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 December 31, 2002
[ ] 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
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(Address of principal executive office)
(801) 568-0899
--------------
(Issuer's telephone number)
Changed
-------
(Former name, former address and former fiscal year, if changed since
last report)
4885 South 900 East, Salt Lake City, UT 84117
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
(1) Yes X No
(2) Yes X No___
The Company had 19,336,205 shares of common stock outstanding at February 5,
2003
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of
December 31, 2002 1
Condensed consolidated statements of operations
for the three months ended December 31, 2002 and 2001 3
Condensed consolidated statements of operations for
the six months ended December 31, 2002 and 2001 4
Condensed consolidated statements of cash flows for
the six months ended December 31, 2002 and 2001 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 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
December 31, 2002
-----------------
CURRENT ASSETS:
Cash $ 10,569
Accounts receivable, net of allowance for
doubtful accounts of $7,500 117,431
Work performed in excess of billings 14,925
Total current assets 142,925
----------
FURNITURE, FIXTURES AND EQUIPMENT 135,259
Less accumulated depreciation and
amortization (117,598)
----------
17,661
----------
OTHER ASSETS, net 3,575
----------
TOTAL ASSETS $ 164,161
==========
See the accompanying notes to the condensed consolidated financial statements.
-1-
TENET INFORMATION SERVICES, INC. AND SUSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
December 31, 2002
-----------------
CURRENT LIABILITIES:
Accounts payable $ 148,122
Accrued expenses 81,168
Accrued interest 8,460
Amounts due to related parties 47,596
Deferred revenue 122,891
Billings in excess of costs 51,140
-----------
Total current liabilities 459,377
-----------
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
Warrants outstanding -
Accumulated deficit (5,168,448)
-----------
Total shareholders' deficit (295,216)
-----------
Total Liabilities and Shareholders Deficit $ 164,161
==========
See the accompanying notes to the condensed consolidated financial statements.
-2-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
December 31
2002 2001
----------- -----------
REVENUES $ 200,973 $ 189,601
COSTS AND EXPENSES:
Cost of revenues 116,795 111,012
Selling, general and
administrative 106,217 39,416
Software development 21,675 29,213
----------- -----------
244,687 179,650
----------- -----------
INCOME (LOSS) FROM OPERATIONS (43,714) 9,951
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (4,304) (4,894)
Miscellaneous income - -
----------- -----------
Other expense, net (4,304) (4,894)
----------- -----------
NET INCOME (LOSS) before
Extraordinary item (48,018) 5,057
----------- -----------
Extraordinary Item
Gain on forgiveness of debt
(Net of $0 tax effect) - 21,625
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NET INCOME (LOSS) (48,018) 26,682
----------- -----------
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE
Operations $ (0.00) $ 0.00
Extraordinary item 0.00 0.00
----------- -----------
Total Basic and Diluted
Earnings (Loss) Per Share $ (0.00) $ 0.00
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN PER
CALCULATION 19,336,205 19,065,892
=========== ===========
See the accompanying notes to the condensed consolidated financial statements.
-3-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months Ended
December 31
2002 2001
----------- -----------
REVENUES $ 346,429 $ 345,864
COSTS AND EXPENSES:
Cost of revenues 211,339 185,929
Selling, general and administrative 159,520 84,418
Software development 46,806 53,359
----------- -----------
417,665 323,706
----------- -----------
GAIN (LOSS) FROM OPERATIONS (71,236) 22,158
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (8,161) (11,204)
Misc income - -
----------- -----------
Other expense, net (8,161) (11,204)
----------- -----------
NET INCOME (LOSS) before
Extraordinary item (79,397) 10,954
EXTRAORDINARY ITEM
Gain on forgiveness of debt - 21,625
(net of $0 tax effect)
----------- -----------
NET INCOME (LOSS) (79,397) 32,579
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE
Operations $ (0.00) $ 0.00
Extraordinary item 0.00 0.00
----------- -----------
Total Basic and Diluted
Earnings (Loss) Per Share $ (0.00) $ 0.00
WEIGHTED AVERAGE NUMBER OF =========== ===========
COMMON SHARES USED IN PER
CALCULATION 19,336,205 19,065,892
=========== ===========
See the accompanying notes to the condensed consolidated financial statements.
