U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-15936
HEALTH OUTCOMES MANAGEMENT, INC.
(Exact name of small business issuer as specified 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)
Issuer'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, $0.01 par value,
outstanding at July 17, 2000 was 9,262,130.
<PAGE>
INDEX
HEALTH OUTCOMES MANAGEMENT, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - May 31, 2000 and February
29, 2000
Condensed Consolidated Statements of Operations - Three months ended
May 31, 2000 and 1999
Consolidated Statement of Cash Flows - Three months ended May 31,
2000 and 1999
Notes to Consolidated Financial Statements - May 31, 2000
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 29,
2000 2000
______________ ______________
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,901 $ 47,009
Trade receivables, less allowance for
doubtful accounts of $3,824 and $4,654,
respectively 66,150 53,768
Prepaid expenses 14,126 11,214
Other current assets 153,500 0
______________ ______________
Total Current Assets 241,677 111,991
Property and equipment, net of accumulated
depreciation of $423,111 and $419,988,
respectively 26,489 13,431
______________ ______________
Total Assets $ 268,166 $ 125,422
______________ ______________
______________ ______________
</TABLE>
<TABLE>
<CAPTION>
May 31, February 29,
2000 2000
______________ ______________
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current Liabilities
Notes payable, current portion $ 152,900 $ 93,598
Current installments of obligation under
capital lease 9,058 3,531
Accounts payable 151,928 192,979
Deferred revenue 178,251 110,701
Accrued compensation 37,876 32,410
Accrued payroll taxes 10,084 10,497
Accrued interest 8,655 6,212
Other current liabilities 3,062 6,860
______________ ______________
Total Current Liabilities 551,814 456,788
Obligation under capital leases, excluding
current installments 10,124 0
______________ ______________
Total Liabilities 561,938 456,788
Stockholders Deficit
Series A, convertible stock, $0.01 par
value
Authorized - 1,000,000
Issued and Outstanding - none
Common stock, $0.01 par value
Authorized - 15,000,000
Issued and Outstanding - 9,262,130 92,622 92,622
Additional paid-in capital 4,815,149 4,815,148
Accumulated deficit (5,201,543) (5,239,136)
______________ ______________
Total Stockholders' Deficit (293,772) (331,366)
______________ ______________
Total Liabilities and Stockholders' Deficit $ 268,166 $ 125,422
______________ ______________
______________ ______________
</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,
2000 1999
__________ __________
<S> <C> <C>
Revenues $ 303,136 $ 379,586
Cost of Revenues 181,844 253,104
__________ __________
Gross Profit 121,292 126,482
__________ __________
Operating Expenses
Research and Development 40,391 39,323
Selling and Marketing 864 1,004
General and Administrative 38,874 69,119
__________ __________
Total Operating Expenses 80,129 109,446
__________ __________
Operating Income (Loss) 41,163 17,036
Other Income (Expense)
Interest Income 0 0
Interest Expense (3,219) (2,200)
__________ __________
(3,219) (2,200)
__________ __________
Income (Loss) from
Continuing Operations 37,944 14,836
Discontinued Operations
Income (Loss) from Operation of
Discontinued Retail Pharmacy Division (351) 0
Gain (Loss) on Disposal of Retail
Pharmacy Division 0 0
__________ __________
Income (Loss) Pre-Tax 37,593 14,836
Income Tax Expense 0 0
__________ __________
Net Income (Loss) 37,593 14,836
__________ __________
__________ __________
</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)
The following table presents the computation of basic and diluted net income
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended
May 31,
2000 1999
__________ __________
<S> <C> <C>
Income (Loss) from Continuing Operations $ 37,944 $ 14,836
Income (Loss) from Discontinued Operations (351) 0
__________ __________
Net Income (Loss) $ 37,593 $ 14,836
BASIC
Weighted average common shares outstanding 9,198,761 8,872,853
DILUTED
Effect of dilutive securities
Stock options 242,263 34,764
Warrants 0 0
Convertible debt 638,028 5,479
___________ ___________
Adjusted weighted average shares
outstanding 10,079,052 8,913,096
Basic per share data
Income (loss) from continuing operations $ .00 $ .00
Income (loss) from discontinued operations $(.00) $ .00
_______ _______
Net income (loss) $ .00 $ .00
Diluted per share data
Income (loss) from continuing operations $ .00 $ .00
Income (loss) from discontinued operations $(.00) $ .00
_______ _______
Net income (loss) $ .00 $ .00
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statement.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
2000 1999
__________ __________
<S> <C> <C>
Cash flows from operating activities
Net income $ 37,593 $ 14,836
__________ __________
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation 3,123 4,102
Amortization 0 0
Decrease (increase) in trade receivables (12,382) (1,338)
Decrease (increase) in prepaid expenses (2,912) (4,308)
Decrease (increase) in other current assets (153,500) 0
Increase (decrease) in accounts payable (41,052) 81,758
Increase (decrease) in deferred revenue 67,550 (44,536)
Increase (decrease) in accrued compensation 5,466 175
Increase (decrease) in accrued payroll taxes (413) (1,237)
Increase (decrease) in accrued interest 2,443 898
Increase (decrease) in other current liabilities (3,796) (1,348)
__________ __________
Total adjustments (135,473) 34,166
__________ __________
Cash flows provided by (used in) operating
activities (97,880) 49,002
__________ __________
Cash flows from investing activities:
Capital expenditures (16,181) 0
Cash paid for acquisitions 0 0
__________ __________
Cash flows provided by (used in) investing
activities (16,181) 0
__________ __________
Cash flows from financing activities:
Principal payments under capital lease
obligations 15,651 (2,665)
Repayment of notes payable 59,302 (7,958)
__________ __________
Cash flows provided by (used in) financing
activities 74,953 (10,623)
__________ __________
Increase (decrease) in cash and cash equivalents (39,108) 38,379
Cash and cash equivalents at beginning of period 47,009 30,034
__________ __________
Cash and cash equivalents at end of period $ 7,901 $ 68,413
__________ __________
__________ __________
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 3,219 $ 2,200
__________ __________
__________ __________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2000
(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, 2000. 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, 2000
may not be indicative of the results that may be expected for the year ending
February 28, 2001.
