U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
September 30, 1999 0-27554
- ------------------------------------ -------------------------------------
PACE Health Management Systems, Inc.
------------------------------------
(Exact name of small business issuer as specified in its charter)
Iowa 42-1297992
- ------------------------------------ -------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2116 Financial Center
666 Walnut
Des Moines, IA 50309
-----------------------------------------------------
(Address and zip code of principal executive offices)
(515) 244-5746
-----------------------------------------------------
Issuer's telephone-number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject of the filing requirements for at least the
past 90 days. YES _X_ NO ___
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Number of Shares Outstanding
Class October 1, 1999
----- ---------------
Common Stock, no par 5,393,146
Transitional Small Business Disclosure Format (Check one): YES ___ NO _X_.
1
<PAGE>
PACE HEALTH MANAGEMENT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page
----
Condensed Balance Sheets
September 30, 1999 and December 31, 1998 1
Condensed Statements of Operations
Three Months and Nine Months Ended September 30, 1999 and 1998 2
Condensed Statements of Cash Flows
Nine Months ended September 30, 1999 and 1998 3
Notes to Condensed Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 5
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 7
ITEM 2. CHANGES IN SECURITIES 7
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
ITEM 5. OTHER INFORMATION 7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 7
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACE HEALTH MANAGEMENT SYSTEMS, INC.
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPT. 30, 1999 DEC. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,802,522 $ 1,312,984
Restricted escrow account 194,712 725,000
Accounts receivable, net 800 2,798
Other current 17,414 29,366
------------ ------------
TOTAL CURRENT ASSETS 2,015,448 2,070,148
------------ ------------
FURNITURE AND EQUIPMENT -- --
------------ ------------
COMPUTER SOFTWARE DEVELOPMENT COSTS -- --
------------ ------------
OTHER ASSETS -- --
------------ ------------
$ 2,015,448 $ 2,070,148
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,300 $ 12,096
------------ ------------
TOTAL CURRENT LIABILITIES 1,300 12,096
------------ ------------
LONG-TERM OBLIGATIONS, less current maturities -- --
------------ ------------
SHAREHOLDERS' EQUITY:
Convertible participating preferred stock, Series A, no par
value; issued and outstanding 2,875,000 shares 2,875,000 2,875,000
Common stock, issued and outstanding 5,393,146 shares 16,917,680 16,910,544
Additional paid-in capital 673,486 673,486
Accumulated deficit (18,452,018) (18,400,978)
------------ ------------
2,014,148 2,058,052
------------ ------------
$ 2,015,448 $ 2,070,148
============ ============
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE>
PACE HEALTH MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Systems revenues $ -- $ 205,100 $ -- $ 470,333
Customer support services -- 198,585 -- 639,972
----------- ----------- ----------- -----------
-- 403,685 -- 1,110,305
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of systems revenues -- 452 -- 49,919
Client services -- 157,286 -- 778,684
Product development -- 208,555 -- 999,929
Sales and marketing -- 63,765 -- 392,047
General and administrative 17,855 151,106 128,232 807,835
----------- ----------- ----------- -----------
17,855 581,164 128,232 3,028,414
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (17,855) (177,479) (128,232) (1,918,109)
OTHER (EXPENSE) INCOME, NET 35,203 13,488 77,192 (169,013)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 17,348 (163,991) (51,040) (2,087,122)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 17,348 $ (163,991) $ (51,040) $(2,087,122)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE
Basic $ 0.00 $ (0.03) $ (0.01) $ (0.39)
=========== =========== =========== ===========
Fully diluted $ (0.01) $ (0.04) $ (0.04) $ (0.43)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 5,321,784 5,321,784 5,321,784 5,321,874
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
PACE HEALTH MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
----------- -----------
<S> <C> <C>
Net loss $ (51,040) $(2,087,122)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation -- 208,659
Amortization -- 300,593
Change in assets and liabilities:
Decrease in accounts receivable 1,998 1,248,806
Decrease (increase) in other current assets 11,952 (137,617)
(Decrease) in other current liabilities (10,796) (508,326)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (47,886) (975,007)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized computer software development costs -- (59,216)
Purchase of furniture and equipment -- (11,872)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES -- (71,088)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds form notes payable -- 100,000
Proceeds from sale of preferred stock -- 625,000
Proceeds from the exercise of stock options 7,136 --
Proceeds from the sale of equipment -- 24,791
Payments on notes payable and long term obligations -- (76,791)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,136 673,010
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (40,750) (373,085)
CASH AND CASH EQUIVALENTS
Beginning 2,037,984 525,356
----------- -----------
Ending $ 1,997,234 $ 152,271
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION
Cash payments for interest $ -- $ 71,461
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
PACE HEALTH MANAGEMENT SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The accompanying financial information should be read in conjunction with the
annual financial statements and notes thereto for the year ended December 31,
1998. The financial information included herein is unaudited; such information
reflects all adjustments, which, in the opinion of management, are necessary in
order to make the financial statements not misleading.
