<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 SEPTEMBER 30, 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 No: 0-22657
H.T.E., INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2133858
- ------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1000 BUSINESS CENTER DRIVE
LAKE MARY, FLORIDA 32746
(407) 304-3235
---------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF NOVEMBER 5, 1999
----- ----------------------------------
Common stock
Par value $.01 per share 17,399,442
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,010 $ 7,553
Trade accounts receivable, net 34,320 40,635
Income tax receivable 4,623 3,050
Deferred income taxes 485 485
Other current assets 3,067 4,347
-------- --------
Total current assets 51,505 56,070
-------- --------
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES, net 4,020 4,587
-------- --------
OTHER ASSETS
Computer software development costs, net 5,618 6,393
Other intangible assets 2,764 2,498
Deposits 215 283
-------- --------
Total other assets 8,597 9,174
-------- --------
$ 64,122 $ 69,831
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 10,141 $ 11,829
Deferred revenue 24,329 22,163
-------- --------
Total current liabilities 34,470 33,992
-------- --------
LONG-TERM LIABILITIES
Deferred income taxes 2,515 2,515
Other long-term liabilities 479 385
-------- --------
Total long-term liabilities 2,994 2,900
-------- --------
STOCKHOLDERS' EQUITY
Common stock 174 170
Additional paid-in capital 30,789 29,661
Retained earnings (4,272) 3,144
Cumulative translation adjustment (33) (36)
-------- --------
Total stockholders' equity 26,658 32,939
-------- --------
$ 64,122 $ 69,831
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
- 2 -
<PAGE> 3
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
REVENUES:
Software licenses $ 5,811 $ 12,260 $ 20,634 $ 32,061
Professional services 6,471 5,398 20,171 14,852
Hardware 3,608 4,256 12,700 9,733
Maintenance and other 6,742 4,738 18,685 13,100
Resource management 717 356 1,552 1,079
-------- -------- -------- --------
Total revenues 23,349 27,008 73,742 70,825
-------- -------- -------- --------
EXPENSES:
Cost of software licenses 2,264 2,428 5,815 5,444
Cost of professional services 4,322 3,199 12,693 8,745
Cost of hardware 3,230 3,609 10,666 7,987
Cost of maintenance and other 2,861 2,543 7,518 6,943
Cost of resource management 501 215 1,016 682
Research and development 4,586 3,307 13,684 9,533
Sales and marketing 5,028 5,012 14,936 13,334
General and administrative 5,992 3,724 14,264 10,550
Acquisition related -- -- -- 237
Employee termination benefits and other
costs 3,625 -- 5,434 --
-------- -------- -------- --------
Total expenses 32,409 24,037 86,026 63,455
-------- -------- -------- --------
OPERATING INCOME (LOSS) (9,060) 2,971 (12,284) 7,370
INTEREST INCOME, net 47 41 126 296
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES (9,013) 3,012 (12,158) 7,666
PROVISION (BENEFIT) FOR INCOME TAXES (3,515) 1,157 (4,742) 3,302
-------- -------- -------- --------
NET INCOME (LOSS) (5,498) 1,855 (7,416) 4,364
Foreign currency translation adjustments 1 (13) 3 (52)
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ (5,497) $ 1,842 $ (7,413) $ 4,312
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Basic $ (0.32) $ 0.11 $ (0.43) $ 0.26
======== ======== ======== ========
Diluted $ (0.32) $ 0.11 $ (0.43) $ 0.25
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
- 3 -
<PAGE> 4
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,416) $ 4,364
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities--
Depreciation and amortization 4,364 3,419
Loss on write-off of computer software development
costs 1,139 --
Deferred income taxes -- 338
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net 6,315 (15,067)
Income tax receivable (1,573) --
Other current assets 1,280 (2,713)
Deposits 68 (106)
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (1,788) (1,398)
Deferred revenue 1,993 7,363
Other liabilities 94 146
-------- --------
Net cash provided by (used in) operating
activities 4,476 (3,654)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (641) (1,826)
Change in restricted cash -- 1,574
Computer software development costs (2,613) (3,799)
Cash paid for acquisitions (900) (2,197)
-------- --------
Net cash used in investing activities (4,154) (6,248)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 1,132 312
Change in due to stockholders -- (1,213)
-------- --------
Net cash provided by (used in) financing
activities 1,132 (901)
-------- --------
Effect of foreign currency exchange rate changes on
cash and cash equivalents 3 (53)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,457 (10,856)
CASH AND CASH EQUIVALENTS, beginning of period 7,553 18,634
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 9,010 $ 7,778
======== ========
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION:
Cash paid for interest $ 5 $ 31
Cash paid for income taxes -- 3,952
Cash received for income taxes 3,169 --
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
- 4 -
<PAGE> 5
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The consolidated financial statements included herein have been prepared by
H.T.E., Inc. (HTE), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the
financial statements for the year ended December 31, 1998, and the notes
thereto, included in the Company's Form 10-K (File No. 0-22657).
The unaudited consolidated financial statements included herein include normal
recurring adjustments and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of such financial statements. The
Company's business is seasonal and, accordingly, interim results are not
indicative of results for a full year.
The accompanying consolidated financial statements include the accounts of HTE,
a Florida corporation, and its wholly-owned subsidiaries, HTE-Bellamy Ltd.
