UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
HEALTH OUTCOMES MANAGEMENT, INC.
(Name of small business issuer in its charter)
Minnesota 41-1546471
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2331 University Avenue SE
Minneapolis, Minnesota 55414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (612) 378-3053
Securities to be registered under Section 12(b) of the
Exchange Act: None
Securities to be registered under Section 12(g) of the
Exchange Act: Common Stock, $.01 par value
____________________________
(Title of class)
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
FORM 10-SB/A
INDEX
PART I
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Description of Properties 10
Item 4. Security Ownership of Certain Beneficial Owners
and Management 11
Item 5. Directors, Officers, Promoters & Control Persons 13
Item 6. Executive Compensation 14
Item 7. Certain Relationships and Related Transactions 16
Item 8. Description of Securities 16
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters 17
Item 2. Legal Proceedings 17
Item 3. Changes in and Disagreements with Accountants 17
Item 4. Recent Sales of Unregistered Securities 18
Item 5. Indemnification of Directors and Officers 19
PART F/S
Financial Statements and Supplementary Data 20
PART III
Item 1. Index to Exhibits 41
Item 2. Description of Exhibits 41
SIGNATURES
Signatures 42
<PAGE>
PART I
Item 1. Description of Business
Health Outcomes Management, Inc. (the "Company" or "Health Outcomes Management")
was incorporated in Minnesota in February 1986. Until September 1995, the
Company operated under the name "Data Med Clinical Support Services, Inc." The
term the "Company" or "Health Outcomes Management" as used herein includes
Health Outcomes Management, Inc. and subsidiaries, unless otherwise indicated.
The Company's executive offices are located at 2331 University Avenue SE,
Minneapolis, Minnesota 55414. The Company's telephone number is (612) 378-3053.
On June 15, 1994, the Company formed Pharmaceutical Care Outcomes, Inc. as a
wholly owned subsidiary. The primary purpose of the 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 Peters
Institute of Pharmaceutical Care at the University of Minnesota in the promotion
of the practice of Patient Centered Pharmaceutical Care.
During July 1996 and April 1997, the Company acquired certain assets of two
community pharmacies located in the Minneapolis, Minnesota metropolitan area.
During fiscal year 1998, the Company divested itself of these pharmacies.
The Company
___________
The Company's mission statement is to improve the quality of patient outcomes
in healthcare - cost effectively using computer software and related technology.
The Company's primary business consists of licensing its proprietary clinical
support and financial software services to long-term care facilities, home
healthcare agencies, retail pharmacies and hospitals. The principal elements
of these services include consulting, software, training and telephone support.
During the fiscal year ended February 28, 1998, the Company operated two
community pharmacies. The Company divested itself of both pharmacies during
the fiscal year ended February 28, 1998.
The Company markets its software services under the trade name "ASSURANCE" (tm).
These comprehensive services are designed to give healthcare professionals the
assurance that productivity and costs are being carefully managed. These
services also 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
____________
PHARMACY PRACTICE SOFTWARE
The Assurance Patient-Centered Coordinated Comprehensive Pharmaceutical Care
System (tm) incorporates two components. The first component is software
designed to help the practitioner care for patients. The system is designed to
implement the Peter's Institute of Pharmaceutical Care (of the University of
Minnesota's) model of a generalist pharmaceutical care practice. The system
tracks patient outcomes, allows extensive documentation of professional services
performed, and generates billing and other supporting documents. The second
component is software for network and practice management. This product permits
information from many practice sites to be aggregated for analysis, quality
assurance, and reimbursement purposes. Together, the two components enable a
network of pharmacies to provide pharmaceutical care services to a broad base
of patients while demonstrating significant cost savings to third party payers
on an episode of care basis.
<PAGE>
LONG-TERM CARE SOFTWARE
The Company markets computer software services to long-term care facilities 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) utilizes a relational database. 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. During fiscal year 1998, the Company entered into an agreement with
Advanced Information Management (AIM) of Appleton, WI. As part of this
relationship, the Company resells AIM's Windows (tm) based long-term care
program, trains new customers on how to use the program, and provides on-going
telephone support to customers.
HOME HEALTHCARE AGENCIES SOFTWARE
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 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 database
for activities such as clinical trend analysis and prompt billing. The
Company's Assurance Financial System (tm) software may be installed alone or as
part of a complete system with the Company's clinical documentation system.
HOSPITAL SOFTWARE
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 that 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 that 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
via the Company's telephone helpline (1-800-STAT-911).
Community Pharmacy Stores
_________________________
At the Company's community pharmacy locations, prescription and over-the-counter
drugs were sold at the retail level. The Company divested itself of both
pharmacies during the fiscal year 1998.
<PAGE>
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 entire line of
services, many companies offer services that compete directly with individual
Health Outcomes Managements 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, MCS,
Beechwood, AA Data Systems, Achieve, Melyx, and Long-Term Care Computer Systems
as well as approximately eighty-five other suppliers.
The Assurance Homecare Ssytem (tm) 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.
In the area of Pharmaceutical Care, competition consists primarily of Carepoint,
Encara, CareStream, JasCorp, Entaby and MedOutcomes. Many pharmaceutical
dispensing systems advertise that they also provide pharmaceutical care.
However, the Company believes that no competitive system currently provides
comprehensive generalist patient care and drug outcomes measurement.
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.
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 objective is to establish itself as a 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 healthcare applications and settings such as long-term
care facilities, community pharmacies, home healthcare agencies and
hospitals.
* Distinguish Health Outcomes Management as a technology leader. The Company's
expert staff of Doctors of Pharmacy and Registered Nurses enable Health
Outcomes Management to stay on the leading edge of patient outcome management
technology.
* Provide a helpline (1-800-STAT-911) so that Health Outcomes Management
clinical and financial experts are available 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 alliances 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 licensed directly by the
Company to existing clients and prospects generated from magazine advertising,
trade shows, direct mailings and direct sales efforts.
<PAGE>
Significant Clients
___________________
During the years ended February 28, 1999 and February 28, 1998, no one client
accounted for a significant portion (10% or more) of the Company's revenues.
Research and Development
________________________
The Company spent approximately $127,000 and $129,000 for research and
development efforts in the years ended February 28, 1999 and 1998, respectively.
For fiscal year 2000, the Company intends to fund software development at
approximately the same levels as fiscal year 1999.
Government Regulations
______________________
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. To date, the FDA has not adopted any substantive regulation
on computer software or related services and, currently, none of the Company's
products or services is subject to FDA oversight.
Changes in reimbursement formulas and in the types of items eligible for
reimbursement under government funded healthcare programs, and the availability
and timing of funding appropriations for such programs, have affected the
healthcare 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 has filed for patent protection in relevant areas. Additionally,
the Company seeks to protect proprietary information regarding its products and
services as trade secrets by utilizing non-disclosure agreements with its
employees, clients and others who are permitted access to such information.
Employees
_________
On May 1, 1999, the Company employed 15 staff members, 2 sales agents, and 2
contract employees. In addition, the Company was utilizing the services of 2
independent marketing representatives. The Company is not subject to any
collective bargaining agreements and considers its relationships with employees
to be good.
Insurance
_________
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.
<PAGE>
Year 2000 Compliance
____________________
Background
Some computers, software and other equipment include programming code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches and are commonly referred to as the "Millenium Bug" or "Year
2000 Problem".
Assessment
The Year 2000 Problem could affect computers, software, and other equipment
used, operated, or maintained by the Company. Accordingly, the Company is
reviewing its internal computer programs and systems to ensure that the programs
and systems will be Year 2000 compliant. The Company presently believes that
its computer systems will be Year 2000 compliant in a timely manner. However,
while the estimated cost of these efforts are not expected to be material to
the Company's financial position or any year's results of operations, there
can be no assurance to this effect.
Software Sold to Customers
The Company believes it has substantially identified and resolved all potential
Year 2000 Problems with any of the software products which it currently develops
and markets. Currently, the Company only develops and markets software products
which were originally developed as Year 2000 compliant. However, management
also believes that it is not possible to determine with complete certainty that
all Year 2000 Problems affecting the Company's software products have been
identified or corrected due to complexity of these products and the fact that
these products interact with other third party vendor products and operate on
computer systems which are not under the Company's control.
The Company has previously installed software clinical and financial management
solutions for nursing home and hospital customers which are not Year 2000
compliant. The Company has discussed with customers options to modify these
previously installed systems to comply with Year 2000 requirements. The Company
is currently working with its customers to implement solutions where
appropriate.
Internal Infrastructure
The Company believes that it has reviewed and assessed all of the major
computers, software applications, and related equipment used in connection with
its internal operations that would potentially require modification, upgrade,
or replacement to minimize the possibility of a material disruption to its
business. The Company's internal review of such systems did not identify any
material Year 2000 problems.
Systems Other than Information Technology Systems
In addition to computers and related systems, the operations of office and
facilities equipment such as fax machines, photocopiers, telephone switches,
security systems, and other common devices may be affected by the Year 2000
Problem.
The Company has identified an exposure to the "Year 2000 Problem". Management
currently estimates the total cost of internal reprogramming of its software
products and the upgrading of purchased hardware and software to be
approximately $30,000. While this is management's best current estimate, items
outside management's control relating to the "Year 2000 Problem" may impact the
Company. The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these internal systems will
not have a material adverse effect on the Company's business or results of
operations.
Disclaimer
The discussion of the Company's efforts and management's expectations relating
to Year 2000 compliance are forward looking statements. The Company's ability
to achieve Year 2000 compliance and the level of incremental costs associated
therewith could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in ongoing internal
compliance reviews.
<PAGE>
Item 2. 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 consulting services to the healthcare industry. Revenues
are derived primarily from five main sources: (1) licensing computerized
clinical and financial information management software systems; (2) providing
ongoing software support services; (3) software training services; (4)
consulting services, and (5) data aggregation and analysis. License and
training fees are usually received at the beginning of the license term. Annual
and monthly support fees pay for periodic software updates, telephone helpline
support and software usage.
FISCAL 1999 v. FISCAL 1998
Revenue
For fiscal 1999, revenue from continuing operations was $1,378,000. Total
revenue from continuing operations increased by $217,000 or 19% from $1,161,000
in fiscal 1998. This increase was due primarily to the increase in training
revenue. The Company recorded a net income from continuing operations in fiscal
1999 of $32,000 compared to net loss of $373,000 from continuing operations in
fiscal 1998. The Company recorded net income, including discontinued
operations, in fiscal 1999 of $244,000, compared to net loss of $702,000,
including discontinued operations, in fiscal 1998, an increase in income from
continuing and discontinued operations combined of $947,000. The revenue
received from client support fees decreased by 2% due to attrition, license fees
increased by 50% due to increased pharmaceutical license sales, software
training fees increased by 477% due to refresher training for the Company's
software and for training on third party software sold, and consulting revenue
decreased to $0. The effects of inflation on the Company's revenue and
operating results were not significant.
Costs and Expenses
Total expenses from operations in fiscal 1999, including cost of sales,
interest, depreciation and amortization, decreased 12% to $1,346,000 from
$1,533,000 in fiscal 1998 due to expense reduction efforts. Total operating
expenses decreased 18% to $591,000 from $718,000 in fiscal 1998. Marketing
expenses decreased significantly as the Company redesigned its marketing efforts
and product offerings. General and administrative expenses decreased 3% in
fiscal 1999. Administrative expenses have declined as the Company has
implemented expense reduction efforts. Net interest expense increased to
$18,000 in fiscal 1999 from $9,000 in fiscal 1998. During fiscal 1999, the
Company's interest costs related primarily to trade creditors and leased
equipment.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1999, the Company had a working capital deficit of ($338,000)
compared to a deficit of ($718,000) at February 28, 1998, a decrease in deficit
of $380,000. The increase in working capital was substantially due to write-
offs of leases in connection to the discontinuation of the Company's pharmacy
business and the willingness of certain vendors of the pharmacy locations to
accept extended payment plans and write-offs for inventory that was purchased
prior to divestiture.
