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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, 2001

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

CARECENTRIC, 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)

2625 CUMBERLAND PARKWAY, SUITE 310, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (678) 264-4400

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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant on April 8, 2002 was $2,173,957.
There were 4,371,350 shares of Common Stock outstanding at April 8, 2002.
Documents incorporated by reference in this Form 10-K: Portions of the
definitive proxy statement relating to the 2002 Annual Meeting of Stockholders
in Part III, Items 10 (as related to Directors), 11, 12 and 13.

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Note: The discussions in this Form 10-K contain forward-looking statements
that involve risks and uncertainties. Statements contained in this Form 10-K
that are not historical facts are forward-looking statements that are subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995.
A number of important factors could cause future results of CareCentric and its
subsidiaries to differ materially and significantly from those expressed or
implied in past results and in any forward looking statements made by, or on
behalf of, the Company. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Form 10-K. These
factors include, without limitation, those listed in "Risk Factors" in the
Company's Registration Statement on Form S-4 (File No. 333-96529).

PART I

ITEM 1. BUSINESS

OVERVIEW

CareCentric, Inc. (formerly known as Simione Central Holdings, Inc.)
("CareCentric" or the "Company") is a leading provider of enterprise information
technology systems and related services designed to help home health care
providers more effectively operate their businesses in today's environment. The
Company's focus is to help home health care providers streamline their
operations and better serve their patients. For more than 15 years, CareCentric
has provided comprehensive enterprise solutions to its markets in home
healthcare. Currently, the Company is moving forward to leverage its long
history and success to migrate its product solutions to new technology platforms
that are currently in design. These new technology platforms are being designed
to: create long term scalable technology platforms using state of the art
technologies; streamline real-time customer service, shorten decision cycles for
our customers; add new product solutions; and revolutionize customer options,
while meeting the business requirements of the enterprises served. CareCentric
currently offers several comprehensive software solutions. Each of these
solutions provides a basic set of software applications and specialized modules
that can be added based on customer needs. These software solutions are designed
to enable customers to provide clinical case management, administrative,
operating and financial solutions and payment processing efficiencies. Currently
the STAT product serves hundreds of home medical agencies as it has done for
many years with a full enterprise suite of products. Similarly, MestaMed and
Dezine DME VI services thousands of home healthcare equipment providers at an
enterprise level, streamlining the delivery, recording and payment of services.
More recently, the introduction of three point-of-care products, Smart
ClipBoard, Visit Assistant and Delivery Assistant, are adding real value to the
capture of administrative and clinical data at the time services are offered to
the patient. This complete line of products offers, in management's opinion, the
most complete suite of home healthcare software solutions available from a
single provider.

CareCentric has over 1,500 customers nationwide, including:




o hospital-based facilities; o home medical, IV, infusion and rehabilitation equipment providers;
o free-standing home health care providers; o integrated delivery networks (IDN); and
o alternate-site care organizations; o government-managed organizations.


CareCentric formerly provided comprehensive agency support services (which
included administrative, billing and collection, training, reimbursement and
financial management services, among others) and home health care consulting
services. CareCentric discontinued these lines of business in December 1999 and
September 2001, respectively.

Unless the context otherwise requires, references to CareCentric include
CareCentric, Inc. and its subsidiaries. Our executive offices are located at
2625 Cumberland Parkway, Suite 310, Atlanta, Georgia 30339 and the telephone
number is 678-264-4400.



RECENT DEVELOPMENTS

In January 2002, Dennis Brauckman, Chief Financial Officer of CareCentric,
resigned as an officer and employee of the Company to pursue other personal
interests. In the absence of an employed Chief Financial Officer, the Company
has designated H. Forest Ralph, a financial consultant engaged by the Company
since January 2002, as the Company's principal financial and accounting officer
for purposes of signing this Form 10-K.

In February 2002, Nasdaq notified CareCentric that its shares failed to
meet the Nasdaq Small Cap market's minimum price requirement of $1.00 per share
for 30 consecutive trading days. CareCentric's shares are subject to de-listing
unless, prior to August 13, 2002, the shares close at $1.00 or more for a
minimum of 10 consecutive trading days. If the price qualification has not been
met by that time, depending on whether CareCentric then meets initial listing
criteria, the shares will either be de-listed or an additional 180 calendar
grace period will go into effect. The initial listing criteria include minimum
levels of market value of publicly traded stock and stockholders equity.
CareCentric currently does not satisfy these criteria.

In February 2002, CareCentric reorganized its management structure. This
reorganization was designed to i) streamline management and shorten decision
processes, ii) reallocate funds to the development of new generation product
platforms, iii) create single line functional responsibility and accountability
in the management staff, and iv) reduce unnecessary overhead operating costs.
The reorganization reduced management and cut head count by nearly 25%.
Management believes that this reduction of costs will free up substantial
resources to be reallocated to the development of new systems and the next
generation platforms.

In April 2002, the Company accepted commitment letters from each of Mestek,
Inc. (Mestek) and John E. Reed (Reed), the Company's chairman and the chairman
and chief executive officer of Mestek, to restructure the Company's existing
financing facilities from such parties. The refinancing and recapitalization
transactions between the Company and each of Mestek and Reed are subject to the
satisfaction of various conditions, including approval by the Company's
shareholders at its annual meeting expected to be held in June 2002 and
approvals by Mestek's board of directors and the Company's senior lender. The
transactions contemplated by the commitment letters, if approved, would i)
reduce the total financing facilities of the Company by approximately $0.3
million, ii) extend the guaranty by Mestek of the Company's senior line of
credit with Wainwright Bank through the end of June 2003, iii) refinance
existing debt owed by the Company to Mestek and Reed to provide a deferral of
both interest and principal for a period of two (2) years following the date
that the commitment letters are approved, and iv) restructure certain of the
Company's existing voting securities and warrants held by Mestek and Reed.

INDUSTRY OVERVIEW

Home health care is an important part of the health care industry's
continuum of care services.

Home health care consists of various lines of services, including:




o skilled nursing; o durable medical and rehabilitation equipment and supplies;
o private duty; o intravenous and infusion therapy; and
o physical, occupational and speech therapies; o hospice.


The importance of home health care throughout the 1980's and 1990's was
principally a result of payer choices and significant economic pressures within
the health care industry. In those years, U.S. health care expenditures
increased rapidly. In response to these escalating expenditures, payers, such as
Medicare and managed care organizations, have applied increasing pressure on
physicians, hospitals and other providers to contain costs. During the 1980s and
early 1990s, this pressure 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 grew rapidly as a result of advances in medical
technology, which 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. Historically, this industry has been


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highly fragmented and characterized by small, local providers offering a limited
range of services. With the advent of managed care and integrated delivery
networks (IDNS) and changes in state regulations, home health care providers
sought to expand their geographic scope and range of product and service
offerings. As a result of these developments and legislation and regulatory
pressures, the home health care industry went into a period of rapid growth and
consolidation.

This trend of growth and consolidation began to reverse with the
implementation of the Interim Payment System (IPS) by the Health Care Finance
Administration (HCFA, now known as the Center for Medicare and Medicaid
Services-"CMS") the federal agency that administers Medicare reimbursement for
the home health care industry, pursuant to the Balanced Budget Act of 1997
enacted on August 5, 1997. 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 contained provisions that significantly changed the manner in
which home health agencies and home care services were reimbursed by Medicare.
The legislation created IPS which lowered the cost per visit limitations and
created restrictions on the amount of cost reimbursement per Medicare
beneficiary. In late January 1998, HCFA 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. IPS 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.
Consolidation of the industry continued in 2001, but at a slower pace, as first,
uncertainties about the effect of IPS, and second, the significantly poorer
operating results (especially for home health agencies that were part of an IDN
or hospital-based system or had modified operations to adapt to a managed-care
environment), slowed the pace of home health merger and acquisition activity.

Also, as mandated by the Balanced Budget Act, the prospective payment
system (PPS) was implemented on October 1, 2000. This payment system limits
reimbursement to a fixed amount for all services rendered per episode of care
based upon home health care resource groups (HHRG) indicated by clinical
assessments (OASIS). In addition to the impact of IPS and PPS, the growth in the
number of Medicare members enrolling in managed care plans, which have taken
measures to contain costs, has and will have a significant impact providers'
operations as they strive to maintain profitability. The uncertainty in the home
health care industry concerning these changing regulations, and HCFA's
continuing "clarifications" of the regulations, adversely impacted CareCentric's
business in 1998, 1999 and 2000 as many providers dissolved, conserved cash, cut
back on IT spending or delayed purchasing decisions.

These negative factors increased during the fourth quarter of 2000 as PPS
took effect and home health providers faced greater uncertainty and were further
distracted. These trends continued throughout 2001 as providers worked to
understand the short and long-term effects of PPS. By mid-2001, most providers
understood what they were facing financially and operationally, with many
concluding that with good management, training and information technology,
better financial results would be possible. While HME and IV/infusion service
providers were not significantly affected by IPS or PPS, other cost-cutting
initiatives of HCFA had a deleterious effect on these providers' interest in
upgrading or acquiring information technology products and services. CareCentric
cannot predict how new regulations will impact its business in the future,
although the costs of addressing hundreds of pages of regulations with fixed
implementation dates, last minute changes and post-effective amendments and
"clarifications" in comprehensive and integrated legacy and client/server
systems are extensive and disruptive to product development, deployment and
support operations.

As a result of consolidation and measures to address ongoing cost pressures
and the complexities of PPS, home health care providers will increasingly
require enhanced management expertise, specialized industry knowledge and
standardized financial, operational and clinical data, information, reports and
transactional forms in order to compete. CareCentric 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


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and, as a result, may be unable to provide the detailed information required for
meaningful business analyses and financial and clinical data collection under
the new system. The Company believes providers need reports, real-time and
point-of-care generated data on operational and financial matters and complete,
organized and timely clinical records to effectively treat patients and to
co-manage the cost and quality of the clinical care necessary to achieve
favorable patient outcomes.

Thus PPS, in transferring the cost risk to home health providers already
committed to quality clinical outcomes, creates the opportunity for the Company
and its competitors to work with the providers to develop information technology
software applications that will be useful tools in facilitating best practices,
process improvement, decision support, activity-based costing, and electronic
records and form transmission. The increased pressure that PPS presents to
providers to manage costs, generate profits and manage outcomes greatly
increases the need for new generation software. CareCentric's opportunity is to
provide software that helps the agency provide program continuity for each
patient, detailed clinical support at the point-of-care, better administrative
payment and regulatory record keeping/reporting/processing. Together these
capabilities will enable an agency to better manage costs, stay current, improve
productivity and patient outcomes and ultimately profitability through enhanced
revenues and lower costs.


