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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JUNE 1, 1998
HEALTHDYNE INFORMATION ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 0-270576 58-2112366
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
</TABLE>
1850 PARKWAY PLACE, SUITE 1100, MARIETTA, GEORGIA 30067
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (770) 423-8450
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
As previously reported in the Current Report on Form 8-K dated May 12,
1998, Healthdyne Information Enterprises, Inc., a Georgia corporation ("HIE" or
the "Company"), completed a stock-for-stock merger (the "Merger") through a
wholly-owned subsidiary with HUBLink, Inc. ("HUBLink"), a privately-held
integration software tool company. In connection with the Merger, the Company
issued an aggregate of 2,926,136 shares of its common stock, $.01 par value per
share, together with associated preferred stock rights (the "Common Stock"), in
exchange for all of the outstanding HUBLink common stock.
The Merger has been accounted for as a pooling of interests. The
Company is providing supplemental management's discussion and analysis of
financial condition and results of operations, and supplemental consolidated
financial statements which give retroactive effect to the Merger and are filed
herein. Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These supplemental consolidated financial statements do not extend through the
date of consummation of the Merger. However, they will become the historical
consolidated financial statements of HIE and subsidiaries after financial
statements covering the date of the consummation of the business combination are
issued. The information contained herein does not include certain recent
developments nor reflect the current financial condition of the Company, and
therefore, should be read in conjunction with the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and the Company's other filings
with the Securities and Exchange Commission.
Special Note on Forward-looking Statements
This Current Report on Form 8-K, as amended by Amendment No. 1 thereto
on Form 8-K/A, contains various forward-looking statements and information that
are based on the Company's beliefs and assumptions, as well as information
currently available to the Company. Without limiting the generality of the
foregoing, the words "believe," "anticipate," "estimate," "expect," "intend,"
"plan," "seek" and similar expressions, when used in this Form 8-K and in such
other statements, are intended to identify forward-looking statements. All
forward-looking statements and information in this Form 8-K are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are intended to be covered by the safe harbors created thereby. Such
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation, those
factors discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 under the caption "Business -- Factors Affecting Future
Performance" and elsewhere in such Annual Report and in the Company's other
filings with the Securities and Exchange Commission. Many of such factors are
beyond the Company's ability to control or predict, and readers are cautioned
not to put undue reliance on such forward-looking statements. The Company
disclaims any obligation to update or review any forward-looking statements
contained in this Report or in any statement referencing the factors affecting
future performance and other cautionary statements set forth in this Report,
whether as a result of new information, future events or otherwise.
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SUPPLEMENTAL SELECTED FINANCIAL DATA
The supplemental selected financial data are presented below for the
years ended December 31, 1997, 1996 and 1995 and for the period from June 15,
1994 (date of incorporation) through December 31, 1994. The data should be read
in conjunction with the Supplemental Consolidated Financial Statements, related
notes and other financial information contained herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, FOR THE PERIOD
-------------------------------- FROM 6/15/94
(DATE OF
SOURCE OF INCORPORATION)
SELECTED DATA 1997 1996 1995 TO 12/31/94
---- ---- ---- -----------
(Amounts in thousands, except for per share data)
<S> <C> <C> <C> <C>
SUPPLEMENTAL STATEMENTS OF OPERATIONS:
Total revenue $ 18,064 $ 20,243 $ 11,248 $ 1,405
Operating earnings (loss) $ (8,506)* $ 497 $ (9,891)* $ (1,487)
Net earnings (loss) $ (8,596)* $ 107 $(10,961)* $ (1,496)
Diluted net earnings (loss) per
share of common stock $ (0.38)* $ 0.01 $ (0.60)* $ (0.08)
Shares used in the calculation of
diluted net earnings (loss) per
share of common stock 22,587 21,277 18,302 17,720
</TABLE>
* Includes non-recurring pre-tax and after-tax charges of $6.4 million and
$5.4 million, or $0.28 and $0.30 net loss per share, in 1997 and 1995,
respectively (see Notes 1 and 3 of Notes to Supplemental Consolidated
Financial Statements).
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C>
SUPPLEMENTAL BALANCE SHEETS:
Total assets $28,940 $33,085 $22,793 $11,467
Long-term debt and obligations
under capital leases, excluding
current installments $ 316 $ 4,316 $ 5,462 $ 169
</TABLE>
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SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company 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
Common Stock to Healthdyne's shareholders (the "Spin-Off"). The Company provides
software tools and services to achieve the enterprise-wide integration of
information. HIE's Common Stock is publicly traded on the Nasdaq National Market
under the symbol "HDIE."
The Company generates revenue from licensing integration software tools
and providing integration services, such as education, consulting, project
management, information integration, technology-driven re-design, software
maintenance, implementation and expert-sourcing. In 1996 and prior years, the
Company also sold computer hardware in conjunction with its integration software
tools. Hardware revenue was and is expected to be insignificant in 1997 and
future years.
Software licenses are generally granted on a perpetual basis for a
one-time, up-front fee. A standard per-student amount is charged for education
classes. Consulting services are generally provided for a fixed fee based on
estimated hours of service to be provided at standard hourly rates. Project
management, information integration, technology-driven re-design and
implementation fees are generally based on actual hours of service at standard
hourly rates. Software maintenance agreements are generally one-year renewable
service contracts for a prepaid standard fee. Expert-sourcing agreements are
generally multiple-year renewable service contracts for a negotiated monthly
fee.
HIE completed a stock-for-stock merger (the "Merger") through a
wholly-owned subsidiary with HUBLink, a privately-held integration software tool
company, on May 12, 1998. The Merger was accounted for as a pooling of interests
and, accordingly, the accompanying supplemental consolidated financial
statements and notes thereto of the Company have been restated to include the
accounts and operations of HUBLink. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for by
the pooling-of-interests method in the financial statements that do not include
the date of consummation. These supplemental consolidated financial statements
do not extend through the date of consummation of the Merger. However, they will
become the historical consolidated financial statements of the Company after
financial statements covering the date of consummation of the business
combination are issued. In connection with the Merger, the Company expects to
take a charge of approximately $750,000 in May 1998 for acquisition-related
expenses and expects to incur aggregate integration costs of approximately
$250,000 to $500,000 during the second and third quarters of 1998.
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"), that provided for a restructuring of the
relationship between HIE and DataView, as discussed in Note 3 of Notes to
Supplemental Consolidated Financial Statements included in the accompanying HIE
Supplemental Consolidated Financial Statements. Subsequent to March 31, 1996,
DataView's financial position, results of operations and cash flows are no
longer included in HIE's Supplemental Consolidated Financial Statements due to
immateriality.
In October 1997, in conjunction with a change in executive management,
the Company redefined its strategic direction as The Integration Solutions
Company. As previously stated, HIE now provides software tools and services to
achieve the enterprise-wide integration of information. Certain assets totaling
$4.7 million that no longer contributed to the Company's new strategic direction
were written-off or fully reserved. These written-off or fully reserved assets
included: (a) the net book value of certain third-party and internally developed
software totaling $2.7 million; (b) accounts receivable totaling $1.1 million
and project completion costs totaling $550,000, both related to the software
that the Company ceased selling and distributing under its new strategic
direction; and (c) other costs totaling $313,000. Management estimates that
approximately $852,000 of this $4.7 million charge will involve an expenditure
of cash in relatively even amounts throughout 1998. Management believes that
these cash expenditures will be funded by either cash flow from operations or
short-term borrowings from the Company's existing line of credit. Management
further believes that the change in strategic direction associated with this
non-recurring charge will have a positive effect on future operating results.
In addition, the operations of the Company's three operating
subsidiaries at that time (Healthcare Communications, Inc. ("HCI"), Integrated
Healthcare
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Solutions, Inc. ("IHS") and Criterion Health Strategies, Inc. ("CHS")) were
combined with those of the parent Company under a functional organization
structure, i.e. sales, service, research and development and finance. HUBLink
was subsequently included in that functional organization structure.
On December 31, 1997, the Company exercised its option to acquire the
remaining 50% ownership interest of CHS. CHS licenses the Criterion data
integration software tool and provides project management, information
integration and technology-driven re-design services. Since HIE did not have a
majority ownership interest in CHS in 1997 and prior years, the operating
results of CHS were not consolidated with the Company's consolidated operating
results. HIE's share of CHS' operating results are presented as Losses of
Affiliate in the accompanying Supplemental Consolidated Statements of
Operations. In addition, the Company's acquisition of the remaining ownership
interest in CHS during 1997 referred to above resulted in the $1.7 million
purchased in-process research and development expense reflected in the
accompanying Supplemental Consolidated Statements of Operations. See Notes 1 and
3 of Notes to Supplemental Consolidated Financial Statements.
