UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended February 29, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-15936
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)
Issuer's telephone number (612) 378-3053
Securities to be registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities to be registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
________________________________________________________________
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended February 29, 2000 were
$1,277,502.
The aggregate market value of the issuer's Common Stock held by non-affiliates
(persons other than officers, directors or holders of more than 5% of the
outstanding stock) as of June 9, 2000 was approximately $1,028,900 based on the
closing sale price of the issuer's Common Stock on such date).
Shares of Common Stock, $0.01 par value, outstanding on June 9, 2000: 9,262,130
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB into which the document is incorporated
(1) any annual report to security holders; (2) any proxy or information
statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the
Securities Act of 1933 ("Securities Act"). The listed documents should be
clearly described for identification purposes.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
Page 1 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
FORM 10-KSB
INDEX
PART I Page
Item 1. Description of Business 3
Item 2. Description of Property 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis or Plan of Operation 9
Item 7. Financial Statements 10
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 10
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 11
Item 10. Executive Compensation 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 15
PART IV
Item 13. Exhibits and Reports on Form 8-K 16
Signatures 38
Page 2 of 38
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Health Outcomes Management, Inc. (the "Company" or "Health Outcomes"), a
Minnesota corporation, is engaged in licensing proprietary software services to
long-term care facilities, home healthcare agencies, retail pharmacies and
hospitals. On June 15, 1994, the Company formed Pharmaceutical Care Outcomes,
Inc. as a wholly owned subsidiary. Unless indicated otherwise, the term
"Company" or "Health Outcomes" when used herein includes Health Outcomes
Management, Inc. and its subsidiaries.
The Company's executive offices are located at 2331 University Avenue SE,
Minneapolis, Minnesota 55414. The Company's telephone number is (612) 378-3053.
The Company markets its software products under the trade name "ASSURANCE" (tm).
These comprehensive products and services are designed to give health care
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.
PRINCIPAL PRODUCTS AND MARKETS
1. 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.
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<PAGE>
2. 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.
3. 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.
4. 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.
5. Continuing Support Services
All computerized Health Outcomes systems are licensed with an agreement for
Health Outcomes to provide continuing support services via the Company's
telephone helpline (1-800-STAT-911).
6. Community Pharmacy Stores
During July 1996 and April 1997, the Company acquired certain assets of two
community pharmacies located in the Minneapolis, Minnesota metropolitan area.
At these community pharmacy locations, prescription and over-the-counter drugs
were sold at the retail level. During fiscal year 1998, the Company divested
itself of these pharmacies.
Page 4 of 38
<PAGE>
MARKETING AND DISTRIBUTION
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 5 of 38
<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 entire line of services, many
companies offer services that compete directly with individual Health Outcomes
services, or offer alternatives to such services.
Principal competition for the individual markets are as follows:
1. Assurance Long-Term Care System (tm) and Assurance Financial System (tm)
competitors -
Care Computer, MCS, Beechwood, AA Data Systems, Achieve, Melyx and Long-
Term Computer Systems, as well as approximately 85 other suppliers.
2. Assurance Homecare System (tm) competitors -
Infomed, Sandata, Delta, Kiyo, ProMac, RX:Home and Mesta Med.
3. Assurance Kinetics Systems (tm) competitors -
Simkin, Cedar Systems and the Diagnostics Division of Abbott. The Abbott
product is intended to primarily serve as a complement to Abbott's
laboratory instruments.
4. Assurance Coordinated Pharmaceutical Care System (tm) competitors -
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.
CUSTOMER DEPENDENCE
During the fiscal year ended February 29, 2000, one client accounted for a
significant portion (10% or more) of the Company's revenues. This revenue
is received on the Assurance Coordinated Pharmaceutical Care System (tm) only.
The Company is not dependent solely upon a single or few customers for a
material portion of sales of any of its other products.
PATENTS AND TRADEMARKS
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.
Page 6 of 38
<PAGE>
GOVERNMENT APPROVALS
The Company is not required to obtain governmental approval of its products.
EFFECT OF 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.
RESEARCH AND DEVELOPMENT
The Company has spent approximately $151,580 and $127,236 on research and
development efforts in the past two fiscal year ended February 29, 2000 and
February 28, 1999, respectively. For fiscal year 2001, the Company intends to
fund software development at approximately the same levels as last fiscal year.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental provisions has had no
effect on current or anticipated capital expenditures and has had no effect on
earnings.
