<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, 2000
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)
<TABLE>
<S> <C>
FLORIDA 59-2133858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
Class OUTSTANDING AS OF OCTOBER 31, 2000
----- ----------------------------------
Common stock
Par value $.01 per share 17,460,539
</TABLE>
<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,
2000 1999
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,672 $ 6,901
Trade accounts receivable, net 23,117 33,407
Due from DSI 7 --
Deferred income taxes 6,190 5,614
Other current assets 1,530 1,714
-------- --------
Total current assets 37,516 47,636
-------- --------
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES, net 3,277 3,839
-------- --------
OTHER ASSETS
Computer software development costs, net 5,633 5,653
Other intangible assets 555 2,381
Deferred income taxes 1,254 1,254
Investment in subsidiary 2,750 --
Note receivable, long-term 1,750 --
Deposits 247 246
-------- --------
Total other assets 12,189 9,534
-------- --------
$ 52,982 $ 61,009
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 6,739 $ 15,666
Deferred revenue 24,642 25,562
Note payable, current 625 --
-------- --------
Total current liabilities 32,006 41,228
-------- --------
LONG-TERM LIABILITIES
Note payable, long-term 625 --
Other long-term liabilities 459 475
-------- --------
Total long-term liabilities 1,084 475
-------- --------
STOCKHOLDERS' EQUITY
Common stock 176 174
Additional paid-in capital 31,493 30,890
Gain on investment due to stock issuance by subsidiary 3,741 --
Accumulated deficit (15,460) (11,722)
Cumulative translation adjustment (58) (36)
-------- --------
Total stockholders' equity 19,892 19,306
-------- --------
$ 52,982 $ 61,009
======== ========
</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,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Software licenses $ 2,665 $ 5,811 $ 8,120 $ 20,634
Professional services 3,372 6,471 12,104 20,171
Hardware 482 3,608 2,801 12,700
Maintenance and other 8,102 6,742 23,587 18,685
Resource management 438 717 1,524 1,552
-------- -------- -------- --------
Total revenues 15,059 23,349 48,136 73,742
-------- -------- -------- --------
EXPENSES
Cost of software licenses 1,486 2,264 4,047 5,815
Cost of professional services 2,746 4,322 9,520 12,693
Cost of hardware 397 3,230 2,500 10,666
Cost of maintenance and other 2,268 2,861 7,350 7,518
Cost of resource management 233 501 1,027 1,016
Research and development 3,044 4,586 10,747 13,684
Sales and marketing 2,631 5,028 9,775 14,936
General and administrative 3,252 5,992 10,382 14,264
Employee termination and other costs -- 3,625 (1,131) 5,434
-------- -------- -------- --------
Total expenses 16,057 32,409 54,217 86,026
-------- -------- -------- --------
OPERATING LOSS (998) (9,060) (6,081) (12,284)
INTEREST INCOME, net 85 47 238 126
-------- -------- -------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (913) (9,013) (5,843) (12,158)
BENEFIT FOR INCOME TAXES (356) (3,515) (2,279) (4,742)
-------- -------- -------- --------
NET LOSS (557) (5,498) (3,564) (7,416)
Foreign currency translation adjustments (45) 1 (22) 3
-------- -------- -------- --------
COMPREHENSIVE LOSS $ (602) $ (5,497) $ (3,586) $ (7,413)
======== ======== ======== ========
NET LOSS PER SHARE:
BASIC $ (0.03) $ (0.32) $ (0.20) $ (0.43)
======== ======== ======== ========
DILUTED $ (0.03) $ (0.32) $ (0.20) $ (0.43)
======== ======== ======== ========
</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,
----------------------------
2000 1999
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,564) $(7,416)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization 4,197 4,364
Loss on disposal of computer equipment, furniture and fixtures 18 --
Loss on write-off of computer software development costs -- 1,139
Loss on write-off of other intangible assets 184 --
Deferred income taxes (576) --
Compensation related to stock transactions 19 --
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net 10,267 6,315
Income tax receivable -- (1,573)
Other current assets (316) 1,280
Deposits (10) 68
Due from DSI 579 --
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (6,775) (1,788)
Deferred revenue (614) 1,993
Other liabilities (16) 94
-------- -------
Net cash provided by operating activities 3,393 4,476
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (938) (641)
