<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
__________________
(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, 1997
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 0-21980
__________________
CFI PROSERVICES, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0704365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 SW Sixth Avenue, Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-274-7280
__________________
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 4,895,467
(Class) (Outstanding at July 31, 1997)
- --------------------------------------------------------------------------------
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<PAGE>
CFI PROSERVICES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets -June 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations - Three and Six Months
Ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
1
<PAGE>
CFI PROSERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net of allowances of $1,792 and $1,303 $ 20,270 $ 23,307
Inventory 170 156
Deferred tax asset 643 643
Prepaid expenses and other current assets 2,003 1,659
--------- ---------
Total Current Assets 23,086 25,765
Property and Equipment, net of accumulated
depreciation of $6,766 and $5,596 5,421 4,805
Software Development Costs, net of accumulated
amortization of $3,539 and $2,585 10,388 8,327
Purchased Software Costs, net of accumulated
amortization of $1,613 and $1,229 695 1,079
Other Intangibles, net of accumulated amortization
of $2,310 and $1,455 6,004 6,704
Other Assets, including Deferred Taxes 508 165
--------- ---------
Total Assets $ 46,102 $ 46,845
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Drafts payable $ 7 $ 425
Accounts payable 2,196 2,884
Accrued expenses 3,216 5,408
Deferred revenues 7,757 10,445
Customer deposits 1,695 869
Notes payable 3,987 2,896
Income taxes payable 683 46
--------- ---------
Total Current Liabilities 19,541 22,973
Long-Term Debt, less current portion 2,603 2,880
--------- ---------
Total Liabilities 22,144 25,853
Mandatory Redeemable Class A Preferred Stock 750 754
Shareholders' Equity:
Series Preferred Stock, 5,000,000 shares authorized,
none issued and outstanding - -
Common Stock, no par value, 10,000,000
shares authorized and 4,895,242 and 4,824,973
shares issued and outstanding 18,523 17,745
Retained earnings 4,685 2,493
--------- ---------
Total Shareholders' Equity 23,208 20,238
--------- ---------
Total Liabilities and Shareholders' Equity $ 46,102 $ 46,845
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<PAGE>
CFI PROSERVICE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE
Software license fees $ 10,028 $ 8,852 $ 18,285 $ 14,852
Service and Support 6,816 5,724 13,380 9,898
Other 1,036 823 2,217 1,657
--------- -------- --------- ---------
Total Revenue 17,880 15,399 33,882 26,407
COST OF REVENUE 6,010 5,150 11,640 8,795
--------- -------- --------- ---------
Gross Profit 11,870 10,249 22,243 17,612
OPERATING EXPENSES
Sales and marketing 3,808 3,386 7,250 6,188
Product development 2,994 3,051 5,941 5,059
General and administrative 2,038 1,422 3,789 2,503
Amortization of intangibles 316 352 629 422
Acquired in-process research and development - 8,030 - 8,030
--------- -------- --------- ---------
Total Operating Expenses 9,156 16,241 17,609 22,202
--------- -------- --------- ---------
Income (Loss) From Operations 2,714 (5,992) 4,634 (4,590)
NON-OPERATING INCOME (EXPENSE)
Interest expense (123) (39) (207) (46)
Interest income 32 81 102 198
Canceled stock offering costs - - (487) -
Other, net (37) 6 (41) 9
--------- -------- --------- ---------
Total Non-operating Income (Expense) (128) 48 (633) 161
--------- -------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES 2,586 (5,944) 4,000 (4,429)
PROVISION FOR (BENEFIT FROM) INCOME TAXES 1,138 (1,909) 1,760 (1,288)
--------- -------- --------- ---------
NET INCOME (LOSS) 1,448 (4,035) 2,240 (3,141)
PREFERRED STOCK DIVIDEND 24 24 48 48
--------- -------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON $ 1,424 $ (4,059) $ 2,192 $ (3,189)
--------- -------- --------- ---------
--------- -------- --------- ---------
NET INCOME (LOSS) PER SHARE $ 0.28 $ (0.84) $ 0.43 $ (0.66)
--------- -------- --------- ---------
--------- -------- --------- ---------
SHARES USED IN PER SHARE CALCULATIONS 5,128 4,787 5,135 4,834
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CFI PROSERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) applicable to common shareholders $ 2,192 $ (3,189)
Adjustments to reconcile net income (loss) applicable to
common shareholders to cash provided by operating activities:
Depreciation and amortization 3,362 2,040
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) (4)
(Increase) decrease in assets, net of effects from
purchase of businesses:
Receivables, net 2,694 2,158
Income taxes receivable - (707)
Inventories, net (14) 17
Prepaid expenses and other current assets (344) (167)
Increase (decrease) in liabilities, net of effects from
purchase of businesses:
Drafts payable (418) -
Accounts payable (688) (490)
Accrued expenses (2,347) 1,841
Deferred revenues (2,688) (1,994)
Customer deposits 826 757
Other current liabilities - (339)
Income taxes payable 1,060 152
-------- ---------
Net cash provided by operating activities 3,631 6,029
Cash flows from investing activities:
Expenditures for property and equipment (1,786) (971)
Software development costs capitalized (3,014) (1,916)
Expenditures for purchased software - (20)
Expenditures for other intangibles - (225)
Proceeds from sale/maturity of investments - 2,826
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)
Other assets - 353
-------- --------
Net cash used in investing activities (4,800) (5,167)
Cash flows from financing activities:
Net proceeds from line of credit 2,159 -
Payments on notes payable (1,068) (2,998)
Payments on long-term debt (277) (323)
Proceeds from issuance of common stock 355 954
-------- --------
Net cash provided by (used in) financing activities 1,169 (2,367)
-------- --------
Increase (decrease) in cash and cash equivalents - (1,505)
Cash and cash equivalents:
Beginning of period - 4,844
-------- --------
End of period $ - $ 3,339
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
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, 1997 and 1996 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, 1996 is derived from CFI
ProServices, Inc.'s (the Company's) 1996 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 1996 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
Effective June 1, 1997, the Company negotiated to increase the amount of credit
available under its line of credit from $7.5 million to the lesser of $9.0
million or 50% of accounts receivable and to change the expiration date to May
1, 1998. Total borrowings under the line of credit at June 30, 1997 were $3.8
million.
