FORM 10-KSB
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, 1997
[ ] 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
October 15, 1997 was 13,018,505.
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 13
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8 Financial Statements 22
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 23
PART III
Item 10 Directors, Executive Officers, Promoters and
Control Persons of the Registrant: Compliance
with Section 16(a) of the Exchange Act 23
Item 11 Executive Compensation 26
Item 12 Security Ownership of Certain Beneficial
Owners and Management 28
Item 13 Certain Relationships and Related Transactions 29
PART IV
Item 14 Exhibits and Reports on Form 8-K 30
(a) List of Financial Statements, Schedules
and Exhibits
(b) Reports on Form 8-K
8-K Report for NMC Acquisition
SIGNATURES
EXHIBITS Attached
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. Tenet Information
Services, Inc. (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
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. There have not been any further installations of the
RCMS/X since 1995.
International Healthcare Consulting Group Acquisition/HCG 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 assumed $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/NMC 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/EDNet 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.
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 the
fall of 1997 for Beta testing at hospitals..
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.
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, and 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.
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.
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 plans that it will be able to start
"beta testing" of the Windows product later in calendar 1997,
and that the windows version will be available as an upgrade for
present customers and new customers during calendar 1998.
However, 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. 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.
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 assignments, 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. The 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 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, 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 evaluated the feasibility and marketability of
converting the RCMS/X code to run in a small hospital situation
utilizing a Windows environment for added flexibility. This
project is on hold, and it is doubtful that this project will go
forward. The Company anticipates that it will lose a substantial
portion of this line of business.
MARKETING
The Company's sales and marketing were previously conducted by
the vice-president of Sales. Effective March 21, 1997, this
individual resigned. This resignation and the disagreement
with management over marketing methods has significantly
reduced the number of potential sales leads for the Company.
The Company had concerns about lack of marketing of its DOS
based Emergency System and the lack of any concentrated effort
to market RCMS/X. Since March 21, 1997, the Company's Chief
Operating Officer has been responsible for marketing, in
addition to his other duties which include ensuring 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.
As of October 15, 1997, 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 at this time is not
actively marketing the RCMS/X product, and there is no present
development program ongoing, however, the Company intends to
reconsider additional development and marketing if or when
additional operating funds become available.
As of October 15, 1997, the Company had sold its EDNet product
to 20 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
June 30, 1997, the Company was in the process of installing
EDNet at an additional site. The Company is continuing in its
development of a EDNet32 windows based product and has
scheduled two beta test sites for installation in November and
December 1997. However, if sufficient operating funds are not
received by the Company, the Company may not continue to
develop, market or support EDNet32.
Consulting services are charged based on negotiated rates.
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. This
project is on hold, and there are no immediate plans to proceed.
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.
PRIVATE PLACEMENTS
------------------
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.
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 $185,851, 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, 1997, the Company employed six full-time
employees, two part-time employees and several independent
service contractors. The number of employees and their
responsibilities are as follows: two professional, three
technical, one full-time 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.
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
$3,692 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, 1997 was 325 which includes
depositories and broker/dealers who hold shares of Common
Stock in "nominee" or "street names".
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data as of and for each of the fiscal
years ended June 30, 1993 through 1996 has been derived from
the Company's financial statements which have been audited by
Arthur Andersen, LLP, independent public accountants.
Financial Data for the fiscal year ended June 30, 1997 has
been derived from the Company's financial statements which
have been audited by Hansen Barnett & Maxwell, 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,
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
(In thousands, except per share amounts)
Revenues $ 757 $1,054 $ 369 $ 392 $ 560
Loss from operations (431) (571) (319) (356) (374)
Net loss (435) (1,132) (335) (375) (467)
Net loss per
common share (.03) (.11) (.07) (.09) (.14)
Balance Sheet Data
As of June 30,
---------------------------------------
1997 1996 1995 1994 1993
------- ------ ------ ------ ------
(In thousands)
Working capital
(deficit) $ (470) $ (319) $ (60) $ 164 $ 636
Total assets 95 573 406 570 988
Long-term obligations - 4 11 195 203
Stockholders' equity
(deficit) (452) (106) 172 180 550
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company was engaged in servicing specialized data processing
information products used in the respiratory services departments
of larger hospitals. During the fiscal year 1996, the Company
acquired certain assets of the International HealthCare Consulting
Group ("HCG") and acquired National Microcomputer Corporation
("NMC").
As a result of the Company's decision to focus its limited time and
monetary resources towards the development of an Emergency
Department Windows product, the EDNet has become the Company's
basic line. Therefore, the Company's discussion to this resource
allocation has resulted in the Company's lack of marketing and/or
product development of its Respiratory Product.
The Company's efforts to sell the Emergency DOS product have
languished, however, and the development of the EDNet 32 system is
behind management operating projections.
