May 31, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-1004
Re: Health Outcomes Management, Inc.
Form 10-KSB for the year ended February 29, 1996
File No. 0-15936
Dear Sir or Madam:
Pursuant to Section 13 of the Exchange Act transmitted herewith for filing is
the Form 10-KSB of Health Outcomes Management, Inc. for the year ended February
29, 1996, including exhibits.
The Company's payment in the amount of $250.00 has been previously transmitted
to Mellon Bank in payment of the filing fee.
Please call the undersigned at 612-378-3053 with any comments or questions.
Sincerely,
Russell Jackson
Chief Financial Officer
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer
incorporation or organization) Identification No.)
2331 UNIVERSITY AVENUE S.E.
MINNEAPOLIS, MINNESOTA 55414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (612) 378-3053
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of class)
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 ___
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenue for its most recent fiscal year was $3,182,718.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 1, 1996 was approximately $3,935,495.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding at May 1, 1996 was 8,327,885.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
HEALTH OUTCOMES MANAGEMENT, INC.
FORM 10-KSB
INDEX
Part I:
Item 1. Business
Item 2. Properties
Item 3. Legal proceedings
Item 4. Submission of matters to a vote of security holders
Part II:
Item 5. Market for registrant's common stock and related stockholder matters
Item 6. Management's discussion and analysis of financial condition and
results of operations
Item 7. Financial statements and supplementary data
Item 8. Disagreements on accounting and financial disclosure
Part III:
Item 9. Directors and officers of the registrant
Item 10. Executive compensation
Item 11. Security ownership of certain beneficial owners and management
Item 12. Certain relationships and related transactions
Item 13. Compliance with Section 16(a) of the Exchange Act
Part IV:
Item 13. Exhibits, financial statement schedules, and reports on Form 8-K
PART I
Item 1. Business
The Company
Health Outcomes Management, Inc. ("The Company"), formerly known as Data Med
Clinical Support Services, Inc., was incorporated in February of 1986. On
September 21, 1995, the Company's shareholders approved a change of the
Corporate name to Health Outcomes Management, Inc. The term "the Company" as
used herein includes Health Outcomes Management, Inc. and subsidiaries, unless
otherwise indicated.
The Company completed the acquisition of certain assets and the client list of
Applied Micro Management, Inc. (AMM) of Belleville, IL on August 17, 1993. AMM
was a competitor of the Company in the long-term care software services
business.
On June 15, 1994, the Company formed Pharmaceutical Care Outcomes, Inc. as a
wholly owned subsidiary. The primary purpose of the new corporation is to
continue to refine the Assurance Coordinated Pharmaceutical Care System(TM),
market it to pharmacies across the United States and work closely with the
Institute of Pharmaceutical Care at the University of Minnesota in the practice
of comprehensive Pharmaceutical Care.
On July 26, 1995, the Company formed HO Management, Inc. as a wholly owned
subsidiary.
Description of Business
The Company primarily licenses its proprietary clinical support and financial
software services to Long-Term Care facilities, home healthcare agencies, retail
pharmacies and hospitals. The principal elements of the Company's services
include software, training and 24-hour telephone support.
The Company markets its services under the trade name "ASSURANCE 2001". These
comprehensive services are designed to give health care professionals the
assurance that productivity and costs are being carefully managed, and to give
clinicians the assurance that patient care is optimized by using some of the
most advanced technology available to provide successful patient healthcare
outcomes.
The Products
Long-Term Care Products
The Company markets computer software services to nursing homes to provide the
clinical documentation required by federal regulation. A shortage of nurses also
makes computerized clinical records desirable. The Assurance Long-Term Care
System (TM) includes a relational data base. The Company also provides
Point-of-Care remote data collection software for use at nursing stations. The
Company's Assurance Financial System (TM) software may be installed singularly
or as a complete system with the clinical documentation system.
Health Outcomes Management's Assurance Nutrition System (TM) allows nursing
homes the ability to provide a nutritional consult which is specifically geared
to the severity of the patient's nutritional status. Studies indicate that many
patients suffer from malnutrition. The patient's nutritional status plays a
major role in determining the outcome of any medical intervention.
Home Healthcare Agencies
The Assurance Homecare System (TM) is designed for the collection and analysis
of information needed to manage homecare patients when they no longer need to be
in a hospital after a sickness and are being cared for at home. Nurses can
record their findings at a patient's home using Health Outcomes Management's
unique Point-of-Care Software (TM) and a notebook computer. All information is
then made available to the homecare agency and to the physicians via a
relational data base for activities such as clinical trend analysis and prompt
billing. A private label version of this product is provided to Option Care,
Inc. who operates 199 homecare franchises in 40 states. The Company's Assurance
Financial System (TM) software may be installed singularly or as a complete
system with the clinical documentation system.
Retail Pharmacy
The Assurance Coordinated Pharmaceutical Care System (TM) utilizes pharmacy
protocols that have been developed for the most cost effective treatment of
patients who are using many drugs, often from several doctors as well as
over-the-counter drugs. This system is a quality assurance and continuous
quality improvement approach to caring for patients. The system provides a major
step forward in the everyday practice of pharmacy in retail community
pharmacies. A major emphasis of this system is outcome management to enhance the
patient's quality of life cost effectively.
Hospitals
Hospitals may utilize several of the Company's software services. Rehabilitation
hospitals utilize a customized computerized system specifically for the needs of
the rehabilitation market segment. Procedures and reports are specific for the
needs of treating acute care, long-term care and outpatient rehabilitation
patients. Outcome management techniques are included to improve the likelihood
of successful patient health outcomes.
Pharmacokinetics is the study of how drugs get into and out of a patient's body
and the changes which take place while they are in the body. The Assurance
Kinetics System (TM) makes it easier, faster and less costly to calculate proper
dosages, and to track schedules of commonly monitored drugs. The heart of Health
Outcomes Management's Assurance Kinetics System (TM) is the unique Health
Outcomes Management software, updated with the latest findings in
pharmacokinetic research.
Studies indicate that many patients in hospitals are suffering from
malnutrition. The patient's nutritional status plays a major role in determining
the outcome of any medical intervention. Health Outcomes Management's Assurance
Nutrition System (TM) allows an institution or physician to provide a
nutritional consult which is specifically geared to the severity of the
patient's nutritional status.
Continuing Support Services
All computerized Health Outcomes Management systems are licensed with an
agreement for Health Outcomes Management to provide continuing support services
on a 24-hour-a-day, 7 day-a-week basis via our telephone helpline
(1-800-STAT-911).
Competition
The market for clinical information and financial software systems and services
continues to undergo rapid development and is highly competitive. Although no
one company directly competes with Health Outcomes Management's complete line of
services, many companies offer services that compete directly with individual
Health Outcomes Management services, or offer alternatives to such services.
The Company's principal competition in the market for the Assurance Long-Term
Care System (TM) and Assurance Financial System (TM) include Care Computer,
Genesis, Beechwood, AA Data Systems, Acheive, Melyx, and Long-Term Care Computer
Systems as well as about eighty-five other suppliers.
The Assurance Homecare System (TM) and the private label Homecare System (FOCIS)
which Health Outcomes Management is marketing to Option Care, Inc.'s franchises,
has principally the following competitors: Infomed, Sandata, Delta, Kiyo,
ProMac, RX:Home and Mesta Med.
In the market for the drug dosing and nutritional support competition consists
of Simkin, Cedar Systems and the Diagnostics Division of Abbott. The Abbott
product is intended primarily to serve as a complement to Abbott's laboratory
instruments.
The Company believes that the Assurance Long-Term Care System 2001 (TM) and
Assurance Homecare System 2001 (TM) are leading clinical products in their
fields. Company management believes that the Company's comprehensive clinical
services distinguish its products from the competition. The Company believes
that competitors could introduce new competing comprehensive clinical services
and products but not without significant investments of time and capital. Many
of the Company's competitors, however, do have greater financial and marketing
resources than the Company.
In the area of Pharmaceutical Care, competition consists primarily of Carepoint,
Encara, CareStream and MedOutcomes. Many pharmacy dispensing systems advertise
that they also do pharmaceutical care. However, the Company believes that
dispensing systems do not provide actual patient care and drug outcomes
measurement.
Sales and Marketing
The Company's products are presently marketed through direct marketing efforts.
The direct approach consists of efforts by Company personnel and commissioned
sales representatives in the promotion and sales of products and services into
all of the Company's markets.