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Six Months Ended June 30,
1997 1996
-------- --------
Cash paid during the period for income taxes $ 698 $ 1,339
Cash paid during the period for interest 253 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
Tax benefit from exercise of nonqualified stock
options 423 152
Increase in intangibles for accrued acquisition
related royalties 155 -
NOTE 4: ACQUISITIONS
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,
5
<PAGE>
$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.
Unaudited proforma results of operations, including results of OnLine, COIN and
Input (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,
assuming such acquisitions occurred at the beginning of the periods, are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Total revenues $ 15,399 $ 29,372
Net income (loss) applicable to common stock (4,059) (3,141)
Earnings (loss) per share (0.65) (0.65)
</TABLE>
NOTE 5: EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement 128,
EARNINGS PER SHARE ("SFAS 128"), superseding Opinion 15. This statement
establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic net
income per share and diluted net income per share. Basic net income per share
is expected to be comparable to or slightly higher than the currently presented
primary net income per share, as the dilutive effect of stock options will not
be considered in computing basic net income per share. Diluted net income per
share is expected to be comparable to or slightly lower than the currently
presented primary net income per share, since the calculation of diluted net
income per share will also use the average market price instead of the higher of
the average or ending market price for its calculations. The Company is
required to adopt SFAS 128 for periods ending after December 15, 1997. Pro
forma effects of applying SFAS 128 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary EPS as reported $ 0.28 $ (0.84) $ 0.43 $ (0.66)
Effect of SFAS 128 0.01 0.00 0.01 0.00
-------- -------- -------- --------
Basic EPS as restated $ 0.29 $ (0.84) $ 0.44 $ (0.66)
-------- -------- -------- --------
-------- -------- -------- --------
Fully diluted EPS as reported $ 0.28 $ (0.84) $ 0.43 $ (0.66)
Effect of SFAS 128 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Diluted EPS as restated $ 0.28 $ (0.84) $ 0.43 $ (0.66)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NOTE 6: RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO SHOULD BE READ IN
CONJUNCTION WITH THE FOLLOWING DISCUSSION. THIS DISCUSSION CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS DISCUSSION SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS FILING.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
FILING.
OVERVIEW
CFI is a leading provider of customer service software products and services to
financial institutions. The Company combines its technology, banking, and legal
expertise to deliver knowledge-based software solutions that enable institutions
to simplify key business processes such as sales and service, improve
productivity, strengthen customer relationships, and maintain compliance with
both internal business policies and external government regulations. Nearly
5,000 financial institutions have licensed one or more of the Company's
products.
During 1993, substantially all of the Company's revenue was derived from the
Company's Laser Pro and Deposit Pro products. Today, the Company licenses more
than 20 products organized into five product groups: lending, retail delivery,
electronic delivery, marketing, and connectivity software. Due to its product
diversification efforts, the Company is now less reliant on the Laser Pro and
Deposit Pro products. For the three month and six month periods ended June 30,
1997, revenue from these two products decreased to 46% of the Company's total
revenue, from 51% and 55% for the same periods in 1996.
CFI generates recurring revenue from software maintenance agreements. For the
three month and six month periods ended June 30, 1997, service and support fees
revenue accounted for approximately 38% and 40% of consolidated revenue,
respectively. Substantially all software customers subscribe to the Company's
service and support programs, which provide ongoing product enhancements and,
where applicable, updates to facilitate compliance with changing banking
regulations.
The Company's cost structure is relatively fixed and cost of revenue, in
aggregate, does not vary significantly with changes in revenue. As a result, the
Company typically generates greater profit margins from incremental sales once
fixed costs are covered. In addition, any failure to achieve revenue targets in
a particular period would adversely affect profit margins for that period.
Sales to larger banks are expected to constitute a higher percentage of total
revenue in future periods. Transactions with these larger banks are typically of
greater scope, usually involve a greater sales effort over a longer period of
time, and require more customization and prolonged acceptance testing.
Accordingly, the predictability of revenue for any
7
<PAGE>
particular period may be diminished to the extent the Company increases sales
to larger banks.
The Company's backlog as of June 30, 1997, was approximately $11.3 million, as
compared to approximately $8.0 million and $3.8 million at the end of the second
quarters of 1996 and 1995, respectively. CFI's backlog consists of firm signed
orders taken and not yet converted to revenue, but expected to convert to
revenue within the next twelve months. Orders constituting the Company's backlog
are subject to changes in delivery schedules or to cancellation at the option of
the purchaser without significant penalty. The stated backlog is not necessarily
indicative of the Company's revenue for any future period.
ACQUISITIONS AND NEW BUSINESS VENTURES
The Company has expanded its market presence by acquiring products, technologies
and companies that complement the Company's product suite or increase its market
share. The Company has completed the following ten acquisitions since June 1994.
<TABLE>
<CAPTION>
COMPANY DATE ACQUIRED PRINCIPAL PRODUCTS/MARKETS ACQUIRED
- ------- ------------- -----------------------------------
<S> <C> <C>
Assets of the Products Division June 1994 Access to customers in certain midwestern
of Professional Bank states for the Company's compliance products
Systems, Inc.
