<PAGE>
===============================================================================
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, 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: 0 - 25078
PHAMIS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1141795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1001 Fourth Avenue Plaza, Suite 1500, Seattle, Washington 98154-1144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 622-9558
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:
SHARES OUTSTANDING
CLASS JUNE 30, 1996
----- --------------
Common Stock 6,054,526
===============================================================================
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION> Page No.
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations-
Quarters ended June 30, 1996 and 1995
and Six Months ended June 30, 1996 and June 30, 1995 4
Condensed Consolidated Statements of Cash Flows-
Six Months ended June 30, 1996 and June 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Signature 14
</TABLE>
2
<PAGE>
PHAMIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 30, December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,840 $ 4,488
Investments available for sale, at fair value 18,691 19,890
Accounts receivable, net 5,434 6,153
Accrued revenue receivable 1,643 1,143
Refundable income taxes 761 777
Deferred income taxes 1,141 950
Prepaid expenses and other assets 670 651
----------------------------
Total current assets 30,180 34,052
----------------------------
Furniture, equipment and leasehold improvements, at cost 8,207 6,396
Less accumulated depreciation and amortization 3,312 3,458
----------------------------
4,895 2,938
----------------------------
Other investments, at cost 2,043 1,082
Capitalized software costs, net 4,070 3,060
Other assets 392 367
----------------------------
Total assets $41,580 $41,499
============================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Note payable to bank $ - $ 209
Current installments of long-term obligations 116 265
Accounts payable and accrued liabilities 3,834 4,498
Income taxes payable 90 -
Deferred revenue 6,319 7,236
----------------------------
Total current liabilities 10,359 12,208
----------------------------
Long-term obligations, excluding current installments 98 152
Deferred income taxes 1,510 1,059
Shareholders' equity:
Preferred stock - -
Common stock 15 15
Additional paid-in capital 26,672 25,921
Unrealized gains (losses) on investments (8) 32
Retained earnings 2,934 2,112
----------------------------
Total shareholders' equity 29,613 28,080
----------------------------
Total liabilities and shareholders' equity $41,580 $41,499
----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHAMIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 1996 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Year
Second Second to to
Quarter Quarter Date Date
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $12,160 $12,026 $24,275 $23,689
Cost of revenues 6,865 7,171 13,865 14,260
---------------------------------------------
Gross margin 5,295 4,855 10,410 9,429
---------------------------------------------
Operating expenses:
Sales and marketing 1,811 1,487 3,678 2,718
Research and development 1,655 829 3,128 1,561
General and administrative 1,012 1,351 2,015 2,595
Merger and acquisition costs - - 292 -
Corporate headquarters relocation 304 - 304 -
---------------------------------------------
Total operating expenses 4,782 3,667 9,417 6,874
---------------------------------------------
Operating income 513 1,188 993 2,555
---------------------------------------------
Other income (expense):
Interest income 208 278 402 559
Interest expense (10) (15) (21) (35)
Other, net (38) 34 (41) 35
---------------------------------------------
Other income (expense), net 160 297 340 559
---------------------------------------------
Income before income taxes 673 1,485 1,333 3,114
Provision for income taxes 206 383 511 850
---------------------------------------------
Net income $ 467 $ 1,102 $ 822 $ 2,264
=============================================
Net income per common share - primary $.07 $.17 $.13 $.36
Net income per common share - fully
diluted $.07 $.17 $.13 $.36
Weighted average number of common
shares outstanding - primary 6,347 6,300 6,372 6,261
Weighted average number of common
shares outstanding - fully diluted 6,347 6,323 6,372 6,298
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHAMIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 822 $ 2,264
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,146 845
Deferred income taxes 281 (498)
Other 106 -
Change in certain assets and liabilities:
Accounts receivable and accrued revenue receivable 219 (3,037)
Prepaid expenses and other current assets (19) 61
Refundable income taxes 16 -
Accounts payable and accrued liabilities (664) 3,659
Income taxes payable 178 77
Deferred revenue (917) 413
----------------------------
Net cash provided by operating activities 1,168 3,784
----------------------------
Cash flows from investing activities:
Purchases of investments (10,469) (54,448)
Maturities and sales of investments 11,604 50,025
Purchases of furniture, equipment and leasehold improvements (2,619) (900)
Purchases of other investments (961) -
Capitalized software development costs (1,600) (852)
Decrease (increase) in other assets and other (24) (103)
----------------------------
Net cash used in investing activities (4,069) (6,278)
----------------------------
Cash flows from financing activities:
Net change in note payable to bank (209) (16)
Principal repayments of long-term obligations (202) (341)
Net proceeds from initial public offering - 4,192
Proceeds from issuance of common stock under stock option and employee
benefit plans 664 1,014
----------------------------
Net cash provided by financing activities 253 4,849
----------------------------
Net increase (decrease) in cash and cash equivalents (2,648) 2,355
Cash and cash equivalents at beginning of period 4,488 3,306
----------------------------
Cash and cash equivalents at end of period $ 1,840 $ 5,661
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Non-cash financing activities:
Tax benefit from stock options exercised $ 88 $ 332
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PHAMIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated balance sheets, statements of
operations and statements of cash flows reflect all adjustments which are, in
the opinion of management, necessary to present a fair statement of the
condensed consolidated financial position at June 30, 1996, and the condensed
consolidated statements of operations and cash flows for the interim periods
ended June 30, 1996 and 1995.
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes necessary for a complete presentation of the
financial position, results of operations, and cash flows, in conformity with
generally accepted accounting principles. The Company filed audited financial
statements which included all information and footnotes necessary for such a
presentation of the financial position, results of operations, and cash flows
for the years ended December 31, 1995, 1994 and 1993, in the Company's 1995 Form
10-K. Prior period balances have been reclassified to conform to the 1996
presentation, and restated for the acquisition of DataBreeze, Inc. discussed in
Note 2 of Notes to Condensed Consolidated Financial Statements.
The results of operations for the interim period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. ACQUISITION
In March 1996, the Company acquired DataBreeze, Inc. ("DataBreeze"), a Florida-
based provider of information systems for physician practices. DataBreeze became
a wholly-owned subsidiary of the Company and continues to operate from its
Florida headquarters. The transaction was accounted for as a pooling-of-
interests, and was effected through the exchange of 153,609 shares of common
stock of the Company for all the issued and outstanding shares of DataBreeze. In
connection with the merger, the Company incurred approximately $292,000 of one-
time merger costs consisting principally of transaction fees for investment
bankers, attorneys, and other related charges necessary to consummate the
transaction. The consolidated financial statements for periods prior to the
transaction have been restated to include the accounts and results of operations
of DataBreeze.
The results of operations previously reported by the separate enterprises and
the consolidated amounts for the years ended December 31, 1995 and 1994 are
summarized below.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Net revenues:
PHAMIS Inc. $44,003 34,442
DataBreeze 3,162 4,659
------- -------
Consolidated $47,165 39,101
======= =======
Extraordinary item:
PHAMIS Inc. $ - -
DataBreeze - 298
------- -------
Consolidated $ - 298
======= =======
Net income (loss):
PHAMIS Inc. $ 4,546 2,401
DataBreeze (238) 136
------- -------
Consolidated $ 4,308 2,537
======= =======
</TABLE>
6
<PAGE>
PHAMIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale at June 30, 1996 and December 31, 1995 consist
principally of tax-exempt, investment-grade, interest-bearing securities
diversified among security types and users.
Investments available-for-sale consisted of the following at June 30, 1996:
<TABLE>
<CAPTION>
Unrealized Estimated
Cost gains (losses) fair value
--------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Money market funds $ 448 - 448
State and municipal bonds and notes 9,460 (12) 9,448
Tax-exempt municipal preferreds 8,796 (1) 8,795
--------------------------------------------------------------
$18,704 (13) 18,691
==============================================================
</TABLE>
At June 30, 1996, approximately $8,000, net of income taxes, of unrealized
holding losses were recorded in shareholders' equity. At December 31, 1995,
approximately $32,000, net of income taxes, of unrealized holding gains were
recorded in shareholders' equity. The weighted average contractual maturity date
for the Company's available-for-sale portfolio was approximately five months at
June 30, 1996.
