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 SEPTEMBER 30, 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
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(Address of principal executive office)
(801) 568-0899
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(Issuer's telephone number)
NO CHANGE
---------
(Former name, former address and former fiscal year, if changed since last
report)
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 966,756 shares of common stock outstanding at November 4,
2003
Transitional Small Business Disclosure Format (Check one) Yes_ _ No X
Tenet Information Services, Inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Condensed consolidated balance sheet as of September 30, 2003........ 1
Condensed consolidated statements of operations for the three
months ended September 30, 2003 and 2002............................. 2
Condensed consolidated statements of cash flows for the three
months ended September 30, 2003 and 2002............................. 3
Notes to condensed consolidated financial statements................. 4
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 6
Item 3 Controls Procedures............................................. 8
PART II OTHER INFORMATION
Item 1. Litigation......................................................... 8
Item 2. Changes in Securities.............................................. 8
Item 3. Defaults Upon Senior Securities.................................... 8
Item 4. Submission of Matters to a Vote of Security Holders................ 8
Item 5. Other Information.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
SIGNATURES................................................................. 11
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
September 30, 2003
CURRENT ASSETS:
Cash $ 60,269
Accounts receivable 9,850
Note receivable, current portion 6,247
Assets held for sale 3,092
------------
Total current assets 79,458
FURNITURE, FIXTURES AND EQUIPMENT 11,653
Less: accumulated depreciation (6,803)
------------
4,850
OTHER ASSETS
Note receivable 17,967
Other assets 3,575
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Total other assets 21,542
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TOTAL ASSETS $ 105,850
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 88,930
Accrued expenses 67,243
Accrued interest 12,147
Amounts due to related parties 43,902
Deferred revenue 42,489
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Total current liabilities 254,711
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SHAREHOLDERS' DEFICIT:
Common stock, $.001 par value;
100,000,000 shares authorized;
966,756 shares issued and
outstanding 967
Additional paid-in capital 4,872,265
Accumulated deficit (5,022,093)
------------
Total shareholders' deficit (148,861)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 105,850
============
See the accompanying notes to unaudited condensed consolidated financial
statements
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TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
September 30,
----------------------
2003 2002
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COSTS AND EXPENSES:
Selling, general and administrative $ 10,721 $ 23,457
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LOSS FROM OPERATIONS (10,721) (23,457)
OTHER INCOME (EXPENSE):
Interest expense (2,051) (3,857)
Interest income 597 -
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Other Expense, net (1,454) (3,857)
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NET LOSS FROM CONTINUING OPERATIONS $ (12,175) $ (27,314)
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DISCONTINUED OPERATIONS
Consulting line -0- (927)
EDNet Product line 1,659 (3,138)
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NET INCOME (LOSS) FROM
DISCONTINUED OPERATIONS 1,659 (4,065)
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NET LOSS $ (10,516) $ (31,379)
========= =========
BASIC AND DILUTED LOSS
PER SHARE FROM:
Continuing operations $ (0.01) $ (0.03)
Discontinued operations - -
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TOTAL BASIC AND DILUTED
LOSS PER SHARE $ (0.01) $ (0.03)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES USED IN PER SHARE CALCULATION 966,756 966,756
========= =========
See the accompanying notes to unaudited condensed consolidated financial
statements
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TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
September 30,
----------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,516) $ (31,379)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation 841 2,428
Changes in assets and liabilities
Work performed in excess
of billings - (28,819)
Accounts receivable 81,247 (9,073)
Accounts payable (56,676) (14,539)
Accrued expenses 12,497 3,726
Prepaid expenses - 1,900
Deferred revenue (32,570) 6,836
Billings in excess of cost (7,290) 15,587
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Net cash from
operating activities (12,467) (53,333)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments from note receivable 1,486 -
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Net cash from investing
activities 1,486 -
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NET DECREASE IN CASH (10,981) (53,333)
CASH, at beginning of period 71,250 78,585
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CASH, at end of period $ 60,269 $ 25,252
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 898 $ 2,950
========= =========
See the accompanying notes to unaudited condensed consolidated financial
statements.
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TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Presentation of Interim Financial Statements
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's most recent Annual
Report on Form 10-Ksb.
In the opinion of management, these financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position at September 30,
2003 and the results of its operations and its cash flows for the three months
ended September 30, 2003 and 2002 respectively. Because of the sale of the
consulting division and the EDNet product line, the results of operations for
the three-month period ended September 30, 2003 are not indicative of the
results that may be expected for the remainder of the fiscal year ending June
30, 2004.
(2) Stock-Based Compensation
The Company accounts for its stock options issued to directors, officers and
employees under Accounting Principles Board Opinion No. 25 and related
interpretations ("APB 25"). Under APB 25, compensation expense is recognized if
an option's exercise price on the measurement date is below the fair value of
the Company's common stock. The Company accounts for options and warrants
issued to non-employees in accordance with SFAS No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123) which requires these options and warrants to be
accounted for at their fair value.
