UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission File Number: 33-15370-D
-----------
CUSA Technologies, Inc.
------------------------------------------------------------
(Exact name of the registrant as specified in charter)
Nevada 87-0439511
--------------------------- -------------------------------
State of Incorporation IRS Identification Number
986 West Atherton Drive, Salt Lake City, Utah 84123
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(Address of principal executive offices)
(801) 263-1840
-----------------------------------------------------------
(Telephone of registrant including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the Issuer 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 ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer 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 court.
Yes _______ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 17, 1998 the Issuer had 15,289,437 shares of its common stock,
par value $0.001 per share, issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CUSA Technologies, Inc. (the "Company"), has included the consolidated balance
sheets of the Company and its subsidiaries as of December 31, 1997 (unaudited)
and June 30, 1997 (the end of the Company's most recent fiscal year), the
unaudited consolidated statements of operations and cash flows for the six
months ended December 31, 1998 and 1997 and the unaudited consolidated
statements of operations for the three months ended December 31, 1998 and 1997
together with unaudited condensed notes thereto.
In the opinion of management of the Company, the financial statements reflect
all adjustments, all of which are normal recurring adjustments, necessary to
fairly present the financial condition of the Company for the interim periods
presented. The financial statements included in this report on Form 10-Q should
be read in conjunction with the audited financial statements of the Company and
the notes thereto included in the annual report of the Company on form 10-K for
the year ended June 30, 1997.
<PAGE>
<TABLE>
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
<CAPTION>
(Unaudited)
December 31, June 30,
1997 1997
----------- -----------
Assets
------
<S> <C> <C>
Current Assets:
Cash $ 1,490,169 2,861,994
Trade accounts receivable, net of allowance for
doubtful accounts 4,391,475 2,489,176
Inventories 661,576 370,479
Prepaid expenses and other assets 308,517 313,991
Net assets of discontinued operations 573,745 --
----------- -----------
Total current assets 7,425,482 6,035,640
Property and equipment :
Buildings and improvements 134,836 134,836
Furniture, fixtures and equipment 2,303,698 2,332,357
Other 776,355 721,450
----------- -----------
Total property and equipment 3,214,889 3,188,643
Less accumulated depreciation and amortization 1,781,617 1,528,951
----------- -----------
Net property and equipment 1,433,272 1,659,692
Equipment under capital lease obligations, net 216,860 259,255
Receivables from related parties 54,369 52,440
Software development and acquisition costs, net 1,945,410 1,659,398
Other assets 48,814 73,047
=========== ===========
$11,124,207 9,739,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
<CAPTION>
(Unaudited)
December 31, June 30,
1997 1997
------------------- --------------------
Liabilities and Stockholders' Deficit
-------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ -- 29,367
Current installments of obligations under capital leases 142,326 163,148
Accounts payable 1,543,882 1,760,421
Accrued liabilities 1,053,232 1,698,865
Customer deposits 2,689,226 1,622,469
Income taxes payable 350,597 485,480
Net liabilities of discontinued operations -- 304,464
Deferred revenue 5,982,291 5,506,377
------------------- --------------------
Total current liabilities 11,761,554 11,570,591
Obligations under capital leases, excluding current installments 58,505 118,241
------------------- --------------------
Total liabilities 11,820,059 11,688,832
Commitments and contingent liabilities -- --
Stockholders' deficit:
Series A convertible preferred stock, $.001 par value;
authorized 1,500,000 shares; issued and outstanding 1,000,000 shares 1,000 1,000
Common stock, $.001 par value; authorized 25,000,000 shares;
issued and outstanding 15,289,437 shares at December 31, 1997 and
June 30, 1997 15,289 15,289
Additional paid-in capital 16,347,576 16,347,576
Accumulated deficit (17,059,717) (18,313,225)
------------------- --------------------
Total stockholders' deficit (695,852) (1,949,360)
------------------- --------------------
$ 11,124,207 9,739,472
=================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------------------- ------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net revenues:
Hardware and software sales $ 2,830,642 2,611,661 5,324,093 4,297,460
Support, maintenance and other services 4,173,873 4,380,825 8,258,944 8,366,926
----------------- ----------------- ----------------- -----------------
Total revenues 7,004,515 6,992,486 13,583,037 12,664,386
----------------- ----------------- ----------------- -----------------
Cost of goods sold and other direct costs:
Hardware and software 1,023,244 1,041,112 1,992,630 1,752,666
Support, maintenance and other services 2,576,465 2,729,117 5,233,417 5,370,375
----------------- ----------------- ----------------- -----------------
Total cost of goods sold and other direct costs 3,599,709 3,770,229 7,226,047 7,123,041
----------------- ----------------- ----------------- -----------------
Gross profit 3,404,806 3,222,257 6,356,990 5,541,345
Product development costs 622,087 592,239 1,313,240 1,087,728
Selling, general and administrative expenses 1,971,292 2,429,194 3,777,568 4,981,502
----------------- ----------------- ----------------- -----------------
Operating income (loss) 811,427 200,824 1,266,182 (527,885)
Other income (expense):
Interest income (expense), net 60,759 (51,196) 47,089 (151,934)
Other, net (41,258) 5,931 (11,364) (637)
----------------- ----------------- ----------------- -----------------
Income (loss) from continuing operations
before income taxes 830,928 155,559 1,301,907 (680,456)
Income tax expense - - - -
----------------- ----------------- ----------------- -----------------
Income (loss) from continuing operations 830,928 155,559 1,301,907 (680,456)
Loss from discontinued operations, net of income taxes - (32,920) - (143,379)
Income (loss) from disposal of discontinued operations,
net of income taxes 8,262 (78,455) 11,601 (160,176)
================= ================= ================= =================
Net Income (loss) $ 839,190 44,184 1,313,508 (984,011)
================= ================= ================= =================
Income (loss) per common and common equivalent share:
Basic earnings per share
Continuing operations $ 0.05 0.01 0.08 (0.08)
Discontinued operations $ 0.00 (0.01) 0.00 (0.03)
Net Income (loss) $ 0.05 0.00 0.09 (0.11)
Diluted earnings per share
From continuing operations $ 0.05 0.01 0.08 (0.08)
From discontinued operations $ 0.00 (0.01) 0.00 (0.03)
Net Income (loss) $ 0.05 0.00 0.08 (0.11)
Weighted average common and common equivalent shares:
Basic 15,289,437 8,917,718 15,289,437 8,917,718
Diluted 16,289,437 9,917,718 16,289,437 8,917,718
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended December 31,
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 1,301,907 (680,456)
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities:
Depreciation and amortization 599,369 681,142
Provision for doubtful accounts (86,854) (7,710)
Loss on sale of fixed assets 11,364 --
Net change in current assets and liabilities:
Trade accounts receivable (1,815,445) (2,096,482)
Inventories (291,097) (89,045)
Prepaids expenses and other assets 5,474 (30,919)
Accounts payable and accrued liabilities (924,102) (2,208,019)
Customer deposits 1,066,757 1,812,035
Income taxes payable (134,882) (5,441)
Deferred revenue 475,914 1,041,307
----------------- -----------------
Net cash provided by (used in) continuing operating activities 208,405 (1,583,588)
Net cash used in discontinued operations (883,279) (2,044,432)
----------------- -----------------
Net cash used in operating activities (674,874) (3,628,020)
Cash flows from investing activities:
Software development costs (538,470) (221,119)
Capital expenditures (97,406) (260,374)
Advances to related parties -- (102,546)
Proceeds from the sale of fixed assets 7,946 --
Decrease (increase) in other assets 24,233 (9,941)
Net cash provided by investing activities of discontinued operations 16,671 7,700,000
----------------- -----------------
Net cash provided by (used in) investing activities (587,026) 7,106,020
Cash flows from financing activities:
Repayments of obligations under capital leases (80,558) (79,694)
Net borrowings under lines of credit -- (662,005)
Repayment of long-term debt with related parties -- (1,167,398)
Preferred dividend distributions -- (60,000)
Repayments of long-term debt (29,367) (824,722)
Net cash used in financing activities of discontinued operations -- (155,128)
----------------- -----------------
Net cash used in financing activities (109,925) (2,948,947)
Net increase (decrease) in cash (1,371,825) 529,053
Cash at the beginning of the period 2,861,994 583,080
----------------- -----------------
Cash at the end of the period $ 1,490,169 1,112,133
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
- -------------------------
The accompanying unaudited consolidated financial statements of CUSA
Technologies, Inc. (the Company) 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, these
financial statements do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. These financial statements and footnote disclosures should
be read in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's latest report on Form 10-K for the
year ended June 30, 1997. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to fairly present the Company's
consolidated financial position as of December 31, 1997 and its consolidated
results of operations and cash flows for the six months ended December 31, 1997
and 1996. The results of operations for the three and six months ended December
31, 1997 may not be indicative of the results that may be expected for the year
ending June 30, 1998.
