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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20284
CITATION COMPUTER SYSTEMS, INC.
(Exact name of small business issuer 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, SUITE 200 63017
CHESTERFIELD, MISSOURI (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (314) 579-7900
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
-- --
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of Company's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB.
--
Company's revenue for the fiscal year ended March 31, 2000, was $14,996,000.
On June 1, 2000, the aggregate market value of the Company's voting stock held
by non-affiliates was $9,913,733.
On June 1, 2000, there were 3,881,230 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of the Company.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
In May 2000, CITATION Computer Systems, Inc.(R) ("CITATION" or the
"Company") announced that it had entered a definitive agreement for a business
combination with Cerner Corporation ("Cerner"). Under terms of the agreement,
CITATION shareholders will receive 0.153 shares of Cerner stock and $0.51 in
cash for each share of CITATION, resulting in the issuance of 598,000 shares of
Cerner stock for 90% of CITATION and payment of approximately $2 million for the
remaining 10% of the Company. The transaction, which as to the stock portion
will be tax-free to CITATION shareholders and which will be accounted for as a
purchase by Cerner, is expected to close in the third quarter of 2000 pending
CITATION shareholder and regulatory approvals.
CITATION designs, develops, markets and supports patient-centered
clinical information systems for hospitals, clinics, physicians' groups and
emerging Integrated Delivery Networks ("IDNs"). The Company offers a
comprehensive suite of clinical products using open client/server architecture
that meets a broad range of the information systems needs of the healthcare
industry. These products integrate patient care processes within the enterprise.
The Company's systems are modular, scaleable and allow clients to leverage their
investments in existing systems. Individual components of the Company's systems
can function independently, giving clients the ability to build their system
over time and to integrate existing software which is meeting their current
needs. CITATION's systems are installed in approximately 300 institutions
ranging in size from under 100 beds to over 1,000 beds. CITATION markets its
products directly in the United States and Canada, as well as through
distribution partners in Europe, India, Latin America and the Far East.
THE COMPANY
CITATION was organized in 1979 as a Missouri corporation. The Company's
principal executive office is located at 424 South Woods Mill Road, Suite 200,
Chesterfield, Missouri 63017 (a suburb of St. Louis) and its telephone number is
(314) 579-7900.
INDUSTRY BACKGROUND
The U.S. healthcare industry is undergoing rapid change. Historically,
reimbursement for healthcare services has been based on a fee-for-service model
of
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payment. With increasing pressure to reduce costs, managed care organizations
and other payors are shifting the economic risk for the delivery of care to
providers through alternative reimbursement models, including capitation and
fixed fees. As a result, healthcare providers such as hospitals, multi-specialty
physician groups, laboratories, pharmacies, home health services and nursing
homes are integrating horizontally and vertically to create IDNs. IDNs are
designed to serve all of the healthcare needs of regional populations while
achieving economies of scale.
In order to lower healthcare delivery costs while maintaining or
improving the quality of patient care, providers need access to detailed
clinical information to: (a) manage the patient care process throughout the IDN;
(b) automate patient care documentation; (c) compare care provider performance
and clinical and cost outcomes both within the organization and to established
norms; (d) monitor performance under managed care contracts; (e) monitor
practice patterns of care providers; (f) measure the effectiveness of new
technologies and therapeutics; and (g) support intra-and inter-facility
communication. A comprehensive clinical healthcare information system must be
able to assist both clinicians and administrators in managing patient
information throughout the continuum of care.
Certain information-intensive departments of healthcare organizations,
such as laboratories, were early adopters of information systems in order to
manage workflow and clinical data. However, as multiple legacy systems have
become increasingly prominent on an enterprise-wide basis, the integration of
these systems across the enterprise has become more difficult given the
different architectures, platforms and operating systems of these information
systems.
Integration and accessibility to patient information are increasingly
necessary for healthcare providers to operate efficiently and improve the
quality of patient care. As the need for readily accessible information
throughout the healthcare enterprise continues to grow, hospitals, providers and
payors of all sizes are faced with the challenge of implementing healthcare
information systems that are scalable, capable of working with existing
information systems and flexible to adapt to changes in the healthcare
marketplace. Also, such systems must be patient-centered, integrating all
aspects of managing the healthcare process.
THE CITATION SOLUTION
CITATION designs, develops, markets and supports products that address
the healthcare industry's need for patient-centered, fully integrated clinical
information systems. CITATION's principal products are designed using a modular,
client/server approach, offering clients the ability to build their systems over
time and to allow existing legacy applications to interoperate with the
Company's products.
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BUSINESS STRATEGY
CITATION's goal is to leverage its experience of more than 20 years
with client/server application solutions to become a leading provider of
clinical healthcare information systems. The Company's strategy for achieving
this goal includes the following elements:
LEVERAGE EXISTING CLIENT BASE. With an installed base of approximately
300 facilities, the Company believes it has the potential to cross-sell
additional products to its existing clients because many of those clients have
not purchased all of the Company's products. CITATION's products are modular in
design and can be added over time as each client's needs expand and evolve.
EXPAND PRODUCT PORTFOLIO. The Company plans to expand its product line
to meet the evolving needs of its clients. The Company continually evaluates its
offerings to determine what additional products or enhancements are required by
the healthcare information systems marketplace and the Company develops and
enhances products internally to meet clients' needs. If the Company can purchase
or license proven products at reasonable cost on its chosen technology base it
will do so in order to avoid the time and expense involved in developing
products.
EXPAND PRESENCE IN THE ASIA PACIFIC AND LATIN AMERICA MARKETS. CITATION
believes that a significant opportunity exists to expand the sales of its
products in these international markets. Healthcare providers in a number of
countries have not yet invested in sophisticated information systems, and
increasingly they are seeking to purchase state-of-the art products,
particularly clinical information systems. The Company believes that its open,
client/server architecture and modular, scalable systems provide a
cost-effective solution to these markets. CITATION has entered several
international markets through a combination of direct sales and distribution
arrangements.
SEEK OPPORTUNITIES WITH NATIONAL ACCOUNTS. CITATION will continue to
work with the current National Hospital Accounts to introduce C-RIS(R) and
C-COM(R) for small facilities. The Company will also target new groups for its
complete line of products.
PRODUCTS
CITATION has developed a comprehensive suite of clinical products to
manage information in the healthcare enterprise. A client can purchase a
comprehensive system or can buy modules separately to match a user's individual
needs. CITATION's systems
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address the information needs of care providers and hospital administrators by
enabling joint access to clinical and cost information, thereby facilitating
cost-containment, effective decision making and delivery of high quality care.
CITATION's clinical suite of products currently consists of four
primary components, each of which can operate independently or as part of a
fully integrated system.
C-COM(R) captures and tracks comprehensive patient clinical
information and routes that information among departments or systems in
the healthcare organization, enabling providers to evaluate quality of
care, productivity and cost-effectiveness of services. C-COM(R) accepts
orders from and displays the resulting information at any networked PC
location where patient care is being delivered, such as a nursing
station or even the bedside. C-COM(R) also is Internet-enabled and
supports hand-held, wireless technology. C-COM(R) is available for
Windows(R) and Windows NT(TM) client and server.
C-LAB(R) provides comprehensive laboratory automation
solutions for clinics, single and multiple site hospitals and clinical
and research laboratories. C-LAB(R) automates order entry and
dissemination of results and interfaces with care providers' systems.
C-LAB(R) sub-modules consist of General Lab, Microbiology, Anatomical
Pathology and Blood Bank. The Blood Bank submodule is licensed by
CITATION for use and implementation in C-LAB(R). C-LAB(R) is available
in DOS, Windows(R) and Windows NT(TM).
C-RIS(R) is a radiology management system providing patient
tracking, transcription, radiology reporting, auto-fax capabilities,
statistical reporting, film management and mammography management.
C-RIS(R) is available in Windows NT(TM).
NUCAMS is an order entry and patient care management system,
which is designed to increase the productivity of nurses and other
clinicians and to assist in the creation, and management of care plans
and clinical pathways. NUCAMS documents variances against established
care plans and clinical pathways, enabling care providers to focus on
both improving the quality of care and controlling costs. This system
enables the healthcare enterprise to allocate resources and schedule
procedures and tests automatically. NuCaMS is available in DOS.
SERVICES
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Client service is an important component of the Company's operations.
At March 31, 2000, the Company employed 38 persons in client services. The
client services team generally provides implementation, application and support,
education and consulting services to the Company's clients and primarily employs
medical technologists and other healthcare professionals in supporting and
implementing healthcare information systems. Instrument interface, network
consulting, operating system and hardware support are provided by experts in
each area. Additional client services are provided through computer-based
training or formal instructor-led, Company-sponsored ongoing educational courses
and seminars.
In addition, the Company provides comprehensive training for clients at
its headquarters near St. Louis. Before the Company's product becomes
operational, training is also provided at the client's location. The Company
provides additional training at the client's request for a fee. The Company
offers a maintenance program covering hardware replacement, software upgrades,
and telephone consulting service. Depending on the type of system, the Company
offers service contracts for periods of one to five years. Customer support is
available 24 hours a day.
The Company also offers its services to design and configure the
architecture of a provider's systems, including networking, systems integration
and data conversion. Further, the Company provides advice on data analysis to
assist care providers in evaluating their operations.
PRODUCT DEVELOPMENT
CITATION is dedicated to providing state-of-the-art integrated clinical
systems for healthcare. The cornerstone of CITATION's system is its
long-standing commitment to client/server technology. CITATION's multi-tiered
products are modular in nature, using an open architecture that is integratable
with third party systems as well as other CITATION systems.
CITATION's current product development efforts use object-oriented
programming methodologies. This allows the Company to develop applications based
on reusable libraries of code that the Company believes results in more
cost-effective and rapid product development cycles. The Company is a
Microsoft(R) Solutions Provider and extensively employs Microsoft(R) toolsets
and standards in its product development efforts. The Company believes use of
these standards and tools facilitates interfacing with other systems and
products. The Company also supports other industry standards such as HL/7, ASTM
and the Novell Netware Network Operating System.
The Company plans to expand its clinical product line to meet the
evolving needs of its clients. The Company continually evaluates its offerings
to determine what additional products or enhancements are required by the
healthcare information systems
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marketplace. The Company develops and enhances products internally to meet
clients' needs, but if the Company can purchase or license proven products at
reasonable costs it will do so in order to avoid the resource time and expense
involved in developing products. The Company actively seeks out for acquisition
and licensing other companies and products that fit into CITATION's overall
product and technology plan. There is significant competition for suitable
acquisition candidates and there can be no assurance that the Company will be
able to successfully acquire or license additional products.
During the fiscal years ended March 31, 2000 and 1999, CITATION
invested $3.4 million and $3.2 million, respectively, in research and
development. At March 31, 2000, the Company employed 32 persons in research and
development. The Company expects to continue to make significant investments in
research and development, however, there can be no assurance that the Company's
financial and technological resources will permit it to develop or market new
products successfully or respond effectively to technological changes.
