1237806v3
FORM 10-Q
_______________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File Number: 0-22162
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3209241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6600 Powers Ferry Road 30339
Atlanta, Georgia (zip code)
(Address of principal
executive offices)
(Registrant's telephone number, including area code) (770) 644-6700
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding at
Class 4/30/2000
----- ---------
Common Stock, $.001 par value 3,853,305 shares
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2000 (unaudited) and December
31, 1999 (audited).
Consolidated Statements of Operations - Three Months Ended March 31,
2000 and 1999 (unaudited).
Consolidated Statements of Shareholders' Equity - Three Months Ended
March 31, 2000 (unaudited).
Consolidated Statements of Cash Flows - Three Months Ended March 31,
2000 and 1999 (unaudited).
Notes to Consolidated Financial Statements - March 31, 2000
(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
----------
2
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
------------------ -------------------
2000 1999
------------------ -------------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,028,000 $ 47,000
Accounts receivable, net of allowance for
doubtful accounts of $237,000 and $166,000
respectively 9,387,000 4,329,000
Prepaid expenses, inventory and other
current assets 1,042,000 273,000
------------------ -------------------
Total current assets 12,457,000 4,649,000
Purchased software, furniture and equipment, net 2,368,000 920,000
Intangible assets, net 26,508,000 -
Other assets 156,000 1,127,000
------------------ -------------------
Total assets $ 41,489,000 $ 6,696,000
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 2,480,000 $ -
Note payable 250,000 -
Accounts payable 3,338,000 1,137,000
Accrued compensation expense 929,000 393,000
Accrued liabilities 6,754,000 1,334,000
Customer deposits 1,653,000 419,000
Unearned revenues 5,289,000 2,908,000
------------------ -------------------
Total current liabilities 20,693,000 6,191,000
Accrued liabilities, less current portion 1,021,000 -
Notes payable long-term 500,000 -
Commitments and contingencies
Shareholders' equity:
Preferred stock (Simione):
Series B, $.001 par value, 10,000,000 authorized, 5,600,000
issued and outstanding 5,000
Series C, $.001 par value, 10,000,000 authorized, 850,000
issued and outstanding 1,000 -
Common stock, $.001 par value; 20,000,000 shares
authorized, 3,853,000 shares issued and outstanding
at March 31, 2000, and 1,490,000 shares issued and
outstanding at December 31, 1999; 4,000 1,000
Additional paid-in capital 20,071,000 1,260,000
Stock warrants 1,000,000 -
Accumulated deficit (1,806,000) (756,000)
------------------ -------------------
Total shareholders' equity 19,275,000 505,000
------------------ -------------------
Total liabilities and shareholders' equity $ 41,489,000 $ 6,696,000
================== ===================
</TABLE>
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes
MCS, Inc. is deemed to have acquired Simione Central Holdings, Inc. on March 7,
2000, the date of the merger, as more fully explained in Notes 1 and 2 to the
Consolidated Financial Statements.
3
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended March 31,
-------------------------------------------
2000 1999
------------------- ------------------
Net revenues: $ 4,000,000 $ 4,041,000
Costs and expenses:
Cost of revenues 2,547,000 2,407,000
Selling, general and administrative 1,879,000 1,109,000
Research and development 711,000 396,000
------------------- ------------------
Total costs and expenses 5,137,000 3,912,000
------------------- ------------------
(Loss) income from operations (1,137,000) 129,000
Other (expense) income :
Other (expense) income (6,000) -
Interest expense (76,000) -
Interest and other income 12,000 9,000
------------------- ------------------
Net (loss) income before taxes (1,207,000) 138,000
------------------- ------------------
Income tax expense (benefit) (157,000) 54,000
------------------- ------------------
Net (loss) income from continuing operations (1,050,000) 84,000
------------------- ------------------
Discontinued operation
Income from operations of discontinued
segment before taxes - 128,000
Applicable tax expense - 51,000
Net income from operations of discontinued
segment - 77,000
------------------- ------------------
Net (loss) income $ (1,050,000) $ 161,000
=================== ==================
Net loss per share - basic and diluted
From continuing operations $ 0.50 $ 0.06
=================== ==================
Weighted average common shares -
basic and diluted 2,113,000 1,490,000
=================== ==================
Net (loss) income per share - basic and diluted
From discontinued operations $ - $ 0.05
=================== ==================
Weighted average common shares -
basic and diluted 2,113,000 1,490,000
=================== ==================
Net (loss) income per share - basic and diluted
From discontinued operations $ 0.50 $ 0.11
=================== ==================
Weighted average common shares -
basic and diluted 2,113,000 1,490,000
=================== ==================
</TABLE>
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes
MCS, Inc. is deemed to have acquired Simione Central Holdings, Inc. on March 7,
2000, the date of the merger, as more fully explained in Notes 1 and 2 to the
Consolidated Financial Statements.
The weighted average shares computations have been recast to give effect to the
shares of Simione common stock issued to MCS stockholders in connection with the
MCS merger for both periods shown, as more fully described in Note 1 to the
Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the three months ended March 31, 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additional Total
Common Preferred Paid-in Accumulated Shareholders'
Shares Stock Shares Stock Capital Warrants Deficit Equity
-------- ---------- --------- --------- ----------- --------- ---------- ------------
Balance at
December 31, 1999 1,000 $ 1,000 - $ - $ 1,260,000 $ (756,000) 505,000
MCS, Inc. shares
eliminated in merger (1,000) (1,000) (1,000)
Simione Central
Holdings Inc.
Shares post merger,
$.001 par value 3,853,000 4,000 - - 19,211,000 1,000,000 20,215,000
Issuance of $.001 par
value preferred
stock in connection
with merger: - 6,450,000 6,000 - 6,000
Series B, 5,600,000 -
shares
Series C, 850,000
shares
Net loss - - - - - - (1,050,000) (1,050,000)
--------- ---------- --------- --------- ----------- --------- ----------- -----------
Balance at
March 31, 2000 3,853,000 $ 4,000 6,450,000 $ 6,000 20,471,000 1,000,000 $(1,806,000) 19,675,000
========= ========== ========= ========= =========== ========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes
MCS, Inc. is deemed to have acquired Simione Central Holdings, Inc. on March 7,
2000, the date of the merger, as more fully explained in Notes 1 and 2 to the
Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months ended March 31,
--------------------------------------
2000 1999
-------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,050,000) $ 161,000
Adjustments to reconcile net loss
to net cash (used in) provided by operating activities:
Provision for doubtful accounts 71,000 -
Amortization and depreciation 426,000 56,000
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (1,364,000) 422,000
Prepaid expenses and other current assets (182,000) (241,000)
Accounts payable 172,000 36,000
Accrued compensation expense 225,000 (364,000)
Accrued liabilities (830,000) 170,000
Customer deposits 105,000 (127,000)
Unearned revenues 1,015,000 (65,000)
-------------- ------------
Net cash (used in) provided by operating activities (1,412,000) 48,000
-------------- ------------
Cash flows from investing activities:
Acquisition of Simione (net of cash acquired) (12,148,000) --
Net cash acquired in the reverse merger 3,547,000 --
Purchase of software, furniture and equipment (161,000) (45,000)
-------------- ------------
Net cash used in investing activities (8,762,000) (45,000)
-------------- ------------
Cash flows from financing activities:
Equity issued in Simione/MCS merger 12,148,000 --
Capital contribution from former parent -- 3,000
Proceeds from issuance of notes payable 7,000 --
-------------- ------------
Net cash provided by (used in) financing activities 12,155,000 3,000
-------------- ------------
Net increase in cash and cash equivalents 1,981,000 6,000
Cash and cash equivalents, beginning of period 47,000 60,000
-------------- ------------
Cash and cash equivalents, end of period $ 2,028,000 $ 66,000
============== ============
</TABLE>
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes
MCS, Inc. is deemed to have acquired Simione Central Holdings, Inc. on March 7,
2000, the date of the merger, as more fully explained in Notes 1 and 2 to the
Consolidated Financial Statements.
