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 February 28, 2001 or
[ ] Transition report pursuant to section 13 of 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
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Commission file number: 0-25104
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CONTINENTAL INFORMATION SYSTEMS CORPORATION
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(Exact name of registrant as specified in its charter)
New York 16-0956508
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
45 Broadway Atrium, Suite 1105, New York, New York 10006
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(Address of principal executive offices) (Zip Code)
(212) 771-1000
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(Registrant's telephone number, including area code)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of March 31, 2001, the
registrant has 5,883,886 shares of common stock, par value $.01 per share,
outstanding.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements
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Consolidated Balance Sheets - February 28, 2001 and
May 31, 2000 3
Consolidated Statements of Operations - Three and Nine
Months Ended February 28, 2001 and February 29, 2000 4
Consolidated Statements of Cash Flows - Nine Months
Ended February 28, 2001 and February 29, 2000 5-6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 11-13
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PART II - OTHER INFORMATION 14
Item 1. Legal Proceedings 14
-----------------
Item 6. Exhibits and Reports on Form 8-K 14
--------------------------------
SIGNATURES 15
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CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
CONSOLIDATED BALANCE SHEETS
In Thousands (Except Number of Shares)
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February 28, May 31,
2001 2000
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(Unaudited) (Audited)
ASSETS:
Cash and cash equivalents $ 2,642 $ 3,382
Accounts receivable, net 188 1,095
Notes receivable 2,417 2,567
Investment in mortgage participation notes 595 1,108
Restricted cash 900 900
Net investment in direct financing leases 2 1,092
Rental equipment, net 489 96
Property, plant and equipment, net 186 260
Other assets 279 229
Net assets of discontinued operations 3,889 3,524
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Total assets $ 11,587 $ 14,253
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and other liabilities $ 417 $ 509
Discounted lease rental borrowings - 163
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Total liabilities 417 672
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SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares, issued 7,101,668 shares 71 71
Additional paid-in capital 35,129 35,129
Accumulated deficit (22,470) (20,753)
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12,730 14,447
Treasury stock, at cost; 1,217,782 shares in 2001 (1,560) (866)
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Total shareholders' equity 11,170 13,581
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Total liabilities and shareholders' equity $ 11,587 $ 14,253
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The accompanying notes are an integral part of these financial statements.
-3-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Information)
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Three Months Ended Nine Months Ended
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February 28, February 29, February 28, February 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
REVENUES:
Equipment sales $ - $ 740 $ 550 $ 2,708
Equipment rentals 8 747 66 2,540
Income from direct financing leases 3 66 32 254
Interest income 119 153 403 469
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130 1,706 1,051 5,971
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COSTS AND EXPENSES:
Cost of sales - 494 541 2,240
Depreciation of rental equipment 7 676 21 2,293
Interest expense - 5 5 13
Other operating expenses 54 99 151 209
Selling, general and administrative
expenses 1,222 1,232 3,350 2,794
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1,283 2,506 4,068 7,549
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Loss from continuing operations (1,153) (800) (3,017) (1,578)
Gain (loss) from discontinued
operations (200) (419) 1,300 (1,054)
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Net loss $ (1,353) $ (1,219) $ (1,717) $ (2,632)
============= ============= ============= =============
Basic and diluted net loss
per share (Note 3):
Loss from continuing operations $(.20) $(.12) $(.48) $(.23)
Gain (loss) from discontinued
operations (.03) (.07) .21 (.16)
------------- ------------- ------------- -------------
Net loss per share $(.23) $(.19) $(.27) $(.39)
============= ============= ============= =============
Weighted average number of shares
of common stock outstanding 5,892 6,576 6,337 6,736
============= ============= ============= =============
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The accompanying notes are an integral part of these financial statements.
