UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2003
Commission File No.: 001-8833
HealthStream, Inc.
| 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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 7, 2003, 22,422,484 shares of the registrant’s common stock were outstanding.
Index to Form 10-Q
HEALTHSTREAM, INC.
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Part I. |
Financial Information |
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Item 1. |
Financial Statements |
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Condensed Consolidated Balance Sheets - June 30, 2003 (Unaudited)
and December 31, 2002
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1 |
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Condensed Consolidated Statements of Operations (Unaudited) - Three Months
ended June 30, 2003 and 2002
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2 |
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Condensed Consolidated Statements of Operations (Unaudited) - Six Months
ended June 30, 2003 and 2002
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3 |
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Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) - Six Months
ended June 30, 2003
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4 |
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Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months
ended June 30, 2003 and 2002
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5 |
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Notes to Condensed Consolidated Financial Statements
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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10 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
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18 |
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Item 4. |
Controls and Procedures
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18 |
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Part II. |
Other Information |
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Item 4. |
Submission of Matters to a Vote of Security Holders
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19 |
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Item 6. |
Exhibits and Reports on Form 8-K
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19 |
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Signature
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20 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | (Note 1) | ||||||||||
ASSETS |
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Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 6,431,890 | $ | 4,069,631 | |||||||
Investments in short term marketable securities |
10,379,388 | 12,087,008 | |||||||||
Restricted cash |
457,331 | 835,437 | |||||||||
Interest receivable |
199,683 | 306,507 | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $280,248
at June 30, 2003 and $295,704 at December 31, 2002, respectively |
3,127,771 | 3,346,355 | |||||||||
Accounts receivable – unbilled |
483,801 | 248,439 | |||||||||
Prepaid development fees, net of amortization |
330,457 | 406,416 | |||||||||
Other prepaid expenses and other current assets |
911,303 | 587,746 | |||||||||
Total current assets |
22,321,624 | 21,887,539 | |||||||||
Property and equipment: |
|||||||||||
Furniture and fixtures |
930,724 | 930,657 | |||||||||
Equipment |
4,820,082 | 4,361,466 | |||||||||
Leasehold improvements |
1,236,893 | 1,232,083 | |||||||||
| 6,987,699 | 6,524,206 | ||||||||||
Less accumulated depreciation and amortization |
(4,604,409 | ) | (3,855,921 | ) | |||||||
| 2,383,290 | 2,668,285 | ||||||||||
Goodwill |
3,306,688 | 3,306,688 | |||||||||
Intangible assets, net of accumulated amortization of $5,939,616 |
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at June 30, 2003 and $5,211,965 at December 31, 2002, respectively |
922,526 | 1,650,177 | |||||||||
Investments in marketable securities |
— | 3,066,067 | |||||||||
Notes receivable – related party |
233,003 | 233,003 | |||||||||
Other assets |
68,540 | 101,457 | |||||||||
Total assets |
$ | 29,235,671 | $ | 32,913,216 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 619,247 | $ | 718,803 | |||||||
Accrued liabilities |
836,991 | 1,179,795 | |||||||||
Accrued compensation and related expenses |
213,446 | 763,521 | |||||||||
Registration liabilities |
465,464 | 900,654 | |||||||||
Deferred revenue |
3,435,213 | 3,346,224 | |||||||||
Current portion of capital lease obligations |
51,187 | 66,925 | |||||||||
Total current liabilities |
5,621,548 | 6,975,922 | |||||||||
Capital lease obligations, less current portion |
13,936 | 41,011 | |||||||||
Commitments and contingencies |
— | — | |||||||||
Shareholders’ equity: |
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Common stock, no par value, 75,000,000 shares authorized;
20,413,159 and 20,322,687 shares issued and outstanding
at June 30, 2003 and December 31, 2002, respectively |
91,350,763 | 91,223,052 | |||||||||
Accumulated other comprehensive income |
71,999 | 125,536 | |||||||||
Accumulated deficit |
(67,822,575 | ) | (65,452,305 | ) | |||||||
Total shareholders’ equity |
23,600,187 | 25,896,283 | |||||||||
Total liabilities and shareholders’ equity |
$ | 29,235,671 | $ | 32,913,216 | |||||||
See accompanying notes to the condensed consolidated financial statements.
