SCHEDULE 14A
(Rule 14a-101)
AMENDMENT NO. 3
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
TENET INFORMATION SERVICES, INC.
--------------------------------
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and O-11.
1) Title of each class of securities to which transactions applies: N/A
2) Aggregate number of securities to which transactions applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee has been calculated in accordance with Rule 0-11 under the Exchange
Act and is equal to 1/50 of 1% of $339,000 (the aggregate amount of
cash to be received by the Registrant in connection with the
transaction)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing party:
4) Date filed:
TENET INFORMATION SERVICES, INC.
53 West 9000 South
Sandy, Utah 84070
(801) 568-0899
Dear Shareholder:
You are invited to attend a Special Meeting in Lieu of Annual Meeting (the
"Special Meeting") of the shareholders of Tenet Information Services, Inc. ("we"
or "Tenet") at Country Inns and Suites, 10499 South Jordan Gateway, South
Jordan, Utah 84095 on Wednesday, October 22, 2003 at 9:00 a.m., local time.
Shareholders will vote on the following six items of business:
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 our
operating assets and the assignment of certain of our liabilities (the
"Transaction") pursuant to the Asset Purchase Agreement. Clinical
Ventures will pay Tenet a cash payment of $339,000 and assume liability
for completion of all outstanding maintenance contracts for which Tenet
has unrecognized revenue of $63,963 as payment for all assets purchased;
2. Approval of a resolution authorizing our shareholders to take action by
the written consent of fewer than all of the shareholder entitled to vote
with 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 our 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 our Articles of Incorporation, which amendments
will include the following:
a. Elimination of Articles VI of our 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 our 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 our 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 computers 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.
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").
The Board of Directors has unanimously determined that the approval of the
1) Asset Purchase Agreement and the Transaction, 2) the Written Consent
Resolutions and related amendment to our Articles of Incorporation, 3) the
Reverse Stock Split Resolution and related amendment to our Articles of
Incorporation, 4) amendments allowing for Tenet's acquisition of its on shares
and distributions to shareholders, 5) various amendments to our Articles of
Incorporation and the Amended and Restated Articles and, 6) the election of the
Director Nominees, are in the best interests of Tenet and its shareholders and
recommends that shareholders vote in favor of each of such matters.
The accompanying material includes the Notice of Special Meeting in Lieu of
Annual Meeting, a Summary, the Proxy Statement and exhibits, a proxy card, and
our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2002 and our
Quarterly Reports on Form 10-QSB for the three-month periods ended September 30,
2002, December 31, 2002 and March 31, 2003. We hope you will be able to attend
the Special Meeting. Whether or not you are able to attend the Special Meeting,
we urge you to sign and date the enclosed proxy card and to return it promptly
in the enclosed envelope. If you do attend the Special Meeting, you may
withdraw your prior vote or proxy and vote personally on any matters brought
properly before the meeting by following the instructions on the proxy card.
Sincerely,
Jerald L. Nelson
President
Sandy, Utah
September 24, 2003
TENET INFORMATION SERVICES, INC.
53 West 9000 South
Sandy, Utah 84070
(801) 568-0899
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 22, 2003
To the Shareholders of Tenet Information Services, Inc.:
A Special Meeting in Lieu of Annual Meeting of the Shareholders (the "Special
Meeting") of Tenet Information Services, Inc., a Utah corporation ("we" or
"Tenet"), will be held at the Country Inns and Suites, 10499 South Jordan
Gateway, South Jordan, Utah 84095 on Wednesday, October 22, 2003 at 9:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve that certain Asset
Purchase Agreement by and between Tenet and ClinicalVentures, L.L.C.
("ClinicalVentures") and dated August 1, (the "Asset Purchase
Agreement") and the sale of substantially all of our operating
assets, and the assumption by ClinicalVentures of certain of our
obligations and liabilities, with such acquisition and assumption
being referred to herein as the "Transaction".
2. Approval of a resolution authorizing our shareholders to take action by the
written consent of fewer than all of the shareholder entitled to vote with
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 our common stock, 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 our Articles of Incorporation, which amendments
will include the following:
a. Elimination of Articles VI of our 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 our 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 our 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 computers 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.
6. To elect three (3) directors to our Board of Directors, each to serve for a
one year term expiring at our annual meeting in 2004, with three nominees to
fill these positions being nominated by the Board of Directors (the
"Director Nominees").
Holders of record of our common stock at the close of business on August 22,
2003 will receive notice of and may vote at the Special Meeting, including any
adjournment of the Special Meeting. You are invited to attend the Special
Meeting in person, if possible. Whether or not you plan to attend, please
mark, date and sign the enclosed proxy and mail it promptly. A return envelope
is enclosed for your convenience. We will pay all expenses of the meeting,
including the cost of printing and mailing the enclosed proxy statement.
By Order of the Board of Directors,
Fred Anderson
Corporate Secretary
Sandy, Utah
September 24, 2003
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON.
SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON
IF THEY DESIRE.
TABLE OF CONTENTS
Proxy Statement 1
Summary 3
Voting Securities and Principal Holders Thereof 8
Proposal #1 - Approval of the Asset Purchase Agreement and Transaction 9
General 9
The Parties 9
Reasons for the Transaction 10
Background Information 10
The Transaction 12
Description of the Asset Purchase Agreement 13
Purchase and Sale 13
Payment of Purchase Price 13
Employees and Associates 13
Indemnification 13
Representations and Warranties 14
Pre-Closing Covenants 14
The Special Meeting 15
Cumulative Voting and Dissenters' Rights 16
The Closing 16
Conditions to Closing 16
Impact of Management Services Agreement on the Conditions to Closing 17
Covenant Against Competition 17
Termination 17
Our Management Following the Transaction 18
Our Business Following the Transaction 18
Securities Exchange Reporting and the Over-the-Counter Bulletin Board 19
Accounting Treatment 19
Unaudited Pro Forma Financial Statements 20
Federal Income Tax Consequences 25
Dissenters' Rights as a Result of the Sale of Substantially All of Tenet's Assets 25
Recommendation of the Board of Directors (Proposal #1) 26
Proposal #2 - Approval of the Written Consent Resolutions and Approval and Adoption of Related Amended Article 26
Proposal #3 - Approval of the Stock Split Resolution and Approval and Adoption of Related Amended Article 28
Reasons for Reverse Split 29
Effect of the Reverse Split 30
Summary of Federal Income Tax Consequences 30
Authorized Shares; Future Earnings 31
Accounting Matters 31
Potential Takeover Effect 32
Effect upon Outstanding Options and Warrants 32
Proposal #4 - Approval of Elimination of Articles Related to Acquisition by Tenet of Its Own Shares and Distributions to 33
Shareholders
Proposal #5 - Approval and Adoption of Amended Articles Related to Provisions No Longer Necessary and Consolidation of 34
Articles into Restated and Amended Articles of Incorporation
ii
Proposal #6 - Election of Directors 35
Vote Required 35
Other Information 37
Shareholder Proposals 38
Proxy Card
Exhibits:
Exhibit A: Asset Purchase Agreement A-1
Exhibit B: Form of Amended and Restated Articles of Incorporation B-1
Exhibit C: Utah Code Ann. {section} 16-10a-1301, et. seq. Regarding Dissenters' Rights C-1
Exhibit D: Annual Report on Form 10-KSB for the year ended June 30, 2002 D-1
Exhibit E: Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 E-1
Exhibit F: Quarterly Report on Form 10-QSB for the quarter ended December 31, 2002 F-1
Exhibit G: Quarterly Report on Form 10-QSB for the quarter ended March 31, 2003 G-1
iii
TENET INFORMATION SERVICES, INC.
53 West 9000 South
Sandy, Utah 84070
(801) 568-0899
PROXY STATEMENT
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
YOU SHOULD CAREFULLY READ THIS ENTIRE PROXY STATEMENT
(INCLUDING THE EXHIBITS) BEFORE YOU VOTE
SOLICITATION OF PROXIES
The Board of Directors of Tenet Information Services, Inc. ("we" or
"Tenet"), is soliciting the enclosed proxy for use at the Special Meeting in
Lieu of Annual Meeting of Shareholders (the "Special Meeting") to be held at
Country Inns and Suites, 10499 South Jordan Gateway, South Jordan, Utah 84095
on Wednesday, October 22, 2003 at 9:00 a.m., local time and at any adjournment
thereof. Tenet will mail this proxy statement and the enclosed proxy card to
shareholders on or about October 1, 2003.
We will pay the expense of the solicitation of proxies for the Special
Meeting, including the cost of printing and mailing these materials. In
addition to solicitation by mail, our management may solicit proxies personally
or by telephone or facsimile without additional compensation.
RECORD DATE AND OUTSTANDING COMMON STOCK
Only holders of record of the common stock at the close of business on
August 29, 2003 will receive notice of, and will be permitted to vote at, the
Special Meeting. As of August 29, 2003, there were 19,336,213 shares of common
stock outstanding.
VOTING AND REVOCATION OF PROXY
Shareholders of record on the Record Date may receive notice of, and vote
at, the Special Meeting. Each share of common stock gives the holder the right
to one vote upon each matter to be presented at the Special Meeting.
Each properly dated, executed and returned proxy received by us prior to
the Special Meeting will be voted at the Special Meeting in accordance with the
instructions indicated thereon. If no specific instructions are given on a
proxy received before the Special Meeting, the shares represented by that proxy
will be voted FOR approval of the Asset Purchase Agreement and the Transaction;
FOR the approval of the Written Consent Resolutions; FOR the approval of a one-
for-twenty reverse stock split; FOR the approval of elimination of Articles Vi
and VII regarding Tenet's acquisition of its own shares and shareholder
distributions, FOR approval and adoption of the Amended and Restated Articles;
and FOR the election of each of the Director Nominees.
A shareholder giving a proxy may revoke it at any time before the Special
Meeting. You may revoke your proxy by doing any of the following:
* Giving written notice of revocation to our Secretary before the
Special Meeting,
* Giving another written proxy bearing a later date, provided we
receive it before the Special Meeting, or
* Attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute
a revocation of your proxy).
QUORUM, ABSTENTIONS, AND BROKER NON-VOTES
At the Special Meeting, the following procedures will apply:
A quorum will be deemed present for all purposes at the Special Meeting
if there are represented, either in person or by proxy, a majority of the
issued and outstanding shares of common stock at August 29, 2003. Before
action may be taken at the Special Meeting, we must determine that a quorum is
present. Calculating the number of shares present at the Special Meeting for
purposes of determining whether there is a quorum present will be accomplished
by reviewing the proxies received before the Special Meeting and by counting
any additional shares owned by shareholders actually present at the Special
Meeting.
If an executed proxy is returned and the shareholder has marked the proxy
to indicate that the shares are abstained from voting on any matter, the shares
represented by that proxy will be considered present at the meeting for
purposes of determining a quorum and for purposes of calculating the vote, but
will not be counted as voting in favor of the matter. If an executed proxy is
returned by a broker holding shares in "street name," which indicates that the
broker lacks discretionary authority to vote part or all of those shares on one
or more matters to be considered at the Special Meeting, those shares will be
considered present at the meeting for purposes of determining a quorum, but
will not be considered to be represented at the meeting for purposes of
calculating the vote with respect to those matters for which the broker lacks
authority to vote.
REQUIRED VOTE
We will proceed with the Transaction only if a quorum is present at the
Special Meeting and the Asset Purchase Agreement and Transaction are approved
by a majority of all issued and outstanding shares.
The proposal to authorize our shareholders to take action by written
consent of fewer than all of the shareholders entitled to vote with respect to
the action will be approved if we receive the affirmative vote of a majority of
all shares actually voted at the Special Meeting.
The proposal to amend and restate our Articles of Incorporation will be
approved if we receive the affirmative vote of a majority of all issued and
outstanding shares with respect to each amendment to be effected.
Election of Directors will be determined by a simple plurality of the
votes cast by all shares actually voted at the Special Meeting.
There is no cumulative voting, and each share counts as one vote.
Shareholders are entitled to dissenters' rights in connection with the
Transaction. Dissenters' rights allow shareholders to dissent from a sale of
substantially all of the corporation's assets if the net proceeds from the
transaction are not to be distributed to the shareholders within one year after
the sale. Shareholders perfecting dissenters' rights are entitled to receive a
fair cash payment for their shares. Shareholders' dissenters' rights are more
specifically described on page 25, under the heading "Dissenters' Rights as a
Result of the Sale of Substantially all of Tenet's Assets."
SUMMARY
This summary highlights selected information from this proxy statement and may
not contain all of the information that is important to you. To better
understand the Transaction, before voting you should carefully read this entire
proxy statement, including the exhibits, one of which is the Asset Purchase
Agreement. The Asset Purchase Agreement is the legal document that governs the
Transaction.
WHEN AND WHERE IS THE SPECIAL MEETING?
The Special Meeting will be held on October 22, 2003 at Country Inns and
Suites, 10499 South Jordan Gateway, South Jordan, Utah 84095 commencing at
9:00 a.m. local time.
WHAT MATTERS WILL BE VOTED UPON AT THE SPECIAL MEETING?
Shareholders will vote on four proposals: (1) approval of the Asset Purchase
Agreement and the Transaction, (2) approval of the Written Consent Resolutions,
(3) approval and adoption of the Amended and Restated Articles, and (4) the
election of the Director Nominees.
If the shareholders approve the Asset Purchase Agreement and the Transaction,
we plan to sell to ClinicalVentures substantially all of our operating assets.
ClinicalVentures will assume certain of our liabilities, other than certain
trade debt and other obligations more specifically set forth in the Asset
Purchase Agreement.
WHAT ARE THE REASONS FOR THE TRANSACTION?
For several years, our management has explored various strategies which might
enable us to expand our product lines, or to increase our sales based on our
current product lines, in order to increase shareholder value. Sales based
upon our current product have remained relatively flat for the past several
years. However, after several unsuccessful attempts to acquire additional
products and to expand our business based upon our current product lines, our
management has concluded that it is in the best interest of Tenet and our
shareholders to sell substantially all of our operating assets in order to
explore new opportunities based upon different product or service offerings.
Our Board of Directors has concluded that the sale of substantially all of our
operating assets to ClinicalVentures on the terms set forth in the Asset
Purchase Agreement will provide an opportunity to pursue a new venture that
might ultimately provide a greater return to our shareholders, when compared to
our existing business or opportunities previously considered by the Board.
DID THE BOARD OF DIRECTORS OBTAIN THE OPINION OR APPRAISAL OF OUTSIDE EXPERTS?
No. The Board of Directors has not engaged independent valuation consultants
to prepare an opinion as to the fairness of the Transaction.
DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE FOR APPROVAL OF THE
TRANSACTION?
Yes. The Board of Directors believes that the execution and performance of the
Asset Purchase Agreement and the consummation of the Transaction are in the
best interests of Tenet and its shareholders, and recommends that you vote to
approve the Asset Purchase Agreement and the Transaction. See "Recommendation
of the Board of Directors" at page 26.
WHAT IS THE FINANCIAL CONDITION OF TENET AND HOW WILL IT BE AFFECTED BY THE
TRANSACTION?
Tenet has been relatively self-sufficient over the previous several years,
maintaining its operations without the infusion of additional debt or equity
capital. If the Transaction is closed as currently contemplated, we will
materially reduce our payables and our short and long-term obligations, but
will dispose of our existing operations that have generated our historical
revenues.
3
WHAT WILL THE SHAREHOLDERS OWN AFTER THE TRANSACTION?
The shareholders will continue to own their shares after the Transaction
(subject to the reverse stock split referenced below). Tenet will continue to
own assets with a net tangible book value of approximately $0.01 per pre-split
share. These assets will include cash, one retained promissory note from Delta
HeathCare Consulting Group, Inc. resulting from the prior sale of Tenet's
consulting business, and miscellaneous personal property including office
furniture and equipment required to maintain minimal operations. Our Unaudited
Pro Forma Financial Statements are included in this proxy statement and
illustrate the estimated effect of the Transaction on our financial statements.
The effect as of the pro forma date of the financial statements (March 31,
2003) is consistent with the anticipated balance sheet effects after the
transaction is completed. You should review them carefully with the other
information and material included in this proxy statement.
WILL THE TRANSACTION AFFECT MY OWNERSHIP OF COMMON STOCK OR MY RIGHTS AS A
SHAREHOLDER?
No. Subject to the one-for-twenty reverse split to be effective upon filing of
the Amended and Restated Articles, you will continue to own the same number of
shares after the Transaction closes as you did immediately before the
Transaction. The Transaction will not involve the redemption or purchase of any
outstanding shares of common stock. In connection with the Transaction, you are
not being asked to exchange your shares of common stock for any other shares or
for cash or other property. Immediately before the Transaction there will be
approximately 19,336,213 shares of common stock issued and outstanding. After
the closing of the Transaction and prior to the filing of the Amended and
Restated Articles, the same number of shares of common stock will remain issued
and outstanding, subject to the exercise of dissenters' rights by any of our
shareholders.
The Amended and Restated Articles provide for a one-for-twenty reverse stock
split, to be effective upon their filing with the Division. It is expected
that such filing will be made subsequent to the closing of the Transaction.
However, if for any reason the Transaction is not completed as currently
anticipated, we may proceed with the filing of the Amended and Restated
Articles. Upon such filing, each group of twenty shares held by each
shareholder will be combined and consolidated into one share. In lieu of
issuing fractional shares, we will pay to each shareholder the fair value of
the shares held which cannot be consolidated into one whole share. The Board
of Directors has determined that $0.02 represents the fair value of one
pre-split share. As a result of the reverse stock split, each shareholder
will retain and exercise voting rights with respect to approximately the same
percentage equity interest in Tenet as he, she or it held prior to the filing
of the Amended and Restated Articles, except for changes resulting from cashing
out fractional shares resulting from the reverse split. Shareholders holding
fewer than twenty pre-split shares will not hold any shares, or have any further
rights as a shareholder, after giving effect to the reverse split.
WHAT WILL TENET DO AFTER THE COMPLETION OF THE TRANSACTION?
Following the Transaction, we will pursue potential acquisitions or business
opportunities. We have not identified any targets and we do not expect to
identify a target before the Special Meeting. We cannot estimate a timetable
for completing any such transaction, and we cannot assure you that we will be
able to complete a transaction at all. Until we complete a transaction, we will
generate revenues primarily by the collection of retained accounts receivable
that are part of the Excluded Assets, the receipt of payments of principal and
interest on the promissory note issued by Delta Healthcare Consulting Group,
Inc. in favor of Tenet in the principal amount of $25,700, and by receipt of
certain software license fees received from ClinicalVentures, pursuant to a
license agreement between Tenet and ClinicalVentures dated July 18, 2003 (the
"License Agreement"). Pursuant to the License Agreement, ClinicalVentures is
obligated to pay to us 5% of the initial software license fees received by
ClinicalVentures during the first five years following the effective date of
the License Agreement with respect to new sales or licenses of the EDNet and
ARCNet tracking products we currently sell, or any updates or new versions
thereof or other software products (to the extent such updates, new versions or
other products contain the code transferred to ClinicalVentures in the
Transaction which implements the "tracking feature" included in the EDNet
tracking system), marketed by ClinicalVentures after the effective date of the
License Agreement, up to an aggregate of $90,000. See "Our Business Following
the Transaction," on page 18.
4
WHAT ARE THE BASIC TERMS OF THE TRANSACTION?
If the shareholders approve the Transaction, the following will occur:
* Upon satisfaction of the applicable conditions to the closing of the
Transaction, ClinicalVentures will acquire our operating assets and
assume certain of our liabilities, except for assets and liabilities
specifically excluded under the Asset Purchase Agreement.
* ClinicalVentures will pay us a purchase price of $339,000 in cash at
closing of the Transaction.
* ClinicalVentures will assume certain of our obligations and
liabilities.
* We will seek to pursue a new business plan based on a strategic
combination with or an acquisition of or by another business.
The Board analyzed the anticipated future earnings of Tenet operations to
determine the purchase price. The Board believes this to be a fair price for
the assets after consideration of anticipated product development and marketing
costs required to maintain Tenet software as viable products.
ClinicalVentures has secured appropriate financing to complete the Transaction.
In addition to cash on hand of $50,000, ClinicalVentures has executed an
irrevocable loan agreement to borrow $289,000 at closing, to be repaid over
five years at 9% interest, with payments due each month starting one month
after the loan is closed. The Asset Purchase Agreement also contains other
terms and conditions customary for this type of transaction. See "Description
of the Asset Purchase Agreement" at page 13.
HOW WILL TENET USE THE EXCLUDED ASSETS?
The assets that we keep in the Transaction will include cash on hand just prior
to closing (before payment of costs related to the Transaction), a promissory
note payable to Tenet in the principal amount of $25,700, certain accounts
receivable and cash equivalents, miscellaneous personal property, the License
Agreement and our Respiratory Care Management System. We intend to use a
portion of the cash, as well as a portion of the cash received in the
Transaction to pay applicable costs and expenses associated with the
Transaction. We will also reduce retained obligations and pay expenses
associated with our ongoing public company reporting requirements. Remaining
cash, including funds paid under the retained promissory note issued by Delta
Healthcare Consulting Group, Inc. and received pursuant to the License
Agreement, will be retained pending use in an acquisition or other
transactions. See "Our Business Following the Transaction" at page 18.
DO I HAVE DISSENTERS' RIGHTS?
Yes. Dissenters' rights allow our shareholders to dissent from the Transaction
and receive a fair cash payment for their shares. See "Dissenters' Rights as a
Result of the Sale of Substantially all of Tenet's Assets" at page 25.
HOW WILL THE TRANSACTION AFFECT THE NET BOOK VALUE OF MY SHARES?
Before the Transaction (at June 30, 2003, the end of the most recently
completed fiscal year), the net tangible book value of our common stock was
approximately $0.00 per share. We estimate the net tangible book value of our
common stock immediately after the Transaction will be approximately $0.01 per
share. See the Unaudited Pro Forma Financial Statements at page 19.
