<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, 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:
<TABLE>
<CAPTION>
<S> <C>
Outstanding at
Class 7/30/99
----- -------
COMMON STOCK, $.001 PAR VALUE 8,782,729 SHARES
</TABLE>
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<PAGE> 2
SIMIONE CENTRAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 (unaudited).
Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1999 and 1998
(unaudited).
Consolidated Statements of Shareholders' Equity -
Six Months Ended June 30, 1999 (unaudited).
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 (unaudited).
Notes to Consolidated Financial Statements - June
30, 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>
June 30, December 31,
1999 1998
------------ ------------
(audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,411,247 $ 10,526,816
Accounts receivable, net of allowance for doubtful
accounts of $1,927,676 and $1,674,404 respectively 7,316,689 7,679,524
Prepaid expenses and other current assets 786,963 555,770
------------ ------------
Total current assets 10,514,899 18,762,110
Purchased software, furniture and equipment, net 1,497,031 1,852,405
Intangible assets, net 8,189,952 7,137,857
Other assets 737,354 104,232
------------ ------------
Total assets $ 20,939,236 $ 27,856,604
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ -- $ 5,000,000
Accounts payable 2,994,413 1,627,328
Accrued compensation expense 202,632 577,964
Accrued liabilities 6,244,521 7,240,558
Customer deposits 950,471 1,144,557
Unearned revenues 2,062,263 1,870,538
------------ ------------
Total current liabilities 12,454,300 17,460,945
Accrued liabilities, less current portion 2,101,245 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;
8,782,729 and 8,597,729 shares issued and outstanding,
respectively 8,783 8,598
Additional paid-in capital 42,318,255 42,093,040
Accumulated deficit (35,943,347) (34,377,456)
------------ ------------
Total shareholders' equity 6,383,691 7,724,182
------------ ------------
Total liabilities and shareholders' equity $ 20,939,236 $ 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 June 30, Six Months Ended June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Software and services $ 3,562,404 $ 9,951,431 $ 8,057,976 $ 19,116,439
Agency support 543,799 1,858,626 3,461,234 4,666,821
Consulting services 1,920,004 1,763,547 3,416,618 3,210,559
------------ ------------ ------------ ------------
Total net revenues 6,026,207 13,573,604 14,935,828 26,993,819
Costs and expenses:
Cost of revenues 4,266,694 6,657,735 8,740,673 12,996,972
Selling, general and administrative 2,203,989 3,802,875 4,572,122 7,931,831
Research and development 842,914 1,587,922 1,881,280 3,390,244
Amortization and depreciation 777,005 601,406 1,399,537 1,159,273
------------ ------------ ------------ ------------
Total costs and expenses 8,090,602 12,649,938 16,593,612 25,478,320
------------ ------------ ------------ ------------
Income (loss) from operations (2,064,395) 923,666 (1,657,784) 1,515,499
Other income (expense):
Interest expense (1,835) (8,573) (70,835) (24,152)
Interest and other income 82,362 96,080 162,728 206,806
------------ ------------ ------------ ------------
Net income (loss) $ (1,983,868) $ 1,011,173 $ (1,565,891) $ 1,698,153
============ ============ ============ ============
Net income (loss) per share $ (0.23) $ 0.12 $ (0.18) $ 0.20
============ ============ ============ ============
Weighted average common shares - basic 8,781,683 8,536,133 8,719,125 8,529,785
============ ============ ============ ============
Net income (loss) per share - diluted $ (0.23) $ 0.11 $ (0.18) $ 0.18
============ ============ ============ ============
Weighted average common shares - diluted 8,781,683 9,572,954 8,719,125 9,397,271
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 85,000 85 62,815 -- 62,900
Issuance of $.001 par value common
stock related to acquisitions 100,000 100 162,400 -- 162,500
Net income -- -- -- (1,565,891) (1,565,891)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 8,782,729 $ 8,783 $ 42,318,255 $(35,943,347) $ 6,383,691
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,565,891) $ 1,698,153
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Provision for doubtful accounts 390,626 463,991
Amortization and depreciation 1,399,537 1,159,273
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (16,091) (1,217,224)
Prepaid expenses and other current assets (231,193) (10,760)
Other assets (643,517) (1,365,419)
Accounts payable 1,367,085 256,232
Accrued compensation expense (375,332) 215,947
Accrued liabilities (1,559,509) (631,760)
