<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 MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 0-22162
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) 644-6700
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 4/30/98
----- -------
<S> <C>
COMMON STOCK, $.001 PAR VALUE 8,526,716 SHARES
</TABLE>
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<PAGE> 2
SIMIONE CENTRAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1998
(unaudited) and December 31, 1997.
Consolidated Statements of Operations - Three Months
Ended March 31, 1998 and 1997 (unaudited).
Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1998 (unaudited).
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 (unaudited).
Notes to Consolidated Financial Statements - March
31, 1998 (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
</TABLE>
<PAGE> 3
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,647,356 $ 8,266,860
Accounts receivable, net of allowance for doubtful
accounts of $1,662,727 and $1,915,120, respectively 8,267,038 9,025,666
Prepaid expenses and other current assets 1,005,145 1,157,168
------------ ------------
Total current assets 17,919,539 18,449,694
Purchased software, furniture and equipment, net 2,241,365 2,365,508
Intangible assets, net 7,553,438 7,448,911
Other assets 1,117,224 655,377
------------ ------------
Total assets $ 28,831,566 $ 28,919,490
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,362 $ 773,599
Accounts payable 1,614,252 1,876,688
Accrued compensation expense 848,042 560,334
Accrued liabilities 3,127,082 3,174,762
Customer deposits 1,293,532 1,460,653
Unearned revenues 1,722,709 1,527,173
Current portion of capital lease obligations 42,557 57,622
------------ ------------
Total current liabilities 8,649,536 9,430,831
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.001 par value; 20,000,000 shares authorized;
8,524,478 and 8,522,978 shares issued and outstanding,
respectively 8,524 8,523
Additional paid-in capital 41,692,499 41,686,109
Accumulated deficit (21,518,993) (22,205,973)
------------ ------------
Total shareholders' equity 20,182,030 19,488,659
------------ ------------
Total liabilities and shareholders' equity $ 28,831,566 $ 28,919,490
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
Note: The consolidated balance sheet at December 31, 1997 has been derived from
the audited consolidated financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. See the Company's December 31,
1997 Form 10-K for such complete financial statements.
<PAGE> 4
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net revenues:
Software and services $ 9,165,008 $ 5,682,442
Agency support 2,808,195 4,552,117
Consulting services 1,447,012 1,193,362
----------- -----------
Total net revenues 13,420,215 11,427,921
Costs and expenses:
Cost of revenues 6,324,727 5,472,592
Selling, general and administrative 4,128,956 3,082,317
Research and development 1,816,832 1,756,565
Amortization and depreciation 557,867 424,472
----------- -----------
Total costs and expenses 12,828,382 10,735,946
----------- -----------
Income from operations 591,833 691,975
Other income (expense):
Interest expense (15,579) (76,753)
Interest and other income 110,726 27,912
----------- -----------
Net income $ 686,980 $ 643,134
=========== ===========
Net income per share - basic $ 0.08 $ 0.11
=========== ===========
Weighted average common shares - basic 8,523,411 5,977,143
=========== ===========
Net income per share - diluted $ 0.07 $ 0.09
=========== ===========
Weighted average common shares - diluted 9,221,563 7,363,748
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 5
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Shareholders'
Shares Stock Capital Deficit Equity
--------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 8,522,978 $8,523 $41,686,109 $(22,205,973) $19,488,659
Issuance of 1,500 shares of
$.001 par value common stock
from exercise of stock options 1,500 1 6,390 -- 6,391
Net income -- -- -- 686,980 686,980
--------- ------ ----------- ------------ -----------
Balance at March 31, 1998 8,524,478 $8,524 $41,692,499 $(21,518,993) $20,182,030
========= ====== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 6
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 686,980 $ 643,134
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Provision for doubtful accounts 189,748 269,748
Amortization and depreciation 557,867 424,472
Loss on sale of assets -- 1,734
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable 585,530 (1,434,085)
Prepaid expenses and other current assets 152,023 287,093
Other assets (460,162) (29,013)
Accounts payable (262,436) (1,032,122)
Accrued compensation expense 287,708 278,171
Accrued liabilities (68,842) (302,508)
Customer deposits (168,121) (131,270)
Unearned revenues 195,536 368,452
---------- -----------
Net cash provided by (used in) operating activities 1,695,831 (656,194)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies, net of cash acquired (367,169) --
Purchase of software, furniture and equipment (95,229) (130,225)
Increase in other intangible assets (71,046) --
---------- -----------
Net cash used in investing activities (533,444) (130,225)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payment on) line of credit (772,237) 200
Principal payments and termination of capital lease obligations (15,065) (83,425)
Payments of related party notes (980) (28,702)
Proceeds from exercise of stock options and warrants 6,391 46,541
---------- -----------
Net cash used in financing activities (781,891) (65,386)
---------- -----------
Net increase (decrease) in cash and cash equivalents 380,496 (851,805)
Cash and cash equivalents, beginning of period 8,266,860 3,384,728
---------- -----------
Cash and cash equivalents, end of period $8,647,356 $ 2,532,923
========== ===========
Supplemental disclosure of non-cash investing activities
Software, furniture and equipment obtained through capital leases $ -- $ 12,180
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE> 7
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
MARCH 31, 1998
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, 1998.
