FORM 10-K(SB)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)
For the fiscal year ended June 30, 1998
[ ] 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.
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(Exact name of registrant as specified in its charter)
UTAH 87-0405405
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4885 South 900 East #107
Salt Lake City, Utah 84117
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(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____ No_X__ (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 November
30, 1998 was 18,833,717.
<PAGE>
TABLE OF CONTENTS
Page #
PART I
Item 1 Business 2
Item 2 Properties 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operation 15
Item 8 Financial Statements 21
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10 Directors, Executive Officers, Promoters and
Control Persons of the Registrant: Compliance
with Section 16(a) of the Exchange Act 22
Item 11 Executive Compensation 25
Item 12 Security Ownership of Certain Beneficial
Owners and Management 27
Item 13 Certain Relationships and Related Transactions 28
PART IV
Item 14 Exhibits and Reports on Form 8-K 29
(a) List of Financial Statements, Schedules
and Exhibits 29
(b) Reports on Form 8-K 29
(c) Exhibits 29
SIGNATURES 31
SUPPLEMENTAL INFORMATION 32
EXHIBITS Attached
ITEM 1: BUSINESS
General
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In 1978, Telemed Cardio Pulmonary Systems ("Telemed") purchased a
pulmonary testing business based in Salt Lake City, Utah.
Telemed's business was developed from research performed at the
University of Utah on computer applications in medical data processing.
Telemed later became a division of Becton Dickinson & Co. ("Becton"),
a conglomerate of companies dealing primarily in disposable medical
supplies. Telemed's primary focus was in developing and marketing
diagnostic computer systems used in pulmonary testing and analysis.
In 1983, Becton's management decided to sell the high technology
pulmonary and respiratory care business. The Company was organized
on February 24, 1984 by employees of Telemed to purchase Telemed's
pulmonary and respiratory care information services business. In
March 1984, the Company purchased that business for cash and a
promissory note payable to Becton. The Company then repositioned its
business to focus on providing the RCMS/X family of products, with a
view to offering cost-effective information systems that allow health
care institutions to provide better care at less cost. The Company
built and serviced much of its mini-computer based hardware and
developed its own proprietary software, all state of the art for the
mid-eighties.
By 1988, annual revenue had grown to $2.4 million and the Company
completed an initial public offering of its common stock through
Schneider Securities in 1989. By September 15, 1989, 23 hospitals
were using the Company's respiratory care management systems (then
referred to as "RCMS") and the Company employed 23 full and part-time
employees.
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
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Effective September 5, 1995, the Company acquired certain
assets of The International HealthCare Consulting Group
("HCG"). The assets acquired included certain accounts
receivable, equipment, software products and other intangible
assets. In exchange for the assets acquired, the Company
agreed to issue 50,000 shares of its common stock and assume
$30,000 of debt.
In connection with the assets purchased, the Company also
entered into three-year employment agreements with HCG's two
principal shareholders and consultants and agreed to issue
certain warrants to purchase common stock and to grant certain
options to purchase common stock based on future performance.
HCG provides healthcare institutions, mainly hospitals, with
professional high-quality, cost effective, consulting services,
which produce a more efficient, lower cost care delivery model
while maintaining the highest quality of care standards.
Consulting services are provided in the following areas:
. Nurse Staffing and Patient Classification
. Cost Benefit Analysis for Computerized Patient Records (CPR)
. Productivity
. Cost Accounting
. Operations Assessment
. Modeling and Simulation
National Microcomputer Corporation Merger
-----------------------------------------
On September 29, 1995, the Company and National MicroComputer
Corporation ("NMC") approved the terms of an Agreement and Plan of
Reorganization (the "Agreement") pursuant to which NMC was merged with
and into Tenet Merger Subsidiary, Inc., a wholly owned subsidiary of the
Company incorporated for the purpose of effecting the merger. NMC
develops and markets an integrated information management/patient
tracking system designed specifically for use in emergency departments.
Emergency Department Network System
-----------------------------------
Dr. Richard Gwinn, an emergency medicine professional, founded NMC in
California in 1979. 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 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.
EDNet is currently in its fifth release, (EDNet 32) as a Windows 95/NT
compliant product. Recent enhancements include discharge aftercare
instructions database, a user-sortable patient tracking display and the
development of triage assessment protocols, auto faxing, and auto
paging. EDNet 32 for Windows was released in the spring of 1998.
System Architecture - EDNet32 is written in Borland C++ Builder using
the Borland Database Engine. All permanent databases and most control
files use Paradox level 7 tables. Files are compatible with either
Borland Paradox 7 or Corel Paradox 8. EDNet32 is supplied complete with
all necessary licenses. EDNet 32 runs under Microsoft Windows 95 or
later along with other applications. The system can be tied to multiple
data bases such as Oracle, Sybase, Informix, Sequel Server and Paradox.
Hardware - EDNet32 Version 5.x runs on a standard Novell network (3.11
or better) or Microsoft NT Server with Windows 95 or later workstations.
The Company 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.4.1. Network communications
hardware (Ethernet, Token Ring, 10BaseT) should be certified by Novell.
The Company supplies a fully licensed copy of Paradox 7.0 with every
EDNet system.
Individual workstations should be Pentium II's or better, with at least
16MB of RAM. Workstations must fully support VGA color graphics.
Stations should have Windows installed. In addition to the appropriate
number of end-user workstations, Tenet recommends a dedicated station
for remote access communication and a dedicated station for interfaces
from the hospital-wide information system. A 56K baud modem is
required. PC Anywhere 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, Out in the Hall,
etc. 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 the Tenet 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 1,000 aftercare 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 Crystal
Reports 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.
Other Features of the latest version, EDNet32 include auto faxing, auto
paging, industrial medicine components, forms management and the like.