WILL TENET HAVE POSITIVE CASH FLOW FOLLOWING THE TRANSACTION?
After the closing of the Transaction, Tenet will receive monthly payments due
under a promissory note previously delivered to Tenet by Delta Healthcare
Consulting Group, Inc. in the principal amount of $25,700 as well as certain
software license fees, up to $90,000, pursuant to the License Agreement, and
will collect accounts receivable retained as part of the Excluded Assets. We
believe these revenues will exceed the short-term cash obligations of Tenet,
pending its search for potential business opportunities.
5
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION?
The Transaction alone will not produce any separate and independent federal
income tax consequences directly to you. The Transaction will be taxed to Tenet
as a sale of assets and will result in gain or loss depending on whether the
net proceeds realized from the sale of the various assets exceed our various
basis in those assets, as determined on an asset-by-asset basis. Tenet has
sufficient net operating loss carry forwards to offset any gains and avoid any
tax obligation arising from the Transaction. See "Federal Income Tax
Consequences" at page 25.
WHO MAY VOTE AT THE SPECIAL MEETING?
Only shareholders of record at the close of business on August 29, 2003 will
receive notice of and be permitted to vote at the Special Meeting. See "Voting
and Revocation of Proxy" at page 1.
IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES
FOR ME?
Your broker will vote your shares at the Special Meeting only if you provide
written instructions on how to vote. You should follow the directions provided
by your broker regarding how to instruct your broker to vote your shares. See
"Quorum, Abstentions and Broker Non-Votes," at page 1.
MAY I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
Yes. You may change your vote before the Special Meeting by:
* Giving notice to us of your changed vote in writing, provided that
we must receive your notice of a change in your vote prior to the Special
Meeting;
* Executing and delivering to us prior to the Special Meeting a
subsequently dated proxy; or
* Attending the Special Meeting and giving oral notice of your
intention to vote in person.
You should be aware that simply attending the Special Meeting will not
automatically revoke your proxy. See "Voting and Revocation of Proxy" at page
1.
WHAT SHAREHOLDER VOTE IS REQUIRED TO APPROVE THE TRANSACTION?
The Transaction involves the sale of substantially all of our assets. We will
not proceed with the Transaction unless it is approved by a majority of all
outstanding shares.
HOW WILL THE TRANSACTION AFFECT MANAGEMENT OF TENET?
Tenet and ClinicalVentures have entered into a Management Services Agreement,
providing for ClinicalVentures to manage the operations of our business,
pending the holding of the Special Meeting and the approval of the Transaction
by our shareholders. The Management Services Agreement appoints
ClinicalVentures as its exclusive agent to manage its business, including
direction of work of Tenet employees to continue to generate income, collection
all receivables related to work that is the subject of the Transaction, and
approval of disbursements for company expenses. Further, ClinicalVentures is
obligated to segregate Excluded Assets and receipts from Excluded Assets for
the benefit of Tenet. Such Excluded Assets may be used as required to retire
Retained Liabilities that become due during the transition period. Exhibit I
contains the Management Services Agreement. If the Transaction is completed,
all existing employees will be terminated, except for Linda Gibb, who will
provide day-to-day services for record keeping, collection of accounts and
payment of obligations. Other employees involved in Tenet's product
development, maintenance, technical support and marketing may be hired by
ClinicalVentures, as ClinicalVentures and such employees may determine. Jerald
L. Nelson, Tenet's President, will retain his position as President and
remain available to Tenet to assist the Board in evaluating and pursuing new
business opportunities. The Board anticipates that it will be re-elected
pursuant to Proposal #6 of this proxy statement and will continue to serve as
Directors.
6
WHAT WILL I RECEIVE IN THE TRANSACTION?
You will continue to own your shares of common stock (subject to the reverse
stock split described elsewhere). You will not receive any cash, stock or other
property in connection with, or as result of, the Transaction.
WILL THE COMMON STOCK CONTINUE TO BE PUBLICLY TRADED?
Yes. We expect that the common stock will continue to be quoted on the National
Association of Securities Dealers' Over the Counter Bulletin Board (the
"OTCBB") after the Transaction. The OTCBB does not require companies traded
thereon to maintain minimum stockholders' equity.
WHAT DO I NEED TO DO NOW?
First, read this proxy statement carefully. Then, as soon as possible, you
should submit your proxy by carefully completing, signing, and returning the
enclosed proxy card. Your shares represented by proxy will be voted in
accordance with the instructions you specify on the proxy card. The Board of
Directors recommends that you vote in favor of the Asset Purchase Agreement and
the Transaction. If you submit a proxy card without specifying how your shares
should be voted, they will be voted FOR the approval of the Asset Purchase
Agreement and the Transaction.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about the proposals, you may call our President, Jerald
L. Nelson, at (801) 568-0899.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRANSACTION OR PASSED UPON THE FAIRNESS OR MERIT OF THE TRANSACTION OR THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table contains information as of July 25, 2003, summarizing
the beneficial ownership of our common stock by (1) each person known to us to
be the beneficial owner of more than 5% of the issued and outstanding common
stock, (2) our executive officers and directors individually, and (3) all
executive officers and directors as a group. Except as stated in the footnotes
to the table, each of these persons exercises sole voting and investment power
over the shares of common stock listed for that person. Except as shown, the
mailing address of the persons listed in the table is our address: 53 West 9000
South, Sandy, Utah 84070.
Name and Address of Beneficial Owner as of
September 27, 2002 Common(1) Percent of Shares
Outstanding (2)
Michael R. Carlston (3) 4,673,977 24.17%
Dennis C. Peterson (4) 4,220,442 21.83%
Mark Oldroyd (5) 3,975,559 20.56%
Scott Staker (6) 3,975,559 20.56%
T-Acquisition L.L.C. (7) 3,775,559 19.53%
Eric J. Nickerson (8) 2,278,175 11.78%
Third Century II (8) 2,278,175 11.78%
Robert Smith (9) 1,166,246 6.03%
Richard Gwinn (10) 1,004,920 5.20%
Fred J. Anderson (11) 263,212 1.36%
Jerald L. Nelson (12) 1,542,326 7.98%
All Officers and Directors (13) 4,083,713 21.12%
* Less than one percent.
* Less than one percent.
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under this rule, beneficial ownership includes any
shares as to which the shareholder has sole or shared voting power or
investment power and also any shares that the shareholder has the right
to acquire within 60 days.
(2) Percentages are based on 19,336,213 shares outstanding before the
Transaction. Shares of common stock subject to options that are
presently exercisable or exercisable within 60 days are deemed to be
beneficially owned by the person holding the options for the purpose of
computing the percentage ownership of that person, but are not treated as
outstanding for the purpose of computing the percentage of any other
person.
(3) The shares indicated include: 898,418 shares of Common Stock
beneficially owned by Mr. Carlston (including shares owned by his wife
and held in trust for the benefit of his children) and 3,775,559 shares
of Common Stock held by T-Acquisition L.L.C. Mr. Carlson's address is 855
Harwood Dr., Murray, UT 84107.
(4) Includes 444,883 shares of Common Stock beneficially owned by Mr.
Peterson, and 3,775,559 shares of Common Stock held by T-Acquisition
L.L.C. Mr. Peterson's address is 2508 W. Bueno Vista Dr., W. Jordan, UT
84088.
(5) Includes 200,000 shares of Common Stock beneficially held by Mr. Oldroyd,
including shares held in trust for the Violet Johnson Brown Family Trust.
Also includes 3,775,559 shares of Common Stock held by T-Acquisition
L.L.C. Mr. Oldroyd's address is 55 North 800 West, Provo, UT 84601.
8
(6) Includes 200,000 shares of Common Stock held by Mr. Staker and also
includes 3,775,559 shares of Common Stock held by T-Acquisition L.L.C.
Mr. Staker's address is 880 North 98 West #9, Provo, UT 84604.
(7) A Utah Limited Liability company of which Michael R. Carlston owns or
controls 56.7%, Mark Oldroyd owns or controls 32.1%, Dennis C. Peterson
owns or controls 6.4% and Scott Staker owns or controls 4.8%. The
shares indicated consist of 3,775,559 shares of Common Stock The
address of T-Acquisition L.L.C. is 855 Harwood Dr., Murray, UT 84107.
(8) Includes 2,278,175 shares of Common Stock held by Third Century Fund II.
Mr. Nickerson is Senior Partner of Third Century Fund II. Mr. Nickerson
is also a director of the Company. Mr. Nickerson and Third Century Fund
II's address is 1711 Chateau Ct., Fallston, MD 21047
(9) Includes 1,166,246 shares of Common Stock held by Dr. Smith. Dr. Smith's
address is 2291 Greer Rd., Palo Alto, CA 94303.
(10) Includes 1,004,920 shares of Common Stock held by Dr. Gwinn. Dr. Gwinn's
address is 304 W. Thorn, San Diego, CA 92103.
(11) Includes 263,212 shares of Common Stock held by Mr. Anderson.
(12) Includes 1,542,326 shares of Common Stock. Mr. Nelson's address is 10242
Ashley Hills Circle, Sandy, Utah 84092.
(13) After the Transaction there will be 3 members of this group, including
Messrs. Anderson, Nelson and Erickson.
PROPOSAL #1
APPROVAL OF THE ASSET PURCHASE AGREEMENT AND THE TRANSACTION
GENERAL
At the Special Meeting, the shareholders will be asked to consider and
vote upon the Asset Purchase Agreement and the Transaction contemplated
therein, including the sale of substantially all of our operating assets (the
"Acquired Assets") but excluding certain cash, accounts receivable, a
promissory note issued by Delta Healthcare Consulting Group, Inc. in the
principal amount of $25,700 (the "Delta Note") and a license agreement by and
between Tenet and ClinicalVentures dated July 18, 2003 and pursuant to which
Tenet may be entitled to certain software license fees up to an aggregate of
$90,000 (the "License Agreement"), as well as certain equipment and furniture
being retained by Tenet (collectively, the "Excluded Assets"), as well as the
assumption by ClinicalVentures of certain of our obligations and liabilities
(the "Assumed Obligations and Liabilities") but excluding certain liabilities
to be retained by Tenet (the "Excluded Liabilities").
The terms of the Transaction are summarized in this proxy statement under
the caption "Description of the Asset Purchase Agreement" beginning on page 13.
For a more detailed understanding of all of the terms of the Transaction you
should carefully read the Asset Purchase Agreement and the attachments and
exhibits to that agreement.
THE PARTIES
Tenet Information Services, Inc
Tenet Information Services, Inc. ("Tenet") is a Utah corporation in the
business of developing, marketing and servicing computerized patient tracking
and information management systems for use in hospitals and other health care
facilities, with a focus on emergency departments, urgent care sites,
ambulatory care departments and same day surgery facilities. Tenet is a
publicly held corporation and its common stock is quoted on the National
Association of Securities Dealers' Over the Counter Bulletin Board under the
symbol "TISV." As of July 7, 2003, we had 19,336,213 shares of common stock
issued and outstanding. Our net sales for the fiscal years ended June 30,
2001, 2002 and 2003 were $0.5 million, $0.7 million and $0.9 million,
respectively. As of July 7, 2003, we had approximately 16 customers to whom we
have sold our management systems and with whom we have ongoing maintenance
agreements (the "Maintenance Agreements"). Our customers are located primarily
9
in North America. Our principal offices are located at 53 West 9000 South,
Sandy, Utah 84070; and our telephone number is (801) 568-0899. Tenet has no
prior relationship or affiliation with ClinicalVentures, other than engaging
periodically in discussions regarding various potential business combinations
with ClinicalVentures' management.
ClinicalVentures, L.L.C.
ClinicalVentures, L.L.C. ("ClinicalVentures") is an Arizona company which
provides integrated clinical information management systems for clinicians and
the Healthcare community. The administrative offices of ClinicalVentures are
located at 4515 South Lakeshore Drive, Suite 102, Tempe, Arizona 85282, and the
telephone number is (480) 239-0488.
REASONS FOR THE TRANSACTION
We have explored several alternatives for maximizing shareholder value
during the past several years and were able to locate and complete two
significant acquisitions. However, the acquired businesses never developed to
the extent we had hoped, and the market for our common stock has become
increasingly weak. Earlier this year, we sold the assets of our consulting
business. After analyzing the various alternatives, we determined to dispose
of our remaining operations, to allow Tenet to investigate other transactions
and business opportunities that might hold greater prospects for the generation
of value to shareholders. In furtherance of this strategy, we have entered
into the Asset Purchase Agreement with ClinicalVentures.
Our management anticipated that we would receive the best value in
exchange for our operating assets from ClinicalVentures, because our product
line complements the products and services marketed by ClinicalVentures and
provides features not currently provided by ClinicalVentures to its customers.
Tenet has considered other transactions, and our Board has considered at least
one previous offer to purchase substantially all of our operating assets. In
one case, Tenet explored combining operations with another provider of hospital
systems. However, the Board concluded that the partner's operations were
substantially weaker than Tenet's operations and that the combination would
weakened Tenet's market position. In a second opportunity, a potential
acquiring company offered to purchase the Assets of Tenet for a combined
consideration that was less than the value of the assets and less than the
value provided by ClinicalVentures. We intend to use the proceeds from this
sale of assets, the Delta Note and the License Agreement, along with the
retained cash, receivables and other property to discharge liabilities
(including costs associated with the Transaction) and to pursue other business
opportunities with the ultimate objective of maximizing shareholder value.
BACKGROUND INFORMATION
Tenet was incorporated on February 24, 1984 by employees of Telemed, a
Delaware corporation, that organized a buyout of Telemed's pulmonary and
respiratory care information services business. In March 1984, we purchased
that business for cash and a promissory note. By 1988, our annual revenue had
grown to $2.4 million and we completed an initial public offering of our common
stock in 1989. By September 15, 1989, 23 hospitals were using our respiratory
care management systems (then referred to as "RCMS") and we employed 23 full
and part-time employees. Over time, with improvements in computer hardware and
performance, the mini computer based RCMS product became dated. The last RCMS
sale was made in January 1991. In 1994 a new senior management team was put
into place.
Effective September 5, 1995, we acquired certain assets of The
International HealthCare Consulting Group ("HCG") including certain accounts
receivable, equipment, software products and other intangible assets. Since
1986 HCG has provided Healthcare institutions, mainly hospitals, with
consulting services in the following areas:
* Nurse Staffing and Patient Classification
* Cost Benefit Analysis for Computerized Patient Records (CPR)
* Productivity
* Cost Accounting
* Operations Assessment
* Modeling and Simulation
On September 29, 1995, Tenet and National MicroComputer Corporation ("NMC")
approved the terms of an Agreement and Plan of Reorganization (the "Agreement")
pursuant to which NMC was merged with and into Tenet Merger Subsidiary, Inc.,
10
our wholly-owned subsidiary. NMC developed and marketed an integrated
information management/patient tracking system (EDNet) designed specifically
for use in emergency departments. However, these acquisitions did not result
in significantly increased shareholder value. After we acquired the assets of
HCG, and NMC became our wholly-owned subsidiary, we discontinued the RCMS
product line.
On May 23, 2003, we sold to Delta Healthcare Consulting Group, Inc.
("Delta") the assets relating to the consulting services business previously
conducted by us, pursuant to an Agreement for Sale and Purchase of Assets dated
May 23, 2003.
During the past several years, our management has explored alternatives
for maximizing shareholder value. Among other things, we actively pursued a
variety of acquisitions and strategic alliances, holding active discussions
with several industry participants. In the past several years, Tenet
experienced a significant deterioration in its stock market valuation. During
our 2003 fiscal year, our common stock closed as high as $0.11 on May 15, 2003
and as low as $0.0001 on January 30, 2003. On July 17, 2003, the day
immediately before the announcement of the plan to sell the business to
ClinicalVentures during which trading in our Common Stock occurred, the closing
sale price of our common stock was $0.03 per share, with a low bid of $0.03 and
a high ask of $0.03, on a total of approximately 6,000 shares traded. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
Over the previous several years, the officers of Tenet and
ClinicalVentures have periodically engaged in discussions regarding various
potential business combinations between Tenet and ClinicalVentures. Management
of both companies mutually agreed to defer any combination of the two companies
previously because ClinicalVentures was not large enough to benefit from the
inclusion Tenet's assets. ClinicalVentures' management and Tenet have
maintained causal contact over the years. Upon sale of the consulting division
of Tenet, ClinialVentures and Tenet initiated conversations to determine the
feasibility of a business combination.
In November 2002, Jerald Nelson, our President, contacted the President
of ClinicalVentures to renew discussions regarding a potential business
relationship or transaction. In December of 2002, Mr. Nelson and the
ClinicalVentures President met to discuss ClinicalVentures' customer base and
ClinicalVentures' potential need for the products sold by Tenet. During the
course of this meeting, the possible acquisition by ClinicalVentures of Tenet's
operating assets was discussed. On December 6, 2002, ClinicalVentures and
Tenet executed a Confidentiality Agreement in order to begin formal discussions
related to the possible acquisition by ClinicalVentures of Tenet's operating
assets.
Between March and April 2003, our Board of Directors held several
meetings with the ClinicalVentures President to further investigate the
possible acquisition by ClinicalVentures of our operating assets and, on March
3, 2003, our Board of Directors held a board meeting to consider the possible
acquisition and voted to authorize our management to submit to ClinicalVentures
a Letter of Intent. On March 4, 2003, Tenet and ClinicalVentures executed a
non-binding Letter of Intent outlining the terms of a proposed acquisition.
During the period between March and July 2003, ClinicalVentures engaged in due
diligence related to our business operations, customers, employees and records.
During this same period, the parties continued to negotiate the terms and
conditions of the proposed acquisition.
On July 29, 2003, ClinicalVentures and Tenet executed the Asset Purchase
Agreement and a Management Services Agreement.
The Board of Directors, in consultation with its financial and legal
advisors, carefully considered the terms and conditions of the Transaction as
contained in the Asset Purchase Agreement. In reaching its decision to approve
execution of the Asset Purchase Agreement and Management Services Agreement and
its determination that the Transaction is in the best interest of Tenet and its
shareholders, the Board of Directors carefully considered a number of factors.
The factors considered by the Board of Directors included, among others, the
following:
o Our inability to increase shareholder value based upon our current
business and product lines.
o The fact that the anticipated synergy between our consulting and
patient information and tracking systems segments did not materialize.
o Our history of relatively flat sales.
11
o Our lack of significant market share within the industry.
o The research and development expenses necessary to maintain a lead
among our industry competitors and the lengthy sales cycle for our
product line.
o The proposed terms and conditions of the Asset Purchase Agreement.
o The fact that the Asset Purchase Agreement requires that the
Transaction be approved by a majority of the outstanding shares of our
common stock.
o The Board's view that ClinicalVentures would accept terms more
favorable to Tenet than other potential purchasers due to the
complementary nature of the products marketed by Tenet and
ClinicalVentures.
o The fact that other potential purchasers offered terms less favorable
than those offered by ClinicalVentures.
o The Board's view that the Transaction may facilitate a future merger
with or acquisition of or by an operating business that could
ultimately result in higher shareholder value than was being realized
through our current business.
The Board of Directors believed that overall, because of the lack of
available acceptable alternatives, the risks associated with the Transaction
were outweighed by the benefits of the Transaction. The risks associated with
the Transaction are minimal because ClinicalVentures is paying cash for the
Assets and has the cash available for the purchase, ClinicalVentures
participates in and understands the risks of the hospital information systems
market, and ClinicalVentures has the expertise to evaluate the Assets. If
Tenet were to continue operations, the risks to the Company are significant.
With the sale of the consulting division, Tenet lost two of its senior managers
and cannot support the management structure, sales effort, and development
effort required to either maintain its current customer base or increase its
customer base. Of its installed base of 25 hospitals, three hospitals have
terminated use of Tenet systems. Tenet is at risk of losing its development
personnel and customer support personnel, which would prevent Tenet from
meeting its obligations under existing maintenance agreements. The Board
of Directors believes that the risks to Tenet of maintaining profitable
continuing operations are greater if the Transaction is not successfully
closed than if it is properly concluded.
This discussion of the information and principal factors considered by
the Board of Directors is not intended to be exhaustive. Because of the wide
variety of the factors considered by the Board of Directors in evaluating the
Transaction and the complexity of these matters, the Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign
any relative weight to the various factors considered.
LICENSE AGREEMENT
On July 18, 2003, Tenet and ClinicalVentures executed a software license
agreement (the "License Agreement") pursuant to which ClinicalVentures obtained
a non-exclusive right and license to use our EDNet and ARCNet tracking software
products, and the codes relating thereto (the "Licensed Software"), which
entitles ClinicalVentures to reproduce, use, modify, market and distribute the
Licensed Software for a period of five years from the effective date of the
License Agreement. Pursuant to the License Agreement, ClinicalVentures is
obligated to pay to us 5% of the initial software license fees received by
ClinicalVentures during the first five years following the effective date of
the License Agreement with respect to new sales or licenses of the EDNet and
ARCNet tracking products, or any updates or new versions thereof or other
software products (to the extent such updates, new versions or other products
contain the code transferred to ClinicalVentures in the Transaction which
implements the "tracking feature" included in the EDNet tracking system),
marketed by ClinicalVentures after the effective date of the License Agreement,
up to an aggregate of $90,000. Following the close of the Transaction, we will
retain our right to receive the royalty payments pursuant to the License
Agreement; however, ClinicalVentures will acquire the underlying rights to the
Licensed Software upon closing of the Transaction.
THE TRANSACTION
Under the terms of the Asset Purchase Agreement and subject to the
approval of the shareholders at the Special Meeting, we will sell to
ClinicalVentures substantially all of the operating assets of Tenet including
those used in the marketing and sale of health care information systems.