NOTE 4. UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings to date on uncompleted contracts were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------------------------------
(in thousands)
<S> <C> <C>
Costs incurred on uncompleted contracts $ 57,585 $55,641
Estimated earnings 38,292 33,321
--------------------------------------
95,877 88,962
Less billings to date 100,553 95,055
--------------------------------------
$ (4,676) $(6,093)
======================================
Included in accompanying balance sheets under the
following captions:
Accrued revenue receivable $ 1,643 $ 1,143
Deferred revenue (6,319) (7,236)
--------------------------------------
$(4,676) $(6,093)
======================================
</TABLE>
NOTE 5. OTHER INVESTMENTS
In December 1995, the Company purchased an equity interest in a critical care
information systems developer based in Europe, for approximately $1,082,000 in
cash. The equity interest is accounted for under the cost method of accounting.
In addition to the equity interest, the Company entered into an OEM Distribution
Agreement to distribute the critical care system throughout the Company's
customer base. To consummate the Agreement the Company paid certain costs for
advance license fees, which are recorded as prepaid expenses.
In February 1996, the Company signed a distribution agreement with a California-
based software developer of mobile computing solutions for the home healthcare
marketplace. The agreement allows the Company to distribute the home healthcare
solutions throughout its direct sales network. In addition to the distribution
agreement, the Company purchased a minority equity interest in the developer for
approximately $950,000 in cash. The equity interest is accounted for under the
cost method of accounting.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto.
Results of Operations
Overview
The Company develops, markets, installs and services enterprise-wide, patient-
centered healthcare information systems for use by large- and medium-sized
healthcare providers. The Company's DataBreeze/TM/ practice management and
managed care information system is designed for medium- to large-sized
management service organizations (MSOS), and multi-specialty, multi-site
physician group practices. The Company's revenues are derived from system,
license and service sales, support and maintenance fees, and sales of third-
party hardware relating to its products. Systems revenues are generated from
long-term contracts to deliver and install an integrated system solution. The
revenues and related costs on these contracts, including the revenues from the
resale of third-party hardware, are recognized using the percentage-of-
completion method based on the estimated labor hours required to complete an
installation. Support and maintenance revenues are recognized over the contract
period, while additional hardware revenues, generated from hardware sales not
included in a systems contract, are recognized when the hardware is shipped. The
Company's total backlog consists of signed contracts for systems installation,
support and maintenance, and additional software and services that are not yet
recognized as revenue.
Revenue for the second quarter ended June 30, 1996, increased to $12.2 million
from $12.0 million in the second quarter of 1995. The increase in second quarter
revenues was principally due to increased support and maintenance sales. Net
income, after $304,000 of one-time corporate headquarters relocation costs,
decreased 58 percent to $467,000 or $0.07 per share compared with $1.1 million
or $0.17 per share, in the second quarter of 1995.
On a year-to-date basis, revenues increased from $23.7 million to $24.3 million,
primarily due to an 8 percent increase in systems, licenses, and services and
support and maintenance revenues, the Company's core revenue categories. These
increases were partially offset by a $1.0 million, or 33 percent, decline in
additional hardware revenues. Net income, prior to one-time charges, decreased
43 percent to $1.3 million or $0.21 per share compared with $2.3 million or
$0.36 per share for 1995. Net income, after one-time merger costs and corporate
headquarters relocation costs of $292,000 and $304,000, respectively, decreased
64 percent to $822,000 or $0.13 per share compared with $2.3 million or $0.36
per share for 1995.