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, 1997 appearing in the Company's Annual Report on Form 10-K.
Certain prior period amounts have been reclassified to conform to the 1998
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 several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. These software solutions are made available to
customers in two arrangements: a Shared Resource Solution or an In-House
Solution. The Company's Shared Resource Solution offers customers an outsourcing
opportunity which incorporates the Company's proprietary 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 is licensed to customers for use on their own
computer systems. In addition to its software solutions and related software
support services, 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 (Unaudited)
MARCH 31, 1998
NOTE 2 - ACQUISITION
Effective December 1, 1997, the Company purchased substantially all the assets
of Dezine Healthcare Solutions, Inc. ("Dezine"). The acquisition was accounted
for using the purchase method for financial reporting purposes.
Unaudited pro forma information giving effect to the acquisition as if it took
place on January 1, 1997 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
--------------
<S> <C>
Net revenues $13,230,223
Net loss $(7,429,770)
Net loss per share - basic and diluted $ (1.24)
Weighted average common shares - basic and diluted 5,977,143
</TABLE>
The three months ended March 31, 1997 pro forma net loss includes pro forma
adjustments for a $8,126,947 charge to operations for purchased in-process
research and development costs and a net charge of $52,605 for additional
amortization expense related to the allocation of the purchase price to
intangible assets. 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 or which may be obtained in the future.
NOTE 3 - INCOME TAXES
At December 31, 1997, the Company had approximately $4,640,000 of net operating
losses ("NOL") for income tax purposes available to offset future taxable
income. Such losses expire $1,824,000 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, 1998, 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, 1998.
NOTE 4 - MAJOR CUSTOMERS
For the three months ended March 31, 1998, affiliates of Columbia/HCA Healthcare
Corporation accounted for approximately 44.0% of the Company's total net revenue
and for 20.2% of net accounts receivable.
<PAGE> 9
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 1998
NOTE 5 - RECENTLY ADOPTED ACCOUNTING STANDARDS
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Per share amounts for all
periods have been presented in conformity with SFAS No. 128 requirements. The
diluted weighted average common shares were calculated by adding common stock
equivalents of 698,152 and 1,386,605 to the basic weighted average common shares
at March 31, 1998 and 1997, respectively.
In January 1998, the Company adopted the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue
Recognition," ("SOP 97-2"), which supersedes SOP 91-1. While some principles
remain the same, there are several key differences between the two
pronouncements, including accounting for multiple element arrangements. SOP 97-2
addresses revenue recognition from a conceptual level and does not specifically
provide implementation guidance. The Company, based on its reading and
interpretation of SOP 97-2, has accounted for license and services agreements
that require modifications to the software using contract accounting for both
the license fees and services. This may have resulted in a deferral of license
revenue compared to revenue recognition under SOP 91-1 for some agreements.
<PAGE> 10
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 several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. These software solutions are made available to
customers in two arrangements: a Shared Resource Solution or an In-House
Solution. The Company's Shared Resource Solution offers customers an outsourcing
opportunity which incorporates the Company's proprietary 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 is licensed to customers for use on their own
computer systems. In addition to its software solutions and related software
support services, 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 customer or for its Shared Resource Solution customers on the number of
users of the system. 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 pursuant to non-exclusive
license agreements which provide for the payment of a one-time license fee. In
accordance with SOP 97-2, these revenues are recognized when products are
delivered and the collectibility of fees is probable, provided that no
significant obligations remain under the contract. Revenues derived from the
sale of software products requiring significant modification or customization
are recognized based upon the percentage of completion method. The price of the
Company's In-House Solution varies depending on the number of software modules
licensed and the number of users accessing the system and can range from ten
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> 11
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. These revenues are recognized as the
related services are performed.
