<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 JUNE 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________ to
______________
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 AUGUST 4, 2000
----- --------------------------------
Common stock
Par value $.01 per share 17,682,539
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,961 $ 6,901
Trade accounts receivable, net 27,223 33,407
Note receivable, current portion 200 --
Due from DSI 205 --
Deferred income taxes 5,834 5,614
Other current assets 1,562 1,714
-------- --------
Total current assets 39,985 47,636
-------- --------
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES, net 3,220 3,839
-------- --------
OTHER ASSETS
Computer software development costs, net 5,559 5,653
Other intangible assets 762 2,381
Deferred income taxes 1,254 1,254
Investment in subsidiary 2,750 --
Note receivable, long-term 1,550 --
Deposits 251 246
-------- --------
Total other assets 12,126 9,534
-------- --------
$ 55,331 $ 61,009
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 8,341 $ 15,666
Deferred revenue 24,700 25,562
Note payable, current 625 --
-------- --------
Total current liabilities 33,666 41,228
-------- --------
LONG-TERM LIABILITIES
Note payable, long-term 625 --
Other long-term liabilities 470 475
-------- --------
Total long-term liabilities 1,095 475
-------- --------
STOCKHOLDERS' EQUITY
Common stock 176 174
Additional paid-in capital 31,395 30,890
Gain on investment due to stock issuance by subsidiary 3,741 --
Accumulated deficit (14,729) (11,722)
Cumulative translation adjustment (13) (36)
-------- --------
Total stockholders' equity 20,570 19,306
-------- --------
$ 55,331 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Software licenses $ 3,324 $ 6,254 $ 5,455 $ 14,823
Professional services 3,812 6,127 8,732 13,700
Hardware 1,624 5,047 2,319 9,092
Maintenance and other 7,809 6,381 15,485 11,943
Resource management 416 402 1,086 835
-------- -------- -------- --------
Total revenues 16,985 24,211 33,077 50,393
-------- -------- -------- --------
EXPENSES
Cost of software licenses 1,246 1,703 2,561 3,551
Cost of professional services 3,082 4,083 6,774 8,371
Cost of hardware 1,444 4,160 2,103 7,436
Cost of maintenance and other 2,358 2,344 5,082 4,657
Cost of resource management 423 256 794 515
Research and development 3,357 4,772 7,703 9,098
Sales and marketing 3,404 5,256 7,144 9,908
General and administrative 3,662 4,290 7,130 8,272
Employee termination and other costs (2,234) -- (1,131) 1,809
-------- -------- -------- --------
Total expenses 16,742 26,864 38,160 53,617
-------- -------- -------- --------
OPERATING INCOME (LOSS) 243 (2,653) (5,083) (3,224)
INTEREST INCOME, net 90 34 153 79
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES
333 (2,619) (4,930) (3,145)
PROVISION (BENEFIT) FOR INCOME TAXES 130 (1,021) (1,923) (1,227)
-------- -------- -------- --------
NET INCOME (LOSS) 203 (1,598) (3,007) (1,918)
Foreign currency translation adjustments 25 2 23 2
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ 228 $ (1,596) $ (2,984) $ (1,916)
-------- -------- -------- --------
NET INCOME (LOSS) PER SHARE:
BASIC $ 0.01 $ (0.09) $ (0.17) $ (0.11)
======== ======== ======== ========
DILUTED $ 0.01 $ (0.09) $ (0.17) $ (0.11)
======== ======== ======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
----------------------
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,007) $(1,918)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities--
Depreciation and amortization 2,844 2,984
Loss on disposal of computer equipment, furniture and fixtures 18 --
Loss on write-off of other intangible assets 184 --
Deferred income taxes (220) --
Compensation related to stock transactions 19 --
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net 6,161 1,292
Income tax receivable -- (1,227)
Other current assets (348) 737
Deposits (14) 14
Due from DSI 381 --
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities (5,173) (3,288)
Deferred revenue (556) 1,173
Other liabilities (5) 97
------- -------
Net cash provided by (used in) operating activities 284 (136)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (530) (300)
Computer software development costs (1,314) (1,967)
Cash paid for acquisition -- (900)
Spin-off of subsidiary (923) --
------- -------
Net cash used in investing activities (2,767) (3,167)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 520 703
------- -------
Net cash provided by financing activities 520 703
------- -------
Effect of foreign currency exchange rate changes on cash
and cash equivalents 23 2
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,940) (2,598)
CASH AND CASH EQUIVALENTS, beginning of period 6,901 7,553
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 4,961 $ 4,955
======= =======
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION:
Cash paid for interest $ 24 $ 4
Cash paid for income taxes 56 23
</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
JUNE 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 twenty 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 twenty 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 June 30, 2000.