SALES AND MARKETING
The Company markets its products in the United States and Canada
through a direct sales force under the direction of the Company's Executive Vice
President of Sales and Marketing. At March 31, 2000, the Company's sales force
consisted of seven employees. In addition to the Company's sales force
employees, the Company has a four-person marketing team that promotes the
Company's products, participates in trade shows and demonstrates the Company's
products. In addition, members of the Company's development and client services
departments provide pre-sales support for the Company's direct sales force in
making presentations to and preparing comprehensive proposals for potential
customers.
The Company markets its products internationally through distribution
alliances in the Far East and Latin America. The Company has a strategic
relationship with Medical Communications Pte. Ltd., formerly Microstate
Separations Pte. Ltd. ("Microstate"), a healthcare information systems
integrator based in Singapore. Microstate has purchased the Company's systems
for the Indonesian, Malaysian, Hong Kong and Singapore markets. In Latin
America, CITATION has a strategic arrangement with Laboratories Para
Laboratorios.
REGULATION
The Company is subject to the general requirements of the Food and Drug
Administration's regulations for Class I Medical Devices because it produces a
suite of
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clinical software products. The Company complies with these regulations and
follows Medical Device Reporting ("MDR") guidelines as well.
Additional legislation governing the dissemination of medical record
information has been proposed. The Company is unable to determine at this time
the effect, if any, that these requirements may have on its business.
In addition, the healthcare industry is subject to changing political,
economic and regulatory influences that may affect the procurement practices and
operations of healthcare providers. Many lawmakers have announced that they
intend to propose programs to reform the U.S. healthcare system. These programs
may contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the regulatory environment in which the
Company's clients operate. Healthcare providers may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments, including those for the Company's healthcare information systems.
Even if healthcare providers do not curtail or defer investments, they may
institute cost-containment measures in anticipation of regulatory reform or for
other reasons. These measures may result in greater selectivity in the
allocation of capital funds, which could have a material adverse effect on the
Company's ability to sell its healthcare information systems and services. The
Company cannot predict with any certainty what impact, if any, such legislative
or market-driven reforms might have on its business and results of operations.
There can be no assurance that such proposed changes, if adopted, would not have
a material adverse effect on the Company's business and results of operations.
FORWARD LOOKING STATEMENTS
Certain of the statements made herein are "forward looking statements,"
as such term is used in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. 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. The
Company cautions readers that actual results could be materially different as a
result of various possibilities and differences between anticipated and actual
developments.
On May 15, 2000, the Company announced the signing of a definitive
agreement for a business combination with Cerner Corporation ("Cerner").
Investors and security holders are urged to read the Proxy
Statement/Registration Statement on Form S-4, to be filed by Cerner and
CITATION, which will contain or incorporate by reference such documents relating
to and other important information regarding the merger. This document and
amendments to this document will be filed with the U. S. Securities and
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Exchange Commission. When this and other documents are filed with the SEC, they
may be obtained free at the SEC's website at www.sec.gov. You may also obtain
this document for free (when available) from CITATION by directing your request
to Investor Relations at (314) 579-7900 or by fax at (314) 579-7990.
The uncertainties and risks include, but are not limited to: (a)
fluctuations in quarterly operating results, as the Company has historically
experienced greatly varied results from quarter-to-quarter, and such quarterly
variations can be expected to continue; (b) technological changes and the
Company's dependence on new product developments -- the healthcare industry is
subject to rapid technological change, and the Company's future success may be
adversely impacted if the Company is not able to adapt to such changes in a
timely and efficient manner; (c) the historical and planned continued
expenditures of significant resources to migrate its products to the Windows NT
operating system, and a substantial risk of adverse effect if the market does
not show the anticipated acceptance of this strategy; (d) changes in the
marketing focus of the Company, shifting to becoming a clinical solutions
supplier only and selling larger more comprehensive clinical products than in
the past, which may adversely affect the Company if such changes are not
successful in attracting additional sales; (e) risks associated with foreign
sales, including difficulties in enforcing agreements and collecting
receivables, as well as potential adverse effects due to fluctuating monetary
exchange rates; (f) the Company's strategy of addressing certain needs within
the range of products it offers through the acquisition of licenses from third
parties or the acquisition of such third parties, however there is no assurance
that such acquisition candidates will be found or that the Company will have the
resources to make such acquisitions in the future; (g) competition from a number
of larger and better financed software providers, many of which offer a fuller
range of products than the Company; (h) regulation of the Company as a medical
device manufacturer and the risk that such regulation will become more complex
and onerous to the Company, subjecting it to adverse effects; (i) ongoing
healthcare industry reform which is likely to continue to pressure healthcare
providers to become more efficient and engage in less capital spending,
including spending on information systems such as those offered by the Company;
(j) product liability arising out of such issues as confidentiality of patient
records or the failure of the Company's products to provide accurate and timely
disclosure of information; (k) substantial dependence upon intellectual
property, none of which is patented; (l) the disposition of the Company's suite
of financial products to another company which has agreed to assume the
Company's obligations under various warranties and service agreements, which
could have a material adverse effect on the Company if the acquirer fails to
adequately satisfy these obligations; (m) risks and uncertainties of possible
business combinations with other parties, including the ability to successfully
integrate operations and management; and (n) risks that the proposed transaction
with Cerner is not consummated.
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EMPLOYEES
At March 31, 2000, the Company employed 106 persons. Of these
employees, 32 were involved in product development, 38 in client services, 11 in
sales and marketing and 25 in general administration, clerical and finance. The
Company's employees are not represented by a labor union and the Company's
management believes that its relationships with its employees are good.
BACKLOG
The Company sells its products on a purchase order basis, with
shipments of "turnkey" systems made shortly after receipt of executed purchase
orders. As a result, the level of backlog at any particular time is not
necessarily an indication of future results.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal facilities consisting of approximately 32,000
square feet are located in Chesterfield, Missouri, a suburb of St. Louis. The
lease expires in May 2004.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to litigation and claims in
the ordinary course of business. The Company currently is not a party to any
pending legal proceedings, other than ordinary routine litigation incidental to
its business, which individually or in the aggregate is not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No such matters were submitted during the fourth quarter of Company's
fiscal year ended March 31, 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following persons constitute the executive officers and other key
employees of Company. All executive officers are appointed annually by the
Company's Board of Directors.
<TABLE>
<CAPTION>
PERSON AGE OFFICE/POSITION HELD
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<S> <C> <C>
J. Robert Copper 60 Chairman and Chief Executive Officer
(since January 1995, prior to that time
Mr. Copper was a partner in Hales, Copper
& Company which he joined in 1992)
Richard D. Neece 54 President (since August 1997; prior to
that Executive Vice President and Chief
Financial Officer of the Company since
July 1995, from 1991 to 1995, Mr. Neece
served as Executive Vice President -
Finance and Administration for the
Hussmann Corporation)
Russell L. Fortune 52 Executive Vice President, Sales and
Marketing (since April 1999; prior to that
Executive Vice President, International
Sales of the Company since April 1997;
prior to that various sales positions with
the Company since June 1991)
John P. Gilmore 58 Vice President, Controller and Treasurer
(since August 1996; prior to that
Controller of the Company since June
</TABLE>
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<TABLE>
<S> <C> <C>
1995, from 1991 to 1995, Mr. Gilmore was
Director, Corporate Planning and Real
Estate Accounting of the Whitman
Corporation)
Anton F. Flieg 46 Vice President, Sales Administration and
C-MAX(R) Product Manager (since July 1998;
prior to that Vice President
Administrative Products of the Company
since May 1997; prior to that Director of
Sales Operations of the Company since
March 1992)
Candice J. Barker 44 Vice President Clinical Products (since
September 1997, prior to that Director of
Systems Development since December 1996;
prior to that Director of Client Services
since October 1995; prior to that Senior
Development Manager of the Company since
October 1994)
John C. Blaile 33 Senior Development Manager (since
September 1997; prior to that Senior
Analyst at BJC Health Systems from May
1997 to August 1997; prior to that Project
Manager at Group Health Plan from May 1995
to April 1997; prior to that Supervisor,
Computer Operations at California
Interactive Computing from June 1991)
Richard M. Mayer 45 Director of Client Services (since March
2000; prior to that Client Services
Manager from October 1997 to March 2000;
prior to that various positions with the
Company in Client Services since April
1994)
</TABLE>
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is quoted and traded on the Nasdaq
National Market under the symbol CITA. The following table sets forth the high
and low sale prices of the Common Stock for the periods indicated, as quoted on
Nasdaq.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 2000 Quarter Ended
June 30, 1999 $ 3 $ 1 1/4
September 30, 1999 3 1/2 1 1/2
December 31, 1999 3 1 1/8
March 31, 2000 5 5/8 1 25/32
High Low
Fiscal 1999 Quarter Ended
June 30, 1998 $ 9 $ 4
September 30, 1998 5 2 1/2
December 31, 1998 3 1
March 31, 1999 4 1 1/2
</TABLE>
No dividends have been declared or paid on the Company's Common Stock.
The Company anticipates that it will retain all available funds for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. There were
approximately 162 shareholders of record on June 1, 2000.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following should be read in conjunction with the consolidated
financial statements and notes thereto.
OVERVIEW
CITATION Computer Systems, Inc. designs, develops, markets and supports
clinical information systems for hospitals, clinics, physicians' groups and
emerging Integrated Delivery Networks ("IDN's"). The Company offers a
comprehensive suite of products designed using open client/server architecture
that meets a broad range of the information systems needs of the healthcare
industry. These products integrate patient care processes within the enterprise
and throughout the IDN. The Company's systems are modular, scaleable and allow
clients to leverage their investments in existing systems. Individual
components of the Company's systems can function independently, giving clients
the ability to build their system over time and to integrate existing software.
CITATION's clinical systems are installed in approximately 300 institutions
ranging in size from less than 100 beds to more than 1,000 beds. CITATION
markets its products directly in the United States and Canada, as well as
through distribution partners in the Asia Pacific area and Latin America.
In May 2000, the Company announced that it had entered a definitive
agreement for a business combination with Cerner Corporation ("Cerner"). Under
terms of the agreement, CITATION shareholders will receive 0.153 shares of
Cerner stock and $0.51 in cash for each share of CITATION, resulting in the
issuance of 598,000 shares of Cerner stock for 90% of CITATION and payment of
approximately $2 million for the remaining 10% of the Company. The transaction,
which as to the stock portion will be tax-free to CITATION shareholders and
which will be accounted for as a purchase by Cerner, is expected to close in
the third quarter this calendar year pending CITATION shareholder approval and
regulatory approval.
The Company generates revenues from the sale of information systems and
services. System sales consist of software licenses, related hardware,
installation and training, and the sale of third-party software. Hardware
revenues are generated from sales of third-party manufactured hardware
typically sold in conjunction with the Company's software. Service revenue
includes maintenance and support services.
Revenue from systems sales is recognized upon shipment to the client.
Revenue related to the installation is recognized as the work is performed.
