<PAGE> 1
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FORM 10-Q
-----------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-22162
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3209241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6600 POWERS FERRY ROAD 30339
ATLANTA, GEORGIA (zip code)
(Address of principal
executive offices)
(Registrant's telephone number, including area code) (770) 644-6500
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Outstanding at
Class July 31, 1997
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<S> <C>
COMMON STOCK, $.001 PAR VALUE 8,107,360 SHARES
</TABLE>
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<PAGE> 2
SIMIONE CENTRAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1996 and June 30,
1997 (unaudited).
Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1996 and 1997
(unaudited).
Consolidated Statements of Shareholders' Equity - For the Six
Months Ended June 30, 1997 (unaudited).
Consolidated Statements of Cash Flows - Six Months Ended June
30, 1996 and 1997 (unaudited).
Notes to Consolidated Financial Statements - June 30, 1997
(unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,217,254 $ 3,384,728
Accounts receivable, net of allowance for doubtful
accounts of $1,376,895 and $1,063,014 respectively 7,202,567 5,651,415
Prepaid expenses and other current assets 625,251 870,729
------------ ------------
Total current assets 10,045,072 9,906,872
Purchased software, furniture and equipment, net 1,731,961 1,867,996
Intangible assets, net 5,435,913 5,922,755
Restricted cash at December 31, 1996 and other assets 145,262 1,078,056
------------ ------------
Total assets $ 17,358,208 $ 18,775,679
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 1,052,042 $ --
Accounts payable 1,996,561 3,199,353
Accrued compensation expense 961,286 666,650
Accrued liabilities 2,809,697 3,251,636
Customer deposits 1,304,764 1,679,565
Unearned revenues 1,685,999 2,006,044
Current portion of capital lease obligations 305,857 306,466
------------ ------------
Total current liabilities 10,116,206 11,109,714
Notes payable and capital lease obligations, less current portion 339,570 2,986,267
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;
6,107,360 and 5,952,166 shares issued and outstanding,
respectively 6,107 5,952
Additional paid-in capital 23,369,615 23,216,050
Stock subscription receivable -- (850,000)
Accumulated deficit (16,473,290) (17,692,304)
------------ ------------
Total shareholders' equity 6,902,432 4,679,698
------------ ------------
Total liabilities and shareholders' equity $ 17,358,208 $ 18,775,679
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 4
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenues:
Shared resource solution $ 2,599,232 $ 3,302,833 $ 5,055,456 $ 6,664,711
In-house solution 3,880,319 -- 7,106,537 --
Agency support and consulting services 4,760,035 2,045,026 10,505,514 3,849,251
------------ ------------ ------------ ------------
Total net revenues 11,239,586 5,347,859 22,667,507 10,513,962
Costs and expenses:
Cost of revenues 5,344,455 3,321,234 10,989,583 6,603,797
Selling, general and administrative 3,178,872 1,056,312 6,088,653 2,130,869
Research and development 1,685,715 1,234,364 3,442,280 2,348,204
Amortization and depreciation 403,125 127,961 827,597 232,496
------------ ------------ ------------ ------------
Total costs and expenses 10,612,167 5,739,871 21,348,113 11,315,366
------------ ------------ ------------ ------------
Income (loss) from operations 627,419 (392,012) 1,319,394 (801,404)
Other income (expense):
Interest expense (68,182) (21,341) (144,935) (25,241)
Interest and other income 16,643 68,061 44,555 86,552
------------ ------------ ------------ ------------
Net income (loss) $ 575,880 $ (345,292) $ 1,219,014 $ (740,093)
============ ============ ============ ============
Net income (loss) per share $ 0.08 $ (0.09) $ 0.17 $ (0.20)
============ ============ ============ ============
Weighted average common and
common equivalent shares 7,234,243 3,959,274 7,238,713 3,623,592
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 5
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(unaudited)
<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 155,194 shares of
$.001 par value common stock
from exercise of stock options 155,194 155 153,565 -- --
Payment of stock subscription -- -- -- 850,000 --
Net income -- -- -- -- 1,219,014
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 6,107,360 $ 6,107 $ 23,369,615 $ -- $(16,473,290)
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 6
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unauditied)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,219,014 $ (740,093)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES:
Provision for doubtful accounts 494,495 31,085
Amortization and depreciation 827,597 232,496
Loss on sale of assets 1,734 --
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (2,018,955) (1,202,521)
Prepaid expenses and other current assets 245,478 (208,301)
Other assets (67,206) --
Accounts payable (1,202,792) 361,519
Accrued compensation expense 294,636 156,121
Accrued liabilities (411,767) 12,000
Customer deposits (374,801) --
Unearned revenues (320,045) 863,038
----------- ----------
Net cash used in operating activities (1,312,612) (494,656)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of consulting division of Simione & Simione -- (2,000,000
Purchase of software, furniture and equipment (229,641) (312,896)
(Increase) decrease in restricted cash 1,000,000 (1,000,000)
Purchase of intangible assets -- (44,124)
----------- ----------
Net cash provided by (used in) investing activities 770,359 (3,357,020)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former parent company -- 4,000,000
Proceeds from repayment of stock subscription 850,000 --
Proceeds from (payment on) notes payable (1,447,758) 1,080,000
Proceeds from issuance of common stock less cash expenses -- 263,841
Proceeds from officer loans -- 252,075
Payments to former parent company -- (460,567)
Principal payments on capital lease obligations (151,011) --
Payments of related party notes (30,172) --
Proceeds from exercise of stock options and warrants 153,720 --
----------- ----------
Net cash provided by (used in) financing activities (625,221) 5,135,349
----------- ----------
Net (decrease) increase in cash and cash equivalents (1,167,474) 1,283,673
Cash and cash equivalents, beginning of period 3,384,728 323,023
----------- ----------
Cash and cash equivalents, end of period $ 2,217,254 $1,606,696
=========== ==========
Supplemental disclosure of non-cash investing activities
Software, furniture and equipment obtained through capital leases $ 17,328 $ --
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 7
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
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").