(Bellamy), a Canadian corporation, HTE-Kb Systems, Inc. (Kb Systems), a Florida
corporation, HTE-Jalan, Inc. (Jalan), a Florida corporation, HTE-Phoenix
Systems, Inc. (Phoenix), a Florida corporation, HTE-UCS, Inc. (UCS), a Florida
corporation, HTE-Vanguard Systems, Inc., a Florida corporation, and Information
on Demand, Inc. (IOD), a Florida corporation (collectively, the Company). HTE
develops, markets, implements and supports fully-integrated enterprise-wide
software applications designed specifically for public sector and utility
organizations, including state, county and city governments, other municipal
agencies, and publicly and privately owned utilities. The Company is also
engaged in remarketing IBM hardware systems to run in concert with their
application software. The effect of the Company's foreign operations on the
accompanying consolidated financial statements was not material.
On June 1, 1998, the Company, through its wholly-owned subsidiary UCS,
purchased privately held UCS, Inc., in exchange for 1,120,000 shares of the
Company's common stock valued at approximately $15,000 as of the April 1998
agreement valuation date. UCS, Inc. is a mobile work force automation provider
of field-based reporting software. The acquisition has been accounted for as a
pooling of interests. Therefore, the accompanying consolidated financial
statements include the results of operations of UCS, Inc. for all periods
presented.
1. LITIGATION
The Company is involved in various legal actions arising in the normal course
of business, as both a claimant and a defendant. While it is not possible to
determine with certainty the outcome of these matters, in the opinion of
management, the eventual resolution of these claims and actions outstanding
will not have a material adverse effect on the Company's financial position or
operating results.
On February 3, 1999, a regulated privately owned utility corporation filed a
demand for binding arbitration and claim against the Company with the American
Arbitration Association, alleging that the Company had breached certain
contractual duties and obligations. The claim requests a judgment that the
utility corporation is not obligated to the Company for a majority of the
$1,196 paid pursuant to the Software License and Services Agreement and for
other damages to be determined at the arbitration. The Company denied liability
and filed a counterclaim on March 8, 1999, alleging that the utility
corporation breached its contractual duties and obligations under such
agreement. The Company is seeking damages against the utility corporation in
excess of $1,220 and for other damages to be determined at the arbitration.
Management plans to vigorously defend the claim and pursue its counterclaim. In
the opinion of management, the Company will substantially prevail in this
matter on the merits and the ultimate outcome is not expected to materially
affect the financial position of the Company.
- 5 -
<PAGE> 6
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
1. LITIGATION (CONTINUED)
On April 9, 1999, a municipality filed a demand for binding arbitration and
claim against the Company with the American Arbitration Association, alleging
that the Company had breached certain contractual duties and obligations. The
claim requests a judgment requiring the Company to pay damages for breach of
contract in an amount to be determined at the arbitration. The municipality has
demanded return of $991 paid to the Company. The Company denied liability and
filed counterclaims on May 3, 1999, alleging that: (i) the municipality
breached its contractual duties and obligations under a Hardware Purchase
Agreement and a Software License and Services Agreement with the Company; and
(ii) the municipality breached its duty of good faith and fair dealing with the
Company. The Company is seeking damages against the municipality in excess of
$1,800 and other damages to be determined at the arbitration. Management plans
to vigorously defend the claim and pursue its counterclaims. In the opinion of
management, the Company will substantially prevail in this matter on the merits
and the ultimate outcome is not expected to materially affect the financial
position of the Company.
The Company is a party to some contracts, which may result in financial
penalties in the event of non-performance. Management anticipates that these
penalties will not have a material adverse effect on the Company's financial
position or operating results.
2. EARNINGS PER SHARE
Basic and diluted weighted average shares outstanding were as follows (amounts
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------- ------
<S> <C> <C> <C> <C>
Basic weighted-average shares
outstanding 17,371 16,819 17,242 16,724
Common shares applicable to stock
options using the treasury stock
method -- 777 -- 736
------ ------ ------- ------
Diluted weighted average shares
outstanding 17,371 17,596 17,242 17,460
====== ====== ======= ======
</TABLE>
Options to purchase approximately 1.6 million shares were outstanding as of
September 30, 1999, but were not included in the computation of diluted
earnings per share because they are antidilutive. All share and per share
information in the consolidated financial statements have been further adjusted
to give effect to the two-for-one common stock split, which was effective on
June 18, 1998.
3. BUSINESS COMBINATIONS
PURCHASES
In January 1998, the Company purchased the net assets of JALAN, Inc. for
$1,723. The assets purchased consisted of equipment, furniture and fixtures and
purchased software. As part of the purchase, HTE also assumed various customer
service liabilities. Additionally, the Company entered into a consulting
agreement with the former owners of JALAN, Inc. This acquisition was accounted
for as a purchase in the accompanying consolidated financial statements.
- 6 -
<PAGE> 7
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
3. BUSINESS COMBINATIONS (CONTINUED)
In August 1998, the Company created HTE-Vanguard Systems, Inc., a wholly-owned
subsidiary, which purchased the net assets of Vanguard Management and
Information Systems, Inc. (Vanguard) for $420 in cash. The assets purchased
consisted of accounts receivable, equipment, furniture and fixtures, purchased
software and other intangible assets. As part of the purchase agreement, the
Company also assumed various customer service liabilities. Additionally, the
Company entered into a royalty agreement with Vanguard for approximately five
years and was granted offset rights for royalties due under this agreement of
$63. This acquisition was accounted for as a purchase in the accompanying
consolidated financial statements.
