<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, 1999
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)
<TABLE>
<S> <C>
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
</TABLE>
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:
Outstanding at
Class 4/30/98
----- -------
COMMON STOCK, $.001 PAR VALUE 8,782,729 SHARES
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<PAGE> 2
SIMIONE CENTRAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
---------------------
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998 (unaudited).
Consolidated Statements of Operations - Three Months
Ended March 31, 1999 and 1998 (unaudited).
Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1999 (unaudited).
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 (unaudited).
Notes to Consolidated Financial Statements - March
31, 1999 (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
(unaudited)
<TABLE>
<CAPTION>
March 31 December 31,
1999 1998
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,629,169 $ 10,526,816
Accounts receivable, net of allowance for doubtful
accounts of $1,858,421 and $1,674,404 respectively 7,822,297 7,679,524
Prepaid expenses and other current assets 610,416 555,770
------------ ------------
Total current assets 12,061,882 18,762,110
Purchased software, furniture and equipment, net 1,728,306 1,852,405
Intangible assets, net 8,720,589 7,137,857
Other assets 481,521 104,232
------------ ------------
Total assets $ 22,992,298 $ 27,856,604
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ -- $ 5,000,000
Accounts payable 2,144,236 1,627,328
Accrued compensation expense 245,410 577,964
Accrued liabilities 6,694,153 7,240,558
Customer deposits 1,063,207 1,144,557
Unearned revenues 2,093,891 1,870,538
------------ ------------
Total current liabilities 12,240,897 17,460,945
Accrued liabilities, less current portion 2,386,361 2,671,477
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;
8,779,329 and 8,597,729 shares issued and outstanding,
respectively 8,779 8,598
Additional paid-in capital 42,315,742 42,093,040
Accumulated deficit (33,959,481) (34,377,456)
------------ ------------
Total shareholders' equity 8,365,040 7,724,182
------------ ------------
Total liabilities and shareholders' equity $ 22,992,298 $ 27,856,604
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 4
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net revenues:
Software and services $ 4,495,572 $ 9,165,008
Agency support 2,917,436 2,808,195
Consulting services 1,496,614 1,447,012
------------ ------------
Total net revenues 8,909,622 13,420,215
Costs and expenses:
Cost of revenues 4,473,978 6,324,727
Selling, general and administrative 2,368,138 4,128,956
Research and development 1,038,366 1,816,832
Amortization and depreciation 622,530 557,867
------------ ------------
Total costs and expenses 8,503,012 12,828,382
------------ ------------
Income from operations 406,610 591,833
Other income (expense):
Interest expense (69,000) (15,579)
Interest and other income 80,365 110,726
------------ ------------
Net income $ 417,975 $ 686,980
============ ============
Net income per share $ 0.05 $ 0.08
============ ============
Weighted average common shares - basic 8,655,871 8,523,411
============ ============
Net income per share - diluted $ 0.05 $ 0.07
============ ============
Weighted average common shares - diluted 8,782,252 9,221,563
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1999
(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, 1998 8,597,729 $8,598 $42,093,040 $(34,377,456) $7,724,182
Issuance of $.001 par value common
stock from exercise of stock options 81,600 81 60,302 -- 60,383
Issuance of $.001 par value common
stock related to acquisitions 100,000 100 162,400 -- 162,500
Net income -- -- -- 417,975 417,975
--------- ------ ----------- ----------- ----------
Balance at March 31, 1999
8,779,329 $8,779 $42,315,742 $(33,959,481) $8,365,040
========= ====== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 417,975 $ 686,980
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Provision for doubtful accounts 231,749 189,748
Amortization and depreciation 622,530 557,867
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (360,548) 585,530
Prepaid expenses and other current assets (56,922) 152,023
Other assets (387,684) (460,162)
Accounts payable 516,907 (262,436)
Accrued compensation expense (332,554) 287,708
Accrued liabilities (828,206) (68,842)
Customer deposits (81,350) (168,121)
Unearned revenues 223,353 195,536
------------ ------------
Net cash provided by (used in) operating activities (34,750) 1,695,831
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies, net of cash acquired (1,800,000) (367,169)
Purchase of software, furniture and equipment (119,964) (95,229)
Increase in other intangible assets -- (71,046)
------------ ------------
Net cash used in investing activities (1,919,964) (533,444)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable (5,000,000) (772,237)
Payments of related party notes (980)
Payments on capital lease obligations (3,316) (15,065)
Proceeds from exercise of stock options and warrants 60,383 6,391
------------ ------------
Net cash used in financing activities (4,942,933) (781,891)
------------ ------------
Net change in cash and cash equivalents (6,897,647) 380,496
Cash and cash equivalents, beginning of period 10,526,816 8,266,860
------------ ------------
Cash and cash equivalents, end of period $ 3,629,169 $ 8,647,356
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 7
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
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, 1999.