Certain prior year amounts have been reclassified to conform to the 1997
financial statement presentation.
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 real-time, secure access through a wide area communications network.
The Company's In-House Solution, STAT 2, offers similar functionality, but is
licensed to customers for use on their own computer systems. In addition to
these two system solutions, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
<PAGE> 8
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 2 - ACQUISITION
On October 8, 1996, IMHI merged with CHMS. 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 effective acquisition date.
Unaudited pro forma information giving effect to the acquisition as if it took
place on January 1, 1996 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------ ---------------------
<S> <C> <C>
Net revenues $ 8,607,000 $ 16,742,000
Net loss $ (234,000) $(13,117,000)
Net loss per share $ (0.04) $ (2.35)
Weighted average common shares 5,908,000 5,572,000
</TABLE>
The three months ended June 30, 1996 pro forma net loss includes 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. The six months ended
June 30, 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 $297,000 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
On May 1, 1997, the Company redeemed its $1 million certificate of deposit to
pay down and terminate its $1 million line of credit. The line was secured by
the certificate of deposit which was reported as restricted cash as of December
31, 1996.
On June 6, 1997, the Company entered into a Loan and Security Agreement with a
bank. Pursuant to the Agreement, the bank agreed to make available to the
Company a revolving credit facility, the maximum principal amount of which at
any time must be equal to the lesser of $5 million or the "borrowing base" then
in effect. Interest will accrue at a variable rate per annum equal to the prime
rate plus 0.25% (8.75% as of June 30, 1997). Under the terms of the Agreement,
the Company granted to the bank a security interest in all accounts, inventory,
equipment, and general intangibles. Additionally, borrowings under this
agreement are secured by the outstanding capital stock of the Company's
subsidiaries. The Company's subsidiaries have also guaranteed the Company's
obligations to the bank under the Agreement. As of June 30, 1997, $1,052,000 was
outstanding and $1,520,000 was available for use.
On June 24, 1997, the Company utilized $1.5 million from this newly acquired
revolving credit facility to pay down and terminate the $1.5 million line of
credit outstanding with another bank.
<PAGE> 9
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
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 six months
ended June 30, 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 June 30, 1997.
NOTE 5 - MAJOR CUSTOMERS AND TRANSACTIONS WITH FORMER PARENT COMPANY
For the three months and the six months ended June 30, 1997, affiliates of the
Columbia/HCA Healthcare Corporation accounted for approximately 49.4% and 51.7%,
respectively, of the Company's total net revenue and for 27.3% of net accounts
receivable at June 30, 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 $3,419,000, or 64.0% of total
net revenues, were recognized for the three months ended June 30, 1996 and
$6,982,000 or 66.4% of total net revenues for the six months ended June 30,
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 $82,000 and $140,000
were incurred for the three months and six months ended June 30, 1996.
NOTE 6 - 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 June 30, 1997.
<PAGE> 10
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 7 - SUBSEQUENT EVENTS
On July 1, 1997, the Registration Statement, filed by the Company with the
Securities and Exchange Commission on Form S-1, became effective. In conjunction
with the effectiveness of the Registration Statement, the Company had a
one-for-two reverse stock split of the Company's outstanding common stock. The
Company sold 2,000,000 (post-reverse split) shares of its common stock for
$10.00 per share and received approximately $18.0 million in net proceeds. A
shareholder also sold 1,220,000 (post-reverse split) shares for $10.00 per
share. The Company did 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 reverse stock split for the periods presented.
<PAGE> 11
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - 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 of 1933, as
amended, and Section 21E of the Securities Act of 1934, as amended, and are
subject to the safe harbor created by such sections. When used in this report,
the words "believe", "anticipate", "estimate", "expect", and similar expressions
are intended to identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. The Company's actual results may differ significantly from the results
discussed in such forward-looking statements. When appropriate, certain factors
that could cause results to differ materially from those projected in the
forward-looking statements are enumerated. This Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto.
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
selected specialized 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 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
customers. 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. The loss of any of these contracts
could have a material adverse impact on the Company's business, financial
position 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 collectibility of fees is probable, provided that no significant
obligations remain under the contract. Revenues derived from the sale of
software products requiring significant modification or customization are
recognized based upon the percentage of completion method. The price of the
Company's In-House Solution varies depending on the number of software modules
licensed and the number of users accessing the system and can range from thirty
thousand dollars to a few million dollars. The Company generally requires
payment of a deposit upon the signing of a customer order as well as certain
additional payments prior to delivery. As a result, the Company's balance sheet
reflects significant customer deposits.
