<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934 for the quarterly period ended September 30, 1997.
or
____ Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ________________
to ___________________.
Commission file number 0-27056
Healthdyne Information Enterprises, Inc.
----------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2112366
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, Suite 1100, Marietta, Georgia 30067
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(Address of principal executive offices) (Zip Code)
(770) 423-8450
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
The number of shares outstanding of the issuer's only class of Common Stock, $
.01 par value, as of October 31, 1997 was 20,417,247.
Exhibit Index is on Page 17 herein.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Healthdyne Information Enterprises, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,105 $ 10,743
Trade accounts receivable, less allowances of $157 and $165 at
September 30, 1997 and December 31, 1996, respectively 6,279 5,260
Other current assets 1,261 963
----------------------
Total current assets 15,645 16,966
Purchased software, net of accumulated amortization of $1,233 and $770
at September 30, 1997 and December 31, 1996, respectively 3,295 3,587
Capitalized software, net of accumulated amortization of $90 and $39 at
September 30, 1997 and December 31, 1996, respectively 524 750
Property and equipment, net of accumulated depreciation of $764 and
$456 at September 30, 1997 and December 31, 1996, respectively 1,379 1,221
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $1,771 and $1,267 at September 30, 1997 and
December 31, 1996, respectively 8,332 8,836
Other assets 1,445 442
----------------------
Total assets $ 30,620 $ 31,802
======================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 3,322 $ 163
Accounts payable, principally trade 619 1,019
Accrued liabilities 433 981
Deferred service revenue 3,116 2,418
----------------------
Total current liabilities 7,490 4,581
Long-term debt and capital lease obligations, excluding current installments 194 4,265
----------------------
Total liabilities 7,684 8,846
----------------------
Shareholders' equity:
Preferred stock, without par value. Authorized 20,000 shares;
designated Series A cumulative preferred stock 500 shares;
issued none 0 0
Common stock, $.01 par value. Authorized 50,000 shares; issued and
outstanding 20,392 and 20,172 shares at September 30, 1997 and
December 31, 1996, respectively 204 202
Additional paid-in capital 32,964 32,819
Accumulated deficit (10,232) (10,065)
----------------------
Total shareholders' equity 22,936 22,956
----------------------
Commitments
Total liabilities and shareholders' equity $ 30,620 $ 31,802
======================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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Healthdyne Information Enterprises, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------
1997 1996 1997 1996
-------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Software $ 1,790 $ 1,629 $ 4,648 $ 4,781
Services 2,213 2,324 6,559 6,439
-------------------------------------------------
Total revenue 4,003 3,953 11,207 11,220
-------------------------------------------------
Cost of revenue:
Software 201 138 886 450
Services 1,136 1,226 3,682 3,449
-------------------------------------------------
Total cost of revenue 1,337 1,364 4,568 3,899
-------------------------------------------------
Gross profit 2,666 2,589 6,639 7,321
-------------------------------------------------
Operating expenses:
Sales and marketing 881 764 2,633 2,445
Research and development 431 471 1,219 1,076
General and administrative 1,113 938 3,018 2,783
-------------------------------------------------
Total operating expenses 2,425 2,173 6,870 6,304
-------------------------------------------------
Operating earnings (loss) 241 416 (231) 1,017
Losses of affiliate (120) 0 (151) 0
Interest income (expense), net 44 (136) 157 (371)
-------------------------------------------------
Earnings (loss) before income taxes 165 280 (225) 646
Income tax (expense) benefit (42) 0 58 0
-------------------------------------------------
Net earnings (loss) $ 123 $ (280) $ (167) $ 646
=================================================
Net earnings (loss) per common share and
common share equivalent:
Primary $ 0.01 $ 0.01 $ (0.01) $ 0.03
=================================================
Fully diluted $ 0.01 $ 0.01 $ (0.01) $ 0.03
=================================================
Weighted average number of common shares and
common share equivalents outstanding
Primary 21,283 18,934 20,267 18,505
=================================================
Fully diluted 21,379 19,002 20,267 18,689
=================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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Healthdyne Information Enterprises, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1997 1996
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (167) $ 646
