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Filed Pursuant to Rule 424 (b)(4)
Registration No. 333-25551
PROSPECTUS
2,800,000 SHARES
LOGO
COMMON STOCK
Of the 2,800,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by the Company and 800,000 shares are being sold by a Selling
Stockholder. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholder. See "Principal and Selling Stockholders."
The Common Stock of the Company is quoted on the OTC Bulletin Board, a
service provided by Nasdaq (the "OTC Bulletin Board"), under the symbol SCHI,
and the closing bid price on June 30, 1997 was $6.75. Such closing bid price
does not reflect a 1-for-2 reverse stock split effective June 30, 1997. See
"Price Range of Common Stock and Dividend Policy." The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol SCHI.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER(3)
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<S> <C> <C> <C> <C>
Per Share............. $10.00 $0.63 $9.37 $9.37
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Total(3).............. $28,000,000 $1,764,000 $18,740,000 $7,496,000
===============================================================================================================
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Selling Stockholder has granted to the Underwriters a 30-day option to
purchase up to 420,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Stockholder will be $32,200,000, $2,028,600, $18,740,000 and
$11,431,400, respectively. See "Underwriting."
-----------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about July 3, 1997, at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST
JEFFERIES & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
JUNE 30, 1997
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus,
and the financial statements and notes thereto.
THE COMPANY
Simione Central Holdings, Inc. (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 is the result of the merger of Central Health
Management Services, Inc. ("CHMS") and InfoMed Holdings, Inc. ("IMHI") (the
"IMHI Acquisition") completed in October 1996. The Company offers two
comprehensive and flexible software solutions which utilize a core platform of
applications and incorporate specialized selected modules, based on
customer-demand, and allow 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 and related software support services, the Company's
home health care consulting services, acquired in January 1996, 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.
Historically, the home health care 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. As a result of these
developments, the home health care industry has entered into a period of rapid
consolidation. This consolidation, along with measures to address ongoing cost
pressures, has led home health care providers to 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.
As a result of its system and service offerings, the Company believes it is
uniquely positioned to meet the ongoing demands of home health care providers.
The Company's objective is to enhance its position as a leading provider of
solutions to the home health care industry by: (i) leveraging its existing
customer base; (ii) generating recurring revenue; (iii) capitalizing on changing
industry dynamics; (iv) expanding through acquisitions and strategic alliances;
and (v) broadening system and service lines. The Company markets its systems and
services through a direct sales force which consists of two national sales
managers and 14 sales representatives located throughout the United States.
During 1996, the Company had over 500 customers nationwide, comprised of
hospital-based companies, large and small free-standing home health care
providers, alternate-site care organizations, integrated delivery systems and
government-managed organizations, including Columbia/HCA Healthcare Corporation,
Tenet Healthcare Corporation, Home Health First, Mercy Health Services and
Advocate Health System.
The Company's executive offices are located at 6600 Powers Ferry Road,
Atlanta, Georgia 30339, and its telephone number is (770) 644-6500.
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THE OFFERING
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Common Stock offered by the Company................ 2,000,000 shares
Common Stock offered by the Selling Stockholder.... 800,000 shares
Common Stock to be outstanding after the
offering......................................... 8,106,367 shares(1)
Use of proceeds.................................... For general corporate purposes and working
capital, including potential acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol...................... SCHI
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net revenues....................... $ 2,425 $ 5,208 $ 12,110 $ 13,222 $ 25,995 $5,166 $11,428
Costs of net revenues.............. 1,962 4,328 7,694 8,154 14,698 3,219 5,479
Selling, general and
administrative................... 262 810 2,959 3,095 7,037 1,138 3,293
Research and development........... 125 276 2,165 2,929 5,677 1,114 1,539
Amortization and depreciation...... -- -- -- -- 785 104 425
Purchased in-process research and
development...................... -- -- -- -- 12,574 -- --
Severance and other restructuring
charges.......................... -- -- -- -- 1,215 -- --
Income (loss) from operations...... 76 (206) (708) (956) (15,991) (409) 692
Net income (loss) per share(2)..... $ (3.71) $ 0.09
Weighted average common and common
equivalent shares(2)............. 4,288 7,364
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MARCH 31, 1997
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ACTUAL AS ADJUSTED(3)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,533 $20,473
Working capital (deficit)................................. (1,798) 16,142
Total assets.............................................. 18,533 36,473
Long-term obligations..................................... 406 406
Shareholders' equity...................................... 5,369 23,309
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(1) Based on the number of shares outstanding at June 26, 1997. Excludes
approximately 1,607,830 shares of Common Stock reserved for issuance under
the Company's stock option plans and individual stock option grants, of
which approximately 1,341,937 options were issued and outstanding at a
weighted average exercise price of $5.48, and 561,679 shares reserved for
issuance upon the exercise of outstanding warrants at a weighted average
exercise price of $1.66. See "Capitalization," "Management -- Stock Plans,"
"Description of Capital Stock" and Note 12 of Notes to Consolidated
Financial Statements of the Company.
(2) The number of shares used to compute the net income or loss per share
reflects the 2,994,856 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1, 12 and 16 of the Notes to the Consolidated
Financial Statements of the Company.
(3) Adjusted to give effect to the sale of Common Stock offered hereby at the
offering price of $10.00 per share and the receipt of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
------------------------------
Except as otherwise noted, all information in this Prospectus (i) reflects
a 1-for-2 reverse stock split effective June 30, 1997 (the "Stock Split"), (ii)
reflects the historical financial information for CHMS, the acquiror of IMHI for
financial reporting purposes, and includes the results of operations for IMHI
only from October 8, 1996, the date upon which the IMHI Acquisition was
consummated, and (iii) assumes no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock" and "Underwriting."
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RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered hereby.
History of Operating Losses; Uncertain Profitability; Limited Operating
History. The Company incurred a net loss of approximately $16 million for the
year ended December 31, 1996 and has not achieved profitability on an annual
basis since the year ended December 31, 1992. There can be no assurance that any
of the Company's business strategies will be successful or that the Company will
be able to achieve consistent revenue growth or profitability. Given the impact
of the IMHI Acquisition and the acquisition of the home health care consulting
division of Simione & Simione CPAs ("Simione & Simione") in January 1996 (the
"Simione Acquisition"), the Company's historical operating results may not be
indicative of future performance. Furthermore, the Company has only been
operating its current mix of businesses for a limited period of time. From its
inception until January 1996, the Company was operated as a subsidiary of
Central Health Holding Company, Inc. ("CHHC"). In addition, the Company has a
limited number of customers for its Shared Resource Solution. Prior to the IMHI
Acquisition and the entering into of various contracts with affiliates of
Columbia/HCA Healthcare Corporation ("Columbia/HCA"), the Company obtained
substantially all of its revenues from CHHC and its affiliates. Moreover, there
can be no assurance that the Company will be able to successfully implement its
business strategy or that it will be able to successfully integrate the
businesses acquired or operate those businesses on a profitable basis. See
"-- Risks Associated with Renegotiation and Renewal of Contracts,"
"-- Dependence on Major Customers," "The Company," "Unaudited Pro Forma
Condensed Consolidated Statements of Operations" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Risks Associated with Health Care Reform; Uncertainty in the Home Health
Care Industry. 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. The Company's systems and services
are designed to function within the structure of the health care financing and
reimbursement system currently being used in the United States. The Company
believes that the commercial value and appeal of its systems and services may be
adversely affected if the current health care financing and reimbursement system
were to be materially changed. 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 recent growth in the home health care industry has been accompanied by
both increasing consolidation in the industry and efforts by public and private
payors to impose cost containment measures on the industry. The Company's
business, financial condition and results of operations would be materially
adversely affected if the Company's installed customer base and potential
customer base were materially reduced as a result of consolidation, compounded
by the growth in managed care organizations, or if customers deferred purchasing
decisions on information systems or professional services because of concerns
about the impact of consolidation and potential cost containment measures.
Moreover, the enterprises formed as a result of consolidation could have greater
bargaining power, which may lead to price erosion of the Company's systems and
services. The failure of the Company to maintain adequate price levels would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, other legislative or market-driven
5
<PAGE> 5
reforms could have unpredictable effects on the Company's business, financial
condition and results of operations. See "Business -- Industry Overview" and
"-- Government Regulation and Health Care Reform."
Risks Associated with Renegotiation and Renewal of Contracts. A
significant number of the Company's contracts with Columbia/HCA provide that the
pricing terms may be renegotiated in the event that the Health Care Financing
Administration ("HCFA") replaces the current cost-based Medicare reimbursement
system for home health care with a Prospective Payment System ("PPS"), providing
for fixed payments per episode of care. The Company derives a substantial amount
of its revenues from the Columbia/HCA contracts. No assurance can be given that
the Company will be able to renegotiate the pricing terms of such contracts on
favorable terms in the event HCFA implements PPS for home health care, nor that
other customers will not seek to renegotiate their contracts. In addition,
implementation of PPS for home health care could have a material adverse effect
on the Company's customers and potential customers and may require the Company
to make pricing concessions in order to maintain its current customer base or
generate new sales of its systems and services. The failure of the Company to
maintain adequate price levels would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
contracts with Columbia/HCA also 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. In addition, a significant portion of the
Company's revenues are derived from maintenance contracts that are subject to
annual renewal. The loss of a significant amount of the Company's maintenance
contracts or a determination that payments currently made by Columbia/HCA are
not reimbursable could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Customers."
Risks Related to the Columbia/HCA Guaranty. In connection with the
negotiation of various information, support and management services agreements
(the "Columbia Agreements") entered into on November 1, 1996 by and between
Simione Central, Inc., a wholly-owned subsidiary of the Company ("SCI"), and
certain affiliates of Columbia/HCA, Columbia/HCA required that SCI, formerly a
subsidiary of CHHC, guarantee certain indemnity obligations of the former
stockholders of CHHC, including Mr. Gary M. Bremer, the Company's Chairman of
the Board, 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 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 Simione
Central Holdings, Inc. Profit Sharing Plan (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. 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 of 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 June 30, 1997, no claims had been made under the Guaranty, and currently the
Company does not anticipate incurring any losses
6
<PAGE> 6
associated with the Guaranty. Any obligations arising under the Guaranty that
must be satisfied by SCI may have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Risks
Associated with Current Investigation and Audit," "The Company" and "Certain
Transactions."
Risks Associated with Current Investigation and Audit. The Plan, for which
the Company is the sponsor, is currently under investigation by the Department
of Labor ("DOL"), and the Internal Revenue Service ("IRS") is also auditing
certain issues relating to the Plan. Neither the DOL nor the IRS has instituted
proceedings against the Company or the Plan. The Company cannot predict whether
any claims will be asserted against it in the future. Any claims or litigation,
with or without merit, can be costly and could result in a diversion of
management's attention. Moreover, any adverse determination could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Risks Related to the Columbia/HCA Guaranty."
Risks Associated with Long Sales and Implementation Cycles. The sales
cycle for home health care information systems is lengthy. The Company's sales
cycle is subject to delays associated with the lengthy approval process that
typically accompanies significant capital expenditures, customer budgeting
cycles and changes in customer budgets, changes or the anticipation of changes
in the regulatory environment affecting home health care organizations, changes
in the customer's strategic information system initiatives, changes in
technology and standards, new product announcements and releases, competing
information system projects within the customer organization, consolidation in
the home health care industry in general, the highly sophisticated nature of the
Company's systems and competition in the market for home health care information
systems. Additionally, during the sales process, the Company expends substantial
time, effort and funds preparing a contract proposal, demonstrating the system,
arranging visits to customer reference sites and negotiating the contract. For
these and other reasons, the Company's sales cycle is lengthy, and the Company
does not have the ability to predict when or if the sales process with a
prospective customer will result in a signed contract. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Backlog."
The time required to implement the Company's systems can vary significantly
depending on the needs and skill sets of its customers. Implementation of the
Company's Shared Resource and In-House Solutions typically requires 3 to 12
months depending on a number of factors, including the size of the customer, the
system licensed, the legacy systems to be interfaced, the customer's current
hardware and network infrastructure and information systems expertise, the
degree of customization requested by the customer and the customer's
installation schedule. This period may be longer if unforeseen technical,
integration or other problems arise during the implementation process, if the
Company has insufficient trained implementation personnel to handle several
installations simultaneously or if a customer decides to delay the
implementation schedule. If implementation is delayed, then payments and revenue
recognition will also be delayed. Any failure by the Company to implement its
home health care information systems on a timely basis could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Backlog."
Risks Associated with Acquisitions. The Company has, in part, expanded its
systems and services through acquisitions, such as the IMHI Acquisition and the
Simione Acquisition. There is significant competition for acquisition
opportunities in the health care information systems industry, which may
intensify and increase the cost of capitalizing on such opportunities. The
Company may compete for acquisition opportunities with other companies that have
significantly greater financial and management resources, larger installed
customer bases, better name recognition and greater sales and marketing
capabilities. Acquisitions also involve numerous risks, including the
difficulties in the assimilation of operations, systems and services, the
ability to manage geographically remote units, the diversion of management's
attention from other business concerns, the risks of entering markets in which
the Company has limited or no direct expertise and the potential loss of key
employees from the acquired companies. In addition, acquisitions may involve
potentially dilutive issuances of equity
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<PAGE> 7
securities, the expenditure of significant funds and the incurrence of
significant charges associated with the amortization of goodwill or other
intangible assets, write-offs of purchased in-process research and development
costs and/or future write-downs of the recorded values of assets acquired, any
of which could adversely affect the Company's business, financial condition and
results of operations. The Company currently has no agreements, commitments or
understandings with respect to any such acquisitions, and there can be no
assurance that the Company will be able to find suitable acquisition candidates
or to successfully negotiate and consummate any such acquisitions. There can
also be no assurance that any acquisition will result in long-term benefits to
the Company or that management will be able to manage effectively the resulting
business. See "The Company" and "Business -- Strategy."
Risks Related to Management of Growth. The Company is currently
experiencing a period of rapid growth and expansion which could place a
significant strain on the Company's personnel and resources. The Company's
growth has resulted in an increase in the level of responsibility for both
existing and new management personnel. The Company has sought to manage its
current and anticipated growth through the recruitment of additional management
and technical personnel and the implementation of internal systems and controls.
At the present time, the Company is in the process of integrating its accounting
functions and converting certain of IMHI's management information systems. The
failure to manage growth effectively could adversely affect the Company's
business, financial condition and results of operations. See
"Business -- Strategy" and "Management."
Risks Associated with a Highly Competitive Market. 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. See "Business -- Competition."
Risks Related to Government Regulation. 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 Account-
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ability 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 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.
Any such changes would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation and Health Care Reform."
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. See "Business -- Government Regulation and
Health Care Reform."
Risks Associated with Potential Variability in Quarterly Operating
Results. The Company's quarterly revenues and operating results may vary
significantly as a result of a variety of factors, including: the Company's long
sales and implementation cycles; the demand for the Company's systems and
services; the number, timing and significance of announcements and releases of
system upgrades by the Company and its competitors; the termination of, or a
reduction in, offerings of the Company's systems and services; the loss of
customers due to consolidation in the home health care industry; the timing of
revenue recognition; the investments by the Company in marketing, sales,
research and development, and administrative personnel necessary to support the
Company's anticipated operations; software defects and other system quality
factors; and general economic conditions. As a result of the varying size of
each customer contract, combined with the Company's method of revenue
recognition, quarterly results are likely to be significantly affected by small
changes in the number of customer contracts in process during a particular
quarter. The Company may experience delays in recognizing revenue in the future,
particularly considering the complexity and large scale of implementation of the
Company's systems. See "-- Risks Associated with Long Sales and Implementation
Cycles." In addition, since the purchase of the Company's systems generally
involves a significant commitment of capital, any downturn in any potential
customer's business or the economy in general, including changes in the home
health care market, could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the Company's
operating expense levels are relatively fixed and, to a large degree, are based
on anticipated revenues. If revenues are below expectations, results of
operations are likely to be disproportionately affected. For these reasons, the
Company believes that period to period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Related to Dependence on Principal Products; New System Development,
Acceptance and Enhancement. The Company presently derives a significant portion
of its revenue from its Shared Resource Solution and its In-House Solution.
Although the Company intends to broaden its offerings
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through the development and introduction of new solutions and possible
acquisitions in the future, there can be no assurance of the Company's success
in this regard, and any factor adversely affecting the market for either the
Shared Resource Solution or the In-House Solution would have a material adverse
effect on the Company's business, financial condition and results of operations.
Moreover, since the market for the Company's systems is characterized by rapid
technological progress and changing customer needs, the Company believes that
continued growth and future success will depend on the successful introduction
of new solutions and further enhancements to existing systems. There can be no
assurance that the Company will be able to enter into new sales contracts at the
current rate or to maintain the current pricing for its systems. There can be no
assurance that the Company's enhancements will be completed, released or
successfully marketed. Because of the long development and sales cycles for new
systems and enhancements, the failure to complete development or secure market
acceptance of the Company's enhancements could have a material adverse effect on
the Company's business, financial condition and results of operations. See
" -- Risks Associated with Long Sales and Implementation Cycles" and
"Business -- Systems and Services."
Risks Related to Dependence on Certain Key Personnel. The Company depends
to a significant extent on key management, technical and marketing personnel.
The Company's growth and future success will depend in large part on its ability
to attract, motivate and retain highly qualified personnel, including management
personnel of acquired companies. Competition for such personnel in the software
and information systems industries is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
The Company does not have employment agreements with any of its executive
officers or key employees other than Mr. Gary M. Bremer, the Company's Chairman
of the Board, and Mr. William J. Simione, Jr., the Company's Vice Chairman of
the Board and Executive Vice President. The Company does not have "key person"
life insurance on any of its personnel. The loss of key personnel, particularly
the loss of more than one member of the Company's executive management team, or
the inability to hire or retain qualified personnel, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
Dependence on Major Customers. Prior to the IMHI Acquisition and the
entering into various contracts with affiliates of Columbia/HCA, the Company
obtained substantially all of its revenues from CHHC and its affiliates. See
"-- History of Operating Losses; Uncertain Profitability; Limited Operating
History." For the three months ended March 31, 1997 and the year ended December
31, 1996, Columbia/HCA affiliates accounted for approximately 54% and 22%,
respectively, of the Company's net revenue. The Company presently anticipates
that Columbia/HCA will account for a substantial portion of the Company's
revenue for the fiscal year ending December 31, 1997. The loss of any of the
Columbia/HCA affiliates as a customer or any one or more of the Company's other
large customers could have a material adverse effect on the Company's business,
financial condition and results of operations. The federal government is
currently conducting an extensive investigation of Columbia/HCA and its home
health care referral and reimbursement practices. Any adverse actions or
determinations arising out of such investigation could also have a material
adverse effect on the Company's business, financial condition and results of
operations. See "The Company" and "Business -- Customers."
