FORM 10-K(SB)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ____________ to _____________
Commission File No.
0-18113
TENET INFORMATION SERVICES, INC.
(Exact name of registrant 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) (Zip Code)
Registrant's telephone number, including area code (801) 268-3480
__________________________________________________________
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock
(Title of Class)
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 and 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. (1) Yes_X__ No____
(2) Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K [ ].
The number of shares outstanding of the Registrant's Common Stock as of
June 30, 1996 was 11,397,081. The number of shares outstanding of the
Registrant's Common Stock as of September 30, 1996 was 13,018,514.
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TABLE OF CONTENTS Page #
PART I
Item 1 Business 1
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of
Security Holders 12
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 12
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operation 14
Item 8 Financial Statements 20
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III
Item 10 Directors, Executive Officers, Promoters
and Control Persons of the Registrant:
Compliance with Section 16)a) of the
Exchange Act 21
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial
Owners and Management 26
Item 13 Certain Relationships and Related Transactions 27
PART IV
Item 14 Exhibits and Reports on Form 8-K 28
(a) List of Financial Statements, Schedules
and Exhibits
(b) Reports on Form 8-K
8-K Report for NMC Acquisition
SIGNATURES
EXHIBITS Attached
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ITEM 1: BUSINESS
General
In 1978, Telemed Cardio Pulmonary Systems ("Telemed") purchased a pulmonary
testing business based in Salt Lake City, Utah. Telemed's business was
developed from research performed at the University of Utah on computer
applications in medical data processing. Telemed later became a division
of Becton Dickinson & Co. ("Becton"), a conglomerate of companies dealing
primarily in disposable medical supplies. Telemed's primary focus was in
developing and marketing diagnostic computer systems used in pulmonary
testing and analysis.
In 1983, Becton's management decided to sell the high technology pulmonary
and respiratory care business. The Company was organized on February 24,
1984 by employees of Telemed to purchase Telemed's pulmonary and
respiratory care information services business. In March 1984, the Company
purchased that business for cash and a promissory note payable to Becton.
The Company then repositioned its business to focus on providing the RCMS/X
family of products, with a view to offering cost-effective information
systems that allow health care institutions to provide better care at less
cost. The Company built and serviced much of its mini-computer based
hardware and developed its own proprietary software, all state of the art
for the mid-eighties.
By 1988, annual revenue had grown to $2.4 million and the Company completed
an initial public offering of its common stock through Schneider Securities
in 1989. By September 15, 1989, 23 hospitals were using the Company's
respiratory care management systems (then referred to as "RCMS") and the
Company employed 23 full and part-time people.
Over time, with improvements in computer hardware and performance, the
mini-computer based product became dated. With the entrance of two P.C.
based competitors, the market shifted away from the Company's RCMS product.
The last RCMS sale was made in January 1991. The Company launched a
technical development effort to create a new generation of products and
meet the competitive challenge. New technology required new programmers,
and in 1994 a new senior management team was put in place.
A newly developed system, designated as the RCMS/X, was designed to use
off-the-shelf P.C. hardware, commercially available software such as a UNIX
operating system and the ORACLE relational data base. The system's open
architecture allows it to share information easily with other computers and
networks. In 1993, the first two Beta sites were installed and the system
was thoroughly tested. In the spring of 1995, after more than three years
of development and testing, a production system RCMS/X, including handhelds
and hospital interfaces was installed.
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International Healthcare Consulting Group Acquisition
Effective September 5, 1995, the Company acquired certain assets of The
International HealthCare Consulting Group ("HCG"). The assets acquired
included 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 its common stock and assume $30,000 of
debt.
In connection with the assets purchased, the Company also entered into
three-year employment agreements with HCG's two principal shareholders and
consultants and agreed to issue certain warrants to purchase common stock
and to grant certain options to purchase common stock based on future
performance.
HCG provides healthcare institutions, mainly hospitals, with professional
high-quality, cost effective, consulting services which produce a more
efficient, lower cost care delivery model while maintaining the highest
quality of care standards. Consulting services are provided in the
following areas:
- - Nurse Staffing and Patient Classification
- - Cost Benefit Analysis for Computerized Patient Records (CPR)
- - Productivity
- - Cost Accounting
- - Operations Assessment
- - Modeling and Simulation
National Microcomputer Corporation Merger
On September 29, 1995, the Company and National MicroComputer Corporation
("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.
Emergency Department Network System
NMC was founded in California in 1979 by Dr. Richard Gwinn, an emergency
medicine professional. NMC originated the concept of a computerized
patient tracking and information management system dedicated to emergency
department operations. The Emergency Department Network ("EDNet") was
first developed in 1989. Early versions ran on highly proprietary hardware
and software with limited flexibility and functionality.
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In 1991, a decision was reached to completely rewrite and expand the
original EDNet software. The first installation of EDNet, version 3,
occurred in April 1992. This version was designed for IBM compatible PCs
and utilized standard operating systems and database software. With this
version the cost of ownership of EDNet was reduced substantially.
EDNet is currently in its fourth release. Recent enhancements include
expansion of the discharge aftercare instructions database, a user-sortable
patient tracking display and the ScriptMaster enhanced graphical report
writer. The Company anticipates that EDNet 32 for Windows will be released
in late 1996 or early 1997.
EDNet, is an integrated information management/patient tracking system
designed specifically for use in emergency departments. It is a
collaborative information management tool used in real time by clinical and
management personnel to collect data and provide information at the most
efficient points in the patient care process. Demographic information is
collected at registration either by way of an interface from the main
hospital information system registration function or directly through the
EDNet registration process. Clinical flow information is generated and
recorded through the tracking system and at the time of discharge through
use of custom configured discharge routines. Auxiliary data may be added
at any time. Information is stored in linked relational databases which
are completely open and non-proprietary, accessible both within the system
and through other compatible applications on a shared basis.
System Architecture - EDNet is written in Borland C++ v.3.0 for DOS with
the Borland Paradox engine. The server NLM is written in Novell WATCOM C
with the advanced NLM development package. All permanent databases and
most control files use Paradox 4.5 which NMC supplies with every EDNet
System. Files are compatible with Paradox for Windows. EDNet is supplied
complete with all necessary licenses. EDNet may run as a DOS session under
Windows 3.1 along with other applications.
Hardware - EDNet Version 4.0 runs on a standard Novell network (3.11 or
better) with DOS/Windows stations. NMC recommends a Pentium-based server
with at least 2 GB of disk storage capacity. The server should be equipped
with mirrored drives for data security. Optical disk or tape drives are
recommended for backup and archive storage. The server should be supported
by an Intelligent uninterruptible power supply (UPS). The server must be
suitable for use with Novell Network, v.3.1. Network communications
hardware (Ethernet, Token Ring, 10BaseT) should be certified by Novell.
NMC supplies a fully licensed copy of Paradox 4.5 with every EDNet system.
Individual workstations should be 486 or better, with at least 8MB of RAM.
Workstations must fully support VGA color graphics. Stations should have
DOS installed (5.0 or higher). In addition to the appropriate number of
end-user workstations, NMC recommends a dedicated station for remote access
communication and a dedicated station for interfaces from the hospital-wide
information system. A 9600 baud modem (V.32bis protocol) is required.
Carbon Copy (6.0 or 6.1) should be installed on the communications station.
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Tracking Functions - The EDNet Patient Tracking module replaces the grease
board, chalk board, magnets and markers with an on-screen display,
continuously updated and distributed throughout the Emergency Department.
The EDNet Patient Tracking module is the heart of the EDNet System. EDNet
status screens are distributed throughout the emergency department so up-
to-the-second information on every patient is available at a glance from
wherever providers are currently working. There is no need to return to a
central point to check on the status of orders, determine which patients
have priority, or discover the types of problems that have just been
presented at Triage. Updates from Triage, Registration, Order
Communications and Discharge are displayed immediately throughout the
emergency department.
EDNet provides color coded status screens for designated emergency
department areas such as Triage, Registration, Treatment1, Treatment2,
Trauma, Pediatrics, Major Medical, Fast Track, Holding, Out in the Hall.
During system configuration customers determine how to designate emergency
department areas on their EDNet System.
Following installation of EDNet, the department becomes quieter and less
hectic. Communication among staff is facilitated by convenient interaction
with the EDNet System and vital information is not erased, but instead,
recorded.
Time and Motion - EDNet Tracking Module keeps a time stamp record of every
patient visit. The system automatically records triage time, the time a
patient is registered, the time when a patient is made ready to be seen, a
patient is seen by a physician, orders are placed, orders acknowledged,
results available, the order is cleared and three specific events in the
discharge process. Time stamps and all associated data become available
for various analytical studies. The goal is an accurate picture of
emergency department operations, greater efficiency, lower waiting times,
faster turn around on orders, and improved patient care.
Triage Function - EDNet provides the ability to create triage procedures
which meet requirements for intake and initial assessment of ambulatory
patients. This function is separate from but fully integrated with the
Registration Module. Triage may take place either before or after patient
registration as the patient's medical condition requires. Data is merged
when both functions have been completed. The triage assessment function
contributes to the EDNet database to improve the quality management,
research and outcome tracking.
Order Entry Module - Automating the order process while maintaining a
database offers department managers improved turn around times and may
significantly impact costs. EDNet Order Entry Module (Optional) allows
users to automate the order requisition process while simultaneously
completing a detailed database entry for all departmental orders.
Physicians and nurses gain a simple, consistent means of entering order
information and generating a requisition when appropriate. Unit clerks and
technicians receive consistent print or screen-based output.
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Order status indicators display on the EDNet Tracking Screens and detailed
query capability is always available. Providers will know precisely the
elapsed time between steps in the order process. EDNet Order Entry
software records four time stamps in the permanent database: Order placed,
Order acknowledged, Results available and Results reviewed. EDNet Report
Writers can be used to examine the order process in detail to improve turn
around times, minimize unnecessary procedures and generate a wide variety
of routine reports and ad hoc studies.
The EDNet Order Entry Module can be interfaced with laboratory or other
ancillary departmental systems or with the main hospital information system
(HIS). The Standard Order Status Interface carries automated status
notification flags from HIS order communications software to the EDNet
Tracking Screens. Additional interface capability is offered on a custom
basis. All EDNet interfaces are available in HL-7 format.
Prescription Function - EDNet Prescription Writer generates printed,
signature ready prescriptions at discharge or at any time during or after
the patient visit. Warnings and instructions relating to prescribed
medication may be automatically incorporated into patient discharge
instructions.
The significance of an integrated prescription writer extends far beyond
the printing of the prescription itself. As the prescription information
is input, database files are simultaneously completed. These database
files may be used for many important medical and quality management
functions such as follow up of culture results, utilization summaries,
formulary management, and analysis of patterns of antibiotic sensitivities.
Data tables are established during system configuration. Typically menus
list physicians, drug category, formulary, quantity, dosage, frequency and
special instructions. Password security can be applied. Charges for each
medication may be indicated if desired. Data tables can be updated easily
by emergency department managers, information services personnel or by NMC
support staff, using remote access capability.
Charge Entry Module - Recording charges at the point of service reduces
lost revenues and produces an accurate record which can be used to verify
payments.
