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 MAY 31, 1999
[ ] 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 July 1, 1999 was 9,198,761.
<PAGE>
INDEX
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets - May 31, 1999 and
February 28, 1999.
Condensed Consolidated Statements of Operations - Three months
ended May 31, 1999 and 1998.
Consolidated Statement of Cash Flows - Three months ended May
31, 1999 and 1998.
Notes to Consolidated Financial Statements - May 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Securities Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
____________ ____________
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 68,413 $ 30,034
Trade receivables, less allowance for doubtful
accounts of $7,814 and $7,814, respectively 65,275 63,937
Prepaid expenses 18,076 13,768
____________ ____________
Total current assets 151,764 107,739
Property and equipment, net of accumulated depreciation
of $608,692 and $604,591, respectively 21,512 25,613
____________ ____________
Total assets $ 173,276 $ 133,352
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
____________ ____________
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Notes payable, current portion $ 34,716 $ 36,274
Current installments of obligation under capital lease 9,575 10,000
Accounts payable 238,369 156,611
Deferred revenue 142,392 186,928
Accrued compensation 36,906 36,731
Accrued payroll taxes 9,866 11,103
Accrued interest 1,227 329
Other current liabilities 6,800 8,148
____________ ____________
Total current liabilities 479,851 446,124
Notes payable, excluding current portion 64,900 71,300
Obligation under capital leases, excluding current
installments 2,364 4,604
____________ ____________
Total liabilities 547,115 522,028
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 - 9,198,761 91,988 91,988
Additional paid-in capital 4,803,742 4,803,742
Accumulated deficit (5,269,570) (5,284,406)
____________ ____________
Total stockholders' deficit (373,839) (388,676)
____________ ____________
Total liabilities and stockholders' deficit 173,276 133,352
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1999 1998
__________ __________
<S> <C> <C>
Revenues $ 379,586 $ 440,796
Cost of revenues 253,104 209,171
__________ __________
Gross Profit 126,482 231,625
__________ __________
Operating Expenses
Research and development 39,323 44,483
Selling and marketing 1,004 (33)
General and administrative 69,119 95,558
__________ __________
Total operating expenses 109,446 140,008
__________ __________
Operating income (loss) 17,036 91,617
Other income (expense)
Interest income 0 2,441
Interest expense (2,200) (1,973)
__________ __________
(2,200) 468
__________ __________
Income (loss) from
continuing operations 14,836 92,085
Discontinued Operations
Income (loss) from
operations of discontinued
retail pharmacy division 0 (9,498)
Gain (loss) on disposal of
retail pharmacy division 0 0
__________ __________
Income (loss) pre-tax 14,836 82,587
Income tax expense 0 2,207
__________ __________
Net income (loss) $ 14,836 $ 80,380
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.& SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(Unaudited)
The following table presents the computation of basic and diluted net income
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended
May 31, May 31,
1999 1998
__________ __________
<S> <C> <C>
Income (loss) from continuing operations $ 14,836 $ 89,878
Income (loss) from discontinued operations 0 (9,498)
__________ __________
Net income (loss) $ 14,836 $ 80,380
BASIC
Weighted average common shares outstanding 8,872,853 8,574,910
DILUTED
Effect of dilutive securities:
Stock options 34,764 0
Warrants 0 0
Convertible Debt 5,479 0
__________ __________
8,913,069 8,574,910
Basic per share data:
Income (loss) from continuing operations $ .00 $ .01
Income (loss) from discontinued operations $ .00 $ (.00)
__________ __________
Net income (loss) $ .00 $ .01
Diluted per share data:
Income (loss) from continuing operations $ .00 $ .01
Income (loss) from discontinued operations $ .00 $ (.00)
__________ __________
Net income (loss) $ .00 $ .01
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1999 1998
___________ ___________
<S> <C> <C>
Cash flows from operating activities
Net income $ 14,836 $ 80,380
___________ ___________
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation 4,102 8,901
Amortization 0 8,191
Decrease (increase) in trade receivables (1,338) (3,412)
Decrease (increase) in prepaid expenses (4,308) (3,919)
Decrease (increase) in other current assets 0 70
Increase (decrease) in accounts payable 81,758 23,711
Increase (decrease) in deferred revenue (44,536) (139,587)
Increase (decrease) in accrued compensation 175 5,206
Increase (decrease) in accrued payroll taxes (1,237) (1,343)
Increase (decrease) in accrued interest 898 0
Increase (decrease) in other current liabilities (1,348) 6,727
___________ ___________
Total adjustments 34,166 (95,455)
___________ ___________
Cash provided by (used in) operating activities 49,002 (15,075)
___________ ___________
Cash flows from investing activities:
Capital expenditures 0 0
Cash paid for acquisitions 0 0
___________ ___________
Cash flows provided by investing activities 0 0
___________ ___________
Cash flows from financing activities:
Principal payments under capital lease obligations (2,665) (8,076)
Repayment of notes payable (7,958) 0
___________ ___________
Cash flows (used in) financing activities (10,623) (8,076)
___________ ___________
Increase (decrease) in cash and cash equivalents 38,379 (23,150)
Cash and cash equivalents at beginning of period 30,034 119,716
___________ ___________
Cash and cash equivalents at end of period $ 68,413 96,566
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,200 1,973
=========== ===========
</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
May 31, 1999
(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-SB/A for the year
ended February 28, 1999. 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, 1999, may not
be indicative of the results that may be expected for the year ending February
28, 2000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net income (loss) per common share
- ----------------------------------
The Company has adopted the provisions of statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective February 28, 1998.