MARKET POSITION

CareCentric's objective is to enhance and grow its position as a major
provider of comprehensive and integrated information technology solutions,
focused on the home health care industry. The principal elements of
CareCentric's business and product strategies are described below. During 2000
and 2001, significant progress in the execution of many of the strategies was
made. Specifically, the absorption of The Smart Clipboard(R) and Outcomes
Planner products acquired in 1999 combined with the acquisition of the
MestaMed(R) and HMExpress products through the merger with MCS, signed in May
1999 and completed in March 2000, has provided an increased breath of products
and services capable of enhancing CareCentric's market position. In 2001, the
Company continued to augment its existing products, to develop and stabilize the
Smart Clipboard(R) through Release 3.1, to create a "gateway" from the Smart
Clipboard(R) to its existing STAT 2 and MestaMed HHA billing systems, to upgrade
and re-release its TEMS telephony system, to release a windows based PharmMed IV
pharmacy system as a specialized module of MestaMed, to introduce the Visit
Assistant, a PDA point-of-care device and to introduce Delivery Assistant, a PDA
point of service device. Accordingly, the products and services that have become
part of CareCentric's offerings to the industry have been included in the
current Core Software Solutions, Specialized Software Product Solutions,
Clinical Content Options and Service Solutions sections below.


BUSINESS STRATEGIES

Under the guidance of John R. Festa, the Company's new Chief Executive
Officer, CareCentric has embarked upon an aggressive new strategy in 2002,
focusing on the future of the Company. CareCentric will continue to leverage its
deep domain knowledge, systems knowledge, and proven product offerings, while
adding new services and capabilities. Current examples include the introduction
of innovative PDA based solutions, HIPAA related system enhancements, alliances
to provide HIPAA and asset management consulting services and the industry's
first electronic Certificate of Medical Necessity product (eCMN). The eCMN
solution combines customers' existing investment in CareCentric software with
the latest technology available on the Internet.

Recently, the Company made a major step forward on its strategy by
launching several new products to maintain a leadership position with its
current line of products. Visit Assistant provides small and medium-sized home
health agencies with a solution to point-of-care data capture at attractive
pricing levels. Delivery Assistant, currently in beta testing, is expected to
provide a similar opportunity for the home equipment market. At the higher end
of the product spectrum, Smart ClipBoard(R) 3.1 is expected to provide upgraded,
comprehensive clinical, administrative and reimbursement capabilities to
streamline productivity, speed up reimbursement, provide clinical data
continuity and meet current and future regulatory requirements. PharmMed adds


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another key clinical and administrative product offering to service the home
pharmacy market. These products, combined with the new eCMN offering and a more
comprehensive telephony offering, continue CareCentric's central mission as a
complete and wide-ranging home health software solution provider.

Recently, the Company successfully completed a reallocation and
reorganization of resources representing the first step in its new strategy. Key
benefits include:

o bringing its key business managers closer to direct customer contact,
o driving more development resources to focus on the new product
platforms,
o reducing layers of management,
o realigning along functional lines to improve productivity and
institutionalization of processes across product lines,
o assigning technical support directly within the customer service
department, and
o empowering all levels of the organization with greater decision making
authority.

These changes have created and intensified an existing commitment to
improve customer service and responsiveness. Activities will continue throughout
the year to review and create a "best practices" environment reaching all
functional areas of the Company. More importantly, management believes that
these changes position CareCentric for rapid and aggressive development and
deployment of its new generation product platforms. Leveraging off of its
existing comprehensive product offerings, management believes that the
reorganization will allow faster decision making, decentralized parallel
execution of plans and shorter time to market solutions for CareCentric's new
product platforms.

CareCentric management believes that CareCentric's products are regarded by
many home health care providers as the most feature rich in the industry. In the
coming years, CareCentric will invest heavily in new delivery and technology
platforms for servicing its customers in creative new ways, combining increased
flexibility, proven technology, scalable and open/ubiquitous platforms.

The rapid evolution of computer technology provides for "faster to market"
products and more open platforms, which use more industry accepted technology
tools that can remain ever flexible to meet future needs. During the next two
years, CareCentric will devote substantial capital and human resources to take
advantage of these new technologies. CareCentric fully expects to provide
seamless migration to its new technology platforms while maintaining the
features and functions its customers so highly value today. In addition, this
platform will provide customer specified configurations allowing scale,
function, and financial characteristics to be designed and determined on an
individual basis. Significant cost efficiencies will continue to be recognized
through the use of HIPAA standards and the Internet.

CareCentric will continue to sell its current and future products through a
direct sales force and through industry partners in related fields. The
Company's strategy is to make these new product offerings available to a wider
customer base than it currently services today as a result of increased delivery
efficiencies and a more flexible cost structure. CareCentric will seek to keep
all products current and innovative by maintaining a constant communication with
the marketplace, a relentless focus on regulatory changes and technological
improvements.


THE CARECENTRIC SOLUTIONS

CareCentric offers a comprehensive set of product and service solutions to
address the changing needs of home health care providers through information
technology software systems, training, technical, deployment and customer
support. CareCentric'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
business decisions, more cost effectively operate their businesses, generate
more revenues and compete in a managed care and/or PPS environment. Management
believes these information technology solutions should help home health care
providers:

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o improve revenue opportunities
o reduce costs, improve cash flow and build financial strength
o accelerate payment reimbursement
o co-manage cost and quality, establish outcomes-based clinical practice
and empower clinicians to make better decisions at the point-of-care
o maximize return on technology investment through comprehensive product
deployment services to optimally configure and run the application
o increase understanding of key industry issues and optimal product
usage with specialized training receive real time response to system
usage issues through in-depth customer support and call tracking
o leverage best practice solutions against a large national base of
current users

CareCentric's key solutions provide a comprehensive set of home health
enterprise software:

o STAT services the home health agency market and tracks patient visits,
reports on action, follows regulatory requirements, and accounts and
provides for reimbursement of services for the home health agency.
o MestaMed and Dezine DME VI service the home medical equipment markets
with a complete suite of accounting, regulatory, tracking, reporting,
invoicing and utilization management systems for agencies of all
sizes.
o Smart ClipBoard services the high end point-of-care market for the
acquisition of clinical, accounting, administrative, reimbursement and
regulatory data.
o Visit Assistant also services the point-of-care market with a less
expensive, less comprehensive data acquisition product to service the
moderate size to smaller home health agency.
o Delivery Assistant is analogous to the home healthcare point-of-care
products and services the home equipment market in capturing delivery
data for accounting, tracking and reimbursement purposes.
o Remaining product offerings include TEMS (i.e. telephony data capture)
and eCMN which provide critical ancillary products to complete the
suite of critical home health enterprise applications.

PPS, in transferring the cost risk to home health providers already
committed to quality clinical outcomes, creates an opportunity for the Company
to extend its current offerings and to develop additional software applications
and related services that will be tools in facilitating new revenues, faster
pay, best practices, process improvement, decision support, activity-based
costing and efficient, electronic transmission of medical records and forms.
Patient information, which is the life-blood of quality health care, must be
accurate, organized, efficiently captured, available and affordable. Investment
in information technology is more critical in home health care because the
information needs both to be shared and secured while the users are both
distributed and disconnected. CareCentric is directing its information
technology solutions at these opportunities. CareCentric plans to package and
customize information technology solutions to serve the individual needs of
customers.


INFORMATION SYSTEMS

CareCentric offers comprehensive and flexible software solutions to address
the information processing needs defined by a number of unique home care market
segments including home medical equipment suppliers, infusion pharmacy
providers, home health agencies, hospice service providers and integrated
delivery networks. Each of CareCentric's software products offers a suite of
core application modules that address the financial, administrative, payment,
regulatory and operational, and in some cases, clinical requirements of home
health care providers. These applications are designed to:

o Generate revenue
o Promote improvement in the efficiency of customer processes and
operations
o Operate in a number of popular technology environments


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o Speed reimbursement for services
o Improve patient care
o Provide scalability and growth options
o Facilitate open data access
o Produce management reporting and decision support tools
o Facilitate regulatory compliance


CORE SOFTWARE SOLUTIONS

CareCentric's current core software solutions are as follows:

STAT2

STAT2 is designed as a stand-alone complete, flexible and fully integrated
home health agency management system. The STAT2 core set of software
applications includes:



o Client Intake o Billing/Accounts Receivable
o Treatment Plans o General Ledger
o Employee Tracking o Accounts Payable
o Scheduling o Payroll
o Electronic Transmission and Remittance o Hospice


This core set of applications and their underlying features and functions
can be enhanced with specialized features including, telephony (through the TEMS
system described in Specialized Product Solutions below) and SQL reporting. The
STAT2 system allows a customer to exchange clinical and financial information
with external systems such as demographics and patient master files from
affiliates or referring institutions in either a real-time or batch mode through
HL-7 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. The STAT2 system is further enhanced by
the use of the Smart Clipboard(R) point-of-care system and Visit Assistant.
SmartClipboard(R) and Visit Assistant are discussed further below.

MestaMed(R)

MestaMed(R) is a stand-alone fully integrated billing, accounting and
inventory control system for providers of home health services including:

o Home Medical Equipment & Supplies o Rehabilitation Equipment
o Home Health Care o Hospice Services
o Infusion and IV Therapy o Retail Sales

MestaMed(R) customers are home health care providers who use MestaMed(R) to
track the delivery of home medical equipment and related supplies and infusion
pharmacy, skilled nursing and hospice services to patients and to meet the
complex requirements necessary to obtain reimbursement from Medicare, Medicaid
and other third-party payers. CareCentric believes MestaMed(R) is the only
system that fully integrates information on operational and financial management
for multiple lines of service homecare providers.

MestaMed(R) is in use nationwide by hundreds of organizations, from
independent providers to large, regional and national companies. In practice it
has proven to be well suited to meet the needs of larger, multi-location home
care providers. MestaMed(R) is designed to be cost-effective and scalable and to
readily expand to meet future information processing requirements and provide
management flexibility. Multi-service providers can de-centralize certain


7


operations, such as intake, by location or line of business; and centralize
other functions, such as billing and collections, across locations and business
lines.

