SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
COMMISSION FILE NUMBER 0-22162
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3209241
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6600 POWERS FERRY ROAD, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 644-6700
Securities registered pursuant to Section
12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 27, 2000; $6,377,917.
<PAGE>
There were 3,853,305 shares of Common Stock outstanding at March 27, 2000.
Documents incorporated by reference in this Form 10-K: Portions of the
definitive proxy statement relating to the 2000 Annual Meeting of Stockholders
in Part III, Items 10 (as related to Directors), 11, 12 and 13.
PART I
ITEM 1. BUSINESS
OVERVIEW
Simione Central Holdings, Inc. ("Simione" or the "Company") is a leading
provider of systems and services designed to help home health care providers to
more effectively operate their businesses and compete in a managed care
environment. Simione offers several flexible software solutions. Each of these
solutions provide a basic set of software applications, and several specialized
modules which can be added 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, Simione's home health care
consulting services assist providers in addressing the challenges of:
- reducing costs;
- maintaining quality;
- streamlining operations;
- re-engineering organizational structures; and
- analyzing and performing due diligence in mergers and acquisitions.
During 1999, Simione had over 1,500 customers nationwide, including:
- hospital-based companies;
- free-standing home health care providers;
- alternate-site care organizations;
- home medical equipment providers;
- integrated delivery systems; and
- government-managed organizations.
Simione formerly provided comprehensive agency support services which
included administrative, billing and collection, training, reimbursement and
financial management services, among others. Simione discontinued this line of
business in December 1999.
For information regarding management's plan to improve Simione's
performance, see Note 1, to Simione's Notes to Consolidated Financial
Statements.
Unless the context otherwise requires, references to Simione include
Simione Central Holdings, Inc. and its subsidiaries. Our executive offices are
located at 6600 Powers Ferry Road, Atlanta, Georgia 30339 and the telephone
number is 770-644-6700.
RECENT DEVELOPMENTS
Effective March 26, 1999, Simione purchased substantially all the assets of
Tropical Software Services, a Windows based home medical equipment management
system. The acquisition was accounted for using the purchase method for
financial reporting purposes. The purchase price of approximately $1,963,000 has
been allocated to the assets acquired and liabilities assumed including
$1,951,000 of purchased technology. Purchased technology is being amortized over
an estimated three year useful life.
<PAGE>
On July 12, 1999, Simione entered into an agreement to acquire CareCentric
Solutions, Inc. pursuant to a merger of CareCentric into a wholly owned
subsidiary of Simione. The CareCentric merger was completed on August 12, 1999,
for consideration, part in cash and part in Series A Preferred Stock, worth a
total of $9,312,460. Under the merger agreement, CareCentric merged into a
wholly owned subsidiary of Simione, and Simione issued 3,034,521 shares of
Series A Preferred Stock to the former preferred stockholders and noteholders of
CareCentric, and paid $3.00 per share in cash to the former common stockholders
of CareCentric, or approximately $200,000 cash in the aggregate. The Series A
Preferred Stock was converted into Simione common stock only upon the approval
of the conversion by a majority of the Simione stockholders.
CareCentric was a leading provider of point-of-care systems in the home
health care information systems' marketplace. Simione believes that
CareCentric's system, The Smart ClipBoard(TM), is the home health care
industry's leading, Windows, pen-compatible, point-of-care clinical information
system.
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.
On March 7, 2000, Simione completed the merger with MCS, Inc. 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 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) and a Mestek
loan was exchanged for 0.85 million shares of Series C Preferred Stock.
On March 7, 2000, Simione effected a one-for-five reverse stock split for
its common stock. The reverse stock split was effective for stockholders of
record as of March 7, 2000. Trading on NASDAQ reflected the reverse stock split
beginning March 8, 2000. For 20 trading days beginning March 8, 2000, the
Simione common stock traded under the symbol "SCHID". On April 5, 2000, the
Simione common stock again traded under the symbol "SCHI".
Also on March 7, 2000, Simione stockholders approved the conversion of the
Series A Preferred Stock into common stock. These shares of Series A Preferred
Stock were converted into 606,904 shares of Common Stock, on a post-reverse
split basis, on March 7, 2000 immediately prior to the consummation of the MCS
merger. Subject to certain post-closing adjustments and claims, the former
CareCentric preferred stockholders and noteholders will receive additional
shares of Simione common stock (up to a maximum of 606,904 additional shares) if
the average closing market price of Simione common stock during the fourth
quarter of 2000 is less than $15.00 per share.
<PAGE>
Effective April 14, 2000, George M. Hare has resigned his position as Chief
Financial Officer of Simione. Effective April 15, 2000, Stephen Shea, Chief
Financial Officer of Mestek, will also hold the position of Chief Financial
Officer of Simione.
INDUSTRY OVERVIEW
Home health care is an important part of the health care industry's
continuum of care services. The increasing importance of home health care has
principally been a result of significant economic pressures within the health
care industry. In recent years, U.S. health care expenditures have increased
rapidly. In response to these escalating expenditures, payors, such as Medicare
and managed care organizations, have applied increasing pressure on physicians,
hospitals and other providers to contain costs. This pressure has led to the
growth of lower cost alternate-site care, such as home health care, and to
reduced hospital admissions and lengths of stay. In addition, home health care
has grown rapidly as a result of advances in medical technology, which have
facilitated the delivery of services in alternate sites, demographic trends,
such as an aging population, and preferences among patients to receive health
care in their homes.
Home health care consists of many elements, including:
- skilled nursing;
- durable medical and rehabilitation equipment;
- intravenous and infusion therapy; and
- hospice.
Historically, this industry has been highly fragmented and characterized by
small, local providers offering a limited range of services. With the advent of
managed care and integrated delivery systems, home health care providers have
had to expand their geographic scope and range of product and service offerings.
In addition, the overall growth in the home health care industry has allowed
providers to grow and realize increased operating efficiencies. As a result of
these developments and legislation and regulatory pressures, the home health
care industry has been in a period of rapid consolidation.
Medicare traditionally reimbursed a majority of home health care services
at reasonable and customary amounts that could not exceed the costs of services
provided, resulting in a direct relationship between the number of home health
care visits and reimbursement. However, the Balanced Budget Act of 1997, enacted
on August 5, 1997, contained provisions that significantly change the manner in
which home health agencies and home care services will be reimbursed in the
future by Medicare. The legislation created the interim payment system which
lowered the cost per visit limitations and created restrictions on the amount of
cost reimbursement per Medicare beneficiary. In late January 1998, the Health
Care Financing Administration ("HCFA"), the federal agency that administers
Medicare reimbursement for the home health care industry, published a notice
revising the schedule of limits on home health agency costs for cost reporting
periods beginning on or after October 1, 1997, which reduced the cost per visit
limitations. At the same time, HCFA issued a rule setting forth surety bond and
capitalization requirements for home health agencies.
As mandated by the Balanced Budget Act, HCFA has also announced the
implementation, effective October 1, 2000, of a prospective payment system,
which would limit reimbursement to a fixed amount for all services rendered per
episode of care based upon home health care resources groups indicated by
clinical assessments. The interim payment system has had a significant impact on
the home health industry, resulting in numerous closings of home health
agencies, consolidation of agencies and decisions by home health agencies to no
longer participate in the Medicare program or serve Medicare beneficiaries.
Further, once fully-implemented, the prospective payment system could also
potentially impact the home health industry in the same manner. In addition to
the impact of the interim payment system and the prospective payment system, the
growth in the number of Medicare members enrolling in managed care plans, which
have also begun to take measures to contain costs, will have a significant
impact on how providers may operate profitably. The uncertainty in the home
health care industry concerning these changing regulations adversely impacted
Simione's business in 1998 as many providers dissolved or delayed purchasing
decisions. Simione cannot predict how new regulations will impact its business
in the future.
As a result of consolidation and measures to address ongoing cost
pressures, home health care providers will increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. Simione believes that
many existing home health care information systems are inadequate to address the
changing needs of home health care providers. Generally, these systems were
designed to generate patient billing information and cost reports for Medicare
reimbursement and, as a result, may be unable to provide the detailed
information required for meaningful business analyses and data collection under
the new system.
THE SIMIONE CENTRAL SOLUTIONS
Simione offers a comprehensive set of solutions to address the changing
needs of home health care providers through information systems training and
support and consulting services.
Simione's systems and services are designed to enable home health care
providers to generate and utilize comprehensive financial, operational and
clinical information and address organizational issues in order to make informed
decisions, more effectively operate their businesses and compete in a managed
care and/or prospective payment system environment. These solutions can be
packaged and customized to serve the individual needs of customers.
<PAGE>
MARKET POSITION
Simione's objective is to enhance its position as a leading provider of
solutions to the home health care industry. The principal elements of Simione's
business and product strategies are described below. During 1999, significant
progress in the execution of many of the strategies was made. Specifically, the
acquisition of the Smart Clipboard and Outcomes Planner products combined with
the merger with MCS, signed in May 1999 and completed in March 2000 has provided
a realization of many of the resources and products needed to enhance Simione's
market position. Accordingly, the products and services that have become part of
Simione's offerings to the industry with the completion of the MCS merger, have
been included in the Core Software Solutions, Specialized Product Solutions and
Service Solutions sections below.
BUSINESS STRATEGIES
CREATE GROWTH THROUGH TECHNOLOGY AND CO-MARKETING PARTNERSHIP. Because
information technology tools are becoming more platform independent and
adaptable to the "Plug and Play" environment, we will not develop specialized
programs and tool sets already developed well by vendors. We intend to partner
with such vendors by interface, integration or incorporation of their products
into our comprehensive IT solution.
LEVERAGE EXISTING CUSTOMER BASE. Simione currently (before the MCS merger) has a
base of over 1,500 customers nationwide. Simione believes that a significant
opportunity exists to cross-sell its existing systems and services as well as
introduce new systems and enhancements.
GENERATE RECURRING REVENUE. Simione generates recurring revenue through a
combination of annually renewable maintenance agreements and multi-year service
contracts. Simione attempts to maximize recurring revenue opportunities through
a combination of periodic system enhancements and comprehensive customer
service.
CAPITALIZE ON CHANGING INDUSTRY DYNAMICS. As the home health care industry
consolidates, Simione believes it is well positioned to increase its market
share by leveraging its existing relationships with large providers such as
Tenet, Walgreen and Mercy. Simione also believes its comprehensive solutions
will become increasingly important to home health care providers as they address
the challenges presented by health care reform and as integrated delivery
systems become more prevalent.
EXPAND THROUGH ACQUISITIONS AND STRATEGIC ALLIANCES. Through very selective
strategic acquisitions Simione intends to continue to expand its system and
service offerings, expand its customer base and increase its market share.
Simione also intends to selectively establish strategic alliances to expand its
system and service offerings and grow its distribution capabilities.
CONSOLIDATE DUPLICATIVE PRODUCTS AND SERVICES. Simione believes that improved
efficiency and lower cost of operations will be realized through consolidation
of similar products and services within the same market space. These
consolidations will present customers with more effective control and
flexibility of their product and service strategies.
INTEGRATION OF CORE PRODUCTS. Based on market demand, Simione's products are in
the process of becoming architecturally integrated to create multi-faceted IT
solutions that provide customer control over rules-based processing and seamless
data entry and data accessibility.
ALTERNATIVE DELIVERY SYSTEMS. Simione is developing product solutions that can
be web enabled with the ability to operate in both distributed and Application
Service Provider (ASP) environments.
<PAGE>
FOCUS ON PROCESS IMPROVEMENT. Simione is enhancing selected features of existing
products and developing new products to help its customers improve workflow and
operational process. Such activities will help customers manage and reduce costs
while maintaining quality clinical outcomes, which are believed to be a
necessity for business survival under the prospective payment system.
INFORMATION SYSTEMS
Simione offers comprehensive and flexible software solutions to address the
information processing needs defined by a number of unique homecare market
segments including home medical equipment suppliers, infusion therapy providers,
home health agencies, hospice service providers and integrated delivery
networks. Each of Simione's software products offers a suite of core application
modules that address the financial, clinical and operational requirements of
home healthcare providers. These applications are designed to:
- Improve efficiencies of customer processes and operations
- Operate in a Number of Technology Environments
- Provide Scalability and Growth Options
- Provide Open Data Access
- Produce Management Reporting and Decision Support Tools
- Facilitate Regulatory Compliance
- In addition to its core software products, Simione offers several
specialized modules and applications.
CORE SOFTWARE SOLUTIONS
Simione's core software solutions are as follows:
STAT2
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A complete, flexible and fully integrated home health agency management system.
The STAT2 core set of software applications includes:
- Client Intake - Billing/Accounts Receivable
- Treatment Plans - General Ledger
- Employee Tracking - Accounts Payable
- Scheduling - Payroll
- Electronic Transmission/Remittance
This core set can be enhanced with specialized features including hospice,
telephony and cost reporting. The STAT2 system allows a customer to exchange
clinical and financial information with external systems in either a real-time
or batch mode through interface engine technology or customized interfaces.
STAT2 is designed to increase staff productivity by fully integrating the
system's clinical, financial and operational applications and thereby
eliminating redundant data entry. STAT2 has the ability to customize system
features as well as the ability to expand with the customers' business.
DME 6.3
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PC-based software application for home medical equipment and medical supply
businesses. The DME 6.3 core set of software applications includes:
- Order Entry - Billing
- Inventory Management - Accounts Receivable
- General Ledger - Purchase Orders
DME 6.3 features add-on modules such as retail sales and bar coding. The DME 6.3
software provides easy to use data import/export capabilities. DME 6.4 is
currently in customer testing.
MESTAMED
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MestaMed is a fully integrated billing, accounting and inventory control system
for providers of home health services including:
- Home Medical Equipment & Supplies
- Home Health Care
- Infusion Therapy
- Rehabilitation Equipment
- Hospice Services.
MestaMed customers are home health care providers who use MestaMed to track the
delivery of home medical equipment and services to patients and to meet the
complex requirements necessary to obtain reimbursement from Medicare/Medicaid
and other third-party payers. Simione believes MestaMed is the only system which
integrates information for operational and financial management for multiple
line of business homecare providers.
MestaMed is comprised of the following core modules:
- Patient Intake - HME Order Processing
- Rental Equipment Management - Billing & Electronic Claims Processing
- Accounts Receivable - Inventory Control and Asset Management
- Management Reporting - Service Transaction Processing
- HHA Scheduling - Clinical and Supporting Documentation
- IV Prescription Processing
A number of additional add-on features and supplemental modules can be
optionally purchased to satisfy the IT requirements of a particular homecare
provider. MestaMed is designed to easily and cost effectively meet the needs of
large providers who have high transaction volumes, large numbers of users,
multiple branches and remote processing requirements. MestaMed is available on a
variety of hardware platforms and operating environments including OpenVMS,
UNIX, Windows NT, AIX and various Intel, Alpha and RS 6000 computer systems.
HMExpress
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HMExpress is a Windows-based, cost-effective and proven suite of applications
designed for small to mid-sized home medical equipment providers. HMExpress
automates order processing, CMN management, billing, accounts receivable,
inventory and rental management - the core operational areas of any HME
business. A subset of the more functionally robust MestaMed product, HMExpress
packages years of research and development into an affordable out-of-the-box HME
solution.
HMExpress features HME patient intake and order processing, equipment pickups
and exchanges, rental equipment management, recurring rental billing, capped
rental processing, DMERC CMN printing and tracking, 1500 Bill Printing,
Private-Pay Statements, DMERC Electronic Claims Submission, Billing System, A/R
system, Perpetual Inventory, Management Reporting and Multi-Brach Processing.
In addition to the core components of HMExpress, several add-on products are
available including a user-friendly Report Writer, DMERC ERN processing and
Electronic Medicaid Claims Processing. HMExpress comes complete with
Computer-Based Training courses, comprehensive user documentation and free
regional training sessions. HMExpress customers are also afforded high quality,
real-time customer support coverage and services.
SMART CLIPBOARD
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The Smart ClipBoard is a clinical information system that enables home health
agencies to compete effectively in the changing health care delivery
environment. Originally designed in 1993, it was the first home health
point-of-care information system developed around pen-based computer technology
and home health clinical processes. The Smart ClipBoard provides a clinical
solution designed to assist home care providers in co-managing the cost and
quality of the care they deliver by helping them understand their clinical and
administrative processes. The Smart ClipBoard software suite was released in
1996.
By using The Smart ClipBoard, an agency can use and modify its existing clinical
assessment criteria and care plans. As a result, structured clinical data is
presented and captured in a user-friendly manner at the point-of-care. Finally,
a suite of data analysis reports and ad-hoc queries help to facilitate clinical
process understanding and improvement. The Smart ClipBoard's point-of-care
features assist clinicians in capturing structured documentation of, and
variance from, planned patient care processes. Other features allow clinicians
to have access to patient caseload data and libraries of medical information.
Through a relationship with Outcome Concept Systems, the system provides OASIS
and ORYX data entry, validation, submittal and reporting capabilities as
required under federal regulations and JHACO industry standards.
The Smart Clipboard System will also feature a web-based order tracking system
to be introduced later in 2000. The Orders Tracking System will allow physicians
to process plans of treatment (485's) and supplemental orders using Internet
technologies. Using a secure web-site, agencies and physicians can quickly and
efficiently automate the work flow process surrounding the review, modification
and acceptance of agency-generated orders. The Orders Tracking System will also
incorporate an Orders Management component to allow agencies to efficiently
track and respond to outstanding orders. Automated escalation routines send
e-mail and FAX reminders to physician offices to expedite the orders completion
process.
The Orders Tracking System will provide an innovative e-business solution to the
provider community that will allow the electronic processing of orders and the
reduction of costs associated with the paperwork bottlenecks surrounding
traditional orders management.
The Smart ClipBoard includes several administrative and clinical components to
help improve workflow processes throughout an agency:
- - Patient Administration
- - Scheduling
- - Orders Management
- - Outcomes Management & Reporting
In 2000 Simione intends to interface Smart ClipBoard to the billing modules of
STAT2 and MestaMed and develop further operational management enhancements for
the system.
SPECIALIZED PRODUCT SOLUTIONS
Simione offers the following specialized software solutions:
OASIS/ORYX BENCHMARKING
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Simione will form strong strategic alliances in 2000 with leading performance
measurement systems companies to allow home healthcare companies to collect,
manage, report and analyze clinical data. The Health Care Financing
Administration has mandated the collection of a standardized set of patient
assessment data (OASIS). Several accreditation organizations such as JCAHO
(ORYX) require the collection and submission of key assessment indicators as
well. Comprehensive collection and benchmarking software allows agencies to
transmit required clinical data to state agencies, to provide flexible in-house
reporting features, to receive periodic comparative statistics from other member
agencies and to access clinical data in an open architecture for ad-hoc
reporting.
DECISION SUPPORT / DATA WAREHOUSING
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During 2000, Simione will begin the design and development of data warehouse
features that will allow agencies to easily access data to perform 'what-if'
analysis utilizing the latest On-Line Analytical Processing (OLAP) compliant
tools. Using these tools, agencies can merge and combine data across multiple
databases to produce a number of decision support scenarios that can be easily
modified to accommodate new criteria and market conditions. Automated routines
to move consolidated financial and clinical data to a common data repository
from a number of Simione software product databases will constantly update the
historical databases used to analyze data. Pre-defined data cubes, reports,
graphs, charts and decision support software will provide additional value to
agency IT groups.
CLINCAL CONTENT OPTIONS
SMART CARE
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The Smart Care suite of patient careplans and assessments allow agencies to
implement paper and electronic clinical data collection processes by defining
treatment plans for a variety of medical diagnosis-based conditions, hospice
services and infusion therapies. Over 30 plans of care and supported assessments
facilitate immediate implementation of a structured clinical process.
OUTCOMES PLANNER SYSTEM
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The Outcomes Planner System (OPS) is currently available to Simione customers as
a paper-based documentation solution designed to give agencies a
teaching-oriented set of care planning options. The Outcomes Planner System
consists of standard pre-defined clinical content including assessments and
visit-driven careplans. The Outcomes Planner System predefines methods of
delivering standardized but individualized patient care by specifying care goals
and visit milestones that result in more successful clinical outcomes with lower
costs. Simione will introduce the electronic content version of the OPS system
later this year.
Simione Central will continue to utilize a significant number of clinical
healthcare professionals to develop content-based solutions to supplement its
software products.
COMPUTER-BASED TRAINING (CBT) COURSEWARE
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Simione's CBT division has produced a number of interactive CBT courses that
cover a variety of homecare industry and product-specific topics. CBT courseware
features leading industry experts and allows Simione to deliver quality training
and educational courseware at a fraction of the cost of traditional training
options. CBT offerings give Simione a leading advantage in delivering quality
education and training to its customers to supplement its software products and
consulting activities. CBT courseware can also be delivered and administered in
a web-based environment.
Over 20 titles have been developed with another 18-20 planned for 2000.
REGULATORY ENHANCEMENTS
- -----------------------
Simione will expend professional resources to address the healthcare-related
regulatory issues facing providers this year:
PROSPECTIVE PAY SYSTEM (PPS)
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As a result of the Balanced Budget Act of 1997 and the OCESSA Act of 1999,
implementation of a Prospective Pay System is mandated for home health agencies.
Simione will provide a host of educational and consulting services as well as
clinical and software modifications necessary to meet PPS compliance. Products
will be created to supply healthcare agencies with tools and processes to assist
agencies in succeeded in this new cost-oriented environment.
HIPAA
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The Health Insurance Portability and Accountability Act will necessitate
security and electronic transmission-related enhancements to current software
products. As specific implementation guidelines are published, Simione Central
will respond by allocating the resources needed to gain compliance.
