1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended JUNE 30, 2001
------------------------
OR
[ ] 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 0-22019
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HEALTH GRADES, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 62-1623449
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
44 UNION BOULEVARD, SUITE 600, LAKEWOOD, COLORADO 80228
- ------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 716-0041
--------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
On July 31, 2001, 21,273,425 shares of the Registrant's common stock, $.001
par value, were outstanding.
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Health Grades, Inc. and Subsidiaries
INDEX
<Table>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Balance Sheets
June 30, 2001 and December 31, 2000......................... 3
Consolidated Statements of Operations -
Three Months Ended June 30, 2001 and 2000................... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000..................... 5
Notes to Consolidated Financial
Statements.................................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 8
Item 3. Quantitative and Qualitative Disclosure About
Market Risk................................................. 10
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security
Holders..................................................... 10
Item 6. Exhibits and Reports on Form 8-K............................ 11
</Table>
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PART I. FINANCIAL INFORMATION
Health Grades, Inc. and Subsidiaries
Consolidated Balance Sheets
<Table>
<Caption>
JUNE 30 DECEMBER 31
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 1,996,232 $ 4,797,868
Accounts receivable, net 441,265 827,694
Due from affiliated practices in litigation, net -- 1,944,919
Prepaid expenses, inventories and other 147,664 206,417
Current portion notes receivable 12,726 635,186
------------ ------------
Total current assets 2,597,887 8,412,084
Property and equipment, net 605,026 860,953
Goodwill, net of accumulated amortization of
$1,236,059 and $816,609 in 2001 and 2000, respectively 4,613,941 5,033,391
Other assets 66,539 64,746
------------ ------------
Total assets $ 7,883,393 $ 14,371,174
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 65,079 $ 69,591
Accrued payroll, incentive compensation and related
Expenses 263,055 599,463
Accrued expenses 652,422 646,110
Notes payable 189,446 1,559,213
Deferred income 1,412,155 1,170,009
Income taxes payable 77,045 75,000
------------ ------------
Total current liabilities 2,659,202 4,119,386
Deferred income -- 188,021
------------ ------------
Total liabilities 2,659,202 4,307,407
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, 2,000,000
Shares authorized, no shares issued or outstanding -- --
Common stock, $0.001 par value, 50,000,000
shares authorized, and 28,832,400 and 28,817,400 shares
issued and outstanding in 2001 and 2000, respectively 28,832 28,817
Additional paid-in capital 87,547,261 87,381,917
Accumulated deficit (69,084,322) (64,266,887)
Treasury stock (13,267,580) (13,080,080)
------------ ------------
Total stockholders' equity 5,224,191 10,063,767
------------ ------------
Total liabilities and stockholders' equity $ 7,883,393 $ 14,371,174
============ ============
</Table>
See accompanying notes to consolidated financial statements
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Health Grades, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUE:
Ratings and advisory revenue $ 661,310 $ 376,534 $ 1,220,172 $ 687,067
Physician practice service fees 136,015 1,988,381 272,031 3,567,811
Other 877 -- 3,586 2,719
------------ ------------ ------------ ------------
798,202 2,364,915 1,495,789 4,257,597
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Ratings and advisory costs and expenses:
Production, content and product development 255,090 586,765 546,525 1,205,592
Sales and marketing 281,876 401,844 653,528 671,153
Physician practice services costs and expenses:
Litigation and other costs 221,431 202,612 266,518 571,835
General and administrative 2,600,142 1,888,247 4,896,392 4,062,413
------------ ------------ ------------ ------------
3,358,539 (714,553) 6,362,963 (6,510,993)
------------ ------------ ------------ ------------
Loss from operations (2,560,337) (714,553) (4,867,174) (2,253,396)
Other:
Income (loss) on sale of assets and other -- 141,874 325 (194,779)
Interest income 23,642 208,202 78,208 259,356
Interest expense (231) (59,718) (28,794) (375,793)
------------ ------------ ------------ ------------
Loss before income taxes (2,536,926) (424,195) (4,817,435) (2,564,612)
Income tax benefit -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (2,536,926) $ (424,195) $ (4,817,435) $ (2,564,612)
============ ============ ============ ============
Net loss per share (basic) $ (0.12) $ (0.02) $ (0.23) $ (0.15)
============ ============ ============ ============
Weighted average shares outstanding (diluted) 21,273,425 21,522,105 21,389,944 17,512,743
============ ============ ============ ============
Net loss per share (diluted) $ (0.12) $ (0.02) $ (0.23) $ (0.15)
