UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark One)[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period
ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No.
0-18113
TENET INFORMATION SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
UTAH 87-0405405
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4885 South 900 East #107
Salt Lake City, Utah 84117
(Address of principal executive office)
(801) 268-3480
(Issuer's telephone number)
No Change
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes X No
(2) Yes X No
The Company had 19,571,792 shares of common stock outstanding at May 17,
1999
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of
March 31, 1998 1
Condensed consolidated statements of operations
for the three months and nine months ended
March 31, 1998 and 1997 3
Condensed consolidated statements of cash flows
for the nine months ended March 31, 1998 and 1997 5
Notes to condensed consolidated financial statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Litigation 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 31, 1999
--------------
CURRENT ASSETS:
Cash $ 29,194
Accounts receivable, net of allowance for
doubtful accounts of $7,500 125,387
--------------
Total current assets 154,572
--------------
FURNITURE, FIXTURES AND EQUIPMENT 130,769
Less accumulated depreciation and
amortization (118,254)
--------------
12,515
--------------
OTHER ASSETS, net 1,425
--------------
$ 168,512
==============
The accompanying notes are an integral part of this balance sheet.
-1-
TENET INFORMATION SERVICES, INC. AND SUSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note Payable $ -
Accounts payable 75,505
Accrued salaries and benefits 47,375
Amounts due to related parties 15,406
Deferred revenue 122,294
Billings in excess of costs and estimated
earnings on uncompleted contracts 36,593
Current portion of long term liabilities 3,648
--------------
Total current liabilities 300,821
Long Term Liabilities: --------------
Notes Payable 25,000
Notes Payable to related parties 27,136
--------------
Total long term liabilities 52,136
--------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
100,000,000 shares authorized;
10,708,248 shares outstanding 18,834
Additional paid-in capital 4,834,421
Warrants outstanding 7,987
Accumulated deficit (5,049,247)
--------------
Total shareholders' equity (184,445)
--------------
$ 168,512
==============
The accompanying notes are an integral part of this balance sheet.
-2-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
1999 1998
-------------- -------------
REVENUES $ 216,709 $ 153,892
-------------- -------------
COSTS AND EXPENSES:
Cost of revenues 69,943 68,908
Selling, general and administrative 90,645 65,429
Software development 50,909 56,247
-------------- -------------
total costs and expenses 211,497 190,584
-------------- -------------
NET GAIN OR LOSS FROM OPERATIONS 5,212 (36,692)
------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (1,707) (17,641)
Interest income 55 154
------------- -------------
Other expense, net (1,652) (17,487)
------------- -------------
Extraordinary Item - Net of 0 Tax Effect
Gain on extinguishment of debt - 9,933
NET GAIN OR LOSS $ 3,560 $ (44,246)
============== =============
NET GAIN OR LOSS PER COMMON SHARE $ .00 $ (.00)
============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 19,571,792 13,729,253
============== ==============
The accompanying notes are an integral part of these statements.
-3-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended
March 31
1999 1998
-------------- -------------
REVENUES $ 683,359 $ 493,025
-------------- -------------
COSTS AND EXPENSES:
Cost of revenues 220,554 207,804
Selling, general and administrative 238,975 197,571
Software development 134,215 163,916
-------------- -------------
Total Costs and Expenses 593,744 569,291
-------------- -------------
NET GAIN OR LOSS FROM OPERATIONS 89,615 (76,266)
-------------- -------------
OTHER INCOME (EXPENSE):
Write-off of excess purchase price - -
Interest expense (5,867) (19,649)
Interest income 756 441
-------------- -------------
Other expense, net (5,111) (19,208)
-------------- -------------
Net Gain or Loss Before Extraordinary Item 84,504 (95,474)
-------------- -------------
Extraordinary Item - Net of 0 Tax Expense
Gain on extinguishment of debt 16,903 9,933
NET GAIN OR LOSS $ 101,407 $ (85,541)
============== =============
NET GAIN OR LOSS PER COMMON SHARE $ .01 $ (.00)
============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 19,571,792 13,251,962
============== =============
The accompanying notes are an integral part of these statements.
-4-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
March 31,
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 101,407 $ (85,545)
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities
Depreciation and amortization 4,162 8,148
Stock issued for services & expenses - 32,528
Gain on extinguishment of debt (16,903) (9,933)
(Increase) decrease in assets, net
of effect of acquisitions:
Accounts receivable, net (53,197) (35,788)
Increase (decrease) in liabilities,
net of effect of acquisitions:
Accounts payable 10,843 24,907
Accrued expenses and interest - 12,580
Accrued salaries and benefits 4,015 546
Amounts due to related parties (30,206) -
Deferred revenue (40,903) 30,347
Notes Payable (31,185) -
Billings in excess of earned
Revenues 36,593 -
Current maturities of notes payable 3,648 -
Net cash (used in) provided by
operating activities (33,412) (22,210)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture, fixtures and
equipment (11,467) -
-------------- -------------
Net cash used in investing
activities (11,467) -
-------------- -------------
The accompanying notes are an integral part of these statements.
