SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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 No: 00-113959
CPS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1607857
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3400 CARLISLE, SUITE 500
DALLAS, TEXAS 75204
(214) 855-5277
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
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
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF NOVEMBER 12, 1999
----- ------------------------------------
Common stock
Par value $.01 per share 6,777,685
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
As of As of
Sept 30, 1999 Dec 31, 1998
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash .............................................. $ 48 $ 296
Accounts receivable ............................... 1,624 2,852
Deferred income tax ............................... 1,967 907
Inventory ......................................... 135 201
Refundable income taxes ........................... 89 267
Prepaid expense and other current assets .......... 381 564
-------- --------
Total current assets: ................. 4,244 5,087
PROPERTY AND EQUIPMENT ................................. 719 790
SOFTWARE DEVELOPMENT COST .............................. 6,797 4,167
OTHER ASSETS
Costs in excess of net assets acquired ............ 1,412 1,623
Debt issue costs .................................. 17 79
Other assets ...................................... 27 29
-------- --------
1,456 1,731
-------- --------
$ 13,216 $ 11,775
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt ................. $ 1,050 $ 1,050
Accounts payable - Trade .......................... 2,476 1,066
Note payable ...................................... 1,200 --
Note payable - Related parties .................... 722 --
Accrued income tax payable ........................ 35 --
Other accrued expenses ............................ 702 437
Customer deposits and unearned revenue ............ 4,049 4,013
-------- --------
Total current liabilities: ............ 10,234 6,566
OTHER LIABILITIES
Long-term debt .................................... 1,035 1,023
Unearned revenue .................................. 14 14
Other liabilities ................................. -- --
-------- --------
Total long term debt: ................. 1,049 1,037
-------- --------
Total Liabilities: .................... 11,283 7,603
COMMITMENTS AND CONTINGENCIES .......................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
10,000,000 shares, none issued and outstanding . -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 6,765,337 shares issued in 1999
and 6,734,928 shares issued in 1998 ............ 68 67
Additional paid-in capital ........................ 6,831 6,805
Accumulated deficit ............................... (4,966) (2,700)
-------- --------
Total Shareholders' Equity: ........... 1,933 4,172
-------- --------
$ 13,216 $ 11,775
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SEPT 30, NINE MONTHS ENDED SEPT 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
License fees ......................... $ 165 $ 327 $ 1,013 $ 927
Recurring maintenance and service fees $ 946 $ 1,136 $ 2,954 $ 3,265
Product sales ........................ $ 149 $ 642 $ 804 $ 2,041
Other service fees ................... $ 119 $ 356 $ 339 $ 908
------------------ ------------------
$ 1,379 $ 2,461 $ 5,110 $ 7,141
Cost of Revenue
Product sales ........................ $ 102 $ 476 $ 614 $ 1,609
Purchased software ................... $ 152 $ 309 $ 685 $ 684
Distribution ......................... $ 1 $ 10 $ 9 $ 17
------------------ ------------------
$ 255 $ 795 $ 1,308 $ 2,310
------------------ ------------------
Gross profit .................... $ 1,124 $ 1,666 $ 3,802 $ 4,831
Operating Expenses:
Support and customer service ......... $ 1,100 $ 1,018 $ 3,276 $ 2,940
Selling and marketing ................ $ 249 $ 593 $ 741 $ 1,631
Research and development ............. $ 402 $ 7 $ 880 $ 273
General and administrative ........... $ 521 $ 492 $ 1,673 $ 1,260
Amortization of intangible goodwill .. $ 70 $ 70 $ 210 $ 211
------------------ ------------------
$ 2,342 $ 2,180 $ 6,780 $ 6,315
Loss from operations ............ ($1,218) ($ 514) ($2,978) ($1,484)
------------------ ------------------
Interest and financing costs .................... $ 125 $ 54 $ 322 $ 387
------------------ ------------------
Loss before income taxes ........ ($1,343) ($ 568) ($3,300) ($1,871)
Income tax benefit .............................. ($ 403) ($ 191) ($1,036) ($ 643)
------------------ ------------------
Net loss ........................ ($ 940) ($ 377) ($2,264) ($1,228)
================== ==================
Net loss per common share
Basic and Diluted .......................... ($ 0.14) ($ 0.06) ($ 0.34) ($ 0.21)
Weighted average shares used in computing net
loss per common share:
Basic and Diluted .......................... 6,764 6,733 6,754 5,790
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED SEPT 30,
1999 1998
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................... $(2,266) $(1,229)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ....................................... 577 555
Adjustment to put warrants .......................................... -- 125
Loss on disposal of property and equipment .......................... 7 1
Accrued interest to shareholders .................................... -- 2
Changes in assets and liabilities, net of business acquired:
Accounts receivable ............................................. 1,228 (2,415)
Refundable income taxes ......................................... 178 (125)
Inventories ..................................................... 66 12
Deferred income tax expense ..................................... (1,060) (912)
Prepaid expenses and other current assets ....................... 179 (556)
Accounts payable ................................................ 1,945 (151)
Accrued expenses ................................................ 283 347
Customer deposits and unearned revenue .......................... 36 3,354
Income taxes payable ............................................ 35 37
Other liabilities ............................................... -- 9
------------------
Net cash provided by (used in) operating activities $ 1,208 $ (947)
Cash Flows from investing activities:
Purchase of property and equipment ..................................... (124) (416)
Software development costs ............................................. (2,746) (2,318)
------------------
Net cash used in investing activities ............. $(2,870) $(2,734)
Cash flows from financing activities:
Principal payment on long-term debt .................................... -- (855)
Proceeds from notes payable - Tyler Corporation ........................ 1,000 --
Proceeds from notes payable - Tyler Corporation ........................ 200
Proceeds from notes payable - Director's ............................... 187
Proceeds from employee stock purchase plan ............................. 27 --
Proceeds from public offering, net of offering cost .................... -- 5,768
------------------
Net cash provided by financing activities ......... $ 1,414 $ 4,913
Net increase(decrease) in cash .............................................. (248) 1,234
Cash at beginning of period ................................................. 296 327
------------------
Cash at end of period ....................................................... $ 48 $ 1,561
Supplementary Cash Flow Disclosure:
Interest and financing costs paid ...................................... $ 63 $ 198
Income taxes paid (refunded), net ...................................... $ (180) $ 200
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE A - BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein have
been prepared by the Company without audit. These statements reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the consolidated financial position as of September 30, 1999, and the
consolidated results of operation for the three months and nine months ended
September 30, 1999 and 1998. All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements and notes be read in
conjunction with the audited consolidated financial statements and notes for the
year ended December 31, 1998, included in the Company's Form 10-K filed with the
Securities and Exchange Commission on April 15, 1999.