The Company's marketing strategy is to establish itself as the leader in
providing clinical support services by placing a major emphasis on the service
component of its business. To accomplish this, the Company has implemented the
following strategies:
* Offer a wide variety of clinical and financial support services that
are adaptable to multiple health care applications and settings such
as long-term care facilities, retail pharmacies, home healthcare
agencies and hospitals.
* Distinguish Health Outcomes Management as a technological leader.
The Company's staff of Doctors of Pharmacy, Registered Nurses, and
computer programming experts enables Health Outcomes Management to
stay on the leading edge in research and patient outcome management
technology.
* Provide a 24-hour-a-day helpline (l-800-STAT-911) so that Health
Outcomes Management clinical and financial experts are available on
a seven day, 24-hour basis to provide clinical and financial support
services to its clients.
* Exhibit the Company's products and services at important national
trade shows and technical convocations.
* Develop strategic alliance with healthcare providers.
The ASSURANCE 2001 systems are stand alone services which can be integrated, but
are designed to meet specific productivity and outcome management needs of
practitioners and clinicians. They are generally sold directly by the Company to
existing clients and to prospects generated from magazine advertising, trade
shows, direct mailings and direct sales efforts.
Significant Clients
During the year ended February 29, 1996, two clients accounted for approximately
44% of total revenue. In 1995 and 1994, one client accounted for approximately
31% and 26%, respectively, of total revenues. During April 1996, the Company
terminated the relationship with one of its two major clients in order to pursue
other marketing arrangements. Revenues from this client constituted
approximately 21% of the Company's total 1996 revenue. Revenues from the client
were not material in 1995 and 1994.
Research and Development
The Company spent approximately $503,000, $383,000 and $203,000 for research and
development efforts in 1996, 1995, and 1994, respectively.
Government Regulation
Medical products and devices are subject to extensive federal regulations by the
United States Food and Drug Administration (the "FDA") and are also subject to
state regulations. The FDA has not adopted any substantive regulation on
computer software or related services.
Changes in reimbursement formulas and in the types of items eligible for
reimbursement under government funded health care programs have affected the
health care industry generally and may, directly or indirectly, affect the
market for the Company's products and services.
Copyrights, Patents and Trademarks
Computer software systems, which form an integral part of the Company's products
and services, may, in general, be copyrighted, but copyright laws do not provide
complete protection from unauthorized use.
The Company currently holds no patents with respect to any of its products or
services, but may seek patent protection in the future. Currently, the Company
seeks to protect proprietary information regarding its products and services as
trade secrets by utilizing nondisclosure agreements with its employees, clients
and others who are permitted access to such information.
Employees
On May 1, 1996, the Company employed 29 staff members. In addition, the Company
was utilizing the services of 7 independent marketing representatives. The
Company is not subject to any collective bargaining agreements and considers it
relationships with employees to be good.
Item 2. Properties
The Company leases its corporate office and training facilities, which are
located at 233l University Avenue Southeast in Minneapolis, Minnesota. The
facilities are covered by an operating lease with an original term of three (3)
years commencing January 1, 1992. On March 29, 1995, the Company leased
additional office space. Under the terms of the agreement the Company signed a
lease extension for all space in its corporate office facility. The lease term
for all office space was extended to December 31, 1997 with an option for an
additional two years. Rent is payable monthly in the amount of $11,187. In
addition to such rent, the Company is obligated to pay certain operating costs
and increases in real property taxes. Such facility consists of approximately
9,652 square feet.
The Company previously leased office facilities in Belleville, IL. That facility
was closed on September 30, 1994 and the month to month lease was terminated at
that time.
The Company currently maintains insurance for general property and liability
insurance claims in an aggregate amount which it believes to be sufficient given
the nature of its business. These policies generally provide coverage on a
claims made or occurrence basis and have certain exclusions from coverage. These
insurance policies must be renewed annually. There can be no assurance that
insurance coverage will be adequate to cover liability claims that may be
asserted against the Company or that adequate insurance will be available in the
future at acceptable cost. The Company does not have insurance against
liabilities arising in connection with errors and omissions in its computer
software.
Item 3. Legal Proceedings.
As of May 1, 1996, the Company was not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of stockholders during the Company's fourth
quarter.
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The Company's common stock is traded in the over-the-counter market and is
quoted by the National Quotation Bureau. The following tables reflect the
quarterly high and low bid quotations for the Company's stock. These quotations
represent inter-dealer prices, without retail markup, markdown or commission,
and may not necessarily represent actual transactions.
STOCK PRICE
1996 1995
- ------------------------------------------------------------------
QUARTER HIGH LOW QUARTER HIGH LOW
---- --- ---- ---
First $ .94 $ .50 First $ .60 $ .44
Second $ 1.12 $ .81 Second $ .58 $ .40
Third $ .94 $ .69 Third $ .50 $ .34
Fourth $ .69 $ .50 Fourth $ .60 $ .33
As of May 13, 1996, there were approximately 280 shareholders of record of the
Company's common stock.
To date, the Company has paid no dividends, and it does not intend to pay
dividends in the foreseeable future. Future dividend policy with respect to the
Common Stock will depend on conditions existing at the time, including the
Company's earnings, if any, capital needs, financial condition, general business
conditions and other factors considered by the Board of Directors.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL. Health Outcomes Management, Inc., is a developer and supplier of
proprietary computer software and services to the healthcare industry. Revenues
are derived primarily from four sources: (1) licensing computerized clinical and
financial information management software systems, (2) providing on-going
software support services, (3) software training services and (4) consulting
services. License and training fees are usually paid at the beginning of the
license term, which is generally from one to six years in duration. Annual and
monthly support fees pay for periodic software updates, telephone helpline
support and software usage.
FISCAL 1996 v. FISCAL 1995
REVENUE. For 1996, revenue was essentially flat at $3,182,718. Total revenue
rose $13,900, or 0.4%, from $3,168,818 in 1995. Revenue received from client
support fees increased 28.7%, license fees 10.6% and software training fees
102.7%. Decreases in consulting revenue and sales of client networking systems
offset these increases.
During 1996, the Company introduced the Assurance Coordinated Pharmaceutical
Care System (TM). Revenues generated from this software system accounted for
69.8%
of the total increase in client support fees, and all of the increase in
training fees, and offset decreases in license fees received from Long-Term Care
and Hospital products.
Consulting fee revenue decreased 74.1%, primarily reflecting changes in the
method of reimbursement by the Company's largest client. During 1995, the
Company received monthly retainer fees; in 1996 the Company received
reimbursement based on the number of Homecare systems licensed and trained. See
Note 11 to the Consolidated Financial Statements for discussion of this
arrangement.
The effects of inflation on the Company's revenue and operating results were not
significant.
COSTS AND EXPENSES. Total expenses, including interest, depreciation and
amortization decreased 2.2% to $3,087,103 from $3,157,823 in 1995. Total
operating expenses decreased 6.4% to $1,194,859 from $1,276,178 in 1995.
Compensation, benefits and payroll taxes increased 5.6% in 1996. Administrative
expenses such as telephone, accounting, legal, postage, supplies, education and
equipment maintenance increased 4.2% during 1996. Expense increases were
principally due to increased equipment maintenance costs associated with the
upgrade of existing computer equipment and increased education expenses for
computer programmers. Commissions paid to sales representatives decreased 12.9%
due to decreases in commissionable license fees. Travel expenses, fees paid to
outside consultants and new client training expenses also decreased when
compared to 1995. Expenses associated with advertising and marketing increased
by 8.1%.
Net interest expense decreased 27.6% to $25,927 from $35,826, primarily due to
reduced borrowing from an officer of the Company. During 1996, the Company's
interest costs related primarily to leased computer and office equipment.
Depreciation and amortization expenses decreased 42.7% to $171,531 from
$299,524. Amortization of various intangible costs associated with the 1993
acquisition of certain assets of Applied Micro Management, Inc. was completed in
1995.
FISCAL 1995 v. FISCAL 1994
REVENUE. Revenue for the year ended February 28, 1995 increased $767,127 or
31.9% when compared to the prior year. Increased revenues from support fees and
consulting revenue accounted for approximately 45% and 28% of the increase,
respectively. Revenues from training fees, hardware and other software sales
also increased during the year. License fee revenues decreased by approximately
5%. This was primarily due to a decrease in homecare license fees which was the
result of the Company's largest client switching to a monthly, flat fee payment
system, instead of making payments based on actual homecare systems licensed.