- 5 -
<PAGE> 6
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted-average shares outstanding 17,580 17,190 17,552 17,177
Common shares applicable to stock options
using the treasury stock method -- -- -- --
------ ------ ------ ------
Diluted weighted average shares outstanding 17,580 17,190 17,552 17,177
====== ====== ====== ======
</TABLE>
Options to purchase approximately 2.0 million shares were outstanding as of
June 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 six months
ended June 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 16,985 $ 24,289 $ 33,077 $ 50,542
Net income (loss) 203 (1,614) (3,007) (1,970)
Basic income (loss) per share $ 0.01 $ (0.09) $ (0.17) $ (0.11)
Diluted income (loss) per share $ 0.01 $ (0.09) $ (0.17) $ (0.11)
</TABLE>
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<PAGE> 7
H.T.E., INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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:
OCTOBER 31, AMOUNT
----------- ------
2000 $ 200,000
2001 250,000
2002 350,000
2003 450,000
2004 500,000
----------
$1,750,000
==========
In addition, interest accrues at 8 percent per year on the outstanding balance.
The due from DSI balance at June 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 July 2000.
5. 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.
6. 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 June 30, 2000, employee termination benefits and other costs of $1,113
remain accrued in accounts payable and accrued liabilities.
7. SUBSEQUENT EVENT
In July 2000, the Company entered into a loan commitment letter with Silicon
Valley Bank for up to $5,000 based on the Company's accounts receivable balance
(the Loan). The term of the Loan will be for one year from the date of the loan
agreement and will bear interest at the bank's prime rate plus 2 percent. The
Loan will be collateralized by the assets of the Company and will require the
Company to maintain a financial covenant related to tangible net worth.
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<PAGE> 8
H.T.E., INC. AND SUBSIDIARIES
JUNE 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 June 30, 2000 and June 30, 1999," "Comparison
of Six Months Ended June 30, 2000 and June 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2000 1999 2000 1999
------ ------ ----- -----
<S> <C> <C> <C> <C>
REVENUES:
Software licenses 19.6% 25.8% 16.5% 29.4%
Professional services 22.4 25.3 26.4 27.2
Hardware 9.6 20.8 7.0 18.0
Maintenance and other 46.0 26.4 46.8 23.7
Resource management 2.4 1.7 3.3 1.7
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
OPERATING EXPENSES:
Cost of software licenses 7.3 7.0 7.7 7.0
Cost of professional services 18.1 16.9 20.5 16.6
Cost of hardware 8.5 17.2 6.4 14.8
Cost of maintenance and other 13.9 9.7 15.4 9.2
Cost of resource management 2.5 1.1 2.4 1.0
Research and development 19.8 19.7 23.3 18.1
Sales and marketing 20.0 21.7 21.6 19.7
General and administrative 21.6 17.7 21.5 16.4
Employee termination benefits and other costs (13.2) -- (3.4) 3.6
----- ----- ----- -----
Total operating expenses 98.5 111.0 115.4 106.4
----- ----- ----- -----
OPERATING LOSS 1.5 (11.0) (15.4) (6.4)
INTEREST INCOME, net 0.5 0.2 0.5 0.2
----- ----- ----- -----
LOSS BEFORE BENEFIT FOR INCOME TAXES 2.0 (10.8) (14.9) (6.2)
BENEFIT FOR INCOME TAXES 0.8 (4.2) (5.8) (2.4)
----- ----- ----- -----
NET LOSS 1.2% (6.6)% (9.1)% (3.8)%
===== ===== ===== =====
</TABLE>
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<PAGE> 9
H.T.E., INC. AND SUBSIDIARIES
JUNE 30, 2000
Comparison of Three Months Ended June 30, 2000 and June 30, 1999 (Amounts in
thousands)
Revenues
The Company's total revenues decreased by 30% to $16,985 for the three
months ended June 30, 2000, from $24,211 for the three months ended June 30,
1999.
