UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number: 0-15352
US SERVIS, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2467332
(Sate or other jurisdiction of (I.R.S. Employer or Identification Number)
incorporation of organization
414 Eagle Rock Avenue, West Orange, NJ 07052
(Address of Principal Executive Office) (Zip Code)
(201) 731-9252
(Registrant's telephone number, including area code)
(MICRO Healthsystems, Inc.)
(Registrant's Former Name)
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 Section 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 _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
At February 8, 1996, the registrant had outstanding 6,296,137 outstanding shares
of Common Stock, $0.01 par value.
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
Page No.
PART I - FINANCIAL INFORMATION 1
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND
MARCH 31, 1995 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE AND
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED DECEMBER 31, 1995 AND 1994 5,6
NOTES TO CONSOLIDATED FINANCIAL STATEMENT 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
PART II - OTHER INFORMATION 14-16
SIGNATURES 17
EXHIBIT INDEX 18-21
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
1. Consolidated Financial Statements as at December 31, 1995
The consolidated balance sheet as of March 31, 1995 has been derived
from the audited Consolidated Balance Sheet contained in the Company's
Form 10-K and is presented for comparative purposes. Certain items have
been reclassified to conform to the current presentation. The
accompanying consolidated financial statements presume that users have
read the audited consolidated financial statements of the preceding
fiscal year. Accordingly, footnotes which would have substantially
duplicated such disclosures have been omitted.
The interim consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement
of the results for interim periods presented. Such interim adjustments
consist solely of normal recurring adjustments. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
1
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December 31, March 31,
1995 1995
------------------------------------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and equivalents $7,330,000 $4,121,000
Accounts receivable, less allowance for doubtful
accounts of $476,000 and $206,000 3,059,000 2,867,000
Current maturities of notes receivable 185,000 324,000
Inventories 6,000 18,000
Prepaid and refundable income taxes 2,029,000 2,000,000
Deferred income taxes 264,000 1,014,000
Prepaid expenses and other current assets 741,000 448,000
------------------ -----------------
Total Current Assets 13,614,000 10,792,000
------------------ -----------------
PROPERTY AND EQUIPMENT 986,000 1,235,000
------------------ -----------------
OTHER ASSETS:
Long-term maturities of notes receivable - 143,000
Software technology:
Purchased, less accumulated amortization of
$32,000 at December 31, 1995 143,000 50,000
Developed, less accumulated amortization
of $233,000 and $163,000 169,000 239,000
Goodwill, less accumulated amortization of
$266,000 and $193,000 3,679,000 3,552,000
Deferred income taxes 72,000 72,000
Other 280,000 29,000
------------------ -----------------
Total Other Assets 4,343,000 4,085,000
------------------ -----------------
$18,943,000 $16,112,000
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $398,000 $530,000
Accrued payroll 359,000 567,000
Accrued restructuring charges 1,212,000 1,664,000
Other accrued expenses 1,239,000 852,000
Deferred income 284,000 651,000
Customers' deposits 105,000 121,000
Other current liabilities 267,000 50,000
------------------ -----------------
Total Current Liabilities 3,864,000 4,435,000
------------------ -----------------
ACCRUED RESTRUCTURING CHARGES 836,000 1,770,000
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Convertible Redeemable Preferred Stock,
par value $0.01 per share, 10,000,000 shares
authorized, 1,500,000 issued and outstanding
(Liquidation preference $6,107,000) 5,982,000 -
------------------ -----------------
SHAREHOLDERS' EQUITY:
Common stock $.01 par value; 30,000,000 shares
authorized; 6,312,000 and 6,257,000 shares issued 63,000 63,000
Capital in excess of par value 14,847,000 14,664,000
Unearned compensation (252,000) (742,000)
Retained earnings (deficit) (5,011,000) (2,654,000)
Subscription receivable (140,000) (140,000)
Note receivable - related party (1,187,000) (1,225,000)
------------------ -----------------
8,320,000 9,966,000
Less Treasury Stock at cost: 15,700 shares 59,000 59,000
------------------ -----------------
Total Shareholders' Equity 8,261,000 9,907,000
------------------ -----------------
$18,943,000 $16,112,000
================== =================
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <C>
NINE MONTHS ENDED
DECEMBER 31,
-----------------------------------
1995 1994
------------ -------------
REVENUES 12,183,000 11,976,000
------------ -------------
EXPENSES:
Salaries, wages and benefits 9,163,000 9,015,000
Other selling, general and administrative 6,559,000 5,452,000
Depreciation and amortization 476,000 929,000
Restructuring charges (gains) (589,000) 7,021,000
Interest expense 52,000 2,000
------------ ------------
Total expenses 15,661,000 22,419,000