NOTE B - REVENUE RECOGNITION
The Company licenses its software products. Pursuant to AICPA Statement of
Position 97-2, "Software Revenue Recognition", revenue from software license
fees is recognized when an agreement has been executed, software has been
delivered and installed, all significant contractual obligations have been met
and collection of the related receivable is probable. Post contract customer
support revenue, consisting of continuing maintenance and service fees,
including that bundled with initial license fees, is deferred and recognized
ratably over the contractual periods the services are provided. Product sales,
consisting primarily of computer hardware, are recognized upon delivery of the
product.
NOTE C - SENIOR TERM LOAN
On December 31, 1999, the current portion, approximately $1,100 of a $2,100
senior note payable to Hanifen Imhoff Mezzanine Fund, L.P. (the "Hanifen Loan")
becomes due. As of December 31, 1998, the Company was in violation of the note
agreement with Hanifen Imhoff Mezzanine Fund, L.P., relating to the Hanifen
Loan. The violation pertains to the ratio of cash flow to total contractual debt
service. Hanifen Imhoff Mezzanine Fund, L.P has waived through September 30,
1999 compliance with this ratio. As of September 30, 1999 the Company is in
violation of the loan agreement's covenant ratios. Since July 1, 1999, the
Company is also in default of the note agreement for failure to make interest
payments of $63, due June 30 and September 30, 1999.
NOTE D - MERGER AGREEMENT AND TERM LOAN
On March 30, 1999, the Company executed an Agreement and Plan of Merger (the
"Merger Agreement") with Tyler Technologies (formerly known as "Tyler
Corporation" and referred to hereinafter as "Tyler") pursuant to which the
Company would merge with and into a wholly owned subsidiary of Tyler. Also on
March 30, 1999, Tyler loaned $1,000 to the Company, evidenced by a secured
promissory note. On June 3, 1999, the Company received notice from Tyler of
termination of the Merger Agreement. On August 23, 1999, Tyler loaned $200 to
the Company, also evidenced by a secured promissory note (the March 30, 1999 and
August 23, 1999 loans collectively referred to hereinafter as the "Tyler
Loans"). The Tyler Loans, bearing interest at a rate of 2% over the prime rate
due June 30, 1999 and October 30, 1999, were due on October 30, 1999. The note
is secured by a lien on the Company's assets, subordinate to the Hanifen Loan.
5
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
As of September 30, 1999, the Company is in default of the Tyler Loans for
non-payment of the interest due on June 30, 1999. As of October 30, 1999 the
Company is also in default for non-payment of the entire principal balance and
accrued interest due on October 30, 1999.
NOTE E - TERM LOAN
On July 13, 1999, the Company received a loan of $147 from its Chairman of the
Board and C.E.O., Paul E. Kana. Also, on July 30, 1999 Sidney H. Cordier a
member of the Company's Board of Directors loaned the Company $40. Both loans,
subordinate to the Hanifen Loan and Tyler Loans, were evidenced by secured
promissory notes that have an interest rate of 2% over the prime rate. Interest
payments are due September 30, 1999, and the entire principal with accrued
interest is then due on December 31, 1999. As of September 30, 1999 the Company
is in violation for non-payment of the accrued interest due on September 30,
1999.
On August 25, 1999, the Company converted $535 of accounts payable and accrued
expenses owed to Schreeder, Wheeler & Flint, LLP, into a secured promissory note
(the "Schreeder Loan"). Schreeder, Wheeler & Flint is the Company's legal
counsel. The Schreeder Loan has an interest rate of 8%. The entire principal
balance and accrued interest is due on August 1, 2000. The note is secured by a
lien on the Company's assets, subordinate to the Hanifen Loan and Tyler Loans.
NOTE F - MAJOR VENDOR
The Company currently employs a contractor, Majesco Software, Inc., to assist in
the development of certain Company software projects. The outstanding balance
owed in accounts payable and other accrued expenses is $1,814. The payment terms
are net 90 days. The Company is in violation due to delinquent payment of
invoices. As of September 30, 1999, the amount owed over 90 days is $1,177. The
Company has agreed to make weekly payments to Majesco Software so that the
outstanding balance does not increase as new invoices are received. If the
Company did not meet this obligation then the contractor may not provide
services. As of September 30, 1999 the contractor has 12 on-shore and 10
off-shore employees working on certain software projects. If the contractor were
to halt services, completion of the software projects would be delayed.
