FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: JUNE 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
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Commission file number 1-9815
CYCARE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 91-0842322
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1000, 7001 North Scottsdale Road, Scottsdale, Arizona 85253
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code................................(602) 596-4300
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At August 9, 1995, 5,078,638
shares of common stock were outstanding, net of 1,019,319 shares of treasury
stock.
INDEX
CYCARE SYSTEMS, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994. 3
Condensed Consolidated Income Statements
Three months ended June 30, 1995 and 1994;
Six months ended June 30, 1995 and 1994. 4
Condensed Consolidated Statements of
Cash Flows - Six months ended June 30,
1995 and 1994. 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1995. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 7 - 8
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders. 9
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURE 10
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PART I
FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1995 and December 31, 1994
(In thousands, except per share data)
Unaudited
1995 1994
--------- --------
Cash and cash equivalents $ 13,703 $ 13,760
Accounts receivable, net 6,048 4,184
Unbilled work at estimated realizable value 1,980 1,868
Supply and equipment inventories 820 723
Prepaid and other assets 3,838 3,223
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Total Current Assets 26,389 23,758
Property and equipment at cost, net 9,822 9,778
Software products, net 10,049 9,353
Goodwill, net 536 545
Other intangibles, net 208 252
Other assets 342 296
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Total Assets $ 47,346 $ 43,982
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Current portion of long-term debt $ 1,322 $ 1,546
Accounts payable 1,919 1,989
Accrued expenses 2,946 2,753
Accrued payroll 1,378 1,208
Client deposits and unearned income 761 1,225
Current and deferred income taxes 180 137
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Total Current Liabilities 8,506 8,858
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Long-term debt, less current portion 3,493 4,153
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Other long-term liabilities 2,013 2,671
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Deferred income taxes 2,954 3,077
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Shareholders' equity:
Common stock 61 61
Capital in excess of par value 30,845 29,505
Retained earnings 8,288 7,114
Less treasury stock (8,814) (11,457)
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Total Shareholders' Equity 30,380 25,223
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Total Liabilities and
Shareholders' Equity $ 47,346 $ 43,982
======== ========
Book value per share $5.99 $5.24
Common shares outstanding excluding treasury
shares of 1,029,569 at June 30, 1995 and
1,280,569 at December 31, 1994. 5,068 4,817
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED INCOME STATEMENTS
Periods Ended June 30, 1995 and 1994
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
1995 1994 1995 1994
------- ------- ------- -------
Revenues:
Services $12,325 $10,825 $24,373 $21,563
Systems sales 3,763 2,090 7,124 4,012
Interest and dividends 208 51 403 180
Other income 167 197 324 404
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16,463 13,163 32,224 26,159
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Costs and Expenses:
Cost of services 4,621 3,971 9,218 8,056
Cost of systems sold 2,565 1,473 4,941 2,928
Software product amortization 570 511 1,152 1,029
Research and development 1,095 1,048 2,282 1,976
Selling and administrative 5,739 4,982 10,987 9,813
Interest 119 43 242 174
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14,709 12,028 28,822 23,976
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Income before income taxes 1,754 1,135 3,402 2,183
Income taxes 641 455 1,276 895
------- ------- ------- -------
Net Income $ 1,113 $ 680 $ 2,126 $ 1,288
======= ======= ======= =======
Earnings per share $ .21 $ .14 $ .41 $ .26
======= ======= ======= =======
Common and common equivalent
shares used in the calculation
of net income per share 5,205 4,829 5,158 4,892
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(In thousands)
(Unaudited)
1995 1994
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Operating activities
Net income $ 2,126 $ 1,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of goodwill and intangibles 53 38
Depreciation and amortization 839 907
Software product amortization 1,152 1,029
Provision for losses on accounts receivable 200 337
Provision for deferred income taxes 63 614
Loss on sale or retirement of equipment 3 4
Changes in operating assets and liabilities:
Increase in accounts receivable
and unbilled work (2,177) (973)
(Increase) decrease in other assets (760) 1,772
Increase (decrease) in accounts payable and
accrued expenses (167) 990
Decrease in contract reserve 0 (25)
Increase (decrease) in current income taxes 1,234 (2,242)
Increase (decrease) in other
long-term liabilities (658) 230
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Net cash provided by operating activities 1,908 3,969
Investing activities
Purchase of property and equipment (891) (764)
Proceeds from sale of equipment 3 99
Capitalized software products (1,848) (1,441)
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Net cash used in investing activities (2,736) (2,106)
Financing activities
Proceeds from revolving line of credit
and long-term borrowings 0 4,100
Principal payments on revolving line of credit,
long-term borrowings and capital lease obligations (884) (4,755)
Translation adjustment (28) (2)
Net proceeds from sale of common stock, warrants,
options and treasury stock 1,831 613
Purchase of treasury stock (148) (6,055)
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Net cash provided by (used in) financing
activities 771 (6,099)
Decrease in cash and cash equivalents (57) (4,236)
Cash and cash equivalents at beginning of period 13,760 18,245
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Cash and cash equivalents at end of period $ 13,703 $ 14,009
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CYCARE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1995 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended December 31, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The Company's net income increased 64% to $1,113,000 in the second quarter of
1995 as compared to $680,000 for the same period in 1994. A similar increase of
65% was reported on a year to date basis, with net income for the first six
months of 1995 totaling $2,126,000 versus $1,288,000 for the corresponding
period in 1994. Consolidation in the health care industry is increasing the need
for information systems to manage rapidly growing medical groups and to connect
newly formed integrated delivery networks. This consolidation has increased
demand for the Company's CS3000 and SpectraMED products and for its electronic
data interchange (EDI) services.