EDNet Charge Entry Module (optional) allows users to enter charges at any
time during the patient visit. Charges may also be recorded during the
discharge process or in a batch mode after a visit. EDNet records charges
in a specialized data base table that can be configured to generate a
flexible report of charges for individual patients, all patients or special
subsets of patients. Reports can describe specific visits, a daily summary
of all visits or various date and hourly ranges may be selected. Reports
are configured through a selection of menus by authorized personnel.
Reports may be viewed on the screen, printed or sent to a computer file in
HL-7 format for transmission to the hospital billing function.
Discharge Functions - EDNet aftercare instructions are selected from a
database of more than 200 instructions and are printed individually for
each patient. Instructions are available in both English and Spanish.
English instructions may be selected for either a fifth grade reading level
or a ninth grade reading level.
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EDNet Discharge Module is extremely flexible. During configuration,
various discharge procedures are created to handle standard discharge,
hospital admission, transfer, workers compensation cases, trauma registry
and other situations. A comprehensive ICD-9 code database is available.
Various database menus may be included to record additional details of a
patient visit.
Hospitals may wish to accompany the discharge instructions with pertinent
information about the facility. Individual instructions are stored in an
extensive database, and are chosen from a menu where they can be catalogued
by physician, and related to ICD-9 codes. Free-form instructions are fully
supported and multiple instructions may be selected. Instruction sets may
be imported from other discharge instruction generating systems.
Multiple languages are supported by the system. Any set of discharge
instructions kept in the database, in up to 26 languages and variations,
may be selected upon discharge. The discharging personnel need not be
familiar with that language.
Management Report Writer - The EDNet system can be configured to exceed all
applicable JCAHO requirements. Data is collected consistently, for all
patients, all the time, without the need for redundant entry or additional
staff.
EDNet contains an open, relational database configured to create a variety
of standard and recurring reports and available for ad hoc inquiries as
well. EDNet will generate and recall logs, routinely run statistical and
comparative analyses and with the recently added ScriptMaster feature,
display graphical reports to answer management questions without paging
through charts and medical records. Virtually any type of report desired
can be constructed from the standard report writing menus or by using the
ad hoc report writing capability of the databases.
At the present time, the Company is in the process of completing the
conversion of the DOS based system to run in the Windows environment. The
Company believes that it will be able to start "beta testing" of the
Windows product during the second quarter of fiscal 1997, and that the
windows version will be available as an upgrade for present customers and
new customers.
The Company is concerned that the capital outlay required by hospitals for
enhanced hardware to run the windows product could cause delays in the
hospital conversions. The Company has no way of determining the
significance of these potential delays to its business, if any. However,
the Company will offer its DOS product at an attractive price with upgrades
in the future to help smooth the timing effects of the hospitals capital
requirements.
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The Company believes that this will be the first true 32 byte system for
emergency rooms commercially available.
Respiratory Care Management System
The RCMS/X is a computer software and hardware system designed specifically
for management of respiratory care department information in large
hospitals. The system offers automation of treatment orders, work
assignment, charting, billing and management information. RCMS/X
automation recaptures a time resource that Tenet customers have used to
provide significant savings and increased productivity to the labor-
intensive respiratory care department. Greater quantity and quality of
information provided by RCMS/X aids the department in maintaining and
improving standards of patient care.
Software- RCMS/X is built around a UNIX operating system and an Oracle
relational data base. The Company's software emphasizes flexibility,
allowing users to define files for specific department information such as
treatment, therapist and patient data. The program also accommodates a
diverse range of utilization strategies which allow it to work efficiently
in sites with a variety of layouts, service offerings and management
structures.
Hardware- Respiratory care places tremendous demands on a departmental
computer system. Tracking patient care and managing department activities
requires instant access to a tremendous volume of information. RCMS/X
hardware components include: (i) a Pentium (100+ MHz) with at least 64 Mb
of main memory and 2 or more gigabytes of disk storage, (ii) laser printer
(iii) personal workstations; and (iv) portable workstations. Hardware is
designed to respond efficiently to a myriad of information entries and
requests. Orders, work assignments, charting, billing and management
information are all accessible, simultaneously, from multiple locations.
Personal Workstations- Tenet personal computer workstation packages offer
managers nearly limitless database access and analysis capability. These
may be configured with various levels of power and capacity to suit
individual needs.
Portable Workstations- The Tenet Transit Portable Workstation is a rugged
handheld terminal that displays therapist work information and offers
bedside charting and data entry capability. Transit was developed in
response to customer interest in allowing data collection during work
performance, thereby eliminating much of the time spent in end of shift
data entry using conventional terminals. Information collected with the
Transit is reviewed and printed remotely as needed, and is uploaded to the
RCMS/X central computer database via RS232 serial ports. Transit achieves
the critical objective for any product in the portable data collection
market: cost-effectiveness through enhanced productivity. Transit was
initially introduced at an industry convention in November 1986, and this
product has been upgraded several times.
Order Management- Typically, respiratory care departments operate on a
manual treatment ordering system, a system which consumes much time and
which often fails to serve the department's needs. The high volume of
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orders makes maintaining manual systems extremely burdensome. Manual
systems are also subject to losing charges because of poor tracking of
related order items that accompany many respiratory procedures. RCMS/X
provides fast, comprehensive entry and review of respiratory care order
information. A fully detailed order may be entered in less than a minute.
From that point, the system will screen orders for medical appropriateness,
automatically link related order items and charges, and prepare orders for
therapist assignment. RCMS/X offers on-request reports designed to meet
the department's order documentation and review needs.
Work Assignment- Efficient assignment of work for each shift involves
balancing treatment types, priorities and locations with various therapist
workloads and abilities. Limited time and information make this task
difficult. Typical assignment systems exact a toll in therapist efficiency
by necessitating lengthy inter-shift reporting of work status. RCMS/X uses
order information, combined with department staff and treatment
information, to create detailed therapist work assignments which reflect
appropriate treatment type, therapist ability and workload levels. These
assignments can be quickly reviewed and altered by shift supervisors as
necessary. Therapists receive printed schedules and/or workload
information downloaded to Tenet Transit Portable Workstations which they
use as guides in performing their rounds. Because RCMS/X treatment
charting automatically updates the next shift's work assignments,
intershift reporting time is minimized.
Charting- Manual charting methods present a number of problems that can
hinder productivity, quality of care, and reimbursement for services.
Charting results by hand is time-consuming, especially when a patient's
chart must be found or is being used by other hospital personnel. Detail,
legibility and clarity are often compromised during peak work loads,
resulting in incorrect medical service and audit disallowances. Paper
systems are also vulnerable to breaks between procedure charting and the
billing process. RCMS/X charting is designed to provide an accurate,
flexible and efficient system for collecting, reporting and tracking
treatment charting information. The Tenet Transit Portable Workstation
allows fast, accurate bedside charting. Prompts defined for each procedure
ask for specific items of charting information. The therapist quickly
selects the appropriate user-defined responses. Free text may be easily
entered when special comments are necessary. Charting quality and
presentation are significantly improved by standardization, prompting for
complete information and clear report printing. At shift's end, collected
data is uploaded to the Tenet central system. Transit charting information
is used directly by RCMS/X to generate patient charts, billing and audit
reports. RCMS/X also offers a wide array of management reports for orders,
treatments, workload, staffing, inventory and productivity.
Billing- Typical department billing processes are vulnerable to breaks in
the paper trail started upon treatment completion. Often, therapists spend
valuable time laboriously filling out charge slips, which may be
subsequently lost or left incomplete. Finally, billing must be manually
transformed from paper to electronic information usable by the hospital's
billing system. The results are costly in time, lost charges and in third-
party audit disallowances. RCMS/X provides billing information well suited
for audits, generates reports for evaluation of department activities, and
reduces lost charges significantly. As soon as a treatment is scheduled,
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RCMS/X automatically records it in the billing files listing all charges,
supplies and related services. All treatments charted are automatically
billed unless acknowledged as missed, with an explanation for the missed
treatment. This design ensures that nothing is inadvertently left off the
patient's bill and provides an accurate means of tracking the daily
activities of department personnel.
Management Information- Respiratory care managers are often forced to make
critical decisions on department operations without the benefit of accurate
data. In departments that employ a large therapist staff and bill millions
of dollars annually, inadequate information limits effective management.
Effective management is even more crucial in a field which is under
tightening regulatory pressure and which is experiencing severe shortages
of trained therapists. RCMS/X management reports and database access
programs provide timely management information for a wide spectrum of
department activities. These tools assist managers in improving department
efficiency, planning future operations and responding to rapid changes in
staffing and service demands while ensuring quality respiratory care
services. In addition to a full complement of RCMS/X management reports,
department managers may scrutinize department data utilizing interfaced
personal computers running spreadsheets and other programs. The Company's
PC Management Workstation offers managers unlimited access to the RCMS/X
database, which describes virtually every activity in the department. The
information is always timely because it is created by constant input of
data from the department's activities.
The Company is presently evaluating the feasibility and marketability of
converting the RCMS/X code to run in a small hospital situation utilizing a
Windows environment for added flexibility.
Marketing
The Company's sales and marketing is conducted by the vice-president of
Sales for the emergency and respiratory products.
The consulting sales and marketing is conducted by the Chief Operating
Officer who was previously the President of the consulting group acquired
by the Company.
It is the responsibility of the Chief Operating Officer to ensure that all
leads and customers are coordinated in an effort to maximize results with a
limited budget.
Because the Company has changed its previous marketing methods as a result
of the mergers and acquisitions, and because of the Company's limited
financial resources, it may be difficult for the Company to properly pursue
all sales contacts.
At present, the Company sells and licenses its emergency software, sells
the RCMS/X hardware, leasing its respiratory software on a monthly basis
and requires maintenance contracts for service and updates. Consulting
services are charged on a negotiated basis.
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Product Development
The Company's present product development on the RCMS/X is under review.
However, the basic premise will be to convert the present software to run
"single-user" in smaller hospitals, allowing the Company to reach a wider
market.
Protection of Proprietary Rights
The Company holds a registered trademark on the name "TRANSIT". In
addition, the Company expects to seek certain patent, trademark and/or
copyright protection in the further development of its new products, if
appropriate. The Company has entered into non-disclosure agreements with
employees, consultants and customers to protect its proprietary technology.
Capital Stock
The Company's Articles of Incorporation authorize the board of directors,
without shareholder approval, to issue up to 1,000,000 shares of preferred
stock with such rights and preferences as the board of directors may
determine in its discretion. The board of directors has the authority to
issue shares of preferred stock having rights prior to the common stock
with respect to dividends, voting and liquidation.
On August 24, 1994, a shareholder meeting was held which resulted in the
authorized common stock of the Company being increased to 100,000,000
shares.
PRIVATE PLACEMENTS
In March 1995, the Company signed a letter of intent with Schneider
Securities, Inc., ("SSI") to raise a minimum of $252,000 or a maximum of
$756,000 under a best efforts private placement offering of common stock.
Under the contemplated arrangement, SSI was to receive commissions of ten
percent of the proceeds and warrants dependent upon the amount of capital
raised. The Company and SSI did not proceed with the private placement
offering; however, the Company agreed to issue three-year warrants to
purchase 90,000 shares of the Company's common stock at $.42 per share to
SSI as consideration for services rendered, as well as other fees not to
exceed $12,600.
