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, 2002
Commission File No.: 001-8833
HealthStream, Inc.
(Exact name of registrant as specified in its charter)
| Tennessee | 62-1443555 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 209 10th Avenue South, Suite 450 Nashville, Tennessee |
37203 | |
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| (Address of principal executive offices) | (Zip Code) |
(615) 301-3100
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 13, 2002, 20,408,312 shares of the Registrant’s common stock were outstanding.
Index to Form 10-Q
HEALTHSTREAM, INC.
| Page | ||||||||
| Number | ||||||||
Part I. |
Financial Information | |||||||
Item 1. |
Financial Statements | |||||||
| Condensed Consolidated Balance Sheets - June 30, 2002 (Unaudited) and December 31, 2001 | 1 | |||||||
| Condensed Consolidated Statements of Operations (Unaudited) - Three Months | ||||||||
| ended June 30, 2002 and 2001 | 2 | |||||||
| Condensed Consolidated Statements of Operations (Unaudited) - Six Months | ||||||||
| ended June 30, 2002 and 2001 | 3 | |||||||
| Condensed Consolidated Statement of Shareholders' Equity (Unaudited) - Six Months | ||||||||
| ended June 30, 2002 | 4 | |||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months | ||||||||
| ended June 30, 2002 and 2001 | 5 | |||||||
| Notes to Condensed Consolidated Financial Statements | 7 | |||||||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results | |||||||
| of Operations | 13 | |||||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 20 | ||||||
Part II. |
Other Information | |||||||
Item 1. |
Legal Proceedings | 21 | ||||||
Item 4. |
Submission of Matters to a Vote of Security Holders | 21 | ||||||
Item 6. |
Exhibits and Reports on Form 8-K | 21 | ||||||
| Signature | 22 | |||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial StatementsHEALTHSTREAM, INC.
| June 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Note 1) | ||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 1,532,155 | $ | 4,747,434 | |||||||
Investments in short term marketable securities |
7,712,930 | 12,701,086 | |||||||||
Restricted cash |
775,567 | 520,184 | |||||||||
Interest receivable |
359,015 | 537,585 | |||||||||
Accounts receivable, net of allowance for doubtful accounts
of $275,000 at June 30, 2002 and $288,000 at December 31, 2001, respectively |
4,468,058 | 3,776,635 | |||||||||
Accounts receivable — unbilled |
280,823 | 566,069 | |||||||||
Prepaid development fees, net of amortization |
514,382 | 1,030,843 | |||||||||
Other prepaid expenses and other current assets |
562,392 | 649,543 | |||||||||
Total current assets |
16,205,322 | 24,529,379 | |||||||||
Property and equipment: |
|||||||||||
Furniture and fixtures |
932,935 | 990,992 | |||||||||
Equipment |
4,320,453 | 4,566,342 | |||||||||
Leasehold improvements |
1,222,077 | 1,111,360 | |||||||||
| 6,475,465 | 6,668,694 | ||||||||||
Less accumulated depreciation and amortization |
(3,224,754 | ) | (2,974,347 | ) | |||||||
| 3,250,711 | 3,694,347 | ||||||||||
Goodwill |
3,306,688 | 8,306,688 | |||||||||
Intangible assets, net of accumulated amortization of $4,253,819
at June 30, 2002 and $3,295,675 at December 31, 2001, respectively |
2,608,323 | 3,566,467 | |||||||||
Investments in marketable securities |
12,046,293 | 8,709,003 | |||||||||
Notes receivable – related party |
215,000 | 215,000 | |||||||||
Other assets |
369,904 | 225,760 | |||||||||
Total assets |
$ | 38,002,241 | $ | 49,246,644 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
|||||||||||
Accounts payable |
$ | 612,322 | $ | 889,254 | |||||||
Accrued liabilities |
1,006,438 | 943,616 | |||||||||
Accrued compensation and related expenses |
682,955 | 717,200 | |||||||||
Registration liabilities |
800,917 | 633,788 | |||||||||
Deferred revenue |
3,906,671 | 3,273,825 | |||||||||
Current portion of capital lease obligations |
91,440 | 126,733 | |||||||||
Total current liabilities |
7,100,743 | 6,584,416 | |||||||||
Capital lease obligations, less current portion |
69,937 | 118,769 | |||||||||
Commitments and contingencies |
— | — | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock, no par value, 75,000,000 shares authorized;
20,408,312 shares and 20,372,542 shares issued and outstanding
at June 30, 2002 and December 31, 2001, respectively |
91,324,672 | 91,275,282 | |||||||||
Accumulated other comprehensive (loss) income |
(13,265 | ) | 79,240 | ||||||||
Accumulated deficit |
(60,479,846 | ) | (48,811,063 | ) | |||||||
Total shareholders’ equity |
30,831,561 | 42,543,459 | |||||||||
Total liabilities and shareholders’ equity |
$ | 38,002,241 | $ | 49,246,644 | |||||||
See accompanying notes to the condensed consolidated financial statements.