Customer deposits (194,086) (333,646)
Unearned revenues 191,725 256,784
------------ ------------
Net cash provided by (used in) operating activities (1,236,646) 491,571
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies, net of cash acquired (1,800,000) (405,186)
Purchase of software, furniture and equipment (135,058) (315,510)
Increase in other intangible assets -- (71,046)
------------ ------------
Net cash used in investing activities (1,935,058) (791,742)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable (5,000,000) (773,599)
Payments of related party notes -- (980)
Payments on capital lease obligations (6,765) (39,604)
Proceeds from exercise of stock options and warrants 62,900 98,251
------------ ------------
Net cash used in financing activities (4,943,865) (715,932)
------------ ------------
Net change in cash and cash equivalents (8,115,569) (1,016,103)
Cash and cash equivalents, beginning of period 10,526,816 8,266,860
------------ ------------
Cash and cash equivalents, end of period $ 2,411,247 $ 7,250,757
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 7
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 - MAJOR CUSTOMERS
For the three months and six months ended June 30, 1999 affiliates of
Columbia/HCA Healthcare Corporation accounted for approximately 2.3% and 19.7%,
respectively, of the Company's total net revenue. 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 first quarter of 1999. Without these revenues the
Company would have had a loss for the first quarter of 1999.
<PAGE> 8
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 3 - 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
Revenue
<S> <C> <C> <C> <C>
Product related $ 3,562,000 $ 7,798,000 $ 8,058,000 $13,756,000
Outsourcing 544,000 4,012,000 3,461,000 10,027,000
Consulting 1,920,000 1,764,000 3,417,000 3,211,000
----------- ----------- ----------- -----------
Total $ 6,026,000 $13,574,000 $14,936,000 $26,994,000
=========== =========== =========== ===========
Cost of revenues
Product related $ 2,302,000 $ 4,206,000 $ 4,693,000 $ 8,242,000
Outsourcing 615,000 1,044,000 1,384,000 2,164,000
Consulting 1,350,000 1,408,000 2,664,000 2,591,000
----------- ----------- ----------- -----------
Total $ 4,267,000 $ 6,658,000 $ 8,741,000 $12,997,000
=========== =========== =========== ===========
Research and development
Product related $ 843,000 $ 1,588,000 $ 1,881,000 $ 3,390,000
=========== =========== =========== ===========
Depreciation and
amortization
Product related $ 654,000 $ 446,000 $ 1,089,000 $ 862,000
Outsourcing 12,000 44,000 58,000 84,000
Consulting 96,000 90,000 192,000 178,000
Unallocated amounts
Corporate overhead 15,000 21,000 61,000 35,000
----------- ----------- ----------- -----------
Total $ 777,000 $ 601,000 $ 1,400,000 $ 1,159,000
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Assets
<S> <C> <C>
Product/outsourcing $13,366,000 $11,894,000
related
Consulting 5,009,000 4,713,000
Unallocated corporate
assets net of eliminations 2,564,000 11,250,000
----------- -----------
Total $20,939,000 $27,857,000
=========== ===========
</TABLE>
NOTE 4 - INTANGIBLE ASSETS
Intangible assets at June 30, 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 $(1,836,592) $ 2,995,251 4-5 years
Goodwill 4,239,200 (1,068,385) 3,170,815 9-10 years
Trade name 1,142,000 (285,509) 856,491 11 years
Other 1,695,021 (527,626) 1,167,395 6-10 years
----------- ----------- -----------
Total $11,908,064 $(3,718,112) $ 8,189,952
=========== =========== ===========
</TABLE>
<PAGE> 9
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 5 - 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, June 30,
1998 Additions Reductions Usage 1999
---- --------- ---------- ----- ----
<S> <C> <C> <C> <C> <C>
Excess capacity $ 5,203,049 $ -- $ -- $ (476,579) $ 4,726,470
Severance 1,332,596 -- -- (675,375) 657,221
----------- ------ ------ ----------- -----------
Total restructuring costs $ 6,535,645 $ -- $ -- $(1,151,954) $ 5,383,691
====== ====== ===========
Accrued liability less current portion (3,864,168) (3,282,446)
----------- ------------
Accrued liability, long term $ 2,671,477 $ 2,101,245
=========== ============
</TABLE>
NOTE 6 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted shares:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average - basic 8,781,683 8,536,133 8,719,125 8,529,785
Common stock equivalents -- 1,036,821 -- 867,486
----------- ----------- ----------- -----------
Weighted average - diluted 8,781,683 9,572,954 8,719,125 9,397,271
=========== =========== =========== ===========
</TABLE>
NOTE 7 - 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 June 30, 1999.
