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 December 31, 1997
[ ] 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_ __ No X
(2) Yes X No___
The Company had 18,833,717 shares of common stock
outstanding at November 15, 1998
<PAGE>
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of December 31, 1997 1
Condensed consolidated statements of operations for the three
months and six months ended December 31, 1997 and 1996 3
Condensed consolidated statements of cash flows for the six
months ended December 31, 1997 and 1996 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
December 31, 1997
-----------------
CURRENT ASSETS:
Cash $ 15,283
Accounts receivable, net of allowance for
doubtful accounts of $7,500 17,013
----------
Total current assets 32,296
----------
FURNITURE, FIXTURES AND EQUIPMENT 119,302
Less accumulated depreciation and
amortization (108,662)
----------
10,640
----------
OTHER ASSETS, net 1,425
----------
$ 44,361
==========
The accompanying notes are an integral part of this balance sheet.
-1-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1997
CURRENT LIABILITIES:
Note Payable $ 44,572
Current portion of related
party long-term debt 10,889
Accounts payable 125,059
Accrued salaries and benefits 75,405
Amounts due to related parties 159,810
Deferred revenue 114,992
Accrued interest 7,210
----------
Total current liabilities 537,937
----------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
100,000,000 shares authorized;
10,708,248 shares outstanding 13,019
Additional paid-in capital 4,611,517
Warrants outstanding 29,721
Accumulated deficit (5,147,883)
----------
Total shareholders' equity (493,576)
$ 44,361
==========
The accompanying notes are an integral part of this balance sheet.
-2-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended December 31,
-----------------------
1997 1996
---------- ----------
REVENUES $ 170,955 $ 147,556
COSTS AND EXPENSES:
Cost of revenues 66,740 151,118
Selling, general and administrative 59,304 104,986
Software development 66,254 49,716
---------- ----------
192,298 305,820
---------- ----------
LOSS FROM OPERATIONS (21,343) (158,264)
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (996) (1,126)
Interest income 165 344
---------- ----------
Other expense, net (831) (782)
---------- ----------
NET LOSS $ (22,174) $ (159,046)
========== ==========
NET LOSS PER COMMON SHARE $ (.00) $ (.01)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 13,018,505 13,018,514
========== ==========
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months Ended
December 31,
-----------------------
1997 1996
---------- ----------
REVENUES $ 339,133 $ 394,078
---------- ----------
COSTS AND EXPENSES:
Cost of revenues 138,896 297,582
Selling, general and administrative 132,142 249,528
Software development 107,669 144,096
---------- ----------
378,707 691,206
---------- ----------
LOSS FROM OPERATIONS (39,574) (297,128)
---------- ----------
OTHER INCOME (EXPENSE):
Write-off of excess net purchase price - -
Interest expense (2,008) (2,302)
Interest income 287 1,038
---------- ----------
Other expense, net (1,721) (1,264)
---------- ----------
NET LOSS $ (41,295) $ (298,392)
========== ==========
NET LOSS PER COMMON SHARE $ (.00) $ (.02)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 13,018,505 12,207,798
========== ==========
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended December 31,
-----------------------
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (41,295) $ (298,392)
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities:
Accrued interest 1,520 -
Depreciation and amortization 5,429 82,720
(Increase) decrease in assets, net
of effect of acquisitions:
Accounts receivable, net 32,981 29,700
Inventories - 1,439
Contracts receivable - 13,777
Increase (decrease) in liabilities, net
of effect of acquisitions:
Accounts payable (2,754) (47,017)
Accrued salaries and benefits (6,478) (37,226)
Amounts due related parties - 8,531
Notes payable - 571
Deferred revenues (16,420) 33,883
---------- ----------
Net cash (used in) provided by
operating activities ( 27,017) (212,014)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition - -
Additions to deferred software costs - -
Acquisition of furniture, fixtures and equipment - -
---------- ----------
Net cash used in investing activities - -
---------- ----------
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATEAD STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Six Months Ended
December 31,
-----------------------
1997 1996
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long Term Debt $ 21,000 $ -
Conversion of warrants, net - 81,054
Principal payments on long-term debt (6,038) (41,589)
---------- ----------
Net cash provided by financing activities 14,962 39,465
---------- ----------
NET INCREASE (DECREASE) IN CASH (12,055) (172,549)
CASH, at beginning of period 27,338 209,589
---------- ----------
CASH, at end of period $ 15,283 $ 37,040
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 488 $ 2,302
========== ==========
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
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
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 December 31, 1997 and the
results of its operations and its cash flows for
the three and six months ended December 31, 1997
and 1996 respectively. The results of operations
for the three-month and six-month periods ended
December 31, 1997 are not necessarily indicative
of the results that may be expected for the
remainder of the fiscal year ending June 30, 1998.