(2) Liquidity
- -------------
During the six months ended December 31, 1997, the Company had income from
continuing operations of $1,301,907, income from the disposal of discontinued
operations of $11,601, and used cash in operating activities of $674,874,
including cash used in discontinued operations of $883,279. During the
six-months ending December 31, 1997, the accrued liabilities of discontinued
operations were substantially reduced through cash settlements. These cash
settlements have reduced the uncertainty surrounding estimates of accrued
contingent obligations associated with discontinued operations. At December 31,
1997 the net assets of discontinued operations were $573,745 compared to net
liabilities of discontinued operations of $304,464 at June 30, 1997,
representing a net decrease in the accrued liabilities of discontinued
operations of $878,209 during the six months ended December 31, 1997.
At December 31, 1997 the Company had a stockholders' deficit of $695,852. During
fiscal 1997, management implemented a plan to return the Company to profitable
operations and a positive cash flow through focusing operations and resources on
the credit union software business. Although the Company has a stockholders'
deficit at December 31, 1997 and used cash from operations in the six months
ended December 31, 1997, in the opinion of management the Company will meet its
operating and debt cash requirements, at least through the next twelve months.
The Company is subject to many uncertainties over which management has limited
control, any one of which could adversely affect the Company's operating cash
flows, and thus create cash flow problems for the Company.
<PAGE>
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(3) Discontinued Operations
- ---------------------------
As part of an overall business plan, the Board of Directors and management
decided to concentrate the Company's business activities on the credit union
business. Consequently, the following divisions have been discontinued:
(a) Medical and Commercial Software Divisions
---------------------------------------------
In June 1996, the Board of Directors of the Company committed to
dispose of the business and assets of the medical and commercial
software divisions. On July 2, 1996, the Company entered into an asset
purchase agreement with Physician Computer Network, Inc. (PCN) whereby
PCN agreed to acquire substantially all of the assets and assume
certain liabilities of the medical and commercial software divisions.
In June 1996, upon adoption of the plan to dispose of the medical and
commercial software divisions, the Company recorded a provision for the
estimated loss on the disposal of the divisions in the amount of
$2,494,451. The provision related to the expected loss on the sale to
PCN (net of disposal costs), severance benefits to division employees,
certain occupancy costs under non-cancelable leases, and anticipated
future losses related to assets and operations not sold to PCN until
their ultimate disposition. The reported loss provision was based on
certain management estimates and assumptions. In the past, actual
results have differed from the estimated loss provision originally
recorded, however management believes that all material contingencies
related to the discontinued operations have been adequately accrued at
December 31, 1997.. As estimates and assumptions are adjusted or as
actual results occur, the loss provision is adjusted and accordingly,
is reported in the current period as additional gain or loss on the
disposal of discontinued operations. During the three and six month
periods ended December 31, 1997 no additional losses related to the
medical or commercial software divisions were recorded. During the
three and six month periods ended December 31, 1996, the Company
recorded additional losses on the disposal of the divisions in the
amount of $78,455 and $160,176, respectively.
(b) Rental Software and Real-estate Rental Divisions
----------------------------------------------------
In March of 1997, the Board of Directors of the Company committed to
dispose of the business and assets of the equipment rental software and
real estate rental divisions. In the accompanying consolidated
statements of operations, net losses from these divisions for the three
and six month periods ending December 31, 1996 were reclassified from
continuing operations to discontinued operations to be consistent with
the December 31, 1997 presentation. All assets and liabilities from
these divisions were disposed of prior to June 30, 1997. At December
31, 1997, there were $459,193 in notes and other receivables related to
the sale of the equipment rental software division which are included
in the net assets of discontinued operations.