SERVICE SOLUTIONS
SOFTWARE SUPPORT SERVICES
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Simione believes that providing comprehensive software support services to
customers is critical to its success in the home health care industry. With the
completion of the merger with MCS in March 2000, Simione employs in excess of
120 professionals dedicated to this effort who provide the following services:
- Implementation: Implementation services include an assessment of
existing customer business processes, project planning, system
training, business process re-engineering and data conversion
assistance.
- Training: Training services are offered on a continuing basis to
existing customers either at the customer's site or at a Simione
location.
- Software Support: Simione offers on-call telephone software support
seven days a week and provides maintenance releases on a periodic
basis. Releases of software enhancements are generally made available
to customers annually. These enhancements include unspecified
improvements and regulatory data updates. This support does not
include major functional or computer platform changes that would be
offered to customers as new product sale opportunities.
- Technical Consulting: Simione provides software customization and
integration, technical audits of the customer's information systems,
integration and network planning and strategic and tactical
information systems planning.
Support services represent a source of recurring revenue, as these services are
provided through annual renewable maintenance contracts which provide access to
customer support, updates to respond to changes in reimbursement and regulatory
policies, and product enhancements. The software in installations which do not
have maintenance agreements rapidly becomes obsolete. Other services are
generally charged on a time and materials usage basis. Simione's technical
personnel also provide on-site and on-call hardware support.
CONSULTING SERVICES
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Simione's home health care consulting services assist providers in addressing
the challenges of a managed care and/or PPS environment, such as reducing the
cost of delivering care while maintaining or improving quality of care,
streamlining operational structures and re-engineering organizational
structures. Simione's consulting operations, which were acquired in January
1996, have been providing consulting advice to the home health care industry
since 1963. The consulting staff is comprised of approximately 35 professionals
with home health care industry specific experience. Consulting engagements
generally focus on:
<PAGE>
- Strategic Planning - Marketing Studies - Acquisition Due Diligence
- Operational Reviews - Business Valuations - Quality Assurance Reviews
- Reimbursement - Organizational Reviews - Operational Re-engineering
- Consultation - Management - Medical Records
- Medicare Compliance - Cost Report Preparation
Simione provides consulting services on a time and materials usage basis.
Simione believes that its consulting services group effectively complements its
software and services, provides a valuable outlook on the changing home health
care industry and is a source of innovative ideas for Simione's information
systems enhancements. Furthermore, consulting services are designed to build new
customer relationships and provide opportunities for the sale of additional
information systems and services.
CUSTOMERS
During 1999, Simione had over 1,500 customers nationwide, including:
- hospital-based companies;
- home health care providers;
- alternate-site care organizations;
- home medical equipment providers;
- integrated delivery systems; and
- government-managed organizations.
Columbia/HCA accounted for 35% of Simione's revenues in 1998 and 11% of
Simione's revenues in 1999. See "Simione Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" for a discussion of
Simione's relationship with Columbia/HCA. No other customer accounted for 10% or
more of Simione's consolidated net revenues during the year ending December 31,
1999.
SALES AND MARKETING
Simione markets its systems and services through a direct sales force in
four national territories located throughout the United States. Simione also
employs a marketing and sales support staff to assist its sales force.
Recognizing the importance of maintaining good communication and obtaining
valuable input from its customers, Simione sponsors customer advisory groups and
national user group meetings. Regional user group meetings are also held to
discuss customer comments, suggestions, industry-trends and related system
issues.
BACKLOG
Simione had backlog of $1.6 million on December 31, 1999, $4.1 million on
December 31, 1998, and $7.1 million on December 31, 1997. 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 Simione, 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, Simione 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.
TECHNOLOGY
The Smart ClipBoard system operates in all Windows environments and its
point-of-care features operate on tablets, laptops and other scaleable devices.
It features a flexible relational database capable of accurate replication
necessary to support distributed and remote information systems.
The STAT2 system operates on multiple operating systems, including Windows,
and is designed for use on microcomputers, network PCs, and IBM and DEC computer
hardware. The STAT2 system allows a customer to exchange clinical and financial
information with external systems in either an immediate connection or by
accumulating data to transmit later in batches or batch mode.
The Dezine Durable Medical Equipment 6.3 system operates on the MS-DOS and
Windows operating systems and is designed for use on microcomputers or network
PCs.
The integrated MestaMed system operates on multiple operating systems
including Open VMS, Windows NT, UNIX, AIX, and other primary platforms. An ODBC
gateway has been developed to allow efficient queries of its proprietary
database.
Simione's systems are dependent upon many third-party software and hardware
products and related services. There can be no assurance that financial or other
difficulties experienced by such third-party vendors will not have an adverse
effect on Simione's abilities to provide its systems or that Simione will be
able to replace such third-party products and services if they become
unavailable.
The third-party software is composed of varying types and contractual
arrangements. The nature and scope of the third-party software is described in
the table below. The software licensed from third parties falls into one of the
four categories listed below. All of Simione's products use these third-party
software products to some varying degree. Generally, the third-party software is
licensed under agreements that have a one-year term. Fees charged by the
third-party software vendors are passed on to Simione's customers in the license
fees or maintenance fees charged by Simione. The software is either embedded in
Simione's software prior to sale or accessed by Simione's software as an
external data file.
<TABLE>
<CAPTION>
TERMS OF LICENSE
----------------
MONTHLY PER USER OR EMBEDDED
MAINTENANCE ONE TIME FEE PER SEAT SOFTWARE DATA FILE
----------- ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Operating System X X X X
Medical Content X X X X
Report Writer X X X X
Data Base Manager X X X X
</TABLE>
RESEARCH AND DEVELOPMENT
Simione maintains a staff of approximately 40 programmers, systems and
application analysts, quality assurance analysts and documentation specialists
(a total of 75 including MCS after the merger) who monitor developments in the
computer software and health care industries and who continuously work to
enhance Simione's systems. Simione's research and development expenses were
approximately $4.0, $6.7 and $6.7 million for the years ended December 31, 1999,
1998 and 1997, respectively.
Simione is enhancing selected features of existing products and developing
new products to help its customers improve workflow and operational process.
Such activities will help customers manage and reduce costs while maintaining
quality clinical outcomes, which are believed to be a necessity for business
survival under the prospective payment system. Simione has additional research
and development activities underway to make certain product functionality
web-enabled. Additionally, Simione plans to develop or enhance interface
capabilities between the Smart ClipBoard product acquired in the CareCentric
acquisition and its other core home health agency products.
Simione recognizes the need to respond to the rapid technological change
that is occurring in the software and health care industries. There can be no
assurance, however, that Simione will be able to develop products on a timely
basis or that its future products will fully address the needs of its current or
prospective customers.
COMPETITION
Competition in the market for home health care information systems and
services is intense and is expected to increase. Simione believes that the
primary factors affecting competition are:
- system performance and reliability
- customer support
- service
- system flexibility and ease of use
- potential for providing enhancements
- reputation
- financial stability.
Simione believes it is a strong competitor in system performance and
reliability, customer support and potential for enhancements. Simione provides
customer support through a toll-free call-in number which Simione believes has
been effective in satisfying customer needs. Simione believes it has a
competitive advantage in the service area because it offers a more complete
health care industry consulting service that supplements and supports its
systems-related services, and strengthens customer relationships. Pricing in
this industry is very competitive, with no particular company, including
Simione, having a clear advantage. Simione believes that it has a very good
reputation among the home health care providers who are familiar with Simione's
products, but Simione's name recognition within the market at large is not as
well established as many of the competitors. Simione is at a competitive
disadvantage on the financial stability factor because its financial position is
not as strong as that of its major competitors.
Simione's competitors include other providers of home health care
information systems and services, management companies and home health care
consulting firms. Furthermore, other major health care information companies not
presently offering home health care information systems, or major information
system companies not currently in the health care industry, could develop the
technology and enter Simione's markets. Simione believes its most significant
competitors are:
- Delta Health Systems (owned by Shared Medical Systems Corp.);
- McKesson HBOC;
- Patient Care Technologies, Inc. (partially owned by Meditech);
- Home Care Information Systems, Inc. (owned by Misys PLC); and
- 3M Datacron (owned by 3M).
Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
Simione's business, financial condition and results of operations. In addition,
many of Simione's competitors and potential competitors have significantly
greater financial, technical, product development, marketing and other resources
and market recognition than Simione. Many of Simione's competitors also
currently have, or may develop or acquire, substantial installed customer bases
in the home health care industry. As a result of these factors, Simione's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their systems and services than Simione.
There can be no assurance that Simione will be able to compete successfully
against current and future competitors or that competitive pressures faced by
Simione will not materially adversely affect its business, financial condition
and results of operations.
PROPRIETARY RIGHTS AND PRODUCT PROTECTION
Simione owns the copyrights on its STAT2 system and The Smart ClipBoard
product acquired in the CareCentric merger. Simione depends upon a combination
of trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions, confidentiality policies and various security
measures to protect its proprietary rights. There can be no assurance that the
legal protections afforded to Simione or the precautions taken by Simione will
be adequate to prevent misappropriation of Simione's technology. In addition,
these protections do not prevent independent third-party development of
functionally equivalent or superior technologies, systems or services, or the
obtaining of a patent with respect to Simione's technology by third parties. Any
infringement or misappropriation of Simione's proprietary software could have a
material adverse effect on Simione. As the number of home health care software
information systems increases and the functions of these systems further
overlap, health care information systems may increasingly become subject to
infringement claims. Although there has been no litigation with respect to these
claims, there can be no assurance that Simione will not be subject to litigation
in the future or additional infringement claims.
Simione believes that its current systems and products do not infringe on
the patent or trademark rights of any third parties. There has, however, been
substantial litigation and uncertainty regarding copyright, patent and other
intellectual property rights involving computer software companies and there can
be no assurance that Simione will prevail in any infringement litigation brought
against it. One party has initiated an infringement inquiry with Simione
involving its TEMS software. Simione believes that this inquiry will not have a
material adverse effect on its financial position or results of operations since
the settlement and licensing terms currently offered by the inquiring party
would be immaterial to Simione's financial performance. Any claims or
litigation, with or without merit, could be costly and could result in a
diversion of management's attention which could have a material adverse effect
on Simione's business, financial condition and results of operations. Adverse
determinations in such claims or litigation may require Simione to cease selling
certain systems or products, obtain a license and/or pay damages, any of which
could also have a material adverse effect on Simione's business, financial
condition and results of operations.
GOVERNMENT REGULATION AND HEALTH CARE REFORM
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of home health care organizations. During the past several years, the United
States health care industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates and certain proposals to
reform various aspects of the United States health care system have periodically
been considered by Congress. Future proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for Simione's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in Simione's systems and services. Simione cannot predict
what impact, if any, such factors might have on its business, financial
condition and results of operations.
The Office of Inspector General of the Department of Health and Human
Services has identified in its Work Plan for Fiscal Year 1999 several projects
within the home health industry which will be the focus of the Inspector
General's scrutiny in fiscal year 1999. Each year the Inspector General sets
forth in its Work Plan for that year the areas that will be scrutinized. For
example, the 1999 Work Plan sets forth that the Inspector General will focus on
audits of home health base year costs, location of service requirements,
assessment of the impact of the interim payment system on beneficiary access,
physicians case management billings, utilization patterns of home health
agencies, and claims for home health aides. Additionally, the Inspector General
has focused in recent years on how third-party billing companies, such as
Simione, provide billing and collection services to its customers. The Inspector
General has also stressed the importance of compliance programs for aspects of
the health care industry. Although currently implementation of such programs is
voluntary, such compliance programs may become a requirement in the future as a
condition of being reimbursed under any federal or state programs or by private
health plan payors. The Inspector General released in December 1998 a compliance
program intended as guidance to third-party medical billing companies and their
agents and subcontractors in developing internal controls promoting adherence to
applicable law and the program requirements of federal, state and private health
plan payors. Any changes resulting from the Inspector General's review of the
home health industry and how home health services are billed could increase the
costs and time necessary for Simione to provide its administrative services to
its customers and could affect Simione in other respects not currently
foreseeable.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in databases maintained on Simione's
systems are subject to substantial regulation by state governments and federal
legislation governing specialized medical information and records. Although
compliance with these laws and regulations is principally the responsibility of
the hospital, physician or other home health care provider with access to
Simione's information systems, regulations governing patient confidentiality
rights are evolving rapidly. For example, the Health Insurance Portability and
Accountability Act of 1996 includes provisions directing the Secretary of the
Department of Health and Human Services to adopt standards governing the
electronic transmission of data in connection with a number of transactions
involving health information, including submission of health claims. These
standards are to cover security measures and safeguards with respect to health
information, as well as standardization of data, assignment of identifiers and
authentication of electronic signatures.
In January 1999, HCFA published an interim final rule and a final rule
requiring home health agencies to report electronically data obtained from the
Outcome and Assessment Information Set ("OASIS") as a condition of participation
by such agencies in the Medicare program. OASIS requires information regarding
patients to be submitted electronically to HCFA, and the January 1999 rules set
forth requirements for maintaining the privacy of patient identifiable
information generated by OASIS. Further, these rules require the home health
agency or its agent to maintain the confidentiality of all patient identifiable
information contained in the clinical record and neither can release such
patient identifiable OASIS information to the public. Any agent acting on behalf
of an agency in connection with the transmission of OASIS data must be doing so
pursuant to a written agreement with the home health agency. Additional
legislation governing the dissemination of medical record information has been
proposed at both the state and federal level. This legislation may require
holders of such information to implement additional security measures which may
be difficult to implement and costly to Simione. There can be no assurance that
changes to state or federal laws and regulations will not materially restrict
the ability of home health care providers to submit information from patient
records to Simione's systems or impose requirements which are incompatible with
Simione's current systems.
In late October 1999, HCFA released its proposed regulations for the
prospective payment system for reimbursement of home health providers under
Medicare. These proposed rules are subject to comment and are expected to be
finalized by July 2000 and effective October 2000. The proposed rules will
reimburse home health providers fixed amounts for 60 day episodes of care
determined by home health resource group case-mix classifications on the basis
of an initial OASIS assessment adjusted for regional labor cost differences. The
proposed rules state that the reimbursement will be 50% at the start of the
episode and 50% after the final report for the episode with all adjustments has
been transmitted. Adjustments will be allowed for low utilization, partial
episodes, significant changes in condition, delivery of therapy and other
excessive costs situations. Additional submittals required will include a notice
of admission, identification of the appropriate case mix group and a one-line
universal bill submission.
These changes to the Medicare payment system will require extensive changes
to the manner in which home health care providers do business because they will
be required to reduce or manage the costs of care per episode so the costs will
not exceed the allowed reimbursement, while maintaining the quality of medical
outcomes required by the patient, the payor or other governmental regulatory and
self-regulating organizations. Such changes will require extensive changes to
Simione's software products. Plans are underway to understand and address these
changes. There is no assurance that:
- these changes can be made correctly or in a timely enough manner given
the resources of Simione;
- HFCA will not change or delay these requirements;
- other suppliers of home health care software who are competitors will
not supply better versions of such products; or
- Simione's customers will have the resources and skills to make the
changes to their operational processes needed to remain in business or
to acquire, install and use the information technology we intend to
sell to address this major regulatory change.
In the Omnibus Consolidated and Emergency Supplemental Appropriation Act of
1999, the portions of the Balanced Budget Act of 1997 that were applicable to
the reimbursement of home health care providers under Medicare were amended to:
- defer the 15% additional funding cut until October 2000;
- provide for three year extended payments of prior Medicare
over-reimbursements with the first year interest-free;
- eliminate the bundling of home medical equipment billings with home
health agency billings; and
- provide other minor relief.
These changes will increase the cash flow of our customers and potential
customers for the next 12 months, but do not provide the permanent relief sought
by the industry. The non-bundling change eliminates an opportunity for MCS which
has a software program that would facilitate such bundling of billing. This
legislation will not require significant changes to our software programs.
The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug and
Cosmetic Act. Computer products are subject to regulation when they are used or
are intended to be used in the diagnosis of disease or other conditions, or in
the cure, mitigation, treatment or prevention of disease, or are intended to
affect the structure or function of the body. Although Simione believes that its
systems are not subject to FDA regulation, the FDA could determine in the future
that predictive applications of Simione's systems could make them clinical
decision tools subject to FDA regulation. Compliance with FDA regulations could
be burdensome, time consuming and expensive. Simione also could become subject
to future legislation and regulations concerning the manufacture and marketing
of medical devices and health care information systems. These could increase the
costs and time necessary to market new systems and could affect Simione in other
respects not presently foreseeable. Simione cannot predict the effect of
possible future legislation and regulation.
EMPLOYEES
As of December 31, 1999, Simione employed approximately 200 individuals.
Simione believes that its future success depends in large part upon recruiting,
motivating and retaining highly skilled and qualified employees in all aspects
of Simione's business. None of Simione's employees is represented by a labor
union. Simione believes that its employee relations are good.
PROPERTIES
Simione's principal executive offices are located at 6600 Powers Ferry
Road, Atlanta, Georgia 30339. The principal executive offices consist of
approximately 56,924 square feet. Simione uses 20,681 square feet of this space
and subleases the remainder to a third-party. The lease on this space expires on
December 31, 2002.
Simione also leases office space in the following locations:
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
- -------- -------------- ----------------
Pompano Beach, Florida.............. 20,291 December 31, 2000
Duluth, Georgia..................... 8,370 March 31, 2001
Hamden, Connecticut................. 6,500 December 31, 2002
East Brunswick, New Jersey.......... 8,540 September 30, 2000
Sugar Land, Texas................... 7,900 September 30, 2000
Westborough, Massachusetts.......... 3,020 August 30, 2001
Huntington Beach, California........ 976 May 31, 2000
San Diego, California............... 1,800 February 28, 2000
Irving, Texas....................... 1,645 March 31, 2003
Jacksonville, Florida............... 1,019 January 31, 2000
Pittsburgh (Monroeville), Pennsylvania 24,308 September 30, 2005
Pleasanton, California.............. 2,463 March 31, 2003
The landlord of the Connecticut office is a company controlled by Barrett
O'Donnell, Chairman of Simione, and Reid Horovitz, former General Counsel and
Secretary of Simione.
Simione believes that its present facilities are adequate to meet Simione's
current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
Neither Simione nor any of its subsidiaries is currently a party to any
legal proceedings which would be material to the business or financial condition
of Simione on a consolidated basis. 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 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 Simione. 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 Simione that neither Simione, nor any of its officers, directors or
employees, were a target in the investigation and that the Department of Justice
had removed the Company from its inquiry.
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 alleged claims
that Simione allegedly participated in a conspiracy with Columbia/HCA and other
third parties to bill inflated and fraudulent claims to Medicare. Simione 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. Simione has had indications that Mr. McLendon
may still pursue "whistleblower" claims against Simione directly. Simione does
not believe that any of these claims, if asserted against Simione, will have any
material effect on Simione'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 payable to IBM for
the early cancellation of the Company's service agreement with IBM for services
provided to Columbia/HCA. Those costs amount to approximately $2.5 million and
are part of claims for reimbursement under a still active legal dispute with
Columbia/HCA. In the event the legal dispute is not settled in favor of the
Company, the Company may be liable for all or part of this amount plus any late
payment charges if appropriate.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE MANAGEMENT OF THE REGISTRANT
Barrett C. O'Donnell...........46 Chairman of the Board
R. Bruce Dewey.................48 Chief Executive Officer, President and
Director
William J. Simione, Jr.........57 Executive Vice President and Director,
President of Simione Consulting
Jack Arthur....................61 Senior Vice President of Product
Management and Quality Assurance
George M. Hare.................44 Senior Vice President and Chief Financial
Officer (until April 14, 2000)
Kathryn B. McClellan...........45 Senior Vice President of Product Services
Charles N. Mead, M.D. .........52 Chief Science and Technology Officer
Michael Quinn .................46 Senior Vice President of Corporate
Resources and Customer Support
Robert J. Simione..............49 Senior Vice President of Consulting
William A. Thomasmeyer.........45 Senior Vice President of Sales and
Marketing
Effective April 15, 2000, the Company's Chief Financial Officer and
Treasurer will be Mr. Stephen Shea. Mr. Shea is and will remain the Chief
Financial Officer of Mestek, Inc., a NYSE company. Mestek was the parent company
of MCS, Inc. before it merged into Simione on March 7, 2000.
R. Bruce Dewey has served as Senior Vice President and General Counsel of
Mestek since 1994 and Secretary of Mestek since 1992. Mr. Dewey was Vice
President -- Administration prior to 1994. Prior to joining Mestek in 1990, Mr.
Dewey was an attorney in private practice in Seattle, Washington most recently
with Cairncross, Ragen & Hempelmann from 1987 to 1990. Prior to the merger of
Mestek, Inc. and Reed National Corp., Mr. Dewey had been Assistant to the
President of Reed from 1979 to 1983 and had been affiliated with the
Cooper-Weymouth, Peterson division of Reed from 1975 to 1979. In accordance with
the terms of the merger agreement, Mr. Dewey was appointed the Chief Executive
Officer of Simione as of September 9, 1999. Mr. Dewey will remain Senior Vice
President and Secretary of Mestek and will spend approximately 75% of his time
on Simione. Mr. Dewey was a director of MCS from June 1992 to August 1999.
Barrett C. O'Donnell has served as Chairman of the Board of Simione since
June 15, 1998, and served as Chief Executive Officer and President from June 15,
1998 to September 9, 1999. Mr. O'Donnell has been a director of Simione since
October 1996. From October 1992 until October 1996, Mr. O'Donnell served as
Chairman of the Board of InfoMed Holdings, Inc., a Delaware corporation that
merged with Simione Central Holding, Inc., a Georgia corporation, to form
Simione effective October 8, 1996. Mr. O'Donnell also served as Chief Executive
Officer of InfoMed from November 1994 to October 1996. From 1978 to present, Mr.