(2) Net Loss Per Common Share
Net loss per common share for the three and six
months ended December 31, 1997 is based on the
weighted average number of common shares
outstanding during the period. Warrants and
options outstanding have not been included in the
computations since any assumption of conversion
would have an antidilutive effect thus decreasing
the net loss per common share.
(3) Conversion of Warrants
On August 30, 1996, the board of directors
authorized a reduction of the exercise price of
the Company's Class B warrants to $.05 from $.07
per share, contingent upon conversion by
September 30, 1996. A total of 1,621,424
warrants were exercised, leaving 178,575 Class B
warrants outstanding. Proceeds to the Company
totaled $81,071, of which $10,643 was paid
through the conversion of existing debt owing to
the warrant holder.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
-------
This discussion should be read in conjunction with management's discussion
and analysis of financial condition and results of operations included in
the Company's Annual Report on Form 10-K(sb) for the fiscal year ended June
30, 1997.
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 software product has become the Company's basic line. The
development effort for the "EDNet 32" Windows version progressed far enough
for two beta installations at two already existing client hospital. The
systems were installed and functioning well in both live environments as of
December 31, 1997.
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, 1996, 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 to decrease in administrative
costs as well as to decrease the consulting revenues of the Company
as the efforts of those involved with consulting have been more focused on
EDNet 32. The Company is concerned about the reduced level of consulting
revenues and is considering marketing alternatives.
As of December 31, 1997, the Company had sold or leased its RCMS product to
five hospitals and its RCMS/X product to two hospitals at various locations
throughout the United States. Generally, the Company's customers purchase
the computer hardware from the Company, lease the Company's software and
enter into a service contract for the lease period. The Company at this
time is not actively marketing the RCMS/X product, and there is no present
development program ongoing.
As of December 31, 1997, the Company has installed its EDNet product in 26
emergency department sites. These sites have annual maintenance contracts
for continued support and updates. It is anticipated that a vast majority,
if not all of these sites, will renew this maintenance on an annual basis.
As of December 31, 1997, the Company was in the process of installing EDNet
at one additional site..
Results of Operations
---------------------
For the three months ended December 31, 1997 compared with the three months
ended December 31, 1996.
During the three-month period ended December 31, 1997, the Company had
revenues of $170,955 which represented a 16 percent increase from $147,556
for the corresponding period of the prior fiscal year. The 1997 sales
consisted of
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
3-month % of 3-month % of Change %
ended sales ended sales in sales Change
12/31/97 12/31/96 of sales
-------- ----- -------- ----- -------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Emergency $ 80,595 47% $ 48,800 33% $ 31,795 65%
Respiratory $ 75,021 44% $ 83,312 56% ($ 8,291) (10%)
Consulting $ 15,339 9% $ 15,444 11% ($ 105) (1%)
-------- ---- -------- ---- -------- ----
$170,955 100% $147,556 100% $ 23,399 16%
======== ==== ======== ==== ======== ====
</TABLE>
This increase in sales was due to the Company's success in bringing the
maintenance contract revenue for its EDNet product more in line with
industry standards, which offset a continuing decline in respiratory and
consulting revenue. Lower consulting group revenues reflect the continued
emphasis on the EDNet32 Windows project.
Cost of revenues decreased 56% to $66,740 for the three-month period ended
December 31, 1997 from $151,118 for the corresponding period of the prior
fiscal year. This is a result of the decreased cost of revenues for the
consulting and respiratory product lines.
Selling, general, and administrative costs decreased 75% to $59,304 for the
three-month period ended December 31, 1997 from $104,986 for the
corresponding period of the previous fiscal year. This coincides with a
reduction of personnel in the marketing of the Respiratory arena, the
combination of the Chief Operating Officer position with the head of
consulting, and reduced commissions and travel
Software development costs increased 33% to $66,254 for the three-month
period ended December 31, 1997 from $49,716 for the corresponding period of
the prior fiscal year. This is primarily the result of the EDNet 32
product being prepared for Beta testing, and of the fact that the Company
has elected not to capitalize any of the development costs for EDNet32.
The Company incurred an operating loss of $21,343 for the three-month
period ended December 31, 1997 compared with an operating loss of $158,264
for the corresponding period of the previous year. This is a direct result
of streamlining the Company's operations.
The Company loss per share declined to $(nil) as compared with $(.01) for
the corresponding period of the previous year.
Interest expense decreased to $996 for the three-month period ended
December 31, 1997 from $1,126 for the corresponding period of the prior
year.
For the six months ended December 31, 1997 compared with the six months
ended December 31, 1996.