Dependence on Relationship with IBM. The Company's Shared Resource
Solution utilizes a data center and data communications provided by Integrated
Systems Solutions Corporation ("IBM Global Services"), a subsidiary of
International Business Machines Corporation ("IBM"). The Company has
historically derived substantial revenues and expects to derive a substantial
portion of its future revenues from its Shared Resource Solution. In addition,
the Company entered into a marketing agreement with IBM pursuant to which IBM
markets the Company's Share Resource Solution to IBM's customers. The Company's
future results, therefore, depend on continued market acceptance of IBM Global
Services' products and services, the technical support given by IBM Global
Services and the financial success of IBM. A termination of the Company's
contract with IBM Global Services or any reduction in demand for IBM Global
Services' products and services or its ability to deliver quality products and
support services on a timely basis would have a material adverse effect on the
Company's
10
<PAGE> 10
business, financial condition and results of operations. The Company's contract
with IBM Global Services for the support of the Shared Resource Solution is
non-exclusive, with a ten year term that expires on December 31, 2005, and can
be terminated by either party under certain circumstances. There can be no
assurance that the contract will be renewed or, if renewed, that the contract
will then be on terms favorable to the Company. See "Business -- Strategy,"
"-- Systems and Services" and "-- Sales and Marketing."
Dependence on Proprietary Software. The Company's success is dependent to
a significant extent on its ability to protect its proprietary rights to the
software incorporated in its systems. 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's business, financial condition
and results of operations.
As the number of home health care software 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. See
"Business -- Proprietary Rights and Product Protection."
Risks Related to Dependence on Third Party Licenses. Certain principal
components of the Company's systems are licensed from third parties. While the
Company believes that the terms of such licenses are adequate to protect the
Company's investments in its systems, any factor that adversely affects the
Company's ability to retain the benefits of such licenses could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, in the event of termination or non-renewal of such
licenses, there can be no assurance that the Company will be able to enter into
similar licenses on equivalent terms. See "Business -- Technology."
Risk of System Defects; Failure to Meet Performance Criteria. Systems as
complex as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although the
Company conducts extensive testing, the Company has in the past released systems
that contain defects, has discovered software errors in certain of its
enhancements and applications after their introduction and, as a result, has
experienced delays in recognizing revenues and incurred higher than expected
operating expenses during certain periods in order to correct these errors.
Moreover, the Company's systems are used in a home health care setting to
collect and analyze home health care information used in the treatment of
patients as well as billing and collection. As a result, the Company expects
that its customers and potential customers have a greater sensitivity to system
defects than customers for software products generally. In addition, some
customer contracts may provide that the system is warranted to meet certain
performance criteria concerning response time and system availability. Failure
of a customer's system to meet these performance criteria could constitute a
material breach under such contracts, and could delay or impede revenue
recognition and require that the Company incur additional expense in order to
make the system meet these performance criteria. There can be no assurance that,
despite testing by the
11
<PAGE> 11
Company and by current and potential customers, errors or performance failures
will not occur in new product enhancements or applications after commencement of
commercial shipments, resulting in loss of revenue or delay in market
acceptance, diversion of development resources to correct such errors or
failures, increased service and warranty costs, or claims by customers against
the Company, any of which could have a material adverse effect upon the
Company's business, financial condition and results of operations.
Risks Associated with Product Liability. The Company's systems are used in
connection with the treatment of patients. Any failure by the Company's systems
to provide accurate, reliable and timely information, or to adequately protect
the confidentiality of the information, could result in claims against the
Company. The Company maintains insurance to protect against claims associated
with the use of its systems, but there can be no assurance that its current
insurance coverage would adequately cover any claims asserted against the
Company or that such insurance will continue to be available to the Company on
reasonable terms or at all. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. Even
unsuccessful claims could result in the Company incurring significant ligation
expense, diversion of management time and resources or damage to the Company's
reputation. There can be no assurance that the Company will not be subject to
product liability claims that will result in liability in excess of its
insurance coverage, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the future
at commercially reasonable rates.
Risks Associated with Control by Directors and Executive Officers. Upon
completion of this offering, the directors and executive officers of the
Company, and their affiliates, as a group, will beneficially own approximately
35% of the outstanding shares of Common Stock. As a result, these stockholders
acting together would be able to exert considerable influence over the election
of the Company's directors and the outcome of most corporate actions requiring
stockholder approval, such as certain amendments to the Company's Certificate of
Incorporation, as amended. Additionally, the directors and executive officers
will have significant influence over the policies and operations of the
Company's management and the conduct of the Company's business. Such
concentration of ownership may have the effect of delaying, deferring or
preventing a change of control of the Company and consequently could affect the
market price of the Common Stock. In addition, pursuant to an agreement among
the Company and various stockholders, the Company must use its reasonable
efforts to cause the election to the Board of Directors of two designees of
certain five percent or more holders of the Common Stock of the Company. See
"Management," "Principal and Selling Stockholders" and "Certain Transactions."
Potential Effect of Anti-Takeover Provisions. The Company's Board of
Directors has the authority to issue shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. Certain provisions of
the Company's Bylaws, as amended and restated, could have the effect of delaying
or preventing a tender offer for the Common Stock or other changes of control or
management of the Company, which could adversely affect the market price of the
Common Stock. See "Description of Capital Stock."
Risks of Sales of Common Stock Upon Expiration of Rule 144 Holding Period;
Risk of Registration Rights. Sales of substantial amounts of Common Stock in
the public market after this offering could adversely affect the prevailing
market price of the Common Stock. Upon completion of this offering, there will
be 8,106,367 shares of Common Stock of the Company outstanding (exclusive of
shares covered by outstanding stock options or warrants and assuming no exercise
of the Underwriters' over-allotment option). Of these shares, approximately
2,103,470 shares outstanding as of June 26, 1997 and the 2,800,000 shares sold
in this offering will be freely transferrable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any shares
held by or for the account of an "affiliate" of the Company, as that term is
defined in Rule 144, as amended effective
12
<PAGE> 12
April 29, 1997 ("Rule 144"), promulgated under the Securities Act, or by an
individual or entity subject to a contractual restriction on resale.
Approximately 3,202,897 of the remaining shares of Common Stock are held by
existing stockholders and are "restricted securities" as that term is defined in
Rule 144 under the Securities Act (the "Restricted Securities"). Approximately
3,158,356 shares of the Restricted Securities will become eligible for sale on
October 9, 1997, subject to compliance with the volume limitations and other
restrictions of Rule 144 and subject to the expiration of a lock-up agreement
(the "Lock-Up Agreement") which expires 90 days from the date of this
Prospectus. Hambrecht & Quist LLC may in its sole discretion and at any time
without notice, release all of or any portion of the securities subject to the
Lock-Up Agreement. In addition, the Company sponsored Profit Sharing Plan will
own 1,324,008 shares of Common Stock after this offering (assuming no exercise
of the Underwriters' over-allotment option), which shares are required to be
distributed by the trustee of the Profit Sharing Plan to participants or sold by
the trustee to fund cash distributions to participants. As of June 26, 1997, the
Company has granted certain securityholders, including the Profit Sharing Plan,
registration rights, including demand rights, with respect to 4,771,500
currently outstanding shares of Common Stock, and 1,913,258 shares of Common
Stock issuable upon exercise of outstanding warrants and stock options, pursuant
to outstanding warrant and registration rights agreements. See "Description of
Capital Stock -- Registration Rights." If the Company were required to include
shares held by holders of registration rights or by the Profit Sharing Plan
(other than the shares offered by the Profit Sharing Plan hereby) in a
Company-initiated registration, or if the Profit Sharing Plan's trustee sold or
distributed shares of the Company's Common Stock to Profit Sharing Plan
participants, the sale of such shares could have a material adverse effect on
the market price of the Common Stock. In addition, as of June 26, 1997, the
Company has reserved approximately 1,607,830 shares of Common Stock for issuance
pursuant to the Company's stock option plans and individual stock option grants,
of which approximately 1,341,937 shares are represented by currently outstanding
options. A total of 561,679 shares of Common Stock are also reserved for
issuance upon the exercise of outstanding warrants. See "Shares Eligible for
Future Sale."
Possible Volatility of Stock Price. Factors such as the announcement of
acquisitions or the introduction of new systems by the Company or its
competitors, quarter to quarter variations in the Company's operating results
and changes in earnings estimates by analysts, governmental regulatory action,
general trends and market conditions in the technology, health care and emerging
growth company sectors, as well as other factors, may have a significant impact
on the market price of the Common Stock. Moreover, trading volumes in the
Company's Common Stock have been low historically and could exacerbate price
fluctuations in the Common Stock. Further, the stock market has on occasion
experienced extreme price and volume fluctuations, which have particularly
affected the market prices of the equity securities of many technology companies
and which have often been unrelated to the operating performance of such
companies. These broad market fluctuations may materially and adversely affect
the market price of the Common Stock. See "Price Range of Common Stock and
Dividend Policy."
Absence of Dividends. 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. See "Price Range of Common Stock and
Dividend Policy."
Risks Associated with the Control of Use of Proceeds by the Board of
Directors and Management. Of the Company's approximately $17.9 million in net
proceeds from this offering, the Company expects to use substantially all the
proceeds for unspecified general corporate purposes and working capital,
including potential strategic acquisitions. Accordingly, management and the
Board of Directors of the Company will have complete discretion as to the
application of substantially all of the funds raised in this offering. See
" -- Risks Associated with Control by Directors and Executive Officers" and "Use
of Proceeds."
Risks Arising from Substantial Dilutive Effect of the Offering. Purchasers
of the shares of Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of their Common
Stock (approximately $7.79 per share at the public offering price of $10.00 per
share). See "Dilution."
13
<PAGE> 13
THE COMPANY
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. In connection with the IMHI
Acquisition, IMHI issued approximately 4.0 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.
Prior to the merger, 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.
14
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, after deducting the underwriting
discounts and estimated offering expenses payable by the Company, are estimated
to be approximately $17.9 million. The Company intends to use the net proceeds
from this offering for general corporate purposes and working capital, including
potential strategic acquisitions in order to expand the Company's system and
service offerings. The principal reasons for this offering are to increase the
Company's equity capital and to broaden the public market for the Company's
Common Stock, which the Company believes will help facilitate future access to
capital and enhance its ability to pursue strategic acquisitions. There can be
no assurance that any acquisitions will be made, and the Company has no
agreements or commitments with respect to any acquisition. Pending such uses,
the net proceeds will be invested in short-term, investment grade securities,
certificates of deposits or obligations issued or guaranteed by the United
States government. The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholder. See "Principal and Selling
Stockholders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
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. 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 June 30, 1997, 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>
HIGH LOW
----- -----
<S> <C> <C>
1995
1st Quarter............................................... $2.63 $2.00
2nd Quarter............................................... 2.63 1.50
3rd Quarter............................................... 2.25 .88
4th Quarter............................................... 1.32 1.00
1996
1st Quarter............................................... 1.75 .75
2nd Quarter............................................... 3.25 .88
3rd Quarter............................................... 5.38 1.88
4th Quarter............................................... 6.63 4.00
1997
1st Quarter............................................... 7.75 4.25
2nd Quarter............................................... 6.75 5.00
</TABLE>
On June 30, 1997, the last reported closing bid price of the Common Stock
was $6.75 per share. As of June 30, 1997, there were 127 holders of record of
the Common Stock. The information set forth above does not reflect the Stock
Split.
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.
15
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 as adjusted to reflect the sale by the Company of the 2,000,000
shares of Common Stock offered hereby at the offering price of $10.00 per share,
and the receipt by the Company of net proceeds therefrom of approximately $17.9
million. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Notes payable and capital lease obligations, less current
portion................................................... $ 406 $ 406
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized; no shares issued or outstanding............ -- --
Common Stock, $.001 par value; 20,000,000 shares
authorized; 5,986,117 shares issued and outstanding;
7,986,117 shares issued and outstanding as
adjusted(1)............................................ 6 8
Additional paid-in-capital................................ 23,262 41,200
Stock subscription receivable............................. (850) (850)
Accumulated deficit....................................... (17,049) (17,049)
------------ ------------
Total shareholders' equity............................. 5,369 23,309
------------ ------------
Total capitalization................................. $ 5,775 $ 23,715
============ ============
</TABLE>
- ------------------------------
(1) As of March 31, 1997, excludes: (i) approximately 1,449,686 additional
shares of Common Stock issuable upon the exercise of outstanding options at
a weighted average exercise price of $5.06, of which 926,543 shares are
issuable under presently exercisable options at a weighted average exercise
price of $3.14; and (ii) 587,519 shares issuable upon exercise of
outstanding warrants at a weighted average exercise price of $1.86. See
"Management -- Stock Plans," "Description of Capital Stock" and Notes to
Consolidated Financial Statements of the Company.
16
<PAGE> 16
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
their Common Stock from the offering price. As of March 31, 1997, the Company
had a net tangible deficit of approximately $(309,961), or $(0.05) per share of
Common Stock. "Net tangible book value per share" represents the amount of total
tangible assets, less total liabilities, divided by the total number of shares
of Common Stock outstanding. Without taking into account any other change in the
net tangible deficit after March 31, 1997, other than to give effect to the
receipt by the Company of the net proceeds from the sale of the shares of Common
Stock offered by the Company hereby at the offering price, the pro forma net
tangible book value as of March 31, 1997 would have been approximately
$17,630,039, or $2.21 per share. This represents an immediate increase in net
tangible book value of $2.26 per share to existing stockholders and an immediate
dilution of $7.79 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Offering price per share.................................... $10.00
Net tangible deficit per share before this offering.... $(0.05)
Increase in net tangible book value per share
attributable to new investors......................... 2.26
------
Pro forma net tangible book value per share after this
offering.................................................. 2.21
------
Dilution per share to new investors......................... $ 7.79
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences between existing stockholders (including 268,164 shares
purchased by an existing stockholder for which the consideration is an
outstanding note receivable for $850,000) and purchasers of shares in the
offering (at the offering price of $10.00) with respect to the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 5,986,117 75.0% $23,274,091 53.8% $ 3.89
New investors............. 2,000,000 25.0 20,000,000 46.2 10.00
--------- ---- ----------- ----
Total........... 7,986,117 100% $43,274,091 100%
========= ==== =========== ====
</TABLE>
The computations in the tables above exclude an aggregate of 2,037,205
shares of Common Stock issuable upon the exercise of outstanding stock options
and warrants as of March 31, 1997 as follows: (i) 1,449,686 shares issuable upon
the exercise of outstanding stock options at a weighted average exercise price
of $5.06 per share, of which 926,543 shares are issuable under exercisable
options at a weighted average exercise price of $3.14; and (ii) 587,519 shares
issuable upon the exercise of outstanding warrants at a weighted average
exercise price of $1.86 per share. To the extent that these options and warrants
are exercised, there will be further dilution to new investors. See
"Capitalization," "Management -- Stock Plans" and Note 12 of Notes to
Consolidated Financial Statements of the Company.
17
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and the three months ended March
31, 1996 have been prepared to reflect the IMHI Acquisition as if the
acquisition had occurred on January 1, 1996. The unaudited pro forma condensed
consolidated statements of operations are based on the audited consolidated
financial statements of the Company for the year ended December 31, 1996, the
unaudited results of operations of IMHI from January 1, 1996 to October 8, 1996,
the unaudited consolidated financial statements of the Company for the three
months ended March 31, 1996 and the unaudited results of operations of IMHI for
the three months ended March 31, 1996, as adjusted by the pro forma adjustments
described below using estimates and certain assumptions that management deems
appropriate.
The unaudited pro forma condensed consolidated statements of operations do
not purport to be indicative of actual results that would have been achieved had
the IMHI Acquisition actually been completed as of January 1, 1996, and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
HISTORICAL PRO FORMA
------------------------------- --------------------------
IMHI
THE COMPANY JAN. 1, 1996
YEAR ENDED TO OCT. 8, 1996
DEC. 31, 1996 (UNAUDITED) ADJUSTMENTS(1) COMBINED
------------- --------------- -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Information services... $ 14,849 $5,714 $ 20,563
Systems................ 459 3,066 3,525
Support and consulting
services............. 10,687 -- 10,687
-------- ------ ------ --------
Total net revenues... 25,995 8,780 34,775
Costs and expenses:
Costs of information
services............. 8,258 1,270 9,528
Costs of systems....... 346 1,355 1,701
Costs of support and
consulting
services............. 6,094 -- 6,094
Selling, general and
administrative....... 7,037 4,002 11,039
Research and
development.......... 5,677 1,126 6,803
Amortization and
depreciation......... 785 642 $ 446 1,873
Purchased in-process
research and
development.......... 12,574 -- 12,574
Severance and other
restructuring
charges.............. 1,215 -- 1,215
-------- ------ ------ --------
Total costs and
expenses........... 41,986 8,395 446 50,827
-------- ------ ------ --------
Income (loss) from
operations............. (15,991) 385 (446) (16,052)
Other income (expense):
Interest expense....... (115) -- (115)
Interest and other
income............... 207 120 327
-------- ------ ------ --------
Net income (loss).... $(15,899) $ 505 $ (446) $(15,840)
======== ====== ====== ========
Net loss per share... $ (3.71) $ (2.76)
======== ========
Weighted average common
shares................. 4,288 5,747
======== ========
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------- -------------------------
THE COMPANY
THREE MONTHS IMHI
ENDED JAN. 1, 1996 TO
MAR. 31, 1996 MAR. 31, 1996
(UNAUDITED) (UNAUDITED) ADJUSTMENTS(2) COMBINED
------------- ---------------- -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Information services... $3,362 $1,804 $ 5,166
Systems................ -- 1,165 1,165
Support and consulting
services............. 1,804 -- 1,804
------ ------ -------- --------
Total net revenues... 5,166 2,969 8,135
Costs and expenses:
Costs of information
services............. 1,812 392 2,204
Costs of systems....... -- 438 438
Costs of support and
consulting
services............. 1,407 -- 1,407
Selling, general and
administrative....... 1,138 1,303 2,441
Research and
development.......... 1,114 400 1,514
Amortization and
depreciation......... 104 203 $ 149 456
Purchased in-process
research and
development.......... -- -- 12,574 12,574
Severance and other
restructuring
charges.............. -- -- --
------ ------ -------- --------
Total costs and
expenses........... 5,575 2,736 12,723 21,034
------ ------ -------- --------
Income (loss) from
operations............. (409) 233 (12,723) (12,899)
Other income (expense):
Interest expense....... (4) -- (4)
Interest and other
income............... 18 1 19
------ ------ -------- --------
Net income (loss).... $ (395) $ 234 $(12,723) $(12,884)
====== ====== ======== ========
Net loss per share... $(0.12) $ (2.46)
====== ========
Weighted average common
shares................. 3,284 5,233
====== ========
</TABLE>
- ------------------------------
(1) The pro forma adjustments relating to the IMHI Acquisition includes an
additional nine months of amortization expense related to allocation of
purchase price to intangible assets and a reduction in depreciation expense
related to a reduction in the value of fixed assets acquired.
