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, 1998
[ ] 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
December 31, 1998
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of December 31, 1998. . . . . . . 1
Condensed consolidated statements of operations for the three months
and six months ended December 31, 1998 and 1997 . . . . . . . . . . . . . 3
Condensed consolidated statements of cash flows for the six months
ended December 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 . . . . . . . . . . . . 8
PART II OTHER INFORMATION
Item 1. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 11
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
December 31, 1998
-----------------
CURRENT ASSETS:
Cash $ 23,744
Accounts receivable, net of allowance for
doubtful accounts of $7,500 120,007
-----------------
Total current assets 143,751
-----------------
FURNITURE, FIXTURES AND EQUIPMENT 127,297
Less accumulated depreciation and
amortization (116,524)
-----------------
10,773
-----------------
OTHER ASSETS, net 1,425
-----------------
$ 155,949
=================
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
December 31, 1998
-----------------
CURRENT LIABILITIES:
Current portion of long term liabilities $ 3,736
Accounts payable 58,762
Accrued salaries and benefits 42,921
Amounts due to related parties 41,357
Deferred revenue 113,073
Billings in excess of costs and estimated
earnings on uncompleted contracts 59,105
-----------------
Total current liabilities 318,954
-----------------
Long Term Liabilities 25,000
-----------------
Total Liabilities 343,954
-----------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
100,000,000 shares authorized;
18,833,717 shares outstanding 18,834
Additional paid-in capital 4,834,421
Warrants outstanding 7,987
Accumulated deficit (5,049,247)
-----------------
Total shareholders' equity (188,005)
-----------------
$ 155,949
=================
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
December 31
1998 1997
------------ ---------------
REVENUES $ 224,727 $ 170,955
COSTS AND EXPENSES:
Cost of revenues 77,211 66,740
Selling, general and administrative 80,048 59,304
Software development 55,463 66,254
------------ ---------------
212,722 192,298
------------ ---------------
GAIN (LOSS) FROM OPERATIONS 12,005 (21,343)
------------ ---------------
OTHER INCOME (EXPENSE):
Interest expense (2,107) (996)
Interest income 563 165
------------ ---------------
Other expense, net (1,544) (831)
------------ ---------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 10,461 (22,174)
Extraordinary Item Net of Tax Effect of $0
Gain on forgiveness of debt 16,903 -
------------ ---------------
NET INCOME $ 27,364 $ (22,174)
============ ===============
NET LOSS PER COMMON SHARE $ (.00) $ (.00)
============ ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 19,571,792 13,018,505
============ ===============
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 Six Months Ended
December 31
1998 1997
------------ ---------------
REVENUES $ 466,650 $ 339,133
------------ ---------------
COSTS AND EXPENSES:
Cost of revenues 150,611 138,896
Selling, general and administrative 148,330 132,142
Software development 83,306 107,669
------------ ---------------
382,247 378,707
------------ ---------------
GAIN (LOSS) FROM OPERATIONS 84,403 (39,574)
------------ ---------------
OTHER INCOME (EXPENSE):
Interest expense (4,160) (2,008)
Interest income 701 287
------------ ---------------
Other expense, net (3,459) (1,721)
------------ ---------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 80,944 (41,295)
EXTRAORDINARY ITEM NET OF TAX EFFECT OF $0
Gain on Forgiveness of debt 16,903 -
------------ ---------------
NET INCOME (LOSS) $ 97,847 $ (41,295)
============ ===============
NET LOSS PER COMMON SHARE $ (.00) $ (.00)
============ ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 19,571,792 13,018,505
============= ===============
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 Six Months Ended
December 31,
1998 1997
------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 97,847 $ (41,295)
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 2,432 5,429
Gain on forgiveness of debt (16,903) -
(Increase) decrease in assets, net
of effect of acquisitions:
Accounts receivable, net (47,826) 32,981
Increase in accrued interest 4,161 1,520
(Decrease) in accounts payable (35,201) (2,754)
(Decrease) in accrued salaries
and benefits (439) (6,478)
Billings in excess of costs and
estimated earnings on uncompleted
contracts 59,105 -
(Decrease) in deferred revenues (50,124) (16,420)
------------ ---------------
Net cash provided by (used in)
operating activities 13,052 (27,017)
------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture, fixtures and
equipment (7,995) -
------------ ---------------
Net cash used in investing
activities (7,995) -
------------ ---------------
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 Six Months Ended
December 31,
1998 1997
------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long
Term Debt $ - $ 21,000
Principal payments on long-term debt (3,250) (6,038)
------------ ---------------
Net cash provided by (Used in)
financing activities (3,250) 14,962
------------ ---------------
NET INCREASE (DECREASE) IN CASH 1,807 ( 12,055)
CASH, at beginning of period 21,937 27,338
------------ ---------------
CASH, at end of period $ 23,744 $ 15,283
============ ===============
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ - $ 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 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, 1998 and the results of its operations
and its cash flows for the three and six months ended December 31, 1998 and
1997 respectively. The results of operations for the three-month and
six-month periods ended December 31, 1998 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 (Loss) per Common Share
The following data shows the amounts used in computing earnings per share
for the three and six months ended December 31, 1998 and the effect on
income and the weighted average number of shares of dilutive potential
common stock:
For the Three For the Six
Months Ended Months Ended
December31, December 31,
1998 1998
------------- ------------
Income available to common shareholders
used in basic earnings per share $ 27,364 $ 97,847
------------- ------------
Income available to common shareholders
after assumed conversions of dilutive
securities $ 27,364 $ 97,847
============= ============
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 for
the three and six months ended December 31, 1997 because their effects
were antidilutive.