SFAS 128 requires the presentation of basic and diluted net income (loss) per
share. Basic net income (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares outstanding for that period. Diluted net income (loss) per share
is computed giving effect to all dilutive potential common shares that were
outstanding during that period. Dilutive potential shares consist of
incremental common shares issuable upon exercise of stock options and warrants
and conversion of preferred stock and convertible debt for all periods. All
prior period net income (loss) per share amounts have been restated to comply
with SFAS No. 128.
New Accounting Pronouncements
- -----------------------------
In October 1997, the AICPA issued Statement of Position (SOP) 97-2 on Software
Revenue Recognition that supersedes SOP 91-1. The SOP is effective for all
fiscal years beginning after December 15, 1997. The Company's adoption of this
statement for 1999 had no material effect on its net income. In addition, the
AICPA issued Statements of Positions (SOP) 98-4 and 98-9 to be effective in
2000. The Company's adoption of these statements will not have a material
effect on the Company's net income.
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131") in the fiscal year ended February 28, 1999. SFAS establishes standards
for reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by
the chief operating decision maker, or decision making group, in making
decisions how to allocate resources and assess performance. Since the closing
of the pharmacy operations, the Company has viewed its operations as principally
one segment, the sale and service of software to the healthcare industry. As
a result, the information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segment.
<PAGE>
(3) LONG-TERM DEBT
In February 1999, the Company entered into a note payable of $50,000, with the
Company's President, as a result of the restructuring of an accounts payable
obligation. As of May 31, 1999, the Company had an outstanding balance of
$50,000 on this note payable.
In February 1999, the Company entered into an installment contract obligation
of $30,000, with a vendor, as a result of the restructuring of an accounts
payable obligation. As of May 31, 1999, the Company had an outstanding balance
of $26,000 on this note payable.
In August 1998, the Company entered into an installment contract obligation
of $12,537, with a lessor, as a result of the restructuring of a capital lease
obligation. As of May 31, 1999, the Company had an outstanding balance of
$4,409 on this note payable.
In March 1998, the Company entered into an installment contract obligation of
$26,500, with a former officer of the Company, as a result of compensation owed
at termination date. As of May 31, 1999, the Company had an outstanding balance
of $14,500 on this note payable.
In April 1997, the Company assumed a $30,000 note payable related to the
acquisition of the Eden Prairie Pharmacy. As of May 31, 1999, the Company had
an outstanding balance of $4,798 on this note payable.
<PAGE>
(4) DISCONTINUED OPERATIONS
On July 19, 1996, the Company acquired certain assets of Edina Pharmacy, a
community pharmacy located in Minneapolis, MN. Assets acquired included
inventory, fixtures and equipment, and the patient list.
On April 1, 1997, the Company acquired certain assets of Preserve Rexall Drug,
a community pharmacy located in Eden Prairie, MN. Assets acquired included
some fixtures and the patient list.
The Company planned to develop these pharmacies into prototype stores applying
patient care concepts utilizing the Company's Assurance Coordinated
Pharmaceutical Care System (tm) software.
In December 1997, the Company discontinued its operation of retail prescription
and over-the-counter drug sales at both locations. Accordingly, the net income
(loss) for these operations are appropriately listed on the consolidated
financial statements (unaudited) as "discontinued operations".
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of ($328,088) at May 31, 1999 compared
to a deficit of ($338,384) at February 28, 1999; a decrease of $10,296. The
decrease in working capital deficit is primarily due to the decrease of capital
lease obligation payments.
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.
The Company believes that it will continue to have short-term cash needs. The
closing of both retail pharmacies in fiscal 1998 has eliminated the ongoing
cash needs related to those operations with the exception of certain accounts
payable and promissory notes issued as part of the discontinuation of
operations.
Management intends to continue to implement the following initiatives during
this fiscal year:
Continue to market the Company's Assurance Coordinated Pharmaceutical Care
system to community pharmacies, pharmacy benefit managers, third party
payers and pharmacy groups in foreign countries.
Expand its current strategy of locating additional strategic partners in the
pharmaceutical care marketplace that have the financial strength to bring the
Company's product to market at a substantially increased pace.
Continue to strengthen its relationship with AIM through additional sales of
AIM's software to its clients and to new prospects.
Reduce operating costs further and ensure that the effectiveness of remaining
expenditures is consistent with support of the Company's client base.
If operations and cash flow can be improved through these efforts, management
believes that the Company's liquidity problems will be resolved and that the
Company can continue to operate for the next twelve months. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of liquidity problems.