NOTE G - CUSTOMER DEPOSIT AND UNEARNED REVENUE
On June 1, 1999, the Company and Hillsborough County ("Hillsborough") reached a
mutual agreement to terminate the contract dated February 26, 1998. This
contract was to have the Company install its Collection product for licensed use
by Hillsborough. The Company retained the $274 Hillsborough paid to the Company
pursuant to the terms of the contract. However, in the event Hillsborough
purchases the Collection product from the Company prior to January 1, 2001, the
Company will credit Hillsborough with $266 against the payment of the license
fee for the newly purchased software. The $274 is recorded as a liability under
customer deposits and unearned revenue.
NOTE H - BACKLOG
As of September 30, 1999, the Company has a backlog of five contracts
representing approximately $3,100 in initial license fees and $1,000 in average
annual recurring maintenance revenue. These five contracts are for the Company's
property tax billing and collection product ("Collection"), computer-assisted
mass appraisal ("CAMA") and interactive voice response system ("IVR").
6
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
One of the backlog contracts has a clause in the contract providing for
liquidated damages under limited circumstances. Circumstances triggering damages
include failure to complete installation of the CAMA and Collection products by
January 1, 1999 and March 1, 1999, respectively. Liquidated damages accumulate
until live production of the systems. As of September 30, 1999, the Company may
be subject to a potential liquidated damages claim of approximately $2,249. The
Company does not believe it is subject to the claim for liquidated damages.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
This section of the Report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results for future periods could differ materially from those discussed
in this section as a result of the various risks and uncertainties discussed
herein. A comprehensive summary of such risks and uncertainties can be found in
the Company's filings with the Securities and Exchange Commission from time to
time, including the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1998 filed with the Securities and Exchange Commission on
April 15, 1999. All dollar amounts are expressed in thousands, except per share
amounts. The financials results reflected in this Item 2 are unaudited.
7
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT 30, NINE MONTHS ENDED SEPT 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
License fees ......................... 12.0% 13.2% 19.8% 13.0%
Recurring maintenance and service fees 68.6% 46.2% 57.8% 45.7%
Product sales ........................ 10.8% 26.1% 15.7% 28.6%
Other service fees ................... 8.6% 14.5% 6.7% 12.7%
----- ----- ----- -----
Total Revenue ................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of Revenue
Product sales ........................ 7.4% 19.3% 12.0% 22.5%
Purchased software ................... 11.0% 12.6% 13.4% 9.6%
Distribution ......................... 0.1% 0.4% 0.2% 0.2%
----- ----- ----- -----
Total Cost of Sales ............. 18.5% 32.3% 25.6% 32.3%
----- ----- ----- -----
Gross profit .................... 81.5% 67.7% 74.4% 67.7%
Operating Expenses:
Support and customer service ......... 79.8% 41.4% 64.1% 41.2%
Selling and marketing ................ 18.1% 24.1% 14.5% 22.8%
Research and development ............. 29.2% 0.3% 17.2% 3.8%
General and administrative ........... 37.8% 20.0% 32.7% 17.6%
Amortization of intangible goodwill .. 5.1% 2.8% 4.1% 3.0%
----- ----- ----- -----
Total Operating Expense ........ 170.0% 88.6% 132.6% 88.4%
----- ----- ----- -----
Loss from operations ........... (88.5)% (20.9)% (58.2)% (20.7)%
Interest and financing costs .................... 9.1% 2.2% 6.3% 5.4%
----- ----- ----- -----
Loss before income taxes ....... (97.6)% (23.1)% (64.5)% (26.1)%
Income tax benefit .............................. (29.2)% (7.8)% (20.3)% (9.0)%
----- ----- ----- -----
Net loss ....................... (68.4)% (15.3)% (44.2)% (17.1)%
----- ----- ----- -----
</TABLE>
8
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CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
REVENUE
The Company's revenue includes revenue of license fees, recurring maintenance
and service fees, product sales, and other service fees. The Company's total
revenue was $1,379 for the three months ended September 30, 1999 compared to
$2,461 for the three months ended September 30, 1998, a decrease of $1,082 or
44.0%. This decrease was primarily due to a decrease in remittance processing
("RPS") hardware, software and installation sales. To a lesser extent, the
decrease was attributed to a decline in sales from the hardware parts and repair
("Systems Engineering") group. Due to diminishing returns in a low margin
hardware intensive environment and increasing cost of third party software
installations, the Company reached a decision during November 1999, to
discontinue the RPS product line.
License Fees. The Company's revenue from license fees was $165 for the three
months ended September 30, 1999 compared to $327 for the three months ended
September 30, 1998, a decrease of $162 or 49.5%. The decrease was primarily due
to a decrease in RPS third party software sales. To a lesser extent, the
decrease was attributed to a decline in IVR sales. The Company currently has a
backlog of five contracts representing approximately $3,100 in initial license
fees.
Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $946 for the three months ended September 30, 1999 compared to $1,136
for the three months ended September 30, 1998, a decrease of $190 or 16.7%. The
decrease was primarily due to a decline in hardware and city and municipal
software ("City") maintenance. The hardware maintenance decline is associated
with hardware manufacturers offering longer extended warranties, declining costs
of hardware, reduction of contracts and the Company's belief that some customers
no longer view hardware maintenance as a mission critical need for all
components. The decline of City maintenance (approximately $43) is due to the
reduction of City contracts. The Company currently has a backlog of five
contracts representing approximately $1,000 in average annual recurring
maintenance revenue.
Product Sales. Revenue from product sales was $149 for the three months ended
September 30, 1999 compared to $642 for the three months ended September 30,
1998, a decrease of $493 or 76.8%. This decrease is primarily due to a decrease
in RPS product sales and, to a lesser extent, product sales for the Systems
Engineering group.