The Company has identified an exposure to the "Year 2000 Problem". Management
currently estimates the total cost of internal reprogramming of its software
products and the upgrading of purchased hardware and software to be
approximately $30,000. While this is management's best current estimate, items
outside management's control relating to the "Year 2000 Problem" may impact the
Company.
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 will continue to have short-term cash needs. The
closing of both retail pharmacies in late fiscal 1998 has eliminated the ongoing
cash needs related to these operations with the exception of certain accounts
payable and promissory notes issued as part of the discontinuation of
operations. The Company's cash flow position has shown improvement since the
previous fiscal year, but has been negatively impacted by the remaining cash
requirements of the disposition of the retail pharmacy operations.
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 improve or that the Company will
experience profitable operations. The financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
Management intends to continue to implement the following initiatives during
the coming year:
* Continue to market the Company's Assurance Coordinated Pharmaceutical Care
System (tm) to community pharmacies, pharmacy benefit managers, third party
payers ad pharmacy groups in foreign countries.
* Expand its current strategy of locating additional strategic partners in the
pharmaceutical care marketplace that have the financial strength to bring the
Company's product to market at a substantially increased pace.
* Continue to strengthen its relationship with Advanced Information Management
(AIM) through additional sales of AIM's software to its clients and to new
prospects.
* Reduce operating costs and ensure that the effectiveness of remaining
expenditures is consistent with support of the Company's client base.
If operations and cash flow can be improved through these efforts, management
believes that the Company's liquidity problems will be resolved and that the
Company can continue to operate for twelve months. However, no assurance can
be given that management's actions will result in profitable operations or the
resolution of liquidity problems.
The independent auditors report included in this registration statement on Form
10-SB/A states that the Company's working capital deficiency and stockholder's
deficit raise substantial doubt about the Company's ability to continue as a
going concern.
<PAGE>
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.
These include, but are not limited to: the availability of sufficient working
capital should the Company experience continuing 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
may be adversely affected by the actions of existing or future competitors, who
may introduce new products or technologies in competition with the Company.
Recent Accounting Pronouncements
The AICPA has issued Statement of Position 97-2, "Software Revenue Recognition"
(SOP 97-2), that supersedes Statement of Position 91-1. SOP 97-2 is effective
for revenue transactions entered into by the Company in fiscal years beginning
after December 31, 1997. The Company has adopted SOP 97-2 and it did not have
a material impact on the financial statements of the Company. In March 1998,
AcSEC issued SOP 98-4, which defers for one year the implementation of certain
provisions of SOP 97-2. The issuance of SOP 98-4 had no effect on the Company.
In December 1998, the AICPA issued SOP 98-9, which extends the deferral date of
implementation of certain provisions of SOP 97-2 to 2000 and amends the method
of revenue recognition in some circumstances. The Company does not anticipate
the adoption of this SOP will have a significant effect on its results of
operations or financial position.
During fiscal 1997, the Company adopted the disclosure requirements under
Statement of Financial Accounting Statndards No. 123 (SFAS No. 123), Accounting
for Stock-Based Compensation. See Note 1 in the Consolidated Financial
Statements of the Company included in this report on Form 10-SB/A, for the full
disclosure.
In fiscal 1997, the Company was required to adopt Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed, which prescribes
accounting and reporting standards when circumstances indicate that the carrying
amount of a long-lived asset may not be recoverable. SFAS No. 121 had no
impact on the Company's financial statements.
Item 3. Properties
The Company leases its corporate office and training facilities, which are
located at 2331 University Avenue SE in Minneapolis, MN. The facilities are
covered by an operating lease with an original term of two (2) years commencing
January 1, 1999. Rent is payable monthly in the amount of $8,169. 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
6,500 square feet.
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table lists, as of February 28, 1999, 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.
<TABLE>
<CAPTION>
Name and Number of Percentage
Address Shares Ownership
____________________ ___________ _______________
<S> <C> <C>
Shareholders who own greater than 5% of the shares outstanding:
William A. Peter, Jr.
6650 Vernon Hills Road
Edina, MN 55436 1,142,000 (1) 15.67%
Sandra F. Pessin
605 3rd
New York, NY 10158 616,000 6.94%
Steven C. Wolf
820 S 59th Street
Belleville, IL 62223 550,000 6.20%
Officers and Directors:
Michael J. Frakes
3712 Chatham Circle
Arden Hills, MN 55112 381,549 (2) 4.30%
Peter J. Zugschwert
5500 Wayzata Blvd, Ste 1075
Minneapolis, MN 55416 215,430 (3) 2.43%
Jonathan R. Gordon
7300 France Ave S
Edina, MN 55435 70,600 (4) .80%
Stanford M. Baratz
5500 Wayzata Blvd, Ste 1075
Minneapolis, MN 55416 51,600 (4) .58%
Matthew E. Goldberg
119 N Fourth Street
Minneapolis, MN 55401 9,800 (4) .11%
B. Marie Cooper
4549 Hay Lake Rd S
Eagan, MN 55123 8,750 (5) .10%
All officers and directors
as a group (6 persons) 737,729 (6) 8.31%
</TABLE>
<PAGE>
(1) Includes 115,000 shares, which may be purchased pursuant to warrants, which
are exercisable within 60 days of the date hereof.
(2) Includes 30,000 shares, which may be purchased pursuant to warrants, and
121,250 shares, which may be purchased pursuant to stock options, which are
exercisable within 60 days of the date hereof.
(3) Includes 11,150 shares, which may be purchased pursuant to stock options,
which are exercisable within 60 days of the date hereof.
(4) Includes 6,600 shares, which may be purchased pursuant to stock options,
which are exercisable within 60 days of the date hereof.
(5) Includes 3,750 shares, which may be purchased pursuant to stock options,
which are exercisable within 60 days of the date hereof.
(6) Includes 186,300 shares, which certain directors and officers have the right
to purchase pursuant to warrants and stock options, which are exercisable within
60 days of the date hereof.
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth information regarding the Company's executive
officers and directors as of May 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
_________________ _______ __________________________
<S> <C> <C>
Peter J. Zugschwert 33 President, Chief Executive
Officer and Director
Stanford M. Baratz 43 Director
Jonathan R. Gordon 47 Director
Matthew E. Goldberg 32 Director
Michael J. Frakes 47 Vice President
B. Marie Cooper 31 Controller and Principal
Accounting Officer
</TABLE>
Peter J. Zugschwert, age 33, has served as President of the Company since
December 1997 and CEO of the Company since September 1997. Prior to joining
the Company, he had been the Senior Vice President of Operations for Baratz
Financial, Inc. since June 1995. Between 1993 and 1995, Mr. Zugschwert was a
private business consultant in Chicago and Minneapolis.
Stanford M. Baratz, age 43, has been the President of Baratz Financial, Inc., a
Minneapolis based private investment firm, since founding the company in 1994.
Between 1985 and 1994, Mr. Baratz served in various capacities with the Welsh
Companies, a Minneapolis based real estate firm, most recently as Executive
Vice President. Mr. Baratz has been a director of the Company since September
of 1997.
Jonathan R. Gordon, age 47, has been President of The Vault, Inc., an Edina, MN
based document storage company, since 1988. Mr. Gordon is a Certified Public
Accountant. Mr. Gordon has been a director of the Company since September of
1997.
Matthew E. Goldberg, age 32, was the President of In-Sight Optical, Inc. dba
InVision, a retail optical store chain, from 1996 through 1998. Between 1992
and 1996, Mr. Goldberg was an account manager with Campbell-Mithun Esty, a
Minneapolis based advertising agency. Mr. Goldberg has been a director of the
Company since September of 1997.
Michael J. Frakes, Pharm.D., age 47, has served as Vice President of the Company
since May 1986. Mr. Frakes was a co-founder of Data Med, Inc. in 1985. 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.
B. Marie Cooper, age 31, joined the Company in April 1998 as its Controller and
Principal Accounting Officer. From June 1995 to March 1998, Ms. Cooper was the
Accounting Manager for Newcom Group, Inc. and its subsidiaries, as well as The
Express Pages, LLC. Ms. Cooper holds a BA degree in Accounting from Augsburg
College in Minneapolis, MN.
<PAGE>
Item 6. Executive Compensation
Effective October 23, 1997, each member of the Board of Directors receives in
lieu of compensation, 800 shares of the Company's Common Stock per meeting. In
addition, in consideration for their service, each of the new directors elected
at the annual meeting of the shareholders on September 19, 1997, were granted a
5-year option to purchase 10,000 shares of the Company's stock exercisable at a
price of $.08 per share ($.08 was the price of the Company's stock on the day of
their agreement to serve, if elected). During the fiscal year ended February
28, 1999, Board of Director compensation totaled 6,400 shares. These shares
have not yet been issued.
The following table sets forth the compensation paid or to be paid by the
Company with respect to the fiscal years ended February 28, 1999 and 1998, to
the President and Chief Executive Officer. No officer of the Company received
compensation in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards Payouts
Restricted Securities LTIP
Name and Other Annual Stock Underlying Payouts All Other
Principal Salary Bonus Compensation Award(s) Options/SARs Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter J. Zugschwert 1999 94,163 (1)
President & CEO 1998 27,050 47,050 (2)
<FN>
(1) During fiscal year 1999, Mr. Zugschwert was retained as a consultant to act
as the President of the Company. Mr. Zugschwert billed the Company $94,163
during fiscal year 1999. Of this amount, $26,613 was paid by the Company in
cash, $50,000 was converted into a note (see audited financials), and $17,550
remains due and payable.
(2) During fiscal year 1998, Mr. Zugschwert was retained as a consultant to act
as the President of the Company. While his total compensation was $47,050, he
accepted stock in lieu of cash compensation in the amount of $20,000.
</FN>
</TABLE>
The following table sets forth information concerning the value of stock options
and warrants granted to the Company's executive officer named in the
compensation table during the fiscal year ended February 28, 1999.
<TABLE>
<CAPTION>
Options/SAR Grants in Last Fiscal Year
(Individual Grants)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Yr ($/Sh) Date
(a) (b) (c) (d) (e)
_______________________________________________________________________
<S> <C> <C> <C> <C>
Peter J. Zugschwert 15,000 6% $0.10 10/05/03
President & CEO
</TABLE>
LONG TERM INCENTIVE PLANS
There were no long-term incentive plans - awards in last fiscal year (table
omitted).
<PAGE>
The following table sets forth information concerning the value of stock options
and warrants held by the Company's executive officer named in the compensation
table as of February 28, 1999.
<TABLE>
<CAPTION>
<PAGE>
Stock Options and Warrants Held and Fiscal Year End Option Values
Value of Unexercised
Shares Number of Unexercised in-the-money Options at
Acquired on Value Options/SARs at FYE Year End (1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Peter J. Zugschwert 0 $0 11,150 15,450 $0 $0
President & CEO
<FN>
(1) Based upon the average of the bid and ask price of $.08 for the Company's
Common Stock on February 28, 1999, as reported by the National Quotation Bureau.
</FN>
</TABLE>
Employment Agreements
On February 1, 1991, the Company entered an employment agreement with Michael
J. Frakes, for a term of three years. The agreement provides for automatic
renewals for one-year periods, persuant to which the agreement has been extended
to January 31, 2000. Under the employment agreement with Mr. Frakes, he was
paid $8,412 per month from February 1, 1996 to January 31, 1997. Beginning May
1, 1996, Mr. Frakes took a 10% voluntary salary reduction which is still in
effect as of May 1, 1999. 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.
Stock Options
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 was
increased to 1,200,000. As of May 1, 1999, incentive stock options for the
purchase of 224,815 shares remained outstanding under the Stock Option Plan.
During February 1996, the Company's 1986 Stock Option Plan expired. No
additional stock options can be issued under the Stock Option Plan.
On October 5, 1998, the Company, by resolution of its Board of Directors,
issued 240,000 non-qualified stock options to certain non-management employees
for incentive and retention purposes. These options were not issued pursuant to
any previously adopted plan. As of May 1, 1999, non-qualified options for the
purchase of 659,215 shares remained outstanding.
Options to purchase a total of 152,200 shares were held by the Company's
officers and directors as a group as of February 28, 1999. The Company's
current employees (including certain officers and directors) held options to
purchase a total of 884,030 shares at the same date.