The Company is aware of the potential issues associated with the
programming code in existing computer systems as the year 2000 approaches. The
primary issue is whether or not computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause the
system to fail. Management does not anticipate that the Company will incur
either significant operating expenses or significant capital expenditures to be
year 2000 compliant with respect to both its internal systems and the software
tools that it markets. In fact, the Company's software tools and services could
be utilized by HIE's customers and prospects to enable their systems to become
year 2000 compliant.
The Company expects the following external factors to affect the market
for integration software tools and integration services in future years: (1) the
continued consolidation of enterprises within various industries to achieve
economies of scale; (2) the growing importance of information for the survival
and prosperity of various enterprises; (3) the increasing complexity of
information technology; and (4) the year 2000 issue referred to above.
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. On
October 27, 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), which is effective in 1998. The
Company expects adoption of SOP 97-2 to have no material effect on future HIE
consolidated financial statements.
The Company's Supplemental Consolidated Balance Sheets include assets
designated as purchased software and capitalized software development costs.
Purchased software includes the cost of purchased integration software tools and
the cost of software acquired in connection with business combinations. It also
includes the cost of licenses to use, embed and sell software tools
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developed by others. Certain costs of HIE proprietary software developed
internally are capitalized in accordance with generally accepted accounting
principles. The costs of individual software tools 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 annual 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 both the Company's total revenue and the
percentage of total revenue (unless otherwise indicated) for each component
included in the Company's Supplemental Consolidated Statements of Operations for
the years indicated:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1996 1995
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<S> <C> <C> <C>
Total HIE revenue (in 000's) $ 18,064 $ 20,243 $ 11,248
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Revenue:
Software 41% 43% 55%
Services and other 59% 57% 45%
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Total revenue 100% 100% 100%
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Cost of revenue:
Software (as a % of software revenue) 14% 11% 9%
Services and other (as a % of services
and other revenue) 56% 55% 60%
Total cost of revenue 39% 36% 31%
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Gross profit 61% 64% 69%
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Operating expenses:
Sales and marketing 30% 27% 44%
Research and development 17% 12% 24%
General and administrative 26% 22% 40%
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Total operating expenses(1) 73% 61% 108%
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Operating earnings (loss)(1) (12)% 3% (39)%
Losses of affiliate 0% 0% (10)%
Minority interest 0% 0% 1%
Interest income (expense), net 0% (2)% (2)%
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Earnings (loss) before income taxes(1) (12)% 1% (50)%
Income tax benefit 0% 0% 1%
-------- -------- --------
Net earnings (loss)(1) (12)% 1% (49)%
======== ======== ========
</TABLE>
(1) Excludes non-recurring pre-tax and after-tax charges of $6.4 million and
$5.4 million in 1997 and 1995, respectively. See Notes 1 and 3 of Notes to
Supplemental Consolidated Financial Statements included in the
accompanying HIE Supplemental Consolidated Financial Statements.
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Comparison of Years ended December 31, 1997 and 1996
Revenue. Total revenue was $18.1 million in 1997 compared to $20.2
million in 1996, a decrease of 11%. The decrease of $1.2 million, or 14%, in
software revenue was primarily due to a reduction in integration engine software
license fee revenue. The decrease of $945,000, or 8%, in services and other
revenue was due primarily to a decrease in hardware revenue and low service
personnel productivity at the beginning of 1997, both offset somewhat by
increased software maintenance revenue. The Company reported steadily improving
revenue during each quarter of 1997 for both software and services and other
revenue with the exception of hardware revenue, which the Company did not
actively market after 1996. Management believes that the decrease in revenue
between 1996 and 1997 was neither a general marketplace nor a Company software
or service issue. Management attributes the decreased revenue between years to
(1) the decision to de-emphasize hardware sales; (2) a deliberate reallocation
of resources to establish new vertical markets outside of the healthcare
industry for the Company's integration software tools; and (3) a Company
distribution problem within the healthcare industry that management sought to
address throughout the year by increasing the size of the direct sales force and
the number of distributors. HIE more than doubled its sales force and added 21
new distributors during the latter part of 1997.
Cost of revenue. The cost of revenue was $7.1 million in 1997 compared
to $7.4 million in 1996, a decrease of 4%, related primarily to the 11% decrease
in revenue discussed above in the "Revenue" section. The increase in cost of
revenue from 36% to 39% of revenue between 1996 and 1997 is primarily
attributable to the Company sub-licensing more third-party imaging, workflow and
internet software tools in 1997 than it did during 1996, as well as a relatively
low level of service personnel productivity at the beginning of 1997, both
offset somewhat by the effect of reduced hardware revenue, which has a
relatively high cost of revenue. Third-party software tools typically have a
higher relative cost than the Company's proprietary software tools, such as the
integration engine and the enterprise master person index software tools.
Service personnel staffing was appropriately reduced in April 1997 and
productivity improved thereafter.
Gross profit. The Company's gross profit was $11.0 million in 1997
compared to $12.9 million in 1996, a decrease of 15%, due primarily to the
revenue decrease discussed above in the "Revenue" section. Gross profit as a
percent of revenue decreased from 64% in 1996 to 61% in 1997 primarily due to
the higher cost of third-party software tools and the reduced levels of service
personnel productivity, both offset somewhat by the lower level of high-cost
hardware revenue, also discussed above in the "Cost of revenue" section.
Sales and marketing. Sales and marketing expense was $5.4 million in
both 1997 and 1996, but increased from 27% of revenue in 1996 to 30% of revenue
in 1997 due to the relatively low revenue generated through relatively new
direct and indirect distribution channels in both established and new vertical
markets as discussed above in the "Revenue" section.
Research and development. Research and development expense was $3.0
million in 1997 compared to $2.5 million in 1996, an increase of 17%. Cash
expenditures for research and
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development increased by $115,000, or 3%, in 1997 due to increased expenditures
for enterprise-level object-oriented message broker technology development,
offset somewhat by decreased expenditures for the Clinical Assessment and
Support System ("CASS") software tool in 1997 compared to 1996. The Company
capitalized internally developed software costs of $467,000 and $789,000, or 14%
and 24% of cash expenditures for research and development, in 1997 and 1996,
respectively.
General and administrative. General and administrative expense was $4.8
million in 1997 compared to $4.4 million in 1996, an increase of 8%. The
increase of $369,000 between the two periods was primarily due to an increase of
$301,000 in the allowance for doubtful accounts.
Losses of affiliate. Losses of affiliate, which represents the
Company's share of the losses of CHS arising from HIE's funding commitment to
CHS, totaled $151,000 in 1997. Since HIE entered into an agreement with a third
party during December 1995 that provided for a sharing of HIE's funding
commitment to CHS, HIE did not incur any losses of affiliate in 1996.
Interest income(expense), net. Net interest income was $61,000 in 1997
compared to net interest expense of $390,000 in 1996, due primarily to (1)
interest income resulting 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 related accrued
interest.
Income tax benefit. The Company has no provision for income taxes in
1997 and 1996 due to the net loss incurred in 1997 and the utilization of
available net operating loss carryforward benefits in 1996.
Comparison of Years ended December 31, 1996 and 1995
Revenue. Total revenue was $20.2 million in 1996 compared to $11.2
million in 1995, an increase of 80% even though DataView's revenue was no longer
included in the Company's consolidated revenue effective April 1, 1996 as
discussed above. The mix of revenue shifted to more services and other revenue
than software revenue between 1995 and 1996. Even though software revenue
declined as a percent of total revenue in 1996, it still increased 39% between
1995 and 1996 due primarily to the continued growth of integration engine
license fee revenue supplemented by software license fee revenue from the CASS
and the enterprise master patient index software tools, both of which were
released for general availability to the market during the second half of 1996.
Services and other revenue grew 131% in 1996 due to the continued growth in
software maintenance, implementation and education services and hardware
revenue, all related to the integration engine software tool, and, more
significantly, the demand by enterprises for system design, implementation and
integration services of the imaging, workflow, internet, enterprise master
person index and CASS software tools.