Respiratory Care Management System
----------------------------------
The RCMS/X is a computer software and hardware system designed
specifically for management of respiratory care department information
in large hospitals. The system offers automation of treatment orders,
work assignment, charting, billing and management information. RCMS/X
automation recaptures a time resource that Tenet customers have used to
provide significant savings and increased productivity to the
labor-intensive respiratory care department. Greater quantity and
quality of information provided by RCMS/X aids the department in
maintaining and improving standards of patient care.
Software- RCMS/X is built around a UNIX operating system and an Oracle
relational data base. The Company's software emphasizes flexibility,
allowing users to define files for specific department information such
as treatment, therapist and patient data. The program also accommodates
a diverse range of utilization strategies which allow it to work
efficiently in sites with a variety of layouts, service offerings and
management structures.
Hardware- Respiratory care places tremendous demands on a departmental
computer system. Tracking patient care and managing department
activities requires instant access to a tremendous volume of
information. RCMS/X hardware components include: (i) a Pentium (100+
MHz) with at least 64 Mb of main memory and 2 or more gigabytes of disk
storage, (ii) laser printer (iii) personal workstations; and (iv)
portable workstations. Hardware is designed to respond efficiently to a
myriad of information entries and requests. Orders, work assignments,
charting, billing and management information are all accessible,
simultaneously, from multiple locations.
Personal Workstations- Tenet personal computer workstation packages
offer managers nearly limitless database access and analysis capability.
These may be configured with various levels of power and capacity to
suit individual needs.
Portable Workstations- The Tenet Transit Portable Workstation is a
rugged handheld terminal that displays therapist work information and
offers bedside charting and data entry capability. Transit was
developed in response to customer interest in allowing data collection
during work performance, thereby eliminating much of the time spent in
end of shift data entry using conventional terminals. Information
collected with the Transit is reviewed and printed remotely as needed,
and is uploaded to the RCMS/X central computer database via RS232 serial
ports. Transit achieves the critical objective for any product in the
portable data collection market: cost-effectiveness through enhanced
productivity. Transit was initially introduced at an industry
convention in November 1986, and this product has been upgraded several
times.
Order Management- Typically, respiratory care departments operate on a
manual treatment ordering system, a system which consumes much time and
which often fails to serve the department's needs. The high volume of
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.
Marketing
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The vice-president of Sales conducts the Company's sales and marketing.
For the current fiscal year, the position of Vice President sales is
vacant and is being filled by the President of the Company. The thrust
of the marketing effort has been through advertising , exhibits at
emergency department oriented shows and particularly through referrals
from existing clients. The company services clients nationwide but is
especially strong in the western United States.
As of November 30, 1998, the Company had sold its EDNet product to 27
emergency department and urgent care 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 November 30, 1998 the
Company was in the process of installing EDNet32 upgrade at three
additional sites. The Company has installed its new Windows 32 product
at 4 sites and has received deposits from an additional 7 current users
for upgrade in the 1999 fiscal year.
The Consulting division provides consulting support to major hospitals
throughout the country. These services consist primarily of cost
benefit evaluations, patient classification for nursing, and
productivity management for all other departments. Consulting services
are charged on a negotiated fee basis. As of November 30, 1998 the
Company was providing consulting services to four hospitals.
As of November 30, 1998, the Company had sold or leased its RCMS product
to two 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.
EDNet 32 Product Development
Development efforts are focused on the enhancement of the EDNet 32
product. Research is being conducted on the integration of nursing and
physician documentation. Voice recognition and radio frequency are
being investigated as possible product enhancements. An inpatient
nursing application, building upon existing EDNet 32 software, is being
developed in conjunction with a major consulting client.
Protection of Proprietary Rights
The Company holds a registered trademark on the name "TRANSIT" and
"Intellichart". In addition, the Company expects to seek certain
patent, trademark and/or copyright protection in the further development
of its new products, if appropriate. The Company has entered into
non-disclosure agreements with employees, consultants and customers to
protect its proprietary technology.
Capital Stock
The Company's Articles of Incorporation authorize the board of
directors, without shareholder approval, to issue up to 1,000,000 shares
of preferred stock with such rights and preferences as the board of
directors may determine in its discretion. The board of directors has
the authority to issue shares of preferred stock having rights prior to
the common stock with respect to dividends, voting and liquidation.
On August 24, 1994, a shareholder meeting was held which resulted in the
authorized common stock of the Company being increased to 100,000,000
shares.
PRIVATE PLACEMENTS
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.
In February 1996, the Company authorized a private placement of its
common stock with a minimum of $201,000 and a maximum of $600,000 to be
raised on a best efforts basis by Schneider Securities Inc. This
offering consists of a minimum of 670,000 units and a maximum of
2,000,000 units priced at $.30 per unit. Each unit consists of (i) one
share of common stock and (ii) a warrant to purchase an additional share
at $.25 per share if exercised within one year of the placement closing
and $.42 afterward until the termination date three years after the
placement closing.
As of June 30, 1996, 688,833 units had been sold resulting in proceeds
to the Company of $185,852, net of offering expenses of $20,799. No
additional amounts beyond the initial closing were received and the
Private Placement Offering expired.
As of June 30, 1996, the Company had outstanding bridge financing notes
of $40,992 including accrued interest at 12 percent per annum.
Subsequent to June 30,1996, the $40,992 was repaid.
Warrant, Option, and Debt Conversions
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.
On February 20, 1998 the Company's board of directors authorized a
reduction in exercise price on all outstanding Class A, B, C & D
Warrants and options to $.03/share contingent upon exercise by March 20,
1998. The original exercise prices ranged from $.05 to $.42 per share.
A total of 2,578,430 warrants and 1,164,286 options were exercised. As
a result of the exercise, the Company received cash of $17,321 and
extinguished $94,961 of debt held by the option and warrant holders. In
addition, the Company converted $62,174 of debt into 2,072,496 shares of
common stock.
Employees
At November 30, 1998, the Company employed eight full-time employees,
two part-time employees and several independent service contractors.
The number of employees and their responsibilities are as follows: two
professional, five technical, one administrative.
