<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 March 31, 1999.
or
Transition Report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the transition period from ______________ to
_______________.
Commission file number 0-27056
HIE, Inc.
---------
(Exact name of registrant as specified in its charter)
Georgia 58-2112366
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, Suite 1100, Marietta, Georgia 30067
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 423-8450
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of the issuer's only class of Common Stock, $
.01 par value, together with associated preferred stock purchase rights (the
"Common Stock"), as of May 10, 1999 was 25,324,724 shares.
Exhibit Index is on Page 15 herein.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HIE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,978 $ 3,167
Trade accounts receivable, less allowance of $720 at March 31, 1999
and December 31, 1998 12,780 12,295
Other current assets 2,616 2,555
-------- --------
Total current assets 17,374 18,017
Purchased software, net of accumulated amortization of $1,449 and
$1,341 at March 31, 1999 and December 31, 1998, respectively 1,857 1,946
Capitalized software development costs, net of accumulated
amortization of $416 and $329 at March 31, 1999 and
December 31, 1998, respectively 1,924 1,606
Property and equipment, net of accumulation depreciation of $2,413
and $2,194 at March 31, 1999 and December 31, 1998, respectively 2,673 2,289
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $2,779 and $2,611 at March 31, 1999
and December 31, 1998, respectively 7,391 7,535
Other assets 120 142
-------- --------
Total assets $ 31,339 $ 31,535
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 2,922 $ 2,911
Accounts payable, principally trade 1,823 1,276
Accrued liabilities 2,336 1,718
Deferred service revenue 4,662 4,690
-------- --------
Total current liabilities 11,743 10,595
Other liabilities 529 642
-------- --------
Total liabilities 12,272 11,237
Shareholders' equity:
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 25,325 and 24,972 shares at March 31, 1999
and December 31, 1998, respectively 253 250
Additional paid-in capital 41,835 41,301
Accumulated deficit (23,021) (21,253)
-------- --------
Shareholders' equity 19,067 20,298
-------- --------
Total liabilities and shareholders' equity $ 31,339 $ 31,535
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HIE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue:
Software $ 981 $ 1,979
Services and other 4,264 3,222
-------- --------
Total revenue 5,245 5,201
-------- --------
Cost of revenue:
Software 251 222
Services and other 2,294 1,565
-------- --------
Total cost of revenue 2,545 1,787
-------- --------
Gross profit 2,700 3,414
-------- --------
Operating expenses:
Sales and marketing 1,747 1,421
Research and development 981 968
General and administrative 1,639 1,231
-------- --------
Total operating expenses 4,367 3,620
-------- --------
Operating loss (1,667) (206)
Interest income (expense), net (101) (7)
-------- --------
Loss before taxes (1,768) (213)
Income tax expense -- (144)
-------- --------
Net loss $ (1,768) $ (357)
======== ========
Shares used in the calculation of net loss per share 25,223 23,602
======== ========
Net loss per share of common stock $ (0.07) $ (0.02)
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HIE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,768) $ (357)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 582 526
Compensation related to stock options, net -- 22
Increase in trade accounts receivable (485) (1,197)
Increase in other current assets (61) (112)
Increase in trade accounts payable 547 292
Increase (decrease) in accrued liabilities 618 (434)
Increase (decrease) in deferred revenue (28) 803
-------- --------
Net cash used in operating activities (595) (457)
-------- --------
Cash flows from investing activities:
Purchased software (19) (137)
Capitalized software development costs (405) (252)
Capital expenditures (603) (42)
Change in other non-current assets and liabilities, net (2) (8)
-------- --------
Net cash used in investing activities (1,029) (439)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt, net (102) (2,870)
Net repayments under line of credit -- (48)
Proceeds from issuances of common stock 537 241
-------- --------
Net cash provided by (used in) financing activities 435 (2,677)
-------- --------
Net decrease in cash and cash equivalents (1,189) (3,573)
Cash and cash equivalents at beginning of year 3,167 7,777
-------- --------
Cash and cash equivalents at end of year $ 1,978 $ 4,204
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HIE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. Accounting Policies
The condensed consolidated financial statements include the accounts
of HIE, Inc. and subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
The information contained in the financial statements is unaudited.
The statements reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results for the
interim periods presented.
All such adjustments are of a normal, recurring nature. The accounting
policies followed in the presentation of interim financial results are
the same as those followed on an annual basis. These policies are
presented in Note 1 to the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to
current year classifications.
2. Merger
On May 12, 1998, the Company completed a stock-for-stock merger (the
"Merger") with HUBLink, Inc. ("HUBLink") a privately-held integration
software tool company. In connection with the Merger, the Company
issued an aggregate of 2,800 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 shares
of its Common Stock to a financial advisor, which was engaged by
HUBLink to assist with possible business combinations.