1
HEALTHSTREAM, INC.
| Three Months Ended June 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Revenues, net of warrant expense of $-0- in 2002 and $504,803 in 2001 |
$ | 4,133,508 | $ | 3,523,348 | |||||||
Operating costs and expenses: |
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Cost of revenues |
1,557,848 | 1,174,995 | |||||||||
Product development |
1,217,475 | 1,284,341 | |||||||||
Office consolidation charge |
— | 400,678 | |||||||||
Sales and marketing |
1,657,485 | 1,548,506 | |||||||||
Depreciation |
398,581 | 442,424 | |||||||||
Amortization of goodwill |
— | 1,348,668 | |||||||||
Amortization of intangibles, content fees, fixed royalties, and prepaid
compensation |
733,278 | 684,663 | |||||||||
Other general and administrative expenses |
1,978,170 | 2,222,839 | |||||||||
Total operating costs and expenses |
7,542,837 | 9,107,114 | |||||||||
Loss from operations |
(3,409,329 | ) | (5,583,766 | ) | |||||||
Other income (expense): |
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Interest and other income |
198,786 | 388,812 | |||||||||
Interest and other expense |
(29,252 | ) | (12,758 | ) | |||||||
| 169,534 | 376,054 | ||||||||||
Net loss |
$ | (3,239,795 | ) | $ | (5,207,712 | ) | |||||
Net loss per share: |
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Basic and diluted net loss per share |
$ | (0.16 | ) | $ | (0.26 | ) | |||||
Weighted average shares of common stock outstanding: |
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Basic and diluted |
20,251,465 | 19,654,707 | |||||||||
See accompanying notes to the condensed consolidated financial statements.
2
HEALTHSTREAM, INC.
| Six Months Ended June 30, | ||||||||||
| 2002 | 2001 | |||||||||
Revenues, net of warrant expense of $-0- in 2002 and $940,855 in 2001 |
$ | 7,668,366 | $ | 6,577,310 | ||||||
Operating costs and expenses: |
||||||||||
Cost of revenues |
3,389,699 | 2,801,614 | ||||||||
Product development |
2,226,036 | 2,487,559 | ||||||||
Office consolidation charge |
— | 400,678 | ||||||||
Sales and marketing |
3,218,749 | 2,956,891 | ||||||||
Depreciation |
846,452 | 805,162 | ||||||||
Amortization of goodwill |
— | 2,680,320 | ||||||||
Amortization of intangibles, content fees, fixed royalties, and prepaid
compensation |
1,446,319 | 1,399,768 | ||||||||
Other general and administrative expenses |
3,627,741 | 3,595,501 | ||||||||
Total operating costs and expenses |
14,754,996 | 17,127,493 | ||||||||
Loss from operations |
(7,086,630 | ) | (10,550,183 | ) | ||||||
Other income (expense): |
||||||||||
Interest and other income |
456,075 | 1,087,683 | ||||||||
Write off of investment |
— | (99,920 | ) | |||||||
Interest and other expense |
(38,228 | ) | (26,871 | ) | ||||||
| 417,847 | 960,892 | |||||||||
Loss before cumulative effect of a change in accounting principle |
(6,668,783 | ) | (9,589,291 | ) | ||||||
Cumulative effect of a change in accounting principle |
(5,000,000 | ) | — | |||||||
Net loss |
$ | (11,668,783 | ) | $ | (9,589,291 | ) | ||||
Net loss per share: |
||||||||||
Basic and diluted loss before cumulative effect of a change in accounting principle |
$ | (0.33 | ) | $ | (0.48 | ) | ||||
Cumulative effect of a change in accounting principle |
(0.25 | ) | — | |||||||
Basic and diluted net loss per share |
$ | (0.58 | ) | $ | (0.48 | ) | ||||
Weighted average shares of common stock outstanding: |
||||||||||
Basic and diluted |
20,223,723 | 19,811,171 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
3
HEALTHSTREAM, INC.
| Accumulated | ||||||||||||||||||||
| Other | Total | |||||||||||||||||||
| Common Stock | Accumulated | Comprehensive | Shareholders' | |||||||||||||||||
| Shares | Amount | Deficit | Income (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2001 |
20,372,542 | $ | 91,275,282 | $ | (48,811,063 | ) | $ | 79,240 | $ | 42,543,459 | ||||||||||
Net loss |
— | — | (11,668,783 | ) | (11,668,783 | ) | ||||||||||||||
Unrealized loss on investments,
net of tax |
— | — | — | (92,505 | ) | (92,505 | ) | |||||||||||||
Comprehensive loss |
30,782,171 | |||||||||||||||||||
Issuance of stock options to advisory boards |
— | 11,385 | — | — | 11,385 | |||||||||||||||
Issuance of common stock to Employee Stock
Purchase Plan |
35,770 | 38,005 | — | — | 38,005 | |||||||||||||||
Balance at June 30, 2002 |
20,408,312 | $ | 91,324,672 | $ | (60,479,846 | ) | $ | (13,265 | ) | $ | 30,831,561 | |||||||||
See accompanying notes to the condensed consolidated financial statements.
4
HEALTHSTREAM, INC.
| Six Months Ended June 30, | |||||||||||
| 2002 | 2001 | ||||||||||
OPERATING ACTIVITIES: |
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Net loss |
$ | (11,668,783 | ) | $ | (9,589,291 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||||||
Depreciation |
846,452 | 805,162 | |||||||||
Amortization of goodwill |
— | 2,680,320 | |||||||||
Amortization of intangibles, content fees, fixed royalties,
and prepaid compensation |
1,446,319 | 1,399,768 | |||||||||
Provision for doubtful accounts |
205,000 | — | |||||||||
Gain on WebMD renegotiation |
— | (1,500,000 | ) | ||||||||
Office consolidation charge |
— | 400,678 | |||||||||
Noncash warrant expense |
— | 940,855 | |||||||||
Issuance of stock options to advisory boards |
11,385 | 57,319 | |||||||||
Realized loss on investments |
— | 99,920 | |||||||||
Cumulative effect of a change in accounting principle |
5,000,000 | — | |||||||||
Changes in operating assets and liabilities, excluding effects of
acquisitions: |
|||||||||||
Accounts and unbilled receivables |
(611,177 | ) | (479,117 | ) | |||||||
Restricted cash |
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