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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, 2000.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
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Commission file number 0-27056
Healthcare.com Corporation
--------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2112366
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(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)
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(Former name, former address and former fiscal year, if changed since last
report)
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 Company's Common Stock, $.01 par value
per share, together with associated preferred stock purchase rights (the "Common
Stock"), as of August 4, 2000 was 28,064,029 shares.
Exhibit Index is on Page 20 herein.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements ......................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ......................................................................... 16
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds .................................... 17
Item 4. Submission of Matters to a Vote of Security Holders .......................... 17
Item 6. Exhibits and Reports on Form 8-K ............................................. 18
Signatures ............................................................................ 19
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEALTHCARE.COM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,110 $ 5,609
Trade accounts receivable, less allowances of $4,461 and $5,160 at
June 30, 2000 and December 31, 1999, respectively 13,283 6,662
Other current assets 1,373 1,421
-------- --------
Total current assets 19,766 13,692
Purchased software, net of accumulated amortization of $2,241 and $1,931
at June 30, 2000 and December 31, 1999, respectively 956 1,266
Capitalized software development costs, net of accumulated amortization of
$1,140 and $801 at June 30, 2000 and December 31, 1999, respectively 2,767 2,425
Property and equipment, net of accumulated depreciation of $3,559 and
$3,006 at June 30, 2000 and December 31, 1999, respectively 2,710 2,908
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $3,805 and $3,283 at June 30, 2000 and December 31,
1999, respectively 11,966 6,887
Other assets 78 89
-------- --------
Total assets $ 38,243 $ 27,267
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and obligations under capital leases $ 6,272 $ 6,363
Accounts payable, principally trade 2,684 1,211
Accrued liabilities 3,007 1,773
Deferred revenue 4,999 4,583
-------- --------
Total current liabilities 16,962 13,930
Long-term debt and obligations under capital leases, excluding current
installments 293 254
-------- --------
Total liabilities 17,255 14,184
-------- --------
Series B Cumulative Convertible Exchangeable Preferred Stock; designated 550
shares; 23 and 65 shares issued and outstanding at June 30,
2000 and December 31, 1999, respectively 145 348
-------- --------
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 27,414 and 25,555 shares at June 30, 2000 and
December 31, 1999, respectively 274 256
Additional paid-in capital 49,274 42,236
Accumulated deficit (28,705) (29,757)
-------- --------
Total shareholders' equity 20,843 12,735
-------- --------
Total liabilities and shareholders' equity $ 38,243 $ 27,267
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HEALTHCARE.COM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software $ 3,363 $ 1,187 $ 6,255 $ 2,173
Services and other 9,973 5,163 16,913 9,422
-------- -------- -------- --------
Total revenue 13,336 6,350 23,168 11,595
-------- -------- -------- --------
Cost of revenue:
Software 434 307 899 558
Services and other 6,767 2,758 11,236 5,052
-------- -------- -------- --------
Total cost of revenue 7,201 3,065 12,135 5,610
-------- -------- -------- --------
Gross profit 6,135 3,285 11,033 5,985
-------- -------- -------- --------
Operating expenses:
Sales and marketing 2,353 1,812 4,609 3,559
Research and development 919 1,147 1,823 2,128
General and administrative 1,716 1,495 2,981 3,134
-------- -------- -------- --------
Total operating expenses 4,988 4,454 9,413 8,821
-------- -------- -------- --------
Operating earnings (loss) 1,147 (1,169) 1,620 (2,836)
Interest expense, net (282) (83) (531) (184)
-------- -------- -------- --------
Earnings (loss) before income taxes 865 (1,252) 1,089 (3,020)
Income taxes -- -- -- --
-------- -------- -------- --------
Net earnings (loss) 865 (1,252) 1,089 (3,020)
Accretion of Series B Preferred Stock (9) -- (24) --
Series B Preferred Stock dividend requirement (5) -- (13) --
-------- -------- -------- --------
Net earnings (loss) attributable to
common shareholders $ 851 $ (1,252) $ 1,052 $ (3,020)
======== ======== ======== ========
Net earnings (loss) per share of
common stock:
Basic $ 0.03 $ (0.05) $ 0.04 $ (0.12)
======== ======== ======== ========
Diluted $ 0.03 $ (0.05) $ 0.04 $ (0.12)
======== ======== ======== ========
Shares used in the calculation
of net earnings (loss) per share:
Basic 27,282 25,326 26,604 25,274
======== ======== ======== ========
Diluted 28,043 25,326 27,612 25,274
======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HEALTHCARE.COM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,089 $(3,020)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Provision for doubtful accounts -- 150
Depreciation and amortization 1,742 1,285
Increase in trade accounts receivable (6,621) (169)
Decrease in other current assets 158 346
Increase in accounts payable, principally trade 1,473 980
Increase in accrued liabilities 806 200