------------ ------------
LOSS BEFORE INCOME TAXES (3,478,000) (10,443,000)
PROVISION (BENEFIT) FOR FEDERAL AND STATE INCOME TAXES (1,228,000) (3,215,000)
------------ ------------
NET LOSS (2,250,000) (7,228,000)
============ ============
NET LOSS PER COMMON SHARE (0.38) (1.21)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
COMMON SHARES OUTSTANDING 6,278,000 5,958,000
============ ============
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------------
1995 1994
----------- ------------
REVENUES 4,267,000 3,699,000
------------ ------------
EXPENSES:
Salaries, wages and benefits 3,079,000 3,068,000
Other selling, general and administrative 2,116,000 1,912,000
Depreciation and amortization 161,000 314,000
Restructuring charges (gains) 0 7,021,000
Interest expense 16,000 2,000
------------ ------------
Total expenses 5,372,000 12,317,000
------------ ------------
LOSS BEFORE INCOME TAXES (1,105,000) (8,618,000)
PROVISION (BENEFIT) FOR FEDERAL AND STATE INCOME TAXES (381,000) (2,422,000)
============ ============
NET LOSS (724,000) (6,196,000)
============ ============
NET LOSS PER COMMON SHARE (0.13) (1.01)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
6,296,000 6,133,000
------------ ------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL IN NOTE
COMMON STOCK EXCESS OF UNEARNED RETAINED SUBSCRIPTION RECEIVABLE - TREASURY
SHARES PAR VALUE PAR VALUE COMPENSATION EARNINGS RECEIVABLE RELATED PARTY STOCK
--------- -------- ---------- ----------- -------- ------------ ------------- -------
BALANCE, MARCH 31, 1995 6,257,000 63,000 14,664,000 (742,000) (2,654,000) (140,000) (1,225,000) 59,000
NINE MONTHS ENDED
DECEMBER 31, 1995:
Amortization of officer
stock compensation 490,000
Shares issued in accordance with
amended plan of merger 55,000 200,000
Cost of issuing additional shares (17,000)
Allowance for loan collateral impairment 38,000
Acretion equal to accrued dividends
on redeemable preferred stock (107,000)
Net Loss (2,250,000)
--------- ------ ---------- -------- ----------- --------- ---------- ------
BALANCE, DECEMBER 31, 1995 6,312,000 63,000 14,847,000 (252,000) (5,011,000) (140,000) (1,187,000) 59,000
--------- ------ ----------- --------- ----------- --------- ----------- ------
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (2,250,000) (7,228,000)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization of property and equipment 310,000 303,000
Amortization of software technology 86,000 546,000
Amortization of goodwill 73,000 71,000
Amortization of covertible preferred issue costs 5,000 -
Property, plant and equipment sold - 30,000
Provision for losses on accounts receivable 445,000 20,000
Deferred income taxes - (1,969,000)
Amortization of officer stock compensation 490,000 145,000
Allowance for impairment of related party note 38,000 201,000
Changes in operating assets and liabilities-
Write off assets in restructuring - 2,628,000
Accounts receivable (620,000) 527,000
Note and installment receivables 282,000 368,000
Inventories 12,000 (3,000)
Prepaid and refundable income taxes 721,000 (902,000)
Prepaid expenses and other current assets 45,000 33,000
Other assets (251,000) 9,000
Accounts payable (132,000) -
Accrued payroll (208,000) -
Other accrued expenses 387,000 (164,000)
Accrued restructuring (1,386,000) 3,998,000
Deferred income (408,000) 225,000
Income taxes payable - 53,000
Customer deposits and other current liabilities 215,000 58,000
Net cash flows from operating activities: (2,146,000) (1,051,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of treasury stock - (59,000)
Increase in software technology (125,000) (134,000)
Sale of equipment 293,000 82,000
Purchase of property and equipment (314,000) (580,000)
Net cash flows from investing activities (146,000) (691,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible preferred stock offering 6,000,000 -
Issue costs for convertible preferred stock (130,000) -
Payments of debt (14,000) (120,000)
Cost of listing additional shares (17,000) -
Loans to officers (338,000) -
Net cash flows from financing activities 5,501,000 (120,000)
NET CHANGE IN CASH AND EQUIVALENTS 3,209,000 (1,862,000)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 4,121,000 4,483,000
CASH AND EQUIVALENTS, END OF PERIOD 7,330,000 2,621,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(concluded)
<TABLE>
<S> <C> <C>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
SUPPLEMENTAL INFORMATION:
Interest paid 3,000 2,000
Income taxes paid (refunded) (1,949,000) -
Deferred gain on sale-leaseback 41,000 -
Purchase of treasury stock - 59,000
Value assigned to goodwill relating to shares of common
stock issued for prior year business acquisition 200,000 -
Transferred from deferred income taxes to prepaid and
refundable income taxes 750,000 -
Gross proceeds from issue of convertible preferred stock 6,000,000 -
Capitalized issue costs for convertible preferred stock 130,000 -
Acretion equal to accrued dividends on convertible
preferred stock 107,000 -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(UNAUDITED)
Note A - Basis of Presentation:
The consolidated financial statements include all the accounts of
US SERVIS, Inc. (f/k/a MICRO Healthsystems, Inc.) and its wholly-owned
subsidiaries (collectively, the "Company"). All significant intercompany
transactions have been eliminated.
