<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for the quarterly period ended June 30, 1998
or
Transition Report pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for the transition period from
________________________ to ________________________.
Commission file number 0-270576
Healthdyne Information Enterprises, Inc.
----------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2112366
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, Suite 1100, Marietta, Georgia 30067
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(Address of principal executive offices) (Zip Code)
(770) 423-8450
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
The number of shares outstanding of the issuer's only class of Common Stock,
$.01 par value, together with associated preferred stock purchase rights (the
"Common Stock") as of July 31, 1998 was 23,978,554 shares.
Exhibit Index is on Page 20 herein.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Healthdyne Information Enterprises, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------------------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,061 $ 7,777
Trade accounts receivable, less allowance of $570 and $626 at
June 30, 1998 and December 31, 1997, respectively 9,078 5,977
Other current assets 1,426 1,375
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Total current assets 12,565 15,129
Notes receivable 89 335
Purchased software, net of accumulated amortization of $1,095 and $778
at June 30, 1998 and December 31, 1997, respectively 1,927 2,397
Capitalized software, net of accumulated amortization of $213 and $122 at
June 30, 1998 and December 31, 1997, respectively 1,185 564
Property and equipment, net of accumulated depreciation of $1,813 and
$1,451 at June 30, 1998 and December 31, 1997, respectively 2,119 1,939
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $2,287 and $1,939 at June 30, 1998
and December 31, 1997, respectively 8,156 8,503
Other assets 73 73
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Total assets $26,114 $28,940
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 1,476 $ 5,175
Accounts payable, principally trade 1,241 863
Accrued liabilities 1,834 2,821
Deferred revenue 4,385 3,597
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Total current liabilities 8,936 12,456
Long-term debt and capital lease obligations, excluding current installments 529 316
Other liabilities 407 476
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Total liabilities 9,872 13,248
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Shareholders' equity:
Preferred stock, without par value. Authorized 20,000 shares;
designated Series A cumulative preferred stock 500 shares;
issued none 0 0
Common stock, $.01 par value. Authorized 50,000 shares; issued and
outstanding 23,979 and 23,563 shares at June 30, 1998 and
December 31, 1997, respectively 240 236
Additional paid-in capital 39,490 38,280
Deferred Compensation (7) (73)
Accumulated deficit (23,481) (22,751)
------- -------
Total shareholders' equity 16,242 15,692
------- -------
Commitments
Total liabilities and shareholders' equity $26,114 $28,940
======= =======
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
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Healthdyne Information Enterprises, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Software $ 2,954 $ 1,678 $ 4,933 $ 3,071
Services 3,631 2,735 6,853 5,359
---------- ---------- ---------- ----------
Total revenue 6,585 4,413 11,786 8,430
---------- ---------- ---------- ----------
Cost of revenue:
Software 257 163 479 685
Services 1,652 1,468 3,217 3,070
---------- ---------- ---------- ----------
Total cost of revenue 1,909 1,631 3,696 3,755
---------- ---------- ---------- ----------
Gross profit 4,676 2,782 8,090 4,675
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing 1,627 1,553 3,048 2,873
Research and development 950 707 1,918 1,420
General and administrative 1,448 1,062 2,679 2,164
Merger costs 993 -- 993 --
---------- ---------- ---------- ----------
Total operating expenses 5,018 3,322 8,638 6,457
---------- ---------- ---------- ----------
Operating loss (342) (540) (548) (1,782)
Losses of affiliate -- -- -- (31)
Interest income (expense), net (31) 22 (38) 69
---------- ---------- ---------- ----------
Loss before income taxes (373) (518) (586) (1,744)
Income tax (expense) benefit -- (69) (144) 99
---------- ---------- ---------- ----------
Net loss $ (373) $ (587) $ (730) $ (1,645)
========== ========== ========== ==========
Net loss per share of common stock:
Basic $ (0.02) $ (0.03) $ (0.03) $ (0.07)
========== ========== ========== ==========
Diluted $ (0.02) $ (0.03) $ (0.03) $ (0.07)
========== ========== ========== ==========
Shares used in the calculation of net loss per share:
Basic 23,767 22,906 23,697 22,825
========== ========== ========== ==========
Diluted 23,767 22,906 23,697 22,825
========== ========== ========== ==========
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
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Healthdyne Information Enterprises, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (730) $ (1,645)
Adjustments to reconcile net loss to net cash used in operating
activities:
Merger costs 406 --
Losses of affiliate -- 31
Provision for doubtful accounts (56) (36)
Depreciation and amortization 1,118 1,052
Compensation related to stock options, net 66 121
Increase in trade accounts receivable (3,109) (174)
Increase in other current assets (59) (269)
Increase (decrease) in accounts payable 442 (810)
Decrease in accrued liabilities (491) (695)
Increase in deferred service revenue 592 486
---------- ----------
Net cash used in operating activities (1,821) (1,939)
---------- ----------
Cash flows from investing activities:
Purchased software (301) (68)
Capitalized software development costs (713) (360)
Capital expenditures (159) (478)
Change in other assets (34) (415)
---------- ----------
Net cash used in investing activities (1,207) (1,321)
---------- ----------
Cash flows before financing activities (3,028) (3,260)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt, net -- (574)
Net repayments under line of credit (2,996) (172)
Proceeds from the issuance of common stock 308 1,450
---------- ----------
Net cash (used in) provided by financing activities (2,688) 704
---------- ----------
Net decrease in cash and cash equivalents (5,716) (2,556)
Cash and cash equivalents at beginning of period 7,777 10,771
---------- ----------
Cash and cash equivalents at end of period $ 2,061 $ 8,215
========== ==========
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
4
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Healthdyne Information Enterprises, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
June 30, 1998 and 1997
(Unaudited)
1. General:
The Consolidated Condensed Financial Statements as of June 30, 1998, December
31, 1997 and for the three and six months ended June 30, 1998 and 1997 are
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for the fair presentation of the consolidated
financial position and results of operations and cash flows for the periods
presented have been included. Results for the interim periods are not
necessarily indicative of results that may be expected for the full year.