O'Donnell has been Chairman of the Board, President and Chief Executive Officer
of O'Donnell Davis, Inc., which is in the consulting and investment advisory
services business.
William J. Simione, Jr. is a certified public accountant who has served as
Vice Chairman of the Board and Executive Vice President of Simione since October
1996. From January 1996 until October 1996, Mr. Simione served as the President
of Simione Central, Inc., a wholly owned subsidiary of Simione. From January
1975 until December 1995, Mr. Simione was Managing Partner of the Home Health
Care Consulting Division of Simione & Simione, CPAs. Since September 1995, Mr.
Simione has also served as a director and an audit committee member of Personnel
Group of America, Inc., a leading provider of information technology services
and commercial staffing solutions. Mr. Simione has 32 years of experience in the
home health care industry.
Jack Arthur served as Senior Vice President of Product Development and
Product Management of Simione from January 1999 to the date of the merger with
MCS, when he became Senior Vice President of Product Management and Quality
Assurance. From July of 1998 until December of 1998, Mr. Arthur was a manager of
product development with Eclipsys, Inc., an information systems provider. From
October of 1995 until June of 1998, Mr. Arthur was the owner of Healthcare
Consulting, Inc., a health care information systems consulting company. From
June of 1985 until October of 1995, Mr. Arthur held various product development
management positions with SMS, Inc., an information systems provider.
George Hare has served as the Senior Vice President and Chief Financial
Officer of Simione since May 1999. Since March of 1999, Mr. Hare has been a
Partner with Tatum CFO Partners, LLP. From February of 1988 to 1999, Mr. Hare
worked for ADT Security Services and its subsidiaries in various capacities. Mr.
Hare is a Certified Public Accountant. Mr. Hare has resigned effective April 14,
2000.
Kathryn B. McClellan served as Senior Vice President of Customer Services
and Support of Simione from November 1998 to the date of the merger with MCS,
when she became Senior Vice President of Product Services. From June of 1996
until November of 1998, Ms. McClellan held various operational and customer
services positions with Simione. From April of 1991 until June of 1996, Ms.
McClellan was an administrator and director of Memorial Medical Center.
Charles N. Mead, M.D. has served as Chief Science and Technology Officer of
Simione since August 1999. From June 1993 to August 1999, Dr. Mead was Vice
Chairman, Chief Scientist and a director of CareCentric, which he co-founded in
1993. Dr. Mead has a long-standing involvement in biomedical computing and the
application of computers to medicine.
Michael Quinn served as Senior Vice President of Operations of MCS since
1985 and became an officer of Simione after the merger with MCS, when he became
Senior Vice President of Corporate Resources and Customer Support. He was a
director of MCS since 1992 until the merger with Simione. From 1977 to 1985, Mr.
Quinn worked in various programming and sales capacities for MCS and its parent
company supervising sales, product development and product support.
Robert J. Simione has served as Senior Vice President of Consulting of
Simione since October of 1996. From January of 1976 until September of 1996, Mr.
Simione was a principal of Simione & Simione.
William A. Thomasmeyer became Senior Vice President of Sales and Marketing
of Simione after the merger with MCS. Mr. Thomasmeyer served as President and
Chief Executive Officer of MCS from January 1999. From 1996 until December of
1998, Mr. Thomasmeyer was President of Mestek Technology, a Mestek subsidiary
founded to pursue the acquisition of software companies in market segments
complementary to MCS. From 1989 through 1996, Mr. Thomasmeyer was President and
C.E.O. of Virtual Microsystems, Inc. and Logicraft Information Systems, two
software companies based in the CD-ROM networking market.
Stephen M. Shea will become Chief Financial Officer of Simione effective
April 15, 2000. Mr. Shea was Senior Vice President - Finance of MCS, Inc. from
1994 until its merger into Simione on March 7, 2000. Mr. Shea has been employed
in various financial roles by Mestek, Inc. since 1985 and served as Chief
Financial Officer of Mestek since 1990, and as Senior Vice President - Finance
since 1994.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table below sets forth the high and low sales prices of Simione common
stock as reported on The NASDAQ Stock Market's National Market System for the
calendar periods indicated.
The common stock of Simione has traded on The NASDAQ Stock Market's
National Market System under the symbol SCHI since June 30, 1997 and prior to
June 30, 1997 was traded on the OTC Bulletin Board under the same symbol. During
March 2000, the common stock was traded temporarily under the symbol SCHID on
NASDAQ to reflect the 1-for-5 reverse stock split. As of February 1, 2000,
Simione common stock was held by approximately 2,256 holders of record. For this
purpose, stockholders whose shares are held by brokers on behalf of stockholders
are not separately counted.
The table below shows the reported quarterly high and low bid prices for
Simione common stock on the OTC Bulletin Board for the period January 1, 1997 to
June 29, 1997, and the reported quarterly high and low sales price for the
Simione common stock on the NASDAQ Stock Market for the periods after June 30,
1997. The information set forth below does not include retail mark-ups,
mark-downs or commissions. In addition, over-the-counter prices reflect
inter-dealer prices, and may not necessarily represent actual transactions. The
sales prices after the second quarter of 1997 reflect the value of Simione
common stock following a 1-for-2 reverse stock split which occurred on June 30,
1997. The sales prices have been adjusted to reflect the effect of the 1-for-5
reverse stock split which occurred on March 7, 2000.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter $17.50 $6.25 $60.625 $32.50 $38.75 $21.25
Second Quarter 21.25 6.875 81.25 31.25 33.75 25.00
Third Quarter 15.00 6.25 41.25 4.375 73.75 47.50
Fourth Quarter 9.375 5.00 16.25 5.00 70.625 35.00
</TABLE>
Simione has never declared or paid cash dividends on Simione common stock.
Simione currently intends to retain future earnings, if any, for future growth
and does not anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data in the table as of and for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995 are derived from the
audited consolidated financial statements of the Company. The selected
consolidated financial data as of and for the year ended December 31, 1996
includes the operating results of Simione & Simione acquired effective January
1, 1996 and InfoMed Holdings, Inc. ("IMHI") for the period October 8, 1996 (the
effective date of the IMHI Acquisition) to December 31, 1996. The selected
consolidated financial data as of and for the year ended December 31, 1997
includes the operating results of Dezine Healthcare Solutions, Inc. ("Dezine")
for the period December 1, 1997 (the effective date of the Dezine Acquisition)
to December 31, 1997. As of and for the year ended December 31, 1995, the
Company was a subsidiary of CHHC. See Notes 1 and 8 to Notes to Consolidated
Financial Statements for a description of the Company's history. The data should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto of the Company included herein.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997 1996 (2) 1995 (2)
------------ ------------ ------------ ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues:
Software and services $ 14,693 $ 27,523 $ 27,356 $ 15,308 $ 5,387
Agency support 1,541 6,936 14,680 7,324 7,835
Consulting services 7,299 6,437 4,909 3,363 -
Columbia settlement fee 2,250 750 - - -
------------ ------------ ------------ ------------- ------------
Total net revenues 25,783 41,646 46,945 25,995 13,222
Cost and expenses:
Cost of revenues 16,447 26,091 22,715 14,698 8,154
Selling, general and administrative 13,346 13,822 12,508 7,037 3,095
Research and development 3,968 6,741 6,670 5,677 2,929
Amortization and depreciation 3,546 2,392 1,714 785 -
Purchased in-process research and
development - - 8,127 12,574 -
Severance and other restructuring
charges (1,140) 5,011 - 1,215 -
------------ ------------ ------------ ------------- ------------
Total cost and expenses 36,167 54,057 51,734 41,986 14,178
------------ ------------ ------------ ------------- ------------
Loss from operations (10,384) (12,411) (4,789) (15,991) (956)
Other income (expenses)
Interest expense (242) (183) (215) (115) -
Interest and other income 204 424 490 207 -
------------ ------------ ------------ ------------- ------------
Net loss $ (10,422) $(12,170) $ (4,514) $ (15,899) $ (956)
============ ============ ============ ============= ============
Net loss per share - basic and $ (5.95) $ (7.10) $ (3.15) $ (18.55) $ (1.60)
dilutive (1), (3)
============ ============ ============ ============= ============
Weighted average common shares - basic
and diluted (1), (3), (4) 1,750 1,711 1,433 858 599
============ ============ ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998 1997 1996 (2) 1995 (2)
------------ ------------ ------------ ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents $ 620 $ 10,527 $ 8,267 $ 3,385 $ 323
Working capital (deficit) (10,204) 1,302 9,019 (1,203) 189
Total assets 26,242 27,857 28,919 18,776 1,828
Long-term obligations 2,621 2,671 - 2,986 -
Shareholders' equity (deficit) 6,841 7,725 19,489 4,680 650
</TABLE>
(1) The number of shares used to compute the net loss per share reflects the
2,994,856 shares issued in the reorganization of the Company on January 17,
1996. See Notes 1 and 11 of the Notes to Consolidated Financial Statements
of the Company.
(2 Certain amounts in the 1996 and 1995 Statement of Operations have been
reclassified to conform with the 1998 presentation.
(3) All amounts have been restated in accordance with SFAS 128.
(4) Share information has been restated to effect the 1 for 5 reverse split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operation of the Company for the three years ended December 31, 1999
and certain factors that will affect the Company's financial condition. In these
discussions, most percentages and dollar amounts have been rounded to aid
presentation; as a result, all such figures are approximations. References to
such approximations have generally been omitted.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. In addition to its software solutions and related
software support services, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
The Company enters into multi-year contracts (generally 3 to 5 years) with
its customers in connection with its provision of agency support services. In
general, these contracts provide for the payment of monthly fees based on the
number of billed home care visits made by the customer. Revenues derived under
these contracts are recognized monthly as the related services are rendered and
typically range from several hundred thousand dollars to several million dollars
per year. As a result, the loss of any of these contracts could have a material
adverse impact on the Company's business, financial condition and results of
operations.
The Company sells its software pursuant to non-exclusive license agreements
which provide for the payment of a one-time license fee. In accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Revenue Recognition", 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 defines recurring revenues as revenues derived under multi-year
contracts in addition to annual software support agreements. These revenues were
approximately $9.0 million, or 35% of total net revenues, for the year ended
December 31, 1999, $6.3 million, or 14% of total net revenues, for the year
ended December 31, 1998, and $28.2 million, or 60% of total net revenues, for
the year ended December 31, 1997. The Company anticipates that recurring
revenues may represent a greater portion of its total net revenues in the
foreseeable future.
For the years ended December 31, 1999, 1998, and 1997, the Company derived
11%, 35% and 48% , respectively, of its total net revenues from contracts with
affiliates of Columbia/HCA.
The contracts with Columbia/HCA were terminated on December 1, 1998 and a
settlement of $7.0 million was agreed to by both parties for the early
termination of certain of the contracts and for specific wind down of activities
to be performed by the Company through March 31, 1999. Largely as a result of
the termination of the Columbia/HCA contracts, Simione ultimately decided to
discontinue its Agency Support line of business. This business was discontinued
in October 1999.
<PAGE>
The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total amount of research and development expense will increase, but should
decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. During 1998,
the Company wrote-off approximately $2.0 million of capitalized software to
reflect the abandonment of certain development projects. For the years ended
December 31, 1999, 1998 and 1997, the Company capitalized computer software and
development cost in the amount of $732,000, $0, and $616,000, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items from
the consolidated statements of operations expressed as a percentage of total net
revenues. The Company's historical operating results are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Percentage of Net Revenues:
Net revenues:
Software and services 57.0 % 66.1% 58.3%
Agency support 6.0 16.7 31.3
Consulting services 28.3 15.4 10.4
Columbia settlement fee 8.7 1.8
-------------------------------------------------
Total net revenues 100.0 100.0 100.0
Costs and expenses:
Costs of revenues 63.8 62.7 48.4
Selling, general and administrative 51.8 33.2 26.6
Research and development 15.4 16.2 14.2
Amortization and depreciation 13.7 5.7 3.6
Purchased in-process research and development - - 17.3
Severance and other restructuring charges (4.4) 12.0 --
-------------------------------------------------
Total costs and expenses 140.3 129.8 110.1
-------------------------------------------------
Loss from operations (40.3) (29.8) (10.1)
Other income (expense):
Interest expense (0.9) (0.4) (0.5)
Interest and other income 0.8 1.0 1.0
-------------------------------------------------
Net loss (40.4)% (29.2% (9.6%
=================================================
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Revenues. Total net revenues decreased $15.9 million, or 38.1%, to
$25.8 million in 1999 from $41.6 million in 1998. This decrease in total net
revenues includes, a $0.9 million increase in consulting revenues, a $3.9
million decrease in agency support attributable to the termination of the
Columbia/HCA contracts, and a $12.8 million decrease in new software sales and
related services.
Net revenues from Software and Services include revenues from software
licenses, service fees, computer hardware sales, software support,
implementation, training and technical consulting services. These revenues
decreased $12.8 million, or 46.6%, to $14.7 million in 1999 from $27.5 million
in 1998. The total decrease represents a $10.5 million decrease in new software
sales and related services, and a $2.3 million decrease attributable to the
declining revenue associated with the Columbia/HCA contracts.
Net revenues from Agency Support decreased $5.4 million, or 78.3%, to $1.5
million in 1999 from $6.9 million in 1998. This decrease was attributable to the
declining number of visits and ultimate termination of the Columbia/HCA
contracts.
Net revenues from Consulting Services increased $0.9 million, or 13.4%, to
$7.3 million in 1999 from $6.4 million in 1998 and was attributable to revenues
from new customers.
Net revenues from the Columbia settlement fee represent amounts earned as
part of the settlement with Columbia/HCA.
Cost of Revenues. Cost of revenues decreased $9.7 million, or 37.2%, to
$16.4 million in 1999 from $26.1 million in 1998. As a percentage of total net
revenues, cost of revenues increased to 63.7% in 1999 from 57.8% in 1998. The
7.7 million dollar decrease resulted from the decrease in revenue for both
software and services and agency support. The increase as a percentage of total
net revenues is principally due to impact of lower Software Sales causing
product support and installation costs to represent a higher percentage of total
cost of revenues.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $0.5 million, or 3.6%, to $13.3 million in 1999 from $13.8
million in 1998. As a percentage of total net revenues, selling, general and
administrative expenses were 50.9% in 1999 and 33.2% in 1998. This dollar
decrease was attributable to approximately $1.5 million in costs related to
additional bad debt expense the business acquired in the Dezine acquisition
offset by approximately $1.0 million in restructuring charges.
Research and Development. Research and development expenses decreased $2.8
million, or 41.1%, to $2.9 million in 1999 from $6.7 million in 1998. As a
percentage of total net revenues, research and development expenses decreased to
15.4% in 1999 from 16.2% in 1998.
Amortization and Depreciation. Amortization and depreciation increased by
$1.1 million to $3.5 million in 1999 from $2.4 million in 1998. This increase
includes approximately $989,000 of amortization expenses attributable certain
acquisitions.
Excess Capacity and Charges. The Company reduced the reserve by $1.1
million for the subleasing of part of the corporate office building. A portion
was maintained in the reserve for any contingent liabilities related to
obligations for the sublease. The Company reduced the reserve by $517,000 of
excess capacity relating to the closure of several branch offices and reduced
the severance reserve by $799,000.
Other Income (Expense). Interest expense relates to the borrowings under
the Company's line of credit agreements and capital lease obligations and has
increased by approximately $58,000. Interest and other income consists
principally of interest income related to the Company's short term cash
investments and has decreased by approximately $220,000.
Income Taxes. The Company has not incurred or paid any income taxes since
its inception. At December 31, 1999, the Company had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $15.3 million. Such
losses expire beginning in 2010, if not utilized. 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 carryforwards may be limited as to their utilization
in any year. The Company has concluded that it is more likely than not that
these NOL carryforwards will not be realized based on a weighing of available
evidence at December 31, 1999, and as a result a 100% deferred tax valuation
allowance has been recorded against these assets.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Revenues. Total net revenues decreased $5.3 million, or 11.3%, to $41.6
million in 1998 from $46.9 million in 1997. This decrease in total net revenues
includes a $6.2 million increase attributable to the business acquired in the
Dezine acquisition which was completed in December of 1997, a $1.5 million
increase in consulting revenues, a $9.7 million decrease attributable to the
declining number of visits and ultimate termination of the Columbia/HCA
contracts, and a $3.5 million decrease in new software sales and related
services.
Net revenues from Software and Services include revenues from software
licenses, service fees, computer hardware sales, software support,
implementation, training and technical consulting services. These revenues
decreased $167,000, or 0.4%, to $27.5 million in 1998 from $27.4 million in
1997. This decrease includes a $6.2 million increase attributable to the
business acquired in the Dezine acquisition which was offset by a $3.5 million
decrease in new software sales and related services, and a $2.7 million decrease
attributable to the declining revenue associated with the Columbia/HCA
contracts.
Net revenues from Agency Support decreased $7.0 million, or 47.6%, to $7.7
million in 1998 from $14.7 million in 1997. This decrease was attributable to
the declining number of visits and ultimate termination of the Columbia/HCA
contracts.
Net revenues from Consulting Services increased $1.5 million, or 31.0%, to
$6.4 million in 1998 from $4.9 million in 1997 and was attributable to revenues
from new customers.
Cost of Revenues. Cost of revenues increased $1.4 million, or 6.2%, to
$26.1 million in 1998 from $22.7 million in 1997. As a percentage of total net
revenues, cost of revenues increased to 62.3% in 1998 from 48.4% in 1997. This
dollar increase includes $2.5 million in costs attributable to the business
acquired in the Dezine acquisition offset by a $1.4 decrease in costs
attributable to the terminated Columbia/HCA contracts. The increase as a
percentage of total net revenues is principally due to the decrease in new
software sales and related services.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.3 million, or 10.4%, to $13.8 million in 1998 from $12.5
million in 1997. As a percentage of total net revenues, selling, general and
administrative expenses were 33.2% in 1998 and 26.6% in 1997. This dollar
increase was attributable to approximately $2.1 million in costs related to the
business acquired in the Dezine acquisition offset by approximately $1.0 million
in restructuring charges.
Research and Development. Research and development expenses remained
constant at $6.7 million in 1998 and 1997. As a percentage of total net
revenues, research and development expenses increased to 16.2% in 1998 from
14.2% in 1997. This percentage increase reflects the decrease in total net
revenues compared to a relatively constant level of dollar expenditures.
Amortization and Depreciation. Amortization and depreciation increased by
$700,000 to $2.4 million in 1998 from $1.7 million in 1997. This increase
includes approximately $300,000 of amortization expenses attributable to the
Dezine acquisition and approximately $400,000 associated with the depreciation
and amortization of purchased software, furniture, and equipment acquired in
1998.
Purchased In-Process Research and Development. In connection with the
Dezine acquisition in 1997, the purchase price of $9.4 million was allocated
based on relative fair value of the assets acquired and liabilities assumed.
Pursuant to a study conducted by an independent third-party valuation firm, $8.1
million related to the Dezine acquisition purchase price was allocated to
purchased in-process research and development and, in accordance with generally
accepted accounting principles, was charged to operations as it was not deemed
to have reached technological feasibility and had no alternative future use.
Severance and Other Restructuring Charges. The Company recorded a
restructuring charge totaling $7.5 million as a result of the change in the home
care business environment resulting from IPS, and the termination of the
Columbia/HCA contracts, coupled with the decision to eliminate certain legacy
development projects including the AS400 effort. Total charges were $11.5
million and included a $2.0 million write-off of capitalized software , $2.1
million in severance from a reduction in force, $3.7 million in costs to
terminate contracts with third-party vendors, and $3.7 million in costs related
to excess capacity and other charges. These charges were offset by $4.0 million
of the $7.5 million settlement fee resulting from the termination of the
Columbia/HCA contracts.
Other Income (Expense). Interest expense relates to the borrowings under
the Company's line of credit agreements and capital lease obligations and has
remained constant at approximately $200,000. Interest and other income consists
principally of interest income related to the Company's short term cash
investments and has remained constant at approximately $450,000.
Income Taxes. The Company has not incurred or paid any income taxes since
its inception. At December 31, 1998, the Company had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $10.6 million, such
losses expire in years 2010 through 2013, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax credits") of
approximately $90,000 available to reduce future income tax liabilities. The Tax
Reform Act of 1986, as amended, contains provisions that limit the NOL and tax
credit carryforwards available to be used in any given year when certain events
occur, including additional sales of equity securities and other changes in
ownership. As a result, certain of the NOL and tax credit carryforwards may be
limited as to their utilization in any year. The Company has concluded that it
is more likely than not that these NOL and tax credit carryforwards will not be
realized based on a weighing of available evidence at December 31, 1998, and as
a result a 100% deferred tax valuation allowance has been recorded against these
assets.
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. The Company believes that
the timing of strategic acquisitions may cause fluctuations in its operating
results. Revenues can be expected to vary significantly as a result of the
acceleration or delay of system implementations due to customer requirements or
other factors beyond the Company's control, fluctuations in demand for existing
systems and services and the Company's ability to manage successfully any future
growth. The sales cycles related to its systems offerings and agency support
contracts can be long and difficult to predict, resulting in variability of
revenues. In addition, the implementation period related to the Company's
information systems can range from three months to one year. The
unpredictability of revenues could in any quarter result in a shortfall relative
to quarterly expectations. Many other factors may contribute to fluctuations in
the Company's operating results. Accordingly, the Company believes that
period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as any indication of future
performance.
The following table sets forth certain unaudited consolidated quarterly
financial data for each of the eight quarters for the period ended December 31,
1999. This information is unaudited, but, in the opinion of the Company's
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the information in accordance
with generally accepted accounting principles generally accepted in the United
States. These quarter results of operations are not necessarily indicative of
future operating results.
