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: SEPTEMBER 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from _______________ to _______________
Commission file number 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 October 31, 1995, 5,100,138
shares of common stock were outstanding, net of 997,819 shares of treasury
stock.
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INDEX
CYCARE SYSTEMS, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994. 3
Condensed Consolidated Income Statements -
Three months ended September 30, 1995 and 1994;
Nine months ended September 30, 1995 and 1994. 4
Condensed Consolidated Statements of
Cash Flows - Nine months ended September 30,
1995 and 1994. 5
Notes to Condensed Consolidated Financial
Statements - September 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 6. Exhibits and Reports on Form 8-K. 9
SIGNATURE 9
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PART I
FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
(In thousands, except per share data)
Unaudited
1995 1994
---------- ----------
Cash and cash equivalents $ 16,748 $ 13,760
Accounts receivable, net 6,713 4,184
Unbilled work at estimated realizable value 1,927 1,868
Supply and equipment inventories 727 723
Prepaid and other assets 3,153 3,223
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Total Current Assets 29,268 23,758
Property and equipment at cost, net 9,637 9,778
Software products, net 10,276 9,353
Goodwill, net 531 545
Other intangibles, net 186 252
Other assets 347 296
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Total Assets $ 50,245 $ 43,982
========== ==========
Current portion of long-term debt $ 1,311 $ 1,546
Accounts payable 2,883 1,989
Accrued expenses 2,698 2,753
Accrued payroll 1,852 1,208
Client deposits and unearned income 671 1,225
Current and deferred income taxes 226 137
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Total Current Liabilities 9,641 8,858
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Long-term debt, less current portion 3,173 4,153
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Other long-term liabilities 1,846 2,671
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Deferred income taxes 3,736 3,077
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Shareholders' equity:
Common stock 61 61
Capital in excess of par value 31,009 29,505
Retained earnings 9,427 7,114
Less treasury stock (8,648) (11,457)
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Total Shareholders' Equity 31,849 25,223
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Total Liabilities and Shareholders' Equity $ 50,245 $ 43,982
========== ==========
Book value per share $ 6.25 $ 5.24
Common shares outstanding excluding treasury
shares of 1,004,319 at September 30, 1995
and 1,280,569 at December 31, 1994. 5,094 4,817
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED INCOME STATEMENTS
Periods Ended September 30, 1995 and 1994
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
1995 1994 1995 1994
------- ------- ------- -------
Revenues:
Services $11,954 $10,629 $36,327 $32,192
Systems sales 3,755 2,334 10,879 6,346
Interest and dividends 247 254 650 434
Other income 228 206 552 610
------- ------- ------- -------
16,184 13,423 48,408 39,582
------- ------- ------- -------
Costs and Expenses:
Cost of services 4,630 4,065 13,848 12,121
Cost of systems sold 2,778 1,526 7,719 4,454
Software product amortization 545 556 1,697 1,585
Research and development 965 1,202 3,247 3,178
Selling and administrative 5,370 4,657 16,357 14,470
Interest 110 160 352 334
------- ------- ------- -------
14,398 12,166 43,220 36,142
------- ------- ------- -------
Income before income taxes 1,786 1,257 5,188 3,440
Income taxes 644 481 1,920 1,376
------- ------- ------- -------
Net Income $ 1,142 $ 776 $ 3,268 $ 2,064
======= ======= ======= =======
Earnings per share $ .22 $ .16 $ .63 $ .42
======= ======= ======= =======
Common and common equivalent
shares used in the calculation
of net income per share 5,233 4,833 5,174 4,872
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1994
(In thousands)
(Unaudited)
1995 1994
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Operating activities
Net income $ 3,268 $ 2,064
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of goodwill and intangibles 79 57
Depreciation and amortization 1,251 1,332
Software product amortization 1,697 1,585
Provision for losses on accounts
receivable 282 441
Provision for deferred income taxes 132 740
(Gain) loss on sale or retirement of
equipment 6 (26)
Changes in operating assets and liabilities:
Increase in accounts receivable
and unbilled work (2,871) (1,982)
Decrease in other assets 13 2,290
Increase in accounts payable and
accrued expenses 935 509
Decrease in contract reserve (25)
Increase (decrease) in current income
taxes 2,152 (2,303)
Increase (decrease) in other long-term
liabilities (825) 284
--------- ---------
Net cash provided by operating activities 6,119 4,966
Investing activities
Purchase of property and equipment (1,122) (1,435)
Proceeds from sale of equipment 3 144
Capitalized software products (2,620) (2,267)
Increase in intangible assets (140)
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Net cash used in investing activities (3,739) (3,698)
Financing activities
Proceeds from revolving line of credit
and long-term borrowings 4,100
Principal payments on revolving line of
credit, long-term borrowings and
capital lease obligations (1,215) (5,063)
Translation adjustment (28) (1)
Net proceeds from sale of common stock,
warrants, options and treasury stock 1,999 1,062
Purchase of treasury stock (148) (6,487)
--------- ---------
Net cash provided by (used in)
financing activities 608 (6,389)
Increase (decrease) in cash
and cash equivalents 2,988 (5,121)
Cash and cash equivalents at beginning of period 13,760 18,245
--------- ---------
Cash and cash equivalents at end of period $ 16,748 $ 13,124
========= =========
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CYCARE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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 nine month periods ended
September 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 third quarter net income increased 47% to $1,142,000 as compared
to $776,000 for the same period in 1994. Net income for the first nine months of
1995 totaled $3,268,000 versus $2,064,000 for the corresponding period in 1994,
an increase of $1,204,000, or 58%. Demand for the Company's CS3000 and the
electronic data interchange (EDI) services offered by CyData, the Company's
wholly-owned subsidiary, has continued to fuel the Company's revenue and
earnings growth.
