SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 7, 2000
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of registrant as specified in charter)
Delaware 000-22162 22-3209241
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
6600 Powers Ferry Road
Atlanta, Georgia 30339
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number including area code (770) 644-6700
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
The balance sheet of MCS, Inc. as of December 31, 1999 and 1998, and the
related statements of operations, and stockholders' deficit and cash flows for
the years ended December 31, 1999 and 1998, together with the related notes and
audit report of Grant Thornton, LLP are included herein as Appendix A.
(b) Pro Forma Financial Information.
Set forth below are the following unaudited pro forma condensed
consolidated financial statements:
1. Introduction to Condensed Consolidated Pro Forma Financial
Statements.
2. Pro Forma Combining Statement of Operations for the Year Ended
December 31, 1999.
3. Pro Forma Combining Balance Sheet as of December 31, 1999.
<PAGE>
Unaudited Pro Forma Financial Data
The following Unaudited Pro Forma Combining Statements of Operations for
the year ended December 31, 1999 give effect to the MCS, Inc. and Simione
Central Holdings, Inc. reverse merger as if it occurred on January 1, 1999. MCS,
Inc. and Simione each prepare its financial statements on the basis of a fiscal
year ending on December 31. The following Unaudited Pro Forma Combining Balance
Sheet as of December 31, 1999, was prepared as if the Simione/MCS merger
occurred on January 1, 1999.
The Unaudited Pro Forma Combining Statements of Operations and Unaudited
Pro Forma Combining Balance Sheet set forth below reflect several material
adjustments, including among others, adjustments to reflect the amortization of
the portion of the purchase price allocated to goodwill and other intangible
assets. The purchase price allocation is preliminary and subject to change. Any
changes to the allocation could have a material impact on the Unaudited Pro
Forma Combining Financial Statements.
The Unaudited Pro Forma Combining Financial Statements are derived from the
historical financial statements of MCS, Inc. and Simione and the assumptions and
adjustments described in the accompanying notes. Simione believes that all
adjustments necessary to present fairly such unaudited financial information
have been made. The following unaudited pro forma financial statements should be
read in conjunction with the historical financial statements of the Registrant,
which are included in its Form 10-K for the year ended December 31, 1999, and
the Form 10/A of MCS, Inc., and the financial statements and the accompanying
notes thereto of MCS, Inc. appearing elsewhere in this Report.
The Unaudited Pro Forma Combining Financial Statements do not purport to
represent what Simione/MCS's results of operations actually would have been if
the merger had occurred as of such date or what such results will be for any
future periods.
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC. and MCS, Inc.
PRO FORMA CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, 1999 Pro-Forma December 31,
1999
----------------------------------------------------------------------------
SCHI MCS, Inc. Adjustments* Consolidated
-------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 619,767 $ 47,367 $ 3,000,000 (a) $ 3,667,134
Accounts receivable, net 5,252,234 4,328,578 (1,000,000) (f) 8,580,812
Prepaid expenses and other
current assets 703,638 272,820 - 976,458
-------------- --------------- --------------- ------------------
Total current assets 6,575,639 4,648,765 2,000,000 13,224,404
Purchased software, furniture and
equipment, net 1,338,814 1,097,364 - 2,436,178
Intangible assets, net 17,442,308 27,405,311
-
(16,838,277) (c)
2,152,654 (e)
24,648,626 (c)
Other assets 885,330 949,860 (732,162) (c) 1,103,028
-------------- --------------- --------------- ------------------
Total assets $26,242,091 $6,695,989 $ 11,230,841 $ 44,168,921
============== =============== =============== ==================
</TABLE>
* See note 2.
