<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-20284
CITATION COMPUTER SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)
MISSOURI 43-1174397
- ----------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
424 SOUTH WOODS MILL ROAD, CHESTERFIELD, MISSOURI 63017
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314)579-7900
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filled by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock, par value
$0.10 per share, at February 9, 2000, was 3,877,449 shares.
Transitional small business disclosure format: Yes [ ] No [ X ]
Page 1
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-6 hereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Any forward-looking statements set forth herein are necessarily subject
to significant uncertainties and risks. The words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Actual results could be materially different as a result of various
possibilities, including difficulties or delays in the introduction of new
products or the revision of existing products, significant changes in healthcare
regulation, economic downturns of CITATION Computer Systems, Inc.'s (the
"Company") markets, new entrants into the Company's markets, competitors,
increased price pressure, customer reduction caused by industry consolidation,
marketplace acceptance of Windows NT as an operating platform, or other factors.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
For further discussion of risk factors, please refer to page 9 of the
Company's Form 10-KSB Annual Report for the fiscal year ended March 31, 1999 as
filed with the Securities and Exchange Commission.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1999 TO THREE MONTHS ENDED
DECEMBER 31, 1998
GENERAL. The Company reported net income of $0.05 per share, or $0.2
million, for the third quarter of fiscal 1999, compared to net income of $0.02
per share, or $0.1 million, in the comparable period of fiscal 2000. The
decrease in profitability from the prior year was principally the result of
lower sales.
REVENUES. Total revenue decreased 6.7% from $4.0 million for the third
quarter of fiscal 1999 to $3.7 million for the third quarter of fiscal 2000 due
to a decrease of 10.7% in system sales revenue and a decrease of 1.9% in service
revenue.
System sales revenue for the third quarter decreased $0.3 million from
$2.2 million in fiscal 1999 to $1.9 million in fiscal 2000. Management believes
that the 10.7% decrease was primarily attributable to delays in spending by
potential customers in anticipation of possible Year 2000 problems. System sales
represented 54.8% and 52.4% of total revenues for the third quarter of fiscal
1999 and 2000, respectively.
Service revenue for the third quarter remained relatively constant at
$1.8 million in fiscal 1999 and 2000. Service revenue represented 45.2% and
47.6% of total revenues for the third quarter of fiscal 1999 and 2000,
respectively.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT. Cost of products
and services sold includes cost of system sales and cost of service revenue.
Cost of system sales includes hardware sold, installation and training expense
and software amortization costs. Cost of service revenue includes all client
service
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expenses plus an allocation of certain other overhead expenses. As a
percentage of total revenue, the total cost of products and services sold
decreased from 46.0% in the third quarter of fiscal 1999 to 43.6% in the third
quarter of fiscal 2000. For the third quarter of fiscal 1999 and 2000, total
cost of products and services sold were $1.8 million and $1.6 million,
respectively.
The cost of system sales as a percentage of system sales revenue
decreased from 64.5% in the third quarter of fiscal 1999 to 62.5% in the third
quarter of fiscal 2000 due to the decreased percentage of lower margin hardware
sales in the third quarter of fiscal 2000. The cost of service revenue as a
percentage of service revenue decreased from 23.6% in the third quarter of
fiscal 1999 to 22.8% in the third quarter of fiscal 2000 due primarily to a
decrease in related costs. Software amortization costs of $0.4 million in the
third quarter of fiscal 1999 and $0.3 million in the third quarter of fiscal
2000 represented 20.2% and 16.2%, respectively, of total costs of products and
services sold. The decrease in software amortization costs is reflective of a
lower level of capitalized software in recent years.
Gross profit as a percentage of total revenues increased from 54.0% in
the third quarter of fiscal 1999 to 56.4% in the third quarter of fiscal 2000.
The increase in gross profit as a percentage of total revenues was primarily
attributable to the factors discussed above.
RESEARCH AND DEVELOPMENT COSTS. Total outlays for software development
for the third quarter of fiscal 1999 and 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
FY00 FY99
R&D EXPENSE 3RD QTR. 3RD QTR.