<PAGE> 12
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW (CONTINUED)
Third party software and computer hardware revenues are recognized when the
related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically 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. The revenues are recognized as the
related services are performed.
The Company typically experiences long sales cycles for information systems and
agency support services, which may extend up to one year. In addition, the
implementation period related to its information systems can range from three
months to one year.
The Company defines recurring revenues as revenues derived under multi-year
contracts in addition to annual software support agreements. These revenues were
approximately $7.4 million, or 65.5% and $14.6 million or 64.4% of total net
revenues, for the three months and six months ended June 30, 1997, respectively
and $500,000 or 9.7% and $950,000, or 9.1% of total net revenues, for the three
months and six months ended June 30, 1996, respectively.
For the three months and six months ended June 30, 1996, 64.0% and 66.4%,
respectively, of the Company's total net revenues were derived from contracts
with home health care agencies wholly-owned by the Company's former parent,
Central Health Holding Company, Inc. ("CHHC"). These contracts were terminated
October 31, 1996, in connection with the sale of CHHC to Columbia/HCA Healthcare
Corporation ("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 historical results of
operations attributable to the terminated CHHC contracts may not therefore be
indicative of future results of operations. For the three months and six months
ended June 30, 1997, the Company derived 49.5% and 51.7%, respectively, of its
total net revenues from 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 position and results of operations.
The Company believes that continued development and enhancement of its software
systems is critical to its future success, and anticipates that the total amount
of research and development expense will continue to increase, but should
decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. For the three
months and six months ended June 30, 1997, the Company's capitalized computer
software development costs were approximately $53,000 and $91,000, respectively.
<PAGE> 13
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKLOG
The Company had backlog associated with its In-House Solution of approximately
$5.3 million on June 30, 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Net Revenues. Total net revenues for the three months ended June 30, 1997
increased $5.9 million, or 110.2%, to $11.2 million as compared to the three
months ended June 30, 1996. This increase includes $3.9 million attributable to
the business acquired in the InfoMed Holdings, Inc. ("IMHI") acquisition which
was completed in October 1996, $4.7 million from new contracts with affiliates
of Columbia/HCA and a decrease of $3.4 million resulting from the termination of
contracts with home health care agencies wholly-owned by CHHC.
Cost of Revenues. Total costs of revenues increased $2.0 million, or 60.9%, to
$5.3 million for the three months ended June 30, 1997 as compared to the three
months ended June 30, 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 47.6% for the three months ended
June 30, 1997 from 62.1% for the three months ended June 30, 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.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended June 30, 1997 increased $2.1
million to $3.2 million as compared to the three months ended June 30, 1996.
This increase includes $1.3 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 28.3% for the
three months ended June 30, 1997 compared with 19.8% for the three months ended
June 30, 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 Expenses. Research and development expenses increased
approximately $450,000, or 36.6%, to $1.7 million for the three months ended
June 30, 1997, as compared to the three months ended June 30, 1996. The increase
is principally attributable to the business acquired in the IMHI acquisition. As
a percentage of total net revenues, these expenses decreased to 15.0% for the
three months ended June 30, 1997, from 23.1% for the three months ended June 30,
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.
<PAGE> 14
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(CONTINUED)
Amortization and Depreciation. Total depreciation and amortization expense for
the three months ended June 30, 1997 increased by approximately $300,000 to
approximately $400,000 as compared to the three months ended June 30, 1996. This
increase includes approximately $200,000 of amortization 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 June 30,
1997 and 1996 relates to borrowings under the Company's line of credit
agreements. Interest and other income for the three months ended June 30, 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 June 30, 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 June 30, 1997,
the Company has applied a portion of the NOL against income tax expense for
financial reporting purposes.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Net Revenues. Total net revenues for the six months ended June 30, 1997
increased $12.1 million, or 115.6%, to $22.7 million as compared to the six
months ended June 30, 1996. This increase includes $7.1 million attributable to
the business acquired in the InfoMed Holdings, Inc. ("IMHI") acquisition which
was completed in October 1996, $10.6 million from new contracts with affiliates
of Columbia/HCA and a decrease of $7.0 million resulting from the termination of
contracts with home health care agencies wholly-owned by CHHC.
Cost of Revenues. Total costs of revenues increased $4.4 million, or 66.4%, to
$11.0 million for the six months ended June 30, 1997 as compared to the six
months ended June 30, 1996. The increase includes $2 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 48.5% for the six months ended
June 30, 1997 from 62.8% for the six months ended June 30, 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.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the six months ended June 30, 1997 increased $4.0
million to $6.1 million as compared to the six months ended June 30, 1996. This
increase includes $2.5 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 26.9% for the six
months ended June 30, 1997 compared with 20.3% for the six months ended June 30,
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.