NOTE 8 - 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
NOTE 9 - ACQUISITIONS
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.
In May, 1999 the Company entered into a definitive agreement to merge with MCS,
Inc., a wholly owned subsidiary of Mestek. For every share of outstanding
Simione Central stock, the Company will issue .85 shares of its common stock to
Mestek in the exchange. MCS is a leading provider of information systems and
services to the home healthcare industry with approximately $16.6 million
(unaudited) in revenues and $1.4 million (unaudited) in net income in 1998. MCS
markets its products under the MestaMed name. It has approximately 750
customers.
NOTE 10 - SUBSEQUENT EVENTS
In July, 1999 the Company entered into a definitive agreement to acquire Care
Centric Solutions, an emerging provider of point-of-care systems in the home
healthcare information systems' marketplace, for approximately 3.3 million
shares of newly issued preferred stock of Simione Central. The preferred stock
will be converted into common stock of the Company only upon approval of its
shareholders. Such purchase price is subject to adjustments based on various
factors including the market price of the Company's common stock during the
fourth quarter of 2000. In connection with the CareCentric merger, the Company
assumed a loan with an outstanding balance of $1.5 million. Although the
complete terms of the assumption are not final, the terms are expected to
result in the loan being payable in monthly installments with interest only
through January 2000, and principal payments through January 2003. The loan is
secured by a blanket first priority lien on the assets the Company acquired
from CareCentric.
The Company is undergoing negotiations to create a line of credit with a bank
to fund operations. The Company expects the line of credit will be fully
operational in September 1999. The terms of the line will most likely require
certain levels of liquidity to be maintained. Additionally, certain operating
results for future periods must be identified in order maintain the
availability of the line for future use.
<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 that 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 $2.3 million, or 38.2% of total net revenues and
$4.6 million, or 30.8% of total net revenues, for the three months and six
months ended June 30, 1999, respectively and $4.9 million, or 35.8% of total
net revenues and $11.0 million, or 40.6% of total net revenues for the three
months and six months ended June 30, 1998, respectively.
For the three months and six months ended June 30, 1999, the Company
derived 2.3% and 19.7%, respectively of its total net revenues from contracts
with affiliates of Columbia/HCA. For the three months and six months ended June
30, 1998, the Company derived 29.4% and 36.7%, 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
first quarter of 1999.
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 and six months ended June 30, 1999, the Company capitalized
$255,000 and $510,000, respectively, and for the three months and six months
ended June 30, 1998, the Company capitalized $736,000 and $1.2 million,
respectively, of computer software development costs. All computer software
development costs capitalized prior to 1999 were written-off during the third
quarter of 1998 when certain development projects were abandoned.
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. Both
the STAT2 product and the DME6.3 product are now 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)
Costs. The Company has incurred costs of approximately $750,000 in
addressing Year 2000 issues, consisting primarily of programming expenses and
replacing technology which was not Year 2000 compliant. The Company does not
believe that the remaining costs of achieving Year 2000 readiness will have a
material effect on the Company's results of operations or financial condition.
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
$2.2 million and $5.5 million on June 30, 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 FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net Revenues. Total net revenues for the three months ended June 30, 1999
decreased $7.5 million, or 55.6%, to $6.0 million as compared to the three
months ended June 30, 1998. This decrease includes $3.9 million attributable to
the termination of the Columbia/HCA contracts and $3.5 million attributable to
a decrease in new software sales and related services.
