<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000.
Commission File No.: 001-8833
HEALTHSTREAM, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1443555
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
209 10TH AVENUE SOUTH, SUITE 450
NASHVILLE, TENNESSEE 37203
-------------------- -----
(Address of principal executive offices) (Zip Code)
(615) 301-3100
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
As of August 4, 2000, 19,994,347 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
INDEX TO FORM 10-Q
HEALTHSTREAM, INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1999 and
June 30, 2000 (Unaudited)........................................................................ 1
Condensed Consolidated Statements of Operations (Unaudited) - Three Months
Ended June 30, 1999 and 2000..................................................................... 2
Condensed Consolidated Statements of Operations (Unaudited) - Six Months
Ended June 30, 1999 and 2000..................................................................... 3
Condensed Consolidated Statement of Shareholders'
Equity (Unaudited)............................................................................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months
Ended June 30, 1999 and 2000..................................................................... 5
Notes to Condensed Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................................................. 17
Signature ................................................................................................. 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
---- ----
(NOTE 1) (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................ $ 13,632,144 $ 54,256,603
Accounts receivable, net of allowance for doubtful accounts
of $36,500 in 1999 and $80,600 in 2000 ................................ 544,042 2,276,942
Accounts receivable - unbilled ........................................... 18,877 345,486
Investments .............................................................. 86,063 134,625
Prepaid expenses and other current assets ................................ 263,517 1,051,002
------------ ------------
Total current assets .................................................. 14,544,643 58,064,658
Property and equipment:
Furniture and fixtures ................................................... 445,172 611,240
Equipment ................................................................ 1,109,015 2,584,876
Leasehold improvements ................................................... 369,346 535,090
------------ ------------
1,923,533 3,731,206
Less accumulated depreciation and amortization ........................... (589,632) (898,803)
------------ ------------
1,333,901 2,832,403
Intangible assets, net of accumulated amortization
of $213,031 in 1999 and $2,444,895 in 2000 ............................... 1,134,673 12,845,829
Other assets ................................................................ 441,488 255,501
------------ ------------
Total assets ................................................................ $ 17,454,705 $ 73,998,391
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 443,455 $ 884,508
Accrued liabilities ...................................................... 448,727 1,073,365
Deferred revenue ......................................................... 791,424 2,019,533
Notes payable - related party ............................................ 1,293,000 --
Current portion of long-term debt - related party ........................ 12,892 --
Current portion of capital lease obligations ............................. 89,881 237,888
------------ ------------
Total current liabilities .......................................... 3,079,379 4,215,294
Capital lease obligations, less current portion ............................. 185,801 301,795
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 20,000,000 and 75,000,000 shares authorized at
December 31, 1999 and June 30, 2000, respectively; 4,165,461 shares and
19,776,860 shares issued and outstanding
at December 31, 1999 and June 30, 2000, respectively .................. 4,008,991 87,457,020
Preferred stock, no par value, 5,000,000 and 10,000,000 shares
Authorized at December 31, 1999 and June 30, 2000, respectively
Series A Convertible Preferred Stock; 76,000 and 0 shares
issued and outstanding ............................................. 760,000 --
Series B Convertible Preferred Stock, 1,228,801 and 0 shares
issued and outstanding ............................................. 12,138,000 --
Series C Convertible Preferred Stock, 627,406 and 0 shares
issued and outstanding ............................................. 6,274,060 --
Accumulated other comprehensive income (loss) ............................ (41,690) 34,705
Accumulated deficit ...................................................... (8,949,836) (18,010,423)
------------ ------------
Total shareholders' equity ......................................... 14,189,525 69,481,302
------------ ------------
Total liabilities and shareholders' equity ......................... $ 17,454,705 $ 73,998,391
============ ============
</TABLE>
See accompanying notes.
1
<PAGE> 4
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 2000
---- ----
<S> <C> <C>
Revenues, net of warrant amortization of $330,095 in 2000 ....... $ 459,233 $ 2,200,759
Operating costs and expenses:
Cost of revenues ............................................. 408,442 1,039,726
Product development .......................................... 455,032 1,238,562
Selling, general and administrative expenses ................. 684,364 5,930,369
----------- ------------
Total operating costs and expenses ..................... 1,547,838 8,208,657
----------- ------------
Loss from operations ............................................ (1,088,605) (6,007,898)
----------- ------------
Other income (expense):
Interest and other income .................................... 34,269 486,894
Interest expense - related parties ........................... (45,329) (6,970)
Interest expense ............................................. (935) (28,440)
----------- ------------
(11,995) 451,484
----------- ------------
Net loss ........................................................ $(1,100,600) $ (5,556,414)
=========== ============
Net loss per share:
Basic ........................................................ $ (0.31) $ (0.30)
=========== ============
Diluted ...................................................... $ (0.31) $ (0.30)
=========== ============
Weighted average shares of common stock outstanding:
Basic ........................................................ 3,590,428 18,595,372
=========== ============
Diluted ...................................................... 3,590,428 18,595,372
=========== ============
</TABLE>
See accompanying notes.
2
<PAGE> 5
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 2000
---- ----
<S> <C> <C>
Revenues, net of warrant amortization of $330,095 in 2000 ....... $ 1,112,519 $ 3,645,701
Operating costs and expenses:
Cost of revenues ............................................. 702,665 1,797,786
Product development .......................................... 741,125 2,428,632
Selling, general and administrative expenses ................. 1,043,435 9,109,810
----------- ------------
Total operating costs and expenses ..................... 2,487,225 13,336,228
----------- ------------
Loss from operations ............................................ (1,374,706) (9,690,527)
----------- ------------
Other income (expense):
Interest and other income .................................... 35,494 730,044
Interest expense - related parties ........................... (137,073) (34,255)
Interest expense ............................................. (1,979) (65,849)
----------- ------------
(103,558) 629,940
----------- ------------
Net loss ........................................................ $(1,478,264) $ (9,060,587)
=========== ============
Net loss per share:
Basic ........................................................ $ (0.43) $ (0.78)
=========== ============
Diluted ...................................................... $ (0.43) $ (0.78)
=========== ============
Weighted average shares of common stock outstanding:
Basic ........................................................ 3,423,368 11,669,264
=========== ============
Diluted ...................................................... 3,423,368 11,669,264
=========== ============
</TABLE>
See accompanying notes.