12
Included in the Transaction will be our ARCNet and EDNet patient tracking and
information systems, certain accounts receivable and certain fixed assets,
tangible and intangible assets, equipment, personal property, material
contracts (including continuing Maintenance Agreements), other current assets,
intellectual property, trademarks, trade names, trade dress and all records
related to existing and prospective customers. ClinicalVentures will also
assume certain of the liabilities of Tenet, including ongoing Maintenance
Agreements. The Maintenance Agreements obligate ClinicalVentures to provide on-
going technical support for the balance of the term of the Maintenance
Agreement. Maintenance Agreements are usually written for a term of one year
and have various starting and ending dates. Customers usually renew these
agreements annually. The supporting company must provide technical support by
telephone 24 hours a day, seven days a week. Tenet anticipates that all other
liabilities associated with the Assets will be paid by Tenet before the closing
date of the Transaction. The Asset Purchase Agreement refers to the assets to
be acquired by ClinicalVentures as the "Acquired Assets." The liabilities to
be assigned to and assumed by ClinicalVentures in the Transaction are referred
to as the "Assumed Obligations and Liabilities."
Excluded from the Transaction and retained by Tenet are cash on hand at
the date of closing, a promissory note in the principal amount of $25,700
issued by Delta Healthcare Consulting Group, Inc. ("Delta") and related
Agreement for Sale and Purchase of Assets executed by Tenet and Delta, the
License Agreement, certain accounts receivable and cash equivalents, the
Respiratory Care Management System and miscellaneous personal property. The
Asset Purchase Agreement refers to the assets to be retained by Tenet in the
Transaction as the "Excluded Assets." Excluded from the Assumed Obligations
and Liabilities are certain trade debts and other obligations described in the
Asset Purchase Agreement. The liabilities described in the Asset Purchase
Agreement to be retained by Tenet in the Transaction are referred to as the
"Retained Liabilities." The Retained Liabilities are estimated to be
approximately $200,000.
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT - MATERIAL TERMS OF THE TRANSACTION
This section describes the key provisions of the Asset Purchase
Agreement. This is only a summary and does not include all of the terms or
conditions of the Transaction. You should refer to and review the full text of
the Asset Purchase Agreement attached as Exhibit A to this proxy statement for
a more complete discussion of the terms and conditions of the Transaction.
PURCHASE AND SALE
Tenet will sell and ClinicalVentures will purchase the Acquired Assets.
ClinicalVentures will also accept assignment of the Assumed Obligations and
Liabilities. ClinicalVentures will take final possession of the business at
the closing and will be responsible for all expenses and other liabilities of
the business from that date forward. However, pursuant to that certain
Transition Management Services Agreement by and between Tenet and
ClinicalVentures and dated July 29, 2003, ClinicalVentures will manage the day-
to-day operations of Tenet and the conduct of its business, pending the closing
of the Transaction.
PAYMENT OF PURCHASE PRICE
ClinicalVentures will pay the purchase price for the Acquired Assets by:
* Tendering cash at closing in the amount of $339,000 ($50,000 of
such amount having been deposited into an escrow account, concurrently
with the execution of the Asset Purchase Agreement , the balance of
$289,000 will be paid at closing, funded by an irrevocable loan
agreement wherein ClinicalVentures will borrow $289,000 at closing, to
be repaid over five years at 9% interest, with payments due each month
starting one month after the loan is closed ); and
* Accepting assignment of and responsibility for the Assumed
Obligations and Liabilities.
EMPLOYEES AND ASSOCIATES
Following the closing of the Transaction, ClinicalVentures is obligated
to extend offers of employment to all but two of our current employees, for
compensation and terms deemed appropriate by ClinicalVentures.
13
ClinicalVentures also will assume Tenet's rights and obligations in and
to continuing Maintenance Agreements and all customer accounts (with the
exception of those accounts receivable included as part of the Excluded
Assets). It is anticipated that there will be no interruption in the
performance by ClinicalVentures of the Maintenance Agreements.
INDEMNIFICATION
The parties have agreed to indemnify each other for a period of one year
from the date of closing of the Transaction for liabilities directly or
indirectly relating to, resulting from or arising out of any untrue
representation, misrepresentation, breach of warranty or non-fulfillment of any
covenant, agreement or other obligation by or of the indemnifying party under
the Asset Purchase Agreement. The indemnification obligations will not
terminate at the end of the one year period as to any item as to which an
indemnified person has made a claim by delivering notice of the claim before
the expiration of the indemnification period. For the purposes of the
indemnification provisions of the asset purchase agreement, the representations
and warranties of the parties in the agreement will survive the closing for a
period of one year. No claim for indemnification can be made unless the amount
of all claims for which a party seeks indemnification exceeds $20,000, and no
claims for indemnification can be made against any party in amounts exceeding
$500,000. Indemnification as provided in the Asset Purchase Agreement will be
the exclusive remedy of the parties with respect to claims arising under the
Asset Purchase Agreement or with respect to the Transaction, except for claims
for fraud, for failure to make any payments due under the Asset Purchase
Agreement, or for a violation of Seller's covenant not to compete as set forth
in the Asset Purchase Agreement.
REPRESENTATIONS AND WARRANTIES
The Transaction contemplates that the Acquired Assets will be sold on an
"as is, where is" basis. We made limited representations and warranties to
ClinicalVentures in the Asset Purchase Agreement and will renew them at the
closing, including those relating to:
* Corporate organization and similar corporate matters;
* Authorization, execution, delivery, performance and
enforceability of, and any required consents, approvals and
authorizations relating to, the Asset Purchase Agreement and the
related agreements;
* Absence of conflict with, violation or breach of, or default
under the articles of incorporation, bylaws and contracts and
applicable laws in connection with the Transaction, the Asset
Purchase Agreement and the related agreements;
* Absence of undisclosed liabilities and material adverse events
that would prevent the consummation of the Transaction;
* Status of Acquired Assets;
* Accuracy of reports filed by Tenet with the Securities and
Exchange Commission;
* Status of Intellectual Property Rights;
* Absence of Material Adverse Changes; and
* Absence of Obligation to Pay Broker Fees and Expenses.
ClinicalVentures made limited representations and warranties to us in the
Asset Purchase Agreement and will renew them at the closing, including those
relating to:
* Corporate organization and similar corporate matters;
* Authorization, execution, delivery, performance and
enforceability of, and any required consents, approvals and
authorizations relating to, the Asset Purchase Agreement and the
related agreements;
14
* Absence of conflict with, violation or breach of, or default
under the certificate of incorporation, bylaws and contracts and
applicable laws in connection with the Asset Purchase Agreement and
the related agreements;
* Government consents;
* Fees and Expenses; and
* Satisfactory Completion of Due Diligence.
PRE-CLOSING COVENANTS
The parties have agreed that during the period between the execution date
of the Asset Purchase Agreement and the closing of the Transaction or earlier
termination of the Asset Purchase Agreement:
* The parties will promptly advise each other of any event that
would render a representation or warranty untrue or any breach of a
covenant or obligation under the Asset Purchase Agreement;
* The parties will confer with each other regularly and
frequently to report material operational matters and the status of
the business;
* The parties will use their reasonable best efforts to satisfy
the conditions to closing of the Transaction;
* ClinicalVentures will promptly advise Tenet of any condition or
event that would adversely affect the Transaction or
ClinicalVentures' ability to conclude the Transaction;
* Tenet will promptly advise ClinicalVentures of any of the
following:
* Governmental or third-party complaints, investigations,
litigation or hearings related to the business, the Acquired Assets
or Assumed Obligations and Liabilities;
* Material deterioration in Tenet's relationship with a customer,
supplier, distributor, associate or key employee;
* Breach by Tenet of any material agreement to which Tenet is a
party;
* A condition or event which would have a material adverse effect
on the business;
* Pursuant to the Management Services Agreement, ClinicalVentures
is required to maintain the business and to preserve the business
relationships of Tenet with its customers, suppliers, licensors,
licensees, employees, consultants and others with whom it has
business dealings in connection with the business;
* Tenet will file any applications, notifications or other
filings for any necessary regulatory approvals required in
connection with the consummation of the Transaction;
* The parties will use their reasonable efforts to take all
actions and to do all things necessary or advisable, and to remove
any impediments in order to consummate the Transaction, including
obtaining all necessary consents and approvals;
* Tenet will allow ClinicalVentures and its advisors and agents
access at reasonable times to the files, books, records, technology,
offices, accountants and the Acquired Assets;
* The parties will not use or disclose each other's confidential
information except as provided in the Asset Purchase Agreement;
15
* Tenet will call the Special Meeting and will use its reasonable
best efforts to secure shareholder approval of the Asset Purchase
Agreement and the Transaction at the Special Meeting and Tenet will
include in this Proxy Statement the Board of Directors'
recommendation that the shareholders approve the Transaction and the
Asset Purchase Agreement; and
* Neither party will publicly disclose the Asset Purchase
Agreement or the Transaction except as agreed by the parties or
required by law.
THE SPECIAL MEETING
The Transaction is a sale of substantially all of our operating assets
and certain specified liabilities. Certain of our assets will be retained by
Tenet and excluded from the Transaction. Approval of the shareholders is
required before consummating the Transaction. Tenet has agreed to take all
necessary action to prepare this proxy statement, cause it to be mailed to the
shareholders at the earliest practicable time following the execution date of
the Asset Purchase Agreement and to convene the Special Meeting seeking
approval of the Asset Purchase Agreement and the Transaction as promptly as
practicable (including the filing and mailing of the proxy statement).
A quorum will be deemed present for all purposes at the Special Meeting
if there are represented, either in person or by proxy, a majority of the
issued and outstanding shares of common stock. We will proceed with the
Transaction only if a quorum is present and the Asset Purchase Agreement and
Transaction are approved by the affirmative vote of a majority of all issued
and outstanding shares.
CUMULATIVE VOTING AND DISSENTERS' RIGHTS
There is no cumulative voting, each share counts as one vote.
Shareholders are entitled to dissenters' rights in connection with the
Transaction. Dissenters' rights allow shareholders to dissent from the sale of
substantially all of Tenet's assets and to receive a fair cash payment for
their shares. In connection with a disposition of all or substantially all of
the assets of a Utah corporation (other than in the ordinary course of the
corporation's business), a dissenting shareholder, after complying with the
procedures described in the section titled "Dissenters' Rights As A Result of
the Sale of Substantially All of Tenet's Assets," on page 25 below, is entitled
to payment from the corporation of the fair value of the shareholder's shares.
The fair value is estimated by the corporation. However, if the shareholder is
unwilling to accept the corporation's estimate, the shareholder may provide the
corporation with an estimate of the fair value and demand payment of that
amount. If the corporation is unwilling to pay that amount, the corporation is
required to apply for judicial determination of the fair value.
THE CLOSING
The closing of the Transaction is expected to occur following the
satisfaction or waiver of all of the conditions to each party's obligations
under the Asset Purchase Agreement. The parties anticipate that the closing
will occur promptly following receipt of the requisite shareholder approval at
the Special Meeting.
CONDITIONS TO CLOSING
The Asset Purchase Agreement provides that the obligation of
ClinicalVentures to consummate the Transaction is subject to the satisfaction
or waiver of the following conditions:
* Tenet shall have performed in all material respects all of its
covenants and obligations in the Asset Purchase Agreement;
* The representations and warranties of Tenet shall be true and
correct in all material respects as of the closing date;
* All liens and encumbrances on the Acquired Assets shall be
removed, except for the liens relating to the Assumed Obligations
and Liabilities;
* There will be no material adverse effect on the business of
Tenet and Tenet's base of customers purchasing on a continuing basis
shall not have been reduced by more than 15%;
16
* All actions taken by Tenet in connection with the Transaction,
and all required certificates, opinions, instruments and other
documents will be reasonably satisfactory to ClinicalVentures;
* There shall be no threatened, instituted or pending litigation
concerning the ownership or operation by Tenet of any material
portion of the acquired assets or the business or seeking the
divestiture by Tenet of any of the acquired assets; and there shall
be no other legal restraints by any governmental authority
applicable to the acquired assets that could result in such
consequences; and
* Tenet shall have delivered the acquired assets and delivered
all other documents required to be delivered to ClinicalVentures
under the Asset Purchase Agreement.
The obligation of Tenet to close the Transaction is subject to the
satisfaction or waiver of the following conditions:
* ClinicalVentures shall have performed in all material respects
all of its covenants and obligations in the Asset Purchase
Agreement;
* The representations and warranties of ClinicalVentures shall be
true and correct in all material respects as of the closing date;
* ClinicalVentures shall have delivered the purchase price and
all other documents to be delivered by it under the Asset Purchase
Agreement; and
* All actions taken by ClinicalVentures in connection with the
Transaction, and all required certificates, opinions, instruments
and other documents will be reasonably satisfactory to Tenet.
The obligation of Tenet and ClinicalVentures to consummate the closing is
subject to the satisfaction or waiver by both parties of the following
conditions:
* The execution of the Management Services Agreement on or before
July 31, 2003. Upon execution of the Management Services Agreement,
all conditions to the closing (except the shareholder vote) shall be
deemed to be satisfied or waived.
* No provision of any applicable law or regulation and no
judgment, injunction, order or decrees shall prohibit, restrain,
enjoin or restrict the consummation of the Transaction;
* No lawsuits or proceedings shall be pending or threatened
against either party which might restrict or materially adversely
affect the operation of Tenet's business or the consummation of the
Transaction;
* The parties shall have received all authorizations, consents
and approvals of governmental agencies and third parties required to
carry out the Transaction; and
* The shareholders of Tenet holding a majority of the issued and
outstanding common stock of Tenet shall have approved the Asset
Purchase Agreement and the Transaction, and no shareholder of Tenet
shall have threatened or commenced any action to prevent or restrict
the Transaction.
IMPACT OF MANAGEMENT SERVICES AGREEMENT ON THE CONDITIONS TO CLOSING
As a result of the execution of the Management Services Agreement, all
conditions to the closing are deemed to have been satisfied or waived, except
for the requirement of receipt of the requisite vote of Tenet shareholders to
approve the Asset Purchase Agreement and the Transaction.
COVENANT AGAINST COMPETITION
Pursuant to the Asset Purchase Agreement, Tenet has agreed that for a
period of one year following the closing date of the Transaction and thereafter
until the earlier of (i) the fifth anniversary of the closing date of the
Transaction; (ii) such date as the License Agreement has been terminated, or
(iii) such date as ClinicalVentures has failed to sell any products for which a
royalty would be payable to Tenet under the License Agreement, Tenet will not
17
contact any of the Healthcare organizations that were customers of Tenet prior
to the closing date for the purpose of soliciting orders or establishing
relationships for any business enterprise that competes with ClinicalVentures
in the marketing of Healthcare information management systems and in providing
computerized patient tracking and information management systems for use in
hospitals and other health care facilities, with a focus on emergency
departments, urgent care sites, ambulatory care departments and same day
surgery facilities.
TERMINATION
The parties may terminate the Asset Purchase Agreement by mutual
agreement. In addition, either party may terminate the Asset Purchase
Agreement if:
* Shareholders holding a majority of our issued and outstanding
Common Stock do not vote in favor of the Transaction and the Asset
Purchase Agreement; or
* The other party has committed a material breach of its
representations, warranties or covenants in any material respect and
has not cured the breach within 15 business days following receipt
of notice of termination given by the other party.
OUR MANAGEMENT FOLLOWING THE TRANSACTION
Effective upon closing of the Transaction, our directors and executive
officers will be as follows:
NAME AGE POSITION WITH THE COMPANY
Jerald L. Nelson 60 Chairman of the Board, Director, President, Corporate Treasurer
Fred J. Anderson 57 Director, Chief Operating Officer and Corporate Secretary
Eric J. Nickerson 50 Director
JERALD L. NELSON. Jerald L. Nelson has served as a director, president and
chief operating officer of the Company since December 1993. Effective July 10,
1996, Dr. Nelson was appointed Chairman of the Board of Directors, and
relinquished his positions as President and Chief Operating Officer. On June
5, 2001 the board elected Dr. Nelson to the position of Corporate Secretary, a
position Dr. Nelson held until May 2, 2003. The Board re-elected Dr. Nelson as
President, effective May 2, 2003. Dr. Nelson received his Ph.D. in Economics
from North Carolina State University in 1974. From 1974 to 1984, Mr. Nelson
worked or consulted with several Fortune 500 firms, including US Industries,
TransWorld Airlines, GTE, Xerox, Pitney Bowes and General Foods. From 1984
until December 1993, Mr. Nelson worked with various businesses as an investment
banker and business advisor. He has also consulted with or served on the Board
of Directors of numerous Utah firms including Arrow Dynamics, Beacon Financial,
Interwest Home Medical, Gentner Communications and One-2-One Communications,
where he also served as chairman and chief executive officer.
ERIC J. NICKERSON. Eric J. Nickerson has served as a director since June of
1990. Mr. Nickerson was a member of the faculty of the United States Military
Academy at West Point, New York from 1989 to 1993. In June 1993, Mr. Nickerson
retired as a United States Air Force officer. Currently, Mr. Nickerson is a
private investor and directs personal accounts and two investing partnerships:
"Third Century II" and "Z Fund."
FRED J. ANDERSON. Fred J. Anderson has served as a director since May 23,
2003. The Board elected Mr. Anderson to serve as Tenet's Chief Operating
Officer and Corporate Secretary effective May 2, 2003. Mr. Anderson served as
Tenet's Chairman of the Board from May 1992 until July 1995, when he resigned
to manage his family's land and livestock interests. Mr. Anderson also served
as the Chief Financial Officer of Tenet from 1986 until 1996. From 1980 until
1984, Mr. Anderson served as Vice President for Mountain States Resources. He
received his BS in Accounting and an MBA from Utah State University.
OUR BUSINESS FOLLOWING THE TRANSACTION
If the Asset Purchase Agreement and Transaction are approved and
consummated, management and the Board of Directors of Tenet will actively seek
another operating business or business opportunity for Tenet to acquire, invest
in or participate in. We cannot estimate at this time what form any such
transaction might take, and there can be no assurances that Tenet will be able
to negotiate and complete any such transaction. Even if such a transaction is
18
completed, there can be no assurances that the market price of Tenet's common
stock will improve thereafter. Tenet estimates that following the closing it
will have sufficient capital to meet its obligations pending completion of such
a transaction for a period of at least five years. No efforts have been or
will be made before the closing to implement our new business purpose.
The role of Tenet's management following a purchase or other transaction
cannot be stated with any certainty. Although it will be management's intent
to scrutinize closely the management of a prospective target business in
connection with its evaluation of a business combination with a target
business, there can be no assurance that the assessment of management will
prove to be correct.
The time and costs required to select and evaluate a target business
(including conducting a due diligence review) and to structure and consummate
the business combination (including negotiating and documenting relevant
agreements and preparing requisite documents for filing pursuant to applicable
corporate and securities laws) cannot be determined at this time. Any costs
incurred in connection with the identification and evaluation of a prospective
target business with which a business combination is not ultimately consummated
will result in a loss to us and reduce the amount of capital available to
otherwise complete a business combination or for the resulting entity to
utilize.
As a general rule, federal and state tax laws and regulations have a
significant impact upon the structuring of acquisitions and business
combinations. We expect that Tenet will evaluate the possible tax consequences
of any prospective business combination and will endeavor to structure a
business combination so as to achieve the most favorable tax treatment to us,
the target business and our respective shareholders. There can be no assurance
that the other parties to a transaction or the Internal Revenue Service or
relevant state tax authorities will ultimately assent to Tenet's tax treatment
of a particular business transaction. To the extent the Internal Revenue
Service or any relevant state tax authorities ultimately prevail in
recharacterizing the tax treatment of a business combination, there may be
adverse tax consequences to Tenet, the target business, and their respective
shareholders.
A potential business transaction might be carried out by purchasing the
securities of a target company or business. However, we do not intend to
engage primarily in trading or selling securities. Specifically, we expect
that Tenet will conduct its business so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940, and therefore
avoid application of the costly and restrictive registration and other
provisions of the Investment Company Act and related regulations.
Section 3(a) of the Investment Company Act excepts from the definition of
an "investment company" an entity which does not engage primarily in the
business of investing, reinvesting or trading in securities, or which does not
engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). Tenet intends to implement our business plan in a manner which will
result in the availability of this exception from the definition of an
investment company. Consequently, Tenet's acquisition of a company or business
through the purchase and sale of investment securities will be limited.
Although Tenet intends to act to avoid classification as an investment company,
the provisions of the Investment Company Act are extremely complex and it is
possible that Tenet may be classified as an inadvertent investment company.
Tenet will vigorously resist classification as an investment company, and
endeavor to take advantage of any exemptions or exceptions from application of
the Investment Company Act, which allows an entity a one-time option during any
three-year period to claim an exemption as a "transient" investment company.
The necessity of asserting any such resistance, or making any claim of
exemption, could be time consuming and costly, or even prohibitive, given our
limited resources.
Tenet will continue to be subject to the reporting requirements under the
Exchange Act. Among other things, those requirements include the obligation,
in the event significant acquisitions take place, to furnish information
including audited financial statements for the acquired company covering one,
two or three years depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain
the required audited financial statements may not be deemed appropriate for
acquisition by our board of directors so long as the reporting requirements of
the Exchange Act are applicable. Various impediments to an acquisition of a
business or company or a merger may arise such as appraisal rights afforded the
19
shareholders of a prospective acquisition or merger partner under the laws of
the state of organization of the prospective acquisition company. This may
prove to be a deterrent to a particular combination.
SECURITIES EXCHANGE REPORTING AND OTCBB MARKET LISTING
Following the Transaction, we intend to maintain our status as a
reporting company under the Securities Exchange Act of 1934, as well as the
listing of our common stock with the National Association of Securities
Dealers' Over the Counter Bulletin Board (the "OTCBB").