Cost of revenue. The cost of revenue was $7.4 million in 1996 compared
to $3.5 million in 1995, an increase of 109%, substantially all of which is
related to the growth in revenue. The increase in cost of revenue from 31% to
36% of revenue between 1995 and 1996 is primarily
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attributable to the shift in revenue mix toward services and other revenue,
which typically has a higher cost of revenue than software revenue. The increase
in cost of software revenue as a percent of software revenue is due to the
Company sub-licensing more third-party imaging, workflow and internet software
tools in 1996 than it did during 1995. Third-party software tools typically have
a higher relative cost than the Company's proprietary software tools, such as
the integration engine, the enterprise master person index and CASS. The
decrease in cost of services and other revenue as a percent of services and
other revenue is due to productivity improvements as the Company's relatively
new service organization matured during the year.
Gross profit. The Company's gross profit was $12.9 million in 1996
compared to $7.7 million in 1995, an increase of 67%, due primarily to the
revenue growth discussed above. Gross profit as a percent of revenue decreased
from 69% in 1995 to 64% in 1996. The revenue mix shifted from 55% software
revenue and 45% services and other revenue in 1995 to 43% software revenue and
57% services and other revenue in 1996. The main reason for the shift was the
increase in system design, implementation and integration services. As discussed
above, while software revenue, which has relatively high gross profit margins,
increased 39%, services revenue, which normally has lower gross profit margins
than software, increased 131% between 1995 and 1996.
Sales and marketing. Sales and marketing expense was $5.4 million in
1996 and $5.0 million in 1995, an increase of 9%, due primarily to the net
effect of increased sales personnel costs, sales commissions and travel expenses
associated with increased sales staffing and the increase in revenue, offset
somewhat by the exclusion of DataView from the Company's consolidated operating
results for the last three quarters of 1996 as discussed above and secondarily
to utilization of a more cost-effective international distribution network in
1996. Sales and marketing expense as a percent of revenue decreased from 44% in
1995 to 27% in 1996, reflecting the increased productivity of the Company's
internal sales force and its distributors.
Research and development. Research and development expense was $2.5
million in 1996 compared to $2.7 million in 1995, a decrease of 6%, due
primarily to the capitalization of internally developed software costs totaling
$789,000, which represented 24% of research and development expenditures in
1996, and secondarily to the exclusion of DataView from the Company's
consolidated operating results for the last three quarters of 1996. No costs of
internally developed software qualified for capitalization under generally
accepted accounting principles in 1995.
General and administrative. General and administrative expense was $4.4
million in 1996 compared to $4.5 million in 1995, a decrease of 2%. The decrease
of $107,000 between the two years was primarily due to the net effect of (1)
decreased staffing, outside service expense and other administrative costs at
the Dallas, Texas office resulting from cost control measures initiated during
the fourth quarter of 1995 and the first quarter of 1996 and (2) the exclusion
of DataView from the Company's consolidated operating results for the last three
quarters of 1996 as discussed above, both somewhat offset by (a) increased
goodwill amortization related primarily to the step acquisition of a subsidiary
during 1995; (b) identifiable expenses of being a new
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public company; and (c) increased administrative staffing costs to support
current and projected growth of the operations in the Columbus, Ohio and
Marietta, Georgia offices.
Losses of affiliate. Losses of affiliate, which resulted from the
Company's commitment to fund CHS, totaled $1.1 million in 1995. Because HIE
entered into an agreement with a third party during December 1995 that provided
for a sharing of HIE's funding commitment to CHS, HIE did not incur any losses
of affiliate in 1996.
Minority interest. The minority interest in net loss of subsidiary
totaling $142,000 in 1995 is no longer applicable in 1996 as a result of HIE's
increased ownership interest in said subsidiary to 100%, effective December 31,
1995.
Interest income (expense), net. Net interest expense was $390,000 in
1996 compared to $208,000 in 1995, an increase of 88%, due primarily to the net
effect of (1) increased interest expense associated with acquisition financing
and (2) reduced interest expense under a financing agreement renegotiated at a
lower interest rate effective January 1, 1996.
Income tax benefit. The Company has no provision for income taxes in
1996 due to the utilization of available net operating loss carryforward
benefits. The income tax benefit of $140,000 in 1995 relates to a subsidiary
which filed a separate income tax return prior to HIE increasing its ownership
interest in said subsidiary to 100% effective December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations from inception through the November
1995 Spin-Off 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. Accordingly, during
November 1996, the Company sold 2.75 million shares of its Common Stock in a
secondary public offering (the "Secondary Offering") and received proceeds of
$10.3 million, after deducting all offering-related expenses. In addition, the
Company received proceeds of $3.0 million, after deducting all offering-related
expenses, from various private placements of Common Stock and from employee
stock option and purchase plans during 1995, 1996 and 1997. The Company
generally uses capital leases to finance additions of computer equipment. The
Company also periodically borrows under established lines of credit for working
capital purposes.
Prior to the completion of the Secondary Offering, the Company used its
available cash and cash flow from operating activities to pay acquired debt and
acquisition financing-related debt, as those obligations matured. Subsequent to
the Secondary Offering, the Company used $800,000, $400,000 and $200,000 of cash
during November 1996, April 1997 and September 1997, respectively, to prepay a
portion of long-term debt at a discount. The Company also invested $995,000
during 1997 to satisfy its funding commitment to CHS. The Company is using the
remainder of the net proceeds from the equity sources referred to above to pay
debt as it matures and for working capital and general corporate purposes. The
Company's present financial condition and its plans for future working capital
and other capital requirements are further discussed below.
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The Company has working capital of $2.7 million at December 31, 1997
compared to $10.8 million at December 31, 1996. Approximately $4.0 million of
the decrease in working capital is due to the balance sheet classification of
debt maturing on January 2, 1998. In addition, cash decreased $3.0 million
between 1996 and 1997 for the reasons discussed below.
Net cash provided by operating activities decreased $3.6 million
between 1996 and 1997 due primarily to the net loss reported in 1997 compared to
the net earnings reported in 1996 and the timing of payments of both accounts
payable and accrued liabilities, offset somewhat by a reduction in cash used for
increased accounts receivable.
Net cash used in investing activities decreased $590,000 between 1996
and 1997 due primarily to the net effect of (1) a reduction of $1.6 million in
purchased and capitalized software development costs related primarily to a
reduction in the development efforts for the enterprise master person index and
CASS software tools and (2) a decrease in capital expenditures of $183,000 as
the Company leased more equipment in 1997 than during 1996, both somewhat offset
by an increase of $1.2 million in other non-current assets and liabilities, net
related primarily to HIE's funding commitment to CHS in 1997 prior to HIE's
acquisition of the remaining ownership interest in CHS on December 31, 1997.
Net cash provided by financing activities decreased $6.7 million
between 1996 and 1997 due primarily to the Secondary Offering in 1996 referred
to above and secondarily to the decrease in payments for maturing or prepaid
long-term debt previously discussed. The proceeds from equity transactions
include (1) the net proceeds of $10.3 million from the Company's Secondary
Offering and $729,000 from private placements of Common Stock in 1996; (2) the
net proceeds of $1.2 million from private placements of Common Stock in 1997;
and (3) relatively insignificant proceeds from employee stock option and
purchase plans in both 1997 and 1996.
As of December 31, 1997, the Company had $4.2 million of debt financing
maturing over the next twelve months, of which $3.3 million matured and was paid
on January 2, 1998. In addition, outstanding borrowings under an established
line of credit totaled $970,000 at December 31, 1997. During August 1997, the
Company renewed an additional line of credit with a bank and also increased the
credit line from $1.0 million to $2.0 million on essentially the same terms and
conditions as the expiring line of credit. The Company plans to maintain at
least a $2.0 million line of credit for unanticipated needs and financial
flexibility. Based on its current 1998 business plan and business model
projections, which extend through the end of 1999, the Company believes that
currently available cash, borrowings from its existing or anticipated lines of
credit, and anticipated cash flow from operating activities, especially the
collection of accounts receivable, will be sufficient to meet the Company's
capital requirements for at least the next twelve months and through the period
covered by the Company's current business model projections.
12
<PAGE> 13
The following Supplemental Consolidated Financial Statements of the
Company and its subsidiaries and independent auditors' report thereon are
included as pages F-1 through F-24 of this Amendment No. 1 on Form 8-K/A to the
Company's Current Report on Form 8-K dated June 1, 1998:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report.............................................. F-1
Supplemental Consolidated Balance Sheets --
December 31, 1997 and 1996........................................... F-2
Supplemental Consolidated Statements of Operations -- Years Ended
December 31, 1997, 1996 and 1995............... ..................... F-3
Supplemental Consolidated Statements of Shareholders' Equity --
Years Ended December 31, 1997, 1996 and 1995......................... F-4
Supplemental Consolidated Statements of Cash Flows -- Years Ended
December 31, 1997, 1996 and 1995..................................... F-5
Notes to Supplemental Consolidated Financial Statements................... F-7
</TABLE>
13
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Healthdyne Information Enterprises, Inc.