6
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MCS as Deemed Acquirer of Simione Central Holdings, Inc.
- --------------------------------------------------------
On March 7, 2000, Simione Central holdings, Inc. ("SCHI") and MCS, Inc.
("MCS") merged in a transaction accounted for as a reverse acquisition for
financial reporting purposes. In connection with the acquisition, SCHI issued
1,489,853 shares of its common stock in exchange for all the outstanding common
stock of MCS, and thereby, the former shareholders of MCS acquired control of
SCHI. As a result, MCS is considered the acquiring company; hence, the
historical financial statements of MCS became the historical financial
statements of SCHI and include the results of operations of SCHI only from the
effective acquisition date.
The weighted average common shares for the three month period ended March
31, 2000 are recast in the accompanying Consolidated Statements of Operations to
give effect to the 1,489,853 shares of Simione common stock that were issued to
the MCS shareholders pursuant to the Simione/MCS merger that closed on March 7,
2000. For the period from January 1, 2000 through March 6, 2000, there were
1,489,853 shares of issued and outstanding Simione common stock deemed to be
owned by the MCS shareholders and from the period of March 7, 2000 through March
31, 2000, there were 3,853,305 total shares of issued and outstanding Company
common stock (after giving effect to the Simione/MCS merger). The weighted
average shares for the three month period ended March 31, 1999 are also recast
to give effect to the 1,489,853 shares of Simione common stock that were issued
to the MCS shareholders pursuant to the Simione/MCS merger.
Basis of Presentation
- ---------------------
The consolidated financial statements have been prepared by the Company,
include the parent company and its wholly owned subsidiaries, and are unaudited
(except for the December 31, 1999 balance sheet). In the opinion of management,
all adjustments (which consist of normal recurring adjustments) considered
necessary for a fair presentation have been included. All intercompany balances
and transactions have been eliminated. Interim results are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
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, 1999 appearing in the Company's Report on Form 8-K filed
coincident herewith .
Certain prior period amounts have been reclassified to conform to the 2000
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 the prospective payment (PPS) and managed care
environments. 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, as well as assisting with regulatory compliance and
merger and acquisition due diligence. The Company also provides comprehensive
agency support services which include administrative, billing and collection,
training, reimbursement and financial management services, among others.
7
<PAGE>
Management Estimates
- --------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 as well as 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 supersedes SOP 91-1 and is effective for transactions
entered into for fiscal years beginning after December 31, 1997. While some
principles remain the same, there are several key differences between the two
pronouncements, including accounting for multiple element arrangements. Under
SOP 97-2, the Company recognizes software license revenue when the following
criteria are met: (1) a signed and executed contract is obtained; (2) shipment
has occurred; (3) the license fee is fixed and determinable; (4) collection is
probable; and (5) remaining obligations under the license agreement are
immaterial. The Company sells and invoices software licenses and maintenance
fees as separate contract elements, except with respect to first year
maintenance for the Mestamed product which is sold in the form of a bundled
turnkey system. Prices net of discounts are separately identified at the time of
sale for each element. The Company has established vendor specific objective
evidence related to the value of maintenance fees. The Company uses the residual
value method to allocate between licenses and first year maintenance. The
adoption of SOP 97-2 did not have a material impact on the Company's financial
statements.
Revenues are derived from the licensing and sub licensing of software, the
sale of computer hardware, professional and technical consulting services,
implementation and training services, software maintenance and support services,
outsourcing services, as well as home health care management consulting
services. Outsourcing services are provided under contractual arrangements with
terms typically ranging from three to five years.
To the extent that software and services revenues result from shared
resource information management, software support, implementation, training and
technical consulting services, such revenues are recognized monthly as the
related services are rendered or, for software support revenues, over the term
of the related agreement. To the extent that software and services revenues
result from software licenses, computer hardware and third-party software
revenues, such revenues are recognized when the related products are delivered
and collectibility of fees is determined to be probable, provided that no
significant obligation remains under the contract. Limited amounts of revenue
derived from the sale of software licenses requiring significant modification or
customization are recorded based upon percentage of completion using labor hours
or contract milestones. Software support or maintenance, allow customers to
receive unspecified enhancements and regulatory data updates in addition to
telephone support. Agency support and consulting services revenues are
recognized monthly as the related services are performed.
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 computer based training CD-ROMs and
a number of ancillary services including on site implementation and training,
consulting and "premium" and after-hours support. Revenues from such products
and services are recognized monthly as such products are delivered and 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.
8
<PAGE>
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 as of March 31, 2000 except
those developed technologies capitalized in connection with the Simione/MCS
merger on March 7, 2000 as more fully described in Note 5.
Concentrations and Major Customers
- ----------------------------------
The Company sells its systems and services to various companies in the
health care industry. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Current operations are charged with an allowance for doubtful
accounts based upon experience and any unusual circumstances which affect the
collectibility of receivables. Amounts deemed uncollectible are charged against
this allowance.
Cash Equivalents
- ----------------
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
Purchased Software, Furniture and Equipment
- -------------------------------------------
Purchased software, furniture and equipment is stated at cost. Depreciation
is calculated for financial reporting purposes using the straight-line method
over the estimated useful lives (ranging from one to ten years) of the assets or
lease term, whichever is shorter.
Intangible Assets and Long-Lived Assets
- ---------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset's
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of.
The intangible assets, arising from the Simione/MCS merger, are amortized
using the straight-line method over the estimated useful lives of the related
assets as more fully disclosed in Note 5. The Company reviews its long-lived and
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The measurement of
possible impairment is based upon determining whether projected undiscounted
future cash flow from the use of the asset is less than the carrying amount of
the asset.
9
<PAGE>
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.
Net Loss Per Share
- ------------------
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share are very similar to the
previously reported fully diluted earnings per share. Per share amounts for all
periods have been presented in conformity with SFAS No. 128 requirements.
Stock Based Compensation
- ------------------------
Stock options are accounted for under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Fair Value of Financial Instruments
- -----------------------------------
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate their fair value.
Notes payable: The carrying amounts of the Company's notes payable
approximates their fair value.
Recently Adopted Accounting Standards
- -------------------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for the Company's first quarter of the fiscal year ending December 31,
2001. The Company's management does not believe that the adoption of SFAS No.
133 will have a material impact on the Company's financial position or results
of operations.