During fiscal 1996, the Company entered into arrangements with several
accredited investors to sell units at $.28 per unit. Each unit consists of
one share of common stock, one Class A Warrant and two Class B Warrants to
purchase additional shares of common stock. The Class A Warrants have an
exercise price of $.42 per share and the Class B Warrants have an exercise
price of $.07 per share for a three-year period. A total of 900,000 units
were sold by the Company resulting in total proceeds of $252,000. The
Company also incurred $15,470 of offering costs in connection with the
arrangements.
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During February 1996, the Company authorized 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 by Schneider Securities Inc. 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.
As of June 30, 1996, 688,833 units had been sold resulting in proceeds to
the Company of $185,852, net of offering expenses of $20,799. No
additional amounts beyond the initial closing were received and the Private
Placement Offering expired.
As of June 30, 1996, the Company had outstanding bridge financing notes of
$40,992 including accrued interest at 12 percent per annum. Subsequent to
June 30,1996, the $40,992 was repaid.
Warrant Conversion
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.
Employees
At September 30, 1996, the Company employed ten full-time employees, two
part-time employees and several independent service contractors. The
number of employees and their responsibilities are as follows: seven
professional, three technical, two clerical.
Competition
The health care information systems industry is highly competitive. There
are many companies of considerable size and expertise that could enter the
Company's market for respiratory care and emergency management systems.
The Company is aware of competing respiratory care management systems and
emergency room information systems.
The Company believes that it is imperative that it be competitive in
service and product performance. The Company stresses customer service
wherever the product is placed.
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With the enhancements to the capabilities of networks, the Company has
determined it must adopt new technology in order to continue to compete
effectively in the large hospital marketplace. As discussed in Product
Development, the Company is further developing and converting its products.
This effort is expected to enable the Company to compete in this
marketplace.
The Company's RCMS/X system utilizes a UNIX operating system, and the
Oracle relational data base. This allows the system to operate on many
platforms, and to be upgraded to take advantage of new technology made
available to the marketplace. The Company is developing its Windows
version of the emergency room system to run under Windows95 or Windows NT.
ITEM 2: PROPERTIES
The Company's headquarters and operational facilities are located in Salt
Lake City, Utah. The Company leases approximately 3,490 square feet of
office space at a cost $3,490 per month. This is pursuant to a lease which
expires on November 15, 1998.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, nor
to the knowledge of management, is any litigation threatened against the
Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock began trading in the over-the-counter market in
May 1989. Prices were quoted on the National Association of Security
Dealers Automated Quotation System ("NASDAQ") under the symbol "TISI" until
November 1, 1991 at which time the Company was suspended from NASDAQ for
untimely filings and inadequate financial resources. On September 3, 1996,
the symbol was changed to "TISV."
On November 1, 1991, the reported closing bid and asked prices of the
Company's Common Stock were $.03125 and $.0622, respectively. Since
November 1, 1991, there has been no reported trading market for the
Company's Common Stock. The number of shareholders of record for the
Company's Common Stock as of September 30, 1996 was 325 which includes
depositories and broker/dealers who hold shares of Common Stock in
"nominee" or "street names".
12
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data as of and for each of the fiscal years ended
June 30, 1992 through 1996 has been derived from the Company's financial
statements which have been audited by Arthur Andersen, LLP, independent
public accountants. The following selected financial data should be read
in conjunction with the financial statements and accompanying notes appearing
elsewhere in this Form 10-KSB.
Statement of Operations Data
Year Ended June 30,
-------------------------------------------
1996 1995 1994 1993 1992
(In thousands, except per share amounts)
Revenues $1,054 $369 $392 $560 $ 428
Loss from operations (571) (319) (356) (374) (314)
Net loss (1,132) (335) (375) (467) (450)
Net loss per
common share (.11) (.07) (.09) (.14) (.15)
Balance Sheet Data
As of June 30,
------------------------------------------
1996 1995 1994 1993 1992
(In thousands)
Working capital
(deficit) $(319) $(60) $164 $636 $ 332
Total assets 573 406 570 988 1,437
Long-term obligations 4 11 195 203 857
Stockholders' equity
(deficit) (106) 172 180 550 253
13
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
For additional understanding of the Company's results of operations and
financial condition, the following discussion should be read in conjunction
with the discussions of the Company's business operations included in the
Company's previously filed Reports on Form 10-QSB for the quarterly periods
ended September 30, 1995, December 31, 1995 and March 31, 1996 .
The Company has been engaged in developing and servicing specialized data
processing information products used in the respiratory services
departments of larger hospitals. During the fiscal year ended June 30,
1996, the Company expanded its operations by acquiring certain assets of
the International HealthCare Consulting Group ("HCG") and merging with
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 customized software solutions to specific
hospital requirements.
As of September 30, 1996, the Company had sold or leased its RCMS product
to six 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. The
Company has just recently begun the marketing of this product through
alternative methods, including a distributor.
As of September 30, 1996, the Company had sold its EDNet product to 25
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 and sales contracts with other hospitals are
pending.
As of September 30, 1996, the Company is anticipating consulting
arrangements with three hospitals, with projected revenues over the next
fiscal year of approximately $300,000, with other contracts for services in
negotiation, one of which has made a retainer deposit of $15,000 for
additional work. The Company recognized revenues of $294,000 during the
fiscal year ended June 30, 1996 from consulting.
14
<PAGE>
Results of Operations
Fiscal 1996 Compared with Fiscal 1995
During fiscal year 1996, the Company had revenues of $1,054,453 which
represented an increase of $685,407 (186%) from $369,046 for the prior
fiscal year. The following table presents the actual components of
revenues for fiscal 1996 and 1995 and the proforma revenues as if the HCG
and NMC acquisitions had occurred at the beginning of fiscal 1995. The
proforma results are for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made at
the beginning of fiscal 1995.
ACTUAL Increase PROFORMA Increase
REVENUES FY 96 FY 95 (Decrease) FY96 FY95 (Decrease)
- --------------------------------------------------------------------------
EDNet Systems $ 397,103 $ -0- $ 397,103 $ 469,652 $ 326,473 $ 143,179
RCMS Systems 362,774 369,046 (6,272) 362,774 369,046 (6,272)
Consulting 294,576 -0- 294,576 308,366 212,570 95,796
---------- --------- --------- ---------- --------- ---------
Total $1,054,453 $ 369,046 $ 685,407 $1,140,792 $ 908,089 $ 232,703
========== ========= ========= ========== ========= =========
Total sales increased by $685,996 which was due to the Company's
acquisition of HCG, with revenues of $294,576, and the merger with NMC,
with revenues related to the EDNet System of $397,103. Revenues related to
the RCMS Systems in the aggregate declined slightly by $6,272. On a
proforma basis, revenues related to the EDNet System and Consulting
revenues increased a toal of $232,703 as a result of increased sales of the
emergency system and an increase in consulting contracts
The following table details cost of revenue by product, comparing the prior
fiscal year as shown on financials.
Increase
1996 1995 (Decrease)
------ ------ ---------
EDNet System $ 89,835 $ -0- $ 89,835
RCMS Systems 209,539 234,970 (25,431)
Consulting 194,101 -0- 194,101
Amortization & Writedown
of Deferred Software Costs 66,480 34,920 31,560
--------- --------- ---------
Total $ 559,955 $ 269,890 $ 290,065
========= ========= =========
15
<PAGE>
Cost of revenues increased by $290,065 (107%) to $559,955 for fiscal year
1996 compared with $269,890 for the previous fiscal year. Cost of revenues
related to the EDNet System for fiscal year 1996 were $89,835, with a gross
margin of 77%. This compares to cost of revenues of $143,016 with a gross
margin of 56% for the prior twelve month period. This increase in margin
results from economics of the merger, and consolidation of software and
support, as well as increased revenues.
Respiratory cost of revenues declined to $209,539 for fiscal year 1996
compared with $234,970 for the prior fiscal year as a result of a smaller
installed base of systems to be maintained. Consulting margins were 34%
for fiscal year 1996. As no cost of revenues amounts are available to the
Company for the prior year no comparison between the years is made.
Amortization and write-downs of deferred software costs increased by
$31,560, or 90% to $66,480 for fiscal year 1996 compared with $34,920 for
the previous fiscal year. This is a result of the Company's review of
remaining economic value and a writedown of its investment in deferred
software of RCMS/X .
Selling, general and administrative expenses increased by $492,102, or
152%, to $816,055 for fiscal year 1996 compared with $323,953 for the
previous fiscal year. This is a result of increased costs of marketing of
$272,272 resulting from increased sales travel, commissions, trade shows
and associated costs of the combined entities. General and Administrative
salaries increased by $40,720, employee benefit cost by $72,546, travel
increased by $10,466, building lease increased by $18,070, telephone
increased by $8,484, outside services increased by $30,857, legal and
accounting increased by $32,613. Other miscellaneous cost increased by
$6,074.
Software development expenses increased by $155,207 or 165%, to $249,000
for fiscal year 1996 from $93,793 for fiscal 1995. This is the result of
increased personnel assigned to the Emergency Department Windows product,
use of outside contractors and no capitalization of software costs.
Interest expense decreased to $14,929 for fiscal year 1996 compared with
$16,834 for fiscal year 1995. This is the result of lower interest rates
and less interest bearing debt.
The Company had a write-down of excess purchase price of $546,884 for
fiscal year 1996. There was no similar write-down during the corresponding
period of the prior fiscal year. This write-down was the result of the
fact that on September 5, 1995, the Company entered into an agreement to
acquire certain assets consisting primarily of software products and
intangible assets of the 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 intangible assets, the entire
purchase price of $37,000 was expensed during fiscal year 1996.
Effective September 29, 1995, the Company and 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 results of operations of NMC being combined with those of the Company
16
<PAGE>
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:
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
----------
Liabilities assumed:
Accounts payable $ (19,143)
Accrued liabilities (4,284)
Deferred revenue (215,194)
----------
$ (238,621)
----------
Legal and accounting fees directly
related to the acquisition $ (27,000)
Value of common stock issued (420,000)
----------
Excess purchase price $ 509,884
==========
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 fiscal year 1996.
Management believes that the amount of common stock issued for NMC and HCG
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.
As a result of the above factors, the net loss from operations increased to
$570,557 for fiscal year 1996 compared with a loss of $318,590 for fiscal
year 1995.
Net loss increased to $1,132,370, or $.11 loss per share for fiscal year
1996 compared with loss of $335,424, or $.07 loss per share for fiscal year
1995.
Fiscal 1995 Compared with Fiscal 1994
During fiscal year 1995, the Company had revenues of $369,046 compared with
$391,983 for the prior fiscal year. Software license and maintenance fees
17
<PAGE>
increased to $325,435 for fiscal year 1995 compared with $320,471 for the
prior fiscal year. This relatively flat performance reflects the fact that
the Company had no significant new sales and the continued month-to-month
use of the old RCMS product. Sales of computer hardware and components
decreased to $43,611 for fiscal year 1995 from $71,512 for the previous
fiscal year. Management of the Company believes that this decrease was due
mainly to potential customers delaying purchases until the new RCMS/X is
fully implemented and to customers purchasing competitor's equipment. (See
Competition, p.11)
Cost of revenues increased to $269,890 for fiscal year 1995 compared with
$266,847 for the previous fiscal year. The cost of computer hardware and
components declined to $93,426 for fiscal year 1995 compared with $95,473
for the previous fiscal year. This is the result of changes in product mix
and corresponding margins.