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR 1999 FISCAL YEAR 1998
---------------------------------------------------- -----------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 1998 1998 1998 1998
------------ ------------ ------------ ------------- ----------- --------- ----------- -------------
(in thousands, except per share data)
Net revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Software and services 4,496 3,562 3,273 9,165 9,951 1,960
Agency support 667 544 190 140 2,808 1,859 1,219 1,050
Consulting services 1,497 1,920 1,879 2,003 1,447 1,764 1,814 1,412
Columbia
settlement fee 2,250 750
-------- -------- -------- -------- -------- -------- -------- --------
Total net revenues 8,910 6,026 5,342 5,505 13,420 13,574 9,480 5,172
Costs and expenses:
Cost of revenues 4,474 4,266 4,015 3,692 6,325 6,658 6,103 7,005
Selling, general and 2,368 2,204 4,321 4,453 4,129 3,803 3,179 2,711
administrative
Research and 1,038 843 827 1,260 1,816 1,588 1,936 1,401
development
Amortization and 623 777 1,011 1,135 558 601 618 615
depreciation
Purchased -- -- -- -- -- -- --
in-process
research and
development
Severance and other -- (1,140) -- -- -- 9,578 (4,567)
restructuring charges
-------- -------- -------- -------- -------- -------- -------- --------
Total costs
and expenses 8,503 8,090 9,034 10,540 12,828 12,650 21,414 7,165
Loss from
operations 407 (2,064) (3,692) (5,035) 592 924 (11,934) (1,993)
Other income (expense):
Interest expense (69) (2) (46) (125) (16) (9) (50) (108)
Interest and
other income 80 82 23 19 111 96 97 120
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 418 $ (1,984) $ (5,141) (1,984) 687 1,011 (11,887) (1,981)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss)
per share $ 0.25 $ (1.15) $ (2.10) $ (0.59) $ 0.35 $ 0.55 $ (6.95) $ (1.15)
======== ======== ======== ======== ======== ======== ======== ========
Weighted average
common shares - basic 1,731 1,756 1,757 1,757 1,844 1,915 1,714 1,719
basic ======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) 0.25 $ (1.15) $ (2.10) $ (0.59) $ 0.35 $ 0.55 $ (6.95) $ (1.15)
======== ======== ======== ======== ======== ======== ======== ========
Weighted average
common shares - 1,756 1,756 1,757 1,757 1,844 1,915 1,714 1,719
diluted ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had negative working capital of $10.2
million and cash and cash equivalents of $0.6 million. The Company's current
liabilities as of December 31, 1999 include customer deposits of $1.0 million
and unearned revenues of $2.1 million.
Net cash used in operating activities for the years ended December 31,
1999, 1998, and 1997 was $6.4 million, $1.1 million, and $1.4 million,
respectively. The changes were principally due to cash used to fund operating
losses and payment of restructuring reserve costs accrued for as of December 31,
1999.
Net cash used in investing activities for the years ended December 31,
1999, 1998, and 1997 was $2.4 million, $1.0 million and $10.3 million,
respectively. The Company made capital expenditures totaling approximately $0.3,
$0.6 million and $1.2 million during 1999, 1998, and 1997, respectively. In
March 1999, the Company completed the Tropical acquisition for a purchase price
of $2.0 million, of which, $1.8 million was cash and the remainder consisted of
100,000 shares of the Company's common stock. In August 1999, the Company
completed the purchase of the Outcomes Planner product for approximately $0.2
million and the acquisition of CareCentric Solutions Inc. for a total purchase
price of approximately $12.0 million, of which $0.2 million was cash, $2.7
million was assumed liabilities and $9.3 million was Preferred Series A Stock of
the Company. In December of 1997, the Company completed the Dezine acquisition
for a purchase price of $9.4 million.
Net cash (used) provided by financing activities for the years ended
December 31, 1999, 1998, and 1997 was ($1.1) million, $4.3 million and $16.6
million, respectively. In 1999, the net use of cash resulted from the repayment
of a $5.0 million line of credit outstanding at December 31, 1998, repayment of
a $1.5 million bank loan assumed with the CareCentric acquisition, offset $5.4
million of loan proceeds. The $5.4 million of 1999 loan proceeds consisted of
$3.0 million received from Mestek in conjunction with the merger with MCS, $1.6
million of loans received from Mestek and two shareholders and $0.8 million
received from advances on the Company's $5.0 million commercial line of credit.
In July of 1997, the Company filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission and sold 2,000,000 shares of its Common Stock
for $10.00 per share and received approximately $17.7 million in net cash
proceeds from this offering for general corporate purposes and working capital,
including potential strategic acquisitions.
In January of 1996, the Company established line of credit agreements which
provided for aggregate borrowing of $2.5 million which had been fully drawn as
of December 31, 1996. During 1997, the Company repaid these lines of credit and
terminated them.
In June of 1997, the Company established a revolving credit facility
pursuant to which the maximum principal amount at any time outstanding could not
exceed the lesser of $5 million or the "Borrowing Base"(as defined in the
revolving credit facility agreement). During 1998, the Company repaid this line
of credit and terminated it.
1998 CAPITAL RESOURCES
In May of 1998, the Company entered into a new Loan and Security Agreement
with a bank. Pursuant to the Agreement, the bank agreed to make available to the
Company a revolving credit facility, the maximum principal amount of which at
any time must be equal to the lesser of $25 million or the "margin requirement"
then in effect. Interest will accrue at a variable rate per annum equal to the
prime rate for prime borrowings or the LIBOR Rate plus 1.5%-3.0% per annum
(depending on the leverage ratio measured quarterly) for the LIBOR borrowings.
Under the terms of the agreement, the Company granted to the bank a security
interest in all accounts, inventory, equipment, and general intangibles.
Additionally, the Company's subsidiaries also guaranteed the Company's
obligations to the bank under the Agreement. The $5.0 million balance
outstanding at December 31, 1998 under this agreement was repaid and the
agreement was cancelled in March 1999.
1999 CAPITAL RESOURCES
In March 1999, Simione completed the Tropical acquisition for $1.8 million
in cash and 100,000 shares of common stock at the then fair value of $1.63 per
share. Also in March 1999, Simione repaid a $5 million line of credit obligation
to a bank.
In May 1999, Simione entered into a definitive agreement to merge with MCS,
Inc., a wholly owned subsidiary of Mestek. For every share of outstanding
Simione common stock, Simione agreed to issue approximately 0.85 shares of its
common stock to Mestek in the exchange. MCS was a leading provider of
information systems and services to the home health care industry with
approximately $14.9 million in revenues and $1.4 million in net income in 1998.
In August 1999, Simione acquired CareCentric Solutions, Inc. pursuant to a
merger for approximately 3.0 million shares, (before giving effect to Simione's
one for five split) of Simione's Series A Preferred Stock. The preferred stock
was valued at $3.00 per share, pre-split, at closing. Under the terms of the
merger, Simione may have to issue up to an additional approximately 3.0 million
shares, pre-split, of common stock if Simione's common stock does not meet
certain price targets during the fourth quarter of 2000. In conjunction with the
CareCentric merger Simione assumed a loan from a bank with an outstanding
balance of $1.5 million. The $1.5 million bank loan was retired through use of a
new loan extended by Mestek in September 1999.
In September 1999, Simione obtained a $5.0 million commercial line of
credit with a national bank. Simione's trade accounts receivable are used as
collateral for the line and must be maintained at certain levels of aging to
support availability of advancement under the line. This line of credit is
secured by a lien on substantially all of the assets of Simione. Actual
availability under the terms of the line was about $1.7 million at December 31,
1999.
Also in September 1999, in connection with an amendment of the MCS merger
agreement, Simione received $3.0 million of loan proceeds from Mestek, the
parent company of MCS. The Mestek loan accrued interest at the BankBoston prime
rate plus 2%. The loan proceeds were used to retire $1.5 million of term loans
assumed with the acquisition of CareCentric and to fund operating needs. When
the MCS merger was completed, Mestek's note evidencing this loan was converted
into Series B Preferred Stock and a warrant to purchase Simione common stock.
In November 1999 Simione received $1.6 million of loans from Mestek
($850,000) and two stockholders of Simione ($750,000), Barrett C. O'Donnell and
David Ellis, to fund operating needs and 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 Preferred stock of Simione at the closing
of the MCS merger. The loans from O'Donnell and Ellis have various terms and
maturities.
CURRENT FINANCING AND EFFECTS OF MERGER.
In February 2000, Simione received an additional $1.0 million of loan
proceeds from Mestek. The loan proceeds were used to fund Simione's operating
needs until completion of the merger with MCS, and carried the same terms and
security as the $3.0 million loan received from Mestek in September 1999. On
March 7, 2000, the merger with MCS was completed. When the MCS merger was
completed, Mestek's notes evidencing the additional $1.0 million loan and the
$3.0 million loan were combined with an additional $2.0 million in cash from
Mestek for a total investment of $6.0 million. This $6.0 million was converted
into Series B Preferred Stock and a warrant to purchase Simione common stock.
The completion of the MCS merger resulted in the following events affecting
the liquidity of Simione:
- the consolidation of the accounts receivable of MCS into
Simione's accounts receivable, providing an additional
$1.5 million of borrowing capacity on the $5.0 million
bank line of credit established by Simione in September
1999;
- Receipt by Simione of an additional $1.1 million in cash
from Mestek. The $1.1 million was comprised of $2.0
million from Mestek for purchase of the Series B Preferred
Stock and Warrant reduced by $0.2 million of accrued
interest on Mestek's $4.0 million in loans to Simione and
$0.7 million of inter-company debt owed by MCS to Mestek)
Operating losses during 1999 were heavier than originally forecast and
Simione has incurred significant problems collecting its accounts receivable
because of the depressed operating condition of its customers due to the
negative effects of the current government limits over home medical cost
reimbursement and the costs to date of developing, implementing and supporting
the CareCentric product which have been higher than anticipated. In addition,
sales revenue has been lower than planned in the core DME 6.3 and STAT2 products
while new sales of the CareCentric and Tropical products have not developed as
quickly as projected. The merger with MCS adds additional products and resources
to Simione, but the success of the business will depend upon increases in sales
of new software systems and installation performance including an emphasis on
the CareCentric acquired business. Simione is currently finalizing its business
plans for the post MCS merger period. The proposed changes in government
reimbursement regulations (the PPS regulations scheduled to take effect in
October 2000), combined with the competitive nature of Simione's product
development and marketing initiatives following the merger, increase the
importance of timely execution or acceleration of those plans. To fully
implement those plans, Simione has determined it requires additional financing.
On April 12, 2000, the Company received a letter from Mr. John Reed, the
Chairman of the Board of Mestek Inc. and the controlling interest shareholder of
both Mestek and Simione, which outlines his intentions in developing and funding
a new capital plan for Simione. The capital plan commits $7.0 million in the
form of a $5.0 million convertible note and $2.0 million of convertible
preferred stock. The specific terms of the convertible note and convertible
preferred stock are still under final negotiation and are subject to all
required corporate approvals. In addition, the Company continues to seek
alternative commercial debt financing with the objective of obtaining increased
amounts of available capital and better lending terms.
The Company believes that a successful completion and closing of the
capital plan in combination with the funds available from its cash, cash
equivalents and cash to be generated from future operations will be sufficient
to meet the Company's operating requirements, assuming no material adverse
change in the operation of the Company's business, for at least the next twelve
months.
IMPACT OF NEW ACCOUNTING STANDARDS
In 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 in the first quarter of 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.
YEAR 2000 ISSUES
Introduction. Year 2000 issues arise because many computer software and
hardware systems use only two digits to represent the year. As a result, these
systems may not process dates beyond 1999, which may cause errors in information
or system failures. Therefore, some computer software and hardware will need to
be modified prior to the Year 2000 in order to remain functional.
Conditions After January 2000. The Company has not incurred any material
difficulties or expenses with the year 2000 issues since January 1, 2000 and
does not expect any in the future.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective February 8, 1999, the Company decided to appoint Arthur Andersen
LLP as the Company's independent accountants for the fiscal year ended December
31, 1998 and dismissed Ernst & Young LLP. The decision to change accountants was
approved by the Audit Committee of the Board of Directors of the Company acting
pursuant to authority delegated by the Board of Directors of the Company.
Ernst & Young LLP's reports on the Company's consolidated financial
statements during the last year ended December 31, 1997 contained no adverse
opinion or a disclaimer of opinion, and its opinion was not qualified or
modified as to uncertainty, audit scope or accounting principles.
During the last two fiscal years and in the subsequent interim period to
February 8, 1999, there were no disagreements between the Company and Ernst &
Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Ernst & Young LLP, would have caused it to
make a reference to the subject matter of the disagreements in connection with
its reports.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to the Company during the last two fiscal
years or in the subsequent interim period to February 8, 1999.
During the last two fiscal years and subsequent interim period to February
8, 1999, the Company did not consult with Arthur Andersen LLP regarding any of
the matters or events set forth in Item (304)(a)(2)(i) and (ii) of Regulation
S??.
<PAGE>
PART III
With the exception of information relating to the executive officers of the
Company which is provided in Part I hereof, all information required by Part III
(Items 10, 11, 12 and 13) is incorporated by reference to the Company's
definitive proxy statement relating to the 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements.
2. Financial Statement Schedule.
Schedule II--Valuation and Qualifying Accounts
CERTAIN FINANCIAL STATEMENT SCHEDULES HAVE BEEN OMITTED BECAUSE THEY ARE
NOT APPLICABLE.
3. Exhibits Incorporated by Reference or Filed with this Report.
The following exhibits are filed as part of this Report. Where such filing
is made by incorporation by reference to a previously filed statement or report,
such statement or report is identified in parentheses.
EXHIBIT
NUMBER 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.
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-4 (Registration Number 33-57150) as filed with the
Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-4 (Registration Number 33-57150)
as filed with the Securities and Exchange Commission).
3.3 -- Certificate of Amendment of the Certificate of Incorporation of
Simione Central Holdings, Inc., filed June 30, 1997 with the
Secretary of State of the State of Delaware (Incorporated by
reference to Exhibit 3.3 of the Company's Current Report on Form
8-K dated July 9, 1997 as filed with the Securities and Exchange
Commission).
3.4 -- Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.3 of the Company's Registration Statement
on Form S-1 (Registration Number 333-25551) as filed with the
Securities and Exchange Commission).
3.5 -- Certificate of Ownership Merging Simione Central Holdings, Inc.
into InfoMed Holdings, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
3.6* -- Certificate of Designation of Series B Preferred Stock
3.7* -- Certificate of Designation of Series C Preferred Stock
4.1 -- Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-1 (Registration Number 333-25551) as filed with the
Securities and Exchange Commission).
4.2 -- See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the
Company's Certificate of Incorporation and Bylaws governing the
rights of holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and among
InfoMed Holdings, Inc., those stockholders of Simione Central
Holding, Inc. appearing as signatories to the Registration Rights
Agreement, and those stockholders of InfoMed Holdings, Inc.
appearing as signatories to the Registration Rights Agreement
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated October 8, 1996 as filed with
the Securities and Exchange Commission).
9.1 -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and among
Howard B. Krone, William J. Simione, Jr., Gary Rasmussen, G.
Blake Bremer, Katherine L. Wetherbee, A. Curtis Eade, James A.
Tramonte, John Isett, Cindy Lumpkin, Douglas E. Caddell, Robert
J. Simione, Kenneth L. Wall, Allen K. Seibert, III, Jerry Sevy,
Larry Clark, Lori N. Siegel, Gary M. Bremer, Richard A.
Parlontieri, and James R. Henderson (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and Exchange
Commission).
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management plc,
O'Donnell Davis, Inc., Barrett O'Donnell and certain other
holders of the Class A Convertible Preferred Stock of InfoMed
Holdings, Inc. (Incorporated by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated October 8, 1996 as
filed with the Securities and Exchange Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as of
September 5, 1996 by and among InfoMed Holdings, Inc., Simione
Central Holding, Inc. and InfoSub, Inc. (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report on Form
8-K dated September 5, 1996 as filed with the Securities and
Exchange Commission).
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant for the
Purchase of Common Stock of InfoMed Holdings, Inc. dated October
5, 1996 between InfoMed Holdings, Inc. and each of O'Donnell
Davis, Inc., Rowan Nominees Ltd., David O. Ellis, Richard V.
Lawry, Salvatore A. Massaro, Murali Anantharaman, Kathleen E.J.
Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis, Thomas M. Rogers,
Jr., and Arnold Schumacher (Incorporated by reference to Exhibit
4.1 of the Company's Current Report on Form 8-K dated October 8,
1996 as filed with the Securities and Exchange Commission).
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock of
Simione Central Holding, Inc., dated April 12, 1996 between
Simione Central Holding, Inc. and Home Health First, a Texas
not-for-profit corporation (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.4 -- Common Stock Warrant of InfoMed Holdings, Inc. dated October 8,
1996 between Jefferies & Company, Inc. and InfoMed Holdings, Inc.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 as filed with
the Securities and Exchange Commission).
10.5+ -- Form of Simione Central Holding, Inc. 1996 Incentive Stock Option
Agreement dated September 4, 1996 by and between Simione Central
Holding, Inc. and each of James R. Henderson, William J. Simione,
Jr., Robert Simione, Katherine Wetherbee, Sheldon Berman, Betty
Gordon, William J. Simione, III, J. Blake Bremer, Craig Luigart,
Kenneth L. Wald, Marty Cavaiani, Lori Ferrero, Douglas E.
Caddell, Andy Anello and A. Curtis Eade (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.6+ -- 1994 Incentive Stock Option and Non-Qualified Stock Option Plan
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission).
10.7+ -- Simione Central Holdings, Inc. Profit Sharing Plan dated October
31, 1996, as amended (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission).
10.8+ -- Simione Central Holdings, Inc. Section 125 Plan effective date
January 1, 1997 sponsored by the Company (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.9 -- Headquarters at Gateway Lake Lease Agreement dated January 1,
1996 by and between Gateway LLC and InfoMed Holdings, Inc.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996 as filed with the
Securities and Exchange Commission).
10.10 -- Sublease dated November 22, 1996 between Environmental Design
International, Ltd. and Simione Central, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission.
10.11 -- Lease Amendment dated August 7, 1992 by and between Sugar Land
Plaza Building Corporation and Medical Solutions, Inc.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 as filed with
the Securities and Exchange Commission).
10.12 -- Lease dated August 13, 1992 between Unum Life Insurance Company
of America and Dezine Associates, Inc. (Incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 as filed with the Securities and Exchange
Commission).
10.13 -- Indenture of Lease dated January 1, 1998 by and between S&S
Realty and Simione Central Consulting, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Securities
and Exchange Commission).
10.14 -- Lease dated December 18, 1996 by and between Resurgens Plaza
South Associates, L.P. and Simione Central, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Securities
and Exchange Commission).
10.15+ -- Severance Agreement dated July 22, 1998 between Simione Central
Holdings, Inc. and Gary M. Bremer. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 as filed with the Securities and Exchange
Commission).
10.16+ -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr. (Incorporated
by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.17 -- Agreement dated October 4, 1996 by and between InfoMed Holdings,
Inc. and EGL Holdings, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.18 -- Information Systems Management Agreement dated January 4, 1996
between Integrated Systems Solutions Corporation and Central
Health Management Services, Inc. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and Exchange
Commission).
10.19 -- Master Software License Agreement Number 96-2283 dated October
31, 1996 by and between Software 2000, Inc. and Simione Central
Holding, Inc. (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
as filed with the Securities and Exchange Commission).
10.20 -- Guaranty Agreement dated October 31, 1996 by Simione Central,
Inc. in favor of HCA, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.21 -- Lease Agreement dated March 18, 1996 between National Leasing,
Inc. and Simione Central, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.22 -- Amendment 2 to Agreement for Information Technology Services
between SC Holding, Inc. and Integrated Systems Solutions
Corporation dated July 31, 1997 (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
August 13, 1997 as filed with the Securities and Exchange
Commission).
10.23 -- Loan and Security Agreement by and between National Bank of
Canada and Simione Central Holdings, Inc., dated as of June 6,
1997 (Incorporated by reference to Exhibit 10.34 of the Company's
Current Report on Form 8-K dated June 21, 1997 as filed with the
Securities and Exchange Commission).
10.24 -- Loan and Security Agreement by and between Wachovia Bank, NA and
the Company dated as of May 11, 1998.
10.25 -- Remarketing Agreement dated April 17, 1998 between Simione
Central National, Inc. and Eclipsys Corporation.
10.26 -- Stock Purchase Agreement dated April 17, 1998 between Simione
Central Holdings, Inc., Eclipsys Corporation and certain
stockholders of the Company.
10.27(3) - Form of Shareholder Voting Agreement by and among the Company,
Daniel J. Mitchell as agent for shareholders of CareCentric
Solutions, Inc. and each of Barrett C. O'Donnell and O'Donnell
Davis, Inc.
10.28(3) -- Shareholder Voting Agreement by and among the Company,
CareCentric Agent, and Mestek, Inc.
16.1 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form
8-K dated February 8, 1999 as filed with the Securities and
Exchange Commission).
21.1* -- Subsidiaries of the Company
23.1* -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Ernst & Young LLP.
27.1* -- Financial Data Schedule (for SEC use only).
- -------------------------
* Filed herewith
+ Identifies each exhibit that is a "management contract of compensatory plan
or arrangement" required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14 of Form 10-k
(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 supplementally 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 Registrant's Current Report on Form 8-K
dated as of August 12, 1999.
(b) Reports on Form 8-K.