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
Ended
March 31, 1998
--------------
(Unaudited)
<S> <C>
Revenue:
HIE $ 4,701
HUBLink 500
-------
Combined revenue $ 5,201
=======
Net earnings (loss):
HIE $ 352
HUBLink (709)
-------
Combined net loss $ (357)
=======
</TABLE>
3. Debt
In August 1998, the Company entered into a new $5.0 million line of
credit (the "Credit Facility") with Silicon Valley Bank (the "Bank")
of which $4.1 million was available for borrowing under the borrowing
base
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HIE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(Unaudited)
(In thousands, except per share data)
limitation at March 31, 1999. The balance outstanding under the Credit
Facility was $2.5 million on March 31, 1999. The Credit Facility is
for a one-year term, with borrowings bearing interest at the bank's
prime rate plus 1% (8.75% at March 31, 1999). The Company plans to
maintain the $5.0 million line of credit for unanticipated needs and
financial flexibility. The Company was in default of two of the line
of credit financial covenants under the Credit Facility at March 31,
1999: (1) quarterly profitability; and (2) the minimum Quick Ratio,
defined therein. The Company and the Bank reached an agreement whereby
the Bank waived these defaults, the interest rate increased by 0.5%
annually and the line of credit is secured by the Company's
intellectual property.
4. Shareholders' Equity
On December 31, 1997, HIE issued warrants to purchase 50 shares of HIE
common stock, at $1.59 per share, and 416 shares of HIE common stock
to The Southern Venture Fund II, L.P. ("SVFII") (Massey Burch) in
exchange for 50% equity ownership interest in Criterian Health
Strategies, Inc. ("CHS"). In January 1999, SVFIT exercised the
warrants to purchase 42 shares of HIE common stock.
5. Segment Information
The Company's reportable segments are strategic business units that
offer different products and services. During 1998, the Company
operated in two segments: (i) the licensing of integration software
products and performance of related integration services ("Software")
and (ii) the providing of consulting services related to information
systems integration for healthcare organizations ("Consulting"). Prior
to 1998, the Consulting business did not separately exist. On December
31, 1998, the Consulting business was sold (see note 3 of the
Company's 1998 Annual Report filed on Form 10-K with the Securities
and Exchange Commission). The Company evaluates performance of the
segments based on revenues and operating earnings (loss) of the
segments. Segment information for the three months ended March 31,
1998 is as follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1998
--------------
(Unaudited)
<S> <C>
Revenue:
Software $ 4,195
Consulting 1,006
-------
Total revenue $ 5,201
=======
Operating earnings (loss):
Software $ (353)
Consulting 147
-------
Operating loss $ (206)
=======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate" and similar expressions are intended to identify such
forward-looking statements; however, this Report also contains other
forward-looking statements in addition to historical information. Actual
results may differ materially from those indicated in the forward-looking
statements; accordingly, there can be no assurance that such indicated results
will be realized. Among the important factors that could cause actual results
to differ materially from those indicated by such forward-looking statements
are the factors set forth in "Item 1. Business -- Factors That May Affect
Future Performance" in the Company's 1998 Annual Report on Form 10-K filed with
the Securities and Exchange Commission(the "Commission"). By making these
forward-looking statements, HIE, Inc. does not undertake to update them in any
manner except as may be required by its disclosure obligations in filings it
makes with the Commission under the Federal securities laws.
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 Condensed Consolidated
Statements of Operations (unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
------- -------
<S> <C> <C>
Total HIE revenue (in thousands) $ 5,245 $ 5,201
======= =======
Revenue:
Software 19% 38%
Services and other 81% 62%
------- -------
Total revenue 100% 100%
Cost of revenue:
Software (as a percentage of software revenue) 26% 11%
Services and other (as a percentage of services and other revenue) 54% 49%
Total cost of revenue 49% 34%
------- -------
Gross profit 51% 66%
------- -------
Operating expenses:
Sales and marketing 33% 27%
Research and development 19% 19%
General and administrative 31% 24%
------- -------
Total operating expenses 83% 70%
Operating loss (32)% (4)%
Interest income (expense), net (2)% (0)%
------- -------
Loss before income taxes (34)% (4)%
Income tax expense 0% (3)%
------- -------
Net loss (34)% (7)%
======= =======
</TABLE>
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COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUE. Revenue remained relatively consistent at $5.2 million for the three
months ended March 31, 1999 and 1998. The Company experienced a decrease in
software revenue offset by an increase in services and other revenue.
Software. Software revenue decreased 50% to $1.0 million for the three
months ended March 31, 1999 from $2.0 million for the three months ended March
31, 1998. As a percentage of total revenue, software revenue decreased to 19%
in the three months ended March 31, 1999 from 38% in the three months ended
March 31, 1998. The dollar decrease in software revenue was attributable to a
decline in the Company's direct sales to distributors during the three months
ended March 31, 1999 compared to the three months ended March 31, 1998. In
addition, the Company did not establish any new distributor relationships and
experienced a decline in direct sales to end-users. The decrease in software
revenue as a percentage of total revenue resulted from the decrease in software
revenue previously discussed and the increase in service revenue discussed
below.