The cost of software licenses and maintenance contracts increased to
$141,544 for fiscal year 1995 compared with $123,874 for the previous
fiscal year. This is the result of higher costs associated with beta site
testing. The Company does not expect future maintenance costs to increase
from current levels, which are covered by maintenance (or warranty)
contracts that are in place with its customers.
Amortization and write-downs of deferred software costs decreased to
$34,920 for fiscal year 1995 compared with $47,500 for the previous fiscal
year. This represents normal software amortization.
Selling, general and administrative expenses decreased to $323,953 for
fiscal year 1995 compared with $365,404 for the previous fiscal year This
is in line with the previous years costs and reflects current sales
efforts.
Software development expenses decreased slightly to $93,793 for fiscal year
1995 from $115,765 for fiscal 1994. This is the result of the
capitalization of $137,730 associated with the RCMS/X product.
Interest expense and other decreased to $16,834 for fiscal year 1995
compared with $18,992 for fiscal year 1994.
As a result of the above factors, the net loss for fiscal year 1995
decreased to $335,424 from $375,025 for fiscal year 1994; while net loss
per common share decreased to $.07 for fiscal year 1995 compared with $.09
for fiscal year 1994.
Liquidity and Capital Resources
The Company has suffered recurring losses from operations since fiscal year
1989, and as of June 30, 1996 had an accumulated deficit of $4,671,369.
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 expensing
$546,884 of excess purchase price related to the recent NMC and HCG
acquisitions in fiscal 1996. Management believes that the acquisition
arrangements were fair, and represent a valuable addition to the Company.
Management anticipated that the Company's acquisitions of HCG and NMC would
allow the Company to achieve synergies with a larger sales base and to
obtain efficiencies with expanded operations. While revenues rose
significantly, the cost of combining these acquisitions were higher than
anticipated.
18
<PAGE>
As a result of these acquisitions, the Company assumed $215,194 in deferred
revenue, as well as other liabilities of $53,427. The actual cost to
install the systems to which the deferred revenue relates was substantially
less than the amount of deferred revenue.
In addition, during the fiscal year ended June 30, 1996 the Company signed
long-term software license contracts which will provide approximately
$775,000 of future cash flows over the remaining life of these contracts.
While not reflected as an asset or revenue, these contracts are expected to
enhance the Company's cash flow into the future. The Company also has
contracts to install emergency systems in 3 hospitals which will generate
$225,000 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. While
this private placement of its common stock had a maximum of $600,000 to be
raised on a best efforts basis, the Company did not extend the offering
period . 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.
Subsequent to June 30, 1996, the Company accelerated conversion of its
Class B warrants by offering a discount to $.05 from $.07 per share if
exercised prior to September 30, 1996. A total of 1,621,424 warrants were
exercised, resulting in $70,429 of cash and $10,643 in debt being
converted.
At June 30, 1996, the Company had $40,992 in bridge financing. This was
repaid with proceeds from the Private Placement Offering.
The Company's cash position increased by $197,091 during the fiscal year
ended June 30, 1996 to $209,589 as compared to $12,498 as of June 30, 1995.
However, the Company had a working capital deficit of $318,884 as of June
30, 1996 as compared with a deficit of $60,244 as of June 30, 1995.
Operating activities used $219,835 for the fiscal year ended June 30, 1996
as compared with providing $56,829 for the corresponding period of the
previous year. The principal sources of cash have been (i) proceeds from
private placements of common stock of $372,381, (ii) borrowings from a
related party of $40,942 and (iii) $19,553 of cash acquired in the merger
with NMC. The Company did not capitalize any software costs during the
fiscal year ended June 30, 1996 as compared with investing $137,730 during
the corresponding period of the previous year. There were debt payments of
$6,273 during the fiscal year ended June 30, 1996 as compared to $5,583 in
the previous year. The Company expended $9,727 for capital equipment
during the fiscal year ended June 30, 1996, as compared with $25,923
capital investment during the corresponding period of the prior year.
Management believes that cash flows from existing contract
arrangements, along with prudent expenditure control 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. This may require that certain
officers/directors grant time concessions for current amounts due (an
aggregate of $122,000), and continue to perform duties for the Company
on a reduced role or deferred payment basis. There are no assurances
that these concessions will be made.
Inflation has not had a significant impact on the Company's operations.
19
<PAGE>
ITEM 8: FINANCIAL STATEMENTS
Index to Financial Statements
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 1996 and 1995 F-2
Statements of Operations for the Years Ended
June 30, 1996, 1995 and 1994 F-4
Statements of Shareholders' Equity for the
Years Ended June 30, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-9
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenet Information Services, Inc.:
We have audited the accompanying consolidated balance sheets of Tenet
Information Services, Inc. (a Utah corporation) and subsidiary as of
June 30, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tenet
Information Services, Inc. and subsidiary as of June 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the
Company has experienced recurring losses from operations, has a working
capital deficit and a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be
unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 5, 1996
F-1
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
As of June 30,
1996 1995
-------- --------
CURRENT ASSETS:
Cash $ 209,589 $ 12,498
Accounts receivable, net of allowance
for doubtful accounts of $7,500 in
1996 and $0 in 1995 114,495 18,574
Contracts receivable 27,939 50,733
Inventories 5,000 30,820
---------- ----------
Total current assets 357,023 112,625
---------- ----------
DEFERRED SOFTWARE COSTS 1,124,006 1,124,006
Less accumulated amortization (943,369) (885,369)
---------- ----------
180,637 238,637
---------- ----------
FURNITURE, FIXTURES AND EQUIPMENT 119,302 187,073
Less accumulated depreciation and
amortization (84,945) (137,329)
---------- ----------
34,357 49,744
---------- ----------
OTHER ASSETS, net 1,425 4,559
---------- ----------
$ 573,442 $ 405,565
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-2
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
As of June 30,
1996 1995
-------- --------
CURRENT LIABILITIES:
Notes payable $ 66,998 $ -
Current portion of related party
long-term debt 7,046 6,272
Accounts payable 313,639 110,798
Accrued salaries and benefits 148,133 45,799
Deferred revenue 128,891 -
Amounts due to related parties 11,200 10,000
---------- ----------
Total current liabilities 675,907 172,869
---------- ----------
RELATED PARTY LONG-TERM DEBT, net of
current portion 3,843 10,890
---------- ----------
BRIDGE FINANCING NOTES PAYABLE - 50,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 1,3 and 5)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value;
100,000,000 shares authorized,
11,397,081 and 6,822,248
shares issued, respectively 11,397 6,822
Additional paid-in capital 4,418,568 3,764,983
Accumulated deficit (4,671,369) (3,538,999)
Warrants outstanding 143,221 -
Treasury stock, at cost, 64,000 common
shares in 1995 - (48,000)
Deferred compensation (8,125) (13,000)
---------- ----------
Total shareholders'
equity (deficit) (106,308) 171,806
---------- ----------
$ 573,442 $ 405,565
========== ==========
The accompanying notes consolidated to financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30,
1996 1995 1994
REVENUES:
Software license fees and
maintenance $ 688,751 $ 325,435 $ 320,471
Sales of computer hardware
and components 71,126 43,611 71,512
Consulting services 294,576 - -
----------- --------- ---------
Total revenues 1,054,453 369,046 391,983
----------- --------- ---------
COSTS AND EXPENSES:
Cost of revenues-
Software license fees and
maintenance 242,056 141,544 123,874
Amortization and write-downs
of deferred software costs 66,480 34,920 47,500
Computer hardware and components 57,318 93,426 95,473
Consulting services 194,101 - -
----------- --------- ---------
Total cost of revenues 559,955 269,890 266,847
Selling, general and
administrative 816,055 323,953 365,404
Software development 249,000 93,793 115,765
----------- --------- ---------
1,625,010 687,636 748,016
----------- --------- ---------
LOSS FROM OPERATIONS (570,557) (318,590) (356,033)
WRITE-OFF OF EXCESS PURCHASE PRICE (546,884) - -
INTEREST EXPENSE AND OTHER (14,929) (16,834) (18,992)
----------- --------- ---------
NET LOSS $(1,132,370) $(335,424) $(375,025)
=========== ========= =========
NET LOSS PER COMMON SHARE $ (.11) $ (.07) $ (.09)
=========== ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,850,367 5,123,662 4,328,184
=========== ========= =========
The accompanying notes to consolidated financial statements
are an integral part of consolidated these statements.
F-4
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Series A Preferred Stock
--------------------- Additional -------------------------
Shares Paid-in Shares
Issued Amount Capital Issued Amount
--------- ------ --------- ------ -------
BALANCE, JUNE 30, 1993 4,328,184 4,328 2,725,064 66,485 664,848
Issuance of Series B preferred
stock for services - - - -
Net loss - - - - -
---------- ------ ---------- ------ --------
BALANCE, JUNE 30, 1994 4,328,184 4,328 2,725,064 66,485 664,848
Issuance of common stock
in lieu of cash compensation 100,000 100 13,900 - -
Conversion of related party
debt to common stock 1,072,317 1,072 298,573 - -
Conversion of Series A
preferred stock to
common stock 1,189,624 1,190 663,658 (66,485) (664,848)
Conversion of Series B
preferred stock to
common stock 132,123 132 36,788 - -
Issuance of stock options
to employees - - 27,000 - -
Net loss - - - - -
---------- ------- ---------- ------ --------
BALANCE, JUNE 30, 1995 6,822,248 6,822 3,764,983 - -
Issuance of common stock
for cash, net of offering
costs of $36,269 1,588,833 1,589 277,571 - -
Issuance of common stock
in acquisitions 3,050,000 3,050 423,950 - -
Retirement of treasury shares (64,000) (64) (47,936) - -
Amortization of deferred
compensation - - - - -
Net loss - - - - -
---------- ------- ---------- ------ --------
BALANCE, JUNE 30, 1996 11,397,081 11,397 4,418,568 - $ -
========== ======= ========== ====== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Series B Preferred Stock
------------------------
Shares Accumulated Warrants Common Deferred
Issued Amount Deficit Outstanding Stock Compensation Total
------ ------ ----------- ----------- -------- ------------ -------
BALANCE, JUNE 30, 1993 3,200 32,000 (2,828,550) $ - (48,000) $ - 549,690
Issuance of Series B preferred
stock for services 492 4,920 - - - - 4,920
Net loss - - (375,025) - - - (375,025)
----- ------- ----------- -------- -------- -------- ----------
BALANCE, JUNE 30, 1994 3,692 36,920 (3,203,575) - (48,000) - 179,585
Issuance of common stock
in lieu of cash compensation - - - - - - 14,000
Conversion of related party
debt to common stock - - - - - - 299,645
Conversion of Series A
preferred stock to
common stock - - - - - - -
Conversion of Series B
preferred stock to
common stock (3,692) (36,920) - - - - -
Issuance of stock options
to employees - - - - - (13,000) 14,000
Net loss - - (335,424) - - (335,424)
----- ------- ----------- -------- -------- -------- ----------
BALANCE, JUNE 30, 1995 - - (3,538,999) - (48,000) (13,000) 171,806
Issuance of common stock
for cash, net of offering
costs of $36,269 - - - 143,221 - - 422,381
Issuance of common stock
in acquisitions - - - - - - 427,000
Retirement of treasury share - - - - 48,000 - -
Amortization of deferred
compensation - - - - - 4,875 4,875
Net loss - - (1,132,370) - - - (1,132,370)
----- ------- ----------- -------- -------- -------- ----------
BALANCE, JUNE 30, 1996 - $ - (4,671,369) 143,221 $ - (8,125) (106,308)
===== ======= =========== ======== ======== ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended
June 30,
-----------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,132,370) $(335,424) $(375,025)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Write-off of excess purchase price 546,884 - -
Depreciation and amortization 85,774 35,363 74,235
Write-down of deferred
software costs 47,913 - -
Compensation related to the
issuance of stock and stock
options 4,875 28,000 4,920
Increase (decrease) in allowances
for doubtful accounts and
contracts receivable 7,500 - (55,000)
(Increase) decrease in assets, net
of effect of acquisitions:
Accounts receivable (14,475) 24,103 37,412
Contracts receivable 22,794 183,161 413,335
Inventories 28,260 23,720 8,644
Other assets 17,359 (79) 6,587
Increase (decrease) in liabilities,
net of effect of acquisitions:
Accounts payable 156,698 82,152 (31,010)
Accrued salaries and benefits 98,050 19,108 (2,384)
Deferred revenue (86,303) - -
Amounts due to related parties (2,794) (3,275) (5,431)
--------- --------- ---------
Net cash (used in) provided by
operating activities (219,835) 56,829 76,283
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to deferred software costs - (137,730) (77,499)
Acquisition of furniture, fixtures
and equipment (9,727) (25,923) -
--------- --------- ---------
Net cash used in investing
activities (9,727) (163,653) (77,499)
--------- --------- ---------
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-7
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
For the Years Ended
June 30,
1996 1995 1994
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the sale of common
stock and warrants to purchase
common stock $ 372,381 $ - $ 20,000
Proceeds from borrowings 40,992 - -
Cash acquired in acquisition 19,553 - -
Proceeds from bridge financing - 50,000 -
Principal payments on long-term
debt (6,273) (5,583) (9,177)
--------- --------- ---------
Net cash provided by
financing activities 426,653 44,417 10,823
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 197,091 (62,407) 9,607
CASH AT BEGINNING OF THE YEAR 12,498 74,905 65,298
--------- --------- ---------
CASH AT END OF THE YEAR $ 209,589 $ 12,498 $ 74,905
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 7,511 $ 15,419 $ 20,719
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
During fiscal 1996, the Company acquired certain assets of HCG in exchange
for 50,000 shares of common stock valued at $7,000 and the assumption of
$30,000 of liabilities (see Note 3). The Company merged with NMC and
exchanged 3,000,000 shares of common stock of the Company for all
outstanding shares of NMC. In the merger the Company acquired $175,737 of
assets and assumed $238,621 of liabilities (see Note 3). In addition, the
Company converted $50,000 of bridge financing notes payable to common stock
(see Note 8).