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 had developed its Windows version of the emergency room
system (EDNet 32) to run under Windows95 or Windows NT, tied to multiple
databses such as Informix, Oracle, Sybase, Sequel Server and Paradox.
Year 2000
The Company does not anticipate incurring any substantial expenses to
modify its software or operations to adjust for the year 2000.
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 $4,050 per month. This is pursuant to a
lease which expires on November 15, 2000.
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."
Just prior to its suspension from NASDAQ on November 1, 1991, the
reported closing bid and asked prices of the Company's Common Stock were
$.03125 and $.0625, respectively. In 1996 limited public trading of the
Company's Common Stock resumed with price quotations available on the
over the counter "bulletin board". During fiscal year ended June 30,
1998 a limited number of shares traded on the bulletin board market at a
price range of $0.05 to $0.10 (bid). The number of shareholders of
record for the Company's Common Stock as of November 30, 1998 was 334
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, 1994 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 fiscal years ended June 30, 1997
and 1998 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,
------------------------------------------------
(In thousands, except per share amounts)
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Revenues $ 676 $ 757 $ 1,054 $ 369 $ 392
Loss from operations (48) (431) (571) (319) (356)
Net loss (41) (435) (1,132) (335) (375)
Net loss per common
share (.00) (.03) (.11) (.07) (.09)
Balance Sheet Data
------------------
As of June 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
Working capital
(deficit) $ (292) $ (470) $ (319) $ (60) $ 164
Total assets 101 95 573 406 570
Long-term obligations - - 4 11 195
Stockholders' equity
(deficit) (286) (453) (106) 172 180
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 six months ended December 31, 1995, the
Company acquired certain assets of the International HealthCare
Consulting Group ("HCG") and acquired National Microcomputer Corporation
("NMC").
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. While this resignation initially reduced the
number of potential sales leads for the Company, the President of the
company took over the sales function. Sales activity is strong and
sales leads are recovering.
On July 10, 1996, Fred J. Anderson resigned as Chairman of the Board of
Directors but continued as the company's chief financial officer and
remained a board member. On December 31, 1997 Fred J. Anderson resigned
as Director, Treasurer and Secretary to pursue other interests.
The above resignations resulted in lower SG&A expenses and a decrease in
consulting revenues of the company as the efforts of those involved with
consulting have been focused on EDNet32. The Company is concerned about
the reduced level of consulting revenues and is considering marketing
alternatives.
As of June 30, 1998, the Company had sold or leased its RCMS product to
two 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 June 30, 1998, the Company had installed its EDNet product to 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 June 30, 1998, the Company was in the process of
installing EDNet32 upgrade at three additional sites and had firm orders
from seven existing clients for upgrades to EDNet32.
On October 24, 1998 the Company signed a consulting contract with a
client in the Southwest to develop and install Intellichart(R), an
inpatient nursing product.
Results of Operations
---------------------
Fiscal 1998 Compared with Fiscal 1997
During fiscal year 1998, the Company had revenues of $676,403, which
represented a decrease of $80,854 (11%) from $757,257 for the prior
fiscal year. The following table presents the components of revenues
for fiscal 1998 and 1997.
ACTUAL
--------------------------------------------------
REVENUES FY 98 FY 97 Increase Percent
(Decrease) Increase
(Decrease)
---------- ---------- ---------- ----------
EDNet $ 313,090 $ 359,638 $ (46,548) (13%)
RCMS 277,580 309,395 (31,815) (10%)
Consulting 85,733 88,224 (2,491) (03%)
---------- ---------- ---------- ---------
Total $ 676,403 $ 757,257 $ (80,854) (11%)
========== ========== ========== ==========
The following table details cost of revenue by product, comparing the
prior fiscal year as shown on financials.
Increase
1998 1997 (Decrease)
---------- ---------- ----------
Ednet System and RCMS &
RCMS/X systems $ 189,128 $ 203,985 $ (14,857)
Consulting 89,759 116,518 (26,759)
Amortization & Writedown
of Deferred Software Costs - 180,637 (180,637)
---------- ---------- ----------
Total $ 278,887 $ 501,140 $ (222,253)
========== ========== ==========
Cost of revenues decreased by $222,253 (44%) to $278,887 for fiscal year
1998 compared with $501,140 for the previous fiscal year. Cost of
revenues related to the EDNet System and Respiratory System for fiscal
year 1998 were $189,128, with a gross margin of 68%. This compares to
cost of revenues of $203,985 with a gross margin of 70% for the prior
twelve month period.
Amortization and write-downs of deferred software costs were 0 for
fiscal year 1998 compared with $180,637 for the previous fiscal year.
Consulting cost of revenue decreased by 57% to $89,759 for fiscal year
1998 from $116,518 for the fiscal year 1997.
Selling, general and administrative expenses decreased by $218,352, or
47%, to $244,228 for fiscal year 1998 compared with $462,580 for the
previous fiscal year. Software development expenses decreased by $23,628
or 11%, to $201,293 for fiscal year 1998 from $224,921 for fiscal 1997.
This is the result of fewer administrative personnel, and the use of
outside contractors to finish the development of EDNet 32.
Net interest expense increased to $19,959 for fiscal year 1998 compared
with $3,785 for fiscal year 1997. This is the result of the conversion
of debt and accumulated interest expense converted into equity.
As a result of the above factors, the net loss from operations decreased
to $48,005 for fiscal year 1998 compared with a loss of $431,384 for
fiscal year 1997.
Net loss decreased to $40,556 or $.00 loss per share for fiscal year
1998 compared with loss of $435,169 or $.03 loss per share for fiscal
year 1997.
Fiscal 1997 Compared with Fiscal 1996
During fiscal year 1997, the Company had revenues of $757,257 which
represented a decrease of $297,196 (37%) from $1,054,453 for the prior
fiscal year. The following table presents the components of revenues
for fiscal 1997 and 1996.