EMPLOYEES
As of June 9, 2000, the Company employed 10 staff members, 1 sales agent, and
3 contract employees.
Page 7 of 38
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases an approximated 6,500 square foot facility located at 2331
University Avenue SE, Minneapolis, Minnesota 55414. All operating entities are
located within this facility. 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.
ITEM 3. LEGAL PROCEEDINGS
As of June 9, 2000, the Company was not involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock currently trades in the over-the-counter market on the NASD
"Electronic Bulletin Board" under the symbol "HOMI". The following tables
reflect the quarterly high and low bid quotations of the Common Stock. These
quotations represent inter-dealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
High Low
--------------------
<S> <C> <C>
Fiscal 2000
1st Quarter $ .15 $ .07
2nd Quarter $ .44 $ .11
3rd Quarter $ .20 $ .14
4th Quarter $ .28 $ .09
Fiscal 1999
1st Quarter $ .13 $ .08
2nd Quarter $ .13 $ .08
3rd Quarter $ .14 $ .06
4th Quarter $ .12 $ .06
<FN>
As of June 9, 2000, there were approximately 260 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.
</FN>
</TABLE>
Page 8 of 38
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATION
For the plan of operation going forward for the next twelve months, please see
the section designated 'Liquidity and Capital Resources', below.
RESULTS OF OPERATIONS - FISCAL 2000 vs. FISCAL 1999
The revenue from continuing operations was $1,277,502 for fiscal 2000, a
decrease of 7.3% when compared to fiscal 1999 revenue from continuing operations
of $1,377,990. Revenue from client support fees, licensing fees and training
fees declined.
Net income from continuing operations in fiscal 2000 increased to $36,558 from
$31,731 in fiscal 1999, an increase of 15.2%. Net income including discontinued
operations in fiscal 2000 decreased to $45,270 from $244,444 in fiscal 1999, a
decrease of 81.5%. The decrease was substantially impacted by gains from
discontinued operations of fiscal 1999.
Cost of sales for fiscal 2000 was $835,616 compared to cost of sales for fiscal
1999 of $737,342, an increase of 13.3%. These costs were primarily based on
associated costs of sales of the AIM software product and other additional
hardware sold to clients.
Sales and marketing expense for fiscal 2000 was $676 compared to $4,846 for
fiscal 1999, a decrease of 86.1%. The reduction was due to minimal marketing
and advertising done in fiscal 2000.
Research and development expenses totaled $151,580 for fiscal 2000 when compared
to $127,236 for fiscal 1999, an increase of 19.1%. These expenses were focused
primarily on the pharmaceutical care product line.
General and administrative expenses for fiscal 2000 were $242,875 compared to
$458,932 for fiscal 1999, a decrease of 47.1%. Administrative expenses have
declined due to a reduction in staff and continued expense reduction efforts.
Net interest was $10,197 and $17,903 for fiscal 2000 and 1999, respectively. The
43.0% decrease was primarily due to the expiration of lease agreements. The
interest costs related primarily to note holders, trade creditors and remaining
leased equipment agreements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $344,797 compared to a deficit of
$338,385 for fiscal 2000 and 1999, respectively, an increase in deficit of
$6,412. The decrease in working capital was substantially due to an increase
in current maturities of long term debt and an increase in accounts payable.
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 prior fiscal year.
The Company's cash flow position has not shown significant improvement since the
prior fiscal year; however, the Company is currently in negotiations with a
potential buyer for a portion of the business or a portion of the Company's
assets. Improved capital availability will depend on improved sales performance
and continued containment of all operational costs. There can be no assurance
that the Company's cash flow will improve or that it 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.
Page 9 of 38
<PAGE>
Management intends to continue the following initiatives for the next twelve
months:
1. Market the Company's Assurance Coordinated Pharmaceutical Care System (tm)
to community pharmacies, pharmacy benefit managers, and third party payers.
2. Strengthen its relationship with Advanced Information Management (AIM)
through additional sales of AIM's software to its clients and to new
prospects.
3. 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. However, no assurance can be given that
management's actions will result in profitable operations.
FORWARD LOOKING INFORMATION
Except for the historical information contained herein, the matters discussed
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations are forward looking statements that involve risks and
uncertainties.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and Independent Auditors' Report are included
herein on the following pages:
Independent Auditors Report 17
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Consolidated Statements of Changes in Stockholders' Deficit 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22-36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with independent accountants during
fiscal year 2000.
