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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
For the Fiscal Year May 31, 1997 Commission File Number 0-25104
CONTINENTAL INFORMATION SYSTEMS
CORPORATION
(Exact name of registrant)
New York 16-0956508
(State of incorporation) (I.R.S. Employer Identification Number)
One Northern Concourse, P.O. Box 4785, Syracuse, New York 13221-4785
(Address of principal executive offices and zip code)
(315) 455-1900
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of the registrant's shares of Common Stock outstanding on July 31,
1997 was 7,010,827.
As of July 31, 1997, the aggregate market value of the shares of Common Stock
held by non-affiliates of the registrant was approximately $12,621,953.*
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Continental Information Systems Corporation's Notice of Annual
Meeting of Stockholders and Proxy Statement, to be filed within 120 days after
the end of the registrant's fiscal year, are incorporated into Part III of this
Annual Report.
* Excludes 1,552,685 shares deemed to be held by officers and directors,
and stockholders whose ownership exceeds ten percent of the shares outstanding
at July 31, 1997. Exclusion of shares held by any person should not be construed
to indicate that such person possesses the power, direct or indirect, to direct
or cause the direction of the management or policies of the registrant, or that
such person is controlled by or under common control with the registrant.
Continental Information Systems Corporation
and its Subsidiaries
PART I
ITEM 1. BUSINESS
General
The Company is engaged in the buying and selling of commercial aircraft,
telecommunications equipment, high speed production laser printing systems, and
certain other industrial equipment, provides leasing services in connection with
such equipment, and is engaged in providing real estate financing. From its
founding in 1968, the Company had been primarily engaged in the sale and
marketing of International Business Machines Corporation ("IBM") mainframe and
peripheral computer equipment. However, in more recent years, the computer
industry has undergone a fundamental transformation highlighted by technological
advances, increased competition, increased demand for open computing systems,
and a shift in market demand toward distributed computing and client/server
technology and away from mainframe computing. The result has been an erosion of
margins and a growing focus by customers on information processing solutions
rather than on hardware. As a result, the Company has attempted to expand into
other more attractive capital markets.
For the twelve months ending May 31, 1997, approximately 77% of the Company's
revenues from continuing operations were derived from its buying and selling
("buy/sell") activities, approximately 16% from its leasing activities and
approximately 7% from interest, fees and other income.
During the current fiscal year, the Company made a strategic decision to
diversify into real estate financing as an extension of its historical financing
business. In conjunction with this effort, in the second and third quarters of
fiscal 1997, the Company sold a substantial portion of its portfolio of leased
equipment to provide capital to facilitate the expansion of the Company's
strategic business units which are comprised of aircraft, leasing, equipment
trading businesses and real estate finance. Additionally, the Company is
currently engaged in negotiations to sell its telecommunications business unit.
Subsequent to year end, on July 3, 1997, the Company announced that it had
entered into a joint investment agreement with Emmes Investment Management Co.
LLC ("Emmes") to provide high-yield, short-term financing for commercial real
estate transactions. The Company's commitment is up to $8 million in approved
transactions. The transaction with Emmes is part of an ongoing restructuring of
the Company's broad based asset lending activities. In addition, the Company
anticipates committing additional resources to its existing aircraft and leasing
businesses.
The Company currently conducts its operations through four principal operating
subsidiaries: CIS Corporation ("CIS"), a New York corporation, CMI Corporation
("CMI"), a Michigan corporation, GMCCCS Corp. ("LaserAccess"), a California
corporation and CIS Air Corporation ("CIS Air"), a Delaware corporation. Both
CIS and CMI conduct some of their operations through subsidiaries including, in
the case of CIS, LaserAccess and CIS Air. Although CIS and CMI have not been
merged, their operations have been integrated with the Company's principal
executive offices located at One Northern Concourse, Syracuse, New York
13221-4785. The Company's subsidiaries have offices throughout the United
States.
On November 29, 1994 (the "Confirmation Date"), the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") modified
and confirmed the Company's Joint Plan of Reorganization (the "Plan of
Reorganization"). The Company emerged from bankruptcy when the Plan of
Reorganization became effective and the transactions contemplated thereby were
consummated on December 21, 1994 (the "Effective Date").
CIS Air Corporation
Through its wholly-owned subsidiary CIS Air, the Company participates in the
worldwide market for the acquisition, sale and leasing of used, primarily
narrow-bodied, aircraft subject to short-term operating leases. CIS Air's
participation in this market is largely conducted through its acquisition of
whole aircraft and/or aircraft engines that are then sold, leased or dismantled
and sold as replacement parts. The Company believes that it can compete
successfully in this market since larger companies are generally not active in
this end of the market, the Company has a stronger financial position than some
of its competitors, and the Company is able to enter into short term leases and
rentals of aircraft and engines.
In addition, a subsidiary of CIS Air manages a portfolio of aircraft on behalf
of the JetStream L.P. and JetStream II L.P. limited partnerships that were
formed in 1987, the units of which are publicly held. The subsidiary, CIS
Aircraft Partners, Inc., serves as the managing general partner of the limited
partnerships while Jet Aircraft Leasing, Inc. (a Lehman Brothers, Inc.
affiliate) acts as the administrative general partner. The limited partnerships
are engaged in the business of managing a portfolio of used commercial aircraft
subject to triple net operating leases with commercial air carriers.
Although the recent improvement in the airline industry has contributed to a
modest improvement in the demand for certain types of aircraft, overall
conditions in the aircraft industry remain competitive. Additionally, future
sales and leasing opportunities for the types of aircraft the Company deals in
may be limited as a result of the implementation of noise compliance regulations
which take full effect in the year 2000. Also, recent airline industry accidents
may prompt regulatory actions by the Federal Aviation Administration or other
governmental bodies that may affect this market.
Real Estate Financing
As noted previously, on July 3, 1997, the Company announced that it had entered
into a joint investment agreement (the "Emmes Agreement") with Emmes Investment
Management Co. LLC ("Emmes") to provide high-yield, short-term financing for
commercial real estate transactions. The Company's commitment is up to $8
million in approved transactions. Under the Emmes Agreement, Emmes will
identify, negotiate and service proposed transactions. The Company will make its
own independent determination whether to participate in a proposed transaction.
It is expected that the Company will co-invest in each transaction with other
funds managed by Emmes, and that the transactions will be leveraged through
borrowings under a senior credit facility obtained by Emmes. The Company's
investments will be pledged to secure its portion of such borrowings, but the
loans will otherwise be non-recourse to the Company. The Company will pay a
management fee to Emmes equal to a percentage of total assets under management
(including leverage) plus a portion of profits on the investments to the extent
that total return on the Company's invested capital exceeds specified
thresholds. The term of the Agreement is three years, unless earlier terminated
in accordance with its terms. The Emmes Agreement is expected to involve
transactions which do not meet the underwriting standards of a traditional
lender, and instances where there are unusual time constraints. Emmes, founded
in 1992 by individuals who have been involved in commercial real estate dating
back to the early 1970s, provides high-yield, short-term real estate financing
as well as a broad range of other special opportunity real estate investments.
Management believes that the real estate finance business represents a logical
extension of the Company's historic business focus and skills as a financial
intermediary for asset-based transactions; however, the Company itself has no
direct experience in real estate. Accordingly, the Company will be dependent on
the expertise of Emmes and will need to employ qualified management to oversee
the investment. The Company will also be subject to the risks attendant to real
estate finance generally, including the risks of leverage, risks of borrower
default, general economic and real estate market conditions, and competition for
attractive real estate finance investments; in particular, the risks of borrower
default may be high given the nature of its contemplated investments.
Laser Printing Systems Equipment
On March 8, 1996, the Company, through its CIS subsidiary, completed the
acquisition of 100% of the outstanding shares of LaserAccess. LaserAccess is a
San Diego, California based buy/sell technical sales and marketing business
specializing in marketing previously-owned Xerox High Speed Laser Printing
Systems. The Company had been a marketing partner of LaserAccess since 1991. The
consideration consisted of a combination of cash and notes approximating $4.6
million, and the terms of the agreement provide for future incentive payments,
assuming LaserAccess achieves certain earnings levels. LaserAccess had revenue
of $5.4 million for the year ended December 31, 1995, and pretax income for the
year then ended of $1.2 million. (See Note 3 to the Company's Financial
Statements.) LaserAccess had not been subject to Federal and State income taxes
since it was a Subchapter S Corporation prior to the acquisition by the Company.
Recently, sales and margins for the Company's laser printing business have been
adversely impacted, and may continue to be impacted, as a result of increased
activity in the used high speed printer market by Xerox Corporation, the
manufacturer of the Company's laser printers, and another large financial
services company that has entered the market.
The Company will continue to buy and sell high and low end, new and used, laser
printing systems. Through its LaserAccess technical and engineering facility,
the Company now has the added capability to completely refurbish and maintain an
inventory of Xerox High Speed Laser Printing Systems. LaserAccess provides
customer assurance and guarantees each system to be eligible for either a Xerox
or third party maintenance contract. These capabilities may give the Company an
advantage over many of its competitors.
Equipment Leasing
The Company has conducted its leasing business in a manner designed to conserve
working capital and minimize credit exposure. The Company generally enters into
lease transactions with creditworthy companies whose leases can be readily
discounted, on a non-recourse basis, with banks or finance companies. The
Company's credit standards reflect the then current and anticipated market for
transactions of the type originated by the Company. The creditworthiness of an
individual customer is evaluated through a review of the customer's public debt
rating and/or an analysis of the customer's financial statements and credit
references. After the debt is repaid over the term of the initial lease, the
subsequent re-lease or remarketing of the equipment generates additional cash
flow for the Company. The Company currently intends to offer a leasing
alternative to its customers as a means of sales support.
On November 30, 1996, the Company, through certain wholly-owned subsidiaries,
sold a substantial portion of its leased equipment to an institutional investor
for a sales price of approximately $20 million, payable in cash of approximately
$7.4 million and the assumption by the investor of the Company's related
outstanding non-recourse lease rental borrowings of approximately $12.5 million.
The gain on the transaction of approximately $2.5 million, exclusive of income
taxes, was included in results from continuing operations for the fiscal quarter
ended November 30, 1996. Additionally, on February 28, 1997, the Company sold an
additional portion of its leased equipment to the same institutional investor
for a sales price of approximately $2 million, payable in cash of approximately
$775,000, a short-term note of approximately $560,000, the assumption by the
investor of the Company's related outstanding non-recourse lease rental
borrowings of approximately $343,000 and the payment of the Company's related
outstanding recourse lease rental borrowings of approximately $379,000. The gain
on the transaction of approximately $341,000, exclusive of income taxes, was
included in results from continuing operations for the fiscal quarter ended
February 28, 1997. The Company is acquiring additional equipment, subject to
lease, which it intends to sell on an ongoing basis, as market conditions
permit. The Company's future revenue and earnings from the sale of leased
equipment will be affected by a number of factors, including the Company's
ability to identify and market equipment leases to equipment lessees, conditions
in the secondary market for equipment leases, which may be affected by such
factors as the availability of institutional investment capital and interest
rates, and competition from other entities seeking to resell equipment leases.
Telecommunications Equipment
During the current fiscal year, the Company's efforts in the
telecommunications/telephony market continued to be focused on providing both
new and used AT&T, Rolm and Northern Telecom equipment to a nationwide customer
base of users with mid-size or larger phone systems. While margins in this
business unit remain stable, the Company to date has not achieved significant
increases in volume from this business. The Board of Directors has decided to
sell this business unit and the Company is currently engaged in negotiations
with a potential buyer.