The Company typically experiences long sales cycles for information
systems and agency support services, which may extend up to one year. In
addition, the implementation period related to its information systems can range
from three months to one year.
The Company defines recurring revenues as revenues derived under
multi-year contracts in addition to annual software support agreements. These
revenues were approximately $6.6 million, or 49.4% of total net revenues, for
the three months ended March 31, 1998 and $7.2 million, or 63.3% of total net
revenues for the three months ended March 31, 1997.
For the three months ended March 31, 1998 and 1997, the Company derived
44.0% and 53.8%, respectively 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.
The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total dollar 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 ended March 31, 1998 and 1997, the Company
capitalized $490,000 and $38,000, respectively, of computer software development
costs.
The Company is in the process of analyzing Year 2000 issues with
respect to the Company's products as well as internally used software. The
Company has developed and is implementing a plan to resolve Year 2000 compliance
issues with respect to its products. At this time, the Company does not believe
that it will need to modify or replace significant portions of its internally
used software so that its computer systems will function properly with respect
to dates in the Year 2000 and beyond. The Company has initiated discussions with
its significant vendors to ensure that they have appropriate plans to remediate
potential Year 2000 issues.
BACKLOG
The Company had backlog associated with its In-House Solution of
approximately $5.9 million and $4.8 million on March 31, 1998 and 1997,
respectively. 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.
<PAGE> 12
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company enters into multi-year contracts with its customers in
connection with its Shared Resource Solution. These contracts generally provide
for the payment of monthly fees based on the number of billed home care visits
made by the customer. Accordingly, the Company does not maintain a backlog with
respect to its Shared Resources Solution.
RESULTS OF OPERATIONS
Net Revenues. Total net revenues for the three months ended March 31, 1998
increased $2.0 million, or 17.4%, to $13.4 million as compared to the three
months ended March 31, 1997. This increase includes $1.7 million attributable to
the business acquired in the Dezine Healthcare Solutions, Inc. ("Dezine")
acquisition which was effective December 1, 1997.
Cost of Revenues. Total cost of revenues increased $850,000, or 15.6%, to $6.3
million for the three months ended March 31, 1998 as compared to the three
months ended March 31, 1997. The increase includes $670,000 in costs
attributable to the business acquired in the Dezine acquisition. As a percentage
of total net revenues, total costs of revenues decreased to 47.1% for the three
months ended March 31, 1998 from 47.9% for the three months ended March 31,
1997.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended March 31, 1998 increased $1.0
million to $4.1 million as compared to the three months ended March 31, 1997.
This increase includes $540,000 in costs attributable to the business acquired
in the Dezine acquisition and the remainder principally relates to an increase
in sales personnel to market the Company's products and services. As a
percentage of total net revenues, selling, general and administrative expenses
were 30.8% for the three months ended March 31, 1998 compared with 27.0% for the
three months ended March 31, 1997.
Research and Development Expenses. Research and development expenses for the
three months ended March 31, 1998 remained constant at approximately $1.8
million, as compared to the three months ended March 31, 1997. As a percentage
of total net revenues, these expenses decreased to 13.5% for the three months
ended March 31, 1998, from 15.4% for the three months ended March 31, 1997. This
percentage decrease reflects the increase in total net revenues compared to a
relatively constant level of dollar expenditures. 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. Depreciation and amortization expense for the
three months ended March 31, 1998 increased by $130,000 to $560,000 as compared
to the three months ended March 31, 1997. This increase includes $52,000 of
amortization expense related to the $1.3 million of intangible assets recorded
in the Dezine acquisition, and the remainder relates to increased depreciation
expense.
Other Income (Expense). Interest expense for the three months ended March 31,
1998 and 1997 relates to borrowings under the Company's line of credit
agreement. Interest and other income for the three months ended March 31, 1998
and 1997 consists principally of interest income related to the Company's
short-term cash investments. The increase of approximately $83,000 is
principally attributable to the interest earned on the remaining proceeds from
the issuance of 2,000,000 shares of its common stock at $10.00 per share on July
1, 1997 in conjunction with a Registration Statement filed with the Securities
and Exchange Commission.
