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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________TO ________
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COMMISSION FILE NUMBER 0-22162
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 22-3209241
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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6600 POWERS FERRY ROAD, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 644-6500
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
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 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed using the average of the closing bid and ask prices as
quoted on the OTC Bulletin Board for the Registrant's common stock, $.001 par
value (the "Common Stock"), on March 7, 1997: $21,294,454.
There were 11,972,234 shares of Common Stock outstanding at March 7, 1997.
Documents incorporated by reference in this Form 10-K: None.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12
Item 6. Selected Consolidated Financial Data........................ 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 22
Item 11. Executive Compensation...................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 32
Item 13. Certain Relationships and Related Transactions.............. 33
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement
Schedules and Reports on Form 8-K........................... 36
Index to Consolidated Financial Statements.................. F-1
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PART I
ITEM 1. BUSINESS
HISTORY
Central Health Management Services, Inc. ("CHMS") was incorporated in
September 1991 as a wholly-owned subsidiary of Central Health Holding Company,
Inc. ("CHHC"), a home health care provider, to provide information and
management support services to home health care providers. Central Health
Services, Inc. ("CHS"), also a wholly-owned subsidiary of CHHC, provided similar
services to home health care agencies owned by CHHC. On January 1, 1996, CHHC
transferred to CHMS at book value the assets and employees related to CHS's
information and certain clinical and financial support services. Accordingly,
the consolidated financial statements contained herein give effect to the
reorganization of these entities under common control and reflect the combined
operating results of CHMS and the transferred CHS operations. On January 17,
1996, CHHC completed a pro-rata distribution of the outstanding common stock of
CHMS to the stockholders of CHHC. On January 18, 1996, CHMS amended its articles
of incorporation to change its name to Simione Central Holding, Inc. For
purposes hereof, however, Simione Central Holding, Inc. will continue to be
referred to herein as CHMS.
Subsequent to the distribution, CHMS began to actively pursue a strategy
designed to enhance and expand the business solutions it could offer to home
health care providers. In January 1996, CHMS acquired the home health care
consulting division of Simione & Simione, CPAs ("Simione & Simione"), a provider
of consulting services to the home health care industry with significant
expertise in strategic planning, Medicare compliance and operational
re-engineering. On October 8, 1996, CHMS and InfoMed Holdings, Inc. ("IMHI"), a
publicly traded provider of information solutions for home health care
providers, merged in a transaction that was accounted for as a reverse
acquisition for financial reporting purposes (the "IMHI Acquisition"). In
connection with the IMHI Acquisition, IMHI issued approximately 7.9 million
shares of its common stock in exchange for all the outstanding common stock of
CHMS, and the former stockholders of CHMS thereby acquired control of IMHI. As a
result, CHMS is considered the acquiring company, and the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective date of the
IMHI Acquisition. However, under the rules and regulations of the Securities and
Exchange Commission (the "Commission"), IMHI is deemed to continue as the
registrant for purposes of filing periodic reports with the Commission.
Prior to the IMHI Acquisition, shares of IMHI common stock traded on the
OTC Bulletin Board under the symbol "IMHI." Effective December 19, 1996, IMHI
changed its name to Simione Central Holdings, Inc. (the "Company") and changed
its stock symbol to "SCHI" effective December 24, 1996.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers two
systems which provide a core platform of software applications and can also
incorporate specialized selected modules to enable customers to generate and
utilize comprehensive financial, operational and clinical information. The
Company's Shared Resource Solution offers customers an outsourcing opportunity
which incorporates the Company's proprietary NAHC IS system software. Under this
arrangement, the Company operates a data center which stores customer data and
allows them real-time, secure access through a wide area communications network.
The Company's In-House Solution, STAT 2, offers similar functionality, but is
licensed to customers for use on their own computer systems. In addition to
these two systems solutions, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
The Company has recently introduced the following four new products: (i)
MAPPScan, a point-of-care product for its Shared Resource Solution, which uses
scanning technology to collect outcomes data by
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encounter and over an entire episode of care using a consistent methodology;
(ii) STAT 2 Medical Records, a point-of-care product for its In-House Solution,
which is designed to improve productivity by using handheld units to process
patient information from the point-of-care; (iii) STATScan, a Windows-based
imaging system, which scans and stores paper forms into a customer's STAT 2
system; and (iv) InfoMed's TELTime, an interactive voice response system, which
records visit, mileage, payroll and billing data from field staff using
telephones in place of computers.
During 1996, the Company had over 500 customers nationwide, including
hospital-based companies, large and small free-standing home health care
providers, alternate-site care organizations, integrated delivery systems and
government-managed organizations. The Company's customers include Columbia/HCA
Healthcare Corporation ("Columbia/HCA"), Tenet Healthcare Corporation ("Tenet"),
Home Health First, a Texas not-for-profit corporation whose members include
Baylor Health Care System, Presbyterian Healthcare Home Health Services and The
Visiting Nurse Association of Texas ("Home Health First"), Mercy Health
Services, a Michigan not-for-profit corporation ("Mercy"), and Advocate Health
System ("Advocate").
INDUSTRY OVERVIEW
Home health care is one of the fastest growing segments of the health care
industry, with total estimated expenditures having increased to approximately
$35 billion in 1995, from approximately $13 billion in 1990. The increasing
importance of home health care has principally been a result of significant
economic pressures within the health care industry. In recent years, U.S. health
care expenditures have increased rapidly and exceeded $1 trillion in 1995. In
response to these escalating expenditures, payors, such as Medicare and managed
care organizations, have applied increasing pressure on physicians, hospitals
and other providers to contain costs. This pressure has led to the growth of
lower cost alternate-site care, such as home health care, and to reduced
hospital admissions and lengths of stay. In addition, home health care has grown
rapidly as a result of advances in medical technology, which have facilitated
the delivery of services in alternate sites, demographic trends, such as an
aging population, and preferences among patients to receive health care in their
homes.
Home health care consists of many elements, including skilled nursing,
durable medical equipment ("DME"), intravenous and infusion therapy ("IV
Therapy") and hospice. Historically, this industry has been highly fragmented
and characterized by small, local providers offering a limited range of
services. With the advent of managed care and integrated delivery systems, home
health care providers have had to expand their geographic scope and range of
product and service offerings in order to obtain referrals. In addition, the
overall growth in the home health care industry has allowed providers to grow
and realize increased operating efficiencies. As a result of these developments,
the home health care industry has entered into a period of rapid consolidation.
Medicare currently reimburses a majority of home health care services at
amounts that cannot exceed the costs of services provided, resulting in a direct
relationship between the number of home health care visits and reimbursements.
As home health care expenditures have increased, the Health Care Financing
Administration ("HCFA"), which administers Medicare reimbursement for home
health care, has been attempting to contain these costs by a number of methods,
including a Prospective Payment System ("PPS"), which would limit reimbursement
to a fixed amount for all services rendered per episode of care. In addition to
the potential impact of PPS, the growth in the number of Medicare members
enrolling in managed care plans, which have also begun to take measures to
contain costs, will have a significant impact on how providers may operate
profitably.
As a result of consolidation and measures to address ongoing cost
pressures, home health care providers will increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. The Company believes
that many existing home health care information systems are inadequate to
address the changing needs of home health care providers. Generally, these
systems were designed to generate patient billing information and cost reports
for Medicare reimbursement, and, as a result, may be unable to provide the
detailed information required for meaningful business analyses.
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THE SIMIONE CENTRAL SOLUTIONS
The Company offers a comprehensive set of solutions to address the changing
needs of home health care providers which include information systems and
support, consulting services and agency support services. The Company's systems
and services are designed to enable home health care providers to generate and
utilize comprehensive financial, operational and clinical information and
address organizational issues in order to make informed decisions, more
effectively operate their businesses and compete in a managed care and PPS
environment. These solutions can be packaged and customized to serve the
individual needs of customers.
[Graphic illustration listing in pyramid form the services and solutions offered
by the Company.]
STRATEGY
The Company's objective is to enhance its position as a leading provider of
solutions to the home health care industry. Principal elements of the Company's
strategy include:
- Leverage Existing Customer Base. The Company currently has a base of
over 500 customers nationwide. The Company believes that a significant
opportunity exists to cross-sell its existing systems and services as
well as introduce new systems and enhancements.
- Generate Recurring Revenue. The Company generates recurring revenue
through a combination of annually renewable maintenance agreements and
multi-year service contracts. These sources of revenue collectively
accounted for 29% of the Company's net revenues in 1996. The Company
also attempts to maximize recurring revenue opportunities through a
combination of periodic system enhancements and comprehensive customer
service.
- Capitalize on Changing Industry Dynamics. As the home health care
industry consolidates, the Company believes it is well positioned to
increase its market share by leveraging its existing relationships
with large providers such as Columbia/HCA and Tenet. The Company also
believes its comprehensive solutions will become increasingly
important to home health care providers as they address the challenges
presented by health care reform and as integrated delivery systems
become more prevalent.
- Expand Through Acquisitions and Strategic Alliances. Through
selective strategic acquisitions, the Company intends to continue to
expand its system and service offerings, expand its customer base and
increase its market share. The Company also intends to selectively
establish strategic alliances to expand its system and service
offerings and grow its distribution capabilities. For example, the
Company has recently entered into a marketing agreement with
International Business Machines Corporation ("IBM") to leverage IBM's
presence in the hospital and integrated delivery system marketplace.
- Broaden System and Service Lines. The Company has recently released a
Windows-based imaging system for medical records, an interactive voice
response system and two automated clinical point-of-care products. The
Company intends to continue to develop and enhance its systems and
services, and is developing several new products and enhancements,
including a
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mobile data collection clinical product, currently scheduled to be released in
the third quarter of 1997.
SYSTEMS AND SERVICES
The Company provides a comprehensive set of solutions for home health care
providers through a broad range of systems and services, including: (i) two
information systems, consisting of its Shared Resource Solution and its In-House
Solution; (ii) software support services; (iii) comprehensive agency support
services; and (iv) consulting services. These systems and services are designed
to address the evolving strategic, financial, operational and clinical needs of
home health care providers as illustrated below:
[Graphic illustration enumerating the various strategic, operational, financial
and clinical needs of home health care providers.]
INFORMATION SYSTEMS
The Company offers two comprehensive and flexible software solutions to
meet various customer's needs. Each of these solutions offers similar
functionality and incorporates applications that address core requirements of
home health care providers, including: patient intake; scheduling; human
resources; accounts receivable; accounts payable; inventory management;
point-of-care; and treatment plan modules, among others. These applications are
designed to provide real-time reporting capabilities, speed information
processing, reduce redundant data entry, improve efficiencies and assist
management with making informed decisions. In addition to the core elements
common to both solutions, the Shared Resource Solution provides
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occurrence tracking, purchase management, human resources and fixed asset
management modules, while the In-House Solution provides hospice, IV Therapy,
DME, imaging, telephony and cost report modules.
[Graphic illustration of the various applications of the Shared Resource
Solution and the In-House Solution and functionality migration of the
solutions.]
Shared Resource Solution. The Company's Shared Resource Solution offers an
outsourcing opportunity which incorporates the Company's proprietary NAHC IS
system software. Under this arrangement, the Company operates a data center
which stores customer data and allows customers real-time, secure access through
a wide area communications network. The services provided by the Company include
processing access to computer and communication hardware, disaster recovery
services, new technology and capacity upgrades and software support. NAHC IS
host systems, which are maintained by Integrated Systems Solutions Corporation,
a subsidiary of IBM ("IBM Global Services"), can be accessed by customers using
their own workstations or LAN-based PCs over secure network connections, which
allow customers to input, modify, access and analyze data on a real-time basis.
The Shared Resource Solution allows customers to reduce up-front capital
costs and minimize the need for in-house technical personnel. Moreover,
customers obtain immediate expansion capabilities and automatic system upgrades
and enhancements. The Company believes that the Shared Resource Solution is
well-suited for the needs of a consolidating industry since it allows customers
to avoid having to deploy and maintain extensive networks. The Company prices
its Shared Resource Solution under two different pricing models which result in
recurring monthly user fees based on either the number of users accessing the
system or the number of billed home health care visits. Revenues derived from
contracts for these services typically range from several hundred thousand
dollars to several million dollars per year.
In-House Solution. For customers who have already made, or are planning to
make, an investment in a data center, information systems personnel, and either
remote site connection equipment or a wide area communications network, the
Company offers its In-House Solution, STAT 2. STAT 2 is licensed to customers
for use on their own computer system and allows them to manage their financial,
operational and clinical data. Similar to the NAHC IS system, the STAT 2 system
allows a customer to exchange clinical and financial information with external
systems in either a real-time or batch mode through interface engine technology
or customized interfaces. Customers obtain non-exclusive licenses of STAT 2
system software modules for a license fee and contract for annual maintenance
and support services. The STAT 2 system can be loaded on a customer's existing
customer hardware or on new hardware ordered by the Company on behalf of the
customer for installed delivery. License fees are determined by the number of
software modules licensed
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and by the number of users accessing the system and can range from thirty
thousand dollars to a few million dollars.
Functionality Migration. The Company currently has efforts underway to
migrate the functionality of certain unique applications for accessibility under
either solution. These efforts include migration of (i) MAPP and occurrence
tracking capabilities to the STAT 2 system, and (ii) hospice, IV Therapy, DME,
imaging and telephony capabilities to the NAHC IS system.
NEW PRODUCTS
MAPP. The Company has recently introduced initial versions of its Managed
Avenues of Patient Progress ("MAPP") point-of-care products. These products are
separately licensed from the NAHC IS system and offer a means of documenting the
provision of home health care services and patient outcomes. MAPP collects
outcomes data by encounter and over an entire episode of care using a consistent
methodology for data collection. MAPP incorporates HCFA data elements and
utilizes pre-defined pathways, which may be expanded by the user and guide
patient care delivery. The Company has developed a functional level of care
model and over 80 clinical pathways related to specific medical diagnoses. MAPP
will also generate cost data associated with clinical care, tracks outcomes
variances and records patient satisfaction. MAPP's clinical functionality is
based on home health care specific clinical knowledgeware developed through
years of practical application and clinical research.
The Company has recently introduced MAPPScan, a version of MAPP, which will
use scanning technology to input clinical data. The Company will be releasing a
beta version of MAPP Plus, which will utilize fully-automated front-end data
collection via a mobile, pen-based computer and will have enhanced data analysis
capabilities. The Company is currently developing a version of MAPP which would
integrate directly with NAHC IS system software modules and provide users with a
seamless interface. Also under development is a palmtop version of MAPP, which
would significantly lower a customer's hardware costs.
STAT 2 Medical Records. STAT 2 Medical Records is designed to help
In-House Solution customers improve patient care while reducing costs through
improved productivity. STAT 2 Medical Records allows field staff, using handheld
point-of-care units, to enter, update and transmit patient information from
remote locations to the home office via modem connection, updating the central
STAT 2 system on a real-time basis. Customers can use STAT 2 Medical Records to
measure outcomes, establish or import clinical pathways and report on variances
to a care plan. STAT 2 Medical Records is comprised of modules which are
integrated with other clinical, financial and operational STAT 2 system software
modules for collaborative reporting and analysis.
STATScan. STATScan is a Windows-based imaging system which scans and
stores paper forms into a customer's STAT 2 system. Documents are scanned,
digitized, stored on optical disks, indexed according to user defined fields and
recalled for instant use. STATScan also provides an automated workflow
application which allows the user to define the flow of image information to
various groups within the organization. STATScan also provides increased
security and control of information, faster information retrieval and an
enhanced ability to share information in a real-time environment.
InfoMed's TELTime. InfoMed's TELTime is an interactive voice response
system which records visit, mileage, payroll and billing data from field staff
using telephones in place of computers. This data can be automatically exported
into the STAT 2 system payroll and billing modules. InfoMed's TELTime is
designed to provide users with a more cost effective way to record data and
produce records, and can accelerate a customer's billing activities.
SERVICE SOLUTIONS
Software Support Services. The Company believes that providing
comprehensive software support services to customers is critical to its success
in the home health care industry. The Company employs 85 professionals dedicated
to this effort who provide the following services:
Implementation: Implementation services include an assessment of
existing customer business processes, project
planning, system training, business process re-
engineering and data conversion assistance.
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Training: Training services are offered on a continuing basis
to existing customers either at the customer's site
or at a Company location.
Software Support: The Company offers on-call telephone software
support seven days a week and provides maintenance
releases on a periodic basis. Releases of new STAT
2 system software enhancements are generally made
available to customers annually. NAHC IS system
software enhancements are made available to
customers as they are released.
Technical Consulting: The Company provides software customization and
integration, technical audits of the customer's
information systems, integration and network
planning, and strategic and tactical information
systems planning.
Under the In-House Solution, software support services represent a source
of recurring revenue, as these services are provided through annual renewable
service contracts. Support services for the Shared Resource Solution, however,
are included as part of the service fee paid by the customer. Other services are
generally charged on a time and materials usage basis. The Company's technical
personnel also provide on-site and on-call hardware support in conjunction with
its STAT 2 system.
Consulting Services. The Company's home health care consulting services
assist providers in addressing the challenges of a managed care and PPS
environment, such as reducing the cost of delivering care while maintaining or
improving quality of care, streamlining operational structures and
re-engineering organizational structures. The Company's consulting operations,
which were acquired in January 1996, have been providing consulting advice to
the home health care industry since 1963. The consulting staff is comprised of
25 professionals with home health care industry specific experience. Consulting
engagements generally focus on:
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Strategic Planning Marketing Studies Acquisition Due Diligence
Operational Reviews Business Valuations Quality Assurance Reviews
Reimbursement Consultation Organizational Reviews Operational Re-engineering
Medicare Compliance Medical Records Cost Report Preparation
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The Company provides consulting services on a time and materials usage
basis. The Company believes that its consulting services group effectively
complements its information systems and services, provides a valuable outlook on
the changing home health care industry and is a source of innovative ideas for
the Company's information systems enhancements. Furthermore, consulting services
are designed to build new customer relationships and provide opportunities for
the sale of additional information systems and services.
Agency Support Services. For home health care providers seeking to address
the challenges posed by changing industry dynamics, the Company provides
comprehensive agency support services to supplement their core competencies. The
Company's agency support services provide day-to-day personnel outsourcing for
certain critical customer operational functions. For new customers, the Company
will initially analyze and re-engineer, as appropriate, all aspects of a
customer's home health care operation. These services are provided by over 50
home health care specialists. This combination of services is designed to enable
customers to create an efficient organizational structure that seeks to provide
both cost-effective results and promotes the delivery of high quality patient
care. Components of these services include:
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Management Oversight Clinical Program Development Compliance & Ethics Audits
Training & Development Fiscal Intermediary Relations Community Awareness Programs
Human Resources Operations/Systems Management Accounting Support
Reimbursement Planning Billing/Collection Budget Preparation/Analysis
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The Company provides agency support services under multi-year contracts.
Fees for these services are billed monthly. The Company believes the delivery of
agency support services provides another valuable opportunity to introduce its
information systems and services to an additional customer base.