Other Service Fees. Revenue from other service fees was $119 for the three
months ended September 30, 1999 compared to $356 for the three months ended
September 30, 1998, a decrease of $237 or 66.6%. This decrease was primarily due
to decreased RPS installation sales.
COST OF REVENUE
The Company's cost of revenue includes the cost of hardware product sales, the
cost of purchased software, amortization of software development cost and
distribution costs. The total cost of revenue was $255 for the three months
ended September 30, 1999 compared to $795 for the three months ended September
30, 1998, a decrease of $540 or 67.9%. This yielded a gross profit margin of
81.5% for the three months ended September 30, 1999 compared to a gross profit
margin of 67.7% for the three months ended September 30, 1998. The decrease in
total cost of revenue was primarily associated with a decrease in the revenue
from product sales. This decrease was partially offset by additional costs in
1999 to resolve RPS third-party software issues for existing customers.
9
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CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
Product Sales. The cost of product sales was $102, or approximately 68.5% of
product sales, for the three months ended September 30, 1999 compared to $476,
or approximately 74.1% of product sales, for the three months ended September
30, 1998, a decrease of $374 or 78.6%. This decrease was primarily due to a
decrease in product sales revenue of 76.8% for the three months ended September
30, 1999 compared to the three months ended September 30, 1998.
Software. Cost of software includes purchased software as well as the
amortization of capitalized software development costs. The cost of software was
$152 or approximately 92.1% of license fees, for the three months ended
September 30, 1999 compared to $309, or approximately 94.5% of license fees, for
the three months ended September 30, 1998, a decrease of $157 or 50.8%. This
decrease was primarily due to the decrease of cost associated with the decrease
in installation of new RPS software. Amortization of software development cost
was $41 for the three months ended September 30, 1999 and $33 for the three
months ended September 30, 1998.
Distribution. The costs associated with distribution were $1 for the three
months ended September 30, 1999 compared to $10 for the three months ended
September 30, 1998.
OPERATING EXPENSES
The Company's operating expenses includes support and customer service, selling
and marketing, research and development, general and administrative, and
amortization of intangible goodwill.
Support and Customer Service. Expenses related to support and customer service
were $1,100 for the three months ended September 30, 1999 compared to $1,018 for
the three months ended September 30, 1998, an increase of $82 or 8.1%. The
increase resulted from movement of personnel from the capitalization projects to
support and customer service expensed assignments. This increase was partially
offset by a decrease in salaries of 7.0% for three months ended September 30,
1999 compared to the three months ended September 30, 1998.
Selling and Marketing. The Company's selling and marketing expenses were $249
for the three months ended September 30, 1999 compared to $593 for the three
months ended September 30, 1998, a decrease of $344 or 58.0%. This decrease was
due to a decrease in the numbers of sales and marketing personnel and expenses
related to developing new markets.
Research and Development. Research and development expenses were $402 for the
three months ended September 30, 1999 compared to $7 for the three months ended
September 30, 1998, an increase of $395 or 5,642.9%. These expenses are
comprised primarily of salaries as well as amounts paid to outside consultants
to supplement continuing product enhancement efforts. The increase primarily
resulted from movement of personnel from the capitalization projects to research
and development expensed assignments and to a lesser extent an increase in
salaries and travel expenses.
General and Administrative. General and administrative expenses were $521 for
the three months ended September 30, 1999 compared to $492 for the three months
ended September 30, 1998, an increase of $29 or 5.9%. This increase was
primarily due to an increase in legal expenses related to claims arising out of
the Company's operations, claims arising out of an alleged breach of
non-competition agreements by Company employees, and claims filed against the
Company alleging securities violations. This increase in legal expense was
partially offset by a decrease in traveling expenses.
10
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CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
Amortization of Goodwill. The Company incurred a non-cash expense related to the
1994 acquisition of the Company by a private investor group of $70 for the three
months ended September 30, 1999 compared to $70 for the three months ended
September 30, 1998.
EARNINGS FROM OPERATIONS
Loss from operations was $1,218 or (88.5%) of revenue, for the three months
ended September 30, 1999, compared to a loss from operations of $514 or (20.9%)
for the three months ended September 30, 1998. This decrease in earnings from
operations of $704 was primarily due to a decrease of 44.0% in total revenue for
the three months ended September 30, 1999 compared to the three months ended
September 30, 1998 and to an increase in operating expenses of 7.4% for the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998.
NON-OPERATING EXPENSES
Interest and Financing Costs. The Company's interest expense and financing cost
was $125 for the three months ended September 30, 1999 compared to $54 for the
three months ended September 30, 1998, an increase of $71 or 131.5%. This
increase was primarily attributed to interest expense accrued on the Tyler Loans
for the three months ended September 30, 1999 and earned interest income from
short term investments for the three months ended September 30, 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
REVENUE
The Company's revenue includes revenue of license fees, recurring maintenance
and service fees, product sales, and other service fees. The Company's total
revenue was $5,110 for the nine months ended September 30, 1999 compared to
$7,141 for the nine months ended September 30, 1998, a decrease of $2,031 or
28.4%. This decrease was primarily due to a decrease in RPS hardware, software
and installation sales and to a lesser extent a decrease in sales for the
Systems Engineering group. Due to diminishing returns in a low margin hardware
intensive environment and increasing cost of third party software installations,
the Company reached a decision during November 1999, to discontinue the RPS
product line.
