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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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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 number 000-20805
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APACHE MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 23-2476415
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Tysons Boulevard, McLean, Virginia 22102
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(Address of principal executive offices) (Zip Code)
(703) 847-1400
(Registrant's telephone number, including area code)
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(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
7,355,767
---------
(Number of shares of common stock, $.01 par value per share, outstanding as
of August 1, 1999)
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APACHE MEDICAL SYSTEMS, INC.
INDEX
<TABLE>
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PAGE NO.
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) for the Three
Months and Six Months Ended June 30, 1999 and 1998
Consolidated Balance Sheets for the Six Months Ended March
31, 1999 (unaudited) and Year Ended December 31, 1998
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Six Months Ended June 30, 1999 (unaudited)
and Year Ended December 31, 1998
Consolidated Statements of Cash Flows (unaudited) for the Six
Months Ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
</TABLE>
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PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
--------- --------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 3,629 $ 2,278 $ 6,938 $ 5,749
Expenses:
Cost of goods sold 1,220 976 1,480 1,885
Research and development 200 223 451 649
Selling, general and administrative 1,819 2,020 4,245 4,306
------- ------- ------- -------
Total expenses 3,239 3,219 6,176 6,840
Income (Loss) from Operations 390 (941) 762 (1,091)
Other income (expense):
Interest income 83 132 175 286
Interest expense (8) (8) (17) (18)
Other, net 6 - 6 -
------- ------- ------- -------
Net Income (Loss) $ 471 $ (817) $ 926 $ (823)
======= ======= ======= =======
Basic and diluted net income (loss) per share $ 0.06 $ (0.11) $ 0.13 $ (0.11)
======= ======= ======= =======
Weighted average number of shares used for calculation of
net income (loss) per share 7,350 7,289 7,344 7,289
======= ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- -------------
(in thousands except per share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,258 $ 5,532
Short-term investments 1,048 1,000
Accounts receivable, net 3,623 2,972
Prepaid expenses and other 611 749
------- -------
TOTAL CURRENT ASSETS 10,540 10,253
Other trade receivables, net of current maturities 4
Furniture and equipment 3,596 3,589
Less accumulated depreciation and amortization (2,979) (2,704)
------- -------
617 885
Capitalized Software Costs, net 655 506
Intangible assets, net 436 494
-------- --------
TOTAL ASSETS $ 12,248 $ 12,142
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,314 $ 1,129
Accrued expenses 2,491 3,667
Deferred revenue 3,428 3,158
Current maturities of long term obligations 171 180
-------- --------
TOTAL CURRENT LIABILITIES 7,404 8,134
Deferred rent benefit 31 62
Maturities of long term obligations, net of current maturities 125 206
------- -------
TOTAL LIABILITIES 7,560 8,402
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized shares, 30,000,000 at June 30,
1999 and December 31, 1998: issued and outstanding shares 7,355,667
at June 30, 1999 and 7,330,473 at December 31, 1998. 73 73
Additional paid-in capital 45,791 45,770
Accumulated deficit (41,176) (42,103)
------- -------
TOTAL STOCKHOLDERS' EQUITY 4,688 3,740
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,248 $ 12,142
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid in Accumulated
(in thousands except per share data) Shares Amount Capital Deficit Total
--------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 7,238,922 72 45,325 (22,992) 22,405
Issuance of common stock options - - 291 - 291
Exercise of common stock options 10,490 - 30 - 30
Issuance of common stock under Employee Stock
Purchase Plan 18,344 1 57 - 58
Net Income (Loss) - - - (15,918) (15,918)
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BALANCE AT DECEMBER 31, 1997 7,267,756 73 45,703 (38,910) 6,866
Issuance of common stock under Employee Stock
Purchase Plan 62,717 - 67 - 67
Net Income (Loss) - - - (3,193) (3,193)
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BALANCE AT DECEMBER 31, 1998 7,330,473 73 45,770 (42,103) 3,740
Issuance of common stock under Employee Stock
Purchase Plan 12,703 - 10 - 10
Net Income (Loss) 456 456
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BALANCE AT MARCH 31, 1999 7,343,176 73 45,780 (41,647) 4,206
Issuance of common stock under Employee Stock
Purchase Plan 12,491 - 11 11
Net Income (Loss) 471 471
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BALANCE AT JUNE 30, 1999 7,355,667 $ 73 $ 45,791 $ (41,176) $ 4,688
========================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
30-Jun-99 30-Jun-98
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(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 926 $ (823)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 418 370
Provision for doubtful accounts 616 30
Stock options issued - -