Service revenue is recognized ratably over the term of the contract period.
Cost of products and services sold includes cost of system sales and
cost of service revenue. Cost of system sales includes cost of 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.
Research and development expenses include salaries and expenses related
to development and documentation of software systems and are reduced by
capitalized software development costs. Software development costs are expensed
until such time as technological feasibility is established and are capitalized
in compliance with Statement of Financial Accounting Standards No. 86.
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Sales and marketing expenses include salaries, commissions,
advertising, trade show costs and user group costs related to the sale and
marketing of the Company's systems. General and administrative expenses include
salaries and expenses for corporate administration, finance, legal, and human
resources, as well as profit-sharing, bonuses and insurance.
OTHER NON-RECURRING CHARGES, INCLUDING SALE OF THE FINANCIAL SOFTWARE LINE OF
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
line of business accounted for approximately $1.8 million of revenue and
contributed a pretax loss of $0.2 million in fiscal 1998. Revenues from this
line of business in fiscal 1999 were $0.3 million through the date of its sale.
The transaction resulted in an aggregate pretax loss of $0.7 million and an
after tax loss of approximately $0.4 million, or $0.11 per share. The loss
included the write-off of approximately $0.5 million of capitalized software
development costs associated with this software and an additional charge of
$0.6 million based on management's estimates of the collectibility of certain
accounts receivable related to its former financial software line of business.
Approximately $0.4 million of the sales price for this line of business is
reflected in other accounts receivable on the March 31, 2000 Consolidated
Balance Sheet; payment thereof is expected in fiscal year 2001.
Also in June 1998, the Company announced it was in discussions about a
possible business combination with MEDASYS Digital Systems, S.A., a French
Company with U.S. offices in Miami and Chicago. 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 entered into a joint marketing agreement with respect to clinical
information systems in the fourth quarter of fiscal 1999. During the fourth
quarter of fiscal 1999, the Company recorded a non-operating charge of $0.5
million relative to costs associated with the efforts to achieve a business
combination with MEDASYS.
In the fourth quarter of fiscal 1998 the Company recorded non-recurring
pretax charges of approximately $1.0 million related to customer matters
regarding discontinued products ($0.8 million) and for non-operating costs
related to the strategic review of alternatives following an unsolicited
expression of interest in the Company ($0.2 million). See Note 5 of the Notes
to Consolidated Financial Statements.
FOURTH QUARTER FISCAL 2000 RESULTS
The Company reported a net loss for the fourth quarter of fiscal 2000
of $0.1 million, or $0.03 per share. The results from the fourth quarter were
negatively impacted by reduced spending by potential customers due to their
recent large information systems expenditures related to the Y2K upgrades.
Revenues and gross profit for the fourth quarter were $2.6 million and $1.5
million, respectively.
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RESULTS OF OPERATIONS
The following table sets forth, for the period indicated, certain items
from the Company's Consolidated Statement of Operations expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
System sales 55.9% 53.8% 49.4%
Service revenue 44.1 46.2 50.6
----- ----- -----
Total revenues 100.0 100.0 100.0
Cost of products and services sold:
Cost of system sales 37.9 37.9 37.6
Cost of service revenue 10.7 12.0 12.3
----- ----- -----
Total cost of products and services sold 48.6 49.9 49.9
Gross profit 51.4 50.1 50.1
Research and development 16.7 14.7 19.2
Selling and administrative 32.2 32.3 40.2
Loss on sale of financial systems business and other non-recurring charges -- 4.1 5.0
----- ----- -----
Total operating expense 48.9 51.1 64.4
----- ----- -----
Operating income (loss) 2.5 (1.0) (14.3)
Other income (expense):
Interest income 0.2 0.4 0.5
Interest expense (0.7) (0.8) (1.0)
Other, net 0.1 (2.8) (1.2)
----- ----- -----
Income (loss) before taxes 2.1 (4.2) (16.0)
Provision (benefit) for income taxes 0.8 (1.6) (6.1)
----- ----- -----
Net income (loss) 1.3% (2.6)% (9.9)%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 2000 TO FISCAL YEAR ENDED MARCH 31,
1999.
REVENUE
Total revenues decreased 7.5% to $15.0 million in fiscal 2000 from
$16.1 million in fiscal 1999, which reflected a 3.2% decrease in system sales
and a 12.9% decrease in service revenue. Fiscal 1999 included $0.3 million of
revenues from the financial software line of business, which was sold in June
1998.
Clinical system sales remained at $8.4 million in both fiscal 2000 and
1999. This reflected the caution shown by potential customers in the aftermath
of the Y2K upgrades. Clinical system sales represented 55.9% and 51.9% of total
revenues in fiscal years 2000 and 1999, respectively.
Service revenue decreased to $6.6 million in fiscal 2000 from $7.5
million in fiscal 1999. The 11.4% decrease primarily reflected the lack of
growth in new system sales and the reduction in renewals of
Page 16
<PAGE> 17
service contracts from existing customers. Service revenue represented 44.1% and
46.2% of total revenues in fiscal years 2000 and 1999, respectively.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT
For fiscal 2000 and 1999, total cost of products and services sold were
$7.3 million and $8.0 million, respectively, representing a 9.3% decrease in
fiscal 2000. The total cost of products and services sold as a percentage of
total revenues was 48.6% in fiscal 2000 and 49.9% in fiscal 1999. The cost of
system sales as a percentage of system sales revenue decreased to 67.7% in
fiscal 2000 from 70.5% in fiscal 1999 due to the decreased percentage of lower
margin hardware sales. The cost of service revenue as a percentage of service
revenue decreased to 24.4% in fiscal 2000 from 25.9% in fiscal 1999 due
primarily to a decrease in related costs. Software amortization costs of $1.2
million in fiscal 2000 and $1.7 million in fiscal 1999 represented 16.2% and
20.5%, respectively, of total costs of products and services sold for fiscal
years 2000 and 1999.
Due to the foregoing factors, gross profit, as a percentage of total
revenues, was 51.4% and 50.1% in fiscal years 2000 and 1999, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
(In thousands)
Software Development Expense 2000 1999
---------------------------- ---- ----
<S> <C> <C>
Research and development spending $ 3,350 $ 3,177
Less - software development capitalized 851 808
------- -------
Total research and development expense 2,499 2,369
Amortization of software development costs 1,184 1,650
------- -------
Total software development expenses $ 3,683 $ 4,019
======= =======
Capitalized Software Development Cost, Net 2000 1999
------------------------------------------ ---- ----
Beginning of period $ 1,775 $ 2,880
Research and development capitalized per above 851 808
Software acquired (C-RIS(R))* - 250
------- -------
2,626 3,938
Write-off - Financial products capitalized software development costs** - (539)
Amortization of software development costs (1,184) (1,650)
Other adjustments 13 26
------- -------
End of period $ 1,455 $ 1,775
======= =======
</TABLE>
* Software acquired related to the purchase of the radiology system. See Note
4 of the Consolidated Financial Statements for further information.
** See Note 2 of the Consolidated Financial Statements for further
information.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses as a percentage of total revenues
decreased to 32.2% in fiscal 2000 from 32.3% in fiscal 1999. Total selling and
administrative expenses decreased $0.4 million to $4.8
Page 17
<PAGE> 18
million. This decrease was primarily due to lower selling and marketing costs
and lower administrative costs to support operations.
OTHER OPERATING EXPENSES
See previous discussion of other non-recurring charges, including sale
of the financial software line of business, under caption "-Other non-recurring
charges, including sale of the financial software line of business."
OPERATING INCOME (LOSS)
CITATION recorded operating income of $0.4 million in fiscal 2000
compared to $0.5 million in fiscal 1999, excluding the $0.7 million loss on the
sale of financial systems line of business. The change primarily reflected the
factors described above. Including the above non-recurring charges, the
operating loss was $0.2 million in fiscal 1999.
INCOME TAXES
The Company's effective income tax rate was 40.0% in fiscal 2000 and
the effective income tax benefit rate was 38.0% in fiscal 1999.
NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE
Net income increased to $0.2 million in fiscal 2000 from a loss of $0.4
million in fiscal 1999 as a result of the factors noted above. Basic and
diluted income per share increased to $0.05 in fiscal 2000 from a loss per
share of $0.11 in fiscal 1999.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1999 TO FISCAL YEAR ENDED MARCH 31,
1998.
REVENUE
Total revenues decreased 3.1% to $16.1 million in fiscal 1999 from
$16.6 million in fiscal 1998 which reflects a 5.5% increase in system sales and
an 11.5% decrease in service revenue. Results for fiscal 1999 and 1998 included
$0.3 million and $1.8 million, respectively, of revenues from the financial
software line of business, which was sold in June 1998.
Clinical system sales increased to $8.4 million in fiscal 1999 from
$6.4 million in fiscal 1998. The 31.3% increase in clinical system sales was
primarily attributable to the increase in systems orders of the Company's new
NT products and the increase in hardware sales in anticipation of Y2K upgrades.
Clinical system sales represented 51.9% and 38.5% of total revenues in fiscal
years 1999 and 1998, respectively.
Service revenue decreased to $7.5 million in fiscal 1999 from $8.4
million in fiscal 1998. The 11.5% decrease was primarily due to the sale of the
financial software line of business in June 1998. Service revenue represented
46.2% and 50.6% of total revenues in fiscal years 1999 and 1998, respectively.
Page 18
<PAGE> 19
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT
For fiscal 1999 and 1998, total cost of products and services sold were
$8.0 million and $8.3 million, respectively, representing a 3.1% decrease in
fiscal 1999. The total cost of products and services sold as a percentage of
total revenues was 49.9% in both fiscal 1999 and 1998. The cost of system sales
as a percentage of system sales revenue decreased to 70.5% in fiscal 1999 from
76.1% in fiscal 1998 due to the increase in higher margin software and services
revenue in fiscal 1999. The cost of service revenue as a percentage of service
revenue increased to 25.9% in fiscal 1999 from 24.3% in fiscal 1998. Software
amortization costs of $1.7 million in fiscal 1999 and $2.1 million in fiscal
1998 represented 20.5% and 25.1%, respectively, of total costs of products and
services sold for fiscal years 1999 and 1998.
Gross profit as a percentage of total revenues was 50.1% in fiscal
years 1999 and 1998.
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
(In thousands)
Software Development Expense 1999 1998
---------------------------- ------- -------
<S> <C> <C>
Research and development spending $ 3,177 $ 4,288
Less - software development capitalized 808 1,089
------- -------
Total research and development expense 2,369 3,199
Amortization of software development costs 1,650 2,085
------- -------
Total software development expenses $ 4,019 $ 5,284
======= =======
<CAPTION>
Capitalized Software Development Cost, Net 1999 1998
------------------------------------------ ------- -------
Beginning of period $ 2,880 $ 3,876
Research and development capitalized per above 808 1,089
Software acquired (C-RIS(R))* 250 -
------- -------
3,938 4,965
Write-off - Financial products capitalized software development costs** (539) -
Amortization of software development costs (1,650) (2,085)
Other adjustments 26 -
------- -------
End of period $ 1,775 $ 2,880
======= =======
</TABLE>
* Software acquired related to the purchase of the radiology system. See Note
4 of the Consolidated Financial Statements for further information.