License Fees. The Company's revenue from license fees was $1,013 for the nine
months September 30, 1999 compared to $927 for the nine months ended September
30, 1998, an increase of $86 or 9.3%. The increase was primarily due to an
increase in new Collection installations. This increase, to a lesser extent, was
partially offset by a decrease in RPS third party license fee sales. The Company
currently has a backlog of five contracts representing approximately $3,100 in
initial license fees.
Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $2,954 for the nine months ended September 30, 1999 compared to $3,265
for the nine months ended September 30, 1998, a decrease of $311 or 9.5%. The
decrease was primarily due to a decline in hardware maintenance and to a lesser
extent a decline in City software maintenance. The hardware maintenance decline
is associated with hardware manufacturers offering longer extended warranties,
declining costs of hardware, reduction of contracts and the Company's belief
that some customers no longer view hardware maintenance as a mission critical
need for all components. The decline of City maintenance (approximately $64) is
due to the reduction of City contracts. The Company currently has a backlog of
five contracts representing approximately $1,000 in average annual recurring
maintenance revenue.
11
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CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
Product Sales. Revenue from product sales was $804 for the nine months ended
September 30, 1999 compared to $2,041 for the nine months ended September 30,
1998, a decrease of 1,237 or 60.6%. This decrease is primarily due to a decrease
in RPS product sales and to a lesser extent a decrease in Collection product
sales.
Other Service Fees. Revenue from other service fees was $339 for the nine months
ended September 30, 1999 compared to $908 for the nine months ended September
30, 1998, a decrease of $569 or 62.7%. This decrease was primarily due to
decreased RPS installation sales.
COST OF REVENUE
The Company's cost of revenue includes the cost of hardware product sales, the
cost of purchased software, amortization of software development cost and
distribution costs. The total cost of revenue was $1,308 for the nine months
ended September 30, 1999 compared to $2,310 for the nine months ended September
30, 1998, a decrease of $1,002 or 43.4%. This yielded a gross profit margin of
74.4% for the nine months ended September 30, 1999 compared to a gross profit
margin of 67.7% for the nine months ended September 30, 1998. This decrease in
cost of revenue was primarily attributed to a decrease in product sales of 60.6%
for the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998.
Product Sales. The cost of product sales was $614, or approximately 76.4% of
product sales, for the nine months ended September 30, 1999 compared to $1,609,
or approximately 78.8% of product sales, for the nine months ended September 30,
1998, a decrease of $995 or 61.8%. This decrease was primarily due to costs
associated with a decrease in sales of hardware for RPS and to a lesser extent
Collection.
Purchased Software. Cost of software includes purchased software as well as the
amortization of capitalized software development costs. The cost of software was
$685, or approximately 67.6% of license fees, for the nine months ended
September 30, 1999 compared to $684, or approximately 73.8% of license fees, for
the nine months ended September 30, 1998, an increase of $1 or 0.1%.
Amortization of software development cost was $112 for the nine months ended
September 30, 1999 and $100 for the nine months ended September 30, 1998.
Distribution. The costs associated with distribution were $9 for the nine months
ended September 30, 1999 compared to $17 for the nine months ended September 30,
1998, a decrease of $8 or 47.1%.
OPERATING EXPENSES
The Company's operating expenses includes support and customer service, selling
and marketing, research and development, general and administrative, and
amortization of intangible goodwill & non-compete agreements.
Support and Customer Service. Expenses related to support and customer service
were $3,276 for the nine months ended September 30, 1999 compared to $2,940 for
the nine month ended, September 30, 1998, an increase of $336 or 11.4%. The
primary increase was due to increases in salaries and hiring to enhance customer
service. To a lesser extent the increase is associated with increased rental
expense due to the opening of the California office on August 01, 1998 and the
move of the Florida office to a new location on May 15, 1998. Also travel
expense have increased 12.1% for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998.
Selling and Marketing. The Company's selling and marketing expenses were $741
for the nine months ended September 30, 1999 compared to $1,631 for the nine
months ended September 30, 1998, an decrease of $890 or 54.6%. This decrease was
due to a decrease in the numbers of sales and marketing personnel and expenses
related to developing new markets.
12
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
Research and Development. Research and development expenses were $880 for the
nine months ended September 30, 1999 compared to $273 for the nine months ended
September 30, 1998, an increase of $607 or 222.3%. These expenses are comprised
primarily of salaries as well as amounts paid to outside consultants to
supplement continuing product enhancement efforts. The primary increase was due
to increases in salaries and hiring to enhance customer service and to a lesser
extent the movement of personnel from the capitalization projects to research
and development expensed assignments.
General and Administrative. General and administrative expenses were $1,673 for
the nine months ended September 30, 1999 compared to $1,260 for the nine months
ended September 30, 1998, an increase of $413 or 32.8%. This increase was
primarily due to an increase in legal expenses related to claims arising out of
the Company's operations, claims arising out of an alleged breach of
non-competition agreements by Company employees, and claims filed against the
Company alleging securities violations.
Amortization of Goodwill and Non-compete Agreements. The Company incurred a
non-cash expense related to the 1994 acquisition of the Company by a private
investor group of $210 for the nine months ended September 30, 1999 compared to
$211 for the nine months ended September 30, 1998, a decrease of approximately
$1 or 0.5%.
EARNINGS FROM OPERATIONS
Earnings from operations was a loss of $2,978 or (58.2%) of revenue, for the
nine months ended September 30, 1999, compared to a loss of $1,484, or (20.7%)
of revenue, for the nine months ended September 30, 1998. This decrease in
earnings from operations of $1,494 was primarily due to the decrease of sales in
the RPS group coupled with increased cost in 1999 to correct RPS third-party
software issues for existing customers. To a lesser extent the decrease is
attributed to a 9.5% decrease in recurring maintenance and service fees revenue
and a 7.4% increase in operating expenses for the nine months ended September
30, 1999 compared to September 30, 1998.