Customers and Marketing
A majority of the Company's sales are with repeat customers under normal
commercial terms. The Company's management believes that its business is not
dependent on any single customer or any single source for the equipment marketed
by the Company.
Competition
The Company competes with other companies in each aspect of its business. These
firms include other equipment dealers, brokers, leasing companies and financing
institutions, including commercial banks, investment banking firms and real
estate investors.
With respect to other capital equipment such as aircraft, the Company competes
with aircraft manufacturers, distributors, airlines and other operators,
equipment managers, leasing companies, financial institutions and other parties
engaged in leasing, managing, marketing or remarketing aircraft.
The Company's continued ability to compete effectively is also materially
affected by its ability to attract and retain well-qualified personnel and by
the availability of financing at competitive interest rates. Many of the
Company's competitors have greater financial resources, economies of scale and
lower capital costs than the Company and, as a result, no assurance can be given
that the Company will be successful in operating profitably or in obtaining
access to competitive capital sources.
Employees
As of August 1, 1997, the Company had approximately 39 full-time employees,
including 23 in administration and 16 in sales and sales support. Of the
employees engaged in sales and sales support, 12 are marketing representatives
who are compensated substantially on a commission basis.
Seasonality and Backlogs
Revenues have historically shown a seasonal fluctuation, based largely on the
staggered fiscal years of its customer base as many lease and purchase decisions
are made on the basis of customer budget constraints, but the Company's business
is not seasonal in nature. The Company does not have a significant amount of
backlog orders as a result of its operations.
ITEM 2. PROPERTIES
The Company is leasing office space for its corporate headquarters on a month to
month basis, commencing August 1, 1997. The offices are located in North
Syracuse, New York and the Company is occupying approximately 6,000 square feet
of floor space at a cost of $9,167 per month. The Company intends to move its
corporate offices to another location in the Greater Syracuse, New York area
during Fiscal 1998.
LaserAccess leases approximately 7,900 square feet of warehouse space in La
Jolla, California. This space houses LaserAccess's printer refurbishing and
technical operations. The monthly rent for the warehouse facility is $4,978 and
the lease expires on January 31, 1998. In addition, LaserAccess leases
approximately 700 square feet of office space at its headquarters in San Diego,
California. The headquarters location is leased on a month to month basis at a
total monthly rental of $1,850. Finally, LaserAccess maintains one additional
sales office in Minneapolis, Minnesota which is rented for a non-material rental
amount. Likewise, the square footage of this office is not significant.
The Company's telecommunications group operates out of leased space which
consists of approximately 17,000 square feet of combined warehouse and office
space in Syracuse, New York at a cost of approximately $4,800 per month. The
lease for this facility is scheduled to expire on May 31, 1998 and is expected
to be assumed by any potential buyer of the Telecommunications Business Unit
(see Item 1. "Business").
The Company maintains an administrative office in New York, New York and a sales
office in Los Angeles, California, both of which are rented for non-material
rental amounts. Likewise, the square footage of these offices is not
significant. The Company intends to move to expanded administrative office space
in New York, New York during Fiscal 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of its fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
After emerging from reorganization, the Company's Common Stock began trading on
the NASDAQ Small-Cap Market under the symbol CISC on May 16, 1995. The high and
low bid information for the last two fiscal years is as follows:
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- ---------------- ---------------- -------------------
Low High Low High Low High Low High
--- ---- --- ---- --- ---- --- ----
Fiscal Year ended
May 31, 1997
$ 1.63 $ 2.00 $ 1.69 $ 2.25 $ 1.75 $ 3.13 $ 1.88 $ 2.88
Fiscal Year ended
May 31, 1996
$ 2.13 $ 3.50 $ 1.75 $ 2.63 $ 1.88 $ 2.38 $ 1.50 $ 2.44
As of July 31, 1997, there were 1,408 record holders of the Company's Common
Stock. No cash dividends have been paid on the Common Stock to date.
ITEM 6. SELECTED FINANCIAL DATA:
The following table sets forth a summary of selected financial data for
Continental Information Systems Corporation and its Subsidiaries (the "Company")
as of the dates and for each of the periods stated. To distinguish between the
operations of the Company after reorganization (sometimes referred to as the
"Reorganized Company") and operations prior to reorganization, the term
"Predecessor Company" will be used when reference is made to the
pre-reorganization periods. Due to the application of "Fresh Start" accounting
as of November 30, 1994 (the "Fresh Start Date"), the financial data as of and
for the fiscal year ended May 31, 1995 is presented in two parts: the six month
period commencing after the fresh start date and ending May 31, 1995 and the six
months period ending on the fresh start date, which was the end of the
Predecessor Company's second fiscal quarter.
This information should be read in conjunction with the Company's historical
financial statements, the related notes, and the other information contained
herein, including the information set forth in "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The financial
data for the Reorganized Company is generally not comparable to the financial
data for the Predecessor Company due to the application of "fresh start"
accounting upon emergence from Chapter 11 pursuant to the Plan of
Reorganization.
(Dollars in thousands except per share amounts)
Reorganized Company | Predecessor Company
--------------------------------------- | ------------------------------------------
Fiscal Year Ended For the Six | For the Six Fiscal Year Ended
May 31, Months Ended | Months Ended May 31,
Period Data: 1997 1996 May 31, 1995 | November 30, 1994 1994 1993
- ------------ ---- ---- ------------ | ----------------- ---- ----
Total Revenues .......................... $ 31,301 $ 26,822 $ 11,762 | $ 25,707 $ 54,193 $ 94,624
Costs and expenses ...................... 29,662 25,211 9,529 | 17,501 54,941 108,371
--------- --------- --------- | --------- --------- ---------
Income (loss) from continuing |
operations before reorganization items, |
income taxes, fresh start adjustments |
and extraordinary item ................ 1,639 1,611 2,233 | 8,206 (748) (13,747)
Reorganization items .................... -- -- -- | 8,945 134,224 31,715
--------- --------- --------- | --------- --------- ---------
Income (loss) from continuing |
operations before income taxes, |
fresh start adjustments and |
extraordinary item .................... 1,639 1,611 2,233 | 17,151 133,476 17,968
Income taxes ............................ 623 611 849 | 45 100 100
--------- --------- --------- | --------- --------- ---------
Income (loss) from continuing |
operations before fresh start |
adjustments and extraordinary item .... 1,016 1,000 1,384 | 17,106 133,376 17,868
Income (loss)from discontinued |
operations, net of tax ................ 70 (934) (2,997) | (4,882) (575) (1,138)
--------- --------- --------- | --------- --------- ---------
Income (loss) before fresh start |
adjustments and extraordinary item ... 1,086 66 (1,613) | 12,224 132,801 16,730
Fresh start adjustments ................. -- -- -- | (3,264) -- --
--------- --------- --------- | --------- --------- ---------
Income (loss) before extraordinary ..... 1,086 66 (1,613) | 8,960 132,801 16,730
item |
Extraordinary item-Forgiveness of |
debt .................................. -- -- -- | 96,317 -- --
--------- --------- --------- | --------- --------- ---------
|
Net income (loss) ....................... $ 1,086 $ 66 $ (1,613) | $ 105,277 $ 132,801 $ 16,730
========= ========= ========= | ========= ========= =========
|
|
Net Income (Loss) Per Common Share: |
Income from continuing operations........ $ .14 $ .14 $ .20 |
Income (loss) from discontinued |
operations............................... .01 (.13) (.43) |
--------- --------- --------- |
Net income (loss)............ $ .15 $ .01 $ (.23) |
========= ========= ========== |
Note: Net income (loss) per share data are not presented for Predecessor
Company due to the general lack of comparability as a result of the
revised capital structure of the Reorganized Company.
(Dollars in thousands)
Reorganized Company | Predecessor Company
------------------------------------------------------------------ | -----------------------
Fiscal Year Fiscal Year For the Six For the Six | Fiscal Year Ended
Balance Sheet Data Ended Ended Months Ended Months Ended | May 31,
(at period end): May 31, 1997 May 31, 1996 May 31, 1995 November 30, 1994 | 1994 1993
------------ ------------ ------------ ----------------- | ---- ----
Total assets $ 44,077 $ 53,550 $ 41,130 $ 47,323 | $ 231,173 $ 244,151
Liabilities not subject |
to compromise 9,476 20,097 7,743 12,323 | 72,142 73,969
Liabilities subject to |
compromise - - - - | 268,258 412,210
Shareholders' equity |
(deficit) 34,601 33,453 33,387 35,000 | (109,227) (242,028)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and the notes thereto which appear elsewhere in this Form
10-K.
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future capital requirements, the
Company's future development and acquisition plans, the Company's ability to
obtain additional debt, equity or other financing, and the Company's ability to
generate cash from operations and further savings from existing operations, are
based on current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as the introduction of new technologies and competitors into the
telecommunications equipment, laser printing systems, and commercial aircraft
industries; the risks attendant to real estate finance generally, including the
risks of leverage, risks of borrower default, general economic and real estate
market conditions, and competition for attractive real estate finance
investments; pricing pressures which could affect demand for the Company's
service; change in labor, equipment and capital costs; future acquisitions;
general business, economic and regulatory conditions; and the other risk factors
described from time to time in the Company's reports filed with the Securities
and Exchange Commission ("SEC"). The Company wishes to caution readers not to
place undue reliance on any such forward looking statements, which statements
are made pursuant to the Private Securities Litigation Reform Act of 1995 and,
as such, speak only as of the date made.
The Company emerged from Chapter 11 pursuant to a Plan of Reorganization which
was confirmed by the Bankruptcy Court on November 29, 1994. For financial
reporting purposes, the emergence from bankruptcy protection was recorded as of
November 30, 1994. The Plan of Reorganization provided for the distribution of
all of the Company's assets, except for specifically identified assets and
liabilities having a net fair tangible value of $30 million, and the Company's
newly-issued common stock, to a Liquidating Estate for distribution to the
creditors. In addition, all liabilities subject to compromise and certain
postpetition liabilities were assumed by the Liquidating Estate. The Plan of
Reorganization provided that no further recourse to the Company or any of its
subsidiaries may be had by any person with respect to any prepetition claims or
postpetition liabilities assumed by the Liquidating Estate. As a result of the
reorganization and application of "fresh start" accounting, financial
information before and after November 30, 1994 are not comparable. To
distinguish between the operations of the Company prior to reorganization and
operations after reorganization, the term "Predecessor Company" will be used for
the pre-reorganization periods. The following discussion should be read in
conjunction with the historical financial statements of the Company.
The Reorganized Company applied the "fresh start" provisions of AICPA Statement
of Position No. 90-7 ("SOP 90-7") as of November 30, 1994 and, accordingly, the
assets retained by the Reorganized Company were adjusted as of that date to
reflect their fair value. The reorganization value of $35 million approximated
the fair value of the Reorganized Company's net assets, including net deferred
tax assets of $5 million, and accordingly, no excess reorganization value over
amount allocable to identifiable assets has been recognized.
On May 25, 1995, the Company announced its decision to discontinue NC3, Inc.,
the Company's excess inventory business unit located in Syracuse, New York.
Additionally, on April 3, 1996, the Company announced its decision to
discontinue an operation, including its wholly-owned subsidiary, Aviron, that
purchased and sold used computer equipment and provided related technical
services. These discontinued operations will be reviewed separately from
continuing operations in the following discussion.