Services and other. Services and other revenue increased 32% to $4.3
million for the three months ended March 31, 1999 from $3.2 million for the
three months ended March 31, 1998. Services and other revenue as a percentage
of total revenue increased to 81% for the three months ended March 31, 1999
from 62% for the three months ended March 31, 1998. The dollar increase in
services and other revenue was primarily due to an increase in the sale and
completion of projects. The increase in services and other revenue as a
percentage of total revenue resulted primarily from the decrease in software
revenue.
COST OF REVENUE. Total cost of revenue increased 42% to $2.5 million for the
three months ended March 31, 1999 from $1.8 million for the three months ended
March 31, 1998.
Software. Cost of software revenue increased 13% to $251,000 for the
three months ended March 31, 1999 from $222,000 for the three months ended
March 31, 1998. As a percentage of software revenue, cost of software revenue
increased to 26% for the three months ended March 31, 1999 from 11% for the
three months ended March 31, 1998. Cost of software remained relatively flat
due to the amortization of capitalized software and purchased software. The
increase in cost of software as a percentage of software revenue was a result
of decreased software sales during the three months ended March 31, 1999
compared to March 31, 1998 previously discussed.
Services and other. Cost of services and other revenue increased 47%
to $2.3 million for the three months ended March 31, 1999 from $1.6 million for
the three months ended March 31, 1998. As a percentage of services and other
revenue, cost of services and other revenue increased to 54% for the three
months ended March 31, 1999 from 49% for the three months ended March 31, 1998.
The dollar increase in cost of services and other revenue was attributable to
an increase in personnel needed to complete service projects. The increase in
cost of services and other revenue as a percentage of services and other
revenue was primarily attributable to an increase in service personnel and the
related startup time to train and educate new staff.
OPERATING EXPENSES:
Sales and marketing. Sales and marketing expenses increased 23% to
$1.7 million for the three months ended March 31, 1999 from $1.4 million for
the three months ended March 31, 1998. Sales and marketing expense as a
percentage of total revenue increased to 33% for the three months ended March
31, 1999 from 27% for the three months ended March 31, 1998. The dollar
increase in sales and marketing was primarily due to addition of sales
personnel to market solutions developed for new vertical markets other than the
healthcare market. The increase in sales and marketing expenses as a percentage
of total revenue was primarily attributable to a decrease in software sales for
the three months ended March 31, 1999.
Research and development. Research and development expenses remained
relatively consistent at $1.0 million for the three months ended March 31, 1999
and 1998. Research and development expenses as a percentage of total revenue
was 19% for the three months ended March 31, 1999 and 1998. Research and
development increased due to an increase in development costs for solutions in
vertical markets other than the healthcare market.
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This increase was partially offset by an increase in capitalization of costs
related to internally developed software costs of $405 for the three months
ended March 31, 1999 from $252 for the three months ended March 31, 1998.
General and administrative. General and administrative expenses
increased 33% to $1.6 million for the three months ended March 31, 1999 from
$1.2 million for the three months ended March 31, 1998. General and
administrative expenses as a percentage of revenue increased to 31% for the
three months ended March 31, 1999 from 24% for the three months ended March 31,
1998. The dollar increase in general and administrative expenses was primarily
due to increased human resources and facility costs related to staffing
increases. The increase in general and administrative expenses as a percentage
of total revenue was primarily due to the decrease in software sales for the
three months ended March 31, 1999.
INTEREST INCOME (EXPENSE), NET. Net interest expense increased $94,000 to
$101,000 for the three months ended March 31, 1999 from $7,000 for the three
months ended March 31, 1998. The increase in interest expense resulted from
lower cash balances during the three months ended March 31, 1999.
INCOME TAX (EXPENSE) BENEFIT. The Company did not record any income tax benefit
for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $5.6 million at March 31, 1999
compared to $7.4 million at December 31, 1998. The working capital decrease was
primarily attributable to operating losses, purchases of computer equipment and
furniture and investment in internally developed software during the three
months ended March 31, 1999.
Net cash used in operating activities totaled $595,000 for the three
months ended March 31, 1999 compared to net cash used of $457,000 for the three
months ended March 31, 1998. The cash used in operating activities was
primarily a result of operating losses and an increase in accounts receivable
partially offset by increases in accounts payable and accrued expenses.
Net cash used in investing activities was $1.0 million for the three
months ended March 31, 1999 compared to net cash used in investing activities
of $439,000 for the three months ended March 31, 1998. This increase of $590
was due to expenditures for computer equipment and furniture due to increased
client services personnel.
Net cash provided by financing activities was $435,000 for the three
months ended March 31, 1999 compared to net cash used in financing activities
of $2.7 million for the three months ended March 31, 1998. Net cash provided by
financing activities resulted from exercises of stock options and warrants
during the three months ended March 31, 1999. The variance from the three
months ended March 31, 1998 was due to principal payments of long-term debt of
$2.9 million during the three months ended March 31, 1998.