REVENUES FY 97 FY 96 Increase Percent
Increase
(Decrease) (Decrease)
-------------- ---------- ---------- ---------- ----------
EDNet Systems $ 359,638 $ 397,103 $ (37,465) (9%)
RCMS Systems 309,395 362,774 (53,339) (15%)
Consulting 88,224 294,576 (206,352) (70%)
---------- ---------- ---------- ----------
Total $ 757,257 $1,054,453 $ (297,196) (28%)
========== ========== ========== ==========
The following table details cost of revenue by product, comparing the
prior fiscal year as shown on financials.
Increase
1997 1996 (Decrease)
--------- --------- ---------
EDNet System $ 86,745 $ 89,835 $ (3,040)
RCMS Systems 117,240 209,539 (92,294)
Consulting 116,518 194,101 (77,583)
Amortization & Writedown
of Deferred Software Costs 180,637 66,480 114,157
---------- ---------- ---------
Total $ 501,140 $ 559,955 $ (58,815)
========== ========== =========
Cost of revenues decreased by $58,815 (11%) to $501,140 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
of 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 in deferred software of
RCMS/X. Consulting cost decreased by 40% to $116,518 for fiscal year
1997 from $194,101 for the fiscal year 1996
Selling, general and administrative expenses decreased by $353,475, or
43%, to $462,580 for fiscal year 1997 compared with $816,055 for the
previous fiscal year. This is a result of decreased costs of marketing
of $41,000, and decreased sales travel of $48,000. The following
expenses decreased from the prior year; 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 $24,079 or 10%, to $224,921
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 $3,784 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.
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 decreased
to $412,541 for fiscal year 1997 compared with a loss of $570,557 for
fiscal year 1996.
Net loss decreased to $416,325, 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.
Liquidity and Capital Resources
-------------------------------
The Company has suffered recurring losses from operations since fiscal
year 1989, and as of June 30, 1998 had an accumulated deficit of
$5,147,094. The operating losses are due in part to significant
decreases in revenues in fiscal years 1997, 1996, 1995, 1994, 1993 and
1992 as the Company redeveloped and updated its emergency department and
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 consisted of a minimum of 670,000 units
and a maximum of 2,000,000 units priced at $.30 per unit. Each unit
consisted 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.
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.
On February 20, 1998 the Company's board of directors authorized a
reduction in exercise price on all outstanding Class A, B, C & D
Warrants and options to $.03/share contingent upon exercise by March 20,
1998. The original exercise prices ranged from $.05 to $.42 per share.
A total of 2,578,430 warrants and 1,164,286 options were exercised. As
a result of the exercise, the Company received cash of $17,321 and
extinguished $94,961 of debt held by the option and warrant holders. In
addition, the Company converted $62,174 of debt into 2,072,496 of common
stock.
The Company's cash position decreased by $5,401 during the fiscal year
ended June 30, 1998 to $21,937 as compared to $27,338 as of June 30,
1997. The Company had a working capital deficit of $292,487 as of June
30, 1998 as compared with a deficit of $469,775 as of June 30, 1997.
Operating activities used $20,584 for the fiscal year ended June 30,
1998 as compared with using $210,540 for the corresponding period of the
previous year. The principal sources of cash have been (i) proceeds
from conversion of warrants of $17,321. There were debt payments of
$31,445 during the fiscal year ended June 30, 1998 as compared with
$42,139 for the corresponding period of the previous year.
While a portion of the current liabilities, approximately $4,000, 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.
Inflation has not had a significant impact on the Company's operations.
<PAGE>
ITEM 8: FINANCIAL STATEMENTS
Index to Financial Statements
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 1998 F-2
Statements of Operations for the Years Ended June 30, 1998 and 1997 F-3
Statements of Shareholders' Equity for the Years Ended June 30,
1998 and 1997 F-4
Statements of Cash Flows for the Years Ended June 30, 1998 and 1997 F-5
Notes to Financial Statements F-6
<PAGE>
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 the 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, 1998, and the related consolidated statements of operations,
shareholders' deficit and cash flows for the years ended June 30, 1998
and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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, 1998, and
the results of their operations and their cash flows for the years ended
June 30, 1998 and 1997 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.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 22, 1998
F-1
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
Current Assets
Cash $ 21,937
Accounts receivable, net of allowance for
doubtful accounts of $7,500 72,181
---------
Total Current Assets 94,118
---------
Furniture, Fixtures and Equipment 119,302
Less: Accumulated depreciation (114,092)
---------
5,210
---------
Other Assets, Net 1,425
---------
Total Assets $ 100,753
---------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Notes payable $ 31,185
Accounts payable 103,251
Accrued expenses 43,360
Deferred revenue 163,197
Payable to officers/shareholders 41,305
Related-party debt 4,307
-----------
Total Current Liabilities 386,605
-----------
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, 18,833,717 shares issued 18,834
Additional paid-in capital 4,834,421
Warrants outstanding 7,987
Accumulated deficit (5,147,094)
-----------
Total Shareholders' Deficit (285,852)
-----------
Total Liabilities and Shareholders' Deficit $ 100,753
===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---------- ----------
Revenues
Software license fees and maintenance $ 590,670 $ 669,033
Consulting services 85,733 88,224
---------- ----------
Total Revenues 676,403 757,257
---------- ----------
Cost of Revenues
Software license fees and maintenance 189,128 203,985
Consulting services 89,759 116,518
Amortization and write-downs of
deferred software costs - 180,637
---------- ----------
Total Cost of Revenues 278,887 501,140
---------- ----------
Gross Profit 397,516 256,117
Operating Expenses
Selling, general and administrative 244,228 462,580
Software development 201,293 224,921
---------- ----------
Total Operating Expenses 445,521 687,501
---------- ----------
Loss From Operations (48,005) (431,384)
Other Income and Expense
Interest income 757 1,385
Interest expense (20,716) (5,170)
---------- ----------
Total Other Income and Expenses (19,959) (3,785)
---------- ----------
Loss Before Extraordinary Item (67,964) (435,169)
Extraordinary Item - Forgiveness of Debt
(Net of $0 Tax Benefit) 27,408 -
---------- ----------
Net Loss $ (40,556) $ (435,169)
========== ==========
Basic and Diluted Loss Per Common Share $ (0.00) $ (0.03)
========== ==========
Weighted Average Number of Common
Shares Outstanding 14,643,578 12,747,444