See Note 11 to the Consolidated Financial Statements for discussion of this
arrangement.
Revenues from software support fees continued to show significant growth during
the year. Support fee revenue increased by approximately 40%. Support fee
revenue received from all of the Company's products increased with the exception
of the Company's Hospital based clients which decreased by approximately 24%.
Training fees increased by approximately 96% primarily due to increase in
Long-Term Care client training and the initial pharmacies training on the
Company's Assurance Community Pharmaceutical Care System (TM).
The effects of inflation on the Company's revenue and operating results were not
significant.
COSTS AND EXPENSES. Total costs and expenses increased by approximately $850,500
or 37% from the previous year. This compares to an approximately 72% increase in
the previous fiscal year. Increased payroll costs, including taxes and benefits,
accounted for approximately 59% of this increase. Payroll costs increased by
approximately 46% when compared to the prior year. The increased payroll costs
were primarily the result of hiring new staff to handle the increased level of
support, development and training associated with expanded contract
responsibilities for Option Care. Under the terms of the February 1, 1994
agreement, the Company assumed additional support and training responsibilities
for the entire Option Care private label software system. The closing of the
Company's Belleville, IL office and the termination of those employees did not
have a material effect on the comparability of payroll costs with the prior
year.
Commissions paid to independent sales representatives increased by approximately
58%. The increase was the result of an approximately 54% increase in
commissionable license fees. Marketing and advertising expenses increased by
approximately 30% as the Company focused additional advertising and marketing on
Subacute and Transitional Care nursing facilities. Support service costs
increased by approximately 78% due to the increase in the number of Option Care
clients supported and the increased number of Long-Term Care clients receiving
support services. Travel and administrative expenses decreased by approximately
10% from the prior year.
Interest expense increased by approximately 6% for the year. This increase was
primarily the result of the Company leasing additional office and computer
equipment.
Depreciation and amortization expense increased by approximately $106,000 or 55%
during the year. Approximately $96,000 of the increase is related to
amortization of non-compete covenants, computer software and the client list
associated with the Company's August 1993 acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As of February 29, 1996, the Company had a working capital deficit of $(237,560)
compared to a deficit of $(427,130) at February 28, 1995, an improvement of
$189,570. The improvement in the working capital position was principally due to
continued profitable operations for the year.
The Company's negative working capital situation continues. Improved capital
availability will ultimately depend on improved sales performance and continued
cost containment of all operational costs. There can be no assurance that sales
results will continue to improve and that the Company will experience continued
profitable operations.
The Company does not have commitments to purchase additional equipment, but does
plan to continue to fund software development efforts at approximately the same
levels as the past year.
The Company believes that it may have short-term cash needs. If the need arises,
the Company will supplement its cash needs with the available line of credit
discussed in Note 15 to the Consolidated Financial Statements. An officer and
major shareholder of the Company has also agreed to make short-term interest
bearing advances to the Company as needed.
See Note 2 to the Consolidated Financial Statements for a discussion of
management's plans about future operations.
FORWARD LOOKING INFORMATION
Except for the historical information contained herein, the matters discussed in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward looking statements that involve risks and uncertainties,
including the availability of sufficient working capital should the Company
experience unexpected operating losses, increased market acceptance and market
penetration of the Company's Assurance Coordinated Pharmaceutical Care
System (TM), improved sales performance of all of the Company products, changes
in government regulations and continued containment of operational costs. In
addition, the market for clinical information and financial software systems and
services is highly competitive, and the Company's results may be adversely
affected by the actions of existing or future competitors including the
introduction of new products and technologies prior to introduction by the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In fiscal 1995, the Company was required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Under provisions of this statement, the Company
would be required to classify marketable debt and equity securities in one of
three categories: trading, available-for-sale or held-to-maturity. SFAS No. 115
has no significant impact on the Company's financial condition as the Company
does not presently have Investments in Debt and Equity Securities.
During fiscal 1996, the Company was not required to nor chose to adopt any new
accounting standard that had any significant impact on the financial statements.
In fiscal 1997, the Company intends to adopt the disclosure provisions of the
Financial Accounting Standards Board Statement No. 123, accounting for
Stock-Based Compensation, while continuing to account for options and other
stock-based compensation using the intrinsic value-based method.
Item 7. Financial Statements and Supplementary Data.
The following Consolidated Financial Statements of the Company and the
Independent Auditors' Report thereon are included on this Form 10-KSB
Independent Auditors' Report
Consolidated Balance Sheets - February 29, 1996 and February 28, 1995
Consolidated Statements of Operations - Years Ended February 29, 1996, February
28, 1995 and February 28, 1994
Consolidated Statements of Changes in Stockholders' Deficit - Years Ended
February 29, 1996, February 28, 1995 and February 28, 1994
Consolidated Statements of Cash Flows - Years Ended February 29, 1996, February
28, 1995 and February 28, 1994
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders'
Health Outcomes Management, Inc.:
We have audited the accompanying consolidated balance sheets of Health Outcomes
Management, Inc. (the Company) and subsidiaries as of February 29, 1996 and
February 28, 1995, and the related statements of operations, changes in
stockholders' deficit and cash flows for each of the fiscal years in the
three-year period ended February 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Health Outcomes
Management, Inc. and subsidiaries as of February 29, 1996 and February 28, 1995,
and the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended February 29, 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Health
Outcomes Management, Inc. will continue as a going concern. As discussed in note
2 to the consolidated financial statements, the Company's net working capital
deficiency and stockholders' deficit raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are described in note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 10, 1996
<TABLE>
<CAPTION>
Health Outcomes Management, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
February 29, 1996 and February 28, 1995
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 68,657 22,795
Trade receivables, less allowance for doubtful accounts
of $15,000 and $25,000, respectively 140,219 262,742
Prepaid expenses 43,805 13,229
Other current assets 679 5,497
----------- -----------
Total current assets 253,360 304,263
Property and equipment, net of accumulated depreciation 180,353 207,760
Other assets, net of accumulated amortization of
$286,867 and $226,229, respectively 82,601 134,947
----------- -----------
Total assets $ 516,314 646,970
=========== ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable -- 6,123
Note payable to officer -- 60,000
Current installments of obligation under capital leases 58,928 48,187
Accounts payable 126,936 227,934
Deferred revenue 193,660 115,676
Accrued compensation 74,955 129,051
Accrued payroll taxes 20,222 107,662
Other current liabilities 16,219 36,760
----------- -----------
Total current liabilities 490,920 731,393
----------- -----------
Obligation under capital leases, excluding current installments 81,962 112,560
----------- -----------
Total liabilities 572,882 843,953
----------- -----------
Stockholders' deficit:
Series A, convertible preferred 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 - 8,327,885 and
7,949,385, respectively 83,279 79,494
Additional paid-in capital 4,665,724 4,532,309
Accumulated deficit (4,713,171) (4,808,786)
Note receivable from officer (92,400) --
----------- -----------
Total stockholders' deficit (56,568) (196,983)
----------- -----------
Commitments and contingencies (notes 6 & 13)
Total liabilities and stockholders' deficit $ 516,314 646,970
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
Health Outcomes Management, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended February 29, 1996, February 28, 1995 and February 28, 1994
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 3,182,718 3,168,818 2,401,691
Cost of revenues 1,866,317 1,845,819 1,316,575
----------- ----------- -----------
Gross profit 1,316,401 1,322,999 1,085,116
----------- ----------- -----------
Operating expenses:
Research and development 502,627 383,263 203,401
Selling and marketing 195,668 279,146 253,618
General and administrative 496,564 613,769 499,698
----------- ----------- -----------
Total operating expenses 1,194,859 1,276,178 956,717
----------- ----------- -----------
Income from operations 121,542 46,821 128,399
----------- ----------- -----------
Other (income) expense:
Interest income (641) (1,108) (743)
Interest expense 26,568 36,934 34,811
----------- ----------- -----------
25,927 35,826 34,068
----------- ----------- -----------
Income tax expense -- -- --