Changes in operating assets and liabilities:
Accounts receivable (1,268) (1,816)
Other trade receivables 26 25
Other current assets 117 (53)
Intangible assets - -
Accounts payable and accrued expenses (991) (1,146)
Deferred rent (31) (24)
Deferred revenue 270 760
------- -------
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES 83 (2,677)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (233) (176)
Purchase of furniture and equipment (8) (162)
Decrease in short-term investments (48) 3,488
------- -------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES (289) 3,150
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (9) (8)
Principal payments on borrowings (81) (63)
Proceeds from issuance of notes payable - -
Proceeds from issuance of common stock under employee stock purchase plan 22 32
Proceeds from issuance of common stock upon exercise of options
------- -------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (68) (39)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (274) 434
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,532 5,634
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,258 $ 6,068
======= =======
SUPPLEMENTAL INFORMATION:
Cash payments for interest
$ 17 $ 18
======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by APACHE
Medical Systems, Inc. (the "Company") pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). The financial information
included herein is unaudited. However, in the opinion of management, all
adjustments (which include normal recurring adjustments) considered necessary
for a fair presentation have been made. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, but the Company believes that
the disclosures made are adequate to make the information presented not
misleading. For more complete financial information, these financial statements
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1998 included in the Company's Form
10-K. Results for interim periods are not necessarily indicative of the results
for any other interim period or for the full fiscal year.
Revenue for sales of systems and products are recognized at delivery. For
systems where services are critical to the functionality of the system, revenue
is recognized using contract accounting. Systems support fees are recognized
ratably over the period of performance. Professional services revenue is
recognized as these services are provided and is generally billed on a time and
material basis. Professional services do not involve significant customization,
modification or production of the licensed software. Amounts received prior to
the performance of service or completion of a milestone are deferred. Revenue
recognized for work performed for which billings have not been presented to
customers is recorded as unbilled.
2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The Company has implemented Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") Statement No. 128,
"Earnings Per Share," which requires dual presentation of basic and diluted
earnings per share. Basic income (loss) per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
income (loss) per share includes the potential dilution that could occur if
securities or other contracts were exercised or converted into common stock.
Options and warrants outstanding were not included in the computation of
diluted net income (loss) per share as their effect would be anti-dilutive.
Diluted net income (loss) per share and basic earnings per share are identical
for all periods presented.
3. NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants ("AICPA") has issued
Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2") that
supersedes Statement of Position 91-1. SOP 97-2 is effective for revenue
transactions entered into by the Company in fiscal years beginning after
December 31, 1997. The Company has adopted SOP 97-2 and it did not have a
material impact on the financial statements of the Company. In March 1998, AcSEC
issued SOP 98-4, which defers for one year the implementation of certain
provisions of SOP 97-2. The issuance of SOP 98-4 had no effect on the Company.
In December 1998, the AICPA issued SOP 98-9, which extends the deferral date of
implementation of certain provisions of SOP 97-2 to 2000 and amends the method
of revenue recognition in some circumstances. The Company does not anticipate
the adoption of this SOP will have a significant effect on the results of
operations or financial position.
4. STOCKHOLDERS' EQUITY
Stock Options
On March 16, 1999, the Board of Directors adopted a Non-Employee Director
Supplemental Stock Option Plan (the "Supplemental Plan"), to be effective
January 1, 1999 subject to shareholder approval. The Supplemental Plan provides
for the issuance to non-employee directors of options to acquire up to 120,000
shares of the Company's Common Stock. The Supplemental Plan was approved by the
Company's shareholders on May 12, 1999.
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On January 26, 1999, the Board of Directors granted options to acquire 16,700
shares of Common Stock to each non-employee director of the Company as of such
date. The effectiveness of this grant was subject to shareholder approval of the
Supplemental Plan. The exercise price of the options granted on January 26, 1999
was $1.25 per share, which price was above the fair market value of the Common
Stock on the date of grant.