These Consolidated Condensed Financial Statements should be read in conjunction
with the consolidated financial statements and notes included in the Annual
Report on Form 10-K of Healthdyne Information Enterprises, Inc. ("HIE" or the
"Company") for the year ended December 31, 1997, as well as the supplemental
consolidated financial statements and notes included in the Form 8-K of HIE
dated June 1, 1998 which give retroactive effect to the merger with HUBLink,
Inc. which was accounted for as a pooling of interests as discussed in Note 2.
2. Merger
On May 12, 1998, 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 2.8 million shares of its Common
Stock. The business combination has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements for periods
prior to the Merger have been restated to include the accounts and results of
operations of HUBLink. In addition, the Company issued 100,000 shares of its
Common Stock to a financial advisor, which was engaged by HUBLink to assist
with possible business combinations.
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The results of operations previously reported by the separate enterprises prior
to the combination and the combined amounts included in the accompanying
consolidated condensed financial statements are summarized below:
<TABLE>
<CAPTION>
Three Months Three Months Six Months
Ended Ended Ended
March 31, 1998 June 30, 1997 June 30, 1997
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revenue:
HIE $ 4,701 $ 3,844 $ 7,204
HUBLink 500 569 1,226
--------- -------------------------------
Combined revenue $ 5,201 $ 4,413 $ 8,430
========= ===============================
Net earnings (loss):
HIE $ 352 $ 213 $ (290)
HUBLink (709) (800) (1,355)
--------- -------------------------------
Combined net earnings (loss) $ (357) $ (587) $(1,645)
========= ===============================
</TABLE>
3. Major Customers:
No single customer accounted for more than 10% of the Company's revenue for the
three or six months ended June 30, 1998. One customer accounted for 13% of the
Company's revenue during the six months ended June 30, 1997. No single customer
accounted for 10% or more of the Company's revenue for the three months ended
June 30, 1997. No single distributor provided customers to the Company that
accounted for more than 10% of the Company's revenue for the three and six
months ended June 30, 1998 and 1997.
4. 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. The computation of diluted net loss per share was anti-dilutive in
each of the periods presented, therefore, the amounts reported for basic and
diluted loss per share are the same. All prior period net loss
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data presented in these Consolidated Condensed Financial Statements have been
restated to conform to the provisions of SFAS 128.
5. Recent Accounting Pronouncements
Revenue Recognition
On January 1, 1998, the Company adopted Statement of Position 97-2,
Software Revenue Recognition, issued by the Accounting Standards Executive
Committee in October 1997, effective for financial statements for fiscal
years beginning after December 15, 1997. The implementation of this
statement has not had a material impact on the Company's unaudited
Consolidated Condensed Financial Statements.
Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Statndards No. 130, Reporting Comprehensive Income, issued by
the Financial Accounting Standards Board ("FASB") in June 1997, 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 implementation of
this statement has had no impact on the Company's unaudited Consolidated
Condensed Financial Statements.
Other
The Company continues to evaluate the requirements of Statement of
Financial Accounting Standards No. 131, Disclosures about Sements 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.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained herein, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, the Company's limited operating history and lack of profitability in
the six months ended June 30, 1998 and the years ended December 31, 1997 and
1995, the Company's change in strategic direction, competitive pressures, the
mix of software and service revenue, the mix of direct and indirect sales, sales
timing, changes in pricing policies, undetected errors or bugs in the software,
delays in product development, lower-than-expected demand for the Company's
software tools or services, business conditions in the integrated healthcare
delivery network market and other markets, the Company's ability to modify its
software for use in non-healthcare industries, risks associated with possible
acquisitions, risks related to intangible assets, general economic conditions
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and the risk factors detailed from time to time in the Company's periodic
reports and registration statements filed with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and the Company's Registration Statement on Form S-3,
as amended (Registration No. 333-55703).
Overview
Healthdyne Information Enterprises, Inc. ("HIE" or 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 to Healthdyne's
shareholders (the "Spin-Off"). HIE's common stock is publicly traded on the
Nasdaq National Market under the symbol "HDIE." The Company provides software
tools and services to achieve the enterprise-wide integration of information.
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.
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.
On May 12, 1998, the Company completed a stock-for-stock Merger through a
wholly-owned subsidiary with HUBLink, a privately-held integration software
tool company. In connection with the Merger, the Company issued an aggregate of
2.8 million shares of its Common Stock. The business combination has been
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements for periods prior to the Merger have been restated to
include the accounts and results of operations of HUBLink. In addition, the
Company issued 100,000 shares of its Common Stock to a financial advisor, which
had been engaged by HUBLink to assist with possible business combinations.
On December 31, 1997, the Company exercised its option to acquire the remaining
50% ownership interest of Criterion Health Strategies, Inc. ("CHS") it did not
already own. CHS licenses the Criterion data integration software tool and
provides project management, information integration and technology-driven
re-design services. Since
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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 Consolidated Condensed
Statements of Operations. CHS's operating results were combined with the
Company's beginning on January 1, 1998.
In the fourth quarter of 1997, the Company redefined its strategic direction as
The Integration Solutions Company and focused on providing software tools and
services to achieve the enterprise-wide integration of information. Prior to
making this shift in strategic direction, the Company sold and distributed
certain proprietary and third-party clinical workstation tools including, among
others, the Clinical Assessment and Support System ("CASS"), Document Image
Management, Workflow Management, Intranet and Internet Workflow Management,
Teleradiology Computer Systems and Clinical Image Management tools. The Company
no longer actively sells and distributes the software tools referred to in the
preceding sentence, since such tools are outside the scope of the Company's
redefined strategic direction referred to above.
In addition, effective November 21, 1997, HIE combined the operations of its
three subsidiaries (CHS, Integrated Healthcare Solutions, Inc. and Healthcare
Communications, Inc.) with the parent company under a functional organization
structure, i.e., sales, service, research and development and finance. Prior to
that time, each subsidiary operated as an independent, but interrelated, entity
referred to by the Company as an Entrepreneurial Business unit. As of June 30,
1998, these three subsidiaries had been merged with and into the Company. The
Company changed to the present organizational structure in an attempt to be
more responsive to the marketplace and to streamline operations. The Company
believes that the current organizational structure will expand the depth and
breadth of its integration software tool distribution capability, improve the
productivity of its integration software tool development efforts, enhance the
efficiency and effectiveness of its customer service operations and eliminate
duplicate efforts throughout the organization.
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.