In June 1999, the Company created HTE-IOD, Inc. (IOD), a wholly-owned
subsidiary, which later changed its name to Information On Demand, Inc. IOD
purchased certain assets of Information On Demand, Inc. for $900 in cash and an
escrow payable of $100. The Company could pay up to an additional $2,000 for
the purchase if IOD meets certain financial targets set forth in the Agreement
for Sale and Purchase of Assets. The assets purchased consisted of developed
technology, which was recorded as other intangible assets in the accompanying
consolidated financial statements. As part of the purchase, HTE also assumed
various customer service liabilities. The Company entered into an employment
agreement with the former owner of Information on Demand, Inc., who will serve
as president of IOD. This acquisition was accounted for as a purchase in the
accompanying consolidated financial statements.
Revenues, net income and earnings per share presented for the three months and
nine months ended September 30, 1999 and 1998, on a pro forma basis, as if the
acquisitions had occurred at the beginning of the applicable period, are as
follows (unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 23,349 $ 27,117 $ 73,891 $ 71,242
Net income (5,498) 1,869 (7,468) 4,478
Basic earnings per share (0.32) 0.11 (0.43) 0.27
Diluted earnings per share (0.32) 0.11 (0.43) 0.26
</TABLE>
4. OPERATING SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) in 1998. SFAS 131 establishes standards for reporting information about
operating segments. As this statement pertains to disclosure and informational
requirements, it has no impact on the Company's operating results or financial
position. Although the Company has five operating segments, separate segment
data has not been presented as they meet the criteria set forth in SFAS 131 for
aggregation.
- 7 -
<PAGE> 8
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
5. LINE OF CREDIT
The Company's line of credit with SunTrust Bank, Central Florida, National
Association has been terminated. The Company has never borrowed under this line
of credit, and based on the Company's current operating projections for the
year 2000, it does not anticipate a need for additional cash for at least the
next 12 months. However, the Company is seeking alternative credit facilities.
6. EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
During the three months ended March 31, 1999, the Company recorded employee
termination benefits and other costs of $1,809, which include employee
severance packages and termination of unnecessary lease obligations of the
Company. After reviewing its staffing requirements, the Company terminated 52
employees across all areas of the Company. The employee severance package
benefits related to these terminations were $909. As of September 30, 1999,
$120 of employee termination benefits remain accrued in accounts payable and
accrued liabilities. The Company also incurred $482 for the termination of
unnecessary lease obligations of the Company, of which $243 remain accrued in
accounts payable and accrued liabilities at September 30, 1999.
During the three months ended September 30, 1999, the Company recorded employee
termination benefits and other costs of $3,625, which include employee
severance packages, capitalized software development cost write-offs and other
costs related to the discontinuation of product lines. This charge was the
result of the recent change in management and the Company's strategy. The
employee severance package benefits were $1,720. As of September 30, 1999,
$1,331 of employee termination benefits remain accrued in accounts payable and
accrued liabilities. The Company also incurred $1,584 for the discontinuation
of various product lines, of which $345 remain accrued in accounts payable and
accrued liabilities at September 30, 1999.
7. SUBSEQUENT EVENTS
On November 4, 1999, the Company announced that it plans to offer its
shareholders the right to purchase common stock in IOD, a subsidiary of the
Company. IOD intends to file a registration statement with the Securities and
Exchange Commission after the Company completes the process of determining the
terms of the rights offering, including the record date and the number of
shares of IOD common stock that will be subject to the rights to be offered.
- 8 -
<PAGE> 9
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Discussions containing
such forward-looking statements may be found in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the captions
"Comparison of Three Months Ended September 30, 1999 and September 30, 1998,"
"Comparison of Nine Months Ended September 30, 1999 and September 30, 1998,"
and "Liquidity and Capital Resources." These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results for future periods could differ materially from
those discussed in this section depending on a variety of important factors,
among which are the level of acquisition opportunities available to the Company
and the Company's ability to price and negotiate such transactions on a
favorable basis, the ability of the Company to properly manage growth and
successfully integrate acquired companies and operations, the ability of the
Company to respond to technological changes for enhancement of existing
products and development of new products, changes in budgetary and regulatory
conditions in the Company's public sector customers, demand for the Company's
products and changes in the competitive and economic environment generally. A
comprehensive summary of these and other risks and uncertainties can be found
in the Company's filings with the Securities and Exchange Commission from time
to time, including the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1998 (File No. 0-22657).
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES:
Software licenses 24.9% 45.4% 28.0% 45.3%
Professional services 27.7 20.0 27.4 21.0
Hardware 15.4 15.8 17.2 13.7
Maintenance and other 28.9 17.5 25.3 18.5
Resource management 3.1 1.3 2.1 1.5
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
EXPENSES:
Cost of software licenses 9.7 9.0 7.9 7.7
Cost of professional services 18.5 11.8 17.2 12.3
Cost of hardware 13.8 13.4 14.5 11.3
Cost of maintenance and other 12.3 9.4 10.2 9.8
Cost of resource management 2.2 0.8 1.4 1.0
Research and development 19.6 12.2 18.6 13.5
Sales and marketing 21.5 18.6 20.2 18.8
General and administrative 25.7 13.8 19.3 14.9
Acquisition related -- -- -- 0.3
Employee termination benefits and
other costs 15.5 -- 7.4 --
----- ----- ----- -----
Total operating expenses 138.8 89.0 116.7 89.6
----- ----- ----- -----
OPERATING INCOME (LOSS) (38.8) 11.0 (16.7) 10.4
INTEREST INCOME, net 0.2 0.2 0.2 0.4
----- ----- ----- -----
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (38.6) 11.2 (16.5) 10.8
PROVISION (BENEFIT) FOR INCOME TAXES (15.1) 4.3 (6.4) 4.7
----- ----- ----- -----
NET INCOME (LOSS) (23.5)% 6.9% (10.1)% 6.1%
===== ===== ===== =====
</TABLE>
- 9 -
<PAGE> 10
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
Comparison of Three Months Ended September 30, 1999 and September 30, 1998
(Amounts in thousands)
Revenues
The Company's total revenues decreased by 14% to $23,349 for the three
months ended September 30, 1999, from $27,008 for the three months ended
September 30, 1998.