On March 16, 1999, the Board of Directors approved an amendment to the Employee
Stock Option Plan, subject to shareholder approval, to increase the number of
shares of Common Stock which may be issued under the plan from 2,200,000 to
2,700,000. The amendment was approved by the Company's shareholders on May 12,
1999.
Effective January 4, 1999, the Board of Directors granted an executive of the
Company options to acquire 339,000 shares of Common Stock under the Employee
Stock Option Plan. The exercise price of the options is equal to the fair market
value of the Company's Common Stock on January 4, 1999 or $.5938. The options
are incentive stock options to the extent allowed under the Internal Revenue
Code. 94,000 of the options vest immediately. The remaining options vest ratably
over five years; vesting may be accelerated if certain performance targets are
satisfied during the five year period.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUE. Revenue for the quarter ended June 30, 1999 increased 59% to $3.6
million from $2.3 million in the prior year period. Revenue for the six months
ended June 30, 1999 increased 21% to $6.9 million from $5.7 million in the prior
year period. This increase is related to an increase in Systems revenues offset
by a decrease in Professional Services, primarily Health Outcomes Research and
Strategic Consulting.
COST OF GOODS SOLD. Cost of goods sold for the quarter ended June 30, 1999
increased 25% to $1.2 million from $976,000 in the prior year period. This
increase was due primarily to additional costs associated with the resale of
third party hardware related to the Critical Care Series systems and migrations
contracts. Cost of goods sold for the six months ended June 30, 1999 decreased
22% to $1.5 million from $1.9 million in the prior year period. During the first
half of 1999, improvements in the Company's implementation process resulted in
the reduction of previously accrued costs related to migration contracts.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the quarter ended June 30, 1999 decreased 10% to $1.8 million from
$2.0 million in the prior year period. This decrease was due to an overall
reduction in selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended June 30, 1999 remained
unchanged at $4.3 million.
RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter
ended June 30, 1999 decreased 10% to $200,000 from $223,000 in the prior year
period. Research and development expenses for the six months ended June 30, 1999
decreased 31% to $451,000 from $649,000 in the prior year period. The decrease
was due to an increase in capitalized software development costs and
improvements in productivity in product generation processes that resulted in
decreases in consulting expense, staffing requirements and related costs. During
the six months ended June 30, 1999, capitalized software development costs were
$234,000, compared to 177,000 in the prior year period.
OTHER INCOME (EXPENSE). Other income decreased from $124,000 for the quarter
ended June 30, 1998 to $81,000 for the quarter ended June 30, 1999. The decrease
is due to a decrease in interest income as a result of a reduction in cash.
YEAR 2000 READINESS. The Year 2000 computer problem originated from programmers
writing software code that used two digits instead of four to represent the
year. After December 31, 1999, computers and software may incorrectly assume
that the year is "1900" rather than "2000." This could lead to system failures
and disruptions to activities and operations. In addition, the Year 2000 is a
leap year, which may further exacerbate incorrect calculations, functions or
system failures. At this time it is difficult to predict the effects such
disruptions could have and the liabilities that any company may face as a result
of these failures. Moreover, companies must not only consider their own products
and computer systems, but also the Year 2000 readiness of any third parties,
including principal vendors and customers. The Company has identified the
following five phases to describe its process of achieving Year 2000 readiness:
awareness, assessment, renovation, validation and implementation.
State of Readiness
The Company became aware in early 1997 of its potential Year 2000 issues and
established a Year 2000 team with outside consultants to assess its Year 2000
issues and develop an overall strategy. In 1997, the Company began an assessment
of its products, and its own information technology ("IT") and non-IT systems
and the Company's vendors to determine whether they are or will be Year 2000
ready. To ensure that the IT and non-IT systems are, or will be, Year 2000
ready, surveys of the Company's products, services and systems were conducted.
These included but were not limited to: audits and analyses of the Company's
internal IT systems including hardware and software; assessment of critical
non-IT systems, including real estate and other embedded technologies; and
surveys of principal vendors as to Year 2000 readiness. The Company identified
several internal IT and non-IT systems that were not Year 2000 ready. These
internal systems have either been replaced with Year 2000 ready systems or will
be upgraded to the Year 2000 ready product. All internal system upgrades are
expected to be completed by the third quarter of 1999. The Company has received
written assurances from material principal vendors as to Year 2000 readiness
within that timeframe.