ACCOUNTING TREATMENT
The Transaction will be treated as a purchase under generally accepted
accounting principles. Upon consummation of the Transaction, we will recognize
receipt of cash in the amount of $339,000, remove the net assets sold from the
consolidated balance sheet, and record the gain or loss on the Transaction, net
of Transaction and other related costs, including applicable state and federal
income taxes, in our consolidated statements of earnings.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements are presented to illustrate the effects of the sale of our
consulting business to Delta Healthcare Group, Inc. (the "Delta Disposition"),
and the effects of the consummation of the Transaction, on our historical
financial position and operating results. (The Delta Disposition and the
Transaction are collectively referred to in these unaudited pro forma condensed
consolidated financial statements as the "Dispositions.")
The following unaudited pro forma condensed consolidated balance sheet of
Tenet at March 31, 2003 gives effect to the Dispositions as if they had
occurred on that date. The unaudited pro forma condensed consolidated
statements of operations for the nine months ended March 31, 2003 and for the
year ended June 30, 2002 give effect to the Dispositions as if they had
occurred as of the beginning of the earliest period presented.
The unaudited pro forma condensed consolidated financial statements have
been derived from, and should be read in conjunction with, our historical
consolidated financial statements, including the accompanying notes. Those
financial statements are included in our Quarterly Report on Form 10-QSB for
the three months ended March 31, 2003 and our Annual Report on Form 10-KSB for
the year ended June 30, 2002, included with this Proxy Statement as Exhibits G
and D, respectively.
The unaudited pro forma condensed consolidated financial statements are
presented only for informational purposes. As a result, the accompanying
unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of our financial position or results of operations that
would have occurred had the Dispositions been consummated as of the dates
indicated.
20
Tenet Information Services, Inc.
Condensed Consolidated Balance Sheet
as of March 31, 2003
(UNAUDITED)
Pro forma Pro forma
adjustments for for
Tenet Delta Disposition Transaction Pro-Forma
(a) (b) (c) Tenet
----------- --------------- ------------ ----------
ASSETS
Current Assets
Cash $ 116,265 $ - $ 189,000 (7) $ 305,265
Accounts receivable 138,236 (97,219) (1,2) (15,317)(8) 25,700
Work performed in
excess of billings 42,216 (6,847) (3) (35,369)(8) 0
Prepaid expenses 0 0 0 0
----------- --------- ---------- -----------
Total Current
Assets 296,717 (104,066) 138,314 330,965
Property and
Equipment
Equipment 136,058 (22,950) (3) (104,608) (8) 8,500
Less:
Accumulated
depreciation (120,031) 17,157 (3) 97,874 (8) (5,000)
----------- --------- --------- -----------
Net Property and
Equipment 16,027 (5,793) (6,734) 3,500
Other Assets
Trademarks & deposits 3,575 (1,425) (3) 0 2,150
----------- --------- --------- -----------
Total Other Assets 3,575 (1,425) 0 2,150
Total Assets $ 316,319 $(111,284) $ 131,580 $ 336,615
========== ========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 149,306 $ (89,168) (4,5) (8,337)(9) $ 51,801
Accrued expenses 83,365 (29,680) (4,5) (22,143)(9) 31,542
Accrued interest 10,649 0 0 10,649
Amounts due to related
parties 48,071 (4,952) (5) 0 43,119
Deferred revenue 132,325 0 (132,325)(10) 0
Billings in excess of
costs and estimted
earnings on uncompleted
contracts 106,635 (56,325) (4) (50,310)(10) 0
Total Current
Liabilities 530,351 (180,125) (213,115) 137,111
Stockholders' Equity
Common stock, $0.001 19,336 0 0 19,336
par value, 100,000
shares authorized;
19,065,892 shares
outstanding
Additional paid-in
capital 4,853,896 0 0 4,853,896
Retained deficit (5,087,264) 68,841 (6) 344,695 (11) (4,673,728)
----------- --------- ---------- -----------
Total Stockholders'
Equity (214,032) 68,841 344,695 199,504
----------- --------- ---------- -----------
Total Liabilties and
Stockholders' Equity $ 316,319 $(111,284) $ 131,580 $ 336,615
========== ========= ========== ===========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
21
Tenet Information Services, Inc. and Subsidiary
Notes To Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2003
(Unaudited)
(a) Reflects Tenet's historical financial position at March 31, 2003.
(b) Pro forma adjustments to record the Delta Disposition as of March 31, 2003
reflect:
(1) consideration paid by Delta to Tenet in the form of a note receivable
in the amount of $25,700;
(2) the exclusion of $124,719 in receivables related to our consulting
business. We collected the receivables before the consummation of the Delta
Disposition;
(3) the exclusion of various assets related to the consulting business;
(4) the exclusion of various liabilities related to the consulting
business;
(5) consideration paid by Delta to Tenet in the form of debt forgiveness
of i) accounts payable of $38,551 of expenses owed by Tenet to Frank C.
Overfelt, a former director and executive officer of Tenet, ii) accrued expenses
of $10,527 of vacation and compensation amounts owed by Tenet to Mr. Overfelt,
and iii) amounts due to related parties of $4,952 in a note payable owed by
Tenet to a company owned by Mr. Overfelt, for a total forgiveness of debt by
Delta of $54,030;
(6) the gain recognized on the consummation of the Delta Disposition.
(c) Pro forma adjustments to record the Transaction as of March 31, 2003
reflect:
(7) consideration paid by ClinicalVentures to Tenet in the form cash
totaling $339,000 less $150,000 that we estimate would be required to pay
expenses associated with completion of various contracts to be assumed
by ClinicalVentures pursuant to the Transaction;
(8) the exclusion of various assets to be acquired by ClinicalVentures
upon closing of the Transaction;
(9) the exclusion of various liabilities to be assumed by ClinicalVentures
upon closing of the Transaction;
(10) the recognition of completion of various contracts associated with the
assets to be acquired by ClinicalVentures upon closing of the Transaction;
(11) the gain recognized on the consummation of the Transaction.
22
Tenet Information Services, Inc. and Subsidiary
Pro Forma Condensed Consolidated Statements of Operations
For the Year Ended June 30, 2002
(Unaudited)
Pro Forma Pro Forma
adjustments adjustments
for Delta for
Tenet Diposition Transaction Pro Forma
(a) (b) (c) Tenet
--------- ---------- ---------- --------
Revenue $ 717,005 $ (249,463) $ (467,542) $ 0
Expenses
Cost of Revenue 365,132 (139,927) (225,205) 0
Selling, general, 178,015 (196,163) 61,608 43,460
and administrative
expenses
Software development 104,658 0 (104,658) 0
--------- ---------- ---------- --------
Total Expenses 647,805 (336,090) (268,255) 43,460
--------- ---------- ---------- --------
Net Gain / (Loss) 69,200 86,627 (199,287) (43,460)
from Operations
Other Income /
(Expense)
Interest expense (20,446) 0 15,646 (4,800)
Interest income 511 0 0 511
--------- ---------- ---------- --------
Total Other (19,935) 0 15,646 (4,289)
Income/(Expense)
Gain / (Loss) before 49,265 86,627 (183,641) (47,749)
income taxes and
extraordinary item
Income taxes 0 0 0 0
Gain / (Loss) before 49,265 86,627 (183,641) (47,749)
extraordinary item
Forgiveness of debt 21,625 0 0 21,625
--------- ---------- ---------- --------
Net Income / (Loss) $ 70,890 $ 86,627 $ (183,641) $(26,124)
========= ========== ========== ========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
23
Tenet Information Services, Inc. and Subsidiary
Pro Forma Condensed Consolidated Statements of Operations
For the Nine Months Ended March 31, 2003
(Unaudited)
Pro Forma Pro Forma
adjustments adjustments
for Delta for
Tenet Diposition Transaction Pro Forma
(a) (b) (c) Tenet
--------- ---------- ---------- --------
Revenue $ 663,061 $ (239,692) $ (423,369) $ 0
Expenses
Cost of Revenue 355,002 (225,222) (129,780) 0
Selling, general, 204,207 (60,102) (110,085) 34,020
and administrative
expenses
Software 88,254 0 (88,254) 0
development
--------- ---------- ---------- --------
Total Expenses 647,463 (285,324) (328,119) 34,020
--------- ---------- ---------- --------
Net Gain / (Loss) 15,598 45,632 (95,250) (34,020)
from Operations
Other Income /
(Expense)
Interest expense (13,811) 0 10,211 (3,600)
Interest income 0 0 0 0
--------- ---------- ---------- --------
Total Other (13,811) 0 10,211 (3,600)
Income/(Expense)
--------- ---------- ---------- --------
Gain / (Loss) before
income taxes and 1,787 45,632 (85,039) (37,620)
extraordinary item
Income taxes 0 0 0 0
--------- ---------- ---------- --------
Gain / (Loss) before 1,787 45,632 (85,039) (37,620)
extraordinary item
Forgiveness of debt 0 0 0 0
--------- ---------- ---------- --------
Net Income / (Loss) $ 1,787 $ 45,632 $ (85,039) $(37,620)
========= ========== ========== ========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
Tenet Information Services, Inc. and Subsidiary
Notes To Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the Nine Months Ended March 31, 2003 and
the Year Ended June 30, 2002
(Unaudited)
(a) Reflects Tenet's historical operating results for the nine months ended
March 31, 2003 and for the year ended June 30, 2002.
(b) Pro forma adjustments to record the Delta Disposition for the nine months
ended March 31, 2003 and for the year ended June 30, 2002.
(c) Pro forma adjustments to record the Transaction for the nine months ended
March 31, 2003 and for the year ended June 30, 2002.
24
FEDERAL INCOME TAX CONSEQUENCES
The proposed sale of operating assets of Tenet by itself will not produce
any separate and independent federal income tax consequences to the
shareholders of Tenet.
Any gain or loss on the sale from the Transaction will be taxable to
Tenet. We will recognize gain or loss based on the difference between the
amount of the purchase price allocated to the assets and our tax basis in the
assets. For purposes of determining the amount realized with respect to
specific assets, the total amount realized by us will generally be allocated
among the assets according to the rules prescribed under Section 1060(a) of the
Internal Revenue Code of 1986, as presently in effect. Our basis in the assets
sold is less than the cost of the assets, as adjusted for certain temporary
differences, such as depreciation, deferred profit on inter-company sales and
asset and liability provisions. The determination of whether gain or loss is
recognized will be made with respect to each of the assets included in the
Transaction. Accordingly, we may recognize gain on the sale of some of the
assets and a loss on the sale of others, depending on the amount of
consideration allocated to an asset as compared with the basis of that asset.
However, it is anticipated that we will have no tax liability in connection
with the Transaction, due to our excess net operating loss carry forwards.
DISSENTERS' RIGHTS AS A RESULT OF THE SALE
OF SUBSTANTIALLY ALL OF TENET'S ASSETS
Our shareholders will have dissenters' rights under Utah law in
connection with the Transaction. As a result of the Transaction shareholders
who oppose the Transaction will have the right to receive payment for the value
of their shares as set forth in sections 16-10(a)-1301 et. seq. of the Utah
Code. A copy of these sections is attached as Exhibit C to this proxy
statement. The material requirements for a shareholder to properly exercise his
or her rights are summarized below. However, these provisions are very
technical in nature, and the following summary is qualified in its entirety by
the actual statutory provisions that should be carefully reviewed by any
shareholder wishing to assert such rights.
Under the Utah Code, such dissenters' rights will be available only to
those shareholders of the Company who
(i) object in writing to the proposed Transaction prior to or at the
Special Meeting before the vote on the matter is taken, which
objection must notify Tenet that the shareholder intends to demand
payment for his, her or its shares if the proposed action is
effectuated; and
(ii) do not vote any of their shares in favor of the proposed Transaction
at the Special Meeting.
Failure to vote against the proposal to approve the Transaction and the Asset
Purchase Agreement will not constitute a waiver of your appraisal rights.
However, voting against the proposal to approve the Transaction and the Asset
Purchase Agreement is not sufficient to satisfy the notice requirements you
must satisfy under Utah law in order to perfect your dissenters' rights. In
order to be entitled to exercise your dissenters' rights, you must have been a
shareholder with respect to the shares for which payment is demanded as of the
date of the proposed corporate action creating dissenters' rights is approved
by the shareholders; that is, prior to the Special Meeting.
Within ten days after the effective date of the Transaction, Tenet will
send to each shareholder who has satisfied both of the foregoing conditions a
written notice in which Tenet will notify such shareholders of their right to
demand payment for their shares and will supply a form for dissenting
shareholders to demand payment. Shareholders will have 30 days to make their
payment demands or lose such rights. If required in the notice, each dissenting
shareholder must also certify whether or not he or she acquired beneficial
ownership of such shares before or after the date of the first announcement to
the news media of the proposed transaction.
Upon receipt of each demand for payment, Tenet will pay each dissenting
shareholder the amount that Tenet estimates to be the fair value of such
shareholder's shares, plus interest from the date of the completion of the
Transaction to the date of payment. With respect to any dissenting shareholder
who does not certify that he or she acquired beneficial ownership of the shares
prior to the first public announcement of the transaction, Tenet may, instead
of making payment, offer such payment if the dissenter agrees to accept it in
full satisfaction of his or her demand. "Fair value" means the value of the
shares immediately before the effectuation of the Transaction, excluding any
appreciation or depreciation in anticipation of such events.
25
Any dissenter who does not wish to accept the payment or offer made by
Tenet must notify Tenet in writing of his or her own estimate of the fair value
of the shares within 30 days after the date Tenet makes or offers payment. If
the dissenting shareholder and Tenet are unable to agree on the fair value of
the shares, then Tenet will commence a proceeding with the Utah courts within
60 days after receiving the dissenter's notice of his, her or its own estimate
of fair value. If Tenet does not commence such a proceeding within the 60-day
period, it must pay each dissenter whose demand remains unresolved the amount
demanded by such dissenter. If a proceeding is commenced, the court will
determine the fair value of the shares and may appoint one or more appraisers
to help determine such value. All dissenting shareholders must be a party to
the proceeding, and all such shareholders will be entitled to judgment against
Tenet for the amount of the fair value of their shares, to be paid on surrender
of the certificates representing such shares. The judgment will include an
allowance for interest (at a rate determined by the court) to the date of
payment.
The costs of the court proceeding, including the fees and expenses of any
appraisers, will be assessed against Tenet unless the court finds that the
dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment at a higher amount than that offered by Tenet. Both Tenet and the
dissenters must bear their own respective legal fees and expenses, unless the
court requires one party to pay such legal fees and expenses because of the
conduct of such party. The loss or forfeiture of appraisal rights simply means
the loss of the right to receive a cash payment from Tenet in exchange for
shares. In such event the shareholder would still hold the appropriate number
of shares of Tenet.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has determined that the Transaction is in the best
interests of Tenet. The Board of Directors has unanimously approved the Asset
Purchase Agreement and the Transaction and unanimously recommends that you vote
in favor of the proposal to approve the Asset Purchase Agreement and the
Transaction.
VOTE REQUIRED
The Transaction will constitute a sale of substantially all of our
assets. The Board of Directors has determined that we will proceed with the
Transaction only if the Asset Purchase Agreement and the Transaction are
approved by a majority of all issued and outstanding shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE PROPOSAL TO APPROVE THE ASSET PURCHASE AGREEMENT
AND THE TRANSACTION.
PROPOSAL #2
APPROVAL OF THE WRITTEN CONSENT RESOLUTIONS AND APPROVAL AND ADOPTION OF
RELATED AMENDED ARTICLE
Our Board of Directors has unanimously approved, and recommends that our
shareholders approve, resolutions authorizing our shareholders to act by the
written consent of fewer than all shareholders entitled to vote with respect to
the action, to the fullest extent permitted by applicable Utah corporate law
(the "Written Consent Resolutions").
Currently, Section 704 of the Utah Revised Business Corporation Act (the
"Revised Act") permits action to be taken by the written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote thereon were present and voted (subject to specified
restrictions, including but not limited to the election of directors of a
corporation). However, Section 1704(4) of the Revised Act specifies that the
provisions of Section 704 may not operate to permit a corporation in existence
prior to July 1, 1992 (and thus having been subject to the provisions of the
Utah Business Corporation Act which only permitted action by written consent of
all shareholders entitled to vote on an issue) to take action by written
consent of fewer than all shareholders entitled to vote with respect to a
matter, until a resolution providing otherwise is approved by the shareholders,
either by unanimous written consent or at a duly convened meeting.
26
In compliance with Section 1704(4) of the Revised Act, the Board of
Directors recommends that the shareholders approve and adopt the following
Written Consent Resolutions:
RESOLVED: That the shareholders of the corporation resolve to
permit any action which may be taken at any annual or special meeting of
shareholders to be taken without a meeting, as permitted by Section 704
of the Utah Revised Business Corporation Act (the "Revised Act").
RESOLVED FURTHER: That to the maximum extent permitted by Section
704 of the Revised Act, without regard to the limitations of Section
1704(4) of the Revised Act, any action which may be taken at any annual
or special meeting of shareholders may be taken without a meeting, and
without prior notice, if one or more consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary
to authorize or take the action at a meeting at which all shares entitled
to vote thereon were present and voted.
RESOLVED FURTHER: That to the extent the bylaws of the corporation
may contain any provision inconsistent with the foregoing resolutions or
permit action to be taken by a written consent of the shareholders only
if signed by all shareholders, then such bylaw provisions are hereby
amended to permit the taking of action by the written consent of
shareholders in the manner provided in Section 704 of the Act and in the
preceding resolutions.
In addition, the Board of Directors recommends that the shareholders
approve and adopt an amendment to our Articles of Incorporation (see Exhibit B,
Amended and Restated Articles, Article VI) which expressly references the right
of our shareholders' to take action by the written consent of fewer than all
shareholders, to the extent permitted under applicable Utah corporate laws.
The Board of Directors believes that including such amendment in our Articles
of Incorporation will have the effect of implementing the Written Consent
Resolutions and affording our management and shareholders more durable and
accessible evidence of our shareholders' intent to be governed by Section 704
of the Act.
Generally, adoption of the Written Consent Resolutions may make it easier
for our shareholders to govern the company. Allowing shareholders to take
action by the written consent of fewer than all of the shareholders entitled to
vote with respect to a particular action will make it practical for our
shareholders to act without the necessity and expense of holding a meeting of
shareholders, particularly given that Tenet is subject to the disclosure
requirements and proxy solicitation rules and regulations under the Securities
Exchange Act of 1934. Moreover, the Written Consent Resolutions will likely
better enable our shareholders to initiate corporate action independently of
our management, because our shareholders will not be required to call a special
meeting in those circumstances where it is not practical to obtain the written
consent of all shareholders entitled to vote on the action, as would be the
case without adoption of the Written Consent Resolutions. Approval of the
Written Consent Resolutions promotes the notion that there should be no
distinction between action taken by less than unanimous written consent of the
shareholders or action taken at a meeting in which other shareholders present
and voting could not preclude the taking of the action in any event. In such
cases little is gained by requiring Tenet to incur the expense of holding a
meeting.
On the other hand, approval of the Written Consent Resolutions will at
times enable the holders of a simple majority of the outstanding common stock
to take shareholder action without affording other shareholders the opportunity
to consider and vote on the matter at a meeting of shareholders. Moreover, the
Written Consent Resolutions may have the effect of making less difficult
shareholder actions that do not have the support of the Board of Directors.
For example, the Written Consent Resolutions may have the effect of enabling a
person to make a tender offer or otherwise attempt to gain control of Tenet
even if such person were unwilling or unable to submit its proposals to a vote
of the shareholders at a meeting. Conversely, requiring the written consents
of all shareholders entitled to vote in connection with an acquisition or other
attempt to take control of Tenet may make such acquisition or attempt to take
control more difficult or delay such actions by a person or group acquiring a
substantial percentage of the outstanding shares of our common stock. Finally,
the Written Consent Resolutions may also enable a holder who controls or
holders who control a majority of our common stock to use the written current
procedure to take shareholder action unilaterally.
27
The Board of Directors has determined that the potential benefits which
may result following adoption of the Written Consent Resolutions outweigh the
potential risks described above. The proposal to approve and adopt the Written
Consent Resolutions is not made in response to any efforts of which we are
aware to accumulate Tenet's stock or to obtain control of Tenet. Adoption of
the Written Consent Resolutions may make us a more attractive target for
acquisition by an outsider by making it less difficult for such person to
obtain control of Tenet, however.
The Board of Directors has determined that it would be advantageous to
Tenet and its shareholders to adopt the Written Consent Resolution in order to
facilitate shareholder governance of the corporation while simultaneously
making such governance more efficient and less expensive.
VOTE REQUIRED
Approval and adoption of the Written Consent Resolutions and the related
amended article require the affirmative vote of a majority of the shares of
common stock voted at the Special Meeting. Unless you specify otherwise on
your signed, dated proxy, your shares will be voted in favor of approval and
adoption of the Written Consent Resolutions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE WRITTEN CONSENT RESOLUTIONS AND APPROVAL AND ADOPTION OF
THE AMENDED ARTICLE RELATED TO THE WRITTEN CONSENT RESOLUTIONS.
