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 quarterly period ended September 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 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 11, 2002, 20,322,687 shares of the registrant’s common stock were outstanding.
Index to Form 10-Q
HEALTHSTREAM, INC.
| Page | ||||||||
| Number | ||||||||
| Part I. |
Financial Information |
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| Item 1. |
Financial Statements |
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Condensed Consolidated Balance Sheets — September 30, 2002 (Unaudited) and December 31, 2001 |
1 | |||||||
Condensed Consolidated Statements of Operations (Unaudited) — Three Months ended September 30, 2002 and 2001 |
2 | |||||||
Condensed Consolidated Statements of Operations (Unaudited) — Nine Months ended September 30, 2002 and 2001 |
3 | |||||||
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) — Nine Months ended September 30, 2002 |
4 | |||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months ended September 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 | ||||||
| Item 4. |
Controls and Procedures |
20 | ||||||
| Part II. |
Other Information |
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| Item 6. |
Exhibits and Reports on Form 8-K |
20 | ||||||
Signature |
21 | |||||||
Certifications |
22 | |||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Note 1) | ||||||||||
ASSETS
|
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Current assets:
|
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Cash and cash equivalents |
$ | 4,989,424 | $ | 4,747,434 | |||||||
Investments in short term marketable securities |
5,915,740 | 12,701,086 | |||||||||
Restricted cash |
569,113 | 520,184 | |||||||||
Interest receivable |
350,388 | 537,585 | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $270,000
at September 30, 2002 and $288,000 at December 31, 2001, respectively |
4,367,072 | 3,776,635 | |||||||||
Accounts receivable — unbilled |
190,146 | 566,069 | |||||||||
Prepaid development fees, net of amortization |
482,641 | 1,030,843 | |||||||||
Other prepaid expenses and other current assets |
540,275 | 649,543 | |||||||||
Total current assets |
17,404,799 | 24,529,379 | |||||||||
Property and equipment: |
|||||||||||
Furniture and fixtures |
934,606 | 990,992 | |||||||||
Equipment |
4,268,216 | 4,566,342 | |||||||||
Leasehold improvements |
1,237,275 | 1,111,360 | |||||||||
| 6,440,097 | 6,668,694 | ||||||||||
Less accumulated depreciation and amortization |
(3,471,680 | ) | (2,974,347 | ) | |||||||
| 2,968,417 | 3,694,347 | ||||||||||
Goodwill |
3,306,688 | 8,306,688 | |||||||||
Intangible assets, net of accumulated amortization of $4,732,892
at September 30, 2002 and $3,295,675 at December 31, 2001, respectively |
2,129,250 | 3,566,467 | |||||||||
Investments in marketable securities |
9,307,340 | 8,709,003 | |||||||||
Notes receivable – related party |
233,003 | 215,000 | |||||||||
Other assets |
201,089 | 225,760 | |||||||||
Total assets |
$ | 35,550,586 | $ | 49,246,644 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable |
$ | 780,048 | $ | 889,254 | |||||||
Accrued liabilities |
1,056,969 | 943,616 | |||||||||
Accrued compensation and related expenses |
840,291 | 717,200 | |||||||||
Registration liabilities |
631,240 | 633,788 | |||||||||
Deferred revenue |
3,662,449 | 3,273,825 | |||||||||
Current portion of capital lease obligations |
78,330 | 126,733 | |||||||||
Total current liabilities |
7,049,327 | 6,584,416 | |||||||||
Capital lease obligations, less current portion |
55,291 | 118,769 | |||||||||
Commitments and contingencies |
— | — | |||||||||
Shareholders’ equity: |
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Common stock, no par value, 75,000,000 shares authorized;
20,322,687 and 20,372,542 shares issued and outstanding
at September 30, 2002 and December 31, 2001, respectively |
91,217,641 | 91,275,282 | |||||||||
Accumulated other comprehensive income |
89,363 | 79,240 | |||||||||
Accumulated deficit |
(62,861,036 | ) | (48,811,063 | ) | |||||||
Total shareholders’ equity |
28,445,968 | 42,543,459 | |||||||||
Total liabilities and shareholders’ equity |
$ | 35,550,586 | $ | 49,246,644 | |||||||
See accompanying notes to the condensed consolidated financial statements.