See notes to the unaudited pro forma consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Line of credit $ 766,526 $ - $ - $ 766,526
Accounts payable 3,001,377 1,137,128 - 4,138,505
Accrued compensation expense 357,568 392,512 - 750,080
Accrued liabilities 6,523,009 1,334,377 - 7,857,386
Customer deposits 999,409 419,144 - 1,418,553
Unearned revenues 2,133,025 2,907,980 - 5,041,005
Notes payable 3,000,000 - (3,000,000) (a) -
-------------- ---------------- --------------- ------------------
Total current liabilities 16,780,916 6,191,141 (3,000,000) 19,972,057
Accrued liabilities, less current
portion 1,020,512 - - 1,020,512
Notes payable long-term 1,600,000 - (850,000) (a) 750,000
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value;
10,000,000 shares authorized; 3,035 - 5,600 (a)
(3,035) (b)
850 (a) 6,450
Common stock, $.001 par value;
20,000,000 shares authorized; 1,756 1,000 490 (d)
607 (b) 3,853
Additional paid-in capital 51,634,707 1,260,079 (17,570,439) (c) 21,100,532
(45,950,584) (d)
2,152,654 (e)
5,842,061 (a)
2,427 (b)
1,000 (d)
(1,000,000) (f)
24,648,626 (c)
Stock Warrants 1,000,000 (a) 1,000,000
Accumulated deficit (44,798,835) (756,231) 45,950,584 (d) 315,518
-------------- ---------------- --------------- ------------------
Total shareholders' equity 6,840,663 504,848 15,080,841 22,426,353
-------------- ---------------- --------------- ------------------
Total liabilities and
shareholders' equity $26,242,091 $ 6,695,989 $ 11,230,841 $ 44,168,921
============== ================ =============== ==================
</TABLE>
See notes to unaudited pro-forma consolidated financial statements
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC. and MCS, Inc.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Pro-Forma
---------------------------------------------------- -----------------------------
Proforma
SCHI Carecentric combined MCS, Inc.* Adjustments Consolidated
------------- ------------ ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Software and services $ 14,692,806 $ 1,097,258 $ 15,790,064 $16,647,477 $ - $ 32,437,541
Other 11,089,949 274,131 11,364,080 - 11,364,080
------------- ------------ ------------- ----------- ------------ -------------
Total net revenues 25,782,755 1,371,389 27,154,144 16,647,477 - 43,801,621
Costs and expenses:
Cost of revenues 16,446,560 814,015 17,260,575 10,292,017 - 27,552,592
Selling, general and
administrative 13,345,887 1,594,411 14,940,298 4,306,510 - 19,246,808
Research and development 3,967,700 836,684 4,804,384 1,321,845 - 6,126,229
Amortization and depreciation 3,545,713 123,265 3,668,978 - (2,565,178)(g)
3,716,036 (h) 4,819,836
Severance and other
restructuring charges (1,140,000) - (1,140,000) - - (1,140,000)
------------- ------------ ------------- ----------- ------------ -------------
Total costs and expenses 36,165,860 3,368,375 39,534,235 15,920,372 1,150,858 56,605,465
------------- ------------ ------------- ----------- ------------ -------------
Loss from operations (10,383,105) (1,996,986) (12,380,091) 727,105 (1,150,858) (12,803,844)
Other income (expense):
Interest expense (241,943) (486,756) (728,699) - - (728,699)
Interest and other income 203,669 - 203,669 45,072 - 248,741
------------- ------------ ------------- ----------- ------------ -------------
Net income (loss) before taxes $(10,421,379) $(2,483,742) $(12,905,121) $ 772,177 $(1,150,858) $(13,283,802)
------------- ------------ ------------- ----------- ------------ -------------
Applicable tax expense - - - 306,638 - -
============= ============ ============= =========== ============ =============
Net income (loss) from continuing
operations $(10,421,379) $(2,483,742) $(12,905,121) $ 465,539 $(1,150,858) $(13,283,802)
============= ============ ============= =========== ============ =============
Net loss per share - basic and
diluted
From continuing operations $ (5.95) $ (4.09) $ (5.47) $ 465.54 $ (3.45)
============= ============ ============= =========== =============
Weighted average common shares -
basic and diluted 1,750,238 607,000 2,357,238 1,000 3,853,305
============= ============ ============= =========== =============
</TABLE>
* MCS, Inc.'s 1999 results of operations included Discontinued Operations
which are not reflected above.
See notes to unaudited pro forma consolidated financial statements
<PAGE>
Notes to Unaudited Pro Forma
Consolidated Financial Statements
Note 1. Basis of Presentation
The Simione/MCS merger has been accounted for as a purchase transaction of
Simione by MCS for financial accounting purposes in accordance with generally
accepted accounting principles. Subsequent to the Simione/MCS merger,
approximately 39% or 1,489,853 shares of the outstanding common stock of Simione
are owned by the former MCS stockholders. Throughout this report the number of
shares and the percentage of ownership have been adjusted for a 1 for 5 reverse
stock split effected immediately prior to the merger, and the conversion of the
Series A Preferred Stock to common stock.
One of the stockholders, John E. Reed, controls, by virtue of the spin-off
of MCS to the stockholders of Mestek and the subsequent merger of MCS with and
into Simione, approximately 22% of the common stock on matters to be voted upon
by stockholders of Simione. The Series B Preferred Stock issued to Mestek has
voting rights equal to 2,240,000 shares of Simione common stock, or
approximately 37% of the total voting power. The Series C Preferred Stock,
issued to Mestek upon conversion of its promissory note at the closing of the
merger, has voting rights equal to 170,000 shares of Simione common stock, or
approximately 2.7% of the total voting power. Mr. Reed, through direct share
ownership and as trustee under various family trusts, controls approximately 57%
of the vote on matters to be voted upon by stockholders of Mestek. This voting
power at the Mestek level makes Mr. Reed capable of exercising voting power of
the Series B and Series C Preferred Stock at the Simione level. Accordingly, Mr.
Reed therefore controls, through his direct and indirect control of 22% of
Simione common stock and his indirect control of the Series B and Series C
Preferred Stock, approximately 52% of the vote on matters to be voted upon by
shareholders of Simione.