We have audited the accompanying supplemental consolidated balance sheets of
Healthdyne Information Enterprises, Inc. and subsidiaries as of December 31,
1997 and 1996, and the related supplemental consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. These supplemental consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Healthdyne Information Enterprises, Inc. and HUBLink, Inc. on May
12, 1998, which has been accounted for as a pooling of interests as described in
Note 3 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Healthdyne
Information Enterprises, Inc. and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Healthdyne Information Enterprises, Inc. and subsidiaries as of December 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles applicable after financial
statements are issued for a period which includes the date of consummation of
the business combination.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 1, 1998
F-1
<PAGE> 15
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Supplemental Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
Assets 1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 10) $ 7,777 $10,771
Trade accounts receivable, less allowances of $626 and $325
at December 31, 1997 and 1996, respectively (notes 1(d)) 5,977 6,038
Other current assets 1,375 973
------- -------
Total current assets 15,129 17,782
Notes receivable 335 333
Purchased software, net of accumulated amortization of $778
and $770 at December 31, 1997 and 1996, respectively (notes 1(e) and 1(k)) 2,397 3,587
Capitalized software development costs, net of accumulated
amortization of $122 and $39 at December 31, 1997 and 1996,
respectively (notes 1(f) and 1(k)) 564 750
Property and equipment, net (note 4) 1,939 1,644
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $1,939 and $1,267 at December 31,
1997 and 1996, respectively (note 3) 8,503 8,836
Other assets 73 153
------- -------
$28,940 $33,085
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt and obligations
under capital leases (notes 6 and 10) $ 4,205 $ 543
Line of credit (note 6) 970 850
Accounts payable, principally trade 863 1,401
Accrued liabilities (notes 5 and 11) 2,821 1,083
Deferred revenue 3,597 3,114
------- -------
Total current liabilities 12,456 6,991
Long-term debt and obligations under capital leases, excluding
current installments (notes 6 and 10) 316 4,316
Long-term portion of deferred revenue 196 175
Other liabilities (note 11) 280 --
------- -------
Total liabilities 13,248 11,482
------- -------
Shareholders' equity (note 8):
Preferred stock, without par value. Authorized 20,000
shares; designated Series A cumulative preferred stock
500 shares; issued none -- --
Common stock, $ .01 par value. Authorized 50,000 shares;
issued and outstanding 23,563 and 22,592 shares at
December 31, 1997 and 1996, respectively 236 226
Additional paid-in capital 38,280 35,555
Deferred compensation (73) (23)
Accumulated deficit (22,751) (14,155)
------- -------
Total shareholders' equity 15,692 21,603
------- -------
Commitments (notes 9 and 11) $28,940 $33,085
======= =======
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-2
<PAGE> 16
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Supplemental Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue (note 12):
Software $ 7,388 $ 8,622 $ 6,223
Services and other 10,676 11,621 5,025
-------- -------- --------
Total revenue 18,064 20,243 11,248
-------- -------- --------
Cost of revenue:
Software 1,026 907 536
Services and other 6,025 6,449 2,992
-------- -------- --------
Total cost of revenue 7,051 7,356 3,528
-------- -------- --------
Gross profit 11,013 12,887 7,720
Operating expenses:
Sales and marketing 5,362 5,435 4,965
Research and development 2,977 2,540 2,689
General and administrative (including related
party expenses of $13, $51 and $325
for the respective periods) (note 2) 4,784 4,415 4,522
Obsolete software and other write-offs (note 1(k)) 4,650 -- 100
Purchased in-process research and development
(note 3) 1,746 -- 3,605
Goodwill impairment and investment option
reserve (note 3) -- -- 1,730
-------- -------- --------
Operating earnings (loss) (8,506) 497 (9,891)
Losses of affiliate (note 3) (151) -- (1,144)
Minority interest in net loss of subsidiary -- -- 142
Interest expense (436) (643) (366)
Interest income 497 253 158
-------- -------- --------
Earnings (loss) before income taxes (8,596) 107 (11,101)
Income tax benefit (note 7) -- -- 140
-------- -------- --------
Net earnings (loss) $ (8,596) $ 107 $(10,961)
======== ======== ========
Net earnings (loss) per share of common stock (note 1(m)):
Basic $ (.38) $ .01 $ (.60)
======== ======== ========
Diluted $ (.38) $ .01 $ (.60)
======== ======== ========
Shares used in the calculation of net earnings
(loss) per share of common stock
(note 1(m)):
Basic 22,587 19,863 18,302
======== ======== ========
Diluted 22,587 21,277 18,302
======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-3
<PAGE> 17
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Supplemental Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Total
Additional Deferred Accumu- share-
Common stock paid-in compen- lated holders'
Shares Amount capital sation deficit equity
------ ------ -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 15,500 $ 155 $ 10,847 $ -- $ (1,265) $ 9,737
Adjustment for pooling of interests 2,251 23 2,085 (34) (2,036) 38
------ ------ -------- ------ -------- --------
As restated 17,751 178 12,932 (34) (3,301) 9,775
Issuance of common stock 615 6 (6) -- -- --
Stock options exercised 388 4 130 -- -- 134
Capital contribution -- -- 11,041 -- -- 11,041
Deferred compensation related to
granting of stock options -- -- 20 (20) -- --
Amortization of deferred compen-
sation, net of forfeitures -- -- (51) 31 -- (20)
Net loss -- -- -- -- (10,961) (10,961)
------ ------ -------- ------ -------- --------
Balance, December 31, 1995 18,754 188 24,066 (23) (14,262) 9,969
Issuance of common stock
in public and private offerings,
net of offering expenses of $654 2,919 29 11,025 -- -- 11,054
Stock options exercised 905 9 452 -- -- 461
Employee stock plan purchases 14 -- 58 -- -- 58
Deferred compensation related to
granting of stock options -- -- 29 (29) -- --
Amortization of deferred compen-
sation, net of forfeitures -- -- (75) 29 -- (46)
Net earnings -- -- -- -- 107 107
------ ------ -------- ------ -------- --------
Balance, December 31, 1996 22,592 226 35,555 (23) (14,155) 21,603
Issuance of common stock in an
acquisition 416 4 1,095 -- -- 1,099
Issuance of common stock
in private offerings, net of
offering expenses of $20 280 3 1,236 -- -- 1,239
Stock options exercised 193 2 31 -- -- 33
Employee stock plan purchases 82 1 169 -- -- 170
Deferred compensation related to
granting of stock options -- -- 233 (233) -- --
Amortization of deferred compen-
sation, net of forfeitures -- -- (39) 183 -- 144
Net loss -- -- -- -- (8,596) (8,596)
------ ------ -------- ------ -------- --------
Balance, December 31, 1997 23,563 $ 236 $ 38,280 $ (73) $(22,751) $ 15,692
====== ====== ======== ====== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-4
<PAGE> 18
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (8,596) $ 107 $(10,961)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Obsolete software and other write-offs (note 1(k)) 4,614 -- --
Purchased in-process research and
development (note 3) 1,746 -- 3,605
Goodwill impairment (note 3) -- -- 1,430
Investment option reserve (note 3) -- -- 300
Losses of affiliate 151 -- 1,144
Provision for doubtful accounts 294 383 43
Depreciation and amortization 1,816 1,738 1,179
Minority interest in net loss of subsidiary -- -- (142)
Compensation related to stock options, net 144 (46) (20)
Increase in trade accounts receivable (1,055) (2,934) (1,735)
Increase in other current assets (711) (197) (483)
Increase (decrease) in trade accounts payable (767) 814 187
Increase in accrued liabilities 122 728 209
Increase in deferred revenue 503 1,289 465
-------- -------- --------
Net cash provided by (used in)
operating activities (1,739) 1,882 (4,779)
-------- -------- --------
Cash flows from investing activities:
Purchased software (445) (1,713) (1,643)
Capitalized software development costs (467) (789) --
Capital expenditures (303) (486) (766)
Acquisition of businesses, net of cash acquired -- -- (565)
Change in other non-current assets and
liabilities, net (1,071) 112 (820)
-------- -------- --------
Net cash used in investing activities (2,286) (2,876) (3,794)
-------- -------- --------
Cash flows before financing activities (4,025) (994) (8,573)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 583 67 559
Principal payments on long-term debt (1,261) (4,159) (517)
Net borrowings under line of credit 120 250 600
Proceeds from capital contributions -- -- 10,936
Proceeds from issuances of common stock 1,589 11,573 134
-------- -------- --------
Net cash provided by financing activities 1,031 7,731 11,712
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (2,994) 6,737 3,139
Cash and cash equivalents at beginning of year 10,771 4,034 895
-------- -------- --------
Cash and cash equivalents at end of year $ 7,777 $ 10,771 $ 4,034
======== ======== ========
</TABLE>
(Continued)
F-5
<PAGE> 19
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash paid for:
Interest $ 190 $ 279 $ 372
=========== =========== ======
Income taxes $ -- $ -- $ 140
=========== =========== ======
Supplemental disclosure of noncash investing
and financing activities:
Equipment acquired under capital lease
obligations $ 467 $ 132 $ 277
=========== =========== ======
Equipment contribution received from
Healthdyne $ -- $ -- $ 105
=========== =========== ======
Deferred revenue financed by a
note receivable $ -- $ -- $ 417
=========== =========== ======
Obligations incurred in connection with
acquisitions (notes 3 and 11) $ 840 $ -- $6,162
=========== =========== ======
Issuance of common stock in connection with
an acquisition (note 3) $ 1,099 $ -- $ --
=========== =========== ======
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-6
<PAGE> 20
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(a) Business
Healthdyne Information Enterprises, Inc. and subsidiaries
(collectively referred to as "HIE" or the "Company") provide
software tools and services to achieve the enterprise-wide
integration of information.