During the six month period ended December 31, 1997, the Company had
revenues of $339,133 which represented a 14% decrease from $394,078 for the
corresponding period of the prior fiscal year. The 1997 sales consisted of:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
6-month 6-month
ended % of ended % of Change
12/31/97 sales 12/31/96 sales in sales % Change
-------- ----- -------- ----- -------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Emergency $148,254 44% $183,128 46% ($34,874) (19%)
Respiratory $152,411 45% $155,768 40% ($ 3,357) (02%)
Consulting $ 38,468 11% $ 55,182 14% ($16,714) (30%)
--------- ---- --------- ---- --------- ------
$339,133 100% $394,078 100% ($54,945) (14%)
======== ==== ======== ==== ========= ======
</TABLE>
This decrease in sales was due to the Company's decision to market the
EDNet32 Windows system in lieu of continuing aggressive marketing of the
DOS product, lack of follow-on Respiratory sales and fewer RCMS customers.
Also, the effect of the consulting group working on the ENDet32 project
resulted in lower consulting revenues.
Cost of revenues declined 53% to $138,896 for the six-month period ended
December 31, 1997 from $297,588 for the corresponding period of the prior
fiscal year. The primary reason for the decrease reflected the Company's
decision to write-off its capitalized software over the final 9 months of
fiscal 1997 whereas no write-off was taken in the current year. This
amounted to an increased charge of $56,151. The remainder of this increase
is due to the relatively stable cost of supporting customers, which is
dependent upon a minimum staff.
Selling, general, and administrative costs decreased 47% to $132,142 for
the six-month period ended December 31, 1997 from $249,528 for the
corresponding period of the previous fiscal year. This coincides with a
reduction of personnel in the marketing of the Respiratory arena, the
combination of the Chief Operating Officer position with the head of
consulting, and reduced commissions and travel
Software development costs decreased 25% to $107,669 for the six-month
period ended December 31, 1997 from $144,096 for the corresponding period
of the prior fiscal year. This is primarily the result of the completion
major development phase of the EDNet 32 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 loss of $41,295 for the six-month period
ended December 31, 1997 compared with an operating loss of $298,392 for the
corresponding period of the previous year. This is a direct result of an
improving revenue performance and significant cost control.
The Company's loss per share decreased to $(nil) as compared with $(.02)
for the corresponding period of the previous year.
Interest expense decreased to $2,008 for the six-month period ended
December 31, 1997 from $2,302 for the corresponding period of the prior
year as a result of converting the related debt to equity.
Liquidity and Capital Resources
-------------------------------
The Company has suffered recurring losses from operations since fiscal year
1989, and as of December 31, 1997 had an accumulated deficit of $5,147,883.
The operating losses are due in part to significant decreases in revenues
in fiscal years 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 recent 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 $185,852.
The Company also accelerated conversion of its Class B warrants by offering
a discount to $.05 from $.07 if exercised prior to September 30, 1996. A
total of 1,621,424 warrants were exercised, creating $70,429 in cash and
$10,643 in debt reduction.
At June 30, 1996, the Company had $40,000 in bridge financing. This was
repaid from the Private Placement Offering.
The Company's cash position decreased by $12,055 during the six month
period ended December 31, 1997 to $15,283 as compared to $27,338 as of June
30, 1997. The Company had a working capital deficit of $505,641 as of
December 31, 1997 as compared with a deficit of $469,775 as of June 30,
1997. Operating activities used $27,017 for the six month period ended
December 31, 1997 as compared with using $212,014 for the corresponding
period of the previous year. The principal sources of cash have been (i)
proceeds from conversion of warrants of $81,054, and (ii) the $185,852 net
raised in the above mentioned private placement. The Company has not
capitalized software development costs during the six month period ended
December 31, 1997. There were debt payments of $6,038 during the six month
period ended December 31, 1997 as compared with $41,589 for the
corresponding period of the previous year.
While a significant portion of the current liabilities, approximately
$159,810 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 who
recently resigned, may expand their amounts due with claims of penalties
and for interest, the viability of such is contested by the Company.
Inflation has not had a significant impact on the Company's operations.
PART II OTHER INFORMATION
Item 1. Litigation N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K None
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: January 14, 1999 TENET INFORMATION
SERVICES, INC.
/s/ Jerald L. Nelson
----------------------------------
Jerald L. Nelson
Chairman of the Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of December 31, 1997, and statements of operations for the six months
ended December 31, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 15,283
<SECURITIES> 0
<RECEIVABLES> 24,513
<ALLOWANCES> (7,500)
<INVENTORY> 0
<CURRENT-ASSETS> 32,296
<PP&E> 119,302
<DEPRECIATION> (108,662)
<TOTAL-ASSETS> 44,361
<CURRENT-LIABILITIES> 537,937
<BONDS> 0
0
0
<COMMON> 13,019
<OTHER-SE> 4,641,238
<TOTAL-LIABILITY-AND-EQUITY> 44,361
<SALES> 170,955
<TOTAL-REVENUES> 170,955
<CGS> 66,740
<TOTAL-COSTS> 66,740
<OTHER-EXPENSES> 125,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 996
<INCOME-PRETAX> (22,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,174)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