(c) Surgery Centers
-------------------
Since March of 1997, the Company has been searching for a buyer for
it's surgery center business. In June of 1997, the Board of Directors
of the Company committed to dispose of the business and assets of the
Ford Center for Foot Surgery, Inc. and the Bean Center for Foot
Surgery, Inc. (Surgery Centers). As of October 1, 1997 the Company sold
the assets related to the Surgery Centers to an entity owned by the
Chief Executive Officer, majority shareholder and chairman of the
board, and two shareholders of the Company, one of whom is also a
member of the board (the Surgery Center Purchasers). The assets were
sold for $450,000, represented by two promissory notes secured by
400,000 shares of the Company's common stock. The notes carry an
interest rate of eight percent. On December 31, 1997, the Company sold
100% of the common stock of the Surgery Centers to the Surgery Center
Purchasers for $10,000. As of December 31, 1997, the Company had a
$460,000 receivable, which has been included in the net assets of
discontinued operations.
<PAGE>
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
During the three months ended December 31, 1997, the Company recorded
an $8,262 gain from the sale of the Surgery Centers. The gain, combined
with $3,339 of net income from the operations of the discontinued
Surgery Centers during the three months ending September 30, 1997,
amounts to $11,601 of income from disposal of discontinued operations
for the six-months ended December 31, 1997. During the three and six
month periods ending December 31, 1996, the Company recorded income
from the surgery centers of $34,110 and $55,868, respectively, which is
included in the loss from discontinued operations, net of income taxes.
Summary operating results of discontinued operations for the medical,
commercial, and equipment rental software, the real estate rental, and the
surgery center divisions for the three and six month periods ending
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
------------------- -----------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 0 587,505 77,553 1,136,091
Gross Profit 0 306,360 10,630 561,266
Income/(loss) before income taxes 0 (111,375) 3,339 (303,555)
Income tax benefit 0 0 0 0
---------- ---------- ---------- ----------
Income/(loss) from discontinued
operations $ 8,262 (111,375) 11,601 (303,555)
---------- ---------- ---------- ----------
</TABLE>
The remaining assets and liabilities related to the discontinued operations have
been separately classified on the balance sheets as net assets (or net
liabilities) of discontinued operations. At December 31, 1997, the net assets of
discontinued operations totaled $573,745, consisting of $919,193 in receivables
from the purchasers of the various discontinued operations less accrued
liabilities related to the closure of the medical and commercial software
divisions of $345,448.
<PAGE>
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(4) Income (loss) per Share
- ---------------------------
Basic earnings per share (Basic EPS) is computed by dividing net income (loss)
available to common shareholders by the weighted average common shares
outstanding during the period. Net Income (loss) used in this calculation is
reduced (loss is increased) by the dividends paid to preferred stockholders.
During each of the three month periods ending December 31, the preferred
dividends paid were $30,000. During each of the six month periods ending
December 31, the preferred dividends paid were $60,000. Diluted earnings per
share (Diluted EPS) is computed by dividing net income (loss) available to
common shareholders by the weighted average common shares outstanding during the
period as adjusted for dilutive potential common shares.
(5) Contingent Liabilities
- --------------------------
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, such matters will not
have a material effect on the financial position or results of operations of the
Company.
(6) Merger
- ----------
On November 4, 1997 the Company announced the execution of a definitive
Agreement and Plan of Merger, which provides for the acquisition of the Company
by Fiserv, Inc. (Fiserv) in an all-stock transaction valued at approximately $25
million (the Merger). Under the terms of the agreement Fiserv will acquire all
of the outstanding shares of the Company (estimated to number 18,452,000 at the
closing) for approximately $1.35 per share, subject to a "holdback" of an amount
of Fiserv shares worth approximately $3 million. The "holdback" shares will be
placed in escrow in respect of any claims arising from certain contingencies.
The transaction will be accounted for as a pooling of interests. The exact
number of Fiserv shares to be exchanged for each CUSA share will be determined
by dividing approximately $1.35 by the average closing price of Fiserv's common
stock during the 20 trading days-ending on the second trading day prior to the
effective date of the Merger. The agreement is subject to all normal conditions
to closing including receipt of all necessary regulatory consents and the
Company's shareholder approval. The obligation of Fiserv to complete the Merger
is subject to certain conditions including, but not limited to, the redemption
by the Company of the 1994 Series Preferred Stock
In connection with the execution of the definitive agreement, Richard N.