Two members of the Board, Dr. Richard Gwinn and Dr. Robert Smith
resigned as directors of the Company effective November 1, 1996 and
December 12, 1996, respectively. Dr. Gwinn resigned as an employee
November 1, 1996. However, both have continued to render services
on an hourly basis for continued support of existing customers, as
well as review and critique of the EDNet 32 product.
Effective March 21, 1997, the Vice president of Marketing resigned
on a mutually accepted basis. This resignation and the
disagreement with management over marketing methods has
significantly reduced the number of potential sales leads for the
Company.
The net result of the resignations above is a dramatic decrease in
consulting revenues of the Company as the efforts of those involved
with consulting have been more focused on EDNet 32 than before.
Also, pending consulting contracts have not materialized. The
Company is concerned about the reduced level of consulting revenues
and is considering marketing alternatives.
As of June 30, 1997, 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 at this time is not actively marketing the
RCMS/X product, and there is no present development program ongoing.
However, the Company intends to reconsider additional development and
marketing if or when additional operating funds become available.
As of June 30, 1997, the Company had sold its EDNet product to 20
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 June 30, 1997, the Company
was in the process of installing EDNet at two additional sites.
The Company is continuing in its development of the EDNet32 windows
based product and has scheduled two beta test sites for
installation in November and December 1997.
Based upon present operations, the Board of Directors authorized
its Chairman to investigate the possibility of selling some or all
of the Company's assets. As of the date of this report, the
Company has not signed any definitive agreements. Although all
negotiations have not been terminated, it is the opinion of
management that unless different opportunities evolve, the
interests of shareholders will be best served by continuing with
the present plan to launch EDNet 32. There can be no assurances
such efforts will be successful, given the present financial
condition of the Company.
The Company, however, intends to keep its options open, including
sale or licensing of products, debt restructuring or other options
which benefit the shareholder.
Results of Operations
Fiscal 1997 Compared with Fiscal 1996
During fiscal year 1997, the Company had revenues of $757,257 which
represented a decrease of $297,196 (28%) from $1,054,453 for the
prior fiscal year. The following table presents the components of
revenues for fiscal 1997 and 1996.
<TABLE>
<CAPTION>
ACTUAL
<S> <C> <C> <C> <C>
REVENUES FY 97 FY 96 Increase Percent
(Decrease) Increase
(Decrease)
-----------------------------------------------------------------
EDNet Systems $ 359,638 $ 397,103 $ (37,465) (10%)
RCMS Systems 309,395 362,774 (53,379) (15%)
Consulting 88,224 294,576 (206,352) (70%)
Total $ 757,257 $1,054,453 $(297,196) (28%)
</TABLE>
The following table details cost of revenue by product, comparing the
prior fiscal year as shown on financials.
<TABLE>
<S> <C> <C> <C>
1997 1996 Increase
(Decrease)
--------- --------- -----------
EDNet System $ 86,745 $ 89,835 $ (3,090)
RCMS Systems 117,240 209,539 (92,299)
Consulting 208,275 194,101 14,174
Amortization & Writedown
of Deferred Software Costs 180,637 66,480 114,157
--------- --------- --------
Total $ 592,897 $ 559,955 $ 32,942
</TABLE>
Cost of revenues increased by $32,942 (6%) to $592,897 for fiscal
year 1997 compared with $559,955 for the previous fiscal year.
Cost of revenues related to the EDNet System for fiscal year 1997
were $86,745, with a gross margin of 76%. This compares to cost of
revenues of $ 89,835 with a gross margin of 77% for the prior
twelve month period. Respiratory cost of revenues declined to
$117,240 for fiscal year 1997 compared with $209,539 for the prior
fiscal year as a result of a smaller installed base of systems to
be maintained with a gross margin or 62%. This compares to Cost of
revenues of $209,539 with a gross margin of 42% for the prior
twelve month period.. Amortization and write-downs of deferred
software costs increased by $114,157, or 172% to $180,637 for
fiscal year 1997 compared with $66,480 for the previous fiscal
year. This is a result of the Company's review of remaining
economic value and a writedown of its investment of RCMS/X.
Consulting cost increased by 7% to $208,275 for fiscal year 1997
from $194,101 for the fiscal year 1996.
Selling, general and administrative expenses decreased by $413,720,
or 51%, to $402,335 for fiscal year 1997 compared with $816,055 for
the previous fiscal year. The following expenses decreased from the
prior year; marketing $41,000 sales travel $48,000, general and
administrative salaries and employee benefit cost $71,000, building
lease, telephone, and outside services by $58,000, and legal and
accounting by $32,000.
Software development expenses decreased by $59,591 or 24%, to
$193,409 for fiscal year 1997 from $249,000 for fiscal 1996. This
is the result of fewer personnel assigned to the Emergency
Department Windows product, and use of outside contractors.
Interest expense decreased to $3,785 for fiscal year 1997 compared
with $14,929 for fiscal year 1996. 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.
As a result of the above factors, the net loss from operations
decreased to $431,384 for fiscal year 1997 compared with a loss of
$570,557 for fiscal year 1996.
