one of several triggering
events. At December 31, 1994, the Company had warrants outstanding to acquire
500,000 shares of non-voting convertible preferred stock exercisable at $3.25
per share over three years. The Company also has outstanding warrants to acquire
200,000 shares of common stock at $3.0625 per share through February 1999,
40,000 of which are currently exercisable.
- - -28-
- - ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
8. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" as of January 1, 1993. The cumulative effect of
this change in accounting for income taxes as of January 1,1993 increased net
income by $900,000 ($.03 per share) and is reported separately in the
consolidated statements of operations. Prior years' financial statements were
not restated.
The components of income tax benefit (expense) are as follows:
---------------------------------------------
1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------------
Federal:
Current $ 108,656 $ 723,449 $ (289,658)
Deferred - - 289,658
State:
Current (172,620) (43,609) (81,919)
Deferred 50,000 (123,449) -
---------------------------------------------
Total $ (13,964) $ 556,391 $ (81,919)
---------------------------------------------
Income tax expense differed from the amounts computed by applying the U.S.
federal statutory tax rates to pre-tax income as follows:
---------------------------------------------
1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------------
Federal statutory regular taxes $ (751,725) $ 80,030 $(1,080,307)
Amortization of goodwill (171,136) (156,876) (169,480)
Utilization of tax basis net operating loss carryforward - - 1,249,787
Recognition of tax assets 1,031,405 795,949 -
State income taxes (80,929) (167,058) (81,919)
Other (41,579) 4,346 -
---------------------------------------------
Income tax benefit (expense) $ (13,964) $ 556,391 $ (81,919)
---------------------------------------------
The components of the net deferred tax asset at December 31, 1994 and 1993
include:
-----------------------------
1994 1993
- - --------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 4,636,032 $ 4,804,767
Allowance for doubtful accounts 121,117 121,190
Accrued expenses - 60,800
Alternative minimum tax credit carryforward 21,365 -
-----------------------------
4,778,514 4,986,757
-----------------------------
Deferred tax liabilities:
Depreciation and amortization (2,801,548) (2,013,662)
-----------------------------
1,976,966 2,973,095
Valuation allowance (1,234,929) (2,281,058)
-----------------------------
Net deferred tax asset $ 742,037 $ 692,037
-----------------------------
-29-
- - ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
The net deferred tax asset is reflected in the consolidated balance sheets as a
deferred tax asset of $900,000 for those tax jurisdictions where the Company has
operating loss carryforwards and a deferred tax liability of $157,963 and
$207,963 as of December 31, 1994 and 1993, respectively, for those states in
which the Company does not have operating loss carryforwards.
At December 31, 1994, the Company has unused net operating loss carryforwards of
$12.2 million for tax purposes and $12.1 million for alternative minimum-tax
purposes, expiring from 1999 to 2004.
9. RELATED PARTY TRANSACTIONS
Receivables from officers and management at December 31, 1994 and 1993, were
$297,540 and $153,393, respectively, and consisted of principal and accrued
interest at 6.66% and 7% on unsecured notes. The notes are to be repaid in
annual installments through April 1997.
On February 2, 1994, the Company acquired certain assets from HRS, a company
majority-owned by a Board member, in exchange for its 15% interest in HRS and
warrants for 200,000 shares of the Company's common stock.
10. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
Employee Stock Purchase Plan
All full-time employees may purchase common stock of the Company at market price
through the Employee Stock Purchase Plan. The Company matches purchases in an
amount equal to 25% of the purchase price.
CIS Thrift and Profit Sharing 401(k) Plan
All full-time employees with at least 90 days of service are eligible to
participate in the CIS 401(k) Plan, to which employees may contribute up to 25%
of their gross salary. The Company matches 25% of the contribution up to 6% of
the employee's base salary. The cost of this benefit plan to the Company for the
years ended December 31, 1994, 1993 and 1992 was $115,912, $108,548 and $97,025,
respectively.
Stock Option Plan
Key employees, as determined by the Board of Directors, may participate in the
Stock Option Plan (formerly the Incentive Stock Option Plan), for which the
Company has reserved 3,000,000 shares for the grant of options. The exercise
price for tax qualified "incentive stock options" may be no less than the market
value of CIS common stock on the date of grant. Exercise prices and expiration
dates are subject to determination by the Board for non-qualified options,
however, no option may be exercised prior to the expiration of one year from the
date of grant. Options expire no later than 10 years from the date of grant.
During 1994, the Company granted options for 45,000 common shares at an exercise
price of $3.25 per share to non-employee members of the Board of Directors.
During 1993, the Company granted options for 95,000 common shares at exercise
prices ranging from $6.00 to $7.00 per share to non-employee members of the
Board of Directors. All of the options are exercisable one year from the date of
grant. As of December 31, 1994, 65,000 options granted to Board members had been
exercised.
Employee Stock Option Plan
All full-time employees are eligible to receive options granted pursuant to the
Employee Stock Option Plan, for which the Company has reserved 2,000,000 shares.
Options are granted as determined by the Board of Directors. The option price is
equal to the market value of CIS common stock on the date of grant. Options
expire no later than 10 years from the date of grant.