-4-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
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For the Nine Months Ended
----------------------------
February 28, February 29,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,717) $ (2,632)
Less: Gain (loss) from discontinued operations 1,300 (1,054)
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Loss from continuing operations (3,017) (1,578)
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Adjustments to reconcile net loss from
continuing operations to net cash used
in operating activities:
Gain from sale of equipment subject to lease (9) (469)
Depreciation and amortization expense 101 2,500
Effect on cash flows of changes in:
Accounts receivable, net 907 (738)
Notes receivable 150 1,244
Other assets (47) (367)
Accounts payable and other liabilities (92) 134
Deferred lease revenue - (2,230)
Other liabilities - 808
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1,010 882
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Net cash used in continuing operations (2,007) (696)
Net cash provided by (used in)
discontinued operations 935 (2,459)
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Net cash used in operating activities (1,072) (3,155)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 550 2,727
Purchase of rental equipment - (1,311)
Purchase of property and equipment - (14)
Collections of rentals on direct financing
leases net of amortization of unearned income 125 400
Proceeds from (disbursement for) investment
in mortgage participation notes 513 (280)
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Net cash provided by investing activities 1,188 1,522
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lease, bank and institution
financings - 52
Payments on lease, bank and institution
financings (163) (86)
Purchase of treasury stock (693) -
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Net cash used in financing activities (856) (34)
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Net decrease in cash and cash equivalents (740) (1,667)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,382 5,800
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End of period $ 2,642 $ 4,133
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(Continued)
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CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
In Thousands
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For the Nine Months Ended
----------------------------
February 28, February 29,
2001 2000
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes $ 53 $ 73
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Cash paid for interest $ 5 $ 468
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SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Inventory arising from transfers of
equipment that came off-lease $ 685 $ 267
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The accompanying notes are an integral part of these financial statements.
-6-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Continental
Information Systems Corporation ("Company") have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended February 28, 2001 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2001. These statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended May 31, 2000.
2. T1Xpert
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As reported in the May 31, 2000 Annual Report, the Company shifted its focus to
development and commercialization of an Internet-enabled electronic securities
processing software platform which would use proprietary technology and which
would be adapted to changes in the securities industry, including operational
changes related to increased volume, the ability to effect trades through the
Internet, Electronic Crossing Networks, decimalization, expanded trading hours,
various rule changes and the shift from settling trades in three days to
settling trades in one day. This latter shift is commonly referred to as "T+1."
The newly created subsidiary that was formed to engage in this line of business,
CIS Portal Corporation, changed its name to T1Xpert.com Corp. to more properly
reflect its business focus. On April 5, 2001, the name T1Xpert.com Corp. was
changed to T1Xpert Corp. ("T1Xpert").
T1Xpert is developing a suite of middle office brokerage products, a software
platform for risk reduction for the next generation of real time systems and in
preparation for the SEC/SIA mandated shortening of the securities industry
settlement cycle from three days to one day (T + 1). T1Xpert had expended
approximately $4 million from its inception in August 1999 through February 28,
2001. The Company believes it has sufficient cash on hand to meet current
operating needs until the projected development of its initial products through
alpha stage, which it currently projects to be at the end of 2001. The
successful and timely completion of the alpha stage is dependent, among other
items, upon the Company obtaining a core client and successfully executing the
Company's operating plan, neither of which can be assured. On February 28, 2001,
T1Xpert and Investec Ernst & Company ("Investec Ernst") announced that they had
entered into the first phase of a project to implement the T1Xpert P&S solution
at Investec Ernst. There can be no assurance, however, that Investec Ernst will
enter into additional phases necessary for the complete implementation of the
product and solution. After the alpha stage, the Company intends to begin
beta-pre-production rollout of its product, which it is targeting for 2002.