-7-
(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.
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 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 software product has become the Company's basic line.
As of December 31, 1998, the Company has installed its EDNet product in 26
emergency department sites 4 of which have been upgraded to the EDNet32
Window version, In addition, the Company has received deposits for upgrades
to the Windows version from additional current clients. All sites have
annual maintenance contracts for continued support and updates. It is
anticipated that most, if not all of these sites, will renew this
maintenance on an annual basis.
As of December 31, 1998, the Company had sold or leased its RCMS
product to two hospitals and its RCMS/X product to two hospitals 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.
-8-
RESULTS OF OPERATIONS
For the three months ended December 31, 1998 compared with the three months
ended December 31, 1997.
During the three-month period ended December 31, 1998, the Company had
revenues of$224,727 which represented a 31 percent increase from $170,955
for the corresponding period of the prior fiscal year. The 1998 sales
consisted of:
3 Month 3 Month %
Ended Ended % Changes Change
December 31, % December 31, of in of
1998 Sales 1997 Sales Sales Sales
---------- --------- --------- -------- -------- ------
Emergency $ 148,698 66% $ 80,595 47% $ 66,103 85%
Respiratory 30,940 14% 75,021 44% (44,081) (59%)
Consulting 45,089 20% 15,339 9% 29,750 194%
---------- --------- --------- -------- -------- ------
$ 224,727 100% $ 170,955 100% $ 53,772 31%
========= ========= ========= ======== ======== ======
The sales increase resulted primarily from the Company's success in
upgrading existing clients to the EDNet32 windows product. Increased
emergency and consulting revenues more than offset a continuing decline in
respiratory revenues.
Cost of revenues increased 16% to $77,211 for the three-month period ended
December 31, 1998 from $66,740 for the corresponding period of the prior fiscal
year. This is a result of the shift in revenues toward consulting sales and
software installations which tend to be more resource intensive than
maintenance revenue.
Selling, general, and administrative expenses increased 35% to $80,048 for the
three-month period ended December 31, 1998 from $59,304 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.
Software development costs declined 16% to $55,463 for the three-month
period ended December 31, 1998 from $66,254 for the corresponding period of
the prior fiscal year. The Company's development effort has been scaled back
as the installation of the new windows product has escalated. Development
during the quarter focused on enhancements to the EDNet32 product.
-9-
The Company had operating net income of $12,005 for the three-month period
ended December 31, 1998 compared with an operating loss of $21,343 for the
corresponding period of the previous year. This is a direct result of
increased revenues from consulting and emergency software sales.
Interest expense increased to $2,107 for the three-month period ended December
31,1998 compared to $996 during the prior fiscal year. The Company realized
a net gain of $16,903 from forgiveness of debt by two creditors in
conjunction with a financial restructuring.
The Company's net per common share was $0.00 per share for the three month
period ended December 31, 1998 compared with ($0.00) for the corresponding
period of the previous fiscal year.
For the six months ended December 31, 1998 compared with the six months
ended December 31, 1997.