Computer software development costs (2,183) (2,613)
Cash paid for acquisition -- (900)
Spin-off of subsidiary (923) --
-------- -------
Net cash used in investing activities (4,044) (4,154)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 618 1,132
Repurchase of common stock (174) --
-------- -------
Net cash provided by financing activities 444 1,132
-------- -------
Effect of foreign currency exchange rate changes on cash and cash
equivalents (22) 3
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (229) 1,457
CASH AND CASH EQUIVALENTS, beginning of period 6,901 7,553
-------- -------
CASH AND CASH EQUIVALENTS, end of period $ 6,672 $ 9,010
======== =======
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION:
Cash paid for interest $ 25 $ 5
Cash paid for income taxes 56 --
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, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The consolidated financial statements included herein have been prepared by
H.T.E., Inc. (HTE or the Company), 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, 1999, 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
DemandStar.com, Inc. (DSI), a Florida corporation (collectively, the Company).
Financial information for DSI is included in the Company's consolidated
financial statements in this report through April 2000 since HTE's ownership in
DSI was reduced to below 20 percent as of May 1, 2000.
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.
Pursuant to a registration statement on Form S-1 (File No.333-93445), as
amended, filed with the Securities and Exchange Commission and which became
effective March 27, 2000, DSI completed a rights offering of its common stock
as of May 1, 2000. Rights to purchase an aggregate of 6,374,080 shares of
common stock were exercised for an aggregate purchase price of $6,374. As a
result, only DSI's operating results through April 2000 are included in the
Company's consolidated financial statements in this report since the Company's
ownership of DSI was reduced to below 20 percent as of May 1, 2000.
1. LITIGATION
In June 2000, the Company entered into a settlement agreement with the City of
Tacoma, Washington and the Company's insurance carriers, settling all claims
and litigation proceedings arising from the binding arbitration award against
the Company for $5,174 issued by the American Arbitration Association in
January 2000. Under the terms of the settlement, the arbitration award was
reduced to approximately $4,250. Of that amount, $1,500 will be paid by
insurance proceeds. The Company agreed to pay the remaining $2,750 as follows:
(i) $1,500, which was paid in June 2000; and (ii) $625 due June 1, 2001 and
(iii) $625 due June 1, 2002. The last two payments are subject to a secured
promissory note executed by the Company in favor of the City of Tacoma,
Washington. Interest accrues on the note at 9 percent per annum and is payable
concurrently with the principal payments. The note is secured by 750,000 shares
of DSI Series A Preferred Stock and 1,250,000 shares of DSI common stock held
by the Company. The note is recorded as a note payable in the accompanying
consolidated balance sheet as of September 30, 2000.
5
<PAGE> 6
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. LITIGATION (CONTINUED)
The Company is involved in various other legal actions arising in the normal
course of business, both as claimant and 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.
2. LOSS 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,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted-average shares outstanding 17,640 17,371 17,581 17,242
Common shares applicable to stock options using
the treasury stock method -- -- -- --
------ ------ ------ ------
Diluted weighted average shares outstanding 17,640 17,371 17,581 17,242
====== ====== ====== ======
</TABLE>
Options to purchase approximately 2.4 million shares were outstanding as of
September 30, 2000, but were not included in the computation of diluted loss
per share because they are antidilutive.
3. BUSINESS COMBINATIONS
PURCHASES
In June 1999, the Company, through its wholly-owned subsidiary, HTE-IOD, Inc.
(IOD), purchased certain assets of Information on Demand, Inc. for $1,000 in
cash. 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, IOD also assumed various customer service
liabilities. IOD's name was subsequently changed to DemandStar.com, Inc. (DSI).