The Company anticipates that, to develop past the alpha stage, it will need
substantial additional funds. In connection therewith, the Company anticipates
that in 2001 it will seek investments from strategic client/investors and/or
venture capital investors. The form of investment will depend upon terms and
conditions to be negotiated. In return for such funds the Company anticipates
offering equity in T1Xpert. The amount of such equity and other terms and
conditions will be subject to market conditions prevailing. The effect of such
outside investment on the current shareholders of the Company cannot be
determined, but may be dilutive to them. The Company may co-invest with such
investors or, failing to find such investors, the Company may decide to fund
such expenditures from its own resources. This funding may result in the Company
selling assets at below market prices in order to raise funds. There can be no
assurance that the Company will be able to meet its financial needs after it
passes the alpha stage of development.
-7-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Net Income Per Share
--------------------
Earnings per share are calculated in accordance with Financial Accounting
Standard No. 128 (SFAS 128), earnings per share, which specifies standards for
computing and disclosing net income or loss per share. Basic and diluted net
loss per share for the nine months ended February 28, 2001 and February 29,
2000, was computed based on the weighted average number of shares of common
stock outstanding during the periods. As of February 28, 2001, the Company had
issued and outstanding options to purchase 222,616 shares of common stock (see
Note 6). The effect of these options is anti-dilutive in the computation of
diluted net loss per share.
4. Estimates
---------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
5. Reclassifications
-----------------
Certain prior period balances in the financial statements have been reclassified
to conform to the current period financial statement presentation.
6. Stock Option Plan
-----------------
In 1995, the Board of Directors adopted and the stockholders approved the
Continental Information Systems Corporation 1995 Stock Compensation Plan (the
"1995 Plan"). The 1995 Plan provides for the issuance of options covering up to
1,000,000 shares of common stock and stock grants of up to 500,000 shares of
common stock to non-employee directors of the Company and, at the discretion of
the Board of Directors, employees of and independent contractors and consultants
to the Company.
A summary of the status of the 1995 Plan as of February 28, 2001 and changes
during the years ended on those dates is presented below:
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CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Weighted
Number of Average Exercise
Options Price Per Option
---------------- ----------------
Outstanding at
May 31, 1997 (188,337 exercisable) 284,000 $ 2.02
Granted 190,674 $ 2.38
Exercised (70,001) $ 1.97
Forfeited/expired (38,331) $ 1.97
----------------
Outstanding at
May 31, 1998 (234,002 exercisable) 366,342 $ 2.22
Granted 72,000 $ 1.92
Exercised - $ -
Forfeited/expired (16,668) $ 1.97
----------------
Outstanding at
May 31, 1999 (298,008 exercisable) 421,674 $ 2.18
Granted 13,280 $ 1.40
Exercised - $ -
Forfeited/expired (119,671) $ 2.10
----------------
Outstanding at
May 31, 2000 (302,003 exercisable) 315,283 $ 2.18
Granted - $ -
Exercised - $ -
Forfeited/expired (101,667) $ 2.17
Outstanding at
August 31, 2000 (200,336 exercisable) 213,616 $ 2.18
Granted 15,000 $ 1.06
Exercised - $ -
Forfeited/expired (6,000) $ 2.50
----------------
Outstanding at
February 28, 2001 (207,616 exercisable) 222,616 $ 2.09
================
7. Discontinued Operations
-----------------------
On July 14, 2000, the Company announced that it was offering for sale its
commercial aircraft engine portfolio by competitive bid, that upon completion of
the sale it would be exiting the aviation business, and that it would account
for and report the Air Group Business as a discontinued operation.
CIS Air had a revolving loan agreement (the "CIS Air Loan facility") with an
institution to provide lease and inventory financing for aircraft engines, in
the amount of $10,000,000. The facility had a three-year term and permits
borrowings equal to a percentage of the appraised value of the aircraft engines
financed. Substantially all of the assets of CIS Air are pledged as collateral
for the Loan. At February 28, 2001, $1,033,346 of this facility was being
utilized. The CIS Air Loan facility bears interest at prime plus 1/4% (8.75% at
February 28, 2001) and was originally scheduled to expire in December 2000.