<PAGE> 15
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(CONTINUED)
Research and Development Expenses. Research and development expenses increased
approximately $1.1 million, or 46.6%, to $3.4 million for the six months ended
June 30, 1997, as compared to the six months ended June 30, 1996. The increase
is principally attributable to the business acquired in the IMHI acquisition. As
a percentage of total net revenues, these expenses decreased to 15.2% for the
six months ended June 30, 1997, from 22.3% for the six months ended June 30,
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 depreciation and amortization expense for
the six months ended June 30, 1997 increased by approximately $600,000 to
approximately $800,000 as compared to the six months ended June 30, 1996. This
increase includes approximately $400,000 of amortization 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 six months ended June 30, 1997
and 1996 relates to borrowings under the Company's line of credit agreements.
Interest and other income for the six months ended June 30, 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 June 30, 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 six months ended June 30, 1997, the
Company has applied a portion of the NOL against income tax expense for
financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1997, the Company's cash and cash equivalents
decreased by approximately $1.2 million. The decrease was primarily due to an
increase in net accounts receivable of $1.6 million, a decrease in accounts
payable, accrued compensation expense and accrued liabilities of $1.3 million,
which were offset by increased operating cash flows of $2.0 million.
The Company had a working capital deficit of $100,000 at June 30, 1997. Working
capital was negatively impacted by a net of $1.0 million as a result of
reclassifying from long-term to current the amounts outstanding under the
Company's line of credit agreements. Additionally, the working capital deficit
includes $1.3 million of customer deposits and $1.7 million of unearned income
which will not require cash payment by the Company.
Subsequent to June 30, 1997, the Company received approximately $18.0 million in
net proceeds from the sale of 2,000,000 shares of its common stock at $10.00 per
share in conjunction with the effectiveness of the Registration Statement filed
with the Securities and Exchange Commission on Form S-1.
<PAGE> 16
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company entered into a Loan and Security Agreement with a bank. Pursuant to
the Agreement, the bank agreed to make available to the Company a revolving
credit facility, the maximum principal amount of which at any time must be equal
to the lesser of $5 million or the "borrowing base" then in effect. Interest
will accrue at a variable rate per annum equal to the prime rate plus 0.25%.
Under the terms of the Agreement, the Company granted to the bank a security
interest in all accounts, inventory, equipment and general intangibles.
Additionally, borrowings under this agreement are secured by the outstanding
capital stock of the Company's subsidiaries. The Company's subsidiaries have
also guaranteed the Company's obligations to the bank under the Agreement. The
Company utilized $1.5 million from this newly acquired revolving credit facility
to pay down and terminate the $1.5 million line of credit outstanding with
another bank.
The Company believes that its available cash, cash equivalents and cash to be
generated from its future results of operations will be sufficient to meet the
Company's operating requirements, assuming no change in the operation of the
Company's business, for at least the next twelve months. While the Company
continually evaluates potential acquisitions, the Company has no present
agreements or commitments with respect to any acquisitions, nor are negotiations
regarding any acquisitions currently ongoing.
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 June 30, 1997.
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor any of its subsidiaries is currently a
party to nor is any of their property the subject of any legal
proceedings which would be material to the business or financial
condition of the Company on a consolidated basis. On July 17, 1997, the
Company was, however, served with an administrative subpoena duces
tecum issued by the United States Department of Health and Human
Services, Office of Inspector General (the "Subpoena"), in connection
with the Inspector General's investigation of certain health care
businesses. Government officials have confirmed to the Company that
neither the Company nor any of its officers or employees are the
target or subject of the investigation. The Company does not
currently believe that this inquiry will have any material effect on
its overall business
Item 2. Change in Securities.
On June 30, 1997 (the "Effective Date"), pursuant to
stockholder approval, the Company effectuated a one-for-two reverse
stock split (the "Reverse Split") of its outstanding common stock, par
value $.001 per share (the "Common Stock"), pursuant to which each two
shares of the Common Stock then outstanding was converted into one
share of Common Stock. As a result of the Reverse Split, the number of
whole shares of Common Stock held by a stockholder of record as of the
Effective Date is equal to the number of shares of Common Stock held
immediately prior to the Effective Date divided by two, plus cash in
lieu of any fractional share. The fair value of an outstanding share of
Common Stock held immediately after the Reverse Split on the Effective
Date was determined to be $12.00 per share and was applied for purposes
of determining the amount of cash payable for fractional shares. The
Reverse Split did not affect a stockholder's percentage ownership in
the Company or proportional voting power, except for minor differences
resulting from the payment of cash in lieu of fractional shares. The
shares of Common Stock resulting from the Reverse Split are fully paid
and nonassessable. The voting rights and other rights and privileges of
the holders of the Common Stock were not affected by the implementation
of the Reverse Split. Each stockholder on the Effective Date continued
to be a stockholder as a result of the Reverse Split and continued to
share in the Company's assets, earnings or profits, if any, to the
extent of such stockholder's ownership of Common Stock after the
Reverse Split.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1997 Annual Meeting of Stockholders (the "Annual Meeting")
was held on June 21, 1997. At the Annual Meeting, holders of 10,925,239
shares of the Company's Common Stock were present in person or by
proxy. At the Annual Meeting, Messrs. Gary M. Bremer, James R.
Henderson, William J. Simione, Jr., Murali Anantharaman, James A.