3
<PAGE> 6
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------ --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1999............................ 4,165,461 $ 4,008,991 76,000 $ 760,000 1,228,801 $ 12,138,000
------------ ------------ ----------- ----------- ---------- -----------
Net loss ....................... -- -- -- -- --
Unrealized
gain on
investment,
net of tax .................. -- -- -- -- --
Comprehensive
income ...................... -- -- -- -- --
Issuance of
common
stock in
acquisitions ................ 1,166,679 10,090,200 -- -- --
Exercise of
stock options ............... 379,819 356,866 -- -- --
Issuance of stock in
initial public offering ..... 5,275,000 44,151,750 -- -- --
Issuance of stock in
private offering ............ 1,111,111 10,000,000 -- -- --
Payment of expenses of
initial public offering ..... -- (1,977,629) -- -- --
Conversion of Preferred stock
into stock in connection with
initial public offering ..... 7,131,153 19,172,060 (76,000) (760,000) (1,228,801) (12,138,000)
Conversion of related party
notes payable into stock
in connection with
initial public offering ..... 553,711 1,293,000 -- -- -- --
Repurchase of stock in
connection with the
initial public offering ..... (6,074) (14,213) -- -- -- --
Recognition of warrant
expense ..................... -- 330,095 -- -- -- --
Issuance of options
for services ................ -- 45,900 -- -- -- --
------------ ------------ ----------- --------- ----------- -----------
Balance at
June 30,
2000 ..................... 19,776,860 $ 87,457,020 -- $ -- -- $ --
============ ============ =========== ========= =========== ==========
<CAPTION>
SERIES C ACCUMULATED
CONVERTIBLE ACCUMU- OTHER COMPRE- TOTAL
PREFERRED STOCK LATED HENSIVE INCOME SHAREHOLDERS
SHARES AMOUNT DEFICIT (LOSS) EQUITY
-------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1999 ........................ 627,406 $ 6,274,060 $ (8,949,836) $(41,690) $ 14,189,525
-------- ----------- ------------ -------- ------------
Net loss ....................... -- -- (9,060,587) -- (9,060,587)
Unrealized
gain on
investment,
net of tax .................. -- -- -- 76,395 76,395
-------- ------------
Comprehensive
income ...................... -- -- -- -- (8,984,192)
------------
Issuance of
common
stock in
acquisitions ................ -- -- -- -- 10,090,200
Exercise of
stock options ............... -- -- -- -- 356,866
Issuance of stock in
initial public offering ..... -- -- -- -- 44,151,750
Issuance of stock in
private offering ............ -- -- -- -- 10,000,000
Payment of expenses of
initial public offering ..... -- -- -- -- (1,977,629)
Conversion of Preferred stock
into stock in connection with
initial public offering ..... (627,406) (6,274,060) -- -- --
Conversion of related party
notes payable into stock
in connection with
initial public offering ..... -- -- -- -- 1,293,000
Repurchase of stock in
connection with the
initial public offering ..... -- -- -- -- (14,213)
Recognition of warrant
expense ..................... -- -- -- -- 330,095
Issuance of
options for
services .................... -- -- -- -- 45,900
-------- ----------- ------------ -------- ------------
Balance at
June 30, 2000 ............... -- $ -- $(18,010,423) $ 34,705 $ 69,481,302
======== =========== ============ ======== ============
</TABLE>
4
<PAGE> 7
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 2000
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................................................ (1,478,264) $ (9,060,587)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation .................................................................. 76,689 309,171
Amortization .................................................................. 108,921 2,266,863
Gain on sale of investment .................................................... -- (94,438)
Provision for allowance for doubtful accounts ................................. 23,000 25,800
Loss on disposal of assets .................................................... 431 --
Noncash warrant amortization .................................................. -- 330,095
Noncash compensation expense .................................................. -- 45,900
Noncash product development expense ........................................... 258,278 --
Changes in operating assets and liabilities, excluding effects of
acquisitions:
Accounts receivable ........................................................ (51,531) (848,158)
Unbilled receivables ....................................................... (4,880) (326,609)
Prepaid expenses and other current assets .................................. (142,096) (786,243)
Other assets ............................................................... -- 131,733
Accounts payable ........................................................... 52,778 387,753
Accrued liabilities ........................................................ (40,667) 240,187
Deferred revenue ........................................................... 61,119 (427,501)
----------- ------------
Net cash used in operating activities .................................... (1,136,222) (7,806,034)
INVESTING ACTIVITIES:
Acquisition of companies, net of cash acquired ...................................... -- (1,481,807)
Proceeds from sale of investment .................................................... -- 122,271
Purchase of property and equipment .................................................. (175,261) (1,318,360)
----------- ------------
Net cash used in investing activities .................................... (175,261) (2,677,896)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of underwriting discount ................ -- 54,151,750
Expenses of issuing common stock .................................................... -- (1,977,629)
Repayment of note payable ........................................................... -- (1,180,000)
Proceeds from notes payable - related party ......................................... 18,000 --
Proceeds from issuance of preferred stock ........................................... 5,227,500 --
Proceeds from exercise of stock options ............................................. -- 356,866
Payments on notes payable - related party ........................................... (11,440) (82,559)
Repurchase of stock in connection with initial public offering ...................... -- (14,213)
Payment on notes payable ............................................................ -- (50,000)
Payments on capital lease obligations ............................................... (5,944) (95,826)
----------- ------------
Net cash provided by financing activities ................................ 5,228,116 51,108,389
----------- ------------
Net increase in cash and cash equivalents ........................................... 3,916,633 40,624,459
Cash and cash equivalents at beginning of period .................................... 50,823 13,632,144
----------- ------------
Cash and cash equivalents at end of period .......................................... $ 3,967,456 $ 54,256,603
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ....................................................................... $ 152,052 $ 95,576