A number of additional add-on features and supplemental modules can be
optionally purchased to satisfy the information technology requirements of a
particular home care provider. Delivery Assistant, a point of delivery PDA
solution, is the latest example value-driven add-on systems to MestaMed(R).
MestaMed(R) 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(R) is available on a
variety of hardware platforms and operating environments including Open VMS,
UNIX, Windows NT, AIX and various Intel, Alpha and RS 6000 computer systems.

DME VI

DME VI is a PC-based software application for mid-size to large home
medical equipment and medical supply businesses. The DME VI core set of software
applications includes:

o Order Entry o Billing
o Inventory Management o Accounts Receivable
o General Ledger o Purchase Orders

DME VI features add-on modules such as retail sales and bar coding. The DME
VI software provides easy to use data import/export capabilities. DME VI
customers are also afforded real-time customer support coverage and services.
DME VI was purchased in 1997.

HMExpress(TM)

HMExpress(TM) 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. HMExpress packages years of research and development into an
affordable out-of-the-box HME solution.

HMExpress(TM) features HME patient intake and order processing, equipment
pickups and exchanges, rental equipment management, recurring rental billing,
capped rental processing, CMN printing and tracking, Medicare Form 1500 bill
printing, private-pay statements, Durable Medical Equipment Regional Carrier
(DMERC) Electronic Claims Submission, billing system, accounts receivable
system, perpetual inventory, management reporting and multi-branch processing.
HMExpress(TM) can grow with a business or customers can upgrade to other
compatible CareCentric products.


SPECIALIZED SOFTWARE PRODUCT SOLUTIONS

CareCentric offers the following specialized software solutions:

The Smart Clipboard(R)

The Smart Clipboard(R) is a point-of-care clinical information system
designed to enable home health agencies to compete effectively in the changing
health care delivery environment. Originally conceived 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(R) 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(R) software suite was released
in 1996 and has been significantly enhanced every year since. It is a


8


Windows-based client/server application that uses replication technology to
maintain synchronized subsets of the master database in each tablet computer for
data collection and validation at the point-of-care. This facilitates
disconnected, distributed operations that characterize the information and
operational needs of home health operations spread over large areas or across a
region. Home health agencies that install Smart Clipboard(R) and use its
features with a well-trained clinical staff generally experience a significant
return on investment due to the automation of previously manual tasks and access
to electronically linked information replacing some aspects of paper-based
systems. The Smart Clipboard(R) provides home care nurses, therapists, and other
clinicians with a means to capture complete patient information and assist in
making timely, informed clinical decisions at the point-of-care. The Smart
Clipboard(R) application was created to organize all clinical information in a
structured, interrelated fashion that automatically links problems to outcomes,
and outcomes to interventions and actions.

By using The Smart Clipboard(R), a home health agency has a tool to 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. Through a relationship with Outcome Concept Systems, the
system provides OASIS and ORYX data entry, validation, submittal and
benchmark-reporting capabilities as required under federal regulations and JCAHO
industry standards. The Company designed The Smart Clipboard(R) system to work
in conjunction with the STAT2 system through our proprietary data gateway to
give home health agencies seamless data exchange from clinical to operational to
financial functions and back as indicated or required. The gateway was completed
and refined in 2001. A data gateway to the comprehensive integrated
MestaMed(R)HHA system is in the final stages of development.

Visit Assistant(R)

CareCentric Visit Assistant is an intuitive, easy to use, hand-held
point-of-care device. It performs key admission and patient care functions
necessary for improved cash flow while eliminating manual data entry and
increasing visit data accuracy. Using personal digital assistant (PDA)
technology, Visit Assistant is the latest in CareCentric's line of mobile
computing solutions. Visit Assistant is based on a Palm Operating System(R)
device. Therefore, it is much more cost effective for the smaller agency. Visit
Assistant provides an excellent alternative tool for Smart Clipboard(R).
Management believes that the home health agencies that find Smart Clipboard(R)
expensive or too comprehensive for their needs see Visit Assistant as an
attractive lower- end alternative. Conversely, management believes that the home
health agencies which view the capabilities of Visit Assistant as too limiting,
appreciate the features and functional depth of Smart Clipboard(R). As a result,
management believes that the two products complement each other very well.

Visit Assistant enables improved clinical processes through the ability to
collect OASIS, 485, Assessment and Clinical Notes in the field. With Visit
Assistant, agencies can perform regulatory functions to generate 485, calculate
HHRG and submit OASIS data sets validated at the point-of-care to ensure
consistency and compliance. Visit Assistant is integrated to the STAT 2 clinical
and financial modules for billing and operational efficiency. Integration into
the MestaMed HHA module is planned for the second quarter of 2002. While not
nearly as feature rich as Smart Clipboard(R), Visit Assistant provides an
attractive array of capabilities at a greatly reduced cost.

Visit Assistant is a business alliance, based on a license and distribution
agreement with a vendor company, Golden Rule Software, Inc. Golden Rule
originally designed a generic version of the base point-of-care product and
offered it as a non-integrated, stand alone point-of-care capture device.
CareCentric has integrated the product to its STAT BackOffice, modified its
parameters and is reselling the product as its base solution to home health
agencies.

Delivery Assistant(R)

CareCentric Delivery Assistant is an automated inventory control solution
for home medical equipment providers. Asset control including serialized
inventory tracking can now be performed at the point of delivery. Using personal
digital assistant (PDA) technology, Delivery Assistant is the first step in
CareCentric's next-generation of mobile computing applications. Fully integrated
to the MestaMed management system, the Delivery Assistant enables delivery
technicians to scan bar-coded orders, supplies and equipment information to
confirm delivery transactions. In addition, the Delivery Assistant captures


9


insurance verification information and cash receipts. Daily activity can be
automatically transferred to the MestaMed system for inventory control and
operational efficiency. Delivery Assistant is a key addition to the MestaMed
Home Equipment line of products. It provides valuable inventory, delivery and
payment needs that speed the delivery, reduces backlog, increase productivity
and speeds reimbursement.

OASIS/ORYX Reporting and Benchmarking

In 2000, CareCentric entered into a Value Added Retailer agreement with
Outcome Concept Systems, Inc. (OCS), establishing OCS as CareCentric's exclusive
ORYX and OASIS benchmarking and outcomes solution partner. This agreement will
enable CareCentric to offer the complete suite of OCS products to all
CareCentric customers who use outcome measures to define patient care goals. The
OCS products allow home healthcare companies to manage, report and analyze
clinical data. HCFA has mandated the collection of a standardized set of patient
assessment data (OASIS). Several accreditation organizations such as JCAHO
require the collection and submission of key assessment indicators (ORYX) as
well. The OCS-OASIS(TM) program incorporates JCAHO accepted measures and OASIS
requirements into one program for data input, real-time, desktop reporting and
graphing, and online access to quarterly benchmarks. 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. The OCS-OASIS(TM)
program has been incorporated into The Smart Clipboard(R) system to allow OASIS
and ORYX data entry and validation at the point-of-care.

PharmMed(TM)

PharmMed (TM) is CareCentric's enhanced, comprehensive, Windows-based, home
care pharmacy software. PharmMed (TM) works in conjunction with the MestaMed(R)
Management System to fully automate many processes unique to home infusion
therapy providers, including the billing of HME products and tracking of related
assets. A Windows-based application that adapts to both centralized and/or
decentralized operations, PharmMed (TM) supports multiple locations and offers
streamlined prescription processing, enhanced clinical documentation, improved
operations to facilitate more efficient workflow, and improved reporting to aid
regulatory compliance. PharmMed(TM) seamlessly interfaces to MestaMed's back-end
enterprise software fostering a completely integrated solution for the customer.

TEMS (Telephone Entry Management System)

TEMS is a Windows-based software application that enables home care field
employees to record baseline timecard and visit information using standard
touch-tone telephones. It was designed as a simple, low-cost means for capturing
key information at the point-of-care. TEMS confirms staff visits through caller
identification. Once collected, information is automatically exported into an
agency's payroll and billing applications. TEMS is well suited for use by
paraprofessionals or home health aides. TEMS, under a patent licensed from
MCI/WorldCom(R), uses telephones like terminals to affordably document baseline
visit, mileage, payroll and billing information. TEMS interfaces directly into
the STAT enterprise software to provide a fully integrated solution to the Home
Health Care provider for data capture, reporting and billing.


CLINICAL CONTENT OPTIONS

SmartPlans

The SmartPlans suite of patient care plans and assessments allows home
health agencies to implement paper-based and electronic clinical data collection
processes by defining treatment plans for a variety of medical diagnosis-based
conditions common to skilled nursing, hospice services and therapies. Over 30
plans of care and supported assessments facilitate immediate implementation of a
structured clinical process.

10


Outcomes Planner System

The Outcomes Planner System (OPS) is currently available to CareCentric
customers in electronic form and is designed to give agencies a
teaching-oriented set of clinical care pathway options. CareCentric's Outcomes
Planner System is a disease-specific, clinical care path and care plan
documentation package that includes discipline-specific OASIS and ORYX
assessments for skilled nursing. Compliant with both OASIS and ORYX, OPS defines
and measures outcomes for each visit or patient encounter and provides
documentation along critical paths for management of a variety of medical
conditions. Modules for physical, occupational and speech therapy were developed
in 2001 and are offered in Release 3.1 of the Smart ClipBoard(R) system. OPS is
a highly effective tool for use under PPS. Home health agencies can use OPS to
assist them in meeting the continuing challenge of fewer dollars, sicker
patients and shorter lengths of stay. OPS enables a home health agency to
sharpen its management focus while ensuring quality of patient care to:

o access disease-specific clinical care pathways based on best standards
of care
o document visits based on standardized, measurable clinical assessments
o investigate care behavior that affects patient outcomes and PPS
reimbursement
o provide payers/surveyors with documentation of quality care
o ensure compliance with the approved Outcome-Based Quality Improvement
Model (OBQI)

Regulatory Enhancements

CareCentric will continue to expend professional resources to address the
healthcare-related regulatory issues currently facing home care providers
including:

Prospective Payment System (PPS). As a result of the Balanced Budget Act of
1997 and the OCESSA Act of 1999, implementation of a prospective payment
system (PPS) was mandated for home health agencies. CareCentric provides
educational and consulting services as well as clinical and software
modifications necessary for PPS compliance.

HIPAA. The Company expects that the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) will necessitate security, privacy and
electronic transmission-related enhancements to current software products.
As specific implementation regulations, guidelines and timetables are
promulgated and finalized, CareCentric will respond by allocating the
resources it believes will be needed to gain compliance for its own
employees, product and service offerings and its operations.