Note B - Nature of Business:
The Company is a leading provider of business management services and
information management systems. The Company's primary markets are physicians,
physician delivery systems, ambulatory departments and at risk networks
associated with hospital driven integrated delivery systems. As part of its
business management services, the Company has traditionally provided on-site and
off-site personnel, billing and accounts receivable management services together
with information systems and systems integration services related to these
business activities. The Company is currently strengthening these areas and
expanding its services and information systems to include: financial and
administrative management, clinical information, systems support and management
and operational consulting services in critical areas such as at risk
contracting and contract management, revenue enhancement and re-engineering of
the billing and A/R management activities. The Company, through strategic
alliances, has expanded its information systems offerings to include managed
care and electronic medical records systems. The Company has also historically
been a provider of clinical information systems products and services for
various hospital inpatient departments. The Company will be phasing out of this
activity. (See Note C below)
Note C - Restructuring Charges
During fiscal 1995, the Company, under the direction of a new Chairman and CEO,
undertook a substantial restructuring of its business operations in an effort
to: refocus and redirect resources away from clinical, inpatient information
systems products and towards contract management, physician practice management,
ambulatory care and software integration business services; consolidate
operations; negotiate a termination of the employment agreement of the former
chairman; downsize, and sell underperforming assets. These actions resulted in a
$6.8 million, pre-tax, restructuring charge in fiscal 1995 and contributed
significantly to the Company's $8.1 million after tax net loss.
As the result of revised cost estimates for certain items included in the
original restructuring charge, the Company recorded a restructuring gain of
$589,000 for the nine months ended December 31, 1995. The components of the
restructuring gain were as follows:
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, 1995 December 31, 1995
<S> <C> <C>
Decrease in termination costs related to
former chairman $ - $148,000
Decrease in estimated facilities close
down costs 75,000 830,000
Decrease in estimated legal costs
associated with the restructuring 150,000 150,000
Increase in severance costs (225,000) (539,000)
Net restructuring gain $ - $589,000
The changes to the liabilities for accrued restructuring charges during the nine
months ended December 31, 1995, were as follows:
Current Long-Term
Balance, March 31, 1995 $1,664,000 $1,770,000
Payments (646,000) -
Transferred to allowance for doubtful
accounts and other current liabilities (200,000) -
Net restructuring gain - (589,000)
Interest on deferred charges 12,000 37,000
Transferred to current from long-term 382,000 (382,000)
Balance, December 31, 1995 $1,212,000 $836,000
</TABLE>
The Company expects the restructuring to be completed during the fiscal year
ending March 31, 1996, although payments of certain items - principally,
termination costs related to the former Chairman and selected severance costs,
will continue for several years.
Note D - Convertible Redeemable Preferred Stock
On October 12, 1995, the Company issued, through a private placement, (i)
1,500,000 shares of Series A Convertible Redeemable Preferred Stock, par value
$0.01 per share, (ii) warrants to purchase up to 390,000 shares of the Company's
Common Stock at an exercise price of $0.10 per share, and (iii) warrants to
purchase up to 198,000 shares of the Company's Common Stock at an exercise price
of $3.50 per share, for an aggregate purchase price of $6,000,000. All of the
$0.10 warrants are subject to cancellation by the Company under certain
circumstances.
As of December 31, 1995, the carrying value of the preferred stock has been
reduced by $125,000 of unamortized stock issue costs and increased by $107,000
of acretion equal to accrued dividends. Dividends on the preferred stock accrue
at a rate equal to 8% per annum, compounded quarterly. If not earlier paid,
preferred dividends are payable on i) redemption, ii) conversion or iii)
dissolution of the Company. If not previously converted, the Company is
obligated to redeem the preferred stock at a redemption price of $4.00 per share
plus accrued dividends in six equal semi-annual installments commencing on
October 12, 2000.