Page 10 of 38
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth information regarding the Company's executive
officers and directors as of June 9, 2000:
<TABLE>
<CAPTION>
Name Age Position
______________________ _______ __________________________
<S> <C> <C>
Peter J. Zugschwert 34 President, Chief Executive
Officer and Director
Stanford M. Baratz 44 Director
Jonathan R. Gordon 48 Director
Matthew E. Goldberg 33 Director
Michael J. Frakes 48 Vice President
B. Marie Cooper 32 Controller and Principal
Accounting Officer
</TABLE>
Peter J. Zugschwert, age 34, 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 44, 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 48, is the President of JR Gordon, Limited. Mr. Gordon
is a Certified Public Accountant. Mr. Gordon has been a director of the Company
since September of 1997.
Matthew E. Goldberg, age 33, 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 48, has served as Vice President of the Company
since May 1986. Mr. Frakes was a co-founder of Data Med Clinical Services, 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 32, 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.
Section 16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who beneficially own more than 10% of the Company's Common
Stock, to file with the Securities and Exchange Commission (the "SEC") initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Directors, executive officers and
greater than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file. To the Company's
knowledge, the Company's directors, executive officers and greater than 10%
shareholders complied with all applicable Section 16(a) filing requirements.
Page 11 of 38
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ITEM 10. 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
29, 2000, Board of Director compensation totaled 6,400 shares. These shares
have not yet been issued.
The following table sets forth the total compensation for each of the last three
fiscal years awarded to or earned by the Chief Executive Officer of the Company
and each executive officer of the Company whose total compensation exceeded
$100,000 in 2000. (Note: No officer of the Company received compensation in
excess of $100,000).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Restricted Securities LTIP
Name and Other Annual Stock Underlying Payouts All Other
Principal Salary Bonus Compensation Award(s) Options/SARs Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1)
Peter Zugschwert 2000 34,700 61,550 (3)
President & CEO 1999 26,613 67,550 (4)
1998 27,050 20,000 (5)
(2)
William Peter, Jr. 1998 97,960 1,734 (6)
Former President
<FN>
(1) Mr. Zugschwert has been Chairman of the Board Of Directors since September
19, 1997. He has been President and CEO since December 9, 1997.
(2) Mr. Peter was Chairman of the Board Of Directors until September 18, 1997
and President and CEO until December 8, 1997.
(3) During fiscal year 2000, Mr. Zugschwert was retained as a consultant to act
as the President of the Company. Mr. Zugschwert billed the Company $96,250
during fiscal year 2000. Of this amount, $34,700 was paid by the Company in
cash and $61,550 remains due and payable.
(4) 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
remained due and payable at the end of fiscal year 1999.
(5) 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 $20,000.
(6) Amount shown represents a health insurance allowance paid to Mr. Peter.
</FN>
</TABLE>
Page 12 of 38
<PAGE>
The following table sets forth information concerning the value of stock options
and warrants granted to the Company's executive officer named in the
compensation table during the fiscal year ended February 29, 2000.
OPTION GRANTS AND EXERCISES IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
Options/SAR Grants during Fiscal Year
(Individual Grants)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Yr ($/Sh) Date
(a) (b) (c) (d) (e)
_______________________________________________________________________
<S> <C> <C> <C> <C>
Peter J. Zugschwert 50,000 12% $0.10 06/21/04
President & CEO
</TABLE>
OPTIONS AND WARRANTS HELD AND OPTION VALUE FOR FISCAL YEAR 2000
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 29, 2000.
<TABLE>
<CAPTION>
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 30,000 45,000 $2,900 $4,050
President & CEO
<FN>
(1) Based upon the average of the bid and ask price of $.19 for the Company's
Common Stock on February 29, 2000 as reported by the OTC Bulletin Board.
</FN>
</TABLE>
Page 13 of 38
<PAGE>
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, pursuant to which the agreement has been extended
to January 31, 2001. 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 June 9, 2000. 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 June 15, 2000, incentive stock options for the
purchase of 133,815 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 June 21, 1999, the Company, by resolution of its Board of Directors,
issued 425,000 non-qualified stock options to employees and contractors
for incentive and retention purposes. These options were not issued pursuant to
any previously adopted plan. As of June 9, 2000, non-qualified options for the
purchase of 908,800 shares remained outstanding.