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
Common Stock
----------------------
Shares Paid-In Warrants Accumulated Common Deferred
Issued Amount Capital Outstanding Deficit Stock Compensation Total
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 11,397,081 $ 11,397 $4,418,568 $ 143,221 $(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
compensation - - - - - - 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)
Conversion of options and
warrants to common stock
at discounted rate for
cash and conversion of
liabilities 3,742,716 3,743 130,273 (21,734) - - - 112,282
Issuance of common stock
to satisfy amounts owed 2,072,496 2,072 60,102 - - - - 62,174
Shares returned to Company (1,084,286) (1,084) 1,084 - - - - -
Shares issued to employees
as compensation and to
third parties as
interest expense 1,084,286 1,084 31,445 - - - - 32,529
Net loss - - - - (40,556) - - (40,556)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Balance, June 30, 1998 18,833,717 $ 18,834 $4,834,421 $ 7,987 $(5,147,094) $ - $ - $ (285,852)
========== ========== ========== ========== =========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE> F-4
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
--------- ----------
Cash Flows From Operating Activities
Net loss $ (40,556) $ (435,169)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write-off of excess purchase price - -
Depreciation and amortization 10,859 83,493
Write-down of deferred software costs - 115,432
Expenses related to the issuance of
stock and stock options 32,529 8,125
Increase in allowances for doubtful accounts - -
Gain on extinguishment of debt (27,408) -
Change in assets and liabilities, net of
effects of acquisitions:
Accounts and contracts receivable (22,188) 92,440
Inventories - 5,000
Other assets - -
Accounts payable (7,087) (26,573
Accrued liabilities 1,482 (55,809)
Deferred revenue 31,785 2,521
Amounts due to related parties - -
--------- ----------
Net Cash Used In Operating Activities (20,584) (210,540)
--------- ----------
Cash Flows From Investing Activities
Acquisition of furniture, fixtures and equipment - -
--------- ----------
Net Cash Used In Investing Activities - -
--------- ----------
Cash Flows From Financing Activities
Proceeds from the sale of common stock and
warrants to purchase common stock 17,321 70,428
Proceeds from borrowings 29,307 -
Principal payments on long-term debt (31,445) (42,139)
Net Cash Provided by Financing Activities 15,183 28,289
--------- ----------
Net Increase (Decrease) In Cash (5,401) (182,251)
Cash at Beginning of the Year 27,338 209,589
--------- ----------
Cash at End of the Year $ 21,937 $ 27,338
========= ==========
Supplemental Disclosures of Cash
Flow Information:
Cash paid for interest $ 488 $ 1,577
========= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS
Organization - Tenet Information Services, Inc. ("Tenet"), a
Utah corporation, designs and markets a computer-based medical
and health information system related primarily to emergency
departments (the "EDNet System"). 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
designed and marketed the 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. Tenent
has elected to phase out its respiratory therapy product line.
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.
Basis of Presentation - The accompanying financial statements
have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities
in the normal course of business. However, the Company has
experienced recurring losses from operations and as of June 30,
1998 has a working capital deficit of $292,487 and a net
capital deficiency of $285,852. As shown in the financial
statements, during the years ended June 30, 1998 and 1997, the
Company incurred net losses of $40,556 and $435,169,
respectively. These factors, raise substantial doubt about the
Company's ability to continue as a going concern for a
reasonable period of time. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The
Company's ability to continue as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis and to obtain additional
financing as may be required. The Company has phased out its
respiratory therapy product line and replaced it with the EDNet
System which is deemed to be a more marketable and profitable
product line. Management is also negotiating various sales
agreements and is continuing to better manage its cash flow.
The Company is in the process of discussing joint ventures with
software companies that would enhance and expand the product
line now available. Management is also considering raising
capital through the issuance of warrants and other equity
instruments. The Company has restructured its management
personnel in an effort to streamline operations. The Company is
not expected to incur additional software development
write-offs which contributed to the 1997 fiscal year loss.
Also, management has been able to substantially reduce losses
compared to prior periods.
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.
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 $10,859 and $18,288 for the periods ended June 30, 1998 and
1997. 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, 1998 and 1997.
Software Development Costs - Costs incurred in creating
computer software products are charged to operations as
software development expense prior to the development of a
detailed program design or a working model. After the detailed
program design or working model is established, costs of
producing product masters are capitalized as software
development costs.
Costs of maintenance and customer support are recognized as
expense when the related revenue is recognized or when those
costs are incurred, whichever occurrs first. Amortization of
capitalized costs relating to each software product began when
the product was released for sale to customers. Amortization
was computed using the straight-line method over the remaining
estimated economic life of the software, which was four to five
years. Unamortized costs were carried at the lower of cost or
net realizable value. Due to uncertainty regarding realization
of capitalized software costs, those costs were fully
recognized as amortization of software development costs during
1997.
Impairment - The Company records impairment losses on property
and equipment when indicators of impairment are present and
undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.
Fair Value of Financial Instruments - The estimated fair value
of financial instruments is not presented because, in
Management's opinion, there is no material difference between
carrying amounts and estimated fair values of financial
instruments as presented in the accompanying balance sheet.
Income Taxes - The Company recognizes the amount of income
taxes payable or refundable for the current year and recognizes
deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial
statement amounts of certain assets and liabilities and their
respective tax bases. Deferred tax assets and deferred
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years those temporary
differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance to the extent
that uncertainty exists as to whether the deferred tax assets
will ultimately be realized.