The Company filed no Reports on Form 8-K during the fourth quarter of 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 13, 2000 /s/ R. BRUCE DEWEY
-------------------------------
By: R. Bruce Dewey
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ R. Bruce Dewey President, Chief Executive April 13,2000
- ---------------------- Officer and Director
R. Bruce Dewey (principal executive
officer)
/s/ GEORGE M. HARE Chief Financial Officer and April 13, 2000
- ---------------------- Treasurer (principal financial
George M. Hare and accouting officer)
- ---------------------- Chairman of the Board of April ___, 2000
Barrett C. O'Donnell Directors
/s/ WILLIAM J. SIMIONE, JR.
- ---------------------- Executive Vice President April 13, 2000
William J. Simione, Jr. Director
- ---------------------- Director April ___, 2000
David O. Ellis
/s/ JAMES A. GILBERT
- ---------------------- Director April 13, 2000
James A. Gilbert
/s/ WINSTON R. HINDLE, JR.
- ---------------------- Director April 13, 2000
Winston R. Hindle, Jr.
/s/ DAVID W. HUNTER
- ---------------------- Director April 13, 2000
David W. Hunter
/s/ DANIEL J. MITCHELL
- ---------------------- Director April 13, 2000
Daniel J. Mitchell
/s/ JOHN E. REED
- ---------------------- Director April 13, 2000
John E. Reed
/s/ STEWART B. REED
- ---------------------- Director April 13, 2000
Stewart B. Reed
/s/ JESSE I. TREU
- ---------------------- Director April 13, 2000
Jesse I. Treu
/s/ EDWARD K. WISSING
- ---------------------- Director April 13, 2000
Edward K. Wissing
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Report of Independent Public Accountants -Arthur Andersen LLP and Ernst & Young LLP...........................35,36
Consolidated Financial Statements
Consolidated Balance Sheets--December 31, 1999 and 1998..........................................................37
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.................................................................................38
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1999, 1998 and 1997.....................................................................39
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................................................................................40
Notes to Consolidated Financial Statements.......................................................................41
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simione Central Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of SIMIONE CENTRAL
HOLDINGS, INC. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for the two years then ended. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 Simione Central Holdings, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the two years then ended in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed Item14(a)(2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 10, 2000
(except with respect to the matter
discussed in Note 16, as which the
date is April 13, 2000)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Simione Central Holdings, Inc. for the
year ended December 31, 1997. Our audit also includes the information related to
the year ended December 31, 1998 included in the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Simione Central Holdings, Inc. for the year ended December 31,
1997, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information related to the year
ended December 31, 1997 set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 23, 1998
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------------
1999 1998
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 620,000 $ 10,527,000
Accounts receivable, net of allowance
for doubtful accounts of $3,582,000
and $1,674,000 in 1999 and 1998 respectively 5,252,000 7,680,000
Prepaid expenses and other current assets 704,000 556,000
---------------- ----------------
Total current assets 6,576,000 18,763,000
Purchased software, furniture and equipment, net
1,339,000 1,852,000
Intangible assets, net
17,442,000 7,138,000
Other assets
885,000 104,000
---------------- ----------------
Total assets $ 26,242,000 $ 27,857,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 767,000 $ 5,000,000
Accounts payable 3,000,000 1,626,000
Accrued compensation expense 358,000 578,000
Accrued liabilities 6,523,000 7,241,000
Customer deposits 999,000 1,145,000
Unearned revenues 2,133,000 1,871,000
Notes payable 3,000,000 -
---------------- ----------------
Total current liabilities 16,780,000 17,461,000
Accrued liabilities, less current portion 1,021,000 2,671,000
Notes payable long-term 1,600,000 -
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000
shares authorized;
3,035,000 issued and outstanding 3,000 -
Common stock, $.001 par value; 20,000,000 shares
authorized;
8,783,000 and 8,598,000 shares issued and
outstanding, respectively 9,000 9,000
Additional paid-in capital 51,628,000 42,093,000
Accumulated deficit (44,799,000) (34,377,000)
---------------- ----------------
Total shareholders' equity 6,841,000 7,725,000
---------------- ----------------
Total liabilities and shareholders' equity $ 26,242,000 $ 27,857,000
================ ================
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997
---------------- ------------------- -----------------
<S> <C> <C> <C>
Net revenues:
Software and services $ 14,693,000 $ 27,523,000 $ 27,356,000
Agency support 1,541,000 6,936,000 14,680,000
Consulting services 7,299,000 6,437,000 4,909,000
Columbia settlement fee 2,250,000 750,000 -
---------------- ------------------- -----------------
Total net revenues 25,783,000 41,646,000 46,945,000
Costs and expenses:
Cost of revenues 16,447,000 26,091,000 22,715,000
Selling, general and administrative 13,346,000 13,822,000 12,508,000
Research and development 3,968,000 6,741,000 6,670,000
Amortization and depreciation 3,546,000 2,392,000 1,714,000
Purchased in-process research and
development - - 8,127,000
Severance and other restructuring charges (1,140,000) 5,011,000 -
---------------- ------------------- -----------------
Total costs and expenses 36,167,000 54,057,000 51,734,000
---------------- ------------------- -----------------
Loss from operations (10,384,000) (12,411,000) (4,789,000)
Other income (expense):
Interest expense (242,000) (183,000) (215,000)
Interest and other income 204,000 424,000 490,000
================ =================== =================
Net loss $(10,422,000) $(12,170,000) $ (4,514,000)
================ =================== =================
Net loss per share basic and diluted $ (5.95) $ (7.11) $ (3.15)
================= =================== =================
Weighted average common shares - basic
and diluted 1,750,000 1,711,000 1,433,000
================= =================== =================
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
ADDITIONAL STOCK TOTAL
COMMON PREFERRED PAID-IN SUBSCRIPTION ACCUMULATED SHAREHOLDERS'
SHARES STOCK SHARES STOCK CAPITAL RECEIVABLE DEFICIT EQUITY
-------- -------- ---------- -------- ------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,952,000 $6,000 - - $23,216,000 $(850,000) $(17,692,000) $4,680,000
Issuance of $.001 par value
common stock from exercise of
stock options and warrants 555,000 1,000 - - 548,000 - - 549,000
Issuance of $.001 par value
common stock for purchase
Benchmark Consulting, Inc. 16,000 0 - - 200,000 - - 200,000
Issuance of $.001 par value
common stock, net of offering
cost 2,000,000 2,000 - - 17,722,000 - - 17,724,000
Payment of stock
subscription - - - - - 850,000 - 850,000
Net loss - - - - - - (4,514,000) (4,514,000)
-------- -------- ---------- -------- ------------- --------- ------------- ------------
Balance at December 31, 1997 8,523,000 9,000 - - 41,686,000 - (22,206,000) $19,489,000
========= ======== ========== ======== ============= ========= ============= ============
Issuance of $.001 par value
common stock from exercise
of stock options 33,000 0 - - 111,000 - - 111,000
Issuance of $.001 par value
common stock for purchase
Benchmark Consulting, Inc. 42,000 0 - - 296,000 - - 296,000
Net loss
- - - - - - (12,171,000) (12,171,000)
---------- -------- ---------- -------- ------------- --------- ------------- ------------
Balance at December 31, 1998 8,598,000 9,000 - - 42,093,000 - (34,377,000) 7,724,000
========== ======== ========== ======== ============= ========= ============= =============
Issuance of $.001 par value
common stock from exercise
of stock options 85,000 0 - . - 63,000 - - 63,000
Issuance of $.001 par value
common stock related to
acquisitions 100,000 100 - - 162,000 - - 162,000
Issuance of $.001 par value
preferred stock related to - - 3,035,000 3,000 9,310,000 - - 9,313,000
acquisitions
Net loss - - - - - - (10,422,000) (10,422,000)
-------- -------- ---------- -------- ------------- --------- ------------- -----------
Balance at
December 31, 1999 $8,783,000 $9,000 3,035,000 $3,000 $ 51,628,000 $ - $(44,799,000) $ 6,841,000
============ ========= ========== ======== ============= ========= ============= ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997
------------------ ------------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,422,000) $ (12,170,000) $ (4,514,000)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING ACTIVITIES:
Purchased in-process research and development - - 8,127,000
Provision for doubtful accounts 2,721,000 791,000 1,330,000
Amortization and depreciation 3,546,000 2,392,000 1,714,000
Write-off of capitalized software 259,000 2,006,000 -
Write-off of excess furniture & fixtures - 64,000 -
Loss on sale of assets - - 26,000
CHANGES IN ASSETS AND LIABILITIES, NET OF
ACQUISITIONS:
Accounts receivable 258,000 591,000 (3,920,000)
Prepaid expenses and other current assets (73,000) 582,000 (29,000)
Other assets (792,000) (1,479,000) (577,000)
Accounts payable 1,046,000 (249,000) (1,599,000)
Accrued compensation expense (230,000) 18,000 (106,000)
Accrued liabilities (2,668,000) 3,700,000 (526,000)
Customer deposits (145,000) (317,000) (219,000)
Unearned revenues 100,000 343,000 (1,150,000)
Long-term liabilities - 2,671,000 -
------------------ ------------------- ------------------
Net cash used in operating activities (6,400,000) (1,057,000) (1,443,000)
------------------ ------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies, net of cash acquired (2,131,000) (476,000) (9,808,000)
Purchase of software, furniture and equipment (277,000) (495,000) (916,000)
(Increase) decrease in restricted cash - - 1,000,000
(Increase) decrease in other intangible assets - - (585,000)
------------------ ------------------- ------------------
Net cash used in investing activities (2,408,000) (971,000) (10,309,000)
------------------ ------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repayment of stock subscription - - 850,000
Proceeds from (payment on) notes payable (1,133,000) 4,226,000 (1,726,000)
Issuance of common stock, net of cash expenses
preferred stock - - 17,724,000
Payments on capital lease obligations (29,000) (48,000) (733,000)
Payments of related-party notes - (1,000) (30,000)
Proceeds from exercise of stock options and warrants 63,000 111,000 549,000
------------------ ------------------- ------------------
Net cash provided by (used in) financing
activities (1,099,000) 4,288,000 16,634,000
------------------ ------------------- ------------------
Net change in cash and cash equivalents (9,907,000) 2,260,000 4,882,000
Cash and cash equivalents, beginning of year 10,527,000 8,267,000 3,385,000
------------------ ------------------- ------------------
Cash and cash equivalents, end of year $ 620,000 $ 10,527,000 $ 8,267,000
================== =================== ==================
</TABLE>
See notes to consolidated financial statements
<PAGE>
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Background: Incorporated in September 1991 as a wholly owned subsidiary of
Central Health Holding Company, Inc. ("CHHC"), Central Health Management
Services, Inc. ("CHMS") provided information and management support services to
home health care providers. Central Health Services, Inc. ("CHS"), also a wholly
owned subsidiary of CHHC, provided similar services to home health care agencies
owned by CHHC. On January 1, 1997, CHHC transferred at book value the assets and
employees related to CHS's information services and certain clinical and
financial support services to CHMS. On January 17, 1997, CHHC completed a
pro-rata distribution of the outstanding common stock of CHMS to its
shareholders.
On October 8, 1997, InfoMed Holdings, Inc. ("IMHI") and CHMS merged in a
transaction accounted for as a reverse acquisition for financial reporting
purposes. In connection with the merger, IMHI issued 3,958,356 shares of its
common stock in exchange for all the outstanding common stock of CHMS, and
thereby, the former shareholders of CHMS acquired control of IMHI. As a result,
CHMS is considered the acquiring company; hence, the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective acquisition
date. On December 19, 1997, IMHI changed its name to Simione Central Holdings,
Inc. (the "Company").
Overview: The Company is a leading provider of integrated systems and
services designed to enable home health care providers to more effectively
operate their businesses and compete in a managed care environment. The Company
offers several comprehensive and flexible software solutions, each of which
provide a core platform of software applications and which incorporate selected
specialized modules based on customer demand. These software solutions are
designed to enable customers to generate and utilize comprehensive financial,
operational and clinical information. In addition to its software solutions and
related software support services, the Company's home health care consulting
services assist providers in addressing the challenges of reducing costs,
maintaining quality, streamlining operations and re engineering organizational
structures. The Company also provides comprehensive agency support services
which include administrative, billing and collection, training, reimbursement
and financial management services, among others.
MANAGEMENT'S PLAN
The Company has incurred significant losses in each fiscal year since 1994
and declining revenues in 1999. The Company has been challenged by the changes
in the health care industry. During fiscal year 1999, the Company experienced
operating losses of $10,384,000. The fiscal 1999 loss is attributable to a
number of factors:
- Cancellation of the customer contract with Columbia/HCA that had
generated 11%, 35%, and 48% of the Company's total revenues for the
years 1999, 1998 and 1997, respectively
- Elimination of certain legacy development projects
- Changes to the government's reimbursement methodology from cost
reimbursement to set prospective payments which affected the Company's
customers Decreased revenues generated from Software and Services
In response to these losses, the Company has taken the following steps:
- significant change in senior management
- reduce fixed and variable expenditures, including restructuring
charges
- improve operating efficiencies o improve customer service levels
needed to maintain recurring revenue
- focus product development efforts to capitalize on changing industry
dynamics
- expand through acquisitions and strategic alliances negotiate a new
capital funding agreement a national bank and selected investors
<PAGE>
Some steps taken to improve the Company's performance will not provide
immediate results; however, management believes that the steps taken in fiscal
1999 and 1998 will yield long-term benefits, creating an organization that is
well-suited to take advantage of market opportunities. Management plans to
continue to aggressively market the Company's services, monitor costs and fund
development to ensure that the Company's products continue to incorporate
state-of-the-art technologies and provide customers with value-added solutions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
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; the license fee is fixed and determinable; (4) collection is
probable; and (5) remaining obligations under the license agreement are
insignificant. The Company sells and invoices software licenses and maintenance
fees as separate contract elements. 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. The Company had one such contract in 1997. 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.
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.
Through October 1997, the Company derived a portion of its revenue from
services provided to its former parent company, see Note 14. See Note 2 for
discussion of the Company's major customer.
The Company is dependent upon certain third-party software arrangements as
well as certain contractual arrangements for provision of certain of its
services, see Note 16.
The Company had software revenue representing 7% and 5% of total net
revenue for the years ended December 31, 1998 and December 31, 1999,
respectively. The Company had hardware revenue representing 5% of total net
revenue for the years ended December 31, 1998 and December 31, 1999.
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.
SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of computer
software products are research and development expense and are charged to
expense as incurred. The Company capitalizes costs incurred between the point of
establishing technological feasibility and general release when such costs are
material. The Company capitalized $0.7 million of software development costs for
the year ended December 31, 1999 and $1.4 million in 1998 prior to the decision
to abandon the development project. During 1999 and 1998, the Company wrote off
approximately $0.3 million and $2 million, respectively, of capitalized software
to reflect the abandonment of certain development projects (see Note 2).
INTANGIBLE ASSETS AND LONG-LIVED ASSETS
In 1997, the Company adopted 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." SFAS No. 121 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 adoption of SFAS No. 121 did not have an impact on the Company's
financial statements.
Intangible assets, arising principally from the accounting for acquired
businesses, are amortized using the straight-line method over the estimated
useful lives of the related assets which range from 4 to 11 years. 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. During the fourth quarter of 1999,
the remaining carrying value of $0.3 million of intangible assets acquired
during 1996 was charged to operations.
INCOME TAXES
The Company accounts for income taxes using the 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.
<PAGE>
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.
Net loss per share is computed on the basis of the weighted average number
of common shares outstanding during the period. The 2,994,856 shares of Class A
common stock issued in the reorganization of the Company on January 17, 1997
(see Note 12) have been treated as outstanding since January 1, 1996. Due to the
net loss incurred by the Company in each year, basic and diluted loss per share
do not differ. Common stock equivalents relate to shares potentially issuable
under outstanding options and warrant agreements and are included in the diluted
loss per share calculation if dilutive.
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net loss $ (10,422,000) $ (12,170,000) $(4,514,000)
Denominator:
Denominator for basic and
diluted earnings per share --
weighted-average shares $ 1,750,000 1,711,000 1,433,000
Net loss per share -
basic and diluted $ (5.95) $ (7.11) $ (3.15)
</TABLE>
STOCK BASED COMPENSATION
Stock options are accounted for under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
The Company has included in these consolidated financial statements the pro
forma equivalent disclosure information required by SFAS No. 123, "Accounting
for Stock-Based Compensation," see Note 12.
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.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to the
current year financial statement presentation.
<PAGE>
2. SEVERANCE AND OTHER RESTRUCTURING CHARGES
As a result of the change in focus of the Company's business from providing
services to affiliates of CHHC, the Company incurred severance and certain other
restructuring costs totaling $1,215,000 in the fourth quarter of 1996. These
costs primarily relate to severance of seven terminated key employees and costs
to buy out a lease of equipment no longer useful to the Company. As of December
31, 1997, payments of $855,000 had been made against the accrued severance and
other restructuring charges.
As a result of the change in the home care business environment resulting
from the interim payment system ("IPS") which lowered the cost per visit
limitations and created restrictions on the amount of cost reimbursement per
Medicare beneficiary, the termination of the Columbia/HCA contracts (which
accounted for 11%, 35% and 48% of the Company's total revenue for the years
ended December 31, 1999, 1998 and 1997, respectively) and the decision to
eliminate certain legacy development projects including the AS400 effort, the
Company incurred severance and certain other restructuring costs totaling $11.5
million in 1998.
TERMINATED CONTRACTS
Simione had a contractual relationship with IBM to provide services to
Simione's largest customer, Columbia/HCA. When Columbia/HCA elected to cancel
contractual agreements with Simione, Simione in turn canceled related contracts
with IBM to provide services to Columbia/HCA through Simione. Simione's
management executed an exit plan, in accordance with EITF 94-3, that resulted in
the incurrence of incremental termination costs that had no future economic
benefit. As a specific part of the termination of the contract with IBM, Simione
contractually had to pay a termination fee $800,000 as well as wind down costs
$810,000 in addition to minimum quarterly payment requirements $2,600,000.
Simione estimated this cost during the third quarter of 1998, but based upon
actual visits during the fourth quarter of 1998, Simione was not required to pay
as large a penalty as originally estimated. Simione recorded this change in
estimate of $150,000 as a reduction to the "severance and other restructuring
charge" line item on the income statement during the fourth quarter of 1998.
EXCESS CAPACITY
The following is a detailed discussion of the specific components included
within excess capacity that was original set up in 1998. The following table is
a detailed summary:
Office Space -- approximately $2,775,000
This amount relates to abandoned office space at the Company's corporate
headquarters in Atlanta from which the Company will not benefit. During fiscal
year 1998, Simione unsuccessfully searched to sublease this space. Management
estimated that the Company would be unsuccessful given the following factors: 1)
the layout of the abandoned office space, 2) partial use of the building would
be difficult to renovate to a mixed-company building, 3) the current real-estate
market, and 4) a smaller portion of the space had to be rented separately due to
a contractual sublease agreement Simione previously entered. Simione recorded an
accrual for the full amount of these leases from the time of vacancy until the
end of the contractual lease term.
Furniture and Fixtures -- approximately $715,000
This amount relates to certain furniture and fixtures located in the
abandoned office space at the Company's corporate headquarters in Atlanta.
Simione will not benefit from them in the future. Management estimated that the
Company would be unsuccessful in realizing the book value of these assets.
Additionally, the Company would have to pay certain cancellation fees on
operating leases. Management stopped depreciating these assets and updated the
estimates of salvage value.
Of the original additions recorded as part of the restructuring charge
during the third and fourth quarters of 1998, $200,000 was reduced during the
fourth quarter because the amounts were not supportable under EITF 94-3. The
support could not be provided for these assets as well as the eventual resale
value of these fixtures upon sublease or sale.
Legal Fees and Other -- approximately $265,000
This amount primarily relates to expected fees associated with legal issues
as a result of the cancellation of the above agreements. As these amounts were
only expected and no invoices existed, the costs were not allowable under EITF
94-3. The company recognized this fact and reduced the accrual by $200,000
during the fourth quarter of 1998. SEVERANCE
Simione planned to terminate 160 employees across all groups of the
organization including senior executives, administrative personnel, shared
service personnel, information systems developers, and consultants. Of these
employees, 156 were terminated as of December 31, 1999. Three of the remaining
employees were not terminated and accepted other positions with the company. The
severance restructuring reserve was reduced by $23,605 for the cost of their
previously planned severance. The remaining employee is employed with the
Company until certain critical work effort is completed. We anticipate this
employee will remain employed until the critical work is completed at which time
severance and a bonus will be paid. In accordance with EITF 94-3 no amounts were
accrued for the special bonus for this individual.
The remaining balance of $0.5 million in the severance accrual as of
December 31, 1999 represents amount due to the single employee described above
and the previous CEO's severance package under a multiple-year service
agreement. The remaining accrual will be paid in 2000.
COLUMBIA/HCA TERMINATION
In December of 1998, Columbia/HCA terminated its contracts with the Company
and paid a settlement fee of $7.0 million. Of this settlement fee, $0.75 million
was for services provided in December 1998, $2.3 million for services to be
provided in 1999 and $4.0 million reduced the restructuring charges incurred in
1998. The allocation of the settlement between services and restructuring
charges is based upon allocating revenue over the periods in which additional
services were performed. The agreement required Simione to assist Columbia/HCA
with the completion of certain services through the end of March 1999. This
required the maintaining of the Company's service support system and certain
staffing levels. Simione calculated a margin percentage using an estimated
allocation of staffing costs for the two prior years. This margin was then
applied to reflect the reduction of certain staffing positions. To match the
revenue to the expenses at the same ratio, Simione recognized $750,000 per month
for January, February, and March 1999.