HIE was incorporated on June 15, 1994 in the State of Georgia
and is headquartered in Marietta, Georgia. HIE 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 the Healthdyne shareholders
(the "Spin-off").
(b) Basis of Supplemental Consolidated Financial Statement
Presentation
The supplemental consolidated financial statements include the
accounts of the Company and its subsidiaries, as appropriate
(see note 3).
The supplemental consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. In preparing the supplemental consolidated
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the supplemental consolidated
balance sheets and income and expenses for the periods. Actual
results could differ from those estimates.
All significant intercompany balances and transactions have
been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term
investments with original maturities of three months or less.
F-7
<PAGE> 21
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(d) Revenue
Revenue is derived from the sale of integration software tools and
from providing related education, consulting, project management,
implementation, support and other integration services. Revenue from
software licensing and support fees is recognized in accordance with
Statement of Position ("SOP") 91-1, Software Revenue Recognition.
Software revenue is recognized upon shipment since (i) collectibility
of the related accounts receivable is probable, (ii) there are
generally no obligations remaining under the related software license
agreement after shipment, and (iii) customer acceptance is generally
not contractually required. All 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 established business relationships with several new
distributors in 1997 and therefore, limited historical data is
available on which to base estimates of future returns, allowances
and warranties. Management of the Company has provided an allowance
for expected returns, allowances and warranties based on historical
rates. The amounts of returns, allowances and warranties ultimately
incurred could differ materially in the near term from the allowances
calculated.
(e) Purchased Software
Purchased software includes the cost of purchased integration
software tools and the cost of software acquired in connection with
business combinations. It also includes the cost of licenses to use,
embed and sell software tools developed by others. These costs are
being amortized ratably based on the projected revenue associated
with these purchased or licensed tools and products or the
straight-line method over five years, whichever method results in a
higher level of annual amortization. Amortization expense related to
purchased software amounted to $886, $620 and $150 in 1997, 1996 and
1995, respectively (see notes 1(k) and 3).
F-8
<PAGE> 22
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(f) Research and Development and Capitalized Software Development Costs
Prior to the determination of technological feasibility for software
tools, research and development costs are expensed as incurred.
After determination of technological feasibility and before the
release of the software tools for general availability, the
development costs related to such tools are capitalized. These costs
are being amortized ratably based on the projected revenue
associated with these tools or the straight-line method over five
years, whichever method results in a higher level of annual
amortization. The Company capitalized $467 and $789 of software
development costs in 1997 and 1996, respectively. There were no
capitalized software costs in 1995. Amortization expense related to
capitalized software development costs was $101 and $39 in 1997 and
1996, respectively (see note 1(k)).
(g) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on the straight-line method
over an estimated useful life of five years. Amortization of
leasehold improvements is recorded over the shorter of the lives of
the related assets or the lease terms and is included in depreciation
expense.
(h) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill)
is being amortized using the straight-line method over 15 years.
Amortization expense related to acquired businesses amounted to $672,
$682 and $708 in 1997, 1996 and 1995, respectively. 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 (see notes 1(k)
and 3).
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, on January 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
F-9
<PAGE> 23
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations,
or liquidity.
(j) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation
expense to be recognized over the related vesting period would
generally be determined on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net earnings (loss) and pro forma earnings
(loss) per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined
in SFAS 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures required by SFAS 123 (see note 8).
(k) Non-recurring Charges
The Company incurred the following non-recurring charges during the
fourth quarters of 1997 and 1995:
<TABLE>
<CAPTION>
1997 1995
---- ----
<S> <C> <C>
Obsolete software and other write-offs (described below) $ 4,650 $ 100
Purchased in-process research and development (note 3) 1,746 3,605
Goodwill impairment (note 3) -- 1,430
Investment option reserve (note 3) -- 300
------ -----
$ 6,396 $5,435
====== ======
</TABLE>
During the fourth quarter of 1997, in conjunction with a change in
executive management, the Company ceased selling and distributing,
and consequently wrote-off, certain third-party and internally
developed software, related project costs and accounts
F-10
<PAGE> 24
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
receivable, and other costs that no longer contributed to the
Company's redefined business direction stated in note 1 (a) above.
In 1995, the Company wrote-off certain third-party software that it
no longer intended to embed in its integration software tools.
In connection with two of its acquisitions, the Company recorded
non-recurring charges related to purchased in-process research and
development costs for integration software tools. The amount of
each of those non-recurring charges was equal to the estimated
current fair value of specifically identified technologies for which
technological feasibility had not yet been established pursuant to
Statement of Financial Accounting Standards No. 86, "Accounting for
Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
and for which future alternative uses did not exist at the time of
acquisition.
(l) Income Taxes
Prior to the Spin-off, the Company's results of operations were
included in the consolidated Federal income tax returns filed by
Healthdyne. Under the tax sharing agreement between the Company and
Healthdyne, income taxes were recorded by the Company as if it filed
separate income tax returns.
The Company accounts for income taxes using an asset and liability
approach in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). Under SFAS 109, deferred income
taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities.
Additionally, the effect on deferred taxes of a change in tax rates
is recognized in earnings in the period that includes the enactment
date. Income tax benefits are not recognized unless ultimate
realization of such benefits is reasonably certain.
(m) Net Earnings (Loss) Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which
prescribes the calculation methodology and financial reporting
requirements for basic and diluted earnings per share. Basic
earnings (loss) per common share available to common shareholders
are based on the weighted average number of common shares
outstanding. Diluted earnings (loss) per common share available to
common shareholders are based on the weighted average number of
common shares outstanding and dilutive potential common shares, such
as dilutive stock options. All prior period net earnings (loss) data
presented in these consolidated financial statements have been
restated to conform to the provisions of SFAS 128.
(n) Recent Accounting Pronouncements
Revenue Recognition
Statement of Position 97-2, Software Revenue Recognition, issued by
the Accounting Standards Executive Committee in October 1997,
becomes effective for financial statements for fiscal years
beginning after December 15, 1997. The Company does not expect the
implementation of this statement to have a material impact on the
Company's consolidated financial statements in 1998 and future
years.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, issued by the Financial Accounting Standards
Board ("FASB") in June 1997, becomes effective for fiscal years
beginning after December 15, 1997. Comprehensive income includes
all changes in equity during a period except those resulting in
investments by owners and distributions to owners. The Company does
not expect the implementation of this statement to have a material
impact on the Company's consolidated financial statements in 1998
and future years.
Segment Disclosures
The Company continues to evaluate the requirements of Statement of
Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, issued by the FASB in June
1997, effective for fiscal years beginning after December 15, 1997.
The provisions of this standard do not apply to interim periods in
the year of adoption.
(2) Related Party Transactions
Matria Healthcare, Inc. ("Matria"), which was formed in a merger
involving Healthdyne in March 1996, provides certain legal, tax, data
processing, personnel and accounting services to the Company. Amounts
charged to the Company related to such services, which have been
reflected as general and administrative expenses in the accompanying
consolidated statements of operations, were $13, $51 and $325 in 1997,
1996 and 1995, respectively.