1
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended June 30, | ||||||||||
| 2003 | 2002 | |||||||||
Revenues, net |
$ | 4,669,751 | $ | 4,133,508 | ||||||
Operating costs and expenses: |
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Cost of revenues |
1,603,917 | 1,557,848 | ||||||||
Product development |
810,589 | 1,217,475 | ||||||||
Sales and marketing |
1,236,151 | 1,657,485 | ||||||||
Depreciation |
378,159 | 398,581 | ||||||||
Amortization of intangibles, content fees, fixed
royalties, and prepaid compensation |
478,720 | 733,278 | ||||||||
Other general and administrative expenses |
1,279,063 | 1,880,732 | ||||||||
Office consolidation charge |
— | 97,438 | ||||||||
Total operating costs and expenses |
5,786,599 | 7,542,837 | ||||||||
Loss from operations |
(1,116,848 | ) | (3,409,329 | ) | ||||||
Other income (expense): |
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Interest and other income |
109,113 | 198,786 | ||||||||
Interest and other expense |
(3,095 | ) | (29,252 | ) | ||||||
| 106,018 | 169,534 | |||||||||
Net loss |
$ | (1,010,830 | ) | $ | (3,239,795 | ) | ||||
Net loss per share: |
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Basic and diluted net loss per share |
$ | (0.05 | ) | $ | (0.16 | ) | ||||
Weighted average shares of common stock outstanding: |
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Basic and diluted |
20,360,855 | 20,251,465 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
2
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Six Months Ended June 30, | ||||||||||
| 2003 | 2002 | |||||||||
Revenues, net |
$ | 9,086,460 | $ | 7,668,366 | ||||||
Operating costs and expenses: |
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Cost of revenues |
3,099,405 | 3,389,699 | ||||||||
Product development |
1,766,049 | 2,226,036 | ||||||||
Sales and marketing |
2,365,006 | 3,218,749 | ||||||||
Depreciation |
754,735 | 846,452 | ||||||||
Amortization of intangibles, content fees, fixed royalties,
and prepaid compensation |
998,591 | 1,446,319 | ||||||||
Other general and administrative expenses |
2,701,794 | 3,530,303 | ||||||||
Office consolidation charge |
— | 97,438 | ||||||||
Total operating costs and expenses |
11,685,580 | 14,754,996 | ||||||||
Loss from operations |
(2,599,120 | ) | (7,086,630 | ) | ||||||
Other income (expense): |
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Interest and other income |
238,422 | 456,075 | ||||||||
Interest and other expense |
(9,572 | ) | (38,228 | ) | ||||||
| 228,850 | 417,847 | |||||||||
Loss, before cumulative effect of a change in accounting principle |
(2,370,270 | ) | (6,668,783 | ) | ||||||
Cumulative effect of a change in accounting principle |
— | (5,000,000 | ) | |||||||
Net loss |
$ | (2,370,270 | ) | $ | (11,668,783 | ) | ||||
Net loss per share: |
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Basic and diluted net loss before cumulative effect of a
change in accounting principle |
$ | (0.12 | ) | $ | (0.33 | ) | ||||
Cumulative effect of a change in accounting principle |
— | (0.25 | ) | |||||||
Basic and diluted net loss per share |
$ | (0.12 | ) | $ | (0.58 | ) | ||||
Weighted average shares of common stock outstanding: |
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Basic and diluted |
20,333,584 | 20,223,723 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
3
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003
| Other | Total | |||||||||||||||||||
| Common Stock | Accumulated | Comprehensive | Shareholders' | |||||||||||||||||
| Shares | Amount | Deficit | Income | Equity | ||||||||||||||||
Balance at December 31, 2002 |
20,322,687 | $ | 91,223,052 | $ | (65,452,305 | ) | $ | 125,536 | $ | 25,896,283 | ||||||||||
Net loss |