Cost of Revenues. Total cost of revenues decreased $2.4 million, or 35.9%, to
$4.3 million for the three months ended June 30, 1999 as compared to the three
months ended June 30, 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 70.8% for the three months ended June 30, 1999 from 49.1%
for the three months ended June 30, 1998. The increase as a percentage of total
net revenues is principally due to the decrease in total net revenues and
certain employee support costs associated with the Columbia/HCA contracts which
were incurred until May and June 1999.
<PAGE> 14
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(CONTINUED)
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended June 30, 1999 decreased $1.6
million to $2.2 million as compared to the three months ended June 30, 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 36.6% for the three months ended June 30, 1999
compared with 28.0% for the three months ended June 30, 1998.
Research and Development Expenses. Research and development expenses for the
three months ended June 30, 1999 decreased $745,000, or 46.9%, as compared to
the three months ended June 30, 1998. The decrease in expenses is principally
due to the abandonment of certain legacy development projects in late 1998. As
a percentage of total net revenues, these expenses increased to 14.0% for the
three months ended June 30, 1999, from 11.7% for the three months ended June
30, 1998. The increase in the percentage of total net revenues is principally
due to the decrease in total revenues.
Amortization and Depreciation. Depreciation and amortization expense for the
three months ended June 30, 1999 increased $176,000, or 29.2%, to $777,000 as
compared to the three months ended June 30, 1998. This increase is principally
due to the amortization of goodwill resulting from the Tropical acquisition in
March 1999.
Other Income (Expense). Interest expense for the three months ended June 30,
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 June 30, 1999 and 1998 consists principally of interest
income related to the Company's short-term cash investments and has remained
constant at approximately $90,000.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net Revenues. Total net revenues for the six months ended June 30, 1999
decreased $12.1 million, or 44.7%, to $14.9 million as compared to the six
months ended June 30, 1998. This decrease includes $7.0 million attributable to
reduced revenues from the loss of the Columbia/HCA contracts and $4.4 million
attributable to a decrease in new software sales and related services.
Cost of Revenues. Total cost of revenues decreased $4.3 million, or 32.8%, to
$8.7 million for the six months ended June 30, 1999 as compared to the six
months ended June 30, 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 58.5% for the six months ended June 30, 1999 from 48.2%
for the six months ended June 30, 1998. The increase as a percentage of total
net revenues is principally due to the decrease in total net revenues and
certain employee support costs associated with the Columbia/HCA contracts which
were incurred until May and June 1999.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the six months ended June 30, 1999 decreased $3.4
million to $4.6 million as compared to the six months ended June 30, 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 30.6% for the six months ended June 30, 1999
compared with 29.4% for the six months ended June 30, 1998.
<PAGE> 15
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(CONTINUED)
Research and Development Expenses. Research and development expenses for the
six months ended June 30, 1999 decreased $1.5 million, or 44.5%, as compared to
the six months ended June 30, 1998. The decrease in expenses is principally due
to the abandonment of certain legacy development projects in late 1998. As a
percentage of total net revenues, these expenses remained constant at 12.6%
principally due to the decrease in the expenses and a corresponding decrease in
total revenues.
Amortization and Depreciation. Depreciation and amortization expense for the
six months ended June 30, 1999 increased $240,000, or 20.7%, to $1.4 million as
compared to the six months ended June 30, 1998. This increase is principally
due to the amortization of goodwill resulting from the Tropical acquisition in
March 1999.
Other Income (Expense). Interest expense for the six months ended June 30, 1999
and 1998 relates to borrowings under the Company's line of credit agreement and
capital lease obligations. Interest and other income for the six months ended
June 30, 1999 and 1998 consists principally of interest income related to the
Company's short-term cash investments and decreased $44,000.