============ ============ ============ ============
Weighted average shares outstanding (diluted) 21,273,425 21,522,105 21,389,944 17,512,743
============ ============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
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Health Grades, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net loss $ (4,817,435) $ (2,564,612)
Adjustments to reconcile net loss to net cash (used in)
Provided by operating activities:
Depreciation 268,056 389,782
Amortization 419,450 397,160
Bad debt expense 69,842 99,015
Officer notes financing fee -- 347,200
Loss (gain) on disposal of assets (325) 194,779
Non-cash compensation expense-stock options -- 19,287
Non-cash financing fee 146,121 --
Retainer warrants 10,800 --
Changes in operating assets and liabilities:
Accounts receivable, net 316,587 65,229
Due from affiliated practices in litigation 1,944,919 1,651,876
Prepaid expenses and other assets 58,753 (194,079)
Accounts payable and accrued expenses 1,800 (766,315)
Accrued payroll, incentive compensation and
related expenses (336,408) 175,928
Income taxes payable and prepaid and
recoverable income taxes, net 2,045 2,395,381
Deferred income 54,125 (334,633)
------------ ------------
Net cash (used in) provided by operating activities (1,861,670) 1,875,998
INVESTING ACTIVITIES
Purchases of property and equipment (12,129) (306,314)
Proceeds from sale of medical equipment -- 125,000
Proceeds from sale of equipment 325 --
(Increase) decrease in other assets (1,793) 65,065
------------ ------------
Net cash used in investing activities (13,597) (116,249)
FINANCING ACTIVITIES
Principal repayments on notes payable (1,369,767) (9,986,672)
Net proceeds from equity financing -- 14,358,592
Repayments from notes receivable 622,460 3,284,326
Repayment of Officer Notes -- (350,000)
Purchase of treasury stock (187,500) --
Exercise of common stock options 8,438 53,838
------------ ------------
Net cash (used in) provided by financing activities (926,369) 7,360,084
Net (decrease) increase in cash and cash equivalents (2,801,636) 9,119,833
Cash and cash equivalents at beginning of period 4,797,868 316,767
------------ ------------
Cash and cash equivalents at end of period $ 1,996,232 $ 9,436,600
============ ============
</Table>
See accompanying notes to consolidated financial statements.
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Health Grades, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2001
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Health
Grades, Inc. and subsidiaries (collectively the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, these statements include all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
of the interim periods reported herein. Operating results for the three and six
months ended June 30, 2001 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
DESCRIPTION OF BUSINESS
Health Grades, Inc. is a healthcare information services company. The Company
grades, or provides the means to assess and compare the quality or
qualifications of, various types of healthcare providers. The Company also
provides profile information for a variety of providers and facilities.
The Company makes this information available to consumers, employers and health
plans to assist them in selecting healthcare providers. For consumers, this
information is available free of charge on the Company's website,
www.healthgrades.com. For employers, the Company provides, for a fee, customized
information designed to encourage employees to utilize quality providers, which
can reduce medical benefit costs as well as indirect costs of lost workdays and
productivity. For health plans, the Company provides, for a fee, customized
information designed to assist them in selecting network providers who can
enhance the quality of care for their members.
The Company also offers services to healthcare providers. For providers who have
received high ratings, the Company offers the opportunity to license its ratings
and trademarks and provide assistance in their marketing programs. For providers
who have not received high ratings, the Company offers quality improvement
services designed to identify deficiencies and improve quality. The Company also
provides limited physician practice management services to musculoskeletal
practices under management services agreements that have terms expiring through
September 2002.
All significant intercompany balances and transactions have been eliminated in
consolidation.
NOTE 2 - SEGMENT DISCLOSURES
Management regularly evaluates the operating performance of the Company by
reviewing results on a product or service provided basis. The Company's
reportable segments are Ratings and Advisory Revenue ("RAR") and Physician
Practice Services ("PPS"). RAR revenue is derived primarily from marketing
arrangements with hospitals and fees related to the licensing of its content
(including set-up fees). PPS revenue is derived primarily from management
services provided to physician practices.
The Company uses net loss before income taxes for purposes of performance
measurement. The measurement basis for segment assets includes intangible
assets.
