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, 2000
[ ] 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 10, 2001 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 - November 30, 2000 and
February 29, 2000
Condensed Consolidated Statements of Operations - Three months and
nine months ended November 30, 2000 and 1999
Consolidated Statement of Cash Flows - Nine months ended November
30, 2000 and 1999
Notes to Consolidated Financial Statements - November 30, 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>
November 30, February 29,
2000 2000
____________ ____________
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,404 $ 47,009
Trade receivables, less allowance for doubtful
accounts of $1,774 and $4,654, respectively 30,192 53,768
Prepaid expenses 11,526 11,214
____________ ____________
Total current assets 73,122 111,991
Property and equipment, net of accumulated depreciation
of $428,450 and $419,988, respectively 20,975 13,431
____________ ____________
Total assets $ 94,097 $ 125,422
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
November 30, February 29,
2000 2000
____________ ____________
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Notes payable, current portion $ 139,500 $ 93,598
Current installments of obligation under capital lease 7,098 3,531
Accounts payable 104,345 192,979
Deferred revenue 63,073 110,701
Accrued compensation 33,779 32,410
Accrued payroll taxes 2,026 10,497
Accrued interest 15,549 6,212
Other current liabilities 8,099 6,860
____________ ____________
Total current liabilities 373,469 456,788
Obligation under capital leases, excluding current
installments 7,317 0
____________ ____________
Total liabilities 380,786 456,788
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 - 9,262,130 92,622 92,622
Additional paid-in capital 4,815,148 4,815,148
Accumulated deficit (5,194,459) (5,239,136)
____________ ____________
Total stockholders' deficit (286,689) (331,366)
____________ ____________
Total liabilities and stockholders' deficit 94,097 125,422
============ ============
</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 Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
__________ __________ ___________ ___________
<S> <C> <C> <C> <C>
Revenues $ 180,417 $ 325,846 $ 694,709 $1,037,736
Cost of revenues 122,015 228,940 479,217 673,389
__________ __________ ___________ ___________
Gross Profit 58,402 96,906 215,492 364,347
__________ __________ ___________ ___________
Operating Expenses
Research and development 2,939 30,702 71,221 106,937
Selling and marketing 0 0 2,453 1,393
General and administrative 12,689 68,817 107,904 206,102
__________ __________ ___________ ___________
Total operating expenses 15,628 99,519 181,578 314,432
__________ __________ ___________ ___________
Operating income (loss) 42,774 (2,613) 33,914 49,915
Other income (expense)
Interest income 0 0 0 0
Interest expense (4,168) (2,595) (11,828) (7,511)
__________ __________ ___________ ___________
(4,168) (2,595) (11,828) (7,511)
__________ __________ ___________ ___________
Income (loss) from
continuing operations 38,606 (5,208) 22,086 42,404
Discontinued Operations
Income (loss) from
operation of discontinued
retail pharmacy division 0 0 22,479 5,579
Gain (loss) on disposal of
retail pharmacy division 0 0 0 0
__________ __________ ___________ ___________
Income (loss) pre-tax 38,606 (5,208) 44,565 47,983
Income tax expense 0 (191) (300) 611
__________ __________ ___________ ___________
Net income (loss) $ 38,606 (5,017) 44,865 47,372
========== ========== =========== ===========
</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,
2000 1999 2000 1999
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 38,606 $ (5,017) $ 22,386 $ 41,793
Income (loss) from discontinued operations 0 0 22,479 5,579
__________ __________ __________ __________
Net income (loss) $ 38,606 $ (5,017) $ 44,865 $ 47,372
BASIC
Weighted average common shares oustanding 9,198,761 8,872,853 9,198,761 8,872,853
DILUTED
Effect of dilutive securities:
Stock options 242,263 34,764 242,263 34,764
Warrants 0 0 0 0
Convertible Debt 638,028 5,479 638,028 5,479
__________ __________ __________ __________
10,079,052 8,913,069 10,079,052 8,913,069
Basic per share data:
Income (loss) from continuing operations $ .00 $ (.00) $ .00 $ .00
Income (loss) from discontinued operations .00 .00 .00 .00
__________ __________ __________ __________
Net income (loss) $ .00 $ .00 $ .00 $ .00
Diluted per share data:
Income (loss) from continuing operations $ .00 $ (.00) $ .00 $ .00
Income (loss) from discontined operations .00 .00 .00 .00
__________ __________ __________ __________
Net income (loss) $ .00 $ .00 $ .00 $ .00
</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,
2000 1999
___________ ___________
<S> <C> <C>
Cash flows from operating activities
Net income $ 44,865 $ 47,372
___________ ___________
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation 8,637 11,208
Amortization 0 0
Decrease (increase) in trade receivables 23,577 (105,791)
Decrease (increase) in prepaid expenses 312 1,568