Net loss decreased to $435,169, or $.03 loss per share for fiscal
year 1997 compared with loss of $1,132,370, or $.11 loss per share
for fiscal year 1996.
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.
<TABLE>
<CAPTION>
ACTUAL PROFORMA
<S> <C> <C> <C> <C> <C> <C>
REVENUES FY 96 FY 95 Increase FY96 FY95 Increase
(Decrease) (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
</TABLE>
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.
<TABLE>
<S> <C> <C> <C>
1996 1995 Increase
(Decrease)
--------- --------- ---------
EDNet System $ 89,835 $ -0- $ 89,835
RCMS Systems 209,539 234,970 (25,431)
Consulting 194,101 -0- 194,101
Amortization &
Writedown if deferred
Software Costs 66,480 34,920 31,560
--------- --------- ---------
Total $ 559,955 $ 269,890 $ 290,065
</TABLE>
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 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.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has suffered recurring losses from operations since
fiscal year 1989, and as of June 30, 1997 had an accumulated deficit
of $5,106,538. The operating losses are due in part to significant
decreases in revenues in fiscal years 1997, 1996, 1995, 1994 and 1993
as the Company redeveloped and updated its respiratory product and
also as a result of the Company's expensing $546,884 of excess
purchase price related to the NMC and HCG acquisitions. Management
believes that those arrangements were fair, and represent a valuable
addition to the Company.
During the fiscal year ended June 30, 1996, the Company signed a
letter of intent to raise an additional minimum of $201,000 in equity
funding and is proceeding with a private placement of its common
stock with a minimum of $201,000 and a maximum of $600,000 to be
raised on a best efforts basis. This offering consists of a
minimum of 670,000 units and a maximum of 2,000,000 units priced at
$.30 per unit. Each unit consists of (i) one share of common stock
and (ii) a warrant to purchase an additional share at $.25 per
share if exercised within one year of the placement closing and
$.42 afterward until the termination date three years after the
placement closing. This offering closed on June 28, 1996 raising
for the Company a net amount of $185,851.
The Company also accelerated conversion of its Class B warrants by
offering a discount to $.05 from $.07 if exercised prior to September
30, 1996. A total of 1,621,424 warrants were exercised, creating
$70,429 in cash and $10,643 in debt reduction.
At June 30, 1996, the Company had $40,000 in bridge financing. This
was repaid from the Private Placement Offering.
On September 29, 1995, the Company and NMC approved the terms of an
Agreement and Plan of Reorganization (the "Agreement") pursuant to
which NMC was merged with and into Tenet Merger Subsidiary, Inc., a
wholly owned subsidiary of the Company incorporated for the purpose
of effecting the merger. NMC develops and markets an integrated
information management/patient tracking system designed specifically
for use in emergency departments.
The Company's cash position decreased by $184,593 during the fiscal
year ended June 30, 1997 to $27,338 as compared to $209,589 as of
June 30, 1996. The Company had a working capital deficit of $469,775
as of June 30, 1997 as compared with a deficit of $318,884 as of June
30, 1996. Operating activities used $210,540 for the fiscal year
ended June 30, 1997 as compared with using $219,835 for the
corresponding period of the previous year. The principal sources of
cash have been (i) proceeds from conversion of warrants of $70,428,
and the $185,852 net raised in the above mentioned private placement.
There were debt payments of $42,139 during the fiscal year ended
June 30, 1997 as compared with $6,273 for the corresponding period of
the previous year.
While a significant portion of the current liabilities, approximately
$160,000, is owed to present officers and/or directors, there can be
no assurances that these officers/directors will not seek payment in
the near term. In addition, it appears that certain directors and/or
officers intend to expand their amounts due with claims of penalties
and for interest, the viability of such is contested by the Company.
The Company has contingency plans should cash flows decrease to a
significant degree. At the present time, the Company believes that
these contingency plans, which include slowing the continued
development of the new system, will not have to be implemented
during fiscal year 1998. Continued installations require financing
arrangements, which the Company hopes can be obtained.
The Company is also considering the potential sale of some or all
of its product lines in the event development is not timely for the
EDNet32 system, sales of systems do not increase and that the
Company has sufficient working capital.
The Company is continuing in its development of EDNet32 windows
based product and is hopeful of a product launch in the later
part of calendar 1997. Based upon present operations, the Board
of Directors authorized its Chairman to investigate the
possibility of selling some or all of the Company's assets. As
of the date of this report, the Company has not signed any
definitive agreements. Although all negotiations have not been
terminated, it is the opinion of management that unless
different opportunities evolve, the interest of the shareholders
will be best served by continuing with the present plan to launch
EDNet 32. There can be no assurances such efforts will be
successful, given the present financial condition of the
Company.
Inflation has not had a significant impact on the Company's
operations.
ITEM 8: FINANCIAL STATEMENTS
Index to Financial Statements
Reports of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of June 30, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995 F-5
Consolidated Statements of Shareholders' Deficit for the
Years Ended June 30, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-9
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Tenet Information Services, Inc.