- ----------- -------- --------
<S> <C> <C>
R&D spending $ 935.0 $ 678.2
Less - R&D capitalized 237.6 172.2
------- --------
Total R&D expense 697.4 506.0
Software amortization (cost of prod. sold) 262.3 368.7
------- --------
Total R&D expensed $ 959.7 $ 874.7
======= ========
</TABLE>
For the third quarter of both fiscal 1999 and 2000, the Company
capitalized 25.4% of software development spending.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
as a percentage of total revenues increased from 32.7% in the third quarter of
fiscal 1999 to 34.2% in the third quarter of fiscal 2000 due to lower sales in
fiscal 2000. Total selling and administrative expenses were $1.3 million in the
third quarter of both fiscal 1999 and 2000.
OPERATING INCOME. Operating income decreased from $0.3 million in the
third quarter of fiscal 1999 to income of $0.1 million in the third quarter of
fiscal 2000. The operating margin decreased from 8.5% to 3.4% in the third
quarter of fiscal 1999 and 2000, respectively, primarily reflecting the factors
as described above.
OTHER INCOME. Interest expense, net decreased from $20.2 thousand in the
third quarter of fiscal 1999 to $14.8 thousand in the third quarter of fiscal
2000 due to the net decrease in borrowings under the Company's line of credit.
INCOME TAXES. The Company's effective income tax rate was 39% in the
third quarter of fiscal 1999 compared to an effective income tax rate of 40% in
the third quarter of fiscal 2000.
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COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1999 TO NINE MONTHS ENDED
DECEMBER 31, 1998
GENERAL. The Company reported net income of $0.06 per share, or $0.2
million, for the first nine months of fiscal 1999, compared to net income of
$0.08 per share, or $0.3 million, in the comparable period of fiscal 2000.
REVENUES. Total revenues increased 7.5% from $11.5 million for the first
nine months of fiscal 1999 to $12.4 million for the first nine months of fiscal
2000, which reflected a 22.8% increase in system sales revenue offset by an 8.4%
decrease in service revenue.
System sales revenue for the first nine months of fiscal 2000 increased
by $1.3 million, from $5.9 million in fiscal 1999 to $7.2 million in fiscal
2000. The increase in system sales was primarily attributable to new orders for
the Company's new NT products. System sales represented 51.0% of total revenues
for the first nine months of fiscal 1999 and 58.3% of total revenues for the
corresponding period of fiscal 2000.
Service revenue for the first nine months decreased by $0.4 million, from
$5.6 million in fiscal 1999 to $5.2 million in fiscal 2000. Service revenue
included $0.3 million of financial products revenue in the first nine months of
fiscal 1999; the Company's financial products system was sold in June, 1998.
Service revenue represented 49.0% and 41.7% for the first nine months of fiscal
1999 and 2000, respectively.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT. As a percentage of
total revenue, the total cost of products and services sold increased from 46.6%
in the first nine months of fiscal 1999 to 49.7% in the first nine months of
fiscal 2000. The increase in cost as a percentage of revenue was primarily due
to the change in product mix and increased client services expense relating to
the Year 2000 issue. Software amortization costs of $1.3 million and $0.9
million in the first nine months of fiscal years 1999 and 2000, respectively,
represented 23.9% and 15.0%, respectively, of total costs of products and
services sold. The decrease in software capitalization costs is reflective of a
lower level of capitalized software in recent years.
Gross profit as a percentage of total revenues decreased from 53.4% in the
first nine months of fiscal 1999 to 50.3% in the first nine months of fiscal
2000. The decrease in gross profit as a percentage of total revenues was
primarily attributable to the factors discussed above.
RESEARCH AND DEVELOPMENT COSTS. Total outlays for software development
for the nine months of fiscal 1999 and 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
FY00 FY99
R&D EXPENSE NINE MONTHS NINE MONTHS
- ----------- ----------- -----------
<S> <C> <C>
R&D spending $ 2,488.7 $2,377.1
Less - R&D capitalized 641.7 600.5
----------- --------
Total R&D expense 1,847.0 1,776.6
Software amortization (cost of prod. sold) 921.7 1,278.2
----------- --------
Total R&D expensed $ 2,768.7 $3,054.8
=========== ========
</TABLE>
For the first nine months of fiscal 1999 and 2000, the Company
capitalized 25.3% and 25.8%, respectively, of software development costs.
