<PAGE>
UNITED STATES
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
MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ___________
Commission file number: 0-28212
SUNQUEST INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 86-0378223
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4801 East Broadway Boulevard
Tucson, Arizona 85711
(Address of principal executive office) (Zip Code)
(520) 570-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed
since last report)
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. [X] Yes [ ] No
On May 12, 2000, there were 15,550,147 shares of Common Stock outstanding.
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Sunquest Information Systems, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2000
Table of Contents
Page
----
Part I. Financial Information
Item 1. Financial Statements
(a.) Condensed consolidated balance sheets as 3
of March 31, 2000 (unaudited) and December 31,
1999
(b.) Unaudited condensed consolidated 4
statements of income and comprehensive income
for each of the three-month periods ended March
31, 2000 and March 31, 1999
(c.) Unaudited condensed consolidated 5
statements of cash flows for each of the three-
month periods ended March 31, 2000 and March
31, 1999
(d.) Notes to unaudited condensed consolidated 6
financial statements
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security 16
Holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
(a.) Exhibits 17
(b.) Reports on Form 8-K 17
Signatures 18
2
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Part I. Financial Information
Item 1. Financial Statements
Sunquest Information Systems, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,024 $ 9,660
Short-term investments 44,705 37,218
Trade receivables, net 39,709 43,079
Other current assets 2,580 2,393
Deferred tax assets 1,888 1,888
-------- --------
Total current assets 97,906 94,238
Property and equipment, net 10,470 10,100
Capital leases from related party, net 2,314 2,512
Software development costs, net 9,508 9,493
Deferred tax assets 479 479
Other assets, net 415 441
-------- --------
Total assets $121,092 $117,263
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 4,252 $ 2,485
Accrued compensation and related taxes 4,656 5,646
Accrued expenses 4,051 5,468
Obligations under capital leases from
related party 1,114 1,064
Deferred revenue 14,106 11,919
-------- --------
Total current liabilities 28,179 26,582
Obligations under capital leases
from related party 2,801 3,099
Deferred income taxes 1,959 1,959
Shareholders' equity
Common stock 52,493 52,460
Retained earnings 36,115 33,490
Accumulated other comprehensive loss (455) (327)
-------- --------
Total shareholders' equity 88,153 85,623
-------- --------
Total liabilities and
shareholders' equity $121,092 $117,263
======== ========
</TABLE>
See accompanying notes.
3
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Sunquest Information Systems, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
System sales $ 9,920 $ 14,542
Support and service 18,751 18,178
-------- --------
Total revenues 28,671 32,720
-------- --------
Operating expenses:
Cost of system sales 5,038 6,463
Client services 8,259 9,428
Research and development 4,144 4,099
Sales and marketing 4,063 4,390
General and administrative 3,562 4,310
Gain on sale of assets - (681)
-------- --------
Total operating expenses 25,066 28,009
-------- --------
Operating income 3,605 4,711
Other income (expense):
Interest income 580 321
Interest expense (278) (318)
Other 308 (109)
-------- --------
Income before income taxes 4,215 4,605
Income tax provision 1,590 1,715
-------- --------
Net income 2,625 2,890
Other comprehensive loss, net of tax:
Foreign currency translation
adjustment (128) (153)
Unrealized loss on securities
available-for-sale - (3)
-------- --------
Comprehensive income $ 2,497 $ 2,734
======== ========
Net income per share:
Basic $.17 $.19
======== ========
Diluted $.17 $.19
======== ========
Weighted-average shares outstanding:
Basic 15,547 15,394
======== ========
Diluted 15,637 15,512
======== ========
</TABLE>
See accompanying notes.