8
<PAGE>
NET REVENUES, COST OF REVENUES AND GROSS MARGINS
The following table sets forth the dollar amount of each revenue category, the
percentage that each revenue category represents of total revenue, the dollar
amount of each category of cost of revenues and gross margins, and the
percentage that each category of cost of revenues and gross margins bears to net
revenues for that category:
<TABLE>
<CAPTION>
Quarters ended June 30, Six months ended June 30,
----------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
$ % $ % $ % $ %
- - - - - - - -
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Systems, licenses and service... 9,044 74.4 9,317 77.5 18,404 75.8 17,668 74.6
Support and maintenance......... 1,957 16.1 1,477 12.3 3,798 15.7 2,906 12.3
Additional hardware............. 1,159 9.5 1,232 10.2 2,073 8.5 3,115 13.1
------- ----- ------- ----- ------- ----- ------- -----
Total...................... 12,160 100.0 12,026 100.0 24,275 100.0 23,689 100.0
COST OF REVENUES:
Systems, licenses and service... 4,886 54.0 5,383 57.8 10,067 54.7 10,108 57.2
Support and maintenance......... 1,186 60.6 963 65.2 2,376 62.6 1,996 68.7
Additional hardware............. 793 68.4 825 67.0 1,422 68.6 2,156 69.2
------- ------- ------- -------
Total...................... 6,865 56.5 7,171 59.6 13,865 57.1 14,260 60.2
GROSS MARGINS:
Systems, licenses and service... 4,158 46.0 3,934 42.2 8,337 45.3 7,560 42.8
Support and maintenance......... 771 39.4 514 34.8 1,422 37.4 910 31.3
Additional hardware............. 366 31.6 407 33.0 651 31.4 959 30.8
------- ------- ------- -------
Total...................... $ 5,295 43.5 $ 4,855 40.4 $10,410 42.9 $ 9,429 39.8
======= ======= ======= =======
</TABLE>
Systems, licenses and service revenues were $9.0 million in the second quarter
of 1996, a 3 percent decrease over the same period a year ago. The decrease in
the second quarter was primarily due to customer-driven implementation delays.
For the six month period, systems, licenses and service sales increased 4
percent, from $17.7 million to $18.4 million. The year-to-date increase was
primarily due to an increase in the rates realized per revenue hour, and the
addition of revenues from third-party solution partner agreements. The
Company's backlog of systems, licenses and services was $42.3 million (out of a
total backlog of $66.9 million) at June 30, 1996.
Gross margin percentages on systems, licenses and service sales were 46.0% and
45.3% for the three- and six-month periods ended June 30, 1996, respectively.
The current year margins compare favorably to prior year margin percentages for
the same periods last year of 42.2% and 42.8%, respectively.
The higher level of gross margin percentages during 1996 is primarily due to the
shift to newer higher margin contracts from older completed, or nearly
completed, contracts with less favorable margins. In addition, the Company's
adoption of more formalized implementation methodologies, the introduction of
release-based products, and additional experience in performing large-system
contract installations contributed to the increased 1996 gross margins.
Support and maintenance revenues increased 33 percent to $2.0 million in the
second quarter of 1996 from $1.5 million in the second quarter of 1995. Year-to-
date support and maintenance revenues increased 31% to $3.8 million at June 30,
1996 from $2.9 million at June 30, 1995. In 1996, gross margins on support and
maintenance have increased as the Company has been able to spread the fixed
portion of its maintenance costs over a larger installed customer base. In
addition, the Company's support and maintenance costs have stabilized as more of
the Company's customers have migrated to the Company's release-based products,
which decreases the amount of site-specific maintenance costs incurred by the
Company.
Additional hardware revenues were $1.2 million during each of the quarters ended
June 30, 1996 and 1995, respectively, and $2.1 million and $3.1 million for the
six months ended June 30, 1996 and 1995, respectively.
9
<PAGE>
Sales of additional hardware have historically experienced significant quarterly
fluctuations, and may vary significantly from period to period as they are
limited in number and individual sales can have a high dollar value. The level
of future hardware sales may be impacted by both price decreases and by the
increasing opportunities to sell such hardware as the Company's installed
customer base increases.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Sales and Marketing
- -----------------------------------------------------------------------------------------
Percentage Percentage
June 30, of June 30, of
1996 Net Revenues Change 1995 Net Revenues
------- ------------ ------ -------- ------------
<S> <C> <C> <C> <C> <C>
Three months ended $1,811 14.9% 22% $1,487 12.4%
Six months ended $3,678 15.2% 35% $2,718 11.5%
</TABLE>
The increase in second quarter and year-to-date sales and marketing expense was
primarily the result of increased personnel costs, corporate marketing, and
corporate communication program expenditures necessary to promote the Company's
competitive position and expand its customer base. Sales and marketing expense
increased as a percentage of net revenues in 1996 as the rate of increase in
sales and marketing expense exceeded the rate of increase in net revenues. The
Company believes that this level of expenditure is appropriate to take advantage
of significant opportunities to sell new systems contracts in the current market
environment. The Company's efforts to expand its customer base, promote its
competitive position, and support the sales and marketing of new and existing
applications will continue throughout the remainder of 1996.