Increase in deferred revenue 416 102
------- -------
Net cash used in operating activities (937) (126)
------- -------
Cash flows from investing activities:
Purchased software -- (50)
Capitalized software development costs (681) (769)
Capital expenditures (355) (1,220)
Cash obtained in connection with an acquisition of business 1,000 --
Change in other non-current assets and liabilities, net 11 6
------- -------
Net cash used in investing activities (25) (2,033)
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Cash flows from financing activities:
Series B Preferred Stock dividends (13) --
Principal payments on long-term debt, net (219) (222)
Net borrowings under line of credit -- 1,000
Proceeds from issuances of common stock 695 601
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Net cash provided by financing activities 463 1,379
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Net decrease in cash and cash equivalents (499) (780)
Cash and cash equivalents at beginning of period 5,609 3,167
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Cash and cash equivalents at end of period $ 5,110 $ 2,387
======= =======
Supplemental disclosures of cash paid for:
Interest $ 354 $ 184
======= =======
Supplemental disclosures of non-cash investing and financing activities:
Issuance of warrants to purchase common stock in connection with
obtaining financing agreement $ 128 --
======= =======
Conversion of Series B Preferred Stock into common stock $ 226 $ --
======= =======
Accretion of discount on Series B Preferred Stock $ 24 $ --
======= =======
Acquisition of business:
Fair value of assets acquired, including goodwill $ 5,601 $ --
Fair value of liabilities assumed (595) --
Fair value of common stock issued (5,500) --
Fair value of warrants issued (506) --
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Net cash obtained in connection with an acquisition of business $(1,000) $ --
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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HEALTHCARE.COM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
1. ACCOUNTING POLICIES
The Condensed Consolidated Financial Statements as of June 30, 2000 and
for the three and six month periods ended June 30, 2000 and 1999
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. The condensed consolidated financial
statements include the accounts of Healthcare.com Corporation (formerly
HIE, Inc.) and Subsidiary (the "Company" or "Healthcare.com").
These Condensed Consolidated Financial Statements should be read in
conjunction with Healthcare.com's consolidated financial statements and
notes included in its Annual Report on Form 10-K for the year ended
December 31, 1999 (the "1999 Form 10-K") filed with the Securities and
Exchange Commission.
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 1999 Form 10-K. All significant intercompany
accounts and transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to current year
classifications.
No statements of comprehensive income have been included in the
accompanying interim financial statements since the Company has no
other comprehensive income.
2. ACQUISITION
On March 13, 2000, the Company signed an agreement, effective
as of February 25, 2000, to purchase certain service contracts and
other assets and liabilities of the Integrated Solutions Division
("ISD") of Thermo Information Solutions Inc. ("Thermo"). ISD, based in
Charleston, South Carolina, designs, implements and manages information
technology solutions. The purchase price consisted of 1,307,345 shares
of the Company's common stock and a warrant to purchase an additional
261,469 shares of the Company's common stock at any time on or before
March 13, 2004 at an exercise price of $4.207 per share. On the closing
date, the fair value of the common stock issued was $5,500,000,
determined by calculating the average closing price of the common stock
several days before and after the closing date and applying a discount
related to certain restrictions on the common stock. The discount
applied to the calculated value of common stock issued in this
transaction is supported by an independent valuation. The value of the
warrant was $506,028 on the closing date, determined using the
Black-Scholes option-pricing model. Thermo had a one-time right,
exercisable at any time on or before September 14, 2000, subject to
certain limitations, to receive additional shares of Healthcare.com
common stock in the event that the average trading price of
Healthcare.com common stock during the 10-day trading period prior to
its election is below $4.207 per share. On July 14, 2000, Thermo
exercised this right, resulting in the issuance of 585,128 additional
shares of Healthcare.com common stock. As part of the transaction, the
Company received $1,000,000 in cash for working capital purposes from
Thermo. The acquisition was accounted for using the purchase method of
accounting with the results of operations of the business acquired
included in the Company's results of operations from the effective date
of the transaction. The acquisition resulted in acquired net assets of
approximately $500 and excess of cost over net assets acquired of
approximately $5,601, which is being amortized over a 10-year life.
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HEALTHCARE.COM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
The following pro forma financial information presents the combined
results of operations of Healthcare.com and ISD as if the acquisition
had occurred as of the beginning of each period presented, after giving
effect to certain adjustments, including the amortization of goodwill.