Discontinued Operations
- -----------------------
The discounted operations reported in the Company's results of operations
for the three months ended March 31, 1999 related to MCS's Profitworks segment
which was distributed to Mestek on September 1, 1999.
NOTE 2 - MERGER
On March 7, 2000, MCS completed the merger with Simione Central Holdings,
Inc. (Simione). Simione issued approximately 1.5 million shares of common stock
to MCS stockholders in exchange for all of the outstanding shares of MCS common
stock. This number of shares has been adjusted to reflect a one-for-five reverse
stock split that was completed immediately prior to the merger. In connection
with the closing of the merger, Mestek invested $6 million in Simione in
exchange for 5.6 million shares of Series B preferred stock and warrants to
purchase 400,000 shares of Simione common stock. Additional information on the
merger is included in Simione's Registration Statement on Form S-4 (Registration
No. 333-96529).
10
<PAGE>
Pro-forma un-audited results assuming the merger took place as of January
1, 1999, and further assuming that the acquisition of CareCentric by Simione on
August 12, 1999 took place on January 1, 1999, are as follows:
For Three Months Ended March 31,
--------------------------------
2000 1999
---- ----
Net revenues $ 8,011,000 $ 13,996,000
Net income (loss) $ (2,445,000) $ (596,000)
Net income (loss) per share - basic $ (0.63) $ (0.15)
Net income (loss) per share - diluted $ (0.63) $ (0.15)
NOTE 3 - 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.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DEPRECIATION
March 31, DECEMBER 31, ESTIMATED
2000 1999 USEFUL LIVES
---- ---- ------------
Furniture and Fixtures $1,475,000 $315,000 10 years
Computer equipment 5,807,000 1,483,000 5 years
---------- --------- -------------
7,282,000 1,798,000
Accumulated depreciation (4,914,000) (878,000)
----------- ----------
$2,368,000 $920,000
=========== ==========
NOTE 5 - INTANGIBLE ASSETS
Intangible assets at March 31, 2000 consisted of the following:
Accumulated Amortization
Cost Amortization Net Book Value Period
---- ------------ -------------- ------
Developed technology $10,650,000 ($104,000) $10,546,000 8 years
Assembled workforce 2,300,000 (38,000) 2,262,000 5 years
Customer Base 1,700,000 (16,000) 1,684,000 9 years
Goodwill 12,151,000 (136,000) 12,016,000 7 years
---------------------------------------
Total $26,801,000 ($294,000) $26,508,000
Amortization of the above intangible assets will reduce operating income
(or increase operating losses) by approximately $3.1 million in the year 2000.
11
<PAGE>
NOTE 6 - INCOME TAXES
At December 31, 1999, Simione Central Holdings, Inc. has approximately
$15.3 million of net operating losses for income tax purposes available to
offset future taxable income. Such losses expire beginning in 2010 and may be
subject to certain limitations arise from the change in ownership resulting from
the merger on March 7, 2000. A valuation allowance reducing the net deferred tax
assets to zero has been recorded based on management's assessment that it is
"more likely than not" that this net asset is not realizable as of March
31,2000.
The Company's actual income tax expense (benefit) for the three months
ended March 7, 2000 differs from the "expected" amount (computed by applying the
US Federal corporate income tax rate of 35% to the loss before income taxes) due
to the fact that the portion of the loss arising after March 7, 2000, the date
of the Simione/MCS merger, can not be assured of generating a federal income tax
benefit in the future.
NOTE 7 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
March 31, 2000 December 31, 1999
-------------- -----------------
Short Term:
Note Payable - David O. Ellis $250,000
Loan and Security Agreement $ 2,480,000 -
==============
Long Term:
Notes Payable - Barrett C. O'Donnell $ 750,000 -
==============
On September 9, 1999, Simione Central Holdings, Inc. (Simione) entered into
a $5 million Loan and Security Agreement (Line of Credit) with a commercial bank
under which substantially all of its assets were pledged as security.
Availability under the Line of Credit was based upon a mathematical formula
applied to trade receivables. When the Simione/MCS merger was completed on March
7, 2000, the Company succeeded to the obligations of Simione under the Line of
Credit and substantially all of the Company's assets are pledged as security for
the Line of Credit. Unused availability under the Line of Credit was $778,000 at
March 31, 2000. Borrowings under the Line of Credit accrue interest at prime
plus 2. On April 13, 2000, the Company executed a Loan Modification Agreement
relative to the Line of Credit which requires the Company to limit its net
losses to certain amounts for each quarterly period in the year 2000 and further
requires the Company to obtain not less than $3,000,000 in additional capital
prior to June 15, 2000.
On November 11, 1999, Simione Central Holdings, Inc. borrowed $500,000 from
Barrett C. O'Donnell and $250,000 from David O. Ellis, both on an unsecured
basis, and executed promissory notes in connection therewith. When the
Simione/MCS merger was completed on March 7, 2000, the Company succeeded to
these obligations. The Note Payable to Mr. O'Donnell bears interest at 9.0%,
matures on May 11, 2002, and is subject to certain other provisions. The note
payable to Dr. Ellis bears interest at 9.0%, matures on August 15, 2000, and is
also subject to certain other provisions. Dr. Ellis and Mr. O'Donnell are
directors of the Company.
The Company is obligated under a number of capital lease obligations
originally entered into by Simione Central Holdings, Inc. related to computer
equipment formerly used in Simione's business. (see Note 8 - Commitments and
Contingencies).
12
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In February 2000, NASDAQ informed Simione that the merger with MCS, Inc., a
wholly owned subsidiary of Mestek, Inc., was a change of control that would
require Simione to apply for a new listing on the NASDAQ market. The new listing
requirements included a bid price which was higher than the then quoted price on
the NASDAQ market. If the Company could not meet that requirement, among others,
for a new listing, the Company's stock would become delisted. In response, the
Company has filed an appeal with NASDAQ, for which a decision from NASDAQ has
not yet been received, and with shareholder approval, completed a one for five
reverse stock split to effect a higher bid price. The Company continues to work
with NASDAQ to meet the requirements to be listed on the NASDAQ SmallCap Market,
including waiver of certain voting rights granted to Mestek on the Series B
Preferred Stock to comply with NASDAQ's Voting Rights Policy. The Company will
promptly report any final ruling from NASDAQ on the listing of the Company's
stock.
The Company is engaged in various other legal and regulatory proceedings
arising in the normal course of business which management believes will not have
a material adverse effect on its financial position or results of operations.
The Company remains liable for certain settlement costs of approximately
$1.4 million payable to IBM for the early cancellation of the Company's service
agreement with IBM for services provided to a former customer of Simione Central
Holdings, Inc. These costs are part of claims for reimbursement under a still
active legal dispute. In addition, the Company may be liable for up to $1.0
million in related fees for services. The Company does not expect that the
resolution of these matters will have a material adverse impact upon its
financial condition or results of operations.
NOTE 9 - SEGMENT RESULTS
The Company has two reportable segments: product related, 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 prospective payment (PPS) and managed
care environments. The consulting segment assists home health care providers in
addressing the challenges of reducing costs, maintaining quality, streamlining
operations and re-engineering organizational structures, as well as assisting
with regulatory compliance and assisting with merger and acquisition due
diligence.