----------- ----------- -----------
Net income $ 95,615 10,995 94,331
=========== =========== ===========
Income per common share $ .01 .00 .01
=========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 8,720,983 8,974,608 9,536,765
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
Health Outcomes Management, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Years ended February 29, 1996, February 28, 1995 and February 28, 1994
NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
NUMBER PAR NUMBER PAR PAID-IN ACCUMULATED FROM TOTAL
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT OFFICER DEFICIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
FEBRUARY
28, 1993 625,000 6,250 7,141,700 71,417 4,269,856 (4,914,112) -- (566,589)
Issuance of
common stock
for acquisition -- -- 450,000 4,500 200,250 -- -- 204,750
Proceeds from
stock options
exercised -- -- 48,685 487 17,213 -- -- 17,700
Net income -- -- -- -- -- 94,331 -- 94,331
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES,
FEBRUARY
28, 1994 625,000 6,250 7,640,385 76,404 4,487,319 (4,819,781) -- (249,808)
Issuance of
common stock
for acquisition -- -- 100,000 1,000 37,500 -- -- 38,500
Proceeds from
stock options
exercised -- -- 9,000 90 3,240 -- -- 3,330
Issuance of
common stock -- -- 200,000 2,000 48,000 -- -- 50,000
Purchase of
preferred stock (625,000) (6,250) -- -- (43,750) -- -- (50,000)
Net income -- -- -- -- -- 10,995 -- 10,995
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES,
FEBRUARY
28, 1995 0 0 7,949,385 79,494 4,532,309 (4,808,786) -- (196,983)
Proceeds from
stock options
exercised -- -- 265,500 2,655 110,410 -- -- 113,065
Issuance of
common stock -- -- 113,000 1,130 23,005 -- -- 24,135
Net income -- -- -- -- -- 95,615 -- 95,615
Note receivable
from officer -- -- -- -- -- -- (92,400) (92,400)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
FEBRUARY
29, 1996 0 $ -- 8,327,885 $ 83,279 4,665,724 (4,713,171) (92,400) (56,568)
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
Health Outcomes Management, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended February 29, 1996, February 28, 1995 and February 28, 1994
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 95,615 10,995 94,331
--------- --------- ---------
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 110,893 103,673 68,782
Amortization 60,638 195,850 124,434
Provision for losses on accounts receivable 36,160 7,425 80,000
Gain on disposal of equipment -- 671 --
Payments in stock 9,135 -- --
Consulting fees in lieu of repayment of notes payable
to customer -- -- (120,000)
Changes in operating assets and liabilities, net of
acquisition of Applied Micro Management
Decrease (increase) in trade receivables 86,363 (6,100) (260,222)
Decrease in other receivables -- -- 10,000
Decrease (increase) in prepaid expenses (30,576) 94,605 (51,964)
Decrease (increase) in other current assets 4,818 (3,137) 74
Increase (decrease) in accounts payable (100,998) 44,038 88,987
Increase (decrease) in deferred revenue 77,984 (407,442) 95,721
Increase (decrease) in accrued compensation (54,096) 25,873 29,152
Increase (decrease) in payroll taxes (87,440) 61,820 (18,895)
Increase (decrease) in other current liabilities (20,541) 31,992 4,659
--------- --------- ---------
Total adjustments 92,340 149,268 50,728
--------- --------- ---------
Cash provided by operating activities 187,955 160,263 145,059
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (63,697) (40,436) (74,419)
Cash paid for acquisition -- (22,500) (24,112)
--------- --------- ---------
Cash flows used in investing activities (63,697) (62,936) (98,531)
--------- --------- ---------
Cash flows from financing activities:
Bank overdraft -- (8,488) 8,488
Principal payments under capital lease obligations (47,938) (44,888) (22,629)
Repayments of bank loans assumed in the
Applied Micro Management, Inc. acquisition (6,123) (17,486) (12,279)
Net repayment of loans to officer (60,000) (7,000) (38,000)
Proceeds from issuance of common stock 35,665 53,330 17,700
Repurchase of preferred stock -- (50,000) --
--------- --------- ---------
Cash flows used in financing activities (78,396) (74,532) (46,720)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 45,862 22,795 (192)
Cash and cash equivalents at beginning of year 22,795 0 192
--------- --------- ---------
Cash and cash equivalents at end of year $ 68,657 22,795 0
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 27,661 37,442 37,234
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Health Outcomes Management, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 29, 1996
1. SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS Health Outcomes Management, Inc., (the
Company) formerly known as Data Med Clinical Support Services, Inc., and its
wholly owned subsidiaries, develop and supply computer software systems and
services to the healthcare industry.
The Company markets clinical and financial software and related services used
for the management of Community Pharmacies, Long-Term Care Nursing Facilities,
Homecare Facilities and Hospital Departments.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions and balances are eliminated in consolidation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES The company utilizes Financial Accounting Standard No. 109,
Accounting for Income Taxes. Under the asset and liability method of Statement
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
of property and equipment is provided over the useful lives of the respective
assets on a straight-line basis. The useful lives for financial reporting
purposes range from three to five years.
RESEARCH AND DEVELOPMENT Research and development costs are charged to expense
as incurred.
REVENUE RECOGNITION Revenue is recognized upon delivery of software and clients'
completion of required training programs.
DEFERRED REVENUE Deferred revenue is recorded when payments are received from
clients in advance of services being provided, usually pursuant to long-term
contracts or annual support agreements. Deferred revenue is amortized monthly
over the life of the agreements, usually from one to five years.
NET INCOME PER COMMON SHARE Income per common share is computed based on the
weighted average number of common shares outstanding during the period. Common
stock issuable upon exercise of stock options, warrants or upon conversion of
Preferred Stock is included in the income per share calculation.
CAPITALIZED SOFTWARE The Company capitalizes software production costs after
technological feasibility has been established and prior to general release to
clients. Annual amortization of capitalized software is based on the greater of
the amount computed using the straight-line method over the estimated 36-month
economic product life or using the ratio that current gross revenues for the
software product bears to the total of current and anticipated future gross
revenues for that product.
STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, the Company
considers highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
2. CONTINUATION AS A GOING CONCERN
The accompanying financial statements are prepared assuming the Company will
continue as a going-concern. As of February 29, 1996, the Company had an
accumulated deficit of $4,713,171, a stockholders' deficit of $56,568, and a
working capital deficit of $237,560. Accordingly, there is doubt about the
Company's ability to continue in existence. The Company's continued existence is
dependent upon management's ability to continue profitable operations and
resolve its liquidity problems. Management anticipates profitability will
continue and that liquidity problems will be resolved as a result of the actions
described below. The financial statements do not include any adjustments that
might result should the Company be unable to continue as a going concern.
Management has adopted the following plans for the coming year:
* Continue to expand the Company's growing retail pharmacy business
which utilizes the Outcome Management technology of the Assurance
Coordinated Pharmaceutical Care System (TM).
* Increase the number of OPTION Care franchisees using the Company's
software for homecare which includes Outcome Management technology.
* Expand the Company's marketing efforts in Subacute Care and
Transitional Care, which are two emerging healthcare market segments
where the Company has established clients and well accepted
software.
* Reduce operating costs and ensure that the effectiveness of
remaining expenditures is consistent with support of the Company's
growing client base.
If operations and cash flow can be improved through these efforts, management
believes that the Company can continue to operate. However, no assurance can be
given that management's actions will result in continued profitable operations
and the resolution of its liquidity problems.
3. BUSINESS ACQUISITION
On August 17, 1993, the Company completed the acquisition of certain assets and
the client list of Applied Micro Management, Inc., (AMM) of Belleville, IL. AMM
was a competitor of the Company in the Long-Term Care software services
business. The initial purchase price was $264,750, of which $24,112 was paid in
cash, a note payable of $35,888 was assumed and $204,750 in restricted common
stock was issued. During 1995, the Company issued an additional 100,000 shares
of the Company's common stock and made an additional cash payment of $22,500 to
AMM pursuant to the terms of the acquisition agreement.
The accompanying financial statements include results of operations of the
acquired business from the date of acquisition. Due to the nature of the
transaction under which the Company purchased only certain assets of AMM,
meaningful pro-forma financial information is not available.
The purchase price was determined as follows:
- --------------------------------------------------------------------------------
Restricted common stock issued $243,250
Liability assumed 35,888
Cash paid 46,612
--------
Total purchase price $325,750
========
The allocation of the purchase price is as follows:
Non-compete agreements $150,000
Furniture and equipment 10,000
Purchased software 40,000
Other assets-client list 125,750
--------
$325,750
========
The Company is amortizing the non-compete agreements over five years.
Amortization expense was $30,000, $30,000 and $15,000 in 1996, 1995 and 1994,
respectively.