Systems revenue for second quarter 1995 increased $1,673,000, or 80%, to
$3,763,000 versus $2,090,000 in second quarter 1994. For the first half of 1995,
systems revenue was $7,124,000 as compared to $4,012,000 for the same period in
1994, an increase of $3,112,000 or 78%. Second quarter systems margins were 32%
and 30% for 1995 and 1994, respectively, while year to date systems margins were
31% in 1995 and 27% in 1994. Revenues have increased over prior year levels due
to sales of the CS3000 system to large medical groups and physician networks.
During the introductory stage of the CS3000 in the first half of 1994, margins
were effected due to a higher percentage of sales that represented systems
upgrades for existing clients. In 1995, systems margins have improved due to an
increase in new client sales that typically have higher margins than client
upgrades.
Services revenue was $12,325,000 in second quarter 1995, an increase of
$1,500,000, or 14% over the comparable period in 1994. Year to date services
revenue was $24,373,000 in 1995 as compared to $21,563,000 in 1994, an increase
of $2,810,000 or 13%. Services margins for both the quarter and year to date
periods remained consistent at approximately 63%. The Company continues to see
strong growth in its monthly licenses fees, EDI services and medical statement
processing. Additionally, the increase in systems sales has generated services
revenue gains in the areas of conversions, installations and network
integration. The Company has been notified by one of its largest medical
statement processing clients that they will be reducing the number of statements
processed by CyData, the Company's wholly owned subsidiary. Any services revenue
growth in the second half of 1995 could be offset by the gradual reduction of
processing services for this client.
Both second quarter and year to date software amortization expense increased 12%
over prior year levels. Software product amortization was $570,000 in second
quarter 1995 as compared to $511,000 in the same period in 1994, and $1,152,000
million and $1,029,000 million for the six month periods in 1995 and 1994,
respectively. These increases are primarily due to additional releases of the
Company's CS3000 and SpectraMED products.
Net research and development expense was consistent from second quarter 1995 to
second quarter 1994, while on a year to date basis, net research and development
expenditures increased to $2,282,000 in 1995 versus $1,976,000 in 1994. Second
quarter gross research and development was $1,954,000 in 1995 and $1,780,000 in
1994, an increase of 10%. Year to date gross research and development was
$4,130,000 in 1995 and $3,417,000 in 1994, an increase of 21%. The Company
continues to enhance its CS3000 and SpectraMED products and to add EDI
processing capabilities. New products under development include electronic
medical records and enterprise scheduling.
Selling and administrative expenses during the second quarter of 1995 were
$5,739,000 as compared to $4,982,000 in 1994, an increase of $757,000, or 15%.
For the six month period, selling and administrative costs increased $1,174,000,
or 12%, to $10,987,000 in 1995 versus $9,813,000 in 1994. The Company has hired
additional sales and marketing personnel to handle the increased demand for the
Company's products and services. As a percentage of revenue, selling and
administrative costs were 35% and 34% for the second quarter and year to date
periods in 1995 as compared to 38% for the corresponding periods in 1994.
LIQUIDITY AND CAPITAL RESOURCES.
Significant items affecting cash flow in 1995 were as follows: cash provided
from operations was $1,908,000, capitalization of software products was
$1,848,000, proceeds from stock option exercises were $1,831,000 and principal
payments on long term debt were $884,000. The Company's cash and cash
equivalents as of June 30, 1995 were $13,703,000.
The Company has not committed to any material capital expenditures.
The Company has a $3,500,000 line of credit with a financial institution. The
entire line is available as of June 30, 1995.
The Company's Board of Directors has authorized the repurchase of up to
1,500,000 shares of its common stock at prevailing market rates. To-date the
Company has purchased 1,342,700 shares at an average price of $8.79. This
includes 10,000 shares purchased, at an average price of $14.81 per share,
during the first half of 1995.
The Company anticipates that funds generated from operations and the Company's
remaining cash and cash equivalents will be sufficient to meet its working
capital requirements, debt obligations and to finance any capital expenditures.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Shareholder's Meeting held on May 16, 1995, the
shareholders elected by a vote of 4,121,490 for and 100 against to
elect A. Theodore Engkvist for an additional term on the Company's
Board of Directors. The following directors continued their term of
office after the meeting: Jim H. Houtz, Richard J. Burgmeier, Frank H.
Bertsch and James L. Schamadan, M.D.
The following proposals were also approved at the Company's Annual
Meeting:
Votes Votes Votes
For Against Withheld
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1. To amend and restate in its
entirety the CyCare Systems,
Inc. Stock Option Plan and
to increase the number of
shares of stock available
for awards by 300,000 2,440,653 1,047,731 13,068
2. To amend the CyCare Systems,
Inc. Employee Stock Purchase
Plan, increasing the number of
shares of stock available for
issuance by 300,000 3,335,343 155,156 10,953
3. To approve the CyCare Systems,
Inc. Director Stock Plan 2,801,113 681,846 18,493
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Form 8-K
None
SIGNATURE
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.
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Date August 10, 1995
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Mark R. Schonau
Chief Financial Officer
Secretary and Treasurer
CYCARE SYSTEMS, INC.
Index to Exhibits
27. Financial Data Schedule
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