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 quarter period ended November 30, 1997 or
[ ] Transition report pursuant to section 13 of 15(d) of the Securities Exchange
Act of 1934 for the Transition period from ________ to ________
Commission file number: 0-25104
CONTINENTAL INFORMATION SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0956508
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One Northern Concourse, P.O. Box 4785, Syracuse, NY 13221-4785
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(Address of principal executive offices) (Zip Code)
(315) 455-1900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of December 31,
1997, the registrant has 7,009,260 shares of common stock, par value $.01 per
share, outstanding.
<PAGE>
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 1997 and May 31, 1997
Consolidated Statements of Operations and Retained
Earnings (Accumulated Deficit) - for the three months
and six months ended November 30, 1997 and 1996
Consolidated Statements of Cash Flows -
for the six months ended November 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 30, May 31,
1997 1997
-------- --------
<S> <C> <C>
Assets:
Cash and cash equivalents ................................... $ 4,771 $ 9,005
Accounts receivable, net .................................... 1,541 2,485
Notes receivable ............................................ 3,501 5,094
Investment in mortgage participation notes (Note 3) ......... 1,199 --
Inventory ................................................... 6,774 6,980
Net investment in direct financing leases (Note 2) .......... 6,668 3,446
Rental equipment, net (Note 2) .............................. 5,720 7,505
Furniture, fixtures and equipment, net ...................... 126 218
Other assets ................................................ 645 446
Goodwill, net ............................................... 3,468 3,632
Deferred tax assets ......................................... 5,500 5,414
-------- --------
Total assets .................................... $ 39,913 $ 44,225
======== ========
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and other liabilities ................. $ 1,299 $ 1,450
Discounted lease rental borrowings (Note 2) ............ 1,962 5,633
Note payable to institution - secured .................. 753 1,005
Notes payable to former owners of acquired company ..... 1,536 1,536
-------- --------
Total liabilities ................................. 5,550 9,624
-------- --------
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares at
November 30, 1997, 10,000,000 shares at May 31, 1997;
issued 7,101,668 shares at November 30, 1997,
7,031,667 shares at May 31, 1997 (Note 4) .............. 71 70
Additional paid-in capital .................................. 35,129 34,992
Accumulated deficit ......................................... (601) (461)
-------- --------
34,599 34,601
Treasury stock, at cost; 92,408 shares at November 30, 1997,
960 shares at May 31, 1997 (Note 4) .................... (236) --
-------- --------
Total shareholders' equity ........................ 34,363 34,601
-------- --------
Total liabilities and shareholders' equity ........ $ 39,913 $ 44,225
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
November 30, November 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Equipment sales ..................................... $ 2,817 $ 8,412 $ 7,461 $ 13,057
Equipment rentals ................................... 794 1,219 1,763 2,620
Income from direct financing leases ................. 182 432 369 889
Gain from sale of equipment subject to lease (Note 2) -- 2,475 78 2,475
Interest, fees and other income ..................... 598 441 1,142 1,031
-------- -------- -------- --------
4,391 12,979 10,813 20,072
-------- -------- -------- --------
Costs and Expenses:
Cost of sales ....................................... 2,731 6,691 6,424 10,129
Depreciation of rental equipment .................... 382 756 862 1,606
Interest expense .................................... 112 370 321 695
Other operating expenses ............................ 346 637 837 1,136
Selling, general and administrative expense ......... 1,206 1,835 2,595 3,590
-------- -------- -------- --------
4,777 10,289 11,039 17,156
-------- -------- -------- --------
Income (loss) from operations before taxes .......... (386) 2,690 (226) 2,916
Provision for income tax (tax benefit) .............. (147) 1,022 (86) 1,108
-------- -------- -------- --------
Net income (loss) ................................... (239) 1,668 (140) 1,808
Retained earnings (accumulated deficit),
beginning of period ................................. (362) (1,407) (461) (1,547)
-------- -------- -------- --------
Retained earnings (accumulated deficit),
end of period ....................................... $ (601) $ 261 $ (601) $ 261
======== ======== ======== ========
Net income per share of common stock (Note 5) ....... $ (.03) $ .24 $ (.02) $ .26
======== ======== ======== ========
Weighted average number of shares of common
stock outstanding ................................... 6,990 7,002 7,003 7,001