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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 and the performance of
certain other criteria in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" in 1998 and SOP 91-1, "Software Revenue
Recognition" in 1997. Service revenue is recognized as the work is performed
or, in the case of a fixed-fee contract, on the percentage of completion basis,
even though some services are prepaid.
The Company's Consolidated Condensed Balance Sheets include assets designated
as purchased software and capitalized software development costs. Purchased
software 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.
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 for the periods indicated (1) the Company's
total revenue and (2) unless otherwise indicated, the percentage of total
revenue for each component included in the Company's Consolidated Condensed
Statements of Operations:
<TABLE>
<CAPTION>
Percent of Revenue (unless otherwise indicated)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total HIE revenue (in 000's) $ 6,585 $ 4,413 $ 11,786 $ 8,430
============ ============ ============ ============
Revenue:
Software 45% 38% 42% 36%
Services 55% 62% 58% 64%
------------ ------------ ------------ ------------
Total revenue 100% 100% 100% 100%
------------ ------------ ------------ ------------
Cost of revenue:
Software (as a percent of software revenue) 9% 10% 10% 22%
Services (as a percent of services revenue) 45% 54% 47% 57%
Total cost of revenue 29% 37% 31% 44%
------------ ------------ ------------ ------------
Gross profit 71% 63% 69% 56%
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 25% 35% 26% 34%
Research and development 14% 16% 16% 17%
General and administrative 22% 24% 23% 26%
Merger costs 15% 0% 9% 0%
------------ ------------ ------------ ------------
Total operating expenses 76% 75% 74% 77%
------------ ------------ ------------ ------------
Operating loss -5% -12% -5% -21%
Losses of affiliate 0% 0% 0% 0%
Interest income (expense), net -1% 0% 0% 0%
------------ ------------ ------------ ------------
Loss before income taxes -6% -12% -5% -21%
Income tax (expense) benefit 0% -1% -1% 1%
------------ ------------ ------------ ------------
Net loss -6% -13% -6% -20%
============ ============ ============ ============
</TABLE>
Comparison of Three Months Ended June 30, 1998 and 1997
Revenue. Total revenue was $6.6 million for the three months ended
June 30, 1998 compared to $4.4 million for the three months ended June 30,
1997, an increase of 49%. The increase of $1.3 million, or 76%, in software
revenue was primarily due to an increase in Cloverleaf integration engine and
OM3 message broker software license
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fee revenue. The increase of $896,000, or 33%, in services revenue was due
primarily to higher service personnel productivity as well as an increase in
the number of service personnel. HIE added eight new distributors in the second
quarter of 1998.
Cost of revenue. Cost of revenue includes, among other things,
compensation of service personnel, travel and software royalties and
amortization. The cost of revenue was $1.9 million for the three months ended
June 30, 1998 compared to $1.6 million for the three months ended June 30,
1997, an increase of 17%. However, as a percentage of revenue, cost of revenue
decreased to 29% from 37% primarily due to the sub-licensing by the Company of
significantly less third-party software tools, as well as an increase in the
level of service personnel productivity in the second quarter of 1998 compared
to the second quarter of 1997. Third-party software tools, such as imaging,
workflow and COLD, typically have a higher cost of revenue than proprietary
software tools, such as the Cloverleaf integration engine and OM3 message
broker and the EMerge enterprise master person index software tool. The Company
discontinued the marketing, sale and distribution of imaging, workflow, COLD and
certain other software tools that no longer fit its redefined strategic
direction in the fourth quarter of 1997.
Gross profit. The Company's gross profit was $4.7 million for the
three months ended June 30, 1998 compared to $2.8 million for the three months
ended June 30, 1997, an increase of 68%. The increased gross profit in the
second quarter of 1998 was due to the significant increase in the more
profitable Cloverleaf integration engine and OM3 message broker software
license fee revenue discussed above, as well as the higher level of service
personnel productivity also discussed above.
Sales and marketing. Sales and marketing expense includes, among other
things, compensation of sales and marketing personnel, sales commissions,
travel and advertising. Sales and marketing expense was $1.6 million for the
three months ended June 30, 1998 and 1997. A slight increase of $74,000 in
sales and marketing expense between the periods was due primarily to the
increase in sales personnel costs associated with increased sales staffing,
offset somewhat by lower marketing personnel costs. The decrease in sales and
marketing expense from 35% of revenue in the three months ended June 30, 1997
to 25% in the three months ended June 30, 1998 was due to the significant
increase in software and services revenue discussed above.
Research and development. Research and development expense includes,
among other things, compensation of research and development personnel,
depreciation and lease expense of research and development equipment and
travel. Research and development expense was $950,000 or 14% of revenue for the
three months ended June 30, 1998 compared to $707,000 or 16% of revenue for the
three months ended June 30, 1997, an increase of 34%. Cash expenditures for
research and development increased $580,000, while the level of capitalization
of internally developed software increased to 33% in the second quarter of 1998
from 15% in the second quarter of 1997, due primarily to increased staffing for
various research and development projects.
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General and administrative. General and administrative expense
includes, among other things, compensation of finance, human resources and
administrative personnel, goodwill amortization, office rent and insurance.
General and administrative expense was $1.4 million or 22% of revenue for the
three months ended June 30, 1998, compared to $1.1 million or 24% of revenue
for the three months ended June 30, 1997, an increase of 36%. The increase was
due primarily to increased recruiting and outside contractor costs associated
with the Company's increased revenue and personnel growth.
Merger costs. Merger costs, which resulted from the Company's
acquisition of HUBLink, includes, among other things, investment banking,
attorney and accounting fees, travel and severance costs. The total merger costs
were $993,000 in the second quarter of 1998. The Company has accrued for all of
the anticipated merger costs in the second quarter, and anticipates transition
costs of approximately $500,000 to be incurred over the next two quarters.
Interest income (expense), net. Net interest expense was $31,000 for
the three months ended June 30, 1998 compared to net interest income of $22,000
for the three months ended June 30, 1997, representing a change of $53,000. The
change in net interest income (expense) is due primarily to a decrease in
interest income resulting from lower cash balances and increased short-term
borrowings, some of which were repaid by the Company in the second quarter.
Income tax (expense) benefit. The Company did not record any income
tax benefit for the three months ended June 30, 1998 because losses exceeded
allowable carryback The Company recorded an income tax expense of $69,000 for
the three months ended June 30, 1997 based on management's belief at the time
that the Company would generate taxable income above the net operating loss
carryforward benefits for the year ended December 31, 1997.
