Management`s Discussions: 10QSB, PACE HEALTH MANAGEMENT SYSTEMS INC
WEDNESDAY, NOVEMBER 03, 1999 12:12 PM
- Edgar Online
(Edgar Online via COMTEX)
Company Name: PACE HEALTH MANAGEMENT SYSTEMS INC (SYMBOL:PCES)
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.
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.
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