4
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Sunquest Information Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,625 $ 2,890
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,959 2,005
Bad debt expense 101 257
Deferred revenue 2,187 1,354
Deferred income taxes - (1)
Gain on sale of assets - (681)
Changes in operating assets and liabilities:
Receivables 3,269 602
Inventory 90 (69)
Prepaid expenses and other (262) 4
Other assets (14) 63
Accounts payable 1,767 (358)
Accrued compensation and related taxes (990) 1,144
Other accrued expenses (1,414) 1,845
-------- --------
Net cash provided by operating activities 9,318 9,055
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,210) (283)
Costs related to acquisitions (3) (1,097)
Capitalized software development costs (911) (1,910)
Purchase of investments (9,687) (11,354)
Proceeds from sale of investments 2,200 9,551
Proceeds from sale of assets - 750
-------- --------
Net cash used in investing activities (9,611) (4,343)
-------- --------
Cash flows from financing activities:
Principal payments on capitalized
leases, primarily from related party (248) (222)
Net proceeds from issuance of stock 33 25
-------- --------
Net cash used in financing activities (215) (197)
-------- --------
Foreign currency translation adjustment (128) (153)
-------- --------
Net (decrease) increase in cash and cash equivalents (636) 4,362
Cash and cash equivalents at beginning of period 9,660 7,057
-------- --------
Cash and cash equivalents at end of period $ 9,024 $ 11,419
======== ========
</TABLE>
See accompanying notes.
5
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Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Interim Statement Presentation
The unaudited condensed consolidated financial statements of
Sunquest Information Systems, Inc. (the "Company") have been
prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission") and in
accordance with generally accepted accounting principles for the
preparation of interim financial statements. Accordingly,
certain information and footnote disclosures normally included in
annual financial statements have been omitted or condensed.
These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the notes thereto incorporated by reference into
the Company's 1999 Annual Report on Form 10-K filed with the
Commission. The 1999 balance sheet amounts were derived from
audited statements.
The consolidated financial statements for the period ended March
31, 2000 include the accounts of the Company, Sunquest Europa
Limited, Sunquest Germany GmbH, Antrim Corporation, Sunquest
Pharmacy Information Systems, Inc., e-Suite, Inc. ("e-Suite") and
Sunquest Information Systems (India) Private Limited ("Sunquest
India"). Sunquest India and e-Suite are wholly owned
subsidiaries that were formed during the first quarter of 2000.
All transactions between the Company and its consolidated
subsidiaries have been eliminated in preparing the consolidated
financial statements.
In the opinion of management, all necessary adjustments,
consisting of normal and recurring adjustments, have been made to
provide a fair presentation to the unaudited financial
information. The operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that
may be expected for any other interim period or for the full year
ending December 31, 2000.
Note 2 - Employee Stock Purchase Plan
In the three months ended March 31, 2000, the Company issued
2,274 shares of its Common Stock for approximately $27,000
pursuant to the Employee Stock Purchase Plan.
Note 3 - Taxes
The effective income tax rates are based upon the relationship of
annual forecasted income and income taxes. To the extent that
these rates differ from the federal statutory rates, the cause is
primarily related to state income taxes and tax credits.
6
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Note 4 - Net Income Per Share
The following table sets forth the computation of basic and
diluted net income per share:
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
Numerator for basic and diluted net
income per share:
Net income $2,625,000 $2,890,000
========== ==========
Denominator:
Denominator for basic net income per
share -- weighted-average shares 15,547,499 15,394,483
Effect of stock options 89,701 117,209
---------- ----------
Denominator for diluted net income
per share -- adjusted weighted-
average shares 15,637,200 15,511,692
========== ==========
Basic net income per share $.17 $.19
========== ==========
Diluted net income per share $.17 $.19
========== ==========
Note 5 - Investments
At March 31, 2000, all of the Company's investments in debt
securities have been classified as available-for-sale securities.
Available-for-sale securities are carried at fair value with net
unrealized gains and losses on such securities, net of tax,
reported as a component of shareholders' equity and other
comprehensive income. At March 31, 2000, the amortized cost of
the Company's investment in debt securities approximated the fair
value and as such, there was no adjustment to shareholders'
equity.
Note 6 - Segment Information
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information ("SFAS
No. 131")." The Company adopted SFAS No. 131 effective with the
year ended December 31, 1998. SFAS No. 131 redefined how
operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's
operating segments. In addition, SFAS No. 131 establishes
standards for related disclosures about major customers, products
and services and geographic areas. Operating segments are
defined as a component of a business enterprise that discrete
financial information is available for review by the chief
operating decision maker, or decision making group, in making
decisions about
7
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resources to be allocated and to access performance. Since it
is management's intent to expand operations related to e-Commerce, a
segment which has not been material in prior periods, it is believed
that the financial statement user would benefit from a separate
presentation of selected financial information attributable to this
operating segment.
Currently, the Company manages its operations through two
business segments: Core Business and e-Commerce.