The Company amortized the client list over a 12 month period. Amortization
expense was $0, $93,375 and $32,375 in 1996, 1995 and 1994, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
1996 1995
- --------------------------------------------------------------------------------
Property under
capitalized leases $310,005 288,315
Furniture and equipment 359,854 305,343
-------- --------
669,859 593,658
Less accumulated depreciation 489,506 385,898
-------- --------
Net property and equipment $180,353 207,760
======== ========
5. CAPITALIZED SOFTWARE
During 1996, the Company became licensed as an authorized reseller of financial
software from Solomon Software. The software is for corporate use and inclusion
into the Company's Windows based software products presently under development.
The Company is amortizing the $8,292 of software costs over three years.
During 1994, the Company purchased as a part of its acquisition of certain
assets of AMM, computer software with an assigned value at $40,000. This
software was previously licensed to AMM clients. On September 30, 1994, the
Company discontinued software support services to the clients who had not
converted from the AMM software to the Company's software products. The Company
amortized these costs over 12 months. These costs were fully amortized as of the
end of 1995.
New software products, developed in 1996, 1995 and 1994, were expensed as
incurred due to the lack of significant revenues generated from such products.
Capitalized computer software amortization was $30,638, $72,475 and $77,059 in
1996, 1995 and 1994, respectively.
6. LEASES
The Company leases its corporate office facility under an operating lease with
an original term of three years commencing January 1, 1992. The Company
exercised a one year option to extend the lease through December 31, 1995. On
March 29, 1995, the Company leased additional office space. Under the terms of
the agreement the Company signed a lease extension for all space in its
corporate office facility. The lease term for all office space was extended to
December 31, 1997, with an option for an additional two years.
The Company previously leased office facilities in Belleville, IL. That facility
was closed on September 30, 1994, and the month to month lease was terminated.
Rental expense in 1996, 1995 and 1994 was $127,413, $112,756 and $72,079,
respectively.
Future minimum rental payments due under operating leases are as follows:
- --------------------------------------------------------------------------------
1997 $134,248
1998 111,874
The following summarizes assets under lease that have been capitalized and
included in property and equipment in the accompanying balance sheets:
1996 1995
- --------------------------------------------------------------------------------
Office and computer
equipment $ 310,005 288,315
Less accumulated
amortization (228,384) (167,977)
--------- ---------
$ 81,621 120,338
========= =========
Future minimum lease payments under capital leases are as follows:
- --------------------------------------------------------------------------------
1997 $ 76,365
1998 64,352
1999 17,097
2000 8,168
2001 2,964
-------
Total 168,946
Less amount representing interest (28,056)
-------
Present value of net minimum
lease payments 140,890
Less current installments (58,928)
-------
Obligations under capital leases,
excluding current installments $ 81,962
========
All equipment purchased under capital lease is pledged as collateral.
7. INCOME TAXES
There were no income tax expense or benefit amounts required for 1996, 1995 or
1994.
The provision for income taxes for the years ended February 29, 1996 and
February 28, 1995, differs from the statutory federal tax rate applied as
follows:
1996 1995
- --------------------------------------------------------------------------------
Federal tax calculated at the
statutory rate 34% 34%
State taxes, net 2% 2%
Change in valuation allowance (36%) (36%)
--- ---
0% 0%
=== ====
Deferred taxes, calculated using an effective tax rate of 36% in 1996 and 1995
consist of the following:
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Capital leases $ 23,500 16,200
Book depreciation
greater than tax 42,500 46,800
Accounts receivable
allowance 5,400 9,000
Net operating loss
carryforwards 1,709,000 1,905,800
Deferred revenue 69,700 41,600
----------- -----------
Gross deferred
tax assets 1,850,100 2,019,400
Less valuation
allowance (1,850,100) (2,019,400)
----------- -----------
Net deferred tax assets $ 0 0
=========== ===========
As of February 29, 1996, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $4,747,000 which expire beginning in
2002. Included in the above carryforward amounts are approximately $670,000 of
net operating losses attributable to the former separate operations of STAT
Systems, Inc., utilization of which is restricted subject to the annual
limitations specified by the Internal Revenue Code of 1986 as amended.
8. STOCKHOLDERS' EQUITY (DEFICIT)
STOCK ISSUANCES During 1996, 1995 and 1994, 13,000, 0 and 0 shares of common
stock, respectively, were awarded to related parties, directors, associates and
consultants as payment for services performed.
On September 8, 1994, the Company issued 200,000 shares of its restricted common
stock in a private placement. The $50,000 proceeds from this private placement
were used to purchase all outstanding shares (625,000) of the Company's
preferred stock from a former client.
During June 1994, the Company issued an additional 100,000 shares of restricted
common stock to AMM pursuant to the additional compensation provisions of the
Company's August 17, 1993, agreement with AMM in which the Company acquired the
client list and certain assets of AMM.
PREFERRED STOCK The Company has one series of preferred stock; Series A,
convertible preferred. All preferred shares are non-voting, receive no dividends
and have liquidation preference over the Company's common stock. On September 8,
1994, the Company purchased from a former client (SIMS Deltec, Inc.) all 625,000
outstanding shares of the Company's preferred stock then outstanding for
$50,000. All 1,000,000 preferred shares are unissued and are undesignated as of
February 29, 1996.
STOCK OPTION PLAN In February 1986 the Company adopted a stock option plan
providing for the issuance of up to 1,200,000 shares of common stock to
associates, members of the board of directors and other nonemployee agents of
the Company. The exercise price of the options must be at least 100% (110% for
shareholders with 10% or more ownership) of the fair market value of the common
stock as of the date of grant. Generally, options are exercisable for a period
of ten years (five years for shareholders with 10% or more ownership) commencing
on the date of grant.
During February 1996 the Company's 1986 stock option plan expired. No additional
stock options can be issued to associates, members of the board of directors or
other nonemployee agents of the Company without shareholder approval of a new
stock option plan.
Information with respect to options for the Company's common shares is
summarized as follows:
OPTIONS OUTSTANDING
-------------------
SHARES EXERCISE
AVAILABLE PRICE
FOR GRANT SHARES PER SHARE
- --------------------------------------------------------------------------------
Balance
February 28, 1993 21,000 1,166,250 $0.25-0.44
Granted in 1994 -- --
Exercised -- (48,685) 0.25-0.37
Canceled 26,000 (26,000) 0.37
---------- ----------
Balance
February 28, 1994 47,000 1,091,565 0.25-0.44
Granted in 1995 (13,000) 13,000 0.45
Exercised -- (9,000) 0.37
Canceled 88,000 (88,000) 0.37-0.41
---------- ----------
Balance
February 28, 1995 122,000 1,007,565 0.25-0.45
Granted in 1996 (281,500) 281,500 0.59-0.97
Exercised -- (265,500) 0.25-0.44
Canceled 203,750 (203,750) 0.25-0.97
Canceled upon
plan expiration (44,250) --
---------- ----------
Balance
February 29, 1996 0 819,815 $0.25-0.97
========== ==========
Options
exercisable at
February 29, 1996 611,940 $0.25-0.97
==========
9. MAJOR CLIENTS AND FOREIGN SALES
During the year ended February 29, 1996, two clients accounted for approximately
44% of total revenue. In 1995 and 1994, one client accounted for approximately
31% and 26%, respectively, of total revenues. During April 1996, the Company
terminated its relationship with one of its two major clients in order to pursue
other marketing arrangements. Revenues from this client constituted
approximately 21% of the Company's total 1996 revenue. Revenue from the client
was not material in 1995 and 1994.
There were no significant foreign sales in fiscal years 1996, 1995 and 1994.
10. RELATED PARTY TRANSACTIONS
At February 29, 1996, the Company had a 9.25% secured note receivable from an
executive officer, with interest payable quarterly on the unpaid balance.
Collateral consists of 210,000 shares of the Company's common stock. Additional
provisions of the note require that the officer assign other personal assets as
additional collateral should the value of the then existing collateral be
insufficient to pay off the unpaid loan balance. At February 29, 1996, the
balance due on the note receivable was $92,400.
The note payable to a certain officer at February 28, 1995 was $60,000. The note
payable had a stated interest rate of 12% per annum. The note payable to officer
at February 28, 1995 was paid in full in March 1995. No borrowings from the
officer occurred during the year ending February 29, 1996.