Comparison of Six Months Ended June 30, 1998 and 1997
Revenue. Total revenue was $11.8 million for the six months ended June
30, 1998 compared to $8.4 million for the six months ended June 30, 1997, an
increase of 40%. The increase of $1.9 million, or 61%, in software revenue was
primarily due to an increase in Cloverleaf integration engine and OM3 message
broker software license fee revenue, offset somewhat by a reduction in
third-party software tool revenue. The increase of $1.5 million, or 28%, in
services revenue was due primarily to higher service personnel productivity as
well as an increase in the number of service personnel. HIE added fourteen new
distributors in the six months ended June 30, 1998.
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Cost of revenue. The cost of revenue was $3.7 million for the six
months ended June 30, 1998 compared to $3.8 million for the six months ended
June 30, 1997, a decrease of 2%. As a percentage of revenue, cost of revenue
decreased to 31% from 44%, primarily due to the sub-licensing by the Company of
significantly less third-party software tools, as well as an increase in the
level of service personnel productivity in the six months ended June 30, 1998
compared to the six months ended June 30, 1997. The Company discontinued the
marketing, sale and distribution of imaging, workflow, COLD and certain other
software tools that no longer fit its redefined strategic direction in the
fourth quarter of 1997.
Gross profit. The Company's gross profit was $8.1 million for the six
months ended June 30, 1998 compared to $4.7 million for the six months ended
June 30, 1997, an increase of 73%. The increased gross profit in the first six
months of 1998 was due to the significant increase in the more profitable
Cloverleaf integration engine and OM3 message broker software license fee
revenue discussed above, as well as the higher level of service personnel
productivity also discussed above.
Sales and marketing. Sales and marketing expense was $3.0 million or
26% of revenue for the six months ended June 30, 1998 compared to $2.9 million
or 34% of revenue for the six months ended June 30, 1997, an increase of 6%.
The increase in sales and marketing expense between the periods was due
primarily to the increase in sales personnel costs associated with increased
sales staffing, offset somewhat by lower marketing personnel costs. As a
percentage of revenue, sales and marketing decreased due to the significant
increase in software and services revenue discussed above.
Research and development. Research and development expense was $1.9
million or 16% of revenue for the six months ended June 30, 1998 compared to
$1.4 million or 17% of revenue for the six months ended June 30, 1997, an
increase of 35%. Cash expenditures for research and development increased
$851,000 between the two periods, while the level of capitalization of
internally developed software increased to 27% in the six months ended June 30,
1998 from 20% in the six months ended June 30, 1997, due primarily to increased
staffing for various research and development projects.
General and administrative. General and administrative expense was
$2.7 million or 23% of revenue for the six months ended June 30, 1998, compared
to $2.2 million or 26% of revenue for the six months ended June 30, 1997, an
increase of 24%. The increase was due primarily to increased recruiting and
outside contractor costs associated with the Company's increased revenue and
personnel growth.
Merger costs. Merger costs, which resulted from the Company's
acquisition of HUBLink, includes, among other things, investment banking,
attorney and accounting fees, travel and severance costs. The total merger costs
were $993,000 in the six months ended June 30, 1998. The Company has accrued for
all of the anticipated merger costs in the second quarter, and anticipates
transition costs of approximately $500,000 to be incurred over the next two
quarters.
Losses of affiliate. Losses of affiliate, which resulted from the
Company's commitment to fund CHS, totaled $31,000 in the first half of 1997.
CHS's operating results were consolidated with the Company's beginning on
January 1, 1998.
14
<PAGE> 16
Interest income (expense), net. Net interest expense was $38,000 for
the six months ended June 30, 1998 compared to net interest income of $69,000
for the six months ended June 30, 1997, representing a change of $107,000. The
change in net interest income (expense) is due primarily to a decrease in
interest income resulting from lower cash balances and increased short-term
borrowings, some of which were repaid by the Company in the second quarter.
Income tax (expense) benefit. The Company recorded an income tax
expense of $144,000 for the six months ended June 30, 1998 based on the
inability of a profitable subsidiary to utilize the group's net operating
losses for state reporting purposes. The Company recorded an income tax benefit
of $99,000 for the six months ended June 30, 1997 based on the projected
effective tax rate for the year ended December 31, 1997.
Liquidity and Capital Resources
The Company had working capital of $3.6 million at June 30, 1998
compared to $2.7 million at December 31, 1997. Cash decreased $5.7 million
during the six months ended June 30, 1998 compared to a $2.6 million decrease
during the six months ended June 30, 1997 for the reasons discussed below.
Net cash used in operating activities totaled $1.8 million for the six
months ended June 30, 1998 compared to $1.9 million for the six months ended
June 30, 1997. The $118,000 total variance between the two periods is primarily
attributable to an increase in accounts receivable offset by the increased cash
flow resulting from the lower net loss recorded during the six months ended
June 30, 1998 compared to the six months ended June 30, 1997 and increased
accounts payable.
Net cash used in investing activities was $1.2 million for the six
months ended June 30, 1998 compared to $1.3 million for the six months ended
June 30, 1997. The decrease was due primarily to a $350,000 investment in CHS
in February 1997 which was nonrecurring in 1998 and lower capital expeditures
in the six months ended June 30, 1998, both offset somewhat by an increased
investment in software during the six months ended June 30, 1998.
Net cash used in financing activities was $2.7 million for the six
months ended June 30, 1998 and net cash provided by financing activities was
$704,000 for the six months ended June 30, 1997. Most of the variance between
the two periods is attributable to the payment of $3.3 million of debt
financing that matured on January 2, 1998. In addition, HUBLink obtained
proceeds of $1.2 million from the issuance of common stock during the six
months ended June 30, 1997.
As of June 30, 1998, the Company had $1.5 million of debt financing
scheduled for payment over the next twelve months. The Company negotiated a new
$5.0 million line of credit from a bank which it expects to finalize in
mid-August 1998. The line of
15
<PAGE> 17
credit is for a one year term, with borrowings bearing interest at the bank's
prime rate plus 1% (approximately 9.5% as of August 12, 1998). The Company
plans to maintain the $5.0 million line of credit for unanticipated needs and
financial flexibility. Based on its current business plan and business model
projections, the Company believes that currently available cash, anticipated
cash flow from operating activities, especially the collection of accounts
receivable, and cash available from the line of credit mentioned above will be
sufficient to meet the Company's capital requirements for at least the next
twelve months and for the foreseeable future.