PRODUCT RELATED
The product related charge relates solely to the abandonment of the
conversion of the Company's legacy product to the AS400 platform. The product
was called Synergy. The full amount of $2.1 million represents the write-off of
amounts originally capitalized by the company under SFAS No 86. These costs
represented amounts capitalized subsequent to the point of establishing
technological feasibility and prior to general release of the product. The
Company's decision to abandon this effort and the related charge was recorded in
accordance with SFAS No. 86. SFAS No. 86 requires an impairment loss to be
recorded when impairment indicators are present and the unamortized capitalized
costs of a computer software product exceed the net realizable value of that
asset. The net realizable value is the estimated future gross revenue from that
product reduced by the estimated future costs of completing and disposing of
that product. The Company had no sales of this product, as it was never
generally available to the public.
The following tables present a roll forward of the one time charges
incurred by the Company in 1998 and 1999. Of these charges, $2.0 million of the
product related component and $0.4 million of the excess capacity component do
not have a cash impact to the Company.
<PAGE>
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, DECEMBER 31,
1997 ADDITIONS REDUCTIONS USAGE 1998
---------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Terminated contracts $3,715,000 $ (150,000) $(1,315,000) $ 2,250,000
Excess capacity - 3,755,000 (400,000) (402,000) 2,953,000
Severance - 2,091,000 - (758,000) 1,333,000
Columbia/HCA termination fee - (4,000,000) - 4,000,000 -
============== ============== ==============
Total Restructuring cost $ - $5,561,000 $ (550,000) $ 1,525,000 $ 6,536,000
============== ============== ==============
Accrued liability less
current portion - (3,865,000)
---------------- ----------------
Accrued liability long-term $ - $ 2,671,000
================ ================
</TABLE>
The reduction of $1.1 million of excess capacity charges for the year ended
December 31, 1999, results from the subleasing of excess space in the Company's
headquarters office in Atlanta. The following table presents a roll forward of
the one time charges incurred by the Company. The majority of the current
portion of remaining restructuring costs are comprised of the IBM termination
costs, which are payable upon demand. The $0.9 million long-term portion of
remaining restructuring costs are composed primarily of excess office and
equipment leases having terms ending after December 2000.
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, DECEMBER 31,
1998 ADDITIONS REDUCTIONS USAGE 1999
----------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Terminated contracts $ 2,250,000 $ - $ - $ (41,000) $ 2,209,000
Excess capacity 2,953,000 - (1,140,000) (476,000) 1,337,000
Severance 1,333,000 - - (799,000) 534,000
----------------- -------------- -------------- -------------- ----------------
Total Restructuring Cost $ 6,536,000 $ - $(1,140,000) $(1,316,000) $ 4,080,000
============== ============== ==============
Accrued liability less current
portion (3,865,000) (3,186,000)
---------------- ----------------
Accrued liability long-term $ 2,671,000 $ 894,000
================= ================
</TABLE>
3. PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
DECEMBER 31,
-----------------------------------
---------------- ---------------
1999 1998
---------------- ---------------
Equipment $ 2,984,000 $ 2,043,000
Purchased software 1,221,000 1,114,000
Furniture 576,000 510,000
Leasehold improvements 179,000 166,000
---------------- ---------------
4,960,000 3,833,000
Accumulated depreciation (3,621,000) (1,981,000)
================ ===============
$ 1,339,000 $ 1,852,000
================ ===============
4. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
------------------------------------
1999 1998 PERIOD
----------------- ---------------- ---------------------
<S> <C> <C> <C>
Developed technology $ 14,065,000 $ 2,881,000 4-5 years
Goodwill 5,768,000 4,239,000 7-10 years
Trade name 1,142,000 1,142,000 11 years
Other 1,658,000 1,695,000 6-10 years
----------------- ----------------
22,633,000 9,957,000
Accumulated amortization (5,191,000) (2,819,000)
================== ================
$ 17,442,000 $ 7,138,000
================== ================
</TABLE>
5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
On June 6, 1997, the Company entered into a Loan and Security Agreement
with a bank. Pursuant to the Agreement, the bank agreed to make available to the
Company a revolving credit facility, the maximum principal amount of which at
any time must be equal to the lessor of $5 million or the "borrowing base" then
in effect. Interest accrues at a variable rate per annum equal to the prime rate
plus 0.25% (8.75% as of December 31, 1997). Under the terms of the Agreement,
the Company granted to the bank a security interest in all accounts receivables,
inventory, equipment, and general intangibles. Additionally, borrowings under
this agreement were secured by the outstanding capital stock of the Company's
subsidiaries. The Company's subsidiaries guaranteed the Company's obligations to
the bank under the Agreement. As of December 31, 1997, $774,000 was outstanding
and $4,226,000 was available under this agreement. The agreement was fully
repaid and cancelled during 1998.
On May 11, 1998, the Company entered into a new Loan and Security Agreement
with a bank. Pursuant to the Agreement, the bank agreed to make available to the
Company a revolving credit facility, the maximum principal amount of which at
any time had to equal the lesser of $25 million or the "margin requirement" then
in effect. Interest accrued at a variable rate per annum equal to the prime rate
for prime borrowings (7.75% as of December 31, 1999) or the LIBOR rate plus
1.5%-3.0% per annum (depending on the leverage ratio measured quarterly) for the
LIBOR borrowings (6.38% as of December 31, 1999). Under the terms of the
agreement, the Company granted to the bank a security interest in all accounts,
inventory, equipment, and general intangibles. Additionally, the Company's
subsidiaries also guaranteed the Company's obligations to the bank under the
Agreement. As of December 31, 1998 there was a balance of $5 million
outstanding. The Company repaid all obligations under the agreement and
terminated this credit facility in 1999 .
The Company has entered into lease agreements with a related party (see
Note 14) for certain office and computer equipment and furniture with
approximate aggregate cost and net book value of $690,000 and $624,000,
respectively, at December 31, 1997. In December 1997, the Company opted for
early termination of these leases and purchased the equipment from the lessor
for $579,000. Additionally, the Company has other equipment under capital leases
with third-party lessors with approximate aggregate cost of $148,000 and $29,000
and net book value of $88,000 and $7,000, at December 31, 1999 and 1998,
respectively. Amortization of capital leased assets is included in the Company's
depreciation expense and amounted to approximately$18,000, $45,000 and $283,000
for 1999, 1998 and 1997, respectively.
In September 1999, the Company obtained a $5.0 million commercial line of
credit. The line of credit became operational in October 1999. The terms of the
line require certain aging of accounts receivable and certain operating results
for future periods in order to maintain the availability of the line for future
use. Interest is accrued at prime plus 2.0% or 10.5% as of December 31, 1999.
In November 1999, the Company received a commitment of $1.6 million of new
loans from certain shareholders of the Company and Mestek, the parent company of
MCS ($750,000 from shareholders and $850,000 from Mestek). The loans were
obtained to provide additional funding for the Company's operations and have
maturity terms ranging from a minimum of 9 months to a maximum of 36 months. The
shareholder loans of $750,000 are not secured and include an interest rate of
9.0%. The $850,000 Mestek loan had an 11.0% interest rate and was secured by the
assets of the Company. The loan carried an option to convert to Series C
Preferred Stock of the Company on or after the completion of the MCS merger (See
Note 16).
6. OPERATING LEASES
The Company leases its office facilities and certain furniture and
equipment under various operating lease agreements, some of which are with
related parties (see Note 14). These leases require the Company to pay taxes,
insurance and maintenance expenses, and provides for renewal options at the then
fair market rental value of the property. Amounts expensed under operating
leases were approximately $2,562,000, $3,048,000, and $2,847,000, for the years
ended December 31, 1999, 1998, and 1997, respectively.
Aggregate annual rental payments for operating leases with noncancelable
lease terms in excess of one year are as follows:
Years Ending December 31,
2000 $2,216,000
2001 1,626,000
2002 181,000
2003 Thereafter 8,000
---------
Total $4,031,000
7. COMMITMENTS AND CONTINGENCIES
On November 1, 1996, Simione Central, Inc. ("SCI"), a wholly owned
subsidiary of the Company, entered into a series of five-year contracts to
provide shared resource information management and agency support services to
several affiliates of Columbia/HCA Health Care Corporation ("Columbia/HCA"). As
part of the negotiation of these contracts with SCI, Columbia/HCA required that
this subsidiary, formerly a subsidiary of CHHC, guarantee certain
indemnification obligations of the former shareholders of CHHC, as such
indemnification obligations relate to the administration and potential
liabilities to the Central Health Holding Company, Inc. Employee Stock Ownership
Plan ( the "Plan") or its participants. Columbia/HCA became indirectly
responsible for these Plan obligations as a result of its acquisition of the
CHHC stock. As a result of the fact that all former CHHC shareholders are also
shareholders of the Company by virtue of the January 1997 spin-off of the
Company, SCI agreed to undertake this contingent obligation. Under the terms of
this guaranty agreement (the "Guaranty"), SCI agreed to guarantee Columbia/HCA
against losses arising from the following: (i) liabilities relating to the Plan
for losses resulting from a fiduciary breach, prohibited transaction or other
violation of law relating to the Plan and (ii) liabilities relating to the Plan
which are not paid by the former stockholders of CHHC other than the Plan, but
only to the extent such losses are not recovered by Columbia/HCA through other
indemnity provisions of its agreement with the former shareholders of CHHC.
These indemnity provisions include any potential recovery from CHHC's insurance
policies as well as recoveries from escrow accounts established for the benefit
of Columbia/HCA by CHHC's former shareholders. This subsidiary's maximum
liability under the Guaranty is $17,500,000 for claims arising before November
1, 1998 and $15,000,000 for claims arising before November 1, 2000. There is no
liability for any claims arising after November 1, 2000. Further, the aggregate
maximum liability under the Guaranty is $20,000,000. Pursuant to the Guaranty,
the subsidiary agreed that on each date that a guaranteed obligation is required
to be paid to Columbia/HCA, the subsidiary shall grant to Columbia/HCA a
security interest equal to the amount of the guaranteed obligation in all the
subsidiary's accounts receivable. This subsidiary also granted to Columbia/HCA
the right to offset any liability arising under the Guaranty against any
obligation of Columbia/HCA or its affiliates to the subsidiary. At December 31,
1999, no claims had been made under the Guaranty and the Company does not
currently anticipate incurring any loss associated with the Guaranty.
Columbia/HCA sold the home care agencies under contract with the Company during
1998 and opted for an early termination of the contracts, due to expire in 2001,
with the Company. See Note 2 for settlement details.
The Company is engaged in various 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 was, however, served on July 17, 1997 with an administrative subpoena
issued by the United States Department of Health and Human Services, Office of
Inspector General. In connection with that subpoena, the Department of Justice
("DOJ") had advised the Company that certain aspects of the Company's past
relationship with affiliates of Columbia/HCA were within the scope of an ongoing
grand jury investigation and confirmed to the Company that neither the Company,
nor any of its officers, directors or employees, was a target in the
investigation. Prior to December 31, 1999, the Company was notified that the DOJ
had removed the Company from its inquiry.
The Company remains liable for certain settlement costs payable to IBM for
the early cancellation of the Company's service agreement with IBM for services
provided to Columbia/HCA. Those costs amount to approximately $2.5 million and
are part of claims for reimbursement under a still active legal dispute with
Columbia/HCA. In the event the legal dispute is not settled in favor of the
Company, the Company may be liable for all or part of this amount plus any late
payment charges if appropriate.
8. ACQUISITIONS
Effective January 1, 1996, the Company purchased certain assets of Simione
& Simione, CPA's -- Consulting Division (a division of Simione & Simione, CPAs,
a Partnership) ("Simione & Simione") for $2,000,000 in cash. Simione & Simione
provided a wide range of home health care consulting services. This acquisition
was accounted for using the purchase method. The entire purchase price was
allocated to goodwill and is being amortized over ten years.
On October 8, 1996, IMHI merged with CHMS. IMHI provided a comprehensive
package of software applications for home health care providers marketed under
the name STAT 2. In connection with the acquisition, each issued and outstanding
share of CHMS common stock was converted into and exchanged for the right to
receive .22021 shares of IMHI common stock as of the effective date. As a
result, IMHI issued 3,958,356 shares of common stock to CHMS's stockholders. In
addition, each of the outstanding shares of IMHI Class A Convertible Preferred
Stock was converted into and exchanged for shares of IMHI common stock and all
outstanding options and warrants to purchase CHMS common stock as of the
effective date were converted into the right to purchase shares of IMHI common
stock, provided that the number of shares to be so purchased and the respective
exercise prices thereof have been adjusted by the exchange ratio. The merger was
accounted for as a reverse acquisition under the purchase method of accounting.
As a result, for accounting purposes CHMS was considered as having acquired
IMHI. The historical financial statements of CHMS became the historical
financial statements of IMHI and include the results of operations of both
companies from the effective date. All share amounts have been retroactively
restated giving effect to the .22021 exchange ratio of CHMS shares for IMHI
shares. CHMS had been on a December 31 fiscal year end, and, therefore, the
fiscal year-end of IMHI was changed to December 31. Effective December 19, 1996,
IMHI changed its name to Simione Central Holdings, Inc. (the "Company").
The purchase price of approximately $16,797,000 consisted of the estimated
value assigned to the outstanding shares, options and warrants of IMHI totaling
$13,516,000, plus $760,000 of acquisition costs and net liabilities assumed of
$2,521,000. The $13,516,237 estimated value of outstanding IMHI shares, options
and warrants consists of $9,746,348 assigned to the value of outstanding shares
and $3,769,889 assigned to the value of outstanding options and warrants assumed
in the transaction. The value of the shares, options and warrants was estimated
based on an independent appraisal of the value of the Company's shares as of the
date the merger agreement was executed.
The purchase price was allocated based on the relative fair values of the
assets acquired and liabilities assumed. Approximately $12,574,000 of the
purchase price was allocated to purchased in-process research and development.
This in-process research and development had not reached technological
feasibility and had no alternative future use, and therefore, was charged to
operations as of the acquisition date. In addition, $4,223,000 of the purchase
price was allocated to certain identifiable intangible assets and is being
amortized over the related assets estimated useful life, as follows:
IMHI -- VALUE ASSIGNED TO ASSETS BALANCE SHEET CATEGORY ACQUIRED
Purchased Technology........... 4 Years $2,100,000
Trade Names.................... 11 Years 1,100,000
Customer List.................. 9 Years 400,000
Assembled Workforce............ 6 Years 600,000
-----------
$4,200,000
===========
The valuations were determined by the Company using the income approach. A
description of the acquired in-process technology and the estimates of the fair
value of in-process R&D made by the Company for the business combination are set
forth below.
A summary of the four major projects included in In-process R&D are:
- Stat 2 -- Open/GUI: complete redesign of the Stat 2 V3.6 to a Windows
based GUI (Graphical User Interface) architecture including a new scheduling
module for home care visits and creation of interfacing links for the STATScan
and Tel Time projects
- Stat 2 Medical Records -- Open/GUI: migration of the Medical Records
product to a Windows based GUI architecture and allow for pen-based technology.
HL/7 messaging & data management in an integrated environment with the STATScan
project.
- STATScan: a new product feature allowing conversion of Windows-based
imaging of paper forms into digitized data files thereby providing direct
customer management of information without redundant data entry and reduced data
errors at the point of entry.
- Tel Time: a new interactive voice response telephone based product
allowing efficient documentation of time of service and mileage information
needed for home medical visit cost reimbursement.
Estimated net cash inflows from the acquired in-process technology related
to IMHI were projected to commence in the year 1997, peak in 1998 and steadily
decline through 2003. The in-process technology was expected to be completed
during fiscal years 1997 and 1998. As of the date of acquisition, it was
estimated that approximately $1 million had been expended to develop these R&D
projects. The estimated cost to complete the projects was approximately $2
million.
The fair value assigned to purchased in-process technology was determined
by estimating the contribution of the purchased in-process technology to
developing commercially viable products and estimating the resulting cash flows
from the expected product sales of such products. In arriving at the cash flows,
a contributory asset charge was applied for the use of working capital, fixed
assets, developed technology and other intangibles. The resulting cash flows
were discounted to their present value using a rate of 23%. The discount rate
was based on an analysis of IMHI's weighted average cost of capital, and venture
capital rates given the risk of the value added assets. There were no material
anticipated changes from historical pricing, margins and expense trends.
Acquired developed technology of approximately $2.1 million was capitalized at
the acquisition date and is being amortized over 3-5 years on a straight-line
basis.
After InfoMed and Simione merged, STAT 2/GUI and the STAT 2 Medical
Records/GUI projects were determined to be similar in customer target with the
Synergy project which was under development at Simione. The competing product
development projects were consolidated and full effort was focused on the
Synergy project. Since the Synergy project was the major project abandoned in
the third quarter 1998 restructuring, the expected benefits of the IMHI projects
have not been realized. The non-GUI versions of the STAT 2 and STAT 2 Medical
Records products are being integrated with CareCentric's SmartClipboard product.
Due to the financial difficulties currently occurring in the home health
industry, revenue forecasts for the combined products are less aggressive than
the original forecasts made in 1996. Due to the importance of the development
projects for STAT, the delay in market entry caused by the abandonment of the
Synergy project in the 1998 restructuring of Simione has significantly added to
Simione's current financial difficulties.
The Tel Time and STATScan projects were completed. However, both of these
projects were significantly less important to revenue generation than the STAT 2
and STAT 2 Medical Records projects. Since Tel Time is used in conjunction with
nurse's visits, the reduction in nurse's visits has further depressed revenue
generation from original expectations. Due to changes in scanning technology
since 1996, the Company has decided to partner with scanning suppliers and
create interfacing software to utilize the STATScan product.
Effective December 1, 1997, the Company purchased substantially all the
assets of Dezine Healthcare Solutions, Inc. ("Dezine"). Dezine provided a
comprehensive package of software applications for home medical equipment
providers. This acquisition was accounted for using the purchase method. The
purchase price of approximately $9,379,000 (including $200,000 of acquisition
costs and net liabilities assumed of $71,000) was paid in cash and allocated
based on the relative fair values of the assets acquired and liabilities
assumed. Approximately $8,127,000 of the purchase price was allocated to
purchased in-process research and development. This in-process research and
development had not reached technological feasibility and had no alternative
future use, and therefore, was charged to operations as of the acquisition date.
In-process research and development for Dezine included two projects at the
time of Simione's purchase of Dezine. In the valuation report on intangible
assets, prepared by independent appraisers, both projects were identified as
critical to Dezine's long-term competitiveness. The independent valuation method
used was a forecast of future revenues and expenses applied in a discounted cash
flow model. The forecast assumptions, technology life cycles and discount rates
used were developed through conversations with management and review of industry
research and industry analyst reports.
- Enterprise 7.0: Complete redesign of the import and export interface
features of Dezine's DOS based utilities program to provide standardized
database structure, enhanced security, interaction with pop-up date fields,
standardized function/editing keys and HL7 compatible file structure.
- Gen2000: Windows-based program with a suite of market driven segments for
home medical equipment management reporting and enterprise solution for
interaction with an integrated health care provider having home medical
equipment services.
The Enterprise 7.0 project was an internal test phase at the time of
Simione's acquisition, but Dezine management estimated to have 7 more man-years
of work to be completed before market testing could begin. The data base
management implications of Enterprise 7.0 required interaction with nearly all
features included in the existing medical equipment software products sold by
Dezine. This development complexity was further complicated by the fact that the
DOS based utilities being converted in the project were no longer commercially
supported by the authors of the utilities. The need for internally audited
accuracy in data acquisition and transfer by the post Enterprise 7.0 product
also added a need for significant testing to assure marketability.
The Gen2000 project was a complete rewrite and enhancement of the
functionality of Dezine's existing products. It was estimated that at the time
of the acquisition, Dezine had spent 4 man-years developing the project and had
two man-years of feature-design work remaining. At the time of the acquisition,
it was estimated that 10 man-years of work were needed to complete a marketable
product. The software design requirements of Gen2000 required SQL and Delphi
skills which were just being learned by the developers employed by Dezine.
Enterprise 7.0 and Gen2000 had expected completion dates of the end of 1998
and 1999, respectively. Neither project had completed any market test work at
the time of acquisition.
At the same time as changes in the cost reimbursement rules for home health
care became understood in 1998, the capital available for long-term development
projects within Simione and its subsidiaries was reduced. None of Dezine's
pre-acquisition programs were ever completed. Additionally, Simione's own
product development efforts were using all available programming personnel.
In addition, $1,323,000 of the purchase price was allocated to certain
identifiable intangible assets and will be amortized over the related assets
estimated useful life, as follows:
DEZINE -- VALUE ASSIGNED TO ASSETS BALANCE SHEET CATEGORY ACQUIRED
Purchased Technology............... 5 Years 900,000
Customer List..................... 10 Years 400,000
-----------
1,300,000
===========
The Company's consolidated statement of operations for the period ended
December 31, 1997 includes the operating results of Dezine for the period
December 1, 1997 (the effective date of the Dezine acquisition) to December 31,
1997.
Pro forma information (unaudited) giving effect to the acquisitions as if
they took place on January 1 1997, is as follows:
YEAR ENDED DECEMBER 31, 1997
-------------------------------
Net revenues.................................. $ 53,397,919
Net income (loss)............................. $ 3,657,552
Net income (loss) per share -- basic.......... $ 0.51
Net income (loss) per share -- diluted........ $ 0.44
This pro forma information does not purport to be indicative of the results
that actually would have occurred if the acquisitions had been effective on
January 1, 1997 and 1996 or which may be obtained in the future.
Effective March 26, 1999, the Company purchased substantially all the
assets of Tropical Software Services ("Tropical"), a Windows based Home Medical
Equipment (HME) Management System. The acquisition was accounted for using the
purchase method for financial reporting purposes. The purchase price was
comprised of $1.8 million in cash and $0.2 million in Simione stock (valued at
the average trading value for a reasonable period of time before and after the
announcement of the purchase). The purchase price of approximately $1,963,000
has been allocated to the assets acquired and liabilities assumed including
$1,951,000 of purchased technology. Purchased technology is being amortized over
an estimated three year useful life.