The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had Healthcare.com and
ISD constituted a single entity during the three and six-month periods
ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue $ 13,336 $ 10,513 $ 26,611 $ 20,256
========= ========= ========= =========
Net earnings (loss) attributable
to common shareholders $ 851 $ (1,029) $ 1,219 $ (2,683)
========= ========= ========= =========
Net earnings (loss) per share of
common stock $ 0.03 $ (0.04) $ 0.04 $ (0.10)
========= ========= ========= =========
</TABLE>
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments
with original maturities of three months or less, $3,000,000 of cash
equivalents serve as collateral on the Company's line of credit.
4. DEBT
On February 24, 2000, the Company entered into an Accounts Receivable
Financing Agreement (the "Agreement") with Silicon Valley Bank (the
"Bank"), which provides for an extension of credit in order to finance
receivables up to $6,000,000. The Agreement term continues through
February 15, 2001 and requires finance charges equal to the Bank's
prime rate plus 2%. In conjunction with the Agreement, the Company
issued a Stock Purchase Warrant to the Bank, which entitles the holder
to purchase 61,539 shares of the Company's common stock at any time on
or before February 23, 2005 at an exercise price of $4.875 per share.
At June 30, 2000, $6,000,000 was available for borrowing under this
Agreement.
5. 8.5% SERIES B CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
During the six months ended June 30, 2000, 42,500 shares of the 65,000
originally issued shares of Series B Cumulative Convertible
Exchangeable Preferred Stock were converted into 197,761 shares of
common stock.
6. SEGMENT INFORMATION
The Company's reportable segments are strategic business units that
offer different products and services. Beginning January 1, 2000, the
Company operates in two segments: (i) the licensing of integration
software
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HEALTHCARE.COM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
products and performance of related integration services ("Software and
Services") and (ii) services provided by the Company that allow
enterprises to outsource their information technology, integration and
application functions to Healthcare.com ("Solution Sourcing"). Prior to
2000, the Solution Sourcing business did not separately exist. The
significant portion of the Solution Sourcing business was added upon
the acquisition of ISD. The Company evaluates performance of the
segments based on revenue and gross profit of the segments. The Company
does not allocate assets to the reportable segments. Segment
information for the three months and six months ended June 30, 2000 is
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
2000 2000
------------ ----------
(Unaudited)
<S> <C> <C>
Revenue:
Software and Services $ 7,560 $14,935
Solution Sourcing 5,776 8,233
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Total revenue $13,336 $23,168
======= =======
Gross profit:
Software and Services $ 4,966 $ 9,321
Solution Sourcing 1,169 1,712
------- -------
Total gross profit $ 6,135 $11,033
======= =======
</TABLE>
7. RELATED PARTY TRANSACTION
Matria Healthcare, Inc., whose Chairman of the Board is also the
Chairman of the Board of Healthcare.com, entered into a software and
services agreement with the Company during the first quarter of 2000.
Software revenue from this transaction totaled $485,000 for the six
months ended June 30, 2000.
8. MAJOR CUSTOMER
Two customers accounted for 39% of the Company's total revenue for the
three months ended June 30, 2000. These same two customers accounted
for 31% of the Company's total revenue for the six months ended June
30, 2000.
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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 1999 Form 10-K filed with the Securities and
Exchange Commission (the "Commission") and include, but are not limited to,
access to capital and the financial condition of providers and e-Health vendors.
By making these forward-looking statements, the Company 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.
OVERVIEW
Healthcare.com develops and markets EAI solutions and provides related
implementation, maintenance and support services and education to companies
seeking to connect their disparate software applications and data repositories.
Healthcare.com has served customers in the healthcare market since 1994 and in
1998 began providing its software and services to financial institutions.
Healthcare.com's products are designed to enable companies to more effectively
administer the disparate elements of their IT systems by linking both new and
existing software to form a more efficient IT environment.
The Company was incorporated in Georgia in June 1994 as Healthdyne
Information Enterprises, Inc., a wholly-owned subsidiary of Healthdyne, Inc.,
and was initially focused on providing enterprise-wide clinical information
management solutions for integrated healthcare delivery networks. In November
1995, Healthdyne, Inc. distributed all of the outstanding shares of HIE common
stock in a spin-off. In October 1997, HIE redefined its strategic direction to
focus on providing software products and services to support the enterprise-wide
integration of information. As part of its new strategic focus, HIE (1) acquired
HUBLink, Inc., a privately-held integration software product company, in May
1998 in a pooling-of-interests transaction and (2) sold assets related to
certain non-strategic consulting services to Superior Consultant Holdings
Corporation in December 1998. On March 13, 2000, the Company signed an
agreement, effective as of February 25, 2000, to purchase certain service
contracts and other assets of ISD. ISD, based in Charleston, South Carolina,
designs, implements and manages information technology solutions. On April 10,
2000, the name of the Company was changed from HIE, Inc. to Healthcare.com
Corporation as part of the Company's introduction of a new healthcare,
business-to-business product strategy to complement and extend its existing
enterprise-wide integration solution business.