CUSTOMERS
During 1996, the Company had over 500 customers nationwide, including
hospital-based companies, large and small free-standing home health care
providers, alternate-site care organizations, integrated delivery systems and
government-managed organizations. The Company's customers include Columbia/HCA,
Tenet,
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Home Health First, Mercy and Advocate. The Company presently anticipates that
Columbia/HCA will account for a substantial portion of the Company's
consolidated net revenues for the current fiscal year. A significant number of
the Columbia/HCA contracts provide that the pricing terms may be renegotiated in
the event that HCFA replaces the current cost-based Medicare reimbursement
system for home health care with PPS, providing for fix payments per episode of
care. In addition, the Columbia/HCA contracts provide for a reduction in the
payments to the Company in the event and to the extent that such payments are
determined not to be a reimbursable cost under Medicare. Although the Company
believes that such payments are reimbursable, certain components of such
reimbursements have been subject to increasing scrutiny and there can be no
assurance that payments under the Columbia/HCA contracts will not be subject to
challenge. Except for Columbia/HCA, no other customer account is expected to
account for 10% or more of the Company's consolidated net revenues during the
year ending December 31, 1997. Some of the Company's representative customers
include:
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HOSPITAL-BASED ALTERNATE-SITE
Columbia/HCA Healthcare Corporation APRIA Health Care Group
Mercy Health Services Karmanos Cancer Institute
Mount Sinai Medical Center Home Health Agency Massachusetts Easter Seal Society
Tenet Healthcare Corp. Valentine Services Company, Inc.
FREE STANDING FOR PROFIT INTEGRATED DELIVERY SYSTEMS
Associated Professional Home Health Care Health Group of Alabama
Lifetime Medical Home Care Home Health First
Nurses Unlimited Sisters of Providence in Oregon
Shamrock VN and HHA Agency University of Penn Health Systems
FREE STANDING NOT-FOR-PROFIT GOVERNMENT-MANAGED
Advocate Health System Community Home Health Agency, Rochester, NY
VNA of Greater Philadelphia Orleans County Health Department, Milwaukee, WI
VNS of Greater Woonsocket Putnam County Health Department, Brewster, NY
VNA Health Care, Inc. South Carolina Department of Health, Columbia, SC
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SALES AND MARKETING
The Company markets its systems and services through a direct sales force
which consists of two national sales managers and 11 sales representatives
located throughout the United States. The Company also employs a marketing and
sales support staff of 13 people to assist its sales force. Recognizing the
importance of maintaining good communication and obtaining valuable input from
its customers, the Company sponsors national user group meetings. Regional user
groups have also been established to discuss customer comments, suggestions,
industry trends and related system issues.
Strategic Relationships. The Company has entered into a cooperative
marketing agreement with IBM, whereby IBM health care marketing representatives
will market and receive commissions related to the sales of the Company's
systems. The Company believes that this relationship should provide additional
opportunities focused primarily on the hospital and integrated delivery system
marketplace. In addition, NAHC Plus, Inc., a wholly-owned for-profit subsidiary
of the National Association for Home Care and Hospice ("NAHC"), has exclusively
licensed its name to the Company for use in connection with the Company's NAHC
IS system. The Company believes that this endorsement and the Company's
relationship with NAHC Plus, Inc. should be beneficial to the Company in its
marketing efforts as it provides a direct link to the home health care
industry's main trade association and its members. The Company is also exploring
other strategic alliances to broaden its sales and marketing activities.
BACKLOG
The Company had backlog associated with its In-House Solution of $4.9
million at December 31, 1996. Backlog consists of the unrecognized portion of
contractually committed software license fees, hardware, estimated installation
fees and professional services. The length of time required to complete an
implementation depends on many factors outside the control of the Company,
including the state of the customer's
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existing information systems and the customer's ability to commit the personnel
and other resources necessary to complete the implementation process. As a
result, the Company may be unable to predict accurately the amount of revenue it
will recognize in any period and, therefore, can make no assurances that the
amounts in backlog will be recognized in the next twelve months.
The Company enters into multi-year contracts with its customers in
connection with its Shared Resource Solution. In general, these contracts
provide for the payment of monthly fees based on the number of billed home care
visits made by the customer. Accordingly, the Company does not maintain a
backlog with respect to its Shared Resources Solution.
TECHNOLOGY
The NAHC IS host systems, built around IBM AS/400 RISC technology, are
located in a secure and commercially hardened IBM Global Services data center
site. Access to these host systems is provided via a secure, fully-managed,
multi-protocol wide area network, which is also maintained by IBM Global
Services. Customers can interface with the NAHC IS system through a wide range
of deployable site/desktop technologies. The NAHC IS system also incorporates
certain financial applications provided by Infinium Software, Inc. (formerly
known as Software 2000, Inc.).
The STAT 2 system operates on multiple operating systems and is designed
for use on microcomputers, LAN-based PCs, IBM RS/6000 and DEC Alpha hardware.
The STAT 2 system can be implemented on client/server or host/dumb terminal
architecture and offers SQL-compliant databases in both configurations. The
system allows any Windows SQL report writer to access the STAT 2 system database
and to merge data with other customer SQL-compliant databases. Similar to the
NAHC IS system, the STAT 2 system allows a customer to exchange clinical and
financial information with external systems in either a real-time or batch mode
through interface engine technology or customized interfaces.
The Company's systems are dependent upon many third-party software and
hardware products and related services, including Infinium Software, Inc. and
IBM Global Services. There can be no assurance that financial or other
difficulties experienced by such third-party vendors will not have an adverse
effect on the Company's abilities to provide its systems or that the Company
will be able to replace such third-party products and services if they become
unavailable.
RESEARCH AND DEVELOPMENT
The Company maintains a staff of approximately 70 programmers, systems
analysts, quality assurance analysts and documentation specialists who monitor
developments in the computer software and health care industries and who
continuously work to enhance the Company's systems. The Company's research and
development expenses were approximately $5.7, $2.9 and $2.2 million for the
years ended 1996, 1995 and 1994, respectively. In addition, the Company incurred
approximately $12.6 million of purchased in-process research and development
expense in 1996 related to the IMHI Acquisition.
NAHC IS system research and development plans include integration of the
MAPP handheld technology, introduction of standards-based database technology,
integration compatibility with other systems, incorporation of fifth generation
design methodologies and implementation of open architecture. STAT 2 system
research and development plans include upgrading key modules to a graphical user
interface. Additionally, STATScan is being enhanced with data capture
capabilities which are expected to enable customers to eliminate time card and
billing data entry, thereby reducing staff costs.
Under joint development for both the NAHC IS and STAT 2 systems are two new
features. The first is a mobile client, based on Lotus Notes, which could become
web-enabled and operate as a laptop or portable device that supports Windows CE.
The second feature would allow a customer's staff to scan medical records into
the host application to reduce redundant data entry, providing a cost-effective
approach for customers whose business model does not support full deployment of
handheld technology.
The Company recognizes the need to respond to the rapid technological
change that is occurring in the software and health care industries. There can
be no assurance, however, that the Company will be able to
9
<PAGE> 12
develop products on a timely basis or that its future products will fully
address the needs of its current or prospective customers.
COMPETITION
Competition in the market for home health care information systems and
services is intense and is expected to increase. The Company believes that the
primary factors affecting competition are system performance and reliability,
customer support, service, system flexibility and ease of use, pricing,
potential for providing enhancements, reputation and financial stability. The
Company's competitors include other providers of home health care information
systems and services, management companies and home health care consulting
firms. Furthermore, other major health care information companies not presently
offering home health care information systems, or major information system
companies not currently in the health care industry, could develop the
technology and enter the Company's markets. The Company believes its most
significant competitors are Delta Health Systems (owned partially by Shared
Medical Systems Corp.), Springfield Products Group (formerly known as Management
Software, Inc. and owned by HBO & Company), Patient Care Technologies, Inc.
(partially owned by Meditec), Home Care Information Systems, Inc. (recently
acquired by Medic Computer Systems, Inc.), and the home health care management
division of Olsten Corp. Increased competition could result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect the Company's business, financial condition and results of
operations. In addition, many of the Company's competitors and potential
competitors have significantly greater financial, technical, product
development, marketing and other resources and market recognition than the
Company. Many of the Company's competitors also currently have, or may develop
or acquire, substantial installed customer bases in the home health care
industry. As a result of these factors, the Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their systems and services than the Company. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations.
PROPRIETARY RIGHTS AND PRODUCT PROTECTION
The Company has registered the service mark "InfoMed" and owns the
copyrights on its STAT 2 system. The Company also has pending applications to
register trademarks related to its MAPP product. The Company depends upon a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions and various security measures to
protect its proprietary rights. There can be no assurance that the legal
protections afforded to the Company or the precautions taken by the Company will
be adequate to prevent misappropriation of the Company's technology. In
addition, these protections do not prevent independent third-party development
of functionally equivalent or superior technologies, systems or services, or the
obtaining of a patent with respect to the Company's technology by third parties.
Any infringement or misappropriation of the Company's proprietary software could
have a material adverse effect on the Company. As the number of home health care
software information systems increases and the functionality of these systems
further overlap, health care information systems may increasingly become subject
to infringement claims. Third parties have asserted trademark and patent
infringement claims against the Company. Although there has been no litigation
with respect to such claims, there can be no assurance that the Company will not
be subject to litigation in the future or additional infringement claims. The
Company believes that its current systems and products do not infringe on the
patent or trademark rights of any third parties. There has, however, been
substantial litigation and uncertainty regarding copyright, patent and other
intellectual property rights involving computer software companies and there can
be no assurance that the Company will prevail in any infringement litigation
brought against it. Any claims or litigation, with or without merit, could be
costly and could result in a diversion of management's attention which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Adverse determinations in such claims or litigation
may require the Company to cease selling certain systems or products, obtain a
license and/or pay damages, any of which could also have a material adverse
effect on the Company's business, financial condition and results of operations.
10
<PAGE> 13
GOVERNMENT REGULATION AND HEALTH CARE REFORM
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of home health care organizations. During the past several years, the United
States health care industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates, and certain proposals to
reform various aspects of the United States health care system have periodically
been considered by Congress. These proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for the Company's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in the Company's systems and services. The Company cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in databases maintained on the
Company's systems are subject to substantial regulation by state governments and
certain federal legislation governing specialized medical information and
records. Although compliance with these laws and regulations is principally the
responsibility of the hospital, physician or other home health care provider
with access to the Company's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 includes provisions directing the
Secretary of the Department of Health and Human Services to adopt standards
governing the electronic transmission of data in connection with a number of
transactions involving health information, including submission of health
claims. These standards are to cover security measures and safeguards with
respect to health information, as well as standardization of data, assignment of
identifiers and authentication of electronic signatures. Additional legislation
governing the dissemination of medical record information has been proposed at
both the state and federal level. This legislation may require holders of such
information to implement additional security measures which may be difficult to
implement and costly to the Company. There can be no assurance that changes to
state or federal laws and regulations will not materially restrict the ability
of home health care providers to submit information from patient records to the
Company's systems or impose requirements which are incompatible with the
Company's current systems.
The United States Food and Drug Administration (the "FDA") is responsible
for assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer products are subject to regulation when
they are used or are intended to be used in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the body. Although the
Company believes that its systems are not subject to FDA regulation, the FDA
could determine in the future that predictive applications of the Company's
systems could make them clinical decision tools subject to FDA regulation.
Compliance with FDA regulations could be burdensome, time consuming and
expensive. The Company also could become subject to future legislation and
regulations concerning the manufacture and marketing of medical devices and
health care information systems. These could increase the costs and time
necessary to market new systems and could affect the Company in other respects
not presently foreseeable. The Company cannot predict the effect of possible
future legislation and regulation.
EMPLOYEES
As of March 1, 1997, the Company employed approximately 315 employees. The
Company believes that its future success depends in large part upon recruiting,
motivating and retaining highly skilled and qualified employees in all aspects
of the Company's business. None of the Company's employees is represented by a
labor union. The Company believes that its employee relations are good.
11
<PAGE> 14
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 6600 Powers Ferry
Road, Atlanta, Georgia 30339. The principal executive offices consist of
approximately 61,940 square feet under two separate subleases that expire on
December 31, 1997 and December 31, 2002.
The Company also leases approximately 20,291 square feet of office space in
Pompano Beach, Florida pursuant to a lease that expires on December 31, 2000,
and approximately 6,500 square feet of office space in Hamden, Connecticut
pursuant to a month-to-month lease. The landlords of both of these offices are
companies comprised of certain directors and related parties of the Company. See
"Item 13. Certain Relationships and Related Transactions." In addition, the
Company leases small offices in Westborough, Massachusetts and Pennington, New
Jersey.
The Company believes that its present facilities are adequate to meet the
Company's current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
While the Company is periodically involved in litigation incidental to its
business, there are no material legal proceedings to which the Company or any of
its subsidiaries is a party that would have a material adverse effect on the
business, financial condition and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has been traded on the OTC Bulletin Board
under the symbol SCHI since December 24, 1996, and prior thereto traded on the
OTC Bulletin Board under the symbol IMHI from December 21, 1995 to December 24,
1996. Prior to December 21, 1995, the Common Stock traded on the Nasdaq SmallCap
Market under the symbol IMHI. As of March 7, 1997, the Common Stock was held by
approximately 120 holders of record. The table below sets forth the reported
quarterly high and low sales prices for the Common Stock on the Nasdaq SmallCap
Market for the period January 1, 1995 to December 20, 1995, and the quarterly
high and low bid prices for the Common Stock on the OTC Bulletin Board for the
period December 21, 1995 to December 31, 1996, and also takes into account the
change from the Nasdaq SmallCap Market to the OTC Bulletin Board. In addition,
over-the-counter prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 1996
----------------- ---------------
HIGH LOW HIGH LOW
------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
First Quarter............................................. $ 2 5/8 $2 $1 3/4 3/4
Second Quarter............................................ 2 5/8 1 1/2 3 1/4 7/8
Third Quarter............................................. 2 1/4 7/8 5 3/8 1 7/8
Fourth Quarter............................................ 1 5/16 1 6 5/8 4
</TABLE>
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future.
On October 8, 1996, CHMS and IMHI merged in a transaction that was
accounted for as a reverse acquisition for financial reporting purposes. In
connection with the IMHI Acquisition, IMHI issued
12
<PAGE> 15
approximately 7.9 million shares of its common stock in exchange for all the
outstanding common stock of CHMS, and the former stockholders of CHMS thereby
acquired control of IMHI. The IMHI common stock issued in connection with the
IMHI Acquisition was not registered with the Commission upon reliance on Section
4(2) under the Securities Act of 1933, as amended (the "Securities Act").
Accordingly, the IMHI common stock received in connection with the IMHI
Acquisition is restricted stock and subject to Rule 144 under the Securities
Act. IMHI stockholder approval was not required or obtained in connection with
the IMHI Acquisition.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data in the table as of and for the
years ended December 31, 1993, 1994, 1995 and 1996 are derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data as of and for the year ended December 31, 1992 are derived from
unaudited financial statements but, in the opinion of the Company's management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the information in accordance with generally
accepted accounting principles. The selected consolidated financial data as of
and for the year ended December 31, 1996 includes the operating results of
Simione & Simione acquired effective January 1, 1996 and IMHI for the period
October 8, 1996 (the effective date of the IMHI Acquisition) to December 31,
1996. As of and for the years ended December 31, 1992, 1993, 1994 and 1995, the
Company was a subsidiary of CHHC. The data should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and Notes
thereto of the Company included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
----------- ------ ------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Information services..................... $ 721 $1,891 $ 4,875 $ 5,387 $ 14,849
Systems.................................. -- -- -- -- 459
Support and consulting services.......... 1,704 3,317 7,235 7,835 10,687
------ ------ ------- ------- --------
Total net revenues............... 2,425 5,208 12,110 13,222 25,995
Costs and expenses:
Costs of information services............ 596 1,343 2,492 2,630 8,258
Costs of systems......................... -- -- -- -- 346
Costs of support and consulting
services.............................. 1,366 2,985 5,202 5,524 6,094
Selling, general and administrative...... 262 810 2,959 3,095 7,037
Research and development................. 125 276 2,165 2,929 5,677
Amortization and depreciation............ -- -- -- -- 785
Purchased in-process research and
development........................... -- -- -- -- 12,574
Severance and other restructuring
charges............................... -- -- -- -- 1,215
------ ------ ------- ------- --------
Total costs and expenses......... 2,349 5,414 12,818 14,178 41,986
------ ------ ------- ------- --------
Income (loss) from operations.............. 76 (206) (708) (956) (15,991)
Other income (expense):
Interest expense......................... -- -- -- -- (115)
Interest and other income................ -- -- -- -- 207
------ ------ ------- ------- --------
Net income (loss)................ $ 76 $ (206) $ (708) $ (956) $(15,899)
====== ====== ======= ======= ========
Net income (loss) per share(1)... $ 0.01 $(0.03) $ (0.12) $ (0.16) $ (1.85)
====== ====== ======= ======= ========
Weighted average common shares(1).......... 5,990 5,990 5,990 5,990 8,576
====== ====== ======= ======= ========
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
----------- ------ ------- ------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $1,243 $2,620 $ 463 $ 323 $ 3,385
Working capital (deficit)................ 77 (130) (837) 189 (1,203)
Total assets............................. 1,568 2,907 1,340 1,828 18,776
Long-term obligations.................... -- -- -- -- 2,986
Shareholders' equity (deficit)........... 77 (130) (837) 650 4,680
</TABLE>
- ---------------
(1) The number of shares used to compute the net income or loss per share
reflects the 5,989,712 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1, 12 and 16 of the Notes to Consolidated
Financial Statements of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
are subject to the safe harbor created by such sections. When used in this
report, the words "believe," "anticipate," "estimate," "expect," and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. The Company's actual results may differ significantly from
the results discussed in such forward-looking statements. When appropriate,
certain factors that could cause results to differ materially from those
projected in the forward-looking statements are enumerated. This Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto.
HISTORY
Central Health Management Services, Inc. ("CHMS") was incorporated in
September 1991 as a wholly-owned subsidiary of Central Health Holding Company,
Inc. ("CHHC"), a home health care provider, to provide information and
management support services to home health care providers. Central Health
Services, Inc. ("CHS"), also a wholly-owned subsidiary of CHHC, provided similar
services to home health care agencies owned by CHHC. On January 1, 1996, CHHC
transferred to CHMS at book value the assets and employees related to CHS's
information and certain clinical and financial support services. Accordingly,
the consolidated financial statements contained herein give effect to the
reorganization of these entities under common control and reflect the combined
operating results of CHMS and the transferred CHS operations. On January 17,
1996, CHHC completed a pro-rata distribution of the outstanding common stock of
CHMS to the stockholders of CHHC. On January 18, 1996, CHMS amended its articles
of incorporation to change its name to Simione Central Holding, Inc. For
purposes hereof, however, Simione Central Holding, Inc. will continue to be
referred to herein as CHMS.
In January 1996, CHMS acquired all of the assets of the home health care
consulting division of Simione & Simione, CPAs ("Simione & Simione") for $2
million in cash (the "Simione Acquisition"). The entire purchase price was
allocated to goodwill and is being amortized over a ten year period. Simione &
Simione provides consulting services to the home health care industry with
significant expertise in strategic planning, Medicare compliance and operational
re-engineering.