— | — | (2,370,270 | ) | — | (2,370,270 | ) | |||||||||||||
Unrealized loss on
investments, net of tax |
— | — | — | (53,537 | ) | (53,537 | ) | |||||||||||||
Comprehensive loss |
— | — | — | — | (2,423,807 | ) | ||||||||||||||
Issuance of common stock to
Employee Stock Purchase
Plan |
44,740 | 38,029 | — | — | 38,029 | |||||||||||||||
Exercise of stock options |
45,732 | 89,682 | — | — | 89,682 | |||||||||||||||
Balance at June 30, 2003 |
20,413,159 | $ | 91,350,763 | $ | (67,822,575 | ) | $ | 71,999 | $ | 23,600,187 | ||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended June 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
OPERATING ACTIVITIES: |
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Net loss |
$ | (2,370,270 | ) | $ | (11,668,783 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
754,735 | 846,452 | ||||||||||
Amortization of intangibles, content fees, fixed royalties,
and prepaid compensation |
998,591 | 1,446,319 | ||||||||||
Provision for doubtful accounts |
87,500 | 205,000 | ||||||||||
Realized loss on disposal of property & equipment |
7,083 | — | ||||||||||
Issuance of stock options to advisory boards |
— | 11,385 | ||||||||||
Office consolidation charge |
— | 97,438 | ||||||||||
Cumulative effect of a change in accounting principle |
— | 5,000,000 | ||||||||||
Changes in operating assets and liabilities: |
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Accounts and unbilled receivables |
(104,278 | ) | (611,177 | ) | ||||||||
Restricted cash |
378,106 | (255,383 | ) | |||||||||
Interest receivable |
106,824 | 178,570 | ||||||||||
Prepaid development fees |
(146,100 | ) | 155,512 | |||||||||
Other prepaid expenses and other current assets |
(337,188 | ) | (4,825 | ) | ||||||||
Other assets |
167,816 | 37,291 | ||||||||||
Accounts payable |
(99,556 | ) | (276,932 | ) | ||||||||
Accrued liabilities and compensation |
(892,879 | ) | (68,861 | ) | ||||||||
Registration liabilities |
(435,190 | ) | 167,129 | |||||||||
Deferred revenue |
88,989 | 632,846 | ||||||||||
Net cash used in operating activities |
(1,795,817 | ) | (4,108,019 | ) | ||||||||
INVESTING ACTIVITIES: |
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Proceeds from maturities and sale of investments in marketable securities |
4,550,000 | 10,519,956 | ||||||||||
Purchase of investments in marketable securities |
— | (9,173,167 | ) | |||||||||
Purchase of property and equipment |
(476,822 | ) | (407,929 | ) | ||||||||
Net cash provided by investing activities |
4,073,178 | 938,860 | ||||||||||
FINANCING ACTIVITIES: |
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Exercise of stock options |
89,682 | — | ||||||||||
Issuance of stock to Employee Stock Purchase Plan |
38,029 | 38,005 | ||||||||||
Payments on capital lease obligations |
(42,813 | ) | (84,125 | ) | ||||||||
Net cash provided by (used in) financing activities |
84,898 | (46,120 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents |
2,362,259 | (3,215,279 | ) | |||||||||
Cash and cash equivalents at beginning of period |
4,069,631 | 4,747,434 | ||||||||||
Cash and cash equivalents at end of period |
$ | 6,431,890 | $ | 1,532,155 | ||||||||
Total cash and cash equivalents, restricted cash, investments in marketable
securities and accrued interest at end of period |
$ | 17,468,292 | $ | 22,425,960 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
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Interest paid |
$ | 8,560 | $ | 14,970 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
5
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 accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles 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 intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.
The balance sheet at De