U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO. 0-15936
HEALTH OUTCOMES MANAGEMENT, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-1546471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2331 UNIVERSITY AVENUE S.E.
MINNEAPOLIS, MINNESOTA 55414
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (612) 378-3053
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding at July 10, 1996, was 8,450,885.
INDEX
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - May 31, 1996 and
February 29, 1996.
Condensed Consolidated Statements of Operations - Three months
ended May 31, 1996 and 1995.
Consolidated Statements of Cash Flows - Three months ended May
31, 1996 and 1995.
Notes to Consolidated Financial Statements -
May 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Securities Holders.
Item 6 - Exhibits and Reports on Form 8-K.
SIGNATURES
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31,
1996 February 29,
(Unaudited) 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 24,767 68,657
Trade receivables, less allowance for doubtful
accounts of $13,625 and $15,000, respectively 129,935 140,219
Prepaid expenses 16,330 43,805
Other current assets 5,196 679
-------- --------
Total current assets 176,228 253,360
Property and equipment, net of accumulated depreciation 159,170 180,353
Other assets, net of accumulated amortization of
$295,058 and $286,867, respectively 74,410 82,601
-------- --------
Total assets $409,808 516,314
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
May 31,
1996 February 29,
(Unaudited) 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of obligation under capital leases 65,567 58,928
Accounts payable 127,282 126,936
Deferred revenue 118,210 193,660
Accrued compensation 74,688 74,955
Accrued payroll taxes 16,418 20,222
Other current liabilities 26,077 16,219
----------- -----------
Total current liabilities 428,242 490,920
----------- -----------
Obligation under capital leases, excluding
current installments 66,609 81,962
----------- -----------
Total liabilities 494,851 572,882
----------- -----------
Stockholders' deficit:
Series A, convertible stock, $.01 par value:
Authorized - 1,000,000
Issued and outstanding shares - none -- --
Common stock--$.01 par value:
Authorized - 15,000,000
Issued and outstanding shares - 8,327,885 and
8,327,885, respectively 83,279 83,279
Additional paid-in capital 4,665,724 4,665,724
Accumulated deficit (4,741,646) (4,713,171)
Note receivable from officer (92,400) (92,400)
----------- -----------
Total stockholders' deficit (85,043) (56,568)
----------- -----------
Total liabilities and stockholders' deficit $ 409,808 516,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
May 31,
1996 1995
----------- -----------
Revenues $ 697,614 753,672
Cost of revenues 451,746 424,975
----------- -----------
Gross profit 245,868 328,697
----------- -----------
Operating expenses:
Research and development 109,979 99,829
Selling and marketing 48,873 49,426
General and administrative 112,289 123,589
----------- -----------
Total operating expenses 271,141 272,844
----------- -----------
Income (loss) from operations (25,273) 55,853
----------- -----------
Other (income) expense
Interest income (2,154) (252)
Interest expense 5,356 8,279
----------- -----------
3,202 8,027
----------- -----------
Income tax expense -- --
Net income (loss) $ (28,475) 47,826
=========== ===========
Income (loss) per common share $ .00 .01
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 8,443,239 8,861,637
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended May 31,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(28,475) 47,826
-------- --------
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation 22,362 25,027
Amortization 8,191 17,181
Provision for losses on accounts receivable -- 25,000
Payments in stock -- 3,650
Decrease in trade receivables 10,284 106,790
Increase in other receivables -- (17,508)
Decrease (increase) in prepaid expenses 27,475 (9,473)
Decrease (increase) in other current assets (4,517) 5,497
Increase (decrease) in accounts payable 346 (94,972)
Increase (decrease) in deferred revenue (75,450) 196,321
Decrease in accrued compensation (267) (61,120)
Decrease in accrued payroll taxes (3,804) (87,549)
Increase (decrease) in other current liabilities 9,858 (28,003)
-------- --------
Total adjustments (5,522) 80,841
-------- --------
Cash provided by (used in) operating activities (33,997) 128,667
-------- --------
Cash flows from investing activities:
Capital expenditures (1,179) (23,968)
-------- --------
Cash flows used in investing activities (1,179) (23,968)
-------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations (8,714) (10,933)
Repayment of bank loans assumed in the
Applied Micro Management, Inc. acquisition -- (4,579)
Net repayment to officer -- (60,000)
Proceeds from issuance of common stock -- 15,000
-------- --------
Cash flows used in financing activities (8,714) (60,512)
-------- --------
Increase (decrease) in cash and cash equivalents (43,890) 44,187
Cash and cash equivalents at beginning of period 68,657 22,795
-------- --------
Cash and cash equivalents at end of period $ 24,767 66,982
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 5,356 8,279
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1996
(1) BASIS OF PRESENTATION
The unaudited financial statements presented herein include the accounts of
Health Outcomes Management, Inc. and Subsidiaries after elimination of material
intercompany accounts and transactions. These statements do not include all of
the information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for the year
ended February 29, 1996. In the opinion of management such financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary to summarize fairly the Company's financial position and results of
operations. The results of the three month period ended May 31, 1996, may not be
indicative of the results that may be expected for the year ending February 28,
1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
Property under capitalized leases $ 310,006
Furniture and equipment 361,032
----------
671,038
Less accumulated depreciation 511,868
----------
Net property and equipment $ 159,170
==========
(3) NOTES PAYABLE
Notes payable to officer totaling $60,000 that were outstanding at February 28,
1995, were paid in full as of March 1, 1995.