DSI completed a rights offering of its common stock as of May 1, 2000 and, as a
result, the Company's ownership of DSI was reduced to below twenty percent. As
additional consideration for the purchase of the assets of Information on
Demand, Inc., DSI could pay up to an additional $2,000 for the assets if DSI
meets certain financial targets set forth in the Agreement for Sale and
Purchase of Assets.
Revenues, net loss and loss per share presented for the three and nine months
ended September 30, 2000 and 1999, on a pro forma basis, as if the acquisition
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,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $15,059 $23,349 $48,136 $73,891
Net income (loss) (557) (5,498) (3,564) (7,468)
Basic income (loss) per share (0.03) (0.32) (0.20) (0.43)
Diluted income (loss) per share (0.03) (0.32) (0.20) (0.43)
</TABLE>
6
<PAGE> 7
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
4. NOTE RECEIVABLE
The Company entered into an unsecured loan agreement, which has a principal
amount of $1,750 with DSI. The note provides for the principal balance to be
repaid by DSI according to the following schedule, as amended by the
Modification to Promissory Note Agreement (the Agreement) (see subsequent event
footnote):
<TABLE>
<CAPTION>
OCTOBER 31, AMOUNT
----------- --------
<S> <C>
2001 $ 450
2002 350
2003 450
2004 500
--------
$ 1,750
</TABLE>
In addition, interest accrues at 8 percent per year on the outstanding balance.
The due from DSI balance at September 30, 2000, represents amounts owed to HTE
in excess of the loan agreement. This amount results from timing of payments
and was repaid in full in November 2000.
5. LINE OF CREDIT
In September 2000, the Company entered into a Loan and Security Agreement with
Silicon Valley Bank for up to $5,000 based on the Company's accounts receivable
balance (the Loan). The term of the Loan is for one year from the date of the
Loan and bears interest at the bank's prime rate plus 2 percent. The Loan is
collateralized by the assets of the Company and requires the Company to
maintain a financial covenant related to tangible net worth.
6. 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. EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
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 a change in management and the Company's strategy. The employee
severance package benefits were $1,720.
During the three months ended March 31, 2000, the Company recorded employee
termination benefits and other costs of $1,103, which include $622 for employee
severance packages related to a workforce reduction and $481 for the
discontinuation of various product lines and closing of offices.
During the three months ended June 30, 2000, the Company recorded a reversal of
previously expensed one-time charges of $2,334 related primarily to the reduced
Tacoma settlement.
As of September 30, 2000, employee termination benefits and other costs of $919
remain accrued in accounts payable and accrued liabilities.
7
<PAGE> 8
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
8. SUBSEQUENT EVENT
In October 2000, the Company entered into an Agreement with DSI. The Agreement
defers the payment of the principal payment and interest due on October 31,
2000, which is approximately $350 at October 31, 2000, (the "10-31-00 Note
Payment") under the loan agreement until October 31, 2001 and allows DSI to
repay the 10-31-00 Note Payment by issuing equity securities to HTE only if DSI
issues a new equity security in a third party transaction in which equity
capital in excess of $3,000 is raised prior to October 31, 2001. In
consideration of this deferral, the Agreement increases the interest rate from
8 percent to 10 percent effective November 1, 2000, and requires DSI to pay HTE
a one-time modification fee of $10 on or before January 15, 2001. Based on this
modification, the current portion of the note receivable of $200 has been
reclassed to long-term in the accompanying consolidated balance sheet.