** See Note 2 of the Consolidated Financial Statements for further
information.
The decrease in research and development spending in fiscal 1999
compared to fiscal 1998 was the result of the completion of the development of
several Windows NT-based products during fiscal 1998.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses as a percentage of total revenues
decreased to 32.3% in fiscal 1999 from 40.2% in fiscal 1998. Total selling and
administrative expenses decreased $1.5 million to $5.2 million. This decrease
was primarily due to lower personnel costs and lower administrative costs to
support operations.
Page 19
<PAGE> 20
OTHER OPERATING EXPENSES
See previous discussion of other non-recurring charges, including sale
of the financial software line of business, under caption "-Other non-recurring
charges, including sale of financial software line of business."
OPERATING LOSS
CITATION recorded operating income of $0.5 million in fiscal 1999,
excluding the $0.7 million loss on the sale of financial systems line of
business. The operating loss for fiscal 1998 was $1.6 million, excluding the
$0.8 non-recurring costs. The change primarily reflects the factors described
above. Including the above non-recurring charges, the operating loss was $0.2
million in fiscal 1999 compared to an operating loss of $2.4 million in fiscal
1998.
INCOME TAXES
The Company's effective income tax benefit rate was 38.0% in both
fiscal 1999 and fiscal 1998.
NET LOSS AND LOSS PER SHARE
Net loss decreased $1.3 million to $0.4 million in fiscal 1999 from
$1.7 million in fiscal 1998 as a result of the factors noted above. Basic and
diluted loss per share decreased to $0.11 in fiscal 1999 from $0.43 in fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from
operations and borrowing under its line of credit with a bank. At March 31,
2000, the Company had cash and cash equivalents of $0.3 million compared to
$0.2 million at March 31, 1999.
Cash generated by operations was $2.1 million, $1.1 million and $2.6
million in fiscal years 2000, 1999, and 1998, respectively. Net income (loss)
plus depreciation, amortization and other non-cash charges was $2.2 million,
$2.3 million and $1.3 million in fiscal years 2000, 1999 and 1998,
respectively. Changes in operating assets and liabilities (used) generated cash
of ($0.1) million, ($1.2) million and $1.3 million in fiscal years 2000, 1999
and 1998, respectively. For the year ended March 31, 2000, the Company used
$1.1 million in investing activities (including $0.9 million for capitalized
software development and $0.2 million for capital expenditures). Cash used by
financing activities was $0.9 million, which included $0.2 million of principal
payments and $0.7 million repayments on the line of credit.
Cash decreased $0.2 million in fiscal 1999. The decrease was primarily
due to $1.5 million used in investing activities (for capitalized software,
capital expenditures and purchase of the C-RIS(R) system) offset by cash
provided by financing activities (approximately $0.1 million of net proceeds
from bank borrowings) and operating activities.
Cash decreased $0.1 million in fiscal 1998. The decrease was primarily
due to $1.5 million used in investing activities (for capital expenditures and
software development costs) and $1.1 million of principal payments on long-term
debt offset substantially by cash provided by operations.
Page 20
<PAGE> 21
At March 31, 2000, the Company had a line of credit agreement with a
bank. The line of credit allows the Company to borrow up to $4.0 million
through June 1, 2001 with interest at the bank's prime rate (9.0% at March 31,
2000). The line of credit and term notes (approximately $0.8 million
outstanding at March 31, 2000) are secured by the Company's accounts
receivable, inventory and general intangible assets. The respective agreements
require that certain minimum net worth and leverage ratio requirements be
maintained by the Company. The Company was in compliance with these
requirements or has obtained waivers as of March 31, 2000. There were
borrowings of $0.5 million outstanding under the line of credit agreement as of
March 31, 2000 ($3.5 million of additional borrowings were available), which
have been classified as long-term in the March 31, 2000 Consolidated Balance
Sheet.
The Company has provided extended payment terms for software sold to
its distributor in Singapore. Collection of the receivable is ultimately
dependent on the distributor's cash flows. The Company believes that this
receivable, which is classified as long-term, is fully collectible.
The Company's current commitments consist primarily of operating lease
obligations aggregating $2.2 million over the next five years. The operating
leases consist primarily of the Company's office lease in St. Louis, Missouri,
which expires in May 2004.
The Company believes that its cash and cash equivalents, together with
its current borrowing facilities and cash generated from operations, 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.
INFLATION AND CHANGING PRICES
The Company believes inflation has not had a material effect on the
Company's operations or its financial condition.
NEW ACCOUNTING STANDARDS
During fiscal 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2 is effective for transactions entered into
in fiscal years beginning after December 15, 1997. SOP 97-2 provides guidance
on applying generally accepted accounting principles in recognizing revenue on
software transactions and supersedes SOP 91-1, "Software Revenue Recognition."
SOP 97-2 did not materially impact the financial position or results of
operations of the Company.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 established accounting and reporting standards
for derivative instruments and for hedging activities and requires recognition
of all derivatives on the balance sheet measured at fair value. FAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company is continuing to evaluate the provisions of FAS 133 to
determine its impact on the Company's financial position and results of
operations, although the Company does not generally enter into transactions
involving derivative instruments.
In December 1999, the Securities Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 is effective for
transactions entered into in fiscal years beginning after March 15, 2000. SAB
101 provides a summary of the general application of generally accepted
Page 21
<PAGE> 22
accounting principles to revenue recognition in the financial statements along
with interpretations of applying generally accepted accounting principles to
selected revenue recognition issues. The Company is currently evaluating the
provisions of SAB 101 to determine any impact on financial position and results
of operations.
YEAR 2000 ISSUE
To date, the Company is not aware of any significant problems regarding
Year 2000 issues. However, there is no assurance that, in the future, problems
will not develop in the Company's systems or products.
Prior to December 31, 1999, the Company identified, corrected,
reprogrammed, and tested 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 the Company has: (i) identified all critical software sold
and used by the Company that requires modification for the Year 2000; (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 apprised of
significant Year 2000 issues; and (iv) completed necessary Year 2000
modifications.
The Company does not expect that any future Year 2000 related costs
will have a material adverse effect on the Company's financial position,
results of operations or cash flow and that additional costs to be incurred by
the Company with respect to Year 2000 issues will be funded from operating cash
flows and/or the Company's line of credit. However, if all Year 2000 issues
were not properly identified, or assessment, remediation and testing were 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 customers, 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, financial position, cash flows or
results of operations.
MARKET RISK
In the ordinary course of business, the Company is exposed to interest
rate risks for borrowings under its bank line of credit. The Company currently
has elected not to hedge its risks relating to this floating rate debt. The
Company does not enter into derivative financial instruments for trading
purposes.
FORWARD LOOKING STATEMENTS
Certain of the statements made herein are "FORWARD LOOKING STATEMENTS,"
as such term is used in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. 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. The
Company cautions readers that actual results could be materially different as a
result of various possibilities and differences between anticipated and actual
developments.
For further discussion of risk factors, please refer to page 8 of the
Company's Form 10-KSB Annual Report for the fiscal year ended March 31, 2000 as
filed with the Securities and Exchange Commission.
On May 15, 2000, the Company announced the signing of a definitive
agreement for a business combination with Cerner Corporation, investors and
security holders are urged to read the Proxy
Page 22
<PAGE> 23
Statement/Registration Statement on Form S-4, to be filed by Cerner and
CITATION, which will contain or incorporate by reference such documents relating
to and other important information regarding the merger. This document and
amendments to this document will be filed with the U.S. Securities and Exchange
Commission. When this and other documents are filed with the SEC, they may be
obtained free at the SEC's website at www.sec.gov. You may also obtain this
document for free (when available) from CITATION by directing your request to
Investor Relations at (314) 579-7900 or by fax at (314) 579-7990.
Page 23
<PAGE> 24
ITEM 7. SELECTED CONSOLIDATED FINANCIAL DATA
We derived the information below from the audited consolidated
financial statements of CITATION for its fiscal years 2000, 1999, 1998,
1997 and 1996.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $14,996 $16,128 $16,640 $22,005 $25,051
Gross profit 7,702 8,084 8,340 11,355 13,981
Research and development expenses 2,500 2,369 3,199 3,268 1,672
Selling and administrative expenses 4,829 5,207 6,686 8,515 8,711
Restructuring costs and other
non-recurring charges(1)(2) - - 832 4,299 -
Office consolidation and relocation
expenses (4) - - - - 1,380
Loss on sale of financial system business
(1) - 663 - - -
Operating income (loss) 373 (155) (2,377) (4,727) 2,218
Other income (expense) - net(1)(3) (58) (514) (290) (553) 95
Income (loss) before taxes 315 (669) (2,667) (5,280) 2,313
Net income (loss) $ 189 $ (415) $(1,653) $(3,274) $ 1,412
Earnings (loss) per share - basic and
diluted $ .05 $ (.11) $ (.43) $ (.87) $ .38
Weighted average shares outstanding
basic 3,858 3,823 3,810 3,773 3,727
diluted 3,889 3,823 3,810 3,773 3,751
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 4,115 $ 3,796 $ 2,940 $ 5,152 $ 7,908
Total assets 12,071 13,878 14,312 17,338 21,257
Long-term debt 622 1,491 1,379 2,401 450
Shareholders' equity $ 8,083 $ 7,818 $ 8,147 $ 9,809 $12,614
</TABLE>
(1) See notes 2, 3, and 5 to the Consolidated Financial Statements for
information on fiscal year 2000, 1999 and 1998 charges.
(2) During fiscal 1997 the Company sold its United Kingdom operation and
recorded a pretax charge of $4,299
(3) During fiscal 1997 the Company recorded a pretax charge of $542 for costs
related to a proposed Secondary Offering of shares of common stock, which
was not completed.
(4) During fiscal 1996 the Company consolidated its operations into its St.
Louis, Missouri headquarters and recorded a pretax charge of $1,380 for
related costs.