Advertising Costs - Advertising costs are charged to expense in
the period incurred. Advertising expense for the years ended
June 30, 1998 and 1997 was $10,675 and $1,779, respectively.
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.
Loss Per Share - In 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) N0. 128, Earnings Per
Share. Under SFAS 128, loss per common share is computed by
dividing net loss available to common stockholders by the
weighted-average number of common shares outstanding during the
period. Diluted loss per share reflects the potential dilution
which could occur if all contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock. In the Company's present position,
diluted loss per share is the same as basic loss per share
because potentially issuable common shares, which include
688,075 warrants and 50,000 options, would decrease the loss
per share and have been excluded from the calculation. The
effect of the new standard on prior years was immaterial;
accordingly, prior periods have not been restated.
New Accounting Standards - The Financial Accounting Standard
Board issued SFAS No. 130, Reporting Comprehensive Income and
SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information in 1997. These statements, which are
effective for fiscal years beginning after December 15, 1997,
expand or modify disclosures and will have no impact on the
Company's financial position, results of operations or cash flows.
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 approved the terms of an Agreement and Plan
of Reorganization (the "Agreement") pursuant to which NMC was
merged with and into Tenet Merger Subsidiary, Inc., a wholly
owned subsidiary of Tenet 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 $546,884.
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 $546,884 in fiscal 1996.
Management believes that the amount of common stock issued for
NMC was fair and reasonable based on expected synergies to be
achieved by combining NMC with the Company. In addition, NMC
brought a customer base of 24 sites and a backlog of four
installations.
In connection with the merger, the Company entered into
three-year employment agreements with NMC's major shareholder
and a key employee. The employment agreements provide for base
annual salaries, bonuses and the grant of warrants to purchase
50,000 shares and incentive stock options to purchase 50,000
shares of the Company's common stock at $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.
NOTE 4-NOTES PAYABLE AND RELATED-PARTY LONG-TERM DEBT
Notes payable consist of the following at June 30, 1998:
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, 1998), 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 1998 balance sheet. $ 31,185
---------
Total Notes Payable $ 31,185
=========
Related-party long-term debt consists of the following at June
30, 1998:
Note payable to a related party (Healthcare
Consulting Group). No specified interest rate,
balance is due on demand $ 4,307
---------
Total Related Party Debt $ 4,307
=========
NOTE 5-OPERATING LEASE
The Company occupies its facilities and uses equipment under
non-cancelable operating leases which expire in fiscal year
1999. Lease expense for fiscal 1998 and 1997 was $47,896 and
$50,833, respectively.
Minimum future lease payments under non-cancelable operating
leases having remaining terms in excess of one year as of June
30, 1998 are as follows:
Year Ended June 30,
1999 $ 22,450
=========
NOTE 6-SOFTWARE DEVELOPMENT COSTS
During the period ended June 30, 1997, it was determined that
the probability of any future recovery of the software
development costs were remote, and the Company concluded that
this asset was impaired. Accordingly, the carrying value of the
software was reduced to zero at June 30, 1997 by recognizing an
additional $115,432 of amortization during the year ended June
30, 1997. Total amortization expense for the period ended June
30, 1997 was $180,637.
NOTE 7-INCOME TAXES
No benefit for income taxes has been recorded during the years
ended June 30, 1998. 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.
The components of the net deferred tax assets at June 30,
1998 are as follows:
1998
-----------
Deferred Tax Assets:
Tax net operating loss carry forward
$ 1,597,691
Tax credits carry forward 103,000
Reserves and accrued liabilities 8,493
-----------
Total Deferred Tax Assets 1,709,184
-----------
Valuation allowance
(1,709,184)
-----------
Net Deferred Tax Asset $ -
===========
During the years ended June 30, 1998 and 1997, the valuation
allowance increased by $13,184 and $127,000, respectively.
As of June 30, 1998, the Company has net operating loss
carryforwards for federal income tax reporting purposes of
approximately $4,284,358. 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.
The following is a reconciliation of the income tax at the
federal statutory rate of 34% with the provision for income
taxes for the years ended June 30, 1998 and 1997:
1998 1997
---------- ----------
Income tax benefit at statutory rate $ (13,789) $ (147,957)
Change in deferred tax valuation account 13,184 127,000
Non deductible taxes 1,943 5,595
State taxes, net of federal benefit (1,338) (14,361)
Change in effective rates - (29,723)
---------- ----------
Provision for Income Taxes $ - $ -
========== ==========
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 1998, the Company converted $62,174 of debt into
2,072,496 shares of common stock. As described in Notes 10 and
11, $2,578,430 warrants and 1,164,286 stock options were
exercised at $0.03 per share. As a result of the exercise, the
Company received cash of $17,321 and extinguished $94,961 of
debt held by the option and warrant holders.
In 1998, two officers returned 1,084,286 shares of common stock
to the treasury. These shares were then reissued to employees
and creditors as additional compensation of $25,951 and
interest expense of $6,578.
NOTE 9-STOCK OPTIONS
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 from
immediately to 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.
A summary of the status of the Company's option plan as of June
30, 1998 and 1997, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1998 1997
------------------------ ----------------------
Weighted-Average Weighted-Average
Exercise Exercise
Shares Price Shares Price
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,014,286 $ 0.14 620,000 $ 0.09
Granted 200,000 0.05 814,286 0.14
Exercised (1,164,286) 0.03 - -
Canceled - - (420,000) 0.08
----------- ---------- ---------- ---------
Outstanding at end of year 50,000 0.14 1,014,286 0.14
=========== ========== ========== =========
Options exercisable at year-end 50,000 0.14 924,286 0.14
=========== ========== ========== =========
Weighted-average fair value of
options granted during the year $ 0.05 $ 0.04
========== ==========
</TABLE>
On February 20, 1998, the Company's board of directors
authorized a reduction of the exercise price on all outstanding
options to $0.03 per share contingent upon exercise by March
20, 1998. A total of 1,164,286 options with original exercise
prices from $0.05 to $0.14 per share were exercised.