Core Business: This reportable segment consists of the
Company's healthcare information systems that include
software licenses, related hardware, relicensed software,
resold software and value-added services. The principal
markets for this segment include large and mid-sized
hospitals, clinics and other facilities, including
integrated delivery networks.
e-Commerce: This reportable segment consists of the
Company's Internet-based initiatives. Currently, the Company
offers two products, e-Commercial Lab and e-Financial, which
are Internet-based application service provider ("ASP")
products hosted and maintained at the Company's offices and
accessed by customers over the Internet for a monthly fee.
By hosting and maintaining applications at a central site
and providing user access over the Internet, these products
eliminate the customer's need for capital investment in
information systems and internal staff, while providing
access to state-of-the-art clinical systems. Another
product, e-Hospital Lab, is ready for Beta release. The
principal markets for the products currently available are
the smaller hospital and commercial laboratories. The
Company's strategic initiatives include future releases of
ASP product offerings as well as introducing additional
Internet ventures and products which will target additional
markets.
The Company evaluates performance based on several factors, of
which the primary financial measure is net income for the Core
Business segment and revenue, both prospective and actual, for
the e-Commerce segment. In arriving at each reportable segment's
net income, the Company is allocating department overhead
expenses, sales and marketing expenses, general and
administrative expenses and other income/expense. These items,
as well as assets utilized, are being allocated as follows: (1)
department overhead, general and administrative expenses and
assets utilized based on direct labor; (2) sales and marketing
based on total sales dollars and (3) other income/expense based
on revenue dollars.
8
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Summarized financial information concerning the Company's
operating segments is shown below:
Three Months Ended March 31, 2000
--------------------------------------------
Core Business e-Commerce Total
----------------- -------------- ---------
(in thousands, except per share amounts)
Revenues $ 28,671 $ - $ 28,671
Operating income (loss) 4,329 (724) 3,605
Net income (loss) 3,076 (451) 2,625
Net income (loss) per
diluted share (1) .20 (.03) .17
Total assets 117,907 3,185 121,092
Three Months Ended March 31, 1999
--------------------------------------------
Core Business e-Commerce Total
----------------- -------------- ----------
(in thousands, except per share amounts)
Revenues $ 32,720 $ - $ 32,720
Operating income 4,711 - 4,711
Net income 2,890 - 2,890
Net income per
diluted share (1) .19 - .19
Total assets 108,668 - 108,668
(1) Diluted net income (loss) per share is determined for each
operating segment assuming diluted shares outstanding for the
Company are attributable to each segment.
9
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
- --------------------------
This report, and other reports and communications to
shareholders, contains forward-looking statements, including
statements which contain words such as "will," "expects,"
"believes," "plans," "anticipates" and words of similar impact.
Certain other factors affecting future performance, including but
not limited to dependence on laboratory information system
products, competition in the marketplace, Year 2000 readiness of
the Company's products and of other vendors' products utilized by
the Company, purchase and installation decisions of customers,
pricing decisions of competitors, changes in regulatory
requirements, product status and development risks and
uncertainties and uncertainties concerning the commercial use of
the Internet, could cause actual results to differ materially
from such forward-looking statements. These and other factors
affecting future performance are detailed in the Company's 1999
Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
General
- -------
Sunquest Information Systems, Inc. designs, develops,
markets, installs and supports health care information systems,
its Core Business segment, for large and mid-sized hospitals,
clinics and other facilities, including integrated delivery
networks. Revenues from the Company's Core Business segment are
derived from the licensing of software, the provision of value-
added services and the sale of related hardware.
The Company's e-Commerce segment provides Internet-based
application service provider ("ASP") products for smaller
hospital and commercial laboratories. Revenues from the
Company's products currently included in the e-Commerce segment
will be derived from monthly subscription fees and related
installation services.
During the first quarter ended March 31, 2000, the Company
signed two contracts for its e-Commercial Lab and e-Financial
products. These Internet-based ASP products are hosted and
maintained at the Company's offices and are accessed by customers
over the Internet for a monthly fee. The Company's strategic
initiatives include future increases in ASP product offerings.
During the quarter ended March 31, 1999, the Company sold
its Enterprise Master Person Index ("EMPI") product to New Era of
Networks, Inc. for net proceeds of approximately $750,000.
The pre-tax gain resulting from the sale was approximately $681,000.
The after-tax gain was approximately $429,000, or $.03 per basic and
diluted share.