Through March 2002, CareCentric has achieved the following with respect to HIPAA
compliance:

o CareCentric Internal HIPAA Compliance Assessment

All internal CareCentric processes related to management of Protected
Health Information (PHI) have been assessed to ensure that current operations
comply with HIPAA privacy and security requirements. Educational HIPAA awareness
sessions have been conducted for all employees and key contractors. In addition,
on-going employee communication and education of HIPAA-related issues is being
facilitated through the internal corporate Intranet. Other active projects
include:

1. Standardization of policies and procedures across all service centers.
This will protect the privacy and security of customer PHI data
disclosed to CareCentric employees in the course of customer support
and system integration's, installations, upgrades and migration.
2. Modification of selected internal operating policies and procedures to
better formalize HIPAA-specific language.
3. Improvement in the infrastructure supporting internal communications
network security and reliability.
4. Construction of Chain-of-Trust language to supplement existing support
service agreements.
5. On-going internal HIPAA education and deployment.

11


The Company's objective remains fixed on ensuring PHI confidentiality and
trust in the Company's relationships with employees, customers and other
business partners.

o HIPAA Electronic Transaction Format and Coding Standards

CareCentric remains committed to product enhancements that will facilitate
customer compliance with HIPAA EDI and coding standards before they become
effective. HIPAA EDI changes will be included in future release updates at no
cost to customers with licensed EDI modules as a function of the customer's
recurring maintenance contracts. Significant progress has been achieved on
product development activities required to meet HIPAA ANSI format standards for
electronic transaction formats. Claims transactions (ANSI 837
Institutional/Professional), Payment/Remittance Advice transactions (ANSI 835),
and the NCPDP claims transaction formatting software projects have been
completed for most products and are ready for payer testing. CareCentric has
contacted payers to obtain test schedules and will commit to test as early as
possible.

CareCentric products currently meet national coding standards. However code
sets (ICD-9, NDC, CPT-4, HCPCS) continue to be under review by HHS. National
identifiers for Health Plan ID and Individual ID remain undefined by HHS.
CareCentric will remain close and respond to any developments that result in
changes to these code sets.

o HIPAA Privacy and Security Regulations

The privacy and security components of HIPAA regulations will pose a
significant challenge for many providers, particularly those who have not begun
their HIPAA implementation activities. Customers must be knowledgeable
concerning HIPAA regulations, on going "clarifications," and amendments in order
to develop new privacy and security policies and procedures for their unique
facilities and operations. For HIPAA compliance, particular emphasis must be
focused on policies and procedures related to the collection, storage, access,
manipulation, disclosure, and destruction of PHI.

CareCentric's current products already contain many tools and features that
will be of great value to customers as they implement their privacy/security
compliance strategies. CareCentric is expanding the scope of many of its
products to include 'optional' features including, but not limited to, automatic
log-off, automatic password expiration, and PHI audit capabilities.

o HIPAA Survey Questionnaires

To date, CareCentric has received and responded to a significant number of
HIPAA survey questionnaires from customers and prospects needing to understand
the details of how and when our products will meet HIPAA requirements. The
CareCentric HIPAA team employs a process that facilitates a prompt and
qualitative response to these surveys. Additionally, CareCentric is developing
fully secure options for all customers to meet the HIPAA requirements in the
release of its new generation product platforms.

CareCentric's HIPAA Team has developed a HIPAA Standard Response Model for
each of our core products. These documents provide general information
concerning CareCentric's HIPAA plans, as well as FAQ's concerning HIPAA EDI,
Privacy and Security issues. The CareCentric HIPAA team monitors all internal,
external and regulatory issues related to HIPAA, evaluates the requirements on
CareCentric and manages the development and implementation of CareCentric
responses in product systems and process to meet customer needs.

See also the section below entitled Government Regulation and Health Care
Reform.


12


SERVICE SOLUTIONS

Software Services

CareCentric believes that providing comprehensive software services to customers
is critical to its success in the home health care industry. CareCentric employs
in excess of seventy-eight (78) professionals dedicated to this effort who
provide the following services:

o Implementation: Implementation services provide a monitored approach
to implementing and supporting a CareCentric software system. Services
include a formal implementation plan, periodic review of the schedule
and on-going progress with customer management, and coordination of
CareCentric installation, training and system integration resources.
o Training: Training and education services are offered on a continuing
basis to existing customers either at the customer's site, at
CareCentric classroom training facilities in Pittsburgh, Pennsylvania;
Pompano Beach, Florida and Norcross, Georgia or at a remote facility
in conjunction with major industry trade shows.
o Data Conversion Services: Data conversion services are offered on a
fee for service basis to those customers that require electronic
creation of certain databases required for use of with CareCentric
Software solutions. This critical aspect of sales and implementation
provides the customer with the critical technical and operational
support to effect a smooth, accurate and comprehensive data transition
to CareCentric's platforms.
o Software Support: CareCentric offers telephone support Monday through
Friday, emergency telephone support evenings and weekends. The support
is available Monday through Friday at various hours tailored to the
different types of healthcare operations serviced by the product.
Weekend support is available on an on-call basis by technical staff of
the Company. Customers can purchase added support. In these cases key
support personnel are on call to handle critical issues during
extended hours. Support includes covered training questions, system
bugs, non-compliance issues, system breakdowns and diagnostics of
critical functions to keep the customer operational. The Company also
provides software maintenance releases on a periodic basis to address
non-conforming software, certain regulatory updates and certain
product features and improvements. Maintenance Releases of software
are made available to customers periodically. These software
maintenance releases include unspecified improvements and regulatory
updates. These updates do not include major functional or computer
platform changes that would be offered to customers as new product
sale opportunities.
o Technical Consulting: CareCentric provides software customization and
integration, technical audits of the customer's information systems,
integration and network planning and strategic and tactical
information systems planning.
o Custom Programming: CareCentric provides customer specific changes for
its products on a fixed fee or per hour basis.
o Data Migration Services: CareCentric provides customer data migration
routines to support transitioning from a competitive software product.

Software support services represents a major source of recurring revenue, as
these services are provided through monthly, quarterly and annual renewable
maintenance contracts which provide access to customer support, software
releases to respond to changes in regulatory policies, and certain unspecified
product improvements. The software at customer installations that do not have
maintenance agreements rapidly becomes obsolete. Other services are generally
charged on a time and materials usage basis. Travel costs are billed separately.
CareCentric technical personnel also provide on-site and on-call technical
support as requested.

Business Consulting Services:

This segment was discontinued at the end of the third quarter of 2001.

13


CareCentric has over 1,500 customers nationwide, including:

o hospital-based companies;
o home health care providers;
o alternate-site care organizations;
o home medical equipment providers;
o integrated delivery systems;
o government-managed organizations; and
o home infusion therapy providers.


SALES AND MARKETING

CareCentric, led by a Senior Vice President of Sales and Marketing, markets
its information technology systems and services through a direct national sales
force led by two Vice Presidents, one focused on home health agencies and the
other focussed on home medical equipment and IV pharmacy providers. Account
executives numbered twelve (12) at March 22, 2002. An inside sales force of six
(6) handles additional licenses, add-on modules, accessories, CBT's, forms and
supplies sales. CareCentric 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, CareCentric 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. CareCentric also maintains an active web site promoting important news,
customer training events, web based educational opportunities and
demonstrations.


BACKLOG

CareCentric had backlog of $3.2 million at December 31, 2001, $4.1 million
on December 31, 2000, and $1.0 million on December 31, 1999. 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 CareCentric, 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,
CareCentric 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

SMART CLIPBOARD(R) TECHNOLOGY PLATFORM. CareCentric's Smart Clipboard(R)
point-of-care clinical product is built upon a Client/Server Remote Distributed
Relational Database technology platform. Smart Clipboard(R) utilizes iAnywhere's
(Sybase) relational database engine, Adaptive Server Anywhere, for its rich
feature set and replication support. Data replication is the primary method of
data transport and synchronization between disconnected remote devices and the
centralized data repository. Several third party software modules provide HL7
messaging and OASIS verification services to Smart Clipboard(R) through COM/DCOM
interfaces. Smart Clipboard(R) supports HL7 interfaces to the MestaMed(R) and
STAT back office systems using TCP/IP for data transport. The Smart Clipboard(R)
product is currently deployed on Microsoft's Windows operating systems platforms
with the various software components utilizing NT Server, NT Workstation or
Windows 98 as required. User interaction with the system is through a
Windows-based Graphical User Interface (GUI), with a pen-based user interface
provided at the point-of-care.

14


THE STAT2. The STAT2 system is a MSM-based solution and operates on multiple
operating systems, including Windows, SCO-UNIX and AIX. MSM is a reliable,
hierarchical database that is very fast and requires low maintenance. MSM is
also a programming language that was designed to efficiently manage the large
amounts of text that the medical industry uses. STAT2 is a back-office system
that allows a customer to exchange clinical and financial information with
external systems in either an immediate connection (using the HL7 standard) or
by accumulating data to transmit later in batch mode.

THE DME VI. The DME VI software system is a complete billing and operations
management system that addresses the business needs of the Home Medical
Equipment (HME) market. The solution is a PC based, Windows compliant software
system that operates on a variety of platforms, including Windows 95 / 98,
Windows NT, and Windows 2000. The software is scaleable, and can run as a
separate stand-alone system or as part of a local area network (LAN) or wide
area network (WAN). The DME VI software uses the highly regarded Pervasive SQL
2000 database software to ensure the accuracy and integrity of the data.

MESTAMED. The MestaMed software system is a completely integrated billing,
operations and financial management system for the Home Medical Equipment (HME),
Home Infusion Therapy (IV) and/or Home Nursing (HHA) market. The MestaMed(R)
solution can be deployed in an integrated health care delivery environment, or
implemented as a stand-alone solution in any of the operational disciplines.
MestaMed(R) can operate on multiple operating systems including Window NT, Unix,
AOIX or Open VMS. The system fully supports local and wide area networks through
TCP/IP network protocol. The MestaMed(R) product is powered by the Synergy
Development Tool set, a comprehensive cross-platform set of advanced tools that
enable programmers to rapidly create and deploy system-independent, extensible
Enterprise solutions. Within this Tool set is the xfServer Plus component, a
robust, scalable server that enables access to remote data and logic. This Tool
set provides MestaMed(R) with an integral open-ended, scalable capability which
provides a seamless gateway to the very latest technologies.