8
<PAGE> 9
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
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, 2000 and September 30, 1999,"
"Comparison of Nine Months Ended September 30, 2000 and September 30, 1999,"
and "Liquidity and Capital Resources," below. 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, 1999 (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 loss items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES:
Software licenses 17.7% 24.9% 16.9% 28.0%
Professional services 22.4 27.7 25.1 27.4
Hardware 3.2 15.4 5.8 17.2
Maintenance and other 53.8 28.9 49.0 25.3
Resource management 2.9 3.1 3.2 2.1
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
OPERATING EXPENSES:
Cost of software licenses 9.9 9.7 8.4 7.9
Cost of professional services 18.2 18.5 19.8 17.2
Cost of hardware 2.6 13.8 5.2 14.5
Cost of maintenance and other 15.1 12.3 15.3 10.2
Cost of resource management 1.5 2.2 2.1 1.4
Research and development 20.2 19.6 22.3 18.6
Sales and marketing 17.5 21.5 20.3 20.2
General and administrative 21.6 25.7 21.6 19.3
Employee termination benefits and other costs 0.0 15.5 (2.4) 7.4
----- ----- ----- -----
Total operating expenses 106.6 138.8 112.6 116.7
----- ----- ----- -----
OPERATING LOSS (6.6) (38.8) (12.6) (16.7)
INTEREST INCOME, net 0.5 0.2 0.5 0.2
----- ----- ----- -----
LOSS BEFORE BENEFIT FOR INCOME TAXES (6.1) (38.6) (12.1) (16.5)
BENEFIT FOR INCOME TAXES (2.4) (15.1) (4.7) (6.4)
----- ----- ----- -----
NET LOSS (3.7)% (23.5)% (7.4)% (10.1)%
===== ===== ===== =====
</TABLE>
9
<PAGE> 10
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
Comparison of Three Months Ended September 30, 2000 and September 30, 1999
(Amounts in thousands)
Revenues
The Company's total revenues decreased by 36% to $15,059 for the three
months ended September 30, 2000, from $23,349 for the three months ended
September 30, 1999.
Software License Revenues. Revenues from software licenses decreased
54% to $2,665 for the three months ended September 30, 2000, compared to $5,811
for the three months ended September 30, 1999. As a percentage of total
revenues, software license revenues decreased to 17.7% for the three months
ended September 30, 2000, from 24.9% for the three months ended September 30,
1999. The dollar and percentage decreases resulted primarily from the long
sales cycle associated with governmental customers, combined with the general
slowdown across the software industry related to Y2K.
Professional Services Revenues. Revenues from professional services
decreased 48% to $3,372 for the three months ended September 30, 2000, from
$6,471 for the three months ended September 30, 1999. As a percentage of total
revenues, professional services revenues decreased to 22.4% for the three
months ended September 30, 2000, from 27.7% for the three months ended
September 30, 1999. The dollar and percentage decreases were related to a
decrease in professional services backlog related to 1999 and 2000 contracts.
Hardware Revenues. Hardware revenues decreased 87% to $482 for the
three months ended September 30, 2000, from $3,608 for the three months ended
September 30, 1999. As a percentage of total revenues, hardware revenues
decreased to 3.2% for the three months ended September 30, 2000, from 15.5% for
the three months ended September 30, 1999. The dollar and percentage decreases
were primarily due to a smaller number of customers who required additional
hardware with software purchases. The Company is also transitioning out of the
hardware business and has entered into an agreement with Vertical VAR. Under
this agreement, the Company will receive a royalty on hardware sales to HTE
customers by Vertical VAR.
Maintenance and Other Revenues. Revenues from maintenance and other
increased 20% to $8,102 for the three months ended September 30, 2000, from
$6,742 for the three months ended September 30, 1999. As a percentage of total
revenues, maintenance and other revenues increased to 53.8% for the three
months ended September 30, 2000, from 28.9% for the three months ended
September 30, 1999. The dollar and percentage increases were primarily due to
maintenance contracts associated with new software licenses booked in 1998,
1999 and 2000, 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 and hardware revenues.
Resource Management Revenues. Revenues from resource management
decreased 39% to $438 for the three months ended September 30, 2000, from $717
for the three months ended September 30, 1999. As a percentage of total
revenues, resource management revenues decreased to 2.9% for the three months
ended September 30, 2000, from 3.1% for the three months ended September 30,
1999. The dollar and percentage decreases were primarily related to the
conversion of an outsourcing customer to an in-house customer.
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 34% to $1,486 for the three months ended
September 30, 2000, from $2,264 for the three months ended September 30, 1999.