NON-OPERATING EXPENSES
Interest and Financing Costs. The Company's interest expense and financing cost
was $322 for the nine months ended September 30, 1999 compared to $387 for the
nine months ended September 30, 1998, an decrease of $65 or 16.8%. This decrease
was primarily attributed to a put warrant adjustment of $131 made during the
nine months ended September 30, 1998. This decrease was partially offset by
interest expense accrued on the Tyler Loans in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balances were $48 and $1,561 as of September 30, 1999, and
September 30, 1998, respectively. The Company's operating activities provided
cash of $1,208 and used cash of $947 during the nine months ended September 30,
1999 and September 30, 1998, respectively. The Company's source of cash during
the nine months ended September 30, 1999 was primarily attributable to a
reduction in accounts receivable of $1,228 and an increase to accounts payable
of $1,945. These increases to cash were offset by a decrease to net income of
$2,266 and an increase in deferred income tax of $1,060.
The Company used cash of $2,870 and $2,734 for investing activities during the
nine months ended September 30, 1999 and September 30, 1998, respectively.
Investing activities have consisted principally of the acquisition of property
and equipment and capitalized software development cost. The increase was
primarily attributable to increases in capitalized software development cost,
partially offset by a decrease in the acquisition of property and equipment for
the nine months ended September 30, 1999.
13
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
The Company's financing activities provided cash of $1,414 for the nine months
ended September 30, 1999 and $4,913 for the nine months ended September 30,
1998. On March 30, 1999, the Company executed the Merger Agreement with Tyler
pursuant to which the Company would merge with and into a wholly owned
subsidiary of Tyler. Also, on March 30, 1999, Tyler loaned $1,000 to the
Company, evidenced by a secured promissory note. The Tyler Loan, originally due
on September 30, 1999, had been extended by agreement of the parties until
October 30, 1999. The interest rate remains 2% over the prime rate. An interest
payment is still due June 30, 1999, but the entire principal balance and accrued
interest is next due on October 30, 1999. The note is secured by a lien on the
Company's assets, subordinate to the Hanifen Loan. On June 3, 1999, the Company
received notice from Tyler of termination of the Merger Agreement. The Company
and Tyler are in active negotiations to find an alternative structure for the
transaction. On August 23, 1999 Tyler loaned an additional $200 to the Company,
evidenced by a secured promissory note. As of June 30, 1999, the Company is in
violation of the Tyler Loan for failure to make an interest payment of $25, due
June 30, 1999. As of October 30, 1999 the Company is also in violation for
non-payment of the entire principal balance of $1,200 and accrued interest, due
on October 30, 1999.
On June 1, 1999, the Company and Hillsborough County ("Hillsborough") reached a
mutual agreement to terminate the contract dated February 26, 1998. This
contract was to have the Company install its Collection product for licensed use
by Hillsborough. The Company retained the $274 Hillsborough paid to the Company
pursuant to the terms of the contract. However, in the event Hillsborough
purchases the Collection product from the Company prior to January 1, 2001, the
Company will credit Hillsborough with $266 against the payment of the license
fee for the newly purchased software.
On July 13, 1999, the Company received a loan of $147 from its Chairman of the
Board and C.E.O., Paul E. Kana. Also, on July 30, 1999 Sidney H. Cordier a
member of the Company's Board of Directors loaned the Company $40. Both loans,
subordinate to the Hanifen Loan and Tyler Loans, were evidenced by secured
promissory notes that have an interest rate of 2% over the prime rate. Interest
payments are due September 30, 1999, and the entire principal with accrued
interest is then due on December 31, 1999. As of September 30, 1999 the Company
is in violation for non-payment of the accrued interest due on September 30,
1999.
On October 27, 1999, the Company received an additional loan of $105 from Sidney
H. Cordier and $30 from G. Dean Booth, members of the Company's Board of
Directors. Both loans, subordinate to the Hanifen Loan and Tyler Loans, were
evidenced by secured promissory notes that have an interest rate of 2% over the
prime rate. Interest and principal payments are due December 31, 1999.
On November 12, 1999, the Company received a loan of $83 from Brian Wilson,
member of the Company's Board of Directors. The loan, subordinate to the Hanifen
Loan and Tyler Loans, was evidenced by a secured promissory notes that has an
interest rate of 2% over the prime rate. Interest and principal payments are due
December 31, 1999. The loans by Messrs. Kana, Cordier, Booth and Wilson are
collectively referred to hereinafter as the "Director Loans."
On December 31, 1999, the current portion, $1,050, of a $2,100 senior note
payable to Hanifen Imhoff Mezzanine Fund, L.P. under the Hanifen Loan becomes
due. As of December 31, 1998, the Company was in violation of the note agreement
with Hanifen Imhoff Mezzanine Fund, L.P. The violation pertains to the ratio of
cash flow to total contractual debt service. Hanifen Imhoff Mezzanine Fund, L.P.
has waived through September 30, 1999 compliance with this ratio. Since June 30,
1999, the Company is in default of the note agreement for failure to make
interest payments of $63, due June 30 and September 30, 1999. As of September
30, 1999 the Company is also in violation of the loan agreement's covenant
ratios.