F-11
<PAGE> 25
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
Charges for services provided by Matria to the Company are generally
determined based on estimates of actual time in providing such services
to the Company using actual costs without markup. To the extent that
charges for such services and for costs incurred by Matria on the
Company's behalf are allocations of common expenses, such allocations are
based on one or more criteria such as asset or revenue size, relative
transaction volume, employee headcounts, facility size and other relevant
criteria. The Company believes that such allocation methods result in
reasonable approximations of the common expenses related to the Company.
(3) Acquisitions
HUBLink, Inc.
In May, 1998, the Company issued 2.9 million shares of its common stock
in exchange for all outstanding common stock of HUBLInk, Inc. ("HUBLink")
of Columbus, Ohio, an integration software tool company. This business
combination has been accounted for as a pooling-of-interests combination.
In connection with the Merger, the Company expects to take a charge of
approximately $750,000 in May 1998 for acquisition-related expenses and
expects to incur aggregate integration costs of $250,000 to $500,000
during the second and third quarters of 1998.
The financial position and results of operations of the Company have been
restated for all periods prior to the Merger to give retroactive effect
to the Merger. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the
pooling-of-interests method in the financial statements that do not
include the date of consummation. These supplemental consolidated
financial statements do not extend through the date of consummation of
the Merger. However, they will become the historical consolidated
financial statements of the Company, after financial statements covering
the date of consummation of the business combination are issued.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying supplemental
consolidated financial statements are summarized below:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
HIE $ 15,552 $ 16,151 $ 8,700
HUBLink 2,512 4,092 2,548
-------- -------- --------
Combined $ 18,064 $ 20,243 $ 11,248
======== ======== ========
Net earnings (loss):
HIE $ (6,166) $ 1,183 $ (9,983)
HUBLink (2,430) (1,076) (978)
-------- -------- --------
Combined $ (8,596) $ 107 $(10,961)
======== ======== ========
</TABLE>
Criterion Health Strategies, Inc.
In October 1994, the Company committed to make certain loans to Criterion
Health Strategies, Inc. ("CHS") of Nashville, Tennessee, a provider of
data management software tools and services, with such loans being
convertible into a 64% equity ownership interest in CHS. During December
1995, Massey Burch Capital Corp. ("Massey Burch") agreed to share equally
HIE's funding commitment to CHS in exchange for half of HIE's potential
equity ownership interest in CHS. In December 1996, HIE acquired an
option (the "Option") to purchase Massey Burch's potential equity
ownership interest in CHS. In June 1997, the existing and potential
equity ownership interests of various parties in CHS were restructured
and all equity ownership interests in CHS held by persons other than HIE
and Massey Burch were canceled in exchange for the grant of options to
purchase 199 shares of HIE common stock to CHS executive management and
other employees at the fair value on the date of grant.
On December 31, 1997, HIE exercised the Option to acquire Massey Burch's
50% equity ownership interest in CHS, bringing HIE's equity ownership
interest in CHS to 100%, in exchange for 416 shares of HIE common stock
and a warrant to purchase 50 shares of HIE common stock for $1.59 per
share exercisable through December 2003. Prior to HIE's acquisition of
the majority interest in CHS, the Company's share of the losses of CHS
was netted against notes receivable from CHS and shown as losses of
affiliate in the accompanying supplemental consolidated financial
statements. CHS operations will be included in the Company's consolidated
financial statements beginning on January 1, 1998.
This acquisition was accounted for using the purchase method of
accounting. The acquisition resulted in purchased in-process research and
development of $1,746, which was expensed in 1997, purchased software of
approximately $715 and additional cost over net assets acquired of
approximately $336. The Company also assumed an $840 obligation to a
third party for the exclusive use of a software tool in the healthcare
industry (see note 11).
F-12
<PAGE> 26
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
The following pro forma financial information presents the combined
results of operations of HIE and CHS as if the acquisition had occurred
as of January 1, 1996, after giving effect to certain adjustments,
including the amortization of goodwill and purchased software and related
income tax effects. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred
had HIE and CHS constituted a single entity during 1997 and 1996.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Revenue $ 18,834 $ 20,672
=========== ==========
Net loss $ (9,146) $ (1,380)
=========== ==========
Net loss per share $ (.40) $ (.07)
=========== ==========
</TABLE>
Healthcare Communications, Inc.
During May 1995, the Company purchased a 13% interest in Healthcare
Communications, Inc. ("HCI") of Dallas, Texas, a provider of integrated
engine software, for approximately $3,061 in cash, bringing the Company's
total ownership interest in HCI to 57%. The acquisition was accounted for
using the purchase method of accounting with the results of operations of
the business acquired included retroactively from January 1, 1995. The
acquisition resulted in cost over net assets acquired of approximately
$8,834. Effective December 31, 1995, HIE increased its ownership interest
in HCI from 57% to 100% for approximately $6,162 in deferred payments
financed by two promissory notes. The first promissory note for
approximately $1,100 bore interest at 8% per annum, was secured by HCI's
accounts receivable and was paid in full by the Company in April 1996.
The original second promissory note was a convertible debenture for
approximately $5,062, bearing interest at 6.4% per annum, secured by a
portion of HCI common stock, and was due and paid in full on January 2,
1998 after the following prepayments. Principal and accrued interest
totaling $1,007, $504 and $223 under this debenture were prepaid at a
discount on November 15, 1996, April 30, 1997 and September 15, 1997,
respectively (see note 6). The acquisition was accounted for using the
purchase method of accounting. The acquisition resulted in purchased
in-process research and development of approximately $3,605, which was
expensed in 1995, purchased software of approximately $807 and additional
cost over net assets acquired of approximately $1,169.
DataView Imaging International, Inc.
In June 1994, the Company acquired a 61% equity ownership interest and an
option to acquire the remaining 39% interest in DataView Imaging
International, Inc. ("DataView") of Norcross, Georgia, a provider of
clinical image management systems. At the end of 1995, in conjunction
with a change in HIE's strategic direction with respect to DataView,
F-13
<PAGE> 27
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
the Company incurred non-recurring charges of $1,430 for goodwill
impairment and $300 to fully reserve the cost of the option referred to
above (see note 1). During 1996, HIE and DataView restructured their
relationship whereby, among other things, HIE reduced its equity
ownership interest in DataView to 19.5% in return for a $1,061 fully
reserved promissory note and HIE limited its funding obligation to
DataView to $2,042 (the balance of such funding as of March 31, 1996
evidenced by a fully reserved promissory note). Subsequent to March 31,
1996, DataView's financial statements are no longer consolidated with HIE
due to the immateriality of DataView's current financial position and
results of operations.
F-14
<PAGE> 28
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(4) Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Machinery and equipment $ 1,842 $1,501
Furniture and fixtures 471 291
Equipment under capital leases 978 528
Leasehold improvements 99 55
------- ------
3,390 2,375
Less accumulated depreciation and amortization 1,451 731
------- ------
Net property and equipment $ 1,939 $1,644
======= ======
</TABLE>
(5) Accrued Liabilities
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Project completion costs $ 1,076 $ --
Benefits and compensation 739 893
License fee (note 11) 560 --
Other 446 190
------- ------
$ 2,821 $1,083
======= ======
</TABLE>
F-15
<PAGE> 29
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(6) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Promissory note payable; interest at 6.4% payable at maturity; secured
by a portion of HCI stock; paid in full on January 2, 1998 $3,309 $4,051
Note payable to former shareholder of HCI; principal
payable quarterly in amounts ranging from a
minimum $25 to a maximum of 20% of HCI's
gross revenue from its Europe/Middle East sales
territory; paid in full during July, 1997 -- 200
Note payable to commercial banking institution at .375% above
the prime rate (8.5% at December 31, 1997), due December
31, 1998 350 --
Note payable to HUBLink shareholder, payable on demand with
interest payable at 2% above the prime rate; subsequently
paid in full on May 12, 1998 285 285
Obligations under capital leases - equipment leases; interest
ranging from 9% to 17% with various monthly
payments and maturing at various dates through
June 1, 2001 577 313
Other -- 10
------ ------
Total long-term debt 4,521 4,859
Less current installments 4,205 543
------ ------
Long-term debt, excluding current installments $ 316 $4,316
====== ======
</TABLE>
Approximate aggregate minimum annual payments due on long-term debt and
capital leases subsequent to December 31, 1997 are as follows: 1998,
$4,205; 1999, $177; 2000, $122; and 2001, $17.