After October 12, 1996, the preferred stock is convertible at the option of the
holders into an equal number of common shares and under certain circumstances
the Company may require conversion. In the event of the Company's liquidation,
8
<PAGE>
the holders of the preferred stock are entitled to $4.00 per share plus all
accumulated and unpaid dividends.
Note E - Net Loss Per Common Share
The computation of fully diluted net loss per share was antidilutive in each of
applicable the periods presented; therefore no separate calculation of fully
diluted loss per share was reported. Net loss per common share was determined by
dividing net loss, as adjusted, by applicable shares outstanding. The loss was
adjusted by acretions equal to accrued dividends on the Company's preferred
stock in the amount of $107,000 for both the nine and three months ended
December, 31, 1995.
Note F - Subsequent Event
In December of 1995 the Company was notified that one of its business management
services contracts representing approximately 8% of the Company's revenues,
would not be renewed so that the client could pursue a plan to bring its
outpatient billing and accounts receivable activities in house. The Company
anticipates that revenues from this client will decline over the next ninety to
one hundred and eighty days as the December 1995 accounts receivable balance is
collected. The Company anticipates a modest reduction in manpower as the
contract winds down.
9
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
During October of 1994, the Company hired Mr. Graham O. King as its
Chairman and Chief Executive Officer. Mr. King was previously President
of Shared Medical Systems Corporation, the largest healthcare information
services company in the United States. Under Mr. King's leadership, the
Company developed a plan to:
Refocus on its expertise in business management services, proprietary
software, and proven ability to improve operating efficiency and cash flow
through performance based management agreements.
Recapitalize the Company in order to provide resources to expand through
internal growth and selected acquisitions.
Recruit new, experienced individuals to the Board of Directors and the
senior management team.
Expand and upgrade the Company's sales, marketing and customer service
departments and instill a "Commitment to Customer Service" mentality.
Build a sales and contract revenue backlog.
Develop a strategy with specific programs to strengthen employee morale
through education, better communications and the introduction of Total
Quality Management principles.
Downsize and divest under-performing assets.
During the first nine months of fiscal 1996, the Company has made progress in
the implementation of several elements of this plan.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1995 March 31, 1995
<S> <C> <C>
Total Current Assets $13,614,000 $10,792,000
Total Current Liabilities 3,864,000 4,435,000
Working Capital $9,750,000 $6,357,000
Working Capital Ratio to 1 3.5 2.4
</TABLE>
During the nine months ended December 31, 1995, Working Capital increased
$3,393,000 and Cash and Equivalents increased $3,209,000, primarily due to the
issuance of $6 million of preferred stock and an income tax refund of $1,949,000
offset by the loss sustained during the first nine months, payments made under
the Company's restructuring plan, a modest increase in accounts receivable and
modest investments in capital assets.
The Company expects that its cash position will decrease as a result of
continued operating losses and investments in capital assets.
10
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
REVENUES
<S> <C> <C>
Nine Months Ended December 31,
1995 1994
Hospital Services $5,783,000 $5,768,000
Physician Services 4,822,000 4,695,000
TPA Services 258,000 -
Clinical Systems 1,171,000 1,369,000
Interest and Other 149,000 144,000
$12,183,000 $11,976,000
</TABLE>
For the nine months ended December 31, 1995, the Company's revenues increased
$207,000 when compared to the same period in the prior fiscal year. Contributing
to this increase were increases in revenues of $127,000 from physician services
and $258,000 from TPA Services provided to MetroPlus Health Plan ("MetroPlus").
These increases were partially offset by a $198,000 decrease in revenues from
clinical services which, as discussed in the Company's annual report on Form
10-K, (Item 1 - Business - Company Overview) is a business activity that is
being phased out so that the Company can focus more intensely on providing
practice management services to physicians and contract management services to
hospitals.
<TABLE>
<S> <C> <C>
Three Months Ended December 31,
1995 1994
Hospital Services $1,832,000 $1,777,000
Physician Services 1,692,000 1,509,000
TPA Services 258,000
-
Clinical Systems 393,000 376,000
Interest and Other 92,000 37,000
$4,267,000 $3,699,000
</TABLE>
The Company's revenues increased $568,000 during the quarter ended December 31,
1995 as compared to the same quarter in the prior year. A majority of this
increase results from a $183,000 increase in revenues from physician services
and a $258,000 increase in revenues from TPA services relating to the MetroPlus
contract.