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Interest expense 181 0
Losses of affiliate 151 0
Provision for doubtful accounts (8) (5)
Depreciation and amortization 1,384 1,068
Increase in trade accounts receivable (1,012) (1,859)
Increase in other current assets (572) (182)
Increase (decrease) in accounts payable (547) 904
Increase (decrease) in accrued liabilities (548) 427
Increase in deferred service revenue 572 703
---------------------
Net cash provided by (used in) operating activities (566) 1,702
---------------------
Cash flows from investing activities:
Purchased software (171) (1,080)
Capitalized software development costs (558) (593)
Capital expenditures (467) (345)
(Increase) decrease in other assets (411) 18
---------------------
Net cash used in investing activities (1,607) (2,000)
---------------------
Cash flows before financing activities (2,173) (298)
---------------------
Cash flows from financing activities:
Additional borrowings 140 205
Principal payments on long-term debt, net (899) (1,594)
Proceeds from the issuance of common stock 294 391
---------------------
Net cash used in financing activities (465) (998)
---------------------
Net decrease in cash and cash equivalents (2,638) (1,296)
Cash and cash equivalents at beginning of period 10,743 4,013
---------------------
Cash and cash equivalents at end of period $ 8,105 $ 2,717
=====================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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Healthdyne Information Enterprises, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1997 and 1996
(Unaudited)
1. General:
The consolidated condensed financial statements as of September 30, 1997 and for
the three and nine months ended September 30, 1997 and 1996 are unaudited. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for the fair presentation of the consolidated financial
position and results of operations and cash flows for the periods presented have
been included. Results for the interim periods are not necessarily indicative of
results that may be expected for the full year.
These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and notes included in the Annual
Report on Form 10-K of Healthdyne Information Enterprises, Inc.
("HIE" or the "Company") for the year ended December 31, 1996.
2. Major Customer:
One customer accounted for 12% and 27% of the Company's revenue for the nine
months ended September 30, 1997 and 1996, respectively. This one customer
accounted for 29% of the Company's revenue for the three months ended September
30, 1996. No single customer accounted for 10% or more of the Company's revenue
for the three months ended September 30, 1997.
3. Earnings (Loss) Per Share of Common Stock:
Loss per share of common stock for the nine months ended September 30, 1997 for
both primary and fully diluted calculation purposes is based on the weighted
average shares of common stock outstanding without regard to the anti-dilutive
effect of outstanding stock options. Earnings per share of common stock for the
three months ended September 30, 1997 and for the three and nine months ended
September 30, 1996 are based on the weighted average shares of common stock
outstanding and dilutive outstanding stock options computed using the treasury
stock method for primary and fully diluted calculation purposes.
4. Long-Term Debt:
On April 30 and September 15, 1997, the Company prepaid, at a 20.6% and 10.3%
discount, respectively, a portion of the principal and accrued interest totaling
$503,597 and $229,930, respectively, due under the Company's convertible
promissory note payable, which matures on January 2, 1998. The balance payable
under this convertible promissory note totaled $3,505,854 as of September 30,
1997.
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5. Commitment and Other Matters:
On June 13, 1997, the Company entered into agreements (the "Restructuring
Agreements") relative to the restructuring of investors' interests in Criterion
Health Strategies, Inc. ("CHS"). Under the Restructuring Agreements, CHS
acquired the 26% equity ownership in CHS held by two CHS executive officers for
a nominal fee, and such officers entered into employment agreements with CHS,
pursuant to which each received an option to purchase 60,000 shares of HIE
Common Stock at an exercise price of $2.88 per share. In addition, with respect
to the 10% of the CHS equity which had been reserved for issuance upon the
exercise of options granted or to be granted under the CHS stock option plan,
CHS canceled all of the options outstanding under the plan, and the Company
replaced such options with options to purchase an aggregate of 79,100 shares of
HIE Common Stock at an exercise price of $2.88 per share. As the result of the
consummation of the transactions contemplated by the Restructuring Agreements,
the 25 shares of CHS Common Stock and the CHS promissory note held by the
Company now represent on a fully diluted basis a 50% ownership interest in CHS.