Options to purchase a total of 270,300 shares were held by the Company's
officers and directors as a group as of February 29, 2000. The Company's
current employees (including certain officers and directors) held options to
purchase a total of 760,815 shares at the same date.
WARRANTS
The Company issued no warrants in fiscal year 2000. As of June 9, 2000,
warrants for the purchase of 165,000 shares remained outstanding.
Page 14 of 38
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding 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 as of February 29, 2000.
Unless otherwise indicated, each person in the table has sole voting and
investment power as to the shares shown.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned
_____________________________________________
Name Number of Shares Percent Owned (1)
_______________________ __________________ ___________________
<S> <C> <C>
William A. Peter, Jr. 1,185,919 (2) 12.80%
Michael J. Frakes 327,799 (3) 3.54%
Peter J. Zugschwert 720,130 (4) 7.78%
Jonathan R. Gordon 76,400 (5) .82%
Stanford M. Baratz 57,400 (5) .62%
Matthew E. Goldberg 16,400 (5) .18%
B. Marie Cooper 18,750 (6) .20%
All Officers and Directors
as a group (6 persons) 1,216,879 (7) 13.14%
<FN>
(1) Based upon 9,262,130 outstanding shares of Common Stock as of June 9, 2000.
(2) Includes 115,000 shares which may be purchased pursuant to warrants,
exercisable within 60 days of the date hereof.
(3) Includes 30,000 shares which may be purchased pursuant to warrants and
67,500 shares which may be purchased pursuant to stock options, exercisable
within 60 days of the date hereof.
(4) Includes 30,000 shares which may be purchased pursuant to stock options and
500,000 shares which may be purchased pursuant to convertible debt, exercisable
within 60 days of the date hereof.
(5) Includes 10,000 shares which may be purchased pursuant to stock options,
exercisable within 60 days of the date hereof.
(6) Includes 13,750 shares which may be purchased pursuant to stock options,
exercisable within 60 days of the date hereof.
(7) Includes 671,250 shares which certain directors and officers may purchase
pursuant to warrants and stock options, exercisable within 60 days of the date
hereof.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At February 29, 2000, the Company had a $50,000 note and outstanding accounts
payable of $61,550 with Mr. Zugschwert related to consulting services rendered.
Page 15 of 38
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Reference is made to the Exhibit Index hereinafter contained on page 37 of
this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter ended February
29, 2000.
Page 16 of 38
<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 29, 2000 and February 28, 1999
and the related consolidated statements of operations, changes in stockholders'
deficit, and cash flows for each of the three years in the period ended February
29, 2000. 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.
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 present
fairly, in all material respects, the financial position of Health Outcomes
Management, Inc. and Subsidiaries as of February 29, 2000 and February 28, 1999
and the results of their operations and their cash flows for the three years in
the period ended February 29, 2000, 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
net working capital deficiency and stockholders' deficit raise substatial 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
June 9, 2000
Page 17 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
__________________________________________________________ _______________
February 29, February 28,
2000 1999
__________________________________________________________ _______________
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,009 $ 30,034
Trade receivables, less allowance
for doubtful accounts of $4,700
and $7,800 in 2000 and 1999,
respectively 53,768 63,937
Prepaid expenses 11,214 13,768
__________________________________________________________ _______________
Total current assets 111,991 107,739
PROPERTY AND EQUIPMENT, net 13,431 25,613
__________________________________________________________ _______________
Total assets $ 125,422 $ 133,352
____________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 93,598 36,274
Current installments of obligations
under capital leases 3,531 10,000
Accounts payable 192,979 156,611
Deferred revenue 110,701 186,928
Accrued compensation 32,410 36,731
Accrued payroll taxes 10,497 11,103
Accrued interest 6,212 329
Other current liabilities 6,860 8,148
__________________________________________________________ ______________
Total current liabilities 456,788 446,124
LONG-TERM DEBT, less current maturities 0 71,300
OBLIGATION UNDER CAPITAL LEASES, less
current installments 0 4,604
__________________________________________________________ ______________
Total liabilities 456,788 522,028
__________________________________________________________ ______________
COMMITMENTS AND CONTINGENCIES (Note 7,13,14)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; authorized
15,000,000 shares; issued and
outstanding shares 9,262,130 in 2000
and 9,198,761 in 1999 92,622 91,988
Additional paid-in capital 4,815,148 4,803,742
Accumulated deficit (5,239,136) (5,284,406)