On October 8, 1996, CHMS and InfoMed Holdings, Inc. ("IMHI"), a publicly
traded provider of information solutions for home health care providers, merged
in a transaction that was accounted for as a reverse acquisition for financial
reporting purposes (the "IMHI Acquisition"). In connection with the IMHI
Acquisition, IMHI issued approximately 7.9 million shares of its common stock in
exchange for all the
14
<PAGE> 17
outstanding common stock of CHMS, and the former stockholders of CHMS thereby
acquired control of IMHI. As a result, CHMS is considered the acquiring company,
and the historical financial statements of CHMS became the historical financial
statements of IMHI and include the results of operations of IMHI only from the
effective date of the IMHI Acquisition. On December 19, 1996, IMHI changed its
name to Simione Central Holdings, Inc. (the "Company"). The Company accounted
for the acquisition using the purchase method. Accordingly, the $16.8 million
purchase price was allocated to the assets acquired and liabilities assumed
based upon their estimated fair values, with approximately $12.6 million
allocated to purchased in-process research and development, which was written
off as of the date of the IMHI Acquisition. In addition, approximately $4.2
million of the purchase price was allocated to certain identifiable intangible
assets and will be amortized over the related assets' useful lives which range
from 4 to 11 years.
As a result of the change in focus of the Company's business from providing
services to affiliates of CHHC, the Company incurred severance and certain other
restructuring costs totalling approximately $1.2 million in the fourth quarter
of 1996. These expenses primarily relate to the severance of several key
employees and costs incurred in a buyout of an equipment lease no longer useful
to the Company.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers two
systems which provide a core platform of software applications and can also
incorporate specialized selected modules to enable customers to generate and
utilize comprehensive financial, operational and clinical information. The
Company's Shared Resource Solution offers customers an outsourcing opportunity
which incorporates the Company's proprietary NAHC IS software. Under this
arrangement, the Company operates a data center which stores customer data and
allows them real-time, secure access through a wide area communications network.
The Company's In-House Solution, STAT 2, offers similar functionality, but is
licensed to customers for use on their own computer systems. In addition to
these two system solutions, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collections, training, reimbursement and financial
management services, among others. During 1996, the Company had over 500
customers nationwide.
The Company enters into multi-year contracts (generally 3 to 5 years) with
its customers in connection with its Shared Resource Solution and its provision
of agency support services. In general, these contracts provide for the payment
of monthly fees based on the number of billed home care visits made by the
customer. Revenues derived under these contracts are recognized monthly as the
related services are rendered and typically range from several hundred thousand
dollars to several million dollars per year. As a result, the loss of any of
these contracts could have a material adverse impact on the Company's business,
financial condition and results of operations.
The Company sells its In-House Solution, STAT 2, pursuant to non-exclusive
license agreements which provide for the payment of a one-time license fee. In
accordance with SOP 91-1, these revenues are recognized when products are
delivered and the collectibility of fees is probable, provided that no
significant obligations remain under the contract. Revenues derived from the
sale of software products requiring significant modification or customization
are recognized based upon the percentage of completion method. The price of the
Company's In-House Solution varies depending on the number of software modules
licensed and the number of users accessing the system and can range from thirty
thousand dollars to a few million dollars. The Company generally requires
payment of a deposit upon the signing of a customer order as well as certain
additional payments prior to delivery. As a result, the Company's balance sheet
reflects significant customer deposits.
Third party software and computer hardware revenues are recognized when the
related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically
15
<PAGE> 18
maintained high renewal rates with respect to its software support agreements.
The Company charges for software implementation, training and technical
consulting services as well as management consulting services on an hourly or
daily basis. The price of such services varies depending on the level and
expertise of the related professionals. These revenues are recognized as the
related services are performed.
The Company typically experiences long sales cycles for information systems
and agency support services, which may extend up to one year. In addition, the
implementation period related to its information systems can range from three
months to one year.
The Company defines recurring revenues as revenues derived under multi-year
contracts in addition to annual software support agreements. These revenues were
approximately $5.8 million, or 58% of total net revenues, for the three months
ended December 31, 1996 and $7.4 million, or 29% of total net revenues, for the
year ended December 31, 1996. The Company anticipates that recurring revenues
may represent a greater portion of its total net revenues in the foreseeable
future.
For the years ended December 31, 1994 and 1995, and for the ten months
ended October 31, 1996, 71%, 69% and 63%, respectively, of the Company's total
net revenues were derived from contracts with home health care agencies
wholly-owned by CHHC. These contracts were terminated October 31, 1996, in
connection with the sale of CHHC to Columbia/HCA. Revenues derived from these
contracts were recorded in an amount equal to the costs of the services
provided, and, as a result, the Company recognized no operating profit under
these contracts. Subsequent to the sale of CHHC to Columbia/HCA, affiliates of
Columbia/HCA entered into multi-year contracts with the Company to provide its
Shared Resource Solution as well as agency support services to certain of the
home health care agencies formerly owned by CHHC. The Company believes that its
current contracts with the Columbia/HCA affiliates were negotiated on an
arms-length basis. The historical results of operations attributable to the
terminated CHHC contracts may not therefore be indicative of future results of
operations. For the three months ended December 31, 1996, the Company derived
39% of its total net revenues from contracts with affiliates of Columbia/HCA
which were entered into on November 1, 1996. The loss of any of the Columbia/HCA
contracts could have a material adverse impact on the Company's business,
financial condition and results of operations.
The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total amount of research and development expense will continue to increase, but
should decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. As of
December 31, 1996, the Company had no capitalized computer software development
costs.
BACKLOG
The Company had backlog associated with its In-House Solution of
approximately $4.9 million on December 31, 1996. Backlog consists of the
unrecognized portion of contractually committed software license fees, hardware,
estimated installation fees and professional services. The length of time
required to complete an implementation depends on many factors outside the
control of the Company, including the state of the customer's existing
information systems and the customer's ability to commit the personnel and other
resources necessary to complete the implementation process. As a result, the
Company may be unable to predict accurately the amount of revenue it will
recognize in any period and therefore can make no assurances that the amounts in
backlog will be recognized in the next twelve months.
The Company enters into multi-year contracts with its customers in
connection with its Shared Resource Solution. In general, these contracts
provide for the payment of monthly fees based on the number of billed home care
visits made by the customer. Accordingly, the Company does not maintain a
backlog with respect to its Shared Resources Solution.
16
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items from
the consolidated statements of operations expressed as a percentage of total net
revenues. The Company's historical operating results are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
PERCENTAGE OF NET REVENUES:
Net revenues:
Information services...................................... 40.3% 40.7% 57.1%
Systems................................................... -- -- 1.8
Support and consulting services........................... 59.7 59.3 41.1
----- ----- -----
Total net revenues................................ 100.0 100.0 100.0
Costs and expenses:
Costs of information services............................. 20.5 19.9 31.8
Costs of systems.......................................... -- -- 1.3
Costs of support and consulting services.................. 43.0 41.8 23.4
Selling, general and administrative....................... 24.4 23.4 27.1
Research and development.................................. 17.9 22.1 21.8
Amortization and depreciation............................. -- -- 3.0
Purchased in-process research and development............. -- -- 48.4
Severance and other restructuring charges................. -- -- 4.7
----- ----- -----
Total costs and expenses.......................... 105.8 107.2 161.5
----- ----- -----
Loss from operations........................................ (5.8) (7.2) (61.5)
Other income (expense):
Interest expense.......................................... -- -- (0.5)
Interest and other income................................. -- -- 0.8
----- ----- -----
Net loss.......................................... (5.8)% (7.2)% (61.2)%
===== ===== =====
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Revenues. Total net revenues increased $12.8 million, or 97.0%, to
$26.0 million in 1996 from $13.2 million in 1995. This increase in total net
revenues includes $3.4 million attributable to the business acquired in the
Simione Acquisition completed in January 1996, $2.4 million attributable to the
business acquired in the IMHI Acquisition completed in October 1996, a net
increase of $3.0 million in revenues from contracts with affiliates of CHHC, and
the remaining increase principally attributable to revenues from new customers.
Net revenues from information services include revenues from the Company's
Shared Resource Solution, software support, implementation, training and
technical consulting services. These revenues increased $9.4 million, or 174.1%,
to $14.8 million in 1996 from $5.4 million in 1995. This increase includes $2.0
million attributable to the business acquired in the IMHI Acquisition, $5.4
million from contracts with affiliates of CHHC, and the remaining increase
primarily attributable to revenues from new customers.
Net revenues from system sales include revenues from software licenses and
computer hardware sales. Net revenues from system sales were approximately
$500,000 in 1996 and were attributable entirely to the business acquired in the
IMHI Acquisition.
Net revenues from support and consulting services include revenues from
management consulting and agency support services. These revenues increased $2.9
million, or 37.2%, to $10.7 million in 1996 from $7.8 million in 1995. This
increase includes $3.8 million in revenues from new and existing customers and
$3.4 million attributable to the business acquired in the Simione Acquisition,
offset by decreases of $2.4 million from agency support revenues from affiliates
of CHHC, and $1.9 million in agency support revenues from Healthfield, Inc. See
Note 14 to Consolidated Financial Statements of the Company.
17
<PAGE> 20
Cost of Revenues. Total cost of revenues increased $6.5 million, or 79.3%,
to $14.7 million in 1996 from $8.2 million in 1995. As a percentage of total net
revenues, total cost of revenues decreased to 56.5% in 1996 from 61.7% in 1995.
This dollar increase includes $2.4 million in costs attributable to the business
acquired in the Simione Acquisition, approximately $800,000 in costs
attributable to the business acquired in the IMHI Acquisition and the remaining
increase primarily resulting from the increased cost of computer and
communication technology.
Cost of information services increased $5.7 million, or 219.2%, to $8.3
million in 1996 from $2.6 million in 1995. As a percentage of information
services revenue, these costs increased to 55.6% in 1996 from 48.8% in 1995. The
increase relates principally to an increase of $3.9 million in data center and
communications network costs as the Company continued to maintain its own data
center and communications network while simultaneously converting to a data
center and communications network provided by IBM Global Services. As a result
of the phase-out of its data center and communications network, the Company
anticipates that the fixed cost component of these expenses should decrease as a
percentage of related revenues in the future. This $3.9 million increase
includes a one-time transition and conversion charge of approximately $900,000
associated with the IBM Global Services contract. Additionally, the increase in
the cost of information services includes approximately $500,000 in costs
attributable to the business acquired in the IMHI Acquisition.
The cost of system sales was approximately $300,000 in 1996 and was
attributable entirely to the business acquired in the IMHI Acquisition. Such
costs relate principally to third party software and equipment.
Cost of support and consulting services increased approximately $600,000,
or 10.9%, to $6.1 million in 1996 from $5.5 million in 1995. As a percentage of
support and consulting services revenues, these costs decreased to 57.0% in 1996
from 70.5% in 1995. The dollar increase in these costs includes $2.4 million
associated with the business acquired in the Simione Acquisition, offset by a
cost reduction of $1.8 million resulting from the termination of the agency
support contract with Healthfield, Inc. The reduction as a percentage of support
and consulting services revenues results from the reduction in revenues from
contracts with CHHC and Healthfield, Inc. which were priced at the cost of
services provided.
Selling, General and Administrative. Selling, general and administrative
expenses increased $3.9 million to $7.0 million in 1996 from $3.1 million in
1995. As a percentage of total net revenues, selling, general and administrative
expenses were 27.1% in 1996 compared with 23.4% in 1995. These increases were
attributable principally to approximately $1.1 million in costs related to the
business acquired in the IMHI Acquisition and an increase of $1.2 million in
sales and marketing costs primarily associated with the marketing rollout of the
Company's Shared Resource Solution. The remaining increase relates to additional
salary and benefit costs as well as administrative infrastructure costs
associated with establishing the Company as a separate business entity from
CHHC. As the Company continues to expand its sales and administrative
infrastructure, the Company believes that selling, general and administrative
expenses should remain constant or decrease as a percentage of net revenues.
Research and Development. Research and development expenses increased $2.8
million to $5.7 million in 1996 from $2.9 million in 1995. As a percentage of
total net revenues, research and development expenses remained relatively
constant at 21.8% in 1996 and 22.1% in 1995. The dollar increase was
attributable principally to $1.2 million in increased salary and benefit costs
associated with the Company's software enhancement efforts and approximately
$400,000 related to the business acquired in the IMHI Acquisition. The Company
anticipates that the total dollar amount of research and development expense
will continue to increase although such expenses should not increase as a
percentage of total net revenues assuming that the Company's revenues continue
to increase in the future.
Amortization and Depreciation. Amortization and depreciation for 1996
includes approximately $200,000 attributable to the Simione Acquisition in
January 1996, approximately $200,000, representing three months' amortization,
attributable to the IMHI Acquisition in October 1996, and approximately $400,000
associated with the depreciation and amortization of purchased software,
furniture, and equipment.
18
<PAGE> 21
Purchased In-Process Research and Development. In connection with the IMHI
Acquisition, the purchase price of $16.8 million was allocated based on relative
fair value of the assets acquired and liabilities assumed. Pursuant to a study
conducted by an independent third party valuation firm, $12.6 million of the
purchase price was allocated to purchased in-process research and development
and, in accordance with generally accepted accounting principles, was charged to
operations as it was not deemed to have reached technological feasibility and
had no alternative future use. Subsequent to the IMHI Acquisition, the Company
completed the development of certain in-process versions of software products,
STATScan and InfoMed's TELTime, and has scheduled further enhancements to each
of these products. Additionally, the Company has a two year plan for the
development of graphical user interface/open system versions of its STAT 2
product offerings. It is anticipated that the Company will incur approximately
$3-3.5 million of direct research and development expenses in connection with
the completion of its development plans.
Severance and Other Restructuring Charges. As a result of the change in
focus of the Company's business from providing services to affiliates of CHHC,
the Company incurred severance and certain other restructuring costs totalling
$1.2 million in the fourth quarter of 1996. These expenses primarily relate to
the severance of several key employees and costs to buyout a lease of equipment
no longer useful to the Company.
Other Income (Expense). Interest expense in 1996 of approximately $100,000
resulted from borrowings under the Company's line of credit agreements and
capital lease obligations. Interest income of approximately $200,000 in 1996
resulted from interest earned on stock subscription receivables and cash
balances.
Income Taxes. The Company has not incurred or paid any income taxes since
its inception. At December 31, 1996, the Company had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $6.0 million, which
will expire at various dates through 2011, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax credits") of
approximately $96,000 available to reduce future income tax liabilities. The Tax
Reform Act of 1986, as amended, contains provisions that limit the NOL and tax
credit carryforwards available to be used in any given year when certain events
occur, including additional sales of equity securities and other changes in
ownership. As a result, certain of the NOL and tax credit carryforwards may be
limited as to their utilization in any year. The Company has concluded that it
is more likely than not that these NOL and tax credit carryforwards will not be
realized based on a weighing of available evidence at December 31, 1996, and as
a result a 100% deferred tax valuation allowance has been recorded against these
assets. Of the $2.0 million deferred tax asset at December 31, 1996,
approximately $500,000 relates to the IMHI Acquisition and, if and when
realized, will result in a credit to intangible assets recorded in the
acquisition.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Revenues. Total net revenues increased $1.1 million, or 9.1%, to $13.2
million in 1995 from $12.1 million in 1994. This increase was principally
attributable to revenues from new customers.
Net revenues from information services increased approximately $500,000, or
10.2%, to $5.4 million in 1995 from $4.9 million in 1994. Net revenues from
support and consulting services increased approximately $600,000, or 8.3%, to
$7.8 million in 1995 from $7.2 million in 1994.
Cost of Revenues. Total cost of revenues increased approximately $500,000,
or 6.5%, to $8.2 million in 1995 from $7.7 million in 1994. As a percentage of
total net revenues, total cost of revenues decreased to 61.7% in 1995 from 63.5%
in 1994. The dollar increase relates principally to increases in salary and
benefits expenses.
Selling, General and Administrative. Selling, general and administrative
expenses increased approximately $100,000 to $3.1 million in 1995 from $3.0
million in 1994. As a percentage of total net revenues, selling, general and
administrative expenses were 23.4% in 1995 compared with 24.4% in 1994.
Research and Development. Research and development expenses increased
approximately $700,000 to $2.9 million in 1995 from $2.2 million in 1994. As a
percentage of total net revenues, research and development expenses were 22.1%
in 1995 and 17.9% in 1994. The dollar increase is attributable principally to
19
<PAGE> 22
increased salary, benefit and contract programmer costs associated with the
Company's software enhancement efforts.
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. The Company believes that
the acquisitions of Simione & Simione and IMHI may cause a seasonal pattern in
its operating results in the future. Additionally, revenues can also be expected
to vary significantly as a result of acceleration or delay of system
implementations due to customer requirements or other factors beyond the
Company's control, fluctuations in demand for existing systems and services and
the Company's ability to manage successfully any future growth. The sales cycles
related to its systems offerings and agency support contracts can be long and
difficult to predict, resulting in variability of revenues. The unpredictability
of revenues could in any quarter result in a shortfall relative to quarterly
expectations. Many other factors may contribute to fluctuations in the Company's
operating results. Accordingly, the Company believes that period-to-period
comparisons of results of operations are not necessarily meaningful and should
not be relied upon as any indication of future performance.
The following table sets forth certain unaudited consolidated quarterly
financial data for each of the eight quarters for the period ended December 31,
1996. This information is unaudited, but, in the opinion of the Company's
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the information in accordance
with generally accepted accounting principles. These quarter results of
operations are not necessarily indicative of future operating results.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
------------------------------------------ ------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Information services.................. $1,302 $1,198 $1,327 $1,560 $3,362 $3,302 $3,680 $ 4,505
Systems............................... -- -- -- -- -- -- -- 459
Support and consulting services....... 1,894 1,742 1,931 2,268 1,804 2,045 1,839 4,999
------ ------ ------ ------ ------ ------ ------ --------
Total net revenues.............. 3,196 2,940 3,258 3,828 5,166 5,347 5,519 9,963
Costs and expenses:
Costs of information services......... 589 556 637 847 1,812 1,792 1,954 2,700
Cost of systems....................... -- -- -- -- -- -- -- 346
Costs of support and consulting
services............................ 1,236 1,168 1,338 1,782 1,407 1,421 1,300 1,966
Selling, general and administrative... 693 654 750 999 1,138 1,164 1,354 3,381
Research and development.............. 656 619 709 945 1,114 1,234 1,333 1,996
Amortization and depreciation......... -- -- -- -- 104 128 130 423
Purchased in-process research and
development......................... -- -- -- -- -- -- -- 12,574
Severance and other restructuring
charges............................. -- -- -- -- -- -- -- 1,215
------ ------ ------ ------ ------ ------ ------ --------
Total costs and expenses........ 3,174 2,997 3,434 4,573 5,575 5,739 6,071 24,601
------ ------ ------ ------ ------ ------ ------ --------
Income (loss) from operations........... 22 (57) (176) (745) (409) (392) (552) (14,638)
Other income (expense):
Interest expense...................... -- -- -- -- (4) (21) (27) (63)
Interest and other income............. -- -- -- -- 18 68 59 62
------ ------ ------ ------ ------ ------ ------ --------
Net income (loss)....................... $ 22 $ (57) $ (176) $ (745) $ (395) $ (345) $ (520) $(14,639)
====== ====== ====== ====== ====== ====== ====== ========
Net income (loss) per share............. $ -- $(0.01) $(0.03) $(0.12) $(0.06) $(0.04) $(0.07) $ (1.24)
====== ====== ====== ====== ====== ====== ====== ========
Weighted average common shares.......... 5,990 5,990 5,990 5,990 6,568 7,919 7,919 11,852
====== ====== ====== ====== ====== ====== ====== ========
</TABLE>
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
From its inception, the Company principally funded its operations through
borrowings of $3.5 million from CHS. In November 1995, CHHC made a capital
contribution of $2.4 million to the Company which was used to repay indebtedness
to CHS. During 1996, the Company repaid $1.1 million remaining in borrowings
from CHS.