During the six month period ended December 31, 1997, the Company had
revenues of $466,650, which represented a 38% increase from $339,133 for
the corresponding period of the prior fiscal year. The 1998 sales consisted
of:
6 Month 6 Month %
Ended Ended % Changes Change
December 31, % December 31, of in of
1998 Sales 1997 Sales Sales Sales
---------- --------- --------- -------- -------- ------
Emergency $ 297,989 64% $ 148,254 44% $149,735 101%
Respiratory 61,879 13% 152,411 45% (90,532) (59%)
Consulting 106,782 23% 38,468 11% 68,314 178%
---------- --------- --------- -------- -------- ------
$ 466,650 100% $ 339,133 100% $127,517 38%
========= ========= ========= ======== ======== ======
The increase in sales was due to the successful marketing of the EDNet
windows product and an increase in the number of consulting projects.
These higher revenues offset the continuing decline in the number of RCMS
clients and the decreased revenue from this product line.
Cost of revenues increased 8% to $150,611 for the six-month period ended
December 31,1998 from $138,896 for the corresponding period of
the prior fiscal year. This increase is due to the shift of sales into
upgrades for emergency departments and increased consulting revenues, which
tend to be more labor intensive.
Selling, general, and administrative expenses increased 12% to $148,330
for the six-month period ended December 31, 1998 from $132,142 for the
corresponding period of the previous fiscal year. This reflects increased
activity to bring the EDNet32 Windows product to market.
Software development expenses decreased 23% to $ 83,306 for the
six-month period ended December 31, 1998 from $107,669 for the corresponding
period of the prior fiscal year. This is primarily the result of the
completion of the major development phase of the EDNet32 product.
Development activities have moved into product enhancements, which are less
resource intensive.
-10-
The Company had operating income of $84,403 for the six-month period ended
December 31, 1998 compared with an operating loss of $ 39,574 for the
corresponding period of the previous year. This is a direct result of
improved revenue performance and attention to cost control.
Interest expense increased to $4,160 for the six-month period ended
December 31, 1998 from $2,008 for the corresponding period of the prior
year. The Company realized a net gain of $16,903 from forgiveness of
debt by two creditors, in conjunction with a financial restructuring.
The Company's net income per share increased to $0.00 as compared with
$(0.00) for the corresponding period of the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital are to fund an increased sales
effort and to stay current on its internal hardware needs. For the six
months ended December 31, 1998 net cash provided by operating activities was
$13,052 as compared to those same activities using $27,017 in the six months
ended December 31, 1997, an increase of $40,069 or an increase of 148%.
The Company has sufficient capital for its current operations. However,
in order to significantly expand sales, the Company will require additional
cash from an external source. At December 31, 1998 the Company had total
assets of $155,949 and shareholders equity of ($188,005) compared to total
assets of $100,753 and shareholders equity of ($285,852) at June 30, 1998,
the Company's last fiscal year end. The 55% increase in assets is primarily
the result of increased cash and accounts receivable. The 34% improvement
in shareholders equity is primarily the result of operations. The Company
did not capitalize any software development costs during the six months
ended December 31, 1998 not did it capitalize any such costs during the
prior year.
The Company's cash position increased by $1,807 during the six month
period ended December 31, 1998 to $23,744 up from $21,937 as of June 30,
1998. The Company's working capital was ($175,203) at December 31, 1998 as
compared to ($292,487) at June 30, 1998, an improvement of 40%.
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
-11-
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: April 8, 1999 TENET INFORMATION
SERVICES, INC.
/s/ Jerald L. Nelson
--------------------------------------
Jerald L. Nelson
Chairman of the Board of Directors
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,744
<SECURITIES> 0
<RECEIVABLES> 127,507
<ALLOWANCES> (7,500)
<INVENTORY> 0
<CURRENT-ASSETS> 143,751
<PP&E> 127,297
<DEPRECIATION> (116,524)
<TOTAL-ASSETS> 155,949
<CURRENT-LIABILITIES> (318,954)
<BONDS> 0
0
0
<COMMON> (18,834)
<OTHER-SE> (7,987)
<TOTAL-LIABILITY-AND-EQUITY> (155,949)
<SALES> 224,727
<TOTAL-REVENUES> 224,727
<CGS> (77,211)
<TOTAL-COSTS> (212,722)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,107)
<INCOME-PRETAX> 10,461
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 16,903
<CHANGES> 0
<NET-INCOME> 27,364
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