THE VISIT ASSISTANT(R). The Visit Assistant (VA) operates on the PALM operating
system. The handheld units synchronize to any PC on the same network where the
Visit Assistant server resides. The VA server uses an SQL database and users can
work with the synchronized handheld data from a workstation. Visit Assistant
data is exchanged with the back-office STAT2 product, eliminating dual data
entry. Visit Assistant is a joint venture, based on a license and distribution
agreement with a vendor company, Golden Rule Software, Inc.. Golden Rule
originally designed a generic version of the base point-of-care product and
offered it as a non-integrated, stand alone point-of-care capture device.
CareCentric has integrated the product to its STAT BackOffice, modified its
parameters and is reselling the product as its base solution to home health
agencies.

THE DELIVERY ASSISTANT(R). The MestaMed(R) Delivery Assistant is a handheld
point of delivery system. The solution is deployed on a Personal Data Assistant
(PDA) using the Palm operating system. The delivery assistant is fully
integrated with the MestaMed(R) System to automatically confirm delivered
orders. Information is shared between the PDA and MestaMed(R) Host system via
HTTP requests from a JAVA Virtual Machine running on any Windows 95/98, Windows
NT or Windows 2000 client in the network.

THIRD PARTY SOFTWARE. CareCentric's systems are dependent upon many third-party
software and hardware products and related services and alliances with other
product and development partners. There can be no assurance that financial or
other difficulties experienced by such third-party vendors will not have an
adverse effect on CareCentric's abilities to provide its systems or that
CareCentric 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 software licensed from third parties falls into one of four
categories consisting of operating systems, medical content, report writer and
data base manager. All of CareCentric's products use these third-party software
products to some varying degree. The software is either embedded in
CareCentric's software prior to sale or accessed by CareCentric's software as an
external data file. Fees charged by the third-party software vendors are passed
on to CareCentric's customers in the license fees, annual fees or maintenance
fees charged by CareCentric.

15


RESEARCH AND DEVELOPMENT

CareCentric maintains a staff of approximately thirty-four (34) product and
project managers, programmers, data base engineers and analysts, systems and
application analysts, quality assurance analysts and documentation specialists
who monitor developments in the computer software and health care industries and
who continuously work to enhance and develop CareCentric's systems.
CareCentric's research and development expenses were approximately $6.1, $6.2,
and $1.1 million for the years ended December 31, 2001, 2000, and 1999,
respectively. As a percentage of total net revenues, research and development
expense increased to 30.4% in 2001, from 28.3% in 2000 and 6.3% in 1999.

CareCentric continuously engages in enhancing selected features of existing
products to help its customers improve workflow and operational and clinical
processes. The Company believes that 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
(PPS) and the regulatory climate surrounding the HIPAA initiatives.

Focus projects driven by the desire to support CareCentric's value-added
philosophy and to respond quickly to the needs of its customers include the
HIPAA EDI suite of products, HIPAA Privacy and Security add-ons, API development
to support innovative, web-enabled eCMN solutions, clinical content development
and platform upgrades. These projects represent a sampling of the types of
continuing initiatives that will occur throughout the current and future
development cycles.

CareCentric recognizes the need to respond to the rapid technological
change that is occurring in the software and healthcare industries. CareCentric
has implemented a multi-disciplinary approach to product development based upon
the Rational Unified Process, a risk-mitigation driven, iterative software
engineering process that management believes is reliable, measurable, repeatable
and scalable. Management believes that this industry-standard, proven,
recognized development methodology will ensure greater product development
success and will improve CareCentric's ability to partner and communicate with
other leading software development entities.

CareCentric's recent product add-on projects include delivery of open,
component-based architectures (as evidenced by the recently deployed, JAVA-based
Delivery Assistant product). Recent development resource acquisitions, expected
to continue during 2002 and 2003, bring new technical talent to the Company to
ensure that its new platforms represent architectures that are the most
flexible, scalable and ubiquitous in the industry.

A large development team remains in place to add new features to the
Company's existing products while a new product team builds off the Company's
existing base to develop the technology platforms for future products.


COMPETITION

Competition in the market for home health care information systems and
services is intense and is expected to increase. CareCentric believes that the
primary factors affecting competition are:

o features/ functions
o technology platforms
o system performance and reliability
o ability to operate in a changing regulatory environment
o customer support
o service
o system flexibility and ease of use
o potential for providing feature enhancements
o delivery mechanisms
o reputation


16


o financial stability
o pricing

CareCentric believes it is a strong competitor in features/functions,
system performance and reliability, ability to provide regulatory enhancements,
customer support and potential for enhancements, thus providing the customer
with an excellent return on investment. CareCentric provides customer support
through a real-time, telephone-based system that has proven effective in
satisfying customer needs. CareCentric has a competitive advantage in the
service area due in large part to a tenured staff and a deeply experienced
installation and training team leading to stronger customer relationships.
Pricing in this industry is very competitive, with no particular company,
including CareCentric, having a clear advantage. CareCentric's reputation is
tied mainly to the performance of each of its products and the deep industry
knowledge and feature/function of the products.

Management believes that CareCentric's name recognition has been expanding
since its debut in January 2001. Advertising of the name, new logo and tag line
- -Achieve Your Potential--continued throughout 2001 and is intended to increase
the Company's visibility in the market place. Management believes that the
market still tends to identify more with CareCentric's products - MestaMed, STAT
2, Smart Clipboard(R), PharmMed, TEMS, versus the company name.

CareCentric'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 CareCentric's markets. CareCentric believes its most
significant competitors are:

o Delta Health Systems (a division of Shared Medical Systems Corp. owned
by Siemens);
o McKesson HBOC;
o Patient Care Technologies, Inc. (partially owned by Meditech);
o Home Care Information Systems, Inc. (owned by Misys PLC);
o 3M;
o Beyond Now Technologies;
o FastTrack Healthcare System; and
o Computer Applications Unlimited.

Increased competition could result in new products and technology, price
reductions, reduced gross margins and loss of market share, any of which could
materially adversely affect CareCentric's business, financial condition and
results of operations. In addition, many of CareCentric's competitors and
potential competitors have significantly greater financial, technical, product
development, marketing and other resources and market recognition than
CareCentric. Many of CareCentric'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, CareCentric'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 CareCentric. There can be no assurance
that CareCentric will be able to compete successfully against current and future
competitors or that competitive pressures faced by CareCentric will not
materially adversely affect its business, financial condition and results of
operations.


PROPRIETARY RIGHTS AND PRODUCT PROTECTION

CareCentric owns the copyrights on its STAT2 system, the DME VI acquired
from Dezine, The Smart Clipboard(R) system acquired in its 1999 merger with
CareCentric Solutions, Inc. (CSI) and the MestaMed(R), PharmMed and HMExpress
products acquired in its 2000 merger with MCS, Inc. (MCS). CareCentric 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 CareCentric or the


17


precautions taken by CareCentric will be adequate to prevent misappropriation of
CareCentric'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
CareCentric's technology by third parties. Any infringement or misappropriation
of CareCentric's core proprietary software could have a material adverse effect
on CareCentric. Although there has been no significant litigation with respect
to these claims, 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.

CareCentric 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 CareCentric will prevail in any infringement litigation in
which it becomes involved. 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 CareCentric's business, financial
condition and results of operations. Adverse determinations in such claims or
litigation may require CareCentric 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 CareCentric'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 CareCentric's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in CareCentric's systems and services. CareCentric cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.

The office of the Inspector General of the Department of Health and Human
Services had identified in its Work Plan for fiscal Year 2001 several projects
within the home health industry, which were the focus of the Inspector General's
scrutiny in fiscal year 2001. Each year the Inspector sets forth in its Work
Plan for that year the areas that will be scrutinized. For example, the 2001
Work Plan sets forth that the Inspector General would focus on home health
compliance programs, physician involvement in approving home health care, the
impact of prospective payment system controls, and payments based on locations
of service. In the Work Plan for 2002, the Inspector has reduced the number of
areas within home health to be scrutinized. While the Inspector General will
continue to evaluate home health compliance programs and home health payment
system controls in 2002, the Work Plan identifies two new areas, which include
oversight of home health care quality and coding of home health resource groups.
Physician involvement in approving home health care and payments based on
location of service are not included in the 2002 Work Plan. Additionally, the
Inspector General has focused in recent years on how third-party billing
companies, such as CareCentric, 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 payers. 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 payers. 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 CareCentric to provide its administrative services to its
customers and could affect CareCentric in other respects not currently
foreseeable.

18


The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in databases maintained on
CareCentric'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 providers
with access to CareCentric's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) 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 intended 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. There are
a number of standards to be included in the rulemaking for the provisions of
HIPAA. Of the nine provisions, a Notice of Proposed Rule has been published for
five of the standards. Of these five standards, only two have final rule
publication. The Standards for Electronic Transactions and Code Sets Final Rule
was published in the August 17, 2000 Federal Register and became effective
October 16, 2000, setting an effective compliance date of October 16, 2002.
Congress enacted a one-year extension to this standard for covered providers who
submit a compliance plan prior to October 16, 2002. The goal of this regulation
is to simplify electronic transfer of data by requiring a single set of
standards be used throughout the health care industry. This single set of
electronic standards will be required for all health plans and providers, as
well as claims clearinghouses, whether in the government or private sector. This
regulation includes eight electronic transactions and four code sets to be used
in those transactions. These are:

o Health claims and equivalent encounter information
o Enrollment and dis-enrollment in a health plan
o Eligibility for a health plan
o Coordination of benefits
o Health care payment and remittance advice
o Health plan premium payments
o Health claim status
o Referral certification and authorization

Many of these transactions are integrated into the operations of home
health agencies and the Company expects that they will impact a few of
CareCentric's coding and transaction processes.

The Standards for Privacy of Individually Identifiable Health Information
Final Rule was issued on December 20, 2000. This regulation protects all patient
records, including paper, electronic, and oral communications. HHS has delayed
the effective date of the privacy rules by two months, setting a new effective
date as of April 14, 2001, with a new compliance date of April 14, 2003. This
rule will require significant changes in CareCentric's systems and its
operations regarding access to records, masking, and confidentiality.

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 CareCentric. 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 CareCentric's systems or impose requirements which are
incompatible with CareCentric's current systems. During 2000, HCFA announced
that OASIS assessments must be completed on all adult patients, with the
exception of maternity or personal care/housekeeping services. However, the


19


encoding and transmission requirement currently applies to Medicare and Medicaid
patients only. OASIS requirements have been delayed for patients receiving only
personal care (non-skilled) services.