During fiscal 1995, the Company converted $180,000 of related party long-
term debt and $119,645 of amounts due to related parties into 1,072,317
shares of common stock at approximately $.28 per share. Also during fiscal
1995, 66,485 shares of Series A preferred stock were converted into
1,189,624 shares of common stock at approximately $.56 per share and 3,692
shares of Series B preferred stock were converted into 132,123 shares of
common stock at approximately $.28 per share.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-8
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Tenet Information Services, Inc. ("Tenet"), a Utah corporation, has
designed and markets a computer-based medical and health information system
related primarily to respiratory therapy and pulmonary function analysis
(the "RCMS/X System"). As discussed in Note 3, during fiscal 1996 Tenet
expanded its operations by merging with National Microcomputer Corporation
("NMC") and acquiring certain assets of The International Healthcare
Consulting Group Inc. ("HCG"). NMC has designed and markets an integrated
information management/patient tracking system designed specifically for
use in emergency departments of hospitals and urgent care centers (the
"EDNet System"). HCG has provided healthcare institutions, mainly
hospitals, with consulting services to assist the institutions in achieving
a more efficient, lower cost care delivery model while maintaining the
highest quality of care standards.
Tenet and its wholly owned subsidiary, NMC, (collectively, "the Company")
sell and lease computer hardware and computer software license rights to
hospitals throughout the United States. In addition, the Company sells
maintenance contracts for these information systems. Substantially all of
the Company's revenues are generated from hospitals and therefore, the
Company's financial performance is partially dependent upon the viability
of the healthcare economic sector.
The Company is subject to various risks associated with companies in a
similar stage of operations including dependence on key individuals,
potential competition from larger and more established companies and the
need to obtain adequate sources of financing.
The Company has experienced recurring losses from operations and as of June
30, 1996 has a working capital deficit of $318,884 and a net capital
deficiency of $106,308. These matters raise substantial doubt about the
Company's ability to continue as a going concern.
The Company expanded its operations during fiscal 1996 by merging with NMC
and acquiring the consulting operations of HCG which increased revenues in
fiscal 1996 to $1,054,453 from $369,046 in fiscal 1995. The Company
received $372,381 of net proceeds from the sale of common stock and
warrants to purchase common stock during fiscal 1996.
The Company has devoted a substantial portion of its resources in the past
few years to upgrade and enhance its RCMS/X System for technological
advances. The Company has converted the RCMS/X System to operate within
the networked personal computer environment and management believes that
the updated system is ready to be marketed to new customers. The Company
is also in the process of upgrading the EDNet System to operate in the
Windows environment. The Company's ability to successfully market its
products is dependent upon obtaining additional debt or equity capital.
However, there can be no assurance that the additional debt or equity
capital will be available, or available on terms acceptable to the Company.
F-9
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Tenet and its wholly owned subsidiary, NMC. All significant intercompany
transactions and account balances have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1, "Software Revenue Recognition."
The Company's customers for the RCMS/X System generally pay cash for their
purchases of computer hardware and finance the purchase of license rights
to the software by entering into long-term, installment contracts with the
Company. Revenue from software licensing arrangements with customers,
which licenses include the rights to use the Company's software and ongoing
maintenance, is recognized on a monthly basis as billed under the
contracts. Revenues from the sale of computer hardware and components is
recognized upon installation and acceptance by the customer.
Revenues related to the EDNet System consist of sales of software licenses,
installation of information systems and related software customization and
enhancements. In addition, revenues are generated from annual software
support and maintenance. Sales of software licenses and installation
revenues are recognized at the time the system is installed, accepted and
customer personnel are trained in the system's use. Software customization
and enhancement revenue is recognized upon completion and customer
acceptance. Revenues from annual software and maintenance are recognized
ratably over the term of each contract. Amounts billed in advance of
revenue recognition are recorded as deferred revenue.
Revenues from consulting services are recognized when the services have
been provided.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value and consist of service parts.
F-10
<PAGE>
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the related assets, generally 3 to 10 years. Maintenance and repairs are
charged to expense as incurred and major improvements or betterments are
capitalized. Gains or losses on sales or retirements are included in the
statement of operations in the year of disposition. Furniture, fixtures
and equipment include $110,692 of computer equipment used in operations and
$8,610 of furniture, fixtures and equipment as of June 30, 1996 and
$158,467 of computer equipment used in operations and $28,606 of furniture,
fixtures and equipment as of June 30, 1995.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying balance sheets for cash,
accounts and contracts receivable, and accounts payable approximate fair
values because of the immediate or short-term maturities of these financial
instruments. The carrying amounts of the Company's notes payable and long-
term debt also approximate fair values based on current rates for similar
debt.
Income Taxes
The Company recognizes a liability or asset for the deferred tax
consequences of all temporary differences between the tax bases of assets
or liabilities and their reported amounts in the financial statements that
will result in taxable or deductible amounts in future years when the
reported amounts of the assets or liabilities are recovered or settled.
Warranty Costs
A 90-day limited warranty is provided on sales of hardware and software
licenses. Warranty costs incurred on hardware are passed through to the
manufacturer. Warranty costs have not been material in any year presented,
accordingly, these costs are expensed when incurred.
Net Loss Per Common Share
Net loss per common share is based on the weighted average number of common
shares outstanding during each year. 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.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
121"). SFAS No. 121 is required to be adopted on July 1, 1996. The effect
of implementing SFAS No. 121 is not expected to be material to the
Company's financial position and results of operations.
F-11
<PAGE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company is required to adopt SFAS
No. 123 on July 1, 1996. As allowed by SFAS No. 123, the Company will
continue to account for the cost of compensation from stock options and
awards to employees based upon their intrinsic value on the date granted or
awarded pursuant to Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees." The Company will also provide pro forma
results of operations as if the compensation from granting stock options
and awards was based on their fair values. The adoption of SFAS No. 123 is
not expected to have a material impact on the financial statements of the
Company.
(3) ACQUISITIONS
Acquisition of Certain Assets of HCG and Related Employment Agreements
Effective September 5, 1995, the Company acquired certain assets of HCG.
The assets acquired consist principally of software products and other
intangible assets. HCG provides consulting services and information
systems to various hospital departments. As consideration, the Company
issued 50,000 shares of 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
intangible assets, the entire purchase price of $37,000 was expensed in
fiscal 1996 and included in the write-off of excess purchase price in the
accompanying 1996 statement of operations.
In connection with the asset purchase, the Company also entered into three-
year employment agreements with HCG's two principal shareholders and
consultants (the "Employees"). The employment agreements provide for base
annual salaries and incentive stock options or bonuses. If consulting
revenues, as defined, during the 12 months following September 5, 1995
exceed $350,000, the Employees will be granted five-year options to
purchase 714,286 shares of the Company's common stock at $.14 per share.
In addition, the Company will assume $26,355 of additional debt. If
consulting revenues, as defined, during the second 12-month period
following September 5, 1995 exceed $400,000, five-year options to purchase
an additional 178,751 shares at $.14 per share will be granted to the
Employees. If consulting revenues exceed $450,000 and $500,000 during such
second 12-month period, five-year options to purchase an additional 178,751
and 178,751 shares of common stock, respectively, will be granted to the
Employees. In the event sufficient options are not available, the Company
will pay cash bonuses of $100,000 in lieu of granting the options. The
Company also issued the Employees warrants to purchase 664,286 shares of
the common stock at a price of $.14 per share for a three-year period upon
signing the employment agreements.
The employment agreements may be terminated by the Company for cause, as
defined, or in the event of death or disability of the Employees. The
agreements also include noncompetition provisions for a one-year period.
Through June 30, 1996, (10 months of the 12-month measurement period) the
Employees had generated $294,576 of consulting revenues. Since it was
probable the Employees would achieve the required $350,000 in consulting
revenues, the Company recorded the additional $26,355 of debt to be assumed
as of June 30, 1996.
F-12
<PAGE>
Agreement and Plan of Reorganization
Effective September 29, 1995, Tenet 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 Tenet incorporated for the purpose of effecting the merger.
NMC develops and markets information systems to hospital emergency
departments. Three million shares of Tenet's common stock were exchanged
for all outstanding shares of NMC and NMC became a wholly owned subsidiary
of Tenet. The three million shares were valued at $420,000. The merger
has been accounted for under the purchase method of accounting with the
operating results of NMC being combined with those of Tenet 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:
Cash $ 19,553
Accounts receivable, net 88,946
Other current assets 16,665
Furniture and equipment 2,660
Deferred software costs 47,913
Liabilities assumed:
Accounts payable (19,143)
Accrued liabilities (4,284)
Deferred revenue (215,194)
---------
Net liabilities assumed (62,884)
Add: Direct costs of the acquisition (27,000)
Value of common stock issued (420,000)
---------
Excess purchase price $ 509,884
=========
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 in fiscal 1996. 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 brought a customer base of 24 sites and a backlog of four
installations.