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, 1998 appearing in the Company's Annual Report on
Form 10-K.
Certain prior period amounts have been reclassified to conform to the 1999
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. 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.
NOTE 2 - ACQUISITION
Effective March 26, 1999, the Company purchased substantially all the assets of
Tropical Software Services ("Tropical"), a Windows based Home Medical Equipment
(HME) Management System. The acquisition was accounted for using the purchase
method for financial reporting purposes. The purchase price of approximately
$1,963,000 has been allocated to the assets acquired and liabilities assumed
including $1,951,000 of purchased technology. Purchased technology is being
amortized over an estimated three years useful life.
NOTE 3 - MAJOR CUSTOMERS
For the three months ended March 31, 1999 and 1998, affiliates of Columbia/HCA
Healthcare Corporation accounted for approximately 31.4% and 44.0%,
respectively, of the Company's total net revenue and for 7.4% and 16.7%,
respectively, of net accounts receivable. Columbia/HCA terminated its
outsourcing contracts with the Company in December 1998 and paid a settlement
fee of $7.0 million of which $2.2 million was recognized as revenue for
services provided during the three months ended March 31, 1999. Without these
revenues the Company would have had a loss for the quarter.
<PAGE> 8
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 4 - SEGMENT RESULTS
The Company has three reportable segments: product related, outsourcing and
consulting. The Company's product related segment sells comprehensive and
flexible software solutions and services to enable home health care providers
to more effectively operate their businesses and compete in the managed care
environment. The outsourcing segment provides day-to-day personnel outsourcing
for certain critical customer operational functions. The consulting segment
assists home health care providers in addressing the challenges of reducing
costs, maintaining quality, streamlining operations and re-engineering
organizational structures.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, not including gains and losses on the
Company's investment portfolio. The accounting policies of the reportable
segments are the same as those used for the consolidated financial statements.
The revenues, operating losses and assets of the Company by business segment
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues
Product related $ 4,496,000 $ 6,039,000
Outsourcing 2,917,000 5,934,000
Consulting 1,497,000 1,447,000
----------- -----------
Total $ 8,910,000 $13,420,000
=========== ===========
Cost of sales
Product related $ 2,391,000 $ 4,021,000
Outsourcing 769,000 1,121,000
Consulting 1,314,000 1,183,000
----------- -----------
Total $ 4,474,000 $ 6,325,000
=========== ===========
Research and development
Product related $ 1,038,000 $ 1,817,000
=========== ===========
Depreciation and amortization
Product related $ 435,000 $ 415,000
Outsourcing 46,000 40,000
Consulting 95,000 89,000
Unallocated amounts
Corporate overhead 46,000 14,000
----------- -----------
Total $ 622,000 $ 558,000
=========== ===========
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Assets
Product/outsourcing related $14,806,000 $11,894,000
Consulting 4,557,000 4,713,000
Unallocated corporate
assets net of
eliminations 3,629,000 11,250,000
----------- -----------
Total $22,992,000 $27,857,000
=========== ===========
</TABLE>
NOTE 5 - INTANGIBLE ASSETS
Intangible assets at March 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK AMORTIZATION
COST AMORTIZATION VALUE PERIOD
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Developed technology $ 4,831,843 $(1,504,298) $3,327,545 4 - 5 years
Goodwill 4,239,200 (949,263) 3,289,937 9 - 10 years
Trade name 1,142,000 (259,554) 882,446 11 years
Other 1,695,021 (474,360) 1,220,661 6 - 10 years
----------- ----------- ----------
Total $11,908,064 $(3,187,475) $8,720,589
=========== =========== ==========
</TABLE>
<PAGE> 9
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1999
NOTE 6 - RESTRUCTURING CHARGES
As a result of the change in the home care business environment resulting from
the interim payment system ("IPS") which lowered the cost per visit limitations
and created restrictions on the amount of cost reimbursement per Medicare
beneficiary, the termination of the Columbia/HCA contracts, and the decision to
eliminate certain legacy development projects including the AS400 effort, the
Company incurred severance and certain other restructuring costs totaling $11.6
million in 1998. In December of 1998, Columbia/HCA terminated its contracts
with the Company and paid a settlement fee of $7.0 million of which $4.0
million reduced the restructuring charges incurred in 1998. The following table
presents a roll forward of the one time charges incurred by the Company.