In August 1993, the Company assumed a $31,223 note payable related to the
acquisition of certain assets of Applied Micro Management. This note payable was
paid in full as of August 3, 1995.
(4) CAPITALIZED COMPUTER SOFTWARE
The Company capitalizes software production costs after technological
feasibility has been established and prior to general release to clients.
(5) MASTER LICENSE AGREEMENT
On April 21, 1995, the Company signed a twelve (12) month Master License
Agreement with AmeriSource Health Corporation (AmeriSource) of Malvern, PA for
the Company's Assurance Community Pharmaceutical Care SystemTM. Pursuant to the
terms of the agreement, the Company granted to AmeriSource an exclusive license
to market and license the software system to retail pharmacies throughout the
United States directly or through its affiliate, Pharmacy Care Management Group
(PCMG). As consideration for the Company granting these rights to AmeriSource,
the Company received $200,000 cash upon signing the agreement. As further
consideration, AmeriSource agreed to license a minimum specified number of new
retail pharmacies over the term of the agreement in order to maintain the
exclusive status of the Master License Agreement. Additional provisions of the
agreement provide for the payment of monthly license and support fees to the
Company for each retail pharmacy licensing the software.
During April 1996, the Company terminated its relationship with AmeriSource in
order to pursue other marketing arrangements. Upon termination of the agreement,
the Company no longer receives payments for license and support fees.
(6) LINE OF CREDIT AGREEMENT
On April 4, 1996, the Company entered into a $50,000 "Line of Credit" agreement
with Riverside Bank, Minneapolis, MN. Amounts borrowed under the agreement will
be used for working capital purposes. All outstanding borrowings bear interest
at the First Bank National Association Reference Rate plus 1.5%. The agreement
expires April 1, 1997. The agreement is secured by all accounts receivable,
equipment not covered under financing agreements, inventory, if any, and general
intangibles. The agreement also requires the Company to maintain certain
financial covenants, including but not limited to, maintaining a minimum net
worth.
As of May 31, 1996, the Company had no balances outstanding under this credit
facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED MAY 31, 1996, COMPARED WITH THE FIRST QUARTER ENDED
MAY 31, 1995:
REVENUE. Revenue for the first quarter ended May 31, 1996, decreased $56,058 to
$697,614, a 7.4% decrease when compared to the prior year first quarter revenue
of $753,672. The Company recorded a net loss of $28,475, compared to net income
of $47,826, in the prior year period, a decrease of $76,301, primarily the
result of the decrease in revenue.
Revenue from license fees and continuing client support fees increased
approximately $160,000, or 163.2% and $51,000, or 14.8%, respectively. These
increases were offset by decreases of approximately $162,000, (98.2%) in
consulting revenue, $54,000 (68.5%) in training revenue and a decrease in other
revenue. Revenues during the period were primarily derived from the Company's
Assurance Long-Term Care SystemTM, Assurance Community Pharmaceutical Care
SystemTM and Assurance Homecare SystemTM.
When compared to the prior year, revenue increases for the Company's Homecare
and Pharmaceutical Care products accounted for most of the increase in license
fee revenue. The revenue increase in the Company's Homecare products was
primarily due to changes in the method of reimbursement by the Company's largest
client. During the 1995 period, the Company received monthly retainer fees; in
the 1996 period the Company received reimbursement based on the number of
Homecare systems licensed and trained. Consulting revenue decreased 98.2%,
primarily as a result of this change. The increase in Pharmaceutical Care
license fee revenue was primarily due to a larger number of pharmacies licensing
the software, when compared to the prior year period. Training fee revenues
decreased primarily because no additional retail pharmacies are receiving
training on the Company's Pharmaceutical Care software.