============ ============
Capital lease obligations incurred .................................................. $ 62,607 $ 325,050
============ ============
Preferred stock converted into common stock ......................................... $ -- $ 19,172,060
============ ============
Notes payable - related parties converted into common stock ......................... $ 1,000,000 $ 1,293,000
============ ============
Notes payable - related parties converted into preferred stock ...................... $ 250,000 $ --
============ ============
Issuance of preferred stock in exchange for professional services ................... $ 150,000 $ --
============ ============
Effects of acquisitions:
Estimated fair value of assets acquired .................................... $ -- $ 1,196,740
Purchase price in excess of net assets acquired ............................ -- 13,920,389
Estimated fair value of liabilities assumed ................................ -- (3,427,806)
Stock issued ............................................................... -- (10,090,200)
----------- ------------
Cash paid .................................................................. -- 1,599,123
Less cash acquired ......................................................... -- (117,316)
----------- ------------
Net cash paid for acquisitions ............................................. $ -- $ 1,481,807
============ ============
</TABLE>
See accompanying notes
5
<PAGE> 8
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles in the United States for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. All significant
inter-company transactions have been eliminated in consolidation. Operating
results for the three and six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
in the United States for complete financial statements. For further information,
refer to the financial statements and footnotes thereto for the year ended
December 31, 1999 (included in the Company's Registration Statement on Form S-1,
file no. 333-88939, filed with the Securities and Exchange Commission).
During the three months ended June 30, 2000, the Company began
recognizing revenues under a services agreement with Columbia Information
Services, Inc., an affiliate of HCA, formerly Columbia/HCA (collectively
referred to herein as "HCA"). HCA was provided with a warrant to purchase
HealthStream, Inc. Common Stock. The accompanying consolidated statements of
operations reflect the revenues related to the services provided, net of
amortization of the fair value of the warrant. Under the terms of the agreement,
HCA will provide a minimum of $12 million in revenues. The Company expects to
amortize the estimated fair value of the warrant ($8.8 million) as a reduction
of revenues proportionately over the term of the four year agreement. The
amortization will fluctuate based on the revenues received from this agreement
and will vary as a percentage of revenues based on the estimated revenues over
the course of the agreement.
2. MERGERS AND ACQUISITIONS
SilverPlatter Education, Inc. On July 23, 1999, the Company acquired
substantially all of the assets of SilverPlatter Education, Inc., a Boston-based
company that provides CD-ROM and Internet-based continuing medical education
programs to physicians, for $0.8 million in cash and 49,202 shares of the
Company's Common Stock, and the assumption of certain liabilities. The results
of operations are included in the Company's financial statements from July 23,
1999. The acquisition was accounted for as a purchase. Intangible assets
acquired consisted of goodwill, customer lists and non-competition agreements of
$1.0 million, $0.2 million, and $0.1 million, respectively, and are being
amortized on a straight-line basis over three, two and two years, respectively.
KnowledgeReview, LLC. On January 3, 2000, the Company acquired
substantially all of the assets of KnowledgeReview, LLC (d/b/a "CMECourses.com")
for $0.5 million consisting of $0.3 million in cash and 17,343 shares of the
Company's Common Stock. All of the Common Stock is held in an escrow account for
a one-year period, subject to claims for indemnification pursuant to the asset
purchase agreement. KnowledgeReview, LLC owned and operated an Internet web page
that provided a search engine (cmesearch.com) that helped physicians locate
continuing medical education by specialty and facilitated online registration
for such courses. The acquisition was accounted for as a purchase. Intangible
assets acquired consisted of goodwill, customer lists and non-competition
agreements of $0.4 million, $40,000 and $20,000, respectively, and are being
amortized on a straight-line basis over three years, two years and six months,
respectively. The allocation of purchase price is preliminary and may be subject
to change as a result of changes in estimates related to the acquired business.
6
<PAGE> 9
Quick Study, Inc. On January 11, 2000, the Company acquired
substantially all of the assets and liabilities of Quick Study, Inc. for $0.6
million consisting of $0.1 million in cash and $0.5 million (61,397 shares) of
the Company's Common Stock. In addition, upon achievement of certain future
customer revenue levels, the Company may issue up to 34,687 additional shares of
Common Stock. A portion of the Common Stock is held in an escrow account for a
one-year period, subject to claims for indemnification pursuant to the agreement
and plan of merger. In connection with the acquisition, the Company assumed $0.1
million of long-term debt. Quick Study, Inc. published CD-ROM and network-based
products for the healthcare industry. The acquisition was accounted for as a
purchase. Intangible assets acquired consisted of goodwill, customer lists and
non-competition agreements of $0.5 million, $0.1 million and $0.1 million,
respectively, and are being amortized on a straight-line basis over three, two
and three years, respectively. The allocation of purchase price is preliminary
and may be subject to change as a result of contingent consideration and changes
in estimates related to the acquired business.
m3 The Healthcare Learning Company. On January 28, 2000, the Company
acquired substantially all of the assets and liabilities of Multimedia
Marketing, Inc. d/b/a m3 the Healthcare Learning Company ("m3") for $7.7 million
consisting of $0.6 million in cash and $7.1 million (818,037 shares) of the
Company's Common Stock. m3 provided interactive, multimedia education and
training solutions to hospitals and other healthcare organizations. A portion of
the Common Stock is held in an escrow account for a one-year period, subject to
claims for indemnification pursuant to the agreement and plan of merger. In
connection with the acquisition, the Company assumed $1.2 million of long-term
debt. The acquisition was accounted for as a purchase. Intangible assets
acquired consisted of goodwill and customer lists of $8.4 million and $1.0
million, respectively, and are being amortized on a straight-line basis over
three years. The allocation of purchase price is preliminary and may be subject
to change as a result of changes in estimates related to the acquired business.