-4-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
December 31,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (79,397) $ 32,579
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities:
Depreciation 4,711 4,600
Gain on forgiveness of debt - (21,625)
Changes in assets and liabilities
Accounts receivable, net (22,001) (39,754)
Prepaid Expenses 4,400 -
Accounts payable (30,145) (27,135)
Accrued expenses and interest 9,908 (24,525)
Deferred revenues (30,708) 1,708
Work performed in excess
of billings 5,706 2,405
Billings in excess of earned
revenue 12,655 87,337
----------- -----------
Net cash from operating activities (64,581) 15,590
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture,
fixtures and equipment (3,435) (4,946)
----------- -----------
Net cash from investing activities (3,435) (4,946)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable $ - $ (5,000)
Advances from related parties - 841
----------- -----------
Net cash from financing activities - (4,159)
----------- -----------
NET INCREASE (DECREASE) IN CASH $ (68,016) 6,485
CASH, at beginning of period 78,585 37,022
----------- -----------
CASH, at end of period $ 10,569 $ 43,507
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 6,066 $ 5,467
=========== ===========
See the accompanying notes to the condensed consolidated financial statements.
-5-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2002 and
2001, 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
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.
NOTE 4 - EXTRAORDINARY ITEM
On November 1, 2001, Tenet completed negotiations with a creditor for settlement
of a $25,000 note, which was due in two payments of $12,500 on December 31, 2000
and December 31, 2001, respectively. The creditor accepted a one-time $5,000
payment as payment in full of all obligations of the note. This negotiated
settlement will result is a one-time extra-ordinary gain of $20,000 plus accrued
interest of $1,625 during the quarter ended December 31, 2001.
Item 2: Management's Discussion and Analysis or Plan of Operation
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-KSB 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 December 31, 2002, the Company had installed its EDNet product to 24
emergency department and urgent care sites. All sites have annual maintenance
contracts for continued support and updates. As of December 31, 2002 the
Company was in the process of installing EDNet upgrades at 6 client sites and
has received a purchase order from an existing client to install the product at
two of their additional sites.
Results of Operations
For the three months ended December 31, 2002 compared with the three months
ended December 31, 2001.
During the three-month period ended December 31, 2002, the Company had revenues
of $200,973 which represented a 6 percent increase from $189,601 for the
corresponding period of the prior fiscal year. The 2002 sales consisted of:
3-months % of 3-months % of Change in % Change
ended sales ended sales sales of sales
12/31/02 12/31/01
-------- ------ -------- ------ --------- --------
Emergency $106,213 53% $160,565 85% $(54,352) (34)%
Consulting $ 94,760 47% $ 29,036 15% $ 65,724 227%
-------- ------ -------- ------ --------- --------
$200,973 100% $189,601 100% $ 11,372 6%
======== ====== ======== ====== ========= ========
Consulting revenue reflects a new consulting contract with a major hospital as
well as follow-on work from an existing client. Emergency Department revenues
were weaker due to temporary delays in completing client upgrade work.
Cost of revenues increased 5% to $116,795 for the three-month period ended
December 31, 2002 from $111,021 for the corresponding period of the prior fiscal
year. The increased sales level required higher costs but the gross margin
improved to 42%, in line with historical averages.
Selling, general, and administrative expenses increased 169% to $106,217 for the
three-month period ended December 31, 2002 from $39,416 for the corresponding
period of the previous fiscal year. This increase reflects higher employment
levels and audit related expenses.
Software development costs decreased 26% to $21,675 for the three-month period
ended December 31, 2002 from $29,213 for the corresponding period of the prior
fiscal year. Development activities are now focused on enhancements to the
EDNet product.
The Company had a net operating loss of $(43,714) for the three-month period
ended December 31, 2002 compared with an operating net profit of $9,951 for the
corresponding period of the previous year. This decline is associated with
additional costs and expenses preparing for sales growth.
Interest expense decreased to $4,304 for the three-month period ended December
31, 2001 compared to $4,894 during the prior fiscal year.
The Company's net loss of $48,018 or $(0.00) per share for the three-month
period ended December 31, 2002 compared with net income of $26,682 or $0.00 per
share for the corresponding period of the previous fiscal year. The net loss
for the quarter is a result of the higher expense levels.