In January 1996, CHHC made a cash capital contribution of $4.0 million to
the Company. Additionally, in March 1996, the Company issued common stock in the
amount of $3.1 million of which $2.2 million had been collected as of December
31, 1996.
In January 1996, the Company established line of credit agreements which
provided for aggregate borrowing of $2.5 million which had been fully drawn as
of December 31, 1996. The cumulative proceeds from the Company's equity
infusions and debt financings have provided sufficient funds to support the
Company's operating activities. As of December 31, 1996, the Company had cash
and cash equivalents of $3.4 million.
The Company made capital expenditures (including capital leases) totaling
approximately $400,000 and $1.3 million during 1995 and 1996, respectively. In
January 1996, the Company completed the Simione Acquisition for $2.0 million in
cash. In October 1996, the Company completed the IMHI Acquisition resulting in
an increased cash balance of approximately $700,000.
As of December 31, 1996, the Company had a working capital deficit of $1.2
million. The Company's current liabilities as of December 31, 1996 include
customer deposits of $1.7 million and unearned revenues of $2.0 million which
will not require the use of cash by the Company in the future.
The Company believes that its available cash, cash equivalents and cash to
be generated from its future results of operations will be sufficient to meet
the Company's operating requirements, assuming no change in the operation of the
Company's business, for at least the next twelve months. While the Company
continually evaluates potential acquisitions, the Company has no present
agreements or commitments with respect to any acquisitions, nor are negotiations
regarding any acquisitions currently ongoing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective January 23, 1997, the Company appointed Ernst & Young LLP as the
Company's independent accountants for the fiscal year ended December 31, 1996
and replaced Arthur Andersen LLP. The decision to change accountants was
approved by the Audit Committee of the Board of Directors of the Company acting
pursuant to authority granted by the Board of Directors.
Arthur Andersen LLP's reports on IMHI's Financial Statements during the
three years ended June 30, 1996 contained no adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the last three fiscal years ended June 30, 1996, there were no
disagreements between IMHI and Arthur Andersen LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to IMHI during the last three fiscal years
or in the subsequent interim period to the date hereof.
During the last three fiscal years and subsequent interim period to the
date hereof, the Company did not consult with Ernst & Young LLP regarding any of
the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
21
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company, and their respective
ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
Gary M. Bremer.............. 57 Chairman of the Board and Chief Executive Officer
James R. Henderson.......... 51 President and Director
William J. Simione, Jr...... 55 Vice Chairman of the Board and Executive Vice President
Gary W. Rasmussen........... 42 Chief Operating Officer
Lori Nadler Siegel.......... 33 Chief Financial Officer and Treasurer
James A. Tramonte........... 46 General Counsel and Secretary
Murali Anantharaman(1)...... 39 Director
Richard D. Jackson(2)....... 59 Director
Barrett C. 43 Director
O'Donnell(1)(2)...........
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
GARY M. BREMER has served as Chairman of the Board and Chief Executive
Officer of the Company and CHMS since October 8, 1996 and September 1991,
respectively, and has 22 years of experience in the home health care industry.
From 1978 until October 1996, Mr. Bremer served as President and Chief Executive
Officer of CHHC and CHS. Mr. Bremer has also served as a director of NAHC since
1987.
JAMES R. HENDERSON has served as President of the Company and CHMS since
October 8, 1996 and September 1996, respectively, and has 29 years of experience
in the information services industry. Mr. Henderson has also served as a
director of the Company and CHMS since October 8, 1996 and December 1996,
respectively. From July 1992 to November 1995, Mr. Henderson served as Executive
Vice President for National Data Corporation, an information services company.
From February 1991 to June 1992, he served as Executive Vice President,
Worldwide Sales, Marketing and Operations, of QMS, Inc., a computer hardware
company. From 1987 to January 1992, he served as Executive Vice President of Dun
and Bradstreet Software Services, Inc., a client server software solutions
company.
WILLIAM J. SIMIONE, JR. is a certified public accountant who has served as
Vice Chairman of the Board and Executive Vice President of the Company since
October 8, 1996, and has 31 years of experience in the home health care
industry. From January 1996 until October 1996, Mr. Simione served as the
President of Simione Central, Inc., a wholly-owned subsidiary of CHMS ("SCI").
From January 1975 until December 1995, Mr. Simione was Managing Partner of the
Home Health Care Consulting Division of Simione & Simione. Since September 1995,
Mr. Simione has also served as a director and an audit committee member of
Personnel Group of America, Inc., a leading provider of personnel staffing and
home health services.
GARY W. RASMUSSEN is a certified public accountant who has served as Chief
Operating Officer of the Company and CHMS since October 8, 1996 and June 1996,
respectively. From June 1996 to October 1996, Mr. Rasmussen served as Chief
Operating Officer of CHHC. He also served as Chief Financial Officer of CHHC
from January 1996 to May 1996, and as Chief Financial Officer of CHS from
October 1994 to December 1995. Mr. Rasmussen served as Chief Financial Officer
of Surgical Health Corporation, an outpatient surgery center company, from May
1992 until September 1994, and was an Audit Partner with Ernst & Young LLP from
October 1987 to May 1992.
LORI NADLER SIEGEL is a certified public accountant who has served as the
Chief Financial Officer and Treasurer of the Company and CHMS since October 8,
1996 and June 1996, respectively. From June 1996 to October 1996, Ms. Siegel
served as Chief Financial Officer of CHHC. From January 1995 until May 1996, Ms.
Siegel served as Assistant Vice President of Finance for CHS after holding
various accounting and finance positions at CHS from July 1991 until December
1994.
22
<PAGE> 25
JAMES A. TRAMONTE is a certified public accountant who has served as
General Counsel and Secretary of the Company since October 8, 1996 and as
General Counsel of CHMS since October 1995. Mr. Tramonte has also served as
Secretary of CHMS since September 1996. He previously served as General Counsel
of CHHC from January 1996 to October 1996 and was Deputy General Counsel of CHS
from April 1993 through December 1995. He served in the capacity of Counsel with
the Atlanta law firm of Glass, McCullough, Sherrill & Harrold from January 1993
to March 1993, and from 1988 through December 1992, Mr. Tramonte was a Partner
with the Atlanta law firm of Hurt, Richardson, Garner, Todd & Cadenhead.
MURALI ANANTHARAMAN has served as a director of the Company since October
8, 1996. From January 1996 to October 8, 1996, Mr. Anantharaman was a director
of IMHI. Mr. Anantharaman has been a Partner at EGL Holdings, Inc. ("EGL"), a
venture capital firm, since 1987.
RICHARD D. JACKSON has served as a director of the Company since December
1996. Mr. Jackson served as Vice Chairman of First Financial Management Corp., a
financial services company, from January 1995 to August 1996 and as Chief
Operating Officer and Senior Executive Vice President from June 1993 to December
1995. From 1990 through May 1993, he served as Vice Chairman and Chief Executive
Officer of Georgia Federal Bank, Atlanta, Georgia. Mr. Jackson is currently a
director of ANACOMP, Inc., a service provider to and manufacturer of
micrographic machines and equipment, and of Schweitzer Mauduit International,
Inc., a manufacturer of tobacco papers and wrappers.
BARRETT C. O'DONNELL has served as a director of the Company since October
8, 1996. Mr. O'Donnell served as Chairman of the Board of IMHI from October 1992
to October 8, 1996 and as Chief Executive Officer from November 1994 to October
8, 1996. From 1978 to present, Mr. O'Donnell has been Chairman of the Board,
President and Chief Executive Officer of O'Donnell Davis, Inc. ("ODD"), a
consulting and investment advisory services company.
All directors are elected annually by the holders of Common Stock. Each
director holds office until the next Annual Meeting of Stockholders and until
his successor is elected and qualified or until his earlier resignation or
removal.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's accounting
practices and financial results, consults with and reviews the services provided
by the Company's independent accountants and reviews and approves (with the
concurrence of a majority of the disinterested directors of the Company)
transactions, if any, with affiliated parties. The current members of the Audit
Committee are Messrs. Anantharaman and O'Donnell. The Compensation Committee
reviews and recommends to the Board of Directors the compensation and benefits
of all the executive officers of the Company, administers the Company's
compensation and benefit plans, and reviews general policies relating to
compensation and benefits of employees of the Company. The current members of
the Compensation Committee are Messrs. Jackson and O'Donnell.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who beneficially own more than 10% of the Common
Stock to file with the Commission initial reports of beneficial ownership and
reports of changes in beneficial ownership of such Common Stock. Directors,
executive officers and greater than 10% beneficial owners are required by
Commission rules to furnish the Company with copies of all such reports. To the
Company's knowledge, based solely upon a review of the copies of such reports
furnished to the Company and written representations from the Company's
directors and executive officers that no other reports were required, all
Section 16(a) filing requirements applicable to the Company's directors and
executive officers were complied with during the year ended December 31, 1996,
except that Mr. Richard D. Jackson, a director of the Company, inadvertently
failed to timely file an initial statement of beneficial ownership of securities
upon being elected to the Board of Directors in December 1996.
23
<PAGE> 26
RECENT DEVELOPMENTS
On May 21, 1997, Mr. James A. Gilbert was appointed as a director of the
Company. Mr. Gilbert also serves as President, Chief Operating Officer, and as a
director of IMNET Systems, Inc., a provider of electronic information and
document management systems to the health care industry.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth all compensation paid by IMHI and the
Company for the years ended December 31, 1996, 1995 and 1994 to the Chief
Executive Officer and to certain other most highly compensated executive
officers (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) --------------------
--------------------------- NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS UNDERLYING OPTION COMPENSATION
POSITION YEAR ($) ($) GRANTS(#) ($)
------------------ ---- -------- -------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Gary M. Bremer...................... 1996 $340,000(2) $ 40,000 366,649 $ 8,656(3)
Chairman of the Board and 1995 -- -- -- --
Chief Executive Officer 1994 -- -- -- --
Barrett C. O'Donnell................ 1996 -- -- 183,962 186,533(5)
Former Chairman of the 1995 -- -- 90,000 111,103(5)
Board and Chief 1994 -- -- -- 120,170(5)
Executive officer(4)
James R. Henderson.................. 1996 225,000(2) -- 405,052 --
President 1995 -- -- -- --
1994 -- -- -- --
William J. Simione, Jr.............. 1996 300,000(2) -- 121,115 --
Vice Chairman of the Board and 1995 -- -- -- --
Executive Vice President 1994 -- -- -- --
Gary W. Rasmussen................... 1996 200,000(2) -- 49,547 4,344(3)
Chief Operating Officer 1995 -- -- -- --
1994 -- -- -- --
James A. Tramonte................... 1996 150,000(2) -- 49,547 3,794(3)
General Counsel and 1995 -- -- -- --
Secretary 1994 -- -- -- --
Jay Shevins......................... 1996 173,891 -- -- 2,900(7)
Former Senior 1995 193,193 1,275 -- --
Vice President(6) 1994 189,303 250 11,500 6,842(7)
</TABLE>
- ---------------
(1) Does not include the value of perquisites and other personal benefits
provided to the Named Executive Officers which in the aggregate did not
exceed the lesser of $50,000 or 10% of such officer's salary and bonus.
(2) Represents the annualized salary the executive officer would have received
had he joined the Company on January 1, 1996. Messrs. Bremer, Henderson,
Simione, Rasmussen and Tramonte joined the Company on October 8, 1996. The
annualized salary set forth herein is based on payments made by the
registrant from October 8, 1996 until December 31, 1996.
(3) Represents life insurance and disability insurance premium payments.
(4) Mr. O'Donnell served as Chairman of the Board and Chief Executive Officer of
IMHI until October 8, 1996.
24
<PAGE> 27
(5) Represents amounts paid to ODD by IMHI and the Company for consulting and
investment advisory services. Mr. O'Donnell is the Chairman of the Board,
President and Chief Executive Officer and a 75% stockholder of ODD. See
"-- Director Compensation."
(6) Mr. Shevins served as Senior Vice President of IMHI until October 8, 1996.
Mr. Shevins continues to serve as Senior Vice President of InfoMed, Inc., a
subsidiary of the Company.
(7) Represents reimbursements for certain medical expenses.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options by IMHI and the Company to the Named
Executive Officers during the year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEE IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Bremer................ 330,315 18.09% $ 1.58 1/18/06 $ 328,219 $ 831,771
36,334 1.99 2.50 9/04/06 57,126 144,768
Barrett C. O'Donnell.......... 50,000 2.74 3.50 8/28/06 110,057 278,905
133,962 7.34 3.125 9/23/06 263,275 667,190
James R. Henderson............ 55,052 3.02 2.50 9/04/06 86,555 219,347
350,000 19.17 5.25 10/08/06 1,155,594 2,928,502
William J. Simione, Jr........ 77,073 4.22 1.58 1/18/06 76,584 194,079
44,042 2.41 2.50 9/04/06 69,244 175,479
Gary W. Rasmussen............. 5,505 .30 1.58 1/18/06 5,470 13,862
44,042 2.41 2.50 9/04/06 69,244 175,479
James A. Tramonte............. 5,505 .30 1.58 1/18/06 5,470 13,862
44,042 2.41 2.50 9/04/06 69,244 175,479
Jay Shevins................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the Commission and therefore are not intended to
forecast possible future appreciation, if any, of the price of the Common
Stock. The actual value, if any, that an executive officer may ultimately
realize will depend on the excess of the stock price over the exercise price
on the date the stock option is exercised. Therefore, there can be no
assurance that the value realized by an executive officer upon actual
exercise of the stock options granted in 1996 will be at or near the
Potential Realizable Value indicated in the table.
25
<PAGE> 28
STOCK OPTION EXERCISES AND FISCAL YEAR END STOCK OPTION VALUE
The following table sets forth information concerning the exercise of stock
options and the value of unexercised stock options held at the end of the fiscal
year ended December 31, 1996 by each Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Bremer................ -- $ -- 330,315 36,334 $ 902,586 $ 65,855
Barrett C. O'Donnell.......... -- -- 505,162 -- 1,347,996 --
James R. Henderson............ -- -- -- 405,052 -- 99,782
William J. Simione, Jr........ -- -- 77,073 44,042 210,602 79,826
Gary W. Rasmussen............. -- -- 5,505 44,042 15,042 79,826
James A. Tramonte............. -- -- 5,505 44,042 15,042 79,826
Jay Shevins................... -- -- 14,220 -- 25,087 --
</TABLE>
- ---------------
(1) Dollar values were calculated by determining the difference between the fair
market value of the underlying securities at year-end ($4.3125 per share)
and the exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Gary M. Bremer, its
Chairman of the Board and Chief Executive Officer. The agreement provides for an
initial base salary of $329,000 and, commencing in 1997, an annual bonus of
$70,000 if the Company achieves certain financial results. In addition, Mr.
Bremer receives up to $46,000 per year for certain car, membership and insurance
allowances. The agreement was signed on December 10, 1996 and has an initial
three year term which will renew for additional one year terms unless terminated
by either party. The agreement further provides that if Mr. Bremer is terminated
for any reason other than for cause (as defined in the agreement), or if Mr.
Bremer terminates the agreement for good reason (as defined in the agreement),
he shall be entitled to the compensation remaining under the current term of the
agreement. The agreement contains non-compete provisions restricting Mr. Bremer
during the term of the agreement and for one year thereafter.
SCI has an employment agreement with Mr. William J. Simione, Jr., Vice
Chairman of the Board and an Executive Vice President of the Company. The
agreement provides for a base salary of $300,000 plus certain benefits and a
potential bonus to be paid at the discretion of the Board of Directors. The
agreement was signed on January 1, 1996 and has an initial five year term that
can be renewed for additional one year terms unless terminated by either party.
The agreement provides for different severance payments if there is a change in
control of the Company based upon the circumstances and timing of Mr. Simione's
termination of employment with respect to the change in control. The agreement
also contains a non-compete provision restricting Mr. Simione during the term of
the agreement and for one year thereafter.
DIRECTOR COMPENSATION
Directors who are officers of the Company receive no additional
compensation for serving on the Board of Directors. Directors who are not
officers of the Company, except Messrs. Murali Anantharaman and Barrett C.
O'Donnell, receive fees of $1,000, $500 and $250 for each Board, Committee and
telephone meeting, respectively, attended. All directors receive reimbursement
for certain expenses in connection with attendance at Board and Committee
meetings. Further, upon election to the Board of Directors, each outside
director will be entitled to receive an option for 10,000 shares of Common Stock
with the exercise price equal to the fair market value of the Common Stock on
the date of the grant and vesting in three equal annual installments.
26
<PAGE> 29
The Company has a verbal consulting arrangement with ODD, a consulting and
investment advisory services company, whereby ODD provides consulting services
on general business operations and corporate investments and assistance with
respect to merger or acquisition opportunities. Mr. O'Donnell, a director of the
Company, is the Chairman of the Board, President and Chief Executive Officer and
a 75% stockholder of ODD. Currently, ODD is paid $12,000 per month, plus
expenses, for such services. The fees were determined by negotiation between the
parties. The amounts paid to ODD by IMHI and the Company for consulting services
totaled $157,064 and $43,749, respectively, including expenses, in the year
ended December 31, 1996. See "Item. 13 Certain Relationships and Related
Transactions."
The Company has a consulting agreement with EGL, a venture capital firm,
whereby EGL provides consulting services on general business operations and
corporate investments including financial analysis, review of industry trends
and assistance with respect to merger or acquisition opportunities. Mr.
Anantharaman, a director of the Company, is a partner of EGL. The consulting
agreement expires on June 30, 1999 and provides for a monthly consulting fee of
$5,000, plus expenses. The fees were determined by negotiation between the
parties. The amounts paid to EGL by IMHI and the Company under the consulting
agreement totaled $49,346 and $15,000, respectively, including expenses, in the
year ended December 31, 1996. See "Item. 13 Certain Relationships and Related
Transactions."
Prior to becoming a director of the Company, Mr. Richard D. Jackson was
paid an aggregate of $11,000 for assistance with a series of strategic planning
meetings during the summer of 1996. See "Item. 13 Certain Relationships and
Related Transactions."
For a description of certain options granted to certain directors of the
Company, see "-- Grant of Stock Options." In addition to the option grants
described in such section, options for an aggregate of 166,038 shares of Common
Stock were granted to EGL by IMHI at an exercise price of $3.125 per share on
September 23, 1996. Mr. Anantharaman, a director of the Company, is a partner of
EGL. Additional options for 50,000 shares of Common Stock and 133,962 shares of
Common Stock were granted to ODD by IMHI at an exercise price of $3.50 per share
on August 28, 1996, and $3.125 per share on September 23, 1996, respectively.
Mr. O'Donnell, a director of the Company, is the Chairman of the Board,
President and Chief Executive Officer and a 75% stockholder of ODD.
STOCK OPTION PLANS
1996 Stock Option Plan. The Company maintains the 1996 Stock Option Plan
(the "Stock Option Plan"). The Stock Option Plan provides for the grant of
incentive stock options and non-qualified stock options to key employees,
officers, directors, consultants and affiliates of the Company. The Board of
Directors has reserved 1,057,008 shares of Common Stock for issuance pursuant to
awards that may be made under the Stock Option Plan, subject to adjustment as
provided therein. The number of shares of Common Stock associated with any
forfeited option are added back to the number of shares that can be issued under
the Stock Option Plan.