Due to the application of "fresh start" accounting as of November 30, 1994 (the
"Fresh Start Date"), the results of operations for the twelve months ended May
31, 1995 are presented in the accompanying Consolidated Statements of Operations
in two parts: the six month period commencing after the Fresh Start Date and
ending May 31, 1995 and the six month period ending on the Fresh Start Date,
which is the end of the Predecessor Company's second fiscal quarter. Since this
presentation increases the difficulty in making meaningful year to year
comparisons, the following unaudited pro forma Consolidated Statements of
Continuing Operations for Fiscal 1995, as compared to historical Fiscal 1997 and
1996, are provided for management discussion purposes. The pro forma statements
are based on historical data adjusted as follows: (i) interest expense on
discounted leases for the Predecessor Company has been adjusted to eliminate
interest on debt obligations of the Liquidating Estate and, (ii) interest
expense has been increased to reflect the interest cost on the estimated average
principal balance outstanding on the note payable to the Liquidating Estate.
Reorganization items and loss from discontinued operations have been excluded
from the data presented to more closely represent normal operations.
Consolidated Statements of Continuing Operations
(Unaudited)
(Dollars in thousands) Historical Pro Forma
------------------------------------- -----------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
May 31, 1997 May 31, 1996 May 31, 1995
------------ ------------ ------------
Revenues:
Equipment sales ............................ $21,393 $16,657 $15,342
Gain from sale of equipment subject to lease 2,816 -- --
Equipment rentals .......................... 3,829 6,540 14,226
Income from direct financing leases ........ 1,188 1,347 1,326
Interest, fees and other income ............ 2,075 2,278 6,575
------- ------- -------
31,301 26,822 37,469
------- ------- -------
Costs and Expenses:
Cost of sales .............................. 17,145 11,966 9,058
Depreciation of rental equipment ........... 2,130 3,445 4,330
Interest expense ........................... 975 551 471
Other operating expenses ................... 2,310 1,344 4,500
Selling, general and administrative expense 7,102 7,905 8,728
------- ------- -------
29,662 25,211 27,087
------- ------- -------
Income from continuing operations before
income taxes .......................... $ 1,639 $ 1,611 $10,382
======= ======= =======
RESULTS OF OPERATIONS
Continuing Operations
During the current fiscal year, the Company made a strategic decision to
diversify into real estate financing as an extension of its historical financing
business. In conjunction with this effort, in the second and third quarters of
fiscal 1997, the Company sold a substantial portion of its portfolio of leased
equipment to provide capital to facilitate the expansion of the Company's
strategic business units which are comprised of aircraft, leasing, equipment
trading businesses and real estate finance. Subsequent to year end, on July 3,
1997, the Company announced that it had entered into a joint investment
agreement (the "Emmes Agreement") with Emmes Investment Management Co. LLC
("Emmes") to provide high-yield, short-term financing for commercial real estate
transactions. Under the agreement the Company may provide up to $8 million in
financing, subject to management's approval of each loan. The transaction with
Emmes is part of an ongoing restructuring of the Company's asset lending
activities. In addition, the Company anticipates committing additional resources
to its existing aircraft and leasing businesses.
The Emmes Agreement is expected to involve transactions which do not meet the
underwriting standards of a traditional lender, and instances where there are
unusual time constraints. Emmes, founded in 1992 by individuals who have been
involved in commercial real estate dating back to the early 1970s, provides high
yield, short-term real estate financing as well as a broad range of other
special opportunity real estate investments. Under the Emmes Agreement, Emmes
will identify, negotiate and service proposed transactions, and will present to
the Company the opportunity to participate in such transactions. The Company
will make its own independent determination whether to participate in a
transaction.
For the three fiscal years being reviewed, total revenues increased to $31.3
million in fiscal 1997 from $26.8 million in fiscal 1996, while decreasing from
$37.4 million in fiscal 1995. Equipment sales increased in each of the three
years, from $15.3 million in fiscal 1995 to $16.6 million in fiscal 1996 and to
$21.3 million in fiscal 1997. The significant increase (28.4%) during the
current fiscal year is principally attributable to the addition of LaserAccess'
results of operations for the current twelve month period, after being acquired
on March 8, 1996.
On November 30, 1996, the Company, through certain wholly-owned subsidiaries,
sold a substantial portion of its leased equipment to an institutional investor
for a sales price of approximately $20 million, payable in cash of approximately
$7.4 million and the assumption by the investor of the Company's related
outstanding non-recourse lease rental borrowings of approximately $12.5 million.
The gain on the transaction of approximately $2.5 million, exclusive of income
taxes, was included in results from continuing operations for the fiscal quarter
ended November 30, 1996. Additionally, on February 28, 1997, the Company sold an
additional portion of its leased equipment to the same institutional investor
for a sales price of approximately $2 million, payable in cash of approximately
$775,000, a short-term note of approximately $560,000, the assumption by the
investor of the Company's related outstanding non-recourse lease rental
borrowings of approximately $343,000 and the payment of the Company's related
outstanding recourse lease rental borrowings of approximately $379,000. The gain
on the transaction of approximately $341,000, exclusive of income taxes, was
included in results from continuing operations for the fiscal quarter ended
February 28, 1997. The Company is acquiring additional equipment, subject to
lease, which it intends to sell on an ongoing basis, as market conditions
permit. The Company's future revenue and earnings from the sale of leased
equipment will be affected by a number of factors, including the Company's
ability to identify and market equipment leases to equipment lessees, conditions
in the secondary market for equipment leases, which may be affected by such
factors as the availability of institutional investment capital and interest
rates, and competition from other entities seeking to resell equipment leases.
Sales and margins for the Company's laser printing business have been adversely
impacted, and may continue to be impacted, as a result of increased activity in
the used high speed printer market by Xerox Corporation, the manufacturer of the
Company's laser printers, and another large leasing company that has entered the
market. While margins in the Company's telecom equipment buy/sell business
remain stable, the Company to date has not achieved significant increases in
volume from this business. The Board of Directors has decided to seek a buyer
for the Company's telecom equipment buy/sell business. The disposition of the
telecom business is not expected to have a material effect on the Company's
financial position or results of operations. Sales and earnings from the
aircraft business are likely to continue to vary quarter-to-quarter, based on
the volume of transactions.
Equipment rentals and income from direct financing leases decreased to $5.0
million in fiscal 1997 from $7.9 million in fiscal 1996 and $15.6 million in
fiscal 1995. The significant decrease (49.3%) from fiscal 1995 to fiscal 1996
primarily reflects a "running out" of the old lease portfolio, developed prior
to and during the bankruptcy proceeding. The decrease from fiscal 1996 to fiscal
1997 is directly related to the previously described sale of a substantial
portion of the Company's leased equipment to an institutional investor in the
second and third quarters of the current fiscal year.
Interest, fees and other income decreased from $6.5 million in fiscal 1995 to
$2.2 million in fiscal 1996 to $2.0 million in fiscal 1997. The significant
decrease (65.3%) from fiscal 1995 to fiscal 1996 principally reflects a decline
in management fees received from income funds. Effective as of December 31,
1995, the Company sold TLP Leasing Programs, a group of wholly-owned
subsidiaries, to the current management of TLP.
Costs and expenses increased to $29.6 million in fiscal 1997 from $25.2 million
in fiscal 1996 while decreasing from $27.0 million in fiscal 1995 to $25.2
million in fiscal 1996. Cost of sales increased in each of the three years from
$9.1 million in fiscal 1995 to $11.9 million in fiscal 1996 and to $17.1 million
in fiscal 1997. The significant increase (43.3%) during the current fiscal year,
is directly related to additional sales contributed by LaserAccess since its
acquisition. Cost of sales as a percentage of sales for the fiscal years ended
May 31, 1997, 1996 and 1995, was 80.0%, 71.8% and 59.0%, respectively. These
yearly variances are primarily the result of product mix, with the aircraft
business unit generating significant margins on a relatively few large
transactions and the telecommunications and printing business units generating
comparably lesser margins on a greater number of transactions. Depreciation of
rental equipment decreased from $4.3 million in fiscal 1995 to $3.4 million in
fiscal 1996 and to $2.1 million in fiscal 1997. The decrease of $885,000 from
fiscal 1995 to fiscal 1996 is related to the previously described "running out"
of the old lease portfolio, developed prior to and during the bankruptcy
proceeding. The decrease of $1.3 million from fiscal 1996 to fiscal 1997 is
directly related to the sale of a substantial portion of the Company's leased
equipment to an institutional investor in the second and third quarters of
fiscal 1997. Interest expense increased from $471,000 in fiscal 1995 to $551,000
in fiscal 1996 and to $975,000 in fiscal 1997. These yearly increases were
primarily the result of increases in the average debt outstanding during these
periods, prior to the assumption of approximately $12.8 million in non-recourse
lease rental borrowings by an institutional investor in the second and third
quarters, relative to the sale of equipment subject to lease. Other operating
expenses decreased from $4.5 million in fiscal 1995 to $1.3 million in fiscal
1996. This decrease occurred primarily in expenses associated with leases and
was impacted by the "running out" of the old lease portfolio. Other operating
expenses increased by $1.0 million to $2.3 million in fiscal 1997. This increase
was principally due to (i) a write off of certain assets associated with the
Company's telecommunications and other leasing business units in the fourth
quarter of fiscal 1997, (ii) additional equipment refurbishment expenses related
to LaserAccess' results of operations for the current twelve month period, after
being acquired on March 8, 1996 and (iii) a full twelve months amortization in
fiscal 1997 of goodwill associated with the acquisition of LaserAccess. Selling,
general and administrative expenses decreased from $8.7 million in fiscal 1995
to $7.9 million in fiscal 1996 and to $7.1 million in fiscal 1997. These yearly
decreases are principally due to cost containment efforts and staff reductions
between the periods.
For the following discussion of reorganization items, discontinued operations
and income taxes, please refer to the table contained in "ITEM 6. SELECTED
FINANCIAL DATA" on page 8.
Reorganization Items
Reorganization items represented income and expenses incurred by the Predecessor
Company resulting from bankruptcy and specific to the reorganization process.
These amounts are presented separately because of their non-operating nature.
Discontinued Operations
On April 3, 1996, the Company announced its decision to discontinue an
operation, including its wholly-owned subsidiary, Aviron, that purchased and
sold used computer equipment and provided related technical services. After that
date, the Company attempted to locate a buyer for the operation. On June 5,
1996, the Company announced it had abandoned its efforts to sell the operations
and would instead liquidate the assets which consisted principally of used
computer equipment inventories and fixed assets. The net loss from discontinued
operations for the year ended May 31, 1996, was $1,177,000 (net of $698,000
deferred tax benefit). In May 1995, the Company had attempted to change the
products and marketing strategies of Aviron to make it more competitive in the
current market. These actions resulted in a restructuring charge to operations
of $800,000 in the quarter ended May 31, 1995, for employee severance programs
affecting 13 employees, lease termination costs for excess facilities, and the
write-off of certain deferred costs relating to non-compete and consulting
arrangements having a book value of approximately $218,000. The restructuring
reserve had been completely utilized as of May 31, 1996, as a result of cash
payments for severance and excess facilities costs.