Software License Revenues. Revenues from software licenses decreased
53% to $5,811 for the three months ended September 30, 1999, compared to
$12,260 for the three months ended September 30, 1998. As a percentage of total
revenues, software license revenues decreased to 24.9% for the three months
ended September 30, 1999, from 45.4% for the three months ended September 30,
1998. The dollar and percentage decreases resulted primarily from a general
slowdown across the software industry as businesses, including governments,
adopt a "wait and see" attitude towards Y2K. In addition, the decrease as a
percentage of total revenues resulted from increased service revenues due to an
effort to reduce the services backlog related to 1998 bookings.
Professional Services Revenues. Revenues from professional services
increased 20% to $6,471 for the three months ended September 30, 1999, from
$5,398 for the three months ended September 30, 1998. As a percentage of total
revenues, professional services revenues increased to 27.7% for the three
months ended September 30, 1999, from 20.0% for the three months ended
September 30, 1998. The dollar and percentage increases in professional
services were directly related to the growth in revenue generating (billable)
staff and related revenue stemming from the increase in license fees and
service offerings in 1998. In addition, the increase as a percentage of total
revenues is due to the lower software license revenues.
Hardware Revenues. Hardware revenues decreased 15% to $3,608 for the
three months ended September 30, 1999, from $4,256 for the three months ended
September 30, 1998. As a percentage of total revenues, hardware revenues
decreased to 15.4% for the three months ended September 30, 1999, from 15.8%
for the three months ended September 30, 1998. The dollar and percentage
decreases were primarily due to a smaller number of customers who required
additional hardware with software purchases.
Maintenance and Other Revenues. Revenues from maintenance and other
increased 42% to $6,742 for the three months ended September 30, 1999, from
$4,738 for the three months ended September 30, 1998. As a percentage of total
revenues, maintenance and other revenues increased to 28.9% for the three
months ended September 30, 1999, from 17.5% for the three months ended
September 30, 1998. The dollar and percentage increases were primarily due to
maintenance contracts associated with new software licenses booked in 1998,
customer system upgrades and price increases in the fees charged for annual
maintenance. In addition, the increase as a percentage of total revenues was
due to lower software license revenues.
Resource Management Revenues. Revenues from resource management
increased 101% to $717 for the three months ended September 30, 1999, from $356
for the three months ended September 30, 1998. As a percentage of total
revenues, resource management revenues increased to 3.1% for the three months
ended September 30, 1999, from 1.3% for the three months ended September 30,
1998. The dollar and percentage increases were primarily related to the sale of
a new outsourcing contract in July 1999, along with the sale of additional
services and an annual price increase on the existing contract.
Cost of Revenues
Cost of Software License Revenues. Cost of software licenses includes
third-party royalties and amortization of computer software development costs.
Cost of software licenses decreased 7% to $2,264 for the three months ended
September 30, 1999, from $2,428 for the three months ended September 30, 1998.
As a percentage of software license revenues, cost of software licenses
increased to 39.0% for the three months ended September 30, 1999, from 19.8%
for the three months ended September 30, 1998. The dollar decrease was
primarily due to lower software license revenues. The increase in the cost of
software licenses as a percentage of software license revenues was primarily
due to sales of third party products related to public safety applications,
which typically carry a higher
- 10 -
<PAGE> 11
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
cost of sale and relatively fixed computer software development amortization
costs with lower software license revenues.
Cost of Professional Services Revenues. Cost of professional services
consists primarily of personnel costs and other costs related to the services
business. Cost of professional services increased 35% to $4,322 for the three
months ended September 30, 1999, from $3,199 for the three months ended
September 30, 1998. As a percentage of professional services revenues, cost of
professional services increased to 66.8% for the three months ended September
30, 1999, from 59.3% for the three months ended September 30, 1998. The dollar
increase was directly related to increased professional services revenues and
expanded offerings of full service professional services. The increase in the
cost of professional services as a percentage of professional services revenues
is primarily due to the use of outside consultants, which resulted in a higher
cost of professional services.
Cost of Hardware Revenues. Cost of hardware consists primarily of
costs payable to vendors for hardware. Cost of hardware decreased 11% to $3,230
for the three months ended September 30, 1999, from $3,609 for the three months
ended September 30, 1998. As a percentage of hardware revenues, cost of
hardware increased to 89.5% for the three months ended September 30, 1999, from
84.8% for the three months ended September 30, 1998. The dollar decrease was
directly related to decreased hardware revenues. The increase in the cost of
hardware as a percentage of hardware revenues was primarily due to the mix of
equipment sold.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
consists of primarily telephone support, documentation and related
administrative and personnel expenses. Cost of maintenance and other increased
13% to $2,861 for the three months ended September 30, 1999, from $2,543 for
the three months ended September 30, 1998. As a percentage of maintenance and
other revenues, cost of maintenance and other decreased to 42.4% for the three
months ended September 30, 1999, from 53.7% for the three months ended
September 30, 1998. The dollar increase was primarily due to increased
personnel to enhance products and support a larger client base. The decrease in
the cost of maintenance and other as a percentage of maintenance and other
revenues was primarily related to more efficient use of existing resources and
improved processes.