Healthcare.com sells its software products to distributors and
application vendors, as well as directly to end-users. Software license sales
are comprised of (1) full-use licenses, which provide the end-user with full
functionality of the product and (2) limited use licenses, which restrict the
functionality of the product or the number of application interfaces. A typical
distributor or application vendor agreement includes an initial purchase of
software for resale with additional licenses purchased periodically during the
term of the agreement. Sales directly to end-users are generally for perpetual
licenses for a one-time, up-front fee.
Healthcare.com recognizes revenue from two primary sources, software
licenses and services. Software license revenue is recognized in accordance with
the criteria set forth in Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2") and SOP 98-9, issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants.
Accordingly, Healthcare.com recognizes software license revenue when: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the
fee is fixed or determinable; and (4) collectibility is probable.
Services revenue includes fees for product implementation and
integration services, software support and maintenance agreements and education.
Product implementation and integration services are generally provided
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under contracts with terms of less than one year. Revenue is recognized as the
work is performed or, in the case of a fixed fee contract, on a
percentage-of-completion basis, even though some services may be prepaid.
Software support and maintenance services are generally provided under one-year
renewable service contracts for a prepaid standard fee. Revenue is recognized
ratably on a straight-line basis over the term of the contract. Education
classes are provided for a standard per-student charge and revenue is recognized
as the service is provided.
Research and development expenses are accounted for in accordance with
the provisions of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). SFAS 86 requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on Healthcare.com's product
development model, technological feasibility is established upon completion of a
working model.
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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 Condensed Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenue (in thousands) $ 13,336 $ 6,350 $ 23,168 $ 11,595
======== ======== ======== ========
Revenue:
Software 25% 19% 27% 19%
Services and other 75% 81% 73% 81%
-------- -------- -------- --------
Total revenue 100% 100% 100% 100%
-------- -------- -------- --------
Cost of revenue:
Software (as a percentage of software revenue) 13% 26% 14% 26%
Services and other (as a percentage of
services and other revenue) 68% 53% 66% 54%
Total cost of revenue 54% 48% 52% 48%
-------- -------- -------- --------
Gross profit 46% 52% 48% 52%
-------- -------- -------- --------
Operating expenses:
Sales and marketing 18% 28% 20% 31%
Research and development 7% 18% 8% 18%
General and administrative 12% 24% 13% 27%
-------- -------- -------- --------
Total operating expenses 37% 70% 41% 76%
-------- -------- -------- --------
Operating earnings (loss) 9% (18)% 7% (24)%
Interest expense, net (3)% (2)% (2)% (2)%
-------- -------- -------- --------
Earnings (loss) before income taxes 6% (20)% 5% (26)%
Income taxes 0% 0% 0% 0%
-------- -------- -------- --------
Net earnings (loss) 6% (20)% 5% (26)%
======== ======== ======== ========
</TABLE>
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COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUE. Revenue increased 110% to $13.3 million for the three months ended June
30, 2000 from $6.4 million for the three months ended June 30, 1999. As
discussed below, the Company experienced increases in both software revenue and
services and other revenue.
Software. Software revenue increased 183% to $3.4 million for the three
months ended June 30, 2000 from $1.2 million for the three months ended June 30,
1999. As a percentage of total revenue, software revenue increased to 25% for
the three months ended June 30, 2000 from 19% for the three months ended June
30, 1999. The dollar increase in software revenue was primarily attributable to
an expanded market, which now includes e-Health vendors, for the Company's
existing software products. The increase in software revenue as a percentage of
total revenue resulted from the software revenue increasing at a higher
percentage rate than the services and other revenue.
Services and other. Services and other revenue increased 93% to $10.0
million for the three months ended June 30, 2000 from $5.2 million for the three
months ended June 30, 1999. Services and other revenue as a percentage of total
revenue decreased to 75% for the three months ended June 30, 2000 from 81% for
the three months ended June 30, 1999. The dollar increase in services and other
revenue was primarily due to additional service revenue from the acquisition of
ISD effective February 25, 2000. The decrease in services and other revenue as a
percentage of total revenue resulted primarily from the increase in software
revenue discussed above.
COST OF REVENUE. Total cost of revenue increased 135% to $7.2 million for the
three months ended June 30, 2000 from $3.1 million for the three months ended
June 30, 1999.