Income Taxes. At December 31, 1997, the Company had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $4.6 million, which
expire at various dates through 2011, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax
<PAGE> 13
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (continued)
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,
1998, 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, 1998, the Company has applied a portion of the NOL against
income tax expense for financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, the Company's cash and cash
equivalents increased by $380,000. The increase was principally attributable to
positive operating cash flows of $1.7 million, (including a reduction in
accounts receivable of $586,000), offset by a reduction to the line of credit of
$770,000 and net investment activities of $530,000.
The Company has signed a Commitment Letter with a bank to obtain a $25
million line of credit. The loan is anticipated to be closed in the next 60
days.
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 material adverse change in the
operation of the Company's business, for at least the next twelve months.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS
128"), which changes the current method of computing earnings per share. SFAS
128 requires presentation of basic earnings per share and diluted earnings per
share amounts, as defined. See Note 5 in the Notes to Consolidated Financial
Statements. SFAS 128 is effective for the Company's year ending December 31,
1997, and all prior-period earnings per share data presented have been restated
to conform with the provisions of the new pronouncement.
In January 1998 the Company adopted the American Institute of Certified
Public Accounts ("AICPA") issued Statement of Position 97-2, "Software Revenue
Recognition," ("SOP 97-2"), which supersedes SOP 91-1. While some principles
remain the same, there are several key differences between the two
pronouncements, including accounting for multiple element arrangements. SOP 97-2
addresses revenue recognition from a conceptual level and does not specifically
provide implementation guidance.
The Company has adopted FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. SFAS 130 had no impact on the consolidated financial
statements of the Company.
In June 1997 the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS 131 requires reporting segment profit or loss,
<PAGE> 14
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (continued)
certain specific revenue and expense items, and segment assets. It requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding
amounts in the enterprise's general - purpose financial statements. It requires
that all public business enterprises report information about the revenues
derived from the enterprise's products or services (or groups of similar
products and services), about the countries in which the enterprise earns
revenues and holds assets, and about major customers regardless of whether that
information is used in making operating decisions. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
intends to adopt the provisions and does not expect their application to have a
material impact on the financial statements of the Company.
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS CURRENTLY A
PARTY TO ANY LEGAL PROCEEDINGS WHICH WOULD BE MATERIAL TO THE BUSINESS
OR FINANCIAL CONDITION OF THE COMPANY ON A CONSOLIDATED BASIS. THE
COMPANY WAS, HOWEVER, SERVED ON JULY 17, 1997 WITH AN ADMINISTRATIVE
SUBPOENA ISSUED BY THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN
SERVICES, OFFICE OF INSPECTOR GENERAL (THE "SUBPOENA") IN CONNECTION
WITH THAT SUBPOENA, THE DEPARTMENT OF JUSTICE ("DOJ") HAS ADVISED THE
COMPANY THAT CERTAIN ASPECTS OF THE COMPANY'S PAST RELATIONSHIP WITH
AFFILIATES OF COLUMBIA/HCA HEALTHCARE CORPORATION ARE WITHIN THE SCOPE
OF AN ONGOING GRAND JURY INVESTIGATION. HOWEVER, THE DOJ HAS CONFIRMED
TO THE COMPANY THAT NEITHER THE COMPANY, NOR ANY OF ITS OFFICERS,
DIRECTORS OR EMPLOYEES, IS A TARGET IN THIS INVESTIGATION AND, BASED
UPON THE INFORMATION KNOWN TO THE DOJ AT THIS TIME, NEITHER THE
COMPANY, NOR ANY OF ITS OFFICERS, DIRECTORS OR EMPLOYEES, IS LIKELY TO
BECOME ONE. THE COMPANY IS COOPERATING FULLY WITH THE GOVERNMENT AND
DOES NOT CURRENTLY BELIEVE THAT THIS INQUIRY WILL HAVE ANY MATERIAL
EFFECT ON ITS OVERALL BUSINESS OR FINANCIAL CONDITION.
ITEM 2. CHANGE IN SECURITIES.
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
ITEM 5. OTHER INFORMATION.
NONE.
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 STATE 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).
3.5 AMENDED AND RESTATED BYLAWS OF THE COMPANY
(INCORPORATED BY REFERENCE TO EXHIBIT 3.3 OF THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-1
(REGISTRATION NUMBER 333-25551) AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION).
