<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30, 1999.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period __________________ to
_________________________.
COMMISSION FILE NUMBER: 0-21209
AHT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3893841
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 WHITE PLAINS ROAD
TARRYTOWN, NEW YORK 10591
(Address of principal executive offices, including zip code)
(914) 524-4200
(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 [ ]
As of October 23, 1999, there were 10,711,052 shares outstanding of the
registrant's Common Stock, $.01 par value.
<PAGE> 2
AHT CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 30, 1999 (unaudited) and December 31, 1998........................ 1
Consolidated Statements of Operations -
Three and nine months ended September 30, 1999 and 1998 (unaudited)......... 2
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998 (unaudited)................... 3
Notes to Consolidated Financial Statements.................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................... 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 12
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS........................................................... 12
SIGNATURES............................................................................ 13
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
As Of
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,122 $ 9,269
Restricted cash 1,100 853
Investments in marketable securities -- 6,972
Accounts receivable, net 149 320
Other current assets 545 362
Net current assets from discontinued operation 167 2,065
--------- ---------
Total current assets 5,083 19,841
PROPERTY AND EQUIPMENT, net 2,168 2,565
INTANGIBLE ASSETS, net 4,293 1,861
INVESTMENTS IN AFFILIATES 14,000 14,000
OTHER ASSETS 3,664 3,728
OTHER ASSETS FROM DISCONTINUED OPERATION 775 2,639
--------- ---------
Total assets $ 29,983 $ 44,634
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,102 $ 3,610
Other current liabilities 79 875
Other current liabilities from discontinued operation 2,189 9,304
--------- ---------
Total current liabilities 5,370 13,789
DEFERRED REVENUE 643 250
NET LIABILITIES FROM DISCONTINUED OPERATION -- 705
--------- ---------
Total liabilities 6,013 14,744
--------- ---------
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized; 0 shares issued
and outstanding
Common stock, $.01 par value; 15,000,000 shares authorized;
10,711,052 and 10,424,127 shares issued and
outstanding, respectively 107 103
Additional paid-in capital 111,664 108,450
Accumulated deficit (87,355) (78,277)
Unrealized gain on marketable securities, net of deferred income taxes (11) 3
Less: Treasury stock, at cost (166,337 and 153,937 shares respectively) (435) (389)
--------- ---------
Total shareholders' equity 23,970 29,890
--------- ---------
Total liabilities and shareholders' equity $ 29,983 $ 44,634
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(1)
<PAGE> 4
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE $ 213 $ 303 $ 601 $ 3,527
COST OF REVENUES 385 304 876 1,199
-------- -------- -------- --------
Gross profit (172) (1) (275) 2,328
OPERATING EXPENSES 2,713 3,429 10,518 11,075
-------- -------- -------- --------
Operating income/(loss) (2,885) (3,430) (10,793) (8,747)
OTHER INCOME, Net 172 222 689 1,787
-------- -------- -------- --------
Net income/(loss) before taxes (2,713) (3,208) (10,104) (6,960)
INCOME TAX PROVISION 70 2 (16) 4,708
-------- -------- -------- --------
Net income/(loss) from continuing operations (2,783) (3,210) (10,088) (11,668)
DISCONTINUED OPERATION:
Income/(loss) from discontinued operation, net 22 (12,784) 1,010 (18,271)
-------- -------- -------- --------
Net income/(loss) $ (2,761) $(15,994) $ (9,078) $(29,939)
======== ======== ======== ========
PER SHARE
INFORMATION
Basic net income/(loss) per share:
Income/(loss) from continuing operations $ (0.26) $ (0.32) $ (0.95) $ (1.16)
Income from discontinued operation $ 0.00 $ (1.27) $ 0.09 $ (1.83)
-------- -------- -------- --------
Basic net income/(loss) per share $ (0.26) $ (1.59) $ (0.86) $ (2.99)
======== ======== ======== ========
Diluted net income/(loss) per share:
Income/(loss) from continuing operations $ (0.26) $ (0.32) $ (0.95) $ (1.16)
Income from discontinued operation $ 0.00 $ (1.27) $ 0.09 $ (1.83)
-------- -------- -------- --------
Diluted net income/(loss) per share $ (0.26) $ (1.59) $ (0.86) $ (2.99)
======== ======== ======== ========
Common shares used in computing per share amounts:
Basic 10,701 10,062 10,576 10,001
Diluted 10,701 10,062 10,576 10,001
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(2)
<PAGE> 5
AHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (9,078) $(29,939)
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 948 740