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
November 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................... $ (140) $ 1,808
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from sale of equipment subject to lease ... 850 7,367
Gain from sale of equipment subject to lease ....... (78) (2,475)
Proceeds from sale of other leased equipment ....... 58 3,677
Proceeds from sale of Telecommunications Business
Unit's assets .................................. 895 --
Amortization of unearned income .................... (369) (889)
Collections of rentals on direct financing leases .. 1,210 2,736
Depreciation and amortization expense .............. 1,252 2,054
Other .............................................. (129) 59
Effect on cash flows of changes in:
Accounts receivable ............................ 741 377
Notes receivable ............................... 1,593 (1,862)
Inventory ...................................... (625) (4,227)
Other assets ................................... (199) 1,008
Accounts payable and other liabilities ......... (151) (301)
Deferred tax assets ............................ (86) 1,108
-------- --------
4,962 8,632
-------- --------
Net cash provided by operations ......................... 4,822 10,440
-------- --------
Cash flows from investing activities:
Purchase of rental equipment ............................ (7,295) (2,432)
Investment in mortgage participation notes .............. (1,123) --
Purchase of property and equipment ...................... (86) (23)
-------- --------
Net cash used in investing activities .............. (8,504) (2,455)
-------- --------
Cash flows from financing activities:
Proceeds from lease, bank and institution financings .... 3,024 4,631
Payments on lease, bank and institution financings ...... (3,478) (6,050)
Proceeds from exercise of stock options ................. 138 --
Purchase of treasury stock .............................. (236) --
-------- --------
Net cash provided by (used in) financing activities (552) (1,419)
-------- --------
Net increase (decrease) in cash and cash equivalents (4,234) 6,566
Cash and cash equivalents at beginning of period ........ 9,005 5,382
-------- --------
Cash and cash equivalents at end of period .............. $ 4,771 $ 11,948
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements of Continental Information
Systems Corporation and its subsidiaries (the "Company") contain all
adjustments which are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. While 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 herein are adequate to make the information not misleading.
The results of operations for the six months ended November 30, 1997, are
not necessarily indicative of the results for the full year. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included for the fiscal year ended May 31,
1997 appearing in the Company's Form 10-K.
2. Sale of Equipment Subject to Lease and Telecommunications Business Unit
On August 31, 1997, the Company, through a wholly-owned subsidiary, sold a
portion of its leased equipment to an institutional investor for a sales
price of approximately $4.4 million, payable in cash of approximately
$850,000 and the assumption by the investor of the Company's related
outstanding non-recourse lease rental borrowings of approximately $3.5
million.
Additionally, on August 31, 1997, the Company, through a wholly-owned
subsidiary, sold its Telecommunications Business Unit to Meridian Leasing
Corporation of Deerfield, Illinois. The sales price approximated the
Business Unit's book value and therefore did not significantly affect the
results of operations for the quarter ended August 31, 1997 or the six
months ended November 30, 1997.
3. Investment in Mortgage Participation Notes
On June 30, 1997, the Company announced that it had entered into a Joint
Investment Agreement (the "Emmes Agreement") with Emmes Investment
Management Co. LLC ("Emmes") to provide high-yield, short-term financing
for commercial real estate transactions. Under the agreement the Company
may provide up to $8 million in financing, subject to management's
approval of each loan.
The Emmes Agreement involves transactions which do not meet the
underwriting standards of a traditional lender, and instances where there
are unusual time constraints. Emmes, founded in 1992 by individuals who
have been involved in commercial real estate dating back to the early
1970s, provides high-yield, short-term real estate financing as well as a
broad range of other special opportunity real estate investments. Under
the Emmes Agreement, Emmes will identify, negotiate and service proposed
transactions, and will present to the Company the opportunity to
participate in such transactions. The Company will make its own
independent determination whether to participate in a transaction. In the
current fiscal quarter ended November 30, 1997, the Company made an
initial investment of approximately $1.1 million in two approved
transactions. Additionally, on December 1, 1997, the Company made an
investment in a third approved transaction of approximately $.5 million.