On July 3, 2000, HCFA released the Prospective Payment System for Home
Health Agencies Final Rule for reimbursement of home health providers under
Medicare which was effective on October 1, 2000. Under this rule, Medicare
reimburses 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
Rule specifies that reimbursement will be 60% at the start of the first episode
and 40% after the final claim with all adjustments has been transmitted. For
subsequent episodes, the agency will be paid 50% at the start of the episode and
50% upon receipt of the final claim. Agencies must submit a Request for
Anticipated Payment (RAP) after the first billable visit, which will trigger the
initial payment. Adjustments will be allowed for low utilization, partial
episodes, significant changes in condition, delivery of therapy services and
other excessive cost situations. Additional submittals required include
identification of the appropriate case mix group, source of admission, and a
one-line universal bill submission.

These changes to the Medicare payment system have required extensive
changes to the manner in which home health care providers do business because
they are 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 payer or other governmental
regulatory and self-regulating organizations. Such changes have required
extensive changes to CareCentric's software products, especially STAT2, The
Smart Clipboard(R) and the MestaMed(R) HHA module.

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:

o defer the 15% additional funding cut until October 2000;
o provide for three year extended payments of prior Medicare
over-reimbursements with the first year interest-free;
o eliminate the bundling of home medical equipment billings with home
health agency billings; and
o provide other minor relief.

These changes were intended to increase the cash flow of our customers and
potential customers but do not provide the permanent relief sought by the
industry. The non-bundling change eliminates an opportunity to sell the
MestaMed(R) product, which has a software program that would facilitate such
bundling of billing. This legislation will not require significant changes to
our software programs.

The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
(BIPA) of 2000 established positive payment changes for home health agencies.
These changes were:

o Additional delay in application of 15% reduction on payment limits for
home health services until October 1, 2002;
o Restoration of full market basket update for home health services for
fiscal year (FY) 2001;
o Temporary two-month periodic interim payment extension;
o Clarification in the use of telehealth in delivery of home health
services;
o General Accounting Office (GAO) study on costs to home health agencies
of purchasing non-routine medical supplies;
o Clarification of criteria for branch offices and a GAO study on
supervision of home health care provided in rural areas;
o Clarification of the "Homebound" definition;
o Temporary 10% increase for home health services furnished in rural
areas;
o Revisions to Medicare appeals process; and
o A full market basket update for home medical equipment for fiscal year
2001.

20


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 administered by the Food and Drug Administration (FDA). 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 CareCentric believes that its systems are not
subject to FDA regulation, the FDA could determine in the future that predictive
applications of CareCentric's systems could make them clinical decision tools
subject to FDA regulation. Compliance with FDA regulations could be burdensome,
time consuming and expensive. CareCentric 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 CareCentric in other
respects not presently foreseeable. CareCentric cannot predict the effect of
possible future legislation and regulation.


EMPLOYEES

As of December 31, 2001, CareCentric employed 199 individuals. That number
was reduced to 158 at March 22, 2002. CareCentric believes that its future
success depends in large part upon recruiting, motivating and retaining highly
skilled and qualified employees in all aspects of CareCentric's business,
especially product development. None of CareCentric's employees is represented
by a labor union. CareCentric believes that its employee relations are good.


ITEM 2. PROPERTIES

CareCentric's principal executive offices are located at 2625 Cumberland
Parkway, Suite 310, Atlanta, Georgia 30339. The principal executive offices
consist of approximately 12,431 square feet. The lease on this space expires on
January 31, 2003.

CareCentric also leases office space for its operations in the following
locations:



LOCATION SQUARE FOOTAGE LEASE EXPIRATION
-------- -------------- ----------------

Norcross, Georgia 19,704 August 31, 2006 *
Pompano Beach, Florida 6,535 December 31, 2004
East Brunswick, New Jersey 1,082 August 31, 2005
Pittsburgh (Monroeville), Pennsylvania 24,308 September 30, 2005
Stafford, Texas 2,868 November 30, 2002


*See description of subleases below

The listing of locations and square footage above does not include space
for which the Company has sublease agreements. Such subleased facilities include
the following:

o CareCentric has entered into two non-cancelable agreements to sublease
64,324 square feet formerly occupied by CareCentric as its principal
executive offices in Atlanta, Georgia through December 31, 2002, the
remaining term of the lease. In September 1999, the Company entered
into an agreement to sublet 42,883 square feet of the former executive
offices and in February 2001, the Company entered into an agreement to
sublet the remaining 21,441 square feet of such space. In January
2002, CareCentric entered into a non-cancelable agreement to sublease
approximately 3,000 square feet in its Norcross, Georgia facility
through the remaining term of the lease. The Company has also sublet
all 1,645 square feet of its former office space in Irving, Texas


21


through January 31, 2003. All subleases are coterminous with
CareCentric's leases. The Company is actively trying to continue to
reduce its leased space expense.

CareCentric believes that its present facilities are adequate to meet its
current and foreseeable needs.


ITEM 3. LEGAL PROCEEDINGS

Neither CareCentric nor any of its subsidiaries is currently a party to any
legal proceedings which would be material to the business or financial condition
of CareCentric on a consolidated basis.

Simione Central Holding, Inc., a subsidiary of CareCentric now known as SC
Holding, Inc. ("SC Holding") 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 re. McLendon v.
Columbia/HCA Healthcare Corp., et al., No. 97-VC-0890 (N.D. Ga.)). The lawsuit
involves alleged claims that SC Holding allegedly participated in a conspiracy
with Columbia/HCA and other third parties to bill inflated and fraudulent claims
to Medicare. On July 21, 1999, the Justice Department issued notice that it had
elected not to join in the claims asserted against SC Holding 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 SC
Holding. In late 2000, CareCentric was advised by Mr. McLendon's attorney that
notwithstanding the declination by the Justice Department, Mr. McLendon intends
to pursue "whistleblower" claims against SC Holding directly. Through March 22,
2002, no such action has been taken and nothing further has been heard from
McLendon's attorney for over one year. Management believes that this claim has
been abandoned. In the event a claim is asserted, however, CareCentric and SC
Holding intend to vigorously defend against it.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE MANAGEMENT OF THE REGISTRANT



John R. Festa...................................... 50 Chief Executive Officer, President and
Director
Mark A. Kulik...................................... 44 Senior Vice President of Sales and
Marketing
Michael Quinn...................................... 48 Senior Vice President
of Operations
Ana M. McGary...................................... 40 Vice President Human Resources and
Administration


John R. Festa became President and Chief Executive Officer of the Company
on November 1, 2001. Prior to joining the Company, Mr. Festa served as Managing
Director and General Partner of the EGL III venture capital funds ,
Atlanta-based family of venture investment firms. Prior to founding the EGL III
Funds in 1999 with his partners, Mr. Festa was President and CEO of Iterated
Systems, a software manufacturer of high-end image and image asset management
products, from 1994 to 1998 and President and CEO of BuyPass Corporation, a
national leader in software and processing systems for all forms of transaction
payments and medical claims processing from 1984 to 1994. Prior to 1984, Mr.
Festa held various senior positions in American Express Company and Citicorp.

Mark A. Kulik became Senior Vice President of Sales and Marketing of
CareCentric in October 2000. Mr. Kulik has spent the majority of his 21-year
career in the healthcare industry including hospital supply distribution, home
health care, home medical equipment, home infusion, and healthcare information
management. Prior to joining CareCentric, Mr. Kulik served as Executive Vice


22


President for several health care management and information service companies,
the most recent being Healthcare Credentials Management Services from December
1998 to February 2000 and Equifax Healthcare Information Services from July 1994
to December 1998. Earlier in his career, he served as Area Vice-President for
Abbey/Foster Medical, Inc. from July 1986 to February 1991.

Michael Quinn served as Senior Vice President of Operations of MCS, Inc.
since 1985 and became an officer of CareCentric upon the merger with MCS, Inc.
when he became Senior Vice President of Operations, responsible for corporate
resources and customer support. He was a director of MCS, Inc. from 1992 until
the merger with Simione. From 1977 to 1985, Mr. Quinn worked in various
programming and sales capacities for MCS, Inc. and its parent company
supervising sales, product development and product support.

Ana M. McGary has served as Vice President of Human Resources and
Administration of CareCentric since April of 1999. Ms. McGary is responsible for
all aspects of human resource employee and management development. In August of
2000 Ms. McGary was elected Secretary of the Company. From 1992 until 1999, Ms.
McGary managed human resources for several business units of First Data
Corporation. She has led and managed many recruiting and training teams for
various companies through the U.S. Her experience includes company culture
transformations, strategic planning and senior management development. In 1999,
she received her Professional Human Resource Certification (PHR) from Kennesaw
State University in Marietta, Georgia. She is a member of the Society for Human
Resources Management and the American Society of Corporate Secretaries.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As more fully explained in Notes 1 and 2 to the Consolidated Financial
Statements, MCS, Inc. is considered to have acquired Simione Central Holdings,
Inc. on March 7, 2000, and the historical financial statements of the "Company"
as discussed herein are therefore the historical financial statements of MCS,
Inc. only, except where specifically noted.

Conversely, the table below sets forth the high and low sales prices of
CareCentric common stock subsequent to the merger and the high and low sales
prices of Simione prior to the merger as reported on the Nasdaq Stock Market for
the calendar periods indicated.

The common stock of CareCentric has traded on The Nasdaq Stock Market's
SmallCap Market under the symbol CURA since December 26, 2000. From June 6, 2000
until December 26, 2000, the common stock traded on the Nasdaq SmallCap Market
under the symbol SCHI. From June 30, 1997 until June 6, 2000, the common stock
traded on the Nasdaq National Market under the symbol SCHI, and prior to June
30, 1997 it traded on the OTC Bulletin Board under the symbol SCHI. During March
2000, the common stock was traded temporarily under the symbol SCHID on Nasdaq
to reflect the 1-for-5 reverse stock split.

In February 2002, Nasdaq notified CareCentric that its shares failed to
meet the Nasdaq Small Cap market's minimum price requirement of $1.00 per share
for 30 consecutive trading days. CareCentric's shares are subject to de-listing
unless, prior to August 13, 2002, the shares close at $1.00 or more for a
minimum of 10 consecutive trading days. If the price qualification has not been
met by that time, depending on whether CareCentric then meets initial listing
criteria, the shares will either be de-listed or an additional 180 calendar day
grace period will go into effect. The initial listing criteria include minimum
levels of market value of publicly traded stock and stockholders equity.
CareCentric currently does not satisfy these criteria.