11. MARKETING AGREEMENT
On February 1, 1995, an amendment to the agreement dated February 1, 1994, was
entered into with Option Care, Bannockburn, IL. The terms of the amendment
appoints the Company as the exclusive marketing representative to market and
promote the licensing of Option Care's private label clinical and financial
software system commonly known as FOCIS to existing and future franchisees of
Option Care. Additional terms of the amendment provide that Health Outcomes
Management will receive 80% of the license fee charges to each Option Care
franchise rather than monthly retainer payments provided for in the original
agreement. In addition to providing the software, the Company performs all
software training and client support. The term of the original agreement is for
a period of three years. The amendment did not alter the termination date of the
agreement. This amendment also provided for the cancellation of an unrelated
marketing agreement effective June 15, 1994. The February 1, 1994, agreement
canceled a software development and marketing agreement effective November 29,
1991.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental schedule of noncash investing and financing activities:
In 1996, notes receivable from an officer for the purchase of common stock
totaled $92,400.
In 1996, capital lease obligations incurred for leases of new equipment totaled
$28,081.
In 1995, capital lease obligations were incurred for leases of new equipment
totaled $106,841.
In 1995, the Company issued 100,000 shares of its restricted common stock
totaling $38,500 in value pursuant to the terms of its acquisition of certain
assets of AMM.
13. EMPLOYMENT AGREEMENT
On February 1, 1991, the Company entered into employment agreements with its
president and vice president which provided for their employment for a term of
three years with automatic renewal of the term for one-year periods thereafter,
unless terminated by the Company within provisions of the agreement, or by the
president or vice president for any reason upon twelve (12) weeks advance
notice. The Company may be required to purchase all of the employees' common
shares including unregistered shares, unexercised stock options and warrants at
the average fair market value price at the time of the termination. The
agreements also contain certain restrictive covenants including a noncompete
covenant. These employment agreements are being renewed for one year periods
pursuant to the automatic renewal provisions of the original agreements.
14. RETIREMENT PLANS
On March 1, 1995, the Company established a defined contribution, 401(k),
pension plan for substantially all of its employees. The Company matches 25% of
the employee's contribution up to 6% of compensation, as defined. The expense
recognized in 1996 related to the plan totaled $14,820.
15. SUBSEQUENT EVENTS
On April 4, 1996, the Company entered into a $50,000 "Line of Credit" agreement
with Riverside Bank, Minneapolis, MN. Amounts borrowed under the agreement will
be used for working capital purposes. All outstanding borrowings bear interest
at the First Bank National Association Reference Rate plus 1.5%. The agreement
expires April 1, 1997. The agreement is secured by all accounts receivable,
equipment not covered under financing agreements, inventory, if any, and general
intangibles. The agreement also requires the Company to maintain certain
financial covenants, including but not limited to, maintaining a minimum net
worth.
Item 8. Disagreements on Accounting and Financial Disclosure.
None.
Part III
Item 9. Directors and Officers of the Registrant
The following table sets forth information regarding the Company's executive
officers and directors as of May 1, 1996:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William A. Peter, Jr. 60 President, Chief Executive
Officer and Director
Michael J. Frakes 44 Vice President and Director
Jerry L. Hoganson 45 Director
Robert J. Cipolle 45 Director
Russell E. Jackson 47 Chief Financial Officer,
Treasurer and Secretary
</TABLE>
William A. Peter, Jr. is the founder of the Company and has served as President
and Chief Executive Officer and as a member of the Board of Directors since its
incorporation. From December 17, 1985 to May 22, 1986, Mr. Peter was also the
president of Data Med, Inc., the company from which the Company purchased
certain of its current products and services. From May 1985 to December 1985,
Mr. Peter was president of Delaware Business Consultants, a firm which provided
sales and marketing consulting services principally to the health care industry.
Prior to May 1985, Mr. Peter was employed for 26 years by E.I. Dupont DeNemours
& Company, his last position being marketing manager in the health care
division. Mr. Peter holds a bachelor's degree in industrial management and a
master's degree in chemical engineering from the Massachusetts Institute of
Technology.
Michael J. Frakes, Pharm.D., has served as a Vice President of the Company since
May 22, 1986, and as a member of the Board of Directors since March 16, 1987.
Mr. Frakes was a cofounder of Data Med, Inc., and served as the vice president
of Data Med, Inc., from 1981 until joining the Company. Mr. Frakes has primary
responsibility for ongoing development of the Company's products and services.
Mr. Frakes holds a doctor of Pharmacy degree from the University of Minnesota.
Jerry L. Hoganson, CNHA, has served as a member of the Board of Directors of the
Company since June 27, 1991, and has served on the Company's Clinical Consulting
Board since October 1990. Mr. Hoganson has been the Administrator of St. Paul's
Church Home in St. Paul, Minnesota since 1988. From 1982 to 1988, Mr. Hoganson
was the Administrator of the Zumbrota, Minnesota Nursing Home. Mr. Hoganson
holds a bachelor's degree in Hospital Administration from Concordia College,
Moorhead, Minnesota. Mr. Hoganson is a Certified Nursing Home Administrator
(CNHA) and a past president of the Minnesota Chapter of the American College of
Health Care Administrators.
Robert J. Cipolle, Pharm.D., previously served as a member of the Board of
Directors of the Company from June 29, 1989, until June 30, 1993, when he
resigned because of his duties as Acting Dean of the College of Pharmacy at the
University of Minnesota. Mr. Cipolle was reappointed to the Board of Directors
on May 19, 1994. Mr. Cipolle currently serves as an Associate Professor of
Pharmacy Practice at the University of Minnesota. Mr. Cipolle was the Acting
Dean of the College of Pharmacy from 1992 to 1994. Mr. Cipolle has also served
the University of Minnesota as the Associate Dean of the College of Pharmacy and
as the Assistant Head for Research and Post-Graduate Education for the
Department of Pharmacy Practice. Mr. Cipolle has authored or co-authored a
number of articles, textbook chapters and educational modules dealing with the
disciplines of Pharmacokinetics and Pharmacy Practice.
Russell Jackson joined the Company as its Controller in August 1990. Mr. Jackson
was appointed Treasurer and Secretary in January 1991 and was appointed Chief
Financial Officer in January 1992. From September of 1989 to April 1990 Mr.
Jackson held the position of Accounting Manager for CSM Corporation. From August
of 1979 to May 1989 Mr. Jackson was Assistant Controller for Lieberman
Enterprises, Inc., where he was responsible for financial management and
reporting, budgeting, corporate taxes and SEC reporting and filing functions.
Mr. Jackson is a graduate of National College in Rapid City, South Dakota and
holds a B.A. in Accounting.
Item 10. Executive Compensation.
Effective August 2, 1994, each nonemployee member of the Board of Directors
received, per meeting, $200 plus 800 shares of the Company's common stock. For
telephonic conferences each nonemployee member receives $50 plus 200 shares of
the Company's common stock. Prior to August 2, 1994, nonemployee members
received $100 per meeting and there was no compensation paid for telephonic
conferences. No compensation is paid to employee members of the Board of
Director for attending meetings. During the fiscal year ended February 29, 1996,
nonemployee Board of Director compensation totaled $5,325.
The following table sets forth the compensation paid or to be paid by the
Company with respect to the fiscal year ended February 29, 1996, to the
executive officers whose total cash compensation (including bonuses) exceeded
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Table Compensation
------------------------- ------------
Name and Fiscal Other Annual Stock All
Principal Position Year Salary Bonus Compensation Options Other
-------------------- ------- -------- ----- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
William A. Peter, Jr., 1996 $103,881(2) $ 925 $2,190(1) --- ---
President & CEO 1995 $ 99,234 $ 104 $2,190(1) --- ---
1994 $ 94,780 $1,065 $2,190(1) --- ---
</TABLE>
(1) Amount shown represents a health insurance allowance paid to Mr. Peter.
(2) Amount shown does not include salary totaling $74,787 for prior years
which was paid during the current year. This amount has been previously
reported.
STOCK OPTIONS HELD AND FISCAL YEAR OPTION VALUES
The following table sets forth information concerning the value of Stock Options
held by the Company's executive officers named in the compensation table as of
February 29, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money Options at
Options Held at Year End Year End(1)
------------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William A. Peter, Jr., 138,125(2) 9,375 $81,494 $5,531
President & CEO
</TABLE>
(1) Based upon the average of the bid and ask price of $.59 for the Company's
Common Stock on February 29, 1996, as reported by the National Quotation Bureau.
(2) Includes warrants to purchase 115,000 shares of the Company's Common Stock.