Interest related to this facility was $31,523 and $159,372 for the quarters
ended February 28, 2001 and February 29, 2000, respectively. CIS Air's lender
was notified of its decision to exit the aviation business and the lender
terminated CIS Air's ability to make additional borrowings under the CIS Air
Loan facility. However, CIS Air and its lender did amend the original loan
agreement to apply lease and sales proceeds as permanent pay-downs to the
outstanding loan balance. In December 2000, the loan agreement was further
amended to allow CIS Air to extend the original expiration date of the loan
facility for unpaid borrowings up to April 30, 2001. As of March 31, 2001,
$997,667 of the facility was unpaid.
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CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At the time of CIS Air's exit from the aviation business, management made
certain estimates and reserves as to the carrying value of certain assets held
by the operations. In the opinion of management, there has been further price
erosion in the aviation industry relating to assets carried by CIS Air and
management has recorded an additional provision to reduce inventories to
estimated fair values in the amount of $1,000,000 for the current nine-month
period (including $200,000 in the current quarter). As a result of the
settlement of legal proceedings against Eastwind Airlines and UM Holding Inc.
(the "Eastwind settlement"), a gain of $2.3 million was recorded by CIS Air.
This gain is attributable to activities by CIS Air in connection with its
leasing of engines and aircraft and is accordingly shown in the discontinued
operations section of CIS Air's financial statements.
The Consolidated Balance Sheets and Statements of Operations for all periods
presented have been reclassified to report the results of discontinued
operations separately from those of continuing operations.
Nine Months Ended
----------------------------
February 28, February 29,
2001 2000
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Revenues $ 2,300 $ 2,797
Costs and expenses 1,000 3,851
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Gain (loss) from discontinued
operations 1,300 (1,054)
Income tax benefit - -
------------- -------------
Net income (loss) from discontinued
operations $ 1,300 $ (1,054)
============= =============
A summary of the assets and liabilities of discontinued operations follows (in
thousands):
February 28, May 31,
2001 2000
------------- -------------
Assets:
Cash and cash equivalents $ 264 $ 336
Receivables, net 880 991
Inventory, net of valuation
allowance of $1,000 4,085 5,254
Net investment in direct financing
leases, net of valuation
allowance of $400 720 907
Rental equipment - 5,663
Other assets 4 4
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Total assets 5,953 13,155
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Liabilities:
Accounts payable and costs
of discontinuance 1,031 2,229
Other liabilities - 483
Note payable to institution 1,033 6,919
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Total liabilities 2,064 9,631
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Net assets of discontinued
operations $ 3,889 $ 3,524
============= =============
-10-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Introduction
------------
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and the notes thereto for the fiscal year ended May 31,
2000, appearing in the Company's annual report on Form 10-K.
All statements contained herein that are not historical facts, including but not
limited to statements regarding anticipated future capital requirements and the
Company's future business plans, are based on current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are those set forth below and
the other risk factors described from time to time in the Company's reports
filed with the SEC. The Company wishes to caution readers not to place undue
reliance on any such forward looking statements, which statements are made
pursuant to the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made.
Results of Operations
---------------------
Comparison of the Three and Nine Months Ended February 28, 2001 and
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February 29, 2000
- -----------------
Continuing Operations
- ---------------------
Revenues
- --------
Total revenues decreased to $130,000 for the three months ended February 28,
2001 from $1.7 million for the comparable fiscal quarter in 2000. This decrease
was primarily due to lower rental income from equipment rentals and direct
finance leases. Equipment sales decreased to $-0- for the three months ended
February 28, 2001 from $700,000 for the comparable fiscal quarter in 2000. The
decrease is due to no sales of the remaining general purpose equipment portfolio
during the quarter. For the nine months ended February 28, 2001, total revenues
decreased to $1.1 million from $5.9 million for the comparable fiscal period in
2000. For the nine months ended February 28, 2001, equipment sales decreased 80%
to $550,000 compared to $2.7 million for the comparable prior year period. For
the nine and three month periods ended February 28, 2001 and February 29, 2000,
equipment rentals decreased to $66,000 and $8,000, respectively, from $2,540,000
and $747,000, respectively, for the comparable periods in 2000.
