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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 000-18908
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CFI PROSERVICES, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0704365
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 SW Sixth Avenue, Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503(274-7280)
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The index to exhibits appears on page 12 of this document.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock without par value 4,773,410
(Class) (Outstanding at July 31, 1996)
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CFI PROSERVICES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets -June 30, 1996 and December 31, 1995 2
Consolidated Statements of Operations - Three Months Ended
June 30, 1996 and 1995 and Six Months Ended June 30,
1996 and 1995 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
1
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CFI PROSERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,339 $ 4,844
Short-term investments - 2,826
Accounts receivable, net of allowances
of $680 and $290 14,565 15,165
Income taxes receivable 936 229
Inventory 198 215
Deferred tax asset 1,030 445
Prepaid expenses and other current assets 1,501 1,304
------- -------
Total Current Assets 21,569 25,028
Property and Equipment, net of accumulated
depreciation of $4,699 and $3,875 4,052 2,968
Software Development Costs, net of accumulated
amortization of $2,948 and $2,514 5,800 4,317
Purchased Software Costs, net of accumulated
amortization of $1,508 and $1,176 1,461 849
Other Intangibles, net of accumulated
amortization of $861 and $410 6,949 3,079
Deferred Tax Asset 905 -
Other Assets - 346
------- -------
Total Assets $40,736 $36,587
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,227 $ 1,443
Accrued expenses 5,333 3,492
Deferred revenues 6,419 6,860
Customer deposits 2,234 698
Notes payable 5,408 3,740
Other current liabilities - 36
------- ------
Total Current Liabilities 20,621 16,269
Deferred Tax Liability - 965
Other Long-Term Liabilities 2,995 423
------- ------
Total Liabilities 23,616 17,657
Mandatorily Redeemable Preferred Stock, Class A 757 761
Shareholders' Equity:
Common Stock, no par value,
10,000,000 shares authorized and
4,769,974 and 4,496,136 shares issued
and outstanding 17,076 15,693
Retained earnings (deficit) (713) 2,476
------- ------
Total Shareholders' Equity 16,363 18,169
------- ------
Total Liabilities and
Shareholders' Equity $40,736 $36,587
======= =======
The accompanying notes are an integral part
of these consolidated balance sheets.
2
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CFI PROSERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
REVENUE
Software license fees $ 8,852 $ 4,212 $14,852 $ 7,409
Service and Support 5,724 3,647 9,898 7,063
Other 823 897 1,657 1,604
------- ------- ------- -------
Total Revenue 15,399 8,756 26,407 16,076
COST OF REVENUE 5,150 2,851 8,795 5,497
------- ------- ------- -------
Gross Profit 10,249 5,905 17,612 10,579
OPERATING EXPENSES
Sales and marketing 3,386 2,152 6,188 4,216
Product development 3,051 1,483 5,059 2,778
General and administrative 1,422 1,043 2,503 2,020
Amortization of intangibles 352 82 422 144
Acquired in-process research
and development 8,030 - 8,030 -
------- ------- ------- -------
Total Operating Expenses 16,241 4,760 22,202 9,158
------- ------- ------- -------
Income (Loss) From Operations (5,992) 1,145 (4,590) 1,421
NON-OPERATING INCOME (EXPENSE)
Interest expense (39) - (46) -
Interest income 81 121 198 224
Other, net 6 - 9 -
------- ------- ------- -------
Total Non-operating Income 48 121 161 224
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES (5,944) 1,266 (4,429) 1,645
PROVISION FOR (BENEFIT FROM)
INCOME TAXES (1,909) 456 (1,288) 591
------- ------- ------- -------
NET INCOME (LOSS) (4,035) 810 (3,141) 1,054
PREFERRED STOCK DIVIDEND 24 24 48 48
NET INCOME (LOSS) APPLICABLE TO COMMON $(4,059) $ 786 $(3,189) $ 1,006
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE $ (0.84) $ 0.16 $ (0.66) $ 0.21
======= ======= ======= =======
SHARES USED IN PER SHARE CALCULATIONS 4,787 4,839 4,834 4,845
======= ======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
3
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CFI PROSERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six months ended June 30,
1996 1995
------- -------
Cash flows from operating activities:
Net income (loss) applicable to common shareholders $(3,189) $ 1,006
Adjustments to reconcile net income applicable to common
shareholders to cash provided by operating activities:
Depreciation and amortization 2,040 1,336
Write-off of in-process research and development 8,030
Deferred income taxes (2,076)
Interest accreted (payments made) on mandatory
redeemable preferred stock, net (4) 3
(Increase) decrease in assets, net of effects from
purchase of businesses:
Accounts receivable, net 2,158 3,562
Income taxes receivable (707) -
Inventories, net 17 145
Prepaid expenses and other current assets (167) (31)
Increase (decrease) in liabilities, net of effects
from purchase of businesses:
Accounts payable (490) (571)
Accrued expenses 1,841 (1,137)
Deferred revenues (1,994) (1,471)
Customer deposits 757 (72)
Other current liabilities (339) 302
------- -------
Net cash provided by operating activities 5,877 3,072
Cash flows from investing activities:
Expenditures for property and equipment (971) (632)
Software development costs capitalized (1,916) (1,205)
Expenditures for purchased software (20) -
Expenditures for other intangibles (225)
Purchase of investments - (6,378)
Proceeds from sale/maturity of investments 2,826 5,983
Cash paid for acquisition of OnLine and COIN
Division, net of cash received (2,295) -
Cash paid for acquisition of Input Creations, Inc. (2,107) -
Cash paid for other acquisitions (812) (259)
Other assets 353 -
------- -------
Net cash used in investing activities (5,167) (2,491)
Cash flows from financing activities:
Payments on notes payable (2,998) -
Payments on long-term debt (323) -
Proceeds from issuance of common stock 954 599
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 152 -
------- -------
Net cash provided by (used in)