The Genesys Solutions Group, Inc. September 1994 Call center software
Texas Southwest Technology Group April 1995 StarGate connectivity products and ACH products
Culverin Corporation November 1995 Encore! Platform and teller branch automation
products and RPxpress! remittance processing product
OnLine Financial Communications April 1996 Over 1,000 branch automation customers employing
Systems, Inc. DOS-based technology
COIN Banking Systems, Inc. April 1996 Application Manager indirect lending product
Assets of Input Creations, Inc. April 1996 LOANscape mortgage lending product
Assets of Halcyon Group, Inc. April 1996 fisCAL loan decision support product and TriScore
Assets of Pathways Software, Inc. April 1996 LoansPlus neural net loan decision support and portfolio management product
Vendor Payment Systems, Inc. April 1996 Bill payment services company
</TABLE>
There can be no assurance that any of these or future acquisitions will have a
favorable impact on the performance of the Company. The Company believes that it
has achieved its objectives of growth and broadening its product offerings and
customer base through this acquisition program and intends to continue to pursue
acquisitions. However, the Company currently has no understandings, commitments
or agreements with respect to any material acquisition of other businesses,
products or technologies.
The aggregate purchase price for these ten acquisitions was $20.2 million and
380,967 shares of Common Stock, plus contingent royalties. In connection with
such acquisitions, the Company incurred non-cash charges primarily relating to
the write-off of acquired in-process research and development efforts totaling
$8.0 million in April 1996 and $4.5
8
<PAGE>
million in November 1995. The terms of certain of the acquisitions provide
that, based on various factors including the passage of time, certain product
revenue or product development, the Company will be required to pay
contingent royalties, some of which obligations the Company may satisfy
through the issuance of shares of its Common Stock. See "Cost of Revenue."
Because amortization of certain intangible assets arising from the Company's
acquisition activity is not deductible for federal income tax purposes,
certain amortization expense incurred by the Company has the effect of
increasing the Company's effective tax rate for financial reporting purposes.
From time to time, the Company may also evaluate establishing new business
operations or making minority investments in new business ventures, including
joint ventures.
In March 1997, CFI announced the creation of Lori Mae (Loan Origination
Management and Exchange Corp.), a company that will securitize small business
loans originated by community banks. The Company expects to invest approximately
$1.0 million for up to 50% ownership in the venture. The Company will use the
equity method to account for its investment. Lori Mae leverages the strength of
the Company's Laser Pro Closing and Laser Pro fisCAL Analyzer products, which
are the required software for financial institutions participating in this
securitization opportunity. The Company believes that this venture will not
only contribute commissions from the securitization transactions but, by giving
CFI's lending suite of products another competitive edge over the competition,
will serve to further strengthen and expand the Company's leadership in the
market for lending products. Still in its initial stages of execution at this
point, Lori Mae is not expected to materially affect CFI's financial results in
1997.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statements of income data of the Company
expressed as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Software license fees. . . . . . . . . . . 56.1% 57.5% 54.0% 56.2%
Service and support. . . . . . . . . . . . 38.1 37.2 39.5 37.5
Other. . . . . . . . . . . . . . . . . . . 5.8 5.3 6.5 6.3
----- ----- ----- -----
Total revenue. . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Gross profit . . . . . . . . . . . . . . . . 66.4 66.6 65.6 66.7
Operating expenses
Sales and marketing. . . . . . . . . . . . 21.3 22.0 21.4 23.4
Product development. . . . . . . . . . . . 16.7 19.8 17.5 19.2
General and administrative . . . . . . . . 11.4 9.2 11.2 9.5
Amortization of intangibles. . . . . . . . 1.8 2.3 1.8 1.6
Acquired in-process research and
development and restructuring. . . . . . - 52.2 - 30.4
----- ----- ----- -----
Total operating expenses . . . . . . . . . . 51.2 105.5 51.9 84.1
----- ----- ----- -----
Income (loss) from operations. . . . . . . . 15.2 (38.9) 13.7 (17.4)
Non-operating income (expense) . . . . . . . (0.7) 0.3 (1.9) 0.6
----- ----- ----- -----
Income (loss) before income taxes. . . . . . 14.5 (38.6) 11.8 (16.8)
Provision for (benefit from) income taxes. . 6.4 (12.4) 5.2 (4.9)
Preferred stock dividend . . . . . . . . . . 0.1 0.2 0.1 0.2
----- ----- ----- -----
Net income (loss) applicable to
common shareholders. . . . . . . . . . . . 8.0% (26.4%) 6.5% (12.1%)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
10
<PAGE>
The following table sets forth percentage changes, period over period, in the
statements of income data of the Company:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE
30, 1997 OVER 30, 1997 OVER
JUNE 30, 1996 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Revenue
Software license fees. . . . . . . . . . . . . . . . 13.3% 23.1%
Service and support. . . . . . . . . . . . . . . . . 19.1 35.2
Other. . . . . . . . . . . . . . . . . . . . . . . . 25.9 33.8
--------- ---------
Total revenue. . . . . . . . . . . . . . . . . . . . . 16.1 28.3
Gross profit . . . . . . . . . . . . . . . . . . . . . 15.8 26.3
Operating expenses
Sales and marketing. . . . . . . . . . . . . . . . . 12.5 17.2
Product development. . . . . . . . . . . . . . . . . (1.9) 17.4
General and administrative . . . . . . . . . . . . . 43.3 51.4
Amortization of intangibles . . . . . . . . . . . . (10.1) 49.1
Acquired in-process research and development and
restructuring. . . . . . . . . . . . . . . . . . . . (100.0) (100.0)
--------- ---------
Total operating expenses . . . . . . . . . . . . . . . (43.6) (20.7)
--------- ---------
Income (loss) from operations. . . . . . . . . . . . . (145.3) (200.9)
Non-operating income (expense) . . . . . . . . . . . . (366.3) (493.5)(1)
--------- ---------
Income (loss) before income taxes. . . . . . . . . . . (143.5) (190.3)(1)
Provision for (benefit from) income taxes. . . . . . . (159.6) (236.6)(1)
--------- ---------
Net income (loss) applicable to common shareholders. . (135.1%) (168.7%)(1)
--------- ---------
--------- ---------
</TABLE>
(1) Without the $0.5 million charge due to cancellation of a supplemental stock
offering in the first quarter of 1997, the change for non-operating income
(expense), income (loss) before income taxes, provision for (benefit from)
income taxes, and net income (loss) applicable to common shareholders would have
been (189.3)%, (201.4)%, (253.4)%, and (177.3)%, respectively, for the six
months ended June 30, 1997.