At June 30, 1998, the exercise price for options outstanding
was $0.14 per share and the weighted-average remaining
contractual life was 3.5 years.
At June 30, 1997, exercise prices for options outstanding
ranged from $0.05 to $0.14 per share, 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:
1998 1997
--------- ----------
Net loss
As reported $ (40,556) $ (435,169)
Pro forma (50,963) (473,636)
Loss per share
As reported (0.00) (0.03)
Pro forma (0.00) (0.04)
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 1998
and 1997, respectively: expected volatility of 34.0 and 34.6
percent, respectively, risk-free interest rates of 5.7 and 6.1
percent, respectively, and expected lives of 5 years.
Option 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.
NOTE 10-WARRANTS TO PURCHASE COMMON STOCK
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,
------------------------
1998 1997
----------- ----------
Warrants to purchase common
shares, beginning of the year,
at prices ranging from $0.07
to $0.42 per share 3,266,507 4,887,931
Warrants exercised at prices ranging
from $0.03 to $0.05 per share (2,578,430) (1,621,424)
---------- ----------
Warrants to purchase common
shares, end of the year, at
prices ranging from $0.07
to $0.42 per share 688,077 3,266,507
========== ==========
On February 20, 1998, the Company's board of directors
authorized a reduction of the exercise price on all outstanding
Class A, B, C and D warrants to $0.03 per share contingent upon
exercise by March 20, 1998. The original exercise prices ranged
from $0.05 to $0.42 per share. A total of 2,578,430 warrants
were exercised.
During fiscal 1997, the Company's board of directors authorized
a reduction of the exercise price of the Company's Class B
warrants to $0.05 from $0.07 per share, contingent upon
exercise by September 30, 1996. A total of 1,621,424 warrants
were exercised.
NOTE 11--SUPPLEMENTAL CASH FLOW INFORMATION ACTIVITIES
As described in Note 8, the Company converted $62,174 of debt
into 2,072,496 shares of common stock. In addition, 2,578,430
warrants and 1,164,286 stock options were exercised at $0.03
per share resulting in 3,742,716 shares of common stock. As a
result of the exercise the Company received cash of $17,321 and
extinguished $94,961 of debt held by the option and warrant
holders. Also during fiscal 1998, $7,869 of accrued interest
was converted to long term debt.
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.
NOTE 12 -- EXTRAORDINARY ITEM
During the year ended June 30, 1998, an officer forgave $9,933
of debt. In addition the Company eliminated $17,475 worth of
payables between one and three years old for which the Company
believes it is no longer liable. The total write off of $27,408
has been recorded as an extraordinary gain on the forgiveness
of debt.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 30, 1997, the Registrant dismissed Arthur Anderson 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 uncertainty,
audit scope or accounting principles. The Registrant's board
of directors unanimously approved dismissal of Arthur Anderson.
During the fiscal years ended June 30, 1996 and 1995 and the
interim period subsequent to June 30, 1997, 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 Anderson 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:
Name Age Position with The Company Date of Election
--------------- ----- ------------------------- -----------------
Jerald L. Nelson 55 President(resigned) December 1, 1993
(July 10, 1996)
Chairman of the Board July 10, 1996
Director January 24, 1994
Frank Overfelt 55 Director September 29, 1995
Chief Operations Officer
(acting) July 10, 1996
President & Chief Operating
Officer August 31, 1998
Eric J. Nickerson 45 Director June 29, 1990
Fred J. Anderson 51 Chairman of the Board
(resigned) May 21, 1992
*(July 10, 1996)
Director (resigned), July 18, 1986*
(December 31, 1997)
Treasurer (resigned) May 16, 1985*
(December 31, 1997)
Secretary (resigned) January 11, 1989*
(December 31, 1997)
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 but continued as the company's chief
financial officer and remained a board member. On December 31,
1997 Fred J. Anderson resigned as Director, Treasurer and
Secretary. On July 10, 1996 Jerald L. Nelson resigned as
President and Chief Operating Officer and was elected Chairman
of the Board of Directors. Frank C. Overfelt was also
appointed Chief Operating Officer on an interim basis. At a
board of directors meeting held on August 31, 1998 Frank
Overfelt was elected to the position of President and Chief
Operating 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, Interwest Home Medical,
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 1986. 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. His total healthcare
experience is 23 years.
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.
Other Key Personnel
-------------------
The Company's other key personnel include the following:
Donald W. Ballash. Mr. Ballash has over 19 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. He holds a B.S. Degree in Operations and Systems
Analysis from BYU.
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 year ended June 30, 1996 paid to (i) the Company's
president and each executive officer whose cash compensation
exceeded $100,000, and (ii) all executive officers of the
Company as a group. No executive officers salary exceeded
$100,000 for the fiscal year.
<TABLE>
<CAPTION>
Annual Compensation /Long Term Compensation
/ ---------------------------------------------------------------------
/ Awards /Payouts /
---------------------------
Securities
Name Year Salary Bonus Other Restricted LTIP All Other
and ($) ($) Annual Stock Underlying Pay- Compen-
Principal Compen Awards Options/ outs sation
Position ($) ($) SARs(#) ($) ($)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C. <C> <C> <C> <C> <C>
Frank C. Overfelt 1996 42,082 -0- -0- -0- -0- -0- -0-
Chief Operating
Officer 1997 76,797 -0- -0- -0- -0- -0- -0-
1998 76,797 -0- -0- -0- -0- -0- -0-
Jerald L. Nelson 1996 27,500 -0- -0- -0- -0- -0- -0-
Chairman of
the Board 1997 -0- -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
All Executive Officers
(5 persons) 1996 308,200 -0- 21,800 -0- -0- -0- -0-
3 persons) 1997 145,690 -0- -0- -0- -0- -0- -0-
(1 person) 1998 76,797 -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.