In connection with the merger, the Company entered into three-year
employment agreements with NMC's major shareholder and a key employee. The
employment agreements provide for base annual salaries, bonuses and the
grant of warrants to purchase 50,000 shares and incentive stock options to
purchase 50,000 shares of the Company's common stock at $.14 per share to
the individuals, respectively. The employment agreements may be terminated
by the Company for cause, as defined, or in the event of death or
disability of the employees. The agreements also include noncompetition
provisions for minimum periods of five and three years, respectively. The
Company entered into consulting agreements with two additional shareholders
of NMC. The consulting agreements provide for services to be rendered as
needed by the Company at a specified hourly rate and provide for the
issuance of warrants to purchase 50,000 shares of the Company's common
stock at $.14 per share to each consultant.
F-13
<PAGE>
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma acquisition information for fiscal 1996
and 1995 presents the results of operations as if the HCG and NMC
acquisitions described above had occurred at the beginning of fiscal 1995,
after giving effect to the write-off of the excess purchase price totaling
$546,884. The write-off of excess purchase price is a nonrecurring charge
which resulted directly from the transactions and therefore has been
excluded from the following pro forma information. The pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made at
the beginning of the fiscal 1995 as described above or of the results which
may occur in the future.
Unaudited Pro Forma
Results of Operations
---------------------
Years Ended June 30,
1996 1995
----------- ----------
Revenues $ 1,140,792 $ 908,089
Loss from operations (634,363) (332,469)
Net loss (1,197,972) (362,348)
Net loss per common share (.11) (.04)
(4) NOTES PAYABLE AND RELATED PARTY LONG-TERM DEBT
Notes payable as of June 30, 1996 consist of the following:
Amount
Notes payable to a shareholder including accrued
interest, interest at 12 percent, unsecured,
due July 31, 1996 and paid in full subsequent
to June 30, 1996 $40,992
Note payable to Utah Technology Finance
Corporation which was assumed in the HCG
acquisition (see Note 3), interest at prime
plus 2 percent (10.25 percent at June 30,
1996) , secured by essentially all assets of
HCG, was due in varying monthly payments based
on certain revenues, loan is in default due to
HCG and the Company not making scheduled
monthly payments, the total amount due under
the agreement has been classified as current 24,859
in the accompanying 1996 balance sheet
Other 1,147
-------
Total notes payable $66,998
=======
F-14
<PAGE>
Related party long-term debt consists of the following:
As of June 30,
--------------
1996 1995
-------- --------
Capital lease obligation, payable in
monthly installments of $704, interest
at 11.7 percent, maturing in fiscal
1998, secured by computer equipment $10,889 $17,162
Less current portion (7,046) (6,272)
------- -------
Related party long-term debt, net of
current portion $ 3,843 $10,890
======= =======
As of June 30, 1996, maturities of the related party long-term debt are
$7,046 and $3,843 in the years ending June 30, 1997 and 1998, respectively.
(5) OPERATING LEASE
The Company occupies its facilities under a noncancelable operating lease.
This lease expires in November 1998. Rent expense for fiscal 1996, 1995
and 1994 was approximately $49,500, $31,000 and $37,000, respectively.
Future lease payments under the agreement for the years ending June 30,
1997, 1998 and 1999 are $43,646, $45,391 and $17,267, respectively.
(6) DEFERRED SOFTWARE COSTS
The Company capitalizes computer software development costs upon the
establishment of technological feasibility. Technological feasibility for
the Company's computer software products is based upon achievement of a
detail program design free of high-risk development issues. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized computer software development costs requires
considerable judgment by management with respect to certain external
factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
technology. It is reasonably possible that those estimates of anticipated
future gross revenues, the remaining estimated economic lives of the
products, or both will be reduced significantly in the near term. Costs
incurred prior to the establishment of technological feasibility are
expensed as software development costs in the accompanying statements of
operations.
Amortization of deferred software costs begins when the product is first
sold and is calculated on a product-by-product basis using the straight-
line method over the remaining estimated economic life of the product.
Estimated economic lives of four to five years have been assigned to
deferred software costs. Amortization amounted to $58,000, $7,206 and
$47,500 in fiscal 1996, 1995 and 1994, respectively. Amortization is a
component of cost of revenues in the accompanying statements of operations.
F-15
<PAGE>
(7) INCOME TAXES
The components of the net deferred tax assets are as follows:
June 30, June 30,
1996 1995
--------- ---------
Deferred tax assets:
Tax net operating losses $1,516,000 $1,187,000
Tax credits 103,000 103,000
Reserves and accrued
liabilities 17,000 3,000
Deferred tax liabilities:
Deferred software costs (67,000) (82,000)
Depreciation - (8,000)
---------- ---------
Net deferred tax assets 1,569,000 1,203,000
Valuation allowance (1,569,000) (1,203,000)
---------- ---------
Net deferred tax assets $ - $ -
========== =========
As of June 30, 1996, the Company had net operating loss carryforwards for
federal income tax reporting purposes of approximately $3,986,000. For
federal income tax purposes, utilization of these carryforwards is limited
if the Company has had more than a 50 percent change in ownership (as
defined by Section 382 of the Internal Revenue Code) or, under certain
conditions, if such a change occurs in the future. The tax net operating
losses will expire beginning in fiscal 1999.
The Company has research and development tax credit and investment tax
credit carryforwards of approximately $95,000 and $8,000, respectively,
which will expire beginning in fiscal 1999.
No benefit for income taxes has been recorded during fiscal 1996, 1995 and
1994. As discussed in Note 1, certain risks exist with respect to the
Company's future profitability, and management has concluded that, due to
these uncertainties, the related deferred tax asset may not be realized.
Accordingly, a valuation allowance has been recorded to offset the deferred
tax asset in its entirety.
(8) CAPITAL STOCK
The Company's Articles of Incorporation authorize the board of directors,
without shareholder approval, to issue up to 1,000,000 shares of preferred
stock with such rights and preferences as the board of directors may
determine in its discretion. The board of directors has the authority to
issue shares of preferred stock having rights prior to the common stock
with respect to dividends, voting and liquidation.
F-16
<PAGE>
During fiscal 1995, the Company: (1) issued 100,000 shares
of common stock valued at $.14 per share to an officer in lieu of cash
compensation; (2) converted $119,645 of amounts due to related parties to
428,165 shares of common stock at approximately $.28 per share; (3)
converted $180,000 of related party long-term debt to 644,152 shares of
common stock at approximately $.28 per share; (4) converted 66,485 shares
of Series A preferred stock to 1,189,624 shares of common stock at
approximately $.56 per share; and (5) converted 3,692 shares of Series B
preferred stock to 132,123 shares of common stock at approximately $.28 per
share. As consideration for the holder of the Series A preferred stock to
accept a lower exchange rate, the Company granted to the holder of Series A
preferred stock a three-year warrant to purchase 594,812 shares of common
stock at $.42 per share.
Private Placements of Common Stock
In March 1995, the Company signed a letter of intent with Schneider
Securities, Inc. ("SSI") to raise a minimum of $252,000 or a maximum of
$756,000 under a best efforts private placement offering of common stock.
Under the contemplated arrangement, SSI was to receive commissions of
ten percent of the proceeds and warrants dependent upon the amount of
capital raised. The Company and SSI did not proceed with the private
placement offering; however, the Company issued three-year warrants to
purchase 90,000 shares of the Company's common stock at $.42 per share to
SSI and paid $12,600 as consideration for services rendered.
During fiscal 1996, the Company entered into arrangements with several
accredited investors to sell units at $.28 per unit. Each unit consists of
one share of common stock, one Class A Warrant and two Class B Warrants to
purchase additional shares of common stock. The Class A Warrants have an
exercise price of $.42 per share and the Class B Warrants have an exercise
price of $.07 per share for a three-year period. As of June 30, 1995, the
Company had received $50,000 of bridge debt financing in connection with
these arrangements. During fiscal 1996, the bridge loan was converted to
178,571 units as described above and an additional $202,000 was received in
exchange for 721,429 units. The proceeds from the sale of the units have
been allocated $126,000 to the shares of common stock issued and $126,000
to the Class B Warrants issued based on relative fair values. The Company
also incurred $15,470 of offering costs that have been netted against the
proceeds.
In June 1996, the Company closed a best efforts private placement offering
with SSI under which the Company sold 688,833 units at $.30 per unit
amounting to $206,650 in total proceeds. Each unit consists of one share
of common stock and a three-year warrant to purchase one share of common
stock at a price of $.25 per share for the first year of the warrant and at
$.42 per share for the final two years of the warrant. A portion of the
proceeds has been allocated to the warrants issued based on relative fair
values, which amounted to $17,221. The Company also incurred $20,799 of
offering costs, consisting principally of a 10 percent commission to SSI,
which have been netted against the proceeds.
F-17
<PAGE>
(9) STOCK OPTION PLANS AND WARRANTS TO PURCHASE COMMON STOCK
The Company has adopted an incentive stock option plan and a nonqualified
stock option plan. Stock options for an aggregate of 600,000 shares of
common stock may be granted under these plans. Stock options under both
option plans may be granted at a price per share not less than 100 percent
of the fair market value of the common stock, as determined at the date of
grant. Employees vest in the right to exercise their options on the third
anniversary date following the date of grant. The options expire five
years from the vesting date. Incentive stock options are forfeited unless
exercised within three months following termination of employment or twelve
months if termination is due to death or disability.
The Company has also granted options to purchase shares of common stock to
officers outside of the plans. The following table sets forth all options
granted, exercised and forfeited, together with their respective exercise
price ranges:
Years Ended June 30,
--------------------------
1996 1995 1994
------ ------ ------
Shares under option, beginning
of the year, at prices ranging
from $.05 to $1.875 per share 335,000 45,000 236,824
Options granted at prices ranging
from $.05 to $.14 per share 285,000 300,000 -
Options forfeited or canceled
at prices ranging from $.05
to $1.875 per share - (10,000) (191,824)
------- ------- --------
Shares under option, end of
the year, at prices ranging
from $.05 to $.14 per share 620,000 335,000 45,000
======= ======= ========
At June 30, 1996, 335,000 options were exercisable. In addition to the
options included in the above table, in connection with the acquisition of
HCG the Company agreed to grant options to purchase up to 1,250,539 shares
of common stock at $.14 per share based on future consulting revenues (See
Note 3).
F-18
<PAGE>
As discussed in Notes 3 and 8, the Company has issued warrants to purchase
common stock in connection with various transactions. The following table
summarizes the warrants to purchase common stock issued and outstanding,
together with their respective exercise price ranges:
Years Ended
June 30,
1996 1995 1994
Warrants to purchase common
shares, beginning of the
year, at a price of $.42
per share 594,812 - -
Warrants issued at prices
ranging from $.07 to $.42
per share 4,293,119 594,812 -
--------- ------- -------
Warrants to purchase common
shares, end of the year,
at prices ranging from $.07
to $.42 per share 4,887,931 594,812 -
========= ======= =======
Subsequent to June 30, 1996, the Company's 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 exercise by September 30, 1996. A
total of 1,621,424 warrants were exercised.