Deferred income taxes -- 4,092
Changes in operating assets and liabilities
Accounts receivable, net 171 1,431
Other current assets (183) 190
Accounts payable, accrued expenses and other current liabilities (508) 4,866
Other current liabilities (796) (128)
Deferred revenue 393 50
-------- --------
Net cash (used in) provided by operating activities (9,053) (18,698)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Other assets (117) 2,045
Minority investment in affiliated entities -- 7,901
Investment in certificates of deposit, net -- (2,977)
Restricted Cash, net (247) --
Investment in marketable securities, net 6,972 30,502
Intangible assets (2,500) (219)
Purchases of property and equipment, net (302) (404)
-------- --------
Net cash provided by (used in) investing activities 3,806 36,848
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 704 740
Net proceeds from issuance of common stock 2,500 4,575
Purchase of treasury stock (46) (314)
-------- --------
Net cash provided by financing activities 3,158 5,001
-------- --------
Net cash flows from discontinued operations (4,058) (18,670)
-------- --------
Net change in cash and cash equivalents (6,147) 4,481
CASH AND CASH EQUIVALENTS, beginning of period 9,269 7,534
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,122 $ 12,015
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for:
Interest $ 60 $ 54
======== ========
Income Taxes $ (15) $ 4,709
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
FROM DISCONTINUED OPERATIONS:
Fair market value of Common Stock issued for acquisitions $ -- $ 4,750
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(3)
<PAGE> 6
AHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. Reference is made to the Notes to Consolidated Financial Statements
contained in the Company's December 31, 1998 audited consolidated
financial statements as filed with the Securities and Exchange
Commission on Form 10-K. In the opinion of Management, the interim
unaudited financial statements included herein reflect all adjustments
necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the
audited data presented therein. Certain prior period expenses which
are now part of discontinued operations have been reclassified to
conform to the 1999 presentation. The Company believes that its
historical results of operations from period to period are not
comparable and that such results are not necessarily indicative of
results for any future periods.
2. Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." Basic net income per common share ("Basic EPS")
is computed by dividing net income by the weighted average number of
common shares outstanding. Diluted net income per common share
("Diluted EPS") is computed by dividing net income by the weighted
average number of common shares and dilutive potential common shares
then outstanding. SFAS No. 128 requires the presentation of both Basic
EPS and Diluted EPS on the face of the consolidated statements of
operations. The impact of the adoption of this statement was not
material to all previously reported EPS amounts. Diluted EPS for all
periods presented does not include the impact of stock options and
warrants then outstanding as the effect of their inclusion would be
anti-dilutive.
3. During 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income", which established standards for reporting and displaying
comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements.
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
----------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income/(loss) $ (2,761) $ (15,994)
Unrealized gains/(losses) on
marketable securities, net of
$0 and $0 income tax (00) 8
--------- ---------
Comprehensive Income $ (2,761) $ (15,986)
========= =========
</TABLE>
(4)
<PAGE> 7
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income/(loss) $ (9,078) $ (29,939)
Unrealized gains/(losses) on
marketable securities, net of
$0 and $0 income tax (14) 8
--------- ---------
Comprehensive Income $ (9,092) $ (29,931)
========= =========
</TABLE>
4. In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"), which provides guidance for determining whether computer
software is internal-use software and on accounting for the proceeds
of computer software originally developed or obtained for internal use
and then subsequently sold to the public. It also provides guidance on
capitalization of the costs incurred for computer software developed
or obtained for internal use. The Company adopted SOP-98-1 in the
first quarter of 1999 and it did not have a material effect on its
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivatives Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. This statement is not
expected to affect the Company since it does not currently engage in
derivative instruments or hedging activities.