Recent Accounting Pronouncements
On January 1, 1998, the Company adopted Statement of Position 97-2,
Software Revenue Recognition, issued by the Accounting Standards Executive
Committee, and Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, issued by the Financial Accounting Standards Board. The
Company continues to evaluate the requirements of Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, which does not apply to interim periods in the year of
adoption.
16
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 19, 1998. At the
annual meeting, the Company's shareholders voted on the election of nine
Directors. The results of the voting were as follows:
<TABLE>
<CAPTION>
For Vote Withheld
--------------------------------
<S> <C> <C>
Class I Directors
William J. Gresham, Jr. 19,541,715 424,847
Charles R. Hatcher, Jr., M.D. 19,546,522 420,040
Donald W. Weber 19,554,322 412,240
Class II Directors
Joseph G. Bleser 19,566,493 400,069
J. Terry Dewberry 19,555,501 411,061
Carl E. Sanders 19,533,622 432,940
Class III Directors
Parker H. Petit 19,528,803 437,759
Robert I. Murrie 19,562,593 403,969
John W. Lawless 19,559,993 406,569
</TABLE>
The meeting was adjourned and reconvened on June 5, 1998 to provide
shareholders with additional time to vote their shares only with respect to the
proposal to amend the Company's Articles of Incorporation to provide for
classification of the Board of Directors into three classes serving staggered
terms of three years. The results of the voting were as follows:
<TABLE>
<CAPTION>
Number of Shares
<S> <C>
For 10,913,708
Against 1,548,973
Withheld 138,884
</TABLE>
17
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3 Articles of Incorporation (as restated).
11 Statements of Computation of Per Share Earnings (Loss).
27.1 Financial Data Schedule (for SEC use only).
27.2 Restated Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, the Company filed the
following reports on Form 8-K:
Current Report on Form 8-K dated May 7, 1998, reporting information
under Item 7 with respect to the restatement of Financial Data
Schedules to comply with the Statement of Financial Accounting
Standards No. 128, "Earnings Per Share."
Current Report on Form 8-K dated May 12, 1998, reporting information
under Items 2 and 7 with respect to the stock-for-stock merger of
HUBLink, Inc.
Current Report on Form 8-K dated June 1, 1998, reporting information
under Item 5 with respect to restated financial statements in
conjunction with the pooling-of-interests merger of HUBLink, Inc.
Current Report on Form 8-K dated June 8, 1998, reporting information
under Item 5 with respect to the election of Scott A. Jones and Mark
D. Shary to the Company's Board of Directors.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Healthdyne Information Enterprises, Inc.
August 14, 1998 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)
19
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3 Articles of Incorporation (as restated).
11 Statements of Computation of Per Share Earnings (Loss).
27.1 Financial Data Schedule (for SEC use only).
27.2 Restated Financial Data Schedule (for SEC use only).
</TABLE>
20
<PAGE> 1
Exhibit 3
ARTICLES OF INCORPORATION OF
HEALTHDYNE INFORMATION ENTERPRISES, INC.
(As restated on August 14, 1998)
1.
The name of the Corporation is Healthdyne Information Enterprises, Inc.
2.
The aggregate number of shares which the Corporation shall have the
authority to issue is seventy million (70,000,000) shares, of which fifty
million (50,000,000) shall be shares of common stock, par value $.01 per share;
and twenty million (20,000,000) shall be shares of preferred stock, without par
value, the board of directors being hereby authorized to divide such shares of
preferred stock into classes and into shares within any class or classes to
determine the designation and the number of shares of any class or series and
the relative voting, dividend, liquidation and other rights, preferences and
limitations of the shares of any class or series, including, but not limited to,
classes or series of preferred stock:
(a) entitling the holders thereof to cumulative, noncumulative or
partially cumulative dividends, or to no dividends;
(b) entitling the holders thereof to receive dividends payable on a
parity with, or in preference to, the dividends payable on any other class or
series of capital stock of the Corporation;
(c) entitling the holders thereof to preferential rights upon the
liquidation of, or upon any distribution of the assets of, the Corporation;
(d) convertible, at the option of the holder or of the Corporation or
both, into shares of any other class or classes of capital stock of the
Corporation or of any series of the same or any other class or classes;
(e) redeemable, in whole or in part, at the option of the Corporation,
in cash, bonds or other property, at such price or prices, within such period or
periods, and under such conditions as the board of directors shall so provide,
including provision for the creation of a sinking fund for the redemption
thereof;
(f) lacking voting rights or having limited voting rights or enjoying
special or multiple voting rights; and
(g) Series A Cumulative Preferred Stock.
<PAGE> 2
Of the authorized preferred stock of the corporation, 500,000
of such shares shall be designated "Series A Cumulative Preferred
Stock" and shall have the following designations, preferences,
limitations and relative rights:
(A) Certain Definitions. Unless the context otherwise
requires, the terms defined in this subparagraph (A) shall have, for
all purposes of this Paragraph (g), the meanings herein specified:
(i) "Board of Directors" shall mean the Board of Directors
of the Corporation and, to the extent permitted by law, any committee
of the Board of Directors authorized to exercise the powers of the
Board of Directors.
(ii) "Common Stock" shall mean the common stock, par value
$.01 per share, of the Corporation, which term shall include, where
appropriate, in the case of a reclassification, recapitalization or
other changes in such Common Stock, or in the case of a consolidation
or merger of this Corporation with or into another corporation, such
consideration to which a holder of a share of Common Stock would have
been entitled upon the occurrence of such event.
(iii) "Series A Preferred Stock" shall mean the five hundred
thousand (500,000) shares of Series A Cumulative Preferred Stock,
without par value, of the Corporation.
(iv) "Junior Stock" shall mean the Common Stock and any
other class or series of stock of the Corporation not entitled to
receive any dividends unless all dividends required to have been paid
or declared and set apart for payment on the Series A Preferred Stock
and any Parity Stock shall have been so paid or declared and set apart
for payment and, for purposes of subparagraph (C) below, shall mean any
class or series of stock of the Corporation not entitled to receive any
assets upon liquidation, dissolution or winding up of the affairs of
the Corporation until the Series A Preferred Stock and any Parity Stock
shall have received the entire amount to which such stock is entitled
upon such liquidation, dissolution or winding up.