Awards under the Stock Option Plan will be determined by the Compensation
Committee of the Board of Directors. The Stock Option Plan permits the
Compensation Committee to make awards of options (the "Options") to purchase
shares of Common Stock.
The number of shares of Common Stock as to which an Option is granted and
to whom any Option is granted will be determined by the Compensation Committee,
subject to the provisions of the Stock Option Plan. The Compensation Committee
will determine whether an Option is an incentive stock option or a non-qualified
stock option at the time the Option is granted.
The exercise price of an Option is established by the Compensation
Committee. The exercise price of an incentive stock option may not be less than
the fair market value of the Common Stock on the date of the grant (or less than
110% of the fair market value if the participant controls more than 10% of the
voting power of the Company or a subsidiary). Non-qualified stock options may be
made exercisable at a price equal to, less than or more than the fair market
value of the Common Stock on the date that the Option is awarded. The
27
<PAGE> 30
Compensation Committee may permit an Option exercise price to be paid in any
form permitted in the agreement, including, but not limited to, cash or delivery
of shares.
The term of an Option shall be specified in the applicable option
agreement; provided that, the Option is only exercisable to the extent the
Option is vested pursuant to a written vesting formula in the option agreement.
The term of an incentive stock option may not exceed ten years from the date of
grant; however, any incentive stock option granted to a participant who controls
more than 10% of the voting power of the Company or a subsidiary will not be
exercisable after the expiration of five years after the date the Option is
granted. Subject to any further limitations in an option agreement, in the event
of a participant's termination of employment, an incentive stock option will
become unexercisable no later than three months after the date of such
termination of employment; provided, however, that if such termination of
employment is due to death or disability, one year shall be substituted for the
three-month period.
The Stock Option Plan was effective on January 12, 1996 and will continue
to be effective until ten years after the earlier of the effective date of the
Stock Option Plan or the date the stockholders approved the Stock Option Plan,
unless sooner terminated by the Board of Directors.
If the number of shares of Common Stock are increased or reduced by a
recapitalization, merger, consolidation, or similar capital adjustment, an
appropriate adjustment will be made to the number of shares under the Stock
Option Plan and subject to outstanding Options. In the event of a sale of
substantially all of the shares of Common Stock or property of the Company or a
merger, consolidation, dissolution, or liquidation of the Company, the
Compensation Committee has the right to terminate the Options granted under the
Stock Option Plan, to the extent provided in the applicable option agreement.
The Stock Option Plan may be amended, terminated, or suspended by the Board
of Directors. However, the Board of Directors cannot, except as provided in the
preceding paragraph, alter the number of shares that may be issued under the
Stock Option Plan or the exercise price of Options issued under the Stock Option
Plan. No such action by the Board of Directors may adversely affect the rights
of a holder of an Option without the holder's consent. As of March 28, 1997,
1,056,441 shares of Common Stock have been issued under the Stock Option Plan.
1994 Plan. The Company maintains the 1994 Incentive Stock Option and
Nonqualified Option Plan (the "1994 Plan"). The 1994 Plan authorizes the grant
of options (the "Options") for up to 200,000 shares of Common Stock of the
Company. The Company has registered the shares with the Commission on a
Registration Statement on Form S-8. The number of shares of Common Stock
associated with any forfeited Option are added back to the number of shares that
can be issued under the 1994 Plan. Awards under the 1994 Plan are determined by
the Compensation Committee. Key employees of the Company, its subsidiaries and
affiliates are eligible to be granted options under the 1994 Plan.
The 1994 Plan permits the Compensation Committee, in its discretion, to
determine which employees of the Company will be granted an Option, the number
of shares to be covered by each of the Options, and the time or times at which
the Options will be granted. However, no employee may receive an Option to
purchase more than 50,000 shares of Common Stock in a year. The 1994 Plan
permits the Compensation Committee to grant incentive stock options and
non-qualified stock options. The exercise price of an Option under the 1994 Plan
will not be less than 100% of the fair market value of the Common Stock at the
time of the grant of the Option. The exercise price of an incentive stock option
for a participant who owns more than 10% of the combined voting power of all
classes of stock of the Company or a subsidiary may not be less than 110% of the
fair market value at the time the incentive stock option is granted.
Options must be exercised by the end of the earlier of ten years from the
date of grant, or three months after the participant ceases to be an employee,
or such certain date provided under the terms of the Option. However, any
incentive stock option granted to a person who immediately after such Option is
granted controls more than 10% of the total combined voting power of all classes
of shares of stock of the Company or a subsidiary must be exercised no later
than five years from the date of the grant. In the event that the participant's
employment is terminated, the Option may, in the discretion of the Compensation
Committee, immediately terminate. If a participant who held an Option under the
1994 Plan dies while employed by the
28
<PAGE> 31
Company, the Option may be exercised within six months after his death. If a
participant becomes disabled or retires, any Option held by the participant may
be exercised by the participant for a period of one year from the date of such
disability or retirement or until the expiration of the term stated on the
Option, whichever period is shorter. However, if the participant dies during the
one year period, any unexercised Option held by the participant shall be
exercisable for a period of six months from the date of death or until
expiration of the stated term of the Option, whichever term is shorter.
In the event of changes in the outstanding shares of Common Stock by reason
of share dividends, split-ups, recapitalization, mergers, consolidations,
combination or exchange of shares, separations, reorganizations, or
liquidations, the number and class of shares available under the 1994 Plan, in
any plan year and the maximum number of shares as to which Options may be
granted to any participant will be correspondingly adjusted by the Compensation
Committee.
The 1994 Plan will terminate and an Option will not be granted under the
1994 Plan after the day that is ten years from the date the 1994 Plan was
adopted. The Compensation Committee at any time may terminate, modify or amend
the 1994 Plan; provided, however, that any amendment which changes (i) the
maximum number of shares to which Options may be granted under the 1994 Plan,
(ii) the Option price other than to change the manner of determining the fair
market value of the Common Stock, (iii) the provisions relating to the
determination of employees to whom options will be granted and the number of
shares covered by such options, and (iv) provisions relating to adjustments to
be made upon changes in capitalization will be subject to stockholder approval.
As of March 28, 1997, 198,800 options under the 1994 Plan have been granted.
PROFIT SHARING PLAN
The Simione Central Holdings, Inc. Profit Sharing Plan (the "Profit Sharing
Plan") is a frozen plan and currently covers only those employees of the Company
who were participating in the Profit Sharing Plan as of November 1, 1996 and
former employees of CHHC with balances under the Profit Sharing Plan. No other
individuals are expected to become eligible participants in the Profit Sharing
Plan after November 1, 1996. The Company has no current plans to make further
contributions to the Profit Sharing Plan.
If the participant's employment is terminated and the participant's account
balance is $3,500 or less, payment of benefits will be made in a lump sum as
soon as administratively practicable after the close of the plan year in which
the termination occurs. A participant may elect to receive benefit payments in
either cash or Common Stock. In general, the Profit Sharing Plan provides that
participants may elect to receive distributions (i) commencing as soon as
administratively feasible after the end of the plan year in which the employee
terminates employment in cash paid in installments over five years, (ii)
commencing at the end of the sixth year following termination, in a cash lump
sum or cash installments over less than five years, or (iii) in Common Stock to
the extent the participant's account is invested in Common Stock. CHHC employees
participating in the Profit Sharing Plan as of the effective date of the CHHC
disposition are entitled to distributions from the Profit Sharing Plan as if
they terminated employment. As of March 28, 1997, the Profit Sharing Plan held
4,248,017 shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently comprised
of Messrs. Richard D. Jackson and Barrett C. O'Donnell. Mr. O'Donnell served as
Chairman of the Board and Chief Executive Officer of IMHI from November 1994 to
October 8, 1996. Mr. Jackson did not serve as an officer or employee of the
Company or any of its subsidiaries during the year ended December 31, 1996.
Except as set forth under "-- Director Compensation" and "Item 13. Certain
Relationships and Related Transactions," there were no material transactions
between the Company and any of the members of the Compensation Committee during
the year ended December 31, 1996.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists entirely of non employee directors and
determines the compensation paid to the Chief Executive Officer. The Committee
also determines, along with the Chief Executive
29
<PAGE> 32
Officer, all compensation paid to the other executive officers of the Company.
The Compensation Committee believes that for the Company to be successful
long-term and for it to increase stockholder value it must be able to hire,
retain, adequately compensate and financially motivate talented and ambitious
executives. The Compensation Committee attempts to reward executives for both
individual achievement and overall Company success.
Executive compensation is made up of three components:
i. Base Salary: An executive's base salary is initially determined by
considering the executive's level of responsibility, prior experience and
compensation history. Published salaries of executives in similar positions
at other companies of comparable size (sales and/or number of employees) is
also considered in establishing base salary.
ii. Cash Bonus: The Company maintains an incentive bonus plan to
provide annual cash bonuses to certain executives. Such bonuses are based,
in part, on the Company's financial performance during the previous fiscal
year including data in connection with earnings per share and profitability
and performance as compared to the Company's approved profit plan. In
addition, objective individual measures of performance compared to the
individual's business unit profit performance are considered. A subjective
rating of the executive's personal performance is also considered.
iii. Stock Options: The Compensation Committee believes that the
granting of stock options is directly linked to increased executive
commitment and motivation and to the long-term success of the Company. The
Compensation Committee thus awards stock options to certain executives. The
Compensation Committee uses both subjective appraisals of the executive's
performance and the Company's performance and financial success during the
previous year to determine option grants.
Mr. Gary M. Bremer, the Company's Chairman of the Board and Chief Executive
Officer, is paid a base salary of $329,000 pursuant to an employment agreement.
See "-- Employment Agreements." The Compensation Committee also considers an
annual bonus of $70,000 and stock option grants that can be awarded to Mr.
Bremer. Additional compensation is based on a subjective analysis of the
Company's performance and Mr. Bremer's role in generating such performance.
Compensation of the chief executive officers of the Company's competitors was
also considered in determining Mr. Bremer's compensation.
It should also be noted that: (i) exceptions to the general principles
stated above are made when the Compensation Committee deems them appropriate to
stockholder interest; (ii) the Compensation Committee regularly considers other
forms of compensation and modifications of its present policies, and will make
changes as it deems appropriate; and (iii) the competitive opportunities to
which the Company's executives are exposed frequently come from private
companies or divisions of large companies, for which published compensation data
is often unavailable, with the result that the Compensation Committee's
information about such opportunities is often anecdotal.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
establishes a limit on the deductibility of annual compensation for certain
executive officers that exceeds $1,000,000 per year unless certain requirements
are met. The Company does not anticipate that any employee will exceed such
$1,000,000 cap in the near future but will make any necessary adjustments if and
when this occurs.
Compensation Committee
Richard D. Jackson
Barrett C. O'Donnell
30
<PAGE> 33
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph shows a comparison, since the Common Stock began
trading on September 3, 1993, of cumulative total returns for the Common Stock,
the Standard & Poor's SmallCap 600 Index and the Standard & Poor's Computer
(Software and Services) -- Mid-Cap Index. The comparisons in this table are
required by the Commission and, therefore, are not intended to forecast or be
indicative of possible future performance of the Common Stock.
<TABLE>
<CAPTION>
INDEXED RETURNS
Years Ending
Base
Period
Company/Index 3Sep93 Dec93 Dec94 Dec95 Dec96
- ------------- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SIMIONE CENTRAL HOLDINGS INC 100 62.50 68.75 40.63 107.80
COMPUTER (SOFTWARE&SVC)-MID 100 100.68 110.57 193.46 196.20
S&P SMALLCAP 600 INDEX 100 104.04 99.07 128.76 156.21
</TABLE>
31
<PAGE> 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information at March 7, 1997 with respect to
(i) any person known to the Company to be the beneficial owner of more than 5%
of the Common Stock, (ii) all directors of the Company, (iii) all Named
Executive Officers, and (iv) all directors and executive officers as a group.
The Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole voting and
investment power with respect to the shares of Common Stock, except as noted
below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS -----------------------------
OF BENEFICIAL OWNER NUMBER(1) PERCENT(2)
- ------------------- --------- ----------
<S> <C> <C>
Simione Central Holdings, Inc............................... 4,248,017 35.5%
Profit Sharing Plan Trust
c/o Trust Company of Knoxville, Inc.
620 Market Street, Suite 300
Knoxville, TN 37902
O'Donnell Davis, Inc.(3) ................................... 2,248,946 17.6
P.O. Box 7395
Princeton, NJ 08543
Barrett C. O'Donnell(4)..................................... 2,248,946 17.6
P.O. Box 7395
Princeton, NJ 08543
Murali Anantharaman(5)...................................... 1,915,281 15.0
2830 Shurburne Drive
Alpharetta, GA 30301
Gary M. Bremer(6)........................................... 1,755,804 14.3
6600 Powers Ferry Road
Atlanta, GA 30339
Rowan Nominees Limited(7)................................... 1,769,749 14.0
33 King William Street
London, EC4R 9AS
Howard B. Krone............................................. 881,244 7.4
3633 Tuxedo Road
Atlanta, GA 30305
William J. Simione, Jr.(8) ................................. 234,817 2.0
James R. Henderson.......................................... 31,548 *
Gary W. Rasmussen(9)........................................ 70,273 *
James A. Tramonte(10)....................................... 40,738 *
Richard D. Jackson.......................................... -- --
Jay Shevins(11)............................................. 64,260 *
All directors and executive officers as a group (9
persons).................................................. 6,304,817 45.1
</TABLE>
- ---------------
* Less than 1%
(1) Pursuant to Rule 13d-3 under the Exchange Act, beneficial ownership of a
security consists of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared investment power (including
the power to dispose or direct the disposition) with respect to a security
through any contract, arrangement, understanding or relationship. The
number of shares of Common Stock includes the number of shares of Common
Stock which are subject to the exercise of options or warrants within 60
days of March 7, 1997.
32
<PAGE> 35
(2) Percentages were calculated based on the ratio of the number of shares of
Common Stock beneficially owned by such beneficial owner as of March 7,
1997 to the sum of (a) the total number of outstanding shares of Common
Stock as of March 7, 1997, and (b) the number of shares of Common Stock
issuable upon exercise of options or warrants held by the applicable
beneficial owner exercisable within 60 days of March 7, 1997.
(3) Includes 270,000 shares issuable upon exercise of warrants and 505,162
shares issuable upon exercise of options.
(4) Mr. O'Donnell is a stockholder, director and officer of ODD. Accordingly,
pursuant to Rule 13d-3 under the Exchange Act, he is deemed to be an
indirect beneficial owner of the Company's securities beneficially owned by
ODD.
(5) Includes 5,928 shares as to which Mr. Anantharaman has sole voting power,
39,604 shares issuable upon exercise of options, 1,088,195 shares related
to Rowan Nominees Limited ("Rowan"), 100,000 shares issuable upon exercise
of warrants related to EGL, 619,667 shares issuable upon exercise of
warrants related to Rowan, and 61,887 shares issuable upon exercise of
options related to Rowan.
(6) Includes 330,315 shares issuable upon exercise of options. Excludes any
interest Mr. Bremer has in the Simione Central Holdings, Inc. Profit
Sharing Plan Trust (the "Profit Sharing Plan").
(7) Includes 619,667 shares issuable upon exercise of warrants and 61,887
shares issuable upon exercise of options.
(8) Includes 77,073 shares issuable upon exercise of options.
(9) Includes 5,505 shares issuable upon the exercise of options. Excludes any
interest Mr. Rasmussen has in the Profit Sharing Plan.
(10) Includes 5,505 shares issuable upon the exercise of options. Excludes any
interest Mr. Tramonte has in the Profit Sharing Plan.
(11) Includes 14,220 shares issuable upon exercise of options.
For a description of a voting agreement among the Company, ODD, EGL, Mr.
Anantharaman and certain of their affiliates, see "Item 13. Certain
Relationships and Related Transactions."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 5, 1994, IMHI received a total of $295,000 for working capital
purposes from the following related parties: $130,000 from ODD, $120,000 from
EGL and $45,000 from Dr. Zola Horovitz, a former director of IMHI. Promissory
notes for such amounts were issued to such parties. Under the terms of the
notes, the total principal plus interest at 11% per annum was due and payable on
December 6, 1994. Any principal or interest not paid when due drew interest
thereafter at 20% per annum until paid. The notes were paid in full including
interest on January 4, 1996.
On February 28, 1995, IMHI entered into a settlement agreement with Mr.
Frederick Neufeld, whereby Mr. Neufeld resigned as an employee, officer and
director of IMHI. Pursuant to the terms of the agreement, IMHI agreed to pay Mr.
Neufeld a total of $225,000 in 25 equal monthly installments of $9,000
commencing in March 1995, and to provide certain additional benefits through
February 1996, and Mr. Neufeld agreed to release and surrender options to
purchase 68,000 shares of the IMHI common stock. The agreement also prohibited
Mr. Neufeld from competing in any business of IMHI (as such phrase is defined in
the agreement) until September 1, 1996.
On January 1, 1996, IMHI entered into a lease agreement with Gateway LLC
with respect to the Company's Pompano Beach office. ODD owns 70% of Gateway LLC
and more than 5% of the Company's Common Stock. In addition, Mr. Barrett C.
O'Donnell, a director of the Company, is the Chairman of the Board, President
and Chief Executive Officer and a 75% stockholder of ODD. Pursuant to the lease
agreement, Gateway LLC leases approximately 20,291 square feet to the Company
for a term of five years that commenced on January 1, 1996. The Company has an
option to renew the lease for an additional five year term. Rental payments from
IMHI and the Company for the year ended December 31, 1996 totaled $272,869. The
scheduled annual rental payments for the remaining term are $223,201 during year
two, $233,347 during year three, $243,492 during year four and $253,638 during
year five. The lease payments were determined by
33
<PAGE> 36
negotiation between the parties. The Company believes that the terms of the
lease agreement are at least as favorable as could have been obtained elsewhere
for similar facilities from unaffiliated third parties.
During 1996, the Company entered into various capital lease agreements with
National Leasing, Inc. Mr. Gary M. Bremer, Chairman of the Board and Chief
Executive Officer of the Company, Mr. William J. Simione, Jr., Vice Chairman of
the Board and Executive Vice President of the Company, and Mr. Gary W.
Rasmussen, Chief Operating Officer of the Company, each respectively owns a
33.33% interest in National Leasing, Inc. Each lease is for a three year term
and provides for an interest rate of 14%. Interest expense related to such
capital leases totaled $22,215 during the year ended December 31, 1996. The
terms of the various lease agreements were determined by negotiation between the
parties. The Company believes that the terms of the lease agreements are at
least as favorable as could have been obtained for similar assets from
unaffiliated third parties.
On January 17, 1996, the Company entered into a lease agreement with S&S
Realty with respect to the Company's Hamden, Connecticut office. Mr. Simione
owns 45% of S&S Realty. Pursuant to the lease agreement, S&S Realty leases
approximately 6,500 square feet to the Company on a month-to-month basis. Rental
payments for the year ended December 31, 1996 totaled $112,539. The scheduled
annual rental payments for the remaining term are $10,833 per month. The lease
payments were determined by negotiation between the parties.