As a percentage of software license revenues, cost of software licenses
increased to 55.8% for the three months ended September 30, 2000, from 39.0%
for the three months ended September 30, 1999. 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 relatively fixed computer software development amortization costs with
lower software license revenues and sales of third party products related to
public safety applications, which typically carry a higher cost of sale.
10
<PAGE> 11
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
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 decreased 36% to $2,746 for the three
months ended September 30, 2000, from $4,322 for the three months ended
September 30, 1999. As a percentage of professional services revenues, cost of
professional services increased to 81.4% for the three months ended September
30, 2000, from 66.8% for the three months ended September 30, 1999. The dollar
decrease was directly related to decreased professional services revenues. The
increase in the cost of professional services as a percentage of professional
services revenues is primarily due to lower professional services revenues with
a limited decrease in employee related costs.
Cost of Hardware Revenues. Cost of hardware consists primarily of
costs payable to vendors for hardware. Cost of hardware decreased 88% to $397
for the three months ended September 30, 2000, from $3,230 for the three months
ended September 30, 1999. As a percentage of hardware revenues, cost of
hardware decreased to 82.4% for the three months ended September 30, 2000, from
89.5% for the three months ended September 30, 1999. The dollar decrease was
directly related to decreased hardware revenues. The decrease 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 decreased
21% to $2,268 for the three months ended September 30, 2000, from $2,861 for
the three months ended September 30, 1999. As a percentage of maintenance and
other revenues, cost of maintenance and other decreased to 28.0% for the three
months ended September 30, 2000, from 42.4% for the three months ended
September 30, 1999. The dollar and percentage decreases were primarily related
to more efficient use of existing resources and improved processes.
Cost of Resource Management Revenues. Cost of resource management
decreased 53% to $233 for the three months ended September 30, 2000, from $501
for the three months ended September 30, 1999. As a percentage of resource
management revenues, cost of resource management decreased to 53.2% for the
three months ended September 30, 2000, from 69.9% for the three months ended
September 30, 1999. The dollar and percentage decreases were primarily due to
the conversion of an outsourcing customer to an in-house customer.
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 decreased 34% to $3,044 for the three months ended September 30, 2000,
from $4,586 for the three months ended September 30, 1999. As a percentage of
total revenues, research and development increased to 20.2% for the three
months ended September 30, 2000, from 19.6% for the three months ended
September 30, 1999. The dollar decrease was primarily due to a reduction in the
number of contractors used in 2000, along with a reduction in workforce. The
increase in the research and development expenses as a percentage of total
revenues was primarily due to lower total revenues with a limited decrease in
employee related costs.
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 decreased 48% to $2,631 for the three months ended September
30, 2000, from $5,028 for the three months ended September 30, 1999. As a
percentage of total revenues, sales and marketing decreased to 17.5% for the
three months ended September 30, 2000, from 21.5% for the three months ended
September 30, 1999. The dollar and percentage decreases were primarily related
to lower sales and a decrease in the resources required to support the sales
effort. The Company's sales team has recently initiated programs to refocus
attention on its existing base of 1,600 customers in selected traditionally
higher opportunity geographical areas.
11
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H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
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 decreased 46% to $3,252 for the three months ended
September 30, 2000, from $5,992 for the three months ended September 30, 1999.
As a percentage of total revenues, general and administrative expenses
decreased to 21.6% for the three months ended September 30, 2000, from 25.7%
for the three months ended September 30, 1999. The dollar and percentage
decreases were primarily due to an effort by management to reduce and control
expenses by improving efficiencies. In addition, the Company recorded expenses
related to changes in management and the Company's strategy during the three
months ended September 30, 1999.
Employee Termination Benefits and Other Costs. There were no employee
termination benefits and other costs during the three months ended September
30, 2000. The expenses recorded during the three months ended September 30,
1999 were $3,625, or 15.5% of total revenues. This amount consists primarily of
costs related to employee severance packages, the discontinuance of various
product lines and termination of an unnecessary lease obligation of the
Company.