EMPLOYMENT AGREEMENTS
On February 1, 1991, the Company entered into employment agreements with William
A. Peter, Jr. and Michael J. Frakes, for a term of three years. The agreements
provide for automatic renewals for one-year periods, pursuant to which they have
been extended to January 31, 1997. Under the employment agreements with Mr.
Peter, Mr. Peter will be paid $9,012 per month from February 1, 1996 to January
31, 1997. Mr. Peter may also receive bonus compensation in the form of cash or
shares of Common Stock. The employment agreement between the Company and Mr.
Peter contains certain restrictive covenants, including prohibition of the use
of proprietary information by Mr. Peter and restrictions on future competing
employment. The restrictions on competing employment will be enforceable
following termination of employment by the Company only if the Company continues
to pay prescribed amounts each month during the period of restriction. Certain
provisions of the agreement may require the Company to purchase all of Mr.
Peter's common shares including unregistered shares, unexercised stock options
and warrants at the average fair market value price upon termination or an
ownership control change exceeding 40% control by an outside party.
Mr. Peter has been granted incentive stock options under Division A of the
Company's Stock Option Plan for purchase of a total of 32,500 shares of Common
Stock.
Under the employment agreements with Mr. Frakes, Mr. Frakes will be paid $8,412
per month from February 1, 1996 to January 31, 1997. Mr. Frakes may also receive
bonus compensation in the form of cash or shares of Common Stock. The employment
agreement between the Company and Mr. Frakes contains certain restrictive
covenants, including prohibition of the use of proprietary information by Mr.
Frakes and restrictions on future competing employment. The restrictions on
competing employment will be enforceable following termination of employment by
the Company only if the Company continues to pay prescribed amounts each month
during the period of restriction. Certain provisions of the agreement may
require the Company to purchase all of Mr. Frakes' common shares including
unregistered shares, unexercised stock options and warrants at the average fair
market value price upon termination or an ownership control change exceeding 40%
control by an outside party.
Mr. Frakes has been granted incentive stock options under Division A of the
Company's Stock Option Plan for purchase of a total of 235,500 shares of Common
Stock.
STOCK OPTION PLAN
On February 17, 1986, the Board of Directors and the shareholders of the Company
adopted a Stock Option Plan (the "Stock Option Plan") that authorizes the
issuance of options to purchase an aggregate of 400,000 shares of the Company's
Common Stock. As a result of the three-for-one stock split effective June 15,
1987, the number of shares authorized and reserved for grant of options is
1,200,000. Options may be granted to employees and agents of the Company,
including executive officers of the Company. Options granted pursuant to the
Stock Option Plan may be intended either to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the Code),
or to be nonqualified stock options. The exercise price of any incentive stock
option granted under the Stock Option Plan must be at least 100% (110% in the
case of 10% shareholders) of the fair market value of the Common Stock on the
date of grant, and the value of Common Stock (determined on the date of grant)
for which an optionee's incentive stock options become exercisable in any
calendar year may not exceed $100,000. The value of nonqualified options granted
under the Stock Option Plan is not subject to any dollar limitation, but the
exercise price of nonqualified options must also be at least 100% of the fair
market value of the Common Stock on the date of grant. Options must be granted
within 10 years from the date of adoption of the Stock Option Plan. Options will
expire on the date set forth in the respective stock option agreements, but in
no event later than 10 years from the date an option is granted. Options are
subject to earlier termination in certain events, including termination of
employment, disability, or death of the optionee. The Stock Option Plan is
administered by the Stock Option Committee of the Board of Directors. As of May
1, 1996, incentive stock options for the purchase of 923,500 shares and
nonqualified stock options for the purchase of 148,000 shares have been granted
under the Stock Option Plan.
During February 1996, the Company's 1986 stock option plan expired. No
additional stock options can be issued to associates, members of the board of
directors or other nonemployee agents of the Company without shareholder
approval of a new stock option plan.
Options to purchase a total of 379,500 shares were held by the Company's
officers and directors as a group as of May 1, 1996. The Company's employees
(including certain officers and directors) held options to purchase a total of
973,500 shares at the same date. Options totaling 251,685 shares had been
exercised as of the end of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table lists, as of May 1, 1996, the securities ownership of all
directors of the Company, the directors and officers of the Company as a group,
and all persons known by the Company to own beneficially more than 5% of the
issued and outstanding Common Stock of the Company. Unless otherwise indicated,
each person in the table has sole voting and investment power as to the shares
shown.
Number Percentage
Name and Address of Shares Ownership
---------------- --------- ---------
William A. Peter, Jr. 1,520,125(1) 18.4%
6650 Vernon Hills Road
Edina, MN 55436
Michael J. Frakes 378,424(2) 4.7%
3712 Chatham Circle
Arden Hills, MN 55112
Robert J. Cipolle 64,250(3) .8%
14721 80th Place N.
Maple Grove, MN 55369
Jerry L. Hoganson 19,000(4) .2%
1742 Lark Avenue
Maplewood, MN 55109
Directors and officers 2,036,424(5) 24.8%
as a group (5 persons)
- --------------------------
(1) Includes 115,000 shares which may be purchased pursuant to warrants and
23,125 shares which may be purchased pursuant to stock options which will become
exercisable within 60 days of the date hereof.
(2) Includes 30,000 shares which may be purchased pursuant to warrants and
226,125 shares which may be purchased pursuant to stock options which will
become exercisable within 60 days of the date hereof.
(3) Includes 35,000 shares which may be purchased pursuant to stock options
which will become exercisable within 60 days of the date hereof.
(4) Includes 15,000 shares which may be purchased pursuant to stock options
which will become exercisable within 60 days of the date hereof.
(5) Includes 493,875 shares which certain directors and officers have the right
to purchase pursuant to warrants and stock options which will become exercisable
within 60 days of the date hereof.
Item 12. Certain Relationships and Related Transactions.
During the fiscal year ended February 28, 1994, Mr. Peter made loans to the
Company to meet its short term cash needs. These notes had stated interest rates
of 12% per annum. On February 28, 1994, the due dates of these notes were
extended to March 30, 1995. No consideration was required to be paid by the
Company for the extension of the due dates. As of February 28, 1995, these notes
have been repaid in full to Mr. Peter.
During the fiscal year ended February 28, 1995, Mr. Peter made loans to the
Company to meet its short term cash needs. The notes payable had stated interest
rates of 12% per annum. The February 28, 1995 note payable to officer was
payable on March 30, 1995. As of February 28, 1995, the aggregate principal
outstanding on Mr. Peter's loan totaled $60,000. As of March 1, 1995, the note
was repaid in full to Mr. Peter.
No borrowings from Mr. Peter occurred during the year ended February 29, 1996.
At February 29, 1996, the Company held a 9.25% secured note receivable from Mr.
Peter, with interest payable quarterly on the unpaid balance. Collateral
consists of 210,000 shares of the Company's common stock. Additional provisions
of the note require that Mr. Peter assign other personal assets as additional
collateral should the value of the then existing collateral be insufficient to
pay off the unpaid loan balance. At February 29, 1996, the balance due on the
note receivable was $92,400.
Item 13. Compliance with Section 16(a) of the Exchange Act.
The Securities Exchange Act of 1934 requires all executive officers and
directors to report any changes in the ownership of common stock of the Company
to the Securities and Exchange Commission and the Company.
Based solely upon a review of these reports and written representations that no
additional reports were required to be filed in fiscal 1996, the Company
believes that all reports were filed on a timely basis, with the exception of
Form 5 reports for Michael J. Frakes, Russell Jackson, Robert J. Cipolle and
Jerry L. Hoganson.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The following Consolidated Financial Statements of the Company and the
Independent Auditor's Report thereon are included on this Annual Report on Form
10-KSB:
Independent Auditors' Report
Consolidated Balance Sheets - February 29, 1996 and February 28, 1995
Consolidated Statements of Operations - Years Ended February 29, 1996, February
28, 1995 and February 28, 1994
Consolidated Statements of Changes in Stockholders' Deficit - Years Ended
February 29, 1996, February 28, 1995 and February 28, 1994
Consolidated Statements of Cash Flows - Years Ended February 29, 1996, February
28, 1995 and February 28, 1994
Notes to Consolidated Financial Statements
(a)(3) Exhibits including those incorporated by reference:
Exhibit
Number Document
------ --------
*3(a) Restated Articles of Incorporation, as amended.