A summary of the results of operations of the discontinued buy/sell operation
follows (in thousands):
Reorganized Company | Predecessor Company
----------------------------------------------- | --------------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995 | November 30, 1994
------------ ------------ ------------ | -----------------
Revenues ....................... $ -- $ 5,491 $ 5,352 | $ 10,580
Costs and expenses ............. (24) 6,661 7,890 | 12,110
-------- -------- -------- | --------
Income (loss) from discontinued |
operations ............... 24 (1,170) (2,538) | (1,530)
Loss on disposal of discontinued |
operations ............... -- (705) -- | --
-------- -------- -------- | --------
Income (loss) before income tax |
(tax benefit) ............. 24 (1,875) (2,538) | (1,530)
Income tax (tax benefit) ....... 9 (698) (971) | --
-------- -------- -------- | --------
Net income (loss) from |
discontinued operations ... $ 15 $ (1,177) $ (1,567) | $ (1,530)
======== ======== ======== | ========
Additionally, on May 25, 1995, the Board of Directors approved the
discontinuance of NC3, Inc., the Company's excess inventory business unit
located in Syracuse, New York. The Company recorded a provision of $1,137,000
(net of $763,000 deferred tax benefit) in the quarter ended May 31, 1995,
relative to the disposal of NC3 assets and other charges related to the
discontinuance of the business unit. As of May 31, 1996, the Company had exited
the business and liquidated substantially all of the assets. A total of 14
employees were terminated in connection with the closing of this business.
Liabilities of the discontinued operation decreased from $744,000 at May 31,
1995 to none as of May 31, 1997, due to cash payments principally for severance
and facilities costs totaling approximately $325,000 and a net reduction of
$419,000 to adjust the amounts estimated for the loss on the inventories,
receivables, fixed assets and leased facility obligations. The adjustment of the
liability in the amount of $230,000 was recorded as a gain from discontinued
operations, net of deferred tax expenses of $87,000 in the quarter ended August
31, 1995. An additional adjustment of the liability in the amount of $100,000
was recorded as an offset to the loss on disposal of discontinued operations in
the quarter ended May 31, 1996. A final adjustment of the liability in the
amount of $89,000 was recorded as income from discontinued operations in the
quarter ended May 31, 1997.
A summary of the results of operations of the discontinued NC3 business unit
follows (in thousands):
Reorganized Company | Predecessor Company
-----------------------------------------------| --------------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995| November 30, 1994
------------ ------------ ------------| -----------------
Revenues .................... $ -- $ -- $ 1,285 | $ 4,019
Costs and expenses .......... (89) -- 1,773 | 7,371
------- ------- ------- | -------
Income (loss) from |
discontinued operations.. 89 -- (488) | (3,352)
Income (loss) on disposal of |
discontinued operations.. -- 330 (1,900) | --
------- ------- ------- | -------
Income (loss) before income |
tax (tax benefit) ...... 89 330 (2,388) | (3,352)
Income tax (tax benefit) ... 34 87 (958) | --
------- ------- ------- | -------
Net income (loss) from |
discontinued operations.. $ 55 $ 243 $(1,430) | $(3,352)
======= ======= ======= | =======
Income Taxes
For the fiscal years ended May 31, 1997 and 1996 and for the six months ended
May 31, 1995, a provision for deferred income tax expense on income from
continuing operations was recorded in the amounts of $623,000, $611,000 and
$849,000, respectively. Additionally, for the fiscal year ended May 31, 1997, a
deferred income tax expense on income from discontinued operations was recorded
in the amount of $43,000, while for the fiscal year ended May 31, 1996 and for
the six months ended May 31, 1995, a deferred income tax benefit on loss from
discontinued operations was recognized in the amounts of $611,000 and
$1,929,000, respectively. For the six months ended November 30, 1994, a
provision for state tax on income from continuing operations was recorded in the
amount of $45,000. No provision for federal income tax was required in this
period due to the effects of the Predecessor Company's net operating loss
("NOL") carryforwards. In connection with applying "fresh start" accounting as
of November 30, 1994, the Reorganized Company recognized deferred tax assets of
approximately $5 million, net of a valuation allowance of approximately $7
million, relating principally to NOL carryforwards. Net deferred tax assets
increased to $6,080,000 as of May 31, 1995 due to the Reorganized Company's
operating losses during the six months then ended. For the fiscal year ended May
31, 1997, $666,000 of deferred tax assets were utilized to offset deferred tax
liabilities of a like amount. The pre-reorganization Federal NOL carryforwards
giving rise to deferred tax assets expire during the years 2004 to 2010.
Utilization of the Company's pre-organization Federal NOL carryforwards is
limited to approximately $2 million per year. Management will periodically
evaluate the realizability of the deferred tax assets based principally on
actual and expected operating results. In the event that an adjustment is
required to reduce the reorganized deferred tax asset in the future, such
adjustment will be charged to operations. Any future recognition of the tax
benefits from the Company's pre-reorganization net operating loss carryforwards
in excess of the net $5 million initially recorded will be recognized as a
direct credit to shareholders' equity as required under SOP 90-7.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations for the fiscal years ended May 31, 1997 and 1996 and
the six months ended May 31, 1995, was $11.7 million, $6.8 million and $12.3
million, respectively. Cash used in operations by the Predecessor Company for
the six months ended November 30, 1994, was $86.3 million. The significant
increase in cash provided by continuing operations for the current fiscal year
was primarily due to the proceeds generated by two sales of equipment subject to
lease in the aggregate amount of $8.7 million in the second and third quarters.
In addition to the cash payments and a short-term note of approximately
$560,000, the buyer assumed approximately $12.8 million of the Company's related
outstanding non-recourse lease rental borrowings and approximately $379,000 of
the Company's related outstanding recourse lease rental borrowings were paid
off. The sales of this leased equipment accelerated the earnings and cash flow
from the leases, which would have been received over time, into the second and
third quarters of the current fiscal year. These funds provide capital to
facilitate the expansion of the Company's strategic business units which are
comprised of aircraft, leasing, equipment trading businesses and real estate
finance. Inventory increased by $3.9 million during the current fiscal year.
This increase was primarily attributable to the acquisition of used aircraft
equipment and certain laser printing systems to support planned increases in
business activity in these business units. New investment in rental equipment
was $11.4 million for the fiscal year ended May 31, 1997 as compared to $22.8
million for the prior fiscal year. The significant investment in rental
equipment in fiscal 1996 initiated the Company's strategy of originating leases
on acquired rental equipment and subsequently selling them to investors, as was
accomplished in the second and third quarters of the current fiscal year.
Because a note payable to the Liquidating Estate was paid in full in March 1996,
there were no additional payments made on the note for the fiscal year ended May
31, 1997 as compared to the comparable fiscal period in 1996 when the Company
made principal payments of $3.3 million. Proceeds from lease, bank and
institution financings were $12.8 million in fiscal 1997 as compared to $15.3
million in fiscal 1996. Payments on lease, bank and institution financings were
$8.7 million in fiscal 1997 as compared to $2.4 million in fiscal 1996. The
significant increase in payments in the current fiscal year primarily represents
increased payments on discounted lease rental borrowing prior to the sale of the
related equipment subject to lease.
The Company expects that operations will generate sufficient cash to meet its
operating expenses and current obligations for the foreseeable future. In April
1996, the Company finalized a revolving loan agreement with an institution to
provide interim and recourse/limited recourse lease financing in the total
amount of $5 million. On March 14, 1997, the Company was notified by this
institution that it was terminating the credit line due primarily to minimal use
of the facility. The Company believes that the termination of this facility will
not have a material effect on the Company's liquidity or ability to finance its
current businesses. In July 1996, the Company finalized two revolving loan
agreements with institutions to provide (1) warehouse lease financing in the
amount of $5 million and (2) inventory financing for LaserAccess and CIS Air in
the amount of $7 million. At May 31, 1997, approximately $1.0 million in loans
payable were outstanding under these lines of credit. The LaserAccess and CIS
Air loan agreements contain various covenants including limitations on
additional indebtedness and the maintenance of minimum levels of net worth/net
earnings. At May 31, 1997, LaserAccess did not meet the minimum net worth/net
earnings requirement. In August 1997, a waiver relative to this covenant was
obtained from the lending institution. In July 1997, the Company signed letters
of intent with two institutions to provide lease and inventory financing in the
total amount of $20 million for CIS Air. The Company is currently engaged in
negotiations relative to the terms of the proposed lines of credit and due
diligence reviews with the institutions.
On May 27, 1997, the Company announced that its Board of Directors had
authorized the expenditure of up to $500,000 for the repurchase of its common
stock. The Company commenced a voluntary odd lot program through June 30, 1997,
which was extended through July 31, 1997. Shareholders owning less than 100
shares of the Company's common stock were offered the opportunity to sell all
their shares at the closing price of the common stock on the NASDAQ Small-Cap
Market on May 23, 1997, which was $2.25 per share. Approximately 20,000 shares
were repurchased by the Company at an aggregate cost of approximately $45,000.
Subsequent to the odd lot repurchase program, the Company intends to repurchase
from time to time additional shares of its common stock up to the balance of
$500,000 remaining after the odd lot program. The Company may repurchase the
additional shares at prevailing prices in the open market or in negotiated or
other permissible transactions at the discretion of management. The Company will
hold all repurchased shares of common stock in its treasury.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
(a) (1) Financial Statements
Reports of Independent Accountants
Consolidated Balance Sheets
May 31, 1997 and 1996
Consolidated Statements of Operations
Years ended May 31, 1997 and 1996 and six months ended
May 31, 1995 and November 30, 1994
Consolidated Statements of Shareholders' Equity
Years ended May 31, 1997 and 1996 and six months ended
May 31, 1995 and November 30, 1994
Consolidated Statements of Cash Flows
Years ended May 31, 1997 and 1996 and six months ended
May 31, 1995 and November 30, 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule II)
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Continental Information Systems Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Continental Information Systems Corporation (the "Company") and its subsidiaries
at May 31, 1997 and 1996, and the results of their operations and their cash
flows for the years ended May 31, 1997 and 1996 and the six months ended May 31,
1995, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 1, on November 29, 1994, the United States Bankruptcy Court
for the Southern District of New York confirmed the Company's Plan of
Reorganization (the "Plan"). Confirmation of the Plan resulted in distribution
of all of the Company's assets in settlement of all of the Company's liabilities
through a Liquidating Estate, except for specifically identified assets and
liabilities having a net tangible fair value of $30 million retained by the
Company, and substantially terminates all rights and interests of equity
security holders as provided for in the Plan. The Plan was confirmed on November
29, 1994 and the Company emerged from bankruptcy. In connection with its
emergence from bankruptcy, the Company adopted fresh start reporting as of
November 30, 1994.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
July 18, 1997
Syracuse, New York
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Continental Information Systems Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the results of operations and
cash flows of Continental Information Systems Corporation (the "Predecessor
Company") and its subsidiaries for the six months ended November 30, 1994, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1, on January 13, 1989, the Predecessor Company filed a
petition with the United States Bankruptcy Court for the Southern District of
New York for reorganization under the provisions of Chapter 11 of the Bankruptcy
Code. The Predecessor Company's Plan of Reorganization was confirmed on November
29, 1994 and the Company emerged from Bankruptcy. In connection with its
emergence from bankruptcy, the Company adopted fresh start reporting.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
January 20, 1995
Syracuse, New York
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Per Share Data)
CONSOLIDATED BALANCE SHEETS
May 31,
----------------------
1997 1996
-------- --------
Assets:
Cash and cash equivalents ............................................... $ 9,005 $ 5,382
Accounts receivable, net of allowance for
doubtful accounts of $50 and $53 .................................... 2,485 2,295
Notes receivable ........................................................ 5,094 3,457
Inventory ............................................................... 6,832 2,875
Net investment in direct financing leases (Note 6) ...................... 3,446 15,783
Rental equipment, net (Note 7) .......................................... 7,505 11,148
Furniture, fixtures and equipment, net (Note 8) ......................... 218 625
Other assets ............................................................ 446 1,965
Goodwill, net of amortization of $519 and $67 (Note 3) .................. 3,632 3,940
Deferred tax assets (Note 13) ........................................... 5,414 6,080
-------- --------
Total assets .................................................. $ 44,077 $ 53,550
======== ========
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and other liabilities .............................. $ 1,302 $ 2,949
Net liabilities of discontinued operations (Note 4) ................. -- 106
Discounted lease rental borrowings (Note 9) ......................... 5,633 14,738
Notes payable to former owners of acquired company (Note 3) ......... 1,536 2,304
Note payable to institution - secured (Note 10) ..................... 1,005 --
-------- --------
Total liabilities ............................................... 9,476 20,097
-------- --------
Shareholders' Equity:
Common stock, $.01 par value; authorized 10,000,000 shares, issued and
outstanding 7,030,707 and 6,999,040, excluding
960 treasury shares in 1997 and 1996 (notes 11 and 12) .............. 70 70
Additional paid-in capital .............................................. 34,992 34,930
Accumulated deficit ..................................................... (461) (1,547)
-------- --------
Total shareholders' equity ......................................... 34,601 33,453
-------- --------
Total liabilities and shareholders' equity ......................... $ 44,077 $ 53,550
======== ========
The accompanying notes are an integral part of these financial statements.
