UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No.
0-18113
TENET INFORMATION SERVICES, INC.
--------------------------------
(Exact name of small business issuer as specified in its charter)
UTAH 87-0405405
---- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4885 South 900 East #107
Salt Lake City, Utah 84117
---------------------------
(Address of principal executive office)
(801) 268-3480
--------------
(Issuer's telephone number)
No Change
---------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
(1) Yes_X__ No___
(2) Yes_X__ No___
The Company had 13,018,514 shares of common stock outstanding at October
26, 1996
<PAGE>
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of September 30, 1996 . .1
Condensed consolidated statements of operations for the
three months ended September 30, 1996 and 1995 . . . . . . . . . 3
Condensed consolidated statements of cash flows for the
three months ended September 30, 1996 and 1995 . . . . . . . . . 4
Notes to condensed concolidated financial statements . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 7
PART II OTHER INFORMATION
Item 1. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . .14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . .14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . .14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30, 1996
------------------
CURRENT ASSETS:
Cash $ 117,665
Accounts receivable, net of allowance for
doubtful accounts of $7,500 85,377
Current portion of contracts receivable 21,162
Inventories 5,342
----------
Total current assets 229,546
----------
DEFERRED SOFTWARE COSTS 1,124,036
Less accumulated amortization (960,869)
----------
163,167
----------
FURNITURE, FIXTURES AND EQUIPMENT 119,302
Less accumulated depreciation and
amortization (90,355)
----------
28,947
----------
OTHER ASSETS, net 1,425
----------
$ 423,085
==========
The accompanying notes are an integral part of this balance sheet.
-1-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
September 30, 1996
------------------
CURRENT LIABILITIES:
Note Payable $ 25,409
Current portion of related
party long-term debt 7,046
Accounts payable 275,174
Accrued salaries and benefits 117,684
Amounts due to related parties 19,204
Deferred revenue 139,324
----------
Total current liabilities 583,841
----------
RELATED PARTY LONG-TERM DEBT,
net of current portion 3,843
----------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
100,000,000 shares authorized;
10,644,248 shares issued 13,021
Additional paid-in capital 4,497,998
Warrants outstanding 143,221
Deferred compensation (8,125)
Accumulated deficit (4,810,714)
----------
Total shareholders' equity (164,599)
----------
$ 423,085
==========
The accompanying notes are an integral part of this balance sheet.
-2-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three Months Ended
September 30,
--------------------------
1996 1995
---------- -----------
REVENUES $ 246,522 $ 141,839
COSTS AND EXPENSES:
Cost of revenues 146,464 56,108
Selling, general and administrative 144,542 92,311
Software development 94,380 24,012
---------- ----------
385,386 172,431
---------- ----------
LOSS FROM OPERATIONS (138,864) ( 30,592)
---------- ----------
OTHER INCOME (EXPENSE):
Write-off of excess net purchase price - (546,884)
Interest expense (1,176) ( 3,280)
Interest income 695 102
Other Expense, net (481) (550,062)
---------- ----------
NET LOSS $ (139,345) $ (580,654)
---------- ----------
NET LOSS PER COMMON SHARE $ (.01) $ (.08)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,445,800 7,198,457
========== ==========
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three Months Ended
September 30,
--------------------------
1996 1995
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (139,345) $(580,654)
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities -
Depreciation and amortization 22,910 6,448
Write-off of excess purchase price - 546,884
(Increase) decrease in assets, net
of effect of acquisitions:
Accounts receivable, net 29,118 (2,718)
Inventories (342) -
Contracts receivable 6,747 (13,115)
Increase (decrease) in liabilities,
net of effect of acquisitions:
Accounts payable (38,465) (18,004)
Accrued salaries and benefits (30,449) 6,751
Amounts due related parties 8,004 -
Deferred Revenue 10,433 -
----------- -----------
Net cash (used in) provided by
operating activities (131,389) (54,408)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition - 19,553
Additions to deferred software costs - (32,500)
Acquisition of furniture, fixtures and
equipment - -
----------- -----------
Net cash used in investing
activities - (12,947)
----------- -----------
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATEAD STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the three Months Ended
September 30,
--------------------------
1996 1995
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of warrants, net $ 81,054 $ -
Payments on notes (41,589) 119,530
Net cash provided by financing
activities 39,465 119,530
----------- -----------
NET INCREASE (DECREASE) IN CASH (91,924) 52,175
CASH, at beginning of period 209,589 12,498
----------- -----------
CASH, at end of period $117,665 $ 64,673
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,176 $ 3,280
=========== ===========
Supplemental disclosure of non-cash financing and investing activities:
During the three month period ended September 30, 1995, the Company
acquired certain assets of the International HealthCare Consulting Group
(HCG) in exchange for assuming $30,000 of debt and issuing common stock
valued at $7,000. (See Note 3) The Company also exchanged 3,000,000
shares of its common stock for all outstanding stock of National
Microcomputer Corp. The assets acquired and liabilities assumed are
described in Note 3. In addition, the Company converted $50,000 of bridge
financing notes payable to common stock.