-5-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATEAD STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Nine Months Ended
March 31,
1999 1998
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of short term notes to long
term debt $ 52,136 -
Proceeds from issuance of long
term debt - 29,306
Principal payments on long-term debt - (27,445)
Sale of common stock,
net of offering costs - 12,278
-------------- -------------
Net cash provided by financing
activities 52,136 14,140
-------------- -------------
NET INCREASE (DECREASE) IN CASH (7,257) (8,070)
CASH, at beginning of period 21,937 27,338
-------------- -------------
CASH, at end of period $ 29,194 $ 19,268
============== =============
Supplemental disclosure of cash
flow information:
Cash paid during the period
for interest $ 406 $ 488
============== =============
The accompanying notes are an integral part of these statements.
-6-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Presentation of Interim Financial Statements
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's most recent Annual
Report on Form 10-K.
In the opinion of management, these financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position at March 31, 1999
and the results of its operations and its cash flows for three and nine months
ended March 31, 1999 and 1998 respectively. The results of operations for the
three and nine-month periods ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the remainder of the fiscal
year ending June 30, 1999.
(2) Basic and Diluted Earnings per Common Share
The following data shows the amounts used in computing earnings per share for
the three and nine months ended March 31, 1999 and the effect on income and the
weighted average number of shares of dilutive potential common stock.
For the Three For the Nine
Months Ended Months Ended
March 31, March 31,
1999 1999
---------- -------------
Income (loss) available to common shareholders
used in basic earnings per share $ 3,561 $ 101,407
---------- ----------
Income available to common shareholders after
assumed conversions of dilutive securities 3,561 $ 101,407
========= ==========
Weighted average number of common shares used
in basic earnings per share 18,833,717 18,833,717
Effect of dilutive securities:
Stock Options 50,000 50,000
Stock Warrants 688,075 688,075
---------- ----------
Weighted average number of common shares and
dilutive potential common shares Used in
dilutive earnings per share 19,571,792 19,571,792
========== ==========
Options on 924,286 shares of common stock and warrants on 3,266,507 of common
stock were not included in computing diluted loss per share because their
effects were antidilutive.
(3) Revenue recognition on long term software contracts
Revenues from long term software installations are recognized on the percentage
of completion method, measured by the percentage of costs incurred to date to
total estimated costs for each contract.
Contract costs include all direct material, labor and subcontract costs and
those indirect costs relating to contract performance. General and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are recognized in the period in which
such losses are determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to revenues
and costs and are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reliably estimated.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenue recognized. Contract
retentions are included in accounts receivable.
-7-
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
This discussion should be read in conjunction with management's discussion and
analysis of financial condition and results of operations included in the
Company's Annual Report on Form 10-K(sb) for the fiscal year ended June 30,
1998.
The Company's is engaged in developing and servicing data processing
information products used in hospitals. The Company's two main products are
an emergency department computer system known as EDNet and a respiratory care
computer system known as RCMS. The Company also has a consulting group which
conducts efficiency studies in various hospital situations, as well as
customizes software solutions to specific hospital requirements.
As 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 System has become the Company's basic line.
As of March 31, 1999, the Company had sold or leased its RCMS product to two
hospitals and its RCMS/X product to one hospital at various locations through-
out 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 at present no
development program ongoing.
As of March 31, 1999, the Company had installed its EDNet product in 26
emergency department sites. Five sites have upgraded to EDNet 32 Windows
version. All 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.
Results of Operations
For the three months ended March 31, 1999 compared with the three months ended
March 31, 1998.
During the three-month period ended March 31, 1999, the Company had revenues
of $216,700 which represented a 41 percent increase from $153,892 for the
corresponding period of the prior fiscal year. The 1999 sales consisted of:
Ended % of Ended % of Change in % Change
3/31/99 Sales 3/31/98 Sales Sales Sales
-------- ----- -------- ----- --------- --------
Emergency $148,942 69% $ 80,753 52% $ 68,189 84%
Respiratory $ 31,157 14% $ 69,362 45% $ (38,205) (55%)
Consulting $ 36,601 17% $ 3,777 02% $ (32,824) 869%
-------- ---- -------- ----- --------- -------
$216,700 100% $153,892 100% $ (62,808) 41%
======== ==== ======== ===== ========= =======
This sales increase was due to increased emergency department and consulting
revenues which offset the continuing declines in respiratory revenues.
Cost of revenues increased 2% to $69,943 for the three-month period ended March
31, 1999 from $68,908 for the corresponding period of the prior fiscal year.
This increase is a result of the shift in revenues away from the respiratory
product.
Selling, general, and administrative costs increased 39% to $90,645 for the
three-month period ended March 31, 1999 from $65,429 for the corresponding
period of the previous fiscal year. This reflects the increased sales effort
to market the newly updated EDNet32 Windows emergency department software as
well as increased installation expenses.