During the fiscal year ended June 30, 1998, the Company granted
200,000 options to key employees exercisable at the rate of
$.05 per share. Also, during the fiscal year ended June 30,
1998, 300,000 ISO options were exercised and 150,000 NQSO's
were exercised at a price of $.03 per share. In addition,
714,286 options were exercised at a price of $.03 per share.
The options were granted in 1996 pursuant to the acquisition of
the assets of the International Healthcare Consulting Group.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the holdings of common stock as
of November 30, 1998 (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 November 30, 1998
------------------------------------------------------------
Common (1) Percent of Shares Outstanding
--------- -----------------------------
Michael R. Carlston 2 5,278,115 26.97%
Dennis C. Peterson 3 4,220,442 21.56%
Mark Oldroyd 4 3,975,559 20.31%
Scott Staker 5 3,975,559 20.31%
T-Acquisition 6 3,775,559 19.29%
Eric J. Nickerson 7 2,602,044 13.29%
Third Century II 7 2,602,044 13.29%
Robert Smith 8 1,166,246 5.96%
Richard Gwinn 9 1,054,920 5.39%
Frank Overfelt 10 1,102,143 5.63%
Donald W. Ballash 11 776,429 3.97%
Jerald L. Nelson 12 435,700 2.23%
All Officers and
Directors 4,916,316 25.12%
1. Based on 18,833,717 common shares outstanding, 688,075
warrants to purchase common shares at $0.07 - $0.42 and options
to acquire 50,000 shares of Common Stock at $0.05 per share.
2. The shares indicated include: (i) 1,502,556 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) 3,775,559 shares of Common Stock 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 3,775,559 shares of Common Stock 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 3,775,559 shares of
Common Stock 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 3,775,559 shares of Common Stock 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
3,775,559 shares of Common Stock The address of T-Acquisition
is 855 Harwood Dr., Murray, UT 84107.
7. Includes 2,602,044 shares of Common Stock 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 803,497 shares of Common Stock held by Dr. Smith .
Dr. Smiths address is 2291 Greer Rd., Palo Alto CA 94303
9. 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
10. Includes 50,000 shares of Common Stock held by IHCG and
1,052,142 shares of Common Stock held by Mr. Overfelt, Mr.
Overfelts address is 4634 So. Ledgemont Dr., Holladay UT 84124
11. Includes 50,000 shares of Common Stock held by IHCG, and
726,429 shares of Common Stock held by Mr. Ballash. Mr.
Ballash's address is 9777 So. Dunsinsame Dr., So. Jordan, UT 84095
12. Includes 735,706 shares of Common Stock . Mr. Nelsons
address is 207 W. Clarendon #3B, Phoenix, AZ 85013
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 transaction identified below.
In accordance with the Board resolution of February 20, 1998
Frank C. Overfelt, a director and officer of the Company
converted $12,446 of debt into common stock by exercising his
options (428,572 shares) and warrants (398,571 shares). He also
received an additional 225,000 shares as a gift from other
shareholders. Consequently he became a beneficial owner of more
than 5% of the common stock of the company.
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:
Report of Independent Public Accountants
Balance Sheet as of June 30, 1998.
Statements of Operations for the Years Ended
June 30, 1998 and 1997.
Statements of Shareholders' Equity
for the Years Ended June 30, 1998 and 1997.
Statements of Cash Flows for the Years ended June 30,
1998 and 1997.
Notes to Financial Statements
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the
Registrant during the last quarter of the period
covered by this report.
(c) Exhibits
The following documents are incorporated by reference to the
Company's Registration Statement on Form S-18, filed with the
Commission on January 17, 1989, and as amended on February 10,
1989 and March 7, 1989, as declared effective on March 9, 1989:
3.1 Articles of Incorporation and all amendments thereto
3.2 Bylaws
10.1 Nonqualified Stock Option Plan
10.2 Incentive Stock Option Plan
10.3 Form of common stock Purchase Warrant issued to Rogers & Anderson
10.4 Form of Rental Agreement
10.5 Form of 60 Month Lease Agreement
10.6 Form of Purchase Agreement
10.7 Form of Proprietary Information and Inventions Agreement between
all employees and consultants and the Company
10.8 Facilities Lease between the Company and J & V Management Company
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
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TENET INFORMATION SERVICES, INC.
February 2, 1999 By: /s/ Jerald L. Nelson
---------------------------------------
Jerald L. Nelson, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
person, which include the Chief Executive Officer, Chief
Financial Officer, and a majority of the Board of Directors, on
behalf of the Company and in the capacities and on the dates
indicated:
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose
signature appears below constitutes and appoints each of Jerald
L. Nelson and Fred J. Anderson, jointly and severally, his true
and lawful attorney in fact and agent, with full powers of
substitution for him and in his name, place and stead, in any
and all capacities, to sign any or all amendments to this
Report on Form 10-K and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney in fact, or his
substitute or substitutes, may do or cause to be done by virtue
hereof.
Signature Title Date
--------- ------- ------
/s/ Jerald L. Nelson Director and Chairman of February 5, 1999
-------------------- the Board of Directors
Jerald L. Nelson
/s/ Frank C. Overfelt Director, President and February 5, 1999
--------------------- Chief Operations Officer
Frank C. Overfelt
/s/ Eric J. Nickerson Director February 5, 1999
---------------------
Eric J. Nickerson
<PAGE>
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Companies Which Have
Not Registered Securities Pursuant to Section 12 of the Act.
The Company has not prepared or distributed any annual report
to security holders covering the last fiscal year nor any proxy
statement, form for proxy or other proxy soliciting material to
more than ten of the Company's security holders with respect to
any annual or other meeting of security holders. In the event
the Company's management elects to distribute such an annual
report or proxy material subsequent to the filing of this
annual report on Form 10-K, the Company will furnish four
copies of such materials to the Commission when it is sent to
security holders.