financing activities (2,215) 599
------- -------
Increase (decrease) in cash and cash equivalents (1,505) 1,180
Cash and cash equivalents:
Beginning of period 4,844 1,514
------- -------
End of period $ 3,339 $ 2,694
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
4
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CFI PROSERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
OR AS OTHERWISE INDICATED)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three and six month periods
ended June 30, 1996 and 1995 is unaudited; however, such information reflects
all adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
financial information as of December 31, 1995 is derived from CFI ProServices,
Inc.'s (the Company's) 1995 Annual Report on Form 10-K. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's 1995 Annual Report on Form 10-K.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: LINE OF CREDIT
In the second quarter of 1996, the Company negotiated to redefine certain
ratios included in its line of credit and to increase the amount of credit
available under its line of credit from $5.0 million to $7.5 million. The
bank waived compliance, through the six month period ended June 30, 1996,
with paragraph 6.4 of the line of credit agreement, which relates to "Maximum
Funded Debt/EBITDA" and, for periods subsequent to June 30, 1996, that
paragraph was amended to allow the Company more flexibility with respect to
any future acquisitions. There were no borrowings under the line at June 30,
1996.
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Six Months Ended June 30,
1996 1995
------ ------
Cash paid during the period for income taxes $1,339 $197
Cash paid during the period for interest 46 --
Issuance of Common Stock in relation to
acquisitions 277 --
Issuance of notes payable and other long-term
liabilities in relation to acquisitions 7,560 450
NOTE 4: ACQUISITIONS
In November 1995, the Company acquired all of the outstanding common stock of
Culverin Corporation ("Culverin"), a software company. The transaction was
accounted for as a purchase and resulted in a $3,700 pretax charge for acquired
in-process research and development in the fourth quarter of 1995. The interim
financial statements herein include the results of Culverin's operations for the
three and six month periods ended June 30, 1996.
In April 1996, the Company acquired all of the capital stock of two software
companies and certain assets of four other software companies in four separate
transactions. The companies acquired were OnLine Financial Communication
Systems, Inc. ("OnLine"), COIN Banking Systems, Inc. ("COIN"), Input Creations,
Inc. ("Input"), Pathways Software, Inc. and The Halcyon Group, Inc. All of
these acquisitions were accounted for as purchases. The combined purchase
prices totaled $13.8 million plus certain contingent royalties tied to future
revenue production or to software conversions. The $13.8 million included $5.2
million of cash, $7.6 million in notes payable and other long-term liabilities,
$267,000 of Common Stock and $0.7 million of other assumed liabilities. In
conjunction with these acquisitions, the Company recorded $4.1 million of
goodwill which is being amortized ratably over a seven year period and $8.0
million ($5.2 million net of tax benefits) of acquired in-process research and
development, all of which was expensed currently.
5
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Unaudited proforma results of operations, including results of OnLine, COIN,
Input and Culverin (the other companies are not considered significant either
individually or in the aggregate and are therefore, to the extent that they are
not already included in the actual results, not included in the unaudited
proforma information) for the three month and six month periods ended June 30,
1996 and 1995, assuming such acquisitions occurred at the beginning of the
periods and excluding the $3.7 million acquired in-process and development
charge related to the Culverin acquisition which occurred in the fourth quarter
of 1995, are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
Total revenues $15,399 $12,960 $29,372 $24,547
Net income (loss) applicable to
common stock (4,059) 593 (3,141) 813
Earnings (loss) per share (0.65) 0.12 (0.65) 0.17
NOTE 5: RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements relating to, among other
things, availability of products, backlog, sources of future revenues,
expenditures in future periods and new product introductions. Investors are
cautioned that all forward-looking statements involve risks and uncertainties.
The following factors are among those factors that could cause actual results to
differ materially from the forward-looking statements: market demand,
development of new products, timing of product releases, market acceptance of
such products, intellectual property rights, cancellation, rescheduling and
performance of contracts and new initiatives by competitors. Investors are
directed to the Company's filings with the Securities and Exchange Commission,
including the Company's 1995 Form 10-K, which are available from the Company
without charge, for a more complete description of the risks and uncertainties
relating to the material in this Form 10-Q as well as to other aspects of the
Company's business.
GENERAL
The Company supplies integrated software solutions to the financial services
industry in the United States and, through certain distributors,
internationally. The Company has combined its technology, banking and legal
expertise to deliver branch automation, electronic banking, telephone sales and
service center, and knowledge-based lending and operations compliance
applications to all segments of the financial services industry.
The financial services industry continues to consolidate and cut costs. The
Company is adapting to the changing market by placing a greater emphasis on
sales to larger banks and providing products that allow financial institutions
to automate customer transactions traditionally performed by tellers at branch
offices. In addition, the Company continues development of new versions of its
existing products that will run on graphical platforms, such as Microsoft
Windows, to meet market demand and improve productivity in the financial
institution.