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of Shares)
CONSOLIDATED STATEMENTS OF OPERATIONS
Reorganized | Predecessor
Company | Company
---------------------------------------------------| -------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995 | November 30, 1994
------------ ------------ -------------- -----------------
Revenues: |
Equipment sales ........................................ $ 21,393 $ 16,657 $ 4,571 | $ 10,771
Gain from sale of equipment subject to lease (Note 2)... 2,816 -- -- | --
Equipment rentals ...................................... 3,829 6,540 4,726 | 9,500
Income from direct financing leases .................... 1,188 1,347 621 | 705
Interest, fees and other income ........................ 2,075 2,278 1,844 | 4,731
--------- --------- -------- | ---------
31,301 26,822 11,762 | 25,707
--------- --------- -------- | ---------
|
Costs and Expenses: |
Cost of sales .......................................... 17,145 11,966 3,496 | 5,562
Depreciation of rental equipment ....................... 2,130 3,445 1,465 | 2,865
Interest expense ....................................... 975 551 277 | 137
Other operating expenses ............................... 2,310 1,344 873 | 3,627
Selling, general and admiistrative expenses ............ 7,102 7,905 3,418 | 5,310
--------- --------- -------- | ---------
29,662 25,211 9,529 | 17,501
--------- --------- -------- | ---------
|
Income from continuing operations before |
reorganization items, income taxes, fresh start |
adjustments and extraordinary issues ................ 1,639 1,611 2,233 | 8,206
--------- --------- -------- | ---------
|
Reorganization Items: |
Earnings from accumulated cash resulting from |
Chapter 11 proceedings .............................. -- -- -- | 3,527
Bankruptcy related professional fees ................... -- -- -- | (5,572)
Gain on settlement of bankruptcy issues ................ -- -- -- | 10,990
Other .................................................. -- -- -- | --
--------- --------- -------- | ---------
-- -- -- | 8,945
--------- --------- -------- | ---------
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of Shares)
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
Reorganized | Predecessor
Company | Company
---------------------------------------------------| -------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995 | November 30, 1994
------------ ------------ -------------- -----------------
Income from continuing operations before income |
taxes, fresh start adjustments and extraordinary item 1,639 1,611 2,233 | 17,151
Provision for income tax ............................... 623 611 849 | 45
--------- --------- -------- | ---------
Income before discontinued operations, fresh |
start adjustments and extraordinary item ............ 1016 1,000 1,384 | 17,106
--------- --------- -------- | ---------
Income (loss) from discontinued operations, net of tax . 70 (725) (1,860) | (4,882)
Income (loss) on disposal of discontinued |
operations, net of tax............................... -- (209) (1,137) | --
--------- --------- -------- | ---------
Net income (loss) from discontinued operations |
(Note 4) ............................................ 70 (934) (2,997) | (4,882)
--------- --------- -------- | ---------
Income (loss) before fresh start adjustments and |
extraordinary item .................................. 1,086 66 (1,613) | 12,224
Fresh start adjustments ................................ -- -- -- | (3,264)
--------- --------- -------- | ---------
Income (loss) before extraordinary item ................ $ 1,086 66 (1,613) | 8,960
Extraordinary item - forgiveness of debt ............... -- -- -- | 96,317
--------- --------- -------- | ---------
Net income (loss)....................................... $ 1,086 $ 66 $ (1,613) | $ 105,277
========= ========= ======== | =========
|
Net income (loss) per share (Note 1) |
Income from continuing operations.................... $ .14 $ .14 $ .20 |
Income (loss) from discontinued operations .01 (.13) (.43) |
--------- --------- -------- |
Net income (loss)................................ $ .15 $ .01 $ (.23) |
========= ========= ======== |
|
Weighted average number of shares of common |
stock outstanding..................................... 7,008 6,999 7,000 |
========= ========= ======== |
The accompanying notes are an integral part of these financial statements.
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of Shares)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Common Stock Additional Earnings
------------ Paid-In (Accumulated
Shares Amount Capital Deficit)
------ ------ ------- --------
Predecessor Company
- -------------------
Balance - May 31, 1994 ................... 12,761,875 $ 383 $ 30,798 $ (140,408)
Net Income .......................... -- -- -- 105,277
Elimination of the historical capital
structure of the Company upon
Reorganization ...................... (12,761,875) (383) (30,798) 35,131
Reorganized Company
- -------------------
"Fresh-Start" Reorganized
capital structure .................. 7,000,000 70 34,930 --
----------- ----------- ----------- -----------
Balance - November 30, 1994 .............. 7,000,000 70 34,930 --
Net loss ............................ -- -- -- (1,613)
----------- ----------- ----------- -----------
Balance - May 31, 1995 ................... 7,000,000 70 34,930 (1,613)
Net income .......................... -- -- -- 66
Acquisition of treasury shares ...... (960) -- -- --
----------- ----------- ----------- -----------
Balance - May 31, 1996 ................... 6,999,040 70 34,930 (1,547)
Net income .......................... -- -- -- 1,086
Stock options exercised ............. 16,667 -- 33 --
Stock issued as compensation ........ 15,000 -- 29 --
----------- ----------- ----------- -----------
Balance - May 31, 1997 ................... 7,030,707 $ 70 $ 34,992 $ (461)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
Continental Information Systems Corporation
and its Subsidiaries
In Thousands
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reorganized | Predecessor
Company | Company
--------------------------------------------------- |-----------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995 November 30, 1994
------------ ------------ ------------ -----------------
Cash flows from operating activities: |
Net income (loss) ............................................... $ 1,086 $ 66 $ (1,613) | $ 105,277
Less: Net income (loss) from discontinued operations ............ 70 (934) (2,997) | (4,882)
--------- --------- --------- | ---------
Net income from continuing operations ........................... 1,016 1,000 1,384 | 110,159
--------- --------- --------- | ---------
|
Adjustments to reconcile net income |
to net cash provided by operating activities: |
Reorganization related adjustments- |
Gain on forgiveness of debt ................................... -- -- -- | (96,317)
Fresh start adjustments ....................................... -- -- -- | 3,043
Cash transferred to Liquidating Estate ........................ -- -- -- | (106,554)
Gain on settlement of lease, bank and institution financing ... -- -- -- | (8,012)
--------- --------- --------- | ---------
Reorganization related adjustments ........................ -- -- -- | (207,840)
--------- --------- --------- | ---------
|
Other adjustments- |
Proceeds from sale of equipment subject to lease ................ 8,703 -- -- | --
Gain on sale of equipment subject to lease ...................... (2,816) -- -- | --
Proceeds from sale of other leased equipment ................... 3,763 2,155 3,066 | 2,449
Amortization of unearned income ................................. (1,188) (1,347) (621) | (705)
Collections of rentals on direct financing leases ............... 3,524 4,665 1,761 | 2,092
Depreciation and amortization expense ........................... 3,012 3,967 1,699 | 3,309
Effect on cash flows of changes in: |
Marketable debt securities ................................... -- -- -- | 25,829
Accounts receivable .......................................... (190) (317) 1,215 | (2,436)
Notes receivable ............................................. (1,637) (2,420) 186 | (7)
Inventory .................................................... (3,957) 291 1,668 | 3,526
Other assets ................................................. 1,519 (1,157) 159 | 911
Accounts payable and other liabilities ....................... (474) 1,077 958 | (17,582)
Deferred tax assets .......................................... 666 -- (1,080) | --
Other ........................................................ (209) -- -- | --
--------- --------- --------- | ---------
Other adjustments ......................................... 10,716 6,914 9,011 | 17,386
--------- --------- --------- | ---------
Net cash provided by (used in) continuing operations . 11,732 7,914 10,395 | (80,295)
|
Net cash provided by (used in) discontinued operations 7 (1,088) 1,950 | (6,001)
--------- --------- --------- | ---------
Net cash provided by (used in) operations ............ 11,739 6,826 12,345 | (86,296)
--------- --------- --------- | ---------
Continental Information Systems Corporation
and its Subsidiaries
In Thousands
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Reorganized | Predecessor
Company | Company
-------------------------------------------------|-----------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995 November 30, 1994
------------ ------------ ------------ -----------------
Cash flows from investing activities: |
Purchase of rental equipment .................................... (11,432) (22,800) (2,444) | (4,503)
Purchase of property and equipment .............................. (23) (36) (70) | (871)
Net cash provided by the sale of TLP subsidiaries ............... -- 754 -- | --
Net cash used in the acquisition of LaserAccess subsidiary ...... -- (1,910) -- | --
--------- --------- --------- | ---------
Net cash used in investing activities .................... (11,455) (23,992) (2,514) | (5,374)
--------- --------- --------- | ---------
|
Cash flows from financing activities: |
Payments on note payable to Liquidating Estate .................. -- (3,391) (2,632) | --
Proceeds from lease, bank and institution financings ............ 12,852 15,368 254 | 845
Payments on lease, bank and institution financings .............. (8,778) (2,444) (1,231) | (2,666)
Payments on notes payable to former owners of acquired company .. (768) -- -- | --
Proceeds from exercise of stock options ......................... 33 -- -- | --
--------- --------- --------- | ---------
Net cash provided by (used in) financing activities ........ 3,339 9,533 (3,609) | (1,821)
--------- --------- --------- | ---------
|
Net increase (decrease) in cash and cash equivalents ....... 3,623 (7,633) 6,222 | (93,491)
|
Cash and cash equivalents at beginning of period ................ 5,382 13,015 6,793 | 100,284
--------- --------- --------- | ---------
Cash and cash equivalents at end of period ...................... $ 9,005 $ 5,382 $ 13,015 | $ 6,793
========= ========= ========= | =========
The accompanying notes are an integral part of these financial statements.
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Financial Statements
1. Summary of Significant Accounting Policies
Continental Information Systems Corporation and its Subsidiaries (the
"Company") are engaged in the business of buying and selling commercial
aircraft, telecommunications equipment, high speed production laser
printing systems, and certain other industrial equipment, provides leasing
services in connection with such equipment and is engaged in providing
real estate financing.
To distinguish between the operations of the Company after reorganization
(sometimes referred to as the "Reorganized Company") and operations prior
to reorganization, the term "Predecessor Company" will be used when
reference is made to the pre-reorganization periods. On January 13, 1989,
the Predecessor Company and certain of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. On November 29, 1994 (the "Confirmation Date"), the
Bankruptcy Court confirmed the Company's Plan of Reorganization. The Plan
of Reorganization became effective on December 21, 1994 and the
Reorganized Company, and its subsidiaries which had filed petitions for
relief, emerged from Chapter 11. For financial reporting purposes, the
emergence from bankruptcy protection was recorded as of November 30, 1994,
the end of the Predecessor Company's second fiscal quarter. As a result of
the reorganization and "fresh start" reporting, the financial statements
of the Predecessor Company are not comparable to the financial statements
subsequent to November 30, 1994.