Gilbert, Richard D. Jackson and Barrett C. O'Donnell were elected
directors of the Company to hold office until the next Annual Meeting
of Stockholders and until their respective successors are elected and
qualified or until their earlier resignation or removal. The tabulation
of votes present in person or by proxy at the Annual Meeting with
respect to each nominee for office are as follows:
<TABLE>
<CAPTION>
Authority
For Withheld
--- --------
<S> <C> <C>
Gary M. Bremer 10,924,839 400
James R. Henderson 10,924,839 400
William J. Simione, Jr. 10,924,839 400
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C>
Murali Anantharaman 10,924,839 400
James A. Gilbert 10,924,839 400
Richard D. Jackson 10,924,839 400
Barrett C. O'Donnell 10,924,839 400
</TABLE>
The stockholders of the Company also voted on proposals to: (1)amend
the Company's Certificate of Incorporation, as amended, to effect the Reverse
Split ("Proposal 2"); (2)approve the Simione Central Holdings, Inc. Omnibus
Equity-based Incentive Plan ("Proposal 3"); (3)approve the Simione Central
Holdings, Inc. 1997 Non-Qualified Formula Stock Option Plan ("Proposal 4"); and
(4)ratify the appointment of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1997 ("Proposal 5").
The tabulation of votes with respect to the foregoing proposals are as
follows:
<TABLE>
<CAPTION>
For Against Abstain Unvoted
--- ------- ------- -------
<S> <C> <C> <C> <C>
Proposal 2 10,924,839 400 0 1,110,820
Proposal 3 10,914,685 400 10,154 1,110,820
Proposal 4 10,914,685 4,400 6,154 1,110,820
Proposal 5 10,921,019 4,220 0 1,110,820
</TABLE>
Item 5. Other Information
On August 7, 1997, Columbia/HCA Healthcare Corporation
("Columbia/HCA") announced that it intends to sell its home health care
operations. The Company derives a substantial amount of its revenues from
contracts with affiliates of Columbia/HCA and presently anticipates that
Columbia/HCA will account for a significant portion of the Company's revenue
for the fiscal year ending December 31, 1997. At this time, the Company cannot
determine the impact on the Company in the event such sale occurs. The loss of
any of the Columbia/HCA affiliates as a customer could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The following Exhibits are filed as part of this Quarterly Report on
Form 10-Q:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as filed
with the Securities and Exchange Commission).
3.2 Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).
3.3 Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference to
Exhibit 3.5 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
3.4 Certificate of Amendment of the Certificate of Incorporation
of Simione Central Holdings, Inc., filed June 30, 1997 with
the Secretary of State of the Sate of Delaware (Incorporated
by reference to Exhibit 3.3 of the Company's Current
</TABLE>
<PAGE> 19
Report on Form 8-K dated July 9, 1997 as filed with the
Securities and Exchange Commission).
4.1 Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
10.1 Amendment 2 to Agreement for Information Technology Services
between SC Holding, Inc. and Integrated Systems Solutions
Corporation dated July 31, 1997.
10.2 Loan and Security Agreement by and between National Bank of
Canada and the Company, dated as of June 6, 1997 (Incorporated
by reference to Exhibit 10.34 of the Company's Current Report
on Form 8-K dated June 27, 1997 as filed with the Securities
and Exchange Commission).
10.3 Simione Central Holdings, Inc. Omnibus Equity-based Incentive
Plan (Incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-1 (Registration
Number 333-25551) as filed with the Securities and Exchange
Commission).
10.4 Simione Central Holdings, Inc. 1997 Non-Qualified Formula
Stock Option Plan (Incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-1
(Registration Number 333-25551) as filed with the Securities
and Exchange Commission).
11.1 Computation of Earnings per Share.
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on June 27, 1997
announcing the execution of a Loan and Security Agreement by and between
National Bank of Canada and the Company dated as of June 6, 1997.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMIONE CENTRAL HOLDINGS, INC.
Dated: August 13, 1997 By: /s/ James R. Henderson
--------------------------
JAMES R. HENDERSON
Chief Executive Officer and President
Dated: August 13, 1997 By: /s/ Lori N. Siegel
---------------------------
LORI N. SIEGEL
Chief Financial Officer
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as filed
with the Securities and Exchange Commission).
3.2 Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).
3.3 Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference to
Exhibit 3.5 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
3.4 Certificate of Amendment of the Certificate of Incorporation
of Simione Central Holdings, Inc., filed June 30, 1997 with
the Secretary of State of the Sate of Delaware (Incorporated
by reference to Exhibit 3.3 of the Company's Current Report on
Form 8-K dated July 9, 1997 as filed with the Securities and
Exchange Commission).
4.1 Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
10.1 Amendment 2 to Agreement for Information Technology Services
between SC Holding, Inc. and Integrated Systems Solutions
Corporation dated July 31, 1997.
10.2 Loan and Security Agreement by and between National Bank of
Canada and the Company, dated as of June 6, 1997 (Incorporated
by reference to Exhibit 10.34 of the Company's Current Report
on Form 8-K dated June 27, 1997 as filed with the Securities
and Exchange Commission).