As of September 30, 1997, the Company has a remaining obligation of $200,000
under its $2 million funding commitment to CHS. The Company has an option, which
is exercisable through December 31, 1997, to acquire the remaining 50% equity
ownership interest in CHS from Massey Burch Capital Corp. ("Massey Burch") in
exchange for 416,666 shares of HIE Common Stock or the equivalent number of
shares having a fair market value of $2 million at the time the option is
exercised.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained hereafter, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, the Company's limited operating history and lack of profitability
for the three months ended March 31, 1997, for the year ended December 31, 1995
and for the period from June 15, 1994 to December 31, 1994; limitations and
potential costs inherent in the Entrepreneurial Business Unit ("EBU")
operational structure; market acceptance of new products and services offered by
the Company; limited capital resources; factors such as competitive pressures,
the mix of software and service revenue, the mix of direct and distributor
sales, sales timing, changes in pricing policies, undetected errors or bugs in
the software, delays in product development, lower-than-expected demand for the
Company's solutions, business conditions in the integrated healthcare delivery
network market and general economic conditions; and other factors discussed or
identified from time to time in the Company's filings with the Securities and
Exchange Commission, including, but not limited to, the Company's annual report
on Form 10-K for the fiscal year ended December 31, 1996.
Overview
HIE was incorporated in Georgia on June 15, 1994 and was a wholly-owned
subsidiary of Healthdyne, Inc. ("Healthdyne") until November 6, 1995 at which
time Healthdyne distributed all of the outstanding shares of HIE to Healthdyne's
shareholders (the "Spin-Off"). HIE's common stock is publicly traded on the
Nasdaq National Market under the symbol "HDIE". In conjunction with its
subsidiaries Healthcare Communications, Inc. ("HCI") and Integrated Healthcare
Solutions, Inc. ("IHS") and its affiliate CHS, the Company is a leading provider
of enterprise-wide clinical information management solutions for emerging
integrated healthcare delivery networks ("IDNs"). Each subsidiary and the
affiliate are referred to by the Company as an EBU.
The Company generates revenue from licensing clinical information
software tools and products and providing related system design, integration,
implementation, support, education and consulting services as discussed below.
HCI. HCI contributed approximately 73% and 63% of HIE's consolidated
revenue for the three and nine months ended September 30, 1997, respectively,
through Cloverleaf integration engine software license fees and related
implementation, maintenance and education fees. Software licenses are generally
granted on a perpetual basis for a one-time, upfront fee. Implementation fees
are typically based on actual hours of implementation service at standard
hourly rates. Software maintenance agreements are generally one-year renewable
service contracts for a prepaid standard fee. HCI charges a standard
per-student amount for its education classes.
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IHS. IHS contributed approximately 27% and 37% of HIE's consolidated
revenue for the three and nine months ended September 30, 1997, respectively.
IHS provides clinical and other information solutions through the use of both
proprietary and third-party software tools and by providing related system
design, integration and consulting services. Software licenses and sub-licenses
are generally granted on a perpetual basis for a one-time, upfront fee. Services
are generally provided for a fixed fee based on estimated hours of service to be
provided at standard hourly rates.
CHS. CHS provides enterprise management and other decision support
solutions through the use of both proprietary and third-party software tools and
related consulting, implementation, maintenance and education services. HIE uses
the equity method of accounting for its investment in CHS, which is included in
Other Assets in the accompanying Consolidated Condensed Balance Sheets. HIE's
share of CHS' operating results are presented as Losses of Affiliate in the
accompanying Consolidated Condensed Statements of Operations. On June 13, 1997
and December 18, 1996, the Company entered into separate agreements with certain
CHS shareholders and Massey Burch, respectively, which provide the Company with
an option from Massey Burch to acquire a 100% ownership interest in CHS on or
before December 31, 1997. There can be no assurance that the Company will
exercise this option to acquire a 100% ownership interest in CHS. See Note 5 of
Notes to Consolidated Condensed Financial Statements included in Item 1 of Part
I herein.