We have audited the accompanying consolidated balance sheet of Tenet
Information Services, Inc. (a Utah corporation) and subsidiary as of
June 30, 1997, and the related consolidated statements of operations,
shareholders' deficit and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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, 1997, and the
results of their operations and their cash flows for the year then ended
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 to
the financial statements, the Company has experienced recurring losses
from operations, has a working capital deficit and a net capital deficiency
which raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also described
in Note 1. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Salt Lake City, Utah
October 2, 1997
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenet Information Services, Inc.:
We have audited the accompanying consolidated balance sheet of Tenet
Information Services, Inc. (a Utah corporation) and subsidiary as of
June 30, 1996, and the related consolidated statements of operations,
shareholders' deficit and cash flows for each of the two 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 o n 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 the
results of their operations and their cash flows for each of the two
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 anet 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
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
ASSETS
1997 1996
--------- ---------
Current Assets
Cash $ 27,338 $ 209,589
Accounts receivable, net of allowance
for doubtful accounts of $7,500 at
June 30, 1997 and 1996 49,994 114,495
Contracts receivable - 27,939
Inventories - 5,000
--------- ---------
Total Current Assets 77,332 357,023
--------- ---------
Capitalized Software Costs, Net - 180,637
--------- ---------
Furniture, Fixtures and Equipment 119,302 119,302
Less: Accumulated depreciation
and amortization (103,233) (84,945)
--------- ---------
16,069 34,357
--------- ---------
Other Assets, Net 1,425 1,425
--------- ---------
Total Assets $ 94,826 $ 573,442
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' DEFICIT
1997 1996
--------- ---------
Current Liabilities
Notes payable $ 28,090 $ 66,998
Current portion of related-party
long-term debt 10,889 7,046
Accounts payable 127,813 206,971
Payable to officers/shareholders 159,810 117,868
Accrued salaries and benefits 81,883 140,633
Deferred revenue 131,412 128,891
Accrued interest 7,210 7,500
--------- ---------
Total Current Liabilities 547,107 675,907
--------- ---------
Related-Party Long-Term Debt,
net of current portion - 3,843
--------- ---------
Commitments and Contingencies -
Notes 1, 3 and 5
Shareholders' Deficit
Preferred stock, $0.01 par value;
1,000,000 shares authorized, no
shares issued - -
Common stock, $.001 par value;
100,000,000 shares authorized,
13,018,505 and 11,397,081
shares issued, respectively 13,019 11,397
Additional paid-in capital 4,611,517 4,418,568
Warrants outstanding 29,721 143,221
Accumulated deficit (5,106,538) (4,671,369)
Deferred compensation - (8,125)
---------- ---------
Total Shareholders' Deficit (452,281) (106,308)
---------- ---------
Total Liabilities and Shareholders'
Deficit $ 94,826 $ 573,442
========== =========
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- ----------
Revenues
Software license fees and
maintenance $ 669,033 $ 688,751 $ 325,435
Sales of computer hardware
and components - 71,126 43,611
Consulting services 88,224 294,576 -
----------- ----------- ----------
Total Revenues 757,257 1,054,453 369,046
----------- ----------- ----------
Costs and Expenses
Cost of revenues
Software license fees
and maintenance 203,985 242,056 141,544
Amortization and write-downs
of deferred software costs 180,637 66,480 34,920
Computer hardware and
components - 57,318 93,426
Consulting services 208,275 194,101 -
----------- ----------- ----------
Total Cost of Revenues 592,897 559,955 269,890
----------- ----------- ----------
Gross Profit 164,360 494,498 99,156
----------- ----------- ----------
Operating Expenses
Selling, general and
administrative 402,335 816,055 323,953
Software development 193,409 249,000 93,793
----------- ----------- ----------
Total Operating Expenses 595,744 1,065,055 417,746
----------- ----------- ----------
Loss From Operations (431,384) (570,557) (318,590)
Write-Off of Excess Purchase
Price - (546,884) -
Interest Expense (3,785) (14,929) (16,834)
----------- ----------- ----------
Net Loss $ (435,169) $(1,132,370) $ (335,424)
=========== =========== ==========
Net Loss Per Common Share $ (0.03) $ (0.11) $ (0.07)
=========== =========== ==========
Weighted Average Number of
Common Shares Outstanding 12,747,444 9,850,367 5,123,662
=========== =========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------- ------------------ Additional Treasury Deferred
Shares Shares Paid-In Warrants Accumulated Common Comp-
Issued Amount Issued Amount Capital Outstanding Deficit Stock ensation Total
------- --------- ---------- ------- ---------- ------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
