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, 2000 0-27554
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PACE Health Management Systems, Inc.
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1297992
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2116 Financial Center
666 Walnut
Des Moines, IA 50309
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(Address and zip code of principal executive offices)
(515) 244-5746
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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 18, 2000
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Common Stock, no par 5,716,074
Transitional Small Business Disclosure Format (Check one): YES ___ NO _X_.
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PACE HEALTH MANAGEMENT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page
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Condensed Balance Sheets
September 30, 2000 and December 31, 1999 3
Condensed Statements of Operations
Three Months and Nine Months Ended September 30, 2000 and 1999 4
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACE HEALTH MANAGEMENT SYSTEMS, INC.
CONDENSED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPT. 30, 2000 DEC. 31, 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,969,052 $ 1,916,974
Restricted escrow account (Note 2) 104,482 200,042
Accounts receivable, net 320 520
Prepaid Insurance 14,292 --
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$ 2,088,146 $ 2,117,536
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ -- $ 11,944
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TOTAL CURRENT LIABILITIES -- 11,944
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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, no par value, issued and outstanding
September 30, 2000 5,716,074; December 31, 1999
5,567,436 shares 17,065,136 17,002,272
Additional paid-in capital 673,486 673,486
Accumulated deficit (18,525,476) (18,445,166)
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2,088,146 2,105,592
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$ 2,088,146 $ 2,117,536
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</TABLE>
See Notes to Condensed Financial Statements.
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PACE HEALTH MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
COSTS AND EXPENSES
General and administrative 19,542 17,855 57,888 128,232
----------- ----------- ----------- -----------
19,542 17,855 57,888 128,232
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(LOSS) FROM OPERATIONS (19,542) (17,855) (57,888) (128,232)
INTEREST INCOME 29,217 35,203 82,060 77,192
PURCHASE PRICE ADJUSTMENT (Note 2) (104,482) -- (104,482) --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (94,807) 17,348 (80,310) (51,040)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (94,807) $ 17,348 $ (80,310) $ (51,040)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE
Basic $ (0.03) $ (0.01) $ (0.05) $ (0.05)
=========== =========== =========== ===========
Fully diluted $ (0.03) $ (0.01) $ (0.05) $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,716,074 5,321,784 5,672,542 5,321,784
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements
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PACE HEALTH MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
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<S> <C> <C>
Net (loss) $ (80,310) $ (51,040)
Purchase price adjustment 104,482 --
Change in assets and liabilities:
Decrease in accounts receivable 200 1,998
(Increase) decrease in other current assets (23,214) 542,240
(Decrease) in accounts payable and accrued expenses (11,944) (10,796)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,786) 482,402
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of stock options 62,864 7,136
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NET CASH PROVIDED BY FINANCING ACTIVITIES 62,864 7,136
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NET INCREASE IN CASH AND CASH EQUIVALENTS 52,078 489,538
CASH AND CASH EQUIVALENTS
Beginning 1,916,974 1,312,984
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Ending $ 1,969,052 $ 1,802,522
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</TABLE>
See Notes to Condensed Financial Statements
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PACE HEALTH MANAGEMENT SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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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,
1999. 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 approximately $525,000. At September 30, 2000, approximately $209,000
currently remains in the escrow account. Based upon information available, the
Company has recognized a purchase price adjustment of $104,482. It is
anticipated that this amount will be paid to 3M as an adjustment to the original
purchase price with the remaining amount in the escrow account being returned to
the Company.
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 INCOME (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 income (loss) per share
amounts. Basic income (loss) per share is based on the weighted average number
of common shares outstanding during the period. Diluted income (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.
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net income (loss) $ (94,807) $ 17,348 $ (80,310) $ (51,040)
Preferred dividends in arrears (71,875) (71,875) (215,625) (215,625)
---------------------------- ----------------------------
Net income (loss) available to common
shareholders $ (166,682) $ (54,527) $ (295,935) $ (266,665)
============================ ============================
Weighted average shares outstanding 5,716,074 5,321,784 5,672,542 5,321,784
============================ ============================
Basic and diluted (loss) per share $ (0.03) $ (0.01) $ (0.05) $ (0.05)
============================ ============================
</TABLE>
All outstanding options and warrants, as well as the convertible preferred
stock, are anti-dilutive. Therefore, basic and diluted earnings (loss) per share
are the same for all periods presented.
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 restricted escrow account
totaling approximately $525,000. At September 30, 2000, approximately $209,000
currently remains in the escrow account. Based upon information available, the
Company has recognized a purchase price adjustment of $104,482. It is
anticipated that this amount will be paid to 3M as an adjustment to the original
purchase price with the remaining amount in the escrow account being returned to
the Company.
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Following the Transaction, the Company has no ongoing operations and no revenues
and has minimal operating expenses. The Company presently has no employees. The
Company's September 30, 2000 balance sheet reflects cash (including the escrow
balance pursuant to the Transaction) in excess of $2 million and no liabilities.
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.
RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE: General and administrative expenses include salaries
and expenses for corporate administration and finance, legal, and insurance.
General and administrative expenses were $19,542 and $17,855 for the three
months ended September 30, 2000 and 1999, respectively, representing an increase
of 9.4%. General and administrative expenses were $57,888 and $128,232 for the
nine months ended September 30, 2000 and 1999, respectively, representing a
decrease of 54.9%. 2000 expenses consist primarily of bookkeeping costs,
expenses associated with shareholder relations and SEC reporting requirements,
and insurance. 1999 expenses include the above, in addition to salary and salary
related expenses of one employee.
INTEREST INCOME AND PURCHASE PRICE ADJUSTMENT: Interest income was $29,217 and
$35,203 for the three months ended September 30, 2000 and 1999, respectively.
Interest income was $82,060 and $77,192 for the nine months ended September 30,
2000 and 1999, respectively. As described elsewhere herein, the Company
recognized a purchase price adjustment of $104,482 during the three months ended
September 30, 2000.
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 in operating activities for the nine months ended September 30,
2000 was $10,786. Net cash provided by operating activities for the nine months
ended September 30, 1999 was $482,402, due primarily to the release of $525,000
from the restricted escrow account as discussed above. Following the
Transaction, the Company has no ongoing operations and no revenues and has
minimal operating expenses. The Company's September 30, 2000 balance sheet
reflects cash (including the escrow balance pursuant to the Transaction) of over
$2 million and no liabilities.
Net cash provided by financing activities for the nine months ended September
30, 2000 and 1999 was $62,864 and $7,136, respectively. Net cash provided by
financing activities was from the exercise of stock options.
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
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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.
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.
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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.
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(Registrant)
October 20, 2000 /s/ John Pappajohn
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Dated John Pappajohn, Director
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