11
<PAGE>
EXPENSES
<TABLE>
<S> <C> <C>
Nine Months Ended December 31,
1995 1994
Salaries, wages and benefits $9,163,000 $9,015,000
Other selling, general and administrative 6,559,000 5,452,000
Depreciation and amortization 476,000 929,000
Restructuring charges (gain) (589,000) 7,021,000
Interest expense 52,000 2,000
15,661,000 $22,419,000
</TABLE>
Excluding the $7,610,000 change in restructuring charges (gain) (See Note C),
expenses for the nine months ended December 31, 1995, increased $852,000 as
compared to the same period in the prior fiscal year. The components of this
increase were salaries, wages and benefits ($148,000), other selling, general
and administrative expenses ($1,107,000) and interest expense ($50,000) offset
by a $453,000 decrease in depreciation and amortization. The $1,107,000 increase
in other selling, general and administrative expenses primarily resulted from a
$445,000 provision for losses on accounts receivable; increased marketing and
sales costs; recruiting expenses associated with several additions to the senior
management team; and higher legal, accounting and consulting fees. The decrease
in depreciation and amortization resulted from the write-offs of assets included
in the restructuring charge during fiscal 1995.
<TABLE>
<S> <C> <C>
Three Months Ended December 31,
1995 1994
Salaries, wages and benefits $3,079,000 $3,068,000
Other selling, general and administrative 2,116,000 1,912,000
Depreciation and amortization 161,000 314,000
Restructuring charges (gain) - 7,021,000
Interest expense 16,000 2,000
$5,372,000 $12,317,000
</TABLE>
Excluding the $7,021,000 restructuring charges (See Note C), expenses for the
three months ended December 31, 1995, increased $76,000 as compared to the same
period in the prior fiscal year. The components of this increase were salaries,
wages and benefits ($11,000), other selling, general and administrative expenses
($204,000) and interest expense ($14,000) offset by a $153,000 decrease in
depreciation and amortization. The $204,000 increase in other selling, general
and administrative expenses primarily resulted from increased marketing and
sales costs; recruiting expenses associated with several additions to the senior
management team and higher legal, accounting and consulting fees. The decrease
in depreciation and amortization resulted from the write-offs of assets included
in the restructuring charge during fiscal 1995.
12
<PAGE>
NET LOSS
For the nine months ended December 31, 1995, the Company reported a net loss of
$2,250,000 or $.38 per common share compared to a net loss of $7,228,000 or
$1.21 per common share during the same period last year.
For the quarter ended December 31, 1995, the Company reported a net loss of
$724,000 or $.13 per common share compared to a net loss of $6,196,000 or $1.01
per common share during the same quarter last year.
13
<PAGE>
PART II -OTHER INFORMATION
Item 1 - Litigation
The Company has no material litigation pending.
Item 2 - Changes in Securities
On October 11, 1995, the Company amended and restated its
Certificate of Incorporation to increase the number of authorized shares to
40,000,000 shares from 10,000,000 shares, including an increase in the
authorized shares of Common Stock, par value $.01 per share ("Common Stock"), to
30,000,000 shares from 10,000,000 shares, and the establishment of a class of
10,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock").
The Amended and Restated Certificate of Incorporation
authorizes the Board of Directors to provide for the issuance of the Preferred
Stock in series, to establish the number of shares to be included in each such
series and the designations, preferences and relative, participating, optional,
conversion or other special rights, and qualifications, limitations or
restrictions, of such shares. Classes or series of shares of Preferred Stock
could be given voting and conversion rights which could dilute the voting power
and equity of holders of Common Stock and could have preference over the Common
Stock with respect to dividends and liquidation rights. The existence of
authorized but unissued and unreserved shares of Common Stock and shares of
Preferred Stock of the Company may enable the Board of Directors to issue shares
to third parties which could render more difficult or discourage an attempt to
obtain control of the Company by means of a merger, tender offer, proxy contest
or otherwise.
On October 12, 1995, the Company, pursuant to the terms of a
certain Series A Convertible Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement"), by and among Frontenac VI Limited Partnership ("Frontenac
VI"), a trust established for the benefit of the descendents of Robert E. King
and Morgan Holland Fund II, L.P. (collectively, the "Purchasers") and the
Company, sold to the Purchasers, through a private placement, (i) 1,500,000
shares of Series A Convertible Preferred Stock, par value $0.01 per share (the
"Series A Convertible Preferred Shares"), warrants to purchase up to 390,000
shares of the Company's Common Stock at an exercise price of $0.10 per share and
warrants to purchase up to 198,000 shares of the Common Stock at an exercise
price of $3.50 per share for an aggregate purchase price of $6,000,000.