The majority of the Company's efforts regarding Year 2000 readiness focused on
the Company's products, including software applications, operating systems,
relational database management systems, tools and utilities sold to clients. The
assessments indicated that the version of the Company's
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Medical Cost Management Program ("MCMP") product, an application using UNIX
based terminals/clients and UNIX based servers requiring stand alone equipment,
its operating system, database releases and relational database management
systems, that was sold to customers prior to 1998, was not Year 2000 ready. The
Company accordingly, has focused its attention on its next generation CCS
product. The Company believes the application, operating systems and relational
database management system release, tools and utilities are Year 2000 ready.
The CCS product also includes new features and enhancements. The CCS product
operates on a PC based client/UNIX server platform, supporting Windows 95/NT.
The Company has completed renovation and validation activities on modules of
the CCS product and has begun to implement completed modules into the CCS
product. An independent consultant has reviewed and validated that the CCS
product is Year 2000 compliant.
The assessment is complete for two other software applications that the Company
sold to clients. The Acute Care Voyager+ product has been renovated and
validated by an independent consultant. Shipment of the new product began in
May 1999. The HIV Manager product has been renovated and is currently being
validated. Validation is scheduled to be completed in September 1999.
Other software applications products sold by the Company are presently in the
assessment phase. The assessments of these products were completed in December
1998. An action plan has been created for the renovation, validation, and
implementation of changes to deliver Year 2000 ready products by late 1999.
As an integral part of the Company's assessment, independent consulting firms
have been hired to provide additional testing and validation of the Company's
Year 2000 readiness of its software products currently being sold to its
customers. The goals and objectives of this assessment are to: validate that
software and hardware is Year 2000 ready; ensure that applications accurately
store and calculate information based on date fields which contain dates before
and after the Year 2000; ensure that communications software and hardware is
Year 2000 ready; ensure that appropriate stored and archived data will be
consistent with Year 2000 certified software; and engineer a test facility that
will be available to the Company's personnel, as well as its customers, to
verify that such certified systems are in fact Year 2000 ready. This additional
validation and testing has two phases. The first phase, consisting of
reassessment and renovation started during the third quarter of 1998, is
currently on schedule and in process. The second phase will repeat the process
of ongoing assessment, renovation of problems, and validation of corrections.
Validation of Year 2000 readiness was completed during the first quarter of
1999.
Costs to Address Year 2000 Issues
The calculation of costs incurred to address Year 2000 issues has been limited
to costs to bring the Company's products, and its own IT and non-IT systems to
Year 2000 readiness or to accelerate replacement systems to become Year 2000
ready. Costs incurred in the normal maintenance of the Company's IT and non-IT
systems are not included. The Company estimates it has incurred approximately
$940,000 to date for Year 2000 assessment, renovation, validation, and
implementation and accelerated development costs, and that total costs through
implementation will be approximately $1.1 million.
Risks of the Company's Year 2000 Issues
As the existing MCMP product operating system and relational database management
system releases could not be confirmed Year 2000 ready, the Company has decided
not to support the MCMP product beyond October 1999. The Company has offered
existing clients the ability to migrate to the new CCS product during the next
year on favorable terms. A majority of the clients using the old UNIX version of
the MCMP product have migrated or signed contracts to migrate to the new CCS
product. A few have indicated that they intend to discontinue use of the
existing product completely, and, like many participants in the healthcare
industry, several are still assessing their systems and migration options. The
Company's ability to perform migrations by October 1999 is dependent upon the
Company's timely receipt of migration contracts and the technical cooperation of
its customers. The favorable terms and migration services offered to existing
customers to encourage migration to the new CCS product are not expected to have
a material impact on the Company's future operating results or financial
position. Because the Company is not yet aware of the plans of the remaining
customers who have not yet accepted the Company's terms for migration to the new
CCS product, the Company is not yet able to fully evaluate the impact of Year
2000 issues associated with the UNIX version of the MCMP product. Due to the
uncertain nature of Year 2000 issues and their impact on the industry, the
outcome cannot be predicted at this time. The Company believes that this
uncertainty should be resolved and clarified by the fourth quarter of 1999.
Company's Contingency Plans
At the current time, the Company anticipates that essential products and IT and
non-IT systems will be validated as Year 2000 ready in all material respects.
