<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-20284
CITATION COMPUTER SYSTEMS, INC.
-------------------------------
(Exact name of the Company as specified in its charter)
MISSOURI 43-1174397
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
424 SOUTH WOODS MILL ROAD, CHESTERFIELD, MISSOURI 63017
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 579-7900
-------------------
(The Company's telephone number, including area code)
--------------------
Indicate by check mark whether the Company (1) has filed all reports required to
be filled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Company's Common Stock, par value $0.10
per share, at February 8, 1999, was 3,832,799 shares.
Exhibit Index on Page 16 Page 1 of 16
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-6 hereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Any forward-looking statements set forth herein are necessarily subject
to significant uncertainties and risks. The words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Actual results could be materially different as a result of various
possibilities, including difficulties or delays in the introduction of new
products or the revision of existing products, difficulties in access to or
vendor support of products resold by the Company, significant changes in
healthcare regulation, economic downturns in any of the Company's markets,
competitors, new entrants into the Company's markets, increased price pressure,
the availability of suitable acquisition candidates or strategic partners,
customer reduction caused by industry consolidation or other factors or
marketplace acceptance of Windows NT as an operating platform.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998, TO THREE MONTHS ENDED
DECEMBER 31, 1997
GENERAL. The Company reported net income of $0.05 per share, or $0.2
million, for the third quarter of fiscal 1999, compared to a net loss of $0.03
per share, or $0.1 million, in the comparable period of fiscal 1998. The
increase in profitability from the prior year was principally the result of
lower operating expenses.
On December 9, 1998, the Company and MEDASYS Digital Systems, S.A.
agreed to terminate a previously announced Agreement and Plan of Reorganization
to combine the two companies. The companies have entered into an arrangement to
continue exploring joint marketing and strategic opportunities that can enhance
both companies' effectiveness serving the clinical information systems
marketplace. In the fourth quarter ending March 31, 1999, the Company expects to
culminate discussions with MEDASYS regarding such marketing and other strategic
opportunities, and correspondingly, complete the assessment of future benefits
associated with related costs incurred. At December 31, 1998, the Company has
deferred approximately $0.6 million of costs related to discussions with
MEDASYS. After completion of the above mentioned assessment, the Company will
establish the portion of MEDASYS-related costs to be charged as a non-operating
expense in the fourth quarter of fiscal 1999.
REVENUES. Total revenue decreased 7.6% from $4.3 million for the third
quarter of fiscal 1998 to $4.0 million for the third quarter of fiscal 1999, due
to a 4.4% decrease in system sales revenue and a decrease of 11.2% in service
revenue.
System sales revenue for the third quarter decreased $0.1 million from
$2.3 million in fiscal 1998 to $2.2 million in fiscal 1999. Included in the
third quarter of fiscal 1998 was $0.2 million systems
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revenue from the financial products which product line was sold in June 1998.
System sales represented 54.8% and 52.9% of total revenues for the third quarter
of fiscal 1999 and 1998, respectively.
Service revenue for the third quarter decreased $0.2 million to $1.8
million in fiscal 1999. The third quarter of fiscal 1998 included $0.3 million
of financial products revenue. Service revenue represented 45.2% and 47.1% of
total revenues for the third quarter of fiscal 1999 and 1998, respectively.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT. Cost of products
and services sold include cost of system sales and cost of service revenue. Cost
of system sales includes hardware sold, installation and training expenses, and
software amortization costs. Cost of service revenue includes all client service
expenses plus an allocation of certain other overhead expenses. As a percentage
of total revenue, the total cost of products and services sold decreased from
48.7% in the third quarter of fiscal 1998 to 46.0% in the third quarter of
fiscal 1999. For the third quarter of fiscal 1999 and 1998, total cost of
products and services sold were $1.8 million and $2.1 million, respectively.
The decrease in cost as a percentage of revenues was primarily due to
the decrease in client service expense and software amortization expense.
Software amortization costs of $0.4 million and $0.5 million in the third
quarter of fiscal year 1999 and 1998 represented 20.2% and 25.1%, respectively,
of total costs of products and services sold.
Gross profit as a percentage of total revenues increased from 51.3% in
the third quarter of fiscal 1998 to 54.0% in the third quarter of fiscal 1999.
The increase in gross profit as a percentage of total revenues was primarily
attributable to the factors discussed above.