In August 1998, the Company entered into a $5.0 million line of credit
(the "Credit Facility") with Silicon Valley Bank (the "Bank"). The Company was
in default of two of the line of credit financial covenants under the Credit
Facility at March 31, 1999: (1) quarterly profitability; and (2) the minimum
Quick Ratio, defined therein. The Company and the Bank reached an agreement
whereby the Bank waived these defaults, the interest rate increased by 0.5%
annually and the line of credit is secured by the Company's intellectual
property.
Based on the Company's 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.
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YEAR 2000
The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information when the year changes to 2000. The Year 2000 issue
affects IT systems, such as computer programs and various types of electronic
equipment that process date information by using only two digits rather than
four digits to define the applicable year, and thus may recognize a date using
"00" as the year 1900 rather than the year 2000. The issue also affects some
non-IT systems, such as devices which rely on a microcontroller to process date
information. The Year 2000 issue could disrupt a company's operations by
generating erroneous data or causing system failures or miscalculations.
State of Readiness
HIE has formed a Year 2000 task force which is systematically
evaluating its systems, products and key external relationships to ascertain
material Year 2000 issues and solutions. HIE's Year 2000 readiness program has
two phases: (1) assessment and (2) remediation (including modification,
upgrading, replacement and validation by third parties). HIE's Year 2000
readiness program is an ongoing process involving continual evaluation and may
be subject to change in response to new developments.
HIE's products and services. HIE is in the process of assessing the
Year 2000 readiness of all products available currently or previously sold to
customers and distributors. HIE expects this assessment to be complete in
mid-1999.
Although HIE does not generally warrant the Year 2000 readiness of its
products, it has disclosed to its customers and distributors that its products
are "Year 2000 ready." HIE has defined "Year 2000 ready" as the ability for a
product component to initialize and operate normally on and after January 1,
2000; and, where applicable, the ability to correctly manipulate, display,
store and exchange with other components of its system all dates, either prior,
during, or after January 1, 2000. However, HIE's products are configurable and
programmable by end users, and Year 2000 problems relating to re-configurations
and programming extensions to HIE's base product generated by an end user
cannot be anticipated by HIE.
HIE also markets its products and services as a solution for
addressing the Year 2000 problem. As part of its Year 2000 risk assessment
services, HIE executes an application that browses all Cloverleaf site
configuration files and provides a listing of the date fields that are at risk
and where the fields are integrated within the Cloverleaf system. After
executing its Year 2000 risk assessment application, HIE provides the customer
with a written report describing the location of these at risk fields and the
application interface that is affected.
HIE attempts to limit by contract, both with its customers and with
the parties that license technology to HIE, its liability for damages arising
in rendering its products and services. Despite this precaution, there can be
no assurance that the limitations of liabilities set forth in its contracts
would be enforceable or would otherwise protect HIE from liability for damages.
In addition, HIE's products are generally integrated into enterprise systems
involving sophisticated hardware and complex software products that HIE cannot
adequately evaluate for Year 2000 problems. HIE may face claims based on Year
2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system.
Internal IT and non-IT systems. HIE is in the process of implementing
new software for its accounting, internal network and timekeeping functions in
order to consolidate various systems under its new strategic direction and
integrate HUBLink's operations. Representations made by software vendors for
these new systems, including Year 2000 readiness, will be validated at the
completion of that implementation, which is expected to be mid 1999. Non-IT
systems, such as telecommunications systems, as well as existing IT systems
have been assessed and are currently in remediation.
Other third parties. HIE has surveyed with a questionnaire material
vendors and suppliers of systems used by HIE for internal IT and research and
development in order to determine the extent to which HIE is vulnerable to
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any failure by such material third parties to remediate their respective Year
2000 problems and resolve such problems to the extent practicable. HIE expects
the assessment to be complete in mid 1999 and will take the necessary
remediation action, including changing to vendors who are Year 2000 compliant
or installing internal IT systems, to minimize the Year 2000 non-compliance
risk with respect to third parties. HIE has not conducted a Year 2000 survey of
the distributors and financial institutions with whom it has material
relationships.
Year 2000 Costs and Contingency Plans
To date, HIE has not incurred any material costs directly associated
with its Year 2000 readiness efforts nor accelerated the replacement of any
system due to Year 2000 issues. HIE does not anticipate that it will incur
either significant operating expenses or significant capital expenditures to
address Year 2000 issues with respect to its internal systems and the software
products and services that it markets.
In view of HIE's Year 2000 assessment and remediation efforts to date,
and the limited activities that remain to be completed, HIE's contingency plans
consist of plans to re-route phone calls, manual accounting and restoring
working systems with backup files. HIE is in the final stages of development of
these contingency plans, which are expected to be completed by mid-1999.