In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133", which amends SFAS No. 133 to be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
(5)
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
AHT Corporation (the "Company") develops and provides clinical information
systems and health care information technology solutions for use by clinical
laboratories, hospitals, pharmacy benefit managers and other health care
organizations. The Company generates revenues from fees for use and support of
its clinical information systems, including license, software installation,
software integration, training and data conversion fees.
The Company believes that its historical results of operations from period to
period are not comparable and that such results are not necessarily indicative
of results for any future periods because the Company has restructured its
continuing business operations, acquired new technology to develop and market
and has discontinued the development and marketing of certain products from its
product line, while marketing its products to different customers.
In May 1999, and as previously announced, the Company divested itself of its
practice management services unit for approximately $3.1 million in cash plus
the assumption of certain payables and capital leases associated with the unit.
The Company will now be able to devote its full resources to expanding its
Internet-based laboratory and prescription transaction management business. The
restructuring action described below contains forward-looking statements that
may be significantly impacted by certain risks and uncertainties, including
failure to meet operating objectives or to execute the operating plan and
failure to successfully restructure the Company's business.
The Company's restructuring of its information technology unit includes placing
increased emphasis on product development and sales in areas such as electronic
laboratory and prescription management. The Company intends to limit product
development efforts that do not benefit its work on electronic laboratory and
prescription management. Further, the Company will be redirecting its sales
efforts to develop distribution channels including Internet portals and increase
sales for its product lines that offer laboratory and prescription
functionality. Sales efforts will be focused on strategic sales initiatives that
emphasize long-term, recurring revenue streams rather than large, one-time
revenue events so as to better position the Company to benefit from what it
believes is the rapidly gaining importance of clinical e-commerce. Currently,
the Company has a contract backlog of approximately $1.8 million of revenue that
it expects to recognize in 1999 including $.6 million of deferred revenue that
represents cash received from these customers who are in the process of
installing the Company's software based on milestones achieved.
RESULTS FROM CONTINUING OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net revenue from continuing operations for the three months ended September 30,
1999 decreased to $.2 million from $.3 million in the comparable period ended
September 30, 1998, primarily as a result of the timing of customer
installations and the change in the Company's strategy to market and support
only its core product offerings of laboratory and prescription software and
services rather than seeking large, one-time software sales or licensing from
other system offerings. The Company earned these fees for the use and support of
its clinical information systems, including the recognition of license revenues
and software, support and training revenues.
(6)
<PAGE> 9
Cost of revenues for the three months ended September 30, 1999 increased to $.4
million from $.3 million for the comparable period ended September 30, 1998.
Cost of revenues includes direct costs associated with core product installation
efforts incurred and amortization expense relating to previously capitalized
software development costs.
Operating expenses for the three months ended September 30, 1999 decreased to
$2.7 million from $3.4 million for the comparable period ended September 30,
1998 primarily as a result of restructuring actions taken in the second half of
1998 relating to the change in the Company's business strategy. These
restructuring actions reduced expenses to better align costs with the Company's
core product offerings. Operating expenses for the period ended September 30,
1999 included non-capitalized software development costs of approximately $.3
million, and depreciation and amortization expense of approximately $.2 million.
The Company has not incurred any software development costs that could be
capitalized since the quarter ended March 31, 1998. These costs are being
treated as period costs which are included in operating expenses in the
Company's consolidated financial statements.
Other income net, for the three months ended September 30, 1999 and 1998 was $.2
million and related primarily to interest earned from investments in marketable
securities as a result of the investment of proceeds from the Company's 1997
follow-on offering and operating cash.
Provision for income taxes for the three months ended September 30, 1999 and
1998 includes payments made for state and local income taxes based on amounts
other than taxable income.
Net (loss) for the three months ended September 30, 1999 was ($2.8) million
compared to a net (loss) of ($16.0) million for the three months ended September
30, 1998 due to the factors described above.