The Company evaluates performance and allocates resources based on profit
or loss from operations, 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:
13
<PAGE>
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
Revenues
Product related $ 3,534,000 $ 4,041,000
Consulting 466,000 -
--------------- ----------------
Total $ 4,000,000 $ 4,041,000
=============== ================
Cost of sales
Product related $ 2,122,000 $ 2,407,000
Consulting 425,000 -
---------------- ----------------
Total $ 2,547,000 $ 2,407,000
================ ================
Research and development
Product Related $ 711,000 $ 396,000
================ ================
Depreciation and amortization
Product Related $ 389,000 $ 56,000
Consultation $ 37,000 -
---------------- ----------------
Total $ 426,000 $ 56,000
================ ================
Net income (loss) from
Continuing Operations
Product related $ (1,090,000) $ 84,000
Consulting 40,000 -
----------------- ----------------
Total $ (1,050,000) $ 84,000
================= ================
Assets
Product related $ 37,120,000 $ 6,696,000
Consulting 5,101,000 -
---------------- ----------------
Total $ 42,221,000 $ 6,696,000
================ ================
The Net Income (Loss) from continuing operations reported above has been
effected by non-cash depreciation and amortization changes as reported above.
NOTE 10 - SHAREHOLDERS' EQUITY
Subsequent to the Simione/MCS Merger on March 7, 2000, the Company's
Shareholders' Equity (all on a split adjusted basis) is comprised of the
following:
Common Shares - 20,000,000 shares authorized, $.001 par value, 3,853,305
shares issued and outstanding. 1,489,853 of such shares were issued on March 7,
2000 to the former MCS common shareholders. 606,904 of such shares were issued
on March 7, 2000 to the former holders of Simione Central Holdings, Inc. Series
A Preferred Stock, which shares were converted into Simione common shares in
connection with the merger. If the value of the Company's common stock does not
equal $15.00 per share on or prior to December 31, 2000, the Company is required
to issue up to an additional 606,904 common shares to the former holders of the
Series A Preferred Stock to the extent of the price deficiency or,
alternatively, to pay the cash equivalent.
Series B Preferred Stock - 10,000,000 shares authorized $.001 per value,
5,600,000 shares issued. The Series B Preferred Shares are held by Mestek, Inc.
and were issued in consideration of $6,000,000 paid to Simione Central Holdings,
Inc. on March 7, 2000, in the form of cash and debt forgiveness. The Series B
Preferred shares carry 2,240,000 common share votes (on a split adjusted basis)
and are entitled to a 9% cumulative dividend, among
14
<PAGE>
other rights which are described in greater detail in Appendix B to the Simione
Central Holdings, Inc.-MCS, Inc. Joint Proxy Statement issued in connection with
the merger.
Series C Preferred Stock - 10,000,000 shares authorized, $.001 per value,
850,000 shares issued. The Series C Preferred Shares are held by Mestek, Inc.
and resulted from the conversion of a pre-existing $850,000 convertible note
payable to Mestek, Inc. The Series C Preferred Shares carry 170,000 common share
votes (on a split adjusted basis) and are entitled to an 11% cumulative dividend
among other rights which are described in greater detail in Appendix F to the
Simione Central Holdings, Inc.-Mestek, Inc. Joint Proxy Statement issued in
connection with the merger.
Common Stock Warrants - In connection with the issuance of the Series B
Preferred Stock described below, Mestek, Inc. received warrants to acquire
400,000 Simione Common Shares at a per share exercise price equal to $10.875.
The aforementioned shares and per share prices are all on a split adjusted
basis.
Stock Options - The Company has established several stock option plans,
under which the Company has granted options to purchase an aggregate of 352,646
shares (on a split adjusted basis) of common stock as of May 5, 2000. Options
granted under Simione's 1997 Omnibus Equity-based Incentive Plan must have an
exercise price not less than the fair market value at the date of grant. Of the
options granted, 56,885 were exercised prior to December 31, 1999 and 4,628 have
been cancelled as of May 5, 2000. Of the remaining 291,133 options, 258,528 are
vested as of May 5, 2000 and 197,170 are exercisable as of that date. The
exercise prices range from $7.50 to $55.75, both on a split adjusted basis.
In connection with the Simione/MCS merger on March 7, 2000, Mestek was
granted a series of options to purchase a total of approximately 388,742 shares
of common stock (on a split adjusted basis). These options are exercisable only
to the extent that outstanding Simione options, warrants or other conversion
rights are exercised. These options were designed to prevent dilution of Mestek,
Inc.'s ownership interest in the Company after the merger. As options, warrants
and other common rights are cancelled, Mestek's option rights are
correspondingly reduced.
NOTE 11 - RELATED PARTY TRANSACTIONS
Gateway LLC, a company owned in part by a prior Chief Executive Officer of
Simione Central Holdings, Inc. (Simione) and another officer of Simione, leases
an office facility to the Company under the terms of an agreement, which expires
December 31, 2001. Gateway LLC sold the lease to a third party in August of
1998.
A shareholder and executive officer of the Company is a partner in an
entity that leases an office facility to the Company under an operating lease
that expires in December 2002. Annual rental payments under this lease are
approximately $136,000 per year through 2002.
The Company has subleased certain space to Healthfield, Inc. which has a
significant shareholder who was a former member of the board of directors of the
Company.
Certain relatives of William Simione, Jr. and Robert Simione manage a
certified public accounting business which performs services for the Company in
conjunction with services performed for customers of Simione.
R. Bruce Dewey remains a Senior Vice President of Mestek while performing
his duties as Chief Executive Officer, President and director of the Company.
Stephen M. Shea remains Senior Vice President and CFO of Mestek, Inc. while
performing his duties as Chief Financial Officer of the Company. The Company has
two notes outstanding to directors. These notes are described at Note 7 to these
financial statements.
15
<PAGE>
NOTE 12 - LICENSE AGREEMENTS
The Company licenses certain software products from third parties for
incorporation in, or other use with, its products and is obligated to pay
license fees in connection with such products. The Company sublicenses such
products to its customers and collects fees in connection with such
sublicensees.
NOTE 13 - SUBSEQUENT EVENTS
On May 17, 2000 the Company announced that it had received a commitment
from a commercial bank for a $6.0 million line of credit which the Company
expects to use to replace its existing commercial bank line of credit, as more
fully described in Note 7. It is expected that the new commercial bank line of
credit will be guaranteed by Mestek, Inc. The specific terms and conditions of
the new line of credit have not been finalized as of May 18, 2000.
On April 12, 2000 the Company received from John E. Reed, Chairman and CEO
of Mestek, Inc. a proposal under which Mr. Reed would contribute up to $7.0
million in new capital to the Company. The Company expects that this investment
will take the form of $1.0 million of convertible preferred stock and a $6.0
million line of credit in the form of convertible notes. The specific terms and
conditions of the agreements and instruments necessary to the closing of the
convertible notes and the preferred stock issuance have not been finalized as of
May 18, 2000.