Beckstrand (chief executive officer, chairman of the Board of Directors, and
principal shareholder, "the Investor"), executed an irrevocable proxy allowing
Fiserv the power to vote the Investor's sixty nine percent beneficial ownership
in favor of the Merger Agreement.
The Merger is structured as a tax-free reorganization under Section 368(a)(1)(A)
and (a)(2)(D) of the Internal Revenue Code of 1986, as amended, and thus will be
tax free to the CUSA shareholders. However, if the all stock merger cannot be
accounted for as a "pooling of interests," the Merger will be converted from all
stock to cash-for-stock and will be taxable to the CUSA shareholders.
As of December 31, 1997, Fiserv and the Company were preparing a joint proxy
statement/prospectus to be filed with the Securities and Exchange Commission on
Form S-4. It is anticipated that a shareholders meeting will take place and that
the merger will be approved and finalized in March of 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
In June of 1994, the Company entered into the credit union software business
through the acquisition of CUSA, Inc. ("CUSA") and the credit union software
division of CUSA's largest distributor. From June of 1994 to July of 1995, the
Company acquired most of the distributors of the CUSA software, some of which
were distributors of software products in the medical, commercial, and equipment
rental markets. In June of 1996, the Company disposed of the business and assets
of the Company's medical and commercial software divisions through a sale of
assets to Physicians Computer Network, Inc. ("PCN"). In 1997, the Company sold
the equipment rental software division and an office rental complex, which was
acquired by the Company in June of 1994. During the quarter ending December 31,
1997 the Company also disposed of its surgery center business, which it acquired
in 1993 prior to entering the credit union market. With the completion of the
divestiture of the medical, commercial, and equipment rental software divisions,
the office rental complex, and the surgery center business, the Company will now
focus its resources on the development and expansion of its credit union
software business. In this item, all references to the "first and second
quarters" refer to the first and second quarters of the Company's fiscal year
(quarters ended September 30, and December 31, respectively).
On November 4, 1997 the Company and Fiserv Incorporated signed a definitive
Agreement and Plan of Merger which provides for the acquisition of the Company
by Fiserv. Any statements herein, which refer to plans or intentions for future
fiscal years, assume that the Fiserv transaction is not consummated and that CTI
continues under current management.
Net revenues
- ------------
The Company's net revenues increased less than 1 percent from $6,992,486 in the
second quarter of 1997 to $7,004,515 in the second quarter of 1998 and increased
7 percent from $12,664,386 in first six months of 1997 to $13,583,037 in the
first six months of 1998. Revenues from hardware and software sales increased 8
percent from $2,611,661 in the second quarter of 1997 to $2,830,642 in the
second quarter of 1998 and increased 24 percent from $4,297,460 in the first six
months of 1997 to $5,324,093 in the first six months of 1998. The increase is
the result of additional software sales as credit unions begin to upgrade their
systems to prepare for the year 2000 issues. Revenues from support, maintenance
and other services decreased 5 percent from $4,380,825 in the second quarter of
1997 to $4,173,873 in the second quarter of 1998 and 1 percent from $8,366,926
in the first six months of 1997 to $8,258,944 in the first six months of 1998.
The decrease was due mainly to a decrease in installation and training revenues
and sales of the Company's statement processing services. Revenues are derived
from computer system sales, hardware maintenance and software support, and the
sale of products, which are related to the Company's core computer systems such
as statement printing, disaster recovery, and microfiche services.
Gross margin
- ------------
The hardware and software gross margin increased from 60 percent in the second
quarter of 1997 to 64 percent in the second quarter of 1998 and from 59 percent
in the first six months of 1997 to 63 percent in the first six months of 1998.
In the same periods, the gross margin from support, maintenance and other
services revenue remained fairly level. The increases in the hardware and
software gross margin are primarily attributable to a shift in the sales mix
towards more profitable software sales. Costs of goods sold consist of the cost
of hardware and software purchased for resale, the amortization of capitalized
software development costs, and the expense of supporting and installing the
systems sold.
<PAGE>
Product development costs
- -------------------------
Product development costs include research and development, system operational
error fixes and maintenance software upgrades. As expected, product development
costs increased 5 percent from $592,239 in the second quarter of 1997 to
$622,087 in the second quarter of 1998 and increased 21 percent from $1,087,728
in the first six months of 1997 to $1,313,240 in the first six months of 1998.