14
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
The Company believes that proceeds from the Director Loans when combined with
its cash balances and cash anticipated to be generated from operations will
satisfy the Company's capital, business development and capital expenditure
requirements only through November 30, 1999. At the time of filing Form 10-QSB
for the quarter ended June 30, 1999 on August 14, 1999, the Company anticipated
timely receipt of milestone payments under certain existing contracts. These
payments have not been forthcoming, resulting in a revision of the Company's
liquidity estimate. Moreover, unexpected delays in development and installation
have resulted in deferral of certain revenue previously anticipated to be
received in the third and fourth quarters of the fiscal year ended December 31,
1999. The Company now expects to complete all installations on the backlog
contracts and receive payment therefor by the end of June 30, 2000. There can be
no assurances, however, that the Company will have sufficient working capital to
complete these installations. Further, increased costs, delays in receivable
collections and opportunities for growth or expansion may prevent the Company
from satisfying all of its obligations, working capital, business development
and capital expenditure requirements after November 30, 1999 without immediate
additional sources of liquidity through equity offerings or debt financing.
YEAR 2000 COMPLIANCE
There is significant uncertainty in the software industry concerning the
potential effects associated with compliance with Year 2000 ("Y2K") date codes.
Potential effects include, but are not limited to, product compliance, internal
systems compliance, impact upon the Company's revenue, and expenses related
thereto.
Product Compliance. Most of the Company's current products are Y2K compliant,
based upon results of successful tests on its software. Those products that are
not presently Y2K compliant are presently under development. These products will
be made Y2K compliant prior to December 31, 1999. Therefore, the Company does
not anticipate its products will be adversely affected by date changes in the
Y2K. However, there can be no assurance that the Company's products contain all
features or functions deemed necessary by customers, distributors, resellers and
systems integrators to be Y2K compliant. While the Company continuously enhances
its software to ensure availability of desired features and functions, there can
be no assurance that such features and functions will be timely available. The
Company's products may also rely upon the products of other vendors that may not
be Y2K compliant. Such reliance may prevent the Company's customers from
achieving all of the Company's desired features and functions. The Company
anticipates the software industry will generally be subject to material
litigation. Such claims against the Company, with or without merit, could have a
material adverse effect on the Company's business, operating results and
financial condition.
Internal Systems. The Company has assessed the impact of Y2K issues with regard
to its internal reporting systems and operations and determined that the
remaining costs associated with addressing such issues will not be material. The
Company expects all of its internal systems to be Y2K compliant prior to January
1, 2000. The Company is contacting its own key suppliers and vendors to
ascertain the extent to which their systems are Y2K compliant and the extent to
which the Company could be adversely affected by the failure of such systems to
be Y2K compliant. Management does not believe that the cost to bring its
software products and internal systems into Y2K compliance will have a material
adverse effect on the Company's results of operations or financial condition.
However, a failure to fully identify all Y2K dependencies in the Company's
systems or in the systems of its suppliers, vendors, and financial institutions
could have material adverse effect upon the Company, including but not limited
to operating results, financial condition and delays in the delivery or sale of
products. The Company believes that the likelihood of a disruption in operations
related to Y2K issues is remote.
15
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
Impact on Revenue. The Company believes the purchasing patterns of existing and
potential customers may be affected by Y2K issues. Many companies are expending
substantial resources to repair, in some cases temporarily, their current
software systems for Y2K compliance. These expenditures may result in an
increase in demand for the Company's products. However, there can be no
assurance that such increase in demand will be realized or that any increase can
be sustained beyond the end of the current fiscal year. Consequently, changes in
purchasing patterns could have a material adverse effect upon the Company's
business, operating results and financial condition.
Expenses Related to Y2K Compliance. The Company has not incurred significant
expense in becoming Y2K compliant. Future costs related to Y2K compliance are
not expected to have a material adverse effect on the Company's operating
results or financial condition.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is presently involved in material litigation. Five lawsuits, now
consolidated into a single proceeding, have been filed against the Company in
the United States District Court for the Northern District of Texas during the
period from December 1998 through January 1999. The plaintiffs are seeking class
certification and recovery for, among other things, violations of federal
securities laws associated with the Company's registration statement and its
Form 10-Qs for the first and second quarter of 1998. These lawsuits were filed
following the Company's November 4, 1998 press release announcing that it was
restating its first and second quarter revenues for 1998 in light of AICPA
Statement of Position 97-2, for software revenue recognition requirements. The
Company has filed a motion to dismiss in each suit. The motions are presently
pending. The Company intends to vigorously defend the lawsuits.
The Company is also a defendant in Continental Pacific Corporation v. CPS
Systems Inc., et al., pending in the Circuit Court in and for Lee County,
Florida. This suit, instituted in February 1998, alleges that three former
employees of the plaintiff joined the employment of the Company in violation of
their non-competition agreement, and seeks injunctive and monetary relief for
the defendants' breaches of the irrespective employment agreements and for the
Company's role in soliciting their employment. The three former employees of the
plaintiff left the plaintiff and sought other employment due to financial
difficulties facing the plaintiff, which caused it to discontinue paying salary
and employment benefits to the three individual defendants. Accordingly, the
defendants contend that the non-competition agreements at issue in the case are
unenforceable. In a preliminary injunction hearing held in the case, the Company
and the individual defendants prevailed. The Court refused to enjoin the
individual defendants from continuing to work for the Company. The case is
presently in discovery, and several key witnesses remain to be deposed. The
Company and the individual defendants have filed a motion for summary judgment
asking the Court to dismiss the case based on the lack of a genuinely disputed
issue of material fact that remains for trial. Although the motion is presently
pending, the Company and the defendants do not expect a ruling until discovery
in the case has been completed.