Based upon a series of transactions, specifically the spin-off of MCS from
Mestek, the shareholder approval of the Simione/MCS merger, the purchase of the
Series B Preferred Stock, the conversion of the promissory note into Series C
Preferred Stock, and the subsequent ownership structure, Simione, for accounting
purposes only, is considered the accounting acquirer. In addition, as a result
of these holdings, Mr. Reed is able to determine the composition of the MCS
board designees appointed to the Simione board, and is able to select a 13th
director to break a deadlock in the event that Simione's board is unable to
reach a decision on a vote on any matter in two consecutive board meetings. In
addition, MCS has supplied a large share of the senior management of the
combined entity. Accordingly, the assets and liabilities of Simione were
revalued in accordance with APB#16, Accounting for Business Combinations, and
the historical statements of MCS have become the historical financial statements
of Simione.
The accompanying Unaudited Pro Forma Combining Statement of Operations for
the year ended December 31, 1999 gives effect to the Simione/MCS merger (and
Simione's merger with CareCentric Solutions, Inc. as described in a previous
filing) as if they had occurred at the beginning of the period presented. The
purchase price paid and the resulting allocation of the purchase price to
intangibles and goodwill, however, continues to reflect the value established at
the date of the merger, March 7, 2000. Simione and MCS each prepare their
financial statements on the basis of a fiscal year ending on December 31. The
following Unaudited Pro Forma Combining Balance Sheet as of December 31, 1999
was prepared as if the Simione/MCS Merger occurred
<PAGE>
on January 1, 1999. All material transactions between Simione and MCS during the
periods presented have been eliminated as a pro forma adjustment. There are no
material conforming differences between the accounting policies of MCS and
Simione. The pro forma combined provision for income taxes may not represent
amounts that would have resulted had MCS and Simione filed consolidated income
tax returns during the periods presented.
Note 2. Pro Forma Adjustments
The pro forma adjustments are based on Simione's estimates of the value of
the tangible and identifiable intangible assets acquired. A valuation of the
tangible and identifiable intangible assets acquired has been conducted by an
independent third-party appraisal company. Under purchase accounting, the total
acquisition cost was allocated to Simione's assets and liabilities based on
their relative fair values.
(a) In connection with the Simione/MCS merger, Mestek, the former parent
company of MCS, invested $6.0 million (in cash and forgiveness of debt) in
Simione in exchange for the following:
- 5,600,000 shares of Series B Preferred Stock; and
- A warrant to purchase (on a split adjusted basis) 400,000 shares of
Simione common stock at a per share exercise price equal to $10.875 (on a
split adjusted basis).
The fair value of these instruments was estimated by first calculating the
value of the warrants and then assigning the remaining value from the $6.0
million in consideration to the preferred stock. The Series B Preferred Stock is
not redeemable or convertible. The warrants have no redemption feature. Hence
there is no accretion from the difference between the estimated fair market
value of the stock warrants at the issue date and their estimated redemption
prices over the term of the facility. An independent third party valuation
company calculated the fair value of the warrants as of the date of issuance at
$1.0 million. The Black-Scholes value model was used in this calculation with
the following assumptions:
Dividend yield........................................................ 0
Expected volatility................................................... 75%
Risk-free interest rate at the date of grant.......................... 5.8%
Expected life......................................................... 3 year
In addition to the $6.0 million consideration described above, non-cash
consideration consisted of approximately 8,743,100 shares (100% of the
outstanding shares) of MCS common stock. The MCS stock was exchanged for
approximately 1,489,853 shares (on a split adjusted basis) of Simione common
stock. See note (c) for discussion about the calculation of the value of
intangible assets in this reverse acquisition.
(b) The Series A Preferred Stock was converted into 606,904 shares of
Simione common stock on a share-for-share basis (effected for the 1 for 5
reverse stock split) upon the approval of the conversion by a majority of the
Simione common stockholders on March 7, 2000. For pro forma purposes, we have
assumed the Series A Preferred Stock was converted into Simione common stock
January 1, 1999.
<PAGE>
(c) For financial accounting purposes, the Simione/MCS merger is accounted
for as if MCS has acquired Simione. Accordingly, the assets and liabilities of
Simione were revalued, and the historical financial statements of MCS have
become the historical financial statements of the registrant.
In a reverse acquisition, the fair value of the issuing company's common
shares is recognized, together with adjustments necessary to reflect the issuing
company's net tangible and identifiable intangible assets at their fair value
with any remainder assigned to goodwill. The total intangibles was determined
based upon the following calculation:
Simione/MCS
MERGER
---------------------
PURCHASE ACCOUNTING:
Simione common stock 1,756,545.80
Value per share $ 7.1165
---------------------
Total value of Simione common stock $ 12,500,458
Net tangible liabilities assumed 12,148,168
Acquisition Costs 2,152,654
---------------------
Total intangibles $ 26,801,280
=====================
The impact of the $6 million Series B Preferred Stock and warrant
investment is considered in the calculation of net tangible liabilities assumed.
The exercise price and number of shares subject to outstanding Simione stock
options have been adjusted to reflect the reverse stock split; otherwise these
stock options remain unchanged. Since all option exercise prices are
significantly above Simione's current market price, these options have been
assigned a value of zero in the transaction.