The increase reflects the Company's commitment to continue to improve current
products and to invest in the development of new products, with an increased
emphasis on research and development over capitalized expenditures.
Selling, general and administrative costs
- -----------------------------------------
The selling, general, and administrative expenses for the Company decreased 19
percent from $2,429,194 in the second quarter of 1997, to $1,971,292 in the
second quarter of 1998 and 24 percent from $4,981,502 in the first six months of
1997 to $3,777,568 in the first six months of 1998. The decreases were due to
the reduction, in the first and second quarters of 1997, of general corporate
overhead expenses as part of an overall plan by management. Management does not
anticipate further reductions in selling, general and administrative costs in
the future.
Interest and income tax expense
- -------------------------------
Interest income (expense), net decreased 219 percent in the second quarter of
1998 when compared to the second quarter of 1997 and 131 percent in the first
six months of 1998 when compared to the first six months of 1997. The decrease
was due primarily to a decrease in the average debt outstanding and an increase
in cash earning interest income.
Income tax expense was zero in the second quarter of 1998 and 1997 and in the
first six months of 1998 and 1997. No tax was recorded due to the use of certain
net operating loss tax carry forwards which are available to the Company.
Alternative minimum tax expense was considered insignificant and not recorded in
any of the periods presented.
Discontinued Operations
- -----------------------
The income from the disposal of discontinued operations, net of income taxes
reported in the second quarter of 1998 and for the six months ended December 31,
1997, include income from the sale and operations of the discontinued surgery
center division. The loss from discontinued operations, net of income taxes, and
the loss from disposal of discontinued operations, net of income taxes, reported
in the second quarter of 1997 and for the six months ended December 31, 1996,
include the medical, commercial, and equipment rental software divisions, the
office rental complex division, and the surgery center division. There were no
operations or losses recorded in loss from discontinued operations, net of
income taxes in the second quarter of 1998 or in the first six months of 1998
related to these divisions. Additional income and/or losses related to the
disposed divisions are not anticipated, however no assurance can be given that
unexpected costs related to the discontinued divisions will not occur.
The medical, commercial, and equipment rental software divisions and the office
rental complex were sold prior to June 30, 1997. Although the decision to sell
the surgery center division was made prior to June 30, 1997, the sale was not
completed until October 1, 1997. Since June 30, 1997, the activities of each of
the discontinued divisions have been recorded in loss from disposal of
discontinued operations, net of income taxes in the accompanying consolidated
statements of operations.
<PAGE>
Capital Resources and Liquidity
- -------------------------------
At December 31, 1997, the Company had current assets of $7.4 million and current
liabilities of $11.8 million. The current liabilities include $6.0 million of
deferred revenue, which primarily represents payments received for services to
be provided over the remaining term of software and hardware maintenance
contracts (generally one year).
Losses from operations in 1996 and the first quarter of 1997 caused the Company
to be in violation of certain loan covenants with its primary lender and raised
concerns among employees, stockholders, and some customers. In order to address
these concerns, the board of directors decided to seek equity financing. On
January 24, 1997, the Company entered into a Stock Purchase and Sale Agreement
(the Agreement), with its Chief Executive Officer, major shareholder, and
Chairman of the Board, (the "Investor") whereby it agreed to sell 8,648,649
shares of its common stock, representing 49 percent of the common stock to be
outstanding after the completion of the sale, for $8.0 million in cash. In
February 1997, the Company received $6.0 million of the purchase price which was
used to retire certain current liabilities and long-term debt. The Company
anticipates that the remaining $2.0 million will be received in fiscal 1998
which the Company plans to use to redeem the 1994 Series Convertible Preferred
Stock. Upon completion of the transaction, the Investor's beneficial ownership
interest increased to approximately 66 percent. The transaction was negotiated
between the Investor and an independent committee of the board of directors.
During the past eighteen months, the Company reduced its total liabilities from
$20.3 million at June 1996 to $11.8 million at December 1997.
As part of the overall business plan implemented during 1997, management reduced
the overall corporate overhead included in selling, general and administrative
expenses $1.2 million from $5.0 million for the first six months of 1997 to $3.8
million for the first six months of 1998. Income from continuing operations
increased from a loss of $680,456 for the first six months of 1997 to income of
$1,290,572 in the first six months of 1998. In the fiscal year ending June 1998,
the Company expects operating results and cash flows to improve as management
focuses on the credit union business. The Company believes that cash flow will
be sufficient to permit the Company to meet its cash requirements through the up
coming year.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and in-house legal counsel, the ultimate
resolution of these matters will not have a material effect on the financial
position or results of operations of the Company.