The results of operations for the three months and nine months are not
necessarily indicative of the results to be expected for the entire fiscal year.
NOTE 2. CASH AND RESTRICTED CASH
On October 7, 1998, the Company completed the sale of substantially all of its
assets to, and the assumption of certain of its liabilities by, Minnesota Mining
and Manufacturing Company ("3M") (the "Transaction").
The purchase price of the Transaction was approximately $5.9 million, including
$4.75 million in cash, of which $750,000 was originally placed in escrow to
secure the Company's indemnification obligations under the Asset Purchase
Agreement, plus the assumption of substantially all of the Company's liabilities
other than $2.1 million in line of credit balances, which were paid off from
proceeds at closing. Subsequent to the closing of the Transaction, the Company
agreed that $25,000 of the amount in escrow could be paid to 3M as part of a
purchase price adjustment contemplated by the Asset Purchase Agreement, leaving
an escrow balance of $725,000.
In July 1999 the Company received proceeds from the restricted escrow account
totaling $555,958, including interest of $25,671. Approximately $195,000
currently remains in the escrow account pending resolution of certain disputed
indemnification claims.
The net proceeds from the sale will be retained by the Company pending a
determination of whether to engage in a follow-on transaction. The Company has
been seeking a business combination with another entity, before considering
possible liquidation and distribution of its assets. If no suitable business
combination is identified within a reasonable period of time, the Company may
elect to liquidate and distribute the remaining net proceeds to shareholders. If
the Company liquidated at the present time, all of the net assets of the Company
would be paid to holders of the Company's preferred stock.
NOTE 3. BASIC AND DILUTED LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share,
which requires the Company to present basic and diluted loss per share amounts.
Basic loss per share is based on the weighted average number of common shares
outstanding during the period. Diluted loss per share is based on the weighted
average number of common shares and dilutive potential common shares outstanding
during the period. Dilutive potential common shares consist of stock options and
warrants (using the treasury stock method) and convertible preferred stock
(using the if-converted method). Dilutive potential common shares are excluded
from the computation if their effect is anti-dilutive.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Prior to October 1998, PACE developed and marketed advanced patient care
management software systems that enabled healthcare providers to standardize the
delivery of care, maximize resource utilization and improve clinical outcomes.
The Company's enterprise-wide, client/server applications automated charting,
clinical workflow processes and clinical pathways. The Company's core system,
PACE CMS, was a modular suite of advanced software applications that provided
hospitals, physicians' offices, and integrated delivery systems a comprehensive
system for interdisciplinary documentation, nursing care planning, clinical
pathway management and enterprise-wide order management, all at the point of
care.
On October 7, 1998, the Company completed the sale of substantially all of its
assets to, and the assumption of certain of its liabilities by, Minnesota Mining
and Manufacturing Company ("3M") ("the Transaction"). The sale was made pursuant
to an Asset Purchase Agreement dated June 30, 1998, as amended, as described in
Company's definitive proxy statement dated September 14, 1998. The Transaction
was approved by the holders of both the common stock and the preferred stock at
a special meeting of shareholders held on October 7, 1998.
The purchase price of the Transaction was approximately $5.9 million, including
$4.75 million in cash, of which $750,000 was originally placed in escrow to
secure the Company's indemnification obligations under the Asset Purchase
Agreement, plus the assumption of substantially all of the Company's liabilities
other than $2.1 million in line of credit balances, which were paid off from
proceeds at closing. 3M offered positions to most of the Company's employees and
assumed full support of the Company's customers. Subsequent to the closing of
the Transaction, the Company agreed that $25,000 of the amount in escrow could
be paid to 3M as part of a purchase price adjustment contemplated by the Asset
Purchase Agreement, leaving an escrow balance of $725,000.
In July 1999 the Company received proceeds from the escrow account totaling
$555,958, including interest of $25,671. Approximately $195,000 currently
remains in the escrow account pending resolution of certain disputed
indemnification claims.
Following the Transaction, the Company has no ongoing operations and no revenues
and has minimal operating expenses. The Company presently has only one part-time
employee. The Company's September 30, 1999 balance sheet reflects cash
(including the escrow balance pursuant to the Transaction) of almost $2 million
and minimal debt.