<PAGE>
4. Common Stock
On May 27, 1997, the Company announced that its Board of Directors had
authorized the expenditure of up to $500,000 for the repurchase of its
common stock. The Company commenced a voluntary odd lot program through
June 30, 1997, which was extended through July 31, 1997. Shareholders
owning less than 100 shares of the Company's common stock were offered the
opportunity to sell all their shares at the closing price of the common
stock on the NASDAQ Small-Cap Market on May 23, 1997, which was $2.25 per
share. Approximately 20,000 shares were repurchased by the Company at an
aggregate cost of approximately $45,000. Subsequent to the odd lot
repurchase program, the Company intends to repurchase from time to time
additional shares of its common stock up to the balance of $500,000
remaining after the odd lot program. The Company may repurchase the
additional shares at prevailing prices in the open market or in negotiated
or other permissible transactions at the discretion of management. The
Company will hold all repurchased shares of common stock in its treasury.
As of November 30, 1997, approximately 72,000 shares had been repurchased
by the Company in this manner at an aggregate cost of approximately
$191,000.
On October 28, 1997, at the Company's Annual Meeting, the stockholders
approved the amendment of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares from 10 million
to 20 million. The Board of Directors considers the increase of authorized
shares of Common Stock to be desirable (i) to permit the Company
flexibility in using its Common Stock in any potential future acquisitions
of property or securities of other companies, (ii) to permit possible
future dividends in shares of the Company's Common Stock, and (iii) for
other corporate purposes, including adoption of new employee benefit plans
or amendment of existing ones. The Company currently has no plans to issue
any additional shares (other than pursuant to the Company's 1995 Stock
Compensation Plan).
5. Net Income Per Share
Net income per share was computed based on the weighted average number of
shares of common stock outstanding during the periods. As of November 30,
1997, the Company had outstanding options to purchase 369,674 shares of
common stock (see Note 7). The potential dilution of these options is
immaterial in the computation of net income per share.
6. Reclassifications
Certain prior period balances in the financial statements have been
reclassified to conform to the current period financial statement
presentation.
7. Stock Compensation Plan
On July 6, 1995, the Board of Directors adopted the Continental
Information Systems Corporation 1995 Stock Compensation Plan (the "1995
Plan"). The 1995 Plan provides for the issuance of options covering up to
1,000,000 shares of common stock and stock grants of up to 500,000 shares
of common stock to non-employee directors of the Company and, in the
discretion of the Compensation Committee, employees of and independent
contractors and consultants to the Company.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
A summary of the status of the 1995 Plan as of November 30, 1997 and
changes since inception is presented below:
<TABLE>
<CAPTION>
Weighted Average
Number of Exercise Price
Options Per Option
-------- --------
<S> <C> <C>
Outstanding at
May 31, 1995 (none exercisable) ....... 15,000 $ 3.50
Granted ..................................... 9,000 $ 2.50
Exercised ................................... -- $ --
Forfeited/expired ........................... (9,000) $ 3.50
--------
Outstanding at
May 31, 1996 (6,000 exercisable) ...... 15,000 $ 2.90
Granted ..................................... 319,000 $ 1.97
Exercised ................................... (16,667) $ 1.97
Forfeited/expired ........................... (33,333) $ 1.97
--------
Outstanding at
May 31, 1997 (188,337 exercisable) ... 284,000 $ 2.02
Granted ..................................... 175,000 $ 2.32
--------
Outstanding at
August 31, 1997 (246,671 exercisable) . 459,000 $ 2.13
Granted ..................................... 15,674 $ 3.00
Exercised ................................... (70,001) $ 1.97
Forfeited/expired ........................... (34,999) $ 1.97
--------
Outstanding at
November 30, 1997 (185,670 exercisable) 369,674 $ 2.05
========
</TABLE>
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and the notes thereto for the fiscal year ended May 31,
1997, appearing in the Company's Form 10-K.