Software. Cost of software revenue consists principally of royalty
payments to third parties for software products that were sold with
Healthcare.com's products and amortization of capitalized software development
costs. Cost of software revenue increased $127,000 to $434,000 for the three
months ended June 30, 2000 from $307,000 for the three months ended June 30,
1999. As a percentage of software revenue, cost of software revenue decreased to
13% for the three months ended June 30, 2000 from 26% for the three months ended
June 30, 1999. Cost of software revenue increased due to an increase in
amortization of capitalized software and an increase in royalty expense for the
three months ended June 30, 2000, compared to the three months ended June 30,
1999. The decrease in cost of software revenue as a percentage of software
revenue was a result of the significant dollar increase in software revenue.
Services and other. Cost of services and other revenue consists
primarily of personnel, contract services, facility and systems costs incurred
in providing product implementation, integration projects, maintenance,
consulting and education services. Cost of services and other revenue increased
145% to $6.8 million for the three months ended June 30, 2000 from $2.8 million
for the three months ended June 30, 1999. As a percentage of services and other
revenue, cost of services and other revenue increased to 68% for the three
months ended June 30, 2000 from 53% for the three months ended June 30, 1999.
The dollar increase in cost of services and other revenue was primarily
attributable to the acquisition of ISD during the first quarter of 2000. The
increase in cost of services and other revenue as a percentage of services and
other revenue was primarily attributable to the addition of long-term service
contracts obtained upon the acquisition of ISD, which have higher cost of
services than previously existing short-term service contracts billed primarily
on an hourly basis.
OPERATING EXPENSES:
Sales and marketing. Sales and marketing expense consists primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
travel and promotional expenses. Sales and marketing expense increased 30% to
$2.4 million for the three months ended June 30, 2000 from $1.8 million for the
three months ended June 30, 1999. Sales and marketing expense as a percentage of
total revenue decreased to 18% for the three months ended June 30, 2000 from 28%
for the three months ended June 30, 1999. The dollar increase in sales and
marketing expense was primarily due to increases in salaries and commissions,
coupled with marketing to an
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expanded market, including e-Health vendors. The decrease in sales and marketing
expense as a percentage of revenue was a result of the increase in software and
service revenue during the three months ended June 30, 2000.
Research and development. Research and development expense includes
personnel costs, contract services, and travel associated with the development
of new products, enhancements of existing products and quality assurance
activities. Research and development expense decreased 20% to $919,000 for the
three months ended June 30, 2000 from $1.1 million for the three months ended
June 30, 1999. Research and development expense as a percentage of total revenue
decreased to 7% for the three months ended June 30, 2000 from 18% for the three
months ended June 30, 1999. Research and development expense decreased due to a
decrease in expenses for contract labor and other general research and
development expenditures. Capitalized research and development costs were
$346,000 and $364,000 for the three months ended June 30, 2000 and 1999,
respectively.
General and administrative. General and administrative expense consists
primarily of personnel costs, outside professional fees, and software and
equipment costs associated with the finance, legal, human resources, information
systems, and administrative functions of Healthcare.com. General and
administrative expense increased 15% to $1.7 million for the three months ended
June 30, 2000 from $1.5 million for the three months ended June 30, 1999.
General and administrative expense as a percentage of total revenue decreased to
12% for the three months ended June 30, 2000 from 24% for the three months ended
June 30, 1999. The dollar increase is primarily a result of increases in
salaries and wages and goodwill amortization for the three months ended June 30,
2000. The decrease in general and administrative expense as a percentage of
total revenue was primarily due to the increase in software and service revenues
for the three months ended June 30, 2000.
INTEREST EXPENSE, NET. Net interest expense increased $199,000 to $282,000 for
the three months ended June 30, 2000 from $83,000 for the three months ended
June 30, 1999. The increase in interest expense resulted from increases in
short-term debt used primarily for working capital purposes.
INCOME TAXES. The Company had no provision for income taxes for either the three
months ended June 30, 2000 or 1999 as a result of Healthcare.com utilizing net
operating loss carryforwards in 2000 and having a net operating loss for 1999.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUE. Revenue increased 100% to $23.2 million for the six months ended June
30, 2000 from $11.6 million for the six months ended June 30, 1999. As discussed
below, the Company experienced increases in both software revenue and services
and other revenue.
Software. Software revenue increased 188% to $6.3 million for the six
months ended June 30, 2000 from $2.2 million for the six months ended June 30,
1999. As a percentage of total revenue, software revenue increased to 27% in the
six months ended June 30, 2000 from 19% for the six months ended June 30, 1999.
