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 NOVEMBER 30, 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 January 7, 2000 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 - November 30, 1999 and
February 28, 1999.
Condensed Consolidated Statements of Operations - Three months and
nine months ended November 30, 1999 and 1998.
Consolidated Statement of Cash Flows - Nine months ended November
30, 1999 and 1998.
Notes to Consolidated Financial Statements - November 30, 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>
November 30, February 28,
1999 1999
____________ ____________
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 63,070 $ 30,034
Trade receivables, less allowance for doubtful
accounts of $4,654 and $7,814, respectively 169,728 63,937
Prepaid expenses 12,200 13,768
____________ ____________
Total current assets 244,998 107,739
Property and equipment, net of accumulated depreciation
of $607,556 and $604,591, respectively 19,027 25,613
____________ ____________
Total assets $ 264,025 $ 133,352
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
____________ ____________
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Notes payable, current portion $ 69,398 $ 36,274
Current installments of obligation under capital lease 9,912 10,000
Accounts payable 238,245 156,611
Deferred revenue 174,455 186,928
Accrued compensation 39,408 36,731
Accrued payroll taxes 8,532 11,103
Accrued interest 4,557 329
Other current liabilities 9,636 8,148
____________ ____________
Total current liabilities 554,143 446,124
Notes payable, excluding current portion 51,100 71,300
Obligation under capital leases, excluding current
installments 86 4,604
____________ ____________
Total liabilities 605,329 522,028
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 (5,237,034) (5,284,406)
____________ ____________
Total stockholders' deficit (341,304) (388,676)
____________ ____________
Total liabilities and stockholders' deficit 264,025 133,352
============ ============
</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 Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
__________ __________ ___________ ___________
<S> <C> <C> <C> <C>
Revenues $ 325,846 $ 357,032 $1,063,818 $1,101,629
Cost of revenues 228,940 210,406 699,471 635,385
__________ __________ ___________ ___________
Gross Profit 96,906 146,626 364,347 466,244
__________ __________ ___________ ___________
Operating Expenses
Research and development 30,702 47,641 106,937 127,678
Selling and marketing 0 1,042 1,393 3,979
General and administrative 68,817 63,618 206,102 239,064
__________ __________ ___________ ___________
Total operating expenses 99,519 112,301 314,432 370,721
__________ __________ ___________ ___________
Operating income (loss) (2,613) 34,325 49,915 95,523
Other income (expense)
Interest income 0 0 0 2,441
Interest expense (2,595) (4,069) (7,511) (16,908)
__________ __________ ___________ ___________
(2,595) (4,069) (7,511) (14,467)
__________ __________ ___________ ___________
Income (loss) from
continuing operations (5,208) 30,256 42,404 81,056
Discontinued Operations
Income (loss) from
operation of discontinued
retail pharmacy division 0 (12,056) 5,579 (5,049)
Gain (loss) on disposal of
retail pharmacy division 0 210,480 0 210,480
__________ __________ ___________ ___________
Income (loss) pre-tax (5,208) 228,680 47,983 286,487
Income tax expense (191) 0 611 2,207
__________ __________ ___________ ___________
Net income (loss) $ (5,017) 228,680 47,372 284,280
========== ========== =========== ===========
</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 Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ (5,017) $ 30,256 $ 41,793 $ 78,849
Income (loss) from discontinued operations 0 198,424 5,579 205,431
__________ __________ __________ __________
Net income (loss) $ (5,017) $ 228,680 $ 47,372 $ 284,280
BASIC
Weighted average common shares oustanding 8,872,853 8,574,910 8,872,853 8,574,910
DILUTED
Effect of dilutive securities:
Stock options 34,764 0 34,764 0
Warrants 0 0 0 0
Convertible Debt 5,479 0 5,479 0
__________ __________ __________ __________
8,913,069 8,574,910 8,913,069 8,574,910
Basic per share data:
Income (loss) from continuing operations $ (.00) $ .00 $ .00 $ .01
Income (loss) from discontinued operations .00 .02 .00 .02
__________ __________ __________ __________
Net income (loss) $ .00 $ .02 $ .00 $ .03
Diluted per share data:
Income (loss) from continuing operations $ (.00) $ .00 $ .00 $ .01
Income (loss) from discontined operations .00 .02 .00 .02
__________ __________ __________ __________
Net income (loss) $ .00 $ .02 $ .00 $ .03
</TABLE>
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>
Nine Months Ended
November 30,
1999 1998
___________ ___________
<S> <C> <C>
Cash flows from operating activities
Net income $ 47,372 $ 284,280
___________ ___________
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation 11,208 24,121
Amortization 0 17,073
Decrease (increase) in trade receivables (105,791) (194,193)
Decrease (increase) in prepaid expenses 1,568 1,061
Decrease (increase) in other current assets 0 0
Increase (decrease) in accounts payable 81,634 (208,867)
Increase (decrease) in deferred revenue (12,473) (39,212)
Increase (decrease) in accrued compensation 2,677 863
Increase (decrease) in accrued payroll taxes (2,571) (2,041)
Increase (decrease) in accrued interest 4,228 0
Increase (decrease) in other current liabilities 1,488 29,521
___________ ___________
Total adjustments (18,032) (371,674)
___________ ___________
Cash flows provided by (used in)
operating activities 29,340 (87,394)
___________ ___________
Cash flows from investing activities:
Capital expenditures (4,621) 0
Cash paid for acquisitions 0 0
___________ ___________
Cash flows provided by (used in)
investing activities (4,621) 0
___________ ___________
Cash flows from financing activities:
Principal payments under capital lease obligations (4,605) (31,309)
Increase (decrease) in notes payable 12,924 6,519
___________ ___________
Cash flows provided by (used in)
financing activities 8,319 (24,790)
___________ ___________
Increase (decrease) in cash and cash equivalents 33,038 (112,184)
Cash and cash equivalents at beginning of period 30,034 119,716
___________ ___________
Cash and cash equivalents at end of period $ 63,072 7,532
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 7,511 16,908
=========== ===========
</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
November 30, 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 November 30, 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 Statemet 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 for 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 softwae 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 November 30, 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 November 30, 1999, the Company had an outstanding
balance of $17,000 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 November 30, 1999, 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 November 30, 1999, the Company had an outstanding
balance of $9,700 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 November 30, 1999, the Company had
an outstanding balance of $1,798 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 OPERATION
PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of ($309,145) at November 30, 1999, as
compared to a deficit of ($338,384) as of February 28, 1999; a decrease of
$29,239. The decrease in working capital deficit is primarily due to the
decrease of capital lease obligation payments and the increase of accounts
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
operaions. 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.