(2) The pro forma adjustments include a $12,574 charge to operations for
purchased in-process research and development costs, and a net charge of
$149 for additional amortization expense related to the allocation of
purchase price to intangible assets and for decreased depreciation expense
related to a reduction in value of fixed assets acquired.
18
<PAGE> 18
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 and for the three
months ended March 31, 1996 and 1997 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 results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for a full
year. The selected consolidated financial data as of and for the year ended
December 31, 1996 include 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Information services............................ $ 721 $1,891 $ 4,875 $ 5,387 $ 14,849 $3,362 $4,701
Systems......................................... -- -- -- -- 459 -- 982
Support and consulting services................. 1,704 3,317 7,235 7,835 10,687 1,804 5,745
------ ------ ------- ------- -------- ------ ------
Total net revenues............................ 2,425 5,208 12,110 13,222 25,995 5,166 11,428
Costs and expenses:
Costs of information services................... 596 1,343 2,492 2,630 8,258 1,812 3,067
Costs of systems................................ -- -- -- -- 346 -- 343
Costs of support and consulting services........ 1,366 2,985 5,202 5,524 6,094 1,407 2,069
Selling, general and administrative............. 262 810 2,959 3,095 7,037 1,138 3,293
Research and development........................ 125 276 2,165 2,929 5,677 1,114 1,539
Amortization and depreciation................... -- -- -- -- 785 104 425
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 5,575 10,736
------ ------ ------- ------- -------- ------ ------
Income (loss) from operations..................... 76 (206) (708) (956) (15,991) (409) 692
Other income (expense):
Interest expense................................ -- -- -- -- (115) (4) (77)
Interest and other income....................... -- -- -- -- 207 18 28
------ ------ ------- ------- -------- ------ ------
Net income (loss)............................. $ 76 $ (206) $ (708) $ (956) $(15,899) $ (395) $ 643
====== ====== ======= ======= ======== ====== ======
Net income (loss) per share(1)................ $ 0.03 $(0.07) $ (0.24) $ (0.32) $ (3.71) $(0.12) $ 0.09
====== ====== ======= ======= ======== ====== ======
Weighted average common and common equivalent
shares(1)......................................... 2,995 2,995 2,995 2,995 4,288 3,284 7,364
====== ====== ======= ======= ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------------- ---------------
1992 1993 1994 1995 1996 1997
----------- ------ ------- ------- -------- ---------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $1,243 $2,620 $ 463 $ 323 $ 3,385 $ 2,533
Working capital (deficit)......................... 77 (130) (837) 189 (1,203) (1,798)
Total assets...................................... 1,568 2,907 1,340 1,828 18,776 18,533
Long-term obligations............................. -- -- -- -- 2,986 406
Shareholders' equity (deficit).................... 77 (130) (837) 650 4,680 5,369
</TABLE>
- ------------------------------
(1) The number of shares used to compute the net income or loss per share
reflects the 2,994,856 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1, 12 and 16 of the Notes to the Consolidated
Financial Statements of the Company.
19
<PAGE> 19
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
Prospectus, 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. See also "Risk
Factors" for additional factors. This Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus.
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 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. In connection with the IMHI Acquisition, IMHI issued
approximately 4.0 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. 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 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.
20
<PAGE> 20
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. See "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. 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 determined to be probable, provided
that no significant obligation remains under the contract. Revenues derived from
the sale of software products requiring significant modification or
customization are recognized based upon percentage of completion using labor
hours or contract milestones. 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 delivered and collectibility of fees is determined to be
probable, provided that no significant obligation remains under the contract.
Software support agreements are generally renewable for one year periods, and
revenue derived from such agreements is recognized ratably over the term of the
related agreements. The Company has historically 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 monthly as the related services are
rendered.
21
<PAGE> 21
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. See "Risk Factors -- Risks Associated with Long Sales and
Implementation Cycles."
The Company defines recurring revenues as revenues derived under multi-year
contracts in addition to annual software support agreements. These revenues were
approximately $8.1 million, or 71% of total net revenues, for the three months
ended March 31, 1997 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 March 31, 1997, the Company derived 54%
of its total net revenues from contracts with affiliates of Columbia/HCA. 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. See
"Risk Factors -- History of Operating Losses; Uncertain Profitability; Limited
Operating History," "-- Risks Associated with Renegotiation and Renewal of
Contracts" and "--Dependence on Major Customers."
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 March
31, 1997, the Company's capitalized computer software development costs were
approximately $38,000.
BACKLOG
The Company had backlog associated with its In-House Solution of
approximately $4.8 million on March 31, 1997. 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 Resource Solution.
22
<PAGE> 22
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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF NET REVENUES:
Net revenues:
Information services........................ 40.3% 40.7% 57.1% 65.1% 41.1%
Systems..................................... -- -- 1.8 -- 8.6
Support and consulting services............. 59.7 59.3 41.1 34.9 50.3
----- ----- ----- ----- -----
Total net revenues....................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Costs of information services............... 20.5 19.9 31.8 35.1 26.8
Costs of systems............................ -- -- 1.3 -- 3.0
Costs of support and consulting services.... 43.0 41.8 23.4 27.2 18.1
Selling, general and administrative......... 24.4 23.4 27.1 22.0 28.8
Research and development.................... 17.9 22.1 21.8 21.6 13.5
Amortization and depreciation............... -- -- 3.0 2.0 3.7
Purchased in-process research and
development.............................. -- -- 48.4 -- --
Severance and other restructuring charges... -- -- 4.7 -- --
----- ----- ----- ----- -----
Total costs and expenses................. 105.8 107.2 161.5 107.9 93.9
----- ----- ----- ----- -----
Loss from operations.......................... (5.8) (7.2) (61.5) (7.9) 6.1
Other income (expense):
Interest expense............................ -- -- (0.5) -- (0.7)
Interest and other income................... -- -- 0.8 0.3 0.2
----- ----- ----- ----- -----
Net income (loss)........................ (5.8)% (7.2)% (61.2)% (7.6)% 5.6%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net Revenues. Total net revenues for the three months ended March 31, 1997
increased $6.3 million, or 121.2%, to $11.4 million as compared to the three
months ended March 31, 1996. This increase includes $3.2 million attributable to
the business acquired in the IMHI Acquisition which was completed in October
1996 and $5.8 million from new contracts with affiliates of Columbia/HCA, offset
by a decrease of $3.6 million resulting from the termination of contracts with
home health care agencies wholly-owned by CHHC.
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 $1.3 million, or 39.8%,
to $4.7 million for the three months ended March 31, 1997 as compared to the
three months ended March 31, 1996. This increase includes $2.2 million
attributable to the business acquired in the IMHI Acquisition, $1.6 million in
new contracts with affiliates of Columbia/HCA and approximately $400,000
attributable to other new customers, offset by a decrease of $3.1 million
resulting from the termination of contracts with CHHC.
Net revenues from system sales are comprised of revenues from software
licenses and computer hardware sales. These revenues were $1 million for the
three months ended March 31, 1997 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 $3.9
million, or 218.4%, to $5.7 million for the
23
<PAGE> 23
three months ended March 31, 1997 as compared to the three months ended March
31, 1996. This increase includes $4.2 million in new contracts with affiliates
of Columbia/HCA, approximately $400,000 in increased management consulting
revenues and a decrease of approximately $500,000 resulting from the termination
of contracts with CHHC.
Cost of Revenues. Total costs of revenues increased $2.3 million, or
70.2%, to $5.5 million for the three months ended March 31, 1997 as compared to
the three months ended March 31, 1996. The increase includes $1 million in costs
attributable to the business acquired in the IMHI Acquisition and the remainder
primarily relates to increases in personnel. As a percentage of total net
revenues, total costs of revenues decreased to 47.9% for the three months ended
March 31, 1997 from 62.3% for the three months ended March 31, 1996. This
reduction as a percentage of total net revenues is principally due to the higher
margins related to the business acquired in the IMHI Acquisition and increased
margins derived from new customers.
Cost of information services increased $1.3 million, or 69.2%, to $3.1
million for the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996. This dollar increase includes approximately
$700,000 in costs attributable to the business acquired in the IMHI Acquisition
and approximately $500,000 in costs due to increases in both implementation and
training personnel to support new business. As a percentage of information
services revenues, these costs increased to 65.2% for the three months ended
March 31, 1997 from 53.9% for the three months ended March 31, 1996, primarily
due to the termination of contracts with CHHC.
Cost of system sales was approximately $300,000 for the three months ended
March 31, 1997 and was attributable entirely to the business acquired in the
IMHI Acquisition. Such cost relates principally to third party software and
equipment.
Cost of support and consulting services increased approximately $700,000,
or 47.0%, to $2.1 million for the three months ended March 31, 1997 as compared
to the three months ended March 31, 1996. This increase in cost relates to
additional personnel required to support new contracts. As a percentage of
support and consulting services revenue, these costs decreased to 36.0% for the
three months ended March 31, 1997 from 78.0% for the three months ended March
31, 1996. The reduction in costs as a percentage of support and consulting
services revenue principally results from increased margins on business derived
from new customers.
Selling, General and Administrative. Total selling, general and
administrative expenses for the three months ended March 31, 1997 increased $2.2
million to $3.3 million as compared to the three months ended March 31, 1996.
This increase includes $1.2 million in costs attributable to the business
acquired in the IMHI Acquisition and the remainder principally relates to
increased administrative personnel to support growth. As a percentage of total
net revenues, selling, general and administrative expenses were 28.8% for the
three months ended March 31, 1997 compared with 22.0% for the three months ended
March 31, 1996. The Company believes that selling, general and administrative
expenses should decrease as a percentage of total net revenues assuming that the
Company's revenues continue to increase.
Research and Development. Research and development expenses increased
approximately $400,000, or 38.2%, to $1.5 million for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996. The
increase is principally attributable to development projects in process at the
time of the IMHI Acquisition. As a percentage of total net revenues, these
expenses decreased to 13.5% for the three months ended March 31, 1997 from 21.6%
for the three months ended March 31, 1996. This percentage decrease reflects the
increase in total net revenues compared to a relatively constant level of dollar
expenses. 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.
Amortization and Depreciation. Total amortization and depreciation for the
three months ended March 31, 1997 increased by approximately $300,000 to
approximately $400,000 as compared to the three months ended March 31, 1996.
This increase includes approximately $200,000 of amortization
24
<PAGE> 24
expense related to the $4.2 million of intangible assets recorded in the IMHI
Acquisition, and the remainder relates to increased depreciation expense.
Other Income (Expense). Interest expense for the three months ended March
31, 1997 and 1996 relates to borrowings under the Company's line of credit
agreements. Interest and other income for the three months ended March 31, 1997
and 1996 consists principally of interest income related to the Company's
short-term cash and restricted cash investments.
Income Taxes. At December 31, 1996, the Company had net operating losses
("NOL") carryforwards for federal and state income tax purposes of $6.0 million,
which 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 NOLs and tax credit carryforwards will not
be utilized based on a weighing of evidence at March 31, 1997, and as a result,
a 100% deferred tax valuation allowance has been recorded against these assets.
Approximately $500,000 of the total deferred tax asset relates to the IMHI
Acquisition and, if and when realized, will result in a credit to intangible
assets recorded in the acquisition. For the three months ended March 31, 1997,
the Company has applied a portion of the NOL against income tax expense for
financial reporting purposes.
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 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 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 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.
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
25
<PAGE> 25
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.
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.
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
26
<PAGE> 26
interface and open system versions of its STAT2 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 plan.
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 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 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
increased salary, benefit and contract programmer costs associated with the
Company's software enhancement efforts.
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<PAGE> 27
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 nine quarters for the period ended March 31,
1997. 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 quarterly results of
operations are not necessarily indicative of future operating results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <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 $ 4,701
Systems.................. -- -- -- -- -- -- -- 459 982
Support and consulting
services............... 1,894 1,742 1,931 2,268 1,804 2,045 1,839 4,999 5,745
------ ------ ------ ------ ------ ------ ------ -------- -------
Total net revenues... 3,196 2,940 3,258 3,828 5,166 5,347 5,519 9,963 11,428
Costs and expenses:
Costs of information
services............... 589 556 637 847 1,812 1,792 1,954 2,700 3,067
Costs of systems......... -- -- -- -- -- -- -- 346 343
Costs of support and
consulting services.... 1,236 1,168 1,338 1,782 1,407 1,421 1,300 1,966 2,069
Selling, general and
administrative......... 693 654 750 999 1,138 1,164 1,354 3,381 3,293
Research and
development............ 656 619 709 945 1,114 1,234 1,333 1,996 1,539
Amortization and
depreciation........... -- -- -- -- 104 128 130 423 425
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 10,736
------ ------ ------ ------ ------ ------ ------ -------- -------
Income (loss) from
operations............... 22 (57) (176) (745) (409) (392) (552) (14,638) 692
Other income (expense):
Interest expense......... -- -- -- -- (4) (21) (27) (63) (77)
Interest and other
income................. -- -- -- -- 18 68 59 62 28
------ ------ ------ ------ ------ ------ ------ -------- -------
Net income (loss).... $ 22 $ (57) $ (176) $ (745) $ (395) $ (345) $ (520) $(14,639) $ 643
====== ====== ====== ====== ====== ====== ====== ======== =======
Net income (loss) per
share.............. $ 0.01 $(0.02) $(0.06) $(0.25) $(0.12) $(0.09) $(0.13) $ (2.47) $ 0.09
====== ====== ====== ====== ====== ====== ====== ======== =======
Weighted average common and
common equivalent
shares................... 2,995 2,995 2,995 2,995 3,284 3,959 3,959 5,926 7,364
</TABLE>
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<PAGE> 28
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 March 31,
1997.
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 March 31, 1997. On May 1, 1997, the Company used its $1 million restricted
cash to pay off $1 million of these borrowings. On June 6, 1997, the Company
established a new revolving credit facility and used $1.5 million under such
revolving credit facility to pay off the remaining $1.5 million owed under its
line of credit agreements established in January 1996. The maximum principal
amount under the new revolving credit facility must be equal to the lesser of $5
million or the "borrowing base" then in effect. 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 March 31, 1997, the Company
had cash and cash equivalents of $2.5 million.
The Company made capital expenditures (including capital leases) totaling
approximately $400,000 and $1.3 million during 1995 and 1996, respectively, and
approximately $100,000 during the three months ended March 31, 1997. 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 March 31, 1997, the Company had a working capital deficit of $1.8
million. The Company's current liabilities as of March 31, 1997 include customer
deposits of $1.5 million and unearned revenues of $2.4 million which will not
require the use of cash by the Company in the future.
The Company believes that the net proceeds from the Common Stock sold by
the Company in the offering, together with available funds and cash generated
from 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.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share," which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The restated basic and diluted earnings or
loss per share to be reported upon adoption of SFAS No. 128 will not differ from
amounts reported under existing accounting rules for all periods reported by the
Company through December 31, 1996. The Company has not evaluated the impact of
SFAS No. 128, if any, on the amounts reported as of March 31, 1997.
29
<PAGE> 29
BUSINESS
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 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,
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 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.
30
<PAGE> 30
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, HCFA, which administers
Medicare reimbursement for home health care, has been attempting to contain
these costs by a number of methods, including 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.
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 and 71% of net
revenues for the three months ended March 31, 1997. The Company also
attempts to maximize recurring revenue opportunities through a
combination of periodic system enhancements and comprehensive customer
service.
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<PAGE> 31
- 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 entered into a marketing agreement with 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 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
32
<PAGE> 32
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 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 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 systems and allows them to manage their financial,
operational and clinical data. Similar to the NAHC IS system, the STAT 2 system
allows a
33
<PAGE> 33
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 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 60 clinical pathways related to specific medical diagnoses. MAPP
will also generate cost data associated with clinical care, track outcomes
variances and record 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.
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<PAGE> 34
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 83 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.
Training: Training services are offered on a continuous 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
27 professionals with home health care industry specific experience. Consulting
engagements generally focus on:
<TABLE>
<S> <C> <C>
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
</TABLE>
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.
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<PAGE> 35
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 62
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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, 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:
<TABLE>
<S> <C>
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
</TABLE>
36
<PAGE> 36
SALES AND MARKETING
The Company markets its systems and services through a direct sales force
which consists of two national sales managers and 14 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 $4.8
million at March 31, 1997. 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 Resource 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
37
<PAGE> 37
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 66 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 $1.5 and $1.1 million for the three
months ended March 31, 1997 and 1996, respectively, and 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 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
38
<PAGE> 38
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.
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
39
<PAGE> 39
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 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 June 30, 1997, the Company employed approximately 306 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.
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
"Certain 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.
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. The
Company has received a notice from the Florida Department of Revenue ("DOR") in
connection with certain audit adjustments pertaining to sales and use taxes. The
Company is in communication with the DOR to reach agreement on any required
adjustments and believes that any such adjustments in the aggregate will not be
material nor will they have a material adverse effect on the Company's business,
financial condition or results of operations.
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<PAGE> 40
MANAGEMENT
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
James R. Henderson........................ 51 President, Chief Executive Officer 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).................... 40 Director
James A. Gilbert(2)....................... 48 Director
Richard D. Jackson(2)..................... 60 Director
Barrett C. O'Donnell(1)(2)................ 44 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Gary M. Bremer has served as Chairman of the Board of the Company since
October 8, 1996 and served as the Company's Chief Executive Officer from October
8, 1996 to April 10, 1997. Mr. Bremer has also served as the Chairman of the
Board and Chief Executive Officer of CHMS since September 1991. 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. Mr. Bremer
has 22 years of experience in the home health care industry.
James R. Henderson has served as Chief Executive Officer of the Company
since April 10, 1997 and has served as President of the Company since October 8,
1996. Mr. Henderson has also served as the President of CHMS since September
1996 and 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. Mr. Henderson has 29 years of experience in the
information services industry.
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 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.
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<PAGE> 41
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.
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.
James A. Gilbert has served as a director of the Company since May 21,
1997. Since September 1996, Mr. Gilbert has also served as President, Chief
Operating Officer and a director of IMNET Systems, Inc., a provider of
electronic information and document management systems to the health care
industry. From January 1995 to September 1996, Mr. Gilbert served as Senior Vice
President and General Counsel at HBO & Company, a health care information
company. From 1988 to December 1994, Mr. Gilbert held several other positions at
HBO & Company. Prior to 1988, Mr. Gilbert was a Partner with the Atlanta law
firm of Hansell & Post.