On September 12, 1996, the Company entered into an agreement effective
April 1, 1996, with a former majority-owned subsidiary, DataView Imaging
International, Inc. ("DataView"), providing for a restructuring of the
relationship between HIE and DataView, which included, among other things, a
reduction of HIE's ownership interest in DataView from 61.5% to 19.5%.
DataView's revenue of $130,000 and net loss of $152,000 for the three months
ended March 31, 1996 are included in the Company's Consolidated Condensed
Statement of Operations for the nine months ended September 30, 1996. Subsequent
to March 31, 1996, DataView's financial position, results of operations and cash
flows are no longer included in HIE's consolidated financial statements, and
DataView is no longer considered an EBU.
The Company expects the following external factors to affect the market
for healthcare information systems tools, products and services in future years:
(1) the continued and accelerated emergence of IDNs; (2) the shift from the
traditional fee-for-service reimbursement system to the capitated (fixed fee)
payment system for healthcare services; (3) the growing importance of
comprehensive clinical information in the managed patient care environment; (4)
the introduction of cost accounting to the healthcare delivery system; and (5)
the growing world-wide need to control the cost of quality healthcare.
Software revenue is generally recognized upon shipment in accordance
with Statement of Position 91-1, "Software Revenue Recognition". Service revenue
is recognized as the work is performed or, in the case of a fixed fee contract,
on the percentage of completion basis, even though some services are prepaid.
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The Company's Consolidated Condensed Balance Sheets include assets
designated as purchased software and capitalized software development costs.
Purchased software originates from purchases by HIE of proprietary software
tools developed by third parties and prepaid license fees for software tools to
be distributed by HIE on a non-exclusive basis. Certain costs of HIE proprietary
software developed internally are capitalized in accordance with generally
accepted accounting principles. The costs of individual software tools or
products are being amortized ratably based on the projected revenue associated
with the related software or on a straight-line basis over not more than five
years, whichever method results in a higher level of amortization.
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized over a period of fifteen years. At each balance sheet date, the
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
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Results of Operations
The following table sets forth for the periods indicated: (1) the relative
significance of each EBU to the Company as a whole and (2) the percentage of
total revenue for each component included in the Company's Consolidated
Condensed Statements of Operations:
<TABLE>
<CAPTION>
PERCENT OF REVENUE (UNLESS OTHERWISE INDICATED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total HIE revenue (in 000's) $4,004 $3,953 $11,207 $11,220
HCI 73% 60% 63% 58%
IHS 27% 40% 37% 41%
DataView 0% 0% 0% 1%
--------------------------------------------------
Total HIE revenue 100% 100% 100% 100%
==================================================
Revenue:
Software 45% 41% 41% 43%
Services 55% 59% 59% 57%
--------------------------------------------------
Total revenue 100% 100% 100% 100%
--------------------------------------------------
Cost of revenue:
Software (as a percent of software revenue) 11% 8% 19% 9%
Services (as a percent of services revenue) 51% 53% 56% 54%
Total cost of revenue 33% 35% 41% 35%
--------------------------------------------------
Gross profit 67% 65% 59% 65%
--------------------------------------------------
Operating expenses:
Sales and marketing 22% 19% 23% 22%
Research and development 11% 12% 11% 9%
General and administrative 28% 23% 27% 25%
--------------------------------------------------
Total operating expenses 61% 54% 61% 56%
--------------------------------------------------
Operating earnings (loss) 6% 11% (2)% 9%
Losses of affiliate (3)% 0% (1)% 0%
Interest income (expense), net 1% (4)% 1% (3)%
--------------------------------------------------
Earnings (loss) before income taxes 4% 7% (2)% 6%
Income tax (expense) benefit (1)% 0% 1% 0%
--------------------------------------------------
Net earnings (loss) 3% 7% (1)% 6%
==================================================
</TABLE>
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Comparison of Three Months Ended September 30, 1997 and September 30, 1996
Revenue. Total revenue was $4.0 million for both the three months ended
September 30, 1997 as well as the three months ended September 30, 1996. HCI's
revenue of $2.9 million for the three months ended September 30, 1997 was
$582,000 higher than its revenue in the prior year's comparable period due
primarily to a $190,000 increase in software maintenance revenue, a $143,000
increase in Cloverleaf integration engine software license fee revenue, and an
increase of $215,000 in service revenue between the two periods. IHS' revenue of
$1.1 million for the three months ended September 30, 1997 was $532,000 lower
than the prior year's comparable period due primarily to a $442,000 decrease in
service revenue associated with the completion of a large service engagement in
the first quarter 1997 and the related reduction in the IHS service personnel
staffing level during April 1997.