F-19
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements with accountants
on accounting and financial disclosure matters.
PART III
ITEM 10: Directors, Executive Officers, Promoters, and Control Persons of the
Registrant; Compliance with Section 16(a) of the Exchange Act
The names of the executive officers and directors of the Company, their
respective ages and positions with the Company, and the dates of their
elections to the Board of Directors or as officers are as follows:
Name Age Position with The Company Date of Election
<TABLE>
<S> <C> <C> <C>
Jerald L. Nelson 53 President(resigned) December 1, 1993 (July 10, 1996)
Chairman of the Board July 10, 1996
Director January 24, 1994
Frank Overfelt 53 Director September 29, 1995
Chief Operations Officer July 10, 1996
Eric J. Nickerson 43 Director June 29, 1990
Fred J. Anderson 50 Chairman of the Board
(resigned) May 21, 1992*(July 10, 1996)
Director, July 18, 1986*
Treasurer, May 16, 1985*
Secretary January 11, 1989*
Richard Gwinn 53 Director September 29, 1995
Robert Smith 53 Director September 29, 1995
</TABLE>
All directors hold office until the next annual meeting of shareholders of
the Company or until their successors have been elected and qualified. The
number of authorized directors may be varied by the Board of Directors, but
may not be less than three. Executive officers serve at the discretion of
the Board of Directors. The directors are entitled to certain limitations
on their liabilities as directors of the Company as permitted under Utah
law and as included in the Company's Articles of Incorporation.
21
<PAGE>
The Company's stock option plans permit the administration of the plans
through a Stock Option Plan Committee, composed of at least three members
of the Board of Directors. No such committee has been appointed, and no
other committees of the Board of Directors have been formed.
On July 10, 1996 Fred J. Anderson resigned as Chairman of the Board of
Directors. Jerald L. Nelson resigned as President and Chief Operating
Officer and was appointed Chairman of the Board of Directors. Frank C.
Overfelt was appointed Chief Operating Officer on an interim basis. Mr.
Anderson continues to serve as a director and as the Company's Chief
Financial Officer.
Business Biographies
Jerald L. Nelson. Jerald L. Nelson has served as a
director, president and chief operating officer of the Company since
December 1993. Effective July 10, 1996 Dr. Nelson was appointed
Chairman of the Board of Directors, and relinquished his position as
President and Chief Operating Officer. Dr. Nelson received his
Ph.D. in Economics from North Carolina State University in 1974.
From 1974 to 1984, Mr. Nelson worked or consulted with several
Fortune 500 firms, including US Industries, TransWorld Airlines,
GTE, Xerox, Pitney Bowes and General Foods. From 1984 until
December 1993, Mr. Nelson worked with various businesses as an
investment banker and business advisor. He has also consulted with
or served on the Board of Directors of numerous Utah firms including
Arrow Dynamics, Beacon Financial, Gentner Communications and One-2-
One Communications, where he also served as chairman and chief
executive officer.
Frank C. Overfelt Frank Overfelt was elected to the Board
on September 29, 1995. As of July 10, 1996, Mr. Overfelt was
appointed interim Chief Operating Officer. Mr. Overfelt has been
the managing partner the International HealthCare Consulting Group,
Inc. since its inception in 1984. He is a recognized authority in
workload measurement systems for health care institutions. Prior to
founding the consulting company Mr. Overfelt was a senior manager in
the Healthcare Cost Accounting and Productivity Practice of Peat
Martwick. He holds an MBA from the University of Utah.
Richard G. Gwinn Richard G. Gwinn, MD was elected to the
Board of Directors on September 29, 1995. Dr. Gwinn founded and
served as President of National MicroComputer Corporation since its
inception in 1982. In addition, he is a licensed physician and has
practiced emergency room medicine in several California hospitals
since 1973.
Fred J. Anderson. Fred J. Anderson has served as a director
and Chief Financial Officer since 1986 and Chairman of the Board
from May of 1992 until July 10, 1996. From 1985 to May of 1992, Mr.
Anderson served as the Company's Treasurer and from May 1988 until
January 1989, he served as the Company's Assistant Secretary. At
that time, he was named the Company's Secretary, and he currently
serves in that position. Mr. Anderson has also served as the
Company's controller the Company from 1984 to 1991. From 1980 until
1984, Mr. Anderson was Vice President Finance for Mountain States
Resources. Mr. Anderson received a BS in accounting and an MBA
from Utah State University.
Eric J. Nickerson. Eric J. Nickerson has served as a
director since June of 1990. Mr. Nickerson was a member of the
22
<PAGE>
faculty of the United States Military Academy at West Point, New
York from 1989 to 1993. In June 1993, Mr. Nickerson retired as a
United States Air Force officer. Currently, Mr. Nickerson is a
private investor and directs personal accounts and two investing
partnerships: "Third Century II" and "Z Fund." He also serves as a
director of CSM Environmental Systems, Inc. and Urinette
Incorporated.
Robert L. Smith Robert L. Smith, Jr. was elected to the
Board of Directors on September 29,1995. He was formerly Executive
Vice President for Product Development for National MicroComputer
Corp. He holds a Ph.D. from Stanford University in Mathematical
Logic. Before working with NMC Dr. Smith spent 10 years in senior
executive positions with Computer Curriculum Corporation managing
software development, system designs, and quality assurance. Prior
to 1982, Dr. Smith was an Assistant Professor of Computer Science at
Rutgers University in New Jersey.
Other Key Personnel
The Company's other key personnel include the following:
Donald W. Ballash. Mr. Ballash has over 14 years of experience in
the health care field in which he has specialized in management engineering
at two large multi-hospital systems; Intermountain Health Care and Kaiser
Permanente. Most recently he was a partner in the International HealthCare
Consulting Group.
Douglas H. Burns. Mr. Burns has worked in clinical medicine as a
Respiratory Therapist for the past 19 years. During this time he has
worked as a staff therapist, shift supervisor, and most recently as
Assistant Director of Respiratory Care. These hospitals ranged from 200 to
700 beds in size. Mr. Burns received his undergraduate degrees from
Allegheny Community College and La Roche College both located in
Pittsburgh, PA.
23
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth all cash compensation for services rendered
in all capacities to the Company during the fiscal year ended June 30, 1996
paid to (i) the Company's president and each executive officer whose cash
compensation exceeded $100,000, and (ii) all executive officers of the
Company as a group. No executive officers salary exceeded $100,000 for the
fiscal year.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation /Long Term Compensation /
-----------------------------------------------------------------
/ Awards /Payouts/
-----------------------------------
Name Year Salary Bonus Other Restricted SecuritiesLTIP All Other
and ($) ($) Annual Stock Underlying Pay- Compen-
Principal Compen- Awards Options/ outs sation
Position ($) ($) SARs(#) ($) ($)
- ---------------------------------------------------------------------------------------------------
Jerald L. Nelson 1993 -0- -0- -0- -0- -0- -0- -0-
President 1994 21,000 -0- -0- 14,000 -0- -0- -0-
1995 60,000 -0- -0- -0- -0- -0- -0-
All Executive Officers
(3 persons) 1994 150,000 -0- -0- -0- -0- -0- -0-
(3 persons) 1995 105,000 -0- -0- -0- -0- -0- -0-
(5 persons) 1996 308,200 21,800 -0- -0- -0- -0-
</TABLE>
The Company also may pay discretionary cash bonuses to management and
employees based on meritorious performance.
Stock Option Plans
On October 15, 1984, the Company adopted an Incentive Stock Option Plan
(the "ISO Plan"), pursuant to which only "incentive stock options"
("ISO's"), as defined in the Internal Revenue Code (the "Code"), may be
granted. On the same date, the Company adopted a Nonqualified Stock Option
Plan ("NQSO Plan"), pursuant to which only "nonqualified stock options"
("NQSOs"), as defined in the Code, may be granted. Stock options for an
aggregate of 600,000 shares of common stock may be granted under both
Plans. ISOs may be granted under the ISO Plan to employees owning less
that 10% of the Company's voting stock (as defined by Sections 422A and 425
of the Code). NQSOs may be granted under the NQSO Plan to employees who
are ineligible to receive options under the ISO Plan.
Stock options may be granted under the Plans at a price per share not less
than 100% of the "fair market value" (as defined by the Plans) of the
common stock on the date of grant.
The Plans limit grants of stock options to any one employee to 60,000
shares of stock per plan year, with an aggregate option price ceiling of
$100,000 under the ISO Plan in any year. Each stock option, unless sooner
24
<PAGE>
terminated, expires five years from the "date of effectiveness", which is
three years from the date of grant.
ISOs are exercisable until three months following termination of employment
(twelve months if termination is due to death or disability). Termination
of employment for any reason does not affect the exercisability of NQSOs,
regardless of whether the option's effective date has been reached. Under
both Plans, options are exercisable during an optionee's lifetime only by
such optionee and are transferable only upon death by the laws of decent or
distribution.
The Board of Directors has the right to modify or amend the Plans at any
time, provided, however, that, unless ratified by the Company's
shareholders, no amendment will be effective which (i) changes the number
of shares which may be issued under the Plans, (ii) changes the option
price, other than the manner of determining the fair market value of the
shares, (iii) changes the periods during which options may be granted or
exercised, (iv) changes the provisions relating to the determination of
employees to whom options may be granted and the number of shares to be
covered by such options, or (v) changes the provisions relating to
adjustments to be made upon changes in capitalization. Shareholder action
is also required to terminate the Plans.
As of June 30, 1995, the Company had granted 335,000 options to key
employees exercisable at the rate of $.05 per share. During the present
fiscal year, no options were exercised or canceled, 185,000 ISO's were
issued with an exercise price of $.14 and 100,000 NQSOs were issued at an
exercise price of $.14. Therefore, as of June 30, 1996, there were 420,000
ISOs outstanding and 200,000 NQSOs outstanding. No single employee has in
excess of 100,000 ISOs outstanding.
The following table sets forth, as to officers and directors of the Company
and all employees as a group, certain information relating to options
currently outstanding under the Plans.
Individual or Group ISOs NQSOs OTHER
------------------- ------ ------- -------
All Employees as a Group
(including executive
officers) 420,000 200,000 1,250,539
Tables of options are not included as there are no options outstanding
subject to reporting requirements.
Also in connection with the HCG acquisition the Company has agreed to grant
up to 1,250,359 options with an exercise price of $.14 to certain
principals of HCG, contingent upon certain levels of performance.
25
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the holdings of common stock as of September
31, 1996 (i) by each person who held of record, or was known by the Company
to own beneficially, more than five percent of the outstanding common stock
of the Company, (ii) by each Director, and (iii) by all Directors and
officers as a group. Unless otherwise indicated, all shares are owned
directly. The percentage calculations for any individual stockholder
assume that all outstanding options and warrants held by that stockholder
have been exercised in full and that no other stockholder has exercised any
outstanding options or warrants.