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.
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. Anantharaman and 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 5,000 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. See "-- Stock Plans -- Director
Option Plan."
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<PAGE> 42
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 amount paid to ODD by IMHI for consulting services totaled
$122,570, $155,901 and $157,064, including expenses, in the years ended December
31, 1994, 1995 and 1996, respectively. For the year ended December 31, 1996, the
Company paid $43,749, including expenses, for such consulting services. See
"Certain 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. However, EGL and the Company have agreed to terminate
this consulting agreement immediately prior to the consummation of this
offering. The fees were determined by negotiation between the parties. The
amount paid to EGL by IMHI under the consulting agreement totaled $44,530,
$64,868 and $49,346, including expenses, in the years ended December 31, 1994,
1995 and 1996, respectively. For the year ended December 31, 1996, the Company
paid $15,000, including expenses, under the consulting agreement. See "Certain
Transactions."
Prior to becoming a director of the Company, Mr. Jackson was paid an
aggregate of $11,000 for assistance with a series of strategic planning meetings
during the summer of 1996. See "Certain Transactions."
For a description of certain options granted to certain directors of the
Company, see "-- Grants of Stock Options." In addition to the option grants
described in such section, options for an aggregate of 83,019 shares of Common
Stock were granted to EGL by IMHI at an exercise price of $6.25 per share on
September 23, 1996. Mr. Anantharaman, a director of the Company, is a partner of
EGL. Additional options for 25,000 shares of Common Stock and 66,981 shares of
Common Stock were granted to ODD by IMHI at an exercise price of $7.00 per share
on August 28, 1996, and $6.25 per share on September 23, 1996, respectively. Mr.
O'Donnell, a director of the Company, is the Chairman of the Board, President
and Chief Executive Officer and a 75% stockholder of ODD.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's accounting
practices and financial results, consults with and reviews the services provided
by the Company's independent accountants and reviews and approves (with the
concurrence of a majority of the disinterested directors of the Company)
transactions, if any, with affiliated parties. The current members of the Audit
Committee are Messrs. Anantharaman and O'Donnell. The Compensation Committee
reviews and recommends to the Board of Directors the compensation and benefits
of all the executive officers of the Company, administers the Company's
compensation and benefit plans, and reviews general policies relating to
compensation and benefits of employees of the Company. The current members of
the Compensation Committee are Messrs. Gilbert, Jackson and O'Donnell.
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<PAGE> 43
EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth all compensation paid by IMHI and the
Company for the years ended December 31, 1996, 1995 and 1994 to the Chief
Executive Officer and to certain other most highly compensated executive
officers (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) --------------------
--------------------------- NUMBER OF SECURITIES ALL OTHER
SALARY BONUS UNDERLYING OPTION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) GRANTS(#) ($)
- --------------------------- ---- -------- -------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Gary M. Bremer..................... 1996 $340,000(3) $ 40,000 183,324 $ 8,656(4)
Chairman of the Board and 1995 -- -- -- --
former Chief Executive Officer(2) 1994 -- -- -- --
Barrett C. O'Donnell............... 1996 -- -- 91,981 186,533(6)
Former Chairman of the 1995 -- -- 45,000 111,103(6)
Board and Chief 1994 -- -- -- 120,170(6)
Executive Officer of IMHI(5)
James R. Henderson................. 1996 225,000(3) -- 202,526 --
President and Chief Executive 1995 -- -- -- --
Officer 1994 -- -- -- --
William J. Simione, Jr............. 1996 300,000(3) -- 60,557 --
Vice Chairman of the Board and 1995 -- -- -- --
Executive Vice President 1994 -- -- -- --
Gary W. Rasmussen.................. 1996 200,000(3) -- 24,773 4,344(4)
Chief Operating Officer 1995 -- -- -- --
1994 -- -- -- --
James A. Tramonte.................. 1996 150,000(3) -- 24,773 3,794(4)
General Counsel and 1995 -- -- -- --
Secretary 1994 -- -- -- --
Jay Shevins........................ 1996 173,891 -- -- 2,900(8)
Former Senior 1995 193,193 1,275 -- --
Vice President of IMHI(7) 1994 189,303 250 5,750 6,842(8)
</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 $50,000 or 10% of such officer's salary and bonus.
(2) Mr. Bremer served as Chief Executive Officer of the Company from October 8,
1996 until April 10, 1997.
(3) Represents the annualized salary the executive officer would have received
had he joined the Company on January 1, 1996. Messrs. Bremer, Henderson,
Simione, Rasmussen and Tramonte joined the Company on October 8, 1996. The
annualized salary set forth herein is based on payments made by the
Registrant from October 8, 1996 until December 31, 1996.
(4) Represents life insurance and disability insurance premium payments.
(5) Mr. O'Donnell served as Chairman of the Board and Chief Executive Officer of
IMHI until October 8, 1996.
(6) Represents amounts paid to ODD by IMHI and the Company for consulting and
investment advisory services. Mr. O'Donnell is the Chairman of the Board,
President and Chief Executive Officer and a 75% stockholder of ODD. See
"-- Director Compensation."
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<PAGE> 44
(7) Mr. Shevins served as Senior Vice President of IMHI until October 8, 1996.
Mr. Shevins continues to serve as Senior Vice President of InfoMed, Inc., a
subsidiary of the Company.
(8) Represents reimbursements for certain medical expenses.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options by IMHI and the Company to the Named
Executive Officers during the year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEE IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Bremer.............. 165,157 18.09% $ 3.16 1/18/06 $ 328,218 $ 831,768
18,167 1.99 5.00 9/04/06 57,126 144,768
Barrett C. O'Donnell........ 25,000 2.74 7.00 8/28/06 110,057 278,905
66,981 7.34 6.25 9/23/06 263,275 667,190
James R. Henderson.......... 27,526 3.02 5.00 9/04/06 86,555 219,347
175,000 19.17 10.50 10/08/06 1,155,594 2,928,502
William J. Simione, Jr...... 38,536 4.22 3.16 1/18/06 76,583 194,076
22,021 2.41 5.00 9/04/06 69,244 175,479
Gary W. Rasmussen........... 2,752 .30 3.16 1/18/06 5,469 13,860
22,021 2.41 5.00 9/04/06 69,244 175,479
James A. Tramonte........... 2,752 .30 3.16 1/18/06 5,469 13,860
22,021 2.41 5.00 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.
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<PAGE> 45
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............. -- $ -- 165,157 18,167 $ 902,583 $ 65,855
Barrett C. O'Donnell....... -- -- 252,581 -- 1,347,996 --
James R. Henderson......... -- -- -- 202,526 -- 99,782
William J. Simione, Jr..... -- -- 38,536 22,021 210,599 79,826
Gary W. Rasmussen.......... -- -- 2,752 22,021 15,040 79,826
James A. Tramonte.......... -- -- 2,752 22,021 15,040 79,826
Jay Shevins................ -- -- 7,110 -- 25,087 --
</TABLE>
- ------------------------------
(1) Dollar values were calculated by determining the difference between the fair
market value of the underlying securities at year-end ($8.625 per share) and
the exercise price of the options. Fair market value of the underlying
securities at year-end reflects the Stock Split and assumes that the fair
market value of such underlying securities would have in fact increased from
$4.3125 (actual) per share to $8.625 (adjusted) per share.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Gary M. Bremer, its
Chairman of the Board. 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.
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<PAGE> 46
STOCK PLANS
Director Option Plan. The Company maintains the Simione Central Holdings,
Inc. 1997 Non-Qualified Formula Stock Option Plan (the "Director Plan"). The
Board of Directors has reserved 25,000 shares of Common Stock for issuance
pursuant to awards that may be made under the Director 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 Director Plan.
The awards under the Director Plan are determined by the express terms of
the Director Plan. The Director Plan will be administered by a committee (the
"Committee"), the members of which are appointed by the Board of Directors. The
Committee will consist of at least one or more members of the Board of Directors
who will not receive a grant of an option under the Director Plan and who are
not currently eligible to receive a grant of an option under the Director Plan.
The members of the Committee are currently Mr. James R. Henderson and Mr.
William J. Simione, Jr. The Committee will have the authority in its sole
discretion to interpret the Director Plan, to grant options under and accordance
with the provisions of the Director Plan, and to make all other determinations
and to take all other actions it deems necessary or advisable for the
implementation and administration of the Director Plan.
Only nonemployee directors of the Company are eligible to participate in
the Director Plan. The Director Plan contemplates awards that are granted upon a
nonemployee director's initial appointment to the Board of Directors providing
an option to purchase 5,000 shares of Common Stock at a price per share exercise
price equal to the then fair market value of a share of Common Stock.
The Director Plan was effective on January 1, 1997 and will continue to be
effective until December 31, 2006, unless sooner terminated by the Board of
Directors.
The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are subject
to adjustment in the event of any recapitalization of the Company or similar
event, effective without receipt of consideration. The number of shares of stock
subject to options granted in connection with awards are also subject to
adjustment in such events. In the event of certain corporate reorganizations and
similar events, the options may be adjusted or, with regard to vested options,
cashed out depending upon the nature of the event. As of June 26, 1997, options
for 10,000 shares of Common Stock have been granted under the Director Plan.
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 528,504 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
47
<PAGE> 47
the date that the Option is awarded. The 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 January 11, 2006, 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 June 26, 1997,
528,211 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 100,000 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 25,000 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
48
<PAGE> 48
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 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, recapitalizations, 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) the provisions relating to adjustments
to be made upon changes in capitalization will be subject to stockholder
approval. As of June 26, 1997, options for 99,400 shares of Common Stock have
been granted under the 1994 Plan.
INCENTIVE PLAN
The Company maintains the Simione Central Holdings, Inc. Omnibus
Equity-based Incentive Plan (the "Incentive Plan"). The Incentive Plan provides
the Company with increased flexibility to grant equity-based compensation to key
employees, officers, directors, consultants and affiliates of the Company. The
Board of Directors has reserved 250,000 shares of Common Stock for issuance
pursuant to awards that may be made under the Incentive Plan, subject to
adjustment as provided therein. The number of shares of Common Stock associated
with any forfeited Stock Incentive (as defined below) are added back to the
number of shares that can be issued under the Incentive Plan.
The Incentive Plan was effective on March 26, 1997 and will continue to be
effective until terminated by the Board of Directors.
Awards under the Incentive Plan will be determined by the Compensation
Committee of the Board of Directors. The Incentive Plan permits the Compensation
Committee to make awards of a variety of equity-based incentives, including
stock awards, incentive stock options and non-qualified stock options to
purchase shares of Common Stock, stock appreciation rights, phantom shares,
performance unit appreciation rights and dividend equivalent rights
(collectively, "Stock Incentives").
Grants under the Incentive Plan are determined by the Compensation
Committee. Stock Incentives issuable may be made exercisable or settled at such
prices and may be made forfeitable or terminable under such terms as are
established by the Compensation Committee, to the extent not otherwise
inconsistent with the terms of the Incentive Plan. Each Stock Incentive will be
evidenced by a Stock Incentive Agreement or made subject to the terms of a Stock
Incentive Program, each containing terms and restrictions as the Compensation
Committee may deem appropriate. No participant, however, may be granted during
any one year period rights to shares of Common Stock under options and stock
appreciation rights which, in the aggregate, exceed 100,000 shares of Common
Stock.
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<PAGE> 49
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
Compensation Committee may permit an option exercise price to be paid in cash or
by the delivery of previously-owned shares of Common Stock, or to be satisfied
through a cashless exercise executed through a broker or by having a number of
shares of Common Stock otherwise issuable at the time of exercise withheld.
The term of an option will be specified in the applicable Stock Incentive
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 a Stock Incentive
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 will be
substituted for the three-month period.
Stock Incentives generally are not transferable or assignable during a
holder's lifetime. However, Stock Incentives may include exercise, conversion or
settlement rights to a holder's estate or personal representative in the event
of the holder's death or disability. At the Compensation Committee's discretion,
Stock Incentives that are subject to termination upon termination of employment
may be cancelled, accelerated, paid or continued, subject to the terms of the
applicable Stock Incentive Agreement and to the provisions of the Incentive
Plan.
The number of shares of Common Stock reserved for issuance in connection
with the grant or settlement of Stock Incentives or to which a Stock Incentive
is subject, as the case may be, and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company. In
the event of certain corporate reorganizations, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the
Compensation Committee, provided such adjustment is not inconsistent with the
terms of the Incentive Plan or any agreement reflecting the terms of a Stock
Incentive.
Although the Incentive Plan may be amended by the Board of Directors
without stockholder approval, the Board of Directors also may condition any such
amendment upon stockholder approval if stockholder approval is deemed necessary
or appropriate in consideration of tax, securities or other laws. No such action
by the Board of Directors may adversely affect the rights of a holder of a Stock
Incentive without the holder's consent.
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. 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 or more years,
(ii) commencing at the end of the sixth year following
50
<PAGE> 50
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 June 26, 1997, the
Profit Sharing Plan held 2,124,008 shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently comprised
of Messrs. James A. Gilbert, 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. Neither Mr. Gilbert nor Mr. Jackson
served 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 "Certain 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.
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<PAGE> 51
CERTAIN TRANSACTIONS
On March 31, 1994, IMHI sold $1.65 million of newly issued 10% Class A
Convertible Preferred Stock (the "Preferred Stock") through a private placement
to ODD and EGL. The financing included obtaining $1 million in cash from EGL and
the conversion of $650,000 of debt of IMHI held by ODD into the Preferred Stock.
The proceeds of the Preferred Stock were used, in part, to pay down $200,000 on
IMHI's line of credit which was guaranteed by ODD thereby reducing ODD's
obligations thereunder. In addition, the private placement included a commitment
from ODD and EGL to purchase, under certain circumstances, up to an additional
$1.5 million of the Preferred Stock to provide funding for acquisition purposes.
On February 24, 1995, IMHI sold $1,000,000 of newly issued Preferred Stock
through a private placement to ODD and EGL. The proceeds from the sale were used
for general working capital purposes except for $90,000 which was used to retire
amounts due to ODD. The Preferred Stock was entitled to annual dividends of no
less than the annual dividends declared for the common stock of IMHI plus 10%
per annum of the consideration received by IMHI for the issuance of the
Preferred Stock. Such dividends were payable in quarterly installments. The
number of shares of common stock of IMHI issuable upon conversion of the
Preferred Stock was determined by the original issue price of the Preferred
Stock divided by $2.00. In connection with the February 24, 1995 Preferred Stock
sale described above, EGL received 37,500 warrants to purchase 375,000 shares of
common stock of IMHI and ODD received 12,500 warrants to purchase 125,000 shares
of common stock of IMHI. Each warrant allowed for the purchase of 10 shares of
common stock of IMHI at a price of $1.00 per share. ODD owns 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
75% stockholder of ODD. Mr. Murali Anantharaman, a director of the Company, is a
partner in EGL.
On March 31, 1994, IMHI entered into a First Refusal Agreement with Mr.
Frederick Neufeld, ODD, EGL and Mercury Asset Management, PLC. The First Refusal
Agreement provided that if any such party desired to sell shares of the
Preferred Stock it must first offer the shares to IMHI and the other parties on
the same terms as those which it proposed to sell the stock and in accordance
with the procedures set forth in such agreement. This agreement was terminated
in connection with the IMHI Acquisition.
On February 28, 1995, IMHI entered into a settlement agreement with Mr.
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 34,000 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 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 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. 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
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<PAGE> 52
$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 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 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 at 5.05% per annum due on December 5, 1996. Each such
promissory note has been paid in full.
<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 $4.00 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,
officer and stockholder 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 483,550 shares of Common Stock, (ii) ODD received
approximately 265,350 shares of Common Stock, and (iii) Mr. Anantharaman
received approximately 1,000 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.
53
<PAGE> 53
On November 1, 1996, SCI entered into 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 of 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. See "Risk Factors -- Risks Related to the Columbia/HCA 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., a
subsidiary of the Company. 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 arrangements between the Company and
certain directors, see "Management -- Director Compensation."
54
<PAGE> 54
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information at June 26, 1997 and as adjusted
to reflect the sale of shares by the Company and the Selling Stockholder, 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, (iv) the Selling Stockholder, and (v) 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
SHARES BENEFICIALLY OWNED NUMBER AFTER THE OFFERING
NAME AND ADDRESS ------------------------- OF SHARES ----------------------
OF BENEFICIAL OWNER NUMBER(1) PERCENT(2) OFFERED NUMBER(1) PERCENT(2)
------------------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Simione Central Holdings, Inc........... 2,124,008 34.8% 800,000 1,324,008 16.3%
Profit Sharing Plan Trust
c/o Trust Company of Knoxville, Inc.
620 Market Street, Suite 300
Knoxville, TN 37902
O'Donnell Davis, Inc.(3) ............... 1,124,473 17.3 -- 1,124,473 13.2
P.O. Box 7395
Princeton, NJ 08543
Barrett C. O'Donnell(4)................. 1,124,473 17.3 -- 1,124,473 13.2
P.O. Box 7395
Princeton, NJ 08543
Murali Anantharaman(5).................. 957,639 14.7 -- 957,639 11.2
2830 Shurburne Drive
Alpharetta, GA 30301
Gary M. Bremer(6)....................... 877,901 14.0 -- 877,901 10.6
6600 Powers Ferry Road
Atlanta, GA 30339
Rowan Nominees Limited(7)............... 884,873 13.7 -- 884,873 10.5
33 King William Street
London, EC4R 9AS
Howard B. Krone......................... 440,622 7.2 -- 440,622 5.4
3633 Tuxedo Road
Atlanta, GA 30305
William J. Simione, Jr.(8).............. 117,408 1.9 -- 117,408 1.4
James R. Henderson...................... 15,774 * -- 15,774 *
Gary W. Rasmussen(9).................... 35,136 * -- 35,136 *
James A. Tramonte(10)................... 20,368 * -- 20,368 *
James A. Gilbert........................ 2,500 * -- 2,500 *
Richard D. Jackson...................... -- -- -- -- --
Jay Shevins(11)......................... 32,130 * -- 32,130 *
All directors and executive officers as
a group (10 persons).................. 3,154,903 44.4 -- 3,154,903 34.6
</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
55
<PAGE> 55
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 June 26, 1997.
(2) Percentages were calculated based on the ratio of the number of shares of
Common Stock beneficially owned by such beneficial owner as of June 26,
1997 to the sum of (a) the total number of outstanding shares of Common
Stock as of June 26, 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 June 26, 1997.