</TABLE>
<PAGE> 16
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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).
4.2 SEE EXHIBITS 3.1, 3.2, 3.3, 3.4 AND 3.5 FOR PROVISIONS OF
THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
GOVERNING RIGHTS OF HOLDERS OF SECURITIES OF THE
COMPANY.
4.3 REGISTRATION RIGHTS AGREEMENT DATED OCTOBER 7, 1996
BY AND AMONG INFOMED HOLDINGS, INC., THOSE
STOCKHOLDERS OF SIMIONE CENTRAL HOLDING, INC.
APPEARING AS SIGNATORIES TO THE REGISTRATION RIGHTS
AGREEMENT, AND THOSE STOCKHOLDERS OF INFOMED
HOLDINGS, INC. APPEARING AS SIGNATORIES TO THE
REGISTRATION RIGHTS AGREEMENT (INCORPORATED BY
REFERENCE TO EXHIBIT 10.1 OF THE COMPANY'S CURRENT
REPORT ON FORM 8-K DATED OCTOBER 8, 1996 AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION).
27.1 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY).
</TABLE>
(B) REPORTS ON FORM 8-K:
THE COMPANY FILED A CURRENT REPORT ON FORM 8-K/A ON MARCH 3,
1998 DISCLOSING CERTAIN FINANCIAL STATEMENTS IN CONNECTION WITH THE ACQUISITION
OF SUBSTANTIALLY ALL OF THE ASSETS OF DEZINE HEALTHCARE SOLUTIONS, INC., A SOUTH
CAROLINA CORPORATION FOR $9,500,000 BY THE COMPANY'S WHOLLY-OWNED SUBSIDIARY,
DHS ACQUISITION L.L.C., A GEORGIA LIMITED LIABILITY COMPANY.
<PAGE> 17
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: May 5, 1998 By: /s/
-------------------------------------
JAMES R. HENDERSON
Chief Executive Officer and President
Dated: May 5, 1998 By: /s/
-------------------------------------
LORI NADLER SIEGEL
Chief Financial Officer
<PAGE> 18
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 STATE 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).
3.5 AMENDED AND RESTATED BYLAWS OF THE COMPANY (INCORPORATED BY
REFERENCE TO EXHIBIT 3.3 OF THE COMPANY'S REGISTRATION STATEMENT
ON FORM S-1 (REGISTRATION NUMBER 333-25551) 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).
4.2 SEE EXHIBITS 3.1, 3.2, 3.3, 3.4 AND 3.5 FOR PROVISIONS OF THE
COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS GOVERNING
RIGHTS OF HOLDERS OF SECURITIES OF THE COMPANY.
4.3 REGISTRATION RIGHTS AGREEMENT DATED OCTOBER 7, 1996 BY AND AMONG
INFOMED HOLDINGS, INC., THOSE STOCKHOLDERS OF SIMIONE CENTRAL
HOLDING, INC. APPEARING AS SIGNATORIES TO THE REGISTRATION RIGHTS
AGREEMENT, AND THOSE STOCKHOLDERS OF INFOMED HOLDINGS, INC.
APPEARING AS SIGNATORIES TO THE REGISTRATION RIGHTS AGREEMENT
(INCORPORATED BY REFERENCE TO EXHIBIT 10.1 OF THE COMPANY'S
CURRENT REPORT ON FORM 8-K DATED OCTOBER 8, 1996 AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION).
27.1 Financial Data Schedule (for SEC Use Only).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIMIONE CENTRAL HOLDINGS, INC. FOR THE QUARTER ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,647,356
<SECURITIES> 0
<RECEIVABLES> 9,929,765
<ALLOWANCES> 1,662,727
<INVENTORY> 0
<CURRENT-ASSETS> 17,919,539
<PP&E> 3,601,540
<DEPRECIATION> 1,360,175
<TOTAL-ASSETS> 28,831,566
<CURRENT-LIABILITIES> 8,649,536
<BONDS> 0
0
0
<COMMON> 8,524
<OTHER-SE> 20,173,506
<TOTAL-LIABILITY-AND-EQUITY> 28,831,566
<SALES> 13,420,215
<TOTAL-REVENUES> 13,420,215
<CGS> 0
<TOTAL-COSTS> 6,324,727
<OTHER-EXPENSES> 6,503,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,579)
<INCOME-PRETAX> 686,980
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 686,980
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