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future capital requirements and the
Company's future business plans, are based on current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are those set forth below and
the other risk factors described from time to time in the Company's reports
filed with the SEC. The Company wishes to caution readers not to place undue
reliance on any such forward looking statements, which statements are made
pursuant to the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made.
Results of Operations
Comparison of the Three Months and Six Months
Ended November 30, 1997 and 1996
Total revenues decreased 66.2% to $4.4 million for the three months ended
November 30, 1997 from $13.0 million for the comparable fiscal quarter in 1996.
For the six months ended November 30, 1997, total revenues decreased 46.1% to
$10.8 million from $20.1 million for the comparable fiscal period in 1996.
Within this category, equipment sales for the three and six months ended
November 30, 1997, decreased by $5.6 million (66.5%) and $5.6 million (42.9%),
respectively. These decreases reflect a decline in sales at the laser printing
equipment business unit, in addition to lower results for the aircraft business
unit, which had generated significant sales and pretax margins during the prior
year fiscal quarter. Sales and margins from the aircraft business unit are
likely to continue to vary quarter to quarter, based on the volume of
transactions. Equipment rentals and income from direct financing leases for the
three and six months ended November 30, 1997, decreased by $.7 million (40.9%)
and $1.4 million (39.2%), respectively, from comparable periods in 1996. These
decreases are directly related to the sale of a substantial portion of the
Company's leased equipment to an institutional investor in the second quarter of
the prior fiscal year for a gain of approximately $2.5 million. The Company is
acquiring additional equipment, subject to lease, which it intends to sell on an
ongoing basis, as market conditions permit. Interest, fees and other income for
the three and six months ended November 30, 1997, increased by $157,000 (35.6%)
and $111,000 (10.8%), respectively, over comparable periods in 1996. These
increases primarily reflect an increase in interest income and an increase in
fees generated by brokered transactions.
Costs and expenses for the three and six months ended November 30, 1997,
decreased by $5.5 million (53.6%) and $6.1 million (35.7%), respectively, from
comparable periods in 1996. Within this category, cost of sales, as a percentage
<PAGE>
of sales, for the three and six months ended November 30, 1997, were 96.9% and
86.1%, respectively, as compared to 79.5% and 77.6% for the comparable periods
in 1996. The significant percentage increases in the current periods reflect a
charge of approximately $195,000 for the write-down of obsolete inventory at the
laser printing equipment business unit. Sales and margins for this business unit
have been adversely impacted, and may continue to be impacted, as a result of
increased activity in the used high speed printer market by Xerox Corporation,
the manufacturer of the Company's laser printers, and another large leasing
company that has entered the market. Additionally, these cost percentage
variances are the result of product mix, with the aircraft business unit usually
generating significant margins on a relatively few large transactions and the
telecommunications and printing business units generating comparably lesser
margins on a greater number of transactions. On August 31, 1997 the Company,
through a wholly-owned subsidiary, sold its Telecommunications Business Unit to
Meridian Leasing Corporation of Deerfield, Illinois. The sales price
approximated the Business Unit's book value and therefore did not significantly
affect the results of operations for the quarter ended August 31, 1997 or the
six months ended November 30, 1997. Depreciation of rental equipment for the
three and six months ended November 30, 1997, decreased by $374,000 (49.5%) and
$744,000 (46.3%), respectively, from comparable periods in 1996. These decreases
are directly related to the aforementioned sale of a substantial portion of the
Company's portfolio of leased equipment in the second quarter of the prior
fiscal year. Interest expense for the three and six months ended November 30,
1997, decreased by $258,000 (69.7%) and $374,000 (53.8%), respectively, from
comparable periods in 1996. These decreases were primarily the result of a
decrease in the average debt outstanding during the current three months and six
months ended November 30, 1997. Other operating expenses for the three and six
months ended November 30, 1997, decreased by $291,000 (45.7%) and $299,000
(26.3%), respectively, from comparable periods in 1996. These decreases are
chiefly the result of a decrease in expenses associated with the reduced
portfolio of leased equipment and a decrease in machine refurbishment expenses
for the laser printing equipment business unit. Selling, general and
administrative expenses for the three and six months ended November 30, 1997,
decreased by $629,000 (34.3%) and $995,000 (27.7%), respectively, from
comparable periods in 1996. These decreases were principally due to cost
containment efforts and staff reductions between the periods. For the three and
six months ended November 30, 1997, a provision for deferred income tax benefit
on loss from operations was recorded, at an effective rate of 38%, in the amount
of $147,000 and $86,000, respectively. For the three and six months ended
November 30, 1996, a provision for deferred income tax expense on income from
operations was recorded, at an effective rate of 38%, in the amounts of
$1,022,000 and $1,108,000, respectively.