RESEARCH AND DEVELOPMENT COSTS. Total outlays for software development
for the third quarter of fiscal 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
FY99 FY98
R&D EXPENSE 3RD QTR. 3RD QTR.
- ----------- -------- --------
<S> <C> <C>
R&D spending $ 678.2 $ 914.2
Less - R&D capitalized 172.2 232.4
-------- -------
Total R&D expense 506.0 681.8
Software amortization (cost of prod. sold) 368.7 525.7
-------- -------
Total R&D expensed $ 874.7 $ 1,207.5
======== =======
</TABLE>
For the third quarter of fiscal years 1998 and 1999, the Company
capitalized 25.4% of software development spending.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of total revenues decreased from 39.9% in the third
quarter of fiscal 1998 to 32.7% in the third quarter of fiscal 1999. Total
selling and administrative expenses decreased $0.4 million to $1.3 million in
this year's third quarter. The decrease was primarily due to lower personnel
costs and lower administrative costs to support operations.
OPERATING INCOME. Operating income increased from a loss of $0.2
million in the third quarter of fiscal 1998 to income of $0.3 million in the
third quarter of fiscal 1999. The operating margin increased from a negative
4.4% to a positive 8.5% in the third quarter of fiscal 1998 and 1999,
respectively, primarily reflecting the factors as described above.
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OTHER INCOME. Interest expense, net increased from $15.4 thousand in the
third quarter of fiscal 1998 to $20.2 thousand in the third quarter of fiscal
1999 due to the net increase in borrowings under the Company's line of credit.
INCOME TAXES. The Company's effective income tax benefit rate was 38%
in the third quarter of fiscal 1998 compared to an effective income expense rate
of 39% in the third quarter of fiscal 1999.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1998, TO NINE MONTHS ENDED DECEMBER
31, 1997
GENERAL. The Company reported net income of $0.06 per share, or $0.2
million, for the first nine months of fiscal 1999, compared to a net loss of
$0.06 per share, or $0.2 million in the comparable period of fiscal 1998.
In June 1998, the Company sold its financial systems business,
including its accounts receivable, patient billing, general ledger, accounts
payable, fixed assets, inventory control, medical records abstracting and
registration software modules, to Sterling Systems based in Downey, Idaho. See
Note 6 to the accompanying financial statements.
REVENUES. Total revenues decreased 10.6% to $11.5 million for the first
nine months of fiscal 1999 from $12.9 million for the first nine months of
fiscal 1998, which reflects a 12.3% decrease in system sales revenue and a 8.8%
decrease in service revenue.
System sales revenue for the first nine months decreased by $0.8
million, from $6.7 million in fiscal 1998 to $5.9 million in fiscal 1999.
Included in fiscal 1998 and 1999 were $0.6 million and $0.1 million,
respectively, of financial products revenue. System sales represented
52.0% of total revenues for the first nine months of fiscal 1998 and 51.0% of
total revenues for the same period in fiscal 1999.
Service revenue for the first nine months decreased by $0.6 million,
from $6.2 million in fiscal 1998 to $5.6 million in fiscal 1999. Service revenue
included $0.7 million and $0.3 million in the first nine months of fiscal 1998
and 1999, respectively, of financial products revenue. Service revenue
represented 48.0% and 49.0% for the first nine months of fiscal 1998 and 1999,
respectively.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT. As a percentage of
total revenue, the total cost of products and services sold decreased from 48.1%
in the first nine months of fiscal 1998 to 46.6% in the first nine months of
fiscal 1999. The decrease in cost as a percentage of revenue was primarily due
to the decrease in total revenues, which was more than offset by a decrease in
software amortization costs and client service expense. Software amortization
costs of $1.3 million and $1.5 million in the first nine months of fiscal years
1999 and 1998 represented 23.9% and 24.7%, respectively, of total costs of
products and services sold.
Gross profit as a percentage of total revenues increased from 51.9% in
the first nine months of fiscal 1998 to 53.4% in the first nine months of fiscal
1999. The increase in gross profit as a percentage of total revenues was
primarily attributable to the factors discussed above.