Page 24
<PAGE> 25
FINANCIAL STATEMENTS
Consolidated Balance Sheet
(Thousands, except share amounts)
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 295 $ 204
Accounts receivable:
Trade, net of allowance for doubtful accounts of $186 and
$212, respectively 5,900 6,857
Other (Note 2) 456 445
Inventories (Note 8) 327 348
Prepaid expenses and other current assets 423 369
Deferred tax assets (Note 10) 80 142
-------- --------
Total current assets 7,481 8,365
-------- --------
Software development costs, net of accumulated amortization of
$13,551 and $12,367 respectively (Note 1) 1,455 1,775
-------- --------
Property and equipment:
Furniture and fixtures 843 843
Hardware and shop equipment 3,322 3,091
Leasehold improvements 120 120
Vehicles 37 37
-------- --------
4,322 4,091
Less - accumulated depreciation and amortization (3,801) (3,392)
-------- --------
Net property and equipment 521 699
-------- --------
Long-term deferred tax assets (Note 10) 910 1,104
Other assets (Note 6) 1,704 1,935
-------- --------
2,614 3,039
-------- --------
Total assets $ 12,071 $ 13,878
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 25
<PAGE> 26
Consolidated Balance Sheet - continued
(Thousands, except share amounts)
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 9) $ 197 $ 239
Accounts payable 271 1,223
Customer deposits 149 236
Accrued commissions 66 139
Other accrued liabilities 181 211
Deferred service revenue 2,502 2,521
-------- --------
Total current liabilities 3,366 4,569
Long-term debt (Note 9) 622 1,491
-------- --------
3,988 6,060
-------- --------
Commitments and contingencies (Notes 7, 13 and 14)
Shareholders' Equity (Notes 1 and 11):
Preferred stock; par value $.01 per share; 5,000,000 shares
authorized; no shares issued and outstanding
Common stock; par value $.10 per share; 10,000,000 shares
authorized; 3,876,655 and 3,838,344 shares issued and outstanding,
respectively 388 384
Paid-in capital 6,668 6,596
Retained earnings 1,027 838
-------- --------
8,083 7,818
-------- --------
Total liabilities and shareholders' equity $ 12,071 $ 13,878
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 26
<PAGE> 27
Consolidated Statement of Operations
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Net system sales and service revenue:
System sales $ 8,387 $ 8,669 $ 8,214
Service revenue 6,609 7,459 8,426
------- ------- --------
14,996 16,128 16,640
------- ------- --------
Cost of products and services sold:
System sales 5,679 6,110 6,252
Service revenue 1,615 1,934 2,048
------- ------- --------
7,294 8,044 8,300
------- ------- --------
Gross profit 7,702 8,084 8,340
Research and development expense 2,500 2,369 3,199
Selling and administrative expenses 4,829 5,207 6,686
Loss on sale of financial systems business and other
non-recurring charges (Notes 2 and 5) - 663 832
------- ------- --------
Operating income (loss) 373 (155) (2,377)
------- ------- --------
Other income (expense):
Interest income 29 65 78
Interest expense (102) (126) (168)
MEDASYS merger-related expenses (Note 3) - (495) -
Other non-operating expenses (Note 5) - - (158)
Other, net 15 42 (42)
------- ------- --------
(58) (514) (290)
------- ------- --------
Income (loss) before income taxes 315 (669) (2,667)
Provision (benefit) for income taxes (Note 10) 126 (254) (1,014)
------- ------- --------
Net income (loss) $ 189 $ (415) $ (1,653)
======= ======= ========
Earnings per common and common equivalent share (Note 10):
Basic and diluted:
Income (loss) per share $ 0.05 $ (0.11) $ (0.43)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 27
<PAGE> 28
Consolidated Statement of Shareholders' Equity
(Thousands)
<TABLE>
<CAPTION>
Equity
Adjustment
Common Stock From Foreign
Par Paid-In Retained Currency
Value Capital Earnings Translation Total
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1997 $ 380 $ 6,449 $ 2,906 $ 74 $ 9,809
Sale of common stock
pursuant to exercise of
stock options and warrants - 2 - - 2
Issuance of common stock
to Directors (Note 1) - 12 - - 12
Issuance of common stock
for 401K company-matching
contributions 1 50 - - 51
Foreign currency translation
adjustment - - - (74) (74)
Net loss - - (1,653) - (1,653)
------- ------- -------- ------ -------
Balance, March 31, 1998 381 6,513 1,253 - 8,147
Issuance of common stock
to Directors (Note 1) 2 46 - - 48
Issuance of common stock
for 401K company-matching
contributions 1 37 - - 38
Net loss - - (415) - (415)
------- ------- -------- ------ -------
Balance, March 31, 1999 384 6,596 838 - 7,818
Issuance of common stock
to Directors (Note 1) 2 34 - - 36
Issuance of common stock for
401K company-matching
contributions 2 38 - - 40
Net income - - 189 - 189
------- ------- -------- ------ -------
Balance March 31, 2000 $ 388 $ 6,668 $ 1,027 $ - $ 8,083
======= ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 28
<PAGE> 29
Consolidated Statement of Cash Flows
(Thousands)
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 189 $ (415) $(1,653)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 410 590 657
Amortization of software development costs 1,184 1,650 2,085
Amortization of other assets 103 180 181
Deferred income taxes 256 (254) (1,014)
Non-cash write off of financial products software and
other non-recurring charges - 539 943
Non-cash 401K matching contribution 40 38 51
Non-cash issuance of common stock to Directors 36 48 12
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable, net 946 (838) 64
Decrease (increase) in inventories 21 88 (19)
Decrease (increase) in prepaid expenses and other assets (54) (370) 1,331
Decrease in accounts payable (952) (200) (238)
Increase (decrease) in customer deposits (87) (177) 78
Increase (decrease) in other accrued liabilities (103) 16 (6)
Increase (decrease) in deferred service revenues (19) 143 92
Other 128 88 -
------- ------- -------
Net cash provided by operating activities $ 2,098 $ 1,126 $ 2,564
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 29
<PAGE> 30
Consolidated Statement of Cash Flows - continued
(Thousands)
<TABLE>
<CAPTION>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (232) $ (371) $ (345)
Software development costs (864) (834) (1,089)
Purchase of C-RIS(R)system . (250) .
------- ------- --------
Net cash used in investing activities (1,096) (1,455) (1,434)
------- ------- --------
Cash flows from financing activities:
Principal payments on long-term debt (911) (421) (1,149)
Proceeds from long-term debt - 534 -
Proceeds from sale of common stock pursuant
to exercise of stock options and warrants - - 2
------- ------- --------
Net cash provided (used) by financing activities (911) 113 (1,147)
------- ------- --------
Effect of exchange rate changes on cash - - (74)
------- ------- --------
Net increase (decrease) in cash and cash equivalents 91 (216) (91)
Cash and cash equivalents, beginning of year 204 420 511
------- ------- --------
Cash and cash equivalents, end of year $ 295 $ 204 $ 420
======= ======= ========
</TABLE>
For the years ended March 31, 2000, 1999, and 1998 the Company paid interest of
$102, $126, and $168, respectively, and received refunds of income taxes of
$0, $59, and $646, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
Page 30
<PAGE> 31
Notes to Consolidated Financial Statements
(Thousands unless otherwise indicated, except shares and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by CITATION Computer Systems, Inc. ("Company") in the
preparation of the consolidated financial statements conform to United States
generally accepted accounting principles, and require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from these estimates.
The significant accounting policies followed by the Company are described below:
OPERATIONS
CITATION designs, develops, markets and supports clinical information systems
for hospitals, clinics, physicians' groups and emerging Integrated Delivery
Networks ("IDN's"). The Company offers a comprehensive suite of products
designed using open client/server architecture that meets a broad range of the
information systems needs of the healthcare industry.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first in, first
out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Major renewals and betterments are
capitalized while maintenance and repairs are expensed currently. When property
is sold or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss on disposition is
credited or charged to income.
The Company provides for depreciation of property and equipment by charging
against earnings amounts sufficient to amortize the cost of the properties over
the estimated useful lives generally using straight-line methods. The estimated
useful life of the assets are as follows:
Vehicles, furniture, fixtures and equipment ...... 3 to 10 years
Leasehold improvements ....... Remaining life of the lease
REVENUE RECOGNITION
Clinical information system sales contracts are negotiated separately and
generally include the licensing of the Company's clinical information system
software, project-related services associated with the installation of the
systems and the sale of computer hardware. Clinical information system sales
contracts are noncancelable and provide for a right of return only in the event
the system fails to meet the performance criteria set forth in the contracts.
Revenue from the sale of computer systems is recognized upon shipment to the
customer. Revenue related to the installation of computer systems is recognized
as the work is performed. Costs and expenses related to installation of the
computer equipment and software system, training customer
Page 31
<PAGE> 32
personnel, and provision for warranties offered are recorded as cost of sales
when the related revenue is recognized.
Revenue from the sale of additional hardware and additional software is
recognized upon shipment. Costs and expenses associated with the sale of
additional hardware and software are recorded when the related revenue is
recognized. Revenue related to sales of product warranties and maintenance
service contracts is recognized ratably over the term of the contract period.
Sales returns are treated as reductions to net system sales and service
revenues.
COST OF SALES
For purposes of estimating the cost of sales related to service revenue, the
Company includes all of its customer service expenses plus an allocation of
certain other overhead expenses based upon estimates made by management.
SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in developing software products are capitalized and
amortized on a product-by-product basis using the greater of the ratio that
current gross revenues for a product bear to the current and anticipated future
gross revenues for that product or the straight-line method over the estimated
three to five-year economic life of the products. The costs consist of salaries,
computer expenses and other overhead costs directly related to the development
and/or major enhancement of software products. Such costs are capitalized, to
the extent they are recoverable through future sales, from the time the
product's technological feasibility is established up to its general release to
customers. Costs incurred before or after this period are expensed as incurred.
IMPAIRMENT OF ASSETS
The Company reviews long-lived assets to assess recoverability from future
operations using expected undiscounted future cash flows whenever events and
circumstances indicate that the carrying values may not be recoverable.
Impairment losses are recognized in operating results when expected undiscounted
future cash flows are less than the carrying value of the asset.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Such temporary differences result primarily
from using different methods to accrue certain expenses and to calculate
capitalization of software development costs for financial and tax reporting
purposes. Deferred tax (benefit) expense represents the change in the deferred
tax asset or liability for the reporting period.
Page 32
<PAGE> 33
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), which
requires public entities to present both basic and diluted earnings per share
amounts on the face of their financial statements, replacing the former
calculations of primary and fully diluted earnings per share. Basic earnings per
share is based on the weighted average number of outstanding common shares
during the period but does not consider dilution for potentially dilutive
securities. Diluted earnings per share reflect potential dilutive common shares
subject to stock options. The dilutive potential common share arising from the
effect of outstanding stock options are computed using the treasury stock
method, if dilutive. The Company adopted FAS 128 effective with the beginning of
its fiscal 1998 third quarter, and retroactively restated all prior years'
earnings per share information.
Reconciliation of the number of shares used in computing basic and dilutive
earnings (loss) per common and common equivalent share is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Basic 3,858,303 3,823,361 3,806,536
Effect of dilutive securities - stock options 30,997 - -
--------- --------- ---------
Diluted 3,889,300 3,823,361 3,806,536
========= ========= =========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the fair
value of financial instruments approximate book value at March 31, 2000, based
on terms currently available to the Company in financial markets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments, such as
money-market accounts with an original maturity of three months or less.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
DIRECTORS' FEES
During the year ended March 31, 1995, the Company adopted the Directors Common
Share Plan (Directors' Plan) whereby certain non-employee members of the Board
of Directors (Directors) may receive all or a portion of the Directors' fees in
the form of Company common stock in lieu of cash. During the years ended March
31, 2000, 1999, and 1998, 18,000, 15,672, and 1,600 shares of common stock
valued at approximately $36, $48, and $12, respectively, were issued to such
Directors under the Directors Plan.