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SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
decreased from $3.9 million in the first nine months of fiscal 1999 to $3.8
million in the first nine months of fiscal 2000, a decrease of 3.1%. Total
selling and administrative expenses decreased primarily due to management's
ability to maintain strict cost controls during the first nine months of fiscal
2000. Selling and administrative expenses as a percentage of total revenues
decreased from 33.9% in fiscal 1999 to 30.6% in fiscal 2000.
OPERATING INCOME. Operating income increased from $0.4 million in the
first nine months of fiscal 1999 to $0.6 million in the first nine months of
fiscal 2000, primarily reflecting the increase in total revenues as well as
other factors described above. Included in the first nine months of fiscal 1999
is a $70.5 thousand loss on the sale of the financial software line of business
(see Note 6 to the accompanying financial statements).
OTHER INCOME. Interest expense, net increased from $44.1 thousand in the
first nine months of fiscal 1999, to $68.9 thousand in the first nine months of
fiscal 2000 due to higher average borrowings under the Company's line of credit.
INCOME TAXES. The Company's effective income tax rate was 39% in the first
nine months of fiscal 1999, compared to an effective income tax rate of 40% in
the first nine months of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations
and its bank line of credit. At March 31, 1999, the Company had cash and cash
equivalents in the amount of $0.2 million compared to $0.3 million at December
31, 1999. Cash flows in the nine months ended December 31, 1999 reflected
amounts paid for capital investments ($0.1 million), software development costs
($0.6 million), repayment of long-term debt ($0.2 million), and repayment of the
line of credit borrowings ($0.6 million), offset by cash generated from
operating activities of $1.6 million.
At March 31, 1998, the Company had cash and cash equivalents in the amount
of $0.4 million compared to $0.2 million at December 31, 1998. Cash flows in the
nine months ended December 31, 1998 reflected amounts paid for capital
investments ($0.2 million), software development costs ($0.6 million), and
repayment of long-term debt ($0.2 million), offset by cash generated from
operating activities of $0.4 million and borrowings under the line of credit
($0.4 million).
As of December 31, 1999, the Company had a line of credit agreement
that allows the Company to borrow up to $4.0 million through May, 2001 with
interest at the lender's prime rate (8.5% at December 31, 1999). The line of
credit is 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 December
31, 1999. There were borrowings of $0.6 million outstanding under the line of
credit agreement as of December 31, 1999 which have been classified as long-term
debt on the December 31, 1999 Consolidated Balance Sheet.
The Company believes that its cash and cash equivalents, together with
its current borrowing facilities, cash generated from operations and other
liquidity sources will be sufficient to fund its anticipated cash requirements
for at least the next 12 months. The Company's ability to meet its cash
requirements on a long-term basis will depend on profitable operations and
consistent and timely collections of its accounts receivable.
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YEAR 2000 ISSUE
To date, the Company is not aware of any significant problems regarding
Year 2000 issues. However, this is no assurance that, in the future, problems
may 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.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index for list of Exhibits.
(b) Reports on Form 8-K: None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITATION COMPUTER SYSTEMS, INC.
Date: February 11, 2000 By: /s/ Richard D. Neece
----------------- --------------------------
Richard D. Neece
President
(Principal Financial & Accounting Officer)
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CITATION COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(THOUSANDS)
<TABLE>
<CAPTION>
Dec. 31, March 31,
1999 1999
---- ----
(unaudited) (audited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 254.1 $ 203.6
Accounts receivable:
Trade, net 6,501.3 6,857.0
Other 452.8 445.1
Inventories 430.6 348.7
Prepaid expenses and other current assets 209.2 369.2
Deferred tax asset 142.0 142.0
--------- -------
Total current assets 7,990.0 8,365.6
Software development costs, net 1,495.1 1,775.1
Property and equipment, net 498.8 699.1
Long-term accounts receivable 1,518.7 1,568.7
Long-term deferred tax assets 901.6 1,103.8
Other assets 273.7 365.9
--------- ---------
Total assets $12,677.9 $13,878.2
========= =========
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 189.0 $ 238.6