No stock-based employee compensation cost is reflected in net income, as all
options had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net income and basic and diluted loss per common share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock Based Compensation, to stock-based employee compensation:
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For the Three Months Ended
September 30,
---------------------------
2003 2002
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Net loss, as reported $ (10,516) $ (31,379)
Adjust: Total stock-based employee compensation
expense determined under fair value based method for
all awards, including adjustment for forfeited options (365) (1,707)
------------ ------------
Pro forma net loss $ (10,881) $ (33,086)
============ ============
Basic and diluted earnings per common share as reported $ (0.01) $ (0.03)
============ ============
Basic and diluted loss per common share pro forma $ (0.01) $ (0.03)
============ ============
(3) Change in Estimate
At the end of its previous fiscal year, the Company accrued its legal costs for
the fourth quarter. In the first quarter of the year, the Company established
actual legal costs for the previous quarter and adjusted its obligation for
payment of legal expense to the actual amount due, resulting in a one-time
decrease in the current period's legal expenses and associated operating costs
of $19,471. The Company has accounted for this as a change in accounting
estimate.
(4) Basic and Diluted Loss Per Share
Basic earnings per common share are computed by dividing net loss 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 21,250 and 30,250 post-split stock options were excluded from the
calculation of diluted loss per common share at September 30, 2003 and 2002
respectively, because the effects would be antidilutive.
(5) Sale of Consulting Division Assets
On May 23, 2003, the Company sold all the assets of the Company's consulting
division to a shareholder and former employee of the Company. The financial
statements present the results from the consulting division as discontinued
operations.
During the quarter ended September 30, 2002, the consulting division had
revenues of $33,182 and losses from operations of $927, respectively.
(6) Subsequent Events
Sale of EDNet Assets
On July 29, 2003, the Company entered into an asset purchase agreement to sell
all of the assets of the EDNet product line to ClinicalVentures, L.C. The sale
of assets closed on October 22, 2003 following a special shareholder meeting at
which the transaction was approved by the shareholders of the Company. As a
result of the sale of the EDNet product line to ClinicalVentures, the Company
currently has no operations. ClinicalVentures purchased all office and
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computer equipment associated with the EDNet product line, which had a net book
value of $3,092 and the right to pursue work with the Company's EDNet product
line clients in exchange for $339,000 in cash as well as accepting certain
obligations and liabilities of the Company. The purchaser assumed the
obligation to support all ongoing maintenance contracts currently in force with
EDNet clients.
In conjunction with the above agreement, the Company and ClinicalVentures
executed a software license agreement pursuant to which ClinicalVentures
obtained a non-exclusive right and license to use the Company's EDNet and
ARCNet tracking software products. This license agreement allows
ClinicalVentures to distribute the software for a period of five years. As
part of this license agreement, ClinicalVentures agreed to pay to the Company
5% of the initial software license fees received by ClinicalVentures during the
five year period with respect to new sales or licenses of the EDNet and ARCNet
tracking products up to an aggregate of $90,000.
The deferred maintenance revenue liability of $42,489 as of September 30, 2003
represents unrealized revenue associated with the maintenance contracts for the
EDNet product line. As part of the sale, ClinicalVentures assumed liability
for all maintenance support of the EDNet product line without further
compensation from the Company. As a result, the Company will recognize $42,489
of revenue on October 22, 2003, the date of the closing.
During the quarters ended September 30, 2003 and September 30, 2002, the EDNet
product line had revenues of $ 31,650 and $ 112,274 and income from operations
of $ 1,657 for the three months ended September 30, 2003 and a loss from
operations of $ 3,138 for the three months ended September 30, 2002.
Reverse Stock Split
At the special shareholder meeting on October 22, 2003, the shareholders
approved a 1 for 20 reverse stock split of the Company's common stock and
common stock options. As a result of the reverse split, the Company has
966,756 outstanding shares of stock, after adjustments for fractional shares.
The reverse stock split has been retroactively reflected in the accompanying
consolidated financial statements for all periods presented.
Development Stage Company
Based on the sale of all operating assets the Company has become a development
stage company and reporting subsequent to October 22, 2003 will be on a
Development Stage basis.
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 10Ksb for the fiscal year ended June 30, 2003.
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As a result of the sale of all remaining operations on October 22, 2003, Tenet
has become a development stage company. The Company is actively seeking
business opportunities.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 2002.
During the three month period ended September 30, 2003, the Company had
operating expenses of $10,721 which represents a 54% decrease from $23,457 for
the corresponding period of the prior fiscal year. The major reason for the
decrease is the reduced administrative costs required to support the Company in
its developmental stage.
Interest expense decreased to $2,051 for the three-month period ended September
30, 2003 from $3,857 for the corresponding period of the prior year. This
decline resulted from a reduction in debt levels from the prior year.
The Company had net operating losses from continuing operations of $12,175 for
the three-month period ended September 30, 2003 compared with a net loss of
$27,314 for the corresponding period of the prior year.