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Presentation of Interim Financial Statements
The accompanying condensed financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's most recent Annual Report on Form 10-KSB.
These condensed financial statements include the necessary adjustments to
the September 30, 1996 balance sheet, and the related condensed
consolidated statements of operations and cash flows for the three months
ended to reflect the Company's acquisition of National Microcomputer
Corporation on September 29, 1995 and the acquisition of certain assets of
the International HealthCare Consulting group on September 5, 1995.
In the opinion of management, these financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position at September
30, 1996 and the results of its operations and its cash flows for the
periods presented herein. The results of operations for the three month
period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the remainder of the fiscal year ending
June 30, 1997.
(2) Net Loss Per Common Share
Net loss per common share for the three months ended September 30, 1996 and
1995 is based on the weighted average number of common shares outstanding
during the periods. Warrants and options outstanding have not been
included in the computations since any assumption of conversion would have
an antidilutive effect thereby decreasing the net loss per common share.
(3) Acquisitions
On September 5, 1995, the Company entered into an agreement to acquire
certain assets consisting primarily of software products and intangible
assets of the International HealthCare Consulting Group ("HCG") located in
Salt Lake City, Utah. HCG provides consulting services and information
systems to various hospital departments. As consideration, the Company
issued 50,000 shares of its common stock valued at $7,000 and assumed
$30,000 of debt. Due to the immaterial amount of tangible assets acquired
and contingencies related to the realizability of the amount paid for the
6
<PAGE>
intangible assets, the entire purchase price of $37,000 was expensed during
the quarter.
In connection with the asset purchase, the Company entered into employment
agreements with HCG's two principal shareholders and consultants. The
employment agreements provide for base annual salaries and incentive stock
options or bonuses.
Effective September 29, 1995, the Company and National Microcomputer
Corporation ("NMC"), with locations in San Diego and San Jose, California,
approved a Plan of Reorganization in which NMC was merged with and into
Tenet Merger Subsidiary, a wholly-owned subsidiary of the Company
incorporated for the purpose of effecting the merger. NMC develops and
markets information systems to hospital emergency departments. Three
million shares of the Company's common stock were exchanged for all
outstanding stock of NMC. The three million shares were valued at
$420,000. The merger has been accounted for as a purchase with the result
of operations of HCG being combined with those of the Company from the date
of acquisition. The total purchase price was allocated to the assets and
liabilities acquired or assumed as follows:
Assets acquired at estimated fair value:
NMC HCG
----- -----
Cash $ 19,553 $
Accounts receivable, net 88,946
Other current assets 16,665
Furniture and equipment 2,660
Deferred software costs 47,913
---------- ---------
175,737 -0-
Liabilities assumed:
Note payable 30,000
Accounts payable (19,143)
Accrued liabilities (4,284)
Deferred revenue (215,194)
---------- ---------
(238,621) 30,000
---------- ---------
Legal and accounting fees directly
related to the acquisition (27,000)
----------
Value of common stock issued (420,000) 7,000
---------- ---------
Excess purchase price $ 509,884 $ 37,000
========== =========
Due to NMC's lack of historical profitability and contingencies related to
the future realizability of the excess purchase price, the Company expensed
the entire $509,884 during the quarter ended September 30, 1995.
Management believes that the amount of common stock issued for NMC was fair
and reasonable based on expected synergies to be achieved by combining NMC
with the Company. In addition, NMC brings a customer base of 24 sites and
a backlog of four installations.
7
<PAGE>
The following unaudited proforma consolidated statement of operations
information for each of the three month periods ended September 30, 1995
and 1994 presents the proforma results of operations of the Company as if
the acquisitions of HCG and NMC had been consummated as of July 1, 1994 or
July 1, 1995, respectively.