Risks of Year 2000 Issues
In light of its compliance efforts, HIE does not believe that the Year
2000 issue will materially adversely affect operations or results of
operations, and does not expect implementation to have a material impact on
HIE's consolidated financial statements. However, there can be no assurance
that HIE's systems will be Year 2000 compliant prior to December 31, 1999, or
that the failure of any such system will not have a material adverse effect on
HIE's business, results of operations and financial condition. In addition, to
the extent the Year 2000 problem has a material adverse effect on business,
operations or financial condition of third parties with whom HIE has material
relationships, such as customers, distributors, vendors, suppliers and
financial institutions, the Year 2000 problem could have a material adverse
effect on HIE's business, results of operations and financial condition.
Although HIE has not been a party to any litigation or arbitration
proceeding involving its products or services related to Year 2000 issues, HIE
may in the future be required to defend its products or services in such
proceedings or to negotiate resolutions of claims based on Year 2000 issues.
The costs of defending and resolving Year 2000-related disputes, regardless of
the merits of such disputes, and any liability HIE may have for Year
2000-related damages, including consequential damages, could materially
adversely affect its business, results of operations and financial condition.
There also can be no assurance that HIE will be able to obtain or maintain
insurance coverage for such liabilities, that such coverage will continue to be
available on acceptable terms, or that such coverage will be available in
amounts to cover one or more large claims. The assertion of claims against HIE
that exceed available insurance coverage or changes in HIE's insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on HIE's
business, financial condition and results of operations.
The above Year 2000 discussion contains forward-looking statements
reflecting management's current assessment and estimates with respect to HIE's
Year 2000 readiness efforts and the impact of Year 2000 issues on HIE's
business, financial condition and results of operations. Various factors, many
of which are beyond the control of HIE, could cause actual plans and results to
differ materially from those contemplated by such assessments, estimates and
forward-looking statements. Some of these factors include, but are not limited
to, the accuracy of the Year 2000 assurances, disclosures or representations by
HIE's customers, distributors, vendors, suppliers, financial institutions and
other third parties with whom it has material relationships, availability of
qualified personnel and other IT resources and any actions of third parties
with respect to Year 2000 problems.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company currently maintains all cash in United States dollars in
highly liquid, interest-bearing, investment-grade instruments with maturities
of less than three months, which the Company considers cash
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equivalents; therefore the Company has no "market risk sensitive investments,"
and no disclosure is required under this Item.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds.
On December 18, 1996, the Company issued a warrant to purchase up to
50,000 shares of the Company's common stock to The Southern Venture
Fund II, L.P. ("SVFII") (Massey Burch). On December 31, 1997, the
Company amended and restated this warrant (as so amended and restated,
the "Warrant") to change the per share exercise price from $4.5625 to
the average of the closing prices of the Common Stock as quoted on the
Nasdaq National Market for the five trading days prior to December 31,
1997, or approximately $1.59. In January 1999, SVFII exercised the
Warrant in full through a cashless exercise. As a result, the Company
issued 41,598 shares of its common stock to SVFII. The issuance of
shares of HIE common stock upon exercise of the Warrant was exempt
from registration under Section 4(2) of the Securities Act as a
transaction not involving a public offering. In addition, the SVFII
was sophisticated and had access to information about the Company.
Item 3. Defaults Upon Senior Securities.
The Company was in default of two of the line of credit financial
covenants under the Credit Facility at March 31, 1999: (1) quarterly
profitability; and (2) the minimum Quick Ratio, defined therein. The
Company and the Bank reached an agreement whereby the Bank waived
these defaults, the interest rate increased by 0.5% annually and the
line of credit is secured by the Company's intellectual property.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3 By-laws of HIE, Inc.
11 Statements of Computation of Per Share Loss.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K
During the quarter ended March 31, 1999 the Company did not file any
reports on Form 8-K.
13
<PAGE> 14
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.
HIE, Inc.
May 14, 1999 By: /s/ Joseph A. Blankenship
----------------------------------------
Joseph A. Blankenship
Vice President - Controller, Chief Accounting
Officer, Assistant Treasurer and Assistant Secretary
(duly authorized officer and principal accounting
officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3 By-laws of HIE, Inc.
11 Statements of Computation of Per Share Loss.
27 Financial Data Schedule (for SEC use only).
</TABLE>
15
<PAGE> 1
BY-LAWS OF HIE, INC.
(As amended and restated on April 20, 1999)
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting.
The annual meeting of the shareholders for the election of Directors
and for the transaction of such other business as may properly come before the
meeting shall be held at such place, either within or without the State of
Georgia, on such date and at such time as the Board of Directors may by
resolution provide. The Board of Directors may specify by resolution prior to
any special meeting of shareholders held within the year that such meeting shall
be in lieu of the annual meeting.
Section 2. Special Meeting; Call and Notice of Meetings.
Special meetings of the shareholders may be called at any time by the
Board of Directors, the Chairman of the Board of Directors or the President. The
Corporation shall call a special meeting of shareholders upon written request of
the holders of at least sixty percent (60%) of the outstanding Common Stock.
