<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 June 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
- --------------------------------------------------------------------------------
(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 July 31, 1997 was 20,338,598.
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>
June 30, December 31,
1997 1996
----------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,196 $ 10,743
Trade accounts receivable, less allowances of $82 and $165 at
June 30, 1997 and December 31, 1996, respectively 5,799 5,260
Other current assets 1,088 963
--------------------
Total current assets 15,083 16,966
Purchased software, net of accumulated amortization of $1,121 and $770
at June 30, 1997 and December 31, 1996, respectively 3,304 3,587
Capitalized software, net of accumulated amortization of $62 and $39 at
June 30, 1997 and December 31, 1996, respectively 443 750
Property and equipment, net of accumulated depreciation of $666 and
$456 at June 30, 1997 and December 31, 1996, respectively 1,408 1,221
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $1,603 and $1,267 at June 30, 1997 and
December 31, 1996, respectively 8,500 8,836
Other assets 1,478 442
--------------------
Total assets $ 30,216 $ 31,802
====================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 3,490 $ 163
Accounts payable, principally trade 465 1,019
Accrued liabilities 340 981
Deferred service revenue 2,967 2,418
--------------------
Total current liabilities 7,262 4,581
Long-term debt and capital lease obligations, excluding current installments 224 4,265
--------------------
Total liabilities 7,486 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 20,324 and 20,172 shares at June 30, 1997 and
December 31, 1996, respectively 203 202
Additional paid-in capital 32,882 32,819
Accumulated deficit (10,355) (10,065)
--------------------
Total shareholders' equity 22,730 22,956
--------------------
Commitments
Total liabilities and shareholders' equity $ 30,216 $ 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 Six Months Ended
June 30, June 30,
--------------------------------------------
1997 1996 1997 1996
--------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Software $ 1,585 $ 1,434 $ 2,858 $ 3,152
Services 2,259 2,303 4,346 4,115
--------------------------------------------
Total revenue 3,844 3,737 7,204 7,267
--------------------------------------------
Cost of revenue:
Software 163 76 685 312
Services 1,199 1,216 2,546 2,223
--------------------------------------------
Total cost of revenue 1,362 1,292 3,231 2,535
--------------------------------------------
Gross profit 2,482 2,445 3,973 4,732
--------------------------------------------
Operating expenses:
Sales and marketing 990 868 1,752 1,681
Research and development 354 282 788 605
General and administrative 903 917 1,905 1,845
--------------------------------------------
Total operating expenses 2,247 2,067 4,445 4,131
--------------------------------------------
Operating earnings (loss) 235 378 (472) 601
Losses of affiliate 0 0 (31) 0
Interest income (expense), net 47 (122) 114 (235)
--------------------------------------------
Earnings (loss) before income taxes 282 256 (389) 366
Income tax (expense) benefit (69) 0 99 0
--------------------------------------------
Net earnings (loss) $ 213 $ 256 $ (290) $ 366
============================================
Net earnings (loss) per common share and common share
equivalent:
Primary $ 0.01 $ 0.01 $ (0.01) $ 0.02
============================================
Fully diluted $ 0.01 $ 0.01 $ (0.01) $ 0.02
============================================
Weighted average number of common shares and common share
equivalents outstanding:
Primary 21,324 18,903 20,225 18,689
============================================
Fully diluted 21,324 18,903 20,225 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>
Six Months Ended
June 30,
--------------------
1997 1996
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (290) $ 366
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Interest expense 126 152
Losses of affiliate 31 0
Provision for doubtful accounts (83) 0
Depreciation and amortization 978 728
Increase in trade accounts receivable (456) (1,225)
(Increase) decrease in other current assets (399) 222
Increase (decrease) in accounts payable (701) 305
Increase (decrease) in accrued liabilities (641) 63
Increase in deferred service revenue 445 499
--------------------
Net cash provided by (used in) operating activities (990) 1,110
--------------------
Cash flows from investing activities:
Purchased software (68) (854)
Capitalized software development costs (360) (445)
Capital expenditures (397) (159)
(Increase) decrease in other assets (415) 172
--------------------
Net cash used in investing activities (1,240) (1,286)
--------------------
Cash flows before financing activities (2,230) (176)
--------------------
Cash flows from financing activities:
Principal payments on long-term debt, net (528) (1,352)
Proceeds from the issuance of common stock 211 327
--------------------
Net cash used in financing activities (317) (1,025)
--------------------
Net decrease in cash and cash equivalents (2,547) (1,201)
Cash and cash equivalents at beginning of period 10,743 4,013
--------------------
Cash and cash equivalents at end of period $ 8,196 $ 2,812
====================
</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
June 30, 1997 and 1996
(Unaudited)
1. General:
The consolidated condensed financial statements as of June 30, 1997 and for the
three and six months ended June 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 Customers:
One customer accounted for 15% and 23% of the Company's revenue for the six
months ended June 30, 1997 and 1996, respectively. This one customer accounted
for 22% of the Company's revenue for the three months ended June 30, 1996. No
single customer accounted for 10% or more of the Company's revenue for the three
months ended June 30, 1997. In addition, one distributor provided customers to
the Company that accounted for approximately 12% and 11% of the Company's
revenue for the three and six months ended June 30, 1996, respectively. No
single distributor provided customers to the Company that accounted for 10% or
more of the Company's revenue for the three and six months ended June 30, 1997.