Cost of Resource Management Revenues. Cost of resource management
increased 133% to $501 for the three months ended September 30, 1999, from $215
for the three months ended September 30, 1998. As a percentage of resource
management revenues, cost of resource management increased to 69.9% for the
three months ended September 30, 1999, from 60.4% for the three months ended
September 30, 1998. The dollar and percentage increases were primarily related
to costs associated with a new outsourcing contract which began in July 1999
and additional services.
Research and Development Expenses. Research and development expenses
are comprised primarily of salaries, a portion of the Company's overhead for
its in-house staff and amounts paid to outside consultants to supplement the
product development efforts of its in-house staff. Research and development
expenses increased 39% to $4,586 for the three months ended September 30, 1999,
from $3,307 for the three months ended September 30, 1998. As a percentage of
total revenues, research and development increased to 19.6% for the three
months ended September 30, 1999, from 12.2% for the three months ended
September 30, 1998. The dollar and percentage increases were primarily due to
an increased focus on product enhancements, which resulted in lower
capitalization of software development costs and increased expenses. In
addition, the increase as a percentage of total revenues was due to lower
software license revenues.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of salaries, commissions, travel related benefits and administrative
costs allocated to the Company's sales and marketing personnel. Sales and
marketing expenses remained relatively constant at $5,028 for the three months
ended September 30, 1999, compared to $5,012 for the three months ended
September 30, 1998. As a percentage of total revenues, sales and marketing
increased to 21.5% for the three months ended September 30, 1999, from 18.6%
for the three months ended September 30, 1998. The increase as a percentage of
total revenues was primarily due to lower software license revenues.
- 11 -
<PAGE> 12
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
General and Administrative Expenses. General and administrative
expenses include the costs of corporate operations, finance and accounting,
human resources and other general operations of the Company. General and
administrative expenses increased 61% to $5,992 for the three months ended
September 30, 1999, from $3,724 for the three months ended September 30, 1998.
As a percentage of total revenues, general and administrative expenses
increased to 25.7% for the three months ended September 30, 1999, from 13.8%
for the three months ended September 30, 1998. The dollar and percentage
increases were due to the recent changes in management and the Company's
strategy. These expenses consist primarily of additional staffing, increased
allowance for doubtful accounts, additional facility related expenses and
additional computer equipment and software required to build the infrastructure
to support the Company's growth. In addition, the increase as a percentage of
total revenues was due to lower software license revenues. Management
anticipates that general and administrative expenses as a percentage of total
revenues will decrease in future quarters and that current quarterly trends are
not indicative of the future.
Employee Termination Benefits and Other Costs. Employee termination
benefits and other costs were $3,625, or 15.5% of total revenues, for the three
months ended September 30, 1999. These costs consisted primarily of $1,720 for
employee severance packages and $1,584 for the discontinuation of various
product lines and $209 for termination of an unnecessary lease obligation of the
Company. There were no comparable expenses for the three months ended September
30, 1998.
Comparison of Nine Months Ended September 30, 1999 and September 30, 1998
(Amounts in thousands)
Revenues
The Company's total revenues increased by 4% to $73,742 for the nine
months ended September 30, 1999, from $70,825 for the nine months ended
September 30, 1998.
Software License Revenues. Revenues from software licenses decreased
36% to $20,634 for the nine months ended September 30, 1999, from $32,061 for
the nine months ended September 30, 1998. As a percentage of total revenues,
software license revenues decreased to 28.0% for the nine months ended
September 30, 1999, from 45.3% for the nine months ended September 30, 1998.
The dollar and percentage decreases resulted primarily from a general slowdown
across the software industry as businesses, including governments, adopt a
"wait and see" attitude towards Y2K. In addition, the decrease as a percentage
of total revenues resulted from increased service revenues due to an effort to
reduce the services backlog related to 1998 bookings.
Professional Services Revenues. Revenues from professional services
increased 36% to $20,171 for the nine months ended September 30, 1999, from
$14,852 for the nine months ended September 30, 1998. As a percentage of total
revenues, professional services revenues increased to 27.4% for the nine months
ended September 30, 1999, from 21.0% for the nine months ended September 30,
1998. The dollar and percentage increases in professional services were
directly related to the growth in revenue generating (billable) staff and
related revenue stemming from the increase in license fees and service
offerings in 1998. In addition, the increase as a percentage of total revenues
was due to lower software license revenues.
Hardware Revenues. Hardware revenues increased 30% to $12,700 for the
nine months ended September 30, 1999, from $9,733 for the nine months ended
September 30, 1998. As a percentage of total revenues, hardware revenues
increased to 17.2% for the nine months ended September 30, 1999, from 13.7% for
the nine months ended September 30, 1998. The dollar and percentage increases
were primarily due to a larger number of customers who required additional
hardware with software purchases. In addition, the increase as a percentage of
total revenues was due to lower software license revenues.
- 12 -
<PAGE> 13
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
Maintenance and Other Revenues. Revenues from maintenance and other
increased 43% to $18,685 for the nine months ended September 30, 1999, from
$13,100 for the nine months ended September 30, 1998. As a percentage of total
revenues, maintenance and other revenues increased to 25.3% for the nine months
ended September 30, 1999, from 18.5% for the nine months ended September 30,
1998. The dollar and percentage increases were primarily due to maintenance
contracts associated with new software licenses booked in 1998, customer system
upgrades and price increases in the fees charged for annual maintenance. In
addition, the increase as a percentage of total revenues was due to lower
software license revenues.