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany accounts
have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include checking and money market accounts with
financial institutions having original maturities of 90 days or less.
Concentration of Credit Risk
The Company extends credit through trade accounts receivable and leasing
transactions to its customers located throughout the U.S. Direct financing
and operating leases are secured by the underlying equipment. The Company
generally does not require collateral for trade accounts receivable.
Inventory and Related Revenue Recognition
Inventory consists of various printing, telecommunication, and aircraft
equipment purchased on a speculative basis for future sale or lease and is
stated at the lower of cost or market, cost being determined on a specific
identification basis. Revenues from the sale of equipment and the related
cost of the equipment are reflected in earnings at the time title to the
equipment passes to the customer which generally occurs upon shipment.
The Company performs ongoing analysis, at least quarterly, of the carrying
value of inventories on a specific identification basis and records
adjustments, as considered necessary, to reduce the carrying value of
inventories to estimated market value in the period such determination is
made. These adjustments are recorded as direct writedowns in the carrying
value of the inventory.
Lease Accounting Policies
Statement of Financial Accounting Standards No. 13 requires that a lessor
account for each lease by the direct financing method, sales-type method
or operating method. Presently, the Company has primarily direct
financing and operating leases; the dollar value and number of sales-type
leases are considered immaterial. Net investment in direct financing
leases consists of the present value of the future minimum lease payments
plus the present value of the unguaranteed residual, representing the
estimated fair market value at lease termination. At the end of the lease
term, the recorded residual value of equipment under direct financing
leases is reclassified to rental equipment and is depreciated over its
estimated remaining useful life.
Lease income from direct financing leases consists of interest earned on
the present value of the lease payments and residual value. Revenue is
recognized over the lease term using the interest method.
Rental equipment consists of equipment under operating leases. Rental
equipment is depreciated on a straight-line basis to its residual value
over the estimated remaining useful life of such equipment. The original
useful lives generally range from three to seven years. Operating lease
revenues consist of the contractual lease payments and are recognized on
a straight-line basis over the lease term. Costs associated with
operating leases principally consist of depreciation of the equipment.
The Company makes adjustments to the carrying value of leased assets, if
necessary, when market conditions have resulted in value that is below
net book value. In accordance with "fresh start" reporting, the Company's
investment in direct financing leases and rental equipment were adjusted
to reflect fair value, and accumulated depreciation of rental equipment
was eliminated, as of November 30, 1994.
Deferred Commissions and Initial Direct Costs
Commissions and initial direct costs related to lease transactions are
capitalized as a component of the corresponding investment in direct
financing leases or rental equipment and amortized over the estimated
average lease term. Costs relating to investment in direct financing
leases are amortized using an interest method and costs relating to
rental equipment are amortized using the straight-line method.
Furniture, Fixtures and Equipment
In accordance with "fresh start" reporting, the Company's furniture,
fixtures and equipment was adjusted to reflect fair value and accumulated
depreciation was eliminated as of November 30, 1994. Additions after
November 30, 1994 are recorded at cost. Furniture, fixtures and equipment
are being depreciated using the straight-line method over the estimated
useful lives of such assets which range from three to five years.
Goodwill
Goodwill is the excess of the purchase price over the net assets of
GMCCCS Corp. (dba "LaserAccess") acquired March 8, 1996. Goodwill is
being amortized on a straight-line basis over 10 years. Amortization
charged to continuing operations in the current fiscal year amounted to
$452,000. The Company periodically reviews the value of its goodwill to
determine if an impairment has occurred. The Company measures the
potential impairment of recorded goodwill by the undiscounted value of
expected future operating cash flows in relation to its net capital
investment in the subsidiary. Based on its review, the Company does not
believe that an impairment of its goodwill has occurred.
Income Taxes
The Company accounts for income taxes under the asset and liability
method required by Financial Accounting Standard No. 109 (FAS 109),
Accounting for Income Taxes. FAS 109 requires the recording of assets and
liabilities for the future tax effects of temporary differences between
the bases of all assets and liabilities for financial reporting purposes
and their tax bases. When net deferred tax assets exist, FAS 109 requires
the recording of a valuation allowance to reduce tax assets to the amount
which is more likely than not to be realized.
Net Income (Loss) Per Share
Net income (loss) per share for the Reorganized Company for the years
ended May 31, 1997 and 1996 and the six months ended May 31, 1995 was
computed based on the weighted average number of shares of common stock
outstanding during the periods, which were 7,008,440, 6,999,399 and
7,000,000, respectively. As of May 31, 1997, the Company had outstanding
options to purchase 284,000 shares of common stock (see note 12). The
potential dilution of these options is immaterial in the computation of
net income per share. Net income (loss) per share data are not presented
for the Predecessor Company due to the general lack of comparability as a
result of the revised capital structure of the Reorganized Company.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain prior period balances in the financial statements have been
reclassified to conform to the current period financial statement
presentation.
2. Sale of Equipment Subject to Lease
On November 30, 1996, the Company, through certain wholly-owned
subsidiaries, sold a substantial portion of its leased equipment to an
institutional investor for a sales price of approximately $20 million,
payable in cash of approximately $7.4 million and the assumption by the
investor of the Company's related outstanding non-recourse lease rental
borrowings of approximately $12.5 million. The gain on the transaction of
approximately $2.5 million, exclusive of income taxes, was included in
results from continuing operations for the fiscal quarter ended November
30, 1996. Additionally, on February 28, 1997, the Company sold an
additional portion of its leased equipment to the same institutional
investor for a sales price of approximately $2 million, payable in cash
of approximately $775,000, a short-term note of approximately $560,000,
the assumption by the investor of the Company's related outstanding
non-recourse lease rental borrowings of approximately $343,000 and the
payment of the Company's related outstanding recourse lease rental
borrowings of approximately $379,000. The gain on the transaction of
approximately $341,000, exclusive of income taxes, was included in
results from continuing operations for the fiscal quarter ended February
28, 1997.
3. Acquisition
On March 8, 1996, the Company, through its wholly-owned subsidiary, CIS
Corporation, acquired 100% of the capital stock of GMCCCS Corp. (dba
"LaserAccess") for a purchase price of approximately $4,608,000, payable
in cash of approximately $2,304,000 at closing and the balance of
approximately $2,304,000 in the form of notes payable in three equal
annual installments, commencing March 8, 1997, with interest at the prime
rate (currently 8.5%) on the unpaid principal balance. The first annual
principal installment, plus accrued interest, was paid on a timely basis.
In addition to the purchase price to be paid in cash and notes, CIS
Corporation is obligated to pay the sellers an annual earn out payment for
each of the first four years following the March 8, 1996 sale. The earn
out payment is based upon the annual pretax income of LaserAccess and is
charged to income when earned. LaserAccess is engaged in the sales and
marketing of remanufactured Xerox High Speed Laser Printing Systems.
The acquisition has been accounted for using the purchase method of
accounting. Allocations of the purchase price have been determined based
upon estimates of fair market value. The excess of the purchase price,
over the net tangible assets acquired, of approximately $4.0 million, is
considered goodwill and is being amortized on a straight line basis over
ten years. LaserAccess' results of operations since the date of the
acquisition are included in the accompanying consolidated statements of
operations of the Company.
Unaudited pro forma data giving effect to the purchase as if it had been
acquired at the beginning of Fiscal 1996, with adjustments, primarily for
imputed interest charges attributable to notes payable to the former
owners and amortization of goodwill follows:
(In thousands, except per share amounts)
For the Year
Ended
May 31, 1996
------------
Total Revenues ............................................ $ 30,599
==========
Income from continuing operations ......................... $ 1,410
==========
Income per share from continuing operations ............... $ .20
==========
Weighted average number of shares
outstanding ......................................... 6,999,040
==========
Note:Reorganization items and loss from discontinued operations have
been excluded from the pro forma results.
4. Discontinued Operations
On April 3, 1996, the Company announced its decision to discontinue an
operation, including its wholly-owned subsidiary, Aviron, that purchased
and sold used computer equipment and provided related technical services.
After that date, the Company had attempted to locate a buyer for the
operation. On June 5, 1996, the Company announced it had abandoned its
efforts to sell the operation and would instead liquidate the assets which
consisted principally of used computer equipment inventories and fixed
assets. The net loss from discontinued operations for the year ended May
31, 1996, was $1,177,000 (net of $698,000 deferred tax benefit). In May,
1995, the Company had attempted to change the products and marketing
strategies of Aviron to make it more competitive in the current market.
These actions resulted in a restructuring charge to operations of $800,000
in the quarter ended May 31, 1995, for employee severance programs
affecting 13 employees, lease termination costs for excess facilities, and
the write-off of certain deferred costs relating to non-compete and
consulting arrangements having a book value of approximately $218,000. The
restructuring reserve had been completely utilized as of May 31, 1996, as
a result of cash payments for severance and excess facilities costs.
Additionally, on May 25, 1995, the Board of Directors approved the
discontinuance of NC3, Inc., the Company's excess inventory business unit
located in Syracuse, New York. The Company recorded a provision of
$1,137,000 (net of $763,000 deferred tax benefit) in the quarter ended May
31, 1995, relative to the disposal of NC3 assets and other charges related
to the discontinuance of the business unit. As of May 31, 1996, the
Company had exited the business and liquidated substantially all of the
assets. A total of 14 employees were terminated in connection with the
closing of this business. Liabilities of the discontinued operation
decreased from $744,000 at May 31, 1995 to none as of May 31, 1997, due to
cash payments principally for severance and facilities costs totaling
approximately $325,000 and a net reduction of $419,000 to adjust the
amounts estimated for the loss on the inventories, receivables, fixed
assets and leased facility obligations. The adjustment of the liability in
the amount of $230,000 was recorded as a gain from discontinued
operations, net of deferred tax expenses of $87,000 in the quarter ended
August 31, 1995. An additional adjustment of the liability in the amount
of $100,000 was recorded an as offset to the loss on disposal of
discontinued operations in the quarter ended May 31, 1996. A final
adjustment of the liability in the amount of $89,000 was recorded as
income from discontinued operations in the quarter ended May 31, 1997.