Managment 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 OPERATION
FOR THE THIRD QUARTER ENDED NOVEMBER 30, 1999, COMPARED WITH THE THIRD QUARTER
ENDED NOVEMBER 30, 1998:
REVENUE. Revenues for the third quarter ended November 30, 1999, decreased
$31,186 to $325,846, a decrease of 8.7% when compared to prior fiscal year
third quarter revenues of $357,032. The Company recorded a third quarter net
loss of $(5,017), compared to a net income of $228,680 in the prior fiscal year
period, an decrease of $223,663 or 97.8%. The net income for the prior fiscal
year includes discontinued operations income of $198,424, primarily due to a
lease writeoff.
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 and training fees.
The effects of inflation on the Company's revenue and operating results were
not significant.
COSTS AND EXPENSES. Cost of revenues from continuing operations increased by
$18,534 or 8.8% when compared to the prior fiscal year period. Total costs and
expenses (including discontinued operations) incurred during the quarter ended
November 30, 1999 increased by $204,178 or 164.3% to $328,459 when compared to
prior fiscal year expenses of $124,281. Prior fiscal year expenses were low due
to the inclusion of a lease writeoff for discontinued operations of $198.424.
Administrative expenses from continuing operations increased by $5,199 or
8.2% when compared to the prior fiscal year period. These expenses have
increased minimally, and the Company has continued to implement expense
reductions where possible. Major expenses such as rent, telephone and
depreciation and amortization significantly decreased by 39.5%, 55.7% and
52.5%, respectively. The decrease in rent was due to a reduction in the
amount of leased space. The decrease in depreciation and amortization was
primarily due to the completion of depreciation periods on various capitalized
office equipment and completion of amortization on covenants.
Expenses associated with selling and marketing have been insignificant. New
sales are primarily generated from existing clients upgrading to third party
software of which the Company is a reseller.
<PAGE>
PART II
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 caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Health Outcomes Management, Inc.
(registrant)
Date: January 7, 2000 By: /s/ Peter J. Zugschwert
________________ _______________________
Peter J. Zugschwert
President, CEO
Date: January 7, 2000 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 Nine months ended
November 30, November 30,
1999 1998 1999 1998
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Earnings used in calculations:
Income (loss) from continued operations $ (5,017) $ 30,256 $ 41,793 $ 78,849
Income (loss) from discontinued operations 0 198,424 5,579 205,431
__________ __________ __________ __________
Net income used in per share calculation $ (5,017) $ 228,680 $ 47,372 $ 284,280
Shares used in calculation:
BASIC
Average number of shares outstanding 8,872,853 8,574,910 8,872,853 8,574,910
DILUTED
Additional shares issuable assuming
exercise of outstanding stock options 34,764 0 34,764 0
Additional shares issuable assuming
exercise of outstanding warrants 0 0 0 0
Additional shares issuable assuming
exercise of convertible debt 5,479 0 5,479 0
__________ __________ __________ __________
Weighted average number of common and
common equivalent shares outstanding 8,913,096 8,574,910 8,913,069 8,574,910
========== ========== ========== ==========
Basic per share data:
Income (loss) from continued operations $ (.00) $ .00 $ .00 $ .01
Income (loss) from discontinued operations .00 .02 .00 .02
__________ __________ __________ __________
Net income (loss) $ .00 $ .02 $ .00 $ .03
Diluted per share data:
Income (loss) from continued operations $ (.00) $ .00 $ .00 $ .01
Income (loss) from discontinued operations .00 .02 .00 .02
__________ __________ __________ __________
Net income (loss) $ .00 $ .02 $ .00 $ .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 63,070
<SECURITIES> 0
<RECEIVABLES> 174,382
<ALLOWANCES> 4,654
<INVENTORY> 0
<CURRENT-ASSETS> 244,998
<PP&E> 626,582
<DEPRECIATION> 607,555
<TOTAL-ASSETS> 264,025
<CURRENT-LIABILITIES> 554,143
<BONDS> 51,186
0
0
<COMMON> 91,988
<OTHER-SE> (433,292)
<TOTAL-LIABILITY-AND-EQUITY> 264,025
<SALES> 325,846
<TOTAL-REVENUES> 325,846
<CGS> 228,940
<TOTAL-COSTS> 99,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,595
<INCOME-PRETAX> (5,208)
<INCOME-TAX> (191)
<INCOME-CONTINUING> (5,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,017)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
