US 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 AUGUST 31, 1997
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
2331 UNIVERSITY AVENUE SE
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 October 10, 1997, was 8,499,029.
<PAGE>
INDEX
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - August 31, 1997 and
February 28, 1997.
Condensed Consolidated Statements of Operations - Three and
six months ended August 31, 1997 and 1996.
Consolidated Statements of Cash Flows - Three and six months
ended August 31, 1997 and 1996.
Notes to Consolidated Financial Statements -
August 31, 1997.
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
August 31,
<PAGE>
<TABLE>
<CAPTION>
1997 February 28,
(Unaudited) 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 71,108 209,024
Trade receivables, less allowance for doubtful
accounts of $14,000 and $35,000, respectively 96,928 92,402
Inventory 79,235 52,436
Prepaid expenses 21,494 17,366
Other current assets 668 --
---------- ----------
Total current assets 269,433 371,228
Property and equipment, net of accumulated depreciation 92,140 104,009
Other assets, net of accumulated amortization of
$340,755 and $319,631, respectively 62,852 49,837
---------- ----------
Total assets $ 424,425 525,074
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
August 31,
1997 February 28,
(Unaudited) 1997
----------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to bank 30,000 --
Notes payable, current portion 6,000 6,904
Current installments of obligation under capital leases 43,653 60,974
Accounts payable 305,700 102,827
Deferred revenue 227,313 313,926
Accrued compensation 33,910 56,547
Accrued payroll taxes 12,863 14,979
Other current liabilities 24,893 25,608
----------- ----------
Total current liabilities 684,332 581,765
----------- ----------
Notes payable, excluding current portion 1,508 4,289
Obligation under capital leases, excluding
current installments 14,708 25,377
----------- ----------
Total liabilities 700,548 611,431
----------- ----------
Stockholders' deficit:
Series A, convertible preferred stock, $.01 par value:
Authorized - 1,000,000
Issued and outstanding shares - none -- --
Common stock--$.01 par value:
<PAGE>
Authorized - 15,000,000
Issued and outstanding shares - 8,499,029 84,990 84,990
Additional paid-in capital 4,724,568 4,724,568
Accumulated deficit (5,043,181) (4,826,415)
Note receivable from officer (42,500) (69,500)
----------- ----------
Total stockholders' deficit (276,123) (86,357)
----------- ----------
Total liabilities and stockholders' deficit $ 424,425 525,074
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 594,515 518,061 1,181,082 1,215,675
Cost of revenues 433,012 378,133 878,020 829,879
----------- ----------- ----------- -----------
Gross profit 161,503 139,928 303,062 385,796
----------- ----------- ----------- -----------
Operating expenses:
Research and development 34,286 32,241 62,668 142,220
Selling and marketing 20,061 55,035 58,521 103,908
General and administrative 191,542 157,446 391,188 269,735
----------- ----------- ----------- -----------
Total operating expenses 245,889 244,722 512,377 515,863
----------- ----------- ----------- -----------
Loss from operations (84,386) (104,794) (209,315) (130,067)
----------- ----------- ----------- -----------
Other (income) expense
Interest income (1,108) (2,125) (3,212) (4,279)
Interest expense 6,247 5,540 10,663 10,896
----------- ----------- ----------- -----------
5,139 3,415 7,451 6,617
----------- ----------- ----------- -----------
Net loss $ (89,525) $ (108,209) $ (216,766) $ (136,684)
=========== =========== =========== ===========
Loss per common share $ (.01) $ (.02) $ (.03) $ (.02)
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 8,499,029 8,490,383 8,499,029 8,438,152
=========== =========== =========== ===========
</TABLE>
<PAGE>
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>
Six months ended August 31,
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(216,766) (136,684)
--------- --------
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 41,706 45,252
Amortization 21,124 16,382
Provision for losses on accounts receivable 10,273 --
Recoveries of bad debts 1,267 3,286
Changes in operating assets and liabilities, net of
acquisitions
Decrease (increase) in trade receivables (16,066) 5,673
Increase in inventory (26,799) (16,582)
Decrease (increase) in prepaid expenses (4,128) 23,639
Increase in other current assets (668) (2,503)
Increase in accounts payable 193,903 47,844
Decrease in deferred revenue (86,613) (68,353)
Decrease in accrued compensation (22,637) (13,013)