6
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Sales to larger banks are expected to constitute a higher percentage of total
revenues in future periods. Since transactions with larger banks are typically
of greater scope and require a greater sales effort over a longer period of
time, and often include customization and prolonged acceptance testing, the
predictability of revenues for any particular period is diminished. In
addition, reduced accessibility to key decision-making personnel at prospect
banks, which can occur during typical vacation periods, such as the third
calendar quarter, can adversely affect revenues for such periods.
The Company continues to pursue opportunities to expand its market presence by
acquiring products, technologies and companies which complement the Company's
product set. In April 1996, the Company acquired all of the capital stock of
two software companies and certain assets of three other software companies in
four separate transactions. The companies acquired were OnLine Financial
Communication Systems, Inc. ("OnLIne"), COIN Banking Systems, Inc. ("COIN"),
Input Creations, Inc. ("Input"), Pathways Software, Inc. and The Halcyon Group,
Inc. All of these acquisitions were accounted for as purchases. The combined
purchase prices totaled $13.0 million plus certain contingent royalties tied to
future revenue production or to software conversions. In conjunction with these
acquisitions, the Company recorded $4.1 million of goodwill which is being
amortized ratably over a seven year period and $8.0 million ($5.2 million net of
tax benefits) of acquired in-process research and development, all of which was
expensed currently.
RESULTS OF OPERATIONS
Total revenues increased $6.6 million, or 76 percent, and $10.3 million, or 64
percent, to $15.4 million and $26.4 million for the three month and six month
periods ended June 30, 1996, respectively.
Software license fees increased $4.6 million, or 110 percent, and $7.4 million,
or 100 percent, to $8.9 million and $14.9 million for the three and six month
periods ended June 30, 1996, respectively from $4.2 million and $7.4 million for
the three and six month periods ended June 30, 1995, respectively. These
increases were primarily due to a $2.1 million and $4.3 million increase in
sales of retail delivery products for the three month and six month periods
ended June 30, 1996, respectively. A majority of such increase resulted from
the sale of the Encore! line of branch automation and remittance processing
software which was acquired with the Culverin acquisition in November 1995.
Increased sales of the Company's compliance products which consist of Laser Pro
and Deposit Pro also contributed to the overall increase in software license
fees for the three month and six month periods ended June 30, 1996. Sales of
compliance products represented 46 percent and 49 percent of total software
sales for the three month and six month periods ended June 30, 1996,
respectively, compared to 91 percent and 88 percent for the comparable periods
of 1995, respectively. Sales of compliance products, consisting mainly of Laser
Pro and Deposit Pro, have not been increasing as rapidly as the Company's retail
products. However, given the positive acceptance of the Windows version of
Deposit Pro and upcoming releases of other compliance products using Windows and
other graphical operating systems, sales growth could increase. In addition,
the Company intends to integrate some functionality of its compliance products
into its retail delivery products, providing an integrated solution with
improved value for the customer. Future revenue growth will depend on the
Company's ability to increase sales of its retail delivery products and increase
sales to larger financial institutions.
The April 1996 acquisitions contributed revenues of $3.6 million to the quarter
ended June 30, 1996. Of the $3.6 million, approximately 40 percent were
recurring service and support fees. The OnLine and COIN acquisitions accounted
for approximately 80 percent of the $3.6 million. The Company expects sales of
the OnLine and COIN products to decrease in future quarters as the Company is
not actively selling the OnLine DOS based branch automation products and is only
in the initial phases of converting the DOS based COIN indirect lending product
to a graphical format.
7
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Service and support fees increased $2.1 million, or 57 percent, and $2.8
million, or 40 percent, to $5.7 million and $9.9 million for the three month and
six month periods ended June 30, 1996, respectively from $3.6 million and $7.1
million. Such increases are primarily attributable to growth in the Company's
revenues and number of units sold, including increases from several acquisitions
which occurred subsequent to the quarter ended June 30, 1995.
Gross margins were 66.7 percent for the three month and six month periods ended
June 30, 1996 compared to 67.4 percent and 65.6 percent for the three month and
six month periods ended June 30, 1995. The increase in the gross margin
percentage for the six month period ended June 30, 1996 resulted primarily from
increased revenues and better fixed cost coverage.
As a result of the level of orders for both the Company's standard and retail
delivery products, backlog increased to $8.0 million at June 30, 1996 from $6.4
million at December 31, 1995. Backlog at June 30, 1995 was approximately $3.8
million. Given current supply and demand estimates, it is anticipated that most
of the current backlog will turn over by the end of the fourth quarter of 1996.
There is minimal seasonal influence relating to the Company's order backlog.
The stated backlog is not necessarily indicative of Company sales for any future
period nor is a backlog any assurance that the Company will realize a profit
from filling the orders as such orders are subject to cancellation and/or
rescheduling.
Sales and marketing expense increased to $3.4 million and $6.2 million,
respectively (22 percent and 23 percent of revenue, respectively) for the three
month and six month periods ended June 30, 1996, compared to $2.2 million and
$4.2 million, respectively (25 percent and 26 percent of revenue, respectively)
for the comparable periods of 1995. Sales and marketing expense has increased,
while decreasing as a percentage of revenue, due to growth of the business,
offset by consolidating acquired marketing activities and selling new/acquired
products through the Company's existing national direct sales and telemarketing
operations.