Based on the foregoing, the Company believes that it will have sufficient
capital to meet its day to day working capital needs in the year 2000 as well as
fund its various product development initiatives during this period.
16
<PAGE>
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. The Company's future
financial performance could differ significantly from that set forth herein, and
from the expectations of management. Important factors that could cause the
Company's financial performance to differ materially from past results and from
those expressed in any forward looking statements include, without limitation,
the inability to close the transactions required to obtain the additional
capital resources described herein, variability in quarterly operating results,
customer concentration, product acceptance, long sales cycles, long and varying
delivery cycles, the Company's dependence on business partners, emerging
technological standards, risks associated with acquisitions and the risk factors
detailed in the Company's Registration Statement on Form S-4 (File No.
333-96529) and in the Company's periodic reports filed with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. 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.
Liquidity and Capital Resources
- -------------------------------
On April 12, 2000, the Company received a letter from John E. Reed,
Chairman and CEO of Mestek, Inc. which outlined a proposal under which Mr. Reed
would contribute up to $7.0 million in new capital to the Company. The Company
expects that this will take the form of $1.0 million of convertible preferred
stock and a $6.0 million line of credit in the form of convertible notes. The
specific terms of the convertible notes and the preferred stock issue have not
been finalized as of May 18, 2000.
The Company announced on May 17, 2000 that it had received a commitment
from a commercial bank for a $6.0 million line of credit which the Company
expects to use to replace its existing bank line of credit. The specific terms
and conditions of the new bank line of credit are not yet finalized as of May
18, 2000. It is expected that the new bank line of credit will be guaranteed by
Mestek, Inc. and will afford the Company substantially more availability than is
available under its present line of credit.
Based on the foregoing, the Company believes that it will have sufficient
capital to meet its day to day working capital needs in the year 2000 as well as
fund its various product development initiatives during this period.
Prior to the Simione/MCS merger on March 7, 2000, MCS was a wholly owned
subsidiary of Mestek, Inc. As such, its day to day working capital needs were
historically met through borrowings from the parent company recorded in an open
intercompany account. MCS's access to this line of credit was terminated on
March 7, 2000.
In September of 1999 Simione Central Holdings, Inc. ("Simione") obtained a
$5 million line of credit from a commercial bank. Simione's trade accounts
receivables were pledged as security for this line of credit. Accessibility
under the line of credit was based upon a mathematical formula applied to such
trade receivables. The line of credit is further secured by a lien on
substantially all of the assets of Simione. When the merger with MCS was
completed on March 7, 2000, the merged company succeeded to the obligations of
Simione under the line of credit and the trade receivables of MCS became
available as additional security under the line of credit which correspondingly
increased the amount available under the line. As of March 31, 2000, the Company
owed $2,480,000 under the line of credit agreement. Additional availability at
that date under the line was $778,000. On April 13, 2000, the Company executed a
Loan Modification Agreement relative to the line of credit which requires the
Company to limit its net losses to certain amounts for each quarterly period in
the year 2000 and further requires the Company to obtain not less than $3.0
million in additional capital prior to June 15, 2000. In November of 1999
Simione received an aggregate of $1.6 million of loans from Mestek, Inc.
($850,000)and from two stockholders, Barrett C. O'Donnell and David Ellis
($750,000), to fund operating needs and to continue the execution of product
strategies in the fourth quarter of 1999. The $850,000 loan from Mestek was
converted into newly issued Series C
17
<PAGE>
Preferred Stock of Simione at the closing of the merger on March 7, 2000. The
loans from O'Donnell and Ellis have various terms and maturities and remain
outstanding at March 31, 2000.
Background
- ----------
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 the prospective payment (PPS) and managed care
environments. 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 sells its software pursuant to non-exclusive license agreements
which provide for the payment of a one-time license fee. In accordance with SOP
97-2, these revenues are recognized when products are delivered and the
collectibility of fees is probable, provided that no significant obligations
remain under the contract. Revenues derived from the sale of software products
requiring significant modification or customization are recognized based upon
the percentage of completion method. The price of the Company's software varies
depending on the number of software modules licensed and the number of users
accessing the system and can range from ten thousand dollars to a few million
dollars. The Company generally requires payment of a deposit upon the signing of
a customer order as well as certain additional payments prior to delivery. As a
result, the Company's balance sheet reflects significant customer deposits.
Third party software and computer hardware revenues are recognized when the
related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company charges for software implementation, training and
technical consulting services as well as management consulting services on an
hourly or daily basis. The price of such services varies depending on the level
and expertise of the related professionals. These revenues are recognized as the
related services are performed.
The Company believes that continued enhancement of its software systems is
critical to its future success, and anticipates that investment in existing and
new products will continue as needed to support the Company's product
strategies. Costs incurred to establish the technological feasibility of
computer software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. For the three
months ended March 31, 2000 and 1999, the Company did not capitalize any
computer software development costs.
Backlog
- -------
The Company had backlog associated with its software of approximately $3.2
million and $1.8 million on March 31, 2000 and December 31, 1999, respectively,
including in both cases the products of MCS and Simione. 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.
18
<PAGE>
Results of Operations
- ---------------------
Net Revenues. Total net revenues for the three months ended March 31, 2000
remained relatively flat at $4.0 million as compared to the three months ended
March 31, 1999. The three months ended March 31, 2000 include the operations of
Simione from March 7, 2000 to March 31, 2000, and the operations of MCS for the
full three months. The financial statements for March 31, 1999 include only the
operations of MCS. The addition of Simione revenues for the period March 8
through March 31, 2000 was offset by an approximately $1.3 million reduction in
revenue at MCS in the first quarter. This reduction was attributable to reduced
bookings of software and equipment sales in the final quarter of 1999 (for
delivery first quarter 2000). The Company believes this to be the result of
uncertainties in the marketplace resulting from the pending Simione/MCS merger
as well as customer concerns related to year 2000 functionality. If the
historical operations of Simione and MCS were arithmetically combined for the
three month period ended March 31, 2000, revenues would have been $8.0 million
for the three months ended March 31, 2000.
Cost of Revenues. Total cost of revenues increased approximately $140,000, or
6%, to $2.5 million for the three months ended March 31, 2000 as compared to the
three months ended March 31, 1999. This increase is principally the result of
changes in product mix and cost structure with the addition of Simione after
March 7, 2000. As a percentage of total net revenues, total costs of revenues
increased to 63.7% for the three months ended March 31, 2000 from 59.6% for the
three months ended March 31, 1999. If the historical operations of Simione and
MCS were arithmetically combined for the three month period ended March 31,
2000, cost of revenues would have been $4.8 million or 60.0% for the three
months ended March 31, 2000.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended March 31, 2000 increased
$770,000 to $1.9 million as compared to the three months ended March 31, 1999.
This increase is principally attributable to the addition of Simione after March
7, 2000. As a percentage of total net revenues, selling, general and
administrative expenses were 47.0% for the three months ended March 31, 2000
compared with 27.4% for the three months ended March 31, 1999. The increase as a
percent of revenue is primarily attributable to the addition of Simione, the
fixed nature of these costs and reduced sales at MCS. If the historical
operations of Simione and MCS were arithmetically combined for the three month
period ended March 31, 2000, selling, general and administrative expenses would
have been $4.2 million or 51.9% for the three months ended March 31, 2000.