The Company has a $2 million line of credit agreement with a bank.
Amounts outstanding under this agreement bear interest at the bank's
prime rate plus 1% (9.50% at December 31, 1997) and are payable on
demand. No amounts were outstanding on December 31, 1997.
F-16
<PAGE> 30
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
HUBLink has a $1 million line of credit agreement with another bank.
Amounts outstanding under this agreement bear interest at .375% above the
bank's prime rate (8.5% at December 31, 1997). At December 31, 1997, the
Company had additional borrowing capacity under this line of credit of
$30. The line of credit is secured by substantially all of HUBLink's
assets and is guaranteed by a HUBLink shareholder. Any amounts
outstanding under the line of credit are due on December 31, 1998. On May
12, 1998, the outstanding balance on this line of credit was paid in full
and this line of credit was cancelled by the Company.
(7) Income Taxes
The components of income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ 163
State -- -- --
Foreign -- -- (23)
------- -------- -----
Total income tax benefit $ -- $ -- $ 140
======= ======== =====
</TABLE>
A reconciliation of the expected income tax (expense) benefit (based on
the U.S. Federal statutory rate) to the actual income tax (expense)
benefit is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed expected income tax
(expense) benefit $ 3,008 $ (37) $ 3,885
Goodwill amortization and other
nondeductible expenses (266) (178) (1,995)
Losses utilized by Healthdyne -- -- (700)
Losses in excess of allowable carrybacks (2,689) (465) (722)
Utilization of prior year financial statement
losses -- 680 --
Losses of affiliate (53) -- (400)
Other -- -- 72
------- ----- -------
$ -- $ -- $ 140
======= ===== =======
</TABLE>
F-17
<PAGE> 31
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts $ 61 $ 58
Accruals and reserves not deducted for tax
purposes 213 181
Depreciation and amortization (172) (244)
Net operating loss carryforwards 5,942 2,974
Revenue recognition 272 34
Tax credit carryforwards 266 157
------- -------
Total gross deferred tax asset 6,582 3,160
Less valuation allowance 6,582 3,160
------- -------
Net deferred tax asset $ -- $ --
======= =======
</TABLE>
At December 31, 1997, the Company had the following estimated credits and
net operating loss carryforwards available for Federal income tax
reporting purposes to be applied against future taxable income and tax
liabilities:
<TABLE>
<CAPTION>
Net
Foreign R&D operating
Year of expiration tax credit credit loss
------------------ ---------- ------- ----
<S> <C> <C> <C>
1999 $ 4 $ -- $ --
2000 23 -- 5
2009 -- 38 1,530
2010 -- 42 2,336
2011 -- 50 6,499
2012 -- 109 6,608
---- ------- ---------
$ 27 $ 239 $ 16,978
==== ======= =========
</TABLE>
The net operating loss carryforward of $16,978 includes deductions of
approximately $3,878 related to the exercise of stock options which will
be credited to additional paid-in capital when recognized. The
alternative minimum tax net operating loss carryforward approximates the
regular net operating loss carryforward. A portion of the net operating
F-18
<PAGE> 32
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
loss (approximately $7,517) is limited by Section 382 of the Internal
Revenue Code of 1986, as amended, to an annual utilization of
approximately $872.
(8) Shareholders' Equity
Capitalization
On August 10, 1995, the Company's Board of Directors approved an
amendment to the Company's articles of incorporation which increased the
number of authorized shares of common stock from 20,000 to 50,000 and
increased the number of authorized shares of preferred stock from 10,000
to 20,000. On November 6, 1995, Healthdyne distributed all of the 16,115
then-outstanding shares of the Company's common stock to the Healthdyne
shareholders.
Public and Private Offerings
On November 4, 1996, the Company sold 2,750 shares of its common stock
and received proceeds of approximately $10,325, net of offering expenses
of $634. In 1997 and 1996, HUBLink issued 280 and 169 equivalent shares
of HIE common stock and received proceeds of $1,239 and $729,
respectively, net of offering costs of $20 in each year.
Stock Option Plans
The Company maintains five stock option plans for the benefit of key
employees, nonemployee directors, and certain directors and employees of
Healthdyne (with such Healthdyne-related plan being established pursuant
to the Spin-off). A total of 5,268 shares of the Company's common stock
have been authorized for issuance under these plans. Most of the stock
options granted under these plans are exercisable in equal amounts over
three years and expire in six years. Other terms of options granted under
the plans are determined by the Stock Option Committee of the Company's
Board of Directors, subject to the terms of the respective plans.
F-19
<PAGE> 33
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
The per share weighted-average fair values of stock options granted
during 1997, 1996 and 1995 were $1.14, $2.02 and $0.66, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected volatility 40% 41% 46%
Expected dividend yield none none none
Risk-free interest rate 5.5% 6.25% 6.0%
Expected life of stock options 5 years 5 years 5 years
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for its
stock options in the supplemental consolidated financial statements,
unless the stock options were granted at an exercise price below fair
value at the grant date, in which case the difference between the
exercise price and the fair value has been recorded as deferred
compensation cost and is being amortized over the relevant period of
benefit. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS 123, the
Company's reported net earnings (loss) and related per share amounts
would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- --------
<S> <C> <C> <C>
Net earnings (loss):
As reported $(8,596) $ 107 $(10,961)
Pro forma (9,301) (717) (11,246)
Diluted net earnings (loss) per share:
As reported $ (.38) $ .01 $ (.60)
Pro forma (.41) (.04) (.61)
</TABLE>
Pro forma net earnings (loss) reflects only options granted in 1997, 1996
and 1995. Therefore, the full effect of calculating compensation cost for
stock options under SFAS 123 is not reflected in the pro forma net
earnings (loss) and related per share amounts presented above because
compensation cost is reflected over the vesting period of the options and
compensation cost for options granted prior to January 1, 1995 is not
considered.
F-20
<PAGE> 34
A summary of stock option transactions under these plans during 1995,
1996 and 1997 is shown below:
<TABLE>
<CAPTION>
Option price per share
Number Weighted
of shares Range average
--------- ----- -------
<S> <C> <C> <C>
Options outstanding at December 31, 1994 172 $0.25 - $3.16 $1.50
Granted (at fair market value on the dates
of original grant) 3,301 $0.23 - $3.28 $0.94
Exercised (388) $0.23 - $0.88 $0.35
Canceled or expired (58) $0.23 - $3.28 $1.40
-----
Options outstanding at December 31, 1995 3,027 $0.23 - $3.28 $1.05
Granted (at fair market value on the dates
of original grant) 1,072 $2.37 - $5.88 $4.31
Exercised (905) $0.23 - $1.50 $0.50
Canceled or expired (253) $0.23 - $4.81 $2.96
-----
Options outstanding at December 31, 1996 2,941 $0.23 - $5.88 $2.24
Granted (at fair market value on the dates
of original grant) 1,242 $0.25 - $5.88 $2.74
Exercised (193) $0.23 - $1.50 $0.93
Canceled or expired (499) $1.31 - $5.88 $3.81
-----
Options outstanding at December 31, 1997 3,491 $0.23 - $5.88 $2.21
=====
Options exercisable at December 31, 1995 1,884 $0.23 - $3.16 $0.71
=====
Options exercisable at December 31, 1996 1,334 $0.23 - $3.16 $1.09
=====
Options exercisable at December 31, 1997 1,511 $0.23 - $5.88 $1.57
=====
</TABLE>
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- -------------------
Weighted
average Weighted Weighted
Number remaining average Number average
outstanding contractual exercise exercisable exercise
Classification at 12/31/97 life (months) price at 12/31/97 price
-------------- ----------- ------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Healthdyne-related 408 32 $0.41 408 $0.41
Directors 144 47 $2.06 84 $1.71
Others 2,939 56 $2.47 1,019 $2.02
----- -----
3,491 53 $2.21 1,511 $1.57
===== =====
</TABLE>
F-21
<PAGE> 35
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
Non-Employee Directors Stock Plan
On October 20, 1995, the Company established a stock plan for
non-employee directors whereby such directors may elect to receive all or
a portion of their annual retainer fee in unrestricted shares of the
Company's common stock. As of December 31, 1997, none of the 250 shares
reserved for this plan have been issued.
Stock Purchase Plan
On July 1, 1996, the Company commenced an employee stock purchase plan
for all eligible employees of HIE and designated subsidiaries.