<PAGE>
RESULTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED MAY 31, 1999, COMPARED WITH THE FIRST QUARTER ENDED
MAY 31, 1998:
REVENUE. Revenues for the first quarter ended May 31, 1999, decreased $61,210
to $379,586, a decrease of 13.9% when compared to prior fiscal year first
quarter revenues of $440,796. The company recorded a first quarter net income
of $14,836, compared to a net income of $80,380 in the prior fiscal year period,
a decrease of $65,544 or 81.6%. The decrease resulted from unusually high sales
in the first quarter of fiscal 1999.
Revenues for the current fiscal period were primarily generated by continuing
client support fees from all the Company's software systems products and
software training fees.
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, 1999 increased by $3,873 or 1.1% to $362,551 when compared to prior
fiscal year expenses of $358,678. Cost of revenues increased by approximately
$40,509 or 19.1% when compared to the prior fiscal year period. The decrease
in gross profit is primarily due to increased reliance on outside vendors in
the training phase of implementation for a major customer. Gross profit is
expected to increase on overall sales, to this customer, as the customer
implements additional sites and internally trains its staff. A portion of the
decrease in gross profit was attributable to the higher percentage of commission
paid on sales of the products of an outside vendor versus the sales of the
company's own product.
Administrative expenses are made up of human resource expenses, major expenses,
non-cash expenses and minor expenses. Human resource expenses were $216,606 in
the first quarter of fiscal 2000, a 4% reduction from $225,166 in the first
quarter of fiscal 1999. The decrease was due to staff reductions achieved
through attrition. Major expenses include rent, telephone and professional
fees and were $44,406 in the first quarter of fiscal 2000, a 35% reduction from
$225,166 in the first quarter of fiscal 1999. The decrease was due to better
service rates achieved in all three areas. Non-cash expenses, including
depreciation and amortization, were $4,101 in the first quarter of fiscal 2000,
a 75% reduction from $16,401 in the first quarter of fiscal 1999. The decrease
was primarily due to the completion of amortization on a non-compete agreement
as well as completion of depreciation on certain assets. Minor expenses, which
accounted for only 3.25% of overall spending, represent the balance of the
expenses. These expenses include interest, maintenance, office expenses, etc.,
and were $12,353 in the first quarter of fiscal 2000, a 41% reduction from
$21,004 in the first quarter of fiscal 1999. The decrease was due to expense
reduction efforts throughout.
<PAGE>
PART II
Item 1. Legal Proceedings
There were no legal proceeding pending as of the date of this filing.
Item 2. Change in Securities
There were no change in securities.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities.
Item 4. Submissions of Matters to a Vote of Securities Holders
No matters were submitted to a vote of the security holders.
Item 5. Other Information
No other information to be reported at this time.
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
<PAGE>
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, 1999 By: /s/ Peter J. Zugschwert
_____________ _______________________
Peter J. Zugschwert
President, CEO
Date: July 15, 1999 By: /s/ Marie Cooper
_____________ _______________________
Marie Cooper
Controller
<PAGE>
Index to Exhibits
Exhibit
11 Schedule showing calculation of earnings per share.
27 Financial Data Schedule
Exhibit 11
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
Calculation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
May 31,
1999 1998
__________ __________
<S> <C> <C>
Earnings used in calculations:
Income (loss) from continued operations $ 14,836 $ 89,878
Income (loss) from discontinued operations 0 (9,498)
__________ __________
Net income (loss) $ 14,836 $ 80,380
Shares used in calculation:
BASIC
Average number of shares outstanding 8,872,853 8,574,910
DILUTED
Additional shares issuable assuming
exercise of outstanding stock options 34,764 0
Additional shares issuable assuming
exercise of outstanding warrants 0 0
Additional shares issuable assuming
exercise of convertible debt 5,479 0
__________ __________
Weighted average number of common and
common equivalent shares outstanding 8,913,096 8,574,910
========== ==========
Basic per share data:
Income (loss) from continued operations $ .00 $ .01
Income (loss) from discontinued operations .00 $ (.00)
__________ __________
Net income (loss) $ .00 $ .01
Diluted per share data:
Income (loss) from continued operations $ .00 $ .01
Income (loss) from discontinued operations .00 (.00)
__________ __________
Net income (loss) $ .00 $ .01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> MAY-31-1999
<CASH> 68,413
<SECURITIES> 0
<RECEIVABLES> 73,089
<ALLOWANCES> 7,814
<INVENTORY> 0
<CURRENT-ASSETS> 151,764
<PP&E> 630,204
<DEPRECIATION> 608,692
<TOTAL-ASSETS> 173,276
<CURRENT-LIABILITIES> 479,851
<BONDS> 67,264
0
0
<COMMON> 91,988
<OTHER-SE> (465,827)
<TOTAL-LIABILITY-AND-EQUITY> 173,276
<SALES> 379,586
<TOTAL-REVENUES> 379,586
<CGS> 253,104
<TOTAL-COSTS> 362,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,200
<INCOME-PRETAX> 14,836
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,836
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