Product development expense increased to $3.1 million and $5.1 million,
respectively (20 percent and 19 percent of revenue, respectively) for the three
month and six month periods ended June 30, 1996 compared to $1.5 million and
$2.8 million, respectively (17 percent and 17 percent of revenue, respectively)
for the comparable periods of 1995. These increases are primarily a result of
additional costs to integrate acquired products, migrating the Company's DOS-
based products to Windows-based products and accelerating development of the
Company's electronic delivery products.
General and administrative expense increased to $1.4 million and $2.5 million,
respectively (9 percent and 10 percent of revenue, respectively) for the three
month and six month periods ended June 30, 1996 from $1.0 million and $2.0
million, respectively (12 percent and 13 percent of revenue, respectively) for
the comparable periods of 1995. General and administrative expense has
increased, while decreasing as a percentage of revenue, as a result of growth of
the Company, offset by the consolidation of general and administrative functions
of companies acquired.
Amortization of intangibles expense increased to $352,000 and $422,000,
respectively (2 percent and 2 percent of revenue, respectively) for the three
month and six month periods ended June 30, 1996 from $82,000 and $144,000,
respectively (1 percent and 1 percent of revenue, respectively) for the
comparable periods of 1995. Amortization of intangibles expense has increased
as a direct result of the Culverin acquisition in November 1995 and the April
acquisitions.
In connection with the acquisitions that occurred during the quarter, the
Company recorded a pre-tax charge of $8.0 million ($5.2 million net of taxes)
related to acquired in-process research and development costs. The value
assigned to the in-process research and development was determined by an
independent appraisal and represents those efforts in process at the acquisition
date that had not yet established feasibility and that had no alternative future
uses. Accounting rules require that such costs be charged to expense as
incurred. The Company currently believes that it
8
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will incur costs of approximately $8.0 million over the next two years in order
for such research and development efforts to result in commercially viable
products.
Losses from operations were $6.0 million and $4.6 million, respectively for the
three month and six month periods ended June 30, 1996 compared to income from
operations of $1.1 million and $1.4 million (13 percent and 9 percent of
revenue, respectively) for the comparable periods of 1995. Without the acquired
in-process research and development charge, income from operations would have
been $2.0 million and $3.4 million, respectively (13 percent and 13 percent of
revenue, respectively) for the three month and six month periods ended June 30,
1996. The increase for the periods ended June 30, 1996 (without the acquired in-
process research and development charge) primarily resulted from increased
sales, combined with slightly higher gross margins and decreased operating
expenses as a percentage of revenue.
Income taxes are based on an estimated rate of 42.9 percent (without the effect
of the acquired in-process research and development write-off) which increased
from 36.0 percent in the first six months of 1995. The increase over 1995 is
primarily a result of increased amortization of nondeductible intangibles
related to acquisitions and a substantial reduction in tax free interest income.
LIQUIDITY AND CAPITAL RESOURCES
Payments for companies acquired in April 1996 substantially reduced working
capital and cash from December 31, 1995. The total purchase price for those
acquisitions was $13.8 million, $5.2 million of which was paid on closing and
another $4.6 million of which is in current liabilities at June 30, 1996.
Accordingly, working capital decreased from December 31, 1995 by $7.8 million to
$0.9 million at June 30, 1996.
Cash, cash equivalents and short-term cash investments of $3.3 million at June
30, 1996 declined $4.3 million from December 31, 1995. In addition to payments
for the April 1996 acquisitions, significant expenditures included $3.0 million
on notes payable to former Culverin shareholders, $1.9 million for internally
developed software and $1.0 million for capital expenditures. Cash flow from
operations of $5.9 million and proceeds of $1.0 million from stock option
exercises partially offset the impact of the Culverin and April 1996
acquisitions.
Accounts receivable decreased $0.6 million to $14.6 million at June 30, 1996
from $15.2 million at December 31, 1995 due mainly to approximately $3.0 million
of annual maintenance billings in December 1995, offset by higher revenues in
the first half of 1996. Accounts receivable that are beyond 90 days past due
represented approximately 10 percent of the total accounts receivable balance at
June 30, 1996, compared to approximately 11 percent at December 31, 1995. The
allowance for doubtful accounts and sales returns increased to $680,000 at June
30, 1996 compared to $290,000 at December 31, 1995 as a result of the addition
of $270,000 of allowances for acquired accounts receivable as well as an
increased monthly accrual.
Income taxes receivable increased $707,000 to $936,000 at June 30, 1996 from
$229,000 at December 31, 1995, due to approximately $300,000 of prior year
overpayments and current year estimated payments that are greater than the
estimated liability as a result of tax benefits related to stock option
activity.
Accrued expenses increased $1.8 million to $5.3 million at June 30, 1996 from
$3.5 million at December 31, 1995 primarily as a result of increased bonus and
commission accruals as well as approximately $300,000 of accrued expenses
acquired with the second quarter acquisitions.
Deferred revenue remained relatively constant at $6.4 million at June 30, 1996
compared to $6.9 million at December 31, 1995 as a result of deferred
maintenance obligations acquired of approximately $1.6 million, offset by the
amortization of the annual maintenance contracts.