10.3 Simione Central Holdings, Inc. Omnibus Equity-based Incentive
Plan (Incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-1 (Registration
Number 333-25551) as filed with the Securities and Exchange
Commission).
10.4 Simione Central Holdings, Inc. 1997 Non-Qualified Formula
Stock Option Plan (Incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-1
(Registration Number 333-25551) as filed with the Securities
and Exchange Commission).
11.1 Computation of Earnings per Share.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SC Holding, Inc., a corporation having a place of business at 6600 Powers Ferry
Road, Atlanta, GA 30339, ("SCHI"), and Integrated Systems Solutions Corporation,
having its headquarters at Route 100, Somers, New York 10589 ("ISSC"), agree
that the following terms and conditions ("Amendment 2") amend and/or supplement
the Agreement for Information Technology Services, dated January 4, 1996,
between Central Health Management Services, Inc. (NCHMS") and ISSC (the
"Agreement"). This Amendment 2 includes, by either incorporation or correction,
applicable previous Amendments, Schedules, Supplements and Letter Agreements and
changes the section(s) of the Agreement, Schedules, Supplement and previous
Amendments as indicated below. Unless modified herein, all other terms defined
in the Agreement, Schedules, Supplement and any previous Amendments shall have
the same meaning when used in this Amendment. All terms and conditions of the
Agreement, Schedules, Supplement and subsequent Amendments not otherwise
specifically amended or supplemented herein remain unchanged and in full force
and effect.
The Term of this Amendment will begin as of the date it is executed by the
Parties or upon commencement of any Services provided hereunder, whichever is
first, and will run concurrently with the Agreement. Termination provisions of
the Agreement apply to this Amendment.
1. AGREEMENT
1.1 TITLE PAGE, SECTION 2
Central Health Management Services, Inc. ("CHMS") is changed to SC
Holding, Inc. ("SCHI") and all references to Central Health Management
Services, Inc. or CHMS in the Agreement, Schedules or Supplement shall
be deemed to mean SC Holding, Inc. or SCHI as applicable.
1.2 SECTION 4.1(A)
For consistency with the Transition Plan described in Schedule H, a
period "." has been inserted in the 8th line after "Commencement Date",
and remainder starting with " which period shall --" is deleted.
Section 4.1 (a) of the Agreement shall be as follows;
Within thirty (30) days after the Effective Date, ISSC and CHMS
will complete the development and preparation of, and will reach
agreement on, the details of the "Transition Plan" set forth in
Schedule H, describing the transition from CHMS to ISSC of the
Affected Employees; the transition of the administration,
management and financial responsibility for the Third Party
Agreements; and the transition of the performance of the
functions, responsibilities and tasks currently performed by CHMS
which constitute a part of the Services. The Transition Plan
shall be implemented and completed over a mutually agreed period
as set forth in the Transition Plan starting on the Commencement
Date.
1.3 SECTION 12
The following has been added as a new Section 12.7;
12.7 YEAR 2000
ISSC is not providing any Year 2000 services (for example, Year 2000
assessment, conversion or testing) under this Agreement. ISSC shall not
be responsible for its failure to perform any of its obligations
(including, for example, meet Performance Standards or Minimum Service
Levels) under this Agreement, if such failure is the result, directly
or indirectly, of the inability of (1) a customer's, (2) a third
party's, or (3) ISSC's (previously installed or out of scope) products
(for example, software, hardware or firmware) ("Other Products") to
correctly process, provide, and/or receive date data and properly
exchange accurate date data with products or deliverables provided by
ISSC under this Agreement. ISSC assumes no responsibilities or
obligations to cause products or deliverables provided by ISSC to
accurately exchange date data with such Other Products or to cause such
Other Products to accurately exchange date data with products or
deliverables
<PAGE> 2
provided by ISSC unless such Other Products can properly exchange
accurate date data with products or deliverables provided by ISSC under
this Agreement.
2. AMENDMENT I - (NAME CHANGE AMENDMENT)
The company name in Amendment 1 is revised to correct Simione Central Holding,
Inc. to read "SC Holding, Inc.".
3. SCHEDULE C
Schedule C is now Intentionally Blank as there are no SCHI Machines being used
by ISSC to provide the Services.
A revised Schedule C dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
4. SCHEDULE D
Schedule D has been updated to reflect the new processing equipment being used
by ISSC to provide the Services.
A revised Schedule D dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
5. SCHEDULE E
5.1. SECTION E-I.IV. B.
Added the following SCHI responsibility as Section E-I.IV.B.10:
10. provide ISSC with access to all SCHI remote sites, as required, for
problem diagnosis and resolution of WAN problems.
5.2 SECTION E- I.VIII
Added new "Section E-l.Vlll Operational Responsibilities" referencing
the Operational Responsibilities Matrices set forth in Exhibit E-2.
5.3 SECTION E-2.111.B
Changed references to Chart E-3 to Chart E-2.
5.4 EXHIBIT E-1 CHART E-3
Changed Chart E-3 Network Response Time to Chart E-2 Network Response
time.
5.5 EXHIBIT E-1 CHART E-4, ITEM #3
Deleted all the bullet items - Initial Response Time:, Closure of
Workaround:, PMR Status Update:, Required; Resolution Plan: and
Severity 1: - in their entirety.