REVENUE
Total revenue increased 16% to $17.9 million and 28% to $33.9 million for the
three month and six month periods ended June 30, 1997, respectively, compared to
$15.4 million and $26.4 million for the comparable periods in 1996.
SOFTWARE LICENSE FEES. Software license fees include sales of software to
customers, fees for software customization, and fees related to implementing
software and systems at customer sites.
Software license fees increased 13% to $10.0 million and 23% to $18.3 million
for the three month and six month periods ended June 30, 1997, from $8.9 million
and $14.9 million for the comparable periods in 1996. The increases for both the
quarter and year to date are due to strength in all areas of lending products
and Encore! Branch Automation, and more
11
<PAGE>
than offset weakness in the areas of electronic delivery, call center,
remittance, and fair lending.
PERCENTAGE OF SOFTWARE LICENSE FEES
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------- -------------
1997 1996 1997 1996
----- ----- ----- -----
Lending Products . . . . . . . . . . 52.5% 40.9% 51.7% 41.5%
Retail Delivery Products . . . . . . 34.1 49.1 31.6 46.5
Electronic Delivery Products . . . . 6.2 4.6 8.6 7.1
Marketing Products . . . . . . . . . 3.5 0.6 4.2 1.6
Connectivity Products. . . . . . . . 3.7 4.8 3.9 3.3
----- ----- ----- -----
Total Software . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
----- ----- ----- -----
Lending products license revenue grew $1.6 million, or 45%, and $3.3 million, or
53%, for the three month and six month periods ended June 30, 1997,
respectively. For the quarter, growth in this product group was led by a $0.9
million increase in Laser Pro Closing and a $0.5 million increase for Laser Pro
Mortgage, with an approximate doubling of Laser Pro fisCAL Analyzer revenue
accounting for the remaining increase. For the year so far, all products in the
lending group have shown gains, with $1.0 million in Laser Pro growth, $0.9
million in Laser Pro Mortgage, and $0.7 million each for Laser Pro fisCAL
Analyzer and Laser Pro Application Manager. The Company continues to show
progress in selling its products to large customers, with major account sales
for the Laser Pro Closing product growing to $1.5 million this quarter, up 38%
from the same period in 1996.
Retail delivery products declined $0.9 million, or 21%, and $1.1 million, or
16%, for the three month and six month periods ended June 30, 1997,
respectively, compared to the same periods a year ago. Performance this quarter
within this group was mixed, with positive progress made in Encore! Branch
Automation, which grew $0.9 million, or 66%, for the quarter and $0.8 million,
or 30%, for the year, being offset by declines in other areas. Encore! Call
Center, which is still transitioning into sales of the newly engineered
replacement call center product released near the end of the first quarter,
experienced a $0.3 million, or 75%, decrease in the second quarter, and $0.7
million, or 82%, decrease for the year, compared to the respective periods a
year ago. Although the Company is in the process of a large call center
installation project, it does not expect significant additional sales until this
project reaches a stage at which it can be used as a reference for potential
customers later this year. The Company believes that call center sales will
begin to accelerate in 1998, but that revenues from this product in 1997 will be
at least $2 million short of expectations. The $0.9 million second quarter
decline in Deposit Pro revenue versus the second quarter of 1996 is the result
of an unusual quarter in 1996 when the Company introduced Windows-based DPWin,
leading to a spike in the 1996 second quarter revenues as pent up demand was
satisfied. The $0.5 million in license fee revenue for Deposit Pro this quarter
represents more normal levels of quarterly sales for the product. Finally, the
OnLine Branch Automation product declined 77% to $0.2 million, in
12
<PAGE>
line with the Company's plan to move these customers to Encore! Branch
Automation and phase out this DOS-based system.
Although results for Encore! Personal Branch, were up $0.2 million, or 54%, and
$0.5 million, or 48%, for the first three months and first six months of 1997,
respectively, compared to the same periods in 1996, this electronic delivery
product has provided weaker than expected license fee revenue so far this year,
and this trend is expected to continue for the balance of 1997. The Company
expects sales of this product to be at least $4 million short of expectations in
1997. The Company's home banking product has suffered from a delay in the
planned introduction of the Internet based WebPB product (just released this
quarter) a dependence solely on UNIX based servers that has put it at a price
disadvantage to Windows NT based products that compete in this market segment,
and the lack of a large installation to demonstrate to the market Encore!
Personal Branch's ability to handle large numbers of transactions. Although the
Company expects a strong future for the Encore! Personal Branch home banking
product, it does not expect Personal Branch to regain its market momentum until
1998, when the Company may realize license revenue from the development efforts
currently underway. As of June 30, 1997, Encore! Personal Branch has been
licensed to more than 175 financial institutions.
Marketing products license fee revenue grew $0.3 million and $0.5 million for
the three month and six month periods ended June 30, 1997, compared to the same
periods of 1996. Encore! Desktop, released in the second quarter of 1996,
accounted for increases of $0.4 million and $0.7 million for the three month and
six month periods ended June 30, 1997, respectively. Pro Active sales continued
to be sluggish in the second quarter, declining $0.1 million and $0.2 million
for the quarter and year to date, respectively, versus the comparable periods in
1996.