RESULTS OF DISCONTINUED OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
In 1998, the Company provided for a loss from discontinued operations that
included the write-down of the assets of the physician practice management
operations to estimated net realizable values and the estimated costs of
disposing of this discontinued operation, less the expected tax benefits
applicable thereto. As previously announced, in May 1999 the Company divested
itself of this services unit. As a result of this divestiture, the Company
recognized net income from discontinued operations. For the three months ended
September 30, 1999, the Company reported net income from discontinued operations
net of income taxes of under $.1 million compared to a net (loss) of ($12.8)
million for the comparable period ending September 30, 1998. The Company's
historical financial information has been restated to report results of the
discontinued operation on a consistent basis for the three months ended
September 30, 1999 and 1998.
(7)
<PAGE> 10
RESULTS FROM CONTINUING OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net revenue from continuing operations for the nine months ended September 30,
1999 decreased to $.6 million from $3.5 million in the comparable period ended
September 30, 1998, primarily as a result of a change in the Company's strategy
to market and support only its core product offerings of laboratory and
prescription software and services rather than seeking large, one-time software
sales or licensing from other system offerings. The Company earned these fees
for the use and support of its clinical information systems, including the
recognition of license revenues and software, support and training revenues.
Cost of revenues for the nine months ended September 30, 1999 decreased to $.9
million from $1.2 million for the comparable period ended September 30, 1998.
The decrease in cost of revenues was due to restructuring actions in the second
half of 1998, relating to the change in the Company's business strategy. These
restructuring actions reduced expenses to better align costs with the Company's
core product offerings. Cost of revenues includes direct costs associated with
core product installation efforts incurred and amortization expense relating to
previously capitalized software development costs.
Operating expenses for the nine months ended September 30, 1999 decreased to
$10.5 million from $11.1 million for the comparable period ended September 30,
1998 and included non-capitalized software development costs of approximately
$.8 million, depreciation and amortization expense of approximately $.6 million
and non-recurring expenses of $2.5 million which included the $1.5 million cost
of settling an action commenced against the Company by Bukstel & Halfpenny,
Inc., (see Legal Proceedings), legal costs associated with this action and other
costs associated with the migration of operations from Chicago to the
Philadelphia office. The Company has not incurred any software development costs
that could be capitalized since the quarter ended March 31, 1998. These costs
are being treated as period costs which are included in operating expenses in
the Company's consolidated financial statements.
Other income net, for the nine months ended September 30, 1999 was $.7 million
as compared to $1.8 million for the comparable period ending September 30, 1998
and related primarily to interest earned from investments in marketable
securities as a result of the investment of proceeds from the Company's 1997
follow-on offering and operating cash.
Provision for income taxes for the nine months ended September 30, 1999 includes
payments made for state and local income taxes based on amounts other than
taxable income. The provision for income taxes for the nine months ended
September 30, 1998 represents the net effect of a forty percent effective income
tax rate on the Company's pre-tax income for the quarter, largely offset by a
reduction in the Company's reserve on previously generated, fully-reserved
deferred income tax assets due to the Company's expectations with regard to
future taxable income.
Net (loss) for the nine months ended September 30, 1999 was ($9.1) million
compared to a net (loss) of ($29.9) million for the nine months ended September
30, 1998 due to the factors described above.
(8)
<PAGE> 11
RESULTS OF DISCONTINUED OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
In 1998, the Company provided for a loss from discontinued operations that
included the write-down of the assets of the physician practice management
operations to estimated net realizable values and the estimated costs of
disposing of this discontinued operation, less the expected tax benefits
applicable thereto. As previously announced, in May 1999 the Company divested
itself of this services unit. As a result of this divestiture, the Company
recognized net income from discontinued operations. For the nine months
September 30, 1999, the Company reported net income from discontinued operations
net of income taxes of $1.0 million compared to a net (loss) ($18.3) million for
the comparable period ending September 30, 1998. The Company's historical
financial information has been restated to report results of the discontinued
operation on a consistent basis for the nine months ended September 30, 1999 and
1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company had aggregate cash, cash equivalents,
restricted cash and marketable securities of $5.9 million including $1.7 million
of restricted cash included in other assets, compared to $18.8 million at
December 31, 1998.