EMINet, Inc. On January 28, 2000, the Company acquired substantially
all of the assets of EMInet, Inc. for $2.9 million consisting of $0.6 million in
cash and $2.3 million (269,902 shares) of the Company's Common Stock. A portion
of the Common Stock is held in an escrow account for a one-year period, subject
to claims for indemnification pursuant to the asset purchase agreement. In
addition, upon the achievement of short-term revenue targets, the Company may
issue up to 26,097 additional shares of Common Stock. EMInet, Inc. sold online
medical education content to emergency medical services personnel. The
acquisition was accounted for as a purchase. Intangible assets acquired
consisted of goodwill and customer lists of $2.8 million and $0.5 million,
respectively, and are being amortized on a straight-line basis over three years.
The allocation of purchase price is preliminary and may be subject to change as
a result of contingent consideration and changes in estimates related to the
acquired business.
See Note 5 below for pro forma operating results as if the acquisitions
occurred on the first day of 2000.
3. NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss available
to common shareholders for the period by the weighted-average number of common
shares outstanding during the period. Diluted loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares, composed of incremental common shares issuable upon the exercise of
stock options and warrants, and common shares issuable on assumed conversion of
Series A, B, and C Convertible Preferred Stock, are included in diluted net loss
per share only when these shares are dilutive. The total number of shares
excluded from the calculations of dilutive loss per share was approximately
4,500,000 at June 30, 1999 and 5,600,000 at June 30, 2000. In accordance with
SFAS 128, escrowed shares and any shares subject to vesting are excluded from
the weighted average shares outstanding for purposes of calculating net loss per
share.
7
<PAGE> 10
4. INITIAL PUBLIC OFFERING
During the quarter, the Company completed its initial public offering
("IPO") of 5,275,000 shares of its Common Stock for net proceeds of $44.2
million. On April 14, 2000, the Company completed its private placement of
1,111,111 shares of its Common Stock to Healtheon/Web MD for net proceeds of
$10.0 million. Upon consummation of the IPO, all series A, B and C preferred
stock converted by its terms into 7,131,153 shares of our Common Stock. In
addition, the $1,293,000 promissory note payable to Robert A. Frist, Jr., the
Company's chief executive officer and chairman, also converted into 553,711
shares of common stock. Prior to the IPO, the Company effected a 1.85 for one
Common Stock split. All share and per share information has been restated to
reflect the stock split.
During May 2000, the Company repaid the long-term note payable assumed
in connection with the acquisition of m3 using a portion of the proceeds of the
IPO.
5. SUBSEQUENT EVENT
Effective July 1, 2000, the Company acquired substantially all of the
assets of Education Design, Inc. ("EDI") for $3.0 million in cash and 184,421
shares of the Company's Common Stock. A portion of the Common Stock will be held
in an escrow account for a one year period, subject to any claims of
indemnification under the asset purchase agreement. In addition, approximately
$300,000 of cash and the Company's Common Stock will be provided to the
employees of EDI, subject to certain vesting agreements. EDI provides services
for live educational events that are supported by the medical device industry.
The following unaudited results of operations give effect to the operations of
the acquisitions discussed in Note 2 and EDI as if the acquisitions had occurred
as of the first day of 2000. The pro forma results of operations do not purport
to represent what the Company's results of operations would have been had such
transactions in fact occurred at the beginning of the period presented or to
project the Company's results of operations in any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
-------------
<S> <C>
Revenue...................................................................................... $ 5,544,717
Net loss..................................................................................... $ (9,906,572)
Net loss per share:
Basic................................................................................... $ (0.83)
Diluted................................................................................. $ (0.83)
</TABLE>
In accordance with SFAS 128, escrowed shares and any shares subject to
vesting are excluded from the weighted average shares outstanding for purposes
of calculating net loss per share.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes various forward-looking statements that
are subject to risks and uncertainties. Forward-looking statements include
without limitation, statements preceded by, followed by, or that otherwise
include the words "believes," "expects," "anticipates," "intends," "estimates"
or similar expressions. For those statements, the Company claims the protection
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
The following important factors, in addition to those discussed
elsewhere in this Quarterly Report, could affect the future financial results of
the Company and could cause actual results to differ materially from those
expressed in forward-looking statements contained in this document:
- our limited operating history;
- our history of losses and expectations of continued losses;
- our ability to manage rapid growth;
- our ability to attract, retain and train qualified sales and
other personnel;
- successful implementation of the Company's operating and
growth strategy, including possible strategic acquisitions;
- fluctuations in quarterly operating results caused by a
variety of factors including the timing of sales and
development contracts, the adoption of the internet as a tool
for online training and continuing education in the healthcare
industry;
- successfully integrating past and future acquisitions in light
of challenges in retaining key employees, synchronizing
business processes and efficiently integrating facilities,
marketing and operations;
- successfully establishing and maintaining new and existing
relationships with our content and distribution partners; and
- global and/or regional economic factors and potential changes
in laws and regulations, including, without limitation,
changes in federal, state and international laws regulating
education, training and internet transactions.
For additional information concerning risks and uncertainties that may
affect the Company's results of operations, please see the risks outlined under
the heading "Risk Factors" in the Company's Registration Statement on Form S-1
(File No. 333-88939) filed with the Securities and Exchange Commission.