Liquidity and Capital Resources
Cash provided by operations for the six months ended November 30, 1997, was $4.8
million as compared to $10.4 million for the comparable period in 1996. The
decrease was primarily due to the proceeds generated by the sale of equipment
subject to lease of approximately $.9 million in the current period as compared
to approximately $7.4 million in the prior year period. Proceeds from the sale
of the Telecommunication's Business Unit's assets were $.9 million in the
current period. Additionally, significant funds were generated in the current
period by net collections of the following: (i) rentals on direct financing
leases of $1.2 million, (ii) accounts receivable of $.7 million, and, (iii)
notes receivable of $1.6 million. The Company purchased approximately $7.3
million of additional rental equipment for lease transactions during the current
period, which it has the option to sell on an ongoing basis, as market
conditions permit. Additionally, during the current period, the Company invested
approximately $1.1 million in mortgage participation notes under its Joint
<PAGE>
Investment Agreement (the "Emmes Agreement") with Emmes Investment Mangement Co.
LLC ("Emmes"). Proceeds from lease, bank and institution financings for the six
months ended November 30, 1997 and 1996, were $3.0 million and $4.6 million
respectively. Payments on lease, bank and institution financings decreased by
approximately $2.5 million to $3.5 million for the six months ended November 30,
1997 from $6.0 million for the comparable period in 1996. This decrease reflects
a decrease in the average discounted lease rental borrowings outstanding during
the current period. Proceeds from the exercise of stock options by employees,
under the 1995 Stock Compensation Plan, amounted to $138,000 in the current six
month period.
On May 27, 1997, the Company announced that its Board of Directors had
authorized the expenditure of up to $500,000 for the repurchase of its common
stock. The Company commenced a voluntary odd lot program through June 30, 1997,
which was extended through July 31, 1997. Shareholders owning less than 100
shares of the Company's common stock were offered the opportunity to sell all
their shares at the closing price of the common stock on the NASDAQ Small-Cap
Market on May 23, 1997, which was $2.25 per share. Approximately 20,000 shares
were repurchased by the Company at an aggregate cost of approximately $45,000.
Subsequent to the odd lot repurchase program, the Company intends to repurchase
from time to time additional shares of its common stock up to the balance of
$500,000 remaining after the odd lot program. The Company may repurchase the
additional shares at prevailing prices in the open market or in negotiated or
other permissible transactions at the discretion of management. The Company will
hold all repurchased shares of common stock in its treasury. As of November 30,
1997, approximately 72,000 shares had been repurchased by the Company in this
manner at an aggregate cost of approximately $191,000.
On October 28, 1997, at the Company's Annual Meeting, the stockholders approved
the amendment of the Company's Restated Certificate of Incorporation to increase
the number of authorized shares from 10 million to 20 million. The Board of
Directors considers the increase of authorized shares of Common Stock to be
desirable (i) to permit the Company flexibility in using its Common Stock in any
potential future acquisitions of property or securities of other companies, (ii)
to permit possible future dividends in shares of the Company's Common Stock, and
(iii) for other corporate purposes, including adoption of new employee benefit
plans or amendment of existing ones. The Company currently has no plans to issue
any additional shares (other than pursuant to the Company's 1995 Stock
Compensation Plan).