For the nine months ended September 30, 1999, the Company used cash in its
operating activities of $9.1 million, compared with $18.7 million used in the
comparable period ended September 30, 1998. Included in cash flow from
operations for the nine month period ended September 30, 1999 was $1.5 million
for the settlement of an action commenced by Bukstel & Halfpenny, Inc., (see
Legal Proceedings) and $1.0 million of additional one-time charges for legal
costs associated with this action and other expenses associated with the
migration of the Company's Chicago operations to its Philadelphia office. Net
cash provided by investing activities was $3.8 million for the nine months
ended September 30, 1999, principally as a result of the investment of excess
cash in marketable securities, net of an increase in intangible assets as a
result of stock issued under an earn out provision of a previously made
acquisition. Net cash provided by investing activities was $36.8 million for
the comparable period ended September 30, 1998, relating primarily to proceeds
received from investments in marketable securities, an increase in other assets
and a change in investments in affiliated entities as a result of discontinued
operations. Net cash provided by financing activities was $3.2 million and $5.0
million for the nine months ended September 30, 1999 and 1998 respectively and
attributable to net proceeds from the exercise of incentive stock options and
the issuance of common stock as described above. Net cash flows from
discontinued operations for the nine months ended September 30, 1999 was a
negative $4.1 million compared with a negative $18.7 million for the comparable
period ended September 30, 1998. Included in discontinued operating cash flow
at September 30, 1999 was an increase in the Company's investment in Southern
States Eye Care, LLC with a corresponding decrease in its equity ownership
position. Based on its current assessment, the Company does not believe that
there is a permanent impairment of this asset or other investments it has made
and is seeking independent appraisal's accordingly.
(9)
<PAGE> 12
The Company's operating plan for the remainder of 1999 includes the continued
support and maintenance of the Company's electronic laboratory and prescription
management products described above, developing strategic customers and new
proprietary distribution channels and Internet portals. The principal
categories of expenditures include research and development of the Company's
electronic laboratory and prescription management products as well as ongoing
business development and marketing. While the Company has incurred certain
non-recurring charges for settling a lawsuit, costs associated with such legal
action and other one-time charges that has accelerated its use of cash, the
Company believes that based on its cash, interest income collection of other
receivables and targeted revenues from operations it will generate sufficient
cash to fund planned operations of the Company through the end of 2000. The
Company has no other planned material capital expenditures or capital
commitments. The Company has been advised by its independent public accountants
that if the Company does not demonstrate its ability to generate such funds
prior to the completion of their audit of the Company's financial statements
for the year ended December 31, 1999, their auditor's report may be modified to
reflect the uncertainty related to the Company's ability to fund planned
operations through the year 2000.
From time to time in the ordinary course of its business, the Company evaluates
possible acquisitions of businesses, products and technologies that are
complementary to those of the Company.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit dates. Such systems may not be able to distinguish 20th
century dates. To address these and other Year 2000 operational issues which may
affect the Company and its customers, the Company has designated a Year 2000
project manager who is primarily responsible for implementing the Company's Year
2000 project plan.
The Company's Year 2000 project plan consists of four phases: assessment,
remediation, validation, and distribution. The primary purpose of the assessment
phase is to list and analyze the inventory of our products sold and supported.
Major issues encountered during this phase are the identification of programming
languages used, source code, and third-party libraries used in a product. The
remediation phase calls for code modification. The validation phase is where the
remediated products are tested and submitted for independent verification and
validation. The Company's remediated products are provided to our customers
during the distribution phase.
Products and Services: For the Company's products and services, the assessment
phase is complete and remediation is in progress. During the remediation
process, third party vendors whose proprietary tools and library products are
incorporated into the Company's products are being contacted in order for the
Company to determine third party Year 2000 compliance status. The Company has
taken action where required in accordance with instructions provided by the
third party vendors. The Company has completed its product assessment phase, and
has substantially completed its remediation process. Complete validation has
been completed. All of the Company's software products are Year 2000 compliant.
