UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No.
0-18113
TENET INFORMATION SERVICES, INC.
--------------------------------
(Exact name of small business issuer as specified in its charter)
UTAH 87-0405405
---- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
53 West 9000 South
Sandy, Utah 84070
------------------
(Address of principal executive office)
(801) 568-0899
--------------
(Issuer's telephone number)
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 proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ____
The Company had 19,336,205 shares of common stock outstanding at May 15, 2003
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of March 31, 2003 1
Condensed consolidated statements of operations for the
three months ended March 31, 2003 and 2002 3
Condensed consolidated statements of operations for the
nine months ended March 31, 2003 and 2002 4
Condensed consolidated statements of cash flows for the
nine months ended March 31, 2003 and 2002 5
Notes to condensed consolidated financial statements 7
Item 2. Management's discussion and analysis of
financial condition and results of operations 9
Item 3. Controls and procedures 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 31, 2003
--------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 116,265
Accounts receivable, net of allowance for
doubtful accounts of $7,500 138,236
Work performed in excess of billings 42,216
--------------------------------------------------------------------------
Total current assets 296,717
--------------------------------------------------------------------------
FURNITURE, FIXTURES AND EQUIPMENT 136,058
Less accumulated depreciation and
amortization (120,031)
--------------------------------------------------------------------------
16,027
--------------------------------------------------------------------------
OTHER ASSETS, net 3,575
--------------------------------------------------------------------------
Total Assets $ 316,319
==========================================================================
See the accompanying notes to condensed consolidated financial statements.
1
TENET INFORMATION SERVICES, INC. AND SUSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
March 31, 2003
--------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 149,306
Accrued expenses 83,365
Accrued interest 10,649
Amounts due related parties 48,071
Deferred revenue 132,325
Billings in excess of costs 106,635
--------------------------------------------------------------------------
Total current liabilities 530,351
--------------------------------------------------------------------------
SHAREHOLDERS' DEFICIT:
Common stock, $.001 par value;
100,000,000 shares authorized;
19,336,205 shares outstanding 19,336
Additional paid-in capital 4,853,896
Accumulated deficit (5,087,264)
--------------------------------------------------------------------------
Total shareholders' deficit (214,032)
--------------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 316,319
==========================================================================
See the accompanying notes to condensed consolidated financial statements.
2
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2003 2002
--------------------------------------------------------------------------
REVENUES $ 316,632 $ 207,155
--------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenues 143,663 93,677
Selling, general and administrative 44,687 34,151
Software development 41,448 25,606
--------------------------------------------------------------------------
Total costs and expenses 229,798 153,434
--------------------------------------------------------------------------
INCOME FROM OPERATIONS 86,834 53,721
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OTHER INCOME (EXPENSE):
Interest expense (5,650) (3,796)
Interest income - 87
--------------------------------------------------------------------------
Other expense, net (5,650) (3,709)
--------------------------------------------------------------------------
NET INCOME $ 81,184 $ 50,012
==========================================================================
BASIC AND DILUTED INCOME PER SHARE $ 0.00 $ 0.00
==========================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN PER SHARE
CALCULATION 19,336,205 19,065,892
==========================================================================
See the accompanying notes to condensed consolidated financial statements.
3
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended
March 31
--------------------------
2003 2002
--------------------------------------------------------------------------
REVENUES $ 663,061 $ 553,019
--------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenues 355,002 279,606
Selling, general and administrative 204,207 118,569
Software development 88,254 78,965
--------------------------------------------------------------------------
Total costs and expenses 647,463 477,140
--------------------------------------------------------------------------
INCOME FROM OPERATIONS 15,598 75,879
OTHER INCOME (EXPENSE):
Interest expense (13,811) (15,334)
Interest income - 421
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Other expense, net (13,811) (14,913)
--------------------------------------------------------------------------
INCOME before extraordinary item 1,787 60,966
--------------------------------------------------------------------------
Extraordinary item - 21,625
--------------------------------------------------------------------------
Net Income $ 1,787 $ 82,591
==========================================================================
BASIC AND DILUTED INCOME PER SHARE $ 0.00 $ 0.00
==========================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN PER SHARE
CALCULATION 19,336,205 19,065,892
==========================================================================
See the accompanying notes to condensed consolidated financial statements.
4
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
March 31,
-------------------------
2003 2002
--------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,787 $ 82,591
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities
Depreciation 7,144 7,343
Gain on forgiveness of debt - (21,625)
Changes in assets and liabilities
Deposits & prepaid expenses 4,400 -
Accounts receivable, net (42,806) (45,126)
Work performed in excess of
billings (21,585) 17,775
Accrued salaries & benefits 13,374 -
Accounts payable 31,329 (17,861)
Accrued expenses - (27,351)
Deferred revenue (21,274) 17,479
Billings in excess of costs 68,150 9,704
Amounts due related parties 1,395 1,278
--------------------------------------------------------------------------
Net cash provided by
operating activities 41,914 24,207
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture, fixtures
and equipment (4,234) (15,450)
--------------------------------------------------------------------------
Net cash used in investing
activities (4,234) (15,450)
--------------------------------------------------------------------------
See the accompanying notes to condensed consolidated financial statements.