(3) Includes 135,000 shares issuable upon exercise of warrants and 252,581
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 2,964 shares as to which Mr. Anantharaman has sole voting power,
19,802 shares issuable upon exercise of options, 544,097 shares related to
Rowan Nominees Limited ("Rowan"), 50,000 shares issuable upon exercise of
warrants related to EGL, 309,833 shares issuable upon exercise of warrants
related to Rowan, and 30,943 shares issuable upon exercise of options
related to Rowan.
(6) Includes 165,157 shares issuable upon exercise of options. Excludes any
interest Mr. Bremer has in the Profit Sharing Plan.
(7) Includes 309,833 shares issuable upon exercise of warrants and 30,943
shares issuable upon exercise of options.
(8) Includes 38,536 shares issuable upon exercise of options.
(9) Includes 2,752 shares issuable upon the exercise of options. Excludes any
interest Mr. Rasmussen has in the Profit Sharing Plan.
(10) Includes 2,752 shares issuable upon the exercise of options. Excludes any
interest Mr. Tramonte has in the Profit Sharing Plan.
(11) Includes 7,110 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 "Certain Transactions."
56
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares,
of which 20,000,000 shares have been designated Common Stock, par value $0.001
per share, and 10,000,000 shares have been designated Preferred Stock, par value
$0.001 per share. As of June 26, 1997 there were 6,106,367 shares of Common
Stock outstanding, held by 127 stockholders of record. In addition, there are
1,903,616 shares of Common Stock issuable pursuant to outstanding stock options
and warrants to purchase such shares. The following summary description of the
capital stock of the Company is also qualified in its entirety by reference to
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended and restated (the "Bylaws"), which have
been incorporated by reference as exhibits to the Registration Statement.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders and to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor,
subject to preferences that may be applicable to any outstanding Preferred
Stock. In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All of the outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable. The rights,
privileges and preferences of Common Stock are subject to, and could be
adversely affected by, the issuance of Preferred Stock.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Board of Directors has
the authority to issue up to 10,000,000 shares of Preferred Stock in one or more
classes or series. Within the limitations established by law, the Board of
Directors is authorized to fix or alter the dividends rights, dividend rates,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences, conversion rights, voting rights and
other rights of any unissued shares of Preferred Stock, and to fix and amend the
number of shares constituting any issued or unissued series and the designation
thereof, or any of the foregoing. The issuance of Preferred Stock in certain
circumstances may have the effect of delaying, deterring or preventing a change
in control of the Company, may discourage bids for the Company's Common Stock at
a premium over the market price of the Common Stock and may adversely affect the
market price of, and the voting and other rights of the holders of, the Common
Stock. The Company currently has no shares of Preferred Stock outstanding and no
plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CERTIFICATE AND BYLAW PROVISIONS
The Company has expressly elected not to be subject to the provisions of
Section 203 of the General Corporation Law of Delaware which governs certain
"business combinations" and which could prohibit or delay a merger, takeover or
other change in control of the Company. The Company's Bylaws, however, provide
that special meetings of the stockholders may only be called by the President of
the Company or by the Board of Directors. The General Corporation Law of
Delaware further provides that in order for any matter to be presented at a
special meeting of the stockholders, such matter must be included in the advance
notice to the stockholders. The foregoing provisions could have the effect of
delaying until the next stockholders' meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company.
57
<PAGE> 57
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law or
transactions in which the director derived an improper personal benefit.
Further, the Bylaws contain provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
REGISTRATION RIGHTS
Holders of approximately 4,771,500 shares of Common Stock and warrants and
options to purchase 1,913,258 shares of Common Stock have certain demand or
piggyback registration rights, subject to certain conditions and limitations.
Holders of demand registration rights (the "Demand Rights Holders") are entitled
to require the Company to register all or part of their respective shares for
public resale up to two times with respect to all Demand Right Holders excluding
the Profit Sharing Plan, and up to three times with respect to the Profit
Sharing Plan, but in no event more than three times collectively, subject to
certain conditions and limitations, whether or not the Company proposes to
register its Common Stock for sale. The rights of the Demand Rights Holders are
provided under the terms of a Registration Rights Agreement between the Company
and certain of the holders of registrable shares. The Company is obligated,
within 45 days after it becomes eligible for use of certain registration
statement forms that permit filings made by the Company under the Exchange Act
to be incorporated by reference, to file and seek to maintain a "shelf"
registration permitting resales of such shares from time to time subject to
certain limitations. In connection with these registrations, the Company is
obligated to pay all of the expenses of such registrations, other than
underwriters' and brokers' discounts and commissions. In addition, the Company
will, subject to certain limitations, indemnify any selling stockholder from and
against any liabilities arising under the Securities Act in connection with such
registrations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Company's Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
58
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of this
offering, the Company will have 8,106,367 shares of Common Stock outstanding
(assuming no exercise of outstanding stock options and warrants or the exercise
of the Underwriters' over-allotment option). In addition, outstanding stock
options and warrants to acquire 1,401,327 shares of Common Stock are immediately
exercisable as of June 26, 1997. Of the 8,106,367 shares to be outstanding upon
completion of this offering, approximately 2,103,470 shares outstanding as of
June 26, 1997 and the 2,800,000 shares sold in this offering will be freely
transferable without restriction under the Securities Act, except for any shares
held by or for the account of an "affiliate" of the Company, as that term is
defined in Rule 144 promulgated under the Securities Act, or by an individual or
entity subject to a contractual restriction on resale. Approximately 3,202,897
of the remaining shares of Common Stock are held by existing stockholders and
are "restricted securities" as that term is defined in Rule 144 ("Restricted
Securities"). Approximately 3,158,356 shares of the Restricted Securities will
become eligible for sale on October 9, 1997, subject to compliance with the
volume limitations and other restrictions of Rule 144 and subject to the
expiration of the Lock-Up Agreement beginning 90 days after the date of this
Prospectus.
The executive officers and directors of the Company, the Selling
Stockholder and certain other stockholders, who in the aggregate will
beneficially hold 4,919,533 shares of Common Stock after this offering (assuming
no exercise of the Underwriters' over-allotment option), have agreed not to
offer, sell or otherwise dispose of Common Stock during the 90-day period
following the date of this Prospectus without the prior written consent of
Hambrecht & Quist LLC (the "Lock-Up Agreement"). The Company has also agreed not
to offer, sell, grant any option to purchase or otherwise dispose of any shares
of Common Stock, except issuances under the Company's outstanding stock option
plans and warrants, for a period of 90 days after the date of this Prospectus,
without the prior written consent of Hambrecht & Quist LLC.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the meaning
of Rule 144 for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) 1% of the
then outstanding shares of the Company's Common Stock (approximately 81,063
shares immediately after the offering); or (ii) the average weekly trading
volume of the Company's Common Stock in the applicable market during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission, or if no notice is required, the date of receipt of the order to
execute the transaction. Sales under Rule 144 are also subject to certain manner
of sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who owns Restricted Securities
that were purchased from the Company (or any affiliate) at least two years
previously, is entitled to sell such shares under Rule 144(k) (subject to the
foregoing Lock-Up Agreement, if applicable) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
A total of approximately 1,607,830 shares of Common Stock are reserved for
issuance under the Company's stock option plans and individual stock option
grants, of which approximately 1,341,937 options were issued and outstanding as
of June 26, 1997. The Company has filed a registration statement on Form S-8
under the Securities Act covering 100,000 shares of Common Stock reserved for
issuance under the 1994 Plan. See "Management -- Stock Plans." A total of
561,679 shares are also reserved for issuance upon the exercise of outstanding
warrants.
The Company intends to file a registration statement on Form S-8 to
register the Common Stock reserved for issuance under the Company's other stock
option plans (the "Plans"). Shares of Common Stock issued under any of the Plans
after the effective date of a registration statement registering Common Stock
issued or issuable under a Plan, and Common Stock outstanding under such Plan,
will
59
<PAGE> 59
be eligible for resale in the open market, except for shares held by affiliates
and shares subject to any contractual restrictions including any applicable
Lock-up Agreement.
In addition, the Profit Sharing Plan will own 1,324,008 shares of Common
Stock after this offering (assuming no exercise of the Underwriters'
over-allotment option). Prior to the adoption of the Profit Sharing Plan by the
Company, CHHC was the sponsor of the Profit Sharing Plan. 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. Also, former employees of CHHC previously employed
by the Company who terminated employment with the Company during 1996 are also
entitled to distributions from the Profit Sharing Plan. 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 or more 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. Distributions will generally be made as soon as administratively
feasible after the end of the year following termination of employment, but may
be delayed pending the Profit Sharing Plan's receipt from the Internal Revenue
Service of a determination that the Profit Sharing Plan continues to comply with
the requirements for tax qualification under the Internal Revenue Code of 1986,
as amended. The Company does not anticipate that distributions of Common Stock
will be made to eligible terminated participants prior to the third quarter of
1997. Sales of Common Stock by the Profit Sharing Plan or participants could
have a material adverse effect on the market price of the Common Stock.
The Company has granted registration rights to certain of its stockholders.
See "Description of Capital Stock -- Registration Rights."
60
<PAGE> 60
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
Hambrecht & Quist LLC, Jefferies & Company, Inc. and The Robinson-Humphrey
Company, Inc. (the "Underwriters"), have severally agreed to purchase from the
Company and the Selling Stockholder the following respective numbers of shares
of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC....................................... 1,260,000
Jefferies & Company, Inc.................................... 770,000
The Robinson-Humphrey Company, Inc. ........................ 770,000
---------
Total............................................. 2,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and the Selling
Stockholder, their counsel and the Company's independent auditors. The nature of
the Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
In connection with past services provided by Jefferies & Company, Inc.
("Jefferies") to the Company, on October 8, 1996 the Company granted Jefferies a
warrant to purchase shares of Common Stock. Pursuant to the terms of such
warrant, as of April 10, 1997, Jefferies has the right to purchase 51,679 shares
of Common Stock at an exercise price of $6.23 per share. The warrant expires on
October 8, 1999.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $.35 per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $.10 per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may be
changed by the Underwriters. The Underwriters have informed the Company that the
Underwriters do not intend to confirm sales of accounts over which they exercise
discretionary authority.
The Selling Stockholder has granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 420,000 additional shares of Common Stock, at the public offering
price, less the underwriting discount, set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise this option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
it shown in the above table bears to the total number of shares of Common Stock
offered hereby. Such Selling Stockholder will be obligated, pursuant to the
option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
Certain stockholders of the Company, including the Selling Stockholder and
the directors and executive officers of the Company, who will own in the
aggregate 4,919,533 shares of Common Stock after this offering (assuming no
exercise of the Underwriters' over-allotment option), have agreed,
61
<PAGE> 61
subject to certain exceptions, not to offer, sell or otherwise dispose of any
shares of Common Stock beneficially owned by them during the 90-day period
following the date of this Prospectus without the prior approval of Hambrecht &
Quist LLC. In addition, the Company has agreed not to offer, sell, grant any
option to purchase or otherwise dispose of any shares of Common Stock during the
90-day period after the date of this Prospectus without the prior approval of
Hambrecht & Quist LLC, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its current stock option plans and under
currently outstanding options and warrants and may issue shares of Common Stock
in connection with certain acquisition transactions, provided such shares are
subject to the 90-day Lock-Up Agreement. Sales of such shares in the future
could adversely affect the market price of the Common Stock. Hambrecht & Quist
LLC may, in its sole discretion, release any of the shares subject to the
Lock-Up Agreements at any time without notice.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
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<PAGE> 62
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company and the Selling Stockholder by Powell, Goldstein, Frazer &
Murphy LLP, Atlanta, Georgia. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts.
CHANGE IN ACCOUNTANTS
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 for 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.
EXPERTS
The financial statements of the Company for the years ended December 31,
1994, 1995 and 1996 included in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing. The financial
statements of IMHI for the fiscal years ended June 30, 1994, 1995 and 1996
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report. The financial
statements in connection with Simione & Simione, CPAs -- Consulting Division (a
Division of Simione & Simione, CPAs, a Partnership) for the fiscal years ended
December 31, 1994 and 1995 have been included in reliance on the reports of
McGladrey & Pullen, LLP, independent auditors, given on the authority of that
firm as experts in accounting and auditing.
63
<PAGE> 63
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission in accordance with the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at its
principal office in Washington, D.C. at prescribed rates. Such reports, proxy
statements and other information concerning the Company can be inspected at the
offices of the National Association of Securities Dealers, Inc., Reports
Section, at 1735 K Street, N.W., Washington, D.C. 20006. The Commission
maintains a World Wide Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with any amendments or supplements thereto, the "Registration
Statement") relating to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete, and
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission.
64
<PAGE> 64
SIMIONE CENTRAL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF SIMIONE CENTRAL
HOLDINGS, INC.
Unaudited Consolidated Balance Sheet as of March 31, 1997... F-2
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1997................ F-3
Unaudited Consolidated Statement of Shareholders' Equity for
the Three Months Ended March 31, 1997..................... F-4
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1997................ F-5
Notes to Unaudited Consolidated Financial Statements........ F-6
Report of Independent Auditors.............................. F-11
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-12
Consolidated Statements of Operations for the Three Years
Ended December 31, 1996................................... F-13
Consolidated Statements of Shareholders' Equity (Deficit)
for the Three Years Ended December 31, 1996............... F-14
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1996................................... F-15
Notes to Consolidated Financial Statements.................. F-16
CONSOLIDATED FINANCIAL STATEMENTS OF INFOMED HOLDINGS, INC.
Report of Independent Public Accountants.................... F-29
Consolidated Balance Sheets as of June 30, 1995 and 1996 and
September 30, 1996 (Unaudited)............................ F-30
Consolidated Statements of Operations for the Three Years
Ended June 30, 1996 and Three-Month Periods Ended
September 30, 1995 and 1996 (Unaudited)................... F-31
Consolidated Statements of Stockholders' Equity (Deficit)
for the Three Years Ended June 30, 1996................... F-32
Consolidated Statements of Cash Flows for the Three Years
Ended June 30, 1996 and Three-Month Periods Ended
September 30, 1995 and 1996 (Unaudited)................... F-33
Notes to Consolidated Financial Statements.................. F-34
FINANCIAL STATEMENTS OF SIMIONE & SIMIONE, CPAS --CONSULTING
DIVISION (A DIVISION OF SIMIONE & SIMIONE, CPAS, A
PARTNERSHIP)
Independent Auditor's Report................................ F-42
Statements of Net Assets as of December 31, 1994 and 1995... F-43
Statements of Divisional Operations for the Two Years Ended
December 31, 1995......................................... F-44
Statements of Divisional Equity for the Two Years Ended
December 31, 1995......................................... F-45
Statements of Divisional Cash Flows for the Two Years Ended
December 31, 1995......................................... F-46
Notes to Financial Statements............................... F-47
</TABLE>
F-1
<PAGE> 65
SIMIONE CENTRAL HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,532,923
Restricted cash........................................... 1,000,000
Accounts receivable, net of allowance for doubtful
accounts of $1,114,937................................. 6,842,444
Prepaid expenses and other current assets................. 583,636
------------
Total current assets.............................. 10,959,003
Purchased software, furniture and equipment, net............ 1,787,101
Intangible assets, net...................................... 5,679,334
Other assets................................................ 107,069
------------
Total assets...................................... $ 18,532,507
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit........................................... $ 2,500,000
Accounts payable.......................................... 2,167,231
Accrued compensation expense.............................. 944,821
Accrued liabilities....................................... 2,920,426
Customer deposits......................................... 1,548,295
Unearned revenues......................................... 2,374,496
Current portion of capital lease obligations.............. 301,651
------------
Total current liabilities......................... 12,756,920
Capital lease obligations, less current portion............. 406,214
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized; none issued or outstanding................. --
Common stock, 20,000,000 $.001 par shares authorized;
5,986,117 shares issued and outstanding................ 5,986
Additional paid-in capital................................ 23,262,557
Stock subscription receivable............................. (850,000)
Accumulated deficit....................................... (17,049,170)
------------
Total shareholders' equity........................ 5,369,373
------------
Total liabilities and shareholders' equity........ $ 18,532,507
============
</TABLE>
See notes to unaudited consolidated financial statements
F-2
<PAGE> 66
SIMIONE CENTRAL HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Net revenues:
Information services...................................... $3,361,878 $ 4,700,969
Systems................................................... -- 981,473
Support and consulting services........................... 1,804,225 5,745,479
---------- -----------
Total net revenues................................ 5,166,103 11,427,921
Costs and expenses:
Cost of information services.............................. 1,812,488 3,066,551
Cost of systems........................................... -- 343,443
Cost of support and consulting services................... 1,406,838 2,068,597
Selling, general and administrative....................... 1,137,794 3,293,405
Research and development.................................. 1,113,840 1,539,478
Amortization and depreciation............................. 104,535 424,472
---------- -----------
Total costs and expenses.......................... 5,575,495 10,735,946
---------- -----------
Income (loss) from operations............................. (409,392) 691,975
Other income (expense):
Interest expense.......................................... (3,900) (76,753)
Interest and other income................................. 18,491 27,912
---------- -----------
Net income (loss)........................................... $ (394,801) $ 643,134
========== ===========
Net income (loss) per share................................. $ (0.12) $ 0.09
========== ===========
Weighted average common and common equivalent shares........ 3,284,181 7,363,757
========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
F-3
<PAGE> 67
SIMIONE CENTRAL HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON PAID-IN SUBSCRIPTION ACCUMULATED
SHARES STOCK CAPITAL RECEIVABLE DEFICIT
--------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... 5,952,166 $5,952 $23,216,050 $(850,000) $(17,692,304)
Issuance of 33,951 shares of $.001
par value common stock from
exercise of stock options.......... 33,951 34 46,507 -- --
Net income........................... -- -- -- -- 643,134
--------- ------ ----------- --------- ------------
Balance at March 31, 1997............ 5,986,117 $5,986 $23,262,557 $(850,000) $(17,049,170)
========= ====== =========== ========= ============
</TABLE>
See notes to unaudited consolidated financial statements
F-4
<PAGE> 68
SIMIONE CENTRAL HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (394,801) $ 643,134
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Provision for doubtful accounts........................... 15,104 269,748
Amortization and depreciation............................. 104,535 424,472
Loss on sale of assets.................................... -- 1,734
Changes in assets and liabilities:
Accounts receivable....................................... (2,082,473) (1,434,085)
Prepaid expenses and other current assets................. (144,855) 287,093
Other assets.............................................. -- (29,013)
Accounts payable.......................................... 1,121,639 (1,032,122)
Accrued compensation expense.............................. 289,045 278,171
Accrued liabilities....................................... 46,080 (302,508)
Customer deposits......................................... -- (131,270)
Unearned revenues......................................... 199,706 368,452
----------- -----------
Net cash used in operating activities............. (846,020) (656,194)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of consulting division of Simione & Simione...... (2,000,000) --
Purchase of software, furniture and equipment............. (11,504) (130,225)
Increase in restricted cash............................... (1,000,000) --
Purchase of intangible assets............................. (44,124) --
----------- -----------
Net cash used in investing activities............. (3,055,628) (130,225)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former parent company........... 4,000,000 --
Proceeds from notes payable............................... 625,000 200
Cash expenses for issuance of common stock................ (5,548) --
Advances from former parent company....................... 12,121 --
Principal payments on capital lease obligations........... -- (83,425)
Payments of related party notes........................... -- (28,702)
Proceeds from exercise of stock options and warrants...... -- 46,541
----------- -----------
Net cash provided by (used in) financing
activities...................................... 4,631,573 (65,386)
----------- -----------
Net (decrease) increase in cash and cash
equivalents..................................... 729,925 (851,805)
Cash and cash equivalents, beginning of period.............. 323,023 3,384,728
----------- -----------
Cash and cash equivalents, end of period.................... $ 1,052,948 $ 2,532,923
=========== ===========
Supplemental disclosure of non-cash investing activities
Software, furniture and equipment obtained through capital
leases................................................. $ -- $ 12,180
</TABLE>
See notes to unaudited consolidated financial statements
F-5
<PAGE> 69
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the Company and
are unaudited. In the opinion of management, all adjustments (which consist of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Interim results are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
Certain financial information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
as of December 31, 1996, appearing in the Company's Annual Report on Form 10-K.