Internal Systems, Vendors and Suppliers: The Company is engaged in the
assessment phase for its internal administrative systems. Its project plan calls
for completion of Year 2000 compliance for administrative systems by the end of
November 1999. A group has been designated and has notified all of the clinical
administrative processing partners as of June 30, 1999 in order to assess their
Year 2000 readiness.
(10)
<PAGE> 13
Costs: The Company estimates that the final remediation and testing phase for
the Company's products will cost approximately $.3 million. The Company does not
have a current estimate for the cost of remediation of administrative systems.
The Company believes that the bulk of any costs will be borne by the suppliers
of such systems.
Contingency Plan: The Company is assessing the "worst case scenarios" that it
believes are within its control, excluding power and communications. With
internal date formatting, storage, and calculation being the key issues to the
Company and its customers, the Company's focus is concentrated on strict date
format and storage enforcement with the portions of our products that require
data entry and data storage. Although the Company will recommend the use of its
"YYYY" (four digit year format) at all times, the Company plans to retain a
feature that allows a customer the option to configure the data entry system to
accept "YY" (two digit year format) to be interpreted as "19YY" to speed data
entry. This option has no impact on how dates are stored in the internal system
or on how math is performed against dates. All dates are stored and all date
math is done with a four digit year.
Although there is no assurance that third party systems owned and used by the
customer are Year 2000 compliant, it is important to state that by design, the
Company's lab order and resulting products interface with legacy hospital and
lab information systems. The Company's backend systems act as a conduit - moving
data from one third party system to another - therefore relying totally on the
accuracy and Year 2000 compliance of the legacy data which the Company "moves".
The Company continues to formulate and document scenarios for its customer
service representatives to utilize in preparation for potential hardware and
software issues relating to Year 2000. The Company plans to have a documented
business continuity plan to cover conceivable concerns including our products
and services, alternative vendors and suppliers, and staffing issues to assure
coverage immediately before and after the millennium. However, due to the
general uncertainty inherent in the Year 2000 concern, there can be no assurance
that all Year 2000 problems will be foreseen and corrected on a timely basis.
Forward-Looking Statements: The foregoing Year 2000 discussion and the
information contained herein are provided as a "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Information and Readiness Act of 1998 (Public Law
105-271, 112 Stat. 2386) enacted on October 19, 1998 and contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements, including without limitation,
anticipated costs and the dates by which the Company expects to complete certain
actions, are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of certain resources, representations received from third parties
and other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the ability to identify and remediate all relevant systems, results
of Year 2000 testing, adequate resolution of Year 2000 issues by governmental
agencies, businesses and other third parties who are outsourcing service
providers, suppliers and vendors of the Company, unanticipated system costs, the
adequacy of and the ability to implement contingency plans and uncertainties.
(11)
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From July 1 through August 17, 1998, eleven putative class actions
were filed in the United States District Court for the Southern
District of New York, all of which have been consolidated under the
caption In re AHT Corporation (f/k/a Advanced Health Corporation)
Securities Litigation. The consolidated complaint, filed in February
1999, seeks, among other remedies, certification as a class action and
unspecified damages resulting from defendants' alleged violations of
federal securities laws.
The consolidated complaint alleges that the Company and its current or
former officers or directors, Jonathan Edelson, M.D., Steven Hochberg,
Alan B. Masarek, Robert Alger and Michael Rogers are liable for
certain misrepresentations and omissions regarding, among other
matters, the Company's operations, performance, and financial
condition. The litigation is still in the preliminary stages, and the
Company believes that the plaintiffs' claims are without merit and
intends to defend against the action vigorously.
From time to time, the Company is involved in litigation. Although the
actual amount of any liability that could arise with respect to any
such litigation cannot be accurately predicted, in the opinion of
management, the resolution of these matters is not expected to have
material adverse effect on the Company's business, results of
operations or financial condition.
(12)
<PAGE> 15
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 therewith duly authorized.
November 12,1999 AHT CORPORATION
By: /s/ Jonathan Edelson, M.D.
--------------------------------
Jonathan Edelson, M.D.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jeffrey M. Sauerhoff
--------------------------------
Jeffrey M. Sauerhoff
Chief Financial Officer
(Principal Financial and
Accounting Officer)
(13)
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