__________________________________________________________ _____________
Total stockholders' deficit (331,366) (388,676)
__________________________________________________________ _____________
Total liabilities and stockholders' deficit $ 125,422 $ 133,352
__________________________________________________________________________
</TABLE>
Page 18 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999, AND FEBRUARY 28, 1998
<TABLE>
<CAPTION>
_______________________________________________________ _____________ _____________
2000 1999 1998
_______________________________________________________ _____________ _____________
<S> <C> <C> <C>
Revenues $ 1,277,502 $ 1,377,990 $ 1,160,675
Cost of revenues 835,616 737,342 806,928
_______________________________________________________ _____________ _____________
Gross Profit 441,886 640,648 353,747
_______________________________________________________ _____________ _____________
Operating expenses
Research and development 151,580 127,236 128,740
Selling and marketing 676 4,846 115,962
General and administrative 242,875 458,932 472,814
_______________________________________________________ _____________ _____________
Total operating expenses 395,131 591,014 717,516
_______________________________________________________ _____________ _____________
Operating income (loss) 46,755 49,634 (363,769)
Other income (expense)
Interest income 0 2,441 3,801
Interest expense (10,197) (20,344) (12,740)
_______________________________________________________ _____________ _____________
Income (loss) from continuing operations 36,558 31,731 (372,708)
Discontinued operations (Note 14)
Income (loss) from operations of
discontinued retail pharmacy division 0 0 (114,061)
Gain (loss) on disposal of retail
pharmacy division 8,712 212,713 (215,666)
_______________________________________________________ _____________ _____________
Net income (loss) $ 45,270 $ 244,444 $ (702,435)
_______________________________________________________________________________________
Net Income (Loss) Per Share Data
Basic
Income (loss) from continuing operations $ 0.00 $ 0.00 $ (0.04)
Net income (loss) per share $ 0.00 $ 0.03 $ (0.08)
Shares used in per share calculations 9,198,761 8,872,853 8,574,910
Diluted
Income (loss) from continuing operations $ 0.00 $ 0.00 $ (0.04)
Net income (loss) per share $ 0.00 $ 0.03 $ (0.08)
Shares used in per share calculations 10,079,052 8,913,096 8,574,910
</TABLE>
Page 19 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999, AND FEBRUARY 28, 1998
<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)
Issuance of common stock 0 $0 63,369 $ 634 $ 11,406 $ 0 $ 0 $ 12,040
Net income 0 $0 0 $ 0 $ 0 $ 45,270 $ 0 $ 45,270
_____________________________________________________________________________________________________________________
Balance, February 29, 2000 0 $0 9,262,130 $92,622 $4,815,148 ($5,239,136) $ 0 ($331,366)
</TABLE>
Page 20 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999, AND FEBRUARY 28, 1998
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________
2000 1999 1998
_________________________________________________________________________________________________________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 45,270 $ 244,444 $ (702,435)
___________________________________________________ _______________ _______________ _______________
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation 11,814 29,771 57,002
Amortization 0 17,073 40,264
Provision for losses on trade receivables 2,820 3,897 13,613
Net recoveries (writeoffs) of bad debts (5,920) (9,497) (35,213)
Loss (gain) on disposal of inventory and equipment (1,191) (3,425) 49,048
Loss (gain) on disposal of segment (8,712) (212,542) 208,550
Accrued severence expense converted to note payable 0 26,500 0
Interest on capital leases 0 (1,522) 0
Accrued consulting fees converted to note payable 0 50,000 0
Stock issued as payment for services performed 0 0 49,365
Changes in operating assets and liabilities, net of
acquisitions:
Decrease (increase) in trade receivables 13,269 (14,435) 70,100
Decrease (increase) in inventory 0 0 16,498
Decrease (increase) in prepaid expenses 2,554 1,615 1,983
Increase (decrease) in accounts payable 45,080 (77,934) 161,634
Increase (decrease) in deferred revenue (76,227) (139,147) 12,149
Increase (decrease) in accrued compensation (4,321) 1,253 (21,069)
Increase (decrease) in payroll taxes (606) 432 (4,308)
Increase (decrease) in accrued interest 5,883 329 0
Increase (decrease) in other current liabilities 10,752 32,141 (12,794)
_____________________________________________________________________ _______________ _______________
Total adjustments (4,805) (295,491) 606,822
_____________________________________________________________________ _______________ _______________
Cash flows provided by (used in) operating activities 40,465 (51,047) (95,613)
_____________________________________________________________________ _______________ _______________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,621) 0 (21,698)
Proceeds from the sale of equipment 205 3,425 2,310
Proceeds from the sale of customer list 0 0 14,091
Purchase of pharmacy assets 0 0 (10,000)
_____________________________________________________________________ _______________ _______________
Cash flows provided by (used in) investing activities (4,416) 3,425 (15,297)