Cost of revenue. Cost of revenue includes, among other things,
compensation of service personnel, travel and software royalties and
amortization. The cost of revenue was $1.3 million for the three months ended
September 30, 1997 compared to $1.4 million for the three months ended September
30, 1996, a decrease of 2%. The slight decrease between the two periods was
attributable to the net effect of a higher level of revenue, a shift in the
revenue mix toward software, which is typically less costly than service, and
improved service productivity.
Gross profit. The Company's gross profit was approximately $2.7 million
or 67% of revenue for the three months ended September 30, 1997 compared to $2.6
million or 65% for the three months ended September 30, 1996. The improved gross
profit as a percent of revenue is due to a shift in the revenue mix toward
software, which is typically more profitable than service, and the improved
productivity of service personnel.
Sales and marketing. Sales and marketing expense includes, among other
things, compensation of sales and marketing personnel, sales commissions, travel
and advertising. Sales and marketing expense was $881,000 or 22% of revenue for
the three months ended September 30, 1997 compared to $764,000 or 19% of revenue
for the three months ended September 30, 1996, an increase of 15%. The $117,000
increase in sales and marketing expense between the periods was due primarily to
the increase in the size of the Company's direct sales force.
Research and development. Research and development expense includes,
among other things, compensation of research and development personnel,
depreciation and lease expense of research and development equipment and travel.
Research and development expense was $431,000 or 11% of revenue for the three
months ended September 30, 1997 compared to $471,000 or 12% of revenue for the
three months ended September 30, 1996, a decrease of 8%. Cash expenditures for
research and development were approximately the same during both periods, but
the level of capitalization of internally developed software increased from 24%
in the third quarter 1996 to 31% in the third quarter 1997.
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General and administrative. General and administrative expense includes, among
other things, compensation of finance, accounting and administrative personnel,
goodwill amortization, office rent and insurance. General and administrative
expense was $1.1 million or 28% of revenue for the three months ended September
30, 1997 compared to $938,000 or 24% of revenue for the three months ended
September 30, 1996. The slight increase between the two periods was due
primarily to an increase of $75,000 of bad debt expense.
Interest income (expense), net. Net interest income was $44,000 for the
three months ended September 30, 1997 compared to net interest expense of
$136,000 for the three months ended September 30, 1996, representing an increase
in net interest income of $180,000. The increased net interest income is due
primarily to (1) interest income resulting from the investment of most of the
$10.3 million net proceeds from the Company's public offering of 2.75 million
shares of its Common Stock during November 1996 and (2) decreased interest
expense related to various payments of long-term debt and accrued interest
totaling approximately $3.3 million during the twelve months ended September 30,
1997.
Income tax (expense) benefit. The Company recorded an income tax
expense of $42,000 for the three months ended September 30, 1997 based on
management's belief that the Company will generate taxable income above the
level of available net operating loss carryforward benefits for the year ended
December 31, 1997. The Company had no income tax expense for the three months
ended September 30, 1996 due to the utilization of available net operating loss
carryforward benefits.