The Company recorded net income from discontinued operations of $1,659 for the
three-month period ended September 30, 2003 compared with a net loss of $4,065
for the corresponding period of the prior year.
The Company recorded net losses of $10,516 or $0.01 per share for the three
month period ended September 30, 2003 compared with a net losses of $31,379 or
$0.03 per share for the corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital are to fund ongoing administrative
expenses while the Company seeks and evaluates new business opportunities. The
Company anticipates sufficient capital for its current operations but if a
merger or similar business combination arose, additional capital may need to be
raised.
..
At September 30, 2003 the Company had a working capital deficit of ($175,253)
as compared to a working capital deficit of ($267,382) at September 30, 2002,
an improvement of 34%.
Inflation has not had a significant impact on the Company's operations.
-7-
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures- Based on their evaluation
of the Company's disclosure controls and procedures (as defined in Rule 13a-
15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the
Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Quarterly Report of
Form 10-Qsb such disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b) Changes in internal control over financial reporting- During the quarter
under report, there was no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1.Litigation N/A
Item 2.Changes in Securities N/A
See information below in Item 4 on one-for-twenty reverse stock split approved
by shareholders at a Special Shareholder Meeting on October 22, 2003.
Item 3.Defaults Upon Senior Securities N/A
Item 4.Submission of Matters to Vote of
Security Holders
SPECIAL SHAREHOLDER MEETING
The Company held a special shareholder meeting on October 22, 2003 in Salt Lake
City. The purpose of the meeting was to consider and vote on the following six
proposals presented to shareholders and contained in the definitive proxy
statement mailed to each shareholder and filed with the Securities and Exchange
Commission:
1. Approval of that certain Asset Purchase Agreement by and between Tenet
and ClinicalVentures, L.L.C. ("ClinicalVentures") and dated August 1, 2003 (the
"Asset Purchase Agreement") and the sale of substantially all of the Company's
operating assets and the assignment of certain liabilities (the "Transaction")
pursuant to the Asset Purchase Agreement.;
2. Approval of a resolution authorizing shareholders to take action by the
written consent of fewer than all of the shareholder entitled to vote with
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respect to the action, to the fullest extent permitted by Utah corporate law
(the "Written Consent Resolution") and approval of an amendment to the Articles
of Incorporation allowing such action;
3. Approval of a resolution authorizing a one-for-twenty reverse stock
split of the outstanding shares of common stock, (the "Reverse Stock Split
Resolution") to take effect upon the filing of the Amended and Restated
Articles with the Utah Department of Commerce, Division of Corporations and
Commercial Code and approval of an amendment to the Articles of incorporation
allowing such action;
4. Approval of amendments to the Company's Articles of Incorporation,
which amendments will include the following:
a. Elimination of Articles VI of the Company's Articles of Incorporation,
which provides that Tenet may acquire its own shares. All rights and
restrictions in Article VI are provided to Tenet in the Utah Revised Business
Corporations Act (the "Act") making this Article unnecessary, and
b. Elimination of Article VII of the Company's Articles of Incorporation,
which provides that Tenet may make distributions to shareholders. All rights
and restrictions in Article VII are provided to Tenet in the Act, making this
Article unnecessary;
5. Approval of amendments to the Company's Articles of Incorporation,
which amendments will include the following:
a. Elimination of Article II, which provides that Tenet shall exist
indefinitely. Under the "Act", every corporation has perpetual duration,
making this article unnecessary;
b. Modification to Article III which defines Tenet's purpose. The
modification eliminates references to computer systems related to the medical
and health fields and allows Tenet to engage in any acts, activities and
pursuits for which a corporation may be organized under the Act;
c. Deletion of references to the Utah Business Corporation Act,
substituting references to the Utah Revised Business Corporation Act (this
modification allows the Articles of Incorporation to be consistent with the
State of Utah's adoption of a revised act, the renumbering of articles to be
consistent with the deletion of articles), and the restatement of the Articles
of Incorporation (the "Amended and Restated Articles") by incorporating in a
single document the amendments approved and adopted by our shareholders at the
Special Meeting, as well as all prior provisions still in effect.
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6. Election of three (3) directors to the Tenet Board of Directors, each
to serve for a one year term expiring at our annual meeting in 2004, and with
three nominees for those positions presented by the Board (the "Director
Nominees").
All six proposals were approved by shareholders at the special meeting. The
directors of the Company have directed company personnel to take all actions
necessary to implement the changes required by the approval of the proposals.
Item 5.Other Information N/A
Item 6.Exhibits and Reports on Form 8-K
(i) Exhibits
Exhibit No. Description
--------------- -----------------
31 Certification required under Section 302 of Sarbanes-.
Oxley Act of 2002
32 Certification required under Section 906 of Sarbanes-.
Oxley Act of 2002
(ii) Reports on Form 8-K
None
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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: November 13, 2003 TENET INFORMATION
SERVICES, INC.
/s/ Jerald L. Nelson
----------------------------------
Chairman of the Board of Directors
Jerald L. Nelson
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