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RESEARCH AND DEVELOPMENT COSTS. Total outlays for software development
for the nine months of fiscal 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
FY99 FY98
R&D EXPENSE NINE MONTHS NINE MONTHS
- ----------- ----------- -----------
<S> <C> <C>
R&D spending $2,377.1 $2,433.4
Less - R&D capitalized 600.4 617.8
-------- --------
Total R&D expense 1,776.7 1,815.6
Software amortization (cost of prod. sold) 1,278.2 1,529.3
-------- --------
Total R&D expensed $3,054.9 $3,344.9
======== ========
</TABLE>
For the nine months of fiscal years 1998 and 1999, the Company
capitalized 25.4% and 25.3%, respectively, of software development costs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses decreased from $5.2 million in the first nine months of fiscal 1998 to
$3.9 million in the first nine months of fiscal 1999, a decrease of 24.4%. Total
selling and administrative expenses decreased primarily due to lower personnel
costs and to lower selling and administrative costs to support operations.
Selling and administrative expenses as a percentage of total revenues decreased
from 40.1% in fiscal 1998 to 33.9% in fiscal 1999.
OPERATING INCOME. Operating income increased from an operating loss of
$0.3 million in the first nine months of fiscal 1998 to operating income of $0.5
million, excluding the $70.5 thousand loss on the sale of the financial systems
business, in the first nine months of fiscal 1999, primarily reflecting the
decrease in total revenues more than offset by the improved gross margin and
decreased expenses described above.
OTHER INCOME. Interest expense, net decreased from $89.2 thousand in
the first nine months of fiscal 1998 to $44.1 thousand in the first nine months
of fiscal 1999 due to lower borrowings during the respective periods.
INCOME TAXES. The Company's effective income tax benefit rate was 38%
in the first nine months of fiscal 1998 compared to an effective income expense
rate of 39% in the first nine months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from operations.
At March 31, 1998, the Company had cash and cash equivalents in the amount of
$0.4 million compared to $0.2 million at December 31, 1998. Cash flows in the
nine months ended December 31, 1998 reflected amounts paid for capital
investments ($0.2 million), software development costs ($0.6 million), and
repayment of long-term debt, ($0.2 million), offset by cash generated from
operating activities of $0.4 million and borrowings under the line of credit
($0.4 million).
At December 31, 1997, the Company had cash and cash equivalents in the
amount of $0.3 million compared to $0.5 million at March 31, 1997. The cash
balance decreased $0.2 million primarily due to amounts used for capital and
software development spending ($0.9 million) and repayment of debt ($0.8
million), offset by cash provided by operating activities ($1.4 million).
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As of January 30, 1999, the Company had a line of credit agreement that
allows the Company to borrow up to $2.0 million with interest at the lender's
prime rate (7.75% at December 31, 1998). The line of credit is secured by the
Company's accounts receivable, inventory and general intangible assets. There
were borrowings of $1.6 million outstanding under the line of credit agreement
as of December 31, 1998 ($0.4 million of additional borrowings are available),
which have been classified as long-term debt in the December 31, 1998
Consolidated Balance Sheet.
The Company believes that its cash and cash equivalents, together with
its current borrowing facilities, cash generated from operations and other
liquidity sources will be sufficient to fund its anticipated cash requirements
for at least the next 12 months. The Company's ability to meet its cash
requirements on a long-term basis will depend on profitable operations and
consistent and timely collections of its accounts receivable.
On September 15, 1998, the Company, MEDASYS Digital Systems, S.A.,
certain shareholders of the Company and certain shareholders of MEDASYS entered
into an Agreement and Plan of Reorganization (the "Reorganization Agreement").
On December 9, 1998, the Reorganization Agreement was terminated by the parties.
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and devices with imbedded technology that are time sensitive
may treat years as occurring between 1900 and the end of 1999 may not
self-convert to reflect the upcoming change in the century. If not corrected,
this problem could result in system failures or miscalculations and erroneous
results by or at the Year 2000.
The Company has undertaken, but not yet completed a program to
understand the nature and extent of the work required to make its systems Year
2000 compliant. This program encompasses the Company's operating information and
facilities systems, the vendors and other third parties with which the Company
does business. The program includes the following phases: awareness and
inventory, detailed assessment and resolution, testing, deployment and
contingency plan development for all areas.