The value per share of Simione common stock was determined based on the
weighted average per share price on the Nasdaq National Market System for the 5
days before and after March 7, 2000, the date of the merger.
Intangible assets of $26.8 million acquired have been allocated to specific
identifiable elements and related useful lives determined based upon an
assessment by an independent third party valuation services company. The
identifiable intangible assets are comprised of developed technology, assembled
workforce, customer base and goodwill. The table below is a summary of the
estimated amounts allocated to the long-lived assets acquired and useful lives:
<PAGE>
SIMIONE -- VALUE ASSIGNED TO ASSETS BALANCE SHEET CATEGORY ACQUIRED
Developed technology.......................... 8 Years $10.7 million
Assembled workforce........................... 5 Years 2.3 million
Customer Base................................. 9 Years 1.7 million
Goodwill...................................... 7 Years 12.1 million
-------------
$26.8 million
-------------
(d) Adjustment to reflect the elimination of common stock, additional
paid-in capital, and accumulated deficit account balances of Simione and to
adjust common shares to 3,853,305 (on a split adjusted basis) shares at par
value of $.001.
(e) Represents estimated acquisition expenses of approximately $2.2 million
related to the Simione/MCS merger considered in the purchase price.
(f) Represents estimated additional allowance for bad debt related to
Simione's accounts receivable at March 7, 2000.
(g) Adjustment to reflect the amortization expense of identifiable
intangible assets acquired in the CareCentric merger. Upon the Simione/MCS
merger, these intangible assets were eliminated and revalued in accordance with
the process described in note(c).
For the CareCentric merger, non-cash consideration consisted of 606,904
shares of Simione Series A Preferred Stock valued at $12.90. The guaranteed
value of $15.00 per common share of Simione stock after the fourth quarter of
2000 has been discounted to the purchase date, using an incremental borrowing
rate of 10%. The discounted value as of the acquisition is $12.90 per share and
coincides with the average fair market value of Simione common stock as traded
just prior to the announcement of the acquisition. Simione's stock value has not
exceeded this floor subsequent to the announcement of the merger. If Simione
common stock does not meet the guaranteed value, Simione is required to issue up
to an additional 606,904 shares of common stock to these stockholders to the
extent of the price deficiency or pay the cash equivalent.
(h) Adjustment to reflect the amortization expense of identifiable
intangible assets acquired in the Simione/MCS merger. These assets are being
amortized over periods ranging from 5 to 9 years. The estimated annual
amortization charge to operations related to intangible assets approximates $3.7
million.
(c) Exhibits.
Exhibit
Number Description
- -------- -----------
23.1 Consent of Grant Thornton LLP
<PAGE>
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 hereunto duly authorized.
SIMIONE CENTRAL HOLDINGS, INC.
Date: May 18, 2000 By: /s/ Steve Shea
-------------------------
Steve Shea
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
23.1 Consent of Grant Thornton LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 3, 2000 (except for Note 12, as to
which the date is March 7, 2000) accompanying the financial statements of MCS,
Inc. as of December 31, 1999 and 1998 and for each of the years in the three
year period ended December 31, 1999. We hereby consent to the inclusion of said
report which appears in the Current report on Form 8-K/A of Simione Central
Holdings, Inc., relating to MCS, Inc.'s above described financial statements. We
also hereby consent to the incorporation of our report included in this Form
8-K/A into the Company's previously filed Registration Statements on form S-8
(File No. 33-97772, File No. 333-51869, and File No. 333-70811).
/s/ Grant Thornton LLP
Boston, Massachusetts
May 18, 2000
<PAGE>
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENT PAGE
Report of Grant Thornton LLP Independent Certified Public Accountants .....F-2
MCS, Inc. Balance Sheets...................................................F-3
MCS, Inc. Statements of Income.............................................F-4
MCS, Inc. Statements of Stockholder's Equity (Deficit).....................F-5
MCS, Inc. Statement of Cash Flows..........................................F-6
Notes to Financial Statements..............................................F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of MCS, Inc.:
We have audited the accompanying balance sheets of MCS, Inc. as of December
31, 1999 and 1998, and the related statements of income, stockholder's equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1999. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MCS, Inc. as of December 31,
1999, and 1998, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
GRANT THORNTON LLP
Boston, Massachusetts
March 3, 2000
(except for Note 12 as to which the date is March 7, 2000)
F-2
<PAGE>
MCS, INC.
BALANCE SHEETS
December 31,
------------
1999 1998
---- ----
(Dollars in Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47 $ 60
Accounts receivable - net 4,104 3,837
Unbilled accounts receivable 224 286
Inventories 149 264
Other current assets 124 68
------ -------
Total current assets 4,648 4,515
Property and equipment -- net 920 501
Capitalized software - net 178 240
Other assets 950 23
------- ------
Total assets $6,696 $5,279
======= ======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $1,137 $ 856
Deferred revenue 2,908 3,150
Customer deposits 419 689
Accrued commissions 392 787
Payable to parent company 673 --
Other accrued liabilities 662 778
------ -------
Total current liabilities 6,191 6,260
===== ========
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock -- par value $1 per share,
1,000 shares issued 1 1
Paid in capita 1,260 230
Accumulated deficitv (756) (1,212)
------- --------
Total stockholder's
equity (deficit) 505 (981)
------- --------
Total liabilities and
stockholder's deficit $ 6,696 $ 5,279
======== ========
See Accompanying Notes To Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MCS, INC.