<TABLE>
<CAPTION>
Balance Balance
December 31, March 31,
1998 Additions Reductions Usage 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Excess capacity $ 5,203,049 $ -- $ -- $ (376,675) $ 4,826,374
Severance 1,332,596 -- -- (332,175) 1,000,421
----------- ----------- ----------- ----------- -----------
Total restructuring costs $ 6,535,645 $ -- -- $ (708,850) $ 5,826,795
=========== =========== ===========
Accrued liability less current portion (3,864,168) (3,440,434)
-----------
Accrued liability , long term $ 2,671,477 $ 2,386,361
=========== ===========
</TABLE>
NOTE 7 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted shares:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Weighted average - basic 8,655,871 8,523,411
Common stock equivalents 126,381 698,152
--------- ---------
Weighted average - diluted 8,782,252 9,221,563
========= =========
</TABLE>
NOTE 8 - INCOME TAXES
At December 31, 1998, the Company had approximately $10.6 million of net
operating losses ("NOL") for income tax purposes available to offset future
taxable income. Such losses expire at various dates through 2013, if not
utilized, and may be subject to certain limitations for changes in ownership. 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, 1999.
NOTE 9 - RECENTLY ADOPTED ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 is effective for the Company's fiscal year ending December 31, 2000.
The Company's management does not believe that the adoption of SFAS No. 133
will have a material impact on the Company's position or results of operations.
<PAGE> 10
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 14, 1998
NOTE 10 - SUBSEQUENT EVENT
In April 1999, the Company entered into a Letter of Understanding with a bank.
Pursuant to the letter, the bank agreed to make available to the Company a
revolving line of credit, the maximum principal amount of which at any time
must be equal to the lessor of $3 million or the "borrowing base" then in
effect. Interest will accrue at a variable rate per annum equal to the prime
rate plus 1.8%. Under the terms of the letter, the Company will grant to the
bank a security interest in all accounts receivable. The terms of the letter
are subject to the bank's on-site due diligence, receipt and review of
receivables and financial information, and credit committee approval.
<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
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. 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 provision of outsourcing services. In
general, these contracts provide for the payment of monthly fees based on the
number of billed home care visits made by the customer. Revenues derived under
these contracts are recognized monthly as the related services are rendered and
typically range from several hundred thousand dollars to several million
dollars per year. As a result, the loss of any of these contracts could have a
material adverse impact on the Company's business, financial condition and
results of operations.
The Company sells its software 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 software 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.
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.
<PAGE> 12
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company defines recurring revenues as revenues derived under
multi-year contracts in addition to annual software support agreements. These
revenues were approximately $2.2 million, or 23.1% of total net revenues, for
the three months ended March 31, 1999 and $6.6 million, or 49.4% of total net
revenues for the three months ended March 31, 1998.
For the three months ended March 31, 1999 and 1998, the Company
derived 31.4% and 44.0%, respectively of its total net revenues from contracts
with affiliates of Columbia/HCA. The contracts with Columbia/HCA were
terminated on December 1, 1998 and a settlement of $7.0 million was agreed to
by both parties for the early termination of the contracts and for specific
wind down of activities to be performed by the Company through March 31, 1999.
Included in the first quarter of 1999 are revenues totaling $2.2 million from
the wind down of some Columbia/HCA agreements. Without these revenues, the
Company would have had a loss for the quarter.