PROPOSAL #3
APPROVAL OF STOCK SPLIT RESOLUTION AND APPROVAL AND ADOPTION OF RELATED AMENDED
ARTICLE
Our Board of Directors has unanimously approved, and recommends that our
shareholders approve a one-for-twenty reverse stock split of the outstanding
shares of Tenet's common stock, 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 approve and adopt an amendment to our
Articles of Incorporation to effect a reverse split of our issued and
outstanding common stock (see Exhibit B, Amended and Restated Articles, Article
III). The reverse split will combine every group of 20 outstanding shares of
the common stock held by any shareholder into one share of common stock. If
this amendment is approved by our shareholders, the Board of Directors will
have the authority to effect the reverse stock split by filing the Amended and
Restated Articles with the Division. If this amendment is adopted, there will
be no change in the number of authorized shares of common stock and no change
in the per share par value of the common stock. The Board of Directors
recommends that the shareholders approve and adopt the following resolution:
RESOLVED: That the shareholders of the corporation resolve to
approve a one-for-twenty reverse stock split of the outstanding shares of
Tenet's common stock, to take effect upon the filing of the Amended and
Restated Articles with the Utah Department of Commerce, Division of
Corporations and Commercial Code
We will not issue scrip or fractional shares, or certificates for
fractional shares, in connection with the reverse stock split. We estimate
that four of our 314 shareholders of record own an aggregate of less than
twenty shares each and will be paid cash for their shares, leaving Tenet with
310 shareholders of record. Any fractional shares that may result for other
shareholders will be redeemed in cash based on the fair market value of our
common stock. Shares held by shareholders affiliated with one another will be
aggregated for this purpose to the extent commercially practicable. For
purposes of the payment for fractional shares, our Board of Directors has
determined that the fair market value of our common stock is $0.02 per
pre-split share. We estimate that Tenet will pay an aggregate of less than
$100.00 to holders of fractional shares of common stock after the reverse split.
The reverse stock split is not intended to be a step in a plan to initiate a
"going private transaction". Management has no plans to initiate a "going
private transaction".
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REASONS FOR THE PROPOSED REVERSE SPLIT
The Board of Directors believes that the current per-share market price
of our common stock may impair the acceptability of our common stock to certain
institutional investors and other members of the investing public.
Theoretically, the number of shares outstanding should not, by itself, affect
the marketability of the stock, the type of investor who acquires it, or our
reputation in the financial community. In practice this is not necessarily the
case, as certain investors view low-priced stock as unattractive or, as a
matter of policy, are precluded from purchasing low-priced stock because of the
greater trading volatility sometimes associated with such securities.
Accordingly, one purpose of the reverse stock split is to help raise our
reputation in the financial community.
In approving the proposed reverse stock split, our Board of Directors
considered that Tenet's common stock may not appeal to brokerage firms that are
reluctant to recommend lower-priced securities to their clients. Investors may
also be dissuaded from purchasing lower-priced stocks because the brokerage
commissions, as a percentage of the total transaction, tend to be higher for
such stocks. Moreover, the analysts at many brokerage firms do not monitor the
trading activity or otherwise provide coverage of lower-priced stocks. Also,
the Board believes that most investment funds are reluctant to invest in lower-
priced stocks.
An additional purpose of the reverse stock split is to increase the
market price of our common stock in order to meet the listing criteria of
national securities exchanges such as the NASDAQ SmallCap Market ("NASDAQ").
Our common stock is presently eligible for quotation on the National
Association of Securities Dealers' Over the Counter Bulletin Board (the
"OTCBB"), which was established for securities that do not meet the NASDAQ
listing requirements, and is not presently listed on any securities exchange.
In order to be listed on a securities exchange or NASDAQ, we must meet the
listing standards of the securities exchange or NASDAQ and have our listing
application approved by the securities exchange or NASDAQ. NASDAQ and each
securities exchange has its own listing requirements and application process.
However, the listing standards of NASDAQ and each securities exchange generally
require that all applicants have a minimum per share closing trading price on
their common stock.
Our Board of Directors believes that it is important to provide our
shareholders with the best possible market for trading our common stock. The
OTCBB is generally considered less efficient and less liquid than NASDAQ or any
securities exchange. Consequently, if it were listed on a securities exchange
or NASDAQ, selling our common stock could be easier because larger quantities
of shares might be bought and sold, transactions might be executed more
efficiently, and securities analysts' and news media coverage might be
increased.
These factors could result in higher prices and lower spreads in the bid
and ask prices for shares of our common stock. A listing on a securities
exchange could also improve our ability to raise additional capital through
equity or debt financing and, to the extent the stock price increases as a
result of or in connection with such listing, ownership dilution to
shareholders might be reduced if we issue equity in financing or other
transactions, since less shares will need to be issued in order to raise a
specific amount of capital.
We cannot assure you that the reverse stock split will accomplish these
objectives or that we will seek to have our Common Stock listed on NASDAQ or
any securities exchange. While we expect that the reduction in the outstanding
shares of common stock will increase the market price of the common stock, we
cannot assure you that the reverse stock split will increase the market price
of the common stock by a multiple equal to the reverse split ratio of twenty or
result in any permanent increase in the market price (which can be dependent
upon many factors, including, but not limited to, our business and financial
performance and prospects). Should the market price decline after the reverse
stock split, the percentage decline may be greater, due to the smaller number
of shares outstanding, than it would have been prior to the reverse stock
split. Additionally, there can be no assurance that by meeting the listing
requirements for minimum trading price our stock will be listed on a securities
exchange such as NASDAQ. In some cases, the stock price of companies that have
effected reverse stock splits has subsequently declined back to pre-reverse
split levels.
There are other reasons why a reverse stock split may be perceived
negatively in the marketplace. In addition to the fact that the number of
shares available for trading is reduced, which generally has the effect of
reducing liquidity, round lots (i.e., lots in multiples of 100 shares) may be
converted into odd lots due to the split, which may in turn increase
transaction costs for shareholders. We cannot assure you that the market price
of our common stock immediately after the effective date of the proposed
reverse stock split will be maintained for any period of time or that the ratio
of post and pre-split shares will remain the same after the reverse stock split
is effected, or that the reverse stock split will not have an adverse effect on
our stock price due to the reduced number of shares outstanding after the
reverse stock split.
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EFFECT OF THE REVERSE SPLIT GENERALLY
Upon the effectiveness of the reverse stock split, you will own fewer
shares than you owned prior to the reverse split. The number of post-split
shares will be determined by dividing the number of shares owned immediately
prior to the effective time of the reverse stock split by twenty. Thus, if you
owned 1,000 shares of our common stock prior to the reverse split, then, after
the effective time of the reverse split, you will own 50 shares of our common
stock.
The reverse stock split will simultaneously apply to all outstanding
shares of our common stock. On August 29, 2003, we had 19,336,213 issued and
outstanding shares of our common stock. Accordingly, if the Record Date was the
effective time of the reverse stock split, then we would have approximately
966,811 issued and outstanding shares of our common stock on a post-split basis.
The reverse stock split will affect all shareholders uniformly and will not
materially change their proportionate ownership interests (except to the extent
we redeem fractional shares, as more specifically described herein), nor will
the reverse split alter the respective voting rights of holders of our common
stock. The common stock issued pursuant to the reverse stock split will remain
fully paid and non-assessable.
Because the number of authorized shares of our common stock will not be
reduced, the overall effect of the reverse stock split will be an increase in
authorized but unissued shares of our common stock. These shares may be issued
by the Board of Directors in its discretion. Any future issuance will have the
effect of diluting the percentage of stock ownership and voting rights of the
present holders of our common stock. The Board currently has no plans,
proposals, or other arrangements that would involve issuance of these shares.
If approved by our shareholders at the Special meeting, we will file the
Amended and Restated Articles with the Division shortly after the closing date
of the Transaction. However, if for any reason the Transaction is not
completed as currently anticipated, we may proceed with the filing of the
Amended and Restated Articles. The reverse stock split will become effective
upon the filing of the amendment with the Division (the "Effective Date"). At
the Effective Date, each certificate representing our common stock prior to the
reverse stock split will be deemed for all corporate purposes to evidence
ownership of post-split shares. There is no "issuance" resulting from the
reverse stock split.
Promptly after the Effective Date, you will be notified that the reverse
stock split has been effected. Our stock transfer agent, Interwest Transfer,
whom we refer to as the exchange agent, will implement the exchange of stock
certificates representing outstanding shares of common stock. You will be
asked to surrender to the exchange agent certificates representing your pre-
split shares in exchange for certificates representing your post-split shares
in accordance with the procedures to be set forth in a letter of transmittal
which we will send. You will not receive a new stock certificate representing
your post-split shares until you surrender your outstanding certificate(s)
representing your pre-split shares, together with the properly completed and
executed letter of transmittal to the exchange agent.
PLEASE DO NOT DESTROY ANY STOCK CERTIFICATE OR SUBMIT ANY CERTIFICATES UNTIL
YOU ARE REQUESTED TO DO SO.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following is a summary of certain material federal income tax
consequences of the reverse stock split; however, this does not purport to be a
complete discussion of all of the possible federal income tax consequences of
the reverse stock split. It does not discuss any state, local, foreign or
minimum income or other U.S. federal tax consequences. Also, it does not
address the tax consequences to shareholders who are subject to special tax
rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. This discussion is based on the
provisions of the United States federal income tax law as of the date hereof,
which is subject to change retroactively as well as prospectively. This summary
also assumes that the pre-split shares were, and the post-split shares will be,
held as "capital assets," as defined in the Internal Revenue Code of 1986, as
amended (generally, property held for investment). Your tax treatment may vary
depending upon your own particular facts and circumstances.
30
You should recognize no gain or loss upon your exchange of your pre-split
shares for post-split shares pursuant to the reverse stock split. In general,
shareholders who receive cash upon redemption of their fractional share
interests as a result of the reverse stock split will recognize gain or loss
based on their adjusted basis in the fractional share interests redeemed. The
federal income tax liability, if any, generated by the receipt of cash in lieu
of a fractional interest should not be material in amount in view of the low
value of the fractional interest.
The aggregate tax basis of the post-split shares received in the reverse
stock split (including any fraction of a post-split share deemed to have been
received) will be the same as your aggregate tax basis in the pre-split shares
you exchanged. Your holding period for the post-split shares will include the
period during which the you held the pre-split shares surrendered in the
reverse stock split.
We believe that the reverse stock split will qualify as a
"recapitalization" under Section 368(a)(1)(E) of the Internal Revenue Code. As
a result, we will not recognize any gain or loss as a result of the reverse
stock split.
SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS FOR MORE DETAILED
INFORMATION REGARDING THE EFFECTS OF THE PROPOSED REVERSE SPLIT ON THEIR
INDIVIDUAL TAX STATUS
AUTHORIZED SHARES; FUTURE FINANCINGS.
Upon effectiveness of the proposed reverse stock split, the number of
authorized shares of common stock that are not issued or outstanding would
increase from approximately 79,833,795 shares to approximately 98,991,744
shares. Tenet will continue to have 100,000,000 shares of authorized common
stock and 1,000,000 shares of authorized preferred stock. Authorized but
unissued shares will be available for issuance, and Tenet may issue such shares
in financings or otherwise. If Tenet issues additional shares, the ownership
interest of holders of Tenet's common stock will likely be diluted. Also, the
issued shares may have rights, preferences or privileges senior to those of
Tenet's common stock.
Summary of effect of reverse split:
Pre-split Post-split
Issued & Outstanding 19,336,205 966,756
Authorized 100,000,000 100,000,000
Reserved for issuance 830,000 41,500
Unreserved for issuance 79,833,795 98,991,744
ACCOUNTING MATTERS.
The proposed reverse stock split will not affect the par value of Tenet's
common stock. As a result, on the effective date of the reverse stock split,
the stated capital on Tenet's balance sheet attributable to Tenet's common
stock will be reduced to 1/20 of its present amount, and the additional paid-in
capital account shall be credited with the amount by which the stated capital
is reduced. The per share net income or loss and net book value of Tenet's
common stock will be increased because there will be fewer shares of Tenet's
common stock outstanding.
POTENTIAL ANTI-TAKEOVER EFFECT.
Although the increased proportion of unissued authorized shares of common
stock to issued shares could, under certain circumstances, have an anti-
takeover effect (for example, by permitting issuances that would dilute the
stock ownership of a person seeking to effect a change in the composition of
the Tenet's Board or contemplating a tender offer or other transaction for the
combination of Tenet with another company), the reverse stock split proposal is
not being proposed in response to any effort of which Tenet is aware to
accumulate Tenet's shares of common stock or obtain control of Tenet, nor is it
part of a plan by management to recommend a series of similar amendments to
Tenet's Board of Directors and shareholders.
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EFFECT UPON OUTSTANDING OPTIONS AND WARRANTS.
TENET HAS OUTSTANDING OPTIONS TO PURCHASE FOR 830,000 SHARES OF COMMON
STOCK. POST-SPLIT, THESE OPTIONS WILL COVERT TO 41,500 SHARES. THE PRE-SPLIT
OPTION PRICE IS $0.10 PER SHARE AND IS ANTI-DILUTIVE.
VOTE REQUIRED
Approval and adoption of the Reverse Split Resolution and related
amended article require the affirmative vote of a majority of the outstanding
shares of our common stock as of the record date for the Special Meeting.
Unless you specify otherwise on your signed, dated proxy, your shares will be
voted in favor of approval and adoption of the Reverse Split Resolution and
related amended article.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE STOCK SPLIT RESOLUTION AND APPROVAL AND ADOPTION OF RELATED AMENDED
ARTICLE
PROPOSAL #4
APPROVAL OF ELIMINATION OF ARTICLES RELATED TO ACQUISITION BY TENET
OF ITS OWN SHARES AND DISTRIBUTIONS TO SHAREHOLDERS
GENERAL
Our Board of Directors has unanimously approved, and recommends that the
shareholders approve and adopt, deletions from our Articles of Incorporation
which would eliminate provisions for Tenet to acquire its own shares and make
distributions to shareholders. The rights and restrictions given by these two
articles are specified by Utah Corporate law, making these two articles
unnecessary.
A. DELETION OF ARTICLE VI, ACQUISITION BY TENET OF ITS OWN SHARES
Article VI of our Articles of Incorporation currently provides that Tenet
has the right to purchase, take, receive or otherwise acquire, hold, own,
pledge, transfer or otherwise dispose of its own shares, subject to the
limitation that Tenet's purchase of its own shares must be made only to the
extent of unreserved and unrestricted earned surplus and capital surplus
available for that purpose. We have omitted Article VI in its entirety from
the Amended and Restated Articles, because this provision does not provide
additional rights to, nor does it impose additional restrictions on, Tenet in
connection with the acquisition of its own stock not currently provided in the
Act. Deletion of Article VI will have no material effect on shareholders.
There is no change in Tenet's ability to acquire its own shares in either
quantitative or qualitative terms. Tenet currently has no plans to acquire any
of its shares.
B. DELETION OF ARTICLE VII, DISTRIBUTIONS TO SHAREHOLDERS
Article VII of our Articles currently provides that our Board of
Directors may distribute, out of stated capital or capital surplus of the
corporation, a portion of its assets, in cash or other property, subject to the
provisions of the Utah Business Corporation Act, as amended. We have omitted
Article VII in its entirety from the Amended and Restated Articles, because
this provision does not provide Tenet with additional rights, nor does it
impose on Tenet additional restrictions, in connection with distributions to
our shareholders not currently provided in the Act. Deletion of Article VII
will have no material effect on shareholders. There is no change in Tenet's
ability to provide distributions to shareholders. Tenet currently has no plans
to provide any distributions to shareholders.
VOTE REQUIRED
Approval of elimination of articles related to acquisition by Tenet of
its own shares and distribution to shareholders requires the affirmative vote
of a majority of the outstanding shares of our common stock as of the record
date for the Special Meeting. Unless you specify otherwise on your signed,
dated proxy, your shares will be voted in favor of approval and adoption of the
Reverse Split Resolution and related amended article.
32
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF ELIMINATION OF ARTICLES RELATED TO ACQUISITION BY TENET
OF ITS OWN SHARES AND DISTRIBUTIONS TO SHAREHOLDERS
PROPOSAL #5
APPROVAL AND ADOPTION OF AMENDED ARTICLES RELATED TO
PROVISIONS NO LONGER NECESSARY AND CONSOLIDATION OF ARTICLES INTO
RESTATED AND AMENDED ARTICLES OF INCORPORATION
ELIMINATION OF PROVISIONS NO LONGER NECESSARY OR APPROPRIATE UNDER UTAH
CORPORATE LAW.
A final purpose of the approval and adoption of the Amended and Restated
Articles is to simplify our Articles of Incorporation by consolidating various
amendments and eliminating obsolete provisions of our Articles of Incorporation
as currently restated and amended. In addition to the amendments specifically
described above, our Board of Directors recommends that we further amend our
Articles of Incorporation as follows in order to make our Articles consistent
with the Act.
A. DELETION OF ARTICLE II, DURATION OF TENET
Article II of our Articles of Incorporation currently provides that Tenet
shall exist perpetually unless earlier dissolved according to law. We have
omitted Article II from the Amended and Restated Articles. Pursuant to Section
302 of the Act, every Utah corporation has perpetual duration until dissolved
as provided in the Act, making this Article unnecessary.
B. MODIFICATION OF ARTICLE III, THE CORPORATE PURPOSE OF TENET
Article III currently provides that Tenet is organized (1) to develop,
construct and market computer related information and testing services for use
in the medical and health fields and to engage in any other business resulting
from such activities and (2) to engage in any other acts, activities and
pursuits for which a corporation may be organized under the Utah Business
Corporation Act. We have omitted from Article III of the Amended and Restated
Articles the language related to the development, construction and marketing of
computer related information and testing services for use in the medical and
health fields and other business resulting from such activities. Omitting this
language will make our Articles of Incorporation consistent with the fact that,
upon completion of the Transaction, we will have no specific business purpose
until we identify and complete an acquisition or similar transaction. The Act
currently provides that it is sufficient for the Articles of Incorporation to
provide that the purpose of Tenet is to engage in any lawful act or activity
for which corporations may be organized under the Act. The proposed amendment
to Article III is consistent with this requirement.
C. ADDITIONAL MODIFICATIONS
The Board of Directors recommends the restatement of our Articles of
Incorporation which would incorporate all amendments and consolidate all
changes into a single document, our Amended and Restated Articles (see Exhibit
B, Amended and Restated Articles). In addition to the amendments set forth
above, in the Amended and Restated Articles we have further modified our
Articles of Incorporation by deleting the phrase "Utah Business Corporation
Act" in each provision where it appears, substituting therefore the "Utah
Revised Business Corporation Act," and by renumbering the Articles to account
for the deletion of old articles and the insertion of new articles.
Other than the specific amendments named herein, the remaining provisions
of our Articles of Incorporation, as currently in effect, will not be changed
as a result of the approval and adoption of the Amended and Restated Articles.
33
VOTE REQUIRED
Approval of the Amended and Restated Articles requires the affirmative
vote of a majority of the outstanding shares of our common stock as of the
record date for the Special Meeting. Unless you specify otherwise, your
returned signed proxy will be voted FOR approval and adoption of the Amended
and Restated Articles.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT
THE AMENDED AND RESTATED ARTICLES.
PROPOSAL #6
ELECTION OF THE DIRECTOR NOMINEES
GENERAL
The number of authorized directors on our Board of Directors may be
varied by the Board of Directors, but may not be less than three. Currently,
the number of authorized directors on the Board of Directors is set at three,
and each position on the Board is currently filled. The Board of Directors has
determined that it is in the best interests of Tenet and its shareholders to
nominate each of the current directors, being Mr. Jerald L. Nelson, Mr. Eric J.
Nickerson and Mr. Fred Anderson, for reelection at the Special Meeting.
The Board of Directors has nominated MR. JERALD L. NELSON, MR. ERIC J.
NICKERSON and MR. FRED ANDERSON (the "Director Nominees") for election as
directors at the Special Meeting. Each of Messrs. Nelson, Nickerson and
Anderson will be elected to serve for a one year term expiring at Tenet's
annual meeting in 2004, until his respective successor is duly elected and
qualified or until his earlier resignation. There are no family relationships
among any of Tenet's directors or executive officers. Unless you specify
otherwise, your returned signed proxy will be voted FOR each of the Director
Nominees. In the event a Director Nominee is unable to serve, your proxy may
vote for another person nominated by the Board of Directors to fill that
vacancy. The Board of Directors has no reason to believe that any of its
Director Nominees will be unavailable.
VOTE REQUIRED
A plurality of the votes represented at the meeting is required to elect
a director.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
DIRECTOR NOMINEES LISTED ABOVE.
DIRECTORS
Set forth below is the principal occupation of, and certain other
information regarding, the Director Nominees.
JERALD L. NELSON. Jerald L. Nelson has served as a director, president
and chief operating officer of the Company since December 1993. Effective July
10, 1996, Dr. Nelson was appointed Chairman of the Board of Directors, and
relinquished his position as President and Chief Operating Officer. On June 5,
2001, the board elected Dr. Nelson to the position of Corporate Secretary, a
position which Dr. Nelson held until May 2, 2003. The Board re-elected Dr.
Nelson as President of the Company effective May 2, 2003. Dr. Nelson received
his Ph.D. in Economics from North Carolina State University in 1974. From 1974
to 1984, Mr. Nelson worked or consulted with several Fortune 500 firms,
including US Industries, TransWorld Airlines, GTE, Xerox, Pitney Bowes and
General Foods. From 1984 until December 1993, Mr. Nelson worked with various
businesses as an investment banker and business advisor. He has also consulted
with or served on the Board of Directors of numerous Utah firms including Arrow
Dynamics, Beacon Financial, Interwest Home Medical, Gentner Communications and
One-2-One Communications, where he also served as chairman and chief executive
officer.
34
ERIC J. NICKERSON. Eric J. Nickerson has served as a director since June
of 1990. Mr. Nickerson was a member of the faculty of the United States
Military Academy at West Point, New York from 1989 to 1993. In June 1993, Mr.
Nickerson retired as a United States Air Force officer. Currently, Mr.
Nickerson is a private investor and directs personal accounts and two investing
partnerships: "Third Century II" and "Z Fund."