Warrants
The Company issued no warrants in fiscal year 1999. As of May 1, 1999, warrants
for the purchase of 165,000 shares remained outstanding.
<PAGE>
Item 7. Certain Relationships and Related Transactions
As of February 28, 1999, the Company had outstanding accounts payable of $17,550
and a $50,000 note with Mr. Zugschwert related to consulting services rendered.
Item 8. Description of Securities
Authorized Capital Stock
The Company's authorized capital stock consists of 15,000,000 shares of Common
Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, no stated par
value. As of May 31, 1999, 8,872,853 shares of Common Stock and no shares of
Preferred Stock were issued and outstanding.
Preferred Stock may be issued in one or more series as determined from time to
time by the Board of Directors who, by resolutio, may designate such shares as
senior to the Common Stock with respect to any distribution (as such term is
defined in Section 302A.011, Subd. 10, Minnesota Statutes), fix any other
designations, powers, preferences, rights, qualifications, limitations or
restrictions with respect to any particular series of Preferred Stock.
Except as otherwise required by law, the holders of the shares of Common Stock
have the sole voting rights of the Company.
There is no cumulative voting in election of directors by the holders of the
Common Stock and there are no preemptive, subscription, conversion or redemption
rights pertaining to the Common Stock or authorized Preferred Stock.
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's common stock is traded in the over-the-counter market and is
quoted by the National Quotation Bureau. Th 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.
<TABLE>
<CAPTION>
STOCK PRICE
Fiscal 1999 Fiscal 1998
________________________________________________
<S> <C> <C> <C> <C> <C>
Quarter High Low Quarter High Low
- -------- ---- ---- -------- ---- ----
First $.13 $.08 First $.13 $.13
Second $.13 $.08 Second $.13 $.08
Third $.14 $.06 Third $.21 $.08
Fourth $.12 $.06 Fourth $.18 $.10
</TABLE>
As of May 1, 1999, there were approximately 330 shareholders "of record" (as
defined in Rule 12g5-1 of the Securities Exchange Act of 1934) 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 2. Legal Proceedings
As of May 1, 1999, the Company was not involved in any material legal
proceedings.
Item 3. Changes In and Disagreements with Accountants
During the first quarter of fiscal year 1999, the Company dismissed its
principal independant accountant and retained a new independant accountant, as
reported on Form 8-K, filed May 4, 1998. The dismissal was not based upon any
disagreement concerning any matter of accounting practice or policy.
<PAGE>
Item 4. Recent Sales of Unregistered Securities
<TABLE>
<CAPTION>
Date Name or
of Class of Type Number
Issuance Person of of Shares Exercise
Acquiring Security Represented Price Consideration Exemption
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
(1) 02/28/96 Employees Shares 48,144 N/A N/A (2)
(3) 06/12/97 Michael Frakes Warrant 30,000 $0.31 N/A (2)
(4) 06/12/97 William Peter Warrant 115,000 $0.31 N/A (2)
(5) 10/23/97 Board Members Options 40,000 $0.08 N/A (2)
(6) 10/23/97 Victor Greenstein Shares 189,894 N/A $23,921 (2)
(7) 10/23/97 Peter Zugschwert Shares 158,730 N/A $20,000 (2)
(8) 11/05/97 Employees Options 162,000 $0.23 N/A (2)
(9) 02/28/98 Board Members Shares 25,200 N/A N/A (2)
(8) 10/05/98 Employees Options 240,000 $0.10 N/A (2)
(10) 02/04/99 Peter Zugschwert Conv 500,000 $0.10 $50,000 (2)
Note
(1) 02/28/99 Employees Shares 325,908 N/A N/A (2)
(11) 02/28/99 Board Members Shares 6,400 N/A N/A (2)
<FN>
(1) Shares issued to employees pursuant to the Company's 401k plan.
(2) 4(2) and/or 4(6) of the Securities Act of 1934.
(3) Warrant issued to Mr. Frakes as compensation in lieu of wages.
(4) Warrant issued to Mr. Peter as compensation in lieu of wages.
(5) Options issued to new board members in lieu of cash compensation.
(6) Shares issued to Mr. Greenstein in relation to proxy.
(7) Shares issued to Mr. Zugschwert in lieu of cash compensation.
(8) Stock options issued to employees and/or consultants for incentive purposes.
(9) Shares issued to board members in lieu of cash compensation.
(10)Convertible note with a face value of $50,000 and a rate of 8% convertible
into stock at $0.10.
(11)Shares accrued to board members in lieu of cash compensation.
</FN>
</TABLE>
<PAGE>
Item 5. Indemnification of Directors and Officers
Section 302A.521 of the Minnesota Business Corporation Act requires the Company
to indemnify a person made, or threatened to be made, a party to a proceeding by
reason of the former or present official capacity of the person with respect to
the Company, against judgements, penalties, fines, including reasonable expenses
if such person: (i) has not been indemnified by another organization or employee
benefit plan for the same judgements, penalties, fines, including, without
limitation, excise taxes assessed against the person with respect to an employee
benefit plan, settlements, and reasonable expenses, including attorneys' fees
and disbursemets, incureed by the person in connection with the proceeding with
respect to the same acts or omissions; (ii) acted in good faith; (iii) received
no improper personal benefit, and statutory procedure has been followed in the
case of any conflict of interest by a director; (iv) in the case of any criminal
proceedings, had no reasonable cause to believe the conduct was unlawful; and
(v) in the case of acts or omissions occurring in the person's performance in
the official capacity of director or, for a person not a director, in the
official capacity of officer, committee member, employee or agent, reasonably
believed that the conduct was in the best interests of the Company, or, in the
case of performance by a director, officer, employee or agent of the Company as
a director, officer, partner, trustee, employee or agent of another organization
or employee benefit plan, reasonably believed that the conduct was not opposed
to the best circumstances and upon written request, reasonable expenses prior
to final disposition. A decision as to required indemnification is to be made
by a disinterested majority of the Board of Directors present at a meeting at
which a quorum of disinterested directors is present, or by a designated
committee of the Board of Directors, by special legal counsel, by the
stockholders, or by a court.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
The Company's Articles of Incorporation limit personal liability for breach of
the fiduciary duty of its directors, to the fullest extent provided by the
Minnesota Business Corporation Act. The Articles of Incorporation eliminate
the personal liability of directors for damages occasioned by breach of
fiduciary duty, except for liability based on the director's duty of loyalty
to the Company, liability for acts or omissions not made in good faith,
liability for acts or omissions involving intentional misconduct, liability
based on payments of improper dividends, liability based on violations of state
securities laws, and liability for acts occurring prior to the date such
provision was added.
<PAGE>
PART F/S
The following Consolidated Financial Statements of the Company and the
Independent Auditors' Report therein are included on pages 22 through 41
of this Form 10-SB/A.
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
February 28, 1999
<PAGE>
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS 22
FINANCIAL STATEMENTS
Consolidated Balance Sheets 23
Consolidated Statements of Operations 24
Consolidated Statements of Changes in Stockholders' Deficit 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27-41
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Health Outcomes Management, Inc.
Minneapolis, MN
We have audited the accompanying consolidated balance sheets of Health Outcomes
Management, Inc. and Subsidiaries as of February 28, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' deficit,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements for Health Outcomes Management, Inc. and Subsidiaries for the period
ended February 28, 1997 were audited by other auditors whose report, dated
April 18, 1997, on those financial statements included an explanatory paragraph
that described factors which raise substantial doubt about the entity's ability
to continue as a going concern.
We conducted our audit 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 evaluation of 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 fairly,
in all material respects, the financial position of Health Outcomes Management,
Inc. and Subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated 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 entity's
operating loss, 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.
SCHWEITZER KARON & BREMER, LLC
Certified Public Accountants
Minneapolis, Minnesota
April 15, 1999
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
__________________________________________________________ ______________
February 28, 1999 1998
__________________________________________________________ ______________
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,034 $ 119,716
Trade receivables, less allowance
for doubtful accounts of $7,800
in 1999; $13,400 in 1998 63,937 43,902
Prepaid expenses 13,768 15,383
__________________________________________________________ ______________
Total current assets 107,739 179,001
PROPERTY AND EQUIPMENT, net 25,613 55,384
OTHER ASSETS, net of accumulated
amortization
Non-compete agreement 0 15,000
Software licenses 0 2,073
__________________________________________________________ ______________
Total assets $ 133,352 $ 251,458
___________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 36,274 $ 7,500
Current installments of obligations
under capital leases 10,000 34,451
Accounts payable 156,611 470,385
Deferred revenue 186,928 326,075
Accrued compensation 36,731 35,478
Accrued payroll taxes 11,103 10,671
Accrued interest 329 0
Other current liabilities 8,148 12,814
__________________________________________________________ ______________
Total current liabilities 446,124 897,374
LONG-TERM DEBT, less current maturities 71,300 10,000
OBLIGATION UNDER CAPITAL LEASES, less
current installments 4,604 14,011
__________________________________________________________ ______________
Total liabilities 522,028 921,385
__________________________________________________________ ______________
COMMITMENTS AND CONTINGENCIES (Note 6,13,15)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; authorized
15,000,000 shares; issued and
outstanding shares 9,198,761 in 1999
and 8,872,853 in 1998 91,988 88,729
Additional paid-in capital 4,803,742 4,770,194
Accumulated deficit (5,284,406) (5,528,850)
__________________________________________________________ _____________
Total stockholders' deficit (388,676) (669,927)
__________________________________________________________ _____________
Total liabilities and stockholders' deficit $ 133,352 $ 251,458
__________________________________________________________________________
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
__________________________________________________________ _____________
1999 1998
__________________________________________________________ _____________
<S> <C> <C>
Revenues $ 1,377,990 $ 1,160,675
Cost of revenues 737,342 806,928
__________________________________________________________ _____________
Gross Profit 640,648 353,747
__________________________________________________________ _____________
Operating expenses
Research and development 127,236 128,740
Selling and marketing 4,846 115,962
General and administrative 458,932 472,814
__________________________________________________________ _____________
Total operating expenses 591,014 717,516
__________________________________________________________ _____________
Operating income (loss) 49,634 (363,769)
Other income (expense)
Interest income 2,441 3,801
Interest expense (20,344) (12,740)
__________________________________________________________ _____________
Income (loss) from continuing operations 31,731 (372,708)
Discontinued operations (Note 15)
Income (loss) from operations of
discontinued retail pharmacy division 0 (114,061)
Gain (loss) on disposal of retail
pharmacy division 212,713 (215,666)
__________________________________________________________ _____________
Net income (loss) $ 244,444 $ (702,435)
__________________________________________________________________________
Net Income (Loss) Per Share Data
Basic
Income (loss) from continuing operations $ 0.00 $ (0.04)
Net income (loss) per share $ 0.03 $ (0.08)
Shares used in per share calculations 8,872,853 8,574,910
Diluted
Income (loss) from continuing operations $ 0.00 $ (0.04)
Net income (loss) per share $ 0.03 $ (0.08)
Shares used in per share calculations 8,913,096 8,574,910
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________________
Preferred Common Additional Note Rec
Stock Stock Paid In Accumulated from Total
Shares Amount Shares Amount Capital Deficit Officer Deficit
_____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1997 0 $0 8,499,029 $84,990 $4,724,568 ($4,826,415) ($69,500) ($ 86,357)
Issuance of common stock 0 $0 373,824 $ 3,739 $ 45,626 $ 0 $ 0 $ 49,365
Net loss 0 $0 0 $ 0 $ 0 ($ 702,435) $ 0 ($702,435)
Payments received on note
receivable from officer 0 $0 0 $ 0 $ 0 $ 0 $69,500 $ 69,500
_____________________________________________________________________________________________________________________
Balance, February 28, 1998 0 $0 8,872,853 $88,729 $4,770,194 ($5,528,850) $ 0 ($669,927)
Issuance of common stock 0 $0 325,908 $ 3,259 $ 33,548 $ 0 $ 0 36,807
Net income 0 $0 0 $ 0 $ 0 $ 244,444 $ 0 $244,444
_____________________________________________________________________________________________________________________
Balance, February 28, 1999 0 $0 9,198,761 $91,988 $4,803,742 ($5,284,406) $ 0 ($388,676)
_____________________________________________________________________________________________________________________
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
__________________________________________________________________________________
1999 1998
__________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 244,444 $ (702,435)
________________________________________________________________ _____________
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation 29,771 57,002
Amortization 17,073 40,264
Provision for losses on trade receivables 3,897 13,613
Net recoveries (writeoffs) of bad debts (9,497) (35,213)
Loss (gain) on disposal of inventory and equipment (3,425) 49,048
Loss (gain) on disposal of segment (212,542) 208,550
Accrued severence expense converted to note payable 26,500 0
Interest on capital leases (1,522) 0
Accrued consulting fees converted to note payable 50,000 0
Stock issued as payment for services performed 0 49,365
Changes in operating assets and liabilities, net of
acquisitions:
Decrease (increase) in trade receivables (14,435) 70,100
Decrease (increase) in inventory 0 16,498
Decrease (increase) in prepaid expenses 1,615 1,983
Decrease (increase) in other current assets 0 0
Increase (decrease) in accounts payable (77,934) 161,634
Increase (decrease) in deferred revenue (139,147) 12,149
Increase (decrease) in accrued compensation 1,253 (21,069)
Increase (decrease) in payroll taxes 432 (4,308)
Increase (decrease) in accrued interest 329 0
Increase (decrease) in other current liabilities 32,141 (12,794)
________________________________________________________________ ______________
Total adjustments (295,491) 606,822
________________________________________________________________ ______________
Cash flows provided by (used in) operating activities (51,047) (95,613)
________________________________________________________________ ______________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures 0 (21,698)
Proceeds from the sale of equipment 3,425 2,310
Proceeds from the sale of customer list 0 14,091
Purchase of pharmacy assets 0 (10,000)
________________________________________________________________ ______________
Cash flows provided by (used in) investing activities 3,425 (15,297)
________________________________________________________________ ______________
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments received on note receivable 0 69,500
Principal payments under capital lease obligations (19,799) (43,214)
Repayments of note payable assumed in acquisition (4,500) (4,684)
Principal payments under other notes payable (17,761) 0
Proceeds from issuance of common stock 0 0
________________________________________________________________ ______________
Cash flows provided by (used in) financing activities (42,060) 21,602
________________________________________________________________ ______________
Increase in cash and cash equivalents (89,682) (89,308)
Cash and cash equivalents
Beginning 119,716 209,024
________________________________________________________________ ______________
Ending $ 30,034 $ 119,716
__________________________________________________________________________________
Cash paid during the year for interest $ 21,537 $ 19,415
__________________________________________________________________________________
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
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 and
sell prescription and over-the-counter drugs at the retail level. During 1998,
the Company disposed of its retail prescription and over-the-counter drug
operations.