The Company expects that operations will generate sufficient cash to meet its
operating expenses and current obligations for the foreseeable future. In July
1996, the Company finalized two revolving loan agreements with institutions to
provide (1) warehouse lease financing in the amount of $5 million and (2)
inventory financing for the laser printing equipment business unit in the amount
of $2.5 million. At November 30, 1997, approximately $.8 million in loans
payable were outstanding under these lines of credit. The laser printing
equipment business unit's loan agreement contains various covenants including
limitations on additional indebtedness and the maintenance of minimum levels of
net worth/net earnings. At November 30, 1997, the laser printing equipment
business unit did not meet the minimum net worth/net earnings requirement; a
waiver relative to this covenant was obtained from the lending institution. In
December 1997, the Company finalized an additional revolving loan agreement with
an institution to provide lease and inventory financing, for aircraft engines
for CIS Air, in the amount of $10 million. The facility has a 3 year term and
permits borrowing equal to a percentage of the appraised value of the aircraft
engines financed. Availability under the facility is limited to the appraised
value of the financed aircraft engines. Substantially all the assets of CIS Air
are pledged as collateral for the loan.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held on October 28, 1997, the
following directors were elected to the Board of Directors:
Affirmative Votes Votes Withheld
----------------- --------------
Julius S. Anreder 5,832,278 104,995
Dr. Leon H. Bloom 5,885,956 51,317
James P. Hassett 5,578,500 358,773
George H. Heilborn 5,703,023 234,250
Michael L. Rosen 5,803,636 133,637
Paul M. Solomon 5,720,445 216,828
The proposal to amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares from 10 million to 20 million and
certain other amendments was approved and received the requisite number of votes
as follows:
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
5,737,011 166,249 34,013
The ratification of the selection of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending May 31, 1998 was approved and
received the requisite number of votes as follows:
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
5,890,973 32,222 14,078
The stockholder proposal to request that the Board of Directors proceed to adopt
a plan of complete liquidation of the Company did not receive the requisite
number of votes and therefore was not approved. The votes were as follows:
Affirmative Votes Negative Votes Abstentions Broker Non-Votes
----------------- -------------- ----------- ----------------
209,922 2,030,232 27,894 3,669,225
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation, as amended
27.1 Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
Company during the quarter ended November 30, 1997.
<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.
CONTINENTAL INFORMATION SYSTEMS
CORPORATION
Date: January 9, 1998 By: /s/ Michael L. Rosen
--------------------
Michael L. Rosen
President, Chief Executive Officer
and Director
Date: January 9, 1998 By: /s/ Jonah M. Meer
-----------------
Jonah M. Meer
Senior Vice President,
Chief Operating Officer
and Chief Financial Officer
RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL INFORMATION SYSTEMS CORPORATION
Under ss. 807 of the Business Corporation Law
WE, THE UNDERSIGNED, Richard B. Lasken and Daniel L. Wieneke,
being respectively the President and Chief Executive Officer and the Senior Vice
President, General Counsel and Secretary of Continental Information Systems
Corporation hereby certify:
FIRST: The name of the Corporation is CONTINENTAL INFORMATION
SYSTEMS CORPORATION.
SECOND: The Certificate of Incorporation of the Corporation
was filed by the Department of State on June 11, 1968.