Research and Development Expenses. Research and development expenses for the
three months ended March 31, 2000 increased $315,000, or 79%, as compared to the
three months ended March 31, 1999. As a percentage of total net revenues, these
expenses increased to 17.8% for the three months ended March 31, 2000, from 9.8%
for the three months ended March 31, 1999. The increase in expenses and the
increase in percentage of total net revenues is principally due to the addition
of Simione after March 7, 2000 and reduced sales levels at MCS. If the
historical operations of Simione and MCS were arithmetically combined for the
three month period ended March 31, 2000, research and development expenses would
have been $1.5 million or 18.6% for the three months ended March 31, 2000.
Other Income (Expense). Interest expense for the three months ended March 31,
2000 relates primarily to borrowings under the Company's line of credit
agreement and capital lease obligations. The Company was a wholly owned
subsidiary of Mestek, Inc. during the quarter ended March 31, 1999 and
accordingly reported no interest expense during this period. The Company expects
its interest expense to increase during the remainder of 2000 due to increased
borrowings and the impact of recent increases in the prime lending rate.
Income Taxes. At December 31, 1999, the Simione Central Holdings Inc. (Simione)
had net operating loss ("NOL") carryforwards for federal and state income tax
purposes of $15.3 million, which will expire at various dates beginning in 2010,
if not utilized. Simione 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
subsequently to the Simione/MCS merger on March 7, 2000. The Company has
concluded that it is more likely than not that these
19
<PAGE>
NOLs and tax credit carryforwards will not be realized based on a weighing of
evidence at March 31, 2000, and as a result, a 100% deferred tax valuation
allowance has been recorded against these assets.
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, 2001. 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.
20
<PAGE>
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. Simione Central Holdings, Inc.
("Simione") 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 had advised Simione that aspects of Simione's past relationship with
affiliates of Columbia/HCA Healthcare Corporation were within the scope of an
ongoing grand jury investigation. Simione's relationship with Columbia/HCA arose
based on the sale in October of 1996 to Columbia/HCA of Central Health Holding
Company, Inc, the former parent company of Central Health Management Services,
Inc., a predecessor company of the Company. At the time of such sale, Simione
entered into a number of contracts to provide information systems and
outsourcing services to Columbia/HCA. In late 1999, the Justice Department
confirmed to the Company that neither the Company, nor any of its officers,
directors or employees, were a target in the investigation.
Simione was one of several defendants named in a "whistleblower" lawsuit
related to alleged 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 lawsuit involves claims that
Simione allegedly participated in a conspiracy with Columbia/HCA and other third
parties to bill inflated and fraudulent claims to Medicare. The Company has
learned that the Justice Department has elected not to join in the claims
asserted against Simione by Donald McLendon, 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. The Company has had indications that Mr.
McLendon may still pursue "whistleblower" claims against the Company directly.
The Company does not believe that any of these claims, if asserted against the
Company, will have any material effect on the Company's overall business or
financial condition. In the event these claims are asserted, Simione intends to
vigorously defend against them.
The Company remains liable for certain settlement costs of approximately
$1.4 million payable to IBM for the early cancellation of the Company's service
agreement with IBM for services provided to a former customer of Simione Central
Holdings, Inc. These costs are part of claims for reimbursement under a still
active legal dispute. In addition, the Company may be liable for up to $1.0
million in related fees for services. The Company does not expect that the
resolution of these matters will have a material adverse impact upon its
financial condition or results of operations.
Item 2. Change in Securities.
-----------------------------
In March 2000 in connection with the Simione/MCS merger, the Company issued
5.6 million shares of Series B preferred stock, 850,000 shares of Series C
preferred stock and warrants to acquire 400,000 shares of common stock to
Mestek. In issuing the warrants and shares without registration, the Company
relied on the exemption from registration provided in Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder.
Item 3. Defaults Upon Senior Securities.
----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------------------------------
On March 7, 2000 the Annual Meeting of Stockholders of Simione Central
Holdings, Inc. was held. Stockholders present in person or by proxy representing
7,513,268 shares of common stock were represented at the meeting.
21
<PAGE>
Six Directors of the Company were duly elected to hold office until the
next Annual Meeting of Stockholders or until successors have been duly elected.
The elected Directors and the voting results were as follows:
Name Affirmative Votes Withheld Votes
---- ----------------- --------------
Barrett C. O'Donnell 6,944,123 569,145
James A. Gilbert 6,972,947 540,321
Dr. David O. Ellis 6,972,947 540,321
William J. Simione, Jr. 6,601,501 911,761
Jesse I. Treu 6,972,947 540,321
Daniel J. Mitchell 6,972,947 540,321
The Stockholders were also asked to vote on seven additional matters, as
follows:
* the proposal to adopt the merger agreement and merge MCS with and into
Simione;
* approval of the conversion of the Series A Preferred Stock into shares of
Simione common stock;
* an increase in the number of shares available for issuance under the 1997
SCHI Omnibus Equity-based Incentive Plan from 1,250,000 shares to 2,250,000
shares (not adjusted for the reverse stock split);
* the proposal to authorize the board of directors to amend Simione's
certificate of incorporation to effect a reverse stock split of Simione's
common stock;
* the proposal to amend Simione's certificate of incorporation to increase
the number of authorized shares of common stock from 20 million shares to
40 million shares if the reverse stock split is not approved and completed;
and
* approval of a proposal to adjourn the meeting if more time is needed to
solicit proxies.
The voting results for these six matters were as follows:
Votes For Votes against Votes abstained
--------- ------------- ---------------
1. Merger proposal 4,542,489 164,095 3,970
2. Series A conversion 4,005,078 695,063 10,413
3. Increase in plan shares 3,936,078 750,851 23,625
4. Reverse stock split 7,170,048 333,533 9,687
5. Amendment to certificate 6,787,263 696,053 29,952
6. Adjourn meeting 4,407,359 298,637 4,558
22
<PAGE>
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
----------- -----------
2.1(1,3) Agreement and Plan of Merger dated as of July 12, 1999 among
the Company, Simione Acquisition Corporation and CareCentric
Solutions, Inc.
2.2(1,2) Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement, dated as of October 25, 1999 by and among
MCS, Inc., Mestek, Inc., the Company, John E. Reed, Stewart B.
Reed and E. Herbert Burk.
10.1(3) Form of Shareholder Voting Agreement by and among the
Company, Daniel J. Mitchell as agent ("CareCentric Agent")
for shareholders of CareCentric Solutions, Inc. and each of
Barrett C. O'Donnell and O'Donnell Davis, Inc.
10.2(3) Shareholder Voting Agreement by and among the Company,
CareCentric Agent, and Mestek, Inc.
10.3* Warrant to Purchase Common Stock dated March 7, 2000 by and
between the Company and Mestek, Inc.
27.1* Financial Data Schedule (for SEC use only).
_____________________________
*Filed herewith.