This belief is based on the progress to date and the assessed degree of
difficulty associated with the remaining phases to achieve Year 2000 readiness,
the representations made by vendors and, where possible, testing. There can be
no assurance, however, of complete Year 2000 readiness. Contingency plans are
under development and the Company anticipates that acceptable alternatives will
be available in the event that a contingency arises. These contingency plans
generally anticipate use of alternative vendors for hardware and operating
systems. Nonetheless, it is not possible for the Company to fully assess the
likelihood or magnitude of consequences of Year 2000 issues, should
representations made by vendors prove to be in error.
Potential Impact of Year 2000 on Company's Business
The Company anticipates that virtually all of its customers and potential
customers will be required to evaluate the Year 2000 readiness of their
information technology systems. Some of the Company's customers and potential
customers may incur material costs in connection with this evaluation and any
necessary repairs and replacements. Customers and potential customers may be
required to devote material portions of their information technology budgets to
address their own Year 2000 readiness issues. This could materially reduce
their other information technology purchases in 1999, including their purchases
of the Company's products, particularly as the year 2000 date change draws
closer. The Company cannot quantify at this time the degree to which this issue
may affect the Company's customers, potential customers or its own business.
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Year 2000 Information and Readiness Disclosure Act
This section captioned "Year 2000 Readiness," as well as other statements herein
or otherwise relating to the Year 2000 issues, are "Year 2000 Readiness
Disclosures" pursuant to the "Year 2000 Information and Readiness Disclosure
Act."
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $6.3 million as of June 30, 1999 compared
to $6.5 million as of December 31, 1998.
The Company anticipates that remaining net proceeds from the initial public
offering and funds generated from operations will be sufficient to meet its
planned ongoing operating and working capital requirements and to finance
planned product development, sales and marketing activities and capital
acquisitions through 1999. Through June 30, 1999, the Company has incurred
cumulative net operating losses of approximately $41.2 million. There can be no
assurance that the Company will be profitable in the future or that present
capital will be sufficient to fund the Company's ongoing operations. If
additional financing is required to fund operations, there can be no assurance
that such financing can be obtained or obtained on terms acceptable to the
Company.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this filing which are not historical facts are forward-looking
statements under provisions of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risks and uncertainties. The
Company wishes to caution readers that the following important factors, among
others, in some cases have affected, and in the future could affect the
Company's actual results and could cause its actual results in fiscal 1999 and
beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Important factors that could cause actual results to differ materially include
but are not limited to the Company's: having sufficient sales and timely
collections to meet cash requirements and achieve profitability; ability to
correctly estimate and address its Year 2000 costs and liabilities; ability to
attract and retain key employees; success of its strategy to concentrate its
product offerings on high-risk, high-cost patients; ability to timely develop
new products and enhance existing products; ability to compete in the
competitive and rapidly evolving healthcare information technology industry;
success of its marketing and consulting efforts and ability to effectively
utilize its direct sales force; ability to protect proprietary information and
to obtain necessary licenses on commercially reasonable terms; ability to comply
with and adopt products and services to potential regulatory changes; and
ability to adapt to economic, political and regulatory conditions affecting the
healthcare industry.
The Company's quarterly revenues and operating results have varied significantly
in the past and are likely to vary from quarter to quarter in the future.
Quarterly revenues and operating results may fluctuate as a result of a variety
of factors, including: the Company's relatively long sales cycle; variable
customer demand for its products and services; changes in the Company's product
mix and the timing and relative prices of product sales; the loss of customers
due to consolidation in the healthcare industry; changes in customer budgets;
investments by the Company in marketing or other corporate resources;
acquisitions of other companies or assets; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
distribution channels; sales and marketing promotional activities and trade
shows; and general economic conditions. Further, due to the relatively fixed
nature of most of the Company's costs, which primarily include personnel costs,
as well as facilities costs, any unanticipated shortfall in revenue in any
fiscal quarter would have an adverse effect on the Company's results of
operations in that quarter. Accordingly, the Company's operating results for any
particular quarterly period may not necessarily be indicative of results for
future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information regarding the Company's investment securities as it relates to
market risk is not included as the possible effect of such risk is considered to
be immaterial.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of stockholders was held on May 12, 1999.