Software License Revenues. Revenues from software licenses decreased
47% to $3,324 for the three months ended June 30, 2000, compared to $6,254 for
the three months ended June 30, 1999. As a percentage of total revenues,
software license revenues decreased to 19.6% for the three months ended June
30, 2000, from 25.8% for the three months ended June 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 38% to $3,812 for the three months ended June 30, 2000, from $6,127
for the three months ended June 30, 1999. As a percentage of total revenues,
professional services revenues decreased to 22.4% for the three months ended
June 30, 2000, from 25.3% for the three months ended June 30, 1999. The dollar
and percentage decreases were related to a decrease in professional services
backlog related to 1998 and 1999 contracts.
Hardware Revenues. Hardware revenues decreased 68% to $1,624 for the
three months ended June 30, 2000, from $5,047 for the three months ended June
30, 1999. As a percentage of total revenues, hardware revenues decreased to
9.6% for the three months ended June 30, 2000, from 20.8% for the three months
ended June 30, 1999. 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 22% to $7,809 for the three months ended June 30, 2000, from $6,381
for the three months ended June 30, 1999. As a percentage of total revenues,
maintenance and other revenues increased to 46.0% for the three months ended
June 30, 2000, from 26.4% for the three months ended June 30, 1999. The dollar
and percentage increases were primarily due to maintenance contracts associated
with new software licenses booked in 1998, new software licenses booked in
1999, 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
increased 3% to $416 for the three months ended June 30, 2000, from $402 for
the three months ended June 30, 1999. As a percentage of total revenues,
resource management revenues increased to 2.4% for the three months ended June
30, 2000, from 1.7% for the three months ended June 30, 1999. 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, partially offset by 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 27% to $1,246 for the three months ended
June 30, 2000, from $1,703 for the three months ended June 30, 1999. As a
percentage of software license revenues, cost of software licenses increased to
37.5% for the three months ended June 30, 2000, from 27.2% for the three months
ended June 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.
- 9 -
<PAGE> 10
H.T.E., INC. AND SUBSIDIARIES
JUNE 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 25% to $3,082 for the three
months ended June 30, 2000, from $4,083 for the three months ended June 30,
1999. As a percentage of professional services revenues, cost of professional
services increased to 80.8% for the three months ended June 30, 2000, from
66.6% for the three months ended June 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 65% to $1,444
for the three months ended June 30, 2000, from $4,160 for the three months
ended June 30, 1999. As a percentage of hardware revenues, cost of hardware
increased to 88.9% for the three months ended June 30, 2000, from 82.4% for the
three months ended June 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
consists of primarily telephone support, documentation and related
administrative and personnel expenses. Cost of maintenance and other increased
1% to $2,358 for the three months ended June 30, 2000, from $2,344 for the
three months ended June 30, 1999. As a percentage of maintenance and other
revenues, cost of maintenance and other decreased to 30.2% for the three months
ended June 30, 2000, from 36.7% for the three months ended June 30, 1999. 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 65% to $423 for the three months ended June 30, 2000, from $256 for
the three months ended June 30, 1999. As a percentage of resource management
revenues, cost of resource management increased to 101.7% for the three months
ended June 30, 2000, from 63.7% for the three months ended June 30, 1999. The
dollar increase was primarily related to costs associated with a new
outsourcing contract, which began in July 1999, and additional services. The
increase in the cost of resource management as a percentage of resource
management revenues was 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 30% to $3,357 for the three months ended June 30, 2000, from
$4,772 for the three months ended June 30, 1999. As a percentage of total
revenues, research and development remained relatively constant at 19.8% for
the three months ended June 30, 2000, compared to 19.7% for the three months
ended June 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.