The dollar increase in software revenue was primarily attributable to an
expanded market, which now includes e-Health vendors, for the Company's existing
software products. The increase in software revenue as a percentage of total
revenue resulted from the software revenue increasing at a higher percentage
rate than the services and other revenue.
Services and other. Services and other revenue increased 80% to $16.9
million for the six months ended June 30, 2000 from $9.4 million for the six
months ended June 30, 1999. Services and other revenue as a percentage of total
revenue decreased to 73% for the six months ended June 30, 2000 from 81% for the
six months ended June 30, 1999. The dollar increase in services and other
revenue was primarily due to additional service revenue from the acquisition of
ISD effective February 25, 2000. The decrease in services and other revenue as a
percentage of total revenue resulted primarily from the increase in software
revenue discussed above.
COST OF REVENUE. Total cost of revenue increased 116% to $12.1 million for the
six months ended June 30, 2000 from $5.6 million for the six months ended June
30, 1999.
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<PAGE> 14
Software. Cost of software revenue consists principally of royalty
payments to third parties for software products that were sold with
Healthcare.com's products and amortization of capitalized software development
costs. Cost of software revenue increased 61% to $899,000 for the six months
ended June 30, 2000 from $558,000 for the six months ended June 30, 1999. As a
percentage of software revenue, cost of software revenue decreased to 14% for
the six months ended June 30, 2000 from 26% for the six months ended June 30,
1999. Cost of software revenue increased due to an increase in amortization of
capitalized software and an increase in royalty expense for the six months ended
June 30, 2000, compared to the six months ended June 30, 1999. The decrease in
cost of software revenue as a percentage of software revenue was a result of the
significant dollar increase in software revenue.
Services and other. Cost of services and other revenue consists
primarily of personnel, contract services, facility and systems costs incurred
in providing product implementation, integration projects, maintenance,
consulting and education services. Cost of services and other revenue increased
122% to $11.2 million for the six months ended June 30, 2000 from $5.1 million
for the six months ended June 30, 1999. As a percentage of services and other
revenue, cost of services and other revenue increased to 66% for the six months
ended June 30, 2000 from 54% for the six months ended June 30, 1999. The dollar
increase in cost of services and other revenue was primarily attributable to the
acquisition of ISD during the first quarter of 2000. The increase in cost of
services and other revenue as a percentage of services and other revenue was
primarily attributable to the addition of long-term service contracts obtained
upon the acquisition of ISD, which have higher cost of services than previously
existing short-term service contracts billed primarily on an hourly basis.
OPERATING EXPENSES:
Sales and marketing. Sales and marketing expense consists primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
travel and promotional expenses. Sales and marketing expense increased 30% to
$4.6 million for the six months ended June 30, 2000 from $3.6 million for the
six months ended June 30, 1999. Sales and marketing expense as a percentage of
total revenue decreased to 20% for the six months ended June 30, 2000 from 31%
for the six months ended June 30, 1999. The dollar increase in sales and
marketing expense was primarily due to increases in salaries and commissions,
coupled with marketing to an expanded market, including e-Health vendors. The
decrease in sales and marketing expense as a percentage of revenue was a result
of the increase in software and service revenue during the six months ended June
30, 2000.
Research and development. Research and development expense includes
personnel costs, contract services, and travel associated with the development
of new products, enhancements of existing products and quality assurance
activities. Research and development expense decreased 14% to $1.8 million for
the six months ended June 30, 2000 from $2.1 million for the six months ended
June 30, 1999. Research and development expense as a percentage of total revenue
decreased to 8% for the six months ended June 30, 2000 from 18% for the six
months ended June 30, 1999. Research and development expense decreased due to a
decrease in expenses for contract labor and other general research and
development expenditures. Capitalized research and development costs were
$681,000 and $769,000 for the six months ended June 30, 2000 and 1999,
respectively.
General and administrative. General and administrative expense consists
primarily of personnel costs, outside professional fees, and software and
equipment costs associated with the finance, legal, human resources, information
systems, and administrative functions of Healthcare.com. General and
administrative expense decreased 5% to $3.0 million for the six months ended
June 30, 2000 from $3.1 million for the six months ended June 30, 1999. General
and administrative expense as a percentage of total revenue decreased to 13% for
the six months ended June 30, 2000 from 27% for the six months ended June 30,
1999. The dollar decrease is a result of decreases in consulting fees, travel
expenses and other general administrative expenses, partially offset by
increases in salaries and wages and goodwill amortization. The decrease in
general and administrative expense as a percentage of total revenue was
primarily due to the increase in software and service revenues for the six
months ended June 30, 2000.