(1) In accordance with Item 601(b)(2) of Regulation S-K, the schedules have
been omitted. There is a list of schedules at the end of the Exhibit,
briefly describing them. The Company will furnish supplementary a copy of
any omitted schedule to the Commission upon request.
(2) Incorporated herein by reference to Exhibit 2.1 to the Form 10 of MCS, Inc.
(File No. 000-27829) filed on October 26, 1999.
(3) Incorporated by reference to the Registrants Current Report on Form 8-K
dated as of August 12, 1999.
(b) Reports on Form 8-K:
The Company filed a Report on Form 8-K dated February 29, 2000 on the status of
its listing on Nasdaq.
The Company filed a Report on Form 8-K dated March 8, 2000 reporting the
completion of its merger with MCS, Inc., the one-for-five reverse stock split,
the change of control related to the merger and a series of other transactions,
and other matters considered at the March 7, 2000 stockholders meeting.
23
<PAGE>
The Company filed a Report on Form 8-K on March 30, 2000 reporting on its 1999
financial results and its Enterprise Application Partnership Licensing Agreement
with Confer Software.
The Company filed a Report on Form 8-K/A dated May 18, 2000, reporting the
audited financial statements of MCS, Inc. as of December 31, 1999 and 1998 and
the pro forma combined financial statements of Simione and MCS as of December
31, 1999.
24
<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 thereunto duly authorized.
SIMIONE CENTRAL HOLDINGS, INC.
Dated: May 22, 2000 By: /s/ Steve Shea
------------------------------------
STEVE SHEA
Senior Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1(1,3) Agreement and Plan of Merger dated as of July 12, 1999 among
the Company, Simione Acquisition Corporation and CareCentric
Solutions, Inc.
2.2(1,2) Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement, dated as of October 25, 1999 by and among
MCS, Inc., Mestek, Inc., the Company, John E. Reed, Stewart B.
Reed and E. Herbert Burk.
10.1(3) Form of Shareholder Voting Agreement by and among the
Company, Daniel J. Mitchell as agent ("CareCentric Agent")
for shareholders of CareCentric Solutions, Inc. and each of
Barrett C. O'Donnell and O'Donnell Davis, Inc.
10.2(3) Shareholder Voting Agreement by and among the Company,
CareCentric Agent, and Mestek, Inc.
10.3* Warrant to Purchase Common Stock dated March 7, 2000 by and
between the Company and Mestek, Inc.
27.1* Financial Data Schedule (for SEC use only).
_____________________________
*Filed herewith.
1237806v3
WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS.
Warrant to purchase 400,000 shares of
the $0.001 par value common
stock of Simione Central Holdings, Inc.
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
SIMIONE CENTRAL HOLDINGS, INC.
This certifies that, for value received, Mestek, Inc., or its successors or
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from Simione Central Holdings, Inc. (the "Company") up to 400,000
shares of the $0.001 par value common stock of the Company, as the Company is
constituted on the 7th day of March, 2000 (the "Warrant Issue Date"), upon
surrender of this certificate at 6600 Powers Ferry Road, Atlanta Georgia, or
such other place as the Company may designate in writing to the Holder, and the
simultaneous payment therefor in lawful money of the United States of America of
the Exercise Price (as hereinafter defined). The number, character and Exercise
Price of such shares are subject to adjustment as provided herein. The term
"Warrant" as used herein shall include this certificate, the securities
represented by this certificate and any warrants delivered in substitution or
exchange for this certificate as provided herein.
This Warrant is issued in connection with that certain Agreement and Plan
of Merger by and among MCS, Inc., Mestek, Inc. and the Company dated as of May
26, 1999, as amended by that certain First Amendment to the Agreement and Plan
of Merger and Investment Agreement by and among MCS, Inc., Mestek, Inc., the
Company, John E. Reed, Stewart B. Reed and E. Herbert Burk (the "Amendment")
dated as of September 9, 1999, and as further amended by that certain Second
Amended and Restated Agreement and Plan of Merger and Investment Agreement by
and among MCS, Inc., Mestek, Inc., the Company, John E. Reed, Stewart B. Reed
and E. Herbert Burk (the "Second Amendment") dated as of October 25, 1999
(collectively, the "Merger Agreement").
1. Term of Warrant. Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable, in whole or in part, during the period of
time (the "Exercise Period") commencing on the Warrant Issue Date and
ending at 5:00 p.m. on the third anniversary of the Warrant Issue Date, and
shall be void thereafter.
2. Exercise Price. The price at which the Holder may exercise this Warrant
(the "Exercise Price") shall be the greater of (i) $10.875 (which equals
120% of the closing price of the Company's common stock traded on NASDAQ on
September 8, 1999, multiplied by five (based on the Company's 1-for-5
reverse stock split effected on the Closing Date, as such term is defined
in the Merger Agreement), and (ii) 100% of the closing price of the
Company's common stock listed on NASDAQ on the Closing Date multiplied by
five, provided, that in no event shall the Exercise Price exceed Fifteen
Dollars ($15.00) per share.
3. Vesting of Warrant. Effective as of the Warrant Issue Date, the Warrant
shall be fully vested and exercisable, and the Holder shall have the fully
vested right to purchase 400,000 shares of the Company's common stock
pursuant to the terms and conditions of this Warrant.
4. Exercise of the Warrant. The purchase rights represented by this Warrant
are exercisable by the Holder, in whole or in part, at any time, and from
time to time during the Exercise Period, by the Holder's surrender of this
Warrant at 6600 Powers Ferry Road, Atlanta Georgia, or such other place as
the Company may designate in writing to Holder, and the simultaneous
payment therefor in lawful money of the United States of America of the
Exercise Price in immediately available funds. This Warrant shall be deemed
exercised on the date immediately prior thereto, and the Holder shall be
entitled to receive the shares of common stock of the Company and be
treated for all purposes as the holder of record of such shares as of the
close of business on such date. As promptly as practicable, but in no event
later than 10 business days thereafter, the Company shall issue and
deliver, at its sole cost and expense, to the person or persons entitled to
receive the same a certificate or certificates for the number of shares
issuable upon such exercise. In the event that this Warrant is exercised in
part, the Company, at its sole cost and expense, shall execute and deliver
a new warrant of like tenor as this Warrant, exercisable for the remaining
number of shares for which this Warrant may then be exercised, and shall
cancel this Warrant only upon issuance of such new warrant. No fractional
shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant, and in lieu thereof, the Company shall make a
cash payment to the Holder equal to the Exercise Price multiplied by such
fraction.
5. Rights as a Stockholder. The Holder shall not be entitled to vote, receive
dividends or be deemed to be the owner of record of the shares of common
stock of the Company to which this Warrant relates unless and until the
Holder exercises this Warrant, and then the Holder shall enjoy such rights
only to the extent of such exercise.
6. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the "Warrant
Register") maintaining the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change
his/her address as shown on the Warrant Register by written notice to
the Company requesting such change. Any notice or written
communication required or permitted to be given to the Holder may be
delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the
Company may treat the Holder as shown on the Warrant Register as the
absolute owner of this Warrant for all purposes, notwithstanding any
notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 6(a) above, issuing the common stock or other
securities then issuable upon the exercise of this Warrant, exchanging
this Warrant, replacing this Warrant, or any or all of the foregoing.