Such meetings shall be held at such place, either within or without the State of
Georgia, as is stated in the call and notice thereof. Written notice of each
meeting of shareholders, stating the time and place of the meeting, and the
purpose of any special meeting, shall be mailed to each shareholder entitled to
vote at or to notice of such meeting at his address shown on the books of the
Corporation not less than ten (l0) nor more than sixty (60) days prior to such
meeting unless such shareholder waives notice of the meeting. Any shareholder
may execute a waiver of notice, in person or by proxy, either before or after
any meeting, and shall be deemed to have waived notice if he is present at such
meeting in person or by proxy. Neither the business transacted at, nor the
purpose of, any meeting need be stated in the waiver of notice of such meeting,
except that, with respect to a waiver of notice of a meeting at which a plan of
merger or consolidation is considered, information as required by the Georgia
Business Corporation Code must be delivered to the shareholder prior to his
execution of the waiver of notice or the waiver itself must conspicuously and
specifically waive the right to such information.
Notice of any meeting may be given by the President, the Secretary or
by the person or persons calling such meeting. No notice need be given of the
time and place of reconvening of any adjourned meeting, if the time and place to
which the meeting is adjourned are announced at the adjourned meeting.
Section 3. Quorum; Required Shareholder Vote.
A quorum for the transaction of business at any annual or special
meeting of shareholders shall exist when the holders of a majority of the
outstanding shares entitled to vote are
<PAGE> 2
represented either in person or by proxy at such meeting. If a quorum is
present, action on a matter (other than the election of directors) by the
shareholders is approved if the votes cast favoring the action exceed the votes
cast opposing the action, unless the Georgia Business Combination Code (the
"Code"), the Corporation's Articles of Incorporation, or a provision of these
By-laws adopted by the shareholders under Code Section 14-2-1021 or any
successor statute requires a greater number of affirmative votes. When a quorum
is once present to organize a meeting, the shareholders present may continue to
do business at the meeting or at any adjournment thereof notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. The holders of a
majority of the voting shares represented at a meeting, whether or not a quorum
is present, may adjourn such meeting from time to time.
Section 4. Proxies.
A shareholder may vote either in person or by a proxy which he has duly
executed in writing. No proxy shall be valid after eleven (11) months from the
date of its execution unless a longer period is expressly provided in the proxy.
Section 5. Action of Shareholders Without Meeting.
Any action required to be, or which may be, taken at a meeting of the
shareholders, may be taken without a meeting if written consent, setting forth
the actions so taken, shall be signed by all of the shareholders entitled to
vote with respect to the subject matter thereof, except that, with respect to
approval of a plan of merger or consolidation by written consent, information as
required by the Georgia Business Corporation Code must be delivered to the
shareholders prior to their execution of the consent or the consent must
conspicuously and specifically waive the right to such information. Such consent
shall have the same force and effect as a unanimous affirmative vote of the
shareholders and shall be filed with the minutes of the proceedings of the
shareholders.
ARTICLE II
DIRECTORS
Section 1. Power of Directors.
The Board of Directors shall manage the business of the Corporation and
may exercise all powers of the Corporation, subject to any restrictions imposed
by law, by the Articles of Incorporation or by these By-Laws.
Section 2. Composition of the Board.
The Board of Directors of the Corporation shall consist of not less
than three (3) natural persons of the age of eighteen years or over, the exact
number to be determined from time to time by resolution of the Board of
Directors in accordance with Article 6 of the Corporation's articles of
incorporation. If all of the shares of the Corporation are owned beneficially
and of record by less than three shareholders, the number of directors may be
less
2
<PAGE> 3
than three but not less than the number of shareholders. Directors need not be
residents of the State of Georgia or shareholders of the Corporation. At each
annual meeting of the shareholders, the shareholders shall elect Directors who
shall serve until their successors are elected and qualified; provided that the
shareholders may, by the affirmative vote of the holders of a majority of the
shares entitled to vote at an election of Directors, increase or reduce the
number of Directors or add or remove Directors with or without cause at any
time.
Section 3. Meetings of the Board; Notice of Meetings; Waiver of
Notice.
The annual meeting of the Board of Directors for the purpose of
electing officers and transacting such other business as may be brought before
the meeting shall be held each year immediately following the annual meeting of
shareholders. The Board of Directors may by resolution provide for the time and
place of other regular meetings and no notice of such regular meetings need be
given. Special meetings of the Board of Directors may be called by the Chairman
of the Board of Directors, by the President or by any two Directors, and written
notice of the time and place of such meetings shall be given to each Director by
first class or air mail at least two (2) days before the meeting or by
telephone, telegraph, cablegram or in person at least one (l) day before the
meeting. Any Director may execute a waiver of notice, either before or after any
meeting, and shall be deemed to have waived notice if he is present at such
meeting. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be stated in the notice or waiver of
notice of such meeting. Any meeting may be held at any place within or without
the State of Georgia.