(v) "Parity Stock" shall mean any class or series of stock
of the Corporation entitled to receive payment of dividends on a parity
with the Series A Preferred Stock or entitled to receive assets upon
liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with the Series A Preferred Stock.
(vi) "Rights Declaration Date" shall mean October 30, 1995.
<PAGE> 3
(vii) "Semiannual Dividend Payment Date" shall mean the first
day of March and September in each year.
(viii) "Senior Stock" shall mean any class or series of stock
of the Corporation ranking senior to the Series A Preferred Stock and
to any Parity Stock in respect of the right to receive dividends or in
respect of the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of the
Corporation.
(B) Dividend and Distributions. (i) Subject to the prior
preferences and other rights of any Senior Stock, the holders of shares
of Series A Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available
therefor, semiannual dividends payable in cash at the rate hereinafter
fixed in this subparagraph (B) on each Semiannual Dividend Payment
Date, commencing on the first Semiannual Dividend Payment Date after
the first issuance of any shares or fractions of a share of Series A
Preferred Stock. Semiannual dividends on the Series A Preferred Stock
shall be payable to holders of record of the Series A Preferred Stock
on the respective date not exceeding 50 days preceding such Semiannual
Dividend Payment Date as shall be fixed for this purpose by the Board
of Directors, in an amount per share (rounded to the nearest cent)
equal to the greater of (V) $.05 or (W) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Semiannual Dividend Payment Date, or, with
respect to the first Semiannual Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred
Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (X) declare any dividend on Common Stock payable in
shares of Common Stock, (Y) subdivide the outstanding Common Stock, or
(Z) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (W) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(ii) No dividend or other distribution may be declared or
paid on the Common Stock (other than a dividend payable in shares of
Common
<PAGE> 4
Stock or a subdivision of the outstanding shares of Common Stock)
unless, coincidentally with the declaration of such dividend or such
other distribution, the dividend payable on the Series A Preferred
Stock pursuant to clause (W) of subsection (i) above is declared and
the consideration sufficient for the payment thereof set apart from
funds legally available therefor so as to be available then and on the
next Semiannual Dividend Payment Date for the payment in full thereof
and for no other purpose. In the event no dividend or distribution
shall have been declared on the Common Stock during the period between
any Semiannual Dividend Payment Date and the next subsequent Semiannual
Dividend Payment Date, a dividend of $.05 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Semiannual Dividend Payment Date.
(iii) Dividends on each outstanding share of Series A
Preferred Stock shall begin to accrue and be cumulative from the
Semiannual Dividend Payment Date next following the respective date of
issuance of such share unless the date of such issuance is a Semiannual
Dividend Payment Date, in which case dividends shall accrue and be
cumulative from the date of issuance.
(iv) The holders of shares of the Series A Preferred Stock
shall not be entitled to receive any dividends thereon other than the
cash dividends specified in this subparagraph (B). Unpaid dividends
shall be cumulative and shall accrue, whether or not declared by the
Board of Directors, until the date such dividends are paid. Accrued but
unpaid dividends on the Series A Preferred Stock shall not bear
interest. Dividends on account of arrears for any past dividend periods
may be declared and paid at any time, without reference to any
Semiannual Dividend Payment Date, to holders of record of the Series A
Preferred Stock on such date, not more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(v) So long as any shares of Series A Preferred Stock shall
be outstanding, the Corporation shall not declare or pay on any Junior
Stock any dividend in cash or property of any sort, nor shall the
Corporation make any distribution on any Junior Stock, or set aside any
assets for any such purposes, nor shall any Junior Stock be purchased,
redeemed or otherwise acquired by the Corporation or any of its
subsidiaries, nor shall any monies be paid, set aside for payment or
made available for a sinking fund for the purchase or redemption of any
Junior Stock, unless and until all dividends to which the holders of
the Series A Preferred Stock and any Parity Stock shall have been
entitled for all current and all previous dividend periods shall have
been paid or declared and the consideration sufficient for the payment
thereof set apart so as to be available for the
<PAGE> 5
payment thereof and for no other purpose; provided, however, that
nothing contained in this subsection (v) shall prevent the payment of
dividends solely in Junior Stock or the repurchase, redemption or other
acquisition solely through the issuance of Junior Stock.
(C) Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to
which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of shares of the Series A Preferred Stock
shall be entitled to receive from the assets of the Corporation
available for distribution to the shareholders the sum of $50 per
share, together with the amount of all cumulative dividends accrued and
unpaid thereon to and including the date of such liquidation,
dissolution or winding up, before any payment or distribution shall be
made to the holders of any Junior Stock of the Corporation, which
payment shall be made pari passu to any such payment made to the
holders, if any, of any Parity Stock. The holders of the Series A
Preferred Stock shall be entitled to no other or further distribution
of or participation in any remaining assets of the Corporation after
receiving the liquidation price described above. If, upon distribution
of the Corporation's assets in liquidation, dissolution or winding up,
the assets of the Corporation to be distributed among the holders of
the Series A Preferred Stock and to all holders of any Parity Stock
shall be insufficient to permit payment in full to such holders of the
preferential amounts to which they are entitled, then the entire assets
of the Corporation to be distributed to holders of the Series A
Preferred Stock and such Parity Stock shall be distributed pro rata to
such holders based upon the aggregate of the full preferential amounts
to which the shares of Series A Preferred Stock and such Parity Stock
would otherwise respectively be entitled. Neither the consolidation or
merger of the Corporation with or into any other corporation or
corporations nor the sale, transfer, or lease of all or substantially
all the assets of the Corporation shall itself be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this subparagraph (C).
(D) Voting Rights. (i) Except as otherwise expressly provided
in this subparagraph (D) or as otherwise required by law, the holders
of shares of Series A Preferred Stock shall vote together with the
holders of the Common Stock (and the holders of any other class or
series of the Corporation's stock entitled to vote with the holders of
the Common Stock) as a single class for the election of directors and
on all other matters coming before any meeting of the shareholders of
the Corporation or otherwise to be acted upon by the shareholders of
the Corporation, subject to any voting rights granted or which may be
granted to holders of any other class or series of the preferred stock
of the Corporation. Each
<PAGE> 6
share of Series A Preferred Stock shall entitle the holder thereof to
one vote on all matters submitted to a vote of the shareholders of the
Corporation.