5
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATEAD STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Nine Months Ended
March 31,
-------------------------
2003 2002
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on short-term debt - (5,000)
--------------------------------------------------------------------------
Net cash used in financing
activities - (5,000)
--------------------------------------------------------------------------
INCREASE IN CASH 37,680 3,757
CASH, at beginning of period 78,585 37,022
--------------------------------------------------------------------------
CASH, at end of period $ 116,265 $ 40,779
==========================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period
for interest $ 3,316 $ 5,468
==========================================================================
See the accompanying notes to condensed consolidated financial statements.
6
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by Tenet Information
Services, Inc. and Subsidiary (the Company) and are unaudited. In the opinion of
management, the accompanying unaudited financial statements contain all
necessary adjustments for fair presentation, consisting of normal recurring
adjustments except as disclosed herein.
The accompanying unaudited interim financial statements have been condensed
pursuant to the rules and regulations of the Securities and Exchange Commission;
therefore, certain information and disclosures generally included in financial
statements have been omitted. These financial statements should be read in
connection with the Company's annual financial statements included in the
Company's annual report on Form 10-KSB as of June 30, 2002. The financial
position and results of operations of the interim periods presented are not
necessarily indicative of the results to be expected for the year ended June 30,
2003.
NOTE 2 - BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential dilution
which could occur if all contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock. A
total of 605,000 potentially issuable common shares were excluded from the
calculation of diluted earnings (loss) per common share at March 31, 2003 and
2002, because the effects would be anti-dilutive.
NOTE 3 - REVENUE RECOGNITION ON LONG TERM SOFTWARE CONTRACTS
Revenues from long-term software installations are recognized on the percentage
of completion method, measured by the percentage of costs incurred to date to
total estimated costs for each contract.
Contract costs include all direct material, labor and subcontract costs and
those indirect costs relating to contract performance. General and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are recognized in the period in which
such losses are determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to revenues
7
and costs and are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be reliably
estimated.
The asset, work performed in excess of billings, represents costs incurred and
revenues earned in excess of amounts billed. The liability, Billings in excess
of costs, represents billings in excess of costs incurred and revenue
recognized. Contract retentions are included in accounts receivable.
8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
This discussion should be read in conjunction with management's discussion and
analysis of financial condition and results of operations included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
The Company is engaged in developing and servicing data processing information
products used in hospitals. The Company's main product is an emergency
department computer system known as EDNet. In addition, the Company also has a
consulting practice which specializes in methods and systems improvements,
productivity measurement, cost identification and organizational analysis for
all inpatient and outpatient hospital departments, as well as customized
software solutions for specific hospital departmental requirements.
As of March 31, 2003, the Company has installed its EDNet product in 24 clients,
19 of which have been upgraded to the EDNet Windows version. In addition, the
Company is in the process of upgrading 5 additional current clients. Based on a
request from a current client, a new product, named ARCNet, was developed for
use in same day surgery and ambulatory care departments. ARCNet was installed
at that client site and the product has received interest from other clients.
All products/clients have annual maintenance contracts for continued support and
updates.
The Consulting division provides consulting support to major hospitals
throughout the country. These services consist primarily of cost benefit
evaluations, patient classification for nursing, and productivity management for
all other departments. Consulting services are charged on a negotiated fee
basis.
Results of Operations
For the three months ended March 31, 2003 compared with the three months ended
March 31, 2002.
During the three-month period ended March 31, 2003, the Company had revenues of
$316,632, which represented a 53% increase from $207,155 for the corresponding
period of the prior fiscal year. The 2003 sales consisted of:
3-month 3-month
ended % of ended % of Change in
3/31/03 sales 3/31/02 sales sales % Change
--------------------------------------------------------------------------------------
Emergency $ 180,349 57% $ 64,048 31% $ 116,301 182%
Consulting $ 136,283 43% $ 143,107 69% $ (6,824) (5%)
--------------------------------------------------------------------------------------
$ 316,632 100% $ 207,155 100% $ 109,477 53%
======================================================================================
9
The increase in revenue resulted from upgrading software projects and new
installations at customer sites.
Cost of revenues increased 53% to $143,663 for the three-month period ended
March 31, 2003 from $93,677 for the corresponding period of the prior fiscal
year.