As of April 8, 2002, CareCentric common stock was held by approximately
3,988 holders of record. For this purpose, stockholders whose shares are held by
brokers on behalf of stockholders are not included.

23


The table below shows the reported quarterly high and low sales price for
CareCentric common stock on the Nasdaq National Market and Nasdaq SmallCap
Market for the periods after January 1, 2000. The information set forth below
does not include retail mark-ups, markdowns or commissions. The sales prices for
the first quarter of 2000 have been adjusted to reflect the effect of the
1-for-5 reverse stock split that occurred on March 7, 2000.

2001 2000
-------------------- ---------------------
HIGH LOW HIGH LOW
-------------------- ---------------------

First Quarter 4.530 1.500 11.250 3.250
Second Quarter 3.000 1.630 4.875 2.000
Third Quarter 2.950 1.340 3.500 1.500
Fourth Quarter 1.700 0.460 4.125 2.250

CareCentric has never declared or paid cash dividends on CareCentric common
stock. CareCentric currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future. CareCentric's line of credit includes restrictions on the
payment of dividends.

On November 10, 2001, the Company committed to issue 210,000 shares of
Series E Preferred Stock, $.001 par value per share, to John R. Festa. The
rights of the Series E Preferred Stock are described in the notes to the
Financial Statements.


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, 2001, 2000, 1999, 1998, and 1997 are derived from the
audited consolidated financial statements of the Company. As more fully
explained in Note 1 to the Consolidated Financial Statements, MCS, Inc. is
considered to have acquired Simione Central Holdings, Inc. on March 7, 2000, and
the historical financial statements of the "Company" as discussed herein are
therefore the historical financial statements of MCS, Inc. only, except where
specifically otherwise noted. On September 28, 2001 the Company discontinued its
Consulting business segment and as more fully described in Note 2 of the
Financial Statements, the results of the discontinued Consulting business have
been separately presented in the Financial Statements. See Note 1 to Notes to
Consolidated Financial Statements for information about 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.



24




SUMMARY OF OPERATIONS


YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------- ----------- ------------ --------------
(in thousands, except per share data)
Net revenues: $ 20,446 $ 19,574 $16,648 $14,901 $15,433

Costs and expenses:
Cost of revenues 8,217 8,478 10,563 9,225 8,885
Selling, general and
administrative 10,715 10,756 4,077 3,780 3,659
Research and development 6,158 6,174 1,051 231 -
Amortization and depreciation 3,865 3,481 230 - -
Write down of intangibles 11,799 - - - -
Restructuring Charge 675 - - - -
------------ ------------- ------------ ----------- ------------
Total costs and expenses 41,429 28,889 15,921 13,236 12,544
------------ ------------- ------------ ----------- ------------

(Loss) income from operations (20,983) (9,315) 727 1,665 2,889

Other (expense) income:
Other (expense) income - (6) - - -
Interest expense (1,314) (710) - - -
Interest and other income 37 74 45 47 74
------------ ------------- ------------ ----------- ------------
(Loss) income before taxes (22,260) (9,957) 772 1,712 2,963
------------ ------------- ------------ ----------- ------------

Income tax benefit (expense) (15) 154 (306) (686) (1,195)
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing
operations (22,275) (9,803) 466 1,026 1,768
------------ ------------- ------------ ------------ ------------

Discontinued operation
Loss on disposal of discontinued
operations (2,632) - - - -

(Loss) Income from operations of
discontinued segment before
taxes (483) (442) 251 671 401

Applicable tax expense 100 268 160

------------ ------------- ------------ ----------- ------------
(Loss) income from operations and
disposal of discontinued segment (3,115) (442) 151 403 241
------------ ------------- ------------ ----------- ------------

Net (loss) income $(25,390) $(10,245) 617 $1,429 $ 2,009
============ ============= ============ =========== ============

Cumulative preferred dividends (722) (569) - - -

Net (loss) income available to
common shareholders $(26,112) $(10,814) 617 $1,429 $ 2,009
============ ============= ============ =========== ============

Net (loss) income per share - basic
and diluted
From continuing operations $ (5.21) $ (2.87) 0.31 $ 0.69 $ 1.19
Weighted average common shares
--basic and diluted 4,272 3,418 1,490 1,490 1,490
============ ============= ============ ============ ============
Net (loss) income per share - basic
and diluted
From discontinued operations $(0.73) $ (0.13) $ 0.10 $ 0.27 $ 0.16
Weighted average common shares -
basic and diluted 4,272 3,418 1,490 1,490 1,490
============ ============= ============ =========== ============
Net (loss) income per share - basic
and diluted
From operations $ (5.94) $ (3.00) $ 0.41 $ 0.96 $ 1.35
Weighted average common shares -
basic and diluted 4,272 3,418 1,490 1,490 1,490
============ ============= ============ =========== ============

Net (loss) income per share - basic
and diluted for common shareholders $ (6.11) $ (3.16) $ 0.41 $ 0.96 $ 1.35

Weighted average common shares -
basic and diluted 4,272 3,418 1,490 1,490 1,490
============ ============= ============ =========== ============


25



SUMMARY OF FINANCIAL POSITION


AS OF DECEMBER 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ----------- ------------ ----------- --------------
(in thousands, except per share data)

Cash and cash equivalents $ 201 $ 362 $ 47 $ 60 $ 40
Working capital (deficit) (15,618) (13,765) (1,542) (1,745) (2,110)
Total Assets 12,808 35,120 6,696 5,279 4,895
Long-term obligations 6,093 728 - - -
Shareholders' equity (deficit) $(14,310) $ 11,080 $ 505 $ (981) $ (1,640)



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
the Private Securities Litigation Reform Act of 1995, and are subject to the
safe harbor created by such sections. When used in this report, the words
"believe", "anticipate", "estimate", "expect", "plans", "intend", "likely",
"will" and similar expressions are intended to identify forward-looking
statements. All statements, other than statements of historical facts, included
or incorporated by reference in this Form 10-K which address activities, events,
or developments which the Company expects or anticipates will or may occur in
the future, including statements regarding the Company's competitive position,
the successful development of its software products, the impact on the Company
of actual or proposed regulatory changes, the Company's expectations regarding
the adequacy of current financing arrangements, product demand and market
growth, and other statements regarding future plans and strategies, anticipated
events or trends and similar expressions concerning matters that are not
historical facts are forward-looking statements. These statements are based on
certain assumptions and analyses made by the Company in light of its experience
and its perception of historical trends, current conditions, and expected future
developments as well as other factors it believes are appropriate in the
circumstances. The Company's future financial performance could differ
significantly from that set forth herein, and from the expectations of
management. Important factors that could cause the Company's financial
performance to differ materially from past results and from those expressed in
any forward looking statements include, without limitation, the inability to
obtain additional capital resources, variability in quarterly operating results,
customer concentration, product acceptance, long sales cycles, long and varying
delivery cycles, the Company's dependence on business partners, emerging
technological standards, changing regulatory standards, inability to retain or
hire experienced and knowledgeable employees, risks associated with
acquisitions, increased regulation of the health care industry, future
consolidation of the health care industry, potential liability in connection
with the Department of Labor investigation or IRS audit, the need to develop new
and enhanced products, product delays and errors, competition, difficulty
protecting intellectual property rights, and the risk factors detailed in the
Company's Registration Statement on Form S-4 (File No. 333-96529) and in the
Company's periodic reports filed with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. This Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto. The Company assumes no obligation to update publicly any such
forward-looking statements, whether as a result of new information, future
events, or otherwise.

The following is a discussion of the consolidated financial condition and
results of operation of the Company for the three years ended December 31, 2001
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.

As more fully explained in Notes 1 and 2 to the Consolidated Financial
Statements, MCS, Inc. is considered to have acquired Simione Central Holdings,
Inc. on March 7, 2000, and the historical financial statements of the "Company"
as discussed herein are therefore the historical financial statements of MCS,


26


Inc. only, except where specifically noted. Also as discussed in Note 2,
the Company discontinued its Consulting business segment in September of 2001
and the operating results of the Consulting segment have been separately
presented in the financial statements for the years 2001 and 2000 as a
discontinued operation. The discontinued operations reported for the year 1999
related to MCS' ProfitWorks segment which was distributed to MCS' former parent,
Mestek.

OVERVIEW

CareCentric, Inc. (formerly known as Simione Central Holdings, Inc.)
("CareCentric" or the "Company") is a leading provider of enterprise information
technology systems and related services and consulting services designed to help
home health care providers more effectively operate their businesses in today's
environment. The Company's focus is to help home health care providers
streamline their operations and better serve their patients. Currently, the
Company is moving forward to leverage its long history and success to migrate
its product solutions to new technology platforms that are currently in design.
These new technology platforms are being designed to: create long term scalable
technology platforms using state of the art technologies; streamline real-time
customer service, shorten decision cycles for our customers; add new product
solutions; and revolutionize customer options, while meeting the business
requirements of the enterprises served. CareCentric currently offers several
comprehensive software solutions. Each of these solutions provides a basic set
of software applications and specialized modules which can be added based on
customer demand. These software solutions are designed to enable customers to
provide clinical care management, administrative, operating and financial
solutions and payment processing efficiencies. In addition to its software
solutions and related software support services, CareCentric's home health care
consulting services assist providers in addressing the challenges of:

o reducing costs;
o regulatory compliance;
o maintaining quality;
o streamlining operations;
o re-engineering organizational structures; and
o leveraging best practice solutions

CareCentric has over 1,500 customers nationwide:

o hospital-based companies;
o home health care providers;
o alternate-site care organizations;
o home medical equipment providers;
o integrated delivery systems (IDN);
o home infusion therapy providers; and
o government-managed organizations

Through a subsidiary, Simione Central Holdings, Inc., prior to the merger
with MCS, formerly provided comprehensive agency support services, previously
described as outsourcing, which included administrative, billing and collection,
training, reimbursement and financial management services, among others. This
line of business was discontinued in May of 1999.