Decrease in accrued payroll taxes (2,116) (5,176)
Decrease (increase) in other current liabilities (715) 13,482
--------- --------
Total adjustments 108,531 49,931
--------- --------
Cash used in operating activities (108,235) (86,753)
--------- --------
Cash flows from investing activities:
Capital expenditures (23,976) (2,569)
Cash paid for acquisitions (31,030) (11,623)
--------- --------
Cash flows used in investing activities (55,006) (14,192)
--------- --------
Cash flows from financing activities:
Principal payments received from note receivable 27,000 2,200
Principal payments under capital lease obligations (27,990) (25,230)
Loans from bank 30,000 20,000
Proceeds from issuance of common stock -- 45,510
Repayment of note payable assumed in the
Edina Pharmacy acquisition (3,685) (529)
--------- --------
Cash flows provided by financing activities 25,325 41,951
--------- --------
Decrease in cash and cash equivalents (137,916) (58,994)
Cash and cash equivalents at beginning of period 209,024 68,657
--------- --------
Cash and cash equivalents at end of period $ 71,108 9,663
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6,915 10,896
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(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 28, 1997. 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 six month period ended August 31, 1997, may not
be indicative of the results that may be expected for the year ending February
28, 1998.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
Property under capitalized leases $ 310,005
Furniture and equipment 386,688
----------
696,693
Less accumulated depreciation 604,553
----------
Net property and equipment $ 92,140
==========
(3) NOTES PAYABLE
In July 1996, the Company assumed a $14,973 note payable related to the
acquisition of Edina Pharmacy. As of August 31, 1997, the Company had an
outstanding balance of $7,508 on this note payable.
As of August 31, 1997, the Company had borrowed $30,000 on the line of credit
with a bank.
(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 had signed a twelve month Master License
Agreement with AmeriSource Health Corporation (AmeriSource) of Malvern, PA for
the Company's Assurance Community Pharmaceutical Care System(TM). 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 provided for the payment of monthly license and
support fees to the Company for each retail pharmacy licensing the software.
<PAGE>
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. Revenues
received under this agreement constituted approximately 9.8% of the Company's
total revenue for the six months ended August 31, 1996.
(6) LINE OF CREDIT AGREEMENT
On April 4, 1996, the Company entered into a $50,000 Line of Credit agreement
with a bank. Amounts borrowed under the agreement will be used for working
capital purposes. All outstanding borrowings bore interest at a reference rate
plus 1.5%. The agreement expired April 1, 1997. The agreement was secured by all
accounts receivable, equipment not covered under financing agreements,
inventory, if any, and general intangibles. The agreement also required the
Company to maintain certain financial covenants, including but not limited to,
maintaining a minimum net worth.
On April 1, 1997, the Company renewed its line of credit agreement. All
outstanding borrowings bear interest at the fixed rate of 6.5%. The agreement
expires April 1, 1998. The agreement is secured by selected corporate assets
including a $50,000 certificate of deposit which must remain on deposit at the
bank for the entire loan term. As of August 31, 1997, the Company had an
outstanding balance of $30,000 under this line of credit.
(7) ACQUISITIONS
On April 1, 1997, the Company acquired certain assets of Preserve Rexall Drug, a
community pharmacy located in Eden Prairie, Minnesota from Supplee Enterprises,
Inc. The Company acquired some fixtures and the patient list. The purchase price
was $40,000 of which $10,000 was paid in cash. The remaining balance of $30,000
will be paid by the Company in 11 equal monthly installments.
The transaction was accounted for using the purchase method of accounting. The
accompanying consolidated financial statements include results of operations of
the acquired assets from the date of acquisition. Due to the nature of the
transaction under which the Company purchased only certain assets of Preserve
Rexall Drug, meaningful pro-forma financial information is not available.
This pharmacy is being developed into a prototype store applying patient care
concepts utilizing the Company's Assurance Coordinated Pharmaceutical Care
System(TM) software.