The Company is utilizing resources to identify, correct, reprogram and
test both its systems used internally as well as the products it sells for Year
2000 compliance. As part of the Company's Year 2000 compliance program, as of
December 31, 1998, the Company had: (i) identified all critical software that
requires modification for the Year 2000 and completed an estimate of the
personnel time required to complete such software modifications; (ii) received
written or oral confirmation from its telecommunications vendors that the
equipment supplied by such vendors is or will be Year 2000 compliant; (iii)
instituted a formal communication process to keep senior management and the
Board of Directors of the Company apprised of significant Year 2000 issues; and
(iv) developed a schedule for completing necessary Year 2000 modifications in a
timely manner. It is anticipated that all reprogramming efforts will be
completed during fiscal 1999. Notification has been sent to all customers of the
Company's systems regarding the Year 2000 issue and its potential effect on
those customer's systems, hardware and instruments.
The total cost of the Year 2000 project to date has not been material.
Based on the program to date, the Company does not expect that future costs of
modifications will have a material adverse effect on the Company's financial
position or results of operations and that currently anticipated costs to be
incurred by the Company with respect to Year 2000 issues will be funded from
operating cash flows. However, if all Year 2000 issues are not properly
identified, or assessment, remediation and testing are not effected timely with
respect to Year 2000 problems that are identified, there can be no assurance
that the Year 2000 issue will not materially adversely impact the Company's
results of operations or adversely affect the Company's relationships with
customer, vendors, or others. Additionally, there can be no assurance that the
Year 2000 issues of other entities will not have a material adverse impact on
the Company's systems or results of operations.
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<PAGE> 7
Because the Company expects that its internal systems will become Year
2000 compliant in a timely manner and believes that it has or will have taken
all necessary steps with regard to customers and Company products sold to
customers in a timely manner, the Company believes that the most likely worst
case scenario would result from vendors or other third parties failing to
achieve Year 2000 compliance. Depending upon the number of third parties, their
identity and the nature of the non-compliance, the Year 2000 issue could have a
material adverse effect on the Company's financial position or results of
operations.
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PART II -- OTHER INFORMATION
ITEM 1. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Shareholders was held on November
17, 1998. Two matters were submitted to a vote of the shareholders of the
Company: the election of two Class 3 Directors and consideration of the
appointment of PricewaterhouseCoopers LLP to serve as independent auditors of
the Company.
Two people were nominated to fill the two director positions voted upon
at the meeting. The nominees and the votes cast are, with respect to each,
listed below:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld Broker Non-Votes
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J. Robert Copper 2,037,892 24,451 0
David T. Pieroni 2,038,144 24,199 0
</TABLE>
The nominees were elected and will serve until the 2001 Annual Meeting
of Shareholders or until their successors are duly qualified and elected. The
directors continuing in office are Larry D. Marcus, James F. O'Donnell and Fred
L. Brown.
The second measure submitted was the ratification of the appointment of
PricewaterhouseCoopers LLP as independent auditors for the Corporation. To
approve the proposal, the affirmative vote of holders of a majority of the
shares represented in person and by proxy at the Annual Meeting was required.
The affirmative votes were 2,056,715; votes against were 2,241 ; abstentions
were 3,387; and there were no broker non-votes. The affirmative votes equaled
99.7 percent of the shares present in person or by proxy at the Annual Meeting,
and thus the proposal was approved.
No other matters were submitted to the shareholders of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) SEE EXHIBIT INDEX FOR LIST OF EXHIBITS.
(b) NONE.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITATION COMPUTER SYSTEMS, INC.