9
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Customer deposits increased $1.5 million to $2.2 million at June 30, 1996 from
$0.7 million at December 31, 1995 as a result of $0.8 million related to
acquisitions and $0.7 million related to increased billings prior to revenue
recognition from existing Company products. This type of billing typically
occurs with larger institutions which pay based on milestones or percentage of
completion.
The $1.1 million increase in property and equipment is primarily a result of
$0.9 million of property and equipment acquired with the acquisitions during the
first six months of 1996, $1.0 million of expenditures primarily for a Company-
wide area network, computing infrastructure for the Company's electronic
delivery group and other information systems upgrades, offset by $0.8 million of
depreciation. Total expenditures for property and equipment in 1996 are
expected to be approximately $2.3 million, primarily for the projects mentioned
above.
Software development costs increased $1.5 million to $5.8 million at June 30,
1996 from $4.3 million at December 31, 1995 primarily as a result of investments
made to convert the Company's core products to a graphical format and to enhance
its electronic banking offering.
Purchased software and other intangibles, combined, increased $4.5 million to
$8.4 million at June 30, 1996 from $3.9 million at December 31, 1995 as a result
of existing technology and goodwill associated with the five companies acquired
during the second quarter of 1996.
Other assets, long-term, decreased to zero at June 30, 1996 from $346,000 at
December 31, 1995 as a result of the purchase of the remainder of VPS, Inc.
which was accounted for under the equity method of accounting at December 31,
1995 and at June 30, 1996 is consolidated into the consolidated financial
statements of the Company.
Notes payable and other long-term liabilities increased $4.2 million to $8.4
million at June 30, 1996 from $4.2 million at December 31, 1995 primarily as a
result of notes payable and other long-term liabilities related to the April
acquisitions.
Future cash requirements could include, among other things, expenditures for
internal software development, installment payments on debt related to
acquisitions and purchases of technology or market share that fit with the
Company's strategic goals. The Company currently expects to fund its
requirements through internally generated cash flow, supplemented by its $7.5
million bank line of credit. The Company plans to seek an extension of the line
of credit past its scheduled expiration in October 1996: however, the Company is
also reviewing longer-term financing alternatives.
10
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on May 17, 1996
at which the following actions were taken:
1. The shareholders elected three nominees for Class 3 Director to the Board of
Directors of the Company. The three Class 3 Directors elected, along with the
voting results are as follows:
NAME No. of Shares Voting For No. of Shares Withheld Voting
------ -------------------------- -------------------------------
J. Kenneth Brody 3,873,727 46,596
Robert T. Jett 3,875,777 44,546
Lorraine O. Legg 3,842,666 77,657
2. The shareholders approved an amendment to the CFI ProServices, Inc. 1995
Consolidated and Restated Stock Option Plan to increase the aggregate number of
shares of Common Stock that may be issued thereunder by 500,000 shares
(2,548,901 shares were voted affirmatively, 677,434 shares were voted
negatively, 16,576 shares abstained from voting and there were 677,412 broker
non-votes).
3. The shareholders approved the appointment of Arthur Andersen LLP as the
independent accountants of the Company for the year ending December 31, 1996
(3,913,123 shares were voted affirmatively, 2,200 shares were voted negatively
and 5,000 shares abstained from voting).
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed as part of this report are listed below:
EXHIBIT NUMBER AND DESCRIPTION
- -------------------------------
2.1 Stock Purchase and Sale Agreement effective April 1, 1996, by and among
MicroBilt Corporation, First Financial Management Corporation and CFI
ProServices, Inc. -- previously filed as Exhibit 2.1 with the Company's
Form 8-K dated April 1, 1996 and as filed with the Securities and
Exchange Commission on April 16, 1996.
2.2 Asset Purchase and Sale Agreement, effective April 1, 1996, by and
among Input Creations, Inc., its shareholders and CFI ProServices,
Inc. -- previously filed as Exhibit 2.1 with the Company's Form 8-K
dated April 17, 1996 and as filed with the Securities and Exchange
Commission on May 2, 1996.
10.1 Promissory Note, dated April 1, 1996, in favor of MicroBilt,
Inc. -- previously filed as Exhibit 10.1 with the Company's
Form 8-K dated April 1, 1996 and as filed with the Securities
and Exchange Commission on April 16, 1996.
10.2 Promissory Note, dated April 1, 1996, in favor of First Financial
Management Corporation -- previously filed as Exhibit 10.2 with
the Company's Form 8-K dated April 1, 1996 and as filed with the
Securities and Exchange Commission on April 16, 1996.
10.3 Pledge Agreement, dated April 1, 1996, by and between CFI ProServices,
Inc. And MicroBilt Corporation and First Financial Management --
previously filed as Exhibit 10.3 with the Company's Form 8-K dated
April 1, 1996 and as filed with the Securities and Exchange
Commission on April 16, 1996.
10.4 Business Loan Agreement (Revolving Line of Credit) dated November 8,
1995 between CFI ProServices, Inc. and Bank of America, Oregon --
previously filed as Exhibit 10.4 with the Company's Form 8-K dated
April 1, 1996 and as filed with the Securities and Exchange
Commission on April 16, 1996 and as Exhibit 10.3 with the Company's
Form 8-K dated April 17, 1996 and as filed with the Securities and
Exchange Commission on May 2, 1996.