The Company markets clinical and financial software systems and related services
used for the management of community pharmacies, long-term care nursing
facilities, homecare facilities and hospital departments. The various software
systems have been designed to meet the needs of the specific industry and
require little or no production, modification or customization.
Significant accounting policies of the Company are summarized below:
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 utilized 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 recorded at cost. Expenditures for renewals and
betterments are capitalized. Repairs and maintenance costs are charged to
expense. Additionally, where required by generally accepted accounting
principles, all significant equipment leases are capitalized as installment
purchases. When items are disposed of, the cost and accumulated depreciation
are eliminated from the accounts, and any gain or loss is reflected in the
results of operations.
Depreciation and amortization:
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 seven years.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant accounting policies of the Company are summarized below: (continued)
Research and development:
Research and development costs are charged to expense as incurred.
Revenue recognition:
In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which superseded SOP 91-1. SOP 97-2 was adopted by the Company in the fiscal
year beginning March 1, 1998. SOP 97-2 provides guidance on applying generally
accepted accounting principles for software recognition transactions. Based on
the Company's interpretation of the requirements of SOP 97-2, as amended,
application of this statement has not materially impacted the Company's
revenues, result of operation or financial position.
The Company generates several types of revenue including the following:
Software Licenses
_________________
The Company licenses software for which revenues are generally recognized when
a non-cancelable license agreement is signed, the customer has completed
necessary training, the software product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is considered probable. For customer license
agreements which meet these recognition criteria, the portion of the fees
related to software licenses will generally be recognized in the current period,
while the portion related to services (maintenance, support and consulting)
is recognized over the period the services are to be performed. For
arrangements including multiple elements, revenues are allocated to the various
elements based upon vendor-specific objective evidence (VSOE) of fair value.
VSOE of fair value is determined by the price charged when the same element is
sold separately. When the Company is acting as a reseller, the software license
revenue is not recognized until the license has been delivered and necessary
training has been completed.
Training and Education Services
_______________________________
The Company provides training and education services to its customers in the
use of its software products. Classes held either at the Company's training
facilities or the customer's site generally run 3-5 days; revenues from such
services are recognized at completion of the training. VSOE is determined by
the price charged when the same element is sold separately. It is not essential
to the functionality of any other element of the transaction, and the total
price of the arrangement would be expected to vary as the result of the
inclusion or exclusion of this service.
Software Maintenance and Support
________________________________
The Company enters into agreements with its software customers to provide post-
contract support (PCS) activities including industry consulting, software
support and software maintenance. These agreements vary in length from one
month to three years. The maintenance agreements include certain program
updates, which principally result from various changes in regulations affecting
the healthcare industry. These updates are unspecified. There is no implicit
or explicit commitment or agreement to deliver any upgrades or enhancements at
any time. They are provided on a when-and-if available basis. Support fees are
considered PCS and are recognized ratably. Maintenance is included in the
pricing of support fees and therefore is also recognized ratably.
Deferred revenue:
Revenues related to post-contract support agreements (generally product
maintenance and consulting agreements) are deferred and recognized ratably
over the period of the agreement, in most instances one year.
The Company defers revenues received for software licenses that do not meet its
revenue recognition criteria until such criteria are met.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant accounting policies of the Company are summarized below: (continued)
Net income (loss) per common share:
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), Earnings Per Share, effective February 28, 1998.
SFAS 128 requires the presentation of basic and diluted net income (loss) per
share. Basic net income (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted averae number of
common shares outstanding for that period. Diluted net income (loss) per share
is computed giving effect to all dilutive potential common shares that were
outstanding during that period. Dilutive potential shares consist of
incremental common shares issuable upon exercise of stock options and warrants
and conversion of preferred stock and convertible debt for all periods. All
prior period net income (loss) per share amounts have been restated to comply
with SFAS No. 128.
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.
Non-compete agreements:
As a part of a purchase of certain assets of a business, the Company acquired
non-compete agreements. These agreements are being amortized over five years.
The related amortization expense was $15,000 in 1999 and $30,000 in 1998.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant accounting policies of the Company are summarized below: (continued)
Cash and cash equivalents:
For purposes of the cash flow statement, the Company considers highly liquid
debt instruments purchases with a maturity of three months or less to be cash
equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant
credit risk on cash.
Stock based compensation:
The Company applies Accounting Principles Board Opinion No. 25 (APB No. 25),
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock option plan. Accordingly, no compensation expense has
been recognized for its stock-based compensation plan. The Company has adopted
the disclosure requirements of Statements of Financial Accounting Standard No.
123 (SFAS No. 123), Accounting for Stock-Based Compensation.
Comprehensive income:
The Company does not have any items of comprehensive income in any of the
periods presented.
New accounting pronouncements:
In October 1997, the AICPA issued Statement of Position (SOP) 97-2 on Software
Revenue Recognition that supersedes SOP 91-1. The SOP is effective for all
fiscal years beginning after December 31, 1997. The Company's adoption of this
statement for 1999 had no material effect on its net income. In addition, the
AICPA issued Statements of Position (SOP) 98-4 and 98-9 to be effective in
2000. The Company's adoption of these statements will not have a material
effect on the Company's net income.
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131") in the fiscal year ended February 28, 1999. SFAS establishes standards
for reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. Since the closing of the pharmacy
operations, the Company has viewed its operations as principally one segment,
the sale and service of software to the healthcare industry. As a result, the
information disclosed herein, materially represents all of the financial
information related to the Company's principal operating segment.
The Company derives principally all of its sales throughout the United States.
Reclassifications:
Certain amounts for 1998 have been reclassified for comparative purposes to
conform with the presentation of the 1999 amounts. The reclassifications have
no effect on net income.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. CONTINUATION AS A GOING CONCERN
The accompanying consolidated financial statements are prepared assuming the
Company will continue as a going concern. The Company incurred an operating
loss from continuing operation of $372,708 during the year ended February 28,
1998, and an operating profit of $31,731 from continuing operations during the
year ended February 28, 1999. As of February 28, 1999, the Company had an
accumulated deficit of $5,284,406, a stockholders' deficit of $388,676, and a
working capital deficit of $338,385. Accordingly, there is substantial doubt
about the Company's ability to continue in existence. The Company's continued
existence is dependent upon management's ability to return to profitable
operations and resolve its liquidity problems. Management anticipates
profitability will return 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 market the Company's Assurance Coordinated Pharmaceutical Care
System (tm) to community pharmacies, pharmacy benefit managers, and third
party payers.
* Expand its current strategy of locating a strategic partner in the
pharmaceutical care marketplace that has the financial strength to bring
the Company's product to market at a substantially increased pace.
* Continue to strengthen its relationship with Advanced Information Management
(AIM) through additional sales of AIM's software to its clients and to new
prospects.
* Reduce operating costs and ensure that the effectiveness of remaining
expenditures is consistent with support of the Company's client base.
Management believes that under the plan, operations and cash flows will continue
to improve and will be sufficient to support the Company's liquidity
requirements through February 28, 2000. However, no assurance can be given
that management's actions will result in continued profitable operation and
the resolution of its liquidity problems.
<PAGE>
HEALTH OUTCOMES MANAGMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. BUSINESS ACQUISITIONS
On July 19, 1996, the Company acquired certain assets of Edina Pharmacy, a
community pharmacy located in Minneapolis, MN. Assets acquired include
inventory, fixtures and equipment, and the patient list. The purchase price
was $47,408, of which $12,000 was paid in cash. A note payable of $14,973
was assumed. The remaining balance of $20,435, payable by the Company in
twelve equal monthly installments, was paid off during 1998.
The transaction was accounted for using the purchase method of accounting. The
accompanying consolidated financial statements include results of operations of
the acquired business from the date of acquisition. Due to the nature of the
transaciton under which the Company purchased only certain assets of Edina
Pharmacy, owned by an individual reporting financial information on an income
tax basis, meaningful pro forma financial information is not available.
On April 1, 1997, the Company acquired certain assets of Preserve Rexall Drug,
a community pharmacy located in Eden Prairie, MN from Supplee Enterprises, Inc.
The Company acquired some fixtures and the patient list. The purchase price
was $40,000 of which $10,000 was paid in cash. The unpaid balance of $17,500,
payable at $500 per month, matures in March 2000. The remaining balance of
$30,000, payable by the Company in eleven equal monthly installments, was paid
off during 1998. Similar to Edina Pharmacy which was acquired in July 1996,
the Company planned to develop this pharmacy into a prototype store applying
patient care concepts utilizing the Company's Assurance Coordinated
Pharmaceutical Care System (tm) software. During 1998, the Company discontinued
the operations of both the Edina and Eden Prairie facilities (see Note 15).
Note 4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
__________________________________________________________________________
1999 1998
__________________________________________________________________________
<S> <C> <C>
Property acquired under capitalized leases $ 41,649 $ 181,547
Furniture and equipment 588,555 480,338
__________________________________________________________________________
630,204 661,885
Less accumulated amortization and depreciation,
including accumulated amortization on equipment
acquired under capital leases $29,889 and
$160,747, respectively (604,591) (606,501)
__________________________________________________________________________
Net property and equipment $ 25,613 $ 55,384
__________________________________________________________________________
</TABLE>
Note 5. OTHER ASSETS
Capitalized Software
____________________
During 1996, the Company became licensed as an authorized reseller of financial
software. The software is for corporate use and inclusion into the Company's
software products. The Company is amortizing the $8,292 of software costs over
its three-year term.