Name and Address of Beneficial Owner as of September 30, 1996
Common (1) Percent of Shares Outstanding
Michael R. Carlston 2 4,082,868 31.14%
Dennis C. Peterson 3 3,823,471 29.32%
Mark Oldroyd 4 3,578,588 27.44%
Scott Staker 5 3,578,588 27.44%
T-Acquisition 6 3,378,588 25.91%
Eric J. Nickerson 7 2,413,469 17.92%
Third Century II 7 2,413,469 17.92%
Richard Gwinn 8 1,054,920 8.06%
Robert Smith 9 803,997 6.13%
M. Oppenheimer 11 784,300 5.92%
Ira Goodberg 12 676,507 5.02%
Frank Overfelt 13 448,571 3.33%
Donald W. Ballash 14 315,715 2.34%
Jerald L. Nelson 15 435,700 3.23%
Fred J. Anderson 16 264,345 2.01%
All Officers and
Directors 5,736,717 39.82%
1. Based on 10,708,248 common shares outstanding, 4,181,242 warrants to
purchase common shares at $0.07 - $0.42 and options to acquire 1,870,362
shares of Common Stock at $0.05-$0.14 per share.
2. The shares indicated include: (i) 704,280 shares of Common Stock
beneficially owned by Mr. Carlston (including shares owned by his wife and
held in trust for the benefit of his children); (ii) 2,783,776 shares of
Common Stock and warrants to acquire 594,812 shares of Common Stock at
$.042 per share held by T-Acquisition. Mr. Carlson's address is 855 Harwood
Dr., Murray, UT 84107
3. Includes 444,883 shares of Common Stock beneficially owned by Mr.
Peterson, and 2,783,776 shares of Common Stock and warrants to acquire
594,812 shares of Common Stock at $.042 per share held by T Acquisition
L.L.C. Mr. Peterson's address is 2508 W. Bueno Vista Dr., W. Jordan, UT
84088
4. Includes 200,000 shares of Common Stock beneficially held by Mr.
Oldroyd, including shares held in trust for the Violet Johnson Brown Family
Trust. Also includes 2,783,776 shares of Common Stock and warrants to
acquire 594,812 shares of Common Stock at $.042 per share held by T-
Acquisition. Mr. Oldroyd address is 55 North 800 West, Provo, UT 84601
26
<PAGE>
5. Includes 200,000 shares of Common Stock held by Mr. Staker and also
includes 2,783,776 shares of Common Stock and warrants to acquire 594,812
shares of Common Stock at $.042 per share held by T-Acquisition. Mr.
Stakers address is 880 North 98 West #9, Provo, UT 84604
6. A Utah Limited Liability company of which Michael R. Carlston owns or
controls 56.7%, Mark Oldroyd owns or controls 32.1%, Dennis C. Peterson
owns or controls 6.4% and Scott Staker owns or controls 4.8%. The shares
indicated consist of 2,783,776 shares of Common Stock issued as of December
31, 1995, and a warrant to acquire 594,812 shares of Common Stock, at a
price of $0.42 per share. The address of T-Acquisition is 855 Harwood Dr.,
Murray, UT 84107.
7. Includes 1,982,699 shares of Common Stock and warrants to acquire
430,770 shares of common stock at a price of $0.05 - $0.42 per share held
by Third Century Fund II. Mr. Nickerson is Senior Partner of Third Century
Fund II. Mr. Nickerson is also a director of the Company. Mr. Nickerson
and Third Century Fund II's address is 1711 Chateau CT., Fallston, MD 21047
8. Includes 1,004,920 shares of Common Stock held by Dr. Gwinn and
warrants to acquire 50,000 shares of Common Stock at a price of $.14 per
share exercisable through September 29, 1998. Dr. Gwinns address is 304 W.
Thorn, San Diego, CA 92103
9. Includes 753,497 shares of Common Stock held by Dr. Smith and warrants
to acquire 50,000 share of Common Stock at a price of $.14 per share
exercisable through September 29, 1998. Dr. Smiths address is 2291 Greer
Rd., Palo Alto CA 94303
10. Reflects 210,575 shares of Common Stock, and (ii) a warrant to acquire
178,575 shares of Common Stock at a price of $.42 per share. Mr.
Oppenheimers address is 31 Crescent Avenue, Summit, NJ 07901
11. Includes 676,507 shares of Common Stock beneficially held by Mr.
Goodberg. Mr. Goodbergs address is c/o 304 W. Thorn, San Diego, CA 92103
12. Includes 564,576 shares of Common Stock held beneficially by Mr.
Cihos. Also includes warrants to acquire 50,000 shares of Common Stock at
a price of $.14 per share. Mr. Cihos Address is 1135 Doralee Way, San Jose,
CA 95125
13. Includes 50,000 shares of Common Stock held by IHCG, and also includes
Warrants to acquire 398,571 shares of Common Stock at $0.14 per share,
warrants exercisable through September 5, 1997. Mr. Overfelts address is
4634 So. Ledgemont Dr., Holladay UT 84124
14. Includes 50,000 shares of Common Stock held by IHCG, and also includes
Warrants to acquire 265,715 shares of Common Stock at $0.14 per share,
warrants exercisable through September 5, 1997. Mr. Ballash's address is
9777 So. Dunsinsame Dr., So. Jordan, UT 84095
15. Includes 314,275 shares of Common Stock ,and warrants to acquire
71,425 shares of Common Stock at a price of $0.42 per share and options to
acquire 50,000 shares of common stock at $.14 per share.. Mr. Nelsons
address is 32 Algonquin Ct., Wayne, PA
16. Includes 214,345 shares of Common stock and options to acquire 50,000
shares of common stock at $.14 per share. Mr. Andersons address is 343
West 4125 North, Pleasant View, UT 84414
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the Company's last fiscal year, there have been no
transactions or series of transactions between the Company and any
executive officer, director or 5% beneficial owner of the Company's common
stock in which one of the foregoing individuals had an interest of more
than $60,000 except the transactions identified below.
The Company believes that all transactions between the Company and related
parties have been on terms and conditions no less favorable to the Company
than those available from third parties. Each transaction was entered into
to provide operating capital for the Company. All future transactions
between the Company and any related party will be on terms and conditions
no less favorable to the Company than those available from third parties
and will be approved by a majority of the Company's disinterested
directors.
Section 16(a) of the Securities Exchange Act of 1934 required the Company's
directors and executive officers, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Executive officers, directors and holders of ten percent or more
of the Company's equity securities are required to furnish the Company with
copies of all Section 16(a) reports they file. However, because of the
recent mergers and conversions, these reports have not been provided.
27
<PAGE>
PART IV
ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 8:
Report of Independent Public Accountants
Balance Sheets as of June 30, 1996 and 1995
Statements of Operations for the Years Ended
June 30, 1996, 1995, and 1994
Statements of Shareholders' Equity
for the Years Ended June 30, 1996, 1995 and 1994
Statements of Cash Flows for the Years ended
June 30, 1996, 1995, and 1994
Notes to Financial Statements
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during
the last quarter of the period covered by this report.
(c) Exhibits
The following documents are incorporated by reference to the Company's
Registration Statement on Form S-18, filed with the Commission on January
17, 1989, and as amended on February 10, 1989 and March 7, 1989, as
declared effective on March 9, 1989:
3.1 Articles of Incorporation and all amendments thereto
3.2 Bylaws
10.1 Nonqualified Stock Option Plan
10.2 Incentive Stock Option Plan
10.3 Form of common stock Purchase Warrant issued to Rogers & Anderson
10.4 Form of Rental Agreement
10.5 Form of 60 Month Lease Agreement
10.6 Form of Purchase Agreement
10.7 Form of Proprietary Information and Inventions Agreement between
all employees and consultants and the Company
10.8 Facilities Lease between the Company and J & V Management Company
28
<PAGE>
The following documents are incorporated by reference to the Company's Annual
report on Form 10-K dated September 25, 1989:
10.9 Underwriting Agreement, dated March 10 1989, between the Company
and Schnieder Securities, Inc.
10.10 Hemotech Purchase Agreement
The following documents are incorporated by reference to the Company's
report on Form 10-K dated October 12, 1993
10.11 Settlement Agreement between Tenet Information Services, Inc., and
Hewlett Packard
10.12 Release and Consent Agreement between Tenet Information Services
Inc., and First Security Bank.
10.13 Assignment of Note and Related Documents by First Security Bank in
favor of T Acquisition L.C.
10.14 Facility Lease
10.15 Debt Conversion
10.16 Series A Preferred Stock
10.17 Series B Preferred Stock
The following documents are incorporated by reference to the Company's
report on Form 10-K dated October 14, 1995 for the year ended June 30, 1995.
2.1 Form of International Health Care Consulting Group Acquisition
2.2 Agreement and Plan of Reorganization
4.1 Conversion of Series A Preferred Stock
4.2 Conversion of Series B Preferred Stock
4.3 Conversion of T-Acquisition Debt
4.4 Conversion of Anderson Debt
4.5 Conversion of Carlston Debt
4.6 Form of Private Placement
4.7 Form of Class A Warrant
4.8 Form of Class B Warrant
4.9 Form of Class C Warrant
10.18 Form of F. Overfelt Employment Agreement
10.19 Form of D. Ballash Employment Agreement
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TENET INFORMATION SERVICES, INC.
October 28, 1996 By:/s/Fred J. Anderson
-----------------------------------------
Fred J. Anderson, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person, which include the
Chief Executive Officer, Chief Financial Officer, and a majority of the
Board of Directors, on behalf of the Company and in the capacities and on
the dates indicated:
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints each of Jerald L. Nelson and Fred J.
Anderson, jointly and severally, his true and lawful attorney in fact and
agent, with full powers of substitution for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
Report on Form 10-K and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorney in fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Signature Title Date
--------- ------- ------
/s/ Jerald L. Nelson Director and Chairman of October 28, 1996
- -------------------- the Board of Directors
Jerald L. Nelson
/s/Frank C. Overfelt Director and Acting October 28, 1996
- -------------------- Chief Operating Officer
Frank C. Overfelt
/s/ Fred J. Anderson Corporate Secretary, Director
- -------------------- Chief Financial Officer
Fred J. Anderson October 28, 1996
/s/ Eric J. Nickerson Director
- ---------------------
Eric J. Nickerson October 28, 1996
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Companies Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
The Company has not prepared or distributed any annual report to security
holders covering the last fiscal year nor any proxy statement, form for proxy
or other proxy soliciting material to more than ten of the Company's security
holders with respect to any annual or other meeting of security holders. In
the event the Company's management elects to distribute such an annual report
or proxy material subsequent to the filing of this annual report on Form
10-K, the Company will furnish four copies of such materials to the Commission
when it is sent to security holders.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TENET
INFORMATION SERVICES, INC. JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 209,589
<SECURITIES> 0
<RECEIVABLES> 149,934
<ALLOWANCES> 7,500
<INVENTORY> 5,000
<CURRENT-ASSETS> 357,023
<PP&E> 119,302
<DEPRECIATION> 84,945
<TOTAL-ASSETS> 573,442
<CURRENT-LIABILITIES> 675,907
<BONDS> 0
11,397
0
<COMMON> 0
<OTHER-SE> 94,911
<TOTAL-LIABILITY-AND-EQUITY> 573,442
<SALES> 1,054,453
<TOTAL-REVENUES> 1,054,453
<CGS> 559,955
<TOTAL-COSTS> 1,625,010
<OTHER-EXPENSES> 546,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,929
<INCOME-PRETAX> (1,132,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,132,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,132,370)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