10.5 Form of Employment Agreement entered into with former employees of
Input Creations, Inc. -- previously filed as Exhibit 10.1 with the
Company's Form 8-K dated April 17, 1996 and as filed with the
Securities and Exchange Commission on May 2, 1996.
10.6 Sublease by and among Input Creations, Inc. and CFI ProServices,
Inc. -- previously filed as Exhibit 10.2 with the Company's
Form 8-K dated April 17, 1996 and as filed with the Securities and
Exchange Commission on May 2, 1996.
10.7 Amendment No. 1, dated May 17, 1996, to business loan agreement
dated November 8, 1995.
10.8 Amendment No. 2, dated July 1, 1996, to business loan agreement
dated November 8, 1995.
11 Calculations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1996, the following reports were filed by the
Company:
1. Form 8-K, dated April 1, 1996 under Item 2. -- Acquisition or Disposition
of Assets and Item 7. -- Financial Statements and Exhibits.
2. Form 8-K, dated April 17, 1996 under Item 2. -- Acquisition or Disposition
of Assets, Item 5. -- Other Events and Item 7. Financial Statements
and Exhibits.
3. Form 8-K/A-1, dated April 1, 1996 under Item 2. -- Acquisition or
Disposition of Assets and Item 7. -- Financial Statements and Exhibits.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 6, 1996 CFI PROSERVICES, INC.
By:/s/ MATTHEW W. CHAPMAN
Matthew W. Chapman
Chairman and Chief Executive Officer
(Principal Executive Officer)
By:/s/ FRED HALL
Fred Hall
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT 10.7
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of May 17, 1996, is between
Bank of America Oregon (the "Bank") and CFI ProServices, Inc. (the
"Borrower").
RECITALS
A. The Bank and the Borrower entered into a Business Loan Agreement
dated as of November 8, 1995, (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 In Subparagraph 1. 1 (a) of the Agreement, the amount "Seven
Million Five Hundred Thousand Dollars ($7,500,000)" is substituted for the
amount of "Five Million Dollars ($5,000,000)".
2.2 New Paragraph 4.2 is added and shall read in its entirety:
4.2 Document Execution. Borrower will execute and deliver to Bank all
documents required by Bank, in Bank's sole discretion, to permit Bank to
obtain a perfected security interest in all accounts receivables of
Borrower. Required documents will include, without limitation, a UCC-1
Financing Statement and Bank's form of Security Agreement, acceptable
to Bank. If on June 30, 1996 or September 30, 1996, the Borrower fails
to comply with the covenants set forth in Section 6.3 or 6.4, then this
security interest shall be effective immediately and Bank shall have the
right to file the executed UCC-1 Financing Statements for the accounts
receivable; provided, however, that Borrower shall have ninety (90) days
from the date of noncompliance with the covenant in which to cure such
noncompliance, and if so cured, the Bank shall file a UCC Termination
Statement or Statements to terminate any such lien or liens.
2.3 Amend 6.3 of the Agreement in its entirety to read as follows:
6.3 Current Ratio. To maintain a ratio of current assets to
current liabilities equal to at least the amounts indicated for each date
specified below:
Date Ratio
June 30, 1996 0.90:1.0
September 30, 1996 0.95:1.0
<PAGE>
Borrower shall have a period of ninety (90) days to cure any
noncompliance with this covenant.
2.4 Amend 6.4 of the Agreement in its entirety to read as follows:
6.4 Maximum Funded Debt/EBITDA. To maintain a maximum funded debt/EBITDA cover
ratio of at least the amounts indicated for each date specified below:
Date Ratio
June 30, 1996 2.50:1.0
September 30, 1996 2.50:1.0
"Funded Debt" is defined as the sum of total bank debt outstanding plus
debts classified as notes payable and other long term liabilities.
"EBRMA" is defined as the sum of net income before taxes and dividends
plus interest, plus depreciation and amortization.
Borrower shall have a period of ninety (90) days to cure any
noncompliance with this covenant.
2.5 New Subparagraph 6.6(d) is added and shall read as follows in
its entirety:
(d) Other debts allowed up to $10,000,000 aggregate if incurred
through, or to finance, acquisitions.
2.6 In Paragraph 7 of the Agreement, add subscript (iv) to read as
follows:
(iv) immediately file the collateral documents described in
Section 4.2 above with any governmental office the Bank deems necessary or
convenient to perfect its security interest.
3. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
Bank of America Oregon CFI ProServices, Inc.
By: By:
<PAGE>
Security Agreement
Bank of America Oregon (Receivables)
1. THE SECURITY. The undersigned CFI Pro Services, Inc., an Oregon
Corporation, ("Borrower") hereby assigns and grants to Bank of America Oregon
("Bank"), as agent for itself and any other subsidiary or affiliate of
BankAmerica corporation which has extended or may hereafter extend credit to
Borrower (the "Lending Banks"), a security interest in the following described
property ("Collateral"):
A. All of the following, whether now owned or hereafter acquired by
Borrower: accounts ("Receivables").
B. All returned or repossessed goods, now owned or hereafter acquired by
Borrower, which upon sale or lease, resulted in an account.
C. All proceeds now owned or hereafter acquired by Borrower of any of the
above-described property.
D. All books and records now owned or hereafter acquired by Borrower
pertaining to any of the above-described property, including but not limited to
any computer-readable memory and any computer hardware or software necessary to
process such memory ("Books and Records").