New software products, developed in 1998 and 1997, were expensed as incurrred
due to the lack of significant revenues generated from such products. No new
software products were developed during 1999, however, the Company continued to
modify and improve its existing products. Costs related to these improvements
and Year 2000 compliance, were expensed.
Amortization of capitalized computer software costs was $2,073 and $2,764 in
1999 and 1998, respectively.
Non-Compete Agreement
_____________________
The Company has amortized the amount paid relating to a 10-year non-compete
agreement over the term of the agreement. The agreement expired in 1998 and
amortization expense for 1998 was $15,000.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
_____________________________________________________________________________
1999 1998
_____________________________________________________________________________
<S> <C> <C>
Note payable maturing March 2000, payable in
monthly installments of $500, including interest
at 8.0%. $ 6,298 $ 17,500
Note payable maturing July 1999, payable in
monthly installments of $1,102, including interest
at 10.0%, secured by specific computer equipment. 5,376 0
Note payable maturing December 2000, payable in
average monthly installments of $1,167, secured by
inventory, receivables, equipment and general
intangibles. 29,000 0
Note payable to related party maturing June 2000,
including interest at 8.0%, and secured by
inventory, receivables, equipment and general
intangibles, fully subordinate to other obligations
of the Company as designated by the Board of
Directors, and convertible into common stock at a
conversion price of $.10 per share. 50,000 0
Note payable to former employee maturing November
2000, payable in monthly installments of $800,
including interest at 10%. 16,900 0
_____________________________________________________________________________
107,574 17,500
Less current maturities 36,274 7,500
_____________________________________________________________________________
Total long-term maturities $ 71,300 $ 10,000
_____________________________________________________________________________
</TABLE>
Scheduled principal payments of long-term debt are as follows:
<TABLE>
<CAPTION>
____________________________________
Year Amount
____________________________________
<S> <C>
2000 $ 36,274
2001 71,300
____________________________________
Total $107,574
____________________________________
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7. LEASES
The Company currently leases its corporate office facility under an operating
lease agrement, which expires December 31, 1999, with an option for an
additional year.
Rental expense in 1999 and 1998 was $109,864 and $150,069, respectively.
Future minimum rental payments due under non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________
Amounts
____________________________________________________________________________
<S> <C>
2000 $ 81,690
____________________________________________________________________________
Total $ 81,690
____________________________________________________________________________
</TABLE>
Future minimum lease payments under capital lease obligations are as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________
Amounts
____________________________________________________________________________
<S> <C>
2000 $ 11,592
2001 4,889
____________________________________________________________________________
Total 16,481
Less amounts representing interest (1,877)
____________________________________________________________________________
Present value of net minimum lease payments 14,604
Less current installments (10,000)
____________________________________________________________________________
Obligations under capital leases, excluding current installments $ 4,604
____________________________________________________________________________
</TABLE>
All equipment purchased under capital leases is pledged as collateral.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8. INCOME TAXES
There was no income tax expense or benefit amounts recorded for 1999 or 1998.
The provision for income taxes from continuing operations for the years ended
February 28, 1999 and 1998, differs from the statutory federal tax rate applied
as follows:
<TABLE>
<CAPTION>
_______________________________________________________________
1999 1998
_______________________________________________________________
<S> <C> <C>
Federal tax calculated at the
statutory rate 34% (34%)
State taxes, net 2% (2%)
Change in valuation allowance (36%) 36%
________________________________________________________________
0% 0%
________________________________________________________________
</TABLE>
Deferred taxes, calculated using an effective tax rate of 36% in 1999 and 1998
consist of the following:
<TABLE>
_________________________________________________________________
1999 1998
_________________________________________________________________
<S> <C> <C>
Deferred tax assets:
Capital leases $ (200) $ 11,000
Book depreciation greater than tax 10,800 18,000
Trade receivables 2,800 4,800
Net operating loss carryforwards 2,214,000 1,983,600
Deferred revenue 67,300 117,400
_________________________________________________________________
Gross deferred tax assets 2,294,700 2,134,800
Less valuation allowance (2,294,700) (2,134,800)
_________________________________________________________________
Net deferred tax assets $ 0 $ 0
_________________________________________________________________
</TABLE>
As of February 28, 1999, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $6,150,000, which expire beginning in
2002. Included in the above carryforward amounts are approximately $670,000 of
net operating losses attributable to the former separated 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.
Note 9. NET INCOME (LOSS) PER SHARE
The following table presents the computation of basic and diluted net income
(loss) per share:
<TABLE>
<CAPTION>
____________________________________________________________________
1999 1998
____________________________________________________________________
<S> <C> <C>
Numerator for basic and diluted
earnings per share - income (loss)
from continuing operations $ 31,731 $ (372,708)
Discontinued operations 212,713 (329,727)
____________________________________________________________________
Net income (loss) $ 244,444 $ (702,435)
____________________________________________________________________
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9. NET INCOME (LOSS) PER SHARE (CONTINUED)
The following table presents the computation of basic and diluted net income
(loss) per share: (continued)
<TABLE>
<CAPTION>
__________________________________________________________________________
1999 1998
__________________________________________________________________________
<S> <C> <C>
Reconciliation of shares used in basic and diluted per share calculations:
Denominator for basic income
per share - weighted average
common shares outstanding 8,872,853 8,574,910
Effect of dilutive securities:
Stock Options 34,764 0
Warrants 0 0
Convertible Debt 5,479 0
___________________________________________________________________________
Denominator for diluted net
income (loss) per share
adjusted weighted average
shares and assumed conversions 8,913,096 8,574,910
___________________________________________________________________________
Basic per share data:
Income (loss) from continuing
operations $ 0.00 $ (0.04)
Discontinued operations $ 0.03 $ (0.04)
___________________________________________________________________________
Net income (loss) $ 0.03 $ (0.08)
___________________________________________________________________________
Diluted per share data:
Income (loss) from continuing
operations $ 0.00 $ (0.04)
Discontinued operations $ 0.03 $ (0.04)
___________________________________________________________________________
Net income (loss) $ 0.03 $ (0.08)
___________________________________________________________________________
</TABLE>
Note 10. STOCKHOLDERS' DEFICIT
Stock issuances:
During 1998, 373,824 shares of common stock were awarded to related parties,
directors, associates and consultants as payment for services performed.
During 1999, 325,908 shares of common stock were issued as part of the Company
match benefit for the 401(k) retirement plan.
Preferred stock:
The Company has authorized Series A, convertible preferred stock. All preferred
shares are non-voting, receive no dividends, and have liquidation preference
over the Company's common stock. All 1,000,000 preferred shares are unissued
and are undesignated as of February 28, 1999.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10. STOCKHOLDERS' DEFICIT (CONTINUED)
Stock option:
In February 1986, the Company adopted a stock option plan proiding for the
issuance of up to 1,200,00 shares of common stock to associates, members of
the board of directors and other non-employee agents of the Company. The
exercise price of the options must be at least 100% (110% for stockholders 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 under this plan to associates, members
of the board of directors, or other non-employee agents of the Company without
shareholder approval of a new stock option plan.
During 1999 and 1998, the Company granted non-qualified options to various
employees, board of directors, and non-employee agents.
Information with respect to options for the Company's common shares is
summarized as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________
Non-Qualified
Incentive Options Options
____________________________________________________________________________
Weighted Weighted
Price per Average Average
Share Stock Exercise Stock Exercise
Range Options Price Options Price
____________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance
February 28, 1997 $0.25 $0.97 412,815 $0.48 133,000 $0.46
Granted $0.08 $0.23 0 202,000 $0.22
Exercised 0 0
Canceled $0.25 $0.97 (130,500) $0.51 0
____________________________________________________________________________
Balance
February 28, 1998 $0.08 $0.97 282,315 $0.46 335,000 $0.29
Granted $0.10 $0.10 0 246,400 $0.10
Exercised 0 0
Canceled $0.28 $0.97 (57,500) $0.47 (28,000) $0.32
____________________________________________________________________________
Balance
February 28, 1999 $0.10 $0.97 224,815 $0.47 553,400 $0.21
____________________________________________________________________________
</TABLE>
At February 28, 1999 and 1998, currently exercisable options aggregated 497,215
and 388,565 shares of common stock, respectively, and the weighted average
exercise price of those options was $0.37 and $0.37, respectively.
<PAGE>
HEALTH OUTCOMES MANAGMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10. STOCKHOLDERS' DEFICIT (CONTINUED)
Stock option plan: (continued)
The weighted average fair values of options granted were as follows:
<TABLE>
<CAPTION>
_____________________________________________________
<S> <C>
Estimated
Weighted Average
Fair Value
_____________________________________________________
1998 grants $ .22
_____________________________________________________
1999 grants $ .03
_____________________________________________________
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1999 and 1998.
<TABLE>
<CAPTION>
_____________________________________________________
1999 1998
_____________________________________________________
<S> <C> <C>
Risk-free interest rate 4.39% 6.18%
Expeced life of options 7 years 9 years
Expected volatility .09% .52%
Expected dividend yield 0% 0%
_____________________________________________________
</TABLE>
The Company applies APB No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its plan. Accordingly, no
compensation expense has been recognized for its stock-based compensation plan.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's fiscal 1998 net loss and loss per share would have
been increased by approximately $35,000 or $0.01 per share. Fiscal 1999 net
income and earnings per share would have been reduced by approximately $17,000
or $0.002 per share.
Pro forma amounts reflect only options granted in 1996 and after. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to March 1, 1995 is not considered.
Warrants:
From time to time the Company grants warrants to officers, employees and non-
employees in consideration for loans extended to the Company and for recognition
of services performed.
Information with respect to warrants for the Company's common shares is
summarized as follows:
<TABLE>
<CAPTION>
Average
Exercise Price
Shares Per Share
____________________________________________________________
<S> <C> <C>
Balance
February 28, 1997 215,000 $ 0.37
Canceled (50,000) $ 0.30
____________________________________________________________
Balance
February 28, 1998 165,000 $ 0.39
Canceled 0
___________________________________________________________
Balance
February 28, 1999 165,000 $ 0.39
___________________________________________________________
</TABLE>
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11. NOTE RECEIVABLE FROM OFFICER
At February 28, 1997, the Company had a 9.25% secured note receivable from an
executive officer, with interest payable quarterly on the unpaid balance.
Collateral consisited 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. The officer paid the
remaining balance of note receivable in 1997. At February 28, 1997, the balance
due on the note receivable was $69,500.
Note 12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental schedule of non-cash investing and financing activities:
In 1999, the Company issued 325,908 shares of common stock in payment of a
$36,807 matching contribution to the Company's 401(k) retirement plan.
In 1999, the Company entered into an installment contract obligation of $30,000
with a vendor, as a result of the restructuring of an accounts payable
obligation with the same vendor.
In 1999, the Company entered into an installment contract of $12,537 with a
lessor, as a result of the restructuring of a capital lease obligation, with
the same lessor, upon termination of the lease.
In 1998, the Company incurred a net installment contract obligation of $24,416
associated with the purchase of pharmacy assets and equipment.
In 1998, the Company received credits totaling $15,500 from vendors for pharmacy
inventory disposed of in connection with disposition of the operations.
Note 13. EMPLOYMENT AGREEMENT
On February 1, 1991, the Company entered into employment agreements with its
then President and Vice President which provided for their employment for a term
of three years with automatice 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 twele 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 alue price at the time of the termination. The
agreements were being renewed for one year periods pursuant to the automatic
renewal provisions of the original agreements. In December 1997, the Company
terminated the employment of its President. The Company's commitments to
purchase stock, warrants and options discussed above lapsed subsequent to year
end February 28, 1998.
Note 14. RETIREMENT PLANS
On March 1,1995, the Company established a defined contribution, 401(k),
retirement plan for substantially all of its employees. The Company matches
50% of the employees' contribution up to 6% of compensation, as defined. The
expense recognized in years ending 1999 and 1998 relating to the plan totaled
$13,000 and $14,000, respectively. The Company issued 325,908 shares for its
1997, 1998 and 1999 matching contribution.