Date: February 12, 1999 By: /s/ Richard D. Neece
----------------- -----------------------------------------
Richard D. Neece
President
(Principal Financial & Accounting Officer)
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CITATION Computer Systems, Inc.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31 March 31,
1998 1998
---- ----
(unaudited) (audited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 230.9 $ 419.7
Accounts receivable:
Trade, net 6,917.9 6,351.0
Other 436.2 113.8
Inventories 436.5 436.1
Prepaid expenses and other current assets 139.0 190.2
Income taxes receivable 26.6 79.7
Deferred tax asset 135.8 135.8
------- -------
Total current assets 8,322.9 7,726.3
Software development costs, net 1,663.4 2,879.8
Property and equipment, net 666.0 917.6
Long-term accounts receivable 1,657.3 1,657.3
Long-term deferred tax assets 725.9 875.9
Other assets 822.8 255.0
------- -------
Total assets $13,858.3 $14,311.9
======== ========
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 125.9 $ 238.4
Accounts payable 730.6 1,423.5
Customer deposits 293.9 412.5
Accrued bonuses and commissions 143.6 116.5
Other accrued liabilities 63.7 217.3
Deferred service revenue 2,333.7 2,377.8
------- -------
Total current liabilities 3,691.4 4,786.0
Long-term debt 1,706.9 1,379.3
------- -------
Common stock 383.3 381.1
Paid-in capital 6,587.4 6,512.5
Retained earnings 1,489.3 1,253.0
------- -------
8,460.0 8,146.6
------- -------
Total liabilities and shareholders' equity $13,858.3 $14,311.9
======== ========
</TABLE>
See accompanying notes to consolidated financial statements F-1
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CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net system sales and service revenues:
System sales $ 2,177.0 $ 2,278.3 $ 5,864.3 $ 6,686.6
Service revenue 1,798.6 2,026.3 5,631.5 6,172.3
------- ------- -------- --------
3,975.6 4,304.6 11,495.8 12,858.9
Cost of products and service sold:
System costs 1,405.8 1,574.9 3,969.6 4,799.6
Service costs 424.4 519.7 1,390.2 1,388.0
------- ------- ------- -------
1,830.2 2,094.6 5,359.8 6,187.6
------- ------- ------- -------
Gross profit 2,145.4 2,210.0 6,136.0 6,671.3
Research and development expense 506.0 681.8 1,776.7 1,815.6
Selling and administrative expenses 1,301.1 1,718.1 3,900.0 5,158.4
Loss on sale of financial systems business (Note 6) -- -- 70.5 --
------- ------- ------- -------
Operating income (loss) 338.4 (189.9) 388.8 (302.7)
Other income:
Interest expense, net (20.2) (15.4) (44.1) (89.2)
Other (0.7) -- 42.6 --
------- ------- ------- -------
Income (loss) before income taxes 317.5 (205.3) 387.3 (391.9)
Provision (benefit) for income taxes 123.9 (78.0) 151.0 (148.9)
------- ------- ------- -------
Net income (loss) $ 193.7 $ (127.3) $ 236.3 $ (243.0)
======= ======= ======= =======
Net income (loss) per common share:
Basic and diluted $ 0.05 $ (0.03) $ 0.06 $ (0.06)
======= ======= ======= =======
Weighted average number of shares used in
computing net income (loss) per common share
Basic 3,832 3,808 3,819 3,805
===== ===== ===== =====
Diluted 3,832 3,808 3,838 3,805
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements F-2
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CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-----------------------------------
1998 1997
-----------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 236.3 $ (243.0)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 447.6 500.9
Amortization of software development costs 1,278.2 1,529.3
Non-cash writeoff of financial products software 538.7 --
Non-cash 401K matching contribution and issuance of Director's stock 77.1 40.0
Increase in accounts receivable (889.3) (142.0)
Increase in inventories (0.4) (72.8)
(Increase) decrease in prepaid expenses and other assets (516.6) 338.0
Decrease in long-term deferred tax asset 150.0 --
Decrease in accounts payable (692.9) (950.8)
Increase (decrease) in customer deposits (118.6) 82.5
Increase in accrued bonuses and commissions 27.1 26.3
Increase (decrease) in other accrued liabilities (153.6) 49.3
Decrease in current income taxes receivable 53.1 417.0
Decrease in deferred service revenue (44.1) (149.4)
-------- -------
Net cash provided by operating activities 392.6 1,425.3
Cash flows from investing activities:
Capital expenditures (196.0) (234.8)
Software development costs (600.5) (617.8)
-------- -------
Net cash used in investing activities (796.5) (852.6)
-------- ------
Cash flows from financing activities:
Proceeds from long-term debt 432.3 --
Principal payments on long-term debt (217.2) (848.0)
Proceeds from the issuance of common stock -- 14.3
Net cash provided by (used in) financing activities 215.1 (833.7)
-------- --------
Effect of exchange rate changes on cash -- 1.3
Net decrease in cash and cash equivalents (188.8) (259.7)
Cash and cash equivalents, beginning of year 419.7 510.7
-------- ---------
Cash and cash equivalents, end of period $ 230.9 $ 251.0
======== =========
</TABLE>
See accompanying notes to consolidated financial statements F-3
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CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands except for share information)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Additional
Number Par Paid-in Retained
of Shares Value Capital Earnings Total
--------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1998 (audited) 3,810,548 $ 381.1 $ 6,512.5 $ 1,253.0 $ 8,146.6
Issuance of common stock for 401K Company
matching contribution (unaudited) 6,579 0.6 28.5 -- 29.1
Issuance of common stock to directors (unaudited) 15,672 1.6 46.4 -- 48.0
Net income (unaudited) -- -- -- 236.3 236.3
--------- ------ --------- --------- ---------
Balance, December 31, 1998 (unaudited) 3,832,799 $ 383.3 $ 6,587.4 $ 1,489.3 $ 8,460.0
========= ======= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements F-4
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CITATION COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information as of December 31, 1998 and for the
three and nine months periods ended December 31, 1998 and 1997 is
unaudited. Financial statement note disclosures, normally included in
financial statements prepared in conformity with generally accepted
accounting principles, have been omitted in this Form 10-QSB pursuant to
the Rules and Regulations of the Securities and Exchange Commission.