The Company believes that continued enhancement of its software
systems is critical to its future success, and anticipates that investment in
existing and new products will continue as needed to support the Company's
product strategies. 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, 1999 and 1998, the Company capitalized $255,000
and $490,000, respectively, of computer software development costs.
YEAR 2000 ISSUES
Introduction. Year 2000 issues arise because many computer software
and hardware systems use only two digits to represent the year. As a result,
these systems may not process dates beyond 1999, which may cause errors in
information or system failures. Therefore, some computer software and hardware
will need to be modified prior to the Year 2000 in order to remain functional.
State of Readiness. The Company is assessing both the readiness of its
internal computer systems and the compliance of its software and computer
products licensed and sold to customers for handling Year 2000 issues. The
Company has appointed a Year 2000 Project Manager and has established a Task
Force to evaluate the Company's products and services, business operations, and
relationships with customers and business partners. The mission of the Task
Force is to actively prepare the Company's systems and assist the Company's
customers for Year 2000 issues, as well as prepare contingency plans for the
potential compromise in the performance of critical systems and services. The
Company expects to implement successfully the systems and programming changes
necessary to address the Year 2000 issues of its major software products. The
majority of STAT 2 is Year 2000 compliant and should be fully compliant by the
end of the second quarter of 1999 and DME 6.3 is currently Year 2000 compliant.
The Company is also assessing and addressing the possible effects on the
Company's operations of the Year 2000 readiness of key vendors and 3rd party
software providers. The Company's reliance on vendors and 3rd party software
providers, and therefore, on the proper functioning of their information
systems and software, means that their failure to address Year 2000 issues
could have a material impact on the Company's operations and financial results.
The Company is contacting such vendors and suppliers and while it has not
discovered any material Year 2000 issues yet, the Company can not guarantee the
performance or representations of such entities.
<PAGE> 13
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR 2000 ISSUES (CONTINUED)
Risks. The Company has not currently identified any critical assets
under its control that present a material risk of not being Year 2000 compliant
in a timely manner, or for which an acceptable alternative cannot be
implemented. As testing continues, however, it is possible that certain assets
could be identified that present a material risk of Year 2000 interruption and
it is possible that key supplies or vendors could suffer such interruptions.
Any of such interruptions or the failure of the Company to make its software
products Year 2000 compliant could have a material adverse effect on the
Company's results of operations or financial condition.
Contingency Plans. The Year 2000 Task Force is currently developing
contingency plans for Year 2000 failures. These contingency plans are in the
early stages of development and will be modified as the risk of potential Year
2000 issues continue to be addressed.
BACKLOG
The Company had backlog associated with its software of approximately
$2.8 million and $5.9 million on March 31, 1999 and 1998, 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.
RESULTS OF OPERATIONS
Net Revenues. Total net revenues for the three months ended March 31, 1999
decreased $4.5 million, or 33.6%, to $8.9 million as compared to the three
months ended March 31, 1998. This decrease includes $3.1 million attributable
to the termination of the Columbia/HCA contracts and $1.1 million attributable
to a decrease in new software sales and related services.
Cost of Revenues. Total cost of revenues decreased $1.9 million, or 29.3%, to
$4.5 million for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998. This decrease is principally the result of a
reduction in costs associated with the decrease in new software sales and
related services. As a percentage of total net revenues, total costs of
revenues increased to 50.2% for the three months ended March 31, 1999 from
47.1% for the three months ended March 31, 1998. The increase as a percentage
of total net revenues is principally due to the decrease in total net revenues.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended March 31, 1999 decreased
$1.8 million to $2.4 million as compared to the three months ended March 31,
1998. This decrease is principally attributable to the restructuring of the
Company in late 1998. The restructuring was a result of the change in the home
care business environment resulting from IPS, and the termination of the
Columbia/HCA contracts, coupled with the decision to eliminate certain legacy
development projects. As a percentage of total net revenues, selling, general
and administrative expenses were 26.6% for the three months ended March 31,
1999 compared with 30.8% for the three months ended March 31, 1998.
<PAGE> 14
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Research and Development Expenses. Research and development expenses for the
three months ended March 31, 1999 decreased $778,000, or 42.9%, as compared to
the three months ended March 31, 1998. As a percentage of total net revenues,
these expenses decreased to 11.7% for the three months ended March 31, 1999,
from 13.5% for the three months ended March 31, 1998. The decrease in expenses
and the decrease in percentage of total net revenues is principally due to the
abandonment of certain legacy development projects in late 1998.