Accounts payable 505.5 1,223.3
Customer deposits 183.3 236.3
Accrued bonuses and commissions 208.9 138.8
Other accrued liabilities 211.9 210.3
Deferred service revenue 2,416.3 2,521.2
--------- ---------
Total current liabilities 3,714.9 4,568.5
--------- ---------
Long-term debt 767.3 1,491.3
--------- ---------
Common stock 387.2 383.8
Paid-in capital 6,659.5 6,596.2
Retained earnings 1,149.0 838.4
--------- ---------
8,195.7 7,818.4
--------- ---------
Total liabilities and shareholders' equity $12,677.9 $13,878.2
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE> 10
CITATION COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net system sales and service revenues:
System sales $1,944.5 $2,177.0 $ 7,198.5 $ 5,864.3
Service revenue 1,764.5 1,798.6 5,160.2 5,631.5
-------- -------- --------- ---------
3,709.0 3,975.6 12,358.7 11,495.8
-------- -------- --------- ---------
Cost of products and service sold:
System costs 1,215.7 1,405.8 4,942.4 3,969.6
Service costs 402.9 424.4 1,202.4 1,390.2
-------- -------- --------- ---------
1,618.6 1,830.2 6,144.8 5,359.8
-------- -------- --------- ---------
Gross profit 2,090.4 2,145.4 6,213.9 6,136.0
Research and development expense 697.4 506.0 1,847.0 1,776.7
Selling and administrative expenses 1,268.3 1,301.0 3,780.5 3,900.0
Loss on sale of financial systems business (Note 6) - - - 70.5
-------- -------- --------- ---------
Operating income 124.7 338.4 586.4 388.8
Other income:
Interest expense, net (14.8) (20.2) (68.9) (44.1)
Other - (0.7) 0.1 42.6
-------- -------- --------- ---------
Income before income taxes 109.9 317.5 517.6 387.3
Provision for income taxes 43.9 123.8 207.0 151.0
-------- -------- --------- ---------
Net income $ 66.0 $ 193.7 $ 310.6 $ 236.3
======== ======== ========= =========
Net income per common share
Basic and diluted $ 0.02 $ 0.05 $ 0.08 $ 0.06
======== ======== ========= =========
Weighted average number of shares used in
computing net per common share
Basic 3,868 3,832 3,852 3,819
===== ===== ===== =====
Diluted 3,894 3,832 3,866 3,838
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
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CITATION COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 310.6 $ 236.3
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 323.0 447.6
Amortization of software development costs 921.7 1,278.2
Non-cash charge related to sale of financial systems business - 538.7
Non-cash 401K matching contribution and issuance of Directors' stock 66.7 77.1
Decrease in deferred income taxes 202.2 150.0
(Increase) decrease in accounts receivable 348.0 (889.3)
Increase in inventories (81.9) (0.4)
(Increase) decrease in prepaid expenses and other assets 302.2 (463.5)
Decrease in accounts payable (717.8) (692.9)
Decrease in customer deposits (53.0) (118.6)
Increase in accrued bonuses and commissions 70.1 27.1
Increase (decrease) in other accrued liabilities 1.6 (153.6)
Decrease in deferred service revenue (104.9) (44.1)
-------- --------
Net cash provided by operating activities 1,588.5 392.6
-------- --------
Cash flows from investing activities:
Capital expenditures (122.9) (196.0)
Software development costs (641.7) (600.5)
-------- --------
Net cash used in investing activities (764.6) (796.5)
-------- --------
Cash flows from financing activities:
(Repayments) proceeds from line of credit (566.9) 432.3
Principal payments on other long-term debt (206.5) (217.2)
-------- --------
Net cash provided by (used in) financing activities (773.4) 215.1
-------- --------
Net increase (decrease) in cash and cash equivalents 50.5 (188.8)
Cash and cash equivalents, beginning of year 203.6 419.7
-------- --------
Cash and cash equivalents, end of period $ 254.1 $ 230.9
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CITATION COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------
Additional
Number Par Paid-in Retained
of Shares Value Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 (audited) 3,838,344 $383.8 $6,596.2 $ 838.4 $7,818.4
Issuance of common stock to
directors (unaudited) 18,000 1.8 34.2 - 36.0
Issuance of common stock for 401K
Company matching contribution (unaudited) 15,772 1.6 29.1 - 30.7
Net income (unaudited) - - 310.6 310.6
--------- ------ -------- -------- --------
Balance, December 31, 1999 (unaudited) 3,872,116 $387.2 $6,659.5 $1,149.0 $8,195.7
========= ====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CITATION COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information as of December 31, 1999 and for the
three and nine months periods ended December 31, 1999 and 1998 is
unaudited. Financial statement note disclosures, normally included in
financial statements prepared in conformity with generally accepted
accounting principles, have been omitted in this Form 10-QSB pursuant to
the Rules and Regulations of the Securities and Exchange Commission.