3. Earnings (Loss) Per Share of Common Stock:
Loss per share of common stock for the six months ended June 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 June 30, 1997 and for the three and six months ended June 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, 1997, the Company prepaid at a 20.6% discount a portion of the
principal and accrued interest totaling $503,597 due under the Company's
convertible promissory note payable, which matures on January 2, 1998. The
balance payable under this convertible promissory note totaled $3,672,411 as of
June 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 June 30, 1997, the Company has a remaining obligation of $250,000 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 59% of HIE's consolidated
revenue for the three and six months ended June 30, 1997 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.
IHS. IHS contributed approximately 27% and 41% of HIE's consolidated
revenue for the three and six months ended June 30, 1997. IHS provides clinical
and other information solutions through the use of both proprietary and
third-party software tools and
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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 June 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 six months ended June 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.
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.
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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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total HIE revenue (in 000's) $ 3,844 $ 3,737 $ 7,204 $ 7,267
===========================================
HCI 73% 57% 59% 56%
IHS 27% 43% 41% 42%
DataView 0% 0% 0% 2%
-------------------------------------------
Total HIE revenue 100% 100% 100 % 100%
===========================================
Revenue:
Software 41% 38% 40% 43%
Services 59% 62% 60% 57%
-------------------------------------------
Total revenue 100% 100% 100% 100%
-------------------------------------------
Cost of revenue:
Software (as a percent of software revenue) 10% 5% 24% 10%
Services (as a percent of services revenue) 53% 53% 59% 54%
Total cost of revenue 35% 35% 45% 35%
-------------------------------------------
Gross profit 65% 65% 55% 65%
-------------------------------------------
Operating expenses:
Sales and marketing 26% 23% 24% 23%
Research and development 9% 8% 11% 9%
General and administrative 24% 24% 27% 25%
-------------------------------------------
Total operating expenses 59% 55% 62% 57%
-------------------------------------------
Operating earnings (loss) 6% 10% (7)% 8%
Losses of affiliate 0% 0% 0% 0%
Interest income (expense), net 1% (3)% 2% (3)%
-------------------------------------------
Earnings (loss) before income taxes 7% 7% (5)% 5%
Income tax (expense) benefit (1)% 0% 1% 0%
-------------------------------------------
Net earnings (loss) 6% 7% (4)% 5%
===========================================
</TABLE>
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Comparison of Three Months Ended June 30, 1997 and June 30, 1996
Revenue. Total revenue was $3.8 million for the three months ended June
30, 1997 compared to $3.7 million for the three months ended June 30, 1996, an
increase of 3%. HCI's revenue of $2.8 million for the three months ended June
30, 1997 was $682,000 higher than its revenue in the prior year's comparable
period due primarily to a $249,000 increase in software maintenance revenue and
a $183,000 increase in Cloverleaf integration engine software license fee
revenue between the two periods. IHS' revenue of $1.0 million for the three
months ended June 30, 1997 was $575,000 lower than the prior year's comparable
period due primarily to a $544,000 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 $1.4 million for the three months ended
June 30, 1997 compared to $1.3 million for the three months ended June 30, 1996,
an increase of 5%. The slight increase between the two periods was attributable
to a higher level of software amortization in the second quarter 1997 related to
the mix of software license fee revenue in that quarter. Certain software tools,
such as software tools supplied by third-parties, have a higher level of
amortization than others, such as the Cloverleaf integration engine and other
HIE-owned software tools.
Gross profit. The Company's gross profit was approximately $2.4 million
or 65% of revenue in both periods. The slightly lower level of higher-cost
service revenue in the second quarter 1997 was offset by the slightly higher
level of increased-cost software revenue in the second quarter of 1997 as shown
in the above table and as discussed in the cost of revenue section above.
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 $990,000 or 26% of revenue for
the three months ended June 30, 1997 compared to $868,000 or 23% of revenue for
the three months ended June 30, 1996, an increase of 14%. The $122,000 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 $354,000 or 9% of revenue for the three
months ended June 30, 1997 compared to $282,000 or 8% of revenue for the three
months ended June 30, 1996, an increase of 26%. Cash expenditures for research
and development were approximately the same during both periods, but the level
of capitalization of internally developed software dropped from 41% in the
second quarter 1996 to 26% in the second 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.