3 Months ended 3 Months ended
September 30, 1996 September 30, 1995
------------------ ------------------
Revenues $ 246,522 $ 227,898
Loss from operations (138,864) ( 94,398)
Net loss (139,345) (646,260)
Net loss per common share (.01) (.09)
(4) Conversion of Warrants
On August 30, 1996, the board of directors authorized a reduction of the
exercise price of the Company's Class B warrants to $.05 from $.07 per
share, contingent upon conversion by September 30, 1996. A total of
1,621,424 warrants were exercised, leaving 178,575 Class B warrants
outstanding. Proceeds to the Company totaled $81,071, of which $10,643 was
paid through the conversion of existing debt owing to the warrant holder.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
This discussion should be read in conjunction with management's discussion
and analysis of financial condition and results of operations included in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1996.
The Company is engaged in developing and servicing specialized data
processing information products used in the respiratory services
departments of larger hospitals. During the quarter ended September 30,
1995, the Company acquired certain assets of the International HealthCare
Consulting Group ("HCG") and acquired National Microcomputer Corporation
("NMC").
The Company's base product, RCMS/X, has been redeveloped utilizing a UNIX
operating system and the Oracle data base. As a result of the
acquisitions, the Company has expanded its product lines to include an
emergency department computer system known as "EDNet". The Company also
has a consulting group which conducts efficiency studies in various
hospital situations, as well as customizes software solutions to specific
hospital requirements.
As of September 30, 1996, the Company had sold or leased its RCMS product
to five hospitals and its RCMS/X product to two hospitals at various
locations throughout the United States. Generally, the Company's customers
purchase the computer hardware from the Company, lease the Company's
software and enter into a service contract for the lease period.
As of September 30, 1996, the Company had sold its EDNet product to 26
emergency department sites. These sites have annual maintenance contracts
for continued support and updates. It is anticipated that a vast majority
, if not all of these sites, will renew this maintenance on an annual
basis. As of September 30, 1996, the Company was in the process of
installing EDNet at two additional sites.
Results of Operations
For the three months ended September 30, 1996 compared with the three
months ended September 30, 1995.
During the three month period ended September 30, 1996, the Company had
revenues of $246,522 which represented a 74 percent increase from $141,839
for the corresponding period of the prior fiscal year. The sales consisted
9
<PAGE>
of emergency $134,328 (54%), respiratory, $72,452 (30%), and consulting
$$39,742 (16%) compared with $86,059 (38%), $128,059 (56%) and $13,780
(6%), respectively, for the corresponding period of the prior fiscal year
assuming the mergers had taken place July 1, 1995.
Cost of revenues increased 161% to $146,464 for the three month period
ended September 30, 1996 from $56,108 for the corresponding period of the
prior year. This is a result of the increased cost of revenues for
consulting, $65,940, as compared with $14,000 for the prior fiscal year.
Cost of revenues for the emergency product of $23,787 as compared with nil
for the prior period. Cost of revenue for the respiratory product were
relatively stable.
Selling, general, and administrative costs increased 57% to $144,542 for
the three month period ended September 30, 1996 from $92,311 for the
corresponding period of the previous fiscal year. This increase in costs
primarily reflects the Company's increased marketing costs associated with
the marketing of the emergency system, $31,337, and consulting services,
$18,594.
Software development costs increased 292% to $94,380 for the three month
period ended September 30, 1996 from $24,102 for the corresponding period
of the prior fiscal year. This is the result of increased personnel
assigned to the Emergency Department Windows product, use of outside
contractors and no capitalization of software costs.
The Company incurred an operating loss of $139,153 for the three month
period ended September 30, 1996 compared with an operating loss of $30,592
for the corresponding period of the previous year.
As a result of the acquisitions of HCG and NMC during the three-month
period ended September 30, 1995, the Company expensed the excess purchase
price of $546,884. The Company determined based on the historical losses
of the operations acquired and contingencies related to the future
realizability of the excess purchase price, to charge this amount to
expense during that three month period ended September 30, 1996. This
writeoff increased the net loss by $546,884 to $580,654 or $.08 per share.
Interest expense decreased to $1,176 for the three month period ended
September 30, 1996 from $ 3,280 for the corresponding period of the prior
year as a result of a debt conversion.
The Company incurred a net loss of $139,345 ($.01) per share for the three
month period ended September 30, 1996 compared with a net loss of $580,654
($.08) per share for the corresponding period of the prior year.
10
<PAGE>
Liquidity and Capital Resources
The Company has suffered recurring losses from operations since fiscal year
1989, and as of September 30, 1996 had an accumulated deficit of $4,810,714.
The operating losses are due in part to significant decreases in revenues in
fiscal years 1994, 1993 and 1992 as the Company redeveloped and updated its
respiratory product and also as a result of the Company's expensing $546,884
of excess purchase price related to the recent NMC and HCG acquisitions.