Comparison of Nine Months Ended September 30, 2000 and September 30, 1999
(Amounts in thousands)
Revenues
The Company's total revenues decreased by 35% to $48,136 for the nine
months ended September 30, 2000, from $73,742 for the nine months ended
September 30, 1999.
Software License Revenues. Revenues from software licenses decreased
61% to $8,120 for the nine months ended September 30, 2000, compared to $20,634
for the nine months ended September 30, 1999. As a percentage of total
revenues, software license revenues decreased to 16.9% for the nine months
ended September 30, 2000, from 28.0% for the nine months ended September 30,
1999. The dollar and percentage decreases resulted primarily from the long
sales cycle associated with governmental customers, combined with the general
slowdown across the software industry related to Y2K.
Professional Services Revenues. Revenues from professional services
decreased 40% to $12,104 for the nine months ended September 30, 2000, from
$20,171 for the nine months ended September 30, 1999. As a percentage of total
revenues, professional services revenues decreased to 25.1% for the nine months
ended September 30, 2000, from 27.4% for the nine months ended September 30,
1999. The dollar and percentage decreases were related to a decrease in
professional services backlog related to 1999 and 2000 contracts.
Hardware Revenues. Hardware revenues decreased 78% to $2,801 for the
nine months ended September 30, 2000, from $12,700 for the nine months ended
September 30, 1999. As a percentage of total revenues, hardware revenues
decreased to 5.8% for the nine months ended September 30, 2000, from 17.2% for
the nine months ended September 30, 1999. The dollar and percentage decreases
were primarily due to a smaller number of customers who required additional
hardware with software purchases. The Company is also transitioning out of the
hardware business and has entered into an agreement with Vertical VAR. Under
this agreement, the Company will receive a royalty on hardware sales to HTE
customers by Vertical VAR.
Maintenance and Other Revenues. Revenues from maintenance and other
increased 26% to $23,587 for the nine months ended September 30, 2000, from
$18,685 for the nine months ended September 30, 1999. As a percentage of total
revenues, maintenance and other revenues increased to 49.0% for the nine months
ended September 30, 2000, from 25.3% for the nine months ended September 30,
1999. The dollar and percentage increases were primarily due to maintenance
contracts associated with new software licenses booked in 1998, 1999 and 2000,
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 and hardware revenues.
12
<PAGE> 13
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
Resource Management Revenues. Revenues from resource management
decreased 2% to $1,524 for the nine months ended September 30, 2000, from
$1,552 for the nine months ended September 30, 1999. As a percentage of total
revenues, resource management revenues increased to 3.2% for the nine months
ended September 30, 2000, from 2.1% for the nine months ended September 30,
1999. The dollar decrease was primarily related to the conversion of an
outsourcing customer to an in-house customer. The increase in resource
management revenues as a percentage of total revenues was primarily related to
lower software license and hardware revenues.
Cost of Revenues
Cost of Software License Revenues. Cost of software licenses decreased
30% to $4,047 for the nine months ended September 30, 2000, from $5,815 for the
nine months ended September 30, 1999. As a percentage of software license
revenues, cost of software licenses increased to 49.8% for the nine months
ended September 30, 2000, from 28.2% for the nine months ended September 30,
1999. 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 relatively fixed computer software
development amortization costs with lower software license revenues and sales
of third party products related to public safety applications, which typically
carry a higher cost of sale.
Cost of Professional Services Revenues. Cost of professional services
decreased 25% to $9,520 for the nine months ended September 30, 2000, from
$12,693 for the nine months ended September 30, 1999. As a percentage of
professional services revenues, cost of professional services increased to
78.7% for the nine months ended September 30, 2000, from 62.9% for the nine
months ended September 30, 1999. The dollar decrease was directly related to
decreased professional services revenues. The increase in the cost of
professional services as a percentage of professional services revenues is
primarily due to lower professional services revenues with a limited decrease
in employee related costs.