The net proceeds from the sale will be retained by the Company pending a
determination of whether to engage in a follow-on transaction. The Company has
been seeking a business combination with another entity, before considering
possible liquidation and distribution of its assets. The Company believes that
with the cash on hand and net operating loss carryforwards, subject to the
limitation of such carryforwards under the Internal Revenue Code, such a
combination may be attractive to potential partners and would better serve the
interests of the Company's shareholders. As of the date of this Form 10-QSB, no
definitive agreement has been signed for a follow-on transaction. If no suitable
business combination is identified within a reasonable period of time, the
Company may elect to liquidate and distribute the remaining net proceeds to
shareholders. If the Company liquidated at the present time, all of the net
assets of the Company would be paid to holders of the Company's preferred stock.
7
<PAGE>
RESULTS OF OPERATIONS
NET REVENUES, COST OF SYSTEMS REVENUE, CLIENT SERVICES, PRODUCT DEVELOPMENT, AND
SALES AND MARKETING: Net revenues included systems revenues and customer support
services. Cost of systems revenues included hardware purchases, third party
software, commissions and royalties. Client services expenses included salaries
and expenses related to implementation, installation and customer support.
Product development expenses included salaries and expenses related to
development and documentation of software systems, net of capitalized software
development costs. Sales and marketing expenses included salaries, advertising,
trade show costs and travel expenses related to the sale and marketing of the
Company's systems. Following the Transaction, the Company has no ongoing
operations, no revenues and has minimal operating expenses. The Company
presently has only one part-time employee, reflected in general and
administrative expenses. As a result, all of the above categories reflect no
costs for the three months and nine months ended September 30, 1999.
GENERAL AND ADMINISTRATIVE: General and administrative expenses include salaries
and expenses for the corporate administration and finance, legal, insurance and
depreciation expenses. General and administrative expenses were $17,855 and
$151,106 for the three months ended September 30, 1999 and 1998, respectively,
representing a decrease of 88.2%. General and administrative expenses were
$128,232 and $807,835 for the nine months ended September 30, 1999 and 1998,
respectively, representing a decrease of 84.1%. These decreases are directly
related to the elimination of operating expenses following the sale of assets.
The 1999 expenses consist primarily of salary and salary related expenses,
insurance costs, and expenses associated with shareholder relations and SEC
reporting requirements. Included in the 1999 year-to-date expenses is
approximately $57,000 in costs related to annual insurance renewals, primarily
for directors and officers liability insurance.
OTHER INCOME, NET: Other income, net is comprised primarily of interest income
and other expenses. Other income, net was $35,203 and $13,488 for the three
months ended September 30, 1999 and 1998, respectively, and $77,192 and
($169,013) for the nine months ended September 30 1999 and 1998, respectively.
These increases in other income were a result of increased interest income
related to the increased cash balances following the sale of assets to 3M and
the decreased interest expense following the repayment of the Company's line of
credit. Include in the September 30, 1999 and 1998 third quarter and
year-to-date other income is $17,394 and $51,000, respectively, for state R&D
tax credits. Also included in the 1998 year-to-date figure is other expense
related to the amortization of unearned debt guarantee fees in the amount of
$133,142.
PROVISION FOR INCOME TAXES: No provision for income tax benefit has been
recorded due to the Company recording a valuation allowance on the deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used operating activities for the nine months ended September 30, 1999
and 1998 was $47,886 and $975,007, respectively. Following the Transaction, the
Company has no ongoing operations and no revenues and has minimal operating
expenses. The Company's September 30, 1999 balance sheet reflects cash
(including the escrow balance pursuant to the Transaction) of almost $2.0
million and minimal debt.
The net proceeds from the sale will be retained by the Company pending a
determination of whether to engage in a follow-on transaction. The Company has
been seeking a business combination with another entity, before considering
possible liquidation and distribution of its assets. As of the date of this Form
10-QSB, no definitive agreement has been signed for a follow-on transaction. If
no suitable business combination is identified within a reasonable period of
time, the Company may elect to liquidate and distribute the remaining net
proceeds to shareholders. If the Company liquidated at the present time, all of
the net assets of the Company would be paid to holders of the Company's
preferred stock.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NA
ITEM 5. OTHER INFORMATION.
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
9
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PACE HEALTH MANAGEMENT SYSTEMS, INC.
- ------------------------------------
(Registrant)
November 4, 1999 /s/ JOHN PAPPAJOHN
- ------------------ ----------------------------------------------
Dated President
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,997,234
<SECURITIES> 0
<RECEIVABLES> 800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,015,448
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,015,448
<CURRENT-LIABILITIES> 1,300
<BONDS> 0
0
2,875,000
<COMMON> 16,917,680
<OTHER-SE> (17,778,532)
<TOTAL-LIABILITY-AND-EQUITY> 2,015,448
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 128,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (51,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (51,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,404)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.04)
</TABLE>