Pursuant to the terms of the Purchase Agreement and the
Certificate of Designation filed to establish the terms of the Series A
Convertible Preferred Shares (i) so long as any Series A Convertible Preferred
Shares remain outstanding, without the consent of holders of a majority of the
Series A Convertible Preferred Shares then outstanding, the Company is not
permitted to redeem, purchase or otherwise acquire directly or indirectly any
junior securities, nor is the Company permitted to directly or indirectly pay or
declare any dividend or make any distribution upon any junior securities, until
all accumulated dividends on the Series A Convertible Preferred Shares are paid;
(ii) upon any liquidation, dissolution or winding up of the Company, each holder
of Series A Convertible Preferred Shares will be entitled to be paid, before any
distribution or payment is made upon any of the Company's equity securities that
rank junior to the Series A Convertible Preferred Shares (including shares of
Common Stock), a preferred liquidation amount in cash, plus all accrued and
unpaid dividends; (iii) so long as at least 300,000 Series A Convertible
Preferred Shares are outstanding and so long as Frontenac VI holds a majority of
such Series A Convertible Preferred Shares, the holders of the
14
<PAGE>
PART II - OTHER INFORMATION - CONTINUED
Series A Convertible Preferred Shares, voting as a single class, shall be
entitled to elect one member of the Company's Board of Directors, and the
director elected by the holders of Series A Convertible Preferred Shares shall
be designated a member of the Executive Committee or an equivalent committee of
the Board of Directors; (iv) the Board of Directors shall not at any time
consist of more than twelve (12) members without the approval of the director
elected by the Series A Convertible Preferred Shares; and (v) as long as at
least 300,000 Series A Convertible Preferred Shares remain outstanding, without
the consent of the holders of a majority of the Series A Convertible Preferred
Shares, the Company will not be permitted to alter or change the rights,
preferences or privileges of the Series A Convertible Preferred Shares with
respect to payment or dividends or the distribution of assets upon liquidation.
A complete description of the Amended and Restated Certificate
of Incorporation, the Purchase Agreement and the Certificate of Designation
establishing the term of the Series A Convertible Preferred Shares is included
in the definitive Proxy Statement for the 1995 Annual Meeting of stockholders of
the Company, and is incorporated herein by reference.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholder on October 10, 1995. At the
annual meeting, the following matters were submitted to a vote of the
stockholders:
a) The stockholders approved a proposal to amend and restate the
Company's Certificate of Incorporation to increase the authorized
common stock of the Company, $.01 par value per share, from
10,000,000 to 30,000,000 shares, and to authorize 10,000,000 shares
of preferred stock of the Company, par value $.01 per share. This
proposal was approved with 3,677,423 shares voted for, 135,697
shares voted against and 25,842 shares abstaining.
b) The stockholders approved a proposal to change the name of the
Company from "Micro Healthsystems, Inc." To "US Servis, Inc." This
proposal was approved with 3,223,316 shares voted for, 100,429
shares voted against and 515,154 shares abstaining.
c) The stockholders approved the issuance in a private sale of units
consisting of (i) 1,500,000 shares of the Company's Series A
Convertible Preferred Stock, (ii) warrants to purchase 390,000
shares of the Company's Common Stock at $0.10 per share and (iii)
warrants to purchase 198,000 shares of the Company's Common Stock
at $3.50 per share, for an aggregate consideration of $6,000,000.
This proposal was approved with 3,667,022 shares voted for, 143,694
shares voted against and 18,246 shares abstaining.
15
<PAGE>
PART II - OTHER INFORMATION - CONTINUED
d) The stockholders elected the following eight directors to serve
until the 1996 Annual Meeting of the stockholders of the Company:
Graham O. King, Robert E. King, S.M. Caravetta, James A. Pesce,
Stanford J. Goldblatt, Robert C. Bowers, Frederick R. Blume,
James E. Cowie. Each director was elected with a minimum of
3,768,090 shares voted for,and a maximum of 70,872 shares withheld.
e) The stockholders approved a plan to restructure the Company into a
holding company by transferring certain assets of subsidiaries to
the Company and merging certain other subsidiaries. This proposal
was approved with 3,714,795 shares voted for, 110,727 shares voted
against and 13,440 shares abstaining.
A complete description of each of the matters voted on at the
Annual Meeting is included in the definitive Proxy Statement for the Annual
Meeting, and is incorporated herein by reference.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: the exhibits required by Item 601 of
Regulation S-K and filed herewith are listed in the
Exhibit Index that follows the signature page.