On July 19,1996, the Company acquired certain assets of Edina Pharmacy, a
community pharmacy located in Minneapolis, Minnesota. Assets acquired include
inventory, fixtures and equipment, and the patient list. The purchase price was
$47,408, of which $12,000 was paid in cash. A note payable of $14,973 was
assumed. The remaining balance of $20,435 was be paid by the Company in 12 equal
monthly installments.
The transaction was accounted for using the purchase method of accounting. The
accompanying consolidated financial statements include results of operations of
the acquired business from the date of acquisition. Due to the nature of the
transaction under which the Company purchased only certain assets of Edina
Pharmacy, owned by an individual reporting financial information on an income
tax basis, meaningful pro-forma financial information is not available.
As of June 27, 1997, this pilot community pharmacy located in Minneapolis,
Minnesota was consolidated into the larger community pharmacy located in Eden
Prairie that the Company acquired certain assets of in April 1997.
(8) MAJOR CLIENT
On January 31, 1997, the marketing agreement between the Company and Option
Care, Inc., one of the Company's major clients, terminated. On October 31, 1996,
the Company and Option Care signed a "transition
<PAGE>
agreement" which required Option Care to pay the Company a one-time payment of
$159,000 for consulting services and certain software tools owned by the Company
and a payment of $15,000 for training services. These amounts were included in
fiscal 1997 revenue. During fiscal 1997, Option Care accounted for approximately
27% of total revenue.
(9) SUBSEQUENT EVENT
Subsequent to the filing of the Company's Proxy statement on August 7, 1997, a
group of individuals consisting of Victor S. Greenstein, Jonathan R. Gordon,
Stanford M. Baratz, Peter J. Zugschwert and Matthew E. Goldberg (the Greenstein
Group) filed a Proxy statement opposing the election of the directors nominated
by the Company and nominating its own slate of directors.
At the Company's Annual Meeting held on September 18, 1997, the Company's
shareholders elected the slate of directors nominated by the Greenstein Group.
The new directors are Jonathan R. Gordon, Stanford M. Baratz, Peter J.
Zugschwert and Matthew E. Goldberg.
This item was more fully reported on Form 8-K filed September 29, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE SECOND QUARTER ENDED AUGUST 31, 1997, COMPARED WITH THE SECOND QUARTER
ENDED AUGUST 31, 1996:
REVENUE. Revenues for the second quarter ended August 31, 1997, increased
$76,454 to $594,515, an increase of 14.8% when compared to prior fiscal year
second quarter revenues of $518,061. The Company recorded a second quarter net
loss of $89,525, compared to a net loss of $108,209, in the prior fiscal year
period, a decrease of $18,684 or 17.3%. The loss resulted from an increase in
total costs and operating expenses which was partially offset by an increase in
revenue.
Revenues for the current fiscal period were primarily generated by prescription
and over-the-counter drug sales at the Company's community pharmacies and by
continuing client support fees from all the Company's software systems products.
Revenue from prescription and over-the-counter drugs sales at the community
pharmacies increased by 604.0%. Revenue from client support fees decreased by
23.8%, license fee revenue decreased by 85.6% and software training fee revenue
decreased by 66.9%. Approximately all of the decrease in client support fee
revenue and approximately 35.1% of the decrease in license fee revenue resulted
from the termination in January 1997 of a marketing agreement with Option Care,
Inc.
Revenues received from the Company's Pharmaceutical Care systems increased by
approximately 13.4% when compared to the second quarter of the prior fiscal
year. Client support fee revenue generated by the Company's Long-term Care
products remained stable when compared to the prior fiscal year period. License
fee revenue from the Assurance Long-Term Care System(TM) decreased approximately
$51,000, primarily the result of a weak market caused by delays in the
implementation schedules of federal regulations. Revenues from the Company's
Homecare products declined approximately $111,000, or 96.8% when compared to the
prior fiscal period. This decline is due to the termination of a marketing
agreement with Option Care.
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
August 31, 1997, including interest, depreciation and amortization expense,
increased by $57,770 or 9.2% to $684,040 when compared to prior fiscal year
expenses of $626,270. Cost of revenues which included the cost of product for
the community pharmacies, increased by approximately $55,000, or 14.5% when
compared to the prior fiscal year period. Compensation, benefits and payroll
taxes decreased by approximately $51,000 or 16.0% when compared to the
<PAGE>
prior year period. The decrease in payroll expenses is primarily due to staff
reductions which are the result of staff attrition and involuntary terminations
during fiscal 1997.