There were no significant changes in the level or components of general and
administrative expense between the periods.
Interest income (expense), net. Net interest income was $47,000 for the
three months ended June 30, 1997 compared to net interest expense of $122,000
for the three months ended June 30, 1996, representing an increase in net
interest income of $169,000. 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 June 30, 1997.
Income tax (expense) benefit. The Company recorded an income tax
expense of $69,000 for the three months ended June 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 June 30, 1996 due to the utilization of available net operating loss
carryforward benefits.
Comparison of Six Months Ended June 30, 1997 and June 30, 1996
Revenue. Total revenue was $7.2 million for the six months ended June
30, 1997 compared to $7.3 million for the six months ended June 30, 1996, a
decrease of 1%. DataView comprised 2% of HIE's consolidated revenue for the six
months ended June 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 $4.2 million for the six months ended June 30, 1997 was $183,000 higher than
its revenue in the prior year's comparable period due to a $541,000 increase in
software maintenance revenue and a $252,000 increase in other service revenue,
both offset by a $610,000 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 half 1997 is
attributable to sales timing issues as evidenced by the improved performance
during the second quarter 1997 discussed above. IHS' revenue of $3.0 million for
the six months ended June 30, 1997 was $117,000 lower than the prior year's
comparable period due to a $553,000 reduction in service revenue discussed above
in the first quarter 1997 section, which was somewhat offset by a $436,000
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.
Cost of revenue. The cost of revenue was $3.2 million for the six
months ended June 30, 1997 compared to $2.5 million for the six months ended
June 30, 1996, an increase of 27%. Approximately half of the increased cost of
revenue was attributable to the relatively higher mix of third-party software
tool license fee revenue in the first half 1997 compared to the first half 1996.
Third-party software tools, such as imaging, workflow and COLD, typically have a
higher cost of revenue than proprietary software
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tools, such as the Cloverleaf integration engine and the CPI. The other half of
the increased cost of revenue was attributable to the relatively low level of
service personnel productivity at IHS in the first half 1997 compared to the
first half 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 quarter 1997.
Gross profit. The Company's gross profit was $4.0 million for the six
months ended June 30, 1997 compared to $4.7 million for the six months ended
June 30, 1996, a decrease of 16%. The primary reason for the reduced gross
profit in the first half 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 half 1997 was the
relatively low level of IHS service personnel productivity also discussed above.
Sales and marketing. Sales and marketing expense was $1.8 million or
24% of revenue for the six months ended June 30, 1997 compared to $1.7 million
or 23% of revenue for the six months ended June 30, 1996, an increase of 4%. The
$71,000 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 half 1997, both as discussed above.
Research and development. Research and development expense was $788,000
or 11% of revenue for the six months ended June 30, 1997 compared to $605,000 or
9% of revenue for the six months ended June 30, 1996, an increase of 30%. Cash
expenditures for research and development increased $98,000 between the two
periods due primarily to increased staffing for various research and development
projects at HCI, but the level of capitalization of internally developed
software dropped from 42% in the first half 1996 to 31% in the first half 1997.
General and administrative. General and administrative expense was $1.9
million or 27% of revenue for the six months ended June 30, 1997 compared to
$1.8 million or 25% of revenue for the six months ended June 30, 1996, an
increase of $60,000 or 3%. There were no significant changes in the components
of general and administrative expense between the periods.
Losses of affiliate. Losses of affiliate, which resulted from the
Company's commitment to fund CHS, totaled $31,000 in the first quarter and first
half 1997. The Company reported no losses of affiliate in the second quarter
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 $114,000 for
the six months ended June 30, 1997 compared to net interest expense of $235,000
for the six months ended June 30, 1996, representing an increase in net interest
income of $349,000. 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
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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 June 30, 1997.
Income tax (expense) benefit. The Company recorded an income tax
benefit of $99,000 for the six months ended June 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 six months ended June
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 and $400,000 to partially
prepay certain long-term debt at a discount during November 1996 and April 1997,
respectively. HIE invested another $350,000 and $100,000 in CHS during February
and May 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 $250,000 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 $7.8 million at June 30, 1997
compared to $12.4 million at December 31, 1996. The primary reason for the $4.6
million decrease in working capital between December 31, 1996 and June 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
$2.5 million during the six months ended June 30, 1997 compared to a $1.2
million decrease during the six months ended June 30, 1996 for the reasons
discussed below.