The reduction in revenue for these periods is because the Company has sold off
substantially all of its leasing portfolio during fiscal 2000 and discontinued
its aviation business. The Company's only active operating activity is that of
its T1Xpert subsidiary which is developing software for the securities industry.
This subsidiary is not expected to produce a significant amount of revenue in
2001. Accordingly, the Company has no ongoing operating source of revenue. The
Company expects the historical decline in revenue to continue unless and until
T1Xpert's products start to generate significant revenue.
Interest income for the three and nine months ended February 28, 2001, was
$119,000 and $403,000, respectively, compared to $153,000 and $469,000 for the
corresponding prior year periods. This decrease was due to lower cash balances
because of funding T1Xpert operations.
Costs and Expenses
- ------------------
Costs and expenses for the three and nine months ended February 28, 2001,
decreased by $1.2 million (49%) and $3.5 million (46%), respectively, from the
comparable periods in 2000. The decrease is principally due to the reduction in
leased assets carried by the Company as noted above, partially offset by higher
operating costs of T1Xpert.
Depreciation of rental equipment for the three and nine months ended February
28, 2001, decreased to approximately $7,000 and $21,000 from $676,000 and
$2,243,000, respectively, for the comparable periods for 2000. This decrease is
due to a decrease in the amounts of owned equipment as a result of the sale of
the leasing portfolio.
-11-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
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Interest expense for the three and nine months ended February 28, 2001, was $-0-
and $5,000, respectively, as compared to $5,000 and $13,000 for the comparable
periods in 2000.
Selling, general and administrative expenses for the three months ended February
28, 2001 and 2000 were unchanged at $1.2 million. For the nine months ended
February 28, 2001, selling, general and administrative expenses were $3.4
million compared to $2.8 million for the comparable period in 2000. This
increase is primarily attributable to expenses associated with the Company's
start-up subsidiary, T1Xpert. T1Xpert's selling, general and administrative
expenses for the current nine-month period amounted to $1.9 million compared to
$884,000 for the comparable fiscal period in 2000, the period T1Xpert commenced
operations.
As T1Xpert further develops its product, the Company expects that costs will
increase as the need arises to assemble a marketing and business development
program. Additional costs are expected to be incurred as the Company develops
its products in a production environment and develops additional suites of its
modules. Further unanticipated costs may also arise. General and administrative
costs relating to the Company's prior operations are expected to decrease, but
will be subject to a certain fixed cost of operating the Company at certain
necessary minimum levels. Further, some Company personnel may serve in functions
necessary to T1Xpert.
Income Taxes
- ------------
For the nine and three-month periods ended February 28, 2001, provision for
deferred income tax benefit on income from continuing operations was not
recorded, because, in management's opinion, the realizability of the deferred
tax asset was uncertain in light of the Company's actual operating results since
reorganization.
Liquidity and Capital Resources
-------------------------------
Net cash used in operations for the nine months ended February 28, 2001 was $1.1
million as compared to $3.2 million for the comparable period in 2000; net cash
used in continuing operations for the nine months ended February 28, 2001 was
$2.0 million as compared to net cash used in continuing operations in the amount
of $696,000 for the comparable period in 2000. Net cash provided by discontinued
operations for the nine months ended February 28, 2001 was $935,000, as compared
to net cash used in discontinued operations for the nine months ended February
29, 2000, which was $2.5 million.
Net cash provided by investing activities for the nine months ended February 28,
2001 was $1.2 million compared to $1.5 million for the nine months ended
February 29, 2000. The Company's investment in mortgage participation notes
generated $513,000 in proceeds during the nine months ended February 28, 2001 as
compared to disbursements of $280,000 from mortgage participation notes for the
comparable period in 2000.