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<PAGE> 15
INTEREST EXPENSE, NET. Net interest expense increased $347,000 to $531,000 for
the six months ended June 30, 2000 from $184,000 for the six months ended June
30, 1999. The increase in interest expense resulted from increases in short-term
debt used primarily for working capital purposes.
INCOME TAXES. The Company had no provision for income taxes for either the six
months ended June 30, 2000 or 1999 as a result of Healthcare.com utilizing net
operating loss carryforwards in 2000 and having a net operating loss for 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $2.8 million at June 30, 2000
compared to negative working capital of $238,000 at December 31, 1999. The
working capital increase was primarily attributable to the ISD acquisition and
profitable operations in the first six months of 2000.
Net cash used in operating activities totaled $991,000 for the six
months ended June 30, 2000 compared to net cash used in operating activities of
$126,000 for the six months ended June 30, 1999. This increased use of cash of
$865,000 was primarily due to the increases in accounts receivable during the
six months ended June 30, 2000, partially offset by net earnings before
depreciation and amortization reported for the six months ended June 30, 2000,
compared to the same items in the comparable period of 1999.
Net cash provided by investing activities was $29,000 for the six
months ended June 30, 2000 compared to net cash used in investing activities of
$2.0 million for the six months ended June 30, 1999. This difference of $2.1
million was primarily due to cash obtained in connection with the ISD
acquisition and a decrease in capital expenditures during the six months ended
June 30, 2000, compared to last year's comparable period.
Net cash provided by financing activities was $463,000 for the six
months ended June 30, 2000 compared to net cash provided by financing activities
of $1.4 million for the six months ended June 30, 1999. This decrease of
$916,000 in cash provided is primarily the result of borrowings under the line
of credit during the six months ended June 30, 1999, whereas there were no
borrowings under the line of credit during the six months ended June 30, 2000.
On December 31, 1999, the Company entered into an Amended and Restated
Loan and Security Agreement with Silicon Valley Bank (the "Bank"), which
provides for a revolving line of credit up to $3.0 million subject to certain
borrowing base limitations described in the agreement. The revolving line of
credit matures on December 31, 2000, bears interest at the Bank's prime rate
(9.0% at June 30, 2000) and is secured by $3.0 million of cash equivalents.
On February 24, 2000, the Company entered into an Accounts Receivable
Financing Agreement (the "Agreement") with the Bank, which provides for an
extension of credit in order to finance receivables up to $6.0 million. The
Agreement term continues through February 15, 2001 and requires finance charges
equal to the Bank's prime rate plus 2%. In conjunction with the Agreement, the
Company issued a Stock Purchase Warrant to the Bank, which entitles the holder
to purchase 61,539 shares of the Company's common stock at any time on or before
February 23, 2005 at an exercise price of $4.875 per share. The Stock Purchase
Warrant had not been exercised as of June 30, 2000.
On March 13, 2000, the Company signed an agreement, effective as of
February 25, 2000, to purchase certain service contracts and other assets and
liabilities of the Integrated Solutions Division ("ISD") of Thermo Information
Solutions Inc. ("Thermo"). ISD, based in Charleston, South Carolina, designs,
implements and manages information technology solutions. The purchase price
consisted of 1,307,345 shares of the Company's common stock and a warrant to
purchase an additional 261,469 shares of the Company's common stock at any time
on or before March 13, 2004 at an exercise price of $4.207 per share. On the
closing date, the fair value of the securities issued was $5,500,000, determined
by calculating the average closing price of the common stock several days before
and after the closing date and applying a discount related to certain
restrictions on the common stock. The discount applied to the calculated value
of common stock issued in this transaction is supported by an
15
<PAGE> 16
independent valuation. The value of the warrant was $506,028 on the closing
date, determined using the Black-Scholes option-pricing model. As part of the
transaction, the Company received $1,000,000 in cash for working capital
purposes from Thermo. Thermo had a one-time right, exercisable at any time on or
before September 14, 2000, subject to certain limitations, to receive additional
shares of Healthcare.com common stock in the event that the average trading
price of Healthcare.com common stock during the 10-day trading period prior to
its election is below $4.207 per share. On July 14, 2000, Thermo exercised this
right, resulting in the issuance of 585,128 additional shares of Healthcare.com
common stock.
Based on the Company's business plan and business model projections,
the Company believes that currently available cash, anticipated cash flow from
operations and borrowings under existing or future credit facilities will be
sufficient to meet Healthcare.com's requirements for at least the next twelve
months. Healthcare.com may seek to raise additional financing to support
expansion, develop new or enhanced applications and services, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of favorable market conditions. In such event, or if the Company's
cash needs or plans change, Healthcare.com may seek to raise additional funds by
incurring debt, or by issuing equity securities, by entering into strategic
relationships or through other arrangements. There can be no assurance, however,
that Healthcare.com will be able to raise any additional amounts on reasonable
terms, if at all.