STATEMENTS OF INCOME
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
(In Thousands, Except Share and Per Share Data)
<S> <C> <C> <C>
Net service revenues $16,648 $14,901 $15,433
Cost of service revenues 10,292 9,225 8,885
--------- --------- ---------
Gross profit 6,356 5,676 6,548
Selling expense 2,714 2,223 1,924
General and administrative expense 1,593 1,557 1,735
New product development 1,322 231 -
--------- --------- ---------
Operating profit 727 1,665 2,889
Other income (expense), net 45 47 74
--------- --------- ---------
Income from continuing operations
before taxes 772 1,712 2,963
Income taxes 306 686 1,195
--------- --------- ---------
Income from continuing operations $466 $1,026 $1,768
Discontinued operations:
Income from operations of
discontinued segment before taxes 251 671 401
Applicable income tax expense 100 268 160
--------- --------- ---------
Income from operations of
discontinued segment 151 403 241
--------- --------- ---------
Net income $617 $1,429 $2,009
========= ========= =========
Basic and diluted weighted average
shares outstanding 1,000 1,000 1,000
========= ========= =========
Basic and diluted earnings per share:
Continuing Operations $466 $1,026 $1,768
Discontinued Operations 151 403 241
--------- --------- ---------
$617 $1,429 $2,009
========= ========= =========
</TABLE>
See Accompanying Notes To Financial Statements.
F-4
<PAGE>
MCS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Paid In Accumulated
Stock Capital Deficit Total
----- ------- ------- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Balance (Deficit) December 31, 1996 $1 $230 ($1,543) ($1,312)
Net income 2,009 2,009
Dividends paid (2,337) (2,337)
---------- ---------- ---------- ----------
Balance (Deficit) December 31, 1997 $1 $230 ($1,871) ($1,640)
Net income 1,429 1,429
Dividends paid (770) (770)
---------- ---------- ---------- ----------
Balance (Deficit) December 31, 1998 $1 $230 ($1,212) ($981)
Net income 617 617
Distribution of ProfitWorks Division 80 80
Contribution to Paid in Capital 950 950
Dividends paid (161) (161)
---------- ---------- ---------- ----------
Balance (Deficit) December 31, 1999 $1 $1,260 ($756) $505
========== ========== ========== ==========
See Accompanying Notes To Financial Statements.
</TABLE>
F-5
<PAGE>
MCS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $617 $1,429 $2,009
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 240 194 119
Provision for losses on accounts
receivable, net of write-offs -- 163 85
Changes in assets and liabilities net of effects
of acquisitions and dispositions:
Accounts receivable (267) (266) (455)
Unbilled accounts receivable 62 (38) (74)
Inventory 115 129 37
Accounts payable 281 (251) 288
Other liabilities 557 89 120
Deferred revenue (242) (55) 306
Customer deposits (270) 30 --
Accrued commissions (395) (87) 76
Other assets (983) (19) (2)
---------- ---------- ----------
Net cash provided by (used in) operating activities (285) 1,318 2,509
---------- ---------- ----------
Cash Flows From Investing Activities:
Capital expenditures - Continuing Operations (597) (527) (158)
Capital expenditures - Discontinued operations -- (1) (8)
---------- ---------- ----------
Net cash used in investing activities (597) (528) (166)
---------- ---------- ----------
Cash Flows From Financing Activities:
ProfitWorks Distribution 80 -- --
Contribution to paid in capital 950 -- --
Dividends paid (161) (770) (2,337)
---------- ---------- ----------
Net cash provided by (used in) financing activities 869 (770) (2,337)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (13) 20 6
Cash and cash equivalents -- beginning of period 60 40 34
---------- ---------- ----------
Cash and cash equivalents -- end of period $47 $60 $40
========== ========== ==========
See Accompanying Notes To Financial Statements.
</TABLE>
F-6
<PAGE>
MCS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description Of Business
- -----------------------
MCS, Inc. (the Company) provides information systems and services to the
home health care industry under the name MestaMed.
The Company is a wholly owned subsidiary of Mestek, Inc. ("Mestek"), a
public company traded on the New York Stock Exchange. Inter-company transactions
between Mestek and the Company are generally limited to management fees, federal
income tax allocations, cash advances and cash distributions. The net effect of
cash flows between Mestek and the Company, whether net contributions from Mestek
or net distributions to Mestek, are reflected at year-end in the Stockholder's
Equity section of the Company's balance sheet as paid in capital or
inter-company dividends, respectively. At interim periods, the net effect of
such cash flows is generally recorded as an open intercompany account.