(ii) In addition to the voting rights set forth above, if and
when dividends payable on the Series A Preferred Stock shall be in
arrears in an amount equivalent to or exceeding three (3) full
semiannual dividends thereon, whether or not consecutive, the holders
of shares of the Series A Preferred Stock, voting separately as a
class, shall be entitled to elect two directors to the Board of
Directors. Directors so elected shall thereupon become additional
directors of the Corporation and the authorized number of directors of
the Corporation shall thereupon be automatically increased by such
number. During such times that the holders of the Series A Preferred
Stock, voting as a class, shall be entitled to elect such additional
directors as provided herein, the holders of the Series A Preferred
Stock shall not be entitled to participate in the election of any other
directors with the holders of shares of the Common Stock or any other
class or classes of stock who are entitled to vote for the election of
directors.
Such right of the holders of shares of the Series A Preferred
Stock who are entitled to vote in such manner to elect such additional
directors may be exercised until all dividends in default on the Series
A Preferred Stock shall have been paid or declared and the
consideration sufficient for the payment in full thereof set apart so
as to be available for the payment thereof and for no other purpose;
when said dividends shall have been so paid or declared and set apart,
such right to elect two directors shall terminate, subject to the
vesting of such voting rights in the event of any such future default
or defaults in the payment of dividends. Whenever the holders of shares
of the Series A Preferred Stock who are entitled to vote in such manner
shall be divested of such voting rights by reason of the payment or the
declaration and setting apart of consideration sufficient for the
payment in full of the dividends then in default, the terms of office
of the directors elected as such by the holders of shares of the Series
A Preferred Stock shall forthwith terminate and the number of the
directors of the Corporation shall be reduced correspondingly.
At any time after such voting rights shall so have vested in
the holders of shares of the Series A Preferred Stock who are entitled
to vote in such manner, the Secretary of the Corporation may, and upon
the written request of the holders of record of not less than 75% of
the outstanding shares of Series A Preferred Stock, addressed to him at
the principal office of the Corporation, shall, call a special meeting
of the holders of shares of the Series A Preferred Stock who are
entitled to vote in such manner for the election of the directors to be
elected by them, such meeting to be held within 10 days after the
earlier of such call or the
<PAGE> 7
delivery of such request and at the place and upon the notice provided
by the By-laws of the Corporation for the holding of meetings of
shareholders, except that the Secretary of the Corporation shall not be
required to call such a special meeting if the request for such call is
received less than 45 days prior to the date fixed for the next annual
meeting of shareholders.
(E) Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100 times
the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series A Preferred Stock shall
be adjusted by multiplying such amount (as such amount may have been
previously adjusted by reason of the prior occurrence(s) of any such
events)) by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(F) Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of preferred stock and may be
reissued as part of a new series of preferred stock to be created by
amendment of the Articles of Incorporation of the Corporation adopted
by resolution of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
(G) Preemptive Rights. The holders of shares of the Series A
Preferred Stock shall not have any preemptive right to subscribe for or
purchase any shares of stock or any other securities which may be
issued by the Corporation.
<PAGE> 8
(H) No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
(I) Amendment. Without the consent of the holders of at least
75% of the shares of Series A Preferred Stock at the time outstanding,
either in writing or by vote at a meeting called for that purpose at
which the holders of the Series A Preferred Stock shall vote as a
class, neither the Articles of Incorporation of the Corporation nor any
resolution of the Board of Directors establishing and designating a
series of preferred stock and determining the relative rights and
preferences thereof shall be changed so as to alter in an adverse
manner the designations, preferences, limitations and rights of holders
of the Series A Preferred Stock.
(J) Fractional Shares. The Series A Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred Stock.
(K) Exclusion of Other Rights. Except as may otherwise be
required by law, the shares of Series A Preferred Stock shall not have
any designations, preferences, limitations or relative rights, other
than those specifically set forth in the Articles of Incorporation of
this Corporation.
(L) Severability of Provisions. If any right, preference or
limitation of the Series A Preferred Stock set forth in this Paragraph
(g) (as such Paragraph may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or
public policy, all other rights, preferences and limitations set forth
in this Paragraph (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation
shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent
upon any other such right, preference or limitation unless so expressed
herein.
3.
The address of the initial registered office of the Corporation shall
be 1850 Parkway Place, 12th Floor, Marietta, Cobb County, Georgia 30067 and its
initial registered agent at such address shall be J. Brent Burkey.
4.
The name and address of the incorporator is J. Brent Burkey, 1850
Parkway Place, 12th Floor, Marietta, Georgia 30067.
<PAGE> 9
5.
The mailing address of the initial principal office of the Corporation
is 1850 Parkway Place, 12th Floor, Marietta, Georgia 30067.
6.
(A) Beginning with the election of directors in 1998, the Board of
Directors of the Corporation shall consist of nine (9) natural persons of the
age of eighteen years or over and shall be divided into three classes, Class I,
Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors and any remaining directors shall be
included within such class or classes as the Board of Directors shall designate,
provided that the difference in the number of directors in any two classes shall
not exceed one (1). At the annual meeting of shareholders in 1998, Class I
Directors shall be elected for a one-year term, Class II Directors for a
two-year term and Class III Directors for a three-year term. At each succeeding
annual meeting of shareholders beginning in 1999, successors to the class of
directors whose term expires at the annual meeting shall be elected for a
three-year term.
(B) Any director of the Corporation, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote for the election of directors, voting together as a single class. No
director may be removed without cause.
(C) The number of directors constituting the Board of Directors may be
increased or decreased from time to time by the affirmative vote of a number of
directors equal to at least a majority of the then authorized number of
directors (regardless of any vacancies then existing). If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. No decrease in the number of directors shall affect the term of any
director.
(D) Any vacancy on the Board of Directors, including any vacancy
occurring by reason of any increase in the number of directors, shall be filled
only by the Board of Directors acting by the affirmative vote of a majority of
the directors then remaining in office. If the directors remaining in office
constitute fewer than a quorum of the Board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office.