Section 4. Quorum; Vote Requirement.
A majority of the Directors in office at any time shall constitute a
quorum for the transaction of business at any meeting. When a quorum is present,
the vote of a majority of the Directors present shall be the act of the Board of
Directors, unless a greater vote is required by law, by the Articles of
Incorporation or by these By-Laws.
Section 5. Action of Board Without Meeting.
Any action required or permitted to be taken at a meeting of the Board
of Directors or any committee thereof may be taken without a meeting if written
consent, setting forth the action so taken, is signed by all the Directors or
committee members and filed with the minutes of the proceedings of the Board of
Directors or committee. Such consent shall have the same force and effect as a
unanimous affirmative vote of the Board of Directors or committee, as the case
may be.
Section 6. Committees.
The Board of Directors, by resolution adopted by a majority of all of
the Directors, may designate from among its members an Executive Committee,
and/or other committees, each composed of two (2) or more Directors, which may
exercise such authority as is delegated by the Board of Directors, provided that
no committee shall have the authority of the Board of Directors in reference to
(l) an amendment to the Articles of Incorporation or By-Laws of the Corporation,
3
<PAGE> 4
(2) the adoption of a plan of merger or consolidation, (3) the sale, lease,
exchange or other disposition of all or substantially all of the property and
assets of the Corporation, or (4) a voluntary dissolution of the Corporation or
a revocation thereof.
Section 7. Vacancies.
A vacancy occurring in the Board of Directors by reason of the removal
of a Director by the shareholders shall be filled by the shareholders, or, if
authorized by the shareholders, by the remaining Directors. Any other vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining Directors though less than a quorum of the Board of
Directors, or by the sole remaining Director, as the case may be, or, if the
vacancy is not so filled, or if no director remains, by the shareholders. A
Director elected to fill a vacancy shall serve for the unexpired term of his
predecessor in office.
Section 8. Telephone Conference Meetings.
Unless the Articles of Incorporation otherwise provide, members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board or committee by means of telephone
conference or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 8 shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
Section 1. Executive Structure of the Corporation.
The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer and such other officers or assistant officers, including
Vice Presidents, as may be elected by the Board of Directors. Each officer shall
hold office for the term for which he has been elected or appointed and until
his successor has been elected or appointed and has qualified, or until his
earlier resignation, removal from office or death. Any two or more offices may
be held by the same person, except that the same person shall not be both
Chairman of the Board of Directors and Secretary, or President and Secretary.
The Board of Directors may designate a Vice President as an Executive Vice
President and may designate the order in which other Vice Presidents may act.
Section 2. President.
The President shall be the chief operating officer of the Corporation
and shall be in charge of the day-to-day affairs of the Corporation, subject to
the direction of the Board of Directors. He shall preside at all meetings of the
shareholders.
4
<PAGE> 5
Section 3. Vice President.
The Vice President shall act in the case of absence or disability of
the President.
Section 4. Secretary.
The Secretary shall keep the minutes of the proceedings of the
shareholders and of the Board of Directors, and shall have custody of and attest
the seal of the Corporation.
Section 5. Treasurer.
The Treasurer shall be responsible for the maintenance of proper
financial books and records of the Corporation.
Section 6. Other Duties and Authority.
Each officer, employee and agent of the Corporation shall have such
other duties and authority as may be conferred upon him by the Board of
Directors or delegated to him by the President.
Section 7. Removal of Officers.
Any officer may be removed at any time by the Board of Directors, and
such vacancy may be filled by the Board of Directors. This provision shall not
prevent the making of a contract of employment for a definite term with any
officer and shall have no effect upon any cause of action which any officer may
have as a result of removal in breach of a contract of employment.
Section 8. Compensation.
The salaries of the officers shall be fixed from time to time by the
Board of Directors. No officer shall be prevented from receiving such salary by
reason of the fact that he is also a Director of the Corporation.
ARTICLE IV
STOCK
Section 1. Stock Certificates.
The shares of stock of the Corporation shall be represented by
certificates in such form as may be approved by the Board of Directors, which
certificates shall be issued to the shareholders of the Corporation in numerical
order from the stock book of the Corporation, and each of which shall bear the
name of the shareholder, the number of shares represented, and the date of
issue; and which shall be signed by the Chairman of the Board of Directors or
President and the
5
<PAGE> 6
Secretary or an Assistant Secretary of the Corporation; and which shall be
sealed with the seal of the Corporation. No share certificate shall be issued
until the consideration for the shares represented thereby has been fully paid.
Section 2. Transfer of Stock.