However, in the opinion of the Company, the disclosures contained in this
Form 10-QSB are adequate to make the information presented not misleading.
Reference is made to Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-KSB for the year ended March 31,
1999.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements include all adjustments, consisting solely of normal
recurring adjustments, necessary to present fairly the Balance Sheet at
December 31, 1999, the Statement of Operations for the three and nine
months ended December 31, 1999 and 1998, the Statement of Cash Flows for
the nine months ended December 31, 1999 and 1998, and the Statement of
Shareholders' Equity for the nine months ended December 31, 1999. The
interim results, however, are not necessarily indicative of results for any
future period.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1999 1999
---- ----
<S> <C> <C>
Hardware and third party software $ 187.2 $ 143.7
Field service equipment 243.4 205.0
--------- ---------
$ 430.6 $ 348.7
======== ========
</TABLE>
3. COMMITMENTS
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 effect on the Company's financial position,
results of operations or cash flow.
4. LONG-TERM ACCOUNTS RECEIVABLE
The Company has provided extended payment terms to an overseas
customer. At December 31, 1999, $1.5 million was outstanding, which
management believes to be fully collectible in the ordinary course of
business.
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5. LONG-TERM DEBT
As of December 31, 1999, the Company had a line of credit agreement
that allowed the Company to borrow up to $4.0 million with interest at the
lender's prime rate. The line of credit expires on June 1, 2001. The line
of credit and the notes payable to the bank are secured by the Company's
accounts receivable, inventory and equipment. 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 December 31, 1999. The Company
had $0.6 million in borrowings outstanding under the line of credit
agreement at December 31, 1999.
6. SALE OF FINANCIAL SYSTEMS BUSINESS
In June 1998, the Company sold the financial software line of business,
including its accounts receivable, patient billing, general ledger,
accounts payable, fixed assets, inventory control, medical records
abstracting and registration software modules to Sterling Systems based in
Pocatello, Idaho. The transaction resulted in an after-tax loss on disposal
of $43.7 thousand, or $0.01 per share, in the first quarter of fiscal 1999.
At December 31, 1999, the Balance Sheet included a receivable of $0.4
million related to the sale of the business. Management expects it to be
fully collectible.
7. EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Reconciliation of the number of shares used in computing basic and
dilutive earnings per common and common equivalent shares is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic 3,867,739 3,847,569 3,852,421 3,844,762
Effective of dilutive securities - stock options
26,639 9,035 13,322 6,663
--------- --------- --------- ---------
Diluted 3,894,378 3,856,604 3,865,743 3,851,425
========= ========= ========= =========
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
<S> <C>
10.1 CITATION Computer Systems, Inc.(R)Nonqualified Stock Option Agreement with J. Robert Copper
10.2 CITATION Computer Systems, Inc.(R)Nonqualified Stock Option Agreement with Richard D. Neece
27 (a) Financial Data Schedule
</TABLE>
Page 15
<PAGE> 1
EXHIBIT 10.1
CITATION COMPUTER SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (this "Agreement") is
entered into as of October 15, 1999 (the "Date of Grant") by and between
CITATION Computer Systems, Inc., a Missouri corporation (the "Company"), and J.
Robert Copper (the "Optionee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, in order to induce the Optionee to
continue in the employee of the Company and to contribute to the success of the
Company, desires to grant the Optionee an option to acquire a proprietary
interest in the Company through the purchase of shares of stock of the Company;
and
WHEREAS, the Company has determined that it is in the best
interests of the Company and its shareholders to grant the option provided for
herein (the "Option") to the Optionee pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee
the right and option to purchase, on the terms and conditions hereinafter set
forth, 50,000 shares (the "Option Shares") of common stock, $0.10 par value per
share, of the Company (the "Common Stock"). The purchase price of the Option
Shares shall be $1.625 per share (the "Exercise Price"). This Option is intended
to be treated as a nonqualified stock option. Capitalized terms shall have the
meanings provided in this Agreement.
2. Term of Option. The maximum term of the Option shall be
for ten (10) years ending October 15, 2009.