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<PAGE> 34
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), establishes standards for the reporting and presentation of
comprehensive income and its components in a complete set of general-purpose
financial statements. Comprehensive income represents net income (loss) plus
certain items that are charged directly to shareholders' equity. The Company
adopted FAS 130 for the year ended March 31, 1999. Given the sale of the
Company's foreign operations in fiscal 1997, the Company has no other
comprehensive income items and the adoption of FAS 130 had no effect on the
accompanying financial statement presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities and requires recognition of all
derivatives on the balance sheet measured at fair value. FAS 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is continuing to evaluate the provisions of FAS 133 to determine its
impact on the Company's financial position and results of operations, although
the Company does not generally enter into transactions involving derivative
instruments.
In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 is effective for transactions
entered into in fiscal years beginning after March 15, 2000. SAB 101 provides a
summary of the general application of generally accepted accounting principles
to revenue recognition in the financial statements along with interpretations of
applying generally accepted accounting principles to selected revenue
recognition issues. The Company is currently evaluating the provisions of SAB
101 to determine any impact on financial position and results of operations.
2. SALE OF FINANCIAL SOFTWARE LINE OF 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
line of business accounted for approximately $1.8 million of revenue and
contributed a pretax loss of $0.2 million in fiscal 1998. Revenues from this
line of business in fiscal 1999 were $0.3 million through the date of its sale.
The transaction resulted in an aggregate pretax loss of $0.7 million and an
after tax loss of approximately $0.4 million, or $0.11 per share. The loss
included the write-off of approximately $0.5 million of capitalized software
development costs associated with this software and an additional charge of $0.6
million based on management's estimates of the collectibility of certain
accounts receivable related to its former financial software line of business,
which were retained by the Company. Approximately $0.4 million of the sales
price for this line of business is reflected in other accounts receivable on the
March 31, 2000 Consolidated Balance Sheet; payment thereof is expected in fiscal
year 2001.
3. 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.
However, the companies continued to explore other strategic opportunities and
entered a joint marketing agreement related to clinical information systems in
the fourth quarter of fiscal 1999. During the fourth quarter of fiscal 1999, a
non-operating charge of $495 was recorded related to costs
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<PAGE> 35
(primarily legal, accounting and investment advisory in nature) associated with
the MEDASYS business combination discussions.
4. ACQUIRED C-RIS(R) RADIOLOGY INFORMATION SYSTEM SOFTWARE
During the fourth quarter of fiscal 1999, the Company agreed to purchase its
C-RIS(R) radiology information system software from Irish Medical Systems
("IMS") for $250. The Company previously held the exclusive North American
distribution rights for C-RIS(R), which was developed by IMS under CITATION's
specifications and first introduced to the market in 1997. The Company financed
this purchase with proceeds from bank debt.
5. OTHER NON-RECURRING CHARGES
During the fourth quarter of fiscal 1998, the Company recorded non-recurring,
pretax charges of $832 for costs primarily related to customer matters regarding
discontinued products and $158 for non-operating costs related to the strategic
review of alternatives following an unsolicited expression of interest in the
Company. Cash payments during fiscal 1998 with respect to such charges were
approximately $60. Remaining additional payments totaling approximately $62 were
paid in fiscal 1999.
6. LONG-TERM ACCOUNTS RECEIVABLE
The Company has provided extended payment terms for software sold to its
distributor in Singapore. Collection of the receivable is ultimately dependent
on the distributor's cash flows. The Company believes that this receivable,
which approximated $1.4 million and $1.6 million at March 31, 2000 and March 31,
1999 respectively, and is classified as long-term, is fully collectible.
7. CONCENTRATION OF CREDIT RISK
The Company generates revenue primarily through sales to the healthcare industry
located throughout the United States. Due to this concentration, substantially
all receivables at March 31, 2000 and 1999 are from healthcare institutions in
the United States, and a healthcare information systems integrator based in
Singapore, which may be similarly affected by changes in economic, regulatory or
other conditions.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains reserves for potential credit
losses and historically such losses have been within management's expectations.
8. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Hardware and third party software $ 129 $ 143
Field service equipment 198 205
----- -----
$ 327 $ 348
===== =====
</TABLE>
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<PAGE> 36
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Bank notes payable due in monthly payments of principal and interest
through March, 2002; interest payable at 8% to 8.5% $ 319 $ 563
Borrowings under bank line of credit, interest payable at prime
(9.0% at March 31, 2000) 500 1,167
------ ------
Total debt 819 1,730
Less - current portion 197 239
------ ------
Total long-term debt $ 622 $1,491
====== ======
</TABLE>
The line of credit with a bank allows the Company to borrow up to $4,000 through
June 1, 2001. At March 31, 2000, $3,500 was available under the line of credit.
The line of credit and the notes payable to banks are secured by the Company's
accounts receivable, inventory, equipment, and general intangible assets. The
respective agreements require that certain minimum net worth and leverage ratio
requirements be maintained by the Company. The Company was in compliance with
these requirements or has obtained waivers at March 31, 2000.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ended
March 31,
<S> <C> <C>
2001 197
2002 622
----
$819
</TABLE>
10. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
------ ------ -------
- - -
------ ------ -------
Deferred:
Federal 94 (217) (857)
State 32 (37) (157)
------ ------ -------
126 (254) (1,014)
------ ------ -------
$ 126 $ (254) $(1,014)
====== ====== =======
</TABLE>
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<PAGE> 37
The provision (benefit) for income taxes differs from the amount computed using
the statutory federal income tax rate (34%) as follows:
<TABLE>
<CAPTION>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory rate $ 107 $ (227) $ (907)
Increases:
State income taxes, net 21 (24) (103)
Other, net (2) (3) (4)
----- ------ -------
$ 126 $ (254) $(1,014)
===== ====== =======
</TABLE>
Deferred tax assets and liabilities at March 31, 2000 and 1999, are comprised of
the following temporary differences:
<TABLE>
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Current deferred tax assets (liabilities):
Accrued liabilities $ 46 $ 71
Allowance for doubtful accounts 74 85
Other, net (40) (14)
----- ----
Net current deferred tax asset $ 80 $142
===== ====
<CAPTION>
March 31,
2000 1999
<S> <C> <C>
Long-term deferred tax assets (liabilities):
Capitalized software development
costs $ (259) $ (387)
Depreciation 41 85
State taxes (42) (53)
Tax credit carry forward 90 90
Net operating loss carry forward 1,080 1,369
------- -------
Net long-term deferred tax asset $ 910 $ 1,104
======= =======
</TABLE>
At March 31, 2000, the Company had Federal net operating loss carryforwards of
approximately $2,735, which expire between 2012 and 2013. Company management has
determined that based on expected future operating plans and tax planning
strategies available to the Company, the net operating loss carryforwards at
March 31, 2000 will be utilized to offset future taxes. Therefore, no valuation
allowance related to the net operating loss carryforwards has been recorded at
March 31, 2000.
11. STOCK OPTIONS AND WARRANTS
The Company has an Employee Incentive Stock Option Plan which provides for the
issuance of up to 348,347 stock options to executive officers or other key
employees of the Company.
The Company's incentive stock option plan allows participation, with certain
restrictions, by all full-time employees with at least one year of service.
Options granted allow employees to purchase shares of the Company's common stock
at prices not less than the fair market value of the stock at the date of the
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<PAGE> 38
grant. Options, which have been granted under the plan, are exercisable during
the employment of the grantee at specified time intervals. Outstanding options
expire between 2004 and 2009.
In addition, the Company in August 1999 approved a Directors Stock Option Plan
as amended, which provides for the issuance of up to 400,000 stock options to
members of the Company's Board of Directors. Stock options in the amount of
60,000 shares have been granted to the Directors.
Stock option transactions (number of shares) are summarized below:
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Shares under option,
beginning of period 330,333 346,333 300,333
Stock options granted at an exercise price
of $1.00 - 9,000 -
Stock options granted at an exercise price
of $3.0625 - 1,000 -
Stock options granted at an exercise price
of $1.875 25,000 - -
Stock options granted at an exercise price
of $7.00 - - 7,000
Stock options forfeited (3,500) (15,000) (1,500)
Non-qualified stock options granted at
an exercise price of $1.625 100,000 - -
Non-qualified stock options granted at
an exercise price of $1.938 60,000 - -
Non-qualified stock options granted at
an exercise price of $7.24 to $9.125 - - 41,000
Non-qualified stock options forfeited (31,333) (11,000) -
Stock options exercised at $4.50 - - (500)
Shares under option, end of period 480,500 330,333 346,333
</TABLE>
The following table summarizes information for options currently outstanding at
March 31, 2000:
<TABLE>
<CAPTION>
Weighted Average
Exercise Number Remaining
Price Outstanding Contractual Life
----- ----------- ----------------
<S> <C> <C> <C>
$1.00 - $3.0625 195,000 10 years
4.50 - 5.00 168,500 5
6.13 - 7.00 25,000 7
8.88 - 9.13 12,000 8
14.25 80,000 6
-------
480,500
=======
</TABLE>
The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25). Under APB 25, the "intrinsic value based method" specifies that no
compensation expense is recognized if employee stock options are
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<PAGE> 39
granted with an exercise price equal to or higher than the market value of the
stock price on the date of the grant.
At March 31, 2000, options to purchase 381,898 shares were exercisable. During
the years ended March 31, 2001 and 2002, options to purchase an additional
41,936 and 28,335 shares, respectively, will become exercisable. Options to
purchase 220,681 shares were available for grant under the 1992 Employee
Incentive Stock Option Plan at March 31, 2000.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("FAS 123"). FAS 123 prescribes the recognition of compensation expense based on
the fair value of options or stock awards determined on the date of the grant.
However, FAS 123 allows companies to continue to apply the "intrinsic value
based method" set forth in APB 25 for employee stock option grants. Had
compensation costs for the Company's employee stock option plan been determined
based on the fair value of the options on the grant dates consistent with the
methodology prescribed by FAS 123, the Company's net income (loss) and net
income (loss) per share would have decreased (increased) as shown below. In
accordance with the adoption methodology prescribed by FAS 123, the pro forma
results shown below reflect only the impact of employee stock options granted
during the years ended March 31, 2000 and 1999. Because future employee stock
options may be granted, the pro forma impact for fiscal 2000 and fiscal 1999 is
not necessarily indicative of the impact in future years.
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net income (loss)
As reported $ 189 $ (415)
Pro forma 56 (426)
Income (loss) per share
As reported $0.05 $(0.11)
Pro forma 0.01 (0.11)
</TABLE>
The fair value of the options granted is estimated on the date of grant using
the Black-Scholes multiple option-pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Risk-free interest rate 5.8% - 6.0% 4.4% - 5.3%
Expected volatility 80% 77%
Estimated lives of options (in years) 5.0 5.0
Expected dividend yield 0% 0%
</TABLE>
The weighted average fair value of options granted during the fiscal years ended
March 31, 2000 and 1999 was $1.20 and $1.89, respectively.