The Company is a third party defendant in Civitas Bank v. Smith v. CPS,
instituted June 1999, in which the finance company alleges that Okaloosa County,
Florida breached its obligations thereto under the terms of its financing
agreement for the purchase of CPS software. Okaloosa County, contending it
failed to comply with the terms of its agreement because CPS breached its
purchase agreement with the County, filed a third party complaint against the
Company. The Company filed its answer in September 1999, denying contractual
liability. The Company intends to defend itself vigorously.
16
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
The Company is a defendant in Havill v. CPS Systems, Inc., Commercial &
Municipal Capital, LLC and Civitas Bank, initiated in September 1999. Havill,
the Property Tax Appraiser for Lake County, Florida, alleges common law fraud,
breach of contract and violation of a Florida statute regarding misleading a
public official. Plaintiff seeks rescission of its agreements with the Company
and Civitas Bank, refunds of monies paid, consequential damages, attorneys'
fees. If proven, the plaintiff would be entitled to treble damages, attorneys'
fees and costs. The Company has filed an answer denying the claims, has filed a
motion for dismissal, and intends to vigorously defend itself.
From time to time, the Company is involved in other litigation relating to
claims arising out of its operations in the normal course of business. Except as
set forth above, the Company is not a party to any legal proceedings, the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's results of operations or financial
position.
The Company has been notified by Peoria County, Illinois that the county has
terminated the contract with the Company and intends to recover the $340,000
customer deposit. The outstanding receivable is not recognized as current income
but is recorded as unearned revenue. The Company has reviewed the notice and the
contract and determined the county does not have the right to terminate the
contract. The Company will challenge any claim for a return of the customer
deposit.
The Company has also been notified by Fresno County, California that the county
has, in its opinion, the right to invoke a clause in its contract providing for
liquidated damages under limited circumstances. Circumstances triggering damages
under the contract include failure to complete installation of the CAMA and
Collection products by January 1, 1999 and March 1, 1999, respectively.
Liquidated damages accumulate until live production of the systems. As of
October 31, 1999, the Company may be subject to a potential liquidating damages
claim of approximately $2,559. The Company has reviewed the notice and does not
believe it is subject to the claim for liquidating damages.
ITEM 2. CHANGES IN SECURITIES
The Company has established an equity participation plan (the "1997 Equity
Participation Plan") to enable executive officers, other key employees,
independent directors and consultants of CPS to participate in the ownership of
the Company. The 1997 Equity Participation Plan provides for the award to
executive officers, other key employees, independent directors and consultants
of the Company of a broad variety of stock-based compensation alternatives such
as nonqualified stock options, incentive stock options, restricted stock and
performance awards and provides for the grant to executive officers, other key
employees, independent directors and consultants of nonqualified stock options.
Awards under the 1997 Equity Participation Plan may provide participants with
rights to acquire shares of common stock. A total of 600,000 shares of Common
Stock are reserved for issuance pursuant to the 1997 Equity Participation Plan,
of which options to purchase 525,100 shares have been granted to certain
directors, officers and employees as of September 30, 1999. Options shall become
exercisable in three cumulative equal installments. The first installment shall
become exercisable on the first anniversary of the date the option was granted.
Neither these options, nor the underlying securities, have been registered under
the Securities Act of 1933, as amended (the "Securities Act").
17
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
The Company has also established the CPS Systems, Inc. Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan") to assist employees of the Company in
acquiring a stock ownership interest in CPS and to encourage them to remain in
the employment of the Company. The Employee Stock Purchase Plan permits
employees to purchase shares of Common Stock through payroll deductions at a
price equal to 85% of fair market value. A total of 100,000 shares of Common
Stock are reserved for issuance pursuant to the Employee Stock Purchase Plan.
For the three months ended September 30, 1999, employees have purchased 12,348
shares. Shares purchased under the Employee Stock Purchase Plan are restricted
for one year from the date of purchase. These shares have not been registered
under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of December 31, 1998, the Company was in violation of the note agreement with
Hanifen Imhoff Mezzanine Fund, L.P. relating to the Hanifen Loan. The violation
pertains to the ratio of cash flow to total contractual debt service. Hanifen
Imhoff Mezzanine Fund, L.P has waived through September 30, 1999 compliance with
this ratio. As of June 30, 1999, the Company was in violation of the note
agreement with Hanifen Imhoff Mezzanine Fund, L.P. relating to the Hanifen Loan
and the secured promissory note with Tyler relating to the Tyler Loan. The
violations pertain to non-payment of interest due June 30, 1999, September 30,
1999 and October 30, 1999. As of September 30, 1999 the Company is also in
violation of the Hanifen loan agreement's covenant ratios. As of October 30,
1999 the Company is also in violation for non-payment of the entire principal
balance of $1,200 and accrued interest due on the Tyler loans.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company's common stock is listed on the American Stock Exchange under the
symbol "SYS". Trading in the stock began on March 25, 1998.
On June 14, 1999, R. Harris Turner resigned from the Board of Directors of the
Company, for personal reasons which would limit the time available to devote to
the Company.
On November 10, 1999 the Company received a letter from the American Stock
Exchange informing the Company of their intentions to proceed with the filing of
an application with the Security and Exchange Commission to strike the common
stock from the listing and registration on the Exchange. The Company has the
right to appeal this determination by notifying the Exchange in writing by
November 16, 1999. The Company plans to appeal this determination.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(c) No reports on Form 8-K were filed by CPS SYSTEMS, INC. during the quarter
ended September 30, 1999.
18
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 1999
/s/ PAUL E. KANA
-----------------------------------------------
Paul E. Kana
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER
AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)
/s/ KEVIN L. FIGGE
-----------------------------------------------
Kevin L. Figge
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
19
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