(b) Reports on Form 8-K; No report on Form 8-K was file
during the first six months of the fiscal year ending
March 31, 1996.
16
<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.
US SERVIS, INC.
(Registrant)
<TABLE>
<S> <C> <C>
Date: February 8, 1996 By: __________________________________ (L.S.)
Graham O. King
Chairman of the Board and
Chief Executive Officer
Date: February 8, 1996 By: ___________________________________ (L.S.)
Michael B. Loscalzo
Principal Accounting Officer and
Chief Financial Officer
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C>
EXHIBIT INDEX
Exhibit No. Description Page
3(1) By-Laws. (I) *
3(2) Amended and Restated Certificate of Incorporation of the Registrant. (XVII) *
3(3) Certificate of Designation Relating to the Series A Convertible Preferred Stock *
of the Registrant. (XVII)
4(1) Form of warrant to purchase in the aggregate up to 390,000 shares of the *
Registrant's Common Stock at an exercise price of $0.10 per share, such warrants
issued October 12, 1995. (XV)
4(2) Form of warrant to purchase in the aggregate up to 198,000 shares of the *
Registrant's Common Stock at an exercise price of $3.50 per share, such warrants
issued October 12, 1995. (XV)
10(1) Lease date March 31, 1986, between Skyline Associates, Inc. And Digital Equipment *
Corporation relating to the premises located at 414 Eagle Rock Avenue, West
Orange, New Jersey. (I)
10(2) 1986 Stock Option Agreement. (I) *
10(3) Service Agreement between the Registrant and Digital Equipment Corporation. (I) *
10(4) Non-qualified Stock Option Agreement between the Registrant and S.M. Caravetta, *
dated February 10, 1990 and expiring February, 1995. (III)
10(5) License Agreement between the Registrant and North County Computer Services, Inc. *
(III)
10(6) Distribution/Sales Representation Agreement by and between Baxter Healthcare *
Corporation and MedTake Corp., dated as of October 1, 1990. (IV)
10(7) Letter Agreement by and among MedTake Corp., the Registrant, Salvatore M. *
Caravetta and Baxter Healthcare Corporation, dated as of October 1, 1990. (IV)
10(8) Guaranty of the Registrant in favor of Baxter Healthcare Corporation, dated as of *
October 1, 1990. (IV)
10(9) Complimentary Marketing Agreement between International Business Machines *
Corporation and the Registrant. (V)
10(10) Service Agreements between Digital Equipment Corporation and the Registrant. (V) *
10(11) Asset Purchase Agreement and Plan of Reorganization by and among Administrative *
Information Systems Corporation, the Registrant and Receivables Management Corp.,
dated as of June 14, 1991. (VI)
10(12) Registration Rights Agreement by and between the Registrant and Administrative *
Information Systems, Inc. (Misnamed in said document as "Administrative
Information Services Corporation"), dated June 14, 1991. (VI)
10(13) Employment Agreement among Receivables Management Corp. (Renamed AISCorp.), the *
Registrant and Stephen G. Sullivan, dated as of June 14, 1991. (VI)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
10(14) Option Registration Rights Agreement by and Between the Registrant and Stephen G. *
Sullivan, dated June 14, 1991. (IV)
10(15) Employment Contract between the Registrant and S.M. Caravetta. (VII) *
10(16) Employment Contract between the Registrant and James A. Pesce. (VII) *
10(17) Agreement and Plan of Merger with Exhibits by and among the Registrant, Vanco *
Business Management, Inc. And David K. Vanco, dated as of December 31, 1992. (VIII)
10(18) Employment Agreement, dated as of January 1, 1993, between Management-Data Service, *
Inc., the Registrant and David K. Vanco. (VIII)
10(19) Registration Rights Agreement between David K. Vanco and the Registrant, dated as *
of December 31, 1992. (VIII)
10(20) Guaranty dated March 5, 1993, given by the Registrant to Harris Bank Roselle *
relating to loans to David K. Vanco. (VIII)
10(21) Letter agreement between David K. Vanco and the Registrant, dated March 5, 1993, *
relating to the guaranty of notes, from David K. Vanco to Harris Bank Roselle.