OVERVIEW
We have historically generated revenues primarily from the performance
of custom multimedia development services and from licensing our client server
training administrative software, Training Navigator, which we refer to as
T.NAV, to healthcare organizations. We have established relationships with major
healthcare institutions that license our software or contract with us to develop
custom multimedia products in a CD-ROM or Web-based format. Clients who license
our software
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pay a one-time license fee for the software. Late in 1999, we entered into
sponsorship agreements which provide for sponsorship of online courseware. We
expect our future online revenues to significantly exceed historical levels.
We recognize multimedia development revenues based on the percentage of
a project that is completed. Revenues from T.NAV software license fees are
recognized when the software is delivered. Upgrade, maintenance and technical
support revenues are accrued over the term of the service period. Sponsorship
revenues are recognized ratably over the term unless usage exceeds the ratable
portion, in which case such revenues are recognized based on usage.
We generate revenues by marketing our Web-based services to healthcare
workers through healthcare organizations. The services are be provided via our
application service provider, or ASP, agreements. The transaction fees for
courseware may either be paid by the employer, a sponsoring organization or, in
the case of healthcare professionals, may be billed directly to the individual.
Our ASP model allows us to host our system in a central data center, thereby
eliminating our customers' need for costly onsite installations of our software.
Under the ASP model, revenues are generated by charging for use of our
courseware either on a per transaction basis, based on usage by the end user, or
on a subscription basis, which includes a fixed fee for unlimited usage. In
addition, the ASP model allows us to generate revenues from healthcare
organizations by entering into agreements for administration and hosting
services. We recognize administration and hosting fees ratably over the term of
these agreements. The costs of these revenues include direct, hosting and in
some cases, content partner expenses. Such amounts are expensed as incurred.
We also generate revenues through our relationships with more than 50
third party Web distribution network partners. We recognize revenue through a
transaction fee charged when a healthcare professional accesses continuing
education content on one of our distribution partners' web sites and/or elects
to receive credit. Such fees are paid by either the healthcare professional
directly via a secured credit card transaction or by third party organizations,
which sponsor the course for this audience. The costs of these sales are in the
form of royalties we pay to third-party content owners and distributors and
costs we incur to develop content or convert content from traditional media to a
Web format.
An integral part of the Company's strategy is to acquire companies that
complement our products and services. Because of the financial impact of the
Company's recent acquisitions, the period-to-period comparisons of our financial
results are not necessarily meaningful. Additionally, due to the Company's lack
of significant revenues, acquisitions either individually or in the aggregate
may materially affect the Company's revenues and operating results.
We have acquired the following companies since January 1, 1999:
- SilverPlatter Education, which owns and distributes numerous
multimedia products and services targeted at providing
continuing medical education and other information to
physicians, for $0.8 million in cash and 49,202 shares of our
Common Stock;
- KnowledgeReview, which operates a search engine,
cmesearch.com, allowing physicians to locate seminars and
purchase educational CD-ROMs and online courseware, for
$310,000 in cash and 17,343 shares of our Common Stock;
- Quick Study, which owns over 60 web-based hours of nursing and
OSHA content for $59,000 in cash, the assumption of $112,000
in long-term debt and 61,397 shares of our Common Stock;
- m3 the Healthcare Learning Company, which provides
computer-based training to over 450 hospitals and healthcare
facilities, primarily in the areas of OSHA and regulatory
training, for $600,000 in cash, the assumption of $1.2 million
in long-term debt and 818,036 shares of our Common Stock;
- EMInet, which provides Web-based educational content for
emergency medical services personnel, for $640,000 in cash and
269,902 shares of our Common Stock; and
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- EDI, which provides services for live educational events that
are supported by the medical device industry, for $3.0 million
in cash 184,421 shares of our Common Stock.
In February 2000, we entered into a four-year agreement with HCA
(formerly Columbia/HCA) pursuant to which we will provide online training and
education, courseware development and administrative management and consulting
services to HCA and its affiliated and managed healthcare providers. We also
entered into a warrant agreement with HCA pursuant to which HCA has the right to
acquire 2,182,568 shares of the Company's Common Stock at an exercise price of
$7.18 per share. The warrant vests over three years and has an eight year term.
Under the services agreement, HCA has agreed to pay $12 million for the
aforementioned services over the four year term, with the minimum in the first
year approximating $2.0 million. During the three months ended June 30, 2000,
the Company began recognizing revenues under this agreement. The Company will
reflect the revenues related to the services provided, net of amortization of
the estimated fair value of the warrant ($8.8 million). The Company expects to
amortize the estimated fair value of the warrant ($8.8 million) as a reduction
of revenues proportionately over the life of the four year agreement. The
amortization will fluctuate based on the revenues received from this agreement
and will vary as a percentage of revenues based on the estimated revenues over
the course of the contract. In the first year of the agreement, it is
anticipated that gross revenues would approximate $2.0 million, which would
result in amortization of $1.5 million of warrant expense and result in net
revenues of $500,000.
In February 2000, we entered into an agreement with Healtheon/WebMD
which provides that HealthStream is the exclusive provider of education,
continuing education and training services for healthcare organizations,
healthcare professionals and healthcare workers on Web sites owned or operated
by Healtheon/WebMD. Pursuant to this agreement, we will pay Healtheon/WebMD $6.0
million per year for five years on a quarterly basis as non-refundable advances
on royalties. The agreement provides that in the first year, $2.0 million of the
$6.0 million payment will be applied toward mutually agreed upon branding and
promotion services. The agreement provides that HealthStream will receive 100%
of any revenues from the sale of our products and services until we recover all
of the guaranteed minimum royalties to Healtheon/WebMD, and after that we will
receive 75% and Healtheon/WebMD will receive 25% of any revenues. In addition,
Healtheon/WebMD purchased $10.0 million of our common stock at the initial
public offering price in a concurrent private sale. Through June 30, 2000 the
Company has recognized $1.5 million of general and administrative expense
related to this agreement.