3. Vesting of Option. The Option Shares shall vest and become
exercisable three months after the Date of Grant. Notwithstanding the foregoing,
all Option Shares shall become automatically vested upon the occurrence of a
Change of Control (as defined in the individual's Change of Control Agreement
with the Company).
4. Exercise of Option.
(a) Upon vesting of Option Shares, the Option shall be
exercisable with respect to such Option Shares from the date of vesting until
the earlier of (i) ninety (90) days after termination of the Optionee's tenure
as an employee of the Company for any reason or (ii) the tenth (10th)
anniversary of the Date of Grant (the "Expiration Date"); provided, however,
that if Optionee dies within one year after termination of the Optionee's tenure
as an employee for any reason, then the period of exercise following death shall
be one year; provided further, however, that in no event shall this Option be
exercised more than ten years after the Date of Grant.
(b) This Option may be exercised by delivering to the
Company at its principal executive office written notice of intent to so
exercise. Such notice shall specify the number of Option Shares for which the
Option is being exercised and shall be accompanied by payment in full of the
Exercise Price and any applicable taxes or like requirements pursuant to Section
8 hereof. Such payment shall be made (i) in cash or by check or, in the
discretion of the Board of Directors, either (ii) by the delivery of shares of
Common Stock of the Company then owned by the Optionee which shares have been
owned for at least six months and have an aggregate fair market value equal to
Exercise Price, or (iii) a request to withhold from the number of shares of
Common Stock otherwise issuable upon exercise of the Option that whole number of
shares of Common Stock having an aggregate fair market value equal to the
Exercise Price, or (iv) by a combination of the foregoing.
5. Employment Rights Not Affected. Neither the granting of the
Option or its exercise shall be construed as granting to the Optionee any right
with respect to continuance of employment with the Company. Except as may
otherwise be limited by a written agreement between the Company and the
Optionee, the right of the
Page 1
<PAGE> 2
EXHIBIT 10.1
Company to terminate at will the Optionee's employment with the Company at
any time and for any reason whatsoever is specifically reserved by the Company,
and acknowledged by the Optionee.
6. Transferability. Except as required by law, this Option is
not transferable, to other than a Permissible Transferee, other than by will or
the laws of descent and distribution or pursuant to a domestic relations order
(as defined under the Internal Revenue Code). A Permissible Transferee is a
person or entity, other than a participant, to whom stock options may be
transferred. Permissible Transferees are limited to the following persons or
entities: (i) one or more members of the participant's family; (ii) one or more
trusts for the benefit of the participant and/or one or more members of the
participant's family; or (iii) one or more partnerships (general or limited),
corporations, limited liability companies or other entities in which the
aggregate interests of the participant and members of the participant's family
exceed 80% of all interests in such entity. For this purpose, the participant's
family includes only the participant's spouse, children and grandchildren.
During the Optionee's lifetime, the Option shall be
exercisable only by the Optionee or a Permissible Transferee. In the event of
the Optionee's death, exercise or payment shall be made only by or to a
transferee under a domestic relations order, a Permitted Transferee, the
executor or administrator of the estate of the deceased Optionee or the person
or persons to whom the deceased Optionee's rights under the benefit shall pass
by will or the applicable laws of descent and distribution, and only to the
extent that the deceased Optionee was entitled thereto at the date of death.
7. Adjustments Upon Changes in Capitalization, Etc. In the
event the Company shall at any time change the number of issued shares of Common
Stock without new consideration to the Company (such as by stock dividend, stock
split or reorganization), then to the extent the Option hereunder remains
outstanding and unexercised, there shall be a corresponding adjustment as to the
number of shares covered under the Option and in the Exercise Price per share
such that the aggregate consideration payable to the Company and the value of
the Option shall not be changed.
8. Withholding. The Optionee agrees to make appropriate
arrangements with the Company for satisfaction of any applicable Federal, state
or local income tax, withholding requirements or like requirements, including
the payment to the Company at the time of exercise of the Option of all such
taxes and requirements.
9. Amendment of Option. The Option may be amended by the Board
of Directors of the Company at any time (i) if the Board determines, in its sole
discretion, that amendment is necessary or advisable in light of any addition to
or change in the Code or in the regulations issued thereunder, or any federal or
state securities law or other laws or regulation, which change occurs after the
Grant Date and by its terms applies to the Option; or (ii) other than in the
circumstances described in clause (I), with the consent of the Optionee. The
foregoing notwithstanding, the Company may, in its sole discretion, cancel the
Option at any time prior to the Optionee's exercise of the Option if, in the
opinion of the Company, the Optionee engages in activities contrary to the
interest of the Company.