On October 8, 1996, InfoMed Holdings, Inc. ("IMHI") and Central Health
Management Services, Inc. ("CHMS") merged in a transaction accounted for as a
reverse acquisition for financial reporting purposes. In connection with the
acquisition, IMHI issued 3,958,356 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").
DESCRIPTION OF BUSINESS
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 realtime, 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 collection, training, reimbursement and financial
management services, among others.
NOTE 2 -- ACQUISITION
On October 8, 1996, IMHI merged with CHMS. In connection with the merger,
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. All share amounts have been retroactively restated giving effect
to the .22021 exchange ratio of CHMS shares for IMHI shares.
The merger was accounted for as a reverse acquisition for financial
reporting purposes. 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
F-6
<PAGE> 70
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
effective acquisition date. CHMS had been on a December 31 fiscal year end, and
therefore, the fiscal year end of IMHI was changed from June 30 to December 31.
Unaudited pro forma information giving effect to the acquisition as if it
took place on January 1, 1996 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
------------------
<S> <C>
Net revenues................................................ $ 8,135,000
Net loss.................................................... $(12,883,000)
Net loss per share.......................................... $ (2.46)
Weighted average common shares.............................. 5,232,533
</TABLE>
The 1996 pro forma net loss includes pro forma adjustments for a
$12,574,000 charge to operations for purchased in-process research and
development costs, and a net charge of $149,000 for additional amortization
expense related to the allocation of purchase price to intangible assets and for
decreased depreciation expense related to a reduction in value of fixed assets
acquired. This pro forma information does not purport to be indicative of the
results that actually would have occurred if the acquisition had been effective
on the date indicated.
NOTE 3 -- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
At March 31, 1997, a wholly-owned subsidiary of the Company has 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
$2,500,000 at March 31, 1997, 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.
As a result of the January 17, 1998 expiration date on the line of credit
agreements, the line of credit agreements and the related certificate of deposit
were presented as long-term liabilities and a long-term asset at December 31,
1996 and as current liabilities and a current asset at March 31, 1997.
The Company has lease agreements with a related party (see Note 7) for
certain office and computer equipment and furniture with approximate aggregate
cost and net book value of $669,000 and $552,000, respectively, as of March 31,
1997. Additionally, the Company has other equipment under capital leases with
approximate aggregate cost and net book value of $139,000 and $104,000,
respectively, at March 31, 1997. Amortization of these assets is included in the
Company's depreciation expense and amounted to approximately $71,000 for the
three months ended March 31, 1997.
NOTE 4 -- INCOME TAXES
At December 31, 1996, the Company had approximately $5,975,000 of net
operating losses ("NOL") 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. For the three
months ended March 31, 1997, the Company has applied a portion of this NOL
against income tax expense for financial reporting purposes. 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 March 31, 1997.
F-7
<PAGE> 71
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- SHAREHOLDERS' EQUITY
On March 26, 1997, the Company's Board of Directors approved the Omnibus
Equity-Based Incentive Plan (the "Incentive Plan") and the 1997 Non-Qualified
Formula Stock Option Plan (the "Director Plan"), both of which are subject to
shareholder approval. The Company has reserved 250,000 and 25,000 shares of
common stock for future issuance under the Incentive Plan and Director Plan,
respectively.
In addition, 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 628,504 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.
A summary of the Company's stock option activity for the three months ended
March 31, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1996............................ 1,406,637 $ 4.58
Granted................................................... 77,000 11.74
Exercised................................................. (33,951) 1.38
---------
Outstanding at March 31, 1997............................... 1,449,686 $ 5.06
=========
</TABLE>
The following table summarizes information about options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
- ------------- ----------- ----------- -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$0.74 - $2.26 387,077 4.8 $1.38 387,077 $1.38
3.00 - 5.26 565,611 8.7 3.90 356,968 3.26
6.26 - 14.00 496,998 8.6 9.26 182,498 6.62
--------- -------
1,449,686 7.7 $5.06 926,543 $3.14
========= =======
</TABLE>
Pro forma information regarding net income (loss) and net income (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
of options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for the three
months ended March 31, 1997: 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 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 the three months ended March 31, 1996 and 1997 was $0.72 and $6.70,
respectively.
F-8
<PAGE> 72
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 SFAS No. 123 pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
The Company's pro forma net income (loss) for SFAS No. 123 purposes for the
three months ended March 31, 1996 and 1997 was approximately $(600,000) and
$500,000, respectively. The Company's pro forma net income (loss) per share for
SFAS No. 123 purposes for the three months ended March 31, 1996 and 1997 was
$(0.18) and $0.08, respectively.
At March 31, 1997, 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>
500,000 $ 1.00 February 24, 2005
77,519 6.22 October 8, 1999
10,000 11.26 --
- -------
587,519
=======
</TABLE>
All outstanding warrants are exercisable. On April 9, 1997, the warrant to
purchase 77,519 shares was reduced to 51,679 shares.
At March 31, 1997, the Company has reserved 2,308,099 shares of common
stock for future issuance upon exercise of warrants and options to purchase
common stock.
NOTE 6 -- MAJOR CUSTOMERS AND TRANSACTIONS WITH FORMER PARENT COMPANY
For the three months ended March 31, 1997, affiliates of the Columbia/HCA
Healthcare Corporation accounted for approximately 53.8% of the Company's total
net revenue and for 31.4% of net accounts receivable at March 31, 1997.
Through October 31, 1996, the Company derived revenue from charges for the
services provided to the home health care agencies wholly-owned by the Company's
former parent, Central Health Holding Company, Inc. ("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. Cost-based revenues from CHHC of $3,562,000, or 69.0% of total
net revenues, were recognized for the three months ended March 31, 1996. In
addition, CHHC charged the Company a management fee for certain services
provided to the Company based on the allocated direct cost of the various
services provided. Management fees in the amount of $58,000 were incurred for
the three months ended March 31, 1996.
NOTE 7 -- RELATED PARTY TRANSACTIONS
Gateway LLC, a company owned in part by a member of the Company's Board of
Directors, 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 were $84,000 for the three months ended March 31,
1997.
F-9
<PAGE> 73
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). The Company has entered into various three-year capital leases for
furniture and equipment with National. Total payments to National under these
lease agreements were $78,000 for the three months ended March 31, 1997.
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 $6,500 per month through April 1996 and $10,800 per month thereafter. Rent
expense and related operating expenses paid to this entity were $19,000 and
$32,000 for the three months ended March 31, 1996 and 1997, respectively.
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 were approximately $50,000 for the three months
ended March 31, 1997.
NOTE 8 -- RECENTLY ADOPTED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The restated basic and diluted earnings or
loss per share to be reported upon adoption of SFAS No. 128 will not differ from
amounts reported under existing accounting rules for all periods reported by the
Company through December 31, 1996. The Company has not evaluated the impact of
SFAS No. 128, if any, on the amounts reported as of March 31, 1997.
NOTE 9 -- SUBSEQUENT EVENTS
On April 21, 1997, the Company filed a Registration Statement with the
Securities and Exchange Commission on Form S-1. In conjunction with the
Registration Statement, the Company has proposed a one-for-two reverse stock
split of the Company's outstanding common stock which is subject to shareholder
approval and would be effected on the date of the effectiveness of the
Registration Statement. The Company is proposing in the Registration Statement
to offer for sale 2,000,000 shares of its common stock and which would also
provide for the sale of 800,000 shares owned by a shareholder. The Company will
not receive any of the proceeds from the sale of shares by the selling
shareholder.
All share and per share amounts included in these financial statements have
been restated to reflect the proposed reverse stock split for the periods
presented.
In addition, on May 1, 1997, the Company redeemed its $1 million
certificate of deposit to pay the borrowings outstanding under its $1 million
line of credit. The line of credit was secured by the certificate of deposit
which was reported as restricted cash.
F-10
<PAGE> 74
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. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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.
ERNST & YOUNG LLP
Atlanta, Georgia
March 21, 1997, except for Note 16, as
to which the date is
June 30, 1997
F-11
<PAGE> 75
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; 11 and 5,952,166 shares issued and
outstanding at December 31, 1995 and 1996,
respectively........................................... 2,443,013 5,952
Additional paid-in capital................................ -- 23,216,050
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-12
<PAGE> 76
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..................................... $ (0.24) $ (0.32) $ (3.71)
=========== =========== ============
Weighted average common shares......................... 2,994,856 2,994,856 4,287,956
=========== =========== ============
</TABLE>
See notes to consolidated financial statements
F-13
<PAGE> 77
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....................... 11 $ -- $ -- $ -- $ (129,668)
Net loss................... -- -- -- -- (707,614)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1994....................... 11 -- -- -- (837,282)
Capital contribution from
former parent company... -- 2,443,013 -- -- --
Net loss................... -- -- -- -- (956,125)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1995....................... 11 2,443,013 -- -- (1,793,407)
Capital contribution from
former parent company... -- 4,000,000 -- -- --
Distribution of 2,994,856
shares of no par common
stock and cancellation
of 11 shares of common
stock held by CHHC...... 2,994,845 -- -- -- --
Issuance of 964,418 shares
of no par Class A common
stock................... 964,418 3,051,369 -- (850,000) --
Purchase and cancellation
of 918 shares of no par
Class A common stock not
exchanged in reverse
acquisition............. (918) (9,866) -- -- --
Exchange of 3,958,356
shares of no par Class A
and B common stock for
3,958,356 shares of IMHI
$.001 par value common
stock................... -- (9,480,558) 9,480,558 -- --
Issuance of 1,949,269
shares of IMHI $.001 par
value common stock for
purchase of IMHI in
reverse acquisition..... 1,949,269 1,949 13,514,288 -- --
Issuance of 44,541 shares
of $.001 par value
common stock as
compensation and from
exercise of stock
options and warrants.... 44,541 45 221,204 -- --
Net loss................... -- -- -- -- (15,898,897)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1996....................... 5,952,166 $ 5,952 $23,216,050 $(850,000) $(17,692,304)
========== =========== =========== ========= ============
</TABLE>
See notes to consolidated financial statements
F-14
<PAGE> 78
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-15
<PAGE> 79
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 3,958,356 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.
F-16
<PAGE> 80
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 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, ratably 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.
F-17
<PAGE> 81
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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 2,994,856 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.
F-18
<PAGE> 82
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 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 3,958,356 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 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 1,949,269 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
F-19
<PAGE> 83
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- CONTINUED
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.
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......................................... (3.80) (0.56)
</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-20
<PAGE> 84
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
F-21
<PAGE> 85
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OPERATING LEASES -- CONTINUED
approximately $1,569,000, $1,554,000 and $3,699,000 for the years ended December
31, 1994, 1995, 1996, respectively.
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 the 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 amounts accrued on CHHC's closing balance
sheet at the time of sale and 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.
F-22
<PAGE> 86
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES -- CONTINUED
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.
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-23
<PAGE> 87
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 2,994,856 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 11 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
F-24
<PAGE> 88
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
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.
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 964,418 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 4,771,500 shares of common stock and warrants and
options to purchase 1,905,758 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 2,067,049 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 628,504 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..................................................... 751,260 $6.08
Assumed in IMHI purchase.................................... 722,174 2.90
Exercised................................................... (26,748) 1.04
Forfeited................................................... (40,049) 5.00
---------
Outstanding at December 31, 1996............................ 1,406,637 $4.58
=========
</TABLE>
F-25
<PAGE> 89
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>
$0.74 -- $2.26........................... 417,028 5.4 $1.34 417,028 $1.34
3.00 -- 5.26........................... 569,611 9.5 3.90 360,968 3.26
6.26 -- 10.50........................... 419,998 9.9 8.72 182,498 6.42
--------- ---------
1,406,637 8.4 $4.58 960,494 $3.02
========= =========
</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 $1.80.
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 $(4.08), 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>
500,000 $ 1.00 February 24, 2005
77,519 6.22 October 8, 1999
10,000 11.26 May 27, 2000
- -------
587,519
=======
</TABLE>
All outstanding warrants are exercisable except for a warrant to purchase
77,519 shares, for which the number of exercisable shares may be reduced
depending on the Company's closing stock price preceding April 9, 1997.
F-26
<PAGE> 90
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 11,010 shares of common stock at $3.16 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.
F-27
<PAGE> 91
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- CONTINUED
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.
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
depending 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.
Expense recorded under this agreement totalled $3,326,000 in 1996.
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 250,000 and 25,000 shares of common stock for future
issuance under the Incentive Plan and Director Plan, respectively.
On June 30, 1997, the Company effected a one-for-two reverse stock split of
the Company's outstanding common stock. All share and per share amounts have
been restated to reflect the reverse stock split for all periods presented.