FRED J. ANDERSON. Fred J. Anderson has served as a director since May
23, 2003. The Board elected Mr. Anderson to serve as Tenet's Chief Operating
Officer and Corporate Secretary effective May 2, 2003. Mr. Anderson served as
Tenet's Chairman of the Board from May 1992 until July 1995, when he resigned
to manage his family's land and livestock interests. Mr. Anderson also served
as the Chief Financial Officer of Tenet from 1986 until 1996. From 1980 until
1984, Mr. Anderson served as Vice President for Mountain States Resources. He
received his BS in Accounting and an MBA from Utah State University.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 2003 the Board of Directors held 5
board meetings either in person or telephonically. Each of the Director
Nominees attended at least 75% of the meetings of the Board of Directors.
The Board of Directors currently has no standing committees.
DIRECTORS, EXECUTIVE OFFICERS PROMOTERS, AND CONTROL PERSONS OF TENET
Information regarding the current directors and executive officers of
Tenet is set forth under the heading "Directors," on page 33.
COMPENSATION OF DIRECTORS
Each outside director is entitled to receive a $200 stipend per month.
However, during the fiscal year ended June 30, 2003, Tenet failed to pay this
fee to any director. Such amounts have been accrued on a monthly basis as an
obligation owed by Tenet to its directors.
OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
June 30, 2003, 2002 and 2001 regarding the compensation of each executive
officer of Tenet who served as the chief executive officer of Tenet at any time
during the 2003 fiscal year (the "Named Executive officers").
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------ -------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Awards Options Payouts Compensation
--------------------------- ---- -------- ----- ------------ ---------- ---------- ------- ------------
Frank Overfelt(1) 2003 $ 75,123 - - - - - -
President 2002 104,810 - - - - - -
2001 76,360 - - - - - $ 3,600
Jerald L. Nelson (2) 2003 749 - - - - - -
Chairman, President 2002 - - $ 1,000 $ 2,703 - - -
Corporate Treasurer 2001 - - - - - - -
(1) Mr. Overfelt terminated his employment with Tenet and resigned as its
President in May of 2003.
(2) Effective May 3, 2003, the Board of Directors re-appointed Mr. Nelson as
President of Tenet.
35
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since the beginning of the Company's last fiscal year, except as
otherwise provided below, there have been no transactions or series of
transactions between the Company and any executive officer, director or 5%
beneficial owner of the Company's common stock in which one of the foregoing
individuals had an interest of more than $60,000.
Eric J. Nickerson, a director and significant shareholder of Tenet, has
agreed that upon approval by the shareholders of the sale of our assets to
ClinicalVentures as provided herein, he will purchase from ClinicalVentures a
promissory note in the principal amount of $360,000 in exchange for $289,000 in
cash, which cash will facilitate payment by ClinicalVentures of the full
purchase price in cash at the closing of the sale of assets. The promissory
note shall be due and payable, without interest, in equal monthly installments
in the amount of $6,000 each, with penalties for non-payment.
ClinicalVentures' obligations under the promissory note will be secured by the
assets of Tenet acquired by ClinicalVentures pursuant to a Security Agreement
by and between Mr. Nickerson and ClinicalVentures, and dated of even date.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe that Fred Anderson, an executive officer of Tenet since May 2,
2003, failed to file a Form 3, as required by Section 16(a) of the Securities
Exchange Act of 1934.
We believe that Eric Nickerson, a director and significant shareholder of
Tenet, may have failed to file one or more Forms 4 in connection with one or
more transactions which occurred during our most recently completed fiscal
year, pursuant to which Third Century Fund II, of which Mr. Nickerson is a
Senior Partner, acquired additional shares of our Common Stock. However, such
transaction or transactions may have qualified for delayed reporting on Form 5.
INDEPENDENT PUBLIC ACCOUNTANTS
Hansen, Barnett & Maxwell served as our independent accountants for the
fiscal year ended June 30, 2003 and 2002 and has been selected by our Board of
Directors to serve in such capacity for the current year. We incurred the
following expenses to Hansen, Barnett & Maxwell associated with the fiscal
years ended June 30, 2003 and 2002:
Fiscal Year ended Fiscal Year Ended
June 30, 2003(1) June 30, 2002
------------- -------------
Audit Fees(2) $ 13,000 $ 12,000
Audit-Related Fees $ 0 $ 0
Tax Fees $ 0 $ 0
All Other Fees $ 0 $ 0
Total $ 13,000 $ 12,000
(1) Estimated. We anticipate that audit fees associated with the 2003
fiscal year will be slightly more than those audit fees associated with the
2002 fiscal year.
(2) Audit Fees consisted of fees incurred for the audit of our
consolidated financial statements and related quarterly reviews, as well as any
other services normally provided by Hansen, Barnett & Maxwell in connection
with statutory or regulatory filings or engagements for those periods.
A representative of Hansen, Barnett & Maxwell is not expected to be
present at the Special Meeting to make a statement or to respond to questions.
36
SHAREHOLDER PROPOSALS
We anticipate that we will hold our next annual meeting of the
shareholders on November 12, 2004, and subsequent annual meetings on the second
Friday of each November thereafter. The deadlines below assume that we will
deliver the proxy statement related to the November 2004 annual meeting of
shareholders on or about October 22, 2004.
If you wish to submit proposals to be included in Tenet's year 2004 proxy
statement, we must receive them on or before June 24, 2004. Please address your
proposals to Corporate Secretary, Tenet Information Services, Inc., 53 West
9000 South, Sandy, Utah, 84070.
If you wish to raise a matter before the shareholders at the year 2004
annual meeting, you must notify the Corporate Secretary in writing by not later
than September 7, 2004. Please note that this requirement relates only to
matters you wish to bring before your fellow shareholders at the annual
meeting. It is separate from the SEC's requirements to have your proposal
included in the proxy statement.
Receipt by Tenet of any such proposal from a qualified shareholder in a
timely manner will not guarantee its inclusion in Tenet's proxy materials or
its presentation at the 2004 annual meeting because there are other
requirements in the proxy rules.
37
ANNUAL REPORT
We have filed our Annual Report on Form 10-KSB for the year ended June
30, 2002. A copy of the Annual Report on Form 10-KSB, along with our Quarterly
Reports on Form 10-QSB for the three month periods ended September 30, 2002,
December 31, 2002, and March 31, 2003, as filed with the Securities and
Exchange Commission, are included with, but are not deemed a part of, this
proxy soliciting material. Our reports and other filings also may be obtained
from the SEC's on-line database, located at www.sec.gov.
We will provide without charge to each person solicited, upon written
request of any such person, additional copies of our Annual Report on Form 10-
KSB, including the consolidated financial statements and the financial
statement schedules required to be filed with the Securities and Exchange
Commission pursuant to Rule 13a-1 under the Securities Exchange Act of 1934.
Direct any such correspondence to Jerald L. Nelson, President, Tenet
Information Services, Inc., 53 West 9000 South, Sandy, Utah 84070.
By Order of the Board of Directors
/s/ Jerald L. Nelson
---------------------------
Jerald L. Nelson, President
Sandy, Utah
September 24, 2003
38
SIDE 1
PROXY
TENET INFORMATION SYSTEMS, INC.
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELDOCTOBER 22, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jerald L. Nelson and Fred Anderson and each
of them, as proxies, with full power of substitution, and hereby authorizes
them to represent and vote, as designated on the reverse, all shares of common
stock of Tenet Information Services, Inc., a Utah corporation ("Tenet"), held
of record by the undersigned, on August 29, 2003, at the Special Meeting in
lieu of Annual Meeting of Shareholders (the "Special Meeting") to be held on
October 22, 2003 at 9:00 a.m., local time, at Country Inns and Suites located
at 10499 South Jordan Gateway, South Jordan, Utah 84095, or at any adjournment
or postponement thereof, upon the matters set forth on the reverse, all in
accordance with and as more fully described in the accompanying Notice of
Special Meeting in lieu of Annual Meeting of Shareholders and Proxy Statement,
receipt of which is hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1, 2 AND 3 AND "FOR" ELECTION OF THE DIRECTOR
NOMINEES NAMED ON THE REVERSE. PLEASE COMPLETE, SIGN, AND DATE THIS PROXY
WHERE INDICATED AND RETURN PROMPTLY IN THE ACCOMPANYING PREPAID ENVELOPE.
(To be Signed on Reverse Side.)
SIDE 2
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ITEMS 1, 2, 3, 4, 5, AND
6, BELOW.
1. To consider and vote upon a proposal to approve the sale to
ClinicalVentures, L.L.C. ("ClinicalVentures") of substantially all of the
operating assets and the assignment of certain liabilities of Tenet (the
"Transaction"), as well as the terms and conditions governing the
Transaction as set forth in the Asset Purchase Agreement dated July 29,
2003 by and between Tenet and ClinicalVentures.
FOR AGAINST ABSTAIN
/ / / / / /
2. To consider and approve resolutions and related amendment to the Articles
of Incorporation of Tenet authorizing the shareholders of Tenet to take
action by written consent of fewer than all of the shareholders entitled
to vote with respect to the action, to the fullest extent permitted by
Utah corporate law.
FOR AGAINST ABSTAIN
/ / / / / /
3. To consider and approve a resolution and related amendment to the
Articles of Incorporation of Tenet authorizing a one-for-twenty reverse
split of the outstanding shares of common stock, to take effect upon the
filing of the Amended and Restated Articles with the Utah Department of
Commerce, Division of Corporations and Commercial Code.
FOR AGAINST ABSTAIN
/ / / / / /
4. To consider and approve amendments to the Articles of Incorporation of
Tenet, which amendments will include the following:
a. Elimination of Articles VI of our 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 our 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;
FOR AGAINST ABSTAIN
/ / / / / /
5. To consider and approve amendments to and a restatement of the Articles
of Incorporation of Tenet, 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 computers 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.
FOR AGAINST ABSTAIN
/ / / / / /
6. To elect the following nominees to the Board of Directors of Tenet:
JERALD L. NELSON, ERIC J. NICKERSON, and FRED ANDERSON (the "Nominees"),
each to serve a one-year term expiring at Tenet's annual meeting to be
held in the year 2004 and until their successors are duly elected and
qualified.
[ ] FOR all Nominees
[ ] Withhold Authority to vote for the Nominees listed
below (TO WITHHOLD AUTHORITY FOR ONE OR MORE INDIVIDUAL
NOMINEES, CROSS OUT THE NAME OF EACH SUCH PERSON)
Jerald L. Nelson
Eric J. Nickerson
Fred Anderson
[ ] Abstain
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
2
Signature________________ Date______ Signature_______________ Date_______
NOTE:Please sign above exactly as the shares are issued. When shares are held
by co-tenants or joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
3
EXHIBIT D
TENET INFORMATION SERVICES, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
FORM 10-K(SB)
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ____________ to _____________
Commission File No. 0-18113
TENET INFORMATION SERVICES, INC.
(Exact name of registrant 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) (Zip Code)
Registrant's telephone number, including area code (801) 568-0899
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock
(Title of Class)
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 and 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. (1) Yes X No (2) Yes X No
--- --- --- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB, or any amendment to
this Form 10-KSB [ ].
State issuer's revenues for its most recent fiscal year: $ 717,005
State the aggregate market value of voting stock held by non-affiliates computed
by reference to the price at which the common equity was sold, or the average
bid and asked price of such common equity, as of a specified date within the
past 60 days. No current market value for common stock within last 60 days.
The number of shares outstanding of the Registrant's Common Stock as of
September 27, 2002 was 19,336,205.
TABLE OF CONTENTS
Page #
PART I
Item 1 Business 1
Item 2 Properties 4
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 5
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 5
Item 6 Management's Discussion and Analysis of Financial
Condition and Results of Operation 5
Item 7 Financial Statements 8
Item 8 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 9
PART III
Item 9 Directors, Executive Officers, Promoters and
Control Persons of the Registrant: Compliance with
Section 16)a) of the Exchange Act 9
Item 10 Executive Compensation 11
Item 11 Security Ownership of Certain Beneficial
Owners and Management 13
Item 12 Certain Relationships and Related Transactions 14
PART IV
Item 13 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBITS Attached
ITEM 1: BUSINESS
General
The Company was incorporated on February 24, 1984 by employees of Telemed who
organized the buyout of Telemed's pulmonary and respiratory care information
services business. In March 1984, the Company purchased that business for cash
and a promissory note.
By 1988, annual revenue had grown to $2.4 million and the Company completed an
initial public offering of its common stock through Schneider Securities in
1989. By September 15, 1989, 23 hospitals were using the Company's respiratory
care management systems (then referred to as "RCMS") and the Company employed 23
full and part-time employees.
Over time, with improvements in computer hardware and performance, the mini
computer based RCMS product became dated. The last RCMS sale was made in January
1991. In 1994 a new senior management team was put in place.
In the following year, the Company acquired two complimentary businesses (see
Acquisitions). Based on Y2K issues, a business decision was made to discontinue
the RCMS product line.
Acquisitions:
International Healthcare Consulting Group Acquisition
Effective September 5, 1995, the Company acquired certain assets of The
International HealthCare Consulting Group ("HCG"). The assets acquired included
certain accounts receivable, equipment, software products and other intangible
assets. In exchange for the assets acquired, the Company agreed to issue 50,000
shares of its common stock and assume $30,000 of debt.
Since 1986 HCG has provided healthcare institutions, mainly hospitals, with
professional high-quality, cost effective, consulting services, which produce a
more efficient, lower cost care delivery model while maintaining the highest
quality of care standards. Consulting services are provided in the following
areas:
.. Nurse Staffing and Patient Classification
.. Cost Benefit Analysis for Computerized Patient Records (CPR)
.. Productivity
.. Cost Accounting
.. Operations Assessment
.. Modeling and Simulation
1
National Microcomputer Corporation Merger
On September 29, 1995, the Company and National MicroComputer Corporation
("NMC") approved the terms of an Agreement and Plan of Reorganization (the
"Agreement") pursuant to which NMC was merged with and into Tenet Merger
Subsidiary, Inc., a wholly owned subsidiary of the Company incorporated for the
purpose of effecting the merger. NMC developed and marketed an integrated
information management/patient tracking system (EDNet) designed specifically for
use in emergency departments.
NMC was founded in California in 1979 and originated the concept of a
computerized patient tracking and information management system dedicated to
emergency department operations. The Emergency Department Network ("EDNet") was
first developed in 1989. Early versions ran on highly proprietary hardware and
software with limited flexibility and functionality.
In 1991, the software was completely redesigned for IBM compatible PCs and
utilized standard operating systems and database software.
EDNet, is an integrated information management/patient tracking system designed
specifically for use in emergency departments. It is a collaborative
information management tool used in real time by clinical and management
personnel to collect data and provide information at the most efficient points
in the patient care process. Demographic information is collected at
registration either by way of an interface from the main hospital information
system registration function or directly through the EDNet registration process.
Clinical flow information is generated and recorded through the tracking system
and at the time of discharge through use of custom configured discharge
routines. Auxiliary data may be added at any
time. Information is stored in linked relational databases, which are
completely open and non-proprietary, accessible both within the system and
through other compatible applications on a shared basis.
EDNet is currently in its sixth release, (EDNet) as a Windows 95/98/NT/2000
compliant product. Recent enhancements include discharge aftercare instructions
database, a user-sortable patient tracking display and the development of triage
assessment protocols, auto faxing, and auto paging. EDNet for Windows was
released in the spring of 1998.
Marketing
The Company's marketing efforts are directed at broadening the market for its
products by increasing awareness among directors of emergency departments and
chief information officers. In support of its sales efforts, the Company
conducts programs that include advertising, direct mail, trade shows and ongoing
customer communications programs. The Company also keeps its customers informed
of advances in the field through e-mail and other mailings. The Company
maintains a Web site on the Internet that provides Company and product
information for its products. (www.Tenetinfo.com).
The position of Vice President of Sales is vacant and is currently being filled
by the Chief Operating Officer of the company.
2
As of June 30, 2002, the software division of the Company had sold its EDNet
product to 24 emergency department and urgent care sites. All sites have annual
maintenance contracts for continued support and updates. As of June 30, 2002
the Company was in the process of installing EDNet upgrades at 5 DOS clients.
In response to client requests the company has enhanced its basic EDNet software
to other hospital applications. ARCNet, which is used in same day surgery and
ambulatory care departments and IntelliChartr which helps to make hospital
staffing decisions based on patient care needs have been developed and
installed.
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
Customers receive maintenance support from a staff of experienced customer
specialists via a telephone "hot line". Annual maintenance contracts are
required at each site and are provided for a fixed price. Included in the
annual maintenance contracts are periodic product upgrades and feature/function
enhancements. New modules are furnished at an additional cost.
EDNet Product Development
Development efforts are focused on the enhancement of the EDNet product.
Research is being conducted on the integration of nursing and physician
documentation. Voice recognition and radio frequency are being investigated as
possible product enhancements. An inpatient nursing application,
(IntelliChart), building upon existing EDNet software, is being beta-tested at a
major consulting client site. IntelliChart utilizes the main library set of
EDNet to provide inpatient-nursing units with a real time patient tracking
system. The primary focus of IntelliChart is to provide the nursing staff an
automated methodology to determine patient dependency. Patient dependency is
determined based upon the patient's care needs and is translated into staffing
requirements on shift and staff skill level basis.
EDNet is now an enterprise level solution, which has greatly enhanced the
durability of the product by being able to serve at either single or multi
location hospitals. A majority of the development effort has been expended
on this enhancement.
The software divisions future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and otherwise
achieve market acceptance.
Protection of Proprietary Rights
The Company holds a registered trademark on the name "IntelliChart". In
addition, the Company expects to seek certain patent, trademark and/or copyright
3
protection in the further development of its new products, if appropriate. The
Company has entered into non-disclosure agreements with employees, consultants
and customers to protect its proprietary technology.
Capital Stock
The Company's Articles of Incorporation authorize the board of directors,
without shareholder approval, to issue up to 1,000,000 shares of preferred stock
with such rights and preferences as the board of directors may determine in its
discretion. The board of directors has the authority to issue shares of
preferred stock having rights prior to the common stock with respect to
dividends, voting and liquidation.
The current authorized common stock of the Company is 100,000,000 shares.
Employees
At June 30, 2002, the Company employed seven full-time employees, one parttime
employee and several independent service contractors. The number of employees
and their responsibilities are as follows: three professional, three technical,
and two administrative.
Competition
The health care information systems industry is highly competitive. There are
many companies of considerable size and expertise that could enter the Company's
market for emergency management systems. The Company is aware of competing
emergency department information systems.
The Company's products target the emerging market for computerized patient and
data management products in hospital and urgent care settings.
The Company faces direct competition in the emergency department market from
several other firms. Many of these competitors have significantly greater
resources, name recognition and larger installed bases of customers than the
Company.
As a result, these potential competitors may be able to devote greater resources
to the development, promotion and sale of their products than the Company.
The Company believes that it is imperative that it be competitive in service and
product performance. The Company stresses customer service wherever the product
is placed.
With the enhancements to the capabilities of networks, the Company has
determined it must adopt new technology in order to continue to compete
effectively in the large hospital marketplace. As discussed in Product
Development, the Company is further developing and converting its products. This
effort is expected to enable the Company to compete in this marketplace.
4
ITEM 2: PROPERTIES
The Company's headquarters were relocated to Sandy, Utah in March 2001. The
Company leases approximately 1,920 square feet of office space at a total cost
of approximately $2,350 per month. This is pursuant to a lease that expires on
November 9, 2004.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, nor to the
knowledge of management, is any litigation threatened against the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock began trading in the over-the-counter market in May
1989. Prices were quoted on the National Association of Security Dealers
Automated Quotation System ("NASDAQ") under the symbol "TISI" until November 1,
1991 at which time the Company was suspended from NASDAQ for untimely filings
and inadequate financial resources. On September 3, 1996, the symbol was
changed to "TISV."
Just prior to its suspension from NASDAQ on November 1, 1991, the reported
closing bid and asked prices of the Company's Common Stock were $.03125 and
$.0625, respectively. In 1996 limited public trading of the Company's Common
Stock resumed with price quotations available on the over the counter "bulletin
board". During fiscal year ended June 30, 2002 a limited number of shares
traded on the bulletin board market at a price range of $0.05 to $0.15.
In March, the Company was advised that the bulletin board listing had been
suspended pending completion of the appropriate filings.
The number of shareholders of record for the Company's Common Stock as of June
30, 2002 was 314, which include depositories and broker/dealers who hold shares
of Common Stock in "nominee" or "street" names.
5
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion contains forward-looking statements regarding the
company, its business, prospects and results of operations that are subject to
risks and uncertainties posed by many factors and events that could cause the
company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed herein as well as those discussed under the captions
"risk factors" and "business" as well as those discussed elsewhere in this
prospectus. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged
to carefully review and consider the various disclosures made by the company in
this report and in the company's other reports filed with the securities and
exchange commission that attempt to advise interested parties of the risks and
factors that may affect the company's business.
Results of Operations
Fiscal 2002 Compared with Fiscal 2001
During fiscal year 2002, the Company had revenues of $717,005, which represented
an increase of $175,908 or 33% from revenues of $541,097 for the prior fiscal
year. The following table presents the components of revenues for fiscal 2002
and 2001.
ACTUAL
REVENUES FY 02 FY 01 Increase % Change
-------- --------- -------- --------
EDNet Systems $467,542 $ 419,096 $ 48,446 12%
Consulting $249,463 $ 122,001 $127,462 104%
Total $717,005 $ 541,097 $175,908 33%
The following table details cost of revenue by product, comparing the prior
fiscal year as shown on financials.
2002 2001 Change %Change
-------- -------- --------- -------
EDNet System and $225,205 $245,461 $(20,256)
Consulting $139,927 $ 98,160 $ 41,767
Total $365,132 $343,621 $ 21,511 6%
Cost of revenues increased to $365,132, up 6% for fiscal year 2002 compared with
$343,621 for the previous fiscal year. Costs of revenues related to the EDNet
System for fiscal year 2002 were $225,205 giving the system revenue products a
gross margin of 52%. This compares to cost of revenues of $245,461 with a gross
margin of 41% for the prior twelve-month period. Overall gross profit for the
6
fiscal year 2002was 49% compared to 36% for the prior year. 70% of this profit
improvement was due to increased revenue while 30% was due to improved margins.