- - -30-
- - ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
The following table details stock option activity for the years ended December
31, 1994, 1993, and 1992:
STOCK OPTION PLAN 1994 Price range 1993 Price range 1992 Price range
Beginning balance 1,366,500 $1.06-$7.00 827,000 $1.06-$5.63 1,097,000 $1.06-$4.88
Options granted 185,000 2.25-3.25 686,000 3.75-7.00 75,000 4.50-5.00
Options exercised (18,000) 1.09 (100,000) 2.25-4.88 (345,000) 1.09-3.88
Options expired or forfeited (130,500) 5.00-6.00 (46,500) 4.50-6.00 - -
Ending balance 1,403,000 1.06-7.00 1,366,500 1.06-7.00 827,000 1.06-5.63
Exercisable 913,322 1.06-7.00 549,000 1.06-6.00 514,000 1.06-5.63
---------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OPTION PLAN
Beginning balance 632,949 $1.38-$6.81 435,447 $1.38-$6.81 259,404 $1.38-$6.81
Options granted 440,119 2.50-2.63 338,375 4.88 265,238 4.63
Options exercised (7,943) 1.38 (27,142) 1.38-6.81 (30,967) 1.38-5.00
Options expired or forfeited (140,498) 1.38-6.81 (113,731) 1.38-6.81 (58,228) 4.63-6.81
Ending balance 924,627 1.38-6.81 632,949 1.38-6.81 435,447 1.38-6.81
Exercisable 484,594 1.38-6.81 321,487 1.38-6.81 190,522 1.38-6.81
The outstanding options expire from November 1998 to August 2004.
11. REVENUE FROM SIGNIFICANT CUSTOMERS
For the year ended December 31, 1993, 11% or $3.8 million of total revenue was
derived from one customer, relating to an outsourcing contract that was
terminated in October 1993.
12. EARNINGS PER SHARE
The following table reconciles the number of common shares outstanding as shown
on the Consolidated Balance Sheets with the weighted average common shares
outstanding as shown on the Consolidated Statements of Operations for the years
ended December 31, 1994, 1993, and 1992:
1994 1993 1992
Common shares outstanding 30,093,706 26,857,049 26,722,502
Effect of using weighted average common and common
equivalent shares outstanding (2,514,586) (44,536) (235,601)
Effect of shares issuable under stock option plans
based on the treasury stock method 37,971 241,185 377,943
Weighted average common and common equivalent shares outstanding 27,617,091 27,053,698 26,864,844
Earnings per share was computed by dividing net income by weighted average
common shares outstanding for each year.
-31-
- - ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
13. ACQUISITION OF AMSC, INC.
Effective November 3, 1994, the Company acquired 100% of the common stock of
AMSC, Inc. ("AMSC"), of Orlando, Florida, for $5,000,000 (plus acquisition
costs) consisting of:
Cash $ 1,000,000
- - ---------------------------------------------------------------------------------------------------------------------------------
CIS common stock (738,758 shares) 2,000,000
Convertible note (see Note 5) 500,000
Non-convertible note (see Note 5) 1,500,000
------------
$ 5,000,000
------------
The acquisition was accounted for as a purchase. Under the purchase method, the
net assets of AMSC were recorded at their estimated fair values and the excess
of cost over net assets acquired was recorded as goodwill. The operating results
of AMSC are included in the Company's consolidated results of operations from
November 3, 1994.
The following unaudited pro forma information shows the consolidated operating
results of the Company as though the purchase of AMSC had been made at the
beginning each year:
1994 1993
--------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Revenue $ 34,986,928 $ 37,742,216
--------------------------
Net Income (loss) $ 1,446,589 $ (504,233)
--------------------------
Earnings (loss) per share $ 0.06 $ (0.02)
--------------------------
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the purchase actually been
made at the beginning of the respective periods, nor of the results which may
occur in the future.
- - -32-
- - --------------
CORPORATE DATA
- - --------------
Independent Public Accountants
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
Transfer Agent and Registrar
Chemical Shareholder Services Group, Inc.
450 West 33rd Street, 8th Floor
New York, NY 10001
(800) 635-9270
Legal Counsel
Pray, Walker, Jackman
Williamson & Marlar
Tulsa, Oklahoma
Trademarks
CIS(R) is a registered trademark of CIS, Inc. PREMIS(R) is a registered
trademark of CIS, Inc. POSTPRO(TM) is a trademark of CIS, Inc. Microsoft(R)
is a registered trademark of Microsoft Corporation. Windows(TM) is a
trademark of Microsoft Corporation.
Common Stock
CIS Technologies, Inc. common stock is traded on The Nasdaq Stock Market
(National Market) under the symbol CISI. The following tables show the
quarterly range of high and low closing sales prices of the common stock
during the fiscal period indicated. No cash dividends have been declared or
paid on the Company's common stock in the past three years. The terms of the
Company's debt contain substantial restrictions on the Company's ability to
pay dividends. As of March 3, 1995, CIS Technologies has 2,068 shareholders
of record.
Fiscal Year 1993 Fiscal Year 1994
High Low High Low
First Quarter 7.38 4.38 4.00 2.50
Second Quarter 5.88 4.38 3.44 2.13
Third Quarter 5.50 4.50 2.56 1.94
Fourth Quarter 5.25 3.06 3.00 2.25
Fiscal Year 1995
High Low
Through March 3, 1995 2.44 2.00
Form 10-K
The Company's Annual Report on Form 10-K will be sent free of charge upon
written request to Investor Relations.
Corporate Headquarters
CIS Technologies, Inc.
6100 South Yale, Suite 1900
Tulsa, OK 74136-1903
Notice of Annual Meeting
The annual meeting of stockholders will be held on April 27, 1995, at 2:00 p.m.
C.S.T. at the Doubletree Hotel at Warren Place, 6100 S. Yale, Tulsa, Oklahoma.
- - -34-