THIRD: Pursuant to the Joint Plan of Reorganization, dated
October 4, 1994, filed with the United States Bankruptcy Court for the Southern
District of New York (the "Court"), as modified and confirmed by the Court on
November 29, 1994, (the "Plan"), the corporation is restating with amendments
the Certificate of Incorporation. Article 1, which sets forth the name of the
Corporation, will remain unchanged. The purpose clause in Article 2 has been
amended in a new Article 2. Article 3, which authorizes the Corporation to
conduct is business in a lawful manner under the Business Corporation Law, has
been deleted in its entirety. Article 4, which states that the purposes and
powers specified in Article 4 shall in no way be limited or restricted by
reference or inference from the terms of any other clauses of Article 4 or the
Certificate of Incorporation, has been deleted in its entirety. The
capitalization clause in Article 5 has been amended in a new Article 3. The
capitalization clause shows a decrease in the total authorized number of shares
to Ten Million (10,000,000), $.01 par value per share, all of which are to be
designated as Common Stock. In addition, specific provisions relating to
issuance and voting have been approved pursuant to the Plan. Article 6, which
sets forth the designations, preferences privileges and voting powers of shares
of stock, has been deleted in its entirety. Article 7, relating to the
corporation's address, has been amended in a new Article 4. Article 8, relating
to the designation of agent and service of process, has been amended in a new
Article 5. Article 9, which states that the duration of the Corporation is
perpetual, has been deleted in its entirety. Article 10, which provides for a
classified Board of Directors, has been deleted in its entirety. Article 11,
which sets an eighty percent (80%) voting requirement for the approval of
certain business combinations and requiring shareholder approval for the
Corporation to purchase share of its capital stock from certain holders of more
than five percent (5%) of the voting power of the Corporation, has been deleted
in its entirety. Article 12, relating to indemnification of the corporation's
officers and directors, has been amended in a new Article 6. Finally, a new
Article 7 has been added relating to the ability of the Corporation's Board of
Directors to make, alter or repeal the by-laws of the Corporation.
The text of the Certificate of Incorporation is hereby
restated with amendments to read as herein set forth in full:
<PAGE>
1. The name of the Corporation is CONTINENTAL INFORMATION
SYSTEMS CORPORATION.
2. The purpose for which this corporation is to be formed
is restated in its entirety to read as follows:
To engage in any lawful act or activity for
which corporations may be organized under the
Business Corporation Law, provided that the
Corporation is not formed to engage in any act
or activity requiring the consent or approval
of any state official, department board, agency
or other body without such consent or approval
first being obtained.
3. The aggregate number of shares which the Corporation
shall have authority to issue is Ten Million
(10,000,000), $.01 par value per share, all of which
are to be designated as Common Stock.
(a) Pursuant to chapter 11 of title 11 of the United
States Code, 11 U.S.C.ss.ss. 101, et. seq. (the
"Code") James P. Hassett was appointed trustee
(the "Trustee") of the Corporation on October
25, 1989. Until the Trustee has distributed all
of the Corporation's issued shares of Common
Stock under the Plan, the Trustee shall hold
such undistributed shares of Common Stock for
the benefit of (i) persons holding Equity
Interests (as defined in the Plan) in the
Corporation or any of the Debtors (as defined in
the Plan) or (ii) persons holding Allowed Claims
(as defined in the Plan) against the Corporation
or Debtors (such persons described in clauses
(i) and (ii) above are collectively referred to
herein as the "Holders"). The Trustee shall
possess the authority to vote such shares of
Common stock until they are distributed pursuant
to the Plan.
(b) Pursuant to Section 1.97 of the Plan, Seven
Million (7,000,000) shares of Common Stock will
be issued. Until Six Million Three Hundred
Thousand (6,300,000) of the shares of Common
Stock have been distributed to the named
creditors and prior equity holders pursuant to
the Plan, any matter or issue requiring the
approval of Holders of shares of Common Stock
shall require the approval of a vote of at least
two-thirds (2/3) of the then-issued and
outstanding shares of Common Stock. The Trustee
will deliver this Certificate to the Corporation
upon termination of the provisions in this
paragraph 3, subsection (b).
(c) Pursuant to Section 1123 of the Code, the
Corporation is prohibited from issuing nonvoting
equity securities.
<PAGE>
4. The office of the Corporation is to be located in the
County of Onondaga, One Northern Concourse, P.O. Box
4785, Syracuse, New York 13221-4785.