The Consolidated Statements of Operations for all periods presented have
been reclassified to report the results of discontinued operations
separately from continuing operations. A summary of the results of
discontinued operations follows (in thousands):
| Predecessor
Reorganized Company | Company
----------------------------------------- | -----------------
For the Year For the Year For the Six | For the Six
Ended Ended Months Ended | Months Ended
May 31, 1997 May 31, 1996 May 31, 1995 | November 30, 1994
------------ ------------ ------------ | -----------------
Revenues .................................... $ -- $ 5,491 $ 6,637 | $ 14,599
Costs and expenses .......................... (113) 6,661 9,663 | 19,481
-------- -------- -------- | --------
Income (loss) from discontinued operations .. 113 (1,170) (3,026) | (4,882)
Loss on disposal of discontinued |
operations ............................ -- (375) (1,900) | --
-------- -------- -------- | --------
|
Income (loss) before income tax (tax benefit) 113 (1,545) (4,926) | (4,882)
Income tax (tax benefit) .................... 43 (611) (1,929) | --
-------- -------- -------- | --------
Net income (loss) from discontinued |
operations ............................ $ 70 $ (934) $ (2,997) | $ (4,882)
======== ======== ======== | ========
The Consolidated Balance Sheets as of May 31, 1997 and 1996, have been
reclassified to report the net assets of discontinued operations
separately from the assets and liabilities of continuing operations. A
summary of the assets and liabilities of discontinued operations follows
(in thousands):
May 31,
-----------------
1997 1996
---- ----
Assets:
Cash and cash equivalents ................................ $ -- $ 159
Accounts receivable, net ................................. -- 55
Inventory ................................................ -- 115
Furniture, fixtures and equipment, net ................... -- 58
Accrued interest and other assets ........................ -- 16
------ -----
Total assets ................................... -- 403
------ -----
Liabilities:
Accounts payable and accruals ............................ -- 44
Other liabilities ........................................ -- 465
------ -----
Total liabilities ............................... -- 509
------ -----
Net Liabilities of Discontinued Operations $ -- $(106)
====== =====
5. Sale of Subsidiaries
As of December 31, 1995, the Company sold TLP Leasing Programs ("TLP"), a
group of former subsidiaries located in Boston, Massachusetts, to TLP's
current management. TLP manages various income funds and partnerships. The
sales price approximated TLP's book value of approximately $2,500,000 and
therefore did not significantly affect the results of operations of the
Company for the fiscal year ended May 31, 1996.
6. Net Investment in Direct Financing Leases
The components of the net investment in direct financing leases as of May
31 are as follows (in thousands):
1997 1996
----------- -----------
Minimum lease payments receivable $ 3,921 $ 17,044
Initial direct costs and deferred commissions 34 303
Estimated unguaranteed residual values 630 2,483
Less: Unearned income (1,139) (4,047)
----------- -----------
Net investment in direct financing leases $ 3,446 $ 15,783
========== ==========
Future minimum lease payments to be received under direct financing leases
for fiscal years ending May 31 are as follows (in thousands):
1998 $ 1,756
1999 1,191
2000 659
2001 242
2002 73
Beyond 2002 -
----------
$ 3,921
==========
Approximately 29% of these future lease streams are allocable to lenders
under financing agreements.
7. Rental Equipment
Rental equipment consists of the following as of May 31 (in thousands):
1997 1996
-------- --------
Computer equipment ............................... $ 4,130 $ 7,565
Capital equipment ................................ 6,105 2,856
Telecommunication equipment ...................... 240 1,942
Aircraft equipment ............................... 1,338 3,485
Printing equipment ............................... 548 --
Deferred commissions and initial direct costs .... 64 211
-------- --------
12,425 16,059
Less: accumulated depreciation .................. (4,920) (4,911)
-------- --------
$ 7,505 $ 11,148
======== ========
Future minimum lease payments to be received under operating leases for
the fiscal years ended May 31 are as follows (in thousands):
1998 $ 2,453
1999 1,765
2000 1,353
2001 801
2002 702
Beyond 2002 137
----------
$ 7,211
==========
Approximately 63% of these future lease streams are allocable to lenders
under financing agreements.
8. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of the following as of May 31
(in thousands):
1997 1996
------- -------
Leasehold improvements ........................... $ 423 $ 423
Computer equipment and software .................. 719 707
Furniture, fixtures and office equipment ......... 253 249
------- -------
1,395 1,379
Less: accumulated depreciation .................. (1,177) (754)
------- -------
$ 218 $ 625
======= =======
9. Discounted Lease Rental Borrowings
The Company finances certain leases by assigning the rentals to various
lending institutions at fixed rates on a recourse and non-recourse basis.
Discounted lease rental borrowings represent the present value of the
lease payments discounted at the rate charged by the lending institution.
Discounted lease rental borrowings are reduced on a monthly basis as the
corresponding lease rental stream is collected (generally by the lending
institutions). Amounts due under recourse borrowings are obligations of
the Company which are secured by the leased equipment and assignments of
lease receivables. Amounts due under non-recourse borrowings are secured
by the leased equipment and assignments of lease receivables with no
recourse to the general assets of the Company.
The Company finances leases on a one-on-one basis with a number of
institutions. Additionally, the Company has a revolving loan agreement
with an institution to provide warehouse lease financing in the amount of
$5,000,000. The loan agreement contains various covenants including
limitations on incurring additional liens and encumbrances and prohibiting
certain transactions with affiliates or subsidiaries. At May 31, 1997, the
Company is in compliance with all debt covenants. At May 31, 1997, none of
this facility was being utilized. Interest on the facility is at 1% above
the prime rate.
Discounted lease rental borrowings as of May 31 are as follows (in
thousands):
1997 1996
------- -------
Non-recourse borrowings .................. $ 5,383 $14,488
Recourse borrowings ...................... 250 250
------- -------
$ 5,633 $14,738
======= =======
The Company paid interest related to discounted lease borrowings of
$652,000 and $433,000 for the fiscal years ended May 31, 1997 and 1996,
respectively.
Discounted lease rental borrowings for the fiscal years ending May 31 are
payable as follows (in thousands):
1998 $ 1,415
1999 1,448
2000 1,163
2001 685
2002 656
Beyond 2002 266
---------
$ 5,633
=========
10. Note Payable to Institution
The Company has a revolving loan agreement with an institution to provide
inventory financing in the amount of $7,000,000 to two of its wholly-owned
subsidiaries, CIS Air Corporation and LaserAccess. The loan agreement
contains various covenants including limitations on additional
indebtedness and the maintenance of minimum levels of net worth/net
earnings. At May 31, 1997, LaserAccess did not meet the minimum net
worth/net earnings requirement. In August 1997, a waiver relative to this
covenant was obtained from the lending institution. At May 31, 1997,
$1,005,000 of this facility was being utilized. Interest on the facility
is at 3/4% above the prime rate. The Company paid interest related to this
facility of $127,000 in fiscal 1997.
11. Common Stock
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, $.01 par value. To the extent required by section 1123(a)(6)
of the Bankruptcy Code, the Company will not issue nonvoting equity
securities. In connection with the Plan of Reorganization, 7,000,000
shares were issued to the Liquidating Estate for distribution to the
creditors and former shareholders of the Predecessor Company. In October
1995, a wholly-owned subsidiary of the Company acquired 960 shares of the
Company's Common Stock as a result of a partial distribution by the
Liquidating Estate of the Predecessor Company. The partial distribution
was in relation to a prepetition claim against the Predecessor Company by
certain partnerships in which the wholly-owned subsidiary acted as general
partner. The Company has classified the 960 shares as Treasury Stock in
the accompanying balance sheet. Each share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of shareholders. The
Company does not anticipate the payment of dividends on the Common Stock
for the foreseeable future.
12. Stock Option Plan
In 1995, the Board of Directors adopted and the stockholders approved the
Continental Information Systems Corporation 1995 Stock Compensation Plan
(the "1995 Plan"). The 1995 Plan provides for the issuance of options
covering up to 1,000,000 shares of common stock and stock grants of up to
500,000 shares of common stock to non-employee directors of the Company
and, in the discretion of the Compensation Committee, employees of and
independent contractors and consultants to the Company. Options granted to
non-employee directors of the Company in any year become exercisable at
the next annual stockholders' meeting while those granted to employees of
and independent contractors and consultants to the Company are subject to
vesting periods determined by the Compensation Committee. Options granted
to employees in fiscal 1997 become exercisable in installments of 33 1/3
percent at the grant date and at each subsequent fiscal year end. The
Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the 1995 Plan.
Accordingly, no compensation cost has been charged against income for the
stock option plan. Had compensation cost for the 1995 Plan been determined
based on the fair value at the grant dates for awards under the Plan,
consistent with the requirements of FASB Statement No. 123, "Accounting
for Stock-Based Compensation," the Company's net income and net income per
share would have been reduced to the pro forma amounts indicated below:
(in thousands, except per share amounts)
1997 1996
---- ----
Net income .................. - As reported $ 1,086 $ 66
- Pro forma $ 894 $ 50
Net income per share ........ - As reported $ .15 $ .01
- Pro forma $ .13 $ .01
The fair value of each stock option grant has been estimated on the date
of each grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
1997 1996
---- ----
Risk-free interest rate ........................ 6.6% 6.3%
Expected life (months) ......................... 46 60
Expected volatility ............................ 42% 42%
Expected dividend yield ........................ -- --
The weighted-average grant date fair values of options granted during
fiscal 1997 and 1996 were $.80 and $1.40 per share, respectively.
A summary of the status of the 1995 Plan as of May 31, 1996 and 1997, and
changes during the years ending on those dates is presented below:
Weighted Average
Number of Exercise Price
Options Per Option
------- ----------
Outstanding at
May 31, 1995 (none exercisable) ........ 15,000 $ 3.50
Granted ...................................... 9,000 $ 2.50
Exercised .................................... -- $ --
Forfeited/expired ............................ (9,000) $ 3.50
-------
Outstanding at
May 31, 1996 (6,000 exercisable) ....... 15,000 $ 2.90
Granted ...................................... 319,000 $ 1.97
Exercised .................................... (16,667) $ 1.97
Forfeited/expired ............................ (33,333) $ 1.97
-------
Outstanding at
May 31, 1997 (188,337 exercisable) .... 284,000 $ 2.02
=======
The following table summarizes information about stock options
outstanding at May 31, 1997:
Options Outstanding Options Exercisable
-------------------------------------------------------- ---------------------------------
Range of Weighted-Average
Exercise Number of Remaining Weighted-Average Number of Weighted-Average
Prices Options Contractual Life Exercise Price Options Exercise Price
------ ------- ---------------- -------------- ------- --------------
$3.50 6,000 3.0 $ 3.50 6,000 $ 3.50
2.50 9,000 3.3 2.50 9,000 2.50
1.97 260,000 4.0 1.97 173,337 1.97
1.84 9,000 4.4 1.84 - 1.84
------- -------
Total 284,000 188,337
======= =======
13. Income Taxes
The Company and its domestic subsidiaries file a consolidated federal
income tax return. In April 1994, the Predecessor Company reached a
settlement with the Internal Revenue Service relating to taxes for fiscal
years through May 1992. The liability associated with this settlement as
well as the liability for claims against the Predecessor Company for state
income taxes, have been assumed by the Liquidating Estate in connection
with the Plan of Reorganization. As part of the aforementioned settlement,
the Company is entitled to exclude approximately $141 million of otherwise
taxable income from gross income for the years 1990 through 2005 ("safe
harbor income"). However, if the terms of the agreements governing the
safe harbor income are substantially modified or if certain other changes
take place, the IRS is entitled to seek to include the safe harbor income
in the Company's taxable income after Fiscal 1993. Management considers
the prospects for such changes and resultant actions to be remote and
accordingly has not provided an income tax liability for such income.
As of November 30, 1994, $5 million in net deferred tax assets were
recorded under "fresh start" accounting (net of a valuation allowance of
$7 million) to reflect the amount of deferred tax assets which Management
believed more likely than not to be realized. The Company's total gross
deferred tax assets as of the Effective Date were approximately $12
million. The deferred tax assets relate principally to the net operating
loss carryforwards available to offset future taxable income of the
Reorganized Company, subject to an annual limitation of approximately $2
million (limited in the aggregate to approximately $35 million). These
carryforwards expire during the years 2004 to 2010.