5.6 EXHIBIT E-2
Inserted the Operational Responsibilities Matrices agreed to by ISSC
and SCHI under Letter Agreement dated March 6, 1996 as Exhibit E-2 of
Schedule E.
A revised Schedule E dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
6. SCHEDULE G
Inserted the listing of SCHI's Critical Applications Libraries to Section G-3 of
Schedule G.
A revised Schedule G dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
7. SCHEDULE H
<PAGE> 3
7.1 SECTION H-1 STOP 2
Deleted the second to last bullet ["Move Processor A and Processor B to
ISSC facility (scheduled to be completed 611/96)] and replaced with the
following:
[ Begin remote operation of Processor A and Processor B from ISSC
facility June 1, 1996.
7.2 SECTION H-1 STOP 3
(a Deleted the last three items (Upgrade Processor A ....... ;
Migrate and consolidate ..... : and Idle Processor B) and
inserted the following:
[ Migrate and consolidate all Processor A and Processor
B applications to new PowerPC Processor at ISSC's
Data Center by March 15, 1997
(b Added the following as new items in Step 3"
( SCHI and ISSC agree to develop a data archive
approach by August 31, 1997 to move historical data
from disk to another storage media (such as tape)
( SCHI shall remove all product development activity
from production processors by March 31, 1998. The
Parties shall conduct a checkpoint meeting by October
31, 1997 to finalize the transition plan for such
removal.
( SCHI shall remove all MSI applications and production
datasets from production Processors by October 31,
1997
7.3 SECTION H-1 STEP 4
Deleted the heading and text in their entirety and replaced with the
following:
STEP 4: SUBSEQUENT POWERPC UPGRADES, BEGIN AFTER ISSC DETERMINES THAT
ADDITIONAL SCHI BUSINESS VOLUMES WARRANT IMPLEMENTATION OF STEP 4.
( Upgrade Processor C to PowerPC technology
( Place Processor C into production as required for additional
new SCHI customers
A revised Schedule H dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
8. SCHEDULE J
8.1 SECTION IV.A
The "Assumed Protection Index" table following the second paragraph has
been deleted and replaced with the "Protection Index" table previously
agreed to by the Parties under the February 13, 1996 letter agreement.
8.2 SECTION IV.B
The "Assumed Actual Inflation' chart has been updated to substantiate
examples used in later Sections.
8.3 SECTION IV.C
This Section has been updated with the new Protection Indices and
Assumed Actual Inflation numbers and COLA example has been recalculated
using same.
8.4 SECTION VI.K
(a Deleted the first phrase of the first sentence "CHMS has
stated ..... December 1997," and inserted the following:
<PAGE> 4
SCHI shall remove MSI software, datasets and development processing
from the ISSC processor(s) no later than October 31, 1997, ...
(b Deleted the first phrase of the sixth sentence "In the event
that .... December 1997," and replaced it with the following:
In the event that SCHI does not remove MSI software, datasets and
development processing from the ISSC processor(s) by October 31, 1997,
...
(c Deleted the last sentence "The efficiencies attributed ... per
million Customer Visits."
(d Deleted the second paragraph 'In the event that ... December
31,1997." in its entirety.
8.5 SECTION VILL
Added a new Section VIII Volume Sensitive Pricing setting forth the terms
and conditions of same.
A revised Schedule J dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
9. SCHEDULE K
9.1 ISSC WILL:
Inserted in Item #4 "for ISSC personnel only" immediately after
"privileged system access"
9.2 SCHI WILL:
Added as a new Item #1 1:
11. be responsible for its own privileged system access and
shall perform an annual revalidation of privileged authorities.
9.3 CONTROLS MAINTAINED BY ISSC
a) Inserted the following as the second sentence of the first
(single sentence) paragraph in the AS/400 Resources section :
ISSC shall be responsible for ISSC operating system libraries and
applications.
b) Inserted the following as the third paragraph of this AS/400
Resources section:
ISSC will control and be responsible for QSECOFR and all IBM
system supplied profiles.
9.4 CONTROLS MAINTAINED BY SCHI
(a Deleted paragraphs 4 (SCHI will control and be responsible for
...... ) and paragraph 5 (SCHI will coordinate the QSECOFR
....... ) in their entirety.
(b Inserted the following as a new paragraphs 4, 5 and 6:
SCHI will follow ISSC procedures to obtain approval and access to
QSECOFR. SCHI will designate one management person and one
backup who will be able to obtain the OSECOFR password. SCHI will
be responsible for maintaining the contact list and shall notify
ISSC promptly of any changes to the authorization list. ISSC will
utilize the practices it deems are necessary to control the
disclosure of a password. SCHI personnel who are provided the
password are prohibited from providing that password to any other
SCHI employee.
When SCHI performs security administration functions (user ID
processing and password authorization) the *SECADM user class and
*SECADM special authority shall be reserved only for those
employees performing such tasks. SCHI shall perform an annual
revalidation of such employees.
<PAGE> 5
SCHI shall require any user accessing any system under ISSC control to
perform an individual USERID and password validation when accessing any
ISSC system.
A revised Schedule K dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
10. SCHEDULE M
Updated Schedule M dated January 4, 1996.