Resource Management Revenues. Revenues from resource management
increased 44% to $1,552 for the nine months ended September 30, 1999, from
$1,079 for the nine months ended September 30, 1998. As a percentage of total
revenues, resource management revenues increased to 2.1% for the nine months
ended September 30, 1999, from 1.5% for the nine months ended September 30,
1998. The dollar and percentage increases were primarily related to the sale of
a new outsourcing contract in July 1999, along with the sale of additional
services and an annual price increase on the existing contract.
Cost of Revenues
Cost of Software License Revenues. Cost of software licenses increased
7% to $5,815 for the nine months ended September 30, 1999, from $5,444 for the
nine months ended September 30, 1998. As a percentage of software license
revenues, cost of software licenses increased to 28.2% for the nine months
ended September 30, 1999, from 17.0% for the nine months ended September 30,
1998. The dollar and percentage increases resulted primarily from an increased
number of third-party software licenses, specifically module enhancements such
as report writers and imaging products and third-party software related to
public safety applications which typically carry a higher cost of sale than
other third-party products. In addition, the percentage increase is also due to
relatively fixed computer software development amortization costs with lower
software license revenues.
Cost of Professional Services Revenues. Cost of professional services
increased 45% to $12,693 for the nine months ended September 30, 1999, from
$8,745 for the nine months ended September 30, 1998. As a percentage of
professional services revenues, cost of professional services increased to
62.9% for the nine months ended September 30, 1999, from 58.9% for the nine
months ended September 30, 1998. The dollar increase was directly related to
increased professional services revenues and expanded offerings of full service
professional services. The increase in the cost of professional services as a
percentage of professional services revenues is primarily due to the use of
outside consultants, which resulted in a higher cost of professional services.
Cost of Hardware Revenues. Cost of hardware increased 34% to $10,666
for the nine months ended September 30, 1999, from $7,987 for the nine months
ended September 30, 1998. As a percentage of hardware revenues, cost of
hardware increased to 84.0% for the nine months ended September 30, 1999, from
82.1% for the nine months ended September 30, 1998. The dollar increase was
related to the increased hardware sales and the mix of equipment sold. The
increase in the cost of hardware as a percentage of hardware revenues was
primarily due to the higher volume and smaller size of new contracts signed,
which typically results in smaller hardware margins.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
increased 8% to $7,518 for the nine months ended September 30, 1999, from
$6,943 for the nine months ended September 30, 1998. As a percentage of
maintenance and other revenues, cost of maintenance and other decreased to
40.2% for the nine months ended September 30, 1999, from 53.0% for the nine
months ended September 30, 1998. The dollar increase was primarily due to
investment in a new customer interaction software system and increased
personnel to enhance products and support a larger client base. The decrease in
the cost of maintenance and other as a percentage of maintenance and other
revenue was related to more efficient use of existing resources and improved
processes.
- 13 -
<PAGE> 14
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
Cost of Resource Management Revenues. Cost of resource management
increased 49% to $1,016 for the nine months ended September 30, 1999, from $682
for the nine months ended September 30, 1998. As a percentage of resource
management revenues, cost of resource management increased to 65.5% for the
nine months ended September 30, 1999, from 63.2% for the nine months ended
September 30, 1998. The dollar and percentage increases were primarily related
to costs associated with a new outsourcing contract which began in July 1999
and additional services.
Research and Development Expenses. Research and development expenses
increased 44% to $13,684 for the nine months ended September 30, 1999, from
$9,533 for the nine months ended September 30, 1998. As a percentage of total
revenues, research and development increased to 18.6% for the nine months ended
September 30, 1999, from 13.5% for the nine months ended September 30, 1998.
The dollar and percentage increases were primarily due to an increased focus on
product enhancements, which resulted in lower capitalization of software
development costs and increased expense. In addition, the increase as a
percentage of total revenues was due to lower software license revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased
12% to $14,936 for the nine months ended September 30, 1999, from $13,334 for
the nine months ended September 30, 1998. As a percentage of total revenues,
sales and marketing increased to 20.2% for the nine months ended September 30,
1999, from 18.8% for the nine months ended September 30, 1998. The dollar and
percentage increases were attributable to the Company's increased marketing
efforts, travel and other expenses related to increased sales effort. In
addition, the increase as a percentage of total revenues was due to lower
software license revenues.
General and Administrative Expenses. General and administrative
expenses increased 35% to $14,264 for the nine months ended September 30, 1999,
from $10,550 for the nine months ended September 30, 1998. As a percentage of
total revenues, general and administrative expenses increased to 19.3% for the
nine months ended September 30, 1999, from 14.9% for the nine months ended
September 30, 1998. The dollar and percentage increases were due to the recent
changes in management and the Company's strategy. These expenses consist
primarily of additional staffing, increased allowance for doubtful accounts,
additional facility related expenses and additional computer equipment and
software required to build the infrastructure to support the Company's growth.
In addition, the increase as a percentage of total revenues was due to lower
software license revenues. Management anticipates that general and
administrative expenses as a percentage of total revenues will decrease in
future quarters and that current quarterly trends are not indicative of the
future.
Employee Termination Benefits and Other Costs. Employee termination
benefits and other costs were $5,434, or 7.4% of total revenues, for the nine
months ended September 30, 1999. These costs consist primarily of $2,628 for
employee severance packages, $1,584 for termination of various product lines
and $691 for termination of unnecessary lease obligations of the Company. There
were no comparable expenses for the nine months ended September 30, 1998.