Effective July 1, 2000, the Company acquired substantially all of the
assets of Education Design, Inc. ("EDI") for $3.0 million in cash and 184,421
shares of the Company's Common Stock. A portion of the Common Stock will be held
in an escrow account for a one year period, subject to any claims for
indemnification under the asset purchase agreement. In addition, approximately
$300,000 of cash and the Company's Common Stock will be provided to the
employees of EDI, subject to certain vesting agreements. EDI provides services
for live educational events that are supported by the medical device industry.
To date, we have incurred substantial costs to develop our
technologies, create, license and acquire our content, build brand awareness,
develop our infrastructure and expand our business, and have yet to achieve
significant revenues. As a result, we have incurred operating losses in each
fiscal quarter since 1994. We expect operating losses and negative cash flow to
continue for the foreseeable future as we plan to continue to increase our
operating expenses to implement our business strategy. These costs could have a
material adverse effect on our future financial condition or operating results.
We believe that period-to-period comparisons of our financial results are not
necessarily meaningful, and should not be relied upon as an indication of our
future performance.
RESULTS OF OPERATIONS
REVENUES AND EXPENSE COMPONENTS
The following descriptions of the components of revenues and expenses
apply to the comparison of results of operations.
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Revenues. Revenues in 1999 consisted primarily of sales of multimedia
development services for training modules and promotional materials for the
healthcare industry. Revenues in 1999 also included licensing fees and royalties
from product sales of proprietary client server based training software to
healthcare companies. During 1999, the Company revised its focus from
development services to online products and services. Revenues for the quarter
ended June 30, 2000 also included revenues related to product and service lines
derived from the m3, EMInet, Quick Study, Silver Platter and Knowledge Review
acquisitions. These revenues included installed client server sales and support,
emergency medicine and nursing online services, CD-ROM sales, live seminars and
subscription products. The Company also began providing services to HCA under
its agreement during the three months ended June 30, 2000. The Company
recognized $110,000 of net revenues related to services provided under the HCA
agreement, which included gross revenues of $440,000 net of warrant amortization
of $330,000.
Cost of Revenues. Cost of revenues in 1999 consisted primarily of
salaries and employee benefits, and materials associated with the development of
interactive media projects as well as royalties paid to content providers based
on a percentage of revenues. During 2000, cost of revenues have consisted of
salaries and employee benefits, and materials associated with online services,
interactive media development and certain customer service personnel, technical
support costs, direct costs and materials related to projects, web cast events,
cost of CD-ROMs and live seminars, installed and other products as well as
royalties paid to content and distribution providers based on a percentage of
revenues.
Product Development. Product development expenses consisted primarily
of salaries and employee benefits, depreciation, costs associated with the
developing and enhancing our online and client server product, conversion of
content for our library, and improving our delivery systems.
Selling, General and Administrative. General and administrative
expenses consist primarily of salaries and employee benefits for sales and
marketing, corporate, administrative and certain customer service personnel,
sales and marketing expenses, facility costs, depreciation, amortization of
intangibles, customer service, and fees for professional services. Royalties
paid to content and distribution partners, which are fixed fee arrangements, are
also included in general and administrative expenses. Sales and marketing
expenses consist of salaries and employee benefits for sales and marketing
personnel, marketing professional fees, advertising, trade shows attendance,
promotions and related marketing costs.
Other Income/Expense. The primary component of other income is interest
and investment income. The primary component of other expense is interest
expense related to loans from related parties, capital leases and other notes
payable.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Revenues. Revenues increased $1.7 million, from $459,000 in 1999 to
$2.2 million for the quarter ended June 30, 2000, due to revenues attributable
to acquired businesses and growth in sales of our online products and services
on an application service provider, or ASP, basis. For the quarter ended June
30, 2000, revenues related to acquired businesses totaled $1.3 million. Revenues
related to acquired businesses include approximately $1.1 million from m3,
$100,000 from Silver Platter, and $200,000 from EMInet and Quick Study in the
aggregate. The remainder of the increase between 1999 and 2000 is attributable
to approximately $300,000 of growth in net ASP revenues, Webcast events and
online courseware revenues. The Company expects revenues for 2000 to approximate
$11.0 million.
Cost of Revenues. Cost of revenues increased $631,000 from $408,000 in
1999 to $1.0 additional million in 2000. Of this increase, approximately
$300,000 related primarily to additional personnel. In addition, the direct
costs of product installation for m3 and royalties based on a percentage of
sales resulted in an increase of approximately $300,000. The cost of revenue as
a percentage of revenues decreased from 88.9% in 1999 to 47.2% in 2000 as a
result of increases in revenue and the lower cost structure related to ASP
revenues.
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Product Development. Product development expenses increased $784,000
from $455,000 in 1999 to $1.2 million in 2000. Of this increase, approximately
$600,000 relates to the addition of 40 systems and internal development
personnel. Such personnel have been added to implement our online services and
to accommodate increased content conversion and development. The remainder of
the increase is attributable to utilization of contract labor personnel to
assist with product development efforts. Product development as a percentage of
revenues decreased from 99.1% in 1999 to 56.3% in 2000 as a result of increases
in revenues despite additional personnel being added to develop and enhance our
online and client server products, convert content for our library, and improve
our delivery systems.
Selling, General and Administrative. Selling, general and
administrative expenses increased $5.2 million from $684,000 in 1999 to $5.9
million in 2000. General and administrative expenses increased by $2.5 million
from $356,000 in 1999 to $2.9 million in 2000. General and administrative
expenses increased by $1.5 million due to the agreement with Healtheon/WebMD
and by approximately $500,000 due to the addition of approximately 30 personnel,
including 20 corporate and administrative personnel and 10 customer service
personnel. These additional personnel were added in connection with the
acquisitions as well as additional personnel hired to coordinate content and
distribution partner relationships, increased acquisition activities and
additional infrastructure required to accommodate growth. The remainder of the
increase in general and administrative expenses relate to an educational grant
to Vanderbilt School of Nursing and facility and other operating expense
increases attributable to increased personnel. As a percentage of revenues,
general and administrative expenses increased from 77.5% in 1999 to 130.2% in
2000 as a result of the increases in personnel and other reasons noted above.