Selling, general, and administrative costs increased 31% to $44,687 for the
three-month period ended March 31, 2003 from $34,151 for the corresponding
period of the previous fiscal year. Software development costs increased 62% to
$41,448 for the three-month period ended March 31, 2003 from $25,606 for the
corresponding period of the prior fiscal year. The company has elected not to
capitalize any of its development expenses. The increases in selling, general
and administrative costs and software development costs results from a
reallocation of resources.
The Company had $86,834 of income from operations for the three-month period
ended March 31, 2003 compared with $53,721 of income from operations for the
corresponding period of the previous year. This increase in income from
operations was the result of increased sales.
Interest expense increased to $5,650 for the three-month period ended March 31,
2003 from $3,796 for the corresponding period of the prior year.
The Company's net income per share was $0.00 as compared to $0.00 for
corresponding period of the previous year.
For the nine months ended March 31, 2003 compared with the nine months ended
March 31, 2002.
During the nine month period ended March 31, 2003 the Company had revenues of
$663,061 which represents a 20% increase from $553,019 for the corresponding
period of the prior fiscal year. The 2003 sales consisted of:
9-month 9-month
ended % of ended % of Change in
3/31/03 sales 3/31/02 sales sales % Change
--------------------------------------------------------------------------------------
Emergency $ 377,738 57% $ 344,608 62% $ 33,130 10%
Consulting $ 285,323 43% $ 208,411 38% $ 76,912 37%
--------------------------------------------------------------------------------------
$ 663,061 100% $ 553,019 100% $ 110,042 20%
======================================================================================
This increase in sales was due mainly to the increase in consulting revenues as
well as an increase in EDNet upgrades.
Cost of revenues increased 27% to $355,002 for the nine-month period ended March
31, 2003 from $279,606 for the corresponding period of the prior fiscal year.
10
Selling, general, and administrative costs increased 72% to $204,207 for the
nine-month period ended March 31, 2003 from $118,569 for the corresponding
period of the previous fiscal year. The increase reflects higher personnel
costs.
Software development costs increased 12% to $88,254 for the nine-month period
ended March 31, 2003 from $78,965 for the corresponding period of the prior
fiscal year. Development efforts are now focused on product enhancements to
meet customer requirements.
The Company had $15,598 of income from operations for the nine-month period
ended March 31, 2003 compared with $75,879 of income from operations for the
corresponding period of the previous year.
Interest expense decreased to $13,811 for the nine-month period ended March 31,
2003 from $15,334 for the corresponding period of the prior year. Interest
expense was higher for the nine month period ended March 31, 2002 because of
interest that was paid with the retirement of debt.
The Company's net income per share was $0.00 as compared to $0.00 for the
corresponding period of the previous year.
Liquidity and Capital Resources
The Company's primary needs for capital are to fund an increased sales effort
and to keep the software products current in the marketplace. For the nine
months ended March 31, 2003 net cash provided by operating activities was
$41,914 as compared to those same activities providing $24,207 in the nine
months ended March 31, 2002, an increase of $17,707. The Company has sufficient
capital for its current operations. However, in order to significantly expand
sales, the Company will require additional cash from an external source. At
March 31, 2003, the Company had total assets of $316,319 and shareholders'
deficit of ($214,032) compared to total assets of $221,558 and shareholders'
deficit of ($215,819) at June 30, 2002, the Company's fiscal year end. The 1%
increase in shareholders equity is primarily the result of operations. The
company did not capitalize any software costs during the nine months ended March
31, 2003 nor did it capitalize any such costs during the prior year. The
Company's cash position increased by $37,680 during the nine-month period ended
March 31, 2003 to $116,265 up from $78,585 as of June 30, 2002. The Company had
a working capital deficit of ($233,634) at March 31, 2003 as compared to
($238,431) at of June 30, 2002.
Inflation has not had a significant impact on the Company's operations.
11
Item 3 - Controls and Procedures.
Jerald Nelson, our Corporate Treasurer and Chairman of the Board, have concluded
that our disclosure controls and procedures are appropriate and effective. He
has evaluated these controls and procedures as of a date within 90 days of the
filing date of this report on Form 10-QSB. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
99 Certification under Section 906 of the Sarbanes-Oxley Act
(18 U.S.C. Section 1350)
12
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.
Dated: May 20, 2003 TENET INFORMATION
SERVICES, INC.
/s/ Jerald L. Nelson
--------------------
Jerald L. Nelson
Chairman of the Board of Directors
13
Attachment A
Form of Certification for Form 10-QSB
CERTIFICATIONS*
I, Jerald Nelson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Tenet Information Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact necessary to make the statements
made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
base on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
d) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/ Jerald Nelson
_____________________
Jerald Nelson
Corporate Treasurer,
Chairman of the Board
14