10. Notice. Any notice to the Company provided for in this
Agreement shall be addressed to it in care of its Secretary at its executive
offices at 424 South Woods Mill Road, Suite 200, Chesterfield, Missouri 63017,
and any notice to the Optionee shall be addressed to the Optionee at the current
address shown on the Payroll Records of the Company. Any notice shall be deemed
to be duly given if and when properly addressed and deposited, postage paid, in
the United States mail or when hand delivered to the party to whom it is
addressed.
11. Governing Law. This Agreement shall be construed in
accordance with and shall be subject to the internal laws of the State of
Missouri, except to the extent preempted by federal law.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
Page 2
<PAGE> 3
EXHIBIT 10.1
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written. By execution of this
Agreement, the Optionee acknowledges receipt of a copy of the Plan.
CITATION COMPUTER SYSTEMS, INC.
By:___________________________________
OPTIONEE:
______________________________________
Page 3
<PAGE> 1
EXHIBIT 10.2
CITATION COMPUTER SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (this "Agreement") is
entered into as of October 15, 1999 (the "Date of Grant") by and between
CITATION Computer Systems, Inc., a Missouri corporation (the "Company"), and
Richard D. Neece (the "Optionee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, in order to induce the Optionee to
continue in the employee of the Company and to contribute to the success of the
Company, desires to grant the Optionee an option to acquire a proprietary
interest in the Company through the purchase of shares of stock of the Company;
and
WHEREAS, the Company has determined that it is in the best
interests of the Company and its shareholders to grant the option provided for
herein (the "Option") to the Optionee pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
3. Grant of Option. The Company hereby grants to the Optionee
the right and option to purchase, on the terms and conditions hereinafter set
forth, 50,000 shares (the "Option Shares") of common stock, $0.10 par value per
share, of the Company (the "Common Stock"). The purchase price of the Option
Shares shall be $1.625 per share (the "Exercise Price"). This Option is intended
to be treated as a nonqualified stock option. Capitalized terms shall have the
meanings provided in this Agreement.
4. Term of Option. The maximum term of the Option shall be
for ten (10) years ending October 15, 2009.
3. Vesting of Option. The Option Shares shall vest and become
exercisable three months after the Date of Grant. Notwithstanding the foregoing,
all Option Shares shall become automatically vested upon the occurrence of a
Change of Control (as defined in the individual's Change of Control Agreement
with the Company).
4. Exercise of Option.
(a) Upon vesting of Option Shares, the Option shall be
exercisable with respect to such Option Shares from the date of vesting until
the earlier of (i) ninety (90) days after termination of the Optionee's tenure
as an employee of the Company for any reason or (ii) the tenth (10th)
anniversary of the Date of Grant (the "Expiration Date"); provided, however,
that if Optionee dies within one year after termination of the Optionee's tenure
as an employee for any reason, then the period of exercise following death shall
be one year; provided further, however, that in no event shall this Option be
exercised more than ten years after the Date of Grant.
(b) This Option may be exercised by delivering to the
Company at its principal executive office written notice of intent to so
exercise. Such notice shall specify the number of Option Shares for which the
Option is being exercised and shall be accompanied by payment in full of the
Exercise Price and any applicable taxes or like requirements pursuant to Section
8 hereof. Such payment shall be made (i) in cash or by check or, in the
discretion of the Board of Directors, either (ii) by the delivery of shares of
Common Stock of the Company then owned by the Optionee which shares have been
owned for at least six months and have an aggregate fair market value equal to
Exercise Price, or (iii) a request to withhold from the number of shares of
Common Stock otherwise issuable upon exercise of the Option that whole number of
shares of Common Stock having an aggregate fair market value equal to the
Exercise Price, or (iv) by a combination of the foregoing.
5. Employment Rights Not Affected. Neither the granting of the
Option or its exercise shall be construed as granting to the Optionee any right
with respect to continuance of employment with the Company. Except as may
otherwise be limited by a written agreement between the Company and the
Optionee, the right of the
Page 1
<PAGE> 2
EXHIBIT 10.2
Company to terminate at will the Optionee's employment with the Company
at any time and for any reason whatsoever is specifically reserved by the
Company, and acknowledged by the Optionee.