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 35% to $3,404 for the three months ended June 30,
2000, from $5,256 for the three months ended June 30, 1999. As a percentage of
total revenues, sales and marketing decreased to 20.0% for the three months
ended June 30, 2000, from 21.7% for the three months ended June 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.
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<PAGE> 11
H.T.E., INC. AND SUBSIDIARIES
JUNE 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 15% to $3,662 for the three months ended June
30, 2000, from $4,290 for the three months ended June 30, 1999. As a percentage
of total revenues, general and administrative expenses increased to 21.6% for
the three months ended June 30, 2000, from 17.7% for the three months ended
June 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 $(2,234), or (13.2)% of total revenues, for the
three months ended June 30, 2000. This amount represents the reversal of
previously expensed one-time charges primarily related to the reduced Tacoma
settlement. There were no comparable expenses for the three months ended June
30, 1999.
Comparison of Six Months Ended June 30, 2000 and June 30, 1999 (Amounts in
thousands)
Revenues
The Company's total revenues decreased by 34% to $33,077 for the six
months ended June 30, 2000, from $50,393 for the six months ended June 30,
1999.
Software License Revenues. Revenues from software licenses decreased
63% to $5,455 for the six months ended June 30, 2000, compared to $14,823 for
the six months ended June 30, 1999. As a percentage of total revenues, software
license revenues decreased to 16.5% for the six months ended June 30, 2000,
from 29.4% for the six months ended June 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 36% to $8,732 for the six months ended June 30, 2000, from $13,700
for the six months ended June 30, 1999. As a percentage of total revenues,
professional services revenues decreased to 26.4% for the six months ended June
30, 2000, from 27.2% for the six months ended June 30, 1999. The dollar and
percentage decreases were related to a decrease in professional services
backlog related to 1998 and 1999 contracts.
Hardware Revenues. Hardware revenues decreased 74% to $2,319 for the
six months ended June 30, 2000, from $9,092 for the six months ended June 30,
1999. As a percentage of total revenues, hardware revenues decreased to 7.0%
for the six months ended June 30, 2000, from 18.0% for the six months ended
June 30, 1999. 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 30% to $15,485 for the six months ended June 30, 2000, from $11,943
for the six months ended June 30, 1999. As a percentage of total revenues,
maintenance and other revenues increased to 46.8% for the six months ended June
30, 2000, from 23.7% for the six months ended June 30, 1999. The dollar and
percentage increases were primarily due to maintenance contracts associated
with new software licenses booked in 1998, new software licenses booked in
1999, 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.
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<PAGE> 12
H.T.E., INC. AND SUBSIDIARIES
JUNE 30, 2000
Resource Management Revenues. Revenues from resource management
increased 30% to $1,086 for the six months ended June 30, 2000, from $835 for
the six months ended June 30, 1999. As a percentage of total revenues, resource
management revenues increased to 3.3% for the six months ended June 30, 2000,
from 1.7% for the six months ended June 30, 1999. 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, partially offset by the conversion of an
outsourcing customer to an in-house customer.
Cost of Revenues
Cost of Software License Revenues. Cost of software licenses decreased
28% to $2,561 for the six months ended June 30, 2000, from $3,551 for the six
months ended June 30, 1999. As a percentage of software license revenues, cost
of software licenses increased to 46.9% for the six months ended June 30, 2000,
from 24.0% for the six months ended June 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 19% to $6,774 for the six months ended June 30, 2000, from $8,371 for
the six months ended June 30, 1999. As a percentage of professional services
revenues, cost of professional services increased to 77.6% for the six months
ended June 30, 2000, from 61.1% for the six months ended June 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 72% to $2,103
for the six months ended June 30, 2000, from $7,436 for the six months ended
June 30, 1999. As a percentage of hardware revenues, cost of hardware increased
to 90.7% for the six months ended June 30, 2000, from 81.8% for the six months
ended June 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
increased 9% to $5,082 for the six months ended June 30, 2000, from $4,657 for
the six months ended June 30, 1999. As a percentage of maintenance and other
revenues, cost of maintenance and other decreased to 32.8% for the six months
ended June 30, 2000, from 39.0% for the six months ended June 30, 1999. 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 54% to $794 for the six months ended June 30, 2000, from $515 for the
six months ended June 30, 1999. As a percentage of resource management
revenues, cost of resource management increased to 73.1% for the six months
ended June 30, 2000, from 61.7% for the six months ended June 30, 1999. The
dollar increase was primarily related to costs associated with a new
outsourcing contract, which began in July 1999 and additional services. The
increase in the cost of resource management as a percentage of resource
management revenues was primarily due to the conversion of an outsourcing
customer to an in-house customer.