Cost of Hardware Revenues. Cost of hardware decreased 77% to $2,500
for the nine months ended September 30, 2000, from $10,666 for the nine months
ended September 30, 1999. As a percentage of hardware revenues, cost of
hardware increased to 89.3% for the nine months ended September 30, 2000, from
84.0% for the nine months ended September 30, 1999. 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 and the lower margins associated with smaller contracts.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
decreased 2% to $7,350 for the nine months ended September 30, 2000, from
$7,518 for the nine months ended September 30, 1999. As a percentage of
maintenance and other revenues, cost of maintenance and other decreased to
31.2% for the nine months ended September 30, 2000, from 40.2% for the nine
months ended September 30, 1999. The dollar and percentage decreases were
primarily related to more efficient use of existing resources and improved
processes.
Cost of Resource Management Revenues. Cost of resource management
increased 1% to $1,027 for the nine months ended September 30, 2000, from
$1,016 for the nine months ended September 30, 1999. As a percentage of
resource management revenues, cost of resource management increased to 67.4%
for the nine months ended September 30, 2000, from 65.5% for the nine months
ended September 30, 1999. The slight dollar and percentage increases were
primarily related to costs associated with a new outsourcing contract, which
began in July 1999, partially offset by the conversion of an outsourcing
customer to an in-house customer.
Research and Development Expenses. Research and development expenses
decreased 21% to $10,747 for the nine months ended September 30, 2000, from
$13,684 for the nine months ended September 30, 1999. As a percentage of total
revenues, research and development increased to 22.3% for the nine months ended
September 30, 2000, from 18.6% for the nine months ended September 30, 1999.
The dollar decrease was primarily due to a reduction in the number of
contractors used in 2000, along with a reduction in workforce. The increase in
research and development expenses as a percentage of total revenues was due to
lower software license and hardware revenues.
13
<PAGE> 14
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
Sales and Marketing Expenses. Sales and marketing expenses decreased
35% to $9,775 for the nine months ended September 30, 2000, from $14,936 for
the nine months ended September 30, 1999. As a percentage of total revenues,
sales and marketing remained constant at 20.3% for the nine months ended
September 30, 2000 and 1999. The dollar decrease was primarily related to lower
sales and a decrease in the resources required to support the sales effort. The
Company's sales team has recently initiated programs to refocus attention on
its existing base of 1,600 customers in selected traditionally higher
opportunity states.
General and Administrative Expenses. General and administrative
expenses decreased 27% to $10,382 for the nine months ended September 30, 2000,
from $14,264 for the nine months ended September 30, 1999. As a percentage of
total revenues, general and administrative expenses increased to 21.6% for the
nine months ended September 30, 2000, from 19.3% for the nine months ended
September 30, 1999. The dollar decrease was primarily due to an effort by
management to reduce and control expenses by improving efficiencies. The
increase in general and administrative expenses as a percentage of total
revenues was due to lower software license and hardware revenues.
Employee Termination Benefits and Other Costs. Employee termination
benefits and other costs were $(1,131), or (2.4)% of total revenues, for the
nine months ended September 30, 2000. This amount represents the reversal of
previously expensed one-time charges primarily related to the reduced Tacoma
settlement, partially offset by costs associated with a workforce reduction,
discontinuance of various product lines and the closing of offices. During the
nine months ended September 30, 1999, the comparable costs were $5,434, or 7.4%
of total revenues. These costs primarily include costs associated with
severance packages, the termination of various product lines and the
termination of unnecessary lease obligations of the Company.
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. 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.
YEAR 2000 COMPLIANCE
Prior to January 1, 2000, there was considerable concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports today, however, are that computer systems and software programs are
functioning normally and the compliance and remediation work accomplished
during the years leading up to 2000 was effective to prevent any problems. The
Company develops, markets, implements and supports fully integrated
enterprise-wide software applications for public sector organizations and
public and private utilities. The Company has completed the Year 2000 upgrades
of its systems. The Company used existing resources for its Year 2000
compliance efforts, without incurring significant incremental expenses. As of
the date of this Report, the Company has not experienced any significant
disruption in its products as a result of any failure of any of its systems to
function properly as of January 1, 2000 or February 29, 2000. The Company also
has not experienced any Year 2000 failures related to any of its vendors or
suppliers. Based on present trends, the Company does not expect to incur any
significant costs in 2000 related to Year 2000 activities.