The Company's revenues and operating results are subject to quarterly and other
fluctuations resulting from a variety of factors, including the effect of
budgeting and purchasing practices of its customers, the length of the customer
evaluation process for the Company's solutions, the timing of customer system
conversions, and the Company's sales practices. Historically, the Company has
achieved its highest income in the fiscal quarter ended March 31. In 1997, the
Company implemented a new sales and marketing program and, to conform to
industry standards, changed its fiscal year end to December 31, which the
Company believes will moderate such fluctuations. Because of these changes, the
Company believes that historical quarterly operating data should not be relied
upon as an indicator of future performance. However, the Company has often
recognized a substantial portion of its revenues during the last month of each
quarter. Since a significant portion of the Company's operating expenses is
relatively fixed, the Company may not be able to adjust or reduce spending in
response to sales shortfalls or delays. These factors can cause significant
variations in operating results from quarter to quarter. The Company believes
that quarter-to-quarter comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
- 14 -
<PAGE> 15
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
YEAR 2000 COMPLIANCE
Risks Associated with the Year 2000. Many currently installed computer
systems and software products are coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result, in less
than one year, computer systems and software used by many companies will need
to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. There are several aspects to the Year 2000
issues, as follows:
Impact on Revenue. The Company believes that the purchasing patterns
of customers and potential customers may be affected by Year 2000 issues in a
variety of ways. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software
products such as those offered by the Company. Conversely, Year 2000 issues may
cause other companies to accelerate purchases of software to replace non-Year
2000 compliant applications, causing a short-term increase in demand for the
Company's products. There is no assurance that such increase in demand will be
realized. Either of the foregoing could have a material adverse effect upon the
Company's business, operating results and financial condition.
Year 2000 Compliance. The Company believes that the current versions
of its products are Year 2000 compliant. The Company regularly runs regression
tests on its software, including tests of the Year 2000 rollover. Based on the
above, it is not expected that the Company's products will be adversely
affected by date changes in the Year 2000. However, there can be no assurance
that the Company's products contain and will contain all features and
functionality considered necessary by customers, distributors, resellers and
systems integrators to be Year 2000 compliant. Notwithstanding the fact that
the Company regularly provides software upgrades to its customers and the fact
that these newer upgrades are Year 2000 compliant, certain customers of the
Company may still be running earlier, non-compliant versions of the Company's
products. The Company is in the process of informing customers of the need to
migrate to current products that management believes are Year 2000 compliant.
The Company is implementing a uniform process to assist customers in that
migration. The Company has advised customers that the failure to migrate to
current products may result in Year 2000 failure. In addition, the Company has
historically implemented individual customized solutions for certain customers
that are generally jointly administered with those customers. The Company may
not be able to regression test all of these customized solutions; but, to the
extent that regression tests can be done on those individualized solutions, the
Company believes that they are or will be Year 2000 compliant. The Company
anticipates that, generally throughout the software industry, substantial
litigation may be brought against software vendors of non-compliant operating
environments. The Company believes that any such claims against the Company,
with or without merit, could have a material adverse effect on the Company's
business, operating results and financial condition.
Internal Systems. The Company has also reviewed its internal systems
for Year 2000 compliance and is in the process of upgrading to Year 2000
compliant versions from third-party software vendors, modifying certain
systems, and planning to replace certain systems with new third-party software,
which the Company expects to complete prior to January 1, 2000. In addition to
making its own systems Year 2000 ready, the Company is continuing to contact
its key suppliers and vendors to determine the extent to which the systems of
such suppliers and vendors are Year 2000 compliant and the extent to which the
Company could be affected by the failure of such third parties to be Year 2000
compliant. The Company has appointed its Manager of Quality Assurance to
oversee all activities associated with Year 2000 compliance issues. A standing
committee meets on a monthly basis to review appropriate activities. Management
does not believe that the cost to bring its software products and internal
systems into Year 2000 compliance will have a material adverse effect on the
Company's results of operations or financial condition. However, delays in
upgrading some systems to Year 2000 compliance, or a failure to fully identify
all Year 2000 dependencies in the Company's systems and in the systems of its
suppliers, vendors, and financial institutions could have material adverse
consequences, including delays in the delivery or sale of products. The Company
has no contingency plan as such, however, the Company believes it should be
able to identify alternative vendors if the need arises.
- 15 -
<PAGE> 16
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
Expenses Related to Year 2000 Compliance. The Company has not incurred
significant expense in becoming Year 2000 compliant, as this has been achieved
as a part of regular upgrades to its internal operating systems. Future costs
related to Year 2000 compliance are not expected to have a material adverse
effect on the Company's results of operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $4,476 during the nine months
ended September 30, 1999, compared to net cash used of $3,654 in the comparable
1998 period. The increase in cash provided by operating activities is primarily
due to the decrease in trade accounts receivable and other current assets,
partially offset by an increase in the income tax receivable.
Cash used in investing activities (capital expenditures, software development
investments and acquisitions) totaled $4,154 and $6,248 during the nine months
ended September 30, 1999 and 1998, respectively. Capital expenditures were
primarily comprised of the Company's investments in equipment and related
software development costs and the acquisition of Information On Demand, Inc.
in June 1999. In 1998, the Company acquired JALAN, Inc. and Vanguard Management
and Information Services, Inc.
Net cash provided by financing activities was $1,132 during the nine months
ended September 30, 1999, compared to net cash used of $901 in the comparable
1998 period. The 1999 period reflects the proceeds from the sale of common
stock in conjunction with the Company's employee stock purchase plan and the
exercise of options under the Company's executive incentive plan. The 1998
period reflects the proceeds from the sale of common stock in conjunction with
the Company's employee stock purchase plan, partially offset by the payment of
the amounts due to stockholders related to the UCS acquisition.