Sales and marketing expenses, including personnel costs, increased from
$183,000 in 1999 to $1.5 million in 2000. Sales and marketing expenses increased
by $1.3 million as a result of $500,000 of additional salaries and benefits for
23 additional sales and marketing personnel as well as additional travel, direct
mail and advertising, increased attendance at trade shows and professional fees.
We anticipate that sales and marketing expenses will continue to increase in
future periods. As a percentage of revenues, sales and marketing expenses
increased from 39.8% in 1999 to 69.8% in 2000 as a result of the increases in
personnel and other reasons noted above.
Depreciation and amortization expenses increased from $146,000 in 1999
to $1.5 million in 2000. The $1.4 million increase in depreciation and
amortization is attributable to the amortization of intangibles including
goodwill, non-competition agreements and customer lists related to the
acquisitions. As a percentage of revenues, depreciation and amortization
expenses increased from 31.7 % in 1999 to 69.4% in 2000 as a result of the
acquisitions discussed above.
Other Income/Expense. Interest and other income increased $453,000 from
approximately $34,000 in 1999 to $487,000 in 2000 related to interest income on
the proceeds of our initial public offering and the concurrent private offering.
Interest expense to related parties decreased approximately $38,000 related to
the conversion of related party notes to preferred stock and scheduled
repayments of related party notes. Other interest expense increased by
approximately $27,000 related to debt assumed in the acquisitions and new
capital lease obligations.
Net Loss. Net loss increased $4.5 million from $1.1 million in 1999 to
$5.6 million in 2000 due to the factors described above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenues. Revenues increased $2.5 million, from $1.1 million in 1999 to
$3.6 million for the six months ended June 30, 2000, due to revenues
attributable to acquired businesses and growth in sales of our ASP products and
services. For the six months ended June 30, 2000, revenues related to acquired
businesses totaled $2.3 million. Revenues related to acquired businesses include
approximately $1.5 million from m3, $400,000 from Silver Platter, and $300,000
from EMInet and Quick Study in the aggregate. The remainder of the increase
between 1999 and 2000 is attributable to approximately $400,000 of growth in net
ASP revenues, Webcast events and online courseware revenues. These increases
were offset by a decrease of approximately $200,000 in the Company's historical
development business.
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Cost of Revenues. Cost of revenues increased $1.1 million from $703,000
in 1999 to $1.8 million in 2000. Of this increase, approximately $500,000
related primarily to additional personnel. In addition, the direct costs of
product installation for m3 and royalties based on a percentage of sales
resulted in an increase of approximately $300,000. The direct costs of projects
and Webcast events together with technical support resulted in a further
increase of approximately $200,000. The remainder of the increase related
primarily to the direct costs of client server products and subscription and
CD-ROM products. The cost of revenues as a percentage of revenues decreased from
63.2% in 1999 to 49.3% in 2000 as a result of increases in revenue and the lower
cost structure related to ASP and acquired product revenues.
Product Development. Product development expenses increased $1.7
million from $741,000 in 1999 to $2.4 million in 2000. Of this increase,
approximately $1.4 million relates to the addition of 40 systems and internal
development personnel. Such personnel have been added to implement our online
services and to accommodate increased content conversion and development. The
remainder of the increase is attributable to utilization of contract labor
personnel to assist with product development efforts. Product development as a
percentage of revenues was 66.6% in both 1999 and 2000.
Selling, General and Administrative. Selling, general and
administrative expenses increased $8.1 million from $1.0 million in 1999 to $9.1
million in 2000. General and administrative expenses increased by $3.4 million
from $537,000 in 1999 to $3.9 million in 2000. General and administrative
expenses increased by $1.5 million due to the agreement with Healtheon/WebMD and
by $1.0 million due to the addition of approximately 30 personnel, including 20
corporate and administrative personnel and 10 customer service personnel. These
personnel were added in connection with the acquisitions as well as additional
personnel hired to coordinate content and distribution partner relationships,
increased acquisition activities and additional infrastructure required to
accommodate growth. The remainder of the increase in general and administrative
expenses relate to an educational grant to Vanderbilt School of Nursing and
facility and other operating expense increases attributable to increased
personnel. As a percentage of revenues, general and administrative expenses
increased from 48.2 % in 1999 to 107.6% in 2000 as a result of the increases in
personnel and infrastructure discussed above.
Sales and marketing expenses, including personnel costs, increased by
$2.3 million from $321,000 in 1999 to $2.6 million in 2000. Sales and marketing
expenses increased by $2.4 million as a result of $900,000 of additional
salaries and benefits for 23 additional sales and marketing personnel as well as
additional travel, direct mail and advertising, attendance at trade shows and
professional fees. We anticipate that sales and marketing expenses will continue
to increase in future periods. As a percentage of revenues, sales and marketing
expenses increased from 28.9 % in 1999 to 71.6% in 2000 as a result of the
increases in personnel discussed above.
Depreciation and amortization expenses increased from $186,000 in 1999
to $2.6 million in 2000. The $2.4 million increase in depreciation and
amortization is attributable to the amortization of intangibles including
goodwill, non-competition agreements and customer lists related to the
acquisitions. As a percentage of revenues, depreciation and amortization
expenses increased from 16.7 % in 1999 to 70.7% in 2000 as a result of the
acquisitions discussed above.
Other Income/Expense. Interest and other income increased $695,000 from
approximately $35,000 in 1999 to $730,000 in 2000 related to interest income on
the proceeds of our initial public offering and the concurrent private offering,
as well as a $94,000 gain on a sale of an investment. Interest expense to
related parties decreased approximately $103,000 related to the conversion of
related party notes to preferred stock and scheduled repayments of related party
notes. Other interest expense increased by approximately $64,000 related to debt
assumed in the acquisitions and new capital lease obligations.