SERVICE AND SUPPORT FEES. Service and support fees consist primarily of
recurring software support charges and revenue from training customers in the
use of the Company's products. Substantially all of the Company's software
customers subscribe to its support services, which require the payment of annual
or quarterly maintenance fees. Service and support fees increased $1.1 million,
or 19%, and $3.5 million, or 35%, for the three month and six month periods
ended June 30, 1997, respectively, over the comparable periods in 1996. These
increases resulted largely from the increase in the installed base of Company
products.
OTHER REVENUE. Other revenue includes Vendor Payment Systems' ("VPS")
processing fees, sales of preprinted forms and supplies, and certain consulting
revenue. This revenue increased $0.2 million, or 26%, and $0.6 million, or 34%,
for the three month and six month periods ended June 30, 1997, over the
comparable periods in 1996. The acquisition of VPS in April 1996 was the primary
cause for both of these small increases in this revenue category compared to
1996 levels. The Company does not expect this category of revenue to grow
significantly in the future.
13
<PAGE>
COST OF REVENUE
Cost of revenue primarily consists of amortization of internally developed
and purchased software, royalty payments, compliance warranty insurance
premiums, software production costs, costs of product support, training and
implementation, costs of software customization, materials costs for forms
and supplies, and bill payment processing costs.
Cost of revenue increased $0.9 million, or 17%, to $6.0 million and $2.8
million, or 32%, to $11.6 million for the three month and six month periods
ended June 30, 1997, respectively, over the comparable periods in 1996. Primary
factors leading to the quarterly increase were a $0.3 million increase in
amortization expense for developed software costs and a $0.3 million increase in
support costs directly related to the Company's installed user base. The
remaining increases came from higher software publication costs associated with
higher levels of software license sales and update costs to the existing user
base, plus increases in VPS bill payment volume. For the year, increases in
expenses to support the larger user base (including that acquired as part of the
April 1996 acquisitions) accounted for roughly half of the $2.8 million
increase, with amortization of developed software costs contributing another
$0.5 million increase and the VPS operation (acquired in April 1996 and
processing significantly higher volumes in 1997) adding another $0.5 million.
The remainder resulted from higher software publication costs directly related
to the Company's higher revenue levels.
As a result of recent acquisitions and product development efforts, costs
associated with royalty payments and amortization of internally developed and
purchased software will increase in future periods. The Company is obligated to
pay royalties ranging from 3% to 18% of revenue related to certain products
acquired in the various acquisitions since June 1994. In addition, the Company
is obligated to pay MicroBilt Corporation a fixed amount per OnLine customer
converted to the Company's products. The royalty obligations generally extend
three to five years from the acquisition date.
The Company's gross margin in the second quarter and first half of 1997 declined
to 66% from 67% in both the comparable periods of 1996. This decline was
primarily attributable to increased software amortization expense in the current
year, a shift in product mix, and the increasing number of major account sales
requiring more complex implementation and support services. The Company expects
gross margins to decline somewhat in the future, due to the expected continued
increase in software amortization and royalty expense, and to investments in
implementation capacity necessary to support the growth of project oriented
business.
During the last twelve months, several software development projects reached
commercial feasibility. As a result, the Company began to amortize certain
product development costs which had been capitalized in prior periods. In
addition, the Company recorded amortization as a result of software acquired in
connection with the 1996 acquisitions. In the second quarter of 1997 the Company
amortized $0.7 million of internally developed and purchased software
development costs. This represented an increase of $0.3 million over the second
quarter of last year. Developed and purchased software amortization for the
first half of 1997 amounted to $1.3 million, compared to $0.8 million for the
same
14
<PAGE>
period in 1996. The Company expects that the amount of software amortization
in 1997 will materially exceed the amount amortized in 1996.
The Company capitalized $1.5 million and $3.0 million in software development
costs in the three month and six month periods ended June 30, 1997,
respectively, compared to $1.0 million and $1.9 million for the same periods of
1996. Capitalized software development costs net of accumulated amortization
were $10.4 million as of June 30, 1997, up from $5.8 million as of June 30,
1996. The Company anticipates that the amount of software development costs it
will capitalize in 1997 will be less than in 1996.
Finally, an increased portion of the Company's product sales mix consists of
products with higher implementation costs, and of acquired products with
associated royalty expenses. The Company expects this shift in product mix to
continue in future periods, which may continue to adversely affect the Company's
gross margin.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased to $3.8 million, or
21% of revenues, and to $7.3 million, or 21% of revenues, for the three month
and six month periods ended June 30, 1997, respectively, compared to
$3.4 million, or 22% of revenues, and $6.2 million, or 23% of revenues, for the
same periods in 1996. The increases of $0.4 million and $1.0 million for the
quarter and year to date periods, respectively, are directly related to the cost
of higher volumes of sales revenue with an additional increase in the first
quarter due to the Company's broader array of product offerings after the April
1996 acquisitions. The decrease in expenses as a percentage of revenue is
primarily a result of revenue from acquired companies and new products sold
through the Company's existing national direct sales and telemarketing
operations.