<TABLE>
<CAPTION>
Research and Development
- ------------------------------------------------------------------------------------------
Percentage Percentage
June 30, of June 30, of
1996 Net Revenues Change 1995 Net Revenues
-------- ------------ ------ -------- ------------
<S> <C> <C> <C> <C> <C>
Three months ended $1,655 13.6% 100% $ 829 6.9%
Six months ended $3,128 12.9% 100% $1,561 6.6%
</TABLE>
The Company's research and development efforts focus on enhancing existing
applications and developing new applications for the LASTWORD(R), ENTERPRISE
VIEW/TM/, and DataBreeze/TM/ systems, and integrating applications from its
third party solution providers. The following table sets forth certain
information regarding research and development expense and amounts of
capitalized software development costs for the quarters ended June 30, 1996 and
1995, and the six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Research and development expenditures:
Research and development expense.............................. $1,655 $ 829 $3,128 $1,561
Capitalized software development costs........................ 801 407 1,600 852
Funded research and development under development contracts... 83 124 209 193
------ ------ ------ ------
Total research and development expenditures................... $2,539 $1,360 $4,937 $2,606
====== ====== ====== ======
As a percentage of net revenues:
Research and development expense.............................. 13.6% 6.9% 12.9% 6.6%
Total research and development expenditures................... 20.9 11.3 20.3 11.0
Capitalized costs as a percentage of total
research and development expenditures........................ 31.6 29.9 32.4 32.7
</TABLE>
The Company believes it must maintain a substantial commitment to research and
development to remain competitive. Since 1993, the Company has spent increasing
amounts on research and development and expects this trend to continue. The
Company capitalizes software development costs when technological feasibility on
a particular project has been established and thereafter until the related
product is available
10
<PAGE>
for general release to customers. Research and development expense increased
$826,000 and $1.6 million in the second quarter and first six months of 1996,
respectively, as the Company added development personnel and devoted increased
hours and resources to development projects. In addition, several of the
Company's larger development projects had reached technological feasibility,
which increased capitalized software development costs by approximately $394,000
and $748,000, respectively, during the same periods.
The Company anticipates its level of capitalized software development costs as a
percentage of total research and development expenditures will fluctuate based
upon the nature and timing of specific development projects undertaken,
including anticipated development activities in international markets.
<TABLE>
<CAPTION>
General and Administrative
- --------------------------------------------------------------------------------------
Percentage Percentage
June 30, of June 30, of
1996 Net Revenues Change 1995 Net Revenues
-------- ------------- ----------- ------ -------------
<S> <C> <C> <C> <C> <C>
Three months ended $1,012 8.3% (25)% $1,351 11.2%
Six months ended $2,015 8.3% (22)% $2,595 10.9%
</TABLE>
General and administrative expense decreased in the second quarter, and for the
six months ended June 30, 1996, primarily due to a decrease in legal fees
related to the successful defense of the civil action complaint filed by TDS
Healthcare Systems Corporation (TDS), and a reduction in management bonuses. All
claims against the Company in this matter were dismissed in October 1995, and
the Company and TDS have agreed that the judgment entered in the case is final
and no appeals will be filed. During the second quarter the Company relocated to
its new corporate headquarters, and incurred approximately $304,000 of one-time,
non-recurring administrative expenses related to the relocation to its new
corporate headquarters.
<TABLE>
<CAPTION>
Other income (Expense), Net
- --------------------------------------------------------------------------------------
Percentage Percentage
June 30, of June 30, of
1996 Net Revenues Change 1995 Net Revenues
-------- ------------- ----------- ------ -------------
<S> <C> <C> <C> <C> <C>
Three months ended $160 1.3% (46)% $297 2.5%
Six months ended $340 1.4% (39)% $559 2.4%
</TABLE>
The decrease in other income (expense), net in 1996 was directly attributable to
lower cash, cash equivalents, and investment balances during 1996, and lower
interest yields due to a shift in investment portfolio holdings from taxable
securities to tax-exempt securities.