Net Loss. Net loss increased $7.6 million from $1.5 million in 1999 to
$9.1 million in 2000 due to the factors described above.
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations largely through
the private placement of equity securities, loans from related parties and, to a
lesser extent, from revenues generated from custom development fees and product
sales. During April 2000, we completed our initial public offering of Common
Stock resulting in net proceeds of $41.9 million and a concurrent private
placement of our Common Stock to Healtheon/WebMD resulting in net proceeds of
$10.0 million. In addition, the underwriters purchased an additional 275,000
shares of Common Stock to cover over-allotments, which resulted in net proceeds
of an additional $2.3 million.
Net cash used in operating activities for the six months ended June 30
was $1.1 million in 1999 and $7.8 million in 2000. Cash used in operating
activities during the six months ended June 30, 1999 related to the net loss,
increases in accounts and unbilled receivables, prepaid expenses and other
current assets, and decreases in accrued liabilities, which were partially
offset by increases in deferred revenue and non-cash product development expense
as well as depreciation and amortization expense. Cash used in operating
activities during the six months ended June 30, 2000, was attributable to a $9.1
million net loss and increases in accounts and unbilled receivables, prepaid
expenses and other current assets, and decreases in deferred revenue which were
partially offset by depreciation, amortization and non-cash warrant expense as
well as a decrease in other assets and an increase in accounts payable and
accrued liabilities.
Net cash used in investing activities for the six months ended June 30
was $175,000 in 1999 and $2.7 million in 2000. Cash used in investing activities
during 1999 was related to the purchase of property and equipment, while
investing activities using cash in 2000 related to the acquisitions of m3,
EMInet, Quick Study and KnowledgeReview. These acquisitions resulted in cash
paid of $1.5 million. In addition, cash paid for the purchase of property and
equipment totaled $1.3 million. In the six months ended June 30, 2000, these
outflows were partially offset by the receipt of $122,000 from the sale of
investments by the Company.
Cash provided by financing activities for the six months ended June 30
was $5.2 million in 1999 and $51.1 million in 2000. Cash provided by financing
activities during the six months ended June 30, 1999 related primarily to $5.2
million received from the sale of Preferred Stock. During 2000, cash provided by
financing activities related to $54.2 million received in connection with the
sale of Common Stock in our initial public offering and concurrent private
offering. In addition, the exercise of stock options resulted in cash proceeds
of $357,000, which was offset by $2.0 million of expenses of our initial public
offering and $1.3 million of repayments of debt and capital leases.
In connection with our agreement with HCA, HCA will pay us revenues of
at least $12.0 million over the four-year term of the agreement. As discussed
above, the Company expects to amortize the estimated fair value of the warrant
($8.8 million) as a reduction of revenues proportionately over the term of the
four year agreement. The amortization will fluctuate based on the revenues
received from this agreement and will vary as a percentage of revenues based on
the estimated revenues over the course of the agreement.
We expect to incur additional product development and sales and
marketing costs, to grow our business. As a result of the anticipated growth in
personnel, development and online transactions, we expect that our capital
expenditures will be approximately $2.5 million during the remainder of 2000.
Our arrangements with distribution, content and development partners
have typically provided for payments based on revenues, and we expect to
continue similar arrangements in the future. In addition to such percentage
payments, we have fixed payment commitments of approximately $3.7 million in
2000, $6.6 million in 2001, $6.2 million in 2002, $6.0 million in 2003 through
2004 and $1.5 million in 2005. We also have fixed educational grant commitments
of approximately $100,000 in 2000. We have variable commitments of approximately
$500,000 related to agreements under which other organizations have agreed to
provide content development services for us. Payments under these development
arrangements are contingent upon the delivery of services.
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In connection with the Healtheon/Web MD agreement, we received $10.0
million in proceeds from Healtheon/Web MD in a private placement of common stock
that closed in April. Our obligations to Healtheon/Web MD through the end of our
five year agreement are included in our partner commitments described above.
As of June 30, 2000, our primary source of liquidity was $54.3 million
of cash and cash equivalents. As of July 31, 2000, the Company had cash and
investments of approximately $50.0 million. The primary reason for this decrease
in cash and investments related to cash paid for EDI of $3.9 million. We believe
our existing cash and investments will be sufficient to meet anticipated cash
needs for working capital, capital expenditures and acquisitions for at least
the next 12 months. Our growth strategy also includes acquiring companies that
complement our products and services. We anticipate that these acquisitions will
be effected through the issuance of Common Stock and to a lessor extent, the
payment of cash. Our inability to use our Common Stock to finance acquisitions
or failure to generate sufficient cash flow from operations or raise additional
capital when required in sufficient amounts and on acceptable terms could harm
our business, results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We do not
have any foreign currency exchange rate risk or commodity price risk.
As of June 30, 2000, we had no outstanding indebtedness other than
capital lease arrangements. Accordingly, the Company is not exposed to
significant market risk. The Company is exposed to market risk with respect to
the cash and cash equivalents that it invests. At July 31, 2000, we had
approximately $50.0 million of cash and investments. At this investment level a
hypothetical 10% decrease in the interest rate would decrease interest income
and increase net loss on an annualized basis by approximately $300,000.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule for the six months ended June 30, 1999
27.2 Financial Data Schedule for the six months ended June 30, 2000
(b) The Company filed no Current Reports on Form 8-K during the quarter
ended June 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHSTREAM, INC.
By: /s/ ARTHUR E. NEWMAN
-------------------------------------
Arthur E. Newman
Chief Financial Officer
August 11, 2000
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
---- -----------
<S> <C>
27.1 Financial Data Schedule for the six months ended June 30, 1999
27.2 Financial Data Schedule for the six months ended June 30, 2000
</TABLE>