Effective August 12, 1999 the Company acquired 100% of the common stock of
CareCentric Solutions, a provider of point-of-care systems in the home health
care information systems marketplace, for approximately 3.0 million shares of
newly issued Series A Preferred Stock of the Company. Non-cash consideration
consisted of 3,034,521 shares of Simione Series A Preferred Stock valued at
$2.58. The guaranteed value of $3.00 per common share of Simione stock after the
fourth quarter of 2000 has been discounted to the purchase date (considering an
incremental borrowing rate of 10%.) The discounted value as of the acquisition
is $2.58 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 will issue up to an additional 3,034,521 shares of common stock to these
stockholders. No additional intangible assets will be recorded in the future as
the purchase price remains the guaranteed value per share. The only future
financial statement impact could be a reclassification between common stock and
additional paid-in-capital for the additional shares issued.
CARE-
CENTRIC
MERGER
----------
PURCHASE PRICE:
Simione Series A Preferred Stock. 3,034,521
Guaranteed value per share....... $ 2.58
----------
Total value of stock............. $ 7,813,892
Cash............................. 218,000
Net liabilities assumed.......... 1,060,513
===========
Total purchase price $ 9,092,405
===========
Guaranteed value per share at December 31, 2000........ $ 3.00
Guaranteed value per share at acquisition date......... $ 2.58
All warrants for CareCentric stock were canceled as a result of the merger
with Simione.
Only options held by employees who remained with Simione after the merger
were converted from CareCentric options to Simione options. The conversion of
the options was made such that no vesting or expiration terms changed from the
terms included in the origin CareCentric options. The numbers and strike price
of the options were converted using the same stock ratio and valuation used for
the common stock holders of CareCentric at the date of the merger. As a result,
600,000 CareCentric employee options at a strike price of $0.50 converted into
20,400 Simione options at a strike price of $14.71. Accordingly, all exercise
prices of CareCentric options are significantly above Simione's current market
stock price.
The merger was accounted for as a purchase in accordance with accounting
Principles Board Opinion No. 16, "Business Combinations." Intangible assets of
approximately $9.8 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 and goodwill, which have estimated
useful lives of 7 years. The table below is a summary of the estimated amounts
allocated to the long-lived assets acquired:
CARECENTRIC -- VALUE ASSIGNED TO ASSETS BALANCE SHEET CATEGORY ACQUIRED
Developed technology.............. 7 Years $9,100,000
Goodwill.......................... 7 Years 700,000
----------------
$9,800,000
================
Pro forma information (unaudited) giving effect to the acquisitions as if
they took place on January 1, of each year, is as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998
------------------------ ----------------------
Net revenues $ 27,155,000 $ 42,707,000
Net income (loss) $ (13,726,000) $ (19,076,000)
Net income (loss)
per share - basic $ (7.84) $ (8.20)
Net income (loss)
per share - diluted $ (7.84) $ (8.20)
This pro forma information does not purport to be indicative of the results
that actually would have occurred if the acquisitions had been effective on
January 1, 1999 and 1998 or which may be obtained in the future.
9. INCOME TAXES
The Company has not incurred or paid any income taxes since its inception.
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 6,378,000 $ 4,040,000
Purchased intangible assets 3,480,000 2,880,000
Severance and other restructuring charges 815,000 2,690,000
Allowance for doubtful accounts 1,360,000 630,000
Deferred revenue 810,000 370,000
Depreciation 625,000 -
Other 560,000 -
--------------- ---------------
Total deferred tax assets 14,028,000 10,610,000
Deferred tax liabilities:
Purchased intangible assets (1,530,000) (1,480,000)
Depreciation - (330,000)
----------------- -----------------
Total deferred tax liabilities (1,530,000) (1,810,000)
----------------- -----------------
Net deferred tax assets 12,498,000 8,800,000
Valuation allowance (12,498,000) (8,800,000)
----------------- -----------------
$ - $ -
================= =================
</TABLE>
The Company has approximately $10.4 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 for prior
changes in ownership. 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 December 31, 1999.
Actual income tax expense differs from the "expected" amount (computed by
applying the U.S. Federal corporate income tax rate of 34% to the loss before
income taxes) as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal tax benefit computed at statutory rates $ (3,588,000) $ (4,140,000) $ (1,530,000)
State income taxes, net of federal effect (325,000) (490,000) (180,000)
Other, net 215,000 190,000 (650,000)
Change in valuation allowance 3,698,000 4,440,000 2,360,000
---------------- ---------------- ---------------
Income tax expense $ -- $ -- $ --
================ ================ ===============
</TABLE>
10. EMPLOYEE BENEFIT PLANS
CHHC sponsored the Central Health Holding Company, Inc. Employee Stock
Ownership Plan (the "Plan"), which covered substantially all full-time employees
of CHHC and its wholly owned subsidiaries and was funded by cash contributions
from CHHC and its wholly owned subsidiaries. The major asset of the Plan was
shares of CHHC common stock acquired by the Plan. In connection with the pro
rata distribution of the common stock of CHMS (see Note 1), the Plan received
shares of the Company's common stock. All of the Plan's assets are allocated to
each eligible employee's account and are held in trust until the employee's
termination, retirement, total disability or death. In connection with the sale
of CHHC to Columbia/HCA, the Plan was converted from an employee stock ownership
plan to the Simione Central Holdings, Inc. Profit Sharing Plan Trust, and the
sponsorship of the Plan was transferred from CHHC to the Company. All expenses
are funded by the Plan.
The Company has adopted 401(k) plans that cover substantially all
employees. The Company contributes to the plans based upon the dollar amount of
each participant's contribution. The Company made contributions to these plans
of approximately $137,000, $171,000 and $94,000 in 1999, 1998 and 1997,
respectively.
11. SHAREHOLDERS' EQUITY
On July 1, 1997, a Registration Statement, filed by the Company with the
Securities and Exchange Commission on Form S-1, became effective. In conjunction
with the effectiveness of the Registration Statement, the Company effected a
one-for-two reverse stock split of the Company's outstanding common stock. The
Company sold 2,000,000 (post-reverse split) shares of its common stock for
$10.00 per share and received approximately $17.7 million in net proceeds. A
shareholder also sold 1,220,000 (post-reverse split) shares for $10.00 per
share. The Company did not receive any of the proceeds from the sale of shares
by the selling shareholder.
All share and per share amounts included in these consolidated financial
statements have been restated to reflect the reverse stock split.
As of December 31, 1998, the Company has reserved 567,800 shares of common
stock for future issuance upon the exercise of warrants and options to purchase
common stock.
In connection with the acquisition of CareCentric Solutions, Inc., Simione
issued Series A Preferred Stock. The Series A Preferred Stock was converted into
Simione common stock on a share-for-share basis after approval by the
shareholders immediately prior to the completion of the merger with MCS, Inc.
The post merger, converted shares represent 16% of the Company's common stock.
In connection with the MCS merger, Mestek, the former parent company of
MCS, invested $6.0 million in Simione. That investment was converted into Series
B Preferred Stock, which carry votes equivalent to 2,240,000 shares of common
stock. The Series B Preferred Stock also has a 9% coupon rate and an attached
warrant to purchase 400,000 shares of common stock of the Company. The Series B
Preferred Stock is not redeemable or convertible.
In November 1999, Mestek loaned an additional $850,000 to Simione. At the
completion of the merger with MCS, the note was converted into Series C
Preferred Stock of the Company. The Preferred Stock has a liquidation preference
of $1.00 per share, junior in priority to the Series B Preferred Stock, to right
to one vote per share on all matters voted on by Simione stockholders,
cumulative dividends at the rate of 11% of the $1.00 per share liquidation
preference, and the right to receive the same consideration as an outstanding
share of Simione common stock in the event of a change of control transaction.
STOCK OPTIONS
The Company has established several stock option plans, under which the
Company is authorized to grant options to purchase an aggregate of 380,700
shares of common stock. Options granted under these plans must have an exercise
price not less than the fair market value at the date of grant. In addition to
options of 115,843 granted under these plans, the Company has granted non-plan
options to certain related parties. Such non plan options were granted with
exercise prices equal to fair market value on the date of grant.
A summary of the Company's stock option activity for 1997, 1998 and 1999 is
as follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
-------------- ------------
Outstanding at December 31, 1996 281,327 $ 22.90
Granted 67,860 $ 54.40
Exercised (35,853) $ 6.05
Forfeited (82) $ 11.00
--------------
Outstanding at December 31, 1997 313,253 $ 31.80
--------------
Granted 148,400 $ 29.55
Exercised (6,486) $ 18.45
Forfeited (78,241) $ 42.30
--------------
Outstanding at December 31, 1998 376,925 $ 28.85
--------------
Granted 171,080 $ 11.45
Exercised (17,000) $ 3.70
Forfeited (113,920) $ 23.07
--------------
Outstanding at December 31, 1999 417,086 $ 24.10
==============
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
-------------------- ------------- -------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $7.36 1,469 0.5 $ 3.70 1,469 $ 3.70
$ 7.36 $14.71 167,375 8.3 $ 9.67 100,709 $ 10.30
$14.71 $22.07 67,172 5.6 $ 16.07 67,172 $ 16.07
$22.07 $29.42 25,654 5.9 $ 25.00 25,654 $ 25.00
$29.42 $36.78 74,366 7.7 $ 32.70 45,233 $ 32.07
$36.78 $44.13 7,000 5.8 $ 42.06 6,667 $ 42.01
$44.13 $51,49 8,167 7.8 $ 45.00 2,834 $ 45.00
$51.49 $58.84 59,969 6.4 $ 53.27 55,829 $ 53.14
$58.84 $66.20 1,000 7.4 $ 60.00 667 $ 60.00
$60.20 $73.55 4,913 9.2 $ 72.95 4,913 $ 72.95
-------------- -------------- ------------- ------------ ----------
417,086 7.3 $ 24.10 311,147 $ 25.67
============== ============
</TABLE>
For the purposes of pro forma disclosures, the estimated fair value of the
stock options is amortized to expense over the options' vesting periods.
Risk-free interest rates of 5.24%; no dividends; a volatility factor of the
expected market price of the Company's common stock of 1.2666; and a
weighted-average expected life of the options of 6.45 years. The Company's pro
forma net loss and net loss per share (basic and diluted) are $13,988,000 and
$7.99, respectively, for 1999 and $14,118,000 and $8.25, respectively, for 1998,
$5,269,000 and $3.70, respectively, for 1998.
STOCK PURCHASE WARRANTS
At December 31, 1999, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
--------------- --------------- ---------------------
25,000 $ 5.00 February 24, 2005
10,336 $ 31.10 October 8, 1999
2,000 $ 56.30 May 27, 2000
----------------
37,336
===============
All outstanding warrants are exercisable.
During 1997, the Company issued, and the holder exercised, a warrant for
the purchase of 2,202 shares of common stock at $15.80 per share. During 1998,
warrants were exercised for 75,000 shares of common stock at $5.00 per share.
12. 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 the managed care environment. The
consulting segment assists home health care providers in addressing the
challenges of reducing costs, maintaining quality, streamlining operations and
reengineering organizational structures.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes, not including gains and losses on
the Company's investment portfolio. The accounting policies of the reportable
segments are the same as those describe in the summary of significant accounting
policies (Note 1). The revenues, operating losses and assets of the Company by
business segment are as follows:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Revenues
Product related $ 18,412,000 $ 35,209,000 $ 42,036,000
Consulting 7,371,000 6,437,000 4,909,000
----------------------- ----------------------- ---------------------
Total $ 25,783,000 $ 41,646,000 $ 46,945,000
======================= ======================= ======================
Cost of sales
Product related $ 11,061,000 $ 20,646,000 $ 18,184,000
Consulting 5,386,000 5,445,000 4,531,000
----------------------- ----------------------- ---------------------
Total $ 16,447,000 $ 26,091,000 $ 22,715,000
======================= ======================= ======================
Research and development
Product Related $ 3,968,000 $ 6,741,000 $ 6,670,000
======================= ======================= ======================
Depreciation and amortization
Product related $ 541,000 $ 1,914,000 $ 1,174,000
Consulting 2,717,000 394,000 430,000
Unallocated amount of
Corporate overhead 288,000 84,000 110,000
----------------------- ----------------------- ---------------------
Total $ 3,546,000 $ 2,392,000 $ 1,714,000
======================= ======================= ======================
Purchased R&D
Product related $ - $ - $ 8,127,000
Consulting - - -
----------------------- ----------------------- ---------------------
Total $ - $ - $ 8,127,000
======================= ======================= ======================
Restructuring expenses
Product related $ (1,140,000) $ 5,011,000 $ -
Consulting - - -
Unallocated amount of
Corporate overhead - - -
----------------------- ----------------------- ---------------------
Total $ (1,140,000) $ 5,011,000 $ -
======================= ======================= ======================
Net Loss
Product related $ (8,631,000) $ (8,537,000) $ (460,000)
Consulting 1,400,000 484,000 (126,000)
Unallocated amount of
Corporate overhead (3,153,000) (4,357,000) (4,203,000)
Interest income/expense-net (38,000) 240,000 275,000
----------------------- ----------------------- ---------------------
Total $ (10,422,000) $ (12,170,000) $ (4,514,000)
======================= ======================= ======================
Assets
Product related $ 20,912,000 $ 11,894,000 $ 17,188,000
Consulting 4,726,000 4,713,000 3,874,000
Unallocated amount of
assets net of eliminations 604,000 11,250,000 7,857,000
----------------------- ----------------------- ---------------------
Total $ 26,242,000 $ 27,857,000 $ 28,919,000
======================= ======================= ======================
</TABLE>
13. TRANSACTIONS WITH FORMER PARENT COMPANY
The Company derived revenue from charges for the services provided to the
home health care agencies owned by CHHC. The charges were recorded, for purposes
of these consolidated financial statements, in an amount equal to the cost of
the services being provided and therefore generated no operating profit.
Revenues of $12,051,000 were recognized in 1997. In addition, CHHC charged the
Company a management fee for the services provided related to legal and
executive. CHHC's charges included direct costs identified and allocations of
shared costs based on statistical and operational data such as square footage,
hours, and direct operating costs. In the opinion of management, the method of
allocation is reasonable. A management fee in the amount of $432,000 was
incurred in 1997. These arrangements terminated effective October 31, 1997.
14. RELATED-PARTY TRANSACTIONS
Gateway LLC, a company owned in part by a prior Chief Executive Officer and
another officer of the Company, leases an office facility to the Company under
the terms of an agreement, which expires December 31, 2001. Rent expense and
related operating expenses paid to Gateway LLC by the Company were $266,000 and
$356,000 in 1998 and 1997, respectively. Gateway LLC sold the lease to a
third-party in August of 1998.
A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). During 1997, the Company entered into various three-year capital
leases with National. In December 1997, the Company opted for early termination
of all the outstanding capital leases with National and purchased the equipment
under lease for approximately $579,000. Payments, excluding the purchase, to
National under these lease agreements totaled $260,000 and $70,000 in 1998 and
1997, respectively.
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. Rent expense and related operating expenses paid
to this entity were $136,000, $130,000 and $130,000 in 1999, 1998 and 1997,
respectively. Future annual rental payments under this lease are approximately
$136,000 per year for 1999 through 2002.
The Company has consulting agreements with two entities in which certain
directors of the Company have ownership interests. Aggregate monthly consulting
fees paid to these two entities approximate $20,000 through July 1998 and $5,000
thereafter. The fees totaled $149,000 and $205,000 in 1998 and 1997,
respectively.
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.
15. LICENSE AGREEMENTS
Certain software applications of the Company's NAHC IS software solution
incorporates software licensed from a third party. Under this license agreement,
the Company is obligated to pay royalties based on the volume of transactions
processed by the Company. Royalty rates per transaction vary based on the volume
of transactions processed and totaled $0, $77,000 and $255,000 in 1999, 1998 and
1997, respectively.
Another license agreement obligated the Company to pay royalties based
on a percentage of net collected revenues from sales of certain covered systems.
Royalty expense under this agreement totaled $0, $113,000 and $161,000 in 1999,
1998 and 1997, respectively.
The Company obtained data processing and network communication services
under an agreement with IBM Global Services ("IBM"). The agreement with IBM
required the Company to pay fees based on the volume of transactions processed.
This agreement was canceled during 1998 effective January 31, 1999. Termination
and wind down costs are included in the restructuring charges for 1999. (see
Note 2)
16. MERGER AND SUBSEQUENT EVENT
On May 26, 1999, the Company entered into a definitive agreement to merge
with MCS, Inc. (MCS), a wholly owned subsidiary of Mestek, Inc. For every share
of outstanding Mestek common stock, the Company agreed to issue approximately
.85 shares of its common stock to Mestek in the exchange. MCS is a leading
provider of information systems and services to the home health care industry
with approximately $16.6 million (unaudited) in revenue and $1.4 million
(unaudited) in net income in 1998. MCS markets its product under the MestaMed
name. It has approximately 570 active customers.
In September 1999, the board of directors of Mestek resolved to distribute
all of the capital stock of MCS to the Mestek stockholders, on a pro rata basis,
prior to the merger of MCS into the Company. In conjunction with the
distribution of the capital stock of MCS, Mestek resolved to invest $6.0 million
into the Company in the form of loan notes accruing interest at prime plus 2.0%
per annum. The $6.0 million notes were convertible into Series B Preferred Stock
with attached warrants and stock options as described below. Also in September
1999, Mestek invested $3.0 million into the Company in the form of a partial
advance on these loan notes. In January 2000, Mestek advanced another $1.0
million in the form of a loan, thereby advancing an aggregate of $4.0 million on
the $6.0 million commitment. Under the terms of the notes, Mestek was a
subordinate creditor to the bank holding the commercial line of credit.
In November 1999, Mestek loaned Simione an additional $850,000 bearing
interest at 11% per annum and convertible at Mestek's option into 850,000 shares
of Series C Preferred Stock of Simione.
At the special shareholder's meeting on March 7, 2000, the shareholders
approved the merger and the merger with MCS was completed on March 7, 2000.
At the completion of the merger with MCS, the $4.0 million in notes to
Mestek were retired and that amount, together with the remaining $2.0 million,
for a total $6.0 million investment by Mestek, were converted into 5.6 million
shares of Series B Preferred Stock of Simione that carry a coupon rate of 9%
deferred until June 30, 2000. The Series B Preferred Stock carries 0.4 votes per
share for purposes of voting on issues requiring common shareholder approval. In
connection with the purchase of the Series B Preferred Stock, Mestek received a
warrant to purchase 400,000 shares of common stock of the Company and an option
to purchase up to 387,113 shares of Common Stock of the Company. Accrued
interest on the $4.0 million of notes was paid at the closing of the merger from
the proceeds of the remaining $2.0 million paid by Mestek. The effect of the
merger, including the voting rights of the Series B Preferred Stock, was to
provide Mestek and its shareholders voting control of the Company.
At the closing of the merger, Mestek exercised the option to convert its
$850,000 loan to Simione into 850,000 shares of Series C Preferred Stock, which
carry a coupon rate of 11% and .2 votes per shares.
As shown in the financial statements, during the years ended December 31,
1998 and 1999, the Company incurred losses of $10.4 million and $12.2,
respectively, and at December 31, 1999, its current liabilities exceed its
current assets by $10.2 million. The negative operating results and negative net
working capital were mainly the result of:
- - Cancellation of the customer contract with Columbia/HCA that had generated
11%, 35%, and 48% of the Company's total revenues for the years 1999, 1998
and 1997 respectively.
- - Elimination of certain legacy development projects
- - Changes to the government's reimbursement methodology from cost
reimbursement to set prospective payments that affected the Company's
customers.
- - Decreased revenues generated from Software and Services
These factors, among others, indicate that the Company is in need of
additional capital funding to support its current working capital needs, repay
certain deferred current liabilities and execute its business plan. In response
to that capital funding need, on April 12, 2000, the Company received a letter
from Mr. John Reed, the Chairman of the Board of Mestek Inc. and the controlling
interest shareholder of both Mestek and Simione, which outlines a new capital
plan. The capital plan commits $7.0 million in the form of a $5.0 million
convertible note and $2.0 million of convertible preferred stock. The specific
terms of the convertible note and convertible preferred stock are still under
final negotiation. In addition, the Company is pursuing alternative commercial
debt financing with the objective of obtaining increased amounts of capital and
better lending terms than currently exist under its existing bank line of
credit.
<PAGE>
<TABLE>
<CAPTION>
SIMIONE CENTRAL HOLDINGS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
CHARGED
BALANCE AT TO ADDITIONS BALANCE AT
BEGINNING COST AND DUE TO END OF
OF PERIOD EXPENSES ACQUISITION DEDUCTIONS (1) PERIOD
------------ ------------ -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for Doubtful Accounts $1,674,000 $2,721,000 $ $ 814,000 $ 3,582,000
============ ============ ============== ================ =============
Year ended December 31, 1998
Allowance for Doubtful Accounts $1,915,000 $ 791,000 $ $ 1,032,000 1,674,000
============ ============ ============== ================ =============
Year ended December 31, 1997
Allowance for Doubtful Accounts $1,063,000 $1,330,000 $ 254,000 $ 732,000 1,915,000
============ ============ ============== ================ =============
</TABLE>
(1) Write-offs of uncollectible accounts
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES B PREFERRED STOCK
OF
SIMIONE CENTRAL HOLDINGS, INC.
The undersigned, R. Bruce Dewey, President and Chief Executive Officer of
Simione Central Holdings, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Code"), does hereby certify:
1. The name of the corporation is Simione Central Holdings, Inc.
2. Pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation and Section 151(g) of the Code, the Board of
Directors adopted on September 2, 1999 a resolution setting forth the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of the shares of the
Series B Preferred Stock (the "Resolution") and the Corporation caused a
Certificate of Designations, Preferences and Rights of Series B Preferred Stock
containing the Resolution to be signed and filed.