As of February 28, 2001, the Company had $2.6 million in cash and cash
equivalents, as compared to $4.1 million at February 29, 2000 and $3.4 million
at May 31, 2000. In August 1999 proceeds of $2.9 million were received by CIS in
connection with the sale of leased equipment. The Company established the CIS
Air Loan Facility with a financing institution to provide lease and inventory
financing for aircraft engines for its operating subsidiary CIS Air, in the
amount of $10,000,000. The facility had a three-year term that expired in
December 2000 and permitted borrowing equal to a percentage of the appraised
value of the aircraft engines financed. The facility is not being renewed, but
repayment has been extended beyond the original expiration date of the loan
until April 30, 2001. It further provides for proceeds of engine sales and
rental to be applied in permanent pay down of such loan. Should the Company be
unable to sell sufficient assets to pay down the facility by April 30, 2001 the
Company will need to negotiate an extension of such loan. Such terms and
conditions may be materially unfavorable to the Company. Substantially all of
the assets of CIS Air are pledged as collateral for the loan. At February 28,
2001, $1,033,346 of this facility was being utilized. The CIS Air Loan Facility
bears interest at prime plus 1/4%.
-12-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
- -------------------------------------------------------------------------------
T1Xpert is developing a suite of middle office brokerage products, a software
platform for risk reduction for the next generation of real time systems and in
preparation for the SEC/SIA mandated shortening of the securities industry
settlement cycle from three days to one day (T + 1). T1Xpert had expended
approximately $4 million from its inception in August 1999 through February 28,
2001. The Company believes it has sufficient cash on hand to meet current
operating needs until the projected development of its initial products through
alpha stage, which it currently projects to be at the end of 2001. The
successful and timely completion of the alpha stage is dependent, among other
items, upon the Company obtaining a core client and the successful execution of
the Company's operating plan, neither of which can be assured. On February 28,
2001, T1Xpert and Investec Ernst announced that they had entered into the first
phase of a project to implement the T1Xpert P&S solution at Investec Ernst.
There can be no assurance, however, that Investec Ernst will enter into
additional phases necessary for the complete implementation of the product and
solution. After the alpha stage the Company intends to begin beta-pre-production
rollout of its product, which it is targeting for 2002.
The Company anticipates that, in developing past the alpha stage, it will need
substantial additional funds. In connection therewith, the Company anticipates
that in 2001 it will be seeking investments from strategic client/investors
and/or venture capital investors. The form of investment will depend upon terms
and conditions to be negotiated. In return for such funds the Company
anticipates offering equity in T1Xpert. The amount of such equity and other
terms and conditions will be subject to market conditions prevailing. The effect
of such outside investment on the current shareholders of the Company cannot be
determined, but may be dilutive to them. The Company may co-invest with such
investors or, failing to find such investors, the Company may decide to fund
such expenditures from its own resources. This funding may result in the Company
selling assets at below market prices in order to raise funds. There can be no
assurance that the Company will be able to meet its financial needs after it
passes the alpha stage of development.
-13-
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
- -------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company incorporates by reference prior legal matters reported in the
Company's Form 10K for the fiscal year ended May 31, 2000 and Form 10Q for the
fiscal year ended February 28, 2001.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27.1 - Financial Data Schedule.
------------
99. Reports on Form 8-K - The Company filed the following reports on
Form 8-K on the dates indicated during the quarter ended February
28, 2001.
Date Description
---- -----------
February 28, 2001 The Company announced T1Xpert and Investec
Ernst & Company had entered into the first
phase of a project to implement the T1Xpert
P&S Solution at Investec Ernst & Company.
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CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
- -------------------------------------------------------------------------------
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.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
Date: April 16, 2001 By: /s/ Michael L. Rosen
-----------------------------------------------
Name: Michael L. Rosen
Title: President, Chief Executive Officer and Director
Date: April 16, 2001 By: /s/ Jonah M. Meer
-----------------------------------------------
Name: Jonah M. Meer
Title: Senior Vice President, Chief Operating Officer
and Chief Financial Officer
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