The Named Executive Officers listed below entered into promissory notes in
the amounts listed below in connection with money borrowed from the Company for
the purchase of Common Stock. Each promissory note was dated March 5, 1996 with
all principal and interest (5.05% per annum) due on December 5, 1996. Each such
promissory note was paid in full except for the promissory note of Mr. Bremer,
which has a current outstanding principal balance of $850,000 and has been
extended until such time as Mr. Bremer no longer personally guarantees $1.5
million of the Company's $2.5 million credit facility. The Company's $2.5
million credit facility is secured by the pledge of a $1 million certificate of
deposit of the Company. Pursuant to an agreement among Mr. Bremer and other
stockholders of the Company, any liability of Mr. Bremer as a result of calls on
Mr. Bremer's guarantee will be shared equally by Mr. Bremer, ODD and EGL.
<TABLE>
<S> <C>
Gary M. Bremer.............................................. $900,000
William J. Simione, Jr...................................... $225,000
Gary W. Rasmussen........................................... $ 90,000
</TABLE>
On October 7, 1996 and as a condition to the consummation of the IMHI
Acquisition, EGL and ODD (each an "Investor"), Mr. Anantharaman and certain
other holders of shares of IMHI Preferred Stock entered into an agreement with
IMHI (the "Preferred Stock Agreement"). Pursuant to the Preferred Stock
Agreement, such holders agreed to exchange all of their respective shares of
Preferred Stock for Common Stock based on a conversion price of $2.00 per share.
In addition, such holders received shares of Company Common Stock in lieu of
cash dividends that were payable on their respective shares of Preferred Stock.
Mr. Anantharaman is a partner in EGL. EGL is an affiliate of Rowan, which is a
more than 5% beneficial owner of the Common Stock. Mr. O'Donnell is a director
and officer of ODD. ODD is also a more than 5% beneficial owner of the Common
Stock. In connection with the Preferred Stock Agreement (i) Rowan received
approximately 967,100 shares of Common Stock, (ii) ODD received approximately
530,700 shares of Common Stock, and (iii) Mr. Anantharaman received
approximately 2,000 shares of Common Stock.
In addition, the Preferred Stock Agreement entitles an Investor, as long as
such Investor and its affiliates own 5% or more of the Common Stock, to
designate, through the second anniversary of the IMHI Acquisition, one person
reasonably acceptable to the Company's Board of Directors to serve as a director
of the Company, and the Company shall use all reasonable efforts to cause the
election of such designees. Furthermore, EGL and ODD and their respective
affiliates agreed to be present, in person or by proxy, at every stockholder
meeting and to vote in favor of all nominees to the Company's Board of Directors
as approved by such Board, provided EGL's and ODD's designees are included with
such nominees. Currently, Mr. Anantharaman is EGL's designee and Mr. O'Donnell
is ODD's designee to the Board of Directors.
34
<PAGE> 37
On November 1, 1996, SCI entered into various information, support and
management services agreements (the "Columbia Agreements") with certain
affiliates of Columbia/HCA. As part of the negotiation of the Columbia
Agreements with SCI, Columbia/HCA required that SCI, formerly a subsidiary of
CHHC, guarantee certain indemnity obligations of the former stockholders of
CHHC, including Mr. Bremer, to those Columbia/HCA affiliates (the "Guaranty")
for potential liabilities relating to the Central Health Holding Company
Employee Stock Ownership Plan Trust (the "Plan") or its participants, including
potential liabilities resulting from the ongoing investigation of the Plan by
the Department of Labor and the Internal Revenue Service's audit of certain
issues related to the Plan. Columbia/HCA became indirectly responsible for these
Plan obligations as a result of its acquisition of the CHHC stock. As a result
of the fact that all the former CHHC stockholders are also stockholders of the
Company by virtue of the January 1996 spin-off of the Company, SCI agreed to
undertake the Guaranty. Also, on November 1, 1996, the Plan was converted into
the Profit Sharing Plan and sponsorship of the Plan was transferred from CHHC to
the Company. Under the terms of the Guaranty, SCI guarantees Columbia/HCA
against losses arising from: (i) Plan losses arising from a fiduciary breach,
prohibited transaction or other violation of law relating to the Plan; or (ii)
liabilities related to the Plan which are not paid by the former stockholders of
CHHC other than the Plan, but only to the extent such liabilities are not
recovered by Columbia/HCA through other indemnity provisions of the stock
purchase agreement. Columbia/HCA's other sources of potential recovery include
amounts accrued on CHHC's closing balance sheet at the time of sale and escrow
accounts established for the benefit of Columbia/HCA by the former stockholders
of CHHC. SCI's maximum liability under the Guaranty is limited to $20 million
for obligations arising before November 1, 1997, $17.5 million for obligations
arising before November 1, 1998, $15 million for obligations arising before
November 1, 1999, $15 million for obligations arising before November 1, 2000
and $0 thereafter. At no time during the term of the Guaranty shall SCI's
liability exceed $20 million in the aggregate. Pursuant to the Guaranty, SCI
agreed that on each date that a guaranteed obligation is required to be paid to
Columbia/HCA, SCI shall grant Columbia/HCA a security interest equal to the
amount of the guaranteed obligation in all SCI's accounts receivable. SCI also
granted to Columbia/HCA and the parties to the Columbia Agreements the right to
offset any liability arising under the Guaranty against any payments due from
such parties to SCI for information, management and support services. At
December 31, 1996, no claims had been made under the Guaranty, and currently the
Company does not anticipate incurring any losses associated with the Guaranty.
Mr. G. Blake Bremer, the son of Mr. Bremer, is currently serving as an
Assistant Vice President of the Company. As compensation for his services, Mr.
G. Blake Bremer is expected to be paid approximately $100,000 in 1997. Ms. Lori
Yawn Ferrero, the Company's Director of Human Resources, and Ms. Martha
Elizabeth Cavaiani, the Director of Marketing of the Company, are the
sisters-in-law of Mr. Gary M. Bremer. Ms. Ferrero and Ms. Cavaiani are each
expected to be paid approximately $83,200 and $82,600, respectively, in 1997 for
their services. In addition, Mr. William J. Simione, III, the son of Mr.
Simione, is currently serving as a Consulting Manager of the Company. As
compensation for his services, Mr. William J. Simione, III is expected to be
paid approximately $69,000 in 1997.
Mr. Jay Shevins served as a Senior Vice President of IMHI until October 8,
1996 and is presently serving as the Senior Vice President of InfoMed, Inc. On
September 9, 1994, Mr. Shevins entered into a severance agreement with IMHI
pursuant to which he will receive the equivalent of one years' salary if his
employment is terminated for any reason other than gross negligence or a breach
of fiduciary duty.
For a description of consulting agreements between the Company and certain
directors, see "Item 11. Executive Compensation -- Director Compensation."
35
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. See Index to Consolidated Financial Statements
on Page F-1 hereof.
2. Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits Incorporated by Reference or Filed with this Report.
The following exhibits are filed as part of this Report. Where such filing
is made by incorporation by reference to a previously filed statement or report,
such statement or report is identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as
filed with the Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).
3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit
3.3 of the Company's Registration Statement on Form S-4
(Registration Number 33-57150) as filed with the Securities
and Exchange Commission).
3.4* -- Amendment to the Bylaws of the Company.
3.5* -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc.
4.1 -- See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of
the Company's Certificate of Incorporation and Bylaws
governing the rights of holders of securities of the
Company.
4.2 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those stockholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those stockholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated October 8, 1996 as filed with the Securities and
Exchange Commission).
9.1* -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A.
Curtis Eade, James A. Tramonte, John Isett, Cindy Lumpkin,
Douglas E. Caddell, Robert J. Simione, Kenneth L. Wall,
Allen K. Seibert, III, Jerry Sevy, Larry Clark and Lori N.
Siegel, Gary M. Bremer, Richard A. Parlontieri, and James R.
Henderson.
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as
of September 5, 1996 by and among InfoMed Holdings, Inc.,
Simione Central Holding, Inc. and InfoSub, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated September 5, 1996 as filed
with the Securities and Exchange Commission).
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant
for the Purchase of Common Stock of InfoMed Holdings, Inc.
dated October 5, 1996 between InfoMed Holdings, Inc. and
each of O'Donnell Davis, Inc., Rowan Nominees Ltd., David O.
Ellis, Richard V. Lawry, Salvatore A. Massaro, Murali
Anantharaman, Kathleen E.J. Ellis, Jeremy Ellis, Karen
Ellis, Gemma Ellis, Thomas M. Rogers, Jr., and Arnold
Schumacher (Incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated October 8, 1996
as filed with the Securities and Exchange Commission).
10.3* -- Warrant to Purchase 100,000 shares of Class A Common Stock
of Simione Central Holding, Inc., dated April 12, 1996
between Simione Central Holding, Inc. and Home Health First,
a Texas not-for-profit corporation.
10.4* -- Common Stock Warrant of InfoMed Holdings, Inc. dated October
8, 1996 between Jefferies & Company, Inc. and InfoMed
Holdings, Inc.
10.5 -- Settlement Agreement, dated February 28, 1995, between
InfoMed Holdings, Inc. and Frederick Neufeld (Incorporated
by reference to Exhibit 5.5 of the Company's Current Report
on Form 8-K dated March 7, 1995 as filed with the Securities
and Exchange Commission).
10.6* -- Form of Simione Central Holding, Inc. 1996 Incentive Stock
Option Agreement dated September 4, 1996 by and between
Simione Central Holding, Inc. and each of James R.
Henderson, William J. Simione, Jr., Robert Simione,
Katherine Wetherbee, Sheldon Berman, Betty Gordon, William
J. Simione, III, J. Blake Bremer, Craig Luigart, Kenneth L.
Wald, Marty Cavaiani, Lori Ferrero, Douglas E. Caddell, Andy
Anello and A. Curtis Eade.
10.7* -- Form of 1996 Non-Qualified Stock Option Agreement dated
September 4, 1996 between Simione Central Holding, Inc. and
each of Gary M. Bremer, James A. Tramonte, Gary W.
Rasmussen, Don VanderBeke and Lori N. Siegel.
10.8* -- Form of Stock Option Agreement dated October 7, 1996 between
InfoMed Holdings, Inc., and Reid Horovitz, Zola Horovitz,
O'Donnell Davis, Inc., EGL Holdings, Inc., David O. Ellis,
Erin Dosdourian, Rodger Johnson, Richard V. Lawry, Salvatore
A. Massaro and Murali Anantharaman.
10.9 -- 1994 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994
as filed with the Securities and Exchange Commission).
10.10* -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended.
10.11* -- Simione Central Holdings, Inc. Section 125 Plan effective
date January 1, 1997 sponsored by the Company.
10.12 -- Headquarters at Gateway Lake Lease Agreement dated January
1, 1996 by and between Gateway LLC and InfoMed Holdings,
Inc. (Incorporated by reference to Exhibit 10.54 of the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 as filed with the Securities and
Exchange Commission).
10.13* -- Sublease dated November 22, 1996 between Environmental
Design International, Ltd. and Simione Central, Inc.
10.14* -- Consent and Estoppel Certificate and Assignment dated
October 29, 1996 between Resurgens Plaza South Associates,
L.P., Simione Central, Inc. and Central Health Services,
Inc.
10.15* -- Executive Employment Agreement dated December 10, 1996
between InfoMed Holdings, Inc. and Gary M. Bremer.
10.16* -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr.
10.17* -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc. and EGL Holdings, Inc.
10.18* -- Information Systems Management Agreement dated January 4,
1996 between Integrated Systems Solutions Corporation and
Central Health Management Services, Inc.
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10.19* -- Micronetics Design Corporation Value Added Reseller
Agreement Renewal dated July 10, 1996 between Micronetics
Design Corporation and InfoMed Holdings, Inc.
10.20* -- Master Software License Agreement Number 96-2283 dated
October 31, 1996 by and between Software 2000, Inc. and
Simione Central Holding, Inc.
10.21* -- Guaranty Agreement dated October 31, 1996 by Simione
Central, Inc. in favor of HCA, Inc.
10.22* -- Lease Agreement dated March 18, 1996 between National
Leasing, Inc. and Simione Central, Inc.
10.23* -- IBM Vendor Marketing Programs Cooperative Services Marketing
Agreement dated December 16, 1996 between IBM Corporation
and Simione Central Holding, Inc.
11.1* -- Statement re: computation of per share earnings.
16.1 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated January 27, 1997 as filed with the Securities
and Exchange Commission).
21.1* -- Subsidiaries of the Company.
23.1** -- Consent of Ernst & Young LLP.
27.1* -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated October 8, 1996
announcing the merger (the "Merger") of InfoMed Holdings, Inc. with Simione
Central Holding, Inc. (the "October 8, 1996 8-K").
The Company filed a Current Report on Form 8-K/A dated December 23, 1996
amending the October 8, 1996 8-K by providing certain required financial
information in connection with the Merger.
The Company filed a Current Report on Form 8-K dated January 27, 1997
announcing that it appointed Ernst & Young LLP as the Company's independent
accountants for the fiscal year ended December 31, 1996 and replaced Arthur
Andersen LLP.
38
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIMIONE CENTRAL HOLDINGS, INC.
Date: May 30, 1997 By: /s/ GARY M. BREMER
------------------------------------
Gary M. Bremer
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ GARY M. BREMER Chairman of the Board May 30, 1997
- ---------------------------------------------------
Gary M. Bremer
/s/ JAMES R. HENDERSON President, Chief Executive Officer May 30, 1997
- --------------------------------------------------- and Director (principal executive
James R. Henderson officer)
/s/ LORI NADLER SIEGEL Chief Financial Officer and May 30, 1997
- --------------------------------------------------- Treasurer (principal financial
Lori Nadler Siegel and accounting officer)
/s/ WILLIAM J. SIMIONE, JR. Vice Chairman of the Board and May 30, 1997
- --------------------------------------------------- Executive Vice President
William J. Simione, Jr.
/s/ MURALI ANANTHARAMAN Director May 30, 1997
- ---------------------------------------------------
Murali Anantharaman
/s/ RICHARD D. JACKSON Director May 30, 1997
- ---------------------------------------------------
Richard D. Jackson
/s/ BARRETT C. O'DONNELL Director May 30, 1997
- ---------------------------------------------------
Barrett C. O'Donnell
</TABLE>
39
<PAGE> 42
SIMIONE CENTRAL HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets -- December 31, 1995 and
1996................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996................................ F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the three years ended December 31, 1996............ F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996................................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Simione
Central Holdings, Inc. as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also include the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simione Central Holdings, Inc. as of December 31, 1995 and 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
March 21, 1997, except for Note 16 as
to which the date is
March 26, 1997
F-2
<PAGE> 44
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 323,023 $ 3,384,728
Accounts receivable, net of allowance for doubtful
accounts of $13,600 and $1,063,014, respectively....... 761,557 5,651,415
Note receivable from officer.............................. 252,075 --
Prepaid expenses and other current assets................. 30,360 870,729
----------- ------------
Total current assets.............................. 1,367,015 9,906,872
Purchased software, furniture and equipment, net............ 424,000 1,867,996
Intangible assets, net...................................... 36,831 5,922,755
Restricted cash and other assets............................ -- 1,078,056
----------- ------------
Total assets...................................... $ 1,827,846 $ 18,775,679
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 60,491 $ 3,199,353
Accrued compensation expense.............................. 40,894 666,650
Due to former parent company.............................. 1,076,855 --
Accrued liabilities....................................... -- 3,251,636
Customer deposits......................................... -- 1,679,565
Unearned revenues......................................... -- 2,006,044
Current portion of capital lease obligations.............. -- 306,466
----------- ------------
Total current liabilities......................... 1,178,240 11,109,714
Notes payable and capital lease obligations, less current
portion................................................... -- 2,986,267
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized at December 31, 1996; none issued or
outstanding............................................ -- --
Common stock, 100 no par shares and 20,000,000 $.001 par
shares authorized at December 31, 1995 and 1996,
respectively; 22 and 11,904,333 shares issued and
outstanding at December 31, 1995 and 1996,
respectively........................................... 2,443,013 11,904
Additional paid-in capital................................ -- 23,210,098
Stock subscription receivable............................. -- (850,000)
Accumulated deficit....................................... (1,793,407) (17,692,304)
----------- ------------
Total shareholders' equity........................ 649,606 4,679,698
----------- ------------
Total liabilities and shareholders' equity........ $ 1,827,846 $ 18,775,679
=========== ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 45
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues:
Information services................................. $ 4,875,012 $ 5,387,044 $ 14,848,861
Systems.............................................. -- -- 459,045
Support and consulting services...................... 7,235,332 7,834,999 10,686,735
----------- ----------- ------------
Total net revenues........................... 12,110,344 13,222,043 25,994,641
Costs and expenses:
Cost of information services......................... 2,492,261 2,630,208 8,258,458
Cost of systems...................................... -- -- 345,748
Cost of support and consulting services.............. 5,202,109 5,523,706 6,093,971
Selling, general and administrative.................. 2,958,371 3,095,293 7,037,446
Research and development............................. 2,165,217 2,928,961 5,676,898
Amortization and depreciation........................ -- -- 784,502
Purchased in-process research and development........ -- -- 12,573,931
Severance and other restructuring charges............ -- -- 1,214,669
----------- ----------- ------------
Total costs and expenses..................... 12,817,958 14,178,168 41,985,623
----------- ----------- ------------
Loss from operations................................... (707,614) (956,125) (15,990,982)
Other income (expense):
Interest expense..................................... -- -- (114,817)
Interest and other income............................ -- -- 206,902
----------- ----------- ------------
Net loss............................................... $ (707,614) $ (956,125) $(15,898,897)
=========== =========== ============
Net loss per share..................................... $ (0.12) $ (0.16) $ (1.85)
=========== =========== ============
Weighted average common shares......................... 5,989,712 5,989,712 8,575,912
=========== =========== ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 46
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON PAID-IN SUBSCRIPTION ACCUMULATED
SHARES STOCK CAPITAL RECEIVABLE DEFICIT
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993....................... 22 $ -- $ -- $ -- $ (129,668)
Net loss................... -- -- -- -- (707,614)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1994....................... 22 -- -- -- (837,282)
Capital contribution from
former parent company... -- 2,443,013 -- -- --
Net loss................... -- -- -- -- (956,125)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1995....................... 22 2,443,013 -- -- (1,793,407)
Capital contribution from
former parent company... -- 4,000,000 -- -- --
Distribution of 5,989,712
shares of no par common
stock and cancellation
of 22 shares of common
stock held by CHHC...... 5,989,690 -- -- -- --
Issuance of 1,928,836
shares of no par Class A
common stock............ 1,928,836 3,051,369 -- (850,000) --
Purchase and cancellation
of 1,836 shares of no
par Class A common stock
not exchanged in reverse
acquisition............. (1,836) (9,866) -- -- --
Exchange of 7,916,712
shares of no par Class A
and B common stock for
7,916,712 shares of IMHI
$.001 par value common
stock................... -- (9,476,599) 9,476,599 -- --
Issuance of 3,898,539
shares of IMHI $.001 par
value common stock for
purchase of IMHI in
reverse acquisition..... 3,898,539 3,898 13,512,339 -- --
Issuance of 89,082 shares
of $.001 par value
common stock as
compensation and from
exercise of stock
options and warrants.... 89,082 89 221,160 -- --
Net loss................... -- -- -- -- (15,898,897)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1996....................... 11,904,333 $ 11,904 $23,210,098 $(850,000) $(17,692,304)
========== =========== =========== ========= ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 47
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (707,614) $ (956,125) $(15,898,897)
Adjustments to reconcile net loss to net cash used in
operating activities:
Purchased in-process research and development......... -- -- 12,573,931
Provision for doubtful accounts....................... -- -- 395,046
Amortization and depreciation......................... -- -- 784,502
Value assigned to stock purchase warrant.............. -- -- 100,000
Stock compensation expense............................ -- -- 58,500
Loss on sale of assets................................ -- -- 3,636
Changes in assets and liabilities:
Accounts receivable................................... (598,843) 95,360 (3,305,003)
Prepaid expenses and other current assets............. 8,397 (47,017) (553,630)
Other assets.......................................... -- -- (26,925)
Accounts payable...................................... 26,528 (11,414) 2,264,539
Accrued compensation expense.......................... (17,148) 23,158 142,867
Accrued liabilities................................... (13,902) (7,771) 768,284
Customer deposits..................................... -- -- 272,724
Unearned revenues..................................... -- -- 616,518
----------- ---------- ------------
Net cash used in operating activities......... (1,302,582) (903,809) (1,803,908)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of consulting division of Simione & Simione.... -- -- (2,000,000)
Cash received in reverse acquisition of IMHI............ -- -- 750,202
Purchase of software, furniture and equipment........... -- (424,000) (635,997)
Increase in restricted cash............................. -- -- (1,000,000)
Purchase of intangible assets........................... -- -- (64,123)
----------- ---------- ------------
Net cash used in investing activities......... -- (424,000) (2,949,918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former parent company......... -- -- 4,000,000
Proceeds from notes payable............................. -- -- 2,499,800
Issuance of common stock, net of cash expenses.......... -- -- 2,191,503
Advances from (payments to) former parent company....... (854,704) 1,440,309 (1,076,855)
Repayment (issuance) of note receivable from officer.... -- (252,075) 252,075
Principal payments on capital lease obligations......... -- -- (45,741)
Payments of related party notes......................... -- -- (68,000)
Proceeds from exercise of stock options and warrants.... -- -- 62,749
----------- ---------- ------------
Net cash provided by (used in) financing
activities.................................. (854,704) 1,188,234 7,815,531
----------- ---------- ------------
Net (decrease) increase in cash and cash
equivalents................................. (2,157,286) (139,575) 3,061,705
Cash and cash equivalents, beginning of year............ 2,619,884 462,598 323,023
----------- ---------- ------------
Cash and cash equivalents, end of year.................. $ 462,598 $ 323,023 $ 3,384,728
=========== ========== ============
Supplemental disclosure of non-cash investing and
financing activities:
Capital contribution from former parent company....... $ -- $2,443,013 $ --
Software, furniture and equipment obtained through
capital leases..................................... -- -- 690,490
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 48
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Background: Incorporated in September 1991, as a wholly-owned subsidiary
of Central Health Holding Company, Inc. ("CHHC"), Central Health Management
Services, Inc. ("CHMS") provided information and management support services to
home health care providers. Central Health Services, Inc. ("CHS"), also a
wholly-owned subsidiary of CHHC, provided similar services to home health care
agencies owned by CHHC. On January 1, 1996, CHHC transferred at book value the
assets and employees related to CHS's information services and certain clinical
and financial support services to CHMS. Accordingly, the consolidated financial
statements give effect to the reorganization of these entities under common
control and reflect the combined operating results of CHMS and the transferred
CHS operations. On January 17, 1996, CHHC completed a pro-rata distribution of
the outstanding common stock of CHMS to its shareholders.