Administrative expenses such as telephone expense, supplies, postage,
accounting, legal and equipment maintenance decreased by approximately 26.8%
when compared to the prior fiscal year period. Administrative expenses have
declined as the Company has implemented expense reductions in an attempt to
offset reductions in revenue. Commissions paid to commissioned sales
representatives decreased by approximately 64.6%, primarily due to the decrease
in commissionable software license fees. Expenses associated with advertising,
marketing and trade shows decreased approximately 65.7%. The Company has reduced
trade journal advertising during the second quarter as part of its effort to
reduce costs during a period of reduced revenues. Fees paid to outside
consultants decreased by approximately 50.5% when compared to the prior year
period. Rent and occupancy expenses have increased approximately 30.6% due to
the acquisitions of the community pharmacies. Depreciation and amortization
expense, including amortization of a covenant and a client list, increased by
approximately 3.9% to $32,279 from $31,081. This increase was primarily due to
the amortization of the Eden Prairie pharmacy client list acquired in April
1997.
Net interest expense increased 50.5% to $5,139 from $3,415, primarily due to
increased borrowing needs.
FOR THE SIX MONTHS ENDED AUGUST 31, 1997, COMPARED WITH THE SIX MONTHS ENDED
AUGUST 31, 1996:
REVENUE. Revenues for the six months ended August 31, 1997, decreased $34,593 to
$1,181,082, a decrease of 2.8% when compared to prior fiscal year six month
period revenues of $1,215,675. Net loss for the six month period was $216,766,
compared to a net loss of $136,684, in the prior fiscal year period, an increase
of $80,082 or 58.6%. The loss resulted from a decrease in revenue combined with
an increase in total costs and operating expenses.
Revenues for the current fiscal period were primarily generated by prescription
and over-the-counter drug sales at the Company's community pharmacies and by
continuing client support fees from all the Company's software systems products.
Revenue from prescription and over-the-counter drugs sales at the community
pharmacies increased by approximately $548,000 when compared to the prior fiscal
year period. Revenue from license fees decreased by 91.5%, support fee revenue
decreased by 28.3% and software training fee revenue decreased by 79.4% when
compared to the prior fiscal period. Approximately 77% of the decrease in client
support fee revenue and approximately 54.4% of the decrease in license fee
revenue resulted from the termination in January 1997 of a marketing agreement
with Option Care, Inc. Decreased revenue from the Assurance Community
Pharmaceutical Care System(TM) accounted for approximately 12.5% of the decline
in license fees and approximately 17.9% of the decline in support fees,
primarily the result of the company terminating its relationship with
AmeriSource Health Corporation(AmeriSource).
Client support fee revenue generated by the Company's Long-term Care products
remained stable when compared to the prior fiscal year period. License fee
revenue from the Assurance Long-Term Care System(TM) decreased approximately
$105,000 or 96.5%, primarily the result of a weak market caused by delays in the
implementation schedules of federal regulations. Revenues from the Company's
Homecare products decreased by approximately $334,000, or 97.8% when compared to
the prior fiscal period. This decline is due to the termination of a marketing
agreement with Option Care. When compared to the prior fiscal period, revenue
from the Company's Pharmaceutical Care systems decreased by approximately
$81,000, or 56.5%. The Company's termination of its marketing agreement with
AmeriSource caused the decline in the Pharmaceutical Care systems revenue.
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
August 31, 1997, including interest, depreciation and amortization expense,
increased by $45,489 or 3.4% to $1,397,848 when compared to prior fiscal year
expenses of $1,352,359. Cost of revenues which included the cost of product for
the
<PAGE>
community pharmacies, increased by approximately $48,000, or 5.8% when compared
to the prior fiscal year period. Compensation, benefits and payroll taxes
decreased by approximately $155,000 or 22.1% when compared to the prior year
period. The decrease in payroll expenses is primarily due to staff reductions
which are the result of staff attrition and involuntary terminations during
fiscal 1997.