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Summary information by segment is as follows:
<Table>
<Caption>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2001 2000 2001 2000
------------ ------------ ------------ ------------
RAR
Revenue from external customers $ 661,310 $ 376,534 $ 1,220,172 $ 687,067
Interest income 23,642 174,657 68,311 178,509
Segment net loss before income taxes (825,086) (983,909) (1,771,667) (2,029,654)
Segment assets 5,285,831 7,071,525 5,285,831 7,071,525
Segment asset expenditures -- 172,963 715 298,502
PPS
Revenue from external customers $ 136,015 $ 1,988,381 $ 272,031 $ 3,567,811
Interest income -- 70,950 9,897 80,847
Interest expense (231) (59,718) (28,794) (375,793)
Segment net income (loss) before income (1,711,840) 559,714 (3,045,768) (534,958)
taxes
Segment assets 20,839,733 29,589,939 20,839,734 29,589,939
Segment asset expenditures -- -- 5,076 7,812
</Table>
A reconciliation of the Company's segment revenue, segment net loss before
income taxes, segment assets and other significant items to the corresponding
amounts in the Consolidated Financial Statements is as follows:
<Table>
<Caption>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUE
Total for reportable segments $ 797,325 $ 2,364,915 $ 1,492,203 $ 4,254,878
Other revenue 877 -- 3,586 2,719
------------ ------------ ------------ ------------
Total consolidated revenue $ 798,202 $ 2,364,915 $ 1,495,789 $ 4,257,597
============ ============ ============ ============
LOSS BEFORE INCOME TAXES
Total net loss before tax for
reportable segments $ (2,536,926) $ (424,195) $ (4,817,435) $ (2,564,612)
------------ ------------ ------------ ------------
Loss before income taxes $ (2,536,926) $ (424,195) $ (4,817,435) $ (2,564,612)
============ ============ ============ ============
ASSETS
Total assets for reportable segments $ 26,125,564 $ 36,661,464 $ 26,125,564 $ 36,661,464
Elimination of advance to subsidiaries (10,442,718) (8,311,769) (10,442,718) (8,311,769)
Elimination of investment in subsidiaries (7,795,020) (7,795,020) (7,795,020) (7,795,020)
------------ ------------ ------------ ------------
Consolidated total assets $ 7,883,393 $ 20,554,675 $ 7,883,393 $ 20,554,675
============ ============ ============ ============
</Table>
For each of the periods presented, the Company's primary operations and assets
were within the United States.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash interest paid amounted to approximately $78,000 and $440,000 for the six
months ended June 30, 2001 and 2000, respectively. Refunds received from income
taxes amounted to approximately $2,000 and $2,300,000 for the six months ended
June 30, 2001 and 2000, respectively.
Supplemental schedule of noncash investing and financing activities are as
follows:
During the three months ended March 31, 2000, approximately $1.2 million in
restricted cash was used to pay amounts outstanding under the Company's term
loan.
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In January 2000, the Company received 850,000 shares of its common stock under
the terms of a settlement agreement with one of its former affiliated practices.
In February 2000, the Company merged its majority-owned subsidiary, HG.com,
Inc., into a recently formed, wholly-owned subsidiary, HealthCare Ratings, Inc.
(hereafter, the "Merger Transaction"). In connection with the Merger
Transaction, the minority shareholders of HG.com were given 800,000 shares of
Company common stock.
NOTE 4 - SEVERANCE AGREEMENT WITH OFFICER
Effective March 29, 2001, Patrick Jaeckle, then President of the Company,
resigned his employment with the Company. In connection with his resignation,
the Company entered into a severance agreement with Mr. Jaeckle. Under the
agreement, Mr. Jaeckle agreed to serve as a consultant to the Company through
September 30, 2001 and to surrender 250,000 shares of Health Grades common stock
to the Company. The Company agreed to make payments to Mr. Jaeckle totaling
approximately $435,000 in consideration of his consulting services, the
surrender of his shares and other commitments, including certain confidentiality
commitments. The Company also extended the termination date of options to
purchase 861,351 shares of Company common stock held by Mr. Jaeckle until
September 30, 2003. In addition, the Company agreed to pay Mr. Jaeckle a fee of
approximately $90,000 if he provides to the Company a bona fide written offer of
an entity to provide equity financing or enter into a business combination
transaction with the Company on terms specified in the agreement.
NOTE 5 - FINANCING COMMITMENT
Effective April 16, 2001, the Company reached an agreement with Chancellor V.,
L.P. ("Chancellor V") and Essex Woodlands Health Ventures Fund IV, L.P.
("Essex"), regarding a commitment to provide up to $2.0 million of equity
financing to the Company. In consideration for the commitment, the Company
issued to Chancellor and Essex warrants (the "Commitment Warrants") to purchase
an aggregate of 500,000 shares of the Company's common stock at an exercise
price per share of $0.26, which was the closing market price per share of the
Company's common stock as reported by Nasdaq on April 16, 2001. The Commitment
Warrants will expire on April 16, 2007. In addition, the Company repriced
warrants to purchase 100,000 shares of the Company's common stock that were
issued to Chancellor V and Essex in March 2000 to the same $0.26 per share
exercise price.