(VIII)
10(22) Agreement of Merger with ACT/PC, dated September 15, 1993, amended November 12, *
1993. (X)
10(23) Term Loan Agreement, dated as of December 13, 1993, between Stephen G. Sullivan and *
Registrant. (X)
10(24) Guarantee Modification Agreement, dated as of December 13, 1993, between Stephen G. *
Sullivan and the Registrant. (X)
10(25) Escrow Agreement, dated as of December 13, 1993, between Stephen G. Sullivan, *
Registrant and Crummy Del Deo Dolan Griffinger & Vecchione. (X)
10(26) Termination Agreement relating to the Baxter Distribution/Sales Representation *
Agreement, dated December 17, 1993. (X)
10(27) Amendment to Agreement and Plan of Merger between the Registrant and *
Management-Data Services, Inc., dated April 8, 1994. (XI)
10(28) Amendment to Employment Agreement between David K. Vanco and the Registrant, dated *
April 8, 1994. (XI)
10(29) Employment Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
10(30) Option Agreement, dated as of October 12, 1994, between the Registrant and Graham *
O. King. (XII)
10(31) Registration Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
10(32) Stockholder Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
10(33) S.M. Caravetta Termination Agreement between S.M. Caravetta and the Registrant, *
dated as of October 12, 1994, as amended. (XII)
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
10(34) Letter of Intent, dated June 26, 1995, between the Registrant and Frontenac VI *
Limited Partnership. (XIV)
10(35) Registrant's Amended 1993 Stock Option Plan. (XIV) *
10(36) Registrant's Amended 1994 Stock Option Plan for Non-Employee Directors. (XIV) *
10(37) Series A Convertible Preferred Stock and Warrant Purchase Agreement, dated July 18, *
1995, by and among the Registrant, a trust established for the benefit of
descendents of Robert E. King, Frontenac VI Limited Partnership and Morgan Holland
Fund II, L.P. (XV)
10(38) Promissory Note of Graham O. King, dated June 14, 1995, payable to the Company. (XVI) *
10(39) First and Second Amendments to Series A Convertible Preferred Stock and Warrant *
Purchase Agreements dated July 31, 1995 and October 10, 1995, respectively.
10(40) Registration Agreement, dated October 12, 1995, by and among the Registrant, a trust *
established for the benefit of the descendants of Robert E. King, Frontenac VI
Limited Partnership and Morgan Holland Fund II, L.P. (XV)
20
<PAGE>
NOTES TO EXHIBIT INDEX
Note No. Description
(I) Incorporated by reference from the Form S-18 Registration
Statement of the Registrant, dated June 10, 1986.
(II) Incorporated by reference from Amendment No. 1, dated September 6, 1986, to the Form S-18 Registration
Statement of the Registration
(III) Incorporated by reference from the Registrant's Form 10-K, dated
June 18, 1990.
(IV) Incorporated by reference from the Registrant's Form 8-K, dated
October 1, 1990.
(V) Incorporated by reference from the Registrant's Form S-3, Registration No. 33-39062, dated April 11,
1991.
(VI) Incorporated by reference from the Registrant's form 8-K, dated
June 18, 1991.
(VII) Incorporated by reference from the Registrant's Form 10-K, dated
June 28, 1991.
(VIII) Incorporated by reference from the Registrant's Form 8-K, dated
March 9, 1993.
(IX) Incorporated by reference from the Registrant's Form 8-K, dated
September 15, 1993.
(X) Incorporated by reference from the Registrant's Form 8-K, dated
December 28, 1993.
(XI) Incorporated by reference from the Registrant's Form 8-K, dated
April 15, 1994.
(XII) Incorporated by reference from the Registrant's Form 8-K, dated
November 1, 1994.
(XIII) Incorporated by reference from the Registrant's Form 10-Q, dated
November 11, 1994.
(XIV) Incorporated by reference from the Registrant's Form 10-K, dated
June 26, 1995.
(XV) Incorporated by reference from the Registrant's Form 10-K/A, dated
July 24, 1995.
(XVI) Incorporated by reference from the Registrant's Form 10-Q, dated
August 10, 1995.
(XVII) Incorporated by reference from the Registrant's Form 10-Q, dated November 10, 1995
21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795965
<NAME> US Servis, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,330,000
<SECURITIES> 0
<RECEIVABLES> 3,535,000
<ALLOWANCES> 476,000
<INVENTORY> 6,000
<CURRENT-ASSETS> 13,614,000
<PP&E> 3,378,602
<DEPRECIATION> 2,392,933
<TOTAL-ASSETS> 18,943,000
<CURRENT-LIABILITIES> 3,864,000
<BONDS> 0
5,982,000
0
<COMMON> 63,000
<OTHER-SE> 8,198,000
<TOTAL-LIABILITY-AND-EQUITY> 18,943,000
<SALES> 0
<TOTAL-REVENUES> 4,267,000
<CGS> 0
<TOTAL-COSTS> 5,356,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,000
<INCOME-PRETAX> (1,105,000)
<INCOME-TAX> (381,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (724,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
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