Research and Development Expenses. Research and development expenses
decreased 15% to $7,703 for the six months ended June 30, 2000, from $9,098 for
the six months ended June 30, 1999. As a percentage of total revenues, research
and development increased to 23.3% for the six months ended June 30, 2000, from
18.1% for the six months ended June 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.
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<PAGE> 13
H.T.E., INC. AND SUBSIDIARIES
JUNE 30, 2000
Sales and Marketing Expenses. Sales and marketing expenses decreased
28% to $7,144 for the six months ended June 30, 2000, from $9,908 for the six
months ended June 30, 1999. As a percentage of total revenues, sales and
marketing increased to 21.6% for the six months ended June 30, 2000, from 19.7%
for the six months ended June 30, 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. The increase in sales and marketing
expenses as a percentage of total revenues was due to lower software license
and hardware revenues.
General and Administrative Expenses. General and administrative
expenses decreased 14% to $7,130 for the six months ended June 30, 2000, from
$8,272 for the six months ended June 30, 1999. As a percentage of total
revenues, general and administrative expenses increased to 21.5% for the six
months ended June 30, 2000, from 16.4% for the six months ended June 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 (3.4)% of total revenues, for the
six months ended June 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
six months ended June 30, 1999, the comparable costs were $1,809, or 3.6% of
total revenues. These costs primarily include costs associated with severance
packages 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.
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<PAGE> 14
H.T.E., INC. AND SUBSIDIARIES
JUNE 30, 2000
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $284 during the six
months ended June 30, 2000, compared to net cash used of $136 in the comparable
1999 period. The increase in cash provided by operating activities is primarily
due to the decrease in trade accounts receivable, partially offset by a
decrease in deferred revenue and accounts payable and accrued liabilities.
Cash used in investing activities (capital expenditures and software
development investments) totaled $2,767 and $3,167 during the six months ended
June 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 $520 and $703 during
the six months ended June 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.
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 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 July 2000, the Company entered into a
loan commitment letter with Silicon Valley Bank for up to $5,000 based on the
Company's accounts receivable balance (the Loan). The term of the Loan will be
for one year from the date of the loan agreement and will bear interest at the
bank's prime rate plus 2 percent. The Loan will be collateralized by the assets
of the Company and will require the Company to maintain a financial covenant
related to tangible net worth. 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 twenty 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 June 30, 2000 requiring market
risk disclosure or material foreign currency exposure requiring market risk
disclosure.
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<PAGE> 15
H.T.E., INC. AND SUBSIDIARIES
JUNE 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 six months ended June 30, 2000, the Company continued to
use the net proceeds of the initial public offering for investments,
which totaled $1,844.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Name
--------------- --------------------------------------------------
10.1 Secured Promissory Note
10.2 Pledge and Security Agreement
27.0 Financial Data Schedule
(submitted only in electronic format)
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2000.
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<PAGE> 16
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: August 10, 2000
/s/ Joseph M. Loughry III
----------------------------------------
Joseph M. Loughry III
Chief Executive Officer/President
/s/ Susan D. Falotico
----------------------------------------
Susan D. Falotico
Chief Financial Officer
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<PAGE> 17
EXHIBIT INDEX
Number Name
--------------- --------------------------------------------------
10.1 Secured Promissory Note
10.2 Pledge and Security Agreement
27.0 Financial Data Schedule
(submitted only in electronic format)
- 17 -