On October 8, 1996, InfoMed Holdings, Inc. ("IMHI") and CHMS merged in a
transaction accounted for as a reverse acquisition for financial reporting
purposes. In connection with the merger, IMHI issued 7,916,712 shares of its
common stock in exchange for all the outstanding common stock of CHMS, and
thereby, the former shareholders of CHMS acquired control of IMHI. As a result,
CHMS is considered the acquiring company; hence, the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective acquisition
date. On December 19, 1996, IMHI changed its name to Simione Central Holdings,
Inc. (the "Company").
Overview: The Company is a leading provider of integrated systems and
services designed to enable home health care providers to more effectively
operate their businesses and compete in a managed care environment. The Company
offers two systems which provide a core platform of software applications and
can also incorporate specialized selected modules to enable customers to
generate and utilize comprehensive financial, operational and clinical
information. The Company's Shared Resource Solution offers customers an
outsourcing opportunity which incorporates the Company's proprietary NAHC IS
System Software. Under this arrangement, the Company operates a data center
which stores customer data and allows them real-time, secure access through a
wide area communications network. The Company's In-House Solution, STAT 2,
offers similar functionality, but is licensed to customers for use on their own
computer systems. In addition to these two systems solutions, the Company's home
health care consulting services assist providers in addressing the challenges of
reducing costs, maintaining quality, streamlining operations and re-engineering
organizational structures. The Company also provides comprehensive agency
support services which include administrative, billing and collection, training,
reimbursement and financial management services, among others.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
MANAGEMENT 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.
REVENUE RECOGNITION
Revenues are derived from shared resource information management services,
agency support services, the licensing and sub-licensing of software, the sale
of computer hardware, professional and technical
F-7
<PAGE> 49
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
consulting services, implementation and training services, software maintenance
and support services, as well as home health care management consulting
services. Shared resource information management and agency support services are
provided under contractual arrangements with terms typically ranging from three
to five years.
Information services revenues, consisting of shared resource information
management, software support, implementation, training and technical consulting
services, are recognized monthly as the related services are rendered or, for
software support revenues, over the term of the related agreement. Systems
revenues, consisting of application software licenses, computer hardware and
third-party software revenues, are recognized when the related products are
delivered and collectibility of fees is determined to be probable, provided that
no significant obligation remains under the contract. Revenues derived from the
sale of software licenses requiring significant modification or customization
are recorded based upon percentage of completion using labor hours or contract
milestones. Support and consulting services revenues, consisting of revenue from
management consulting and agency support services, are recognized monthly as the
related services are performed.
CONCENTRATIONS AND MAJOR CUSTOMERS
The Company sells its systems and services to various companies in the
health care industry. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Current operations are charged with an allowance for doubtful
accounts based upon experience and any unusual circumstances which affect the
collectibility of receivables. Amounts deemed uncollectible are charged against
this allowance.
During 1994, 1995 and through October 1996, the Company derived the
majority of its revenue from services provided to its former parent company, see
Note 13. In addition, the Company had other major customers which comprised the
following percentages of total net revenue:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 19% 14% --
Customer B.................................................. -- -- 22%
</TABLE>
The Company is dependent upon certain third party software licenses as well
as certain contractual arrangements for provision of certain of its services,
see Note 15.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
RESTRICTED CASH
The Company's restricted cash of $1,000,000 is invested in a certificate of
deposit and secures $1,000,000 of borrowings outstanding under the Company's
lines of credit agreements, see Note 6.
PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment is stated at cost. Depreciation
is calculated for financial reporting purposes using the straight-line method
over the estimated useful lives (ranging from 1 to 10 years) of the assets or
lease term, whichever is shorter.
F-8
<PAGE> 50
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of computer
software products are research and development expense and are charged to
expense as incurred. The Company capitalizes costs incurred between the point of
establishing technological feasibility and general release when such costs are
material. As of December 31, 1996, the Company has no capitalized computer
software development costs.
INTANGIBLE ASSETS
Intangible assets arising principally from the accounting for acquired
businesses are amortized using the straightline method over the estimated useful
lives of the related assets which range from 4 to 11 years. The Company reviews
its long-lived and intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. The
measurement of possible impairment is based upon determining whether projected
undiscounted future cash flow from the use of the asset is less than the
carrying amount of the asset. As of December 31, 1996, in the opinion of
management, there has been no such impairment.
INCOME TAXES
The Company accounts for income taxes using the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and the tax bases of assets and liabilities.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number
of common shares outstanding during the period. The 5,989,712 shares of Class A
common stock issued in the reorganization of the Company on January 17, 1996
(see Note 12) have been treated as outstanding for all periods presented. Fully
diluted loss per share does not differ significantly from the primary loss per
share. Common stock equivalents relate to shares potentially issuable under
outstanding options and warrant agreements and are included in the loss per
share calculation if dilutive.
STOCK BASED COMPENSATION
Stock options are accounted for under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
The Company has included the pro forma equivalent disclosure information
required by SFAS No. 123, see Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and restricted cash: The carrying amounts
reported in the balance sheet for cash and cash equivalents and restricted cash
approximate their fair value.
Notes payable: The carrying amounts of the Company's notes payable
approximate their fair value.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In 1996 the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows
F-9
<PAGE> 51
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
estimated to be generated by those assets are less than the assets carrying
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The adoption of SFAS No. 121 did not have an
impact on the Company's financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1996
financial statement presentation.
2. ACQUISITIONS
On October 8, 1996, IMHI merged with CHMS. IMHI provides a comprehensive
package of software applications for home health care providers marketed under
the name STAT 2. In connection with the acquisition, each issued and outstanding
share of CHMS common stock was converted into and exchanged for the right to
receive .22021 shares of IMHI common stock as of the effective date. As a
result, IMHI issued 7,916,712 shares of common stock to CHMS's shareholders. In
addition, each of the outstanding shares of IMHI Class A Convertible Preferred
Stock was converted into and exchanged for shares of IMHI common stock and all
outstanding options and warrants to purchase CHMS common stock as of the
effective date were converted into the right to purchase shares of IMHI common
stock, provided that the number of shares to be so purchased and the respective
exercise prices thereof have been adjusted by the exchange ratio. The merger was
accounted for as a reverse acquisition under the purchase method of accounting.
As a result, for accounting purposes CHMS was considered as having acquired
IMHI. The historical financial statements of CHMS became the historical
financial statements of IMHI and include the results of operations of both
companies from the effective date. All share amounts have been retroactively
restated giving effect to the .22021 exchange ratio of CHMS shares for IMHI
shares. CHMS had been on a December 31 fiscal year end, and, therefore, the
fiscal year end of IMHI was changed to December 31. Effective December 19, 1996,
IMHI changed its name to Simione Central Holdings, Inc. (the "Company").
The purchase price of approximately $16,797,000 (including $760,000 of
acquisition costs and net liabilities assumed of $2,521,000) was allocated based
on the relative fair values of the assets acquired and liabilities assumed.
Approximately $12,574,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$4,223,000 of the purchase price was allocated to certain identifiable
intangible assets and will be amortized over the related assets estimated useful
life, see Note 5. The purchase price was determined based on the estimated value
of the outstanding 3,898,539 shares of IMHI common stock and options and
warrants to purchase IMHI common stock outstanding at the merger date.
Effective January 1, 1996, the Company purchased the assets of Simione &
Simione, CPA's -- Consulting Division (a division of Simione & Simione, CPAs, a
Partnership) ("Simione & Simione") for $2,000,000 in cash. Simione & Simione
provided a wide range of home health care consulting services. This acquisition
was accounted for using the purchase method. The entire purchase price was
allocated to goodwill and is being amortized over 10 years.
F-10
<PAGE> 52
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- CONTINUED
Pro forma information giving effect to the acquisitions as if they took
place on January 1, 1995, is as follows (unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996
------------ -----------
<S> <C> <C>
Net revenues............................................... $ 29,222,668 $34,774,875
Net loss................................................... (18,803,490) (3,266,402)
Net loss per share......................................... (1.90) (0.28)
</TABLE>
The 1995 pro forma net loss includes the $12,574,000 charge to operations
for the in-process research and development purchased. This pro forma
information does not purport to be indicative of the results that actually would
have occurred if the acquisitions had been effective on the dates indicated or
which may be obtained in the future.
3. LEASE RECEIVABLES
The Company provides lease financing to certain customers related to sales
of software licenses and computer hardware. Lease terms are generally five
years. Future minimum lease payments under these sales-type leases as of
December 31, 1996, of which the current portion is classified in accounts
receivable, are as follows:
<TABLE>
<S> <C>
1997........................................................ $105,432
1998........................................................ 28,212
--------
133,644
Interest portion............................................ (13,616)
--------
$120,028
========
</TABLE>
4. PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- ----------
<S> <C> <C>
Equipment................................................... $ -- $ 855,428
Purchased software.......................................... 424,000 840,064
Furniture................................................... -- 491,666
Leasehold improvements...................................... -- 58,388
-------- ----------
424,000 2,245,546
Accumulated depreciation.................................... -- (377,550)
-------- ----------
$424,000 $1,867,996
======== ==========
</TABLE>
F-11
<PAGE> 53
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- AMORTIZATION
1995 1996 PERIOD
------- ---------- ------------
<S> <C> <C> <C>
Developed technology................................. $ -- $2,054,000 4 years
Goodwill............................................. -- 2,000,000 10 years
Trade name........................................... -- 1,142,000 11 years
Other................................................ 36,831 1,128,025 6-10 years
------- ----------
36,831 6,324,025
Accumulated amortization............................. -- (401,270)
------- ----------
$36,831 $5,922,755
======= ==========
</TABLE>
6. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
During 1996, a wholly-owned subsidiary of the Company entered into line of
credit agreements with a bank which provide for aggregate borrowing of
$2,500,000 and, as renewed, expire on January 17, 1998. Borrowings of $1,000,000
under these agreements bear interest at 8.72% and borrowings of $1,500,000 bear
interest at the bank's prime rate. Borrowings under these agreements aggregated
$2,499,800 at December 31, 1996, and are secured by a certificate of deposit of
$1,000,000, the subsidiary's accounts receivable, and certain other assets.
Additionally, borrowings under these agreements aggregating $1,500,000 are
personally guaranteed by a major shareholder and executive officer of the
Company.
The Company has entered into lease agreements with a related party (see
Note 14) for certain office and computer equipment and furniture with
approximate aggregate cost and net book value of $690,000 and $624,000,
respectively, at December 31, 1996. Additionally, the Company has other
equipment under capital leases with approximate aggregate cost and net book
value of $139,000 and $121,000, respectively, at December 31, 1996. Amortization
of these assets is included in the Company's depreciation expense and amounted
to approximately $84,000 for 1996.
Aggregate annual rental commitments under these capital leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1997........................................................ $ 373,197
1998........................................................ 341,752
1999........................................................ 222,513
---------
Total minimum payments............................ 937,462
Amount representing interest................................ (144,529)
---------
Present value of future minimum lease payments.............. $ 792,933
=========
</TABLE>
7. OPERATING LEASES
The Company leases its office facilities and certain furniture and
equipment under various operating lease agreements, some of which are with
related parties (see Note 14). These leases require the Company to pay taxes,
insurance and maintenance expenses, and provide for renewal options at the then
fair market rental value of the property. Amounts expensed under operating
leases were approximately $1,569,000, $1,554,000 and $3,699,000 for the years
ended December 31, 1994, 1995, 1996, respectively.
F-12
<PAGE> 54
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OPERATING LEASES -- CONTINUED
Future aggregate annual rental payments for operating leases with
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1997........................................................ $1,819,000
1998........................................................ 1,580,000
1999........................................................ 1,243,000
2000........................................................ 1,249,000
2001........................................................ 995,000
Thereafter.................................................. 994,000
----------
Total............................................. $7,880,000
==========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
On November 1, 1996, Simione Central, Inc. ("SCI"), a wholly-owned
subsidiary of the Company, entered into a series of five year contracts to
provide shared resource information management and agency support services to
several affiliates of Columbia/HCA Health Care Corporation ("Columbia/HCA"). As
part of the negotiation of these contracts with SCI, Columbia/HCA required that
this subsidiary, formerly a subsidiary of CHHC, guarantee certain
indemnification obligations of the former shareholders of CHHC, as such
indemnification obligations relate to the administration and potential
liabilities to the Central Health Holding Company, Inc. Employee Stock Ownership
Plan ( the "Plan") or its participants. Columbia/HCA became indirectly
responsible for these Plan obligations as a result of its acquisition of the
CHHC stock. As a result of the fact that all former CHHC shareholders are also
shareholders of the Company by virtue of the January 1996 spin-off of the
Company, SCI agreed to undertake this contingent obligation. Under the terms of
this guaranty agreement (the "Guaranty"), SCI agreed to guarantee Columbia/HCA
against losses arising from the following: (i) liabilities relating to the Plan
for losses resulting from a fiduciary breach, prohibited transaction or other
violation of law relating to the Plan and (ii) liabilities relating to the Plan
which are not paid by the former stockholders of CHHC other than the Plan, but
only to the extent such losses are not recovered by Columbia/HCA through other
indemnity provisions of its agreement with the former shareholders of CHHC.
These indemnity provisions include any potential recovery from CHHC's insurance
policies as well as recoveries from escrow accounts established for the benefit
of Columbia/HCA by CHHC's former shareholders. This subsidiary's maximum
liability under the Guaranty is $20,000,000 for claims of loss arising before
November 1, 1997, $17,500,000 for claims arising before November 1, 1998, and
$15,000,000 for claims arising before November 1, 2000. There is no liability
for any claims arising after November 1, 2000. However, the aggregate maximum
liability under the Guaranty is $20,000,000. Pursuant to the Guaranty, the
subsidiary agreed that on each date that a guaranteed obligation is required to
be paid to Columbia/HCA, the subsidiary shall grant to Columbia/HCA a security
interest equal to the amount of the guaranteed obligation in all the
subsidiary's accounts receivable. This subsidiary also granted to Columbia/HCA
the right to offset any liability arising under the Guaranty against any
obligation of Columbia/HCA or its affiliates to the subsidiary. The Department
of Labor has an open investigation relating to the Plan, and the Internal
Revenue Service is also auditing certain issues related to the Plan. At December
31, 1996, no claims had been made under the Guaranty and the Company does not
currently anticipate incurring any loss associated with the Guaranty.
The Company is engaged in various legal and regulatory proceedings arising
in the normal course of business which management believes will not have a
material adverse effect on its financial position or results of operations.
F-13
<PAGE> 55
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SEVERANCE AND OTHER RESTRUCTURING CHARGES
As a result of the change in focus of the Company's business from providing
services to affiliates of CHHC, the Company incurred severance and certain other
restructuring costs totaling $1,215,000 in the fourth quarter of 1996. These
costs primarily relate to severance of seven terminated key employees and costs
to buyout a lease of equipment no longer useful to the Company. As of December
31, 1996, payments of $347,000 had been made against the accrued severance and
other restructuring charges.
10. INCOME TAXES
The Company has not incurred or paid any income taxes since its inception.
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss..................................... $ 237,880 $ 2,270,669
Accrued liabilities.................................... -- 547,259
Allowance for doubtful accounts........................ -- 409,119
Unearned revenues...................................... -- 304,934
Tax credit carryforward................................ -- 95,830
Other.................................................. 46,121 62,356
--------- -----------
Total deferred tax assets................................ 284,001 3,690,167
Deferred tax liabilities:
Purchased intangible assets............................ -- (1,532,009)
Depreciation........................................... -- (159,087)
--------- -----------
Total deferred tax liabilities........................... -- (1,691,096)
--------- -----------
Net deferred tax assets.................................. 284,001 1,999,071
Valuation allowance...................................... (284,001) (1,999,071)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
The Company has approximately $5,975,000 of net operating losses for income
tax purposes available to offset future taxable income. Such losses expire
$3,159,000 in 2010 and $2,816,000 in 2011 and may be subject to certain
limitations for changes in ownership. Additionally, the Company has research and
development and alternative minimum tax credits of approximately $96,000 which
expire in years 2009 through 2011. A valuation allowance reducing net deferred
tax assets recognized to zero has been recorded based on management's assessment
that it is not "more likely than not" that the assets are realizable as of
December 31, 1996.