Mestek, Inc. and MCS, Inc. have maintained a long standing practice
relative to consolidated federal income tax allocations under which a portion of
Mestek's consolidated federal income tax liability, including as appropriate
deferred taxes, is allocated to MCS, Inc. each year and is recorded by both
entities as an inter-company receivable/payable. Mestek, Inc. and Simione
Central Holdings, Inc. ("Simione") have agreed pursuant to the Merger Agreement,
as more fully described in Note 12, to continue this practice through the date
of the closing. Similarly, an allocation of Mestek's corporate overhead is
recorded by both parties on a monthly basis through the intercompany account.
Pursuant to the Merger Agreement, Mestek and Simione agreed that monthly
management fees will continue through the date of the closing.
Use Of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
- -------------------
In 1998, the Company adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", which
F-7
<PAGE>
supersedes SOP-91. The adoption of SOP 97-2 did not have a material impact on
the Company's Financial Statements.
The Company typically delivers its principal product, MestaMed, in the form
of bundled, turnkey systems, including hardware, software, and first year
software maintenance and support. The Company typically recognizes revenues for
these systems upon receipt of a signed purchase agreement, payment of a 20%
deposit, and delivery of the system. Total payment for these systems is fixed,
determinable, and probable. These systems do not typically require significant
post-delivery obligations. The Company's revenue recognition method for MestaMed
is in accordance with the "residual value method" as provided in SOP 98-9.
Revenues for post-contract customer support are recognized ratably over the
term of the support period, which is typically one year. Post contract customer
support fees typically cover incremental product enhancements, "bug fixes", etc.
Separate fees are charged for new modules, additional users, and migrations to
different operating system platforms.
Subsequent to system shipment, the Company frequently delivers a variety of
add-on software and hardware components. Revenues from these sales are
recognized upon shipment.
In addition to software licenses, software maintenance and support, and
related hardware, the Company also provides a number of ancillary services
including training, consulting and after-hours support. Revenues from such
services are recognized monthly as such services are performed.
Unbilled receivables typically represent revenues from ancillary services
performed and earned in the current period but not billed until subsequent
periods, usually within one month.
Property And Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income for the period.
Software Development Expenses
- -----------------------------
SFAS No. 86 requires that software development costs incurred subsequent to
the establishment of technological feasibility for the product be capitalized.
The Company has no capitalized development costs.
New Accounting Standards
- ------------------------
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income" established standards for the reporting and display of
comprehensive income. For the years ended December 31, 1999, 1998, and 1997,
respectively, the components of other comprehensive income were not material.
F-8
<PAGE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 131, which was effective for fiscal years beginning
after December 15, 1997. SFAS 131 requires, in general, a "management approach"
rather than an "industry approach" to the disclosure of segment information. The
Company adopted SFAS 131 in 1998 and prepared its segmental reporting
accordingly as reflected in Note 9 to the Financial Statements.
Reclassification
- ----------------
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
2. INVENTORIES
Inventories consist principally of computer equipment held for resale and
related operating system licenses. Inventories are valued at the lower of cost
or market.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31, DEPRECIATION AND
AMORTIZATION
ESTIMATED
1999 1998 USEFUL LIVES
---- ---- -------------------
Furniture and Fixtures $315,000 $180,000 10 years
Computer equipment 1,483,000 1,021,000 5 years
--------- ---------
1,798,000 1,201,000
Accumulated depreciation (878,000) (700,000)
---------- ----------
$920,000 $501,000
========== ==========
Depreciation expense was $178,000, $128,000 and $100,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
4. CAPITALIZED SOFTWARE
In June 1999, the Company entered into an agreement with Winfield Software,
Inc. to develop specifications and design layouts for Phase I of a new
generation of MestaMed. Phase I is intended to produce a next-generation version
of MestaMed comprising billing and operational functionality targeted to home
medical equipment providers. Phase I is divided into two stages.
The first stage, incorporating the specifications and design layout was
produced by Winfield Software, at a cost of $300,000, which amount was expensed
as New Product
F-9
<PAGE>
Development expense in 1999. At the conclusion of the first stage, the Company
expects that technological feasibility will have been established and,
accordingly, the second stage of the development project, which is expected to
cost approximately $1,200,000, will begin. The second stage will consist of
implementing the specifications and generating the software code. It is expected
that the second stage will be completed prior to December 31, 2000. In
accordance with SFAS No. 86, the Company expects to capitalize and amortize the
cost of the second stage over an appropriate period.
The Company's capitalized software represents Mentor/CBT, a computer-based
training tool and content set acquired from a third party in February 1998 at a
cost of approximately $213,000. Mentor/CBT is being amortized over sixty months
using the straight-line method. Mentor/CBT is used by the Company to develop and
organize training programs and other CBT (computer-based training) content to
assist in the implementation of MestaMed and other software applications.
5. INCOME TAXES
The Company accounts for income taxes using the asset/liability method,
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities.