12. PROFIT AND SAVINGS INCENTIVE PLANS
CITATION maintains a Retirement Savings Plan for the benefit of substantially
all CITATION employees. Employee contributions may range from 1% to 15% of
compensation, subject to limits prescribed by the Internal Revenue Code.
CITATION matches a discretionary percentage of an employee's contribution, up to
6% of the employee's compensation.
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<PAGE> 40
For the plan year ended December 31, 1999 and 1998, the matching contribution
was 25% of employee contributions, and was paid in the form of Company stock. It
is the Company's current intention to continue to make the matching contribution
in the form of Company stock. Employees are immediately 100% vested as to
employee contributions and are vested as to employer contributions at the rate
of 20% per year, beginning in the second year of service.
For the years ended March 31, 2000, 1999, and 1998, the Company recorded expense
of approximately $37, $38, and $51, respectively, relating to this plan.
13. LEASES
The Company leases its office and warehouse facilities and certain office
equipment. The lease terms are generally for two to five years. Rental expense
under operating leases for the years ended March 31, 2000, 1999, and 1998, was
approximately $555, $549, and $551, respectively. Future minimum lease payments
under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
<S> <C>
2001 $ 517
2002 516
2003 516
2004 516
2005 159
Thereafter 7
-------
$ 2,231
=======
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company from time to time is a party to certain lawsuits in the ordinary
course of business. Management does not expect the outcome of any litigation to
have a material adverse effect on the Company's financial position, results of
operations, or cash flows.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Basic and diluted
earnings (loss)
Net sales Gross profit Net income (loss) per share2
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st quarter $ 4,328 $ 3,414 $2,128 $1,701 $144 $(130)1 $ .04 $(.03)1
2nd quarter 4,322 4,106 1,995 2,290 101 172 .03 .05
3rd quarter 3,709 3,976 2,090 2,145 66 194 .02 .05
4th quarter 2,637 4,632 1,489 1,948 (122) (651)1 (.03) (.17)1
------- ------- ------ ------ ---- -----
Total $14,996 $16,128 $7,702 $8,084 $189 $(415)
======= ======= ====== ====== ==== =====
</TABLE>
(1) See Notes 2 and 3 regarding the sale of the financial products and
termination of proposed business combination in the first and fourth
quarters of fiscal 1999.
(2) The annual earnings per share amount does not agree to the sum of the
quarters as a result of changes in the market prices of the Company's
common stock and the application of the treasury stock method.
16. SUBSEQUENT EVENT
In May 2000, the Company announced that it had entered a definitive agreement
for a business combination with Cerner Corporation ("Cerner"). Under terms of
the agreement, CITATION shareholders will receive 0.153 shares of Cerner stock
and $0.51 in cash for each share of CITATION, resulting in the issuance of
598,000 shares of Cerner stock for 90% of CITATION and payment of
Page 40
<PAGE> 41
approximately $2 million for the remaining 10% of the Company. The transaction,
which as to the stock portion will be tax-free to CITATION shareholders and
which will be accounted for as a purchase by Cerner, is expected to close in the
third quarter this calendar year pending CITATION shareholder approval and
regulatory approval.
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<PAGE> 42
Statement of Management's Responsibility For Financial Reporting
The accompanying consolidated financial statements of CITATION Computer Systems,
Inc. have been prepared by management, who are responsible for their integrity
and objectivity. The statements have been prepared in conformity with generally
accepted accounting principles and include amounts based on management's best
estimates and judgments. Financial information elsewhere in this Annual Report
is consistent with that in the consolidated financial statements.
Management has established and maintains a system of internal controls designed
to provide reasonable assurance that assets are safeguarded and that the
financial records reflect the authorized transactions of the Company. The system
of internal control includes widely communicated statements of policies and
business practices that are designed to require all employees to maintain high
ethical standards in the conduct of Company affairs. The internal controls are
augmented by organizational arrangements that provide for appropriate delegation
of authority and division of responsibility.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants. As part of their audit of
the Company's fiscal 2000 consolidated financial statements,
PricewaterhouseCoopers LLP considered the Company's system of internal control
to the extent they deemed necessary to determine the nature, timing and extent
of their audit tests.
The Board of Directors pursues its responsibility for the Company's financial
reporting through its Audit Committee, which is composed of outside Directors.
The Audit Committee meets periodically with the independent accountants, with or
without the presence of management representatives, to discuss the results of
their work and their comments on the adequacy of internal accounting controls
and the quality of financial reporting.
J. Robert Copper Richard D. Neece John P. Gilmore
Chairman and Chief Executive Officer President Vice President
and Controller
Report of Independent Accountants
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF CITATION COMPUTER SYSTEMS, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the consolidated financial position of
CITATION Computer Systems, Inc. and its subsidiaries at March 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States. 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 of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
May 10, 2000
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<PAGE> 43
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
Page 43
<PAGE> 44
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's executive officers and directors,
and persons who own more than ten percent of the Company's outstanding stock,
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. During the fiscal year ended March 31, 2000, to the
knowledge of the Company, all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten percent beneficial owners were
complied with by such officers, directors and beneficial owners.
FRED L. BROWN, 59, has been a director of the Company since February
1993. Mr. Brown is the 2000 immediate past Chairman of the American Hospital
Association and Vice Chairman of BJC Health System, headquartered in St. Louis,
Missouri. Mr. Brown served as BJC's principal architect and first President and
Chief Executive Officer.
LARRY D. MARCUS, 51, has been a Director of the Company since
September 1996. From September 1989 until May 1996, Mr. Marcus served as Chief
Financial Officer of River City Broadcasting, L.P. Currently, Mr. Marcus is
President and CEO of Peak Media LLC, an owner/operator of television stations.
He is also a broadcast consultant for TV and radio. Mr. Marcus serves on the
Board of Directors of Radio One Inc., a publicly-held operator of radio
stations serving the African American community. He is also a director of
Better Communications, Inc., owner of two television stations in Indiana.
JAMES F. O'DONNELL, 52, was elected a Director of the Company in 1994.
Mr. O'Donnell is Chairman and Chief Executive Officer, Capital for Business,
Inc., CFB Venture Fund I, Inc., and CFB Partners, Inc. (General Partner of CFB
Venture Fund II, L.P.), and has served in that capacity since 1987. Capital For
Business is the investment manager of a series of federally licensed SBIC
venture funds and private equity funds.
DAVID T. PIERONI, 55, has been a Director of the Company since August
1991. Mr. Pieroni formed Pieroni Management Counselors, Inc., a management
consulting company, in 1990 and served as President from 1990 to 1991, and
again became active in its affairs in 1995. From 1991 to 1995, Mr. Pieroni was
President of Spencer & Spencer Systems, Inc. In 1995 Mr. Pieroni joined the
Farris Group and was President of the Farris Group in 1996 and part of 1997.
From January 1996 until September 1996, Mr. Pieroni also served as Corporate
Development Officer for Lasersignt, Inc. Mr. Pieroni continues to serve as a
Director of Lasersight, Inc. From 1977 to 1990, Mr. Pieroni was a principal at
a predecessor of Ernst & Young, LLP, working in their health care and
management consulting practice.
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ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the
Company's Chief Executive Officer and each other executive officer whose base
salary and bonus exceeded $100,000 during the fiscal year ended March 31, 2000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) COMMISSIONS ($) OPTIONS (#) COMPENSATION($)(1)
------------------- ---- --------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
J. Robert Copper 2000 $204,200 -- 50,000 $ 1,024
Chairman and Chief 1999 204,200 -- -- 1,000
Executive Officer 1998 204,200 -- 5,000 1,000
Richard D. Neece 2000 150,000 -- 50,000 --
President and Chief 1999 150,000 -- -- --
Financial Officer 1998 150,000 -- 5,000 --
Russell Fortune 2000 100,000 $1,043 5,000 1,522
Executive Vice President 1999 91,000 1,800 -- 1,389
Sales and Marketing 1998 91,000 17,545 5,000 1,024
</TABLE>
(1) The dollar amount shown consists solely of contributions by the Company to
the CITATION Computer Systems, Inc. Retirement Savings Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option
grants made during the fiscal year ended March 31, 2000 to the individuals named
in the Summary Compensation Table. No SARs were granted to the named individuals
during the fiscal year ended March 31, 2000:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
---- ------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C>
J. Robert Copper 50,000 40.0% $ 1.625 October 15, 2009
Richard D. Neece 50,000 40.0 1.625 October 15, 2009
Russell L. Fortune 5,000 4.0 1.875 June 1, 2009
</TABLE>
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The following presents certain information concerning stock option
exercises in the fiscal year ended March 31, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR END FISCAL YEAR END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#) UNEXERCISABLE($)
---- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
J. Robert Copper -- -- 203,333/1,667 $46,900/0
Richard D. Neece -- -- 133,333/1,667 46,900/0
Russell L. Fortune -- -- 11,333/6,667 0/$3,440
</TABLE>
COMPENSATION OF DIRECTORS
Each director who is not employeed by the Company receives a monthly
fee of $1,000 for serving as a director of the Company, which fee may be in
the form of cash or, at the election of the director, shares of Common Stock of
the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
amount of Common Stock beneficially owned as of June 1, 2000, by each director
of the Company, each nominee for election as a director of the Company, the
executive officers named in the Summary Compensation Table, any person who is
known by the Company to own beneficially more than 5% of the Common Stock and
all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS(1) BENEFICIALLY OWNED COMMON STOCK(1)
------------------- ------------------ ---------------
<S> <C> <C>
J. Robert Copper.............................................. 513,844(2) 12.6%
Richard D. Neece.............................................. 240,333(3) 6.0
Fred L. Brown................................................. 37,497(4) 1.0
Larry D. Marcus............................................... 15,751(6) (5)
James F. O'Donnell(7)......................................... 644,562(8)(9) 16.6
David T. Pieroni.............................................. 25,301(10) (5)
Russell L. Fortune............................................ 16,533(11) (5)
CFB Venture Fund I, Inc.(7)................................... 636,229 16.4
Michael Keith Ruben(7)........................................ 198,550 5.1
Jim G. Farmer(7).............................................. 195,000 5.0
All directors and executive officers as
a group (7 persons)......................................... 1,493,821 35.3%
</TABLE>
--------------------
(1) Except as otherwise indicated, each individual has sole voting and
investment power over the shares listed beside his name. The percentage
calculations for beneficial ownership are based upon 3,881,230 shares of
Common Stock that were issued and outstanding as of June 15, 2000. Except
as otherwise indicated, the address for each person is 424 South Woods Mill
Road, Suite 200, Chesterfield, Missouri 63017.
(2) Amount includes: (i) 259,700 shares of Common Stock held in a trust for the
benefit of Mr. Copper's children; (ii) 100,000 shares of Common Stock Mr.