However, in the opinion of the Company, the disclosures contained in this
Form 10-QSB are adequate to make the information presented not misleading.
Reference is made to Notes to Financial Statements as incorporated by
reference in the Company's Annual Report on From 10-KSB for the year ended
March 31, 1998.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements include all adjustments, consisting solely of normal
recurring adjustments, necessary to present fairly the Balance Sheet at
December 31, 1998, the Statement of Operations for the three and nine
months ended December 31, 1998 and 1997, the Statement of Cash Flows for
the nine months ended December 31, 1998 and 1997, and the Statement of
Shareholders' Equity for the nine months ended December 31, 1998. The
interim results, however, are not necessarily indicative of results for any
future period.
Certain prior year amounts have been reclassified to reflect current
year classifications.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1998 1998
---- ----
<S> <C> <C>
Hardware and third party software $ 215.0 $ 241.2
Field service equipment 221.5 194.9
-------- ---------
$ 436.5 $ 436.1
======== =========
</TABLE>
3. COMMITMENTS
The Company from time to time is a party to certain lawsuits.
Management does not expect the outcome of any litigation to have a material
effect on the Company's financial position or results of operations. As of
the date hereof, the Company does not know of any pending lawsuits.
4. LONG-TERM ACCOUNTS RECEIVABLE
The Company has provided extended payment terms to an overseas
customer. At December 31, 1998, $1.7 million was outstanding.
F-5
Page 14
<PAGE> 15
CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
5. LONG-TERM DEBT
As of December 31, 1998, the Company had a line of credit agreement
that allowed the Company to borrow up to $2.0 million with interest at the
lender's prime rate. The line of credit is secured by the Company's
accounts receivable, inventory and equipment. The Company had $1.6 million
in borrowings outstanding under the line of credit agreement at December
31, 1998.
6. SALE OF FINANCIAL SYSTEMS BUSINESS
In June 1998, the Company sold the financial software line of business,
including its accounts receivable, patient billing, general ledger,
accounts payable, fixed assets, inventory control, medical records
abstracting and registration software modules to Sterling Systems based in
Downey, Idaho. This business accounted for approximately $1.8 million of
revenue and contributed a pretax loss of $0.2 million in fiscal 1998. The
transaction resulted in an after-tax loss on disposal of $43.7 thousand, or
$0.01 per share, in the first quarter of fiscal 1999.
7. TERMINATION OF POSSIBLE BUSINESS COMBINATION
On September 15, 1998, the Company, MEDASYS Digital Systems, S.A.,
certain shareholders of the Company and certain shareholders of MEDASYS
entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement"). On December 9, 1998, the Reorganization Agreement was
terminated by the parties.
F-6
Page 15
<PAGE> 16
EXHIBIT INDEX
Exhibit Sequential Page
Number Exhibit Number
- ------ ------- ------
27(a) Financial Data Schedule
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 231
<SECURITIES> 0
<RECEIVABLES> 7,141
<ALLOWANCES> 223
<INVENTORY> 437
<CURRENT-ASSETS> 8,323
<PP&E> 3,916
<DEPRECIATION> 3,250
<TOTAL-ASSETS> 13,858
<CURRENT-LIABILITIES> 3,691
<BONDS> 0
0
0
<COMMON> 383
<OTHER-SE> 8,077
<TOTAL-LIABILITY-AND-EQUITY> 13,858
<SALES> 1,643
<TOTAL-REVENUES> 11,496
<CGS> 1,321
<TOTAL-COSTS> 5,360
<OTHER-EXPENSES> 5,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 387
<INCOME-TAX> 151
<INCOME-CONTINUING> 236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 236
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