Year 2000 compliance has many elements and potential consequences,
some of which may not be foreseeable or may be realized in future periods. In
addition, unforeseen circumstances may arise, and we may not, in the future,
adequately identify equipment or systems that are not Year 2000 compliant.
14
<PAGE> 15
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $3,393 and $4,476
during the nine months ended September 30, 2000 and 1999, respectively. The
decrease in cash provided by operating activities is primarily due to a
decrease in accounts payable and accrued liabilities, partially offset by a the
decrease in trade accounts receivable.
Cash used in investing activities (capital expenditures and software
development investments) totaled $4,044 and $4,154 during the nine months ended
September 30, 2000 and 1999, respectively. During 2000 and 1999, capital
expenditures were primarily comprised of the Company's investments in equipment
and related software development costs, along with an acquisition in 1999 and
spin-off of a subsidiary in 2000.
Net cash provided by financing activities totaled $444 and $1,132
during the nine months ended September 30, 2000 and 1999, respectively. The
2000 and 1999 periods reflect 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 employee incentive plan, partially offset in 2000
by the repurchase of common stock.
Based on current operating projections, 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 September 2000, the Company signed a Loan and Security Agreement with
Silicon Valley Bank (the Loan) for a line of credit of up to a $5,000 based on
the Company's accounts receivable balance. The term of the Loan is for one year
from the date of the Loan and bears interest at the bank's prime rate plus 2
percent. The Loan is collateralized by the assets of the Company and requires
the Company to maintain a financial covenant related to tangible net worth. In
the longer term or if the Company's current operating projections do not
materialize, 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. The last acquisition the Company made was in
June 1999 when the Company, through a subsidiary, purchased the assets of
Information on Demand, Inc. for $1,000. The name of the subsidiary was changed
to DemandStar.com, Inc., which was spun off by the Company as of May 1, 2000,
resulting in a reduction of the Company's ownership of DemandStar.com, Inc. to
below 20 percent.
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, 2000 requiring
market risk disclosure or material foreign currency exposure requiring market
risk disclosure.
15
<PAGE> 16
H.T.E., INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ITEM 1. LEGAL PROCEEDINGS
In June 2000, the Company entered into a settlement agreement with the City of
Tacoma, Washington and the Company's insurance carriers, settling all claims
and litigation proceedings arising from the binding arbitration award against
the Company for $5,174 issued by the American Arbitration Association in
January 2000. Under the terms of the settlement, the arbitration award was
reduced to approximately $4,250. Of that amount, $1,500 will be paid by
insurance proceeds. The Company agreed to pay the remaining $2,750 as follows:
(i) $1,500, which was paid in June 2000; and (ii) $625 due June 1, 2001 and
(iii) $625 due June 1, 2002. The last two payments are subject to a secured
promissory note executed by the Company in favor of the City of Tacoma,
Washington. Interest accrues on the note at 9 percent per annum and is payable
concurrently with the principal payments. The note is secured by 750,000 shares
of DSI Series A Preferred Stock and 1,250,000 shares of DSI common stock held
by the Company.
The Company is involved in various other legal actions arising in the normal
course of business, both as claimant and 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.
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, 2000, the Company continued
to use the net proceeds of the initial public offering for investments, which
totaled $3,121.
ITEM 5. OTHER INFORMATION.
The Company's 2000 Annual Meeting of Shareholders is scheduled for November 16,
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Number Name
------ -------------------------------------------------------------
10.1 Modification to Promissory Note Agreement
27.0 Financial Data Schedule (submitted only in electronic format)
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 2000.
16
<PAGE> 17
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 13, 2000
/s/ Joseph M. Loughry III
----------------------------------
Joseph M. Loughry III
Chief Executive Officer/President
/s/ Susan D. Falotico
----------------------------------
Susan D. Falotico
Chief Financial Officer
17