Copper may acquire pursuant to options to acquire shares of Common Stock at
the exercise price of $5.00 per share; (iii) 50,000 shares of
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<PAGE> 47
Common Stock Mr. Copper may acquire pursuant to options to acquire shares
of Common Stock at the exercise price of $14.25 per share, (iv) 3,333
shares of Common Stock Mr. Copper may acquire pursuant to options to
acquire shares of Common Stock at the exercise price of $6.187 per share;
and (v) 50,000 shares of Common Stock Mr. Copper may acquire pursuant to
options to acquire shares of Common Stock at the exercise price of $1.625.
(3) Amount includes: (i) 50,000 shares of Common Stock Mr. Neece may acquire
pursuant to the exercise of options to acquire shares of Common Stock at
the exercise price of $5.00 per share; (ii) 30,000 shares of Common Stock
Mr. Neece may acquire pursuant to the exercise of options to acquire shares
of Common Stock at the exercise price of $14.25 per share; (iii) 3,333
shares of Common Stock Mr. Neece may acquire pursuant to options to acquire
shares of Common Stock at the exercise price of $6.187 per share; and (iv)
50,000 shares of Common Stock Mr. Neece may acquire pursuant to options to
acquire shares of Common Stock at the exercise price of $1.625.
(4) Amount includes 1,333 shares of Common Stock Mr. Brown may acquire pursuant
to the exercise of options to acquire shares of Common Stock at the
exercise price of $9.125 per share.
(5) Less than one percent.
(6) Amount includes 3,333 shares of Common Stock Mr. Marcus may acquire
pursuant to the exercise of options to acquire shares of Common Stock at
the exercise price of $9.00 per share.
(7) The address for Mr. O'Donnell and CFB Venture Fund I, Inc. is 11 South
Meramec, Suite 1430, Clayton, Missouri 63105. The address for Mr. Ruben is
56 Mooring Buoy, Hilton Head, South Carolina, 29928. The address for Mr.
Farmer is 2055 Walton Road, St. Louis, Missouri, 63114.
(8) Mr. O'Donnell is Chairman of CFB Venture Fund I, Inc. and may be deemed to
beneficially own the shares held by CFB Venture Fund, I, Inc. Mr. O'Donnell
disclaims beneficial ownership of all shares held by CFB Venture Fund, I,
Inc.
(9) Amount includes 1,333 shares of Common Stock Mr. O'Donnell may acquire
pursuant to the exercise of options to acquire shares of Common Stock at
the exercise price of $9.00 per share.
(10) Amount includes 1,333 shares of Common Stock Mr. Pieroni may acquire
pursuant to the exercise of options to acquire shares of Common Stock at
the exercise price of $6.50 per share.
(11) Amount includes: (i) 6,000 shares of Common Stock Mr. Fortune may acquire
pursuant to the exercise of options to acquire shares of Common Stock at
the exercise price of $6.88 per share; (ii) 2,000 shares of Common Stock
Mr. Fortune may acquire pursuant to the exercise of options to acquire
shares of Common Stock at the exercise price of $4.50; (iii) 3,333 shares
of Common Stock Mr. Fortune may acquire pursuant to the exercise of options
to acquire shares of Common Stock at the exercise price of $6.125.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Those Exhibits required by Item 601 of Regulation S-B and
by paragraph (a) of Item 13:
-2 Agreement and Plan of Merger, dated as of May 15, 2000 by
and among the Company, Cerner Corporation and Cerner
Performance Logistics Inc., incorporated by reference to
Exhibit 2.1 to the Company's Report on Form 8-K dated as of
May 15, 2000.
-3(a) Restated Articles of Incorporation of the Company;
incorporated by reference to the corresponding Exhibit
to the Company's Registration Statement on Form S-1 of
the Company, Registration No. 33-48332
-3(b) Restated By-laws of the Company; incorporated by
reference to the corresponding Exhibit to the Company's
Registration Statement of Form S-1 of the Company,
Registration No. 33-48332
-4(a) Specimen Common Stock Certificate; incorporated by
reference to the corresponding Exhibit to the Company's
Registration Statement on Form S-1 of the Company,
Registration No. 33-48332
-4(b) Registration Rights Agreement, dated May 29, 1992,
between the Company and Capital For Business, Inc.;
incorporated by reference to the corresponding Exhibit
to the Company's Registration Statement on Form S-1 of
the Company, Registration No. 33-48332
-4(c) Form of Amendment to Registration Rights Agreement,
dated October 23, 1992, between the Company and Capital
For Business, Inc.; incorporated by reference to Exhibit
4(n) to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, dated November 13,
1992, as filed by the Company with the Commission.
-10(a) First Amended Incentive Stock Option Plan; incorporated
by reference to the corresponding Exhibit to the
Company's Registration Statement on Form S-1 of the
Company, Registration No. 33-48332
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-10(b) Resolution Amending the First Amended Incentive Stock
Option Plan; incorporated by reference to the
corresponding Exhibit to the Company's Registration
Statement on Form S-1 of the Company, Registration No.
33-48332
-10(c) Amendment to First Amended Incentive Stock Option Plan;
incorporated by reference to the corresponding Exhibit
to the Company's Registration Statement on Form S-1 of
the Company, Registration No. 33-48332
-10(d) 1992 Employee Incentive Stock Option Plan; incorporated
by reference to the corresponding Exhibit to the
Company's Registration Statement on Form S-1 of the
Company, Registration No. 33-48332
-10(e) CITATION Computer Systems, Inc. Nonqualified Stock
Option Agreement with J. Robert Copper; incorporated by
reference to Exhibit 10.1 to the Quarterly Report on
Form 10Q for the quarter ended December 31, 1999.
-10(f) CITATION Computer Systems, Inc. Nonqualified Stock
Option Agreement with Richard D. Neece; incorporated by
reference to Exhibit 10.2 to the Quarterly Report on
Form 10Q for the quarter ended December 31, 1999.
-10(g) 1999 Director Stock Option Plan as amended.
-10(h) CITATION Computer Systems, Inc.(R) Change in Control
Agreement with J. Robert Copper.
-10(i) CITATION Computer Systems, Inc. (R) Change in Control
Agreement with Richard D. Neece.
-21 List of Subsidiaries of the Registrant
-23(a) Consent of PricewaterhouseCoopers LLP
-23(b) Report of PricewaterhouseCoopers LLP on Financial
Statement Schedule
-27 Financial Data Schedule
(b) EXHIBITS AND REPORTS ON FORM 8-K.
On January 24, 2000, the Company filed a report on Form 8-K
reporting under Item 5 thereto the Fiscal 2000 Third Quarter and
Nine Months ended December 31, 1999 Financial Results.
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SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGED OFF PERIOD
----------- --------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1998:
Allowance for doubtful accounts $162 $74 - $31 $205
Year ended March 31, 1999:
Allowance for doubtful accounts $205 $95 - $88 $212
Year ended March 31, 2000:
Allowance for doubtful accounts $212 $50 - $76 $186
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CITATION Computer Systems, Inc.
By /s/ J. Robert Copper
----------------------------------
J. Robert Copper, Chairman
and Chief Executive Officer
June 2, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ J. Robert Copper /s/ Fred L. Brown
--------------------------------- ------------------------------
J. Robert Copper, June 2, 2000 Fred L. Brown, June 2, 2000
Director, Chairman and Chief Director
Executive Officer
/s/ Larry D. Marcus /s/ James F. O'Donnell
--------------------------------- ------------------------------
Larry D. Marcus, June 2, 2000 James F. O'Donnell, June 2, 2000
Director Director
/s/ David T. Pieroni /s/ Richard D. Neece
--------------------------------- ------------------------------
David T. Pieroni, June 2, 2000 Richard D. Neece, June 2, 2000
Director President and Principal Financial Officer
/s/ John P. Gilmore
------------------------------
John P. Gilmore, June 2, 2000
Vice President, Controller, Treasurer and
Principal Accounting Officer
Page 51
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INDEX TO FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
SCHEDULE
NUMBER SCHEDULE
------ --------
VIII Valuation and Qualifying Accounts
EXHIBIT
NUMBER EXHIBIT
------ -------
2 Agreement and Plan of Merger, dated as of May 15, 2000 by and
among the Company, Cerner Corporation and Cerner Performance
Logistics Inc., incorporated by reference to Exhibit 2.1 to
the Company's Report on Form 8-K dated as of May 15, 2000.
3(a) Restated Articles of Incorporation of the Company;
incorporated by reference to the corresponding Exhibit to the
Company's Registration Statement on Form S-1 of the Company,
Registration No. 33-48332
3(b) Restated By-laws of the Company; incorporated by reference to
the corresponding Exhibit to the Company's Registration
Statement of Form S-1 of the Company, Registration No. 33-48332
4(a) Specimen Common Stock Certificate; incorporated by reference
to the corresponding Exhibit to the Company's Registration
Statement on Form S-1 of the Company,
Registration No. 33-48332
4(b) Registration Rights Agreement, dated May 29, 1992,
between the Company and Capital For Business, Inc.;
incorporated by reference to the corresponding Exhibit to
the Company's Registration Statement on Form S-1 of the
Company, Registration No. 33-48332
4(c) Form of Amendment to Registration Rights Agreement, dated
October 23, 1992, between Company and Capital For
Business, Inc.; incorporated by reference to Exhibit 4(n)
to the Quarterly Report on Form 10-Q for the quarter
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ended September 30, 1992, dated November 13, 1992, as
filed by the Company with the Commission.
10(a) First Amended Incentive Stock Option Plan; incorporated by
reference to the corresponding Exhibit to the Company's
Registration Statement on Form S-1 of the Company,
Registration No. 33-48332
10(b) Resolution Amending the First Amended Incentive Stock Option
Plan; incorporated by reference to the corresponding Exhibit
to the Company's Registration Statement on Form S-1 of the
Company, Registration No. 33-48332
10(c) Amendment to First Amended Incentive Stock Option Plan;
incorporated by reference to the corresponding Exhibit to the
Company's Registration Statement on Form S-1 of the
Company, Registration No. 33-48332
10(d) 1992 Employee Incentive Stock Option Plan; incorporated by
reference to the corresponding Exhibit to the Company's
Registration Statement on Form S-1 of the Company,
Registration No. 33-48332
10(e) CITATION Computer Systems, Inc. Nonqualified Stock Option
Agreement with J. Robert Copper; incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10Q for the
quarter ended December 31, 1999.
10(f) CITATION Computer Systems, Inc. Nonqualified Stock Option
Agreement with Richard D. Neece; incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10Q for the
quarter ended December 31, 1999.
10(g) 1999 Director Stock Option Plan as amended.
10(h) CITATION Computer Systems, Inc. (R) Change in Control Agreement
with J. Robert Copper.
10(i) CITATION Computer Systems, Inc. (R) Change in Control Agreement
with Richard D. Neece.
21 List of Subsidiaries of the Registrant
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23(a) Consent of PricewaterhouseCoopers LLP
23(b) Report of PricewaterhouseCoopers LLP on Financial Statement
Schedule
27 Financial Data Schedule
Page 54