PRODUCT DEVELOPMENT. Product development expenses include costs of enhancing
existing products and developing new products. Product development expenses,
excluding software capitalization, of $3.8 million, or 22% of revenue, and $7.8
million, or 23% of revenue, for the three month and six month periods ended June
30, 1997, respectively, are down as a percentage of revenues from $3.9 million,
or 25% of revenue, and $6.7 million, or 25% of revenues, for the equivalent
periods of 1996. Although development efforts related to the forthcoming Laser
Pro 5.0 major upgrade, the enhanced Laser Pro Mortgage product, and the new
Windows-based Laser Pro Application Manager products (all scheduled for
completion later this year) aggressively continued during the second quarter,
this spending was offset by the completion of several other projects, such as
Laser Pro Application 5.0, the MS Money interface for Encore! Personal Branch,
and WebPB. Capitalization of internally developed software costs increased $0.5
million to $1.5 million and $1.1 million to $3.0 million for the three month and
six month periods ended June 30, 1997, respectively, relative to the same
periods a year ago. Completion of significant development efforts and increased
software capitalization were the two primary forces that drove net product
development costs down as a percentage of revenue in 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$2.0 million and $3.8 million for the three month and six month periods ended
June 30, 1997, respectively, compared to $1.4 million and $2.5 million for the
same periods in 1996. General and
15
<PAGE>
administrative expenses were the only category of operating expenses to
increase as a percentage of revenue, rising from 9% to 11% of revenue for
both the quarter and year-to-date periods in 1997 compared to the same
periods in 1996. This relative growth is due in part to additional systems
and infrastructure costs necessary to accommodate growth since the April 1996
acquisitions, and in part due to the Company's higher level of allowance for
bad debts, which has been adjusted upward in 1997 to cover a higher relative
level of Accounts Receivable related to more major account and project based
revenue activity and higher sales volumes overall. As a percentage of
revenues, general and administrative expenses have remained flat at 11%
through the first two quarters of 1997, and the Company does not expect this
expense to increase significantly as a percentage of revenues in any future
quarters of 1997.
AMORTIZATION OF INTANGIBLES
Intangibles include acquisition payments assigned to goodwill, noncompetition
agreements, and customer lists. These costs are amortized over periods ranging
from five to seven years. The increase to $0.6 million for the six month period
ended June 30, 1997, from $0.4 million for the comparable period of 1996 was due
to a difference in the level of amortization in the first quarter of 1997,
compared to the first quarter of 1996. The increase of first quarter 1997
amortization expense over the prior year first quarter amortization expense was
directly attributable to the April 1996 acquisitions of five companies.
NON-OPERATING INCOME
In February 1997, the Company's Board of Directors elected not to proceed with a
planned follow-on stock offering of the Company's common stock. The Company
took a $0.5 million charge as a result of the cancellation. The Company's Board
of Directors determined that the stock price at which the Company would be
required to offer the shares was too low and would unfairly dilute the
investment of existing shareholders.
Other non-operating income, which consists primarily of interest income and
expense, was a net expense of $0.1 million for both the three months and six
months ended June 30, 1997, respectively, compared to net non-operating income
of $0.1 million and $0.2 million for the same periods of 1996. The April 1996
acquisitions, for which the Company used a significant amount of cash, caused a
significant change in the Company's cash position and resultant investment
income.
PROVISION FOR INCOME TAXES
The effective tax rate for the three months and six months ended June 30, 1997,
was 44%, compared to the 43% rate experienced during the comparable periods in
1996. This increase in the effective rate is primarily due to increasing amounts
of non-deductible royalty expense and goodwill amortization levels resulting
from the Company's various acquisitions.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1997, was $3.6 million, improving $0.5 million
during the second quarter. Aggressive efforts by the Company to convert
outstanding receivables into cash resulted in a drop in the Company's days sales
outstanding ("DSO") to 104 at June 30, 1997, compared to 114 at the end of the
first quarter. This improved days sales outstanding came in spite of the larger
proportion of major accounts and project based deals in the Company's revenue
stream, both of which tend to increase receivables because of their protracted
implementation and testing times and the extended payment schedules associated
with these milestone based contracts. As a result of the DSO improvement, the
outstanding balance of the Company's revolving line of credit only increased
$0.2 million in the current quarter, far less than the $2.0 million increase
experienced during the first quarter of the year. The revolving line of credit
facility, standing at $3.8 million as of June 30, 1997, was renewed during the
second quarter, and now carries a limit of the lesser of $9.0 million or 50% of
accounts receivable.
Operations provided $3.6 million in cash for the six months ended June 30, 1997.
Net income excluding non-cash items provided $5.6 million during the first half
of 1997, with another $2.7 million attributable to both improved collections and
the seasonal decline in receivables resulting from the Company's annual
maintenance billing cycle, and another $0.8 million was provided in customer
deposits related to the Company's increasing frequency of long term milestone-
based project business. The major operating uses of funds during the period
included $2.3 million attributable to a decline in accrued expenses due
primarily to the payment during the first quarter of bonus and commission
amounts for 1996 performance directly related to the Company's success in 1996.
An additional $2.7 million use of funds was from the decline in deferred
revenue, also a result of the annual maintenance billing pattern, and another
$1.1 million was used to reduce the Company's drafts payable balance to
approximately zero and reduce outstanding accounts payable.
Approximately two-thirds of the $4.8 million net cash used in investing
activities for the six month period ended June 30, 1997 was due to increased
investment in software development on new and existing products to fuel future
Company growth, such as the Laser Pro Mortgage and forthcoming Laser Pro 5.0
Windows based product, both due for completion later this year. Investments in
Company infrastructure necessary to accommodate the Company's continuing
expansion, both in physical space and in systems requirements, used another $1.8
million.
Cash provided by financing activities of $1.2 million during the six month
period ended June 30, 1997, primarily resulted from $2.2 million in net
borrowings on the bank line of credit facility, offset by the payment of
approximately $1.1 million in notes related to the April 1996 acquisitions. In
addition $0.4 million of cash was provided by exercise of stock options and $0.3
million was used by payments on long term debt.
Future cash requirements could include, among other things, purchases of
companies, products or technologies, expenditures for internal software
development, capital expenditures necessary to the expansion of the business,
and installment payments on debt related to acquisitions. Available cash
resources include cash generated by the
17
<PAGE>
Company's operations and a revolving line of credit of up to $9.0 million
with the Company's principal bank, of which $3.8 million was outstanding at
June 30, 1997.