ITEM 5. OTHER INFORMATION
On November 4, 1997, the Company and Fiserv Incorporated signed a definitive
Agreement and Plan of Merger (the "Merger Agreement) which provides for the
acquisition of the Company by Fiserv in an all-stock transaction valued at
approximately $25 million (the "Merger"). Under the agreement each of the
Company's shares (estimated to number 18,452,000 at the closing) will be
exchanged for approximately $1.35 worth of Fiserv shares, subject to a
"holdback" of an amount of Fiserv shares worth approximately $3,000,000. The
"holdback" shares are to be placed in escrow in respect of any claims arising
from certain contingencies. The exact number of Fiserv shares to be exchanged
for each CUSA share will be determined by dividing approximately $1.35 by the
average closing price of Fiserv stock during the 20 trading days ending on the
second trading day prior to the effective date of the Merger.
Each party's obligation to complete the Merger is subject to certain conditions
precedent including the affirmative vote of the shareholders of the Company and
the effectiveness of a Registration Statement covering the Fiserv shares to be
used in the Merger. The obligation of Fiserv to complete the Merger is subject
to certain conditions precedent, including but not limited to the redemption by
the Company of the 1994 Series Preferred Stock and the completion of the
previously approved disposal of the Company's surgery center business unit. (The
Surgery Center was disposed of during the quarter ending December 31, 1997).
In connection with the execution of the definitive agreement, the Investor
executed an irrevocable proxy allowing Fiserv the power to vote the Investor's
sixty nine percent beneficial ownership in favor of the Merger Agreement.
The Merger is structured as a tax-free reorganization under Section 368(a)(1)(A)
and (a)(2)(D) of the Internal Revenue Code of 1986, as amended, and thus will be
tax free to the CUSA shareholders. However, if the all stock merger cannot be
accounted for as a "pooling of interests," the Merger will be converted from all
stock to cash-for-stock and will be taxable to the CUSA shareholders.
Fiserv is currently preparing a registration statement, including a
proxy/prospectus, prepared by the Company, for review by the Securities and
Exchange Commission. Following such review, the registration statement will be
mailed to each of the Company's shareholders, and a meeting of the shareholders
of the Company will be held. A majority vote of the Company's outstanding shares
is required for approval. The Company expects the transaction to be completed
around the end of March 1998.
Fiserv, Inc. is an independent provider of financial data processing systems and
related information management services and products to more than 5,000 banks,
credit unions, mortgage firms and savings institutions worldwide. Fiserv
currently employs approximately 10,000 financial service professionals
company-wide, skilled in providing information management and financial
services. A publicly held company headquartered in Brookfield, Wis., Fiserv is
traded on the NASDAQ National Market under the symbol FISV.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included as part of this report:
Exhibit SEC Ref
Number Number Title of Document
- ------- ------- -------------------
None.
(b) Reports on Form 8K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934 as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 17, 1998
CUSA Technologies, Inc.
/s/D. Jeff Peck
- ------------------------------------------------------
D. Jeff Peck, Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1490169
<SECURITIES> 0
<RECEIVABLES> 4525850
<ALLOWANCES> 134375
<INVENTORY> 661576
<CURRENT-ASSETS> 7425482
<PP&E> 3214889
<DEPRECIATION> 1781617
<TOTAL-ASSETS> 11124207
<CURRENT-LIABILITIES> 11761554
<BONDS> 0
0
1000
<COMMON> 15289
<OTHER-SE> (712141)
<TOTAL-LIABILITY-AND-EQUITY> 11124207
<SALES> 13583037
<TOTAL-REVENUES> 13583037
<CGS> 7266047
<TOTAL-COSTS> 7266047
<OTHER-EXPENSES> 5102172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (47089)<F1>
<INCOME-PRETAX> 1301907
<INCOME-TAX> 0
<INCOME-CONTINUING> 1307907
<DISCONTINUED> 11601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1313508
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<FN>
<F1> Item 34 above (Interest-Expense) includes interest income of $65,272
and therefore results in a negative number in interest expense.
</FN>
</TABLE>