Under the terms of the agreement with Chancellor V and Essex, the Company was
granted the option, which may be exercised solely at its discretion until
December 31, 2001, to sell Company common stock to Chancellor V and Essex at an
aggregate purchase price of up to $2.0 million. If the Company exercises the
option, the price per share will be equal to the lesser of $0.26 and the closing
market price per share of the Company's common stock on the date that the
Company provides notice to Chancellor V and Essex that the Company intends to
exercise the option, but in no event less than $0.15 per share. If the Company
decides to exercise the option, the Company will also issue warrants to purchase
up to an additional 350,000 shares of its common stock at an exercise price per
share equal to the price at which the Company sells its common stock upon the
exercise of the option. The warrants will have a six-year term.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this section, including statements concerning the sufficiency of
available funds, anticipated future revenues, anticipated costs to further
develop and market our Internet sites are "forward looking statements." Actual
events or results may differ materially from those discussed in forward looking
statements as a result of various factors, including failure to achieve revenue
increases, unanticipated expenditures, adverse litigation developments and other
factors discussed below and in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, particularly under "Risk Factors" in Item 1.
GENERAL
We are a healthcare information services company. We grade, or provide the means
to assess and compare the quality or qualifications of, various types of
healthcare providers. We also provide profile information for a variety of
providers and facilities. We make this information available to consumers,
employers and health plans to assist them in selecting healthcare providers. For
consumers, this information is available free of charge on our website,
www.healthgrades.com. For employers, we provide, for a fee, customized
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information designed to encourage employees to utilize quality providers, which
can reduce medical benefit costs as well as indirect costs of lost workdays and
productivity. For health plans, we provide, for a fee, customized information
designed to assist them in selecting network providers who can enhance the
quality of care for their members.
We also offer services to healthcare providers. For providers who have received
high ratings, we offer the opportunity to license our ratings and trademarks and
provide assistance in their marketing programs. For providers who have not
received high ratings, we offer quality improvement services designed to
identify deficiencies and improve quality. We also provide limited physician
practice management services to musculoskeletal practices under management
services agreements that have terms expiring through September 2002.
RESULTS OF OPERATIONS
Ratings and advisory revenue. For the three and six months ended June 30, 2001,
ratings and advisory revenue was approximately $661,000 and $1.2 million,
respectively, compared to ratings and advisory revenue of approximately $377,000
and $687,000, for the three and six months ended June 30, 2000, respectively.
These increases are primarily the result of an increase in the number of
hospitals under our strategic quality initiative program.
Physician practice service fee revenue. Physician practice service fee revenue
is recognized based upon the service agreements between the Company and the
physician practices. For the six months ended June 30, 2001, physician practice
service fee revenue was approximately $272,000, compared to revenue of $3.6
million for the six months ended June 30, 2000. Revenue for the six months ended
June 30, 2000 includes a non-recurring payment of approximately $2.3 million
related to the termination of a management services agreement with one of the
practices. As of June 30, 2001, we have service agreements remaining with five
practices, the last of which will expire in September 2002.
Production, content and product development costs. Production, content and
product development costs relate to the development and support of our
healthgrades.com and providerweb.net web sites. These costs (which consist
primarily of salaries and benefits, consulting fees and other costs related to
software development, application development and operations expense) are
expensed as incurred. Compared with the six months ended June 30, 2000, these
costs decreased by approximately $660,000, from $1.2 million to $547,000, during
the six months ended June 30, 2001. Costs for the six months ended June 30, 2000
reflected expenses relating to the launch and expansion of both the
HealthGrades.com and ProviderWeb.net web sites, which were completed during the
first quarter of 2000.
Litigation and other costs. For the six months ended June 30, 2001, we incurred
approximately $267,000 in legal fees related to disputes with two of our former
affiliated practices. Litigation and other costs decreased approximately
$305,000 from the same period in 2000 due to the fact that during the latter
part of 1999 and in the first half of 2000 we reached settlement agreements with
several former affiliated practices. Currently, we have one remaining lawsuit
involving a former affiliated practice.
Loss on sale of assets and other. For the six months ended June 30, 2001, we
incurred a loss of approximately $275,000 on the sale of two MRI units and a
gain of approximately $142,000 related to a litigation settlement with one of
our former affiliated practices.