(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 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 31, 1997. The Company's adoption of this
statement had no material effect on its net income.
The Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS
131"), Disclosures about Segments of an Enterprise and Related Information, in
the fiscal year ended February 28, 1999. SFAS 131 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
regarding the allocation of resources and assessment of 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 April 2000, the Company entered into a note payable of $65,000, with the
Company's President, as a result of the restructuring of an accounts payable
obligation. As of May 31, 2000, the Company had an outstanding balance of
$65,000 on this note payable.
In March 2000, the Company entered into a capital lease of $16,181, with a
lessor, as the result of leasing a new piece of equipment. As of May 31, 2000,
the Company had an outstanding balance of $16,181 on this capital lease.
In June 1999, the Company entered into notes payable of $22,000, with two
contractors, as a result of the restructuring of an accounts payable obligation.
As of May 31, 2000, the Company had an outstanding balance of $22,000 on this
note payable.
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, 2000, 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, 2000, the Company had an outstanding balance
of $11,000 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, 2000, the Company had an outstanding balance of $0
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, 2000, the Company had an outstanding balance
of $4,900 on this note payable.
In April 1997, the Company assumed a $30,000 note payable related to the
acquisition of Eden Prairie Pharmacy. As of May 31, 2000, the Company had an
outstanding balance of $0 on this note payable.
(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 Condition and
Results of Operations
PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of ($310,137) at May 31, 2000, as
compared to a deficit of ($344,796) at February 29, 2000; a decrease of $34,659.
The decrease in working capital deficit was primarily due to an increase in
accounts receivable and a decrease in accounts payable.
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.
Management intends to continue to implement the following initiatives during the
fiscal year:
Continue to build relations with a potential partner 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.
RESULTS OF OPERATION
For the first quarter ended May 31, 2000, compared with the first quarter
ended May 31, 1999.
REVENUE. Revenues for the first quarter ended May 31, 2000, decreased $76,450
to $303,136, a decrease of 25.2% when compared to prior fiscal year first
quarter revenues of $379,586. The Company recorded a first quarter net income
of $37,593, compared to a net income of $14,836 in the prior fiscal year period,
an increase of $22,757 or 60.5%.
<PAGE>
Revenues for the current fiscal period were primarily generated from continuing
client support fees from the Company's software systems products, third party
software sales, training fees and license fees.
The effects of inflation on the Company's revenue and operating results were
not significant.
COSTS AND EXPENSES. Costs of revenues from continuing operations decreased by
$71,260 or 28.2% when compared to the prior fiscal year period. Total costs and
expenses incurred during the quarter ended May 31, 2000 decreased by $100,577
or 27.7% to $261,973 when compared to prior fiscal year expenses of $362,550.
Current year expenses decreased primarily due to decreased costs associated
with decreased revenues.
Administrative expenses decreased by $30,245 or 43.8% when compare to the prior
fiscal year period. Major expenses such as telephone and depreciation have
significantly contributed to the decrease in expenses.
Selling and marketing expenses have been insignificant, whereas research and
development remain consistent.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no legal proceedings pending as of the date of this filing.
Item 2. Change in Securities
There were no change in securities to report as of the date of this filing.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities to report as of the date of this
filing.
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
There was no other information to be reported as of the date of this filing.
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 casued this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Health Outcomes Management, Inc.
(registrant)
Date: July 17, 2000 By: /s/ Peter J. Zugschwert
_____________ _____________________________
Peter J. Zugschwert
President and CEO
Date: July 17, 2000 By: /s/ Marie Cooper
_____________ _____________________________
Marie Cooper
Principal Accounting Officer
<PAGE>
Index to Exhibits
11 - Schedule showing caluclation of earnings per share
27 - Financial Data Schedule