(Filed as exhibit 3(a) to registrant's quarterly
report on Form 10-Q for the quarter ended November
30,1995).
*3(b) By-laws (Filed as exhibit 3B to the Company's
Registration Statement on Form S-18 [Reg. No.
33-9417C] on October 10, 1986).
*3(c) Certificate of Designation of Non-Voting
Convertible Preferred Stock, Series A (Filed as
exhibit 4(a) to registrant's quarterly report on
Form 10-Q for the quarter ended May 31, 1990).
*3(d) Articles of Incorporation of Pharmaceutical Care
Outcomes, Inc. (Filed as exhibit 3(a) to
registrant's quarterly report on Form 10-Q for the
quarter ended August 31, 1994).
*3(e) By-laws of Pharmaceutical Care Outcomes, Inc.
(Filed as exhibit 3(b) to registrant's quarterly
report on Form 10-Q for the quarter ended August
31, 1994).
*3(f) Restated Articles of Incorporation of HO
Management, Inc. (Filed as exhibit 3(b) to
registrant's quarterly report on Form 10-Q for the
quarter ended November 30, 1995).
*3(g) By-laws of HO Management, Inc. (Filed as exhibit
3(b) to registrant's quarterly report on Form 10-Q
for the quarter ended August 31, 1995).
4(a) Note receivable dated February 1, 1995, due from
William A. Peter, Jr.
*10(a) Termination agreement among OPTION Care, Inc.,
Health Outcomes Management, Inc., and Precision
Resource Corporation dated as of February 1, 1994,
terminating Development and marketing agreement
dated as of November 29, 1991. (Filed as exhibit
10(c) on Form 10-KSB for the year ended February
28, 1994.)
*10(b) Software development, installation and training
agreement between OPTION Care, Inc., and Data Med
Clinical Support Services, Inc., dated as of
February 1, 1994 (Filed as exhibit 10(d) on Form
10-KSB for the year ended February 28, 1994).
*10(c) Consulting agreement between Data Med Clinical
Support Services, Inc., and OPTION Care, Inc.,
dated as of February 15, 1994 for consulting
services performed during the period from July 1,
1993, through December 31,1993 (Filed as exhibit
10(e) on Form 10-KSB for the year ended February
28, 1994).
*10(d) Consulting agreement between Data Med Clinical
Support Services, Inc., and OPTION Care, Inc.,
dated as of November 15, 1993 for consulting
services performed during the period from January
1, 1993, through June 30,1993 (Filed as exhibit
10(d) on Form 10-KSB for the year ended February
28, 1994).
*10(e) Asset Purchase Agreement for the purchase of
certain assets and the client list of Applied
Micro Management, Inc., of Belleville, IL, on
August 17, 1993. (Filed by registrant on Form 8-K
dated August 30, 1993).
*10(f) Master License Agreement between Data Med Clinical
Support Services, Inc. and AmeriSource Health
Corporation dated as of April 21, 1995 for
exclusive license to market and license software
(Filed by registrant on Form 8-K dated May
30,1995).
*10(g) Amendment I to software development, installation
and training agreement between OPTION Care, Inc.
and Data Med Clinical Support Services, Inc.,
dated as of February 1, 1995.(Filed by registrant
on Form 10-KSB for the year ended February 28,
1995).
11 Computation of earnings per share
* Incorporated herein by reference as indicated.
+ Not to be deemed a part of the filing except to
the extent specifically incorporated by reference
herein.
(4) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's fourth quarter ended
February 29, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ William A. Peter, Jr.
William A. Peter, Jr.
Chairman and President
Principal Executive Officer
Date: /s/ May 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William A. Peter, Jr. Chairman, President /s/ May 30, 1996
William A. Peter, Jr. and Director
(Principal Executive Officer)
/s/ Michael J. Frakes Vice President and Director /s/ May 30, 1996
Michael J. Frakes
/s/ Russell Jackson Chief Financial Officer /s/ May 30, 1996
Russell Jackson and Secretary
/s/ Jerry Hoganson Director /s/ May 30, 1996
Jerry L. Hoganson
/s/ Robert Cipolle Director /s/ May 30, 1996
Robert J. Cipolle
</TABLE>
Index to Exhibits
Exhibit
4(a) Note receivable
11 Calculation of earnings per share
27 Financial Data Schedule
PROMISSORY NOTE
$92,400.00 MINNEAPOLIS, MN
FEBRUARY 1, 1996
FOR VALUE RECEIVED, WILLIAM A. PETER, JR. promises to pay to the order of HEALTH
OUTCOMES MANAGEMENT, INC. (the "Company"), a Minnesota corporation, the
principal sum of Ninety-two Thousand Four Hundred Dollars ($92,400) together
with interest on the unpaid principal balance at the rate of nine and
one-quarter percent (9 1/4%) per annum which rate is the prime rate plus 1% on
the day of this promissory note agreement. Accrued interest shall be due and
payable on each May 1, August 1, November 1 and February 1. The principal amount
is payable on demand by the holder of this note if the holder reasonably
determines repayment to be insecure.
In the event of default in the payment of the amount due hereunder, the
undersigned maker will pay all costs of collection, including reasonable
attorneys' fees.
The undersigned is hereby granted the right, option and privilege of prepaying
any part or all of the indebtedness evidenced by this Note at any time without
penalty; provided that any pre-payment in part shall be applied first in payment
of interest, and the balance to unpaid principal; and provided further that if
there are at any time costs, expenses, late fees, advances or other sums,
including any interest thereon, for which the holder is entitled to payment
under this Note or under any agreement securing payment of this Note, then the
holder may, at its option, first apply all or part of any payment or pre-payment
to such items.
The undersigned hereby waives presentment, demand for payment, notice of
dishonor and any or all other notices or demands in connection with the
delivery, acceptance, performance, default, or enforcement of the Note and
hereby consents to and waives any defense relating to (i)any extensions of time,
renewals, discharges, releases, or other indulgences which may be granted to any
party to this Note, (ii) addition to or modification of any agreement securing
payment of this Note, or release, substitution, or addition of any party to any
such agreement, and (iii) waivers, modifications, releases or other indulgences
that may be granted or consented to by the holder in respect of the time of
payment or any other provisions of this Note or any agreement securing payment
of this Note.
This promissory note is secured by the 210,000 shares (the "Collateral") of the
Company's common stock which the undersigned purchased, with the proceeds of
this note, pursuant to the exercise of 210,000 stock options under terms of the
Company's 1986 Stock Option Plan. The undersigned warrants that should the value
of the Collateral be insufficient to cover the balance due on this demand note
at any of the quarterly interest determination dates (May 1, August 1, November
1, February 1), the undersigned shall be informed by the Company of such
insufficiency of collateral. The undersigned will be required to assign other
personal assets as additional collateral to secure the entire loan balance.
----------------------------------
William A. Peter, Jr.
<TABLE>
<CAPTION>
Health Outcomes Management, Inc. and Subsidiaries
CALCULATION OF EARNINGS PER SHARE (1)
Years ended February 29, 1996, February 28, 1995 and February 28, 1994
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Earnings used in calculations:
Net income used in per
share calculation $ 95,615 $ 10,995 $ 94,331
========== ========== ==========
Shares used in calculation:
Average number of shares outstanding 8,081,426 7,824,289 7,599,274
Additional shares issuable assuming ex-
ercise of outstanding stock options 467,176 322,903 477,106
Additional shares issuable assuming ex-
ercise of outstanding warrants 172,381 176,731 210,385
Additional shares issuable assuming
conversion of Convertible Preferred Stock -- 650,685 1,250,000
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 8,720,983 8,974,608 9,536,765
========== ========== ==========
Income per common share .01 .00 .01
========== ========== ==========
</TABLE>
(1) Earnings per share assuming full dilution are not different from primary
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 68,657
<SECURITIES> 0
<RECEIVABLES> 155,219
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 253,360
<PP&E> 669,859
<DEPRECIATION> 489,506
<TOTAL-ASSETS> 516,314
<CURRENT-LIABILITIES> 490,920
<BONDS> 81,962
0
0
<COMMON> 83,279
<OTHER-SE> (139,847)
<TOTAL-LIABILITY-AND-EQUITY> 516,314
<SALES> 3,182,718
<TOTAL-REVENUES> 3,182,718
<CGS> 1,866,317
<TOTAL-COSTS> 3,061,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,568
<INCOME-PRETAX> 95,615
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,615
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