Interest expense. During the six months ended June 30, 2001, we incurred
interest expense of approximately $29,000 compared to interest expense of
approximately $376,000 for the same period of 2000. This decrease is due to our
repayment of the balance of our bank term loan in March 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had a working capital deficit of approximately $61,000, a
decrease of $4.4 million from approximately $4.3 million as of December 31,
2000. For the first six months of 2001, cash flow used in operations was
approximately $1.9 million compared to $1.9 million provided by operations for
the same period of 2000. In addition, we repaid the $1,369,767 remaining balance
on our bank term loan during the first quarter 2001.
Effective April 16, 2001, we reached an agreement with Chancellor V., L.P.
("Chancellor V") and Essex Woodlands Health Ventures Fund IV, L.P. ("Essex"),
regarding a commitment to provide up to $2.0 million of equity financing to us.
In consideration for the commitment, we issued to Chancellor and Essex warrants
(the "Commitment Warrants") to purchase an aggregate of 500,000 shares of our
common stock at an exercise price per share of $0.26, which was the closing
market price per share of our common stock as reported by Nasdaq on April 16,
2001. The Commitment Warrants will expire on April 16, 2007. In addition,
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we repriced warrants to purchase 100,000 shares of our common stock that were
issued to Chancellor V and Essex in March 2000 to the same $0.26 exercise price.
Under the terms of the agreement with Chancellor V and Essex, we were granted
the option, which may be exercised solely at our discretion until December 31,
2001, to sell our common stock to Chancellor V and Essex at an aggregate
purchase price of up to $2.0 million. If we exercise the option, the price per
share will be equal to the lesser of $0.26 and the closing market price per
share of our common stock on the date that we provide notice to Chancellor V and
Essex that we intend to exercise the option, but in no event less than $0.15 per
share. If we decide to exercise the option, we will also issue warrants to
purchase up to an additional 350,000 shares of our common stock at an exercise
price per share equal to the price at which we sell our common stock upon our
exercise of the option. The warrants will have a six-year term.
We anticipate incurring costs in excess of revenues for the remainder of 2001 to
further develop and market our product offerings. Based upon our current
business plan and the commitment provided by Chancellor V and Essex described
above, we anticipate that we have sufficient funds available to support ongoing
operations for at least the next twelve months. However, if revenues do not
increase as anticipated, or we incur significant unanticipated expenses, we may
require additional funds, the terms and availability of which will depend on
market and other conditions. We cannot assure that sufficient funds will be
available on terms acceptable to us, if at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As described in Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, in April
2001 we were granted the option to sell our common stock to Chancellor V and
Essex at an aggregate purchase price of up to $2.0 million. If we exercise the
option, the price per share will be equal to the lesser of $0.26 and the closing
market price per share of our common stock on the date that we provide notice to
Chancellor V and Essex that we intend to exercise the option, but in no event
less than $0.15 per share. Therefore, if we determine to exercise the option in
order to fund operations, and the price per share of our common stock decreases
to the $0.15 share minimum price, we will be required to issue more shares to
our investors in order to exercise our option. If we were to fully exercise our
option for $2.0 million, we could be obligated to issue up to 13,333,333 based
on a price per share of our common stock of $0.15 per share.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 29, 2001, the Company held its annual meeting of stockholders. At the
meeting, the stockholders voted on the election of seven members of the Board of
Directors and on approval of the Company's 1996 Equity Compensation Plan, as
amended.
The voting results on the two matters are set forth below.
1. Election of Directors:
<Table>
<Caption>
NAME OF NOMINEE FOR WITHHELD
-------------------- ---------- --------
Kerry R. Hicks 18,947,002 258,986
Alan M. Kittner 19,033,250 172,738
Peter H. Cheesbrough 19,032,750 173,238
Leslie S. Matthews 18,953,062 252,926
John J. Quattrone 19,033,250 172,738
Marc S. Sandroff 19,032,750 173,238
Mats Wahlstrom 19,032,750 173,238
</Table>
2. Approval of the HealthGrades.com Equity Compensation Plan, as amended:
<Table>
<Caption>
FOR AGAINST ABSTAIN
---------- --------- -------
11,094,263 1,016,084 141,650
</Table>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - There are no exhibits filed as part of this quarterly report
on Form 10-Q.
(b) Reports on Form 8-K. During the period covered by this report, the
Company did not file any reports on Form 8-K with the Commission.
SIGNATURES
Pursuant to the requirements 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 GRADES, INC.
Date: August 14, 2001 By: /s/ Allen Dodge
------------------------------------
Allen Dodge
Senior Vice President - Finance and
Chief Financial Officer
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