Shares of stock of the Corporation shall be transferred only on the
books of the Corporation upon surrender to the Corporation of the certificate or
certificates representing the shares to be transferred accompanied by an
assignment in writing of such shares properly executed by the shareholder of
record or his duly authorized attorney-in-fact and with all taxes on the
transfer having been paid. The Corporation may refuse any requested transfer
until furnished evidence satisfactory to it that such transfer is proper. Upon
the surrender of a certificate for transfer of stock, such certificate shall at
once be conspicuously marked on its face "Cancelled" and filed with the
permanent stock records of the Corporation. The Board of Directors may make such
additional rules concerning the issuance, transfer and registration of stock and
requirements regarding the establishment of lost, destroyed or wrongfully taken
stock certificates (including any requirement of an indemnity bond prior to
issuance of any replacement certificate) as it deems appropriate.
Section 3. Registered Shareholders.
The Corporation may deem and treat the holder of record of any stock as
the absolute owner for all purposes and shall not be required to take any notice
of any right or claim of right of any other person.
Section 4. Record Date.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other purpose, the Board of Directors of the Corporation
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70) days and,
in the case of a meeting of shareholders, not less than ten (10) days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken.
ARTICLE V
DEPOSITORIES, SIGNATURES AND SEAL
Section 1. Depositories.
All funds of the Corporation shall be deposited in the name of the
Corporation in such bank or other financial institutions as the Board of
Directors may from time to time designate and shall be drawn out on checks,
drafts or other orders signed on behalf of the Corporation by such person or
persons as the Board of Directors may from time to time designate.
6
<PAGE> 7
Section 2. Contracts and Deeds.
All contracts, deeds and other instruments shall be signed on behalf of
the Corporation by the President or by such other officer, officers, agent or
agents as the Board of Directors may from time to time by resolution provide.
Section 3. Seal.
The seal of the Corporation shall be as follows:
If the seal is affixed to a document, the signature of the
Secretary or an Assistant Secretary shall attest the seal. The
seal and its attestation may be lithographed or otherwise
printed on any document and shall have, to the extent
permitted by law, the same force and effect as if it had been
affixed and attested manually.
ARTICLE VI
INDEMNITY
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Corporation), by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including reasonable attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation (and with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful), to the maximum extent
permitted by, and in the manner provided by, the Georgia Business Corporation
Code.
ARTICLE VII
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power to alter, amend or repeal
the By-Laws or adopt new by-laws, but any by-laws adopted by the Board of
Directors may be altered, amended or repealed and new by-laws adopted by the
shareholders. The shareholders may prescribe that any by-law or by-laws adopted
by them shall not be altered, amended or repealed by the Board of Directors.
Action by the Directors with respect to the By-Laws shall be taken by an
affirmative vote of a majority of all of the Directors then in office. If a
quorum is present, action by the
7
<PAGE> 8
shareholders with respect to the By-laws shall be approved if the votes cast
favoring the action exceed the votes cast opposing the action, unless the Code,
the Corporation's Articles of Incorporation, or a provision of these By-laws
adopted by the shareholders under Section 14-2-1021 or any successor statute of
the Code requires a greater number of affirmative votes.
ARTICLE VIII
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
In addition to any other provisions of law as may be applicable,
notwithstanding any other provisions of these By-laws or the Corporation's
Articles of Incorporation to the contrary, the provisions of Sections 14-2-1131
through 14-2-1133 of the Georgia Business Corporation Code (the "Code"), as the
same may be amended or supplemented from time to time, shall apply to and govern
those transactions of the Corporation which constitute "business combinations"
(as that term is defined in Section 14-2-1131 of the Code). The provisions of
this Article VIII of the By-laws may not be repealed except in the manner set
forth in Section 14-2-1133 of the Code.
8
<PAGE> 1
EXHIBIT 11
HIE, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE LOSS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss $ (1,768) $ (357)
======== ========
Weighted average number of common shares outstanding 25,223 23,602
======== ========
Basic net loss per common share $ (0.07) $ (0.02)
======== ========
Shares used in diluted net loss per share calculation:
Weighted average number of common shares outstanding 25,223 23,602
Additional shares assumed outstanding from dilutive stock
options used in diluted loss per share calculation (1) -- --
-------- --------
25,223 23,602
Diluted net loss per common share $ (0.07) $ (0.02)
======== ========
</TABLE>
(1) Since stock options are antidilutive to the diluted loss per common share
calculations, stock options are not considered in such diluted loss per
share calculations for the three months ended March 31, 1999 and 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HIE,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND THE CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,978
<SECURITIES> 0
<RECEIVABLES> 13,400
<ALLOWANCES> 720
<INVENTORY> 0
<CURRENT-ASSETS> 17,374
<PP&E> 5,086
<DEPRECIATION> 2,413
<TOTAL-ASSETS> 31,339
<CURRENT-LIABILITIES> 11,743
<BONDS> 0
0
0
<COMMON> 253
<OTHER-SE> 18,814
<TOTAL-LIABILITY-AND-EQUITY> 31,339
<SALES> 0
<TOTAL-REVENUES> 5,245
<CGS> 0
<TOTAL-COSTS> 2,545
<OTHER-EXPENSES> 4,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (1,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,768)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