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended, September 30, | ||||||||||
| 2002 | 2001 | |||||||||
Revenues, net of warrant expense of $-0- in 2002 and $549,077 in 2001 |
$ | 4,058,407 | $ | 3,077,708 | ||||||
Operating costs and expenses: |
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Cost of revenues |
1,349,443 | 1,280,563 | ||||||||
Product development |
1,212,022 | 1,263,250 | ||||||||
Sales and marketing |
1,479,632 | 1,422,508 | ||||||||
Depreciation |
395,163 | 464,833 | ||||||||
Amortization of goodwill |
— | 1,348,356 | ||||||||
Amortization of intangibles, content fees, fixed royalties, and
prepaid compensation |
685,148 | 714,731 | ||||||||
Other general and administrative expenses |
1,488,524 | 1,766,680 | ||||||||
Total operating costs and expenses |
6,609,932 | 8,260,921 | ||||||||
Loss from operations |
(2,551,525 | ) | (5,183,213 | ) | ||||||
Other income (expense): |
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Interest and other income |
182,629 | 403,664 | ||||||||
Interest and other expense |
(12,294 | ) | (9,111 | ) | ||||||
| 170,335 | 394,553 | |||||||||
Net loss |
$ | (2,381,190 | ) | $ | (4,788,660 | ) | ||||
Net loss per share: |
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Basic and diluted net loss per share |
$ | (0.12 | ) | $ | (0.24 | ) | ||||
Weighted average shares of common stock outstanding: |
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Basic and diluted |
20,290,435 | 19,846,341 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
2
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Nine Months Ended, September 30, | ||||||||||
| 2002 | 2001 | |||||||||
Revenues, net of warrant expense of $-0- in 2002 and $1,489,933 in 2001 |
$ | 11,726,773 | $ | 9,655,142 | ||||||
Operating costs and expenses: |
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Cost of revenues |
4,739,142 | 4,082,177 | ||||||||
Product development |
3,438,059 | 3,750,839 | ||||||||
Office consolidation charge |
— | 400,678 | ||||||||
Sales and marketing |
4,698,381 | 4,379,399 | ||||||||
Depreciation |
1,241,616 | 1,269,995 | ||||||||
Amortization of goodwill |
— | 4,028,676 | ||||||||
Amortization of intangibles, content fees, fixed royalties, and
prepaid compensation |
2,131,469 | 2,114,495 | ||||||||
Other general and administrative expenses |
5,116,261 | 5,362,279 | ||||||||
Total operating costs and expenses |
21,364,928 | 25,388,538 | ||||||||
Loss from operations |
(9,638,155 | ) | (15,733,396 | ) | ||||||
Other income (expense): |
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Interest and other income |
638,704 | 1,491,347 | ||||||||
Write-off of investment |
— | (99,920 | ) | |||||||
Interest and other expense |
(50,522 | ) | (35,982 | ) | ||||||
| 588,182 | 1,355,445 | |||||||||
Loss before cumulative effect of a change in accounting principle |
(9,049,973 | ) | (14,377,951 | ) | ||||||
Cumulative effect of a change in accounting principle |
(5,000,000 | ) | — | |||||||
Net loss |
$ | (14,049,973 | ) | $ | (14,377,951 | ) | ||||
Net loss per share: |
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Basic and diluted net loss before cumulative effect of a change in
accounting principle |
$ | (0.45 | ) | $ | (0.73 | ) | ||||
Cumulative effect of a change in accounting principle |
(0.25 | ) | — | |||||||
Basic and diluted net loss per share |
$ | (0.70 | ) | $ | (0.73 | ) | ||||
Weighted average shares of common stock outstanding: |
||||||||||
Basic and diluted |
20,245,961 | 19,822,894 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
3
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
| Common Stock | Other | Total | ||||||||||||||||||
| Accumulated | Comprehensive | Shareholders' | ||||||||||||||||||
| Shares | Amount | Deficit | Income | Equity | ||||||||||||||||
Balance at December 31, 2001 |
20,372,542 | $ | 91,275,282 | $ | (48,811,063 | ) | $ | 79,240 | $ | 42,543,459 | ||||||||||
Net loss |
(14,049,973 | ) | (14,049,973 | ) | ||||||||||||||||
Unrealized gain on investments, net of tax |
10,123 | 10,123 | ||||||||||||||||||
Comprehensive loss |
(14,039,850 | ) | ||||||||||||||||||
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 | |||||||||||||||
Retirement of common stock in connection
with EMInet escrow resolution |
(85,625 | ) | (107,031 | ) | — | — | (107,031 | ) | ||||||||||||
Balance at September 30, 2002 |
20,322,687 | $ | 91,217,641 | $ | (62,861,036 | ) | $ | 89,363 | $ | 28,445,968 | ||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Nine Months Ended September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
OPERATING ACTIVITIES: |
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Net loss |
$ | (14,049,973 | ) | $ | (14,377,951 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
1,241,616 | 1,269,995 | ||||||||||
Amortization of goodwill |
— | 4,028,676 | ||||||||||
Amortization of intangibles, content fees, fixed royalties,
and prepaid compensation |
2,131,469 | 2,114,495 | ||||||||||
Provision for doubtful accounts |
265,000 | 87,000 | ||||||||||
Gain on WebMD renegotiation |
— | (1,500,000 | ) | |||||||||
Office consolidation charge |
— | 400,678 | ||||||||||
Noncash warrant expense |
— | 1,489,933 | ||||||||||
Issuance of stock options to advisory boards |
11,385 | 57,319 | ||||||||||
Realized loss on disposal of property & equipment |
15,040 | — | ||||||||||
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 |
(537,743 | ) | (357,078 | ) | ||||||||
Restricted cash |
(48,929 | ) | 261,501 | |||||||||
Interest receivable |
187,197 | (40,087 | ) | |||||||||
Prepaid development fees |
21,719 | (1,173,694 | ) | |||||||||
Other prepaid expenses and other current assets |
(5,625 | ) | (530,110 | ) | ||||||||
Other assets |
231,606 | 256,541 | ||||||||||
Accounts payable |
(109,206 | ) | (135,225 | ) | ||||||||
Accrued liabilities and compensation |
236,444 | (473,870 | ) | |||||||||
Registration liabilities |
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