6. Transferability. Except as required by law, this Option is
not transferable, to other than a Permissible Transferee, other than by will or
the laws of descent and distribution or pursuant to a domestic relations order
(as defined under the Internal Revenue Code). A Permissible Transferee is a
person or entity, other than a participant, to whom stock options may be
transferred. Permissible Transferees are limited to the following persons or
entities: (i) one or more members of the participant's family; (ii) one or more
trusts for the benefit of the participant and/or one or more members of the
participant's family; or (iii) one or more partnerships (general or limited),
corporations, limited liability companies or other entities in which the
aggregate interests of the participant and members of the participant's family
exceed 80% of all interests in such entity. For this purpose, the participant's
family includes only the participant's spouse, children and grandchildren.
During the Optionee's lifetime, the Option shall be
exercisable only by the Optionee or a Permissible Transferee. In the event of
the Optionee's death, exercise or payment shall be made only by or to a
transferee under a domestic relations order, a Permitted Transferee, the
executor or administrator of the estate of the deceased Optionee or the person
or persons to whom the deceased Optionee's rights under the benefit shall pass
by will or the applicable laws of descent and distribution, and only to the
extent that the deceased Optionee was entitled thereto at the date of death.
7. Adjustments Upon Changes in Capitalization, Etc. In the
event the Company shall at any time change the number of issued shares of Common
Stock without new consideration to the Company (such as by stock dividend, stock
split or reorganization), then to the extent the Option hereunder remains
outstanding and unexercised, there shall be a corresponding adjustment as to the
number of shares covered under the Option and in the Exercise Price per share
such that the aggregate consideration payable to the Company and the value of
the Option shall not be changed.
8. Withholding. The Optionee agrees to make appropriate
arrangements with the Company for satisfaction of any applicable Federal, state
or local income tax, withholding requirements or like requirements, including
the payment to the Company at the time of exercise of the Option of all such
taxes and requirements.
9. Amendment of Option. The Option may be amended by the Board
of Directors of the Company at any time (i) if the Board determines, in its sole
discretion, that amendment is necessary or advisable in light of any addition to
or change in the Code or in the regulations issued thereunder, or any federal or
state securities law or other laws or regulation, which change occurs after the
Grant Date and by its terms applies to the Option; or (ii) other than in the
circumstances described in clause (I), with the consent of the Optionee. The
foregoing notwithstanding, the Company may, in its sole discretion, cancel the
Option at any time prior to the Optionee's exercise of the Option if, in the
opinion of the Company, the Optionee engages in activities contrary to the
interest of the Company.
10. Notice. Any notice to the Company provided for in this
Agreement shall be addressed to it in care of its Secretary at its executive
offices at 424 South Woods Mill Road, Suite 200, Chesterfield, Missouri 63017,
and any notice to the Optionee shall be addressed to the Optionee at the current
address shown on the Payroll Records of the Company. Any notice shall be deemed
to be duly given if and when properly addressed and deposited, postage paid, in
the United States mail or when hand delivered to the party to whom it is
addressed.
11. Governing Law. This Agreement shall be construed in
accordance with and shall be subject to the internal laws of the State of
Missouri, except to the extent preempted by federal law.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
Page 2
<PAGE> 3
EXHIBIT 10.2
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written. By execution of this
Agreement, the Optionee acknowledges receipt of a copy of the Plan.
CITATION COMPUTER SYSTEMS, INC.
By:___________________________________
OPTIONEE:
______________________________________
Page 3
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 254
<SECURITIES> 0
<RECEIVABLES> 6,670
<ALLOWANCES> 169
<INVENTORY> 431
<CURRENT-ASSETS> 7,990
<PP&E> 4,214
<DEPRECIATION> 3,715
<TOTAL-ASSETS> 12,678
<CURRENT-LIABILITIES> 3,715
<BONDS> 0
0
0
<COMMON> 387
<OTHER-SE> 7,809
<TOTAL-LIABILITY-AND-EQUITY> 12,678
<SALES> 2,025
<TOTAL-REVENUES> 12,359
<CGS> 1,908
<TOTAL-COSTS> 6,145
<OTHER-EXPENSES> 5,628
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<INTEREST-EXPENSE> 91
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</TABLE>