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 15. DISCONTINUED OPERATIONS
In December 1997, the Company discontinued its operation of retail prescription
and over-the-counter drug sales (pharmacy operations). Accordingly, the
$114,000 operating loss of the pharmacy operations and the $215,000 loss from
the disposal of the pharmacy operations are included in the loss from
discontinued operations on the statement of operations for 1998. The loss from
the disposal of pharmacy operations includes a provision for anticipated costs
to be incurred under its non-cancelable lease commitment and write-off of
leasehold improvements for the pharmacy leasehold. The amounts included in the
$208,550 loss from the disposal of the pharmacy operations are as follows:
Anticipated amount to be paid under non-cancelable lease $188,244.15
Write-off of leasehold improvements 9,314.77
Future payments due previous owners of pharmacy 10,911.82
____________
Total $208,550.40
There were no employee benefits and/or termination costs accrued.
The Company has restated its prior financial statements to present the operating
results of the retail drug operations as discontinued. The Company has provided
a valuation allowance for any tax benefits, which may be realized in the future
from the carryforwared of the loss from discontinued operations. The current
componenets of net assets from discontinued operations included in the Company's
consolidated balance sheet at February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
______________________________________________________________
1999 1998
______________________________________________________________
<S> <C> <C>
Cash $ 0 $ 0
Accounts receivable 0 0
Inventories 0 0
Property and equipment - net 0 0
Accounts payable and other
current liabilities 48,718 (147,000)
Provision for phase out costs 0 (208,000)
______________________________________________________________
$ 48,718 $ (355,000)
______________________________________________________________
</TABLE>
During 1999, the Company negotiated certain agreements relating to commitments
and liabilities, including lease commitments and accounts and notes payable
relating to the discontinuation of the pharmacy operations. These agreements,
most significantly its lease obligation for the pharmacy, resulted in a $213,000
reduction in the amounts which were accrued in 1998 for the provision for phase
out costs and accounts payable of $213,000.
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit
Number Document Page
_______ ______________________________________________________ ______
2(a) Articles of Incorporation 43
2(b) Amendment to Articles of Incorporation (dtd. 11/15/95) 46
2(c) Amendment to Articles of Incorporation (dtd. 06/15/87) 47
2(d) Amendment to Articles of Incorporation (dtd. 02/19/98) 48
2(e) Corporate By-Laws 49
3 Instruments Defining Rights of Security Holders
The only outstanding equity securities of the Company
are discussed in Item 8 of Part I of this filing 16
The material elements of the outstanding debt of the
Company are discussed in Note 6 of the Company's
Audited Financial Statements which are included in
Part F/S of this filing 32
5 Voting Trust Agreements None
6 Material Contracts None
7 Material Foreign Patents None
<PAGE>
SIGNATURE
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/ Peter J. Zugschwert
___________________________
Peter J. Zugschwert
Chairman and President
Principal Executive Officer
Date: /s/ June 10, 1999
___________________________
<PAGE>
Exhibit 2(a)
Corporate Charter
ARTICLES OF INCORPORATION
OF
DATA MED CLINICAL SUPPORT SERVICES, INC.
The undersigned, for the purpose of forming a corporation under and pursuant
to the provisions of Chapter 302A, Minnesota Revised Statutes, ad laws
amendatory thereof and supplementary thereto, does hereby adopt the following
Articles of Incorporation.
ARTICLE I
The name of this corporation shall be Data Med Clinical Support Services, Inc.
ARTICLE II
The registered office of this corporation in the State of Minnesota shall be at
2331 University Avenue SE, Minneapolis, Minnesota 55414. The name of the
registered agent of the corporation at that address is William A. Peter, Jr.
ARTICLE III
3.01 This coproration shall ahve the authority to issue an aggregate of fifteen
million (15,000,000) shares of Common Stock, each with $.01 par value. Such
shares shall be designated as this corporation's "Common Stock".
3.02 This corporation shall have the authority to issue an aggregate of one
million (1,000,000) shares of Preferred Stock, which may be issued in one or
more series as determined from time to time by the Board of Directors. Such
shares shall be designated as the "Preferred Stock, Series __________." The
shares of Preferred Stock of any series authorized for issuance by the Board of
Directors shall be senior to the Common Stock with respect to any distribution
(as such term is defined in Section 302A.011, Subd. 10, Minnesota Statutes), if
so designated by the Board of Directors upon issurance of the shares of that
series. The Board of Directors is hereby granted the express authority to fix
by resolution any other designations, powers, preferences, rights,
qualifications, limitations or restrictions with respect to any particular
series of Preferred Stock prior to issuance thereof.
3.03 Except as otherwise required by law, the holders of the shares of Common
Stock shall have the sole voting right of this corporation.
3.04 There shall e no cumulative voting by the holders of the Common Stock.
3.05 The shareholdrs shall take action by the affirmative vote of the holders
of a majority of the voting power of the shares represented and voting at a duly
held meeting, except where the affirmative vote of a greater number or the
affirmative vote of a majority of the voting power of all voting shares is
required by statute and except where the holders of a class or series are
entitled by statute to vote as a class or series whether or not such holders are
otherwise entitled to vote.
3.06 The shareholders of this corporation shall have no preemptive rights to
subscribe for or otherwise acquire any new or additional shares of stock of
this corporation of any class whether now authorized or authorized hereafter,
or any options or warrants to purchase, subscribe for or otherwise acquire any
such new or additional shares of any class or any shares, bonds, notes,
debentures, or other securities convertible into or carrying options or warrants
to purchase, subscribe for or otherwise acquire any such new or additional
shares of any class.
<PAGE>
ARTICLE IV
In addition to, and not by way of limitation of, the powers granted to the Board
of Directors by the Chapter 302A, Minnesota Statutes, the Board of Directors of
this corporation shall have the following powers and authority:
4.01 To fix by resolution any designation, power, preference, right,
qualification, limitation or restriction with respect to the issuance of any
series of the Prefered Stock of this corporation authorized by these Articles
of Incorporation.
4.02 To issue shares of a class or series to holder of shares of another class
or series to effectuate share dividends, splits, or conversion of its
outstanding shares.
4.03 To fix the terms, provisions and conditions of and to authorize the
issuance, sale, pledge or exchange of bonds, debentures, notes, or other
evidences of indebtness of this corporation.
4.04 To adopt, amend or repeal all or any of the Bylaws of this corporation by
the vote of a majority of its members present at a duly held meeting, subject to
the power of the shareholders to adopt, amend or repeal such Bylaws.
4.05 As to any member of the Board, to give advance written consent or
opposition to a resolution stating an action to be taken by the Board. If such
member is not present at the meeting at which action is taken upon such
resolution, such consent or opposition does not constitute presence for purposes
of determining the existence of a quorum, but shall be counted as a vote in
favor of or against the resolution and shall be entered in the minutes or other
record of action taken by the Board at the meeting if the resolution acted upon
by the Board at the meeting is substantially the same or has substantially the
same effect as the resolution to which the member of the Board has consented or
objected.
4.06 To indemnify and to purchase and maintain insurance for officers,
directors, employees and agents against liability asserted against them and
incurred in any such capacity or arising out of their status as such to the
fullest extent permissible under the provisions of Chapter 302A, Minnesota
Statutes.
ARTICLE V
Section 302A.671, Minnesota Statutes, shall apply to any control share
acquisition of the capital stock of this corporation.
ARTICLE VI
The name and post office address of the sole incorporator, who is a natural
person of full age, is:
Name Address
_____________________ __________________________
William A. Peter, Jr. PO Box 1320
Kennebunkport, Maine 04046
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has hereunto set his signature
in Minneapolis, Minnesota, on this 4th day of February, 1986.
IN THE PRESENCE OF:
/s/ Janna Severance /s/ William A. Peter, Jr.
___________________________ _____________________________
William A. Peter, Jr.
STATE OF MINNESOTA
)SS.
COUNTY OF HENNEPIN )
On this 4th day of February, 1986, before me personally appeared William A.
Peter, Jr., to me known to be the person described in, and who executed, the
foregoing instrument, and acknowledged that he executed the same act and deed.
/s/ Patti S. Boller
_______________________________
STATE OF MINNESOTA
DEPARTMENT OF STATE
I hereby certify that the within
instrument was filed for record in this
office on the 5th day of Feb. A.D. 1986,
at 4:30 o'clock P.M., and was duly
recorded in Book F-66 of
Incorporations, on page 858.
/s/ Secretary of State
<PAGE>
Exhibit 2(b)
AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
DATA MED CLINICAL SUPPORT SERVICES, INC.
Data Med Clinical Support Services, Inc., by resolution of its Board of
Directors adopted on September 11, 1995 and by resolution of its shareholders
adopted on September 21, 1995, hereby amends its Articles of Incorporation, as
amended (the "Articles"), to change the name of the corporation as set forth
herein.
Accordingly, and in furtherance of the foregoing, Article I of the Articles is
hereby amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation shall be Health Outcomes Management, Inc.
Except as specifically amended, as set forth above, the Articles are unchanged.
Dated: September 21, 1995
DATA MED CLINICAL SUPPORT SERVICES, INC.
STATE OF MINNESOTA By /s/ William A. Peter, Jr.
DEPARTMENT OF STATE _________________________
FILED William A. Peter, Jr.
SEP. 28, 1995 President and CEO
/s/ Secretary of State And
By /s/ Russell Jackson
__________________________
Russell Jackson
Secretary
STATE OF MINNESOTA
DEPARTMENT OF STATE
I hereby certify that this is a true and
complete copy of the document as filed for
record in this office.
DATED 11/1/1995
/s/ Secretary of State
<PAGE>
Exhibit 2(c)
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
DATA MED CLINICAL SUPPORT SERVICES, INC.
We, the undersigned, the President and Secretary, respectively, of Data Med
Clinical Support Services, Inc., a corporation subject to the provisions of
Chapter 302A, Minnesota Statutes, known as the Minnesota Business Corporation
Act, do hereby certify that at a meeting of the shareholders of the corporation
duly held on June 15, 1987, in accordance with the provisions of Sections
302A.431 and 302A.435, Minnesota Statutes, the following resolution providing
for the amendment of the Articles of Incorporation of said corporation was duly
adopted:
"RESOLVED: That the Articles of Incorporation of this corporation dated
February 4, 1986, and filed of record with the Secretary of State of Minnesota
on February 5, 1986, in Book F-66, on page 858, shall be amended by the
amendment and restatement of Section 4.06 thereof as follows:
4.06 To adopt an indemnity plan and to purchase and maintain insurance for
officers, directors, employees and agents against liability asserted against
them and incurred in any such capacity or arising out of their status as such
to the fullest extent permissible under the provisions of Chapter 302A,
Minnesota Statutes. Except as expressly provided in Section 302A.251, Subd. 4,
Minnesota Statutes, a member of the Board of Directors of this corporation shall
have no personal liability to this corporation or to the shareholders for
monetary damages for breach of fiduciary duty as a member of the Board of
Directors.
IN WITNESS WHEREOF, we have set our signatures hereto this 25th day of June,
1987.
IN PRESENCE OF:
/s/ Michael Frakes /s/ William A. Peter, Jr.
__________________________ ________________________________
William A. Peter, Jr., President
/s/ Michael Frakes /s/ Richard B. Thon
__________________________ ________________________________
Richard B. Thon, Secretary
STATE OF MINNESOTA)
)SS.
COUNTY OF HENNEPIN )
On this 25th day of June, 1987, before me, a notary public, personally appeared
William A. Peter, Jr. and Richard B. Thon, to me known to be the persons named
and described as the President and Secretary, respectively, of Data Med Clinical
Support Services, Inc., and who executed the foregoing Certificate of Amendment
to the Articles of Incorporation, and having been first duly sworn and under
oath, did acknowledge and say that they executed the foregoing Certificate as
their free act and deed and the free act and deed of said corporation for the
uses and purposes therein expressed.