Income Tax Expense consisted of the following:
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
Current federal income tax $ 239 $ 534 $ 936
Current state income tax 67 152 259
---------- ---------- ---------
$ 306 $ 686 $ 1,195
========== ========== =========
Total Income Tax Expense was essentially equal to "expected" income tax
expense computed by applying the U.S. Federal Income Tax rate of 35 percent, and
related state corporate income tax rates, to earnings before income tax.
Deferred income tax assets and liabilities were not material at December
31, 1999, 1998, or 1997.
For Federal Income Tax purposes, the Company files a consolidated return
with its parent, Mestek, Inc. The Company's income tax provision,
notwithstanding, is computed on a stand-alone basis.
F-10
<PAGE>
6. STOCKHOLDER'S EQUITY (DEFICIT)
The Company has authorized common stock of 1,000 shares with a par value of
$1 per share. One thousand shares are issued and outstanding and are held by
Mestek, Inc. as of December 31, 1999, 1998, and 1997. The Company's authorized
common stock was increased on March 7, 2000 in connection with the Merger
Agreement as more fully explained in Note 12.
7. LEASES
The Company leases office space in suburban Pittsburgh, Pennsylvania on an
operating lease basis. In addition to a basic annual rent, the Company is
obligated to pay property taxes on the premises to the extent they exceed those
in effect in 1990. No such excess occurred in either 1999, 1998 and 1997.
Rent expense under the lease totaled $457,000, $302,000, and $252,000 for
the years ended December 31, 1999, 1998, and 1997, respectively.
Future minimum lease payments under the lease agreement as of December 31,
1999 are as follows:
Operating
Year ending December 31, Leases
- ----------------------- ------
2000 $353,000
2001 362,000
-------
Total minimum lease payments $715,000
========
8. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified defined contribution target benefit
pension plan, which covers substantially all of its employees. Pension costs are
accrued annually based on contributions earned by participants under plan
provisions. The total expense related to this plan for the twelve months ended
December 31, 1999, 1998, and 1997 was $124,000, $88,000, and $65,000,
respectively.
The Company maintains bonus plans for its officers and other key employees.
The plans generally allow for annual bonuses for individual employees based upon
the operating results of related profit centers in excess of a percentage of the
Company's investment in the respective profit centers.
The Company maintains a qualified 401(k) Plan for its employees who choose
to participate. Participants may elect to have up to fifteen percent (15%) of
their compensation withheld, up to the maximum allowed by the Internal Revenue
Code. Participants may also elect to make nondeductible voluntary contributions
up to an additional ten percent (10%) of their gross earnings each year within
the legal limits. The Company contributes $0.25 of each $1.00
F-11
<PAGE>
deferred by participants and deposited to the Plan not to exceed one and five
tenths percent (1.5%) of an employee's compensation. The Company does not match
any amounts for withholdings from participants in excess of six percent (6%) of
their compensation or for any nondeductible voluntary contributions.
Contributions are funded on a current basis. Employer contributions to the Plan
were $76,438, $66,704, and $60,004, for the years ended December 1999, 1998, and
1997, respectively.
9. SEGMENT INFORMATION
The Company has only one reportable segment, MestaMed, which develops
computer software for the home health care and durable medical equipment
marketplaces. As more fully described in Note 11, the Company's former
ProfitWorks Segment was distributed to Mestek, Inc. on September 1, 1999. The
results of operations for the ProfitWorks segment prior to that date are
accounted for under Discontinued Operations in accordance with APB 30.
10. RELATED PARTY
The Company is a wholly owned subsidiary of Mestek, Inc. (the Parent) a
public company traded on the New York Stock Exchange. As such, the Company has
historically distributed substantially all of its free cash flow to the Parent
in the form of an annual dividend. The Company's historical access to capital
has been through an open intercompany account with the Parent. As described in
Note 1, at interim dates the Company reports its net cash flow activity to or
from the Parent as an open intercompany payable or receivable as appropriate.
11. DISCONTINUED OPERATIONS
On September 1, 1999, the Company distributed to its parent, Mestek, Inc.,
substantially all of the operating assets and liabilities, including product
warranty obligations, of its former ProfitWorks segment. The ProfitWorks segment
develops and markets software for the building supplies distribution
marketplace. ProfitWorks modules include order entry, inventory control,
billing, accounts receivable and general ledger. ProfitWorks does not
participate in the health care information systems marketplace. The Company has
accounted for the operations of ProfitWorks prior to that date as a discontinued
operation in accordance with APB 30. The liabilities distributed by the Company
and assumed by Mestek, Inc. exceeded the accounting basis of the assets
distributed to Mestek, Inc. by $80,000. The Company has accounted for this
difference as a contribution to Paid in Capital on September 1, 1999. Corporate
overhead costs originally allocated to the Discontinued Operations of
ProfitWorks have been reallocated to the remaining MestaMed business in the
accompanying financial statements, in accordance with APB 30 and are illustrated
in the following table.