3. The Board of Directors adopted on March 7, 2000 the following resolution
regarding the amendment of the Resolution:
"RESOLVED, that the entire Section 3.C. of the resolution of the Board of
Directors adopted on September 2, 1999 setting forth the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the shares of the Series B
Preferred Stock be deleted and replaced in its entirety with the following:
'Each share of the Series B Preferred Stock shall initially have four-tenths of
one (.4) vote in all matters to be voted upon by the stockholders of the
Corporation (the "Series B Voting Right"), and shall be adjusted as hereinafter
provided. If the Corporation shall (i) declare a dividend or make a distribution
in shares of its common stock, (ii) subdivide or reclassify the outstanding
shares of its common stock into a greater number of shares, or (iii) combine or
reclassify the outstanding shares of its common stock into a smaller number of
shares, the Series B Voting Right at the time of the record date of such
dividend or distribution shall be proportionately adjusted so that the holder of
any shares of Series B Preferred Stock after such date shall be entitled to the
same aggregate voting power of all shares of the Corporation's outstanding stock
which such holder was entitled to immediately prior to such date. Successive
adjustments in the Series B Voting Right shall be made whenever any event
specified above shall occur. The Series B Preferred Stock shall vote on any
matter upon which stockholders of the Corporation are entitled to vote, together
as a single class with such stockholders.'"
4. The Certificate of Designations, Preferences and Rights of Series B
Preferred Stock of the Corporation is hereby amended as described above in part
3 of this Certificate.
5. The amendment herein certified has been duly adopted by the Board of
Directors of the Corporation in accordance with Sections 141 and 151(g) of the
Code.
6. No shares of the Series B Preferred Stock are issued or outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and Chief Executive Officer, and such authorized officer
hereby declares, under penalty of perjury under the laws of the State of
Delaware, that he signed this Certificate in the official capacity set forth
beneath his signature and that the statements set forth in this Certificate are
true and correct to his own knowledge this 7th day of March, 2000.
/s/ R. BRUCE DEWEY
--------------------------------
R. Bruce Dewey
President and Chief Executive Officer
<PAGE>
1079675v2
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B PREFERRED STOCK
OF SIMIONE CENTRAL HOLDINGS, INC.
It is hereby certified that:
1. The name of the corporation is Simione Central Holdings, Inc. (the
"Corporation").
2. Section 1 of Article III of the Certificate of Incorporation of the
Corporation authorizes the issuance of 10,000,000 shares of preferred stock, par
value, 1/10th of 1 cent, and Section 3 of Article III of the Certificate of
Incorporation of the Corporation expressly vests in the Board of Directors of
the Corporation the authority provided therein to issue shares of preferred
stock at any time and from time to time, in one or more series, and to fix or
alter the designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions of such
shares of preferred stock, including without limitation of the generality of the
foregoing, dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences of any wholly unissued series of
preferred shares and the number of shares constituting any of such series and
the designation thereof, or any of them.
3. Pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation and Section 151(g) of the General Corporation Law
of the State of Delaware, the Board of Directors adopted on the 2nd day of
September, 1999 the resolutions set forth below: (a) creating a series of shares
of preferred stock designated "Series B Preferred Stock"; and (b) setting forth
the designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions, of the shares of
the Series B Preferred Stock. No shares of Series B Preferred Stock have been
previously issued.
"RESOLVED, that pursuant to authority granted to and vested in the Board of
Directors of the Corporation in accordance with the provisions of the
Certificate of Incorporation of the Corporation, the Board of Directors hereby
creates a series of preferred stock, par value 1/10th of 1 cent per share, of
the Corporation and states its designation and number of shares and fixes the
relative rights, preferences and limitations thereof as follows:
A. Designation. The designation shall be "Series B Preferred Stock" (the
"Series B Preferred Stock"). Each share of the Series B Preferred Stock shall be
identical in all respects with the other shares of Series B Preferred Stock.
B. Number. The number of shares of Series B Preferred Stock shall be
5,600,000, which number from time to time may be increased or decreased (but not
below the number then outstanding) by the Board of Directors of the Corporation.
Any shares of Series B Preferred Stock purchased by the Corporation shall be
canceled and shall revert to authorized but unissued shares of preferred stock
undesignated as to series.
C. Voting. Each share of the Series B Preferred Stock shall have two (2)
votes in all matters to be voted upon by the stockholders of the Corporation.
The Series B Preferred Stock shall vote on any matter upon which stockholders of
the Corporation are entitled to vote, together as a single class with such
stockholders.
D. Director. For so long as the Series B Preferred Stock shall remain
outstanding, in the event that the Board of Directors of the Corporation is
unable to reach a decision on a vote on any matter properly before the Board of
Directors in two consecutive meetings of the Board of Directors, the number of
directors of the Board of Directors shall be increased by One (1) member and the
holders of the Series B Preferred Stock shall have the right to appoint such
member of the Board of Directors. Any director who has been appointed by the
holders of the Series B Preferred Stock may be removed during such director's
term of office, whether with or without cause, only by the affirmative vote of
the holders of a majority of the Series B Preferred Stock.
E. Dividends. The holder of each share of Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution to the holders
of common stock, and subject to the dividend rights of the holders of the Series
A Preferred Stock pursuant to the provisions of the Certificate of Designations,
Preferences and Rights of Series A Preferred Stock, cumulative dividends at the
rate per annum of nine percent (9%) of the One Dollar and Seven and 143/1000
cents ($1.07143) original issuance price per share (the "Original Issuance
Price") of the Series B Preferred Stock declared by the Board of Directors out
of funds legally available therefore. All accrued but unpaid dividends on
outstanding shares of the Series B Preferred Stock must be paid in full before
any cash dividend may be declared on the common stock.
F. Mergers. In the event of a Change of Control Transaction (as defined
below), each share of Series B Preferred Stock shall be entitled to receive the
same consideration as an outstanding share of common stock, but in any event not
less than the Original Issue Price, plus accumulated but unpaid dividends. For
the purposes of this Section F, a "Change of Control Transaction" with respect
to the Corporation means (i) the acquisition of the Corporation by a
non-affiliated third party pursuant to a merger, consolidation or business
combination; (ii) the sale of all or a substantial part of the assets of the
Corporation to a non-affiliated third party; (iii) the occurrence of a
transaction pursuant to which any entity or person shall, alone or in
combination with any affiliate (as defined in the Securities and Exchange Act of
1934 as amended and all regulations promulgated pursuant thereto, (the "Exchange
Act")) become the beneficial owner (as defined in Rules 13(d) and 13(d)-5) under
the Exchange Act) of fifty percent (50%) or more of any outstanding class of
capital stock of the Corporation having ordinary voting power in the election of
its directors; or (iv) the Corporation shall cease to own less than eighty
percent (80%) of the voting stock of any of its subsidiaries (unless such
failure is due to the merger of any subsidiary with and into the corporation).
The transactions among the Corporation, Mestek, Inc., MCS, Inc., John E. Reed,
Stewart B. Reed and E. Herbert Burk contemplated in that certain Second Amended
and Restated Agreement and Plan of Merger and Investment Agreement dated as of
October 25, 1999 by and among such parties, as such agreement may be amended
from time to time, shall not be deemed to constitute a Change of Control
Transaction under this Section F.
G. Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the assets of the
Corporation available for distribution to its stockholders shall be distributed
in the following order of priority:
1. The remaining assets, if any, of the Corporation available for
distribution to the stockholders shall be distributed in accordance with the
provisions of the Certificate of Designations, Preferences and Rights of Series
A Preferred Stock.
2. After distribution of the amount set forth above, the holder of each
Series B Preferred Stock then outstanding shall be entitled to receive, prior
and in preference to any distribution to the holders of common stock an amount
equal to One Dollar and Seven and 143/1000 cents ($1.07143) per share (the
"Liquidation Price") plus an amount equal to the Original Issuance Price
multiplied by nine (9%) percent per annum from the date of original issuance of
the Series B Preferred Stock to the date of distribution, provided such amount
shall be reduced by an amount equal to all dividends declared and paid with
respect to such shares of Series B Preferred Stock since the original date of
issuance. If the assets and funds of the Corporation available for distribution
to the holders of Series B Preferred Stock shall be insufficient to permit the
payment of the full preferential amount set forth in this Section, then all the
assets of the Corporation available for distribution shall be distributed to the
holders of Series B Preferred Stock pro rata so that each share receives the
same percentage of its respective liquidation interest.
3. After distribution of the amount set forth above, the remaining assets,
if any of the Corporation available for distribution to the stockholders shall
be distributed to holders of shares of common stock to the exclusion of the
holders of Series A Preferred Stock and Series B Preferred Stock until such
holders of common stock have been paid an amount equal to the aggregate
liquidation price of the Series A Preferred Stock and the Series B Preferred
Stock, and then, if any assets remain, the balance shall be distributed ratably
to the holders of common stock and to the holders of Series A Preferred Stock
and the holders of Series B Preferred Stock.
H. The Corporation will not amend this Certificate in a manner which
materially and adversely impacts the rights of the Series B Preferred Stock
hereunder or recombine or reclassify the Series B Preferred Stock without the
prior written approval of holders of a majority of the shares of Series B
Preferred Stock then outstanding.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the Series B Preferred Stock and fixing the
powers, designations, preferences and relative, optional, participating, and
other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the Certificate of
Incorporation of the corporation pursuant to the provisions of Sections 104 and
151 of the General Corporation Law of the State of Delaware."
The effective time and date of the Series B Preferred Stock herein
certified shall be the filing date of this Certificate of Designations with the
Secretary of State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its Senior Vice President, and such authorized officer hereby
declares, under penalty of perjury under the laws of the State of Delaware, that
he signed this Certificate in the official capacity set forth beneath his
signature and that the statements set forth in this Certificate are true and
correct to his own knowledge this 1st day of March, 2000.
/s/ GEORGE M. HARE
-------------------------------------
George M. Hare, Senior Vice President
EXHIBIT 3.7
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES C PREFERRED STOCK
OF
SIMIONE CENTRAL HOLDINGS, INC.
The undersigned, R. Bruce Dewey, President and Chief Executive Officer of
Simione Central Holdings, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Code"), does hereby certify:
1. The name of the corporation is Simione Central Holdings, Inc.
2. Pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation and Section 151(g) of the Code, the Board of
Directors adopted on December 21, 1999 a resolution setting forth the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of the shares of the
Series C Preferred Stock (the "Resolution") and the Corporation caused a
Certificate of Designations, Preferences and Rights of Series C Preferred Stock
containing the Resolution to be signed and filed.
3. The Board of Directors adopted on March 7, 2000 the following resolution
regarding the amendment of the Resolution:
"RESOLVED, that the entire Section 3.C. of the resolution of the Board of
Directors adopted on December 1, 1999 setting forth the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the shares of the Series C
Preferred Stock be deleted and replaced in its entirety with the following:
'Each share of the Series C Preferred Stock shall initially have two-tenths of
one (.2) vote in all matters to be voted upon by the stockholders of the
Corporation (the "Series C Voting Right"), and shall be adjusted as hereinafter
provided. If the Corporation shall (i) declare a dividend or make a distribution
in shares of its common stock, (ii) subdivide or reclassify the outstanding
shares of its common stock into a greater number of shares, or (iii) combine or
reclassify the outstanding shares of its common stock into a smaller number of
shares, the Series C Voting Right at the time of the record date of such
dividend or distribution shall be proportionately adjusted so that the holder of
any shares of Series C Preferred Stock after such date shall be entitled to the
same aggregate voting power of all shares of the Corporation's outstanding stock
which such holder was entitled to immediately prior to such date. Successive
adjustments in the Series C Voting Right shall be made whenever any event
specified above shall occur. The Series C Preferred Stock shall vote on any
matter upon which stockholders of the Corporation are entitled to vote, together
as a single class with such stockholders.'"
4. The Certificate of Designations, Preferences and Rights of Series C
Preferred Stock of the Corporation is hereby amended as described above in part
3 of this Certificate.
5. The amendment herein certified has been duly adopted by the Board of
Directors of the Corporation in accordance with Sections 141 and 151(g) of the
Code.
6. No shares of the Series C Preferred Stock are issued or outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and Chief Executive Officer, and such authorized officer
hereby declares, under penalty of perjury under the laws of the State of
Delaware, that he signed this Certificate in the official capacity set forth
beneath his signature and that the statements set forth in this Certificate are
true and correct to his own knowledge this 7th day of March, 2000.
/s/ R. BRUCE DEWEY
-------------------------------------
R. Bruce Dewey
President and Chief Executive Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C PREFERRED STOCK
OF SIMIONE CENTRAL HOLDINGS, INC.
It is hereby certified that:
1. The name of the corporation is Simione Central Holdings, Inc. (the
"Corporation").
2. Section 1 of Article III of the Certificate of Incorporation of the
Corporation authorizes the issuance of up to 10,000,000 shares of preferred
stock, par value, 1/10th of 1 cent, and Section 3 of Article III of the
Certificate of Incorporation of the Corporation expressly vests in the Board of
Directors of the Corporation the authority provided therein to issue shares of
preferred stock at any time and from time to time, in one or more series, and to
fix or alter the designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions of such
shares of preferred stock, including without limiting the generality of the
foregoing, dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences of any wholly unissued series of
preferred shares and the number of shares constituting any of such series and
the designation thereof, or any of them.
3. Pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation and Section 151(g) of the General Corporation Law
of the State of Delaware, the Board of Directors adopted on the 21st day of
December, 1999 the resolutions set forth below: (a) creating a series of shares
of preferred stock designated "Series C Preferred Stock"; and (b) setting forth
the designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions, of the shares of
the Series C Preferred Stock. No shares of Series C Preferred Stock have been
previously issued.
Resolutions of the Board of Directors of the Corporation adopted on the
21st day of December, 1999:
"RESOLVED, that pursuant to authority granted to and vested in the Board of
Directors of the Corporation in accordance with the provisions of the
Certificate of Incorporation of the Corporation, the Board of Directors hereby
creates a series of preferred stock, par value 1/10th of 1 cent per share, of
the Corporation and states its designation and number of shares and fixes the
relative rights, preferences and limitations thereof as follows:
A. Designation. The designation shall be "Series C Preferred Stock" (the
"Series C Preferred Stock"). Each share of the Series C Preferred Stock shall be
identical in all respects with the other shares of Series C Preferred Stock. The
par value of the Series C Preferred Stock shall be 1/10th of 1 cent per share.
B. Number. The number of shares of Series C Preferred Stock shall be
850,000, which number from time to time may be increased or decreased (but not
below the number then outstanding) by the Board of Directors of the Corporation.
Any shares of Series C Preferred Stock purchased by the Corporation shall be
canceled and shall revert to authorized but unissued shares of preferred stock
undesignated as to series.
C. Voting. Each share of the Series C Preferred Stock shall have one (1)
vote in all matters to be voted upon by the shareholders of the Corporation. The
Series C Preferred Stock shall vote on any matter upon which shareholders of the
Corporation are entitled to vote, together as a single class with such
shareholders.
D. Dividends. The holder of each share of Series C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution to the holders
of common stock, and subject to the dividend rights of the holders of the Series
A Preferred Stock pursuant to the provisions of the Certificate of Designations,
Preferences and Rights of Series A Preferred Stock and the dividend rights of
the holders of the Series B Preferred Stock pursuant to the provisions of the
Certificate of Designations, Preferences and Rights of Series B Preferred Stock,
cumulative dividends at the rate per annum of eleven percent (11%) of the
Liquidation Price (as defined in Section F.3 below) payable annually to the
extent declared by the Board of Directors out of funds legally available
therefor and in preference to any dividends paid on account of the common stock
of the Corporation and any subsequently issued series of preferred stock. All
accrued but unpaid dividends on outstanding shares of the Series C Preferred
Stock must be paid in full before any cash dividend may be declared on the
common stock.
E. Mergers. In the event of a Change of Control Transaction (as defined
below), each share of Series C Preferred Stock shall be entitled to receive the
same consideration as an outstanding share of common stock, but in any event not
less than the Liquidation Price, plus accumulated but unpaid dividends. For the
purposes of this Section E, a "Change of Control Transaction" with respect to
the Corporation means (i) the acquisition of the Corporation by a non-affiliated
third party pursuant to a merger, consolidation or business combination; (ii)
the sale of all or a substantial part of the assets of the Corporation to a
non-affiliated third party; (iii) the occurrence of a transaction pursuant to
which any entity or person shall, alone or in combination with any affiliate (as
defined in the Securities and Exchange Act of 1934 as amended and all
regulations promulgated pursuant thereto, (the "Exchange Act")) become the
beneficial owner (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange
Act) of fifty percent (50%) or more of any outstanding class of capital stock of
the Corporation having ordinary voting power in the election of its directors;
or (iv) the Corporation shall cease to own less than eighty percent (80%) of the
voting stock of any of its subsidiaries (unless such failure is due to the
merger of any subsidiary with and into the corporation). The transactions among
the Corporation, Mestek, Inc., MCS, Inc., John E. Reed, Stewart B. Reed and E.
Herbert Burk contemplated in that certain Second Amended and Restated Agreement
and Plan of Merger and Investment Agreement dated as of October 25, 1999, by and
among such parties, as such agreement may be amended from time to time, shall
not be deemed to constitute a Change of Control Transaction under this Section
E.
F. Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the assets of the
Corporation available for distribution to its shareholders shall be distributed
in the following order of priority:
1. The remaining assets, if any, of the Corporation available for
distribution to the shareholders shall be distributed in accordance with the
provisions of the Certificate of Designations, Preferences and Rights of Series
A Preferred Stock.
2. After distribution of the amount set forth above, the remaining assets,
if any, of the Corporation available for distribution to the shareholders shall
be distributed in accordance with the provisions of the Certificate of
Designations, Preferences and Rights of Series B Preferred Stock.
3. After distribution of the amounts set forth above, the holder of each
share of Series C Preferred Stock then outstanding shall be entitled to receive,
prior and in preference to any distribution to the holders of common stock, an
amount equal to One Dollar ($1.00) per share (the "Liquidation Price") plus an
amount equal to accrued but unpaid interest at the rate of eleven percent (11%)
per annum of the Liquidation Price from the date of original issuance of the
Series C Preferred Stock to the date of distribution, provided such amount shall
be reduced by an amount equal to all dividends declared and paid with respect to
such shares of Series C Preferred Stock since the original date of issuance. If
the assets and funds of the Corporation available for distribution to the
holders of Series C Preferred Stock shall be insufficient to permit the payment
of the full preferential amount set forth in this Section, then all the assets
of the Corporation available for distribution shall be distributed to the
holders of Series C Preferred Stock pro rata so that each share receives the
same percentage of its respective liquidation interest.
4. After distribution of the amounts set forth above, the remaining assets,
if any, of the Corporation available for distribution to the shareholders shall
be distributed to holders of shares of common stock to the exclusion of the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock until such holders of common stock have been paid an amount
equal to the aggregate liquidation price of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock and then, if any
assets remain, the balance shall be distributed ratably to the holders of common
stock and to the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock and the holders of the Series C Preferred Stock.
G. The Corporation will not amend this Certificate in a manner which
materially and adversely impacts the rights of the Series C Preferred Stock
hereunder or recombine or reclassify the Series C Preferred Stock without the
prior written approval of holders of a majority of the shares of Series C
Preferred Stock then outstanding.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the Series C Preferred Stock and fixing the
powers, designations, preferences and relative, optional, participating, and
other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the Certificate of
Incorporation of the Corporation pursuant to the provisions of Sections 104 and
151 of the General Corporation Law of the State of Delaware."
The effective time and date of the Series C Preferred Stock herein
certified shall be the filing date of this Certificate of Designations with the
Secretary of State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its Senior Vice President, and such authorized officer hereby
declares, under penalty of perjury under the laws of the State of Delaware, that
he signed this Certificate in the official capacity set forth beneath his
signature and that the statements set forth in this Certificate are true and
correct to his own knowledge this 1st day of March, 2000.
/s/ GEORGE M. HARE
------------------------------------
George M Hare, Senior Vice President
Exhibit 21.1
Subsidiaries of Simione Central Holdings, Inc.
----------------------------------------------
Name State of Incorporation or Formation
---- -----------------------------------
SC Holding, Inc. Georgia
Simione Central National, LLC Georgia
Simione Central Consulting, Inc. Georgia
Simione Acquisition Corporation Delaware
Script Systems, Inc. New Jersey
Simione Central, Inc. Georgia
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K 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/ Arthur Andersen LLP
Atlanta, Georgia
April 13, 2000
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-97772) pertaining to the 1994 Incentive Stock Option and
Non-Qualified Stock Option Plan of InfoMed Holdings, Inc.; Registration
Statement (Form S-8 No. 333-51869) pertaining to the Simione Central Holdings,
Inc. 1997 Non-Qualified Formula Stock Option Plan, Omnibus Equity-Based
Incentive Plan, and the 1996 Stock Option Plan; and Registration Statement (Form
S-8 No. 333-70811) pertaining to the Simione Central Holdings, Inc. Omnibus
Equity-Based Incentive Plan of our report dated February 23, 1998, with respect
to the financial statements and schedule of Simione Central Holdings, Inc. for
the year ended December 31, 1997, included in the Annual Report (Form 10-K) for
the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
April 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIMIONE CENTRAL HOLDINGS, INC. FOR THE YEAR ENDED
DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000896157
<NAME> SIMIONE CENTRAL HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 620,000
<SECURITIES> 0
<RECEIVABLES> 8,834,000
<ALLOWANCES> 3,582,000
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0
<COMMON> 9,000
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<TOTAL-LIABILITY-AND-EQUITY> 26,242,000
<SALES> 25,783,000
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<CGS> 0
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