_____________________________________________________________________ _______________ _______________
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments received on note receivable 0 0 69,500
Principal payments under capital lease obligations (5,098) (19,799) (43,214)
Repayments of note payable assumed in acquisition (6,000) (4,500) (4,684)
Principal payments under other notes payable (29,976) (17,761) 0
Proceeds from notes payable 22,000 0 0
_____________________________________________________________________ _______________ _______________
Cash flows provided by (used in) financing activities (19,074) (42,060) 21,602
_____________________________________________________________________ _______________ _______________
Increase in cash and cash equivalents 16,975 (89,682) (89,308)
Cash and cash equivalents
Beginning 30,034 119,716 209,024
_____________________________________________________________________ _______________ _______________
Ending $ 47,009 $ 30,034 $ 119,716
_________________________________________________________________________________________________________
Cash paid during the year for interest $ 4,314 $ 21,537 $ 19,415
_________________________________________________________________________________________________________
</TABLE>
Page 21 of 38
<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. The wholly owned subsidiaries are in action as of
February 2000.
Fair Value of Financial Instruments:
The Company's financial instruments consist of cash and cash equivalents,
short-term trade receivables and payables for which current carrying amounts
approximate fair market value.
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 22 of 38
<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 23 of 38
<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 average 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 $0 in 2000, $15,000 in 1999 and $30,000
in 1998.
Cash and cash equivalents:
For purposes of the cash flow statement, the Company considers highly liquid
debt instruments purchased 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.
Page 24 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 had no material effect on its 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 131 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 disclosures about products and services and
geographic areas. Operating segments are identified 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 regarding the allocation of resources and assessment of
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 generates all of its sales throughout the United States.
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 operations of $372,708 during the year ended February 28,
1998, an operating profit of $31,731 from continuing operations during the
year ended February 28, 1999, and an operating profit of $36,558 from continuing
operations during the year ended February 29, 2000. As of February 29, 2000,
the Company had an accumulated deficit of $5,239,136, a stockholders' deficit
of $331,366, and a working capital deficit of $344,797. 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 sustain
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.
Page 25 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. CONTINUATION AS A GOING CONCERN (CONTINUED)
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, 2001. However, no assurance can be given
that management's actions will result in continued profitable operation and
the resolution of its liquidity problems.
Page 26 of 38
<PAGE>
HEALTH OUTCOMES MANAGMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. BUSINESS ACQUISITIONS
During 1997, 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. 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.
During 1998, the Company acquired certain assets of Preserve Rexall Drug, a
community pharmacy located in Eden Prairie, MN. The Company acquired some
fixtures and the patient list. The purchase price was $40,000 of which $10,000
was paid in cash. 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 14).
Page 27 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
__________________________________________________________________________
2000 1999
__________________________________________________________________________
<S> <C> <C>
Property acquired under capitalized leases $ 10,379 $ 41,649
Furniture and equipment 423,039 588,555
__________________________________________________________________________
433,418 630,204
Less accumulated amortization and depreciation,
including accumulated amortization on equipment
acquired under capital leases $7,929 and
$29,889, respectively (419,987) (604,591)
__________________________________________________________________________
Net property and equipment $ 13,431 $ 25,613
__________________________________________________________________________
</TABLE>
Note 5. OTHER ASSETS
Capitalized Software
____________________
New software products, developed in 1998, were expensed as incurrred due to the
lack of significant revenues generated from such products. No new software
products were developed during 2000 or 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 $0, $2,073, and $2,764
in 2000, 1999 and 1998, respectively.