Selling, general and administrative expenses increased by $9,473 or 6%, to
$178,015 for fiscal year 2002 compared with $168,542 for the previous fiscal
year. Software development expenses were unchanged at $104,700 for fiscal year
2002 from fiscal 2001.
As a result of the above factors, the net gain from operations was $69,200 for
fiscal year 2002 compared with loss of $(75,862) for fiscal year 2001.
Interest expense increased to $20,446 from $15,610 for the prior fiscal year.
The net gain was $70,890 or $.00 per share for fiscal year 2002 compared with a
net loss of $(90,515) or ($0.00) per share for fiscal year 2001.
Liquidity and Capital Resources
The Company's cash position increased from $37,022 to $78,585 during its fiscal
year 2002. The Company had a working capital deficit of $238,431 as of June 30,
2002, as compared with a deficit of $304,192 as of June 30, 2001. Operating
activities provided $62,915 for the fiscal year ended June 30, 2002 as compared
to providing $26,132 in the corresponding period of the prior fiscal year.
The Company's investing activities used $17,977 of cash for the current
year compared to using $3,720 in the corresponding period of the prior fiscal
year.
There were no related party advances to the Company during the current year
ended June 30, 2002.
While a portion of the current liabilities, approximately $200,000, is owed to
present officers and/or directors, there can be no assurances that these
officers/directors will not seek payment in the near term.
Inflation has not had a significant impact on the Company's operations.
Item 7A: Market Risk Sensitive Instruments
N/A
7
ITEM 7: FINANCIAL STATEMENTS
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheet - June 30, 2002 F-2
Consolidated Statements of Operations for the Years
Ended June 30, 2002 and 2001 F-3
Consolidated Statements of Shareholders' Deficit for
the Years Ended June 30, 2001 and 2002 F-4
Consolidated Statements of Cash Flows for the Years
Ended June 30, 2002 and 2001 F-5
Notes to Consolidated Financial Statements F-6
HANSEN, BARNETT & MAXWELL (801) 532-2200
A Professional Corporation Fax (801) 532-7944
CERTIFIED PUBLIC ACCOUNTANTS 5 Triad Center, Suite 750
Salt Lake City, Utah 84180-1128
www.hbmcpas.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACOUNTANTS
To the Board of Directors and the Stockholders
Tenet Information Services, Inc.
We have audited the accompanying consolidated balance sheet of Tenet Information
Services, Inc. (a Utah corporation) and subsidiary as of June 30, 2002, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for the years ended June 30, 2002 and 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tenet Information
Services, Inc. and subsidiary as of June 30, 2002, and the results of their
operations and their cash flows for the years ended June 30, 2002 and 2001 in
conformity with accounting principles generally accepted in the United States.
/s/ HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
August 16, 2002
F-1
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002
ASSETS
Current Assets
Cash $ 78,585
Accounts receivable, net of allowance for
doubtful accounts of $7,500 95,430
Prepaid expenses 4,300
Work performed in excess of billings 20,631
Total Current Assets 198,946
Furniture, Fixtures and Equipment 131,824
Less: accumulated depreciation (112,887)
-----------
18,937
-----------
Other Assets, Net 3,675
-----------
Total Assets $ 221,558
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 117,977
Accrued expenses 73,238
Accrued interest 7,402
Deferred revenue 153,599
Billings in excess of work performed 38,485
Related party debt 46,676
-----------
Total Current Liabilities 437,377
-----------
Shareholders' Deficit
Preferred stock, $0.01 par value; 1,000,000
shares authorized, no shares issued -
Common stock, $0.001 par value; 100,000,000
shares authorized, 19,336,205 shares issued
and outstanding 19,336
Additional paid-in capital 4,853,896
Accumulated deficit (5,089,051)
-----------
Total Shareholders' Deficit (215,819)
-----------
Total Liabilities and Shareholders' Deficit $ 221,558
===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
2002 2001
---------- ----------
Revenues
Software license fees and maintenance $ 467,542 $ 419,096
Consulting services 249,463 122,001
---------- ----------
Total Revenues 717,005 541,097
Cost of Revenues
Software license fees and maintenance 225,205 245,461
Consulting services 139,927 98,160
---------- ----------
Total Cost of Revenues 365,132 343,621
---------- ----------
Gross Profit 351,873 197,476
Operating Expenses
Selling, general and administrative 178,015 168,542
Software development 104,658 104,796
---------- ----------
Total Operating Expenses 282,673 273,338
---------- ----------
Income (Loss) From Operations 69,200 (75,862)
Other Income and (Expense)
Interest income 511 -
Miscellaneous income - 957
Interest expense (20,446) (15,610)
Gain on forgiveness of debt 21,625 -
---------- ----------
Net Other Income (Loss) 1,690 (14,653)
---------- ----------
Net Income (Loss) $ 70,890 $ (90,515)
========== ==========
Basic and Diluted Earnings (Loss) Per Share $ - $ -
Weighted Average Number of Common Shares
Used in Per Share Calculation 19,065,892 19,065,892
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2001 AND 2002
Common Stock
------------------------ Additional
Shares Paid-In Warrants Accumulated
Issued Amount Capital Outstanding Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 19,065,892 $ 19,066 $ 4,843,476 $ 7,987 $(5,069,426) $ (198,897)
Expiration of warrants - - 7,987 (7,987) - -
Net loss - - - - (90,515) (90,515)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2001 19,065,892 19,066 4,851,463 - (5,159,941) (289,412)
Shares issued to director
for services 270,313 270 2,433 - - 2,703
Net income - - - - 70,890 70,890
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2002 19,336,205 $ 19,336 $ 4,853,896 $ - $(5,089,051) $ (215,819)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
2002 2001
---------- ----------
Cash Flows From Operating Activities
Net income (loss) $ 70,890 $ (90,515)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation 10,145 10,407
Stock issued for services 2,703 -
Gain on forgiveness of debt (21,625) -
Change in assets and liabilities
Accounts receivable (10,797) 65,908
Deposits - (2,250)
Prepaid expenses (2,300) 3,609
Accounts payable (22,059) 4,458
Accrued liabilities (27,522) 45,070
Deferred revenue 45,001 (20,352)
Work performed in excess of billings 5,819 (6,910)
Billings in excess of work performed 12,660 16,707
---------- ----------
Net Cash Provided By Operating Activities 62,915 26,132
---------- ----------
Cash Flows From Investing Activities
Acquisition of furniture, fixtures and equipment (17,977) (3,720)
---------- ----------
Net Cash Used In Investing Activities (17,977) (3,720)
Cash Flows From Financing Activities
Principal payments on short term debt (3,375) -
---------- ----------
Net Cash Used In Financing Activities (3,375) -
---------- ----------
Net Increase In Cash 41,563 22,412
Cash at Beginning of the Year 37,022 14,610
---------- ----------
Cash at End of the Year $ 78,585 $ 37,022
========== ==========
Supplemental Disclosures of Cash
Flow Information:
Cash paid for interest $ 1,625 $ 1,396
========== ==========
Non-Cash Investing and Financing Activities
Disposal of furniture, fixtures and equipment $ 20,387 $ 18,623
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Tenet Information Services, Inc. ("Tenet"), a Utah
corporation, designs and markets a computer-based medical and health
information system related primarily to emergency departments (the "EDNet
System"). During fiscal 1996, Tenet expanded its operations by merging with
National Microcomputer Corporation ("NMC") and acquiring certain assets of
The International Healthcare Consulting Group, Inc. ("HCG"). NMC designed
and marketed the integrated information management/patient tracking system
for use in emergency departments of hospitals and urgent care centers (the
"EDNet System"). HCG has provided healthcare institutions, mainly
hospitals, with consulting services to assist the institutions in achieving
a more efficient, lower cost care delivery model while maintaining the
highest quality of care standards.
Tenet and its wholly owned subsidiary, NMC, (collectively, "the Company")
sell and lease computer software license rights to hospitals throughout the
United States. In addition, the Company sells maintenance contracts for
these information systems. Substantially all of the Company's revenues are
generated from hospitals and therefore, the Company's financial performance
is partially dependent upon the viability of the healthcare economic
sector.
The Company is subject to various risks associated with companies in a
similar stage of operations including dependence on key individuals,
potential competition from larger and more established companies and the
need to obtain adequate sources of financing.
Concentration of Risk - Sales to major customers are defined as revenues to
any one customer which exceeds 10% of total sales. During the year ended
June 30, 2002, the Company had revenues from two customers which accounted
for 44% of the Company's total revenue. The risk of loss of these major
customers subjects the Company to the possibility of decreased revenues.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Tenet and its wholly owned subsidiary,
NMC. All significant intercompany transactions and account balances have
been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-6
Revenue Recognition - The Company recognizes revenue in accordance with the
provisions of Statement of Position No. 91-1 Software Revenue Recognition
as follows:
Revenues related to the EDNet System consist of sales of software licenses,
installation of information systems and related software customization and
enhancements. In addition, revenues are generated from annual software
support and maintenance. Installation revenues are recognized on the
percentage of completion method measured by completion and acceptance of
contracted milestones. The asset "work performed in excess of billings"
represent costs incurred and revenues earned in excess of billings on
uncompleted contracts. The liability "billings in excess of work performed"
represents billings in excess of costs incurred and revenue recognized.
Revenues from annual software and maintenance are recognized ratably over
the term of each contract. Amounts billed in advance of revenue recognition
for software and maintenance are recorded as deferred revenue.
Revenues from consulting services are recognized when the services have
been provided.
Furniture, Fixtures and Equipment - Furniture, fixtures and equipment are
stated at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets, generally 3 to 10
years. Depreciation expense was $10,145 and $10,407 for the periods ended
June 30, 2002 and 2001, respectively. Maintenance and repairs are charged
to expense as incurred and major improvements or betterments are
capitalized. Gains or losses on sales or retirements are included in the
statement of operations in the year of disposition. Furniture, fixtures and
equipment include $128,105 of computer equipment used in operations and
$3,719 of furniture, fixtures and other equipment at June 30, 2002.
Software Development Costs - Costs incurred in creating computer software
products are charged to operations as software development expense prior to
the development of a detailed program design or a working model. After the
detailed program design or working model is established, costs of producing
product masters are capitalized as software development costs. The Company
had no capitalized software costs at June 30, 2002.
Costs of maintenance and customer support are recognized as expense when
the related revenue is recognized or when those costs are incurred,
whichever occurs first.
Impairment - The Company records impairment losses on property and
equipment when indicators of impairment are present and undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company had no impaired assets at June 30, 2002.
F-7
Cash Equivalents and Fair Value of Financial Instruments -Cash Equivalents
include highly liquid investments with original maturities of three months
or less readily convertible to known amounts of cash.
The estimated fair value of financial instruments is not presented because,
in Management's opinion, there is no material difference between carrying
amounts and estimated fair values of financial instruments as presented in
the accompanying balance sheet.
Income Taxes - The Company recognizes the amount of income taxes payable or
refundable for the current year and recognizes deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement amounts of certain assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years those temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance to the extent that
uncertainty exists as to whether the deferred tax assets will ultimately be
realized.
Stock-Based Compensation - Stock-based compensation to employees is
measured by the intrinsic value method. This method recognizes compensation
based on the difference between the fair value of the underlying common
stock and the exercise price of the stock option on the date granted.
Compensation relating to options granted to non-employees is measured by
the fair value of the options, computed by an option-pricing model.
Warranty Costs - A one-year limited warranty from date of first use is
provided on sales of software licenses. The terms of the warranty are
extended to all periods where the System is covered by an applicable
Support Agreement. Warranty costs have not been material in any year
presented; accordingly, these costs are expensed when incurred.
Basic and Diluted Earnings (Loss) Per Share -Basic earnings (loss) per
common share is computed by dividing net income (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 605,000 potentially issuable shares were excluded
from the calculation of diluted income (loss) per common share at June 30,
2002 and 2001 because the effects would be anti-dilutive.
Recently Enacted Accounting Standards - In April 2002, the FASB issued SFAS
No. 145. Among other provisions, this statement modifies the criteria for
classification of gains or losses on debt extinguishments such that they
are not required to be classified as extraordinary items if they do not
meet the criteria for classification as extraordinary items in APB Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company has elected to
adopt this standard during the year ended June 30, 2002. Adopting this
standard had an affect on income statement classification but no effect on
net income for the year ended June 30, 2002.
F-8
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The statement requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit
or disposal activity. The Company will be required to apply this statement
prospectively for any exit or disposal activities initiated after December
31, 2002. The adoption of this standard is not expected to have a material
effect on the Company's financial position or results of operations.
NOTE 2- RELATED PARTY DEBT AND NOTES PAYABLE
Related-party debt consists of the following at June 30, 2002:
Debt payable to a related party corporation owned by an
employee of the Company at an interest rate of 8.0%,
unsecured, balance is due on demand. $ 4,666
Note payable to a company associated with a shareholder,
at an interest rate of 8% per annum, balance is due on
demand 10,714
Debt payable to officers/shareholders at an interest rate
of 12%, unsecured, due on demand. 4,860
Note payable to an officer and shareholder, at an interest
rate of 8%, balance due by June 30, 2003, unsecured. 26,436
--------
Total related party debt $ 46,676
========
On November 1, 2001, the Company paid $5,000 to a creditor as payment in
full of all obligations on an unsecured note for $25,000. After deducting
$1,625 for payment of outstanding interest, $3,375 was applied to the
outstanding principal and the creditor forgave the balance due on the note
resulting in a one-time gain of $21,625. In accordance with SFAS 145, the
gain from debt forgiveness did not meet the conditions for being classified
as extraordinary and therefore was included in continuing operations. On
June 30, 2002, the Company issued 270,313 shares of common stock to a
director for services in negotiating the debt settlement. The shares were
valued at $2,703 or $0.01 per share and were expensed.
F-9
NOTE 3 - INCOME TAXES
No benefit for income taxes has been recorded during the years ended June
30, 2002 and 2001. Certain risks exist with respect to the Company's
future profitability, and management has concluded that, due to these
uncertainties, the related net deferred tax asset may not be realized.
Accordingly, a valuation allowance has been recorded to offset the deferred
tax asset in its entirety. The components of the net deferred tax assets at
June 30, 2002 are as follows:
Deferred Tax Assets
Tax net operating loss carry forward $ 1,829,441
Tax credits carry forward 4,822
Reserves and accrued liabilities 51,462
-----------
Total Deferred Tax Assets 1,885,725
-----------
Valuation allowance (1,885,725)
-----------
Net Deferred Tax Asset $ -
===========
As of June 30, 2002, the Company has net operating loss carryforwards for
federal income tax reporting purposes of approximately $4,913,889 which
will expire through 2021.
As of June 30, 2002, the Company had research and development tax credits
and investment tax credit carryforwards of approximately $51,462. These
credits will expire through fiscal 2006.
The following is a reconciliation of the income tax at the federal
statutory rate of 34% with the provision for income taxes for the years
ended June 30, 2002 and 2001:
2002 2001
---------- ----------
Income tax expense (benefit) at statutory rate $ 24,103 $ (30,775)
Change in deferred tax valuation account (50,420) (8,247)
(Non taxable income) /non deductible taxes 2,675 2,675
Expired operating losses and tax credits 21,303 39,334
State taxes, net of federal benefit 2,339 (2,987)
---------- ----------
Provision for Income Taxes $ - $ -
========== ==========
F-10
NOTE 4 - STOCK OPTIONS
During fiscal year ended June 2002, the Board of Directors did not
authorize the issuance of any stock options outside of the Incentive Stock
Option Plan to employees of the Company.
The Company has adopted an incentive stock option plan and a nonqualified
stock option plan. Stock options for an aggregate of 600,000 shares of
common stock may be granted under these plans. Stock options under both
option plans may be granted at a price per share not less than 100 percent
of the fair market value of the common stock, as determined at the date of
grant. Employees vest in the right to exercise their options from the first
anniversary date following the date of grant to the fifth anniversary date
following the date of grant. The options expire five years from the vesting
date. Incentive stock options are forfeited unless exercised within zero to
three months following termination of employment or twelve months if
termination is due to death or disability.
A summary of the status of the Company's options outstanding as of June 30,
2002 and 2001, and changes during the years then ended is presented below:
For the year ended June 30,
2002 2001
-------------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------------------- -----------------
Outstanding at beginning of year 605,000 0.10 675,000 0.10
Granted - - - -
Forfeited - - (70,000) 0.13
------- -------
Outstanding at end of year 605,000 0.10 605,000 0.10
======= =======
Options exercisable 242,000 0.10 121,000 0.10
======= =======
Weighted average fair value
of options granted during
the year n/a n/a
The following table summarizes information about stock options outstanding
at June 30, 2002:
Options Outstanding Options Exercisable
-------------------------------------- ----------------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Price 6/30/02 Contract Life Price 6/30/02 Price
-------------------------------------- -----------------------------------
$ 0.10 605,000 2.1 years $ 0.10 242,000 $ 0.10
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
F-11
under those plans consistent with the method of FASB Statement 123,
Accounting for Stock-Based Compensation, the Company's net income and
income per share would have been increased to the pro forma amounts
indicated below:
For the year ended June 30,
2002 2001
--------- ---------
Net income (loss)
As reported $ 70,890 $ (90,515)
Pro forma 68,045 (93,514)
Basic earnings (loss) per share
As reported 0.00 (0.00)
Pro forma 0.00 (0.00)
Diluted earnings (loss) per share
As reported 0.00 (0.00)
Pro forma 0.00 (0.00)
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's employee
stock options have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate. Management believes the best
input assumptions available were used to value the options and the
resulting values are reasonable.
NOTE 5-OPERATING LEASE
The Company occupies its facilities under a non-cancelable operating lease
that expires in October 2005. Lease expense for fiscal 2002 and 2001 was
$26,535 and $31,745, respectively.
Minimum future lease payments under non-cancelable operating leases as of
June 30, 2002 are as follows:
Year Ended June 30,
2003 24,480
2004 25,214
2005 8,487
F-12
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 30, 1997 the Registrant engaged Hansen, Barnett & Maxwell ("Hansen") to
perform its audits and provide various accounting services thereafter. The
Registrant did not consult with Hansen prior to such date regarding any
reportable matter.
PART III
ITEM 9: Directors, Executive Officers, Promoters, and Control Persons of
the Registrant;
Compliance with Section 16(a) of the Exchange Act
The names of the executive officers and directors of the Company, their
respective ages and positions with the Company, and the dates of their elections
to the Board of Directors or as officers are as follows:
Name Age Position with The Company Date of Election
------ --- ------------------------- ----------------
Jerald L. Nelson 59 President (resigned) December 1, 1993
(July 10, 1996)
Chairman of the Board July 10, 1996
Director January 24, 1994
Corporate Treasurer June 5, 2001
Frank Overfelt 59 Director September 29, 1995
Chief Operations Officer (acting) July 10, 1996
President & Chief Operating
Officer August 31, 1998
(Resigned as COO) (June 5, 2001)
Donald W. Ballash 44 Chief Operations Officer June 5, 2001
Corporate Secretary June 5, 2001
Eric J. Nickerson 49 Director June 29, 1990
All directors hold office until the next annual meeting of shareholders of the
Company or until their successors have been elected and qualified. The number
of authorized directors may be varied by the Board of Directors, but may not be
less than three. Executive officers serve at the discretion of the Board of
Directors. The directors are entitled to certain limitations on their
liabilities as directors of the Company as permitted under Utah law and as
included in the Company's Articles of Incorporation.
9
The Company's stock option plans permit the administration of the plans through
a Stock Option Plan Committee, composed of at least three members of the Board
of Directors. No such committee has been appointed, and no other committees of
the Board of Directors have been formed.
On July 10, 1996 Jerald L. Nelson resigned as President and Chief Operating
Officer and was elected Chairman of the Board of Directors. Frank C. Overfelt
was also appointed Chief Operating Officer on an interim basis. At a board of
directors meeting held on August 31, 1998 Frank Overfelt was elected to the
position of President and Chief Operating Officer.
On June 5, 2001 a board of directors meeting was held. Mr. Overfelt resigned
his title of Chief Operating Officer while retaining his position as President.
The board elected Donald Ballash to the positions of Corporate Secretary and
Chief Operating Officer. The board further elected
Jerald Nelson to the position of Corporate Treasurer.
Business Biographies
Jerald L. Nelson. Jerald L. Nelson has served as a director, president and
chief operating officer of the Company since December 1993. Effective July 10,
1996 Dr. Nelson was appointed Chairman of the Board of Directors, and
relinquished his position as President and Chief Operating Officer. On June 5,
2001 the board elected Dr. Nelson to the position of Corporate Secretary. Dr.
Nelson received his Ph.D. in Economics from North Carolina State University in
1974. From 1974 to 1984, Mr. Nelson worked or consulted with several Fortune
500 firms, including US Industries, TransWorld Airlines, GTE, Xerox, Pitney
Bowes and General Foods. From 1984 until December 1993, Mr. Nelson worked with
various businesses as an investment banker and business advisor. He has also
consulted with or served on the Board of Directors of numerous Utah firms
including Arrow Dynamics, Beacon Financial, Interwest Home Medical, Gentner
Communications and One-2-One Communications, where he also served as chairman
and chief executive officer.
Frank C. Overfelt Frank Overfelt was elected to the Board on September 29,
1995. At the current time, Mr. Overfelt holds the position of President. Mr.
Overfelt has been the managing partner the International HealthCare Consulting
Group, Inc. since its inception in 1986. He is a recognized authority in
workload measurement systems for health care institutions. Prior to founding
the consulting company Mr. Overfelt was a senior manager in the Healthcare Cost
Accounting and Productivity Practice of Peat Martwick. He holds an MBA from the
University of Utah. His total healthcare experience is 23 years.