From time to time, the Company receives contract claims from its customers. In
the second quarter of 1997, one of the Company's customers cancelled an $800,000
project with the Company and requested a partial refund of moneys paid and
cancellation of unpaid invoices. The Company believes that it has met all of
its contractual obligations to this customer and intends to enforce the terms of
the agreement.
The Company believes that funds expected to be generated from existing
operations and borrowings under its revolving line of credit will provide the
Company with sufficient funds to finance its current operations. However, any
significant new acquisitions or investments would require additional financing.
In the short term, such financing would most likely be in the form of
convertible debt; longer term, the Company may reconsider a stock offering. No
assurance can be given that additional financing will be available or, that, if
available, such financing will be obtainable on terms favorable to the Company
or its shareholders.
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 23, 1997,
at which the following actions were taken:
1. The shareholders elected two nominees for Class 1 Director to the Board of
Directors of the Company. The two Class 1 Directors elected, along with
the voting results are as follows:
Name No. of Shares Voting For No. of Shares Withheld Voting
- ---- ----------------------- -----------------------------
Matthew W. Chapman 3,948,206 12,570
Robert P. Chamness 3,947,706 13,070
2. The shareholders approved the appointment of Arthur Andersen LLP as the
independent accountants of the Company for the year ending December 31,
1997 (3,947,981 shares were voted in favor of the appointment, 2,055 shares
were voted against and 10,740 shares abstained from voting).
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
- ------------------------------
10 Amendment No. 7 dated June 1, 1997, 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
There were no reports on Form 8-K filed during the quarter ended June 30, 1997.
18
<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, 1997 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, Chief Financial Officer
Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT 10
SEVENTH AMENDMENT TO BUSINESS LOAN AGREEMENT
BETWEEN
CFI PROSERVICES, INC.
AND
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
JUNE 1, 1997
<PAGE>
SEVENTH AMENDMENT TO BUSINESS LOAN AGREEMENT
THIS SEVENTH AMENDMENT TO BUSINESS LOAN AGREEMENT ("Amendment") is made
between CFI ProServices, Inc., an Oregon corporation ("Borrower"), and Bank of
America National Trust & Savings Association, successor by merger to Bank of
America Oregon (including its successors and/or assigns, "Bank").
BACKGROUND
A. On November 8, 1995, Bank and Borrower executed that certain Business
Loan Agreement ("Original Agreement"), in which Bank agreed to lend, and
Borrower agreed to borrow, a revolving line of credit in the maximum original
principal sum of $5,000,000.00. Since the date of the Original Agreement, Bank
and Borrower have entered into the following amendments that have changed
certain terms and conditions of the Original Agreement, including but without
limitation (i) increasing the maximum amount of the revolving line of credit to
$7,500,000 ("Loan") and (ii) extending the maturity date of the Loan to December
31, 1997: Amendment No. 1 to Business Loan Agreement, dated as of May 17, 1996
("First Amendment"); Amendment No. 2 to Business Loan Agreement, dated as of
July 1, 1996 ("Second Amendment"); Amendment No. 3 to Business Loan Agreement,
dated as of September 24, 1996 ("Third Amendment"); Amendment No. 4 to Business
Loan Agreement, dated as of November 21, 1996 ("Fourth Amendment"); Amendment
No. 5 to Business Loan Agreement, dated as of December 31, 1996 ("Fifth
Amendment"); and Sixth Amendment to Business Loan Agreement, dated as of March
1, 1997. The Original Agreement, as modified by the First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment and Sixth
Amendment, is hereinafter called the "Agreement".
B. Bank and Borrower desire to enter into this Amendment to set forth the
terms and conditions on which the Loan shall be extended.
AGREEMENTS
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by Bank and Borrower, the parties agree to amend the Agreement as
follows:
I. LINE OF CREDIT AMOUNT AND TERMS
1. COMMITMENT. Subsection 1.1(a) of the Agreement is hereby deleted
in its entirety, and the following Subsection 1.1(a) is inserted in its place:
(a) During the availability period described below, the Bank will
-1-
<PAGE>
provide a line of credit to the Borrower. The "Commitment" shall
be as follows: for the period commencing June 1, 1997 and
continuing through the Expiration Date, the amount of the line of
credit shall be Nine Million and No/100 Dollars ($9,000,000.00),
subject to the Borrowing Base (as defined in the Seventh
Amendment to the Agreement, dated on or about June 1, 1997).
2. MAXIMUM AMOUNT OF THE LINE OF CREDIT. Subsection 1.1(c) of the
Agreement is hereby deleted in its entirety, and the following Subsection 1.1(c)
is inserted in its place:
(c) Borrower shall not permit the outstanding principal balance of
the line of credit to exceed the lesser of (i) Nine Million and
No/100 Dollars ($9,000,000.00), or (ii) the amount of the
Borrowing Base.
3. AVAILABILITY PERIOD. Section 1.2 of the Agreement is hereby
deleted in its entirety, and the following Section 1.2 is inserted in its place:
1.2 AVAILABILITY PERIOD. The line of credit is available between the
date of this Agreement and May 1, 1998 ("Expiration Date").
II. USE OF PROCEEDS Subsection 6.1 of the Agreement is hereby deleted in its
entirety, and the following Subsection 6.1 is inserted in its place:
6.1 USE OF PROCEEDS. To use the proceeds of the credit only for
working capital and other uses expressly approved in writing by
Bank, in its sole discretion.
III. CONDITIONS PRECEDENT. PAYMENT OF FEES AND DELIVERY OF DOCUMENTS. Unless
waived in writing by Bank, this Amendment shall be of no force or effect until
Borrower delivers to Bank a fully executed copy of this Amendment, a new
promissory note and the customer borrowing plan, substantially in the form of
EXHIBIT A, attached to and incorporated into this Amendment, which document
shall constitute the "Borrowing Plan" under the Agreement.