Based on current operating projections for the year 2000, the Company believes
its cash balances and cash generated from operations will satisfy the Company's
working capital and capital expenditure requirements for at least the next 12
months. In the longer term, the Company may require additional sources of
liquidity to fund future growth and operations. Such sources of liquidity may
include additional equity offerings or debt financings. In the normal course of
business, the Company evaluates acquisitions of businesses, products and
technologies that complement the Company's business. On January 1, 1998, the
Company purchased the net assets of JALAN, Inc. for $1,723. On April 1, 1998,
the Company acquired Phoenix Systems, L.L.C. by issuing 272,036 shares of
common stock valued at $3,000 on or about the closing date. On June 1, 1998,
the Company acquired UCS, Inc. by issuing 1,120,000 shares of common stock
valued at $15,000 as of the April 1998 agreement valuation date. Both the
Phoenix Systems, L.L.C. and UCS, Inc. acquisitions were accounted for as
pooling-of-interests. On August 31, 1998, the Company purchased the net assets
of Vanguard Management and Information Systems, Inc. for $420. On June 18,
1999, the Company purchased the net assets of Information On Demand, Inc. for
$1,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No information has been presented pursuant to Item 3 as the Company does not
have any financial instruments outstanding as of September 30, 1999, requiring
market risk disclosure or material foreign currency exposure requiring market
risk disclosure.
- 16 -
<PAGE> 17
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
PART II - OTHER INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal course
of business, as both a claimant and a defendant. While it is not possible to
determine with certainty the outcome of these matters, in the opinion of
management, the eventual resolution of these outstanding claims and actions
will not have a material adverse effect on the Company's financial position or
operating results.
On February 3, 1999, a regulated privately owned utility corporation filed a
demand for binding arbitration and claim against the Company with the American
Arbitration Association, alleging that the Company had breached certain
contractual duties and obligations. The claim requests a judgment that the
utility corporation is not obligated to the Company for a majority of the
$1,196 paid pursuant to the Software License and Services Agreement and for
other damages to be determined at the arbitration. The Company denied liability
and filed a counterclaim on March 8, 1999, alleging that the utility
corporation breached its contractual duties and obligations under such
agreement. The Company is seeking damages against the utility corporation in
excess of $1,220 and for other damages to be determined at the arbitration.
Management plans to vigorously defend the claim and pursue its counterclaim. In
the opinion of management, the Company will substantially prevail in this
matter on the merits and the ultimate outcome is not expected to materially
affect the financial position of the Company.
On April 9, 1999, a municipality filed a demand for binding arbitration and
claim against the Company with the American Arbitration Association, alleging
that the Company had breached certain contractual duties and obligations. The
claim requests a judgment requiring the Company to pay damages for breach of
contract in an amount to be determined at the arbitration. The municipality has
demanded return of $991 paid to the Company. The Company denied liability and
filed counterclaims on May 3, 1999, alleging that: (i) the municipality
breached its contractual duties and obligations under a Hardware Purchase
Agreement and a Software License and Services Agreement with the Company; and
(ii) the municipality breached its duty of good faith and fair dealing with the
Company. The Company is seeking damages against the municipality in excess of
$1,800 and other damages to be determined at the arbitration. Management plans
to vigorously defend the claim and pursue its counterclaims. In the opinion of
management, the Company will substantially prevail in this matter on the merits
and the ultimate outcome is not expected to materially affect the financial
position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) During the nine months ended September 30, 1999, the Company continued to
use the net proceeds of the initial public offering for investments, which
totaled $4,154.
- 17 -
<PAGE> 18
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ITEM 5. OTHER INFORMATION
In September 1999, the Company retained Broadview International, LLC
("Broadview") to provide strategic financial advice to the Company, including
assistance in evaluating any proposal from Tyler Technologies, Inc. Broadview
is a leading global investment bank focused on information technology,
communications and media industries. Broadview provides financial advice and
assists clients with mergers and acquisitions, restructuring and private
financings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Name
------ -------------------------------------------------------------
27.0 Financial Data Schedule (submitted only in electronic format)
(B) REPORTS ON FORM 8-K
A current report on Form 8-K and amendment thereto were filed by H.T.E.,
Inc. on August 3, 1999 and August 25, 1999, respectively.
- 18 -
<PAGE> 19
H.T.E., INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H.T.E., INC.
Date: November 12, 1999
/s/ Gilbert O. Santos
-------------------------------
Office of the Chief Executive
Officer/President
By: Gilbert O. Santos
/s/ Susan D. Falotico
-------------------------------
Susan D. Falotico
Interim Chief Financial Officer
- 19 -
<PAGE> 20
EXHIBIT INDEX
Number Name
------ --------------------------------------------------------------
27.0 Financial Data Schedule (submitted only in electronic format)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF H.T.E., INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,010
<SECURITIES> 0
<RECEIVABLES> 34,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,505
<PP&E> 4,020
<DEPRECIATION> 0
<TOTAL-ASSETS> 64,122
<CURRENT-LIABILITIES> 34,470
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 26,484
<TOTAL-LIABILITY-AND-EQUITY> 64,122
<SALES> 0
<TOTAL-REVENUES> 73,742
<CGS> 0
<TOTAL-COSTS> 86,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (126)
<INCOME-PRETAX> (12,158)
<INCOME-TAX> (4,742)
<INCOME-CONTINUING> (7,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,416)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