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 June 30, 1999, and as a
result, a 100% deferred tax valuation allowance has been recorded against these
assets.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had a working capital deficit of $1.9
million and cash and cash equivalents of $2.4 million. The Company's current
liabilities as of June 30, 1999 include customer deposits of $1.0 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 six months ended June
30, 1999 was $1.2 million. 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 value of $1.63 per share. Also in March 1999, the Company repaid a $5
million line of credit obligation to a bank. In May 1999, the Company entered
into a definitive agreement to merge with MCS, Inc., a wholly owned subsidiary
of Mestek. For every share of outstanding Simione Central stock, the Company
will issue .85 shares of its common stock to Mestek in the exchange. MCS is a
leading provider of information systems and services to the home healthcare
industry with approximately $16.6 million (unaudited) in revenues and $1.4
million (unaudited) in net income in 1998.
The Company is undergoing negotiations to create a line of credit with
a bank to fund operations. The Company expects the line of credit will be fully
operational in September 1999. The terms of the line will most likely require
certain levels of liquidity to be maintained. Additionally, certain operating
results for future periods must be identified in order maintain the
availability of the line for future use.
<PAGE> 16
SIMIONE CENTRAL HOLDINGS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Also in July, 1999 the Company entered into a definitive agreement to
acquire Care Centric Solutions, an emerging provider of point-of-care systems
in the home healthcare information systems' marketplace, for approximately 3.3
million shares of newly issued preferred stock of Simione Central. The
preferred stock will be converted into common stock of the Company only upon
approval of its shareholders. Such purchase price is subject to adjustments
based on various factors including the market price of the Company's common
stock during the fourth quarter of 2000. In connection with the CareCentric
merger, the Company assumed a loan with an outstanding balance of $1.5 million.
Although the complete terms of the assumption are not final, the terms are
expected to result in the loan being payable in monthly installments with
interest only through January 2000, and principal payments through January
2003. The loan is secured by a blanket first priority lien on the assets the
Company acquired from CareCentric.
The Company believes that the combination of its cash, cash
equivalents, cash to be generated from its future results of operations and
funds that will be made available assuming the successful completion of the
Line of Credit, 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 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> 17
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.
The Company was one of several defendants names in a
"whistleblower" lawsuit related to Medicare fraud filed under the
False Claims Act in the Northern District of Georgia (U.S. ex rel.
McLendon v. Columbia/HCA Healthcare Corp., et al., No. 97-VC-0890
(N.D. GA.)). The Company has learned that the Justice Department has
elected not to join in the claims asserted against it by Donald
McClendon, who is a former employee of an unrelated service provider
to Columbia/HCA. Although the Justice Department joined the suit with
regard to other defendants, it specifically declined to intervene with
regard to Simione Central.
While Mr. McLendon may still pursue "whistleblower" claims
against the Company directly, the Company has no knowledge whether in
light of the government's decision, Mr. McLendon will in fact do so.
The Company has not been served with the complaint in the lawsuit.
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:
Exhibit No. Description
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
None
<PAGE> 18
EXHIBIT INDEX
27.1 Financial Data Schedule (for SEC Use Only).
<PAGE> 19
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.
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
<S> <C>
Dated: August 13, 1999 By: /s/ Barrett C. O'Donnell
------------------------
BARRETT C. O'DONNELL
Chairman of the Board, Chief Executive
Officer
By: /s/ George M. Hare
------------------------
GEORGE M. HARE
Chief Financial Officer
</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 SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,411,247
<SECURITIES> 0
<RECEIVABLES> 9,164,365
<ALLOWANCES> 1,847,676
<INVENTORY> 0
<CURRENT-ASSETS> 10,514,899
<PP&E> 1,497,031
<DEPRECIATION> 2,472,005
<TOTAL-ASSETS> 20,939,236
<CURRENT-LIABILITIES> 12,454,300
<BONDS> 0
0
0
<COMMON> 8,783
<OTHER-SE> 6,374,908
<TOTAL-LIABILITY-AND-EQUITY> 20,939,236
<SALES> 14,935,828
<TOTAL-REVENUES> 14,935,828
<CGS> 0
<TOTAL-COSTS> 8,740,673
<OTHER-EXPENSES> 7,852,939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (70,835)
<INCOME-PRETAX> (1,565,981)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,565,891)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