Page 28 of 38
<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>
_____________________________________________________________________________
2000 1999
_____________________________________________________________________________
<S> <C> <C>
Note payable maturing March 2000, payable in
monthly installments of $500, including interest
at 8.0%. $ 298 $ 6,298
Note payable retired July 1999, payable in
monthly installments of $1,102, including interest
at 10.0%, secured by specific computer equipment. 0 5,376
Note payable maturing December 2000, payable in
average monthly installments of $1,167, secured by
inventory, receivables, equipment and general
intangibles. 14,000 29,000
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. Interest accrued
and unpaid at February 29, 2000 and February 28, 1999
was $4,200 and $200, respectively. 50,000 50,000
Notes payable to contractors maturing December
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. 22,000 0
Note payable to former employee maturing November
2000, payable in monthly installments of $800,
including interest at 10%. 7,300 16,900
_____________________________________________________________________________
93,598 107,574
Less current maturities 93,598 36,274
_____________________________________________________________________________
Total long-term maturities $ 0 $ 71,300
_____________________________________________________________________________
</TABLE>
Scheduled principal payments of long-term debt are as follows:
<TABLE>
<CAPTION>
____________________________________
Year Amount
____________________________________
<S> <C>
2001 $ 93,598
____________________________________
Total $ 93,598
____________________________________
</TABLE>
Page 29 of 38
<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, 2000.
Rental expense in 2000, 1999 and 1998 was $96,272, $109,864 and $150,069,
respectively.
Future minimum rental payments due under non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________
Amounts
____________________________________________________________________________
<S> <C>
2001 $ 81,690
____________________________________________________________________________
Total $ 81,690
____________________________________________________________________________
</TABLE>
Future minimum lease payments under capital lease obligations are as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________
Amounts
____________________________________________________________________________
<S> <C>
2001 3,839
____________________________________________________________________________
Total 3,839
Less amounts representing interest (308)
____________________________________________________________________________
Present value of net minimum lease payments 3,531
Less current installments (3,531)
____________________________________________________________________________
Obligations under capital leases, excluding current installments $ 0
____________________________________________________________________________
</TABLE>
All equipment purchased under capital leases is pledged as collateral.
Page 30 of 38
<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 2000, 1999 or
1998.
The provision for income taxes from continuing operations for the years ended
February 29, 2000, and February 28, 1999 and 1998, differs from the statutory
federal tax rate applied as follows:
<TABLE>
<CAPTION>
___________________________________________________________________________
2000 1999 1998
___________________________________________________________________________
<S> <C> <C> <C>
Federal tax calculated at the
statutory rate 34% 34% (34%)
State taxes, net 2% 2% (2%)
Change in valuation allowance (36%) (36%) 36%
___________________________________________________________________________
0% 0% 0%
___________________________________________________________________________
</TABLE>
Deferred taxes, calculated using an effective tax rate of 36% in 2000, 1999 and
1998 consist of the following:
<TABLE>
_______________________________________________________________________________
2000 1999 1998
_______________________________________________________________________________
<S> <C> <C> <C>
Deferred tax assets:
Capital leases $ 300 $ (200) 11,000
Book depreciation greater than tax 4,000 10,800 18,000
Trade receivables 1,700 2,800 4,800
Net operating loss carryforwards 1,652,400 1,670,400 1,620,000
Deferred revenue 39,900 67,300 117,400
_______________________________________________________________________________
Gross deferred tax assets 1,698,300 1,751,100 1,771,200
Less valuation allowance (1,698,300) (1,751,100) (1,771,200)
_______________________________________________________________________________
Net deferred tax assets $ 0 $ 0 $ 0
_______________________________________________________________________________
</TABLE>
As of February 29, 2000, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $4,590,000, 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>
________________________________________________________________________________
2000 1999 1998
________________________________________________________________________________
<S> <C> <C> <C>
Income (loss) from
continuing operations $ 36,558 $ 31,731 $ (372,708)
Discontinued operations 8,712 212,713 (329,727)
________________________________________________________________________________
Net income (loss) available to common
shareholders, for basic earnings per
share $ 45,270 $ 244,444 $ (702,435)
________________________________________________________________________________
Income (loss) from
continuing operations $ 36,558 $ 31,731 $ (372,708)
Plus interest on convertible debt 5,993 0 0
________________________________________________________________________________
Income (loss) from continuing
operations available to common
shareholders, for diluted
earnings per share $ 41,551 $ 31,731 $ (372,708)
Discontinued operations 8,712 212,713 (329,727)
________________________________________________________________________________
Net income (loss) available to
common shareholders, for diluted
earnings per share $ 50,263 $ 244,444 $ (702,435)
________________________________________________________________________________
</TABLE>
Page 31 of 38
<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>
___________________________________________________________________________________
2000 1999 1998
___________________________________________________________________________________
<S> <C> <C> <C>
Reconciliation of shares used in basic and diluted per share calculations:
Denominator for basic income
per share - weighted average
common shares outstanding 9,198,761 8,872,853 8,574,910
Effect of dilutive securities:
Stock Options 242,263 34,764 0
Warrants 0 0 0
Convertible Debt 638,028 5,479 0
___________________________________________________________________________________
Denominator for diluted net
income (loss) per share
adjusted weighted average
shares and assumed conversions 10,079,052 8,913,096 8,574,910
___________________________________________________________________________________
Basic per share data:
Income (loss) from continuing
operations $ 0.00 $ 0.00 $ (0.04)
Discontinued operations $ 0.00 $ 0.03 $ (0.04)
___________________________________________________________________________________
Net income (loss) $ 0.00 $ 0.03 $ (0.08)
___________________________________________________________________________________
Diluted per share data:
Income (loss) from continuing
operations $ 0.00 $ 0.00 $ (0.04)
Discontinued operations $ 0.00 $ 0.03 $ (0.04)
___________________________________________________________________________________
Net income (loss) $ 0.00 $ 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.