(b) At such meeting all 7 of the nominees for election as directors were
elected to hold office until the next Annual Meeting. The votes cast with
respect to each nominee for election as a director were as follows:
Election of Directors: For: Withheld:
Gerald E. Bisbee, Jr., Ph.D. 5,179,361 153,103
Edward J. Connors 5,179,361 153,103
Richard Dessimoz 5,179,311 153,153
Peter Gladkin 5,141,639 190,825
Thomas W. Hodson 5,141,811 190,653
William A. Knaus, M.D. 5,179,361 153,103
Lawrence S. Lewin 5,179,361 153,103
At such meeting the stockholders ratified the adoption by the Board of Directors
of the Non-Employee Director Supplemental Stock Option Plan as follows:
For: 3,634,824 Against: 200,527 Abstain: 9,606
At such meeting the stockholders approved the Amendment to the Employee Stock
Option Plan as follows:
For: 3,510,129 Against: 323,930 Abstain: 10,898
At such meeting the stockholders ratified the appointment of Ernst & Young LLP
as the Company's independent accountants.
For: 5,323,604 Against: 7,160 Abstain: 1,700
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following Exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
Exhibit Number Description
-----------
<S> <C>
2.1 Asset Purchase Agreement by and among the Company and Dun &
Bradstreet HealthCare Information, Inc. and Cognizant
Corporation dated as of December 30, 1996 *
2.2 Asset Purchase Agreement by and among the Company and Iowa
Health Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy
Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa
Heart Institute dated as of January 7, 1997 *
2.3 Agreement and Plan of Merger among the Company, NHA
Acquisition Corporation, National Health Advisors, Ltd.,
Scott A. Mason and Donald W. Seymour dated as of June 2,
1997 *****
3.1 Amended and Restated Certificate of Incorporation *****
3.2 By-Laws **
4.1 Specimen Common Stock Certificate **
4.2 Rights Agreement between the Company and First Chicago Trust
Company of New York, dated as of May 6, 1997 ***
10.1 APACHE Medical Systems, Inc. Employee Stock Option Plan +
*****
10.2 APACHE Medical Systems, Inc. Non-Employee Director Option
Plan + *****
10.3 Sublease Agreement between the Company and First Union
National Bank of Virginia, dated March 17, 1994 **
10.4 Registration Agreement between the Company and Certain
Stockholders, dated December 28, 1995 **
10.5 Form of Warrant Agreement relating to warrants issued in
1995 **
10.6 Warrant Agreement between the Company and Venture Fund of
Washington, dated May 13, 1991 **
10.7 Licensing Agreement between the Company and Cerner
Corporation, dated February 2, 1995 **
10.8 Nonqualified Stock Option Agreement between the Company and
The Cleveland Clinic Foundation, dated August 19, 1994 **
10.9 Agreement between the Company and The George Washington
University, dated August 19, 1994 **
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
10.10 Letter Agreement between the Company and the Northern New
England Cardiovascular Disease Study Group, dated March 13,
1995 **
10.11 Licensing Agreement between the Company and Quality
Information Management Corporation, dated March 24, 1994 **
10.12 Marketing Agreement between the Company and American
Healthcare Systems Purchasing Partners, L.P., dated as of
June 3, 1996 **
10.13 Registration Agreement between the Company and each of Iowa
Health Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy
Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa
Heart Institute dated January 7, 1997 *
10.14 Nonqualified Stock Option Agreements between the Company and
each of Iowa Health Centers, P.C. d/b/a Iowa Heart Center,
P.C., Mercy Hospital Medical Center and Mark A. Tannenbaum,
M.D., dated January 7, 1997 ****
10.15 Security Agreement dated February 11, 1997 made by the
Company for the use and benefit of Crestar Bank and
corresponding Commercial Note *****
10.16 License Agreement between the Company and Vermont Oxford
Network, Inc., Related Services Agreement between the
Company and Vermont Oxford Network, Inc. and Consulting
Agreement between the Company and Clinimetrics, Inc. each
effective as of June 24, 1997 ++*****
10.17 Employment Agreement by and between the Company and Gerald