2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness
of Borrower to Bank or to any other Lending Bank. For the purposes of this
Agreement, "Indebtedness" means all loans and advances made by any Lending Bank
to Borrower and all other obligations and liabilities of Borrower to any Lending
Bank, whether now existing or hereafter incurred or created, whether voluntary
or involuntary, whether due or not due, whether absolute or contingent, or
whether incurred directly or acquired by such Lending Bank by assignment or
otherwise. Unless Borrower shall have otherwise agreed in writing, Indebtedness,
for the purposes of this Agreement, shall not include "consumer credit" subject
to the disclosure requirements of the Federal Truth in Lending Act or any
regulations promulgated thereunder.
3. BORROWER'S COVENANTS. Borrower covenants and warrants that, unless
compliance is waived by Bank in writing:
A. Borrower will properly preserve the Collateral; defend the Collateral
against any adverse claims and demands; and keep accurate Books and Records.
B. Borrower has notified Bank in writing of, and will notify Bank in
writing prior to any c change in the locations of
(i) Borrower's place of business or Borrower's chief executive
office if Borrower has more than one place of business and (ii) any
Collateral, including the Books and Records.
C. Borrower will notify Bank in writing prior to any change in Borrower's
name, identify or business structure.
D. Borrower has not granted and will not grant any security interest in
any of the Collateral except to Bank, and will keep the Collateral
free of all liens, claims, security interests and encumbrances of any
kind or nature, except the security interest of bank.
E. Borrower will not sell or assign, agree to sell or assign, or
otherwise dispose of, any Receivables except with the prior written
consent of Bank.
F. Borrower has not executed and will not execute any security agreement
or financing statement covering inventory except to Bank.
G. Until Bank exercises its rights to make collection, Borrower will
diligently collect all Receivables.
H. Borrower will promptly notify Bank in writing of any legal process
levied against the Collateral or any other event which affects the
value of any Collateral or the rights and remedies of Bank in relation
thereto.
<PAGE>
4. ADDITIONAL OPTIONAL REQUIREMENTS. Borrower agrees that Bank may at its
option at any time, whether or not Borrower is in default:
A. Require Borrower to deliver to Bank (i) copies of or extracts from the
Books and Records, and (ii) information on any contracts or other
matters affecting the Collateral.
B. Examine the Collateral, including the Books and Records, and make
copies of or extracts from the Books and Records, and for such
purposes enter at any reasonable time upon the property where any
Collateral or any Books and Records are located.
C. Require Borrower to obtain Bank's prior written consent to any sale,
lease, agreement to sell or lease, or other disposition of any Collateral
referred to in Paragraph l.B above.
5. DEFAULTS. Any one or more of the following shall be a default
hereunder:
A. Borrower fails to pay any Indebtedness to Bank when due.
B. Borrower breaches any term, provision, warranty or representation
under this Agreement or under any other obligation of Borrower to Bank
or any Lending Bank.
C. Any custodian, receiver or trustee is appointed to take possession,
custody or control of all or a substantial portion of the property of
Borrower or of any guarantor of any Indebtedness.
D. Borrower or any guarantor of any Indebtedness becomes insolvent, or is
generally not paying or admits in writing its inability to pay its
debts as they become due, fails in business, makes a general
assignment for the benefit of creditors, dies or commences any case,
proceeding or other action under any bankruptcy or other law for the
relief of,or relating to, debtors.
E. Any case, proceeding or other action is commenced against Borrower or
any guarantor of any Indebtedness under any bankruptcy or other law
for the relief of, or relating to, debtors.
F. Any involuntary lien of any kind or character attaches to any
Collateral.
G. Any financial statements, certificates, schedules or other information
now or hereafter furnished by Borrower to Bank proves false or
incorrect in any material respect.
6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default Bank may do any
one or more of the following:
A. Declare any Indebtedness immediately due and payable, without notice
or demand.
B. Enforce the security interest given hereunder pursuant to the Oregon
Uniform Commercial Code and any other applicable law.
C. Enforce the security interest of Bank, or exercise any right of
setoff, in any deposit account of Borrower maintained with Bank or
any Lending Bank by applying such account to the Indebtedness.
D. Require Borrower to assemble the Collateral, including the Books and
Records, and make them available to Bank at a place designated by
Bank.
E. Enter upon the property where any Collateral, including any Books and
Records are located and take possession of such Collateral and such
Books and Records, and use such property (including any buildings and
facilities) and any of Borrower's equipment, if Bank deems such use
necessary or advisable in order to take possession of, hold, preserve,
process, assemble, prepare for sale or lease, market for sale or
lease, sell or lease, or otherwise dispose of, any Collateral.
F. Grant extensions and compromise or settle claims with respect to the
Collateral for less than face value, all without prior notice to
Borrower.
G. Have a receiver appointed by any court of competent jurisdiction to
take possession of the Collateral.
H. Take such measures as Bank may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, and Borrower hereby
<PAGE>
irrevocably constitutes and appoints Bank as Borrower's attorney-in-
fact to perform all acts and execute all documents in connection
therewith.
I. Require Borrower to segregate all collections and proceeds of the
Receivables so that they are capable of identification and deliver
daily such collections and proceeds to Bank in kind.
J. Require Borrower to deliver to Bank any Receivables evidenced by
instruments or chattel paper.