During 2000, 63,369 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 29, 2000.
Page 32 of 38
<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 providing 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 2000 and 1999, the Company granted non-qualified options to various
employees, 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
Granted $0.10 $0.35 0 0 451,400 $0.10
Exercised 0 0
Canceled $0.10 $0.97 (91,000) $0.36 (96,000) $0.25
____________________________________________________________________________
Balance $0.10 $0.97 133,815 $0.54 908,800 $0.15
February 29, 2000
____________________________________________________________________________
</TABLE>
At February 29, 2000 and February 28, 1999 and 1998, currently exercisable
options aggregated 567,115, 497,215 and 388,565 shares of common stock,
respectively, and the weighted average exercise price of those options was
$0.29, $0.37 and $0.37, respectively.
Page 33 of 38
<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
_____________________________________________________
2000 grants $ .09
_____________________________________________________
</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 2000, 1999 and 1998.
<TABLE>
<CAPTION>
_______________________________________________________________
2000 1999 1998
_______________________________________________________________
<S> <C> <C> <C>
Risk-free interest rate 5.80% 4.39% 6.18%
Expeced life of options 5 years 7 years 9 years
Expected volatility 164% 9% 52%
Expected dividend yield 0% 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 2000 net
income and earnings per share would have been reduced by approximately $30,000
or $0.003 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
___________________________________________________________
Balance
February 29, 2000 165,000 $ 0.39
___________________________________________________________
</TABLE>
All warrants are exercisable and expire during 2001.
Page 34 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental schedule of non-cash investing and financing activities:
In 2000, the Company issued 63,369 shares of common stock in payment of a
$12,040 matching contibution to the Company's 401(k) retirement plan.
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 12. 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 twelve weeks advance
notice. The Company may be required to purchase all of the employees' common
shares including unregistered shares, unexercised stock options and warrants at
the average fair market value price at the time of the termination. The
agreements 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 13. 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 2000, 1999 and 1998 relating to the plan
totaled $12,000, $13,000 and $14,000, respectively. The Company issued
325,908 shares for its 1997, 1998 and 1999 matching contribution, and 63,369
shares for its 2000 matching contribution.
Page 35 of 38
<PAGE>
HEALTH OUTCOMES MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 14. 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. Amounts included in current
liabilities for anticipated costs from 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 provided a valuation allowance for any tax benefits, which may
be realized in the future from the carryforward 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 29, 2000 and
February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
______________________________________________________________________________
2000 1999 1998
______________________________________________________________________________
<S> <C> <C> <C>
Cash $ 0 $ 0 $ 0
Accounts receivable 0 0 0
Inventories 0 0 0
Property and equipment - net 0 0 0
Accounts payable and other
current liabilities 23,530 48,718 (147,000)
Provision for phase out costs 0 0 (208,000)
______________________________________________________________________________
$ 23,530 $ 48,718 $ (355,000)
______________________________________________________________________________
</TABLE>
During 2000 and 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. In addition,
during 2000 the Company reached settlements on various amounts owed vendors,
which resulted in a gain of $8,700.
Note 15. MAJOR CLIENTS
During fiscal year 2000, 1999 and 1998, one client accounted for approximately
12.7%, 0% and 0% of total revenues, respectively.
Page 36 of 38
<PAGE>
Index to Exhibits
Exhibit
Number Document
_______ ______________________________________________________
27 Financial Data Schedule
Page 37 of 38
<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 9, 2000
___________________________
Page 38 of 38