The sale of the EMPI product is consistent with the
Company's strategy and focus on its clinical suite of products.
10
<PAGE>
The effect of the previously described gain on sale of
assets on diluted net income per share follows:
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
Diluted net income per share
excluding gain on sale of assets $.17 $.16
Gain on sale of assets - .03
---- ----
$.17 $.19
==== ====
The results of operations for the three months ended March
31, 2000 are not necessarily indicative of the results that may
be expected for any other interim period or for the full year
ending December 31, 2000.
Results of Operations
- ---------------------
Comparison of Three Months Ended March 31, 2000 and March 31, 1999
Revenues. The Company's total revenues were $28.7 million
for the three months ended March 31, 2000 compared to $32.7
million for the three months ended March 31, 1999, a decrease of
$4.0 million, or 12.4%. Revenues from system sales were $9.9
million for the three months ended March 31, 2000 compared to
$14.5 million for the three months ended March 31, 1999, a
decrease of $4.6 million, or 31.8%. This decrease was primarily
attributable to a decrease in installations of software and
decreases in hardware and operating system deliveries. Revenues
from support and service were $18.8 million for the three months
ended March 31, 2000 compared to $18.2 million for the three
months ended March 31, 1999, an increase of $573,000, or 3.2%.
This increase was primarily attributable to growth in support
services to the Company's installed customer base and growth in
consulting and other fee-for-service activities partially offset
by decreased service fees related to Year 2000 installations.
Over the last three years, the Company has been experiencing
a favorable trend in revenue mix. As a percentage of total
revenues, software license fees and services revenues have been
increasing and hardware revenues, which have lower margins, have
been decreasing. This was evident during the first quarter of
2000 as hardware revenues were 13.9% of total revenues compared
to 18.6% during the first quarter of 1999 however the Company
cannot determine with certainty whether this trend in decreasing
hardware revenues will continue in future periods.
At March 31, 2000, the Company had a total contract backlog
of $121.2 million, which consisted of $53.2 million of system
sales and services, and $68.0 million of support and subscription
fees. The Company's total contract backlog at December 31, 1999
was $124.6 million, which consisted of $55.9 million of system
sales and services, and $68.7 million of
11
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support. At March 31, 1999, total contract backlog was $125.4 million,
which consisted of $62.4 million of system sales and services, and
$63.0 million of support.
During the third quarter of 1999, the Company experienced a
delay in sales signings, although the pipeline of potential sales
increased. Customers indicated that the delay was the result of
the effects of Year 2000 issues and the Balanced Budget Amendment
of 1997. Sales signings during the fourth quarter of 1999
increased 62% over those of the third quarter of 1999. As
anticipated, sales signings during the first quarter of 2000 were
below the fourth quarter of 1999. The Company believes this is
the result of carryover projects related to the Year 2000 and
historical buying cycles and anticipates that sales signings will
begin to accelerate during the second quarter of 2000.
Cost of System Sales. Cost of system sales was $5.0 million
for the three months ended March 31, 2000 compared to $6.5
million for the three months ended March 31, 1999, a decrease of
$1.4 million, or 22.0%. As a percentage of total revenues, cost
of system sales was 17.6% in 2000 compared to 19.8% in 1999. The
dollar decrease was primarily attributable to decreases in
hardware and operating system deliveries. Amortization of
previously capitalized software development costs was $896,000
for the three months ended March 31, 2000 compared to $884,000
for the three months ended March 31, 1999, an increase of
$12,000, or 1.4%. The increase in amortization was primarily
attributable to increased amortization of the Company's clinical
and reference laboratory systems. The increases were partially
offset by decreased amortization of the Company's pharmacy
systems.
Client Services. Client services expenses were $8.3 million
for the three months ended March 31, 2000 compared to $9.4
million for the three months ended March 31, 1999, a decrease of
$1.2 million, or 12.4%. As a percentage of total revenues,
client services expenses were 28.8% in both 2000 and 1999. The
dollar decrease was primarily attributable to reductions in staff
and outside consultants dedicated to Year 2000 installations.