F-28
<PAGE> 92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InfoMed Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of InfoMed
Holdings, Inc. (a Delaware Corporation) and subsidiaries as of June 30, 1995 and
1996 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended June
30, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of InfoMed
Holdings, Inc. and subsidiaries as of June 30, 1995 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
September 23, 1996
F-29
<PAGE> 93
INFOMED HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------------- -------------
1995 1996 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 643,429 $ 1,116,222 $ 750,202
Accounts receivable, less allowance for doubtful
accounts of $2,044,000 $1,427,000, and $1,460,000
(unaudited), respectively......................... 1,623,587 1,759,865 2,434,625
Inventories.......................................... 338,175 157,475 101,034
Assets held for sale................................. 2,954,560 -- --
Prepaid expenses and other current assets............ 115,836 62,195 114,855
----------- ----------- -----------
Total current assets......................... 5,675,587 3,095,757 3,400,716
Property and equipment, at cost, net................... 719,441 670,497 630,750
Receivables due after one year, less allowance for
doubtful accounts of $76,000 in 1995 and $0 in
1996................................................. 148,857 66,763 1,366
Intangible assets, at cost, net........................ 749,995 124,995 9,583
Other assets........................................... 116,579 72,225 68,508
----------- ----------- -----------
Total assets......................................... $ 7,410,459 $ 4,030,237 $ 4,110,923
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 1,681,032 $ 170,188 $ 143,187
Accounts payable..................................... 3,053,604 1,258,680 874,323
Accrued compensation and benefits.................... 457,599 653,223 664,889
Other accrued liabilities............................ 1,134,669 1,734,868 1,543,131
Customer deposits.................................... 2,485,929 975,746 1,406,841
Unearned revenue..................................... 1,194,302 1,105,533 1,389,526
----------- ----------- -----------
Total current liabilities.................... 10,007,135 5,898,238 6,021,897
Long-term debt, less current portion................... 122,585 79,099 79,099
Other liabilities...................................... -- 33,883 33,883
----------- ----------- -----------
Total liabilities...................................... 10,129,720 6,011,220 6,134,879
----------- ----------- -----------
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.001 par value; 315,000
shares authorized; 265,000 shares issued and
outstanding....................................... 265 265 265
Common stock, $.001 par value; 20,000,000 shares
authorized; 2,307,204; 2,336,244; and 2,367,676
(unaudited) shares issued and outstanding,
respectively...................................... 2,307 2,337 2,368
Additional paid-in capital........................... 4,406,360 4,423,033 4,434,947
Accumulated deficit.................................. (6,946,725) (6,167,350) (6,222,268)
Treasury stock, 45,367 and 58,967 shares, at cost,
respectively...................................... (181,468) (239,268) (239,268)
----------- ----------- -----------
Total stockholders' deficit.................. (2,719,261) (1,980,983) (2,023,956)
----------- ----------- -----------
Total liabilities and stockholders'
deficit.................................... $ 7,410,459 $ 4,030,237 $ 4,110,923
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-30
<PAGE> 94
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software and equipment.......... $10,224,698 $ 5,473,930 $ 5,836,055 $1,886,325 $ 667,469
Maintenance and other
services..................... 8,555,835 9,023,070 7,637,670 1,873,136 1,884,632
----------- ----------- ----------- ---------- ----------
Total revenue........... 18,780,533 14,497,000 13,473,725 3,759,461 2,552,101
----------- ----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of software and
equipment.................... 5,623,365 5,394,489 1,272,699 813,280 424,314
Cost of maintenance and other
services..................... 2,952,303 3,444,266 2,490,623 551,985 557,552
Research and development........ 1,001,032 1,473,712 2,003,402 622,843 379,125
Selling, general and
administrative............... 6,900,495 8,794,469 6,246,715 1,619,877 1,006,987
Amortization and depreciation
expense...................... 1,422,488 1,721,360 955,815 248,607 178,412
Severance charge................ -- 304,283 -- -- --
----------- ----------- ----------- ---------- ----------
Total costs and
expenses.............. 17,899,683 21,132,579 12,969,254 3,856,592 2,546,390
----------- ----------- ----------- ---------- ----------
Income (loss) from operations..... 880,850 (6,635,579) 504,471 (97,131) 5,711
OTHER INCOME (EXPENSE):
Gain on sale of assets.......... -- -- 437,665 146,088 --
Interest income (expense),
net.......................... 86,082 (62,636) 19,799 (1,030) 5,621
Other income.................... -- -- 82,440 -- --
----------- ----------- ----------- ---------- ----------
Income (loss) before income tax
provision....................... 966,932 (6,698,215) 1,044,375 47,927 11,332
Income tax provision.............. 163,000 -- -- -- --
----------- ----------- ----------- ---------- ----------
Net income (loss)................. $ 803,932 $(6,698,215) $ 1,044,375 $ 47,927 $ 11,332
=========== =========== =========== ========== ==========
EARNINGS (LOSS) PER SHARE:
PRIMARY:
Earnings (loss) per share......... $ 0.26 $ (2.99) $ 0.22 $ (0.01) $ (0.02)
=========== =========== =========== ========== ==========
Shares used in computation........ 2,936,285 2,304,770 3,580,288 2,318,445 2,348,155
=========== =========== =========== ========== ==========
FULLY DILUTED:
Earnings per share................ $ 0.24 $ N/A $ N/A $ N/A $ N/A
=========== =========== =========== ========== ==========
Shares used in computation........ 3,357,064 N/A N/A N/A N/A
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-31
<PAGE> 95
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN (ACCUMULATED TREASURY
STOCK STOCK CAPITAL DEFICIT) STOCK TOTAL
----------- ------ ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993.......... $ -- $ -- $1,189,080 $ (815,587) $ -- $ 373,493
Exchange of shares................ -- 2,277 570,957 -- -- 573,234
Exercise of common stock
options......................... -- 21 7,898 -- -- 7,919
Issuance of preferred stock, net
of costs........................ 165 -- 1,629,835 -- -- 1,630,000
Receipt of common shares for
payment of debt................. -- -- -- -- (181,468) (181,468)
Dividends on convertible preferred
stock........................... -- -- -- (51,500) -- (51,500)
Net income........................ -- -- -- 803,932 -- 803,932
---- ------ ---------- ----------- --------- -----------
Balance at June 30, 1994.......... 165 2,298 3,397,770 (63,155) (181,468) 3,155,610
Issuance of preferred stock....... 100 -- 999,900 -- -- 1,000,000
Exercise of common stock
options......................... -- 2 1,217 -- -- 1,219
Exercise of warrants.............. -- 7 7,473 -- -- 7,480
Dividends on convertible preferred
stock........................... -- -- -- (185,355) -- (185,355)
Net loss.......................... -- -- -- (6,698,215) -- (6,698,215)
---- ------ ---------- ----------- --------- -----------
Balance at June 30, 1995.......... 265 2,307 4,406,360 (6,946,725) (181,468) (2,719,261)
Exercise of common stock
options......................... -- 30 16,673 -- -- 16,703
Repurchase of stock............... -- -- -- -- (57,800) (57,800)
Dividends on convertible preferred
stock........................... -- -- -- (265,000) -- (265,000)
Net income........................ -- -- -- 1,044,375 -- 1,044,375
---- ------ ---------- ----------- --------- -----------
Balance at June 30, 1996.......... $265 $2,337 $4,423,033 $(6,167,350) $(239,268) $(1,980,983)
==== ====== ========== =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-32
<PAGE> 96
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- -------------------------
1994 1995 1996 1995 1996
---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ 803,932 $(6,698,215) $1,044,375 $ 47,927 $ 11,332
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Amortization and depreciation..................... 1,422,488 1,721,360 955,815 248,607 178,412
Provision for bad debt expense.................... 407,360 1,597,782 558,926 65,000 32,801
Provision for severance charge.................... -- 304,283 -- -- --
Gain on sale of assets............................ -- -- (437,665) (146,088) --
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS
FROM ACQUIRED ASSETS AND LIABILITIES IN 1994:
(Increase) decrease in accounts and other
receivables..................................... (2,492,992) 730,118 (413,110) 171,237 (642,164)
(Increase) decrease in inventories................ 571,534 (1,163) 180,700 53,067 56,441
(Increase) decrease in prepaid expenses and other
assets.......................................... 2,834 (38,434) 97,995 (6,079) (48,943)
Increase (decrease) in accounts payable........... 6,135 616,630 (1,794,924) (663,690) (384,357)
Increase (decrease) in accrued compensation and
benefits........................................ (158,392) (430,432) 195,624 (386,075) (246,321)
Increase (decrease) in other accrued
liabilities..................................... 81,508 142,817 335,199 -- --
Increase (decrease) in customer deposits and
unearned revenue................................ 386,660 2,185,771 (1,515,462) (504,010) 715,088
Increase (decrease) in other liabilities.......... (48,424) (131,076) 33,883 -- --
---------- ----------- ---------- ---------- ----------
Net cash provided by (used for) operating
activities.......................................... 982,643 (559) (758,644) (1,120,104) (327,711)
---------- ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (327,942) (245,601) (362,098) (95,830) (23,253)
Proceeds from sale of certain assets of Script
Systems, Inc...................................... -- -- 2,766,987 2,767,000 --
Proceeds from sale of building...................... -- -- 421,975 -- --
Increase in capitalized software costs and other
intangibles....................................... (813,429) (874,325) -- -- --
Increase in organization and share exchange costs... (77,791) -- -- -- --
Pharmacy software sold.............................. 37,758 -- -- -- --
Addition of cash from Script Systems, Inc........... 46,758 -- -- -- --
---------- ----------- ---------- ---------- ----------
Net cash provided by (used for) investing
activities.......................................... (1,134,646) (1,119,926) 2,826,864 2,671,170 (23,253)
---------- ----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on bank debt..................... (465,457) (148,247) (1,040,000) (553,019) (27,001)
Principal payments on notes and capitalized
leases............................................ -- (60,337) (219,330) -- --
Proceeds from (repayments of) related party notes... -- 295,000 (295,000) -- --
Proceeds from issuance of common stock.............. 7,919 -- -- -- --
Proceeds from issuance of preferred stock, net of
costs............................................. 980,000 1,000,000 -- -- --
Proceeds from exercise of warrants and options...... -- 8,699 16,703 8,811 11,945
Proceeds from sale-leaseback........................ -- 225,371 -- -- --
Purchase of treasury stock.......................... -- -- (57,800) (30,000) --
Escrow funds held by bank........................... -- -- -- (525,000) --
Dividends paid on preferred stock................... (77,750) (41,250) -- -- --
---------- ----------- ---------- ---------- ----------
Net cash provided by (used for) financing
activities.......................................... 444,712 1,279,236 (1,595,427) (1,099,208) (15,056)
---------- ----------- ---------- ---------- ----------
Net increase in cash and cash equivalents............. 292,709 158,751 472,793 451,858 (366,020)
Cash and cash equivalents, beginning of year.......... 191,969 484,678 643,429 643,429 1,116,222
---------- ----------- ---------- ---------- ----------
Cash and cash equivalents, end of year................ $ 484,678 $ 643,429 $1,116,222 $1,095,287 $ 750,202
========== =========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................ $ 186,413 $ 111,585 $ 94,310 $ 35,852 $ --
========== =========== ========== ========== ==========
Preferred dividends accrued -- not paid............... $ -- $ 144,105 $ 265,000 $ 66,250 $ 66,250
========== =========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-33
<PAGE> 97
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: InfoMed Holdings, Inc. ("IMHI") through its
operating subsidiary, InfoMed, Inc. ("InfoMed") designs, markets, services and
supports information systems which are sold in the home health industry.
On August 26, 1993, pursuant to the terms of an exchange offer, IMHI
combined business operations of InfoMed and Script Systems, Inc. ("Script"), a
provider of management information systems and services to medical offices,
clinics and hospital departments. The exchange was accounted for as a purchase
of Script by InfoMed with 2,276,905 common shares of IMHI exchanged for the
common and preferred shares of InfoMed and Script. The financial results of
Script have been included in the accompanying consolidated financial statements
from the date of the combination. On August 28, 1995, IMHI completed the sale of
substantially all assets of Script (see Note 12).
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of IMHI and its subsidiaries, InfoMed and Script. 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: Revenue from the sale of software licenses and
hardware is generally recognized upon shipment of the product, provided that no
significant obligations remain and collection of the receivables is considered
probable. Revenues derived from contracts requiring significant production,
modification, or customization of software are recorded based on percentage of
completion using labor hours or contract milestones. Revenue from software
maintenance agreements is deferred and recognized ratably over the term of the
agreements. Revenue from and the related costs associated with hardware
maintenance agreements are recognized upon signing of the contract by the
customer since future obligations are assigned to a third party and no
additional costs are incurred upon the assignment to the third party. Revenue
from training and consulting is recognized as the related services are
performed.
CONCENTRATION OF CREDIT RISK: IMHI sells its products to various companies
in the healthcare industry. IMHI performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. IMHI maintains an allowance for uncollectible accounts receivable
based upon expected collectibility of all accounts receivable.
CASH EQUIVALENTS: All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents. Market
value of cash equivalents approximates cost.
INVENTORIES: Inventories, which primarily consist of equipment to be
delivered to customers, are stated at the lower of cost, using the first-in,
first-out (FIFO) method, or market.
F-34
<PAGE> 98
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed for financial reporting purposes on the straight-line
method over the estimated useful lives of the assets, or lease term, whichever
is shorter, and are as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION LIFE
-------------------- ---------
<S> <C>
Buildings................................................... 33 years
Furniture and fixtures...................................... 5-7 years
Equipment................................................... 3-5 years
Leasehold improvements...................................... 10 years
</TABLE>
INTANGIBLE ASSETS: Intangible assets primarily represents certain software
costs for products and product enhancements that are capitalized after
technological feasibility has been established. These costs are amortized
ratably using the straight-line method over the estimated useful lives of the
assets as set forth in Note 4. During 1996, IMHI reviewed its product
development process and determined that technological feasibility is currently
being established upon completion of a working model. Costs incurred in 1996
between completion of the working model and the point at which the product is
ready for general release have been insignificant. Therefore, IMHI capitalized
no costs in 1996. Capitalized software development costs amounted to $813,429
and $874,325 in 1994 and 1995, respectively. Amortization of capitalized
software development costs, which is included in amortization and depreciation
in the accompanying consolidated statements of operations, aggregated $496,272
in 1994, $749,084 in 1995 and $663,602 in 1996. Research and development
expenditures, other than those qualifying for software capitalization, are
charged to expense in the period incurred.
IMHI reviews its long-lived and intangible assets for impairment whenever
events or changes in circumstances indicate the carrying amount may not be
recoverable. The measurement of possible impairment is based on determining
whether projected undiscounted future cash flows from the use of the asset is
less than the carrying amount of the asset. As of June 30, 1996, in the opinion
of management, there has been no such impairment.
INCOME TAXES: Income taxes are provided for in accordance with Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The statement
requires IMHI follow the liability method of accounting for income taxes 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.
EARNINGS (LOSS) PER SHARE: Primary earnings per common share is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of shares and share equivalents outstanding during the period.
Fully diluted earnings per share is computed by dividing net income (loss)
available to common stock holders by the number of shares and share equivalents
outstanding at the end of the period assuming the conversion of the Preferred
Stock. Common stock equivalents are included in the earnings (loss) per share
calculation unless such equivalents are antidilutive. Fully diluted earnings per
share are not presented for the years ended June 30, 1995 and 1996 because fully
diluted earnings per share amounts for these periods do not differ significantly
from primary earnings per share.
STOCK BASED COMPENSATION: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123.
"Accounting for Stock-Based Compensation" ("SFAS No. 123") which establishes
financial accounting and reporting standards for stock based employee
compensation plans. Companies are encouraged, rather than required to adopt a
new method that accounts for stock compensation awards based on their fair value
using an option pricing model. Companies that do not adopt this method will have
to make pro forma disclosures of net income as if the fair value based method of
accounting required by this standard had been applied.
F-35
<PAGE> 99
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMHI is required to adopt SFAS No. 123 effective July 1, 1996. IMHI has elected
to adopt the disclosure requirement of the pronouncement.
PRESENTATION AND RECLASSIFICATIONS: Certain items in the 1994 and 1995
Consolidated Financial Statements have been reclassified for comparative
purposes.
UNAUDITED INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements included all adjustments,
consisting only of normal recurring accruals, which IMHI considers necessary for
a fair presentation of the financial position of IMHI as of September 30, 1996
and the results of operations for the three months ended September 30, 1995 and
1996, as presented in the accompanying unaudited interim financial statements.
NOTE 2. LEASE RECEIVABLES
IMHI provides financing to certain customers on sales of software and
equipment. Lease terms are generally five years. Future minimum lease payments
under these sales-type leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $134,399
1998........................................................ 72,038
--------
206,437
Less: interest portion...................................... 27,184
--------
$179,253
========
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land........................................................ $ 81,149 $ --
Building and improvements................................... 161,746 --
Equipment................................................... 1,117,280 1,442,546
Furniture and fixtures...................................... 184,657 197,646
Leasehold improvements...................................... 103,876 24,484
---------- ----------
1,648,708 1,664,676
Less: accumulated depreciation.............................. 929,267 994,179
---------- ----------
$ 719,441 $ 670,497
========== ==========
</TABLE>
NOTE 4. INTANGIBLE ASSETS
Intangible assets consisted of the following at June 30:
<TABLE>
<CAPTION>
ESTIMATED
LIFE
(IN YEARS) 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Software development costs, net of accumulated
amortization of $1,125,054 and $1,745,054,
respectively......................................... 3 $734,162 $114,162
Organization and share exchange costs, net of
accumulated amortization of $9,167 and $14,167,
respectively......................................... 5 15,833 10,833
-------- --------
$749,995 $124,995
======== ========
</TABLE>
F-36
<PAGE> 100
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. DEBT
Debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Line of credit.............................................. $ 600,000 $ --
Note payable to Bank........................................ 440,000 --
Note payable to members of the Board of Directors and their
affiliates, interest at 11%............................... 295,000 --
Notes payable to Fred Neufeld (Note 11)..................... 205,920 102,010
Capitalized leases.......................................... 255,538 147,277
Other....................................................... 7,159 --
---------- ----------
1,803,617 249,287
Less: current portion....................................... 1,681,032 170,188
---------- ----------
Total long term debt.............................. $ 122,585 $ 79,099
========== ==========
</TABLE>
At June 30, 1995, $600,000 was outstanding under an $800,000 line of credit
agreement with United Jersey Bank (the "Bank"). This line of credit expired on
October 31, 1995, was fully repaid, and was not renewed. Borrowing under the
line required interest at 1% above the Bank's floating base rate (which averaged
9.9% and 9.0% in 1995 and 1996, respectively). Maximum and average borrowings
under the line were $600,000 and $480,000, respectively, during 1996.
Under a Loan and Security Agreement with the Bank the note payable to Bank
required monthly payments of principal of $10,000 plus interest at the Bank's
floating base rate, which averaged 9.0% during 1996, plus 1.0%. The loan was
repaid on March 31, 1996.
On October 5, 1994, IMHI executed promissory notes totaling $295,000 with
certain members of its Board of Directors and their affiliates. The proceeds of
the notes were used for short-term working capital needs. Under the terms of the
notes, the total principal, plus interest at 11% per annum, was due and payable
on December 6, 1994. The notes were paid in full on January 4, 1996.
Interest of $58,900, $5,512 and $41,607 was paid to related parties in
1994, 1995 and 1996, respectively.
In August 1994, IMHI entered into a sale-leaseback agreement. Under the
agreement, the Company sold fixed assets, predominantly computer equipment with
a book value of approximately $247,000, and leased them back for a period of
forty-eight months. IMHI has received a total of $225,371 relating to this
agreement.
The amount of annual principal payments for the next three fiscal years are
as follows:
<TABLE>
<S> <C>
1996........................................................ $170,188
1997........................................................ 72,668
1998........................................................ 6,431
--------
$249,287
========
</TABLE>
NOTE 6. PREFERRED STOCK AND COMMON STOCK
Pursuant to an agreement dated February 24, 1995, IMHI sold securities
consisting of (i) 100,000 shares of 10% Convertible Preferred Stock; and (ii)
100,000 warrants to purchase common stock to certain members of its Board of
Directors and their affiliates at a price of $10 per security. Each
F-37
<PAGE> 101
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrant allows for the purchase of 10 shares of common stock at a price of $.50
per share. The total proceeds from the sale, which were used for general working
capital purposes, were $1,000,000.
During 1994, IMHI's former President tendered 45,367 shares of IMHI's
common stock to IMHI, valued at $181,468 (fair market value at date of tender),
in order to repay a portion of outstanding loans and interest due to the
Company. The remaining balance was eliminated in connection with the severance
agreement discussed in Note 11.
On March 31, 1994 IMHI issued 165,000 shares of 10% Convertible Preferred
Stock through a private placement to O'Donnell Davis and EGL Holdings and
Affiliates ("EGL") for $1,000,000 in cash and conversion of $650,000 of debt
held by O'Donnell Davis. The Convertible Preferred Stock is entitled to
dividends of no less than the annual dividends declared for the common stock
plus 10% per annum of the consideration received by IMHI for the issuance of the
Convertible Preferred Stock. Dividends are payable in quarterly installments.
The number of common stock shares issuable upon conversion of the
Convertible Preferred Stock is determined by the original issue price of the
convertible preferred stock divided by $2. IMHI has agreed to reserve 2,075,000
shares of its common for conversion of the Convertible Preferred Stock.
Under an Incentive Stock Option and Nonqualified Stock Option Plan (the
"Plan"), a maximum of 200,000 shares of common stock have been reserved for
issuance under the Plan and no more than 50,000 shares may be granted to any one
employee in any Plan year. The option price shall be at least 100% of the fair
market value of the shares at the time of granting the options. Additionally,
any option granted to a 10% stockholder must have an option price of at least
110% of the fair market value of the share at the time of granting the option.
Options are not exercisable prior to the expiration of twelve months following
the date of grant and must be exercised within ten years from the date of grant.
However, options to 10% or greater stockholders must be exercised within five
years from the date of grant.
The following is a summary of certain information pertaining to common
stock options and common stock warrants.
<TABLE>
<CAPTION>
WARRANTS OPTIONS
-------- ---------
<S> <C> <C>
Balance at June 30, 1993.................................... 36,800 942,164
Issued ($3.25).............................................. -- 25,000
Expired ($0.37 - $9.05)..................................... (10,000) (60,612)
Exercised ($0.37)........................................... -- (21,488)
------- ---------
Balance at June 30, 1994.................................... 26,800 885,064
Issued ($0.50 - $2.13)...................................... 100,000 2,000
Expired ($0.37 - $6.55)..................................... -- (77,740)
Exercised ($0.37 - $1.10)................................... (6,800) (2,011)
------- ---------
Balance at June 30, 1995.................................... 120,000 807,313
Issued ($1.13 - $2.00)...................................... -- 309,247
Expired ($1.10 - $5.95)..................................... -- (25,540)
Exercised ($0.37 - $1.10)................................... -- (29,040)
------- ---------
Balance at June 30, 1996.................................... 120,000 1,061,980
======= =========
</TABLE>
At June 30, 1996, all of the warrants (which are convertible into ten
shares of common stock) and 1,049,760 of the options were exercisable.