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 beginning on January 1, 2000. Healthcare.com formed a
Year 2000 task force which systematically evaluated all existing systems,
products and key external relationships to ascertain material Year 2000 issues
and solutions. These efforts were to ensure that its computer products were Year
2000 ready and that its internal core information technology ("IT and non-IT
systems") were Year 2000 ready.
The Company successfully implemented its Year 2000 program as evidenced
by the continued successful operation of its computer products and core internal
IT and non-IT systems. Further, the Company has not encountered any significant
problems with its third party customers, financial institutions, vendors and
others with whom it conducts business. To date, we have not experienced any Year
2000 problems. If any of our third-party suppliers experience Year 2000
disruptions, the Company may incur costs to develop alternative ways of managing
the affected aspects of the business. The Company will continue to monitor its
product performance and core IT and non-IT systems throughout 2000 to ensure
ongoing performance. While there can be no assurance that no Year 2000-related
issues may arise, as of June 30, 2000, the Company believes, based on
information currently available, that Year 2000 related events are not likely to
have a material effect on its results of operations, financial condition or
liquidity. Healthcare.com did not incur any material costs directly associated
with its Year 2000 readiness efforts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to interest rate risk on its line of credit
(variable rate debt), convertible note payable (fixed rate debt) and obligations
under capital leases (fixed rate debt). The Company's primary market risk
exposure relates to (i) the interest rate risk on long-term and short-term
borrowings, (ii) the impact of interest rate movements on its ability to meet
interest expense requirements and (iii) the impact of interest rate movements on
the Company's ability to obtain adequate financing for future operations. The
Company manages interest rate risk on its outstanding long-term and short-term
debt through its use of fixed and variable rate debt. While the Company cannot
predict or manage its ability to refinance existing debt or the impact interest
rate movements will have on its existing debt, management continues to evaluate
its financial position on an on-going basis.
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<PAGE> 17
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company issued 585,128 shares of common stock to Thermo on July 14,
2000. See Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." This transaction
was exempt from registration under Section 4(2) of the Securities Act, as a
transaction not involving a public offering. In addition, Thermo is a
sophisticated investor and had access to information about the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on May 16, 2000. At the
annual meeting, the Company's shareholders voted on (1) the election of three
Directors, (2) the amendment and restatement of the Healthcare.com Stock Option
Plan I and (3) the amendment and restatement of the Healthcare.com Employee
Stock Purchase Plan. The results of the voting were as follows:
(1) Election of Three Directors
<TABLE>
<CAPTION>
FOR VOTE WITHHELD
---------- -------------
<S> <C> <C>
Class II Directors
Joseph G. Bleser 23,826,464 102,305
John W. Lawless 23,818,453 110,316
Carl E. Sanders 23,837,576 91,193
</TABLE>
(2) Amendment and Restatement of the Healthcare.com Stock Option Plan I
<TABLE>
<CAPTION>
VOTE FOR VOTE AGAINST VOTE ABSTAIN
------------- ------------------ -------------------
<S> <C> <C>
23,151,822 591,365 185,582
</TABLE>
(3) Amendment and Restatement of the Healthcare.com Employee Stock
Purchase Plan
<TABLE>
<CAPTION>
VOTE FOR VOTE AGAINST VOTE ABSTAIN
------------- ------------------ -------------------
<S> <C> <C>
23,302,849 521,683 104,237
</TABLE>
The directors who were not elected at the 2000 annual meeting and whose term of
office as a director continued after the meeting are Robert I. Murrie, Parker H.
Petit, Mark D. Shary, William J. Gresham, Jr., Charles R. Hatcher, Jr., M.D. and
Donald W. Weber.
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<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11 Statements of Computation of Per Share Earnings (Loss).
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on April 10, 2000,
reporting under Item 5 thereof a name change for the Company and filing
certain exhibits under Item 7 thereof.
The Company filed a current report on Form 8-K/A on May 15, 2000,
amending its current report on Form 8-K on March 28, 2000 by providing
audited financial statements of business acquired and unaudited pro
forma financial data under Item 7 thereof.
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<PAGE> 19
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.
Healthcare.com Corporation
August 11, 2000 By: /s/ Joseph A. Blankenship
-----------------------------------------------------
Joseph A. Blankenship
Chief Financial Officer, Treasurer and Assistant
Secretary (duly authorized officer and principal
financial officer)
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<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11 Statements of Computation of Per Share Earnings (Loss).
27 Financial Data Schedule (for SEC use only).
</TABLE>
20