5. The Secretary of State is designated as the agent of
the Corporation upon whom process against the
Corporation may be served. The post office address
within the State of New York to which the Secretary of
State shall mail a copy of any process against the
Corporation served upon him is:
Daniel L. Wieneke, Esq.
Continental Information Systems Corporation
One Northern Concourse
P.O. Box 4785
Syracuse, New York 13221-4785
6. The Corporation shall have the power to indemnify its
officers and directors to the maximum extent permitted
by law.
7. The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the by-laws of the
corporation.
FOURTH: This restatement of the Certificate of Incorporation
was authorized by the Trustee pursuant to the Plan, as permitted by ss.808 of
the Business Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Incorporation this 19th day of December, 1994 and the undersigned
affirm (i) that the statements contained herein are true under the penalties of
perjury, (ii) that the provisions of this Certificate of Incorporation are
contained in the Plan, (iii) that the Plan has been confirmed in accordance with
the provisions of the Code, (iv) that the judicial order confirming the Plan was
made on November 29, 1994 and (v) that this Certificate of Incorporation shall
be delivered to the Secretary of State.
CONTINENTAL INFORMATION SYSTEMS
CORPORATION
By: /s/ Richard B. Lasken
----------------------
Name: Richard B. Lasken
Title: President and Chief
Executive Officer
By: /s/ Daniel L. Wieneke
----------------------
Name: Daniel L. Wieneke
Title: Senior Vice President
General Counsel and Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL INFORMATION SYSTEMS CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the Corporation is CONTINENTAL INFORMATION
SYSTEMS CORPORATION.
SECOND: The Certificate of Incorporation of the Corporation
was filed by the Department of State on June 11, 1968 and a Restated Certificate
of Incorporation was filed on December 21, 1994 (as amended, the "Certificate").
THIRD: The amendment of the Certificate effected by this
certificate of amendment is to increase the aggregate number of shares which the
Corporation shall have the authority to issue by authorizing 10,000,000
additional shares, $.01 par value per share, of the same class as the presently
authorized shares, and to delete certain provisions which are no longer required
to carry out a plan of reorganization under chapter 11 of the Bankruptcy Code.
FOURTH: To accomplish the foregoing amendment, Article 3 is
deleted in its entirety and replaced with the following:
The aggregate number of shares which the Corporation shall
have authority to issue is Twenty Million (20,000,000), $.01
par value per share, all of which are to be designated as
Common Stock.
FIFTH: The foregoing amendment of the Certificate was
authorized by the vote of the Board of Directors at a meeting of the Board of
Directors of the Corporation, followed by the vote of the holders of at least a
majority of the issued and outstanding shares of the Corporation entitled to
vote on the amendment of the Certificate.
IN WITNESS WHEREOF, the undersigned have subscribed this
document on this 28th day of October, 1997 and do hereby affirm, under penalties
of perjury, that the statements contained herein have been examined by the
undersigned and are true and correct.
/s/ Michael L. Rosen
---------------------
Michael L. Rosen
President
/s/ Ann M. Twomey
------------------
Ann M. Twomey
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Continental Information Systems Corporation as of and for the six months ended
November 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 4,771
<SECURITIES> 0
<RECEIVABLES> 12,988
<ALLOWANCES> (79)
<INVENTORY> 6,774
<CURRENT-ASSETS> 24,454
<PP&E> 11,857
<DEPRECIATION> (6,011)
<TOTAL-ASSETS> 39,913
<CURRENT-LIABILITIES> 4,235
<BONDS> 1,315
0
0
<COMMON> 71
<OTHER-SE> 34,292
<TOTAL-LIABILITY-AND-EQUITY> 39,913
<SALES> 7,539
<TOTAL-REVENUES> 10,813
<CGS> 6,424
<TOTAL-COSTS> 8,114
<OTHER-EXPENSES> 2,595
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 321
<INCOME-PRETAX> (226)
<INCOME-TAX> (86)
<INCOME-CONTINUING> (140)
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<EPS-PRIMARY> (0.02)
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</TABLE>