Systems revenue for third quarter 1995 increased to $3,755,000 versus $2,334,000
in third quarter 1994, an increase of $1,421,000, or 61%. For the first nine
months of 1995, systems revenue has increased $4,533,000, or 71% to $10,879,000
as compared to $6,346,000 for the same period in 1994. Third quarter systems
margins were 26% and 35% for 1995 and 1994, respectively, while year to date
systems margins were 29% in 1995 and 30% in 1994. Revenues have increased over
prior year levels due to sales of the CS3000 system to large medical groups and
physician networks. Margins were lower for the quarter due to a shift in the mix
of hardware versus software. Also contributing to the decline was an increase in
shipments of networking equipment which tends to have lower margins.
Services revenue was $11,954,000 in third quarter 1995, an increase of
$1,325,000, or 12% over the comparable period in 1994. Year to date services
revenue was $36,327,000 in 1995 as compared to $32,192,000 in 1994, an increase
of $4,135,000 or 13%. Services margins for both the quarter and year to date
1995 and 1994 periods remained consistent at approximately 62%. Growth in
services revenue is primarily due to increases in monthly license fees and EDI
services. The increase in systems sales has also contributed to year over year
increases in services revenue such as installations, education, network services
and conversions. As anticipated, the Company has seen a decrease in statement
revenues as one of its largest medical statement clients has begun reducing the
number of statements processed by CyData. Revenue growth in the fourth quarter
of 1995 will be affected by the reduction in statement volumes and revenues.
Software product amortization decreased $11,000 or 2% to $545,000 in third
quarter 1995 as compared to $556,000 for the corresponding period in 1994. Year
to date amortization increased $112,000, or 7% to $1,697,000 in 1995 from
$1,585,000 in 1994. The decrease in amortization in third quarter 1995 as
compared to third quarter 1994 was primarily due to less amortization from the
Company's mature product lines. Amortization of releases of the CS3000 and
SpectraMED has caused the year to year increase in amortization.
Net research and development expenses decreased $237,000, or 20% to $965,000 in
third quarter 1995 from $1,202,000 in third quarter 1994, while year to year
expense levels remained relatively constant. Gross research and development
decreased $291,000, or 14% from $1,737,000 in third quarter 1995 as compared to
$2,028,000 in third quarter 1994. Year to date gross research and development
increased $442,000 or 8% to $5,867,000 in 1995 from $5,445,000 in 1994. The
Company is currently developing new releases of its CS3000 and SpectraMED
products. Development is also continuing on the Company's new medical records
and enterprise scheduling products.
Selling and administrative expenses during the third quarter of 1995 were
$5,370,000 as compared to $4,657,000 in 1994, an increase of $713,000, or 15%.
For the nine month period, selling and administrative costs increased
$1,887,000, or 13%, to $16,357,000 in 1995 versus $14,470,000 in 1994. The
Company continues to hire additional sales and marketing personnel to handle the
demand for the Company's products and services. As a percentage of revenue,
selling and administrative costs were 33% and 34% for the third quarter and year
to date periods in 1995 as compared to 35% and 37% 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 $6,119,000; increase in accounts receivable and unbilled
work was $2,871,000; capitalization of software products was $2,620,000;
depreciation and amortization, including software product amortization was
$3,027,000; principal payments on long term debt were $1,215,000; and, proceeds
from stock options exercised were $1,999,000. Cash and cash equivalents as of
September 30, 1995 were $16,748,000.
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 September 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 nine months 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 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 November 9, 1995 /s/ Mark R. Schonau
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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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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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