Research and Development. Research and development expenses
were $4.1 million for the three months ended March 31, 2000
compared to $4.1 million for the three months ended March 31,
1999, an increase of $45,000, or 1.1%. As a percentage of total
revenues, research and development expenses were 14.4% in 2000
compared to 12.5% in 1999. The dollar increase in research and
development expenses was primarily attributable to increased
efforts related to the development, enhancement and documentation
of the Company's e-Suite and clinical laboratory systems. The
increases were partially offset by decreased expenses related to
non-clinical laboratory systems and the 1999 legal and
professional fees associated with the United States Food and Drug
Administration registration of the Company's Blood Bank product.
The Company capitalized $911,000 of its software development
costs for the three months ended March 31, 2000 compared to
$910,000 for the three months ended March 31, 1999.
Sales and Marketing. Sales and marketing expenses were $4.1
million for the three months ended March 31, 2000 compared to
$4.4 million for the three months ended March 31, 1999, a
decrease of $327,000, or 7.4%. As a percentage of total
revenues, sales and marketing expenses were 14.2% in 2000
compared to 13.4% in 1999. The dollar decrease was primarily
12
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attributable to decreases in commissions resulting from a
decrease in sales bookings of 45.6% during the first quarter of
2000 as compared to the corresponding period in 1999 and to
timing of marketing expenses.
General and Administrative. General and administrative
expenses were $3.6 million for the three months ended March 31,
2000 compared to $4.3 million for the three months ended March
31, 1999, a decrease of $748,000, or 17.4%. As a percentage of
total revenues, general and administrative expenses were 12.4% in
2000 compared to 13.2% in 1999. The dollar decrease was
primarily attributable to decreases in variable compensation
relating to employee incentives, sales tax accruals, and legal
fees and expenses.
Transition Costs. For the three months ended March 31,
1999, the Company paid previously accrued transition costs
established at the time of the acquisition of Antrim Corporation
("Antrim") of $1.1 million. These costs were associated with
replacing certain Antrim software products with Sunquest
products.
Liquidity and Capital Resources
- -------------------------------
At March 31, 2000, the Company had cash and short-term
investments of $53.7 million, which consisted of cash of $9.0
million and short-term investments of $44.7 million. This
compares to cash and short-term investments of $46.9 million at
December 31, 1999 and cash and short-term investments of $40.5
million at March 31, 1999, increases of $6.9 million and $13.2
million, respectively. Cash provided by operating activities was
$9.3 million for the three months ended March 31, 2000 compared
to $9.1 million for the three months ended March 31, 1999.
As of March 31, 2000, the Company had net trade receivables
of $39.7 million which consisted of $27.6 million in net billed
trade receivables and $12.1 million in unbilled trade
receivables. At December 31, 1999, the Company had net trade
receivables of $43.1 million which consisted of $31.0 million in
net billed trade receivables and $12.1 million in unbilled trade
receivables. The unbilled receivables represent revenue that has
been recognized in accordance with the percentage-of-completion
accounting method, but which has not yet been billed to customers
under contractual milestone billings. Generally, the unbilled
amounts will be billed and collected within the following twelve
months. The Company maintains an allowance for doubtful accounts
that it believes is adequate to cover potential credit losses.
The average collection period, a rolling twelve-month average, on
net billed trade receivables was 80 days at March 31, 2000
compared to 76 days at December 31, 1999 and 68 days at March 31,
1999. The Company has responded to the increase in average
collection period with intensified collection efforts which
produced the highest quarter of collections in its history.
Days sales outstanding ("DSO") was 125 at March 31, 2000
compared to 120 at December 31, 1999 and 108 at March 31, 1999.
Cash used in investing activities was $9.6 million for the
three months ended March 31, 2000. Purchases of investments
totaled $9.7 million and proceeds from the sale of investments
13
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totaled $2.2 million. Purchases of property and equipment
totaled $1.2 million and consisted primarily of purchases of
computer software, computers and computer-related equipment.
Capitalized software development costs totaled $911,000.
Cash used in financing activities was $215,000 for the three
months ended March 31, 2000. Of this amount, $248,000 was used
for principal payments on capital leases. This amount was
partially offset by the issuance of 2,274 shares of Common Stock
for approximately $27,000 under the Employee Stock Purchase Plan
and the issuance of 673 shares of Common Stock for approximately
$6,000 under the Stock Incentive Plan of 1996, as amended.
At March 31, 2000, working capital was $69.7 million
compared to $67.7 million at December 31, 1999.