Comparison of Nine Months Ended September 30, 1997 and September 30, 1996
Revenue. Total revenue was $11.2 million for both the nine months ended
September 30, 1997 and the nine months ended September 30, 1996. DataView
comprised 1% of HIE's consolidated revenue for the nine months ended September
30, 1996, but DataView is no longer included in the Company's consolidated
revenue effective April 1, 1996 as discussed above. HCI's revenue of $7.1
million for the nine months ended September 30, 1997 was $624,000 higher than
its revenue in the prior year's comparable period primarily due to a $731,000
increase in software maintenance revenue and a $152,000 increase in other
service revenue, partially offset by a $350,000 reduction in Cloverleaf
integration engine software license fee revenue. Management believes that this
reduced level of Cloverleaf integration engine software license fee revenue in
the first nine months of 1997 is attributable to sales timing issues as
evidenced by the improved performance during the second and third quarters of
1997 discussed above. IHS' revenue of $4.1 million for the nine months ended
September 30, 1997 was $507,000 lower than the prior year's comparable period
due to a $1.6 million reduction in service revenue in the first quarter 1997,
which was somewhat offset by a $1.1 million increase in software tool revenue
from the HIE-proprietary Community Person Index ("CPI") software tool released
in the first quarter 1997 and third-party software tools for imaging, workflow
and COLD ("Computer Output to Laser Disk") that are sub-licensed to end users by
IHS.
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Cost of revenue. The cost of revenue was $4.6 million for the nine
months ended September 30, 1997 compared to $3.9 million for the nine months
ended September 30, 1996, an increase of 17%. Most of the increased cost of
revenue was attributable to the relatively higher mix of third-party software
tool license fee revenue in the first nine months of 1997 compared to the first
nine months of 1996. Third-party software tools, such as imaging, workflow and
COLD, typically have a higher cost of revenue than proprietary software tools,
such as the Cloverleaf integration engine and the CPI. The remaining increase in
the cost of revenue was attributable to the relatively low level of service
personnel productivity at IHS in the first nine months of 1997 compared to the
first nine months of 1996. The IHS service personnel staffing level was
appropriately reduced in April 1997 in response to this situation and the IHS
service personnel productivity steadily improved during the second and third
quarters of 1997.
Gross profit. The Company's gross profit was $6.6 million for the nine
months ended September 30, 1997 compared to $7.3 million for the nine months
ended September 30, 1996, a decrease of 9%. The primary reason for the reduced
gross profit in the first nine months of 1997 was the lower level of highly
profitable Cloverleaf integration engine software license fee revenue discussed
above. A secondary reason for the reduced gross profit in the first nine months
of 1997 was the relatively low level of IHS service personnel productivity also
discussed above.
Sales and marketing. Sales and marketing expense was $2.6 million or
23% of revenue for the nine months ended September 30, 1997 compared to $2.4
million or 22% of revenue for the nine months ended September 30, 1996, an
increase of 8%. The $188,000 increase in sales and marketing expense between the
periods was due to an increase in the size of the Company's direct sales force,
offset somewhat by the exclusion of DataView from the Company's consolidated
operating results for the first nine months of 1997, both as discussed above.
Research and development. Research and development expense was $1.2
million or 11% of revenue for the nine months ended September 30, 1997 compared
to $1.1 million or 10% of revenue for the nine months ended September 30, 1996,
an increase of 13%. Cash expenditures for research and development increased
$108,000 between the two periods due primarily to increased staffing for various
research and development projects at HCI, and the level of capitalization of
internally developed software decreased from 36% in the first nine months of
1996 to 31% in the first nine months of 1997.
General and administrative. General and administrative expense was $3.0
million or 27% of revenue for the nine months ended September 30, 1997 compared
to $2.8 million or 25% of revenue for the nine months ended September 30, 1996,
an increase of $235,000 or 8%. There were no significant changes in the
components of general and administrative expense between the periods.