IV. MISCELLANEOUS.
a. Except as expressly amended by this Amendment, the
Agreement remains in full force and effect and is hereby ratified and
confirmed.
b. This Amendment shall be governed by the laws of the State of
Oregon.
c. If any provision or clause of this Amendment conflicts with
applicable law, such conflict shall not affect other provisions or clauses
hereof which can be given effect without the conflicting provision,
-2-
<PAGE>
and to this end the provisions hereof are declared to be severable.
d. The captions and headings of the sections of this Amendment
are for convenience only and shall not be used to interpret or define the
provisions hereof.
e. This Amendment may be signed in any number of counterparts
and shall constitute an enforceable agreement when all signed counterparts
are assembled together in one Amendment that is signed by all parties.
WRITTEN AGREEMENTS: UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS
MADE BY THE BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY THAT BANK TO BE ENFORCEABLE.
BORROWER: BANK:
CFI PROSERVICES, INC. BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By: By:
--------------------------- ----------------------------
Name: Name:
--------------------------- --------------------------
Its: Its:
--------------------------- ---------------------------
-3-
<PAGE>
EXHIBIT A
(To Seventh Amendment to Business Loan Agreement)
CUSTOMER BORROWING PLAN - REVOLVING LINE OF CREDIT - ACCOUNTS
BANK'S NAME: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
BORROWER'S NAME: CFI ProServices, Inc.
TOTAL LINE LIMIT: $9,000,000.00
TERMS OF SALE: PROGRESS BILLINGS - NET 30
ACCOUNTS BORROWING BASE/LIMIT
Total borrowing base up to 50% of Accounts (as defined in the next sentence) to
a maximum of Total Line Limit ("Borrowing Base"). ACCOUNTS shall mean all of
Borrower's receipts, accounts, drafts, acceptances, letters of credit, contract
rights of and for moneys and performances due or to become due, chattel paper
and other forms of gross receivables, which are reflected on Borrower's
financial statements as of the end of the most recent calendar month in
conformity with generally accepted accounting principles.
REPORTING REQUIREMENTS
Borrower shall submit the following:
Borrowing Base Certificates not later than 10 days after the end of each
fiscal month in the form attached to and hereby incorporated as SCHEDULE 1;
and Other financial reports and information reasonably requested by Bank
from time to time, such as Accounts agings, within 10 days of Bank's
request.
COMPANY RECORDS
At reasonable times, Bank will have access to all books and records of the
Borrower. Bank may conduct regular examinations at its discretion and
Borrower's expense, including but without limitation semi-annual inspections.
SUBJECT TO TERMS OF BUSINESS LOAN AGREEMENT
This Customer Borrowing Plan is executed in connection with and is subject to
the terms of the Business Loan Agreement, as amended. In the event of any
conflict between the terms of this Customer Borrowing Plan and the terms of the
Business Loan Agreement, the most stringent terms shall control, unless Bank
shall have otherwise agreed in writing.
Dated this 1st day of June, 1997.
BORROWER: CFI ProServices, Inc.
By
---------------------------------------
Its
--------------------------------------
Date
-------------------------------------
BANK: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
By
---------------------------------------
Its
--------------------------------------
Date
-------------------------------------
-4-
<PAGE>
SCHEDULE 1
CFI PRO SERVICES, INC.
Borrowing Base Certificate
Certificate #
-------------
Accounts reflected on most recent monthly financial statement dated
-------------
BORROWING BASE:
1. Total Accounts $
--------------
2. Less: 50% multiplied by Line 1 ($--------------)
3. Borrowing Base $
--------------
LOAN ACTIVITY:
4. Beginning Loan Balance (Line 8
previous) Borrowing Base Certificate) $
--------------
PLUS: Advances since last Borrowing
Base Certificate $
--------------
5. Less: Payments since last Borrowing
Base Certificate $
--------------
6. Current Loan Balance (Lines 4 + 5 + 6) $
--------------
7. Add: New Advance Requested $
--------------
8. New Loan Balance (Line 6 + 7) $
--------------
9. Excess Borrowing Base (Line 3 - 8) $
--------------
- -------------------------------------------------------------------------------
In accordance with the terms and conditions of that certain Business Loan and
Agreement, as amended ("Agreement"), dated as of November 8, 1995, between
(a) CFI Pro Services, Inc. ("Borrower") and (b) Bank of America National
Trust & Savings Association ("Bank"), Borrower hereby applies for an advance
in the amount stated in Line 7 above. In making this application, Borrower
certifies that this Borrowing Base Certificate and any accompanying documents
are true, complete and correct. Borrower warrants that it is not in default
under the Agreement and no default would exist after the giving of a notice,
the lapse of time or after giving effect to the advance requested.
CFI PRO SERVICES, INC.
By: Dated:
--------------------------------------------- ---------------------
---------------------------------------------
Title of Authorized Signer
-5-
<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,
------------------------------------ -------------------------------------
1997 1996 1997 1996
----------------- --------------- ----------------- -----------------
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 4,912 4,912 4,787 4,787 4,892 4,892 4,834 4,834
Dilutive Common Stock Options Using
The Treasury Stock Method 216 248 - - 243 259 - -
----------------- ---------------- ----------------- -----------------
Total Shares Used For Per Share
Calculations 5,128 5,160 4,787 4,787 5,135 5,151 4,834 4,834
Net Income (Loss) Applicable to
Common Stock 1,424 1,424 (4,059) (4,059) 2,192 2,192 (3,189) (3,189)
----------------- ---------------- ----------------- -----------------
Net Income (Loss) Per Common Share $ 0.28 $ 0.28 $ (0.84) $ (0.84) $ 0.43 $ 0.43 $ (0.66) $ (0.66)
----------------- ---------------- ----------------- -----------------
----------------- ---------------- ----------------- -----------------
</TABLE>
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750
0
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