/s/ Connie Dow
______________________________
Notary Public
STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
JUNE 30, 1987
/s/ Secretary of State
<PAGE>
Exhibit 2(d)
NOTICE OF CHANGE OF
REGISTERED OFFICE - REGISTERED AGENT OR BOTH
BY HEALTH OUTCOMES MANAGEMENT, INC.
Name of Corporation: Health Outcomes Management, Inc.
Pursuant to Minnesota Statutes, Section 302A.123, 404.10, 317.19, 317A.123 or
308A.025, the undersigned hereby certifies that the Board of Directors of the
above named corporation has resolved to change the corporation's registered
office and/or agent to:
Agent's Name: Peter Zugschwert
Address: 2331 University Avenue SE
Minneapolis, MN 55414
Mailing Address:
(if different than address
above PO Box is acceptable)
The new address may not be a post office box. It must be a street address,
pursuant to Minnesota Statutes, Section 302A.011, Subd. 3, 303.03, Subd. 5,
317.02, Subd. 13, 317A.01, Subd. 2.
This change is effective on the day it is filed with the Secretary of State,
unless you indicate another date, no later than 30 days after filing with the
Secretary of State, on this line ______________________________.
I certify that I am authorized to execute this certificate and I further certify
that I understand that by signing this certificate I am subject to the penalties
of perjury as set forth in Section 609.48 as if I had signed this certificate
under oath.
Name of Officer or Other Authorized
Agent of Corporation: Jeffrey C. Robbins /s/ Jeffrey C. Robbins
____________________ _______________________
Signature
Title or Office: Secretary 2/19/98
____________ ___________
Date
Filing Fee: $35.00 (For use by the Secretary of State)
Business Services Division STATE OF MINNESOTA
Office of the Secretary of State DEPARTMENT OF STATE
180 State Office Building FILED
St. Paul, MN 55155 FEB. 20, 1998
Telephone: 612-296-2803 /s/ Secretary of State
<PAGE>
Exhibit 2(e)
Corporate By-Laws
BY-LAWS
OF
DATA MED CLINICAL SUPPORT SERVICES, INC.
ARTICLE I
OFFICES
The registered office of the corporation shall be that set forth in the Articles
of Incorporation dated February 4, 1986, filed with the Secretary of State of
Minnesota on February 5, 1986, or in the most recent amendment thereof, or in a
statement of the Board of Directors filed with the Secretary of State of the
State of Minnesota changing the registered office in the manner prescribed by
law. The corporation may also have offices and places of business at such other
locations as the Board of Directors may from time to time designated, or the
business of the corporation may require.
ARTICLE II
SHAREHOLDER'S MEETINGS
Section 2.1 Time and Place of Meetings
Regular or special meetings of the shareholders, if any, shall be held on the
date and at the time and place fixed by the President/Chief Executive Officer
or the Board of Directors, except that a meeting called by, or at the demand of
a shareholder or shareholdres, pursuant to Minnesota Statutes, Section 302A.431,
Subd. 2, shall be held in the county where the principal executive office is
located.
Section 2.2 Regular Meetings
An annual meeting of the shareholders shall be held at such place as the Board
of Directors shall designate, either within or without the State of Minnesota,
and on such date and at such time as may be determined by the Board of Directors
and communicated to the shareholders according to the requirements set forth
herein, for the purpose of electing directors and for the transaction of any
other business which may properly come before it. Additional regular meetings
of the shareholders may be held on a less frequent periodic basis. No meeting
shall be considered a regular meeting unless specifically designated as such in
the notcie of meeting or unless all the shareholders are present in person or by
proxy and none of them objects to such designation. Any business appropriate
for action by the shareholders may be transacted at a regular meeting.
Section 2.3 Special Meetings
Special meetings of teh shareholders may be held for any purpose or purposes,
unless otherwise prescribed by statute. Such a meeting may be called by the
President/Chief Executive Officer, the Chief Financial Officer or two or more
directors ad shall be called by the President/Chief Executive Officer at the
request in writing of shareholders owning not less than ten percent (10%) or
more of the voting stock of the corporation.
Section 2.4 Notice of Meetings
Written notice of a meeting of the shareholders stating the time and place
thereof shall be mailed at least five (5) days but not more than sixty (60)
days prior to the meeting, except as otherwise provided by statute, to each
shareholder entitled to vote thereat to the last known address of such
shareholder as the same appears upon the books of the corporation.
Every notice of any special meeting shall state the purpose or purposes for
which the meeting has been called, and the business transacted at all special
meetings shall be confined to the purpose stated in the call, unless all of
the shareholders are present in person or by proxy and none of them objects
to consideration of a particular item of business.
Section 2.5 Record Date
The determination of shareholders entitled to vote at a regular or special
meeting shall be made on the date fixed by the Board of Directors for closing
of the books of the corporation. If no date is fixed by the Board, the date
for such determination shall be the date five (5) days before the date of such
meeting.
<PAGE>
Section 2.6 Waiver of Notice
Notice of the time, place and purpose of any meeting of shareholders, whether
required by statute, the Articles of Incorporation or these Bylaws, may be
waived by any shareholder. Such waiver may be given before, at, or after the
meeting, and may be given in writing, orally or by attendance.
Section 2.7 Action Without Meeting
Any action which may be taken at a meeting of the shareholders may be taken
without a meeting, if authorized in writing or writings signed by all
shareholders who would be entitled to notice of a meeting for such purpose.
Section 2.8 Quorum
The presence at any meeting, in person or by proxy, of the holders of a
majority of the shares entitled to vote, shall constitute a quorum for the
transaction of business. If, however, such majority shall not be present in
person or by proxy at any meeting of the shareholders, those persent shall have
the power to adjourn the meeting form time to time, without notice other than
by announcement at the meeting, until the requisite amount of voting shares
shall be represented. At any such adjourned meeting at which the required
number of voting shares shall be represented, any business may be transacted
which might have been transacted at the meetig as originally noticed.
Section 2.9 Voting
At all meetings of the shareholders, each shareholder having the right to vote
shall be entitled to vote in person or by proxy, duly appointed by an instrument
in writing subscribed by such shareholder. Each shareholder shall have one (1)
vote foe each share having voting power standing in his name on the books of the
corporation. Upon the demand of any shareholder, the vote for directors or the
vote upon any question before the meeting shall be by ballot. All elections
shall be had and all questions decided by a majority vote except as otherwise
required by these Bylaws, the Articles of Incorporation, any applicable
shareholder agreement, or statute.
Section 2.10 Proxies
At all meetings of shareholders, a shareholder may vote by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the corporation at or before the
time of the meeting. A proxy shall be valid for the period specified in the
proxy or, if no expiration date is provided in the proxy, for a period not to
exceed eleven months from the date of its execution. A proxy's authority
shall not be revoked by the death or incapacity of the maker unless, before
the vote is cst and the authority exercised, written notice of such death or
incapacity is given to the corporation.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 Election of Directors
The business and affairs of this corporation shall be managed by its Board of
Directors. The number of directors shall be the number last elected by a
majority vote of the shareholders which shall not be less than one (1) nor
more than seven (7) directors. Directors need not be shareholders. Each of
the directors shall hold office until the regular meeting of the shareholders
next held after its election, until a successor shall have been elected and
shall qualify, or unitl he shall resign or shall have been removed as
hereinafter provided.
Section 3.2 Board Meetings; Place and Notice
Meetings of the Board of Directors may be held from time to time at any place
within or without the State of Minnesota that the Board of Directors may
designate. In the absence of designation by the Board of Directors, Board
meetins shall be held at the principal executive office of the corporation,
except as may be otherwise unanimously agreed orally or in writing or by
attendance. Any director may call a meeting of the Board of Directors by
giving two (2) days' notice to all directors of the date and time of the
meeting. The notice need not state the purpose of the meeting. Notice may
be given by mail, telephone, telegram or in person. If a meeting schedule is
adopted by the Board of Directors, or if the date and time of a Board of
Directors meeting has been announced at a previous meeting, no notice is
required.
Section 3.3 Waiver of Notice
Notice of the time, place and purpose of any meeting of the Board of Directors,
whether required by statute, the Articles of Incorporation, or these Bylaws,
may be waived by any director. Such waiver may be given before, at, or after
the meeting and may be given in writing, orally or by attendance. The
attendance of a director at a meeting and participation therein shall constitute
waiver of notice of such meeting unless the director attends for the express
purpose of objecting to the transaction of business because the meeting is not
lawfully called or convened, the director so states at the meeting, and the
director does not thereafter participate in the meeting.
Section 3.4 Quorum and Action of Board
At all meetings of the Board of Directors, a majority of the directors shall be
necessary and sufficient to constitute a quorum for the transaction of business;
provided, that if less than a majority of the directors are present, a majority
of those present may adjorun the meeting from time to time without notice other
than an announcement at the meeting at which adjournment is taken.
<PAGE>
The directors present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
The act of majority of the directors present at any meeting at which a quorum
is present, or at any meeting at which a quorum was present and at which the
remaining directors are authorized under this Section to continue to transact
business shall be the act of the Board of Directors.
Section 3.5 Electronic Communications
A conference among directors by any means of communication through which the
directors may simultaneously hear each other durig the conference constitutes
a board meeting, if the same notice is given of the conference as required by
these Bylaws for a meeting, and if the number of directors participating in
the conference would be sufficient to constitute a quorum at a meeting.
Participation in a meeting by such electronic means of communication constitutes
presence in person at the meeting.
Section 3.6 Vacancies
Any vacancy occurring on the Board of Directors by reason of death, resignation,
disqualification, or increase in the number of directors, may be filled by a
majority of the remaining directors, though less than a quorum, at any regular
or special meeting, except that vacancies on the Board resulting from newly
created directorships may only be filled by a majority vote of the directors
serving at the time of the increase. Each director so elected shall hold office
until the next regular or special shareholder meeting or until his or her
successor is elected and qualified.
Section 3.7 Resignations
Any director of the corporation may resign at any time by giving written notice
to the Chairman of the Board or to the President/Chief Executive Officer or
Secretary of the corporation. Unless a later date is specified in the notice
of resignation as the effective date of resignation, resignation shall take
effect on the date of receipt of the written notice by the Chairman, President/
Chief Executive Officer, or Secretary. Unless otherwise specified in such
notice, the acceptance of the resignation shall not be necessary to make it
effective.
Section 3.8 Removal
At a meeting of shareholders called expressly for that purpose, any director or
the entire Board of Directors may be removed, with or without cause, by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Provided, however, that if less than the entire Board is to be
removed, no one of the directors may be removed if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors.
Section 3.9 Absent Directors
A director may give advance written consent or opposition to a proposal to be
acted on at a Board meeting. If the director is not present at the meeting,
consent or opposition to a proposal does not constitute presence for purposes
of determining the existence of a quorum, but consent or opposition stated in
writing and delivered to the President/Chief Executive Officer or the Officer
or director presiding at the meeting shall be counted as a vote in favor or
against the proposal if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
director has consented or objected. Such written consent or opposition shall
be entered in the minutes or other record of action at the meeting.
Section 3.10 Action Without Meeting
Any action which is required or may be taken at a meeting of the Board of
Directors may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed by a majority of all the directors
entitled to vote with respect to the subject matter thereof, except as to
matters that require shareholder approval, in which case such consent in
writing must be signed by all of the directors. Aciton taken by such written
consent shall be effective on the date when signed by the required number of
directors, or such earlier effectie date as set forth therein. When written
action is permitted to be taken by less than all of the directors, all directors
shall be notified immediately of its text and effective date. Failure to
provide the notice shall not invalidate the written action. A director who
does not sign or consent to the written action shall have no liability for the
action or actions taken thereby.
Section 3.11 Presumption of Assent
For purposes of any liability as a director, a director of the corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless:
<PAGE>
a. He objects at the beginning of the meeting to the transaction of business
because the meeting is not lawfully called or convened and does not thereafter
participate in the meeting.
b. He votes against the aciton at the meeting; or
c. He is prohibited from voting at the meeting due to a conflict of interest.