For the six months ended December 31, 2001 compared with the six months ended
December 31, 2000.
During the six month period ended December 31, 2002, the Company had revenues of
$346,429, which represented a 0% increase from $345,864 for the corresponding
period of the prior fiscal year. The 2002 sales consisted of:
6-month 6-month
ended % of ended % of Change in %
12/31/02 sales 12/31/01 sales sales Change
-------- ------ -------- ------ --------- --------
Emergency $218,488 63% $280,560 81% $(62,072) 22%
Consulting $127,941 37% $ 65,304 19% $ 62,637 96%
-------- ------ -------- ------ -------- --------
$346,429 100% $345,864 100% $ 565 0%
======== ====== ======== ====== ======== ========
While sales were essentially flat, increases in consulting revenue offset the
reduction in software activity.
Cost of revenues increased 14% to $211,339 for the six-month period ended
December 31, 2002 compared to $185,929 for the corresponding period of the prior
fiscal year. The gross margin decreased from 46% of sales to 39% in 2002. The
lower margins reflect a higher mix of consulting revenues which are typically
more labor intensive than software.
Selling, general, and administrative expenses increased 89% to $159,520 for the
six-month period ended December 31, 2002 from $84,418 for the corresponding
period of the previous fiscal year. This increase reflects higher employment
levels.
Software development expenses decreased 12% to $46,806 for the six-month period
ended December 31, 2002 from $53,359 for the corresponding period of the prior
fiscal year. Development efforts are now focused on product enhancements to
meet customer requirements.
The Company had an operating loss of ($71,236) for the six-month period ended
December 31, 2002 compared with an operating income of $22,158 for the
corresponding period of the previous year. Increased SG&A expense levels
contributed to the increase.
Interest expense decreased to $8,161 for the six-month period ended December 31,
2002 from $11,204 for the corresponding period of the prior year. Interest
expense decreased due to reduction of debt.
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 six
months ended December 31, 2002 operating activities used $64,581 in cash as
compared to those same activities providing $15,591 in the six months ended
December 31, 2001. The Company has sufficient capital for its current
operations. However, in order to significantly expand sales, the Company may
require additional cash from an external source. At December 31, 2002 the
Company had total assets of $164,161 and shareholders' deficit of ($295,216)
compared to total assets of $221,558 and shareholders' deficit of ($215,819) at
June 30, 2002, the Company's last fiscal year end. The decrease in assets is
primarily due to an 87% decrease in cash. The increase in shareholders equity
is primarily the result of operating losses resulting from higher expense levels
in the last six months. The Company did not capitalize any software development
costs during the six months ended December 31, 2002 nor did it capitalize any
such costs during the prior year.
The Company's cash position decreased 87% during the six month period ended
December 31, 2002 to $10,569 down from $78,585 as of June 30, 2002. The
Company's working capital deficit was $316,452 at December 31, 2002 as compared
to $215,819 at June 30, 2002.
Inflation has not had a significant impact on the Company's operations.
Item 3: Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company
maintains controls and procedures designed to ensure that information required
to be disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. Based upon their evaluation of those controls and
procedures performed within 90 days of the filing date of this report, the chief
executive officer and the principal financial officer of the Company concluded
that the Company's disclosure controls and procedures were adequate.
(b) Changes in internal controls. The Company made no significant changes in
its internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
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)
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: February 18, 2003 TENET INFORMATION
SERVICES, INC.
/s/ Jerald L. Nelson
------------------------
Jerald L. Nelson
Chairman of the Board of Directors
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: February 18, 2003 TENET INFORMATION
SERVICES, INC.
/s/ Jerald L. Nelson
_______________________
Jerald L. Nelson
Chairman of the Board of Directors
Attachment A
Form of Certification for Form 10-QSB
CERTIFICATIONS*
I, Frank C. Overfelt, 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:
a) 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;
b) 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
c) 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):
a) 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
b) 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: February 18, 2003
/s/ Frank C. Overfelt
_____________________________________
Frank C. Overfelt
Director, President
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:
a) 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;
b) 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
c) 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):
a) 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
b) 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: February 18, 2003
/s/ Jerald Nelson
_____________________________________
Jerald Nelson
Corporate Treasurer,
Chairman of the Board