Amortization and Depreciation. Depreciation and amortization expense for the
three months ended March 31, 1999 remained constant at approximately $600,000
as compared to the three months ended March 31, 1998.
Other Income (Expense). Interest expense for the three months ended March 31,
1999 and 1998 relates to borrowings under the Company's line of credit
agreement and capital lease obligations. Interest and other income for the
three months ended March 31, 1999 and 1998 consists principally of interest
income related to the Company's short-term cash investments and has remained
constant at approximately $100,000.
Income Taxes. At December 31, 1998, the Company had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $10.6 million, which
expire at various dates through 2013, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax credits") of
approximately $90,000 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 realized based on a weighing of evidence at March 31, 1999, and as a
result, a 100% deferred tax valuation allowance has been recorded against these
assets. For the three months ended March 31, 1999, the Company has applied a
portion of the NOL against income tax expense for financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had a working capital deficit of
$179,000 and cash and cash equivalents of $3.6 million. The Company's current
liabilities as of March 31, 1999 include customer deposits of $1.1 million and
unearned revenues of $2.1 million which will not require the use of cash by the
Company in the future.
Net cash used in operating activities for the three months ended March
31, 1999 was $35,000. In March, 1999, the Company completed the Tropical
acquisition for $1.8 million in cash and 100,000 shares of common stock at the
then fair market value of $1.63 per share. Also in March 1999, the Company
repaid a $5 million line of credit obligation to a bank.
The Company has signed a Letter of Understanding with a bank to obtain
a $3 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.
<PAGE> 15
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMPACT OF NEW ACCOUNTING STANDARDS
In 1998, the Financial and Accounting Standards Board issued SFAS No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for the Company's fiscal year ending
December 31, 2000. The Company's management does not believe that the adoption
of SFAS No. 133 will have a material impact on the Company's position or
results of operations.
<PAGE> 16
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. 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>
10.1 Promissory note dated January 19, 1999
between the Company and Jack Arthur.
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
</TABLE>
The Company filed a Current Report on Form 8-K on
February 12, 1999 announcing that it had appointed Arthur Andersen LLP as the
Company's independent accountants for the fiscal year ended December 31, 1998
and dismissed Ernst & Young LLP.
<PAGE> 17
EXHIBIT INDEX
10.1 Promissory note dated January 19, 1999 between the Company
and Jack Arthur.
27.1 Financial Data Schedule (for SEC Use Only).
<PAGE> 18
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 17, 1999 By: /s/ Barrett C. O'Donnell
-------------------------------------
BARRETT C. O'DONNELL
Chairman of the Board, Chief Executive
Officer and Acting Chief Financial Officer
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
January 19, 1999
$200,000 Place Executed: Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, Jack Arthur (the "Borrower"),
promises to pay to the order of Simione Central Holdings, Inc. (herein the
"Lender" and, along with each subsequent holder of this Note, referred to as the
"Holder"), the principal sum of TWO HUNDRED THOUSAND DOLLARS ($200,000), payable
in full on or prior to January 19, 2002 (the "Maturity Date"). Payment of
principal shall be, subject to the provisions of Exhibit A to this Note attached
hereto, made as follows: a lump sum payment of $100,000 on the 24 month
anniversary after the date hereof and $8,333.33 from month to month thereafter
for 12 months. Interest on the outstanding principal balance of this Note from
the date hereof until fully paid at the prime interest rate announced from time
to time by Wachovia Bank.
Interest shall be calculated on the basis of 365/6 days per year for
the actual number of days elapsed.
Interest, to the extent accrued, shall be paid by the Borrower upon the
Maturity Date, the acceleration of this Note or at the time the principal amount
of this Note has been paid in full, whichever is sooner.
The principal hereof and interest hereon shall be payable in lawful
money of the United States of America. The Borrower may prepay this Note in full
or in part at any time without notice, penalty, prepayment fee, or payment of
unearned interest.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and in the event
any such payment is inadvertently paid by the Borrower or inadvertently received
by the Holder, then such excess sum shall be credited as a payment of principal,
unless the Borrower shall notify the Holder, in writing, that the Borrower
elects to have such excess sum returned to it forthwith. It is the express
intent hereof that the Borrower not pay and the Holder not receive, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the Borrower under applicable law.