E. Bisbee, Jr., Ph.D., dated May 5, 1997 +*****
10.18 Employment Agreement by and between the Company and Scott A.
Mason, dated June 2, 1997 +*****
10.19 Nonqualified Stock Option Agreement between the Company and
William A. Knaus, M.D. dated May 29, 1997 +*****
10.20 APACHE Medical Systems, Inc. Employee Stock Option Plan,
Amended and Restated Effective May 12, 1999 *********
10.21 Form of 1998 Employment Agreement +******
10.22 Form of Nonqualified Director Stock Option Agreement +******
10.23 Employment Agreement by and between Peter Gladkin and the
Company, dated May 30, 1998 +*******
10.24 Employment Agreement by and between Gina Campbell and the
Company, dated August 24, 1998 +********
10.25 Employment Agreement by and between Karen Miller and the
10.26 Employment Agreement by and between Violet Shaffer and
the Company, dated April 28, 1998 +*********
10.27 APACHE Medical Systems, Inc. Non-Employee Director
Supplemental Stock Option Plan +*********
11.1 Computation of Earnings (Loss) Per Share **********
27.1 Financial Data Schedule **********
+ Reflects management contract or other compensatory arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K
++ Confidential treatment was requested for a portion of this Exhibit
* Incorporated herein by reference to the Company's Report on Form 8-K
filed on January 14, 1997 (File No. 0-20805)
** Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 333-04106)
*** Incorporated herein by reference to the Company's Current Report on
Form 8-K filed on June 4, 1997 (File No. 0-20805)
**** Incorporated herein by reference to the Company's Report on Form 10-Q
for the quarter ended March 31, 1997 (File No. 0-20805)
***** Incorporated herein by reference to the Company's Report on Form 10-Q
for the quarter ended June 30, 1997 (File No. 0-20805)
****** Incorporated herein by reference to the Company's Report on Form 10-K
for the year ended December 31, 1997 (File No. 0-20805)
******* Incorporated herein by reference to the Company's Report on Form 10-Q
for the quarter ended June 30, 1998 (File No. 0-20805)
******** Incorporated herein by reference to the Company's Report on Form
10-K for the year ended December 31, 1998 (File No. 0-20805)
********* Incorporated herein by reference to the Company's Report on Form 10-Q
for the quarter ended March 31, 1999 (File No. 0-20805)
********** Filed herewith
</TABLE>
(b) Reports on Form 8-K
<PAGE> 13
The Company has not filed any reports on Form 8-K during the quarterly period
ended June 30, 1999.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APACHE MEDICAL SYSTEMS, INC.
Date: August 13, 1999 /s/Peter Gladkin
-----------------
Peter Gladkin
President and Chief Executive Officer
/s/Karen C. Miller
-------------------
Karen C. Miller
Vice President of Finance & Chief Financial
Officer
12
<PAGE> 15
INDEX TO EXHIBTS
Exhibit Number Description
-----------
11.1 Computation of Earnings (Loss) Per Share
27.1 Financial Data Schedule
13
<PAGE> 1
EXHIBIT 11.1-COMPUTATION OF EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ----- ---- -----
<S> <C> <C> <C> <C>
Income applicable to common shares:
Net Income (Loss) $ 471 $ (817) $ 926 $ (823)
------- ------- ------- -------
Income (Loss) applicable to common shares $ 471 $ (817) $ 926 $ (823)
======= ======= ======= ========
Weighted average number of common shares outstanding 7,350 7,289 7,344 7,289
Weighted average common shares 7,350 7,289 7,344 7,289
======= ======= ======= ========
Income (Loss) per common share $ 0.06 $(0.11) $ 0.13 $(0.11)
======= ======= ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS FILED AS
PART OF THE APACHE MEDICAL SYSTEMS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,258
<SECURITIES> 1,048
<RECEIVABLES> 4,761
<ALLOWANCES> 1,138
<INVENTORY> 0
<CURRENT-ASSETS> 10,540
<PP&E> 3,596
<DEPRECIATION> 2,979
<TOTAL-ASSETS> 12,248
<CURRENT-LIABILITIES> 7,404
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 4,688
<TOTAL-LIABILITY-AND-EQUITY> 12,248
<SALES> 3,629
<TOTAL-REVENUES> 3,629
<CGS> 1,220
<TOTAL-COSTS> 1,220
<OTHER-EXPENSES> 2,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 471
<INCOME-TAX> 0
<INCOME-CONTINUING> 471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