Software development costs decreased 9% to $50,909 for the three-month period
ended March 31, 1999 from $56,247 for the corresponding period of the prior
fiscal year. The decline in development expenses reflects the focus on
enhancements to the EDNet product rather than the intensive full-scale
development o the prior year. The company has elected not to capitalize any
of its development expenses for EDNet32
The Company had operating income of $5,212 for the three-month period ended
March 31, 1999 compared with an operating loss of $36,692 for the corresponding
period of the previous year. This is a direct result of increased sales and
orders for the Company's products.
Interest expense decreased to $1,707 for the three-month period ended March 31,
1999 from $17,641 for the corresponding period of the prior year. The Company
has reduced its outstanding debt in favor of additional equity.
The Company's net income per share increased to $.00 as compared with $(0.00)
for the corresponding period of the previous year.
For the nine months ended March 31, 1999 compared with the nine months ended
March 31, 1998.
During the nine month period ended March 31, 1999 the Company had revenues of
$683,359 which represents a increase of 39% from the corresponding period of
the prior fiscal year. This increase in sales is due to the company's decision
to make the EDNet32 system its main product line. In addition the Company is
taking advantage of consulting opportunities because all its resources are no
longer tied up in development.
9-Month 9-Month
Ended % of Ended % of Change in
3/31/98 Sales 3/31/98 Sales Sales % Change
-------- ----- -------- ----- --------- --------
Emergency $446,941 65% $229,007 46% $ 217,934 95%
Respiratory $ 93,035 14% $221,773 45% $(128,738) (58%)
Consulting $143,383 % $ 42,245 09% $ 101,138 239%
-------- ----- -------- ----- --------- --------
$683,359 100% $493,025 100% $ 190,334 39%
======== ===== ======== ===== ========= ========
Cost of revenues increased 6% to $220,554 for the nine-month period ended March
31, 1999 from $207,804 for the corresponding period of the prior fiscal year.
This increase is due to the increased mix of consulting revenue in total sales.
Consulting has a lower gross margin than the sale and installation of software.
Selling, general, and administrative costs increased 21% to $238,975 for the
nine-month period ended March 31, 1999 from $197,571 for the corresponding
period of the previous fiscal year. This reflects an increase in personnel,
increased marketing and sales expenses.
Software development costs decreased 18% to $134,215 for the nine-month period
ended March 31, 1999 from $163,916 for the corresponding period of the prior
fiscal year. This is primarily the result of the Company's winding down of the
development of the emergency department Windows product, and of the fact that
the Company has elected not to capitalize any of the development costs for
EDNet 32.
The Company incurred an operating gain of $89,615 for the nine-month period
ended March 31, 1999 compared with an operating loss of $ 72,266 for the
corresponding period of the previous year. This is a direct result of
increased orders and sales for the Company's products.
Interest expense decreased to $5,867 for the nine-month period ended March 31,
1999 from $19,649 for the corresponding period of the prior year. This decline
reflects the improved working capital position of the Company as well as debt
reduction.
The Company's earnings per share increased to $0.01 from $(0/00) for the
corresponding period of the previous year.
Liquidity and Capital Resources
The Company's cash position increased by $9,926 during the nine month period
ended March 31, 1999 to $29,194 as compared to $19,268 as of June 30, 1998.
The Company had a working capital deficit of $146,249 as of March 31, 1999
as compared with a deficit of $345,230 as of June 30, 1998. Operating
activities used $33,412 for the nine month period ended March 31, 1999 as
compared with using $22,210 the the corresponding period of the previous year.
The principal sources of cash have been (i) operating income, (ii) proceeds
from conversion of warrants of $12,278 from March 31 1998, and (iii) gain on
forgiveness of debt of $16,903.
Inflation has not had a significant impact on the Company's operations.
-10-
PART II OTHER INFORMATION
Item 1. Litigation N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K None
SIGNATURES
ursuant to the requirements of the Securities Exchange Act of 1934, the
egistrant has duly caused this report to be signed on its behalf by the
ndersigned thereunto duly authorized.
ated: May 17, 1999 TENET INFORMATION
SERVICES, INC.
----------------------
/s/ Jerald L. Nelson
Jerald L. Nelson
Chairman of The Board
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: : May 17, 1999 TENET INFORMATION
SERVICES, INC.
_______________________
Jerald L. Nelson
Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999, AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 29,194
<SECURITIES> 0
<RECEIVABLES> 132,887
<ALLOWANCES> (7,500)
<INVENTORY> 0
<CURRENT-ASSETS> 154,572
<PP&E> 130,769
<DEPRECIATION> (118,254)
<TOTAL-ASSETS> 168,512
<CURRENT-LIABILITIES> 300,821
<BONDS> 0
0
0
<COMMON> 18,834
<OTHER-SE> 7,987
<TOTAL-LIABILITY-AND-EQUITY> 168,512
<SALES> 216,709
<TOTAL-REVENUES> 216,709
<CGS> 69,943
<TOTAL-COSTS> 211,497
<OTHER-EXPENSES> (55)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,707
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<NET-INCOME> 3,560
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</TABLE>