June 30, 1994 70,177 $ 701,768 4,328,184 $ 4,328 $2,725,064 $ - $(3,203,575) $(48,000) $ - $ 179,585
Issuance of common
stock in lieu of
cash compensation - - 100,000 100 13,900 - - - - 14,000
Conversion of
related-party
debt to common
stock - - 1,072,317 1,072 298,573 - - - - 299,645
Conversion of
Series A preferred
stock to common
stock (66,485) (664,848) 1,189,624 1,190 663,658 - - - - -
Conversion of
Series B
preferred stock
to common stock (3,692) (36,920) 132,123 132 36,788 - - - - -
Issuance of stock
options to
employees - - - - 27,000 - - - (13,000) 14,000
Net loss - - - - - - (335,424) - - (335,424)
------- -------- ---------- ------- ---------- ------- ----------- -------- --------- ----------
BALANCE,
June 30, 1995 - - 6,822,248 6,822 3,764,983 - (3,538,999) (48,000) (13,000) 171,806
Issuance of common
stock for cash,
net of offering
costs of $16,269 - - 1,588,833 1,589 277,571 143,221 - - - 422,381
Issuance of common
stock in
acquisitions - - 3,050,000 3,0504 423,950 - - - - 427,000
Retirement of
treasury shares - - (64,000) (64) (47,936) - - 48,000 - -
Amortization of
deferred compen-
sation - - - - - - - - 4,875 4,875
Net loss - - - - - - (1,132,370) - - (1,132,370)
------- --------- ---------- ------- ---------- ------- ----------- -------- --------- ----------
BALANCE,
June 30, 1996 - - 11,397,081 11,397 4,418,568 43,221 (4,671,369) - (8,125) (106,308)
Conversion of
warrants to common
stock at discounted
rate - - 1,621,424 1,622 192,949 (113,500) - - - 81,071
Amortization of
deferred compen-
sation - - - - - - - - 8,125 8,125
Net loss - - - - - - (435,169) - - (435,169)
------- --------- ---------- ------- ---------- ------- ----------- -------- --------- ----------
BALANCE,
June 30, 1997 - $ - 13,018,505 $13,019 $4,611,517 $29,721 $(5,106,538) $ - $ - $ (452,281)
======= ========= ========== ======= ========== ======= =========== ======== ========= ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- ----------
Cash Flows From Operating
Activities
Net loss $ (435,169) $(1,132,370) $ (335,424)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Write-off of excess purchase
price - 546,884 -
Depreciation and amortization 83,493 85,774 35,363
Write-down of deferred
software costs 115,432 47,913 -
Compensation related to the
issuance of stock and stock
options 8,125 4,875 28,000
Increase in allowances for
doubtful accounts and
contracts receivable - 7,500 -
Change in assets and
liabilities, net of
effects of acquisitions:
Accounts receivable 64,501 (14,475) 24,103
Contracts receivable 27,939 22,794 183,161
Inventories 5,000 28,260 23,720
Other assets - 17,359 (79)
Accounts payable (26,573) 156,698 82,152
Accrued liabilities (55,809) 98,050 19,108
Deferred revenue 2,521 (86,303) -
Amounts due to related
parties - (2,794) (3,275)
----------- ----------- ----------
Net Cash Provided By (Used
In) Operating Activities (210,540) (219,835) 56,829
----------- ----------- ----------
Cash Flows From Investing
Activities
Additions to capitalized
software costs - - (137,730)
Acquisition of furniture,
fixtures and equipment - (9,727) (25,923)
----------- ----------- ----------
Net Cash Used In Investing
Activities - (9,727) (163,653)
----------- ----------- ----------
(Continued)
The accompanying notes are an integral part of these consolidated
financial statements.
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- ----------
Cash Flows From Financing Activities
Proceeds from the sale of common
stock and warrants to purchase
common stock $ 70,428 $ 372,381 $ -
Proceeds from borrowings - 40,992 -
Cash received in acquisition - 19,553 -
Proceeds from bridge financing - - 50,000
Principal payments on long-
term debt (42,139) (6,273) (5,583)
----------- ----------- ----------
Net Cash Provided by
Financing Activities 28,289 426,653 44,417
----------- ----------- ----------
Net Increase (Decrease) In Cash (182,251) 197,091 (62,407)
Cash at Beginning of the Year 209,589 12,498 74,905
----------- ----------- ----------
Cash at End of the Year $ 27,338 $ 209,589 $ 12,498
=========== =========== ==========
Supplemental Disclosures of Cash
Flow Information:
Cash paid for interest $ 1,577 $ 7,511 $ 15,419
=========== =========== ==========
Supplemental Schedule of Noncash Investing and
Financing Activities - Note 10.
The accompanying notes are an integral part of these consolidated
financial statements.
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 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, 1997 has a working capital deficit of $469,775 and a net capital
deficiency of $452,281. These matters raise substantial doubt about the
Company's ability to continue as a going concern. In order for the Company
to recover from its present financial situation, management is considering
selling the tangible and intangible assets of the Company and seeking a
future merger or restructuring the debt to the shareholders and officers
to allow the Company to continue operations. However, there can be no
assurance that the sale of assets will be successful or additional debt
or equity capital will be available on terms acceptable to the Company.