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<PAGE> 14
Losses of affiliate. Losses of affiliate, which resulted from the Company's
commitment to fund CHS, totaled $151,000 in the nine months ended September 30,
1997. The December 1995 transaction with Massey Burch, which provided for a
sharing of the Company's funding commitment to CHS, had the additional result of
relieving the Company of the requirement to report any losses from CHS during
the year ended December 31, 1996.
Interest income (expense), net. Net interest income was $157,000 for
the nine months ended September 30, 1997 compared to net interest expense of
$371,000 for the nine months ended September 30, 1996, representing an increase
in net interest income of $528,000. The increased net interest income is due to
(1) interest income resulting from the investment of most of the $10.3 million
net proceeds from the Company's public offering of 2.75 million shares of its
Common Stock during November 1996 and (2) decreased interest expense related to
various payments of long-term debt and accrued interest totaling approximately
$3.3 million during the twelve months ended September 30, 1997.
Income tax (expense) benefit. The Company recorded an income tax
benefit of $57,000 for the nine months ended September 30, 1997 based on
management's belief that the Company will generate taxable income above the
level of available net operating loss carryforward benefits for the year ended
December 31, 1997. The Company had no income tax expense for the nine months
ended September 30, 1996 due to the utilization of available net operating loss
carryforward benefits.
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Liquidity and Capital Resources
The Company historically financed both its operations since inception
and its investments in EBUs primarily through equity investments totaling $22.0
million by Healthdyne. Following the Spin-Off, Healthdyne had no obligation or
intention to make additional advances or equity infusions in the Company. During
November 1996, the Company sold 2.75 million shares of its Common Stock in a
public offering and received proceeds of $10.3 million, after deducting all
offering-related expenses. The Company used $800,000, $400,000, and $200,000 to
partially prepay certain long-term debt at a discount during November 1996,
April 1997, and September 1997, respectively. HIE invested another $350,000,
$100,000, and $50,000 in CHS during February, May, and August 1997,
respectively. The Company intends to use the remainder of the net proceeds of
this offering for working capital and general corporate purposes, including the
satisfaction of the Company's remaining $200,000 funding commitment to CHS. The
Company's present financial condition and its plans for future working capital
and other capital requirements are further discussed below.
The Company has working capital of $8.2 million at September 30, 1997
compared to $12.4 million at December 31, 1996. The primary reason for the $4.2
million decrease in working capital between December 31, 1996 and September 30,
1997 is the reclassification of long-term debt totaling $4.1 million as of
December 31, 1996 that matures on January 2, 1998 to a current liability. Cash
decreased $2.6 million during the nine months ended September 30, 1997 compared
to a $1.3 million decrease during the nine months ended September 30, 1996 for
the reasons discussed below.
Net cash used in operating activities totaled $566,000 for the nine
months ended September 30, 1997 compared to net cash provided by operating
activities of $1.7 million for the nine months ended September 30, 1996. The
$2.3 million total variance between the two periods is primarily attributable to
the decreased cash flow resulting from the net loss recorded during the nine
months ended September 30, 1997 compared to the net earnings recorded in the
nine months ended September 30, 1996. In addition, there were various changes in
the components of working capital, most notably the cash used to reduce accrued
liabilities and accounts payable and to increase other current assets, all of
which were offset somewhat by the reduced amount of cash used for the increase
in accounts receivable.
Net cash used in investing activities was $1.6 million for the nine
months ended September 30, 1997 compared to $2.0 million for the nine months
ended September 30, 1996. The Company purchased $909,000 less third-party
software in the first nine months of 1997 compared to the first nine months of
1996, but had $122,000 more capital expenditures, primarily for computer
equipment, during the first nine months of 1997 compared to the first nine
months of 1996 and invested another $500,000 in CHS during the first nine months
of 1997 as previously discussed.