Decrease (increase) in other current assets 0 0
Increase (decrease) in accounts payable (88,822) 81,634
Increase (decrease) in deferred revenue (42,628) (12,473)
Increase (decrease) in accrued compensation 1,369 2,677
Increase (decrease) in accrued payroll taxes (8,471) (2,571)
Increase (decrease) in accrued interest 9,337 4,228
Increase (decrease) in other current liabilities 1,240 1,488
___________ ___________
Total adjustments (95,449) (18,032)
___________ ___________
Cash flows provided by (used in)
operating activities (50,584) 29,340
___________ ___________
Cash flows from investing activities:
Capital expenditures (16,181) (4,621)
Cash paid for acquisitions 0 0
___________ ___________
Cash flows provided by (used in)
investing activities (16,181) (4,621)
___________ ___________
Cash flows from financing activities:
Principal payments under capital lease obligations 5,258 (4,605)
Increase (decrease) in notes payable 45,902 12,924
___________ ___________
Cash flows provided by (used in)
financing activities 51,160 8,319
___________ ___________
Increase (decrease) in cash and cash equivalents (15,605) 33,038
Cash and cash equivalents at beginning of period 47,009 30,034
___________ ___________
Cash and cash equivalents at end of period $ 31,404 $ 63,072
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 11,828 7,511
=========== ===========
</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, 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-SB/A 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 November 30, 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 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 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 November 30, 2000, the Company had an outstanding balance
of $65,000 on this note payable. The Company is currently in default 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 November 30,
2000, the Company had an outstanding balance of $13,800 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 November 30, 2000, the Company had an outstanding balance of $22,000 on
these notes 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 November 30, 2000, the Company had an outstanding balance of
$50,000 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, 2000, the Company had an outstanding
balance of $2,500 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 ($300,159) at November 30, 2000, as
compared to a deficit of ($344,796) as of February 29, 2000; a decrease of
$44,637. The decrease in working capital deficit was primarily due to the
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
operaions. The financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
Managment intends to continue to implement the following initiatives during
this fiscal year:
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, 2000, compared with the third quarter
ended November 30, 1999:
REVENUE. Revenues for the third quarter ended November 30, 2000, decreased
$145,429 to $180,417, a decrease of 44.6% when compared to prior fiscal year
third quarter revenues of $325,846. The Company recorded a third quarter net
income of $38,606, compared to a net loss of $(5,017) in the prior fiscal year
period, an increase of $43,623 or 869.5%.
Revenues for the current fiscal period were primarily generated from continuing
client support fees from the Company's software systems products.
The effects of inflation on the Company's revenue and operating results were
not significant.
COSTS AND EXPENSES. Cost of revenues from continuing operations decreased by
$106,925 or 46.7% when compared to the prior fiscal year period. Total costs
and expenses incurred during the quarter ended November 30, 2000 decreased by
$190,817 or 58.1% to $137,643 when compared to prior fiscal year expenses of
$328,460. Current year expenses decreased primarily due to decreased costs
associated with decreased revenues, as well as containment of expenditures.
Administrative expenses from continuing operations decreased by $56,128 or
81.6% when compared to the prior fiscal year period. Salary expense and related
employee benefits have decreased due to a decrease in staffing. Major
expenses such as rent, telephone and depreciation have also contributed to the
decrease in expenses.
Expenses associated with selling and marketing and research and development
have been insignificant.
<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 defaults upon notes owed to the Company's President in the amounts
of $50,000 and $65,000 as of the date of this filing. See the section titled
'Notes to Consolidated Financial Statements' for detailed information regarding
these amounts past due.
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
(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 10, 2001 By: /s/ Peter J. Zugschwert
________________ ____________________________
Peter J. Zugschwert
President, CEO
Date: January 10, 2000 By: /s/ Marie Cooper
________________ ____________________________
Marie Cooper
Principal Accounting Officer
<PAGE>
Index to Exhibits
11 - Schedule showing calculation of earnings per share