In determining the amount of deferred tax benefits which are more likely
than not to be realized, the Company has projected that a minimum of
approximately $5.4 million of tax benefits will be generated by operations
during the fiscal periods ended through May 31, 2004. In order to realize
this level of tax benefit, cumulative pretax income for the periods
through 2004 will have to be approximately $14.2 million, which the
Company believes to be achievable. While the Company believes that it will
have a long operating life and continue to generate profits from
operations beyond that period, Management believes, in the context of the
"more likely than not" criteria of FAS 109, that the recognition of
benefits in excess of $6 million would be inappropriate in the
circumstances. Any future realization of tax benefits relating to
pre-reorganization net operating loss carryforwards in excess of the net
$5 million initially recorded will be recognized as a direct credit to
stockholders' equity as required under SOP 90-7.
The components of the provision for income taxes for both continuing and
discontinued operations are as follows (in thousands):
Reorganized Company | Predecessor Company
----------------------------------------------------- | ----------------------------------
For the Year For the Year For the Six | For the Six For the Year
Ended Ended Months Ended | Months Ended Ended
May 31, 1997 May 31, 1996 May 31, 1995 | November 30, 1994 May 31, 1994
------------ ------------ ------------ | ----------------- ------------
Current
Federal $ -- $ -- $ -- | $ -- $ --
State . -- -- -- | 45 100
------- ------- ------- | ------- -------
-- -- -- | 45 100
Deferred .... 666 -- (1,080) | -- --
------- ------- ------- | ------- -------
$ 666 $ -- $(1,080) | $ 45 $ 100
======= ======= ======= | ======= =======
A reconciliation of income tax expense (benefit) at the statutory rate to
reported income tax expense (benefit) for continuing operations follows
(in thousands):
Reorganized Company | Predecessor Company
------------------------------------------------ | -----------------------------------
For the Year For the Year For the Six | For the Six For the Year
Ended Ended Months Ended | Months Ended Ended
May 31, 1997 May 31, 1996 May 31, 1995 | November 30, 1994 May 31, 1994
------------ ------------ -------- ---- | ----------------- ------------
U.S. Federal statutory rate |
applied to pretax income (loss) |
from continuing operations $ 557 $ 548 $ 759 | $ 5,311 $ 46,515
|
|
State income taxes, net of |
federal benefit 66 63 90 | 45 100
|
Effect of permanent differences |
and changes in the valuation |
allowance - - - | (5,311) (46,515)
-------- --------- ------------ | --------- -----------
$ 623 $ 611 $ 849 | $ 45 $ 100
======== ========= ========== | ========= ============
The income tax effect of the significant temporary differences and
carryforwards which give rise to deferred tax assets and liabilities are
as follows as of May 31 (in thousands)
1997 1996
-------- --------
Assets
Net operating losses ............... $ 15,735 $ 16,422
Other .............................. 426 1,014
Valuation allowance ................ (10,541) (10,125)
Liabilities
Leased assets ...................... (206) (1,231)
-------- --------
$ 5,414 $ 6,080
======== ========
14. Employee Benefit Plans
The Company maintains a defined contribution 401(k) plan covering
substantially all of its employees under which it is obligated to make
matching contributions at the rate of 50% of the first 2% of participant
earnings contributed to the plan and which provides for an annual
discretionary contribution based on participants' eligible compensation.
Matching and discretionary contributions made by the Company vest over a
five-year period. Company contributions to the plan for the fiscal year
ended May 31, 1997 and 1996, were $116,000 and $76,000, respectively.
15. Management and Services Agreement
In connection with the Plan of Reorganization, the Company entered into a
Management and Services Agreement pursuant to which the Company provided
certain administrative services to the Liquidating Estate. In exchange for
such services, the Company was paid a fee comprised of the allocable share
of the Company's direct costs required to perform the agreed upon services
plus a 10% markup and reasonable out-of-pocket expenses. The agreement was
terminated in February 1997. The Company received approximately $539,000
and $537,000, pursuant to this agreement, in the fiscal years ended May
31, 1997 and 1996, respectively.
16. Commitments and Contingencies
Rental Commitments
The Company has various operating lease agreements for offices and office
equipment. These leases generally have provisions for renewal at varying
terms. The Company recorded rental expense of $442,000 for the year ended
May 31, 1997, $717,000 for the year ended May 31, 1996, $597,000 for the
six months ended May 31, 1995 and $663,000 for the six months ended
November 30, 1994.
The future minimum lease payments required under operating leases for the
fiscal years ended May 31 are as follows (in thousands):
1998 $ 231
1999 2
Contingencies
The Company is a defendant in certain legal actions arising in the normal
course of business. Management believes that the outcome of these actions
will have no material effect on the Company's financial position or
results of operations.
17. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents and notes receivable - The carrying value
approximates fair value because of the short maturity of those
instruments.
Discounted lease rental borrowings, notes payable to former owners of
acquired company and note payable to institution - Fair value of
discounted lease rental borrowings, notes payable to former owners of
acquired company and note payable to institution are based on the
borrowing rates currently available to the Company for bank loans with
similar terms and average maturities. At May 31, 1997, the fair value of
discounted lease rental borrowings, notes payable to former owners of
acquired company and note payable to institution approximate their
carrying values.
The estimated fair values of the Company's financial instruments at May
31, 1997 are as follows:
Carrying Value Fair Value
-------------- ----------
Assets:
Cash and cash equivalents $ 9,005 $ 9,005
Notes receivable 5,094 5,094
Liabilities:
Discounted lease rental borrowings 5,633 5,633
Notes payable to former owners of
acquired company 1,536 1,536
Note payable to institution 1,005 1,005
18. Subsequent Event
The Board of Directors has decided to sell the Telecommunications
Equipment Business Unit and the Company is currently engaged in
negotiations with a potential buyer. The sale is subject, among other
conditions, to satisfactory due diligence and negotiation and execution of
satisfactory sales documentation. The sales price is expected to
approximate the business unit's book value and therefore should not
significantly affect the results of operations of the Company for Fiscal
1998. The net assets and results of operations of the Telecommunications
Equipment Business Unit are not considered material to the consolidated
net assets and results of operations of the Company.
SCHEDULE II
CONTINENTAL INFORMATION SYSTEMS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MAY 31, 1997
(Dollars in thousands)
Charged Charged
Beginning to costs to other Ending
Balance and expenses accounts Deductions Balance
-------- -------- ------------- -------- --------
1995:
Accounts receivable -
allowance for doubtful
accounts
- - six months ended
November 30, 1994
(Predecessor Company) $(20,468) $ (222) $ -- $ 20,562* $ (128)
-------- -------- ------------- -------- --------
- - six months ended
May 31, 1995
(Reorganized Company) (128) (103) -- 61 (170)
-------- -------- ------------- -------- --------
1996:
Accounts receivable -
allowance for doubtful
accounts
(Reorganized Company) . (170) (34) -- 151 (53)
-------- -------- ------------- -------- --------
1997:
Accounts receivable -
allowance for doubtful
accounts
(Reorganized Company) . $ (53) $ (34) $ -- $ 37 $ (50)
-------- -------- ------------- -------- --------
*In connection with the Plan of Reorganization confirmed as of November 29,
1994, a transfer of assets to the Liquidating Estate resulted in a
significant reduction in the allowance for doubtful accounts.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates herein by reference the information concerning
directors and executive officers contained in its Notice of Annual Meeting of
Stockholders and Proxy Statement to be filed within 120 days after the end of
the Company's fiscal year (the "1997 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information concerning
executive compensation contained in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The Company incorporates herein by reference the information concerning security
ownership of certain beneficial owners and management contained in the 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates herein by reference the information concerning certain
relationships and related transactions contained in the 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
Financial Statements. See "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" for Index to Financial Statements and Schedules
included in this Form 10-K.
Exhibit No.
-----------
2.1* Disclosure Statement with respect to Trustee's Joint
Plan of Reorganization dated October 4, 1994.
2.2* November 29, 1994 Order Confirming Trustee's Joint
Plan of Reorganization dated October 4, 1994.
2.3** Stock Purchase Agreement among CIS Corporation,
GMCCCS Corp. (dba LaserAccess), Greg M. Cody and
Charles C. Sinks, dated March 8, 1996 (Filed as
Exhibit 2.1 to the Company's Form 8-K filed March
21, 1996 and incorporated herein by reference).
3.1* Restated Certificate of Incorporation.
3.2** Restated Bylaws (Filed as Exhibit 3.2 to the
Company's Form 10-Q for the quarter ended August 31,
1995 and incorporated herein by reference).
10.1* Lease dated May 5, 1994 between B.G. Sulzle, Inc.
and the Trustee.
10.2** 1995 Stock Compensation Plan (Filed as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended
August 31, 1995 and incorporated herein by
reference).
10.3** Employment Agreement between CIS Corporation and
Greg M. Cody, dated March 8, 1996 (Filed as Exhibit
10.1 to the Company's Form 8-K filed March 21, 1996
and incorporated herein by reference).
10.4** Employment Agreement between CIS Corporation and
Charles C. Sinks, dated March 8, 1996 (Filed as
Exhibit 10.2 to the Company's Form 8-K filed March
21, 1996 and incorporated herein by reference).
10.5** Loan and Security Agreement between CIS Corporation
and CoreStates Bank, N.A., dated July 9, 1996 (Filed
as Exhibit 10.17 to the Company's Form 10-K for the
Fiscal Year ended May 31, 1996 and incorporated
herein by reference).
10.6** Revolving credit facility between CIS Air
Corporation and Norwest Business Credit, Inc., dated
July 31, 1996 (Filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended August 31,
1996 and incorporated herein by reference).
10.7** Revolving credit facility between GMCCCS Corp.
(doing business as "LaserAccess") and Norwest
Business Credit, Inc., dated July 31, 1996 (Filed as
Exhibit 10.3 to the Company's Form 10-Q for the
quarter ended August 31, 1996 and incorporated
herein by reference).
10.8** Letter Agreement regarding severance with John R.
Campbell dated October 23, 1996 (Filed as Exhibit
10.1 to the Company's Form 10-Q for the quarter
ended November 30, 1996 and incorporated herein by
reference).
10.9** Letter Agreement regarding severance with Frank J.
Corcoran dated October 23, 1996 (Filed as Exhibit
10.2 to the Company's Form 10-Q for the quarter
ended November 30, 1996 and incorporated herein by
reference).
10.10** Letter Agreement regarding severance with James J.
Mosher dated October 23, 1996 (Filed as Exhibit 10.3
to the Company's Form 10-Q for the quarter ended
November 30, 1996 and incorporated herein by
reference).
10.11 Letter Agreement regarding employment with Thomas J.
Prinzing dated May 20, 1997.
10.12 Letter Agreement regarding employment with Jonah M.
Meer dated June 9, 1997.
10.13 Advisory Agreement for Real Estate Related
Investments between Continental Information Systems
Corporation and Emmes Investment Management Co. LLC
dated June 30, 1997.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
------------------------
* Filed as an exhibit to the Company's amended Form 10
Registration Statement (Commission File No.
0-25104), originally filed November 10, 1994 and
incorporated herein by reference.
** Incorporated by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of the Company's fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CONTINENTAL INFORMATION SYSTEMS
CORPORATION
BY: /s/ MICHAEL L. ROSEN
--------------------
Michael L. Rosen
President, Chief Executive Officer
and Director
BY: /s/ JONAH M. MEER
-----------------
Jonah M. Meer
Senior Vice President,
Chief Operating Officer
and Chief Financial officer
Dated: August 20, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and the dates indicated:
Signature Title Date
--------- ----- ----
/s/ DR. LEON H. BLOOM Director August 20, 1997
- ---------------------
Dr. Leon H. Bloom
/s/ JAMES P. HASSETT Director and August 20, 1997
- --------------------- Chairman of the Board
James P. Hassett
/s/ PAUL M. SOLOMON Director August 20, 1997
- --------------------
Paul M. Solomon