F-38
<PAGE> 102
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. INCOME TAXES
The components of the income tax provision for continuing operations are as
follows for the years ended June 30:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $ -- $ -- $ --
State........................................ 30,000 -- --
Deferred....................................... 133,000 -- --
-------- -------- --------
$163,000 $ -- $ --
======== ======== ========
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expenses for financial and income tax reporting purposes. The
deferred tax provision of $133,000 for the year ended June 30, 1994 relates to
Script's book income. Due to the utilization of Script's net operating loss
carryforwards, there was no taxable income and such utilization was reflected as
a reduction of goodwill.
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. As of June 30, 1995 and
1996, the components of IMHI's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
Capitalized software costs............................... $ 432,000 $ 44,000
Amortization and depreciation............................ 126,000 151,000
------------ -----------
Gross deferred tax liabilities........................... 558,000 195,000
------------ -----------
Net operating loss carryforwards......................... 2,890,000 805,000
Bad debts................................................ 856,000 499,000
Accrued liabilities...................................... 188,000 138,000
Deferred income.......................................... 94,000 359,000
------------ -----------
Gross deferred tax asset................................. 4,028,000 1,801,000
------------ -----------
Deferred tax asset valuation allowance................... (3,470,000) (1,606,000)
------------ -----------
Net deferred tax asset................................... $ -- $ --
============ ===========
</TABLE>
Due to the uncertainty of realization of the deferred tax asset, a
valuation allowance has been established.
Income tax provision (benefit) from continuing operations at the statutory
income tax rate is reconciled below to the total tax expense recorded for
financial statement purposes for the years ended June 30:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit) from continuing
operations at the US federal statutory rate of
35%............................................ $ 328,757 $(2,277,000) $ 365,000
State taxes, net of federal income tax effect.... 13,200 -- --
Amortization of nondeductible intangibles........ 84,205 207,000 35,000
Utilization of net operating loss................ (289,274) -- (416,000)
Non-recognition of net operating loss............ -- 2,028,000 --
Other............................................ 26,112 42,000 16,000
--------- ----------- -----------
$ 163,000 $ -- $ --
========= =========== ===========
</TABLE>
F-39
<PAGE> 103
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1996, IMHI has net operating loss carryforwards of
approximately $2,300,000 for tax purposes which are subject to certain
limitations as to their use and expire through 2010. InfoMed has investment and
other tax credit carryforwards of approximately $73,000 which expire in 2009.
NOTE 8. COMMITMENTS AND CONTINGENCIES
IMHI leases its office facilities and certain computer equipment under
various operating lease agreements (see Note 10). 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.
The aggregate annual rental commitments under all non-cancelable operating
leases as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $226,000
1998........................................................ 237,000
1999........................................................ 247,000
2000........................................................ 258,000
2001........................................................ 269,000
</TABLE>
Rental expense was $583,021, $598,547 and $567,425 for the years ended June
30, 1994, 1995 and 1996, respectively.
IMHI has employment and consulting agreements (see Note 10) which require
future minimum compensation of $96,000 in 1997 and $60,000 in 1998 and 1999.
IMHI is engaged in various legal proceedings which management believes will
not have a material adverse effect on its financial position or results of
operations. IMHI is involved in certain other claims, litigation and/or
regulatory matters arising in the normal course of business which are not
considered material.
NOTE 9. PROFIT SHARING PLAN
InfoMed has a nonqualified employee incentive plan which provides for
profit sharing contributions at the discretion of management. Employees become
vested over a 15 year period. There were no contributions made in 1994, 1995, or
1996.
NOTE 10. RELATED PARTY TRANSACTIONS
Since January 7, 1992, EGL has been retained by IMHI to provide consulting
services on corporate investments. The consulting agreement extends through June
30, 1999, and provides for a monthly consulting fee of $5,000 plus expenses.
Payments for expenses totaled $24,012 for 1994, $2,993 for 1995, and $4,731 for
1996. Two partners of EGL are also Directors of IMHI.
O'Donnell Davis, which is 75% owned by the Chairman of IMHI, provided
consulting services to IMHI of $161,792, $147,817 and $175,000 plus expenses
relating to travel of $9,560, $35,270 and $30,100 in 1994, 1995 and 1996,
respectively, under terms of an amended agreement which expired December 31,
1994. However, O'Donnell Davis continues to provide management and consulting
services for a monthly fee of $14,583 plus expenses.
A shareholder in O'Donnell Davis is a partner in a firm which provides
legal services to IMHI. Fees for services provided amounted to $166,860,
$199,273 and $140,492 in 1994, 1995 and 1996, respectively.
Gateway, LLC, a company owned in part by certain members of IMHI's Board of
Directors and their affiliates, leases an office facility to IMHI under the
terms of an agreement, which was renewed as
F-40
<PAGE> 104
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of January 1, 1996, for a period of five years with a five year renewal option.
Prior to August 1, 1994, the property was owned by O'Donnell Davis. Rent expense
and related operating expenses were $128,166 in 1994, $191,258 in 1995 and
$197,772 in 1996.
NOTE 11. SEVERANCE CHARGE
On February 28, 1995, IMHI entered into a Settlement Agreement (the
"Agreement") with its President who terminated his employment with IMHI and a
severance charge of approximately $304,000 was recorded. Under the terms of the
Agreement, the President receives monthly payments of $9,000 on a non-interest
bearing promissory note through March 1, 1997. In addition, certain employee
benefits remained in effect through February 1996. Loans to the former President
of $84,664 have been offset against the severance amounts payable.
NOTE 12. SALE OF ASSETS
On August 28, 1995, IMHI sold substantially all of the assets of Script to
Medic Computer Systems, Inc. ("Medic") for $2,967,000 resulting in a gain of
approximately $146,000 which is included in the gain on sale of assets. The book
value on the date of sale of the assets and liabilities sold were as follows:
accounts receivable of $518,000, fixed assets of $172,000, software development
costs of $422,000, other intangibles of $2,245,000, less deferred maintenance of
$546,000 and other liabilities of $114,000. IMHI retained the obligations to
deliver and the rights to revenue of the backlogged Script orders while Medic
assumed ongoing support and maintenance obligations.
On a pro forma basis, IMHI, without Script, would have generated
$11,446,000 of revenues, net income of $50,000 and a net loss per share of $0.06
for the year ended June 30, 1996.
On October 23, 1995, IMHI sold certain property with a book value of
$130,400 for $421,975.
NOTE 13. SUBSEQUENT EVENT
On September 5, 1996, IMHI and Central Health Management Services, Inc.
("CHMS") entered into an Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which CHMS will be merged with a wholly-owned subsidiary of IMHI. In
connection therewith, each issued and outstanding share of CHMS common stock
will be converted into and exchanged for the right to receive 0.22021 shares
(approximately 8,000,000 shares) of IMHI's common stock (the "Exchange Ratio").
Any shares of CHMS common stock held by IMHI or any of its subsidiaries, any
shares held in treasury by CHMS and any shares held by subsidiaries of CHMS will
be canceled and retired and no consideration will be issued in exchange
therefore. In addition, any shareholders of CHMS who fail to deliver certain
representations in connection with the receipt of IMHI's common stock in the
merger will receive cash in lieu of shares of IMHI's common stock, provided 95%
or more of the outstanding shares of CHMS deliver such representations. Under
terms of the Merger Agreement, all outstanding options and warrants to purchase
CHMS common stock will be converted into the right to purchase shares of IMHI's
common stock, provided that the number of shares to be purchased and related
exercise prices shall be adjusted by the Exchange Ratio. The transaction is
subject to approval by the shareholders of CHMS, appropriate regulatory
approvals and the satisfaction of certain other conditions contained in the
Merger Agreement.
F-41
<PAGE> 105
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Simione Central, Inc.
Atlanta, Georgia
We have audited the accompanying statements of net assets of Simione &
Simione, CPAs (a Partnership) -- Consulting Division (a division of Simione &
Simione, CPAs) as of December 31, 1994 and 1995, and the related statements of
divisional operations, divisional equity and divisional cash flows for each of
the years in the two year period ended December 31, 1995. These financial
statements are the responsibility of Simione & Simione, CPA's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of Simione & Simione,
CPAs -- Consulting Division as of December 31, 1994 and 1995, and the results of
its operations and its cash flows for each of the years in the two year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
McGladrey & Pullen LLP
New Haven, Connecticut
November 25, 1996
F-42
<PAGE> 106
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF NET ASSETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS (NOTES 5 AND 6)
Current Assets
Cash........................................................ $ 22,061 $ 10,239
Accounts receivable and unbilled services, less allowance
for doubtful accounts 1994 $66,362:1995 $82,416........... 577,057 708,522
Other assets (Note 4)....................................... 10,033 4,814
-------- --------
Total assets...................................... $609,151 $723,575
======== ========
LIABILITIES AND DIVISIONAL PARTNERSHIP EQUITY
Current Liabilities
Line of credit (Note 2)..................................... $ 64,391 $ 76,558
Current maturities of long-term debt (Note 3)............... 65,115 77,430
Accounts payable............................................ 71,707 128,614
Loans payable from partners (Note 4)........................ 12,674 14,159
Accrued expenses............................................ 27,054 13,300
-------- --------
Total current liabilities......................... $240,941 $310,061
Long-term debt, less current maturities (Note 3)............ 130,230 77,430
-------- --------
Total liabilities................................. 371,171 387,491
Commitments (Notes 5 and 7)
Net Asset, Divisional Equity................................ 237,980 336,084
-------- --------
Total liabilities and divisional partnership equity......... $609,151 $723,575
======== ========
</TABLE>
See Notes to Financial Statements.
F-43
<PAGE> 107
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF DIVISIONAL OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Net services................................................ $1,882,437 $2,350,120
---------- ----------
Operating expenses.......................................... 1,051,667 1,355,589
General and administrative expenses......................... 277,581 301,243
---------- ----------
1,329,248 1,656,832
---------- ----------
OPERATING INCOME............................................ 553,189 693,288
---------- ----------
Other income (expense)
Interest income............................................. 5,750 11,566
Interest expense............................................ (25,426) (25,454)
Other....................................................... 6,168 13,252
---------- ----------
(13,508) (636)
---------- ----------
Net income.................................................. $ 539,681 $ 692,652
========== ==========
</TABLE>
See Notes to Financial Statements.
F-44
<PAGE> 108
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF DIVISIONAL EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Balance, beginning.......................................... $ 142,273 $ 237,980
Net income.................................................. 539,681 692,652
Net transfers............................................... (443,974) (594,548)
---------- ----------
Balance, ending............................................. $ 237,980 $ 336,084
========== ==========
</TABLE>
See Notes to Financial Statements.
F-45
<PAGE> 109
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF DIVISIONAL CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 539,681 $ 692,652
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts........................ 7,657 16,054
Decrease (increase) in accounts receivable and unbilled
services.............................................. (146,261) (147,529)
Decrease (increase) in other assets.................... 13,027 5,219
(Decrease) increase in accounts payable................ 19,888 56,907
(Decrease) increase in accrued expenses................ 2,229 (13,754)
--------- ---------
Net cash provided by operating activities............ 436,221 609,549
--------- ---------
Cash flows from financing activities
Net financing obtained from (provided to) partnership..... 25,793 (28,308)
Loans payable from partners, net.......................... (1,177) 1,485
Net transfers............................................. (443,974) (594,548)
--------- ---------
Net cash used in financing activities..................... (419,358) (621,371)
--------- ---------
Net increase (decrease) in cash...................... 16,863 (11,822)
Cash at beginning of year................................... 5,198 22,061
--------- ---------
Cash at end of year......................................... $ 22,061 $ 10,239
========= =========
</TABLE>
See Notes to Financial Statements.
F-46
<PAGE> 110
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Simione & Simione, CPA's, a Partnership ("Partnership") is a public
accounting firm based in Hamden, Connecticut. Simione & Simione,
CPA's -- Consulting Division ("Simione & Simione"), a division of the
Partnership provides consulting services primarily serving the healthcare
industry. The Partnership also operated the audit and accounting division and
the tax division. The results of these divisions are not included in these
financial statements.
A summary of the Partnership's significant accounting policies follows:
FINANCIAL STATEMENT PRESENTATION
Divisional balance sheets of Simione & Simione include accounts receivable
and unbilled services which are attributable specifically to consulting services
provided by Simione & Simione. Balance sheet accounts that are not directly
attributed to Simione & Simione are allocated based on a ratio of Simione &
Simione accounts receivable and unbilled services to total accounts receivable
and unbilled services of the Partnership. The statement of operations of Simione
& Simione includes direct service revenue and expenses (primarily payroll) as
well as an allocation of indirect operating expenses of the Partnership.
Expenses which were not directly attributable to Simione & Simione were
allocated on a pro-rata basis to each of the three divisions operated by the
Partnership. For the years ended December 31, 1994 and 1995 approximately
$303,000 and $320,000 of indirect operating expenses were allocated to Simione &
Simione. Management believes that the allocations made were reasonable and
include all expenses incurred on behalf of the division.
The accompanying financial statements do not necessarily indicate the
financial position, results of operations or cash flows that would have been
obtained if the division had been operated as an independent entity.
PERSONAL ASSETS AND LIABILITIES AND PARTNERS' SALARIES
In accordance with generally accepted methods of presenting partnership
financial statements, the divisional financial statements do not include the
personal assets and liabilities of the partners including their obligation for
income taxes on their distribution shares of net income of the partnership, nor
any provision for income tax expense.
The expenses shown on the statements of divisional operations do not
include any salaries to the partners.
REVENUE RECOGNITION
Revenue is recognized when services are performed.
ACCOUNTING 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. Included among the material reported amounts and disclosures
that require extensive use of estimates is the allocation of indirect
Partnership operating expenses. Actual results could differ from those
estimates.
F-47
<PAGE> 111
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LINE OF CREDIT
The Partnership had a $150,000 line of credit with a bank which subsequent
to December 31, 1995 was repaid. This line of credit was collateralized by
substantially all assets of the Partnership and was personally guaranteed by the
partners. Interest was payable monthly at the prime rate as published in The
Wall Street Journal (8.25% at December 31, 1995) plus 1.5 percent.
3. LONG-TERM DEBT
Long-term debt of the Partnership consisted of the following at December
31, 1994 and 1995:
<TABLE>
<S> <C>
Note payable Bank, $12,500 due monthly plus interest at the
prime rate as published by the Wall Street Journal (8.25%
at December 31, 1995) plus 1.5 percent, through December
4, 1997, secured by substantially all assets of the
Partnership and personally guaranteed by the partners... $300,000
========
</TABLE>
Subsequent to December 31, 1995 this note was repaid in full by the
Partnership.
4. RELATED PARTY TRANSACTIONS
The Partnership rented their offices from S & S Realty, which is owned by
certain partners, under an operating lease which expired December 31, 1994.
Beginning January 1, 1995, the Partnership rented this facility on a month to
month basis. The rent paid to S & S Realty during each of those years was
approximately $156,000.
At December 31, 1994, approximately $23,000 was due from S & S Realty to
the Partnership. The allocated amount, $10,003, is classified as other asset at
December 31, 1994.
At December 31, 1994 and 1995, the Partnership had outstanding loans
payable from the partners of approximately $29,000 and $27,000, respectively.
Net transfers reflected on the statements of divisional equity and cash
flows represent transfers to the Partnership to fund partner distributions and
to fund other divisions of the Partnership.
5. OPERATING LEASES
The Partnership has operating leases expiring in various years through
1998.
Future minimum payments, by year and in the aggregate, due under
significant noncancelable operating leases with initial or remaining terms of
one year or more, consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996........................................................ $47,997
1997........................................................ 37,145
1998........................................................ 212
-------
$85,354
=======
</TABLE>
Total lease expense of the Partnership for the years ended December 31,
1994 and December 31, 1995 approximated $37,000 and $17,000, respectively.
6. EMPLOYEE PROFIT SHARING PLAN
The Partnership maintains a 401(k) profit sharing plan for the benefit of
substantially all of its employees who meet certain minimum eligibility
requirements and who elect to participate. Under the terms of the Plan,
participants can contribute up to 20 percent of their pay to the extent
permitted by law. The Partnership may make discretionary matching contributions
to the Plan up to 50 percent of
F-48
<PAGE> 112
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the employees' first 10 percent of compensation contributed. Participants are
immediately vested in their contribution and vest completely in Partnership
contributions after five years of service. The Partnership has not made any
contributions to the Plan
7. SALE OF SIMIONE & SIMIONE -- CONSULTING ASSETS
Effective January 1, 1996, the Partnership sold all of the assets used by
their consulting division including tangible property, contracts, leases, books
and records, customer lists, prepaid expenses and goodwill for $2,000,000 in
cash to CHMS. Under terms of this agreement, the partners agree not to compete
in any competing business, as defined in the agreement, through December 31,
2001. The purchase price was allocated to goodwill.
On September 5, 1996, InfoSub, Inc., a subsidiary of IMHI and CHMS entered
into an agreement and plan of merger. The merger was consummated on October 8,
1996.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH
The carrying amounts of this financial instrument approximates fair value
because of the short maturity of this financial instrument.
LONG-TERM DEBT
The carrying amount of long-term debt approximates fair value because the
rates are similar to quoted market prices for debt with similar requirements.
9. MAJOR CUSTOMER
During the year 1995 one client provided approximately $273,000 of revenue
to Simione & Simione. At December 31, 1995 this client owed Simione & Simione
$154,000.
F-49
<PAGE> 113
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY
SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COM-
PANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 5
The Company....................... 14
Use of Proceeds................... 15
Price Range of Common Stock and
Dividend Policy................. 15
Capitalization.................... 16
Dilution.......................... 17
Unaudited Pro Forma Condensed
Consolidated Statements of
Operations...................... 18
Selected Consolidated Financial
Data............................ 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 20
Business.......................... 30
Management........................ 41
Certain Transactions.............. 52
Principal and Selling
Stockholders.................... 55
Description of Capital Stock...... 57
Shares Eligible for Future Sale... 59
Underwriting...................... 61
Legal Matters..................... 63
Change in Accountants............. 63
Experts........................... 63
Available Information............. 64
Index to Financial Statements..... F-1
</TABLE>
======================================================
======================================================
2,800,000 SHARES
[SIMIONE CENTRAL LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
HAMBRECHT & QUIST
JEFFERIES & COMPANY, INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
JUNE 30, 1997
======================================================