Eric J. Nickerson. Eric J. Nickerson has served as a director since June
of 1990. Mr. Nickerson was a member of the faculty of the United States
Military Academy at West Point, New York from 1989 to 1993. In June 1993, Mr.
Nickerson retired as a United States Air Force officer. Currently, Mr. Nickerson
is a private investor and directs personal accounts and two investing
partnerships: "Third Century II" and "Z Fund."
Donald W. Ballash. Mr. Ballash holds the positions of Corporate
Secretary and Chief Operating Officer, Vice-President of Product Development and
Consulting and has over 19 years of experience in the health care field. He has
10
specialized in management engineering at two large multi-hospital systems;
Intermountain Health Care and Kaiser Permanente. Most recently he was a partner
in the International HealthCare Consulting Group. He holds a B.S. Degree from
BYU.
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth all cash compensation for services rendered in
all capacities to the Company during the fiscal years ended June 30, 2002, 2001,
and 2000 paid to (i) the Company's president and each executive officer whose
cash compensation exceeded $100,000, and (ii) all executive officers of the
Company as a group. No executive officers salary exceeded $100,000 for the
fiscal year.
Annual Compensation /Long Term Compensation /
--------------------------------------------------------------
/ Awards /Payouts/
-------------------------------------
Name Year Salary Bonus Other Restricted Securities LTIP All Other
and ($) ($) ($) Annual Stock Underlying Pay- Compen-
Principal Compen- Awards Options/ outs sation
Position ($) SARs(#) ($) ($)
-----------------------------------------------------------------------------------------------
Frank C. Overfelt 2000 76,360 -0- -0- -0- -0- -0- 3,600
President 2001 57,270 -0- -0- -0- -0- -0- 5,325
2002 104,810 -0- -0- -0- -0- -0- -0-
Jerald L. Nelson 2000 -0- -0- 600 -0- -0- -0- -0-
Chairman of the Board 2001 -0- -0- -0- -0- -0- -0- -0-
Corporate Treasurer 2002 -0- -0- 1,000 2,703 -0- -0- -0-
Donald W. Ballash 2001 61,500 -0- -0- -0- -0- -0- 250
Chief Operating Officer 2002 102,625 -0- -0- -0- -0- -0- -0-
Corporate Secretary
All Executive Officers
(1 person) 2000 76,360 -0- -0- -0- -0- -0- 3,600
(3 persons) 2001 118,750 -0- -0- -0- -0- -0- 5,325
(3 persons) 2002 207,434 -0- 1,000 2,703 -0- -0- -0-
The Company also may pay discretionary cash bonuses to management and employees
based on meritorious performance.
Stock Option Plans
On October 15, 1984, the Company adopted an Incentive Stock Option Plan (the
"ISO Plan"), pursuant to which only "incentive stock options" ("ISO's"), as
defined in the Internal Revenue Code (the "Code"), may be granted. On the same
date, the Company adopted a Nonqualified Stock Option Plan ("NQSO Plan"),
11
pursuant to which only "nonqualified stock options" ("NQSOs"), as defined in the
Code, may be granted. Stock options for an aggregate of 600,000 shares of
common stock may be granted under both Plans. ISOs may be granted under the ISO
Plan to employees owning less that 10% of the Company's voting stock (as defined
by Sections 422A and 425 of the Code). NQSOs may be granted under the NQSO Plan
to employees who are ineligible to receive options under the ISO Plan.
Stock options may be granted under the Plans at a price per share not less than
100% of the "fair market value" (as defined by the Plans) of the common stock on
the date of grant.
The Plans limit grants of stock options to any one employee to 60,000 shares of
stock per plan year, with an aggregate option price ceiling of $100,000 under
the ISO Plan in any year. Each stock option, unless sooner terminated, expires
five years from the "date of effectiveness", which is three years from the date
of grant.
ISOs are exercisable until three months following termination of employment
(twelve months if termination is due to death or disability). Termination of
employment for any reason does not affect the exercisability of NQSOs,
regardless of whether the option's effective date has been reached. Under both
Plans, options are exercisable during an optionee's lifetime only by such
optionee and are transferable only upon death by the laws of decent or
distribution.
The Board of Directors has the right to modify or amend the Plans at any time,
provided, however, that, unless ratified by the Company's shareholders, no
amendment will be effective which (i) changes the number of shares which may be
issued under the Plans, (ii) changes the option price, other than the manner of
determining the fair market value of the shares, (iii) changes the periods
during which options may be granted or exercised, (iv) changes the provisions
relating to the determination of employees to whom options may be granted and
the number of shares to be covered by such options, or (v) changes the
provisions relating to adjustments to be made upon changes in capitalization.
Shareholder action is also required to terminate the Plans.
As of August 1, 1999 the company had granted 830,000 options to key employees
exercisable at the rate of $.10 per share. 205,000 of these options were
forfeited during the fiscal year end at June 30, 2000 and an additional 70,000
were forfeited during the year ended June 30, 2001. Only 605,000 remained
outstanding as of September 27, 2002 These options were issued outside of the
Incentive Stock Option Plan and authorized by the Board of Directors.
12
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the holdings of common stock as of September 27,
2002 (i) by each person who held of record, or was known by the Company to own
beneficially, more than five percent of the outstanding common stock of the
Company, (ii) by each Director, and (iii) by all Directors and officers as a
group. Unless otherwise indicated, all shares are owned directly. The
percentage calculations for any individual stockholder assume that all
outstanding options and warrants held by that stockholder have been exercised in
full and that no other stockholder has exercised any outstanding options or
warrants.
Name and Address of Beneficial Owner as of September 27, 2002
Common (1) Percent of Shares Outstanding
---------- -----------------------------
Michael R. Carlston 2 4,673,977 24.17%
Dennis C. Peterson 3 4,220,442 21.83%
Mark Oldroyd 4 3,975,559 20.56%
Scott Staker 5 3,975,559 20.56%
T-Acquisition 6 3,775,559 19.53%
Eric J. Nickerson 7 2,173,500 11.24%
Third Century II 7 2,173,500 11.24%
Jerald L. Nelson 12 1,542,326 7.98%
Donald W. Ballash 11 1,226,429 6.34%
Robert Smith 8 1,166,246 6.03%
Richard Gwinn 9 1,004,920 5.20%
Frank Overfelt 10 670,204 3.47%
All Officers and
Directors 5,612,459 29.03%
1. Based on 19,336,205 common shares outstanding and options to acquire 605,000
shares of Common Stock at $0.10 per share.
2. The shares indicated include: (i) 1,734,731 shares of Common Stock
beneficially owned by Mr. Carlston (including shares owned by his wife and held
in trust for the benefit of his children); (ii) 3,775,559 shares of Common Stock
held by T-Acquisition. Mr. Carlson's address is 855 Harwood Dr., Murray, UT
84107
3. Includes 444,883 shares of Common Stock beneficially owned by Mr. Peterson,
and 3,775,559 shares of Common Stock held by T Acquisition L.L.C. Mr.
Peterson's address is 2508 W. Bueno Vista Dr., W. Jordan, UT 84088
4. Includes 200,000 shares of Common Stock beneficially held by Mr. Oldroyd,
including shares held in trust for the Violet Johnson Brown Family Trust. Also
includes 3,775,559 shares of Common Stock held by T-Acquisition. Mr. Oldroyd
address is 55 North 800 West, Provo, UT 84601
5. Includes 200,000 shares of Common Stock held by Mr. Staker and also includes
3,775,559 shares of Common Stock held by T-Acquisition. Mr. Stakers address is
880 North 98 West #9, Provo, UT 84604
6. A Utah Limited Liability company of which Michael R. Carlston owns or
controls 56.7%, Mark Oldroyd owns or controls 32.1%, Dennis C. Peterson owns or
controls 6.4% and Scott Staker owns or controls 4.8%. The shares indicated
consist of 3,775,559 shares of Common Stock The address of TAcquisition is 855
Harwood Dr., Murray, UT 84107.
7. Includes 2,173,500 shares of Common Stock held by Third Century Fund II.
Mr. Nickerson is Senior Partner of Third Century Fund II. Mr. Nickerson is also
a director of the Company. Mr. Nickerson and Third Century Fund II's address is
1711 Chateau CT., Fallston, MD 21047
8. Includes 1,166,240 shares of Common Stock held by Dr. Smith . Dr. Smiths
address is 2291 Greer Rd., Palo Alto CA 94303
9. Includes 1,004,920 shares of Common Stock held by Dr. Gwinn. Dr. Gwinns
address is 304 W. Thorn, San Diego, CA 92103
10. Includes 50,000 shares of Common Stock held by IHCG and 620,204 shares of
Common Stock held by Mr. Overfelt, Mr. Overfelts address is 4634 So. Ledgemont
Dr., Holladay UT 84124
11. Includes 50,000 shares of Common Stock held by IHCG, and 726,429 shares of
Common Stock held by Mr. Ballash and options to acquire 450,000 shares of Common
Stock at $0.10 per share. Mr. Ballash's address is 9777 So. Dunsinsame Dr., So.
Jordan, UT 84095
12. Includes 1,542,326 shares of Common Stock .. Mr. Nelsons address is 207
West Clarendon #3B, Phoenix, AZ 85013
13
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the Company's last fiscal year, there have been no
transactions or series of transactions between the Company and any executive
officer, director or 5% beneficial owner of the Company's common stock in which
one of the foregoing individuals had an interest of more than $60,000.
The Company believes that all transactions between the Company and related
parties have been on terms and conditions no less favorable to the Company than
those available from third parties. Each transaction was entered into to
provide operating capital for the Company. All future transactions between the
Company and any related party will be on terms and conditions no less favorable
to the Company than those available from third parties and will be approved by a
majority of the Company's disinterested directors.
Section 16(a) of the Securities Exchange Act of 1934 required the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and holders of ten percent or more of the Company's equity
securities are required to furnish the Company with copies of all Section 16(a)
reports they file. However, because of the recent mergers and conversions,
these reports have not been provided.
PART IV
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 8:
Report of Independent Public Accountants
Balance Sheets as of June 30, 2002 and 2001
Statements of Operations for the Years Ended June 30, 2002
and 2001
Statements of Shareholders' Equity for the Years Ended June 30,
2002 and 2001
Statements of Cash Flows for the Years ended June 30, 2002 and
2001
Notes to Financial Statements
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during
the last quarter of the period covered by this report.
(c) Exhibits
Exhibit 99.1 Certification under Section 906 of the Sarbanes-Oxley
Act (18 U.S.C. Section 1350)
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TENET INFORMATION SERVICES, INC.
September 27, 2002 By: /s/ Jerald L. Nelson
----------------------
Jerald L. Nelson, Chairman of the Board
Corporate Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person, which include the Chief Operating
Officer, and a majority of the Board of Directors, on behalf of the Company and
in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ------
/s/ Jerald L. Nelson Director and Chairman September 27, 2002
-------------------- Corporate Treasurer
Jerald L. Nelson of the Board of Directors
/s/ Donald W. Ballash Corporate Secretary, Chief September 27, 2002
--------------------- Operations Officer
Donald W. Ballash
/s/ Frank C. Overfelt Director, President September 27, 2002
---------------------
Frank C. Overfelt
/s/ Eric J. Nickerson Director September 27, 2002
---------------------
Eric J. Nickerson
CERTIFICATIONS
I, Frank C. Overfelt, certify that:
1. I have reviewed this annual report on Form 10-Ksb of Tenet
Information Services, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state 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 annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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
annual report.
Date: September 27, 2002
/S/ Frank C. Overfelt
--------------------------
Frank C. Overfelt
Director, President
I, Jerald L. Nelson, certify that:
1. I have reviewed this annual report on Form 10-Ksb of Tenet
Information Services, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state 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 annual report;
and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: September 27, 2002
/S/ Jerald L. Nelson
---------------------------
Jerald L. Nelson
Corporate Treasurer, Chairman of the Board
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TENET INFORMATION SERVICES, INC.
By /s/ Jerald L. Nelson
________________________
Jerald L. Nelson, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person, which include the Chief Operating
Officer, and a majority of the Board of Directors, on behalf of the Company and
in the capacities and on the dates indicated:
Signature Title Date
/s/ Jerald L. Nelson
______________________ Chairman of the Board September 27, 2002
Jerald L. Nelson Director and Corporate
Treasurer
Frank C. Overfelt
_________________________ Director, President September 27, 2002
Frank C. Overfelt
Donald W. Ballash
_________________________ Corporate Secretary and
Donald W. Ballash Chief Operating Officer September 27, 2002
Eric J. Nickerson
______________________ Director September 27, 2002
Eric J. Nickerson
CERTIFICATIONS
I, Frank C. Overfelt, certify that:
1. I have reviewed this annual report on Form 10-Ksb of Tenet
Information Services, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state 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 annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: September 27, 2002
/S/ Frank C. Overfelt
--------------------------
Frank C. Overfelt
Director, President
I, Jerald L. Nelson, certify that:
1. I have reviewed this annual report on Form 10-Ksb of Tenet
Information Services, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state 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 annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: September 27, 2002
/S/ Jerald L. Nelson
---------------------------
Jerald L. Nelson
Corporate Treasurer, Chairman of the Board
D-1
EXHIBIT E
TENET INFORMATION SERVICES, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2002
E-1
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, 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
------------------
(Address of principal executive office)
(801) 568-0899
--------------
(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 19,336,205 shares of common stock outstanding at November 4,
2002
Tenet Information Services, Inc.
TABLE OF CONTENTS
-----------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet as of September 30, 2002 1
Condensed consolidated statements of operations for the three
months ended September 30, 2002 and 2001 3
Condensed consolidated statements of cash flows for the three
months ended September 30, 2002 and 2001 4
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Controls and Procedures 9
PART II OTHER INFORMATION
Item 1. Litigation 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
CERTIFICATION 11
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30, 2002
------------------
CURRENT ASSETS:
Cash $ 25,252
Accounts receivable, net of allowance for
doubtful accounts of $7,500 104,503
Prepaid expenses 2,400
Work performed in excess of billings 49,450
----------
Total current assets 181,605
----------
FURNITURE, FIXTURES AND EQUIPMENT 131,824
Less accumulated depreciation and
amortization (115,315)
----------
16,509
----------
OTHER ASSETS, NET 3,675
----------
TOTAL ASSETS $ 201,789
==========
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
September 30, 2002
------------------
CURRENT LIABILITIES:
Accounts payable $ 103,438
Accrued expenses 75,978
Accrued interest 7,931
Amounts due to related parties 47,133
Deferred revenue 160,435
Billings in excess of costs 54,072
----------
Total current liabilities 448,987
----------
SHAREHOLDERS' DEFICIT:
Common stock, $.001 par value;
100,000,000 shares authorized;
19,336,205 shares issued 19,336
Additional paid-in capital 4,853,896
Accumulated deficit (5,120,430)
----------
Total shareholders' deficit (247,198)
----------
TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT $ 201,789
==========
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
September 30,
-------------------------
2002 2001
---------- ----------
REVENUES
SW licenses & support $ 112,274 $ 119,995
Consulting services 33,182 36,268
---------- ----------
TOTAL REVENUES $ 145,456 $ 156,263
---------- ----------
COSTS AND EXPENSES:
Cost of revenues 94,544 74,908
Selling, general and administrative 53,303 45,002
Software development 25,131 24,146
---------- ----------
172,978 144,056
---------- ----------
INCOME (LOSS) FROM OPERATIONS (27,522) 12,207
---------- ----------
OTHER INCOME EXPENSE:
Interest expense (3,857) (6,310)
---------- ----------
Total Other Expense (3,857) (6,310)
---------- ----------
NET INCOME (LOSS) $ (31,379) $ 5,897
========== ==========
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.00) $ 0.00
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN PER SHARE
CALCULATION 19,935,205 19,065,092
========== ==========
See the accompanying notes to the condensed consolidated financial statements.
-3-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
September 30,
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (31,379) $ 5,897
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation 2,428 2,301
Changes in assets and liabilities:
Accounts receivable, net (9,073) (159,591)
Prepaid expenses 1,900 -
Work performed in excess
of billing (28,819) (9,930)
Accounts payable (14,539) (6,055)
Accrued expenses 3,726 2,161
Deferred revenue 6,836 63,687
Billings in excess of cost 15,587 98,801
---------- ----------
Net cash used in
operating activities (53,333) (2,729)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture, fixtures and
equipment - (2,347)
---------- ----------
Net cash used by investing
activities - (2,347)
---------- ----------
See the accompanying notes to the condensed consolidated financial statements.
-4-
TENET INFORMATION SERVICES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATEAD STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Three Months Ended
September 30,
2002 2001
---------- ----------
NET INCREASE (DECREASE) IN CASH (53,333) (5,076)
CASH, at beginning of period 78,585 37,022
--------- ----------
CASH, at end of period $ 25,252 $ 31,946
========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the period
for interest $ 2,950 $ 5,781
======== ==========
See the accompanying notes to condensed consolidated financial statements.
-5-
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 accounting principles generally accepted in the United States of America
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-K filed on September 30, 2002.
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, 2002 and the
results of its operations and its cash flows for the three months ended
September 30, 2002 and 2001, respectively. The results of operations for the
three-month period ended September 30, 2002 are not necessarily indicative of
the results that may be expected for the remainder of the fiscal year ending
June 30, 2003.
(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 loss per common share at September 30, 2002 and 2001
because the effects would be antidilutive.
(3) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of Statement of
Position No. 91-1 Software Revenue Recognition as follows:
Revenues related to the EDNet System consist of sales of software licenses,
installation of information systems and related software customization and
enhancements. In addition, revenues are generated from annual software support
and maintenance. Installation revenues are recognized on the percentage of
completion method measured by completion and acceptance of contracted
milestones. The asset "work performed in excess of billings" represent costs
incurred and revenues earned in excess of billings on uncompleted contracts. The
liability "billings in excess of work performed" represents billings in excess
of costs incurred and revenue recognized.
-6-
Revenues from annual software and maintenance are recognized ratably over the
term of each contract. Amounts billed in advance of revenue recognition for
software and maintenance are recorded as deferred revenue.
Revenues from consulting services are recognized when the services have been
provided.
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 group, which conducts efficiency studies in various hospital
situations, as well as customizes software solutions to specific hospital
requirements.
As of September 30, 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 September 30, 2002 the
Company was in the process of installing EDNet32 upgrades at 5 DOS client sites.
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. As of September 30, 2002 the Company was providing consulting services
to two hospitals.
Results of Operations
For the three months ended September 30, 2002 compared with the three months
ended September 30, 2001.
During the three month period ended September 30, 2002, the Company had revenues
of $145,456, which represented a 7% decrease from $156,263 for the corresponding
-7-
period of the prior fiscal year. The sales consisted of EDNet license and
support $112,274 (77%), and consulting $33,182 (23%), compared with $119,995
(77%), and $36,268 (23%), respectively, for the corresponding period of the
prior fiscal year.
Cost of revenues increased 26% to $94,544 for the three month period ended
September 30, 2002 from $74,908 for the corresponding period of the prior year.
This increase was directly related to putting more company resources into
customer support activities.
Selling, general, and administrative expense increased 18% to $53,303 for the
three-month period ended September 30, 2002 from $45,002 for the corresponding
period of the previous fiscal year. This increase is primarily due to more
management resources being devoted to the sales process for the EDNet product
line.
Software development costs increased 4% to $25,131 for the three-month period
ended September 30, 2002 from $24,146 for the corresponding period of the prior
fiscal year. Development activities are now focused on enhancements to the
EDNet software.
The Company had an operating loss of $27,522 for the three-month period ended
September 30, 2002 compared with a profit of $12,207 for the corresponding
period of the previous year. The lower operating profit reflects the Company's
lower revenues as well as higher costs incurred in expanding the sales effort
and strengthening the customer support function.
Interest expense decreased to $3,857 for the three-month period ended September
30, 2002 from $6,310 for the corresponding period of the prior year. This
decline resulted from a reduction in debt levels from the prior year.
The Company had a net loss of $31,379 or $(0.00) per share for the three month
period ended September 30, 2002 compared with a net income of $5,897 or $0.00
per share for the corresponding period of the prior year.
Liquidity and Capital Resources
The Company's primary needs for capital are to fund an increased sales effort
and to stay current on its continuing product development. For the three months
ended September 30, 2002, net cash used in operating activities was $53,333 as
compared to net cash used in operations of $2,729 for corresponding period of
the prior year. The Company has sufficient capital for its current operations.
However, in order to significantly expand sales, the Company will require
additional cash from borrowing or a private placement. At September 30, 2002,
the company had total assets of $201,789 and shareholders deficit of $247,198
-8-
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 9% decrease in assets is
primarily the result of a decrease in cash and the increase in work performed in
excess of billings. The change in shareholders' deficit is primarily the result
of the operating loss for the quarter. The Company did not capitalize any
software development costs during the three months ended September 30, 2002.
At September 30, 2002 the Company had a working capital deficit of $267,382 as
compared to a working capital deficit of $298,341 at September 30, 2001, an
improvement of 10%.
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 1. Litigation N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to Vote of
Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K
-9-
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 11, 2002 TENET INFORMATION
SERVICES, INC.
/s/Jerald L. Nelson
Chairman of the Board of Directors
Jerald L. Nelson
-10-
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 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: November 11, 2002
/s/__Frank C. Overfelt_________________
Frank C. Overfelt
Director, President
-11-
I, Jerald L. Nelson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB 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: November 11, 2002
/s/ Jerald L. Nelson_______________________
Jerald L. Nelson
Corporate Treasurer,
Chairman of the Board
-12-
EXHIBIT F
TENET INFORMATION SERVICES, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE FISCAL QUARTER ENDED DECEMBER, 2002
F-1
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
------------------
(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
----------- -----------
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
EXHIBIT G
TENET INFORMATION SERVICES, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE FISCAL QUARTER ENDED MARCH 31, 2003
G-1
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
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
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