K. Notify any account debtors, any buyers of the Collateral, or any other
persons of Bank's interest in the Collateral.
L. Require Borrower to direct all account debtors to forward all payments
and proceeds of the Collateral to a post office box under Ban]Cs
exclusive control.
M. Demand and collect any payments and any proceeds of the Collateral. In
connection therewith Borrower irrevocably authorizes Bank to endorse
or sign Borrower's name on all checks, drafts, collections, receipts
and other documents, and to take possession of and open the mail
addressed to Borrower and remove therefrom any payments and proceeds
of the Collateral.
7. MISCELLANEOUS.
A. Any waiver, express or implied, of any provision hereunder and any
delay or failure by Bank to enforce any provision shall not preclude
Bank from enforcing any such provision thereafter.
B. Borrower shall, at the request of Bank, execute such other agreements,
documents, instruments, or financing statements in connection with
this Agreement as Bank may reasonably deem necessary. A carbon,
photostatic or other reproduction of this Security Agreement or any
financing statement is sufficient as a financing statement.
C. All notes, security agreements, subordination agreements and other
documents executed by Borrower or furnished to Bank in connection with
this Agreement must be in form and substance satisfactory to Bank.
D. This Agreement shall be governed by and construed according to the
laws of the State of Oregon, to the jurisdiction of which the parties
hereto submit.
E. All rights and remedies herein provided are cumulative and not
"elusive of any rights or remedies otherwise provided by law. Any
single or partial exercise of any right or remedy shall not preclude
the further exercise thereof or the exercise of any other right or
remedy.
F. All terms not defined herein are used as set forth in the Oregon
Uniform Commercial Code.
G. In the event of any action by Bank or any Lending Bank to enforce this
Agreement or to protect the security interest of Bank in the
Collateral, or to take possession of, hold, preserve, process,
assemble, insure, prepare for sale or lease, market for sale or lease,
sell or lease, or otherwise dispose of, any Collateral, Borrower
agrees to pay immediately the costs and expenses thereof, together
with reasonable attorney's fees and allocated costs for in-house legal
services. Such costs and attorney's fees shall include, without
limitation, those incurred on any appeal, as determined by the
appellate court, and any anticipated costs and attorney's' fees to
pursue or collect any judgment.
Dated: May 17, 1996
Bank of America Oregon CFI ProServices, Inc.
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of July 1, 1996, is
between Bank of America NT & SA (the "Bank") and CFI ProServices, Inc. (the
"Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan Agreement
dated as of November 8, 1995, as previously amended (the 'Agreement').
B. The Bank and the Borrower desire to further amend the Agreement.
C. The Bank is the successor by merger to Bank of America Oregon.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment shall
have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 6.4 of the Agreement, is amended to read in its entirety as
follows:
6.4 Maximum Funded Debt/EBITDA Plus Non-Cash Charges. To maintain
a maximum funded debt/EBITDA plus non-cash charges cover ratio of at least the
amounts indicated for each date specified below:
Date Ratio
From September 30, 1996
and thereafter 1.50:1.0
'Funded Debt' is defined as the sum of total bank debt outstanding
plus debts classified as notes payable and other long term liabilities, measured
as of the fiscal quarter then ended.
'EBITDA' is defined as the sum of net income before taxes and
dividends plus interest, plus depreciation, amortization and other non-cash
charges. This ratio will be calculated at the end of each fiscal quarter, using
the results of that quarter and each of the 3 immediately preceding quarters.
Borrower shall have a period of ninety (90) days to cure any
noncompliance with this covenant.
3. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning
of this Amendment.
Bank of America NT & SA CFI ProServices, Inc.
<PAGE>
EXHIBIT 11
CFI PROSERVICES, INC
CALCULATIONS OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------ ------------------------------------------
1996 1995 1996 1995
-------------------- -------------------- -------------------- --------------------
Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Shares Outstanding
For The Period 4,787 4,787 4,457 4,457 4,834 4,834 4,236 4,236
Dilutive Common Stock Options Using
The Treasury Stock Method -- -- 382 421 -- -- 609 621
--------- --------- --------- --------- --------- --------- --------- ---------
Total Shares Used For Per Share
Calculations 4,787 4,787 4,839 4,878 4,834 4,834 4,845 4,857
Net Income (Loss) Applicable to
Common Stock (4,059) (4,059) 786 786 (3,189) (3,189) 1,006 1,006
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Per Common Share $ (0.84) $ (0.84) $ 0.16 $ 0.16 $ (0.66) $ (0.66) $ 0.21 $ 0.21
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,339
<SECURITIES> 0
<RECEIVABLES> 14,565
<ALLOWANCES> 680
<INVENTORY> 198
<CURRENT-ASSETS> 21,569
<PP&E> 4,052
<DEPRECIATION> 4,699
<TOTAL-ASSETS> 40,736
<CURRENT-LIABILITIES> 20,621
<BONDS> 2,995
757
0
<COMMON> 17,076
<OTHER-SE> (713)
<TOTAL-LIABILITY-AND-EQUITY> 40,736
<SALES> 16,509
<TOTAL-REVENUES> 26,407
<CGS> 4,550
<TOTAL-COSTS> 8,795
<OTHER-EXPENSES> 22,202
<LOSS-PROVISION> 306
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 0
<INCOME-TAX> (1,288)
<INCOME-CONTINUING> (3,189)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,189)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