NOTE 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 those
estimates.
Revenue Recognition - The Company recognizes revenue in accordance with
the provisions of Statement of Position No. 91-1 Software Revenue
Recognition as follows:
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 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. The
Company had no inventories as of June 30, 1997.
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. Depreciation expense was $18,288, $27,774 and $28,157 for
the periods ended June 30, 1997, 1996 and 1995. 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 other equipment as of
June 30, 1997 and 1996.
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 was required to be adopted on July 1, 1996. See Note 6 for
discussion of the effects of implementing this pronouncement.
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 was 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 provides 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 did not have a material
impact on the financial statements of the Company.
NOTE 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 consisted 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. The
acquisition has been accounted for under the purchase method of
accounting with the operating results of HCG being included with
those of Tenet from the date of acquisition.
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 Company issued the Employees warrants
to purchase 664,286 shares of the common stock at a price of $0.14 per
share for a three-year period upon signing the employment agreements.The
employment agreements provided for base annual salaries and incentive
stock options or bonuses during the first two years of the agreements.
Based on the terms of the employment agreements, the Company met minimum
consulting revenue requirements for the period ended September 5, 1996 and
in an October 1996 Board resolution, the Employees were granted five-year
options to purchase 714,286 shares of the company's common stock at $0.14
per share. In addition, the Company assumed $26,355 of additional debt as
additional compensation to the employees. The Company did not meet the
minimum consulting revenue requirements under the employee agreements for
the second term ended September 5, 1997; therefore, the employees were
not granted additional stock options for that period.
The employment agreements may be terminated by the Company for cause,
as defined, or the event of death or disability of the Employees. The
agreements also include noncompetition provisions for a one-year period
after termination of employment.
Agreement and Plan of Reorganization - Effective September 29, 1996,
Tenet and NMC aproved 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 for the purpose of effecting the merger. 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. Tenet also paid $27,000 in acquisition
costs, making the total purchase price $447,000. The merger has been
accounted for under the purchase method of accounting with the operating
results of NMC being included with those of Tenet from the date of
acquisition. The purchase price was in excess of the net liabilities
assumed by $509,884.
Due to NMC's lack of historical profitability and contingencies related
to the future realizability of theexcess purchase price, the Company
expensed the entire $509,884 infiscal 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 $0.14
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
non-competition 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 and provide for the
issuance of warrants to purchase 50,000 shares of the Company's common
stock at $0.14 per share to each consultant.
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 (0.11) (0.04)
NOTE 4-NOTES PAYABLE AND RELATED-PARTY LONG-TERM DEBT
Notes payable consist of the following as of June 30:
1997 1996
--------- ---------
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 (10.50 percent
at June 30, 1997), 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
in the accompanying 1997 and 1996 balance
sheets 28,090 24,859
Other - 1,147
--------- ---------
Total Notes Payable $ 28,090 $ 66,998
========= =========
Related-party long-term debt consists of the following as of June 30:
1997 1996
--------- ---------
Capital lease obligation, payable in
monthly installments of $704, interest
at 11.7 percent, maturing in fiscal 1998,
secured by computer equipment. Currently
in default, all amounts currently owed $ 10,889 $ 10,889
Less: Current Portion (10,889) (7,046)
--------- ---------
Related party long-term debt, net of
current portion $ - $ 3,843
========= =========
NOTE 5--OPERATING LEASE
The Company occupies its facilities and uses equipment under non-
cancelable operating leases which expire between 1998 and 1999. Lease
expense for fiscal 1997, 1996 and 1995 was $50,833, $49,500 and $31,000,
respectively.
Minimum future lease payments under non-cancelable operating leases having
remaining terms in excess of one year as of June 30, 1997 are as follows:
Year Ended June 30,
1998 $ 53,936
1999 25,457
---------
$ 79,393
=========
NOTE 6--CAPITALIZED 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 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 software costs.
Amortization amounted to $65,205, $58,000 and $7,206 in fiscal 1997, 1996
and 1995, respectively. Amortization is a component of cost of revenues in
the accompanying statements of operations. In fiscal year 1997, it was
determined that the probability of any future recovery of these costs was
remote, and the Company concluded that this asset was impaired. The
Company elected to expense all remaining software costs totaling $115,432.
NOTE 7--INCOME TAXES
The components of the net deferred tax assets are as follows:
June 30,
1997 1996
----------- -----------
Deferred Tax Liabilities:
Deferred software costs - (67,000)
----------- -----------
Deferred Tax Assets:
Tax net operating loss carry forward $ 1,581,690 $ 1,516,000
Tax credits carry forward 103,000 103,000
Reserves and accrued liabilities 11,310 17,000
----------- -----------
1,696,000 1,636,000
Total Deferred Tax Assets 1,696,000 1,569,000
----------- -----------
Valuation Allowance (1,696,000) (1,569,000)
----------- -----------
Net Deferred Tax Asset $ - $ -
=========== ===========
During the years ended June 30, 1997, 1996 and 1995, the valuation
allowance has increased $127,000, $366,000 and $63,108, respectively.