Section 3.12 Committees
The Board of Directors may, by a majority vote, designate two or more of their
number to constitute an executive committee, which, to the extent determined by
the Board and allowed by law, shall have and exercise the authority of the Board
in the management of the business of the corporation. Such extensive committee
shall act only in the interval between meetings of the Board and shall be
subject at all times to the control and direction of the Board. The Board of
Directors by a majority vote may also appoint one or more natural persons who
need not be Board members to serve on such other committees as the Board may
determine. Such other committees shall have powers and duties as shall from
time to time be prescribed by the Board. A majority of the members of any
committee present at a meeting is a quorum for the transaction of business. All
committees shall keep accurate minutes of their meetings, which minutes shall
be made available upon request to members of that committee and to any director.
Section 3.13 Chairman
The Board may elect one of their number to serve as Chairman, who shall preside,
when present, at all meetings of the Board.
Section 3.14 Compensation
The directors of the corporation and all members of committees shall serve
withoug salary, unless ordered by the directors; however, they shall be paid
the necessary expenses incurred in the execution of their duties. Nothing
herein shall preclude the paying by the corporation of a salary or other
compensation to an officer or employee who is also a director.
ARTICLE IV
OFFICERS
Section 4.1 Election of Officers
The Board of Directors shall, from time to time, elect a President/Chief
Executive Officer and a Treasurer/Chief Financial Officer. The Board of
Directors may, but shall not be required to, elect a Secretary and one (1)
or more Vice Presidents, as they may determine, one of whom may be designated
as an Executive Vice President. In addition, the Board of Directors may elect
such other officers and agents as it may determine necessary, including
Assistant Secretaries and Assistant Treasurers. Such officers shall exercise
such powers and perform such duties as are prescribed by the Articles of
Incorporation or the Bylaws or as may be otherwise determined from time to
time by the Board of Directors. Any number of offices or functions of those
officers may be held or exercised by the same person.
Section 4.2 Terms of Office
The officers of the corporation shall hold for such terms as shall be determined
from time to time by the Board of Directors or until their successors are chosen
and qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed by the affirmative vote of a majority of the whole
Board of Directors with or without cause.
Section 4.3 Salaries
The salaries of all officers and agents of the corporation shall be determined
by the Board of Directors.
Section 4.4 President/Chief Executive Officer
The President/Chief Executive Officer shall be the chief executive officer of
the corporation, and shall have the general direction of the affairs of the
corporation. He shall preside at all meetings of the shareholders and of the
Board of Directors. He shall direct general active management of the business
of the corporation, and shall see that all orders and resolutions of the Board
of Directors are carried into effect. He shall execute all contracts,
mortgages and other instruments of the corporation, and may appoint and
discharge agents and employees. He shall be ex officio a member of any
executive committee which may be constituted hereunder, and all other standing
committees, and shall perform all such other duties as are incident to his
office, or are properly required of him by the Board of Directors. As used
herein or in other writings of, or documents delivered on behalf of, the
corporation, the titles "President" and "Chief Executive Officer" shall mean
one and the same person and shall be interchangeable.
<PAGE>
Section 4.5 Vice Presidents
The Vice Presidents in the order designated by the Board of Directors shall
perform the duties and exercise the powers of the President/Chief Executive
Officer in his absence or incapacity. The Vice Presidents shall perform such
other duties as the Board of Directors shall from time to time prescribe.
Section 4.6 Secretary and Assistant Secretaries
The Secretary shall attend all sessions of the Board of Directors and all
meetings of the shareholders, and record all votes and minutes for all
proceedings in a book kept for that purpose, and shall perform like duties
for the standing committees when required. He shall give or cause to be given
notice of all meetings of the shareholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the President/Chief Executive Officer under whose supervision he shall be.
He shall keep in safe custody the seal, if any, of the corporation, and shall
affix the same to any instrument requiring it.
The Assistant Secretary shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary, and shall perform
such other duties as the Board of Directors shall prescribe.
Section 4.7 Treasurer/Chief Financial Officer and Assistant Treasurers
The Treasurer/Chief Financial Officer shall have the custody of the corporate
funds and securities, and shall keep full and accurate account of receipt and
disbursements in books belonging to the corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated from time to time by the
Board of Directors; he shall disburse the funds of the corporation in discharge
of corporate liabilities and obligations as may be ordered by the Board of
Directors from time to time, taking the proper vouchers for such disbursements,
and shall render to the President and the Board of Directors wheneer they may
require the same, an account of all of his transactions and of the financial
condition of th corporation; he shall give the corporation a bond, if required
by the Board of Directors, in such sum as the Board of Directors may by
resolution determing; and with one (1) or more sureties satisfactory to the
Board of Directors for the faithful performance of the duties of his office,
and for the restoration to the corporation in case of death, resignations,
retirement or removal from office of all books, vouchers, papers, money and
other property of whatsoever kind in his possession or under his control
belonging to the corporation. As used herein or in writings of, or documents
delivered on behalf of, the corporation, the titles "Treasurer" and "Chief
Financial Officer" shall mean one and the same person and shall be interchange-
able.
The Assistant Treasurer shall, in the absence or disability of the Treasurer/
Chief Financial Officer, perform the duties and exercise the powers of the
Treasurer/Chief Financial Officer, and shall perfomr such other duties as the
Board of Directors shall prescribe.
Section 4.8 Vacancies
If the office of any officer or agent becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or otherwise,
the Board of Directors, by a majority vote, shall choose a successor or
successors who shall hold office for the unexpired term in respect of which
such vacancy occurred.
Section 4.9 Delegation of Authority
An officer elected or appointed by the Board of Directors may delegate some
or all of the duties or powers of his office to other persons, provided that
such delegation is in writing.
Section 4.10 Contract Rights
The election or appointment of a person as an officer or agent does not, of
itself, create contract rights.
ARTICLE V
INDEMNIFICATION
To the full extent permitted or required by Section 302A.521 of the Minnesota
Business Corporation Act, as now enacted or hereinafter amended, or by other
provisions of law, each person who was or is a party or is threatened to be
made a party to any threatened, pending, or pleaded aciton, suit, or proceeding,
whenever brought, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer or agent of the
corporation, or he is or was serving at the specific request of the corporation
as a director, officer, employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust or other entity or enterprise, shall be
indemnified by the corporation against expenses, including attorneys' fees,
judgements, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit, or proceeding; provided,
however, that the indemnification with respect to a person who is or was
serving as a director, officer, employee, fiduciary, or agent of another
corporation, parntership, joint venture, trust, or other enterprise shall
apply only to the extent such person is not indemnified by such other
corporation, partnership, joint venture, trust, or other entity or enterprise.
Indemnification provided by this paragraph shall continue as to a person or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such person and shall apply whether or not the claim agains such person
arises out of matters occurring before the adoption of this paragraph.
ARTICLE VI
SHARES
Section 6.1 Issuance of Shares
The Board of Directors is authorized and empowered to issue shares of the
capital stock of the corporation to the full amount authorized by the Articles
of Incorporation and all amendments thereto in such amounts and at such times
as may be determined by the Board of Directors and as permitted by law.
Section 6.2 Certificates
Certificates for shares of the capital stock of the corporation shall be in
such form or forms as may be determined by the Board of Directors or those
actually used in the event the Board fails to act. There shall be no
uncertificated shares. Each shareholder shall be entitled to a certificate
representing his or her shars of stock, signed by the President/Chief Executive
Officer or a Vice President, and by the Secretary or an Assistant Secretary, if
one has been elected or appointed, otherwise, by the Treasurer/Chief Financial
Officer or an Assistant Treasurer; provided, however, that where a certificate
is countersigned by a transfer agent or an assistant transfer agent or by a
transfer clerk acting on behalf of the corporation and registered by a
registrar, the signatures of said officers on such certificates for shares may
by facsimiles. If a person signs or has a facsimile signature placed upon a
certificate while an officer, transfer agent, or registrar of the corporation,
the certificate may be issued by the corporation even if the person has ceased
to have that capacity before the certificate is issued with the same effect as
if the person had that capacity at the date of its issue. All certificates for
shares shall be consecutively numbered or otherwise identified, and shall state
the name of the corporation, that it is organized under the laws of the State
of Minnesota, the name of the person to whom the shares are issued, the number
and class of shares, and the designaton of the series, if any, that the
certificate represents. The name of the person to whom the shares are issued
with the number of shares and date of issue shall be entered on the books of
the corporation.
Section 6.3 Transfer of Shares
The shares of stock of the corporation shall be transferable upon its books
only by persons named in the certificates or by attorney lawfully constituted
in writing, and upon surrender to the corporation of the old stock certificates,
properly endorsed, to the person in charge of the stock and transfer books and
designate, by whom they shall be cancelled. New certificates for the shares
shall thereupon be issued to the person entitled to such new certificates. A
record shall be made of each transfer, and whenever a transfer shall be made
for collateral security, and not absolutely, it shall be so expressed in the
entry of the transfer.
Section 6.4 Lost Certificates
Any shareholder claiming a certificate of shares to be lost, stolen or
destroyed shall make an affidavit or affirmation of that fact in such form as
the Board of Directors may require, and shall, if the Board of Directors so
requires:
(a) advertise such fact in such manner as the Board of Directors may require;
(b) give to the corporation and its transfer agent and registrar, if any, a
bond of indemnity in open penalty as to amount or in such other sum as the Board
of Directors may direct, in form satisfactory to the Board of Directors and to
the transfer agent and registrar of the corporation, if any, and with or
without such sureties as the Board of Directors with the approval of the
transfer agent and registrar, if any, may prescribe; and
(c) satisfy such other requirements as may be imposed by the Board.
If notice by the shareholder of the loss, destruction, or wrongful taking of a
certificate is received by the corporation before the corporation has received
notice that the shares represented by such certificate have been acquired by a
bona fide purchaser, and if the foregoing requiremets imposed by the Board are
satisfied, then the Board of Directors shall authorized the issuance of a new
certificate for shares of the same tenor and for the same number of shares as
the one alleged to have been lost or destroyed.
Section 6.5 Dividends
The Board of Directors may declare dividends to the extent permitted by Section
302A.551 of the Minnesota Business Corporation Act as and when it deems
expedient. Before declaring any dividend, there may be reserved out of the
accumulated profits such sums as the Board of Directors from time to time, in
its discretion, thinks proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends, or for such other purposes as the
Board of Directors shall think conducive to the interests of the corporation.
Shareholders entitled to payment of such dividend shall be those shareholders
of record on the date fixed by the Board for closing of the books of the
corporation. If no date for closing of the books is fixed by the Board, the
shareholders entitled to payment of the dividend shall be the shareholders of
record on the date on which the resolution declaring such dividend is adopted
by the Board.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Books of Account
The corporation shall keep such books of account as are required by Section
302!.461 of the Minnesota Business Corporations Act and every shareholder shall
have a right to examine such books, in person or by agent or attorney, to the
extent provided in such Section.
Section 7.2 Corporate Seal
If so directed by the Board of Directors, the corporation may use a corporate
seal. The failure to use such seal, however, shall not affect the validity of
any documents executed on behalf of the corporation. The seal need only
include the word "seal", but it may also include, at the discretion of the Board
of Directors, such additional wording as is permitted by law.
Section 7.3 Checks and Documents
All checks or demands for money and notes of the corporation and all other
instrument, documents or deeds of every kind, nature and description required
to be executed in the name and in behalf of the corporation shall be signed by
such of the officers or agents of the corporation as the Board of Directors
may from time to time by resolution designated and determine.
Section 7.4 Fiscal Year
The fiscal year of this corporation shall be determined by resolution of the
Board of Directors.
Section 7.5 Amendments to Bylaws
These Bylaws may be amended or altered by the vote of a majority of the
Board of Directors present at any meeting provided that notice of such proposed
amendements shall have been given in the notice given to the directors of such
meeting. Such authority of the Board of Directors is subject to the power of
the shareholders to change or repeal such Bylaws as prescribed by statute and
subject to any other limitations on such authority prescribed by statute.
THESE BYLAWS WERE ADOPTED ON
July 16, 1986
BY RESOLUTION OF THE BOARD OF DIRECTORS OF
DATA MED CLINICAL SUPPORT SERVICES, INC.
/s/ Richard B. Thon
________________________
Secretary