Thereafter, any such registration, issuance, exchange, or replacement,
as the case may be, shall be made at the office of such agent.
(c) Transferability of Warrant. This Warrant may not be transferred or
assigned (i) except in its entirety (other than transfers to
subsidiaries or affiliates of Mestek, Inc.) and (ii) without
compliance with all applicable federal and state securities laws by
the transferor and the transferee (including delivery of investment
representation letters reasonably satisfactory to the Company, if such
are requested by the Company), and then only against receipt of an
agreement of the transferee to comply with the provisions of this
Section 6(c) with respect to any resale or other disposition of this
Warrant.
(d) Exchange of Warrant upon a Transfer. On surrender of this Warrant for
exchange, properly endorsed and subject to the provisions of this
Warrant with respect to compliance with the Act and with the
limitations on assignments and transfers contained in this Section 6,
the Company at its expense shall issue to or on the order of the
Holder a new Warrant or Warrants of like tenor, in the name of the
Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, for the number of shares issuable upon
exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of common stock to be issued
upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of the common stock to be
issued upon exercise hereof except under circumstances that will
not result in a violation of the Act or any state securities
laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of common stock so
purchased are being acquired solely for the Holder's own account
and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
(ii) This Warrant and all shares of common stock issued upon exercise
hereof or conversion thereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any
legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
7. Reservation of Stock. The Company covenants that during the Exercise
Period, the Company will reserve from its authorized and unissued shares of
treasury common stock a sufficient number of shares to provide for the
issuance of common stock upon the exercise of the Warrant and, from time to
time, will take all steps necessary to amend its certificate of
incorporation (the "Certificate") to provide sufficient authorized reserved
shares of common stock issuable upon exercise of the Warrant. The Company
further covenants that all shares that may be issued upon exercise of the
rights represented by this Warrant and payment of the Exercise Price, all
as set forth herein, will be free from all taxes, liens and charges in
respect of the issue hereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of common stock
upon the exercise of this Warrant.
8. Merger, Sale of Assets and other Fundamental Corporate Changes. If at any
time during the Exercise Period there shall be a sale of all or
substantially all of the Company assets, or a merger, consolidation or
reorganization of the Company in which the Company is not the surviving
entity, or other transaction in which the shares of the Company are
converted into shares of another entity, the Company shall provide the
Holder with written notice thereof not less than 30 calendar days prior to
the consummation of such event and an opportunity to exercise this Warrant
prior to the consummation of such event.
9. Adjustments. The number of securities purchasable hereunder is subject to
adjustment from time to time during the Exercise Period in order to
preserve the value of this Warrant as follows:
(a) If the Company at any time during the Exercise Period splits,
subdivides or combines the securities as to which purchase rights
under this Warrant exist into a different number of securities of the
same class, the Holder shall be entitled to acquire a proportionate
number of securities of the same class.
(b) If the Company at any time during the Exercise Period changes any of
the securities as to which purchase rights under this Warrant exist
into another class of securities of the Company, this Warrant shall
thereafter represent the right, but not the obligation, with respect
to the securities that were subject to the purchase rights under this
Warrant immediately prior to such change, to acquire such number of
securities of such other class as would have been issuable as a result
of such change had the Holder exercised this Warrant immediately prior
to such change.
(c) If at any time during the Exercise Period, the holders of the common
stock of the Company become entitled to receive, without consideration
therefor, other or additional stock or other securities or property
(other than cash) of the Company, then this Warrant shall represent
the right, but not the obligation, to acquire, in addition to the
number of shares of the security receivable upon exercise of this
Warrant that the Holder is otherwise entitled to acquire, and without
payment of additional consideration for the right to acquire such
additional property, the amount of such other or additional stock or
other securities or property (other than cash) of the Company that
such holder would have been entitled to receive had it been the holder
of record of the security receivable to which purchase rights under
this Warrant relate at the time the holders of the Company's common
stock became entitled to receive such property.
10. Miscellaneous.
(a) Successors. All the covenants and provisions hereof by or for the
benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors and assigns.
(b) Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware (notwithstanding any
principles of conflicts of laws) and for all purposes shall be
construed in accordance with the laws of said State.
(c) Attorneys Fees in the Event of a Dispute. In the event of any action
at law, suit in equity or arbitration proceeding in relation to this
Warrant or any common stock issued or to be issued hereunder, the
prevailing party or parties shall be paid by the other party or
parties a reasonable sum for attorneys, fees and expenses of such
prevailing party or parties.
(d) Saturdays, Sundays, Holidays. If the last or appointed day for the
taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal
holiday in the State of Delaware, then such action may be taken or
such right may be exercised on the next succeeding day not a legal
holiday.
(e) Amendment. This Warrant and any term hereof may not be changed,
waived, discharged or amended except by an instrument in writing
signed by the party against whom enforcement of such change, waiver,
discharge or amendment is sought.
(f) Multiple Counterparts. This Warrant may be executed in multiple
counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated March 7, 2000
Simione Central Holdings, Inc.
By: ______________________
Title ______________________
HOLDER:
Mestek, Inc.
By: ______________________
Title______________________
1078047.txt
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIMIONE CENTRAL HOLDINGS, INC. FOR THE QUARTER ENDED
MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000896157
<NAME> SIMIONE CENTRAL HOLDINGS, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,208,000
<SECURITIES> 0
<RECEIVABLES> 9,624,000
<ALLOWANCES> 237,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,457,000
<PP&E> 2,368,000
<DEPRECIATION> 1,108,000
<TOTAL-ASSETS> 41,489,000
<CURRENT-LIABILITIES> 21,193,000
<BONDS> 0
0
0
<COMMON> 4,000
<OTHER-SE> 18,265,000
<TOTAL-LIABILITY-AND-EQUITY> 41,489,000
<SALES> 4,000,000
<TOTAL-REVENUES> 4,000,000
<CGS> 0
<TOTAL-COSTS> 2,547,000
<OTHER-EXPENSES> 2,590,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (76,000)
<INCOME-PRETAX> (1,207,000)
<INCOME-TAX> (157,000)
<INCOME-CONTINUING> 1,050,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,050,000
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIMIONE CENTRAL HOLDINGS, INC. FOR THE QUARTER ENDED
MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000896157
<NAME> SIMIONE CENTRAL HOLDINGS, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 67,000
<SECURITIES> 0
<RECEIVABLES> 4,069,000
<ALLOWANCES> 166,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,605,000
<PP&E> 730,000
<DEPRECIATION> 870,000
<TOTAL-ASSETS> 5,358,000
<CURRENT-LIABILITIES> 6,175,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> (818,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,358,000
<SALES> 4,041,000
<TOTAL-REVENUES> 4,041,000
<CGS> 0
<TOTAL-COSTS> 2,407,000
<OTHER-EXPENSES> 1,505,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 138,000
<INCOME-TAX> 54,000
<INCOME-CONTINUING> 84,000
<DISCONTINUED> 77,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,000
<EPS-BASIC> 161.00
<EPS-DILUTED> 161.00
</TABLE>