The Company has a revolving line of credit with a bank
allowing the Company to borrow up to $10.0 million. Any
borrowings under the line of credit will bear interest at the
bank reference rate unless the Company elects a fixed rate or
certain variable rates contemplated by the agreement. All
outstanding principal and interest under the line of credit is
due April 28, 2000 except for any amounts outstanding under stand-
by letters of credit which have a maximum maturity of 365 days.
Borrowings under the line of credit are secured by all of the
Company's assets. Approximately $1.4 million of the line of
credit is used to secure letters of credit and is not available
for immediate expenditure. There were no borrowings outstanding
as of March 31, 2000.
The Company has no significant purchase commitments at this
time. However, the Company continues to be actively involved in
identifying and evaluating potential acquisitions, which may
result in the future expenditure of funds.
Management believes that existing cash, cash equivalents,
short-term investments, cash available under its revolving line
of credit and funds generated from operations will be sufficient
to meet operating requirements for at least the next twelve
months.
To date, inflation has not had a material impact on the
Company's revenues or income, and the Company does not expect
inflation to have a material impact in the foreseeable future.
New Accounting Standards
- ------------------------
During the fourth quarter of 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." The
provisions of SAB No. 101 are required to be adopted no later
than the second quarter of the fiscal year beginning after
December 15, 1999. Management has not completed the analysis of
SAB No. 101, but currently believes that it will not impact the
Company on a material basis. The provisions of SAB No. 101 will
be further analyzed during the second quarter to confirm or
reject this belief.
14
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in
interest rates. The Company's primary interest rate risk relates
to its short-term investments in Tax-exempt Municipals Bonds and
Short-term Demand Notes all of which are classified as available-
for-sale. At March 31, 2000, the Company had total short-term
investments of $44.7 million. Assuming a 10% increase in
interest rates on the Company's short-term investments (i.e., an
increase from the March 31, 2000 weighted-average interest rate
of 3.924% to a weighted-average interest rate of 4.316%), the
fair value of these investments would decrease by approximately
$498,000.
15
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Part II. Other Information
Item 1. Legal Proceedings
On March 17, 2000, the Company removed the civil action
instituted by Dynamic Healthcare Technologies, Inc. ("Dynamic")
against the Company to the United States District Court for the
Southern District of Florida. On April 6, 2000, the Company
moved to dismiss the civil action for lack of personal
jurisdiction. The Company's motion is currently pending before
the Court.
On April 17, 2000, the Company brought a civil action
against Dynamic in the United States District Court for the
Western District of Pennsylvania, alleging breaches by Dynamic of
the Value Added Reseller Agreement (the "VAR") between them, and
that Dynamic tortiously interfered with the Company's current and
prospective contractual relations, and defamed and disparaged the
Company. In the civil action, the Company seeks damages of an
unspecified amount and a declaration by the Court that Dynamic is
obligated to perform its contractual obligations under the VAR.
The Company intends to vigorously pursue its claims against
Dynamic. At the present time, the Company is unable to determine
the probable outcome of the lawsuit.
The Company is also subject to legal proceedings and claims
covering a wide range of matters that arose in the ordinary
course of business. Management is of the opinion that the
potential liability with respect to these legal proceedings and
claims will not materially affect the Company's financial
position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
10.1 - Third Amendment to Business Loan Agreement
dated December 30, 1997, among the
registrant, Sunquest Europa Limited, Antrim
Corporation, Sunquest Pharmacy Information
Systems, Inc., Sunquest Germany GmbH,
Sunquest India Ltd. and Bank of America N.A.,
filed herewith.
27.1 - Financial Data Schedule for the Three
Months Ended March 31, 2000, filed herewith.
(b.) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended March 31, 2000.
17
<PAGE>
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.
SUNQUEST INFORMATION SYSTEMS, INC.
(Registrant)
Date: May 12, 2000 By: /s/ Nina M. Dmetruk
____________________________________________________
Nina M. Dmetruk
Executive Vice President and Chief Financial Officer
(Authorized Officer of the Registrant and Principal
Financial and Accounting Officer)
18
<PAGE>
Exhibit 10.1
THIRD AMENDMENT TO BUSINESS LOAN
AGREEMENT
This Third Amendment to Business Loan Agreement (the
"Amendment") is entered into as of April 28, 2000, among Bank of
America, N.A. (formerly known as Bank of America National Trust
and Savings Association; the "Bank"), Sunquest Information
Systems, Inc. ("Borrower 1"), Sunquest Europa Limited ("Borrower
2"), Antrim Corporation ("Borrower 3"), Sunquest Pharmacy
Information Systems, Inc. ("Borrower 4"), Sunquest Germany GmbH
("Borrower 5"), and Sunquest India Ltd. (Borrower 6) (Borrower
1, Borrower 2, Borrower 3, Borrower 4, Borrower 5, and Borrower 6
are sometimes referred to collectively as the "Borrowers" and
individually as the "Borrower").