15
<PAGE> 16
Net cash used in financing activities was $465,000 for the nine months
ended September 30, 1997 compared to $1.0 million for the nine months ended
September 30, 1996. Most of this $533,000 variance between the two periods is
attributable to the level of debt payments. As discussed above, the Company
prepaid $400,000 and $200,000 of debt during April and September 1997,
respectively. HIE made HCI acquisition-related debt payments totaling $1.6
million during the first nine months of 1996. The proceeds from the issuance of
Common Stock relate to the exercise of stock options during both periods.
As of September 30, 1997, the Company had $3.3 million of debt
financing scheduled for payment over the next twelve months. Most of that total
is payable in cash or the Company's Common Stock at a $3.50 per share conversion
price at the option of the convertible promissory note holders on January 2,
1998. The Company's Common Stock is trading below the $3.50 conversion price as
of September 30, 1997.
During August 1997, HCI renewed and extended through August 1998 its
line of credit with a bank. The credit line was increased from $1 million to $2
million on essentially the same terms and conditions as the expiring line of
credit with said bank. The Company plans to maintain this $2 million line of
credit for unanticipated needs and financial flexibility. Based on its current
business plan and business model projections, the Company believes that
currently available cash and anticipated cash flow from operating activities
will be sufficient to meet the Company's capital requirements, including the
payment of all maturing debt in cash and its remaining funding commitment to
CHS, for at least the next twelve months and for the foreseeable future.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 - Statements of Computation of Per Share Earnings (Loss).
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
During the quarter ended September 30, 1997, the Company filed
no reports on Form 8-K.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Healthdyne Information Enterprises, Inc.
November 14, 1997 By: /s/ Cheryl N. Blanco
--------------------------------------
Cheryl N. Blanco
Controller,
Chief Accounting Officer,
and Assistant Secretary
(duly authorized and chief
accounting officer)
18
<PAGE> 1
EXHIBIT 11
Healthdyne Information Enterprises, Inc. and Subsidiaries
Statements of Computation of Per Share Earnings (Loss)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 123 $ 280 $ (167) $ 646
=============================================
Primary shares:
Weighted average number of common shares
outstanding 20,342 17,272 20,267 16,959
Additional shares issuable from assumed
exercise of options (see note 1) 941 1,662 0 1,546
---------------------------------------------
21,283 18,934 20,267 18,505
=============================================
=============================================
Earnings (loss) per common share and common
share equivalent $ 0.01 $ 0.01 $ (0.01) $ 0.03
=============================================
Fully diluted shares:
Weighted average number of common shares
outstanding 20,342 17,272 20,267 16,959
Additional shares issuable from assumed
exercise of options (see note 1) 1,037 1,730 0 1,730
---------------------------------------------
21,379 19,002 20,267 18,689
=============================================
Earnings (loss) per common share and common
share equivalent $ 0.01 $ 0.01 $ (0.01) $ 0.03
=============================================
</TABLE>
Note 1: Since stock options are anti-dilutive to the loss per common share
calculations, stock options are not considered in such loss per share
calculations for the nine months ended September 30, 1997.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM HEALTHDYNE INFORMATION
ENTERPRISES, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND THE HEALTHDYNE INFORMATION ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,105
<SECURITIES> 0
<RECEIVABLES> 6,436
<ALLOWANCES> 157
<INVENTORY> 0
<CURRENT-ASSETS> 15,645
<PP&E> 2,143
<DEPRECIATION> 764
<TOTAL-ASSETS> 30,620
<CURRENT-LIABILITIES> 7,490
<BONDS> 195
0
0
<COMMON> 204
<OTHER-SE> 22,732
<TOTAL-LIABILITY-AND-EQUITY> 30,620
<SALES> 0
<TOTAL-REVENUES> 11,207
<CGS> 0
<TOTAL-COSTS> 4,568
<OTHER-EXPENSES> 6,870
<LOSS-PROVISION> 151
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> (225)
<INCOME-TAX> (57)
<INCOME-CONTINUING> (167)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (167)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