Management believes that those arrangements were fair, and represent a
valuable addition to the Company.
Management expects that the Company's acquisitions of HCG and NMC will allow
the Company to achieve synergies with a larger sales base and to obtain
efficiencies with expanded operations.
The Company also has contracts to install emergency systems in 3 hospitals
which will generate $145,000 in revenues.
During the fiscal year ended June 30, 1996, the Company signed a letter of
intent to raise an additional minimum of $201,000 in equity funding and is
proceeding with a private placement of its common stock with a minimum of
$201,000 and a maximum of $600,000 to be raised on a best efforts basis.
This offering consists of a minimum of 670,000 units and a maximum of
2,000,000 units priced at $.30 per unit. Each unit consists of (i) one
share of common stock and (ii) a warrant to purchase an additional share at
$.25 per share if exercised within one year of the placement closing and
$.42 afterward until the termination date three years after the placement
closing. This offering closed on June 28, 1996 raising for the Company a
net amount of $185,852.
The Company also accelerated conversion of its Class B warrants by offering a
discount to $.05 from $.07 if exercised prior to September 30, 1996. A total
of 1,621,424 warrants were exercised, creating $70,429 in cash and $10,643 in
debt reduction.
At June 30, 1996, the Company had $40,000 in bridge financing. This was repaid
from the Private Placement Offering.
Effective September 5, 1995, the Company acquired certain assets of HCG. The
assets acquired include certain accounts receivable, equipment, software
products and other intangible assets. In exchange for the assets acquired,
the Company agreed to issue 50,000 shares of common stock and assume $30,000
of debt.
On September 29, 1995, the Company and NMC approved the terms of an Agreement
and Plan of Reorganization (the "Agreement") pursuant to which NMC was merged
with and into Tenet Merger Subsidiary, Inc., a wholly owned subsidiary of the
Company incorporated for the purpose of effecting the merger. NMC develops
and markets an integrated information management/patient tracking system
designed specifically for use in emergency departments.
11
<PAGE>
The Company's cash position decreased by $91,924 during the three month period
ended September 30, 1996 to $117,665 as compared to $12,449 as of June 30,
1995. However, the Company had a working capital deficit of $354,295 as of
September 30, 1996 as compared with a deficit of $318,884 as of June 30, 1996.
Operating activities used $131,384 for the three month period ended September
30, 1995 as compared with using $55,408 for the corresponding period of the
previous year. The principal sources of cash have been (i) proceeds from
conversion of warrants of $81,054, and (ii) $19,553 of cash acquired in the
merger with NMC. The Company did not capitalize software development costs
during the three month period ended September 30, 1996 as compared to $32,800
during the corresponding period of the previous year. There were debt
payments of $41,589 during the three month period ended September 30, 1996 as
compared with no debt payments for the corresponding period of the previous
year.
While a significant portion of the current liabilities, $122,000 is owed to
present officers and/or directors, there can be no assurances that these
officers/directors will not seek payment in the near term.
The Company has contingency plans should cash flows decrease to a
significant degree. At the present time, the Company believes that these
contingency plans, which include slowing the continued development of the
new system, will not have to be implemented during fiscal year 1996.
Continued installations require financing arrangements, which the Company
believes it can obtain in a timely manner.
Management believes that cash flows from existing contract arrangements
will be sufficient to allow the Company to operate through the next twelve
month period. However, in order to significantly expand its sales, the
Company will require additional cash infusions through additional private
placements or borrowing arrangements.
Inflation has not had a significant impact on the Company's operations.
PART II OTHER INFORMATION
Item 1. Litigation N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to Vote of
Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K
12
<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.
Dated: November 15, 1996 TENET INFORMATION
SERVICES, INC.
/s/ Fred J. Anderson
--------------------
Corporate Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TENET
INFORMATION SERVICES, INC. SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 117,665
<SECURITIES> 0
<RECEIVABLES> 92,877
<ALLOWANCES> 7,500
<INVENTORY> 5,342
<CURRENT-ASSETS> 229,546
<PP&E> 119,302
<DEPRECIATION> 90,355
<TOTAL-ASSETS> 423,085
<CURRENT-LIABILITIES> 583,841
<BONDS> 0
0
0
<COMMON> 13,021
<OTHER-SE> 143,221
<TOTAL-LIABILITY-AND-EQUITY> 423,085
<SALES> 246,522
<TOTAL-REVENUES> 246,522
<CGS> 146,464
<TOTAL-COSTS> 385,386
<OTHER-EXPENSES> 481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,176
<INCOME-PRETAX> (139,345)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,345)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