Administrative expenses such as telephone expense, supplies, postage,
accounting, legal and equipment maintenance decreased by approximately 16.4%
when compared to the prior fiscal year period. Administrative expenses have
declined as the Company has implemented expense reductions in an attempt to
offset reductions in revenue. Commissions paid to commissioned sales
representatives decreased by approximately 78%, primarily due to the decrease in
commissionable software license fees. Expenses associated with advertising,
marketing and trade shows decreased approximately $37,000, or 50.5%. The Company
has reduced trade journal advertising and cut back on the creation of new
marketing literature during the current six month period as part of its effort
to reduce costs during a period of reduced revenues. Fees paid to outside
consultants decreased by approximately 39.4% when compared to the prior year
period. Rent and occupancy expenses have increased approximately 25.2% due to
the acquisitions of the community pharmacies. Depreciation and amortization
expense, including amortization of a covenant and a client list, increased by
approximately 1.9% to $62,830 from $61,634. This increase was primarily due to
the amortization of the Eden Prairie pharmacy client list acquired in April 1997
offset by the completion of depreciation periods on various capitalized office
equipment.
Net interest expense increased 12.6% to $7,451 from $6,617, primarily due to
increased borrowing needs.
LIQUIDITY AND FINANCIAL CONDITION
WORKING CAPITAL. The Company had a working capital deficit of ($414,899) at
August 31, 1997, compared to a deficit of ($210,537) at February 28, 1997; an
increase of $204,362. The increase in working capital deficit is primarily due
to the net loss for the quarter, capital lease obligation payments and payments
made for the April 1997 acquisition of certain assets and a client list of
Preserve Rexall Drug. These decreases were partially offset by payments received
on a note receivable.
Improved capital availability will ultimately depend on improved sales
performance and containment of all operational costs. There can be no assurance
that sales results will improve and that the Company will experience profitable
operations. The financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
Additional Capital Requirements. The Company believes that it will have
short-term cash needs. The Company will supplement its cash requirements with
the available line of credit and call all or a portion of the demand note
receivable from an officer of the Company. The Company plans to continue
operating expense reductions currently underway. If revenue continues to fall
short of Company needs and the Company is unable to generate sufficient cash
flow from operations the Company will need to explore raising additional
capital.
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
<PAGE>
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: October 14, 1997 By: /s/ William A. Peter, Jr.
---------------------- ------------------------------
William A. Peter, Jr.
President, CEO
Date: October 14, 1997 By: /s/ Rosemary Salzwedel
------------------ ---------------------------
Rosemary Salzwedel
Controller and Principal Accounting
Officer
Index to Exhibits
Exhibit
11 Schedule showing calculation of earnings per share.
<PAGE>
27 Financial Data Schedule
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
Calculation of Earnings Per Share (1)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings used in calculations:
Net loss used in per
share calculation $ (127,241) (108,209) (216,766) (136,684)
=========== ========== ========== ==========
Shares used in calculation:
Average number of shares outstanding 8,499,029 8,433,342 8,499,029 8,380,613
Additional shares issuable assuming
exercise of outstanding stock options -- 33,011 -- 33,508
Additional shares issuable assuming
exercise of outstanding warrants -- 24,030 -- 24,031
----------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 8,499,029 8,490,383 8,499,029 8,438,152
=========== ========== ========== ==========
Loss per common share (.01) (.02) (.03) (.02)
=========== ========== ========== ==========
</TABLE>
(1) Earnings per share assuming full dilution are not different from primary
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 71,108
<SECURITIES> 0
<RECEIVABLES> 110,928
<ALLOWANCES> 14,000
<INVENTORY> 79,235
<CURRENT-ASSETS> 269,433
<PP&E> 696,693
<DEPRECIATION> 604,553
<TOTAL-ASSETS> 424,425
<CURRENT-LIABILITIES> 684,332
<BONDS> 16,216
0
0
<COMMON> 84,990
<OTHER-SE> (361,113)
<TOTAL-LIABILITY-AND-EQUITY> 424,425
<SALES> 1,181,082
<TOTAL-REVENUES> 1,181,082
<CGS> 878,020
<TOTAL-COSTS> 512,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,451
<INCOME-PRETAX> (216,766)
<INCOME-TAX> 0
<INCOME-CONTINUING> (216,766)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,766)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