A revised Schedule M dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
11. SCHEDULE P
Have included a new Schedule, Schedule P, to list and describe New Services that
the Parties have agreed to be subject to the terms and conditions of the
Agreement which will incorporate existing and future Letter Agreements executed
by the Parties.
The charges for the executed Letter Agreements are not included in the Annual
Services Charge listed in the Supplement and will invoiced as separate line
items on the monthly invoice pursuant to the payment terms of the individual
Letter Agreement. For those Letter Agreements that transcend a calendar year,
the COLA provisions of the Agreement shall apply.
A new Schedule P dated May 19, 1997 is attached and incorporated as part of this
Amendment 2 and will be updated to reflect Current Letter Agreements not
incorporated in this Amendment 2 prior to execution of this Amendment 2.
12. SUPPLEMENT
12.1 ORIGINAL CHARGES
(a Changed the Annual Services Charges Years 1997 through 2005 to
delete the charges for the Martha Jefferson Account that did
not materialize.
(b Added the Protection Index numbers agreed to in Letter
Agreement dated February 13, 1996.
12.2 VOLUME SENSITIVE CHARGES
(a Added the new "Volume Sensitive Annual Services Charges".
(b Added the Protection Index numbers agreed to in Letter
Agreement dated February 13, 1996.
(c Added the Termination Charges for Volume Sensitive Pricing.
12.3 BASELINES
(a Changed the Original Customer Visits Baselines for Years 1997
through 2005 to delete the Customer Visits attributable to the
Martha Jefferson Account that did not materialize.
(b Added the new Volume Sensitive Customer Visits Baselines.
12.4 ADDITIONAL RESOURCE CHARGE RATES (PER MONTH)
(a Added the Volume Sensitive CVC rates ($ per Visit) matrix.
(b Added "Note 1 " describing the application of Volume Sensitive
CVC Rates when computing changes in Annual Services for
acceleration or deferral of Customer Visits.
12.5 NETWORK RATES
(a Have included a new rates section for super large remote sites
using 512 Kbps communication lines.
<PAGE> 6
b) Added "Note 2' concerning performance problems when using
under-capacity backup lines.
A revised Supplement dated July 31, 1997 is attached and incorporated as part of
this Amendment 2.
VI. RESTATED SCHEDULES
Schedules A, B, F, L, I, N and O have been updated to reflect the name change
and are attached hereto dated July 31, 1997.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AMENDMENT, UNDERSTAND IT, AND
AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT
THE COMPLETE AND EXCLUSIVE STATEMENT OF THE UNDERSTANDING BETWEEN THE PARTIES
RELATING TO THIS SUBJECT SHALL CONSIST OF 1) THE AMENDMENTS, 2) THE SUPPLEMENT,
3) THE SCHEDULES, AND 4) THE AGREEMENT. THIS STATEMENT OF THE AMENDMENT
SUPERSEDES ALL PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL
OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER
DESCRIBED IN THIS AMENDMENT.
Accepted by: Accepted by:
INTEGRATED SYSTEMS SOLUTIONS CORPORATION SC HOLDING, INC.
By: /s/ M. D. Presley By: /s/ James A. Tramonte
------------------------------------- ---------------------------------
Authorized Signature Authorized Signature
M. D. Presley 7/31/97 James A. Tramonte 7/31/97
------------------------------------- ------------------------------------
Name (Type or Print) Date Name (Type or Print) Date
<PAGE> 1
EXHIBIT 11.1
SIMIONE CENTRAL HOLDINGS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Primary earnings (loss) per share:
Net income (loss) available to
to common stockholders $ 575,880 $ (345,292) $1,219,014 $ (740,093)
=========== =========== =========== =============
Weighted average shares outstanding 6,026,527 3,959,274 6,001,972 3,623,592
Add additional shares issuable upon
exercise of common stock options
and warrants 1,207,716 -- 1,236,741 --
----------- ----------- ----------- -------------
Adjusted weighted average shares outstanding 7,234,243 3,959,274 7,238,713 3,623,592
=========== =========== =========== =============
Net income (loss) per share $ 0.08 $ (0.09) 0.17 $ (0.20)
=========== =========== =========== =============
</TABLE>
Fully diluted earnings (loss) per share is not presented because fully diluted
earlings (loss) per share amounts do not differ significantly from primary
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,217,254
<SECURITIES> 0
<RECEIVABLES> 8,579,462
<ALLOWANCES> 1,376,895
<INVENTORY> 0
<CURRENT-ASSETS> 10,045,072
<PP&E> 2,662,431
<DEPRECIATION> 930,470
<TOTAL-ASSETS> 17,358,208
<CURRENT-LIABILITIES> 10,116,206
<BONDS> 0
0
0
<COMMON> 6,107
<OTHER-SE> 6,896,325
<TOTAL-LIABILITY-AND-EQUITY> 17,358,208
<SALES> 22,667,507
<TOTAL-REVENUES> 22,667,507
<CGS> 10,989,583
<TOTAL-COSTS> 10,989,583
<OTHER-EXPENSES> 10,358,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,380
<INCOME-PRETAX> 1,219,014
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,219,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,014
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