As of June 30, 1997, the Company had net operating loss carryforwards for
federal income tax reporting purposes of approximately $4,240,000. 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 begin to expire 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 begin to expire in fiscal 1999.
No benefit for income taxes has been recorded during the years ended June
30, 1997, 1996 and 1995. 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 net deferred tax
asset may not be realized. Accordingly, a valuation allowance has been
recorded to offset the deferred tax asset in its entirety.
NOTE 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 at 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.
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 $0.28 per share; (3) converted $180,000 of
related-party long-term debt to 644,152 shares of common stock at
approximately $0.28 per share; (4) converted 66,485 shares of Series A
preferred stock to 1,189,624 shares of common stock at approximately $0.56
per share; and (5) converted 3,692 shares of Series B preferred stock to
132,123 shares of common stock at approximately $0.28 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 $0.42 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 $0.42 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 $0.28 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 $0.42 per share and the Class B warrants have an
exercise price of $0.07 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 $0.30 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 $0.25 per share for the first year of the warrant and
at $0.42 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.
NOTE 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 fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997 and 1996, respectively:
expected volatility of 34.6 percent for both years, risk-free interest
rates of 6.1 and 6.2 percent, and expected lives of 5 and 7 years.
A summary of the status of the Company's option plan as of June 30, 1997,
1996 and 1995, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- -------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------ -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 620,000 $ 0.09 335,000 $ 0.05 45,000 $ 0.05
Granted 814,286 0.14 285,000 0.14 300,000 0.05
Canceled (420,000) 0.08 - - (10,000) 0.05
--------- ------ -------- ------ ------- ------
Outstanding at
end of year 1,014,286 0.14 620,000 0.09 335,000 0.05
========= ====== ======== ====== ======= ======
Options exercisable
at year-end 924,286 0.14 145,000 0.05 - -
========= ====== ======== ====== ======= ======
Weighted-average
fair value of
options granted
during the year $ 0.04 $ 0.07 N/A
</TABLE>
At June 30, 1997, exercise prices for options outstanding ranged from
$0.05 to $0.14, and the weighted average remaining contractual life was
4.5 years.
The Company applies APB Opinion 25, Accounting For Stock Issued To
Employees, and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of FASB Statement 123,
Accounting For Stock-Based Compensation, the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated
below:
1997 1996
---------- -----------
Net Loss
As reported $ (435,169) $(1,132,370)
Pro forma (473,636) (1,138,736)
Loss Per Share
As reported (0.03) (0.11)
Pro forma (0.04) (0.12)
Otion pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's
employee stock options have characteristics significantly different from
those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimate. Management believes the
best input assumptions available were used to value the options and the
resulting values are reasonable.
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,
1997 1996 1995
----------- ----------- ----------
Warrants to purchase
common shares, beginning
of the year, at prices
ranging from $0.07
to $0.42 per share 4,887,931 594,812 -
Warrants issued at prices
ranging from $0.07 to
$0.42 per share 4,293,119 594,812 -
Warrants exercised at $0.05
per share (1,621,424) - -
----------- ----------- ----------
Warrants to purchase common
shares, end of the year, at
prices ranging from $0.07
to $0.42 per share 3,266,507 4,887,931 594,812
=========== =========== ==========
During fiscal 1997, 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. The resulting debt conversion
expense due to the discount was immaterial.
NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION ACTIVITIES
As discussed in Note 9, 1,621,424 warrants were exercised at $0.05 per
share during the year ended June 30, 1997. As a result of the exercise,
the Company received $70,428 in cash and notes payable in the amount of
$10,643 were extinguished through the conversion of existing debt owing
to a warrant holder.
Also during fiscal 1997, $3,231 of accrued interest was converted to long-
term debt.
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 $0.28 per share. Also during
fiscal 1995, 66,485 shares of Series A preferred stock we converted into
1,189,624 shares of common stock at approximately $0.56 per share and
3,692 shares of Series B preferred stock were converted into 132,123
shares of common stock at approximately $0.28 per share.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On May 30, 1997, the Registrant dismissed Arthur Andersen LLP,
("Andersen") as its certifying accountant. Andersen's reports on
the Registrant's financial statements for the years ended June
30, 1995 and 1996 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified as to audit scope or
accounting principles. However, such report included an
explanatory paragraph that described certain factors discussed in
Note 1 to the financial statements that raised substantial doubt
about the ability of the Company to continue as a going concern.
The Registrant's board of directors unanimously approved
dismissal of Andersen.
During the two most recent fiscal years ended June 30, 1996 and
1995 and the interim period subsequent to June 30, 1996, there
were no disagreements, as defined in Regulation S-K Item 304,
with Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements would have caused Andersen to make
a reference to the subject matter of the disagreement in
connection with its reports.