RECITALS
A. The Bank and the Borrowers (other than Borrower 6)
entered into a certain Business Loan Agreement dated as of
December 30, 1997, as amended by a First Amendment to Business
Loan Agreement dated as of April 30, 1999 and a Second Amendment
to Business Loan Agreement dated as of May 31, 1999 (the
"Agreement").
B. The Bank and the Borrowers desire to amend the
Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in
this Amendment shall have the meaning given to them in the
Agreement.
2. Amendments. The Agreement is hereby amended as follows:
(a) Borrower 6 is hereby added as a party to the
Agreement with all of the rights and obligations of a
Borrower hereunder and the first paragraph of the
Agreement is hereby amended (i) by deleting the word
"and" following the definition of Borrower 4 and
inserting a comma in its place, (ii) by adding the
words "and Sunquest India Ltd. ("Borrower 6")"
following the definition of Borrower 5, (iii) by
deleting the word "and" following the reference to
Borrower 4 in the collective definition of "Borrowers"
and inserting a comma in its place, and (iv) by adding
the words "and Borrower 6" following the reference to
Borrower 5 in the collective definition of "Borrowers".
(b) Paragraph 1.2 of the Agreement is hereby
amended by deleting the date "April 28, 2000" and inserting
the date "April 28, 2001" in place thereof.
3. Representations and Warranties. When the Borrowers
sign this Amendment, each Borrower represents and warrants to the
Bank that: (a) there is no event which is, or with notice
<PAGE>
or lapse of time or both would be, a default under the Agreement,
(b) the representations and warranties in the Agreement are true
as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within such Borrower's powers,
has been duly authorized, and does not conflict with any of such
Borrower's organizational papers, and (d) this Amendment does not
conflict with any law, agreement, or obligation by which such
Borrower is bound.
4. Conditions. This Amendment will become effective on
April 28, 2000 (the "Effective Date"), provided that each of the
following conditions precedent have been satisfied:
(a) Bank has received from each Borrower a duly executed
original (or, if elected by the Bank an executed facsimile copy)
of this Amendment; and
(b) Bank has received from each Borrower a copy of a
resolution passed by the board of directors of such
Borrower's corporation, certified by the Secretary or an
Assistant Secretary of such corporation as being in full
force and effect on the date hereof, authorizing the
execution, delivery and performance of this Amendment.
5. Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Arizona.
6. Effect of Amendment. Except as provided in this
Amendment, all of the terms and conditions of the Agreement shall
remain in full force and effect.
This Amendment is executed as of the date stated at the
beginning of this Amendment. The Agreement, as amended hereby,
shall hereinafter constitute the Agreement between the parties.
BANK OF AMERICA, N.A.
By:____________________________________
Name:_________________________________
Title:___________________________________
SUNQUEST INFORMATION SYSTEMS, INC.
By: /s/ Nina M. Dmetruk
____________________________________
Name: Nina M. Dmetruk
Title: Chief Financial Officer
-2-
<PAGE>
SUNQUEST EUROPA LIMITED
By: /s/ Nina M. Dmetruk
____________________________________
Name: Nina M. Dmetruk
Title: Director
ANTRIM CORPORATION
By: /s/ Nina M. Dmetruk
____________________________________
Name: Nina M. Dmetruk
Title: Secretary
SUNQUEST PHARMACY INFORMATION
SYSTEMS, INC.
By: /s/ Nina M. Dmetruk
____________________________________
Name: Nina M. Dmetruk
Title: Secretary
SUNQUEST GERMANY GMBH
By: /s/ Nina M. Dmetruk
____________________________________
Name: Nina M. Dmetruk
Title: Secretary
SUNQUEST INDIA LTD.
By: /s/ Nina M. Dmetruk
____________________________________
Name: Nina M. Dmetruk
Title: Director
-3-
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