(E) The provisions of this Article 6 are subject in all respects to the
rights, privileges and preferences of the holders of any class of capital stock
of the Corporation other than Common Stock.
(F) This Article 6 may be modified, amended or repealed only by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote on such modification, amendment or repeal; any provision in the Articles of
Incorporation
<PAGE> 10
inconsistent with this Article 6, or any provision in the Articles of
Incorporation or the By-laws of the Corporation purporting to interpret or
define the terms contained in this Article 6, may be adopted only by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote on such provision; provided that, the Board of Directors may adopt By-laws
implementing or interpreting this Article 6.
7.
No director shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, by reason of any act or omission occurring subsequent to the date when
this provision becomes effective, except that this provision shall not eliminate
or limit the liability of a director for (a) any appropriation, in violation of
his duties, of any business opportunity of the Corporation; (b) acts or
omissions which involve intentional misconduct or a knowing violation of law;
(c) liabilities of a director imposed by Section 14-2-832 of the Georgia
Business Corporation Code; or (d) any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this Article
shall apply to or have any effect on the liability or alleged liability of any
director or officer of the Corporation for or with respect to any acts or
omissions of such director or officer occurring prior to such amendment or
repeal; provided, however, that if further elimination or limitation of the
liability of directors is provided for or permitted by the Georgia Business
Corporation Code or other applicable law at any time, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
then so provided for or permitted by the Georgia Business Corporation Code or
other applicable law this Article 7 shall be deemed to include and have
incorporated herein provision for such further elimination or limitation of
liability of a director effective upon the enabling provision therefor in the
Georgia Business Corporation Code or other applicable law becoming effective.
Without limiting the foregoing, if the Georgia Business Corporation Code is
amended to permit the limitation of a director's liability under clause (d)
above to the amount of the financial benefit received by a director to which he
is not entitled, then any liability of a director of the Corporation not
eliminated because of said clause (d) shall be limited to the amount of any
financial benefit received by the director to which he is not entitled.
<PAGE> 1
Exhibit 11
Healthdyne Information Enterprises, Inc. and Subsidiaries
Statements of Computation of Per Share Earnings (Loss)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss $ (373) $ (587) $ (730) $ (1,645)
======== ======== ======== ========
Weighted average number of common shares
outstanding 23,767 22,906 23,697 23,825
======== ======== ======== ========
Basic net loss per share $ (0.02) $ (0.03) $ (0.03) $ (0.07)
======== ======== ======== ========
Shares used in the calculation of diluted net loss
per share:
Weighted average number of common shares
outstanding 23,767 22,906 23,697 22,825
Additional shares issuable from assumed
exercise of options (see note 1) 0 0 0 0
-------- -------- -------- --------
23,767 22,906 23,697 22,825
======== ======== ======== ========
Diluted loss per share $ (0.02) $ (0.03) $ (0.03) $ (0.07)
======== ======== ======== ========
</TABLE>
Note 1: Since stock options are anti-dilutive to the diluted loss per common
share calculation, stock options are not considered in such diluted loss per
share calculation for the three and six months ended June 30, 1998 and 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE HEALTHDYNE
INFORMATION ENTERPRISES, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND THE HEALTHDYNE INFORMATION ENTERPRISES,
INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1998. THIS SCHEDULE
CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE HEALTHDYNE INFORMATION
ENTERPRISES, INC. FOR THE RESTATED INFORMATION RELATED TO THE POOLING OF
INTERESTS MERGER WITH HUBLINK INC. FOR EACH AFFECTED PERIOD REPORTED IN THE
FINANCIAL SCHEDULES ABOVE. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 MAR-31-1998
<CASH> 2,061 4,204
<SECURITIES> 0 0
<RECEIVABLES> 9,648 7,695
<ALLOWANCES> 570 585
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,565 12,794
<PP&E> 3,932 3,754
<DEPRECIATION> 1,813 1,630
<TOTAL-ASSETS> 26,114 26,386
<CURRENT-LIABILITIES> 8,936 9,821
<BONDS> 529 501
0 0
0 0
<COMMON> 240 236
<OTHER-SE> 16,002 15,354
<TOTAL-LIABILITY-AND-EQUITY> 26,114 26,386
<SALES> 0 0
<TOTAL-REVENUES> 11,786 5,201
<CGS> 0 0
<TOTAL-COSTS> 3,696 1,787
<OTHER-EXPENSES> 8,638 3,620
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 114 62
<INCOME-PRETAX> (586) (213)
<INCOME-TAX> 144 144
<INCOME-CONTINUING> (730) (357)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (730) (357)
<EPS-PRIMARY> (0.03) (0.02)
<EPS-DILUTED> (0.03) (0.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE HEALTHDYNE
INFORMATION ENTERPRISES, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND THE HEALTHDYNE INFORMATION ENTERPRISES,
INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1998. THIS SCHEDULE
CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE HEALTHDYNE INFORMATION
ENTERPRISES, INC. FOR THE RESTATED INFORMATION RELATED TO THE POOLING OF
INTERESTS MERGER WITH HUBLINK, INC. FOR EACH AFFECTED PERIOD REPORTED IN THE
FINANCIAL SCHEDULES ABOVE. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 MAR-31-1997
<CASH> 8,935 9,539
<SECURITIES> 0 0
<RECEIVABLES> 6,535 6,000
<ALLOWANCES> 287 236
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,556 16,567
<PP&E> 2,857 2,732
<DEPRECIATION> 991 881
<TOTAL-ASSETS> 27,090 32,210
<CURRENT-LIABILITIES> 10,985 10,341
<BONDS> 731 211
0 0
0 0
<COMMON> 230 229
<OTHER-SE> 19,374 21,132
<TOTAL-LIABILITY-AND-EQUITY> 27,090 23,210
<SALES> 0 0
<TOTAL-REVENUES> 8,430 4,017
<CGS> 0 0
<TOTAL-COSTS> 3,755 2,124
<OTHER-EXPENSES> 6,457 3,135
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 84 36
<INCOME-PRETAX> (1,744) (1,226)
<INCOME-TAX> (99) (168)
<INCOME-CONTINUING> (1,645) (1,058)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,645) (1,058)
<EPS-PRIMARY> (0.07) (0.05)
<EPS-DILUTED> (0.07) (0.05)
</TABLE>