The effects of inflation on the Company's revenue and operating results were not
significant.
COSTS AND EXPENSES. Total costs and expenses incurred during the quarter ended
May 31, 1996, including interest, depreciation and amortization expense,
increased by approximately $20,000 or 2.8% when compared to the prior year
period. Compensation, benefits and payroll taxes decreased by 6.5% when compared
to the prior year period. The decrease in payroll expenses were partially due to
staff attrition, reductions in health insurance benefit costs and reductions in
state unemployment insurance rates. Administrative expenses such as telephone
expense, supplies, postage, accounting, legal and equipment maintenance
decreased by approximately 16.4% when compared to the prior year period.
Commissions paid to commissioned sales representatives increased by
approximately 154.4%, primarily due to the 163.2% increase in commissionable
software license fees. Expenses associated with advertising, marketing and trade
shows increased approximately 46.4%. During the current year period, the Company
created additional marketing literature focused on the Outcome Management area;
specifically the individualized "care plan" concept.
Net interest expense decreased 60.1% to $3,202 from $8,027, primarily due to
reduced borrowing needs and interest revenue received pursuant to the terms of a
note receivable from an officer of the Company.
Depreciation and amortization expense, including amortization of covenants,
decreased by approximately 27.6% to $30,553 from $42,208. This decrease was
primarily due to the completion of the amortization in 1995 of various costs
associated with the 1993 acquisition of certain assets of Applied Micro
Management, Inc.
LIQUIDITY AND FINANCIAL CONDITION
WORKING CAPITAL. The Company had a working capital deficit of ($252,014) at May
31, 1996, compared to a deficit of ($237,560) at February 29, 1996; a decrease
of $14,454. This increase in working capital deficit can be attributed primarily
to the net loss the Company recorded during the first quarter ended May 31,
1996.
The Company's negative working situation continues. Improved capital
availability will ultimately depend on strong sales performances of the
Company's Assurance Long-Term Care SystemTM and the Assurance Coordinated
Pharmaceutical Care SystemTM and containment of all operational costs. There can
be no assurance that sales results will improve and that the Company will
experience profitable operations.
ADDITIONAL CAPITAL REQUIREMENTS. The Company believes that it may have
short-term cash needs up to $150,000 during the balance of fiscal 1997 if sales
expectations are not met. If the need arises, the Company will supplement its
cash needs with the available line of credit. In addition, an officer and major
shareholder of the Company has also agreed to make short-term interest bearing
advances to the Company as needed.
PART II
Item 4 - Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of the security holders.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 Schedule showing calculation of earnings per share.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
Health Outcomes Management, Inc.
(registrant)
Date: July 15, 1996 By: /s/ William A. Peter, Jr.
William A. Peter, Jr.
President, CEO
Date: July 15, 1996 By: /s/ Russell Jackson
Russell Jackson
Chief Financial Officer and
Principal Financial Officer
Index to Exhibits
Exhibit
11 Schedule showing calculation of earnings per share.
27 Financial Data Schedule
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
Calculation of Earnings Per Share (1)
(Unaudited)
Three months ended
May 31,
1996 1995
----------- -----------
Earnings used in calculations:
Net income (loss) used in per
share calculation $ (28,475) $ 47,826
=========== ===========
Shares used in calculation:
Average number of shares outstanding 8,327,885 7,984,385
Additional shares issuable assuming
exercise of outstanding stock options 63,687 645,992
Additional shares issuable assuming
exercise of outstanding warrants 51,667 231,260
----------- -----------
Weighted average number of common and
common equivalent shares outstanding 8,443,239 8,861,637
=========== ===========
Income (loss) per common share .00 .01
=========== ===========
(1) Earnings per share assuming full dilution are not different from primary
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 24,767
<SECURITIES> 0
<RECEIVABLES> 143,560
<ALLOWANCES> 13,625
<INVENTORY> 0
<CURRENT-ASSETS> 176,228
<PP&E> 671,038
<DEPRECIATION> 511,868
<TOTAL-ASSETS> 409,808
<CURRENT-LIABILITIES> 428,242
<BONDS> 66,609
0
0
<COMMON> 83,279
<OTHER-SE> (168,322)
<TOTAL-LIABILITY-AND-EQUITY> 409,808
<SALES> 697,614
<TOTAL-REVENUES> 697,614
<CGS> 451,746
<TOTAL-COSTS> 271,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,356
<INCOME-PRETAX> (28,475)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,475)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