Participants may use up to 10% of their compensation to purchase the
Company's common stock through payroll deductions for 85% of the lower of
the beginning or ending stock price on a quarterly basis. Of the 200
shares of the Company's common stock reserved for issuance under this
plan, 82 shares and 14 shares were issued during the years ended December
31, 1997 and 1996, respectively. Compensation cost related to this plan
determined under SFAS 123 had an insignificant effect on the pro forma
net earnings (loss) and pro forma diluted net earnings (loss) per share
information disclosed above for 1997 and 1996.
Shareholder Rights Plan
On October 20, 1995, the Company's Board of Directors declared a dividend
distribution of one purchase right for each share of the Company's common
stock outstanding as of October 30, 1995. If a person or group acquires
beneficial ownership of 15% or more of the Company's outstanding common
stock or announces a tender offer or exchange that would result in the
acquisition of a beneficial ownership right of 20% or more of the
Company's outstanding common stock, the rights detach from the common
stock and are distributed to shareholders as separate securities. Each
right entitles its holder to purchase one one-hundredth of a share (a
unit) of Series A Cumulative Preferred Stock, at a purchase price of $50
per unit. The rights, which do not have voting power, expire on October
23, 2005 unless previously distributed and may be redeemed by the Company
in whole at a price of $.01 per right at any time before and within 10
days after their distribution. If the Company is acquired in a merger or
other business combination transaction, or 50% of its assets or earnings
power are sold at any time after the rights become exercisable, the
rights entitle a holder to buy a number of common shares of the acquiring
company having a market value of twice the exercise price of the right.
If a person acquires 20% of the Company's common stock or if a 15% or
larger holder merges with the Company and the common stock is not changed
or exchanged in such merger, or engages in self-dealing transactions with
the Company, each right not owned by such holder becomes exercisable
F-22
<PAGE> 36
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
for the number of common shares of the Company having a market value of
twice the exercise price of the right.
(9) Employee Benefit Plans
The Company, HCI and HUBLink each maintain a 401(k) defined contribution
plan for the benefit of their employees. Prior to June 1, 1996, the Company's
obligation for contributions under its 401(k) plan was limited to the lesser of
(i) one-half of each participant's contribution but not more than 2.5% of the
participant's compensation or (ii) 20% of the Company's pretax earnings before
consideration of this contribution. Subsequent to June 1, 1996, Company
contributions are discretionary. The HCI plan provides for HCI contributions
equal to one-half of each participant's contributions up to 3% of the
participant's base salary. The HUBLink Plan provides for discretionary matching
contributions, of which none had been made through December 31, 1997.
Contributions to the plans included in the supplemental consolidated statements
of operations were approximately $72, $79 and $81 in 1997, 1996 and 1995,
respectively.
(10) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosure about
Fair Value of Financial Instruments, requires that the Company disclose
estimated fair values for its financial instruments. Fair value
estimates, methods, and assumptions are set forth below for the Company's
financial instruments.
(a) Cash and Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Long-Term Debt
The Company estimates that the carrying amount of the Company's
long-term debt approximates the fair value based on the current
rates offered to the Company for debt of the same remaining
maturities.
F-23
<PAGE> 37
HEALTHDYNE INFORMATION ENTERPRISES, INC.
AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(11) Commitments
The Company is committed under non-cancelable operating lease and capital
lease agreements for facilities and equipment. The future minimum annual
lease payments under these leases are summarized as follows:
<TABLE>
<CAPTION>
Operating Capital
Year ending December 31, leases leases
------------------------ ------ ------
<S> <C> <C>
1998 $ 759 $299
1999 603 210
2000 434 138
2001 202 20
2002 193 --
Thereafter 32 --
------ ----
$2,223 667
====== ====
Less interest 90
====
Present value of future minimum
capital lease payments $577
====
</TABLE>
Rental expense for operating leases (except those with lease terms of a
month or less that were not renewed) was $918, $770 and $491 in 1997,
1996 and 1995, respectively.
In conjunction with the acquisition of CHS on December 31, 1997, HIE
assumed an $840 minimum third-party software license fee obligation,
which is payable $560 in 1998 and $280 upon termination of this renewable
license and is included in accrued liabilities and other liabilities,
respectively, in the accompanying supplemental consolidated balance sheet
as of December 31, 1997 (see note 5).
(12) Major Customers
No single customer accounted for more than 10% of the Company's revenue
in either 1997 or 1995. One customer accounted for approximately 20% of
the Company's revenue in 1996. No single distributor provided customers
to the Company that accounted for more than 10% of the Company's revenue
in either 1997 or 1996. One distributor provided customers to the Company
that accounted for approximately 14% of the Company's revenue in 1995.
Revenue from international sales was less than 10% of the Company's
revenue in each of 1997, 1996 and 1995.
F-24
<PAGE> 38
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a)(1) The following supplemental consolidated financial statements of
the Company and its subsidiaries and report of independent auditors
thereon are included as Pages F-1 through F-24 of this Amendment No. 1
on Form 8-K/A to the Company's Current Report on Form 8-K dated June
1, 1998:
Independent Auditors' Report
Supplemental Consolidated Balance Sheets -- December 31, 1997 and 1996
Supplemental Consolidated Statements of Operations -- Years Ended
December 31, 1997, 1996 and 1995
Supplemental Consolidated Statements of Shareholders' Equity -- Years
Ended December 31, 1997, 1996 and 1995
Supplemental Consolidated Statements of Cash Flows -- Years Ended
December 31, 1997, 1996 and 1995
Notes to Supplemental Consolidated Financial Statements
(a)(2) The following supporting supplemental financial statement
schedule and report of independent auditors thereon are included as
part of this Amendment No. 1 on Form 8-K/A to the Company's Current
Report on Form 8-K dated June 1, 1998:
*Independent Auditors' Report
*Supplemental Schedule II - Valuation and Qualifying Accounts
(*Filed with the Company's Form 8-K dated June 1, 1998)
All other Schedules are omitted because the required information is inapplicable
or the information is presented in the Supplemental Consolidated Financial
Statements or related notes.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger dated May 12, 1998 by and among
HIE, HIE Acquisition Corporation, HUBLink and Mark D. Shary
(filed as Exhibit 2.1 to the Company's Current Report on Form
8-K dated May 12, 1998, and incorporated herein by reference).
2.2 Private Placement and Registration Rights Agreement dated as
of May 12, 1998 among HIE and the Shareholders (as defined
therein) (filed as Exhibit 2.2 to the Company's Current Report
on Form 8-K dated May 12, 1998, and incorporated herein by
reference).
11* Supplemental Statement of Computation of Per Share Earnings
(Loss).
21* Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP.
27* Financial Data Schedule (for purposes of the Commission only).
</TABLE>
- ---------------
* Previously filed.
14
<PAGE> 39
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.
By: /s/ Cheryl N. Blanco
-------------------------------------------
Cheryl N. Blanco
Vice President -- Controller, Chief
Accounting Officer, Assistant Treasurer and
Assistant Secretary (Duly authorized
and principal accounting officer)
Date: August 25, 1998
15
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Merger dated May 12, 1998 by and among
Healthdyne Information Enterprises, Inc. ("HIE" or the
"Company"), HIE Acquisition Corporation, HUBLink, Inc.
("HUBLink") and Mark D. Shary (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated May 12, 1998, and
incorporated herein by reference).
2.2 Private Placement and Registration Rights Agreement dated as
of May 12, 1998 among HIE and the Shareholders (as defined
therein) (filed as Exhibit 2.2 to the Company's Current Report
on Form 8-K dated May 12, 1998, and incorporated herein by
reference).
11* Supplemental Statement of Computation of Per Share Earnings (Loss).
21* Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP.
27* Financial Data Schedule (for purposes of the Securities and
Exchange Commission only).
</TABLE>
- --------------
* Previously filed.
<PAGE> 1
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Healthdyne Information Enterprises, Inc.
We consent to incorporation by reference in the registration statements
(Nos. 33-99034, 333-08271, 333-08279, 333-08283, 333-08287, 333-08293,
333-08295, 333-52145, 333-52155 and 333-52165) on Form S-8 of Healthdyne
Information Enterprises, Inc. of our reports dated June 1, 1998, relating to the
supplemental consolidated balance sheets of Healthdyne Information Enterprises,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
supplemental consolidated statements of operations, shareholders' equity and
cash flows and related supplemental financial statement schedule for each of the
years in the three-year period ended December 31, 1997, which reports appear in
this Form 8-K/A Amendment No. 1 to Form 8-K filed on June 1, 1998.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 24, 1998