No act of omission or commission of the Holder, including specifically
(but without limitation) any failure to exercise any right, remedy, or recourse,
shall be effective unless set forth in a written document executed by the
Holder, and then only to the extent specifically recited therein. A waiver or
release with reference to one event shall not be construed as continuing, as a
bar to, or as a waiver or release of any subsequent right, remedy, or recourse
as to any subsequent event.
The occurrence of any one or more of the following events shall
constitute an event of default (an "Event of Default") under this Note: (a) the
failure of the Borrower to pay to the Lender as and when due and payable any and
all amounts payable by the Borrower to the Lender under the provisions of this
Note; (b) the failure of the Borrower to perform, observe, or comply with any of
the provisions of this Note; (c) the inability of the Borrower to pay debts as
they mature; (d) the filing of any petition for relief under the bankruptcy
provisions of the United States Code (entitled "Bankruptcy"), as amended, or
under any similar federal or state statute by or against the Borrower; (e) the
death of the Borrower; or (f) the resignation of employment by Borrower from
Holder or the termination of employment with cause of Borrower by Holder.
<PAGE> 2
The payment obligations of Borrower shall be accelerated upon any
occurrence of an Event of Default.
The Borrower and all sureties, endorsers, and guarantors of this Note
hereby (a) waive demand, presentment of payment, notice of nonpayment, protest,
notice of protest and all other notice, filing of suit, and diligence in
collecting this Note, or in enforcing any of its rights under any guaranties
securing the repayment hereof; (b) agree to any substitution, addition, or
release of any collateral or any party or person primarily or secondarily liable
hereon; (c) agree that the Holder shall not be required first to institute any
suit, or to exhaust his/her, their, or its remedies against the Borrower or any
other person or party to become liable hereunder, or against any collateral in
order to enforce payment of this Note; (d) consent to any extension,
rearrangement, renewal, or postponement of time of payment of this Note and to
any other indulgence with respect hereto without notice, consent, or
consideration to any of them; and (e) agree that, notwithstanding the occurrence
of any of the foregoing (except with the express written release by the Holder
or any such person), they shall be and remain jointly and severally, directly
and primarily, liable for all sums due under this Note.
Whenever used in this Note, the words "Borrower" and "Holder" shall be
deemed to include the Borrower and the Holder named in the opening paragraph of
this Note, and their respective heirs, executors, administrators, legal
representatives, successors, and assigns.
Time is of the essence of this Note.
This Note shall be construed and enforced in accordance with the laws
of the State of Georgia.
IN WITNESS WHEREOF, the undersigned Borrower has executed this
instrument under seal as of the day and year first above written.
/S/ Jack Arthur
--------------------------
Jack Arthur
<PAGE> 3
EXHIBIT A
The payment obligations of Borrower under this Note may be forgiven , in whole
or in part, by Holder in the event Borrower achieves, in the sole discretion of
the Chief Executive Officer of Holder, certain performance objectives
established by Holder and Borrower. Notwithstanding the foregoing, Holder shall
have sole discretion concerning whether to forgive any of such payment
obligations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE SIMIONE CENTRAL HOLDINGS, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,629,169
<SECURITIES> 0
<RECEIVABLES> 9,680,718
<ALLOWANCES> 1,858,421
<INVENTORY> 0
<CURRENT-ASSETS> 12,061,882
<PP&E> 1,728,306
<DEPRECIATION> 2,225,636
<TOTAL-ASSETS> 22,992,298
<CURRENT-LIABILITIES> 12,240,897
<BONDS> 0
0
0
<COMMON> 8,779
<OTHER-SE> 8,356,261
<TOTAL-LIABILITY-AND-EQUITY> 22,992,298
<SALES> 8,909,622
<TOTAL-REVENUES> 8,909,622
<CGS> 0
<TOTAL-COSTS> 4,473,978
<OTHER-EXPENSES> 4,029,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (69,000)
<INCOME-PRETAX> 417,975
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 417,975
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