Approximately $500,000 of the net deferred tax assets related to the IMHI
acquisition will result in a credit to intangible assets if and when recognized.
F-14
<PAGE> 56
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES -- (CONTINUED)
Actual income tax expense differs from the "expected" amount (computed by
applying the U.S. Federal corporate income tax rate of 34% to income or loss
before income taxes) as follows for 1996:
<TABLE>
<S> <C>
Tax benefit computed at statutory rates..................... $(5,405,624)
State income taxes, net of Federal effect................... (635,956)
Non-deductible purchased in-process research and
development............................................... 4,778,094
Other, net.................................................. 14,264
Change in valuation allowance............................... 1,249,222
-----------
Income tax........................................ $ --
===========
</TABLE>
Prior to 1996, the Company's taxable loss was included in the consolidated
tax return of the former parent company. The former parent company utilized net
operating losses generated by the Company and did not allocate any benefit from
use of the net operating losses to the Company.
11. EMPLOYEE BENEFIT PLANS
CHHC sponsored the Central Health Holding Company, Inc. Employee Stock
Ownership Plan (the "Plan"), which covered substantially all full-time employees
of CHHC and its wholly-owned subsidiaries and was funded by cash contributions
from CHHC and its wholly-owned subsidiaries. The major asset of the Plan was
shares of CHHC common stock acquired by the Plan. In connection with the pro
rata distribution of the common stock of CHMS (see Note 1), the Plan received
shares of the Company's common stock. All of the Plan's assets are allocated to
each eligible employee's account and are held in trust until the employee's
termination, retirement, total disability or death. In connection with the sale
of CHHC to Columbia/HCA, the Plan was converted from an employee stock ownership
plan to the Simione Central Holdings, Inc. Profit Sharing Plan Trust, and the
sponsorship of the Plan was transferred from CHHC to the Company.
The consolidated financial statements include the Company's share of
employee benefit expense related to the Plan for the CHMS employees and also the
CHS employees (see Note 1). This expense was approximately $474,000 and $439,000
in 1994 and 1995, respectively.
The Company has adopted 401(k) plans that cover substantially all
employees. The Company contributes to the plans based upon the dollar amount of
each participant's contribution. The Company made contributions to these plans
of approximately $54,000 in 1996.
12. SHAREHOLDERS' EQUITY
In November 1995, CHHC forgave $2,443,013 of intercompany indebtedness owed
by the Company to CHS. The Company recorded the transaction as a capital
contribution by CHHC.
CHMS was a separate legal entity and a wholly-owned subsidiary of CHHC as
of December 31, 1995. On January 6, 1996, CHMS formed CHMS Transitory Corp.
("Transitory Corp."). Transitory Corp. issued 5,989,712 shares of Class A Common
Stock and one share of Class B Common Stock, all of which were held by CHMS. On
January 16, 1996, CHMS and Transitory Corp. merged with Transitory Corp. as the
survivor. The 22 shares of CHMS Common Stock held by CHHC were canceled and CHHC
received the Class A and Class B Common Stock of Transitory Corp. Immediately
subsequent to the merger, Transitory Corp. amended it articles of incorporation
and changed its name to Central Health Management Services, Inc. On January 17,
1996, CHHC completed a pro-rata distribution to its shareholders of all the
outstanding capital stock of CHMS. The distribution was accomplished through the
issuance of 3.411 Class A shares of CHMS common stock for each share of CHHC's
common stock held by the respective shareholder.
F-15
<PAGE> 57
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
On January 17, 1996, CHHC made a $4,000,000 cash capital contribution to
CHMS. On March 5 and 22, 1996, employees of CHMS purchased 1,928,836 shares of
Class A Common Stock for aggregate consideration of $3,051,369. These shares
were purchased under the terms of a stock subscription agreement whereby 10% was
due at the date of purchase and the remainder was due on December 5, 1996. Stock
subscription receivable of $850,000 reported as a reduction to common stock
represents the amount not yet collected as of December 31, 1996. This amount is
due from a major shareholder and executive officer of the Company who has
personally guaranteed $1,500,000 of the Company's borrowings under its line of
credit agreements. The Company has agreed to defer payment of this receivable
until this individual is relieved from his personal guarantee of the Company's
indebtedness.
Holders of approximately 9,543,000 shares of common stock and warrants and
options to purchase 3,811,549 shares of common stock have certain demand or
piggyback registration rights, subject to certain conditions and limitations,
which entitle the holders to require the Company to register all or part of
their shares for public resale.
As of December 31, 1996, the Company has reserved 4,134,113 shares of
common stock for future issuance upon exercise of warrants and options to
purchase common stock. See Note 16.
STOCK OPTIONS
The Company has established two stock option plans, the 1994 Incentive
Stock Option and Non-Qualified Stock Option Plan (the "1994 Plan") and the 1996
Stock Option Plan (the "1996 Plan"), under which the Company is authorized to
grant options to purchase an aggregate of 1,257,008 shares of common stock.
Options granted under these plans must have an exercise price not less than the
fair market value at the date of grant. In addition to options granted under the
1994 Plan and 1996 Plan, the Company has granted non-plan options to certain
related parties. Such non-plan options were granted with exercise prices equal
to fair market value on the date of grant.
The Company had no stock option activity prior to 1996. A summary of the
Company's stock option activity for 1996 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Granted..................................................... 1,502,540 $3.04
Assumed in IMHI purchase.................................... 1,444,363 1.45
Exercised................................................... (53,496) 0.52
Forfeited................................................... (80,099) 2.50
---------
Outstanding at December 31, 1996............................ 2,813,308 $2.29
=========
</TABLE>
F-16
<PAGE> 58
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- -------- ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.37 -- $1.13............................. 834,067 5.4 $0.67 834,067 $0.67
1.50 -- 2.63............................. 1,139,241 9.5 1.95 721,950 1.63
3.13 -- 5.25............................. 840,000 9.9 4.36 365,000 3.21
--------- ---------
2,813,308 8.4 $2.29 1,921,017 $1.51
========= =========
</TABLE>
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123 as if the Company had accounted for employee stock option grants
under the fair value method of SFAS No. 123. The fair value for options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996: risk-free interest rates of
6%; no dividends; a volatility factor of the expected market price of the
Company's common stock of 0.6; and a weighted-average expected life of the
options of 3.5 years. In addition, options assumed in the purchase of IMHI have
been included in the fair value estimates as if the options assumed were granted
by the Company on the purchase date and using an assumed exercise price of the
value of IMHI shares issued in the acquisition. The weighted average fair value
of options granted during 1996 was $0.90.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of the
stock options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss and net loss per share for 1996 were $(17,492,350)
and $(2.04), respectively.
STOCK PURCHASE WARRANTS
At December 31, 1996, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
- --------- -------- -----------------
<C> <C> <S>
1,000,000 $0.50 February 24, 2005
155,038 3.11 October 8, 1999
20,000 5.63 May 27, 2000
- ---------
1,175,038
=========
</TABLE>
All outstanding warrants are exercisable except for a warrant to purchase
155,038 shares, for which the number of exercisable shares may be reduced
depending on the Company's closing stock price preceding April 9, 1997.
F-17
<PAGE> 59
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
During 1996, the Company issued, and the holder exercised, a warrant for
the purchase of 22,021 shares of common stock at $1.58 per share.
13. TRANSACTIONS WITH FORMER PARENT COMPANY
The Company derived revenue from charges for the services provided to the
home health care agencies owned by CHHC. The charges were recorded, for purposes
of these consolidated financial statements, in an amount equal to the cost of
the services being provided and therefore generated no operating profit.
Revenues of $8,575,000, $9,077,000 and $12,051,000 were recognized in 1994,
1995, and 1996, respectively. In addition, CHHC charged the Company a management
fee for services provided to the Company. These services include facilities
management, legal, accounting, administrative, executive and office support
during 1994 and 1995. During 1996, the services provided were limited to legal
and executive. CHHC's charges included direct costs identified and allocations
of shared costs based on statistical and operational data such as square
footage, hours, and direct operating costs. In the opinion of management, the
method of allocation is reasonable. Management fees in the amount of $3,164,000,
$3,594,000 and $432,000 were incurred in 1994, 1995, and 1996, respectively.
These arrangements terminated effective October 31, 1996. In addition, prior to
1996 the Company was charged by CHHC for its share of self-insured medical and
dental claims. The Company's share of expenses for this program was $146,000 in
both 1994 and 1995.
The amount payable to CHHC included in the consolidated balance sheet
represents a net balance as a result of various transactions between the Company
and CHHC as described above. There were no stated terms of settlement or
interest charges associated with the account balance. The balance is primarily
the result of CHHC funding all operating expenses and miscellaneous other
administrative expenses incurred by CHHC on behalf of the Company. The average
balance of the intercompany payable to CHHC, prior to the January 17, 1996
spin-off of the Company from CHHC, was $2,679,000 in 1994 and $1,825,000 in
1995.
14. RELATED PARTY TRANSACTIONS
The note receivable from officer outstanding at December 31, 1995 was
payable on demand, bearing interest at the monthly federal short-term rate. The
Company received full payment of the note in 1996.
Gateway LLC, a company owned in part by a director of the Company, leases
an office facility to the Company under the terms of an agreement, which expires
January 1, 2001. Rent expense and related operating expenses paid to Gateway LLC
by the Company were $82,000 in 1996. Future annual rental payments under this
lease are $223,000 in 1997, $233,000 in 1998, $243,000 in 1999, and $254,000 in
2000.
A major shareholder and executive officer of the Company, along with
certain other shareholders, are shareholders of Healthfield, Inc.
("Healthfield"). The Company entered into a management services agreement with
Healthfield in February 1994. Healthfield paid the Company approximately
$2,287,000 and $1,913,000 in management fees during 1994 and 1995, respectively,
for certain administrative and financial services rendered to Healthfield in
accordance with the agreement. The management services agreement with
Healthfield was terminated in December 1995.
A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). During 1996, the Company entered into various three-year capital
leases with National. Monthly payments to National under these lease agreements
are $23,600 and totaled $70,000 in 1996.
A shareholder of the Company owns a Company which leased computer equipment
to the Company during 1996 under an operating lease which expired in December
1996. Total payments in 1996 related to this lease were approximately $497,000.
F-18
<PAGE> 60
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
A shareholder and executive officer of the Company is a partner in an
entity that leases an office facility to the Company on a month-to-month basis
for $10,800 per month. Rent expense and related operating expenses paid to this
entity were $112,000 in 1996.
The Company has consulting agreements with two entities in which certain
directors of the Company have ownership interests. Aggregate monthly consulting
fees paid to these two entities approximate $20,000 and totaled $59,000 in 1996.
15. LICENSE AGREEMENTS
Certain software applications of the Company's Shared Resource Solution
incorporate software licensed from third parties. Under this license agreement,
the Company is obligated to pay royalties based on the volume of certain
transactions processed by the Company. Royalty rates per transaction vary based
on the volume of transactions processed and totalled $117,000 in 1996.
Another license agreement obligates the Company to pay royalties based on a
percentage of net collected revenues from sales of certain covered systems.
Royalty expense under this agreement totalled $500,000 in 1996.
In January 1996, the Company entered into an agreement with IBM Global
Services ("IBM") under which the Company obtains data processing and network
communication services. The agreement with IBM is for a ten year period expiring
December 31, 2005, and requires the Company to pay fees based on the volume of
transactions processed. The agreement requires minimum annual payments
approximating $3.2 million in 1997, $3.6 million in 1998, $3.6 million in 1999,
$3.6 million in 2000, $3.5 million in 2001, and an aggregate of $12.8 million
thereafter. The agreement is cancelable by the Company for a stated termination
charge declining from $1.3 million to $100,000 over the term of the contract.
16. SUBSEQUENT EVENTS
On March 26, 1997, the Company's Board of Directors approved the Simione
Central Holdings, Inc. Omnibus Equity-Based Incentive Plan (the "Incentive
Plan") and the Simione Central Holdings, Inc. Non-Qualified Formula Stock Option
Plan (the "Director Plan"), both of which are subject to shareholder approval.
The Company has reserved 500,000 and 50,000 shares of common stock for future
issuance under the Incentive Plan and Director Plan, respectively.
F-19
<PAGE> 61
SIMIONE CENTRAL HOLDINGS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED ADDITIONS
BALANCE AT TO DUE TO BALANCE AT
BEGINNING COSTS AND PURCHASE OF END OF
OF PERIOD EXPENSES INFOMED DEDUCTIONS(1) PERIOD
---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for Doubtful Accounts....... $13,600 $395,046 $780,701 $126,333 $1,063,014
======= ======== ======== ======== ==========
Year ended December 31, 1995
Allowance for Doubtful Accounts....... $ -- $ 13,600 $ -- $ -- $ 13,600
======= ======== ======== ======== ==========
Year ended December 31, 1994
Allowance for Doubtful Accounts....... $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ==========
</TABLE>
- ---------------
(1) Write-offs of uncollectible accounts.
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C> <C>
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as
filed with the Securities and Exchange Commission)..........
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Statement S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).................................................
3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit
3.3 of the Company's Registration Statement on Form S-4
(Registration Number 33-57150) as filed with the Securities
and Exchange Commission). ..................................
3.4* -- Amendment to the Bylaws of the Company......................
3.5* -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc.............................
4.1 -- See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of
the Company's Certificate of Incorporation and Bylaws
governing the rights of holders of securities of the
Company.....................................................
4.2 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those stockholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those stockholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated October 8, 1996 filed with the Securities and Exchange
Commission).................................................
9.1* -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A.
Curtis Eade, James A. Tramonte, John Isett, Cindy Lumpkin,
Douglas E. Caddell, Robert J. Simione, Kenneth L. Wall,
Allen K. Seibert, III, Jerry Sevy, Larry Clark and Lori N.
Siegel, Gary M. Bremer, Richard Parlontieri, and James R.
Henderson...................................................
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).................................................
10.1 -- Amended and Restated Agreement and Plan of Merger dated as
of September 5, 1996 by and among InfoMed Holdings, Inc.,
Simione Central Holding, Inc. and InfoSub, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated September 5, 1996 as filed
with the Securities and Exchange Commission)................
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant
for the Purchase of Common Stock of InfoMed Holdings, Inc.
dated October 5, 1996 between InfoMed Holdings, Inc. and
each of O'Donnell Davis, Inc., Rowan Nominees Ltd., David O.
Ellis, Richard V. Lawry, Salvatore A. Massaro, Murali
Anantharaman, Kathleen E.J. Ellis, Jeremy Ellis, Karen
Ellis, Gemma Ellis, Thomas M. Rogers, Jr., and Arnold
Schumacher (Incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated October 8, 1996
as filed with the Securities and Exchange Commission).......
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C> <C>
10.3* -- Warrant to Purchase 100,000 shares of Class A Common Stock
of Simione Central Holding, Inc., dated April 12, 1996
between Simione Central Holding, Inc. and Home Health First,
a Texas not-for-profit corporation..........................
10.4* -- Common Stock Warrant of InfoMed Holdings, Inc. dated October
8, 1996 between Jefferies & Company, Inc. and InfoMed
Holdings, Inc...............................................
10.5 -- Settlement Agreement, dated February 28, 1995, between
InfoMed Holdings, Inc. and Frederick Neufeld (Incorporated
by reference to Exhibit 5.5 of the Company's Current Report
on Form 8-K dated March 7, 1995 as filed with the Securities
and Exchange Commission)....................................
10.6* -- Form of Simione Central Holding, Inc. 1996 Incentive Stock
Option Agreement dated September 4, 1996 by and between
Simione Central Holding, Inc. and each of James R.
Henderson, William J. Simione, Jr., Robert Simione,
Katherine Wetherbee, Sheldon Berman, Betty Gordon, William
J. Simione, III, J. Blake Bremer, Craig Luigart, Kenneth L.
Wald, Marty Cavaiani, Lori Ferrero, Douglas E. Caddell, Andy
Anello and A. Curtis Eade...................................
10.7* -- Form of 1996 Non-Qualified Stock Option Agreement dated
September 4, 1996 between Simione Central Holding, Inc. and
each of Gary M. Bremer, James A. Tramonte, Gary W.
Rasmussen, Don VanderBeke and Lori N. Siegel................
10.8* -- Form of Stock Option Agreement dated October 7, 1996 between
InfoMed Holdings, Inc., and Reid Horovitz, Zola Horovitz,
O'Donnell Davis, Inc., EGL Holdings, Inc., David O. Ellis,
Erin Dosdourian, Rodger Johnson, Richard V. Lawry, Salvatore
A. Massaro and Murali Anantharaman..........................
10.9 -- 1994 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994
as filed with the Securities and Exchange Commission).......
10.10* -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended................................
10.11* -- Simione Central Holdings, Inc. Section 125 Plan effective
date January 1, 1997 sponsored by the Company...............
10.12 -- Headquarters at Gateway Lake Lease Agreement dated January
1, 1996 by and between Gateway LLC and InfoMed Holdings,
Inc. (Incorporated by reference to Exhibit 10.54 of the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 as filed with the Securities and
Exchange Commission)........................................
10.13* -- Sublease dated November 22, 1996 between Environmental
Design International, Ltd. and Simione Central, Inc.........
10.14* -- Consent and Estoppel Certificate and Assignment dated
October 29, 1996 between Resurgens Plaza South Associates,
L.P., Simione Central, Inc. and Central Health Services,
Inc.........................................................
10.15* -- Executive Employment Agreement dated December 10, 1996
between InfoMed Holdings, Inc. and Gary M. Bremer...........
10.16* -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr............
10.17* -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc. and EGL Holdings, Inc........................
10.18* -- Information Systems Management Agreement dated January 4,
1996 between Integrated Systems Solutions Corporation and
Central Health Management Services, Inc.....................
</TABLE>
<PAGE> 64
<TABLE>
<S> <C> <C> <C>
10.19* -- Micronetics Design Corporation Value Added Reseller Agreement Renewal dated July 10, 1996
between Micronetics Design Corporation and InfoMed Holdings, Inc. ........................
10.20* -- Master Software License Agreement Number 96-2283 dated October 31, 1996 by and between
Software 2000, Inc. and Simione Central Holding, Inc......................................
10.21* -- Guaranty Agreement dated October 31, 1996 by Simione Central, Inc. in favor of HCA,
Inc.......................................................................................
10.22* -- Lease Agreement dated March 18, 1996 between National Leasing, Inc. and Simione Central,
Inc.......................................................................................
10.23* -- IBM Vendor Marketing Programs Cooperative Services Marketing Agreement dated December 16,
1996 between IBM Corporation and Simione Central Holding, Inc. ...........................
11.1* -- Statement re: computation of per share earnings...........................................
16.1 -- Letter re change in Certifying Accountant (Incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated January 27, 1997 as filed with the Securities
and Exchange Commission)..................................................................
21.1* -- Subsidiaries of the Company...............................................................
23.1** -- Consent of Ernst & Young LLP..............................................................
27.1* -- Financial Data Schedule (for SEC use only)................................................
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-97772) pertaining to the 1994 Incentive Stock Option and
Non-Qualified Stock Option Plan of InfoMed Holdings, Inc. of our report dated
March 21, 1997, except for Note 16 as to which the date is March 26, 1997, with
respect to the financial statements of Simione Central Holdings, Inc. included
in the Annual Report (Form 10-K/A) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
May 29, 1997