On July 30, 1997, the Registrant engaged Hansen, Barnett &
Maxwell ("Hansen") to perform its audits and provide various
accounting services thereafter. The Registrant did not consult
with Hansen prior to such date regarding any reportable matter.
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:
Position with
Name Age The Company Date of Election
---- ---- ------------------ ----------------------
Jerald L. Nelson 54 President(resigned) December 1, 1993 (July
10, 1996)
Chairman of the Board July 10, 1996
Director January 24, 1994
Frank Overfelt 54 Director September 29, 1995
Chief Operations July 10, 1996
Officer (acting)
Eric J. Nickerson 44 Director June 29, 1990
Fred J. Anderson 51 Chairman of the Board May 21, 1992*
(resigned) (July 10, 1996)
Director, July 18, 1986*
Treasurer, May 16, 1985*
Secretary January 11, 1989*
Richard Gwinn 54 Director September 29, 1995
(resigned)
Robert Smith 54 Director September 29, 1995
(resigned)
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.
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.
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 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 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.
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.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth all cash compensation for services
rendered in all capacities to the Company during the fiscal years ending
June 30, 1997, 1996 and 1995 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 $100,000 for the fiscal year.
<TABLE>
<CAPTION>
Annual Compensation /Long Term Compensation /
--------------------------------------------------------------------
/ Awards /Payouts /
---------------------------------
Name Year Salary Bonus Other Restricted Securities LTIP All Other
and ($) ($) Annual Stock Underlying Pay- Compen-
Principal Compen- Awards Options/ outs sation
Position ($) ($) SARs(#) ($) ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank C. Overfelt 1996 42,082 -0- -0- -0- -0- -0- -0-
1997 76,797 -0- -0- -0- -0- -0- -0-
Jerald L. Nelson 1995 60,000 -0- -0- -0- -0- -0- -0-
President 1996 -0- -0- -0- -0- -0- -0- -0-
All Executive Officers
(3 persons) 1995 105,000 -0- -0- -0- -0- -0- -0-
(5 persons) 1996 308,200 -0- 21,800 -0- -0- -0- -0-
(3 persons) 1997 145,690 -0- -0- -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 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, 1996, the Company had granted 335,000 options to key
employees exercisable at the rates ranging from $.05 to $.14 per
share. During the present fiscal year, no options were exercised,
420,000 were canceled, and 100,000 NQSOs were issued at an exercise
price of $.14. Therefore, as of June 30, 1997, there were 100,000
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) 100,000 200,000 714,286
Tables of options are not included as there are no options
outstanding subject to reporting requirements.
In connection with the HCG acquisition the Company granted 714,286
options with an exercise price of $0.14.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the holdings of common stock as of
September 30, 1997 (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, 1997
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 10 784,300 5.92%
Ira Goodberg 11 676,507 5.02%
Frank Overfelt 12 448,571 3.33%
Donald W. Ballash 13 315,715 2.34%
Jerald L. Nelson 14 435,700 3.23%
Fred J. Anderson 15 264,345 2.01%
All Officers and
Directors 5,736,717 39.82%
1. Based on 13,018,505 common shares outstanding, 3,266,507 warrants to
purchase common shares at $0.07 - $0.42 and options to acquire 1,014,286
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
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 $0.42 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 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
13. 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
14. 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 10242 Ashley Hills Circle, Sandy, UT 84092
15. 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.
PART IV
ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 8:
Reports of Independent Certified Public Accountants
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Deficit
for the Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996, and 1995
Notes to Consolidated 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
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
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.
TENENT INFORMATION SERVICES, INC.
October 13, 1997 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 Office, 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
Known 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 him 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.
/s/ Jerald L. Nelson Director and Chairman of October 13, 1997
Jerald L. Nelson
/s/ Frank C. Overfelt Director and Acting October 13, 1997
Frank C. Overfelt
/s/ Fred J. Anderson Corporate Secretary, Director October 13, 1997
Fred J. Anderson Chief Financial Officer
/s/ Eric J. Nickerson Director October 13, 1997
Eric J. Nickerson
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 27,338
<SECURITIES> 0
<RECEIVABLES> 57,494
<ALLOWANCES> 7,500
<INVENTORY> 0
<CURRENT-ASSETS> 77,332
<PP&E> 119,302
<DEPRECIATION> 103,233
<TOTAL-ASSETS> 94,826
<CURRENT-LIABILITIES> 547,107
<BONDS> 0
0
0
<COMMON> 13,019
<OTHER-SE> (465,300)
<TOTAL-LIABILITY-AND-EQUITY> 94,826
<SALES> 757,257
<TOTAL-REVENUES> 757,257
<CGS> 592,897
<TOTAL-COSTS> 595,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,785
<INCOME-PRETAX> (435,169)
<INCOME-TAX> 0
<INCOME-CONTINUING> (435,169)
<DISCONTINUED> 0
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<CHANGES> 0
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