F-12
<PAGE>
Year Ended
December 31,
------------
1999 1998 1997
---- ---- ----
(dollars in thousands)
Revenues from Discontinued Segment $942 $1,729 $1,596
Overhead reallocated to MestaMed $168 $166 $182
ProfitWorks' assets are included in the Company's historical balance sheets
presented herein as follows:
December 31,
------------
1999 1998 1997
---- ---- ----
$0 $434 $350
==== ==== ====
12. MERGER
On May 26, 1999, Mestek entered into an agreement, (The Merger Agreement),
to merge its wholly owned subsidiary, MCS, Inc. (MCS) into Simione Central
Holdings, Inc. (Simione). Simione is a provider of information systems and
services to the home health care industry supplying information systems,
consulting and agency support services to customers nationwide. Simione provides
freestanding, hospital based and multi-office Home Health Care Providers
(including certified, private duty, staffing, HME, IV therapy, and hospice) with
information solutions that address all aspects of home care operations. Simione
maintains offices nationwide and is headquartered in Atlanta, Georgia.
Under the terms of the Merger Agreement, for every share of outstanding
Simione common stock, Simione would issue .85 shares of its common stock to
Mestek. As a result, Mestek would own, based on the number of Simione common
shares outstanding at the date of the Agreement, approximately 46% of Simione
after the merger is completed. On August 12, 1999, Simione, with Mestek's
consent, acquired all of the outstanding common stock of CareCentric Solutions,
Inc. for $200,000 and acquired all of the Preferred Stock of CareCentric
Solutions, Inc. in return for 3.1 million newly issued shares of Simione Series
A Preferred Stock, which may be converted on a one for one basis into Simione
common shares upon consent of a majority of the Simione shareholders. In March
2000, such consent was obtained, and the Series A Preferred Stock was converted
into comon stock. As a result Mestek would expect to own, barring other changes
in the capital structure of Simione, approximately 38% of Simione after the
merger is completed. Under the terms of the Merger Agreement, MCS's ProfitWorks
segment was distributed to Mestek on September 1, 1999.
On September 9, 1999, Mestek announced that it had entered into an
amendment to the Plan and Agreement of Merger dated May 26, 1999 (the
"Amendment") between Simione Central Holdings, Inc. ("SCHI"), Mestek, and its
wholly-owned subsidiary, MCS, Inc. ("MCS"), whereby the shares of common stock
of MCS will be distributed to the Mestek common
F-13
<PAGE>
shareholders in a spin-off transaction (the Spin-off), and MCS will then be
merged with and into SCHI, (the Merger). The Spin-off and the Merger were
completed on March 7, 2000, after shareholders approval. Coincident with the
merger, Simione effected a 1 for 5 reverse stock split in order to meet NASDAQ
listing requirements.
In connection with the Amendment, Mestek loaned to SCHI a total of
$4,000,000 on a short-term basis, $3,000,000 of which was outstanding as of
December 31, 1999. Upon the closing (March 7, 2000) of the above-mentioned
merger, the $4,000,000 loan was canceled, and Mestek contributed an additional
$2,000,000 to the capital of SCHI in return for newly issued Series B Preferred
Stock of SCHI. The Series B Preferred Stock issued to Mestek has voting rights
equivalent to 11.2 million shares, on a pre-split basis, of SCHI common stock.
Mestek also received as part of it capital contribution to SCHI a warrant for
the subsequent purchase of 2 million shares, on a pre-split basis, of SCHI
common stock. The Amendment also provided, upon consummation of the merger, for
the appointment to the SCHI Board of Directors of six individuals designated by
Mestek, and the obligation of the Mestek Major Shareholders (as defined in the
Amendment) to vote for the nominees to the SCHI Board of Directors for eighteen
months after the effective date of the merger.
On October 25, 1999, Mestek announced that it had entered into a second
amendment to the Agreement (the "Second Amendment"), which was entered into to
clarify provisions in the merger agreement relating to the appointment of
designees of the MCS stockholders and designees of Simione to Simione's board of
directors during the 18 month period after completion of the merger and the
right of a majority of such MCS designees to remove any MCS designee from the
board during such 18 month period.
Mestek also loaned Simione $850,000 on November 11, 1999 on a short-term
basis. Upon consummation of the merger, the loan was converted to $850,000 of
newly issued Series C Preferred Stock. The Series C Preferred stock has voting
rights equal to 850,000 shares, on a pre-split basis, of SCHI common stock.
The merger of MCS with and into Simione will be accounted for as a reverse
merger due to the fact that the MCS stockholders will effectively hold more than
50% of the value of all equity securities and more than 50% of the common
shareholder votes of the merged entity through the effect of the Series B
Preferred Stock mentioned above. Accordingly, MCS will be treated as the deemed
acquirer, notwithstanding its technical dissolution, and Simione will be treated
as the acquired entity in accordance with APB 16. As of December 31, 1999 Mestek
had paid, on MCS's behalf, legal, accounting and other transaction costs related
to the merger of $950,000, which amount has been reflected herein as a
contribution to MCS's paid in capital. Such costs have been capitalized in
connection with the accounting for the merger under APB 16.
F-14