<TABLE>
<CAPTION>
Provision for Income Taxes
- ----------------------------------------------------------------------------------------------------
Percentage Percentage
June 30, of Effective June 30, of Effective
1996 Net Revenues Tax Rate 1995 Net Revenues Tax Rate
-------- ------------ --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Three months ended $206 1.7% 30.6% $383 3.2% 25.8%
Six months ended $511 2.1% 38.3% $850 3.6% 27.3%
</TABLE>
The Company's effective tax rate for the second quarter of 1996 was less than
the enacted statutory federal tax rate due to tax-exempt interest. The Company's
effective tax rate for the first six months of 1996 exceeds the enacted
statutory federal tax rate due to the $292,000 of one-time, nondeductible merger
costs related to the Databreeze acquisition in March 1996 (Note 2 of Notes to
Condensed Consolidated Financial Statements). The Company anticipates that the
effective tax rate will approximate the statutory tax rate for the balance of
1996.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's principal sources of liquidity consisted of $1.8
million in cash and cash equivalents, $18.7 million in investments available for
sale, $5.4 million of accounts receivable and up to $5.0 million available under
a bank line of credit. As of June 30, 1996, no amounts were outstanding under
this line of credit and the Company was in compliance with all applicable debt
covenants. The Company had working capital of $19.8 million at June 30, 1996.
The Company requires significant down payments on its system and license sales
contracts and attempts to negotiate its subsequent milestone payments so that it
is in a cash positive position throughout most of the contract period. Amounts
billed in excess of costs and earnings on contracts are reflected as deferred
revenue on the Company's balance sheet.
The Company believes existing cash, cash equivalents, investments available for
sale, accounts receivable and available bank credit, together with the
anticipated cash generated from operations and the exercise of stock options,
will provide sufficient funds for internal working capital needs, capital
expenditure requirements, and possible acquisitions of products or technologies
complementary to the Company's business for the foreseeable future.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 14, 1996. Of the 5,855,711
shares outstanding on March 13, 1996, the record date, 5,321,545 shares, or 91%,
were represented at the meeting, either in person or by proxy.
A proposal to elect two (2) Class II directors of the Company to serve for a
three-year term expiring at the Annual Meeting of Shareholders in 1999 was
approved by shareholders. This proposal received the following votes:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Malcolm A. Gleser 5,302,919 18,626
Daniel Dyer 5,302,919 18,626
</TABLE>
Also, a proposal to amend the Company's 1993 Combined Incentive and Nonqualified
Stock Option Plan increasing by 500,000 shares the number of shares reserved for
issuance under the Plan was approved by shareholders. This proposal received the
following votes:
<TABLE>
<S> <C>
For: 3,589,558
Against: 1,295,344
Abstain: 3,740
Broker non-votes: 432,903
</TABLE>
13
<PAGE>
SIGNATURE
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.
PHAMIS, Inc.
By /s/ Gregg W. Blodgett Date: August 12, 1996
---------------------
Gregg W. Blodgett
Vice President of Finance and Administration
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 0 1,840
<SECURITIES> 0 18,691
<RECEIVABLES> 0 5,500
<ALLOWANCES> 0 66
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 30,180
<PP&E> 0 8,207
<DEPRECIATION> 0 3,312
<TOTAL-ASSETS> 0 41,580
<CURRENT-LIABILITIES> 0 10,359
<BONDS> 0 0
0 0
0 0
<COMMON> 0 15
<OTHER-SE> 0 29,598
<TOTAL-LIABILITY-AND-EQUITY> 0 41,580
<SALES> 12,160 24,275
<TOTAL-REVENUES> 12,160 24,275
<CGS> 6,865 13,865
<TOTAL-COSTS> 6,865 13,865
<OTHER-EXPENSES> 4,782 9,417
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10 21
<INCOME-PRETAX> 673 1,333
<INCOME-TAX> 206 511
<INCOME-CONTINUING> 467 822
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 467 822
<EPS-PRIMARY> .07 .13
<EPS-DILUTED> .07 .13
</TABLE>