Net cash used in operating activities totaled $990,000 for the six
months ended June 30, 1997 compared to net cash provided by operating activities
of $1.1 million for the six months ended June 30, 1996. The $2.1 million total
variance between the two periods is primarily attributable to the decreased cash
flow resulting from the net loss recorded during the six months ended June 30,
1997 compared to the net earnings recorded in the six months ended June 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 $1.2 million for the six
months ended June 30, 1997 compared to $1.3 million for the six months ended
June 30, 1996. The Company purchased $786,000 less third-party software in the
first half 1997 compared to the first half 1996, but had $238,000 more capital
expenditures, primarily for computer equipment, during the first half 1997
compared to the first half 1996 and invested another $450,000 in CHS during the
first half 1997 as previously discussed.
Net cash used in financing activities was $317,000 for the six months
ended June 30, 1997 compared to $1.0 million for the six months ended June 30,
1996. Most of this $708,000 variance between the two periods is attributable to
the level of debt payments. As discussed above, the Company prepaid $400,000 of
debt during April 1997. HIE made HCI acquisition-related debt payments totaling
$1.2 million during the first half 1996. The proceeds from the issuance of
Common Stock relate to the exercise of stock options during both periods.
15
<PAGE> 16
As of June 30, 1997, the Company had $3.5 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 July
31, 1997.
During May 1996, HCI renewed and extended through August 1997 its $1.0
million line of credit with a bank on essentially the same terms and conditions
as the expiring line of credit with said bank. During February 1997, the Company
received a commitment for a $2 million unsecured line of credit from another
bank that requires the termination of the HCI line of credit referred to above
and the maintenance of certain financial covenants. The definitive agreement
related to this line of credit commitment has not been finalized at this date.
The Company plans to maintain a $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 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on May 20, 1997. At the
annual meeting, the Company's shareholders voted on the election of seven
Directors. The results of the voting were as follows:
<TABLE>
<CAPTION>
For Vote Withheld
--- -------------
<S> <C> <C>
Parker H. Petit 15,528,674 75,251
H. Darrell Young 15,530,818 73,107
J. Terry Dewberry 15,530,754 73,171
William J. Gresham, Jr. 15,530,940 72,985
Charles R. Hatcher, Jr., M.D. 15,528,617 75,308
Carl E. Sanders 15,523,645 80,280
Donald W. Weber 15,523,540 80,385
</TABLE>
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 June 30, 1997, the Company filed a
report on Form 8-K dated June 27, 1997 reporting that on June 13, 1997, the
Company entered into agreements relative to the restructuring of investors'
interests in CHS, an affiliate of the Company located in Nashville, Tennessee.
As a result of these agreements, the Company now holds a 50% equity ownership
interest in CHS on a fully diluted basis. See Note 5 of Notes to Consolidated
Condensed Financial Statements included in Item 1 of Part I herein.
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.
August 5, 1997 By: /s/ Joseph G. Bleser
-----------------------------------------
Joseph G. Bleser
Vice President-Finance,
Chief Financial Officer, Treasurer
and Secretary
(duly authorized and principal
financial 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 213 $ 256 $ (290) $ 366
==========================================
Primary shares:
Weighted average number of common shares
outstanding 20,233 17,029 20,225 16,815
Additional shares issuable from assumed
exercise of options (see note 1) 1,091 1,874 0 1,874
------------------------------------------
21,324 18,903 20,225 18,689
==========================================
Earnings (loss) per common share and common
share equivalent $ 0.01 $ 0.01 $ (0.01) $ 0.02
==========================================
Fully diluted shares:
Weighted average number of common shares
outstanding 20,233 17,029 20,225 16,815
Additional shares issuable from assumed
exercise of options (see note 1) 1,091 1,874 0 1,874
------------------------------------------
21,324 18,903 20,225 18,689
==========================================
Earnings (loss) per common share and common
share equivalent $ 0.01 $ 0.01 $ (0.01) $ 0.02
==========================================
</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 six months ended June 30, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE HEALTHDYNE
INFORMATION ENTERPRISES, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1997 AND THE HEALTHDYNE INFORMATION ENTERPRISES,
INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,196
<SECURITIES> 0
<RECEIVABLES> 5,881
<ALLOWANCES> 82
<INVENTORY> 0
<CURRENT-ASSETS> 15,083
<PP&E> 2,074
<DEPRECIATION> 666
<TOTAL-ASSETS> 30,216
<CURRENT-LIABILITIES> 7,262
<BONDS> 224
0
0
<COMMON> 203
<OTHER-SE> 22,527
<TOTAL-LIABILITY-AND-EQUITY> 30,216
<SALES> 0
<TOTAL-REVENUES> 7,204
<CGS> 0
<TOTAL-COSTS> 3,231
<OTHER-EXPENSES> 4,445
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> (389)
<INCOME-TAX> (99)
<INCOME-CONTINUING> (290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (290)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