The Company defines recurring revenues as revenues derived under software
support agreements, whether annual or otherwise. These revenues were
approximately $11.3 million, or 55.1% of total net revenues, for the year ended
December 31, 2001, $12.5 million, or 57.1% of total net revenues, for the year
ended December 31, 2000, and $3.5 million, or 23.3% of total net revenues, for
the year ended December 31, 1999. Unless and until revenues generated from sales
of new systems increases, recurring revenues will represent a majority of its
total net revenues.

The Company believes that continued development and enhancement of its
software systems are 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. For the years
ended December 31, 2001, 2000, and 1999, the Company had no capitalized computer
software and development costs.

27


CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the Notes to the Consolidated Financial
Statements includes a summary of the significant accounting policies and methods
used in the preparation of our Consolidated Financial Statements. The following
is a brief discussion of the more significant accounting policies and methods
used by us.

General

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The most significant estimates and assumptions relate to the
intangible assets, realization of deferred income taxes and the adequacy of
allowances for returns and doubtful accounts. Actual amounts could differ
significantly from these estimates.

Our critical accounting policies are as follows:

o revenue recognition;
o estimate of allowance for uncollectible accounts; and
o valuation of long-lived and intangible assets and goodwill.

Revenue Recognition

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 collectability of fees is probable, provided that no significant
obligations remain under the contract. Revenues derived from the sale of
software products not requiring significant modification or customization are
recognized when products are delivered and collectability of fees is probable,
provided that no significant obligations remain under the contract. 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 under
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 generally charges for software implementation, training
and technical consulting services as well as management consulting services on
an hourly or daily basis. The Company is now offering "tiered pricing" for
implementation of new systems whereby the customer pays a fixed fee for a
certain level of packaged services and daily fees for services beyond the
package.

Revenues for post-contract customer support are recognized ratably over the
term of the support period, which is typically one year. Post contract customer
support fees typically cover incremental product enhancements, regulatory
updates and correction of software errors. Separate fees are charged for
significant product enhancements, new software modules, additional users, and
migrations to different operating system platforms.

28


Estimate of Allowance for Uncollectible Accounts.

The Company continuously reviews the status of all its accounts receivable
with its customers for current collectability. The Company recognizes that there
are circumstances under which customers will delay payment beyond the terms
offered by the Company either because of their own payment practices or
temporary situations which need to be resolved before the customer will continue
payment. Reserves for uncollectability are based on various ages of those
accounts receivable past their original due date for collection. The Company
does not write the account off against the reserve for uncollectible account
until all efforts to collect the accounts receivable have been exhausted.

Valuation of Long-Lived and Intangible Assets and Goodwill.

The Company assesses the impairment of identifiable intangibles, long-lived
assets and related goodwill and enterprise level goodwill whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Factors the Company considers important which could trigger an
impairment review include the following:

o significant underperformance relative to expected historical or
projected future operating results;
o significant changes in the manner of the Company's use of the acquired
assets or the strategy for its overall business;
o significant negative industry or economic trends.

When the Company determines that the carrying value of intangibles,
long-lived assets and related goodwill and enterprise level goodwill may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, the Company measures any impairment based on a projected discounted
cash flow method using a discount rate determined by our management to be
commensurate with the risk inherent in our current business model. After
recording a $11.8 million impairment adjustment, net intangible assets amounted
to $5.4 million as of December 31, 2001. See Note 7 of the Notes to the
Consolidated Financial Statements.


RESULTS OF OPERATIONS

EFFECT OF REVERSE MERGER AND DISCONTINUED OPERATIONS ON MANAGEMENT DISCUSSION
AND ANALYSIS

On March 7, 2000, CareCentric, Inc. (formerly known as Simione Central
Holdings Inc.) ("CareCentric") and MCS, Inc. ("MCS") merged in a transaction
("the CareCentric/MCS merger", also set forth above as "the MCS/Simione merger")
accounted for as a reverse acquisition for financial reporting purposes. As more
fully discussed in Note 1 of the accompanying Financial Statements, the 2001
Statement of Operations presents a full year of the combined results of
operations of the former Simione Central Holdings, Inc./MCS businesses, the 2000
Statement of Operations presents a full year of MCS results of operations
combined with the results of operations for the former Simione Central Holdings,
Inc. since March 7, 2000 and the 1999 Statement of Operations includes MCS
historical results only. Because of these differences in the accompanying
Financial Statements, comparison of the results of operations of the Company as
reported would be misleading, if not meaningless.

To present a more meaningful analysis of operating performance, the
comparison of the years ended December 31, 2001 and 2000 compares the 2001
reported Financial Statements in the accompanying Financial Statements to a
Proforma 2000 statement of operating results which combines the former Simione
Central Holdings Inc. business with MCS as if the merger had occurred on January
1, 2000. For the comparison of the years ended December 31, 2000 and 1999, the
Proforma 2000 statement of operating results, prepared as if the merger had
occurred at January 1, 2000, is compared against a Proforma 1999 statement of
operating results which was prepared by arithmetically adding the former Simione
Central Holdings, Inc. operating results with the historic MCS operating results
for the year ended December 31, 1999.

29


In addition to the Proforma information discussed in the paragraph
immediately above, the following comparison of the years ended December 31,
2001, 2000 and 1999 have been prepared after reduction in all three years for
the discontinued operations of the Consulting segment of Simione Central
Holdings, Inc. in September of 2001 and the Profit Works business of MCS in
1999. See Note 2 to the accompanying Financial Statements.


COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000

Net Revenues. Revenues (exclusive of the Consulting segment which was
discontinued in September 2001) were $20.4 million for the twelve months ended
December 31, 2001 and $21.9 million for the twelve months ended December 31,
2000. The $1.5 million decrease was mainly attributable to a reduction in
maintenance revenues of $1.1 million to $11.4 million in 2001 from $12.5 million
in 2000. Revenues from software systems was unchanged at $9.5 million in both
2001 and 2000.

The Company believes these reduced revenues are attributable generally to
adverse economic conditions prevailing in the home healthcare marketplace.
Additionally, the Company believes certain customers are reluctant to invest in
existing software systems while new products with technologically advanced
platforms are under development. The Company believes that the economic
conditions for the home healthcare marketplace, more fully discussed in the
overview section of this Form 10-K, have now stabilized, and are expected to
improve in the years ahead. The Company also recognizes the importance of
successfully introducing new products using more current technologies and will
continue to develop and invest in new products in 2002 and beyond.

Cost of Revenues. Cost of revenues decreased $1.0 million, or 11.1%, to
$8.2 million in 2001 from $9.2 million in 2000. As a percentage of total net
revenues, cost of revenues decreased to 40.2% in 2001 from 42.3% in 2000. The
$1.0 million decrease resulted primarily from cost cutting, product mix and a
slight decrease in revenues for software systems. The decrease as a percentage
of total net revenues is due to the combined impact of many factors including
efficiencies in installation and support costs resulting from the merger with
MCS, reduced sales discounts and changes in product mix.

Selling, General and Administrative. Selling, general and administrative
expenses decreased $1.5 million, or 12.3%, to $10.7 million in 2001 from $12.2
million in 2000. As a percentage of total net revenues, selling, general and
administrative expenses were 52.4% in 2001 and 55.8% in 2000. This dollar
decrease was attributable to synergies derived from the merger and cost savings
initiatives implemented in 2000 and completed in 2001. Cost savings were
primarily realized through the centralization of administrative functions and
elimination of non-essential facilities and excess capacity.

Research and Development. Research and development expenses decreased
approximately $0.8 million, or 11.4%, to $6.2 million in 2001 from $6.9 million
in 2000. As a percentage of total net revenues, research and development
expenses decreased to 30.1% in 2001 from 31.8% in 2000. The continued high
expenditure of research and development funds was attributable to development
effort on all continuing products, but especially for The Smart Clipboard(R),
PharmMed Rx(TM) and HM Express.

Amortization and Depreciation. Amortization and depreciation decreased by
approximately $0.3 million to $3.9 million in 2001 from $4.2 million in 2000.
This decrease is attributable to the net effect in preparing these Proforma
comparisons eliminating the discontinued consulting business and the
amortization and depreciation expense of MCS from January 1 2000 through March
7, 2000, the MCS merger date. See Note 6 and Note 7 to the accompanying
Financial Statements.

Impairment Loss - Intangible Assets. As more fully discussed in Note 7 to
the Financial Statements, and in accordance with Financial Accounting Standard
121, the Company is required to periodically review the value of its intangible
assets. The Company's intangible assets were capitalized in conjunction with the
MCS merger on March 7, 2000. At the end of the fourth quarter of 2001, that
review resulted in an $11.8 million write down, or impairment loss, of the


30


intangible assets of the Company. The major reasons for the impairment were new
technologies being integrated in the Company's current and future products
causing its existing product platforms to have smaller future revenue generation
capability, and an expectation that immediate opportunities for new software
sales are lower than were forecasted at the time of the merger with MCS.

Restructuring Charge. The restructuring charge of $675,000 resulted from
the Company approving a plan in April 2001 to close one remote support office
and to downsize the workforce at its remaining facilities. As of December 31,
2001, that plan was fully completed and the restructuring charge was completely
expended.

Operating Loss. The Company's operating loss from continuing operations,
reflecting the same assumptions as above for purposes of comparability,
increased from $10.8 million for the twelve months ended December 31, 2000 to
$21.5 for the twelve months ended December 31, 2001. Without the impact of the
Impairment Loss - Intangible Assets, the operating loss from continuing
operations decreased from $10.8 million for the twelve months ended December 31,
2000 to $9.7 million for the twelve months ended December 31, 2001. This
decrease in operating loss from continuing operations, before impairment loss,
is primarily due to the reductions in selling general and administrative
expenses. Additionally, continued high levels of research and development
expenditures over the last two years are a material cause of the recurring
operating loss from continuing operations.

Other Income (Expense). Interest expense related to borrowings under the
Company's line of credit agreements and capital lease obligations increased by
approximately $0.5 million to $1.3 million for the twelve months ended December
31, 2001 from $0.8 million for the twelve months ended December 31, 2000.
Interest and other income consist principally of interest income related to
customer finance charges and the Company's short term cash investments and have
decreased by approximately $31,000. The Company expects further increases in
interest expense in 2002 due to increased borrowing.

Income Taxes. The Company has not incurred or paid any substantial income
taxes since March 2000. At December 31, 2001, CareCentric had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $36.7
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, 2001, and accordingly, a 100% deferred tax
valuation allowance has been recorded against these assets. See Note 10 to the
accompanying Financial Statements.

The income tax benefit of $154,000 reflected in the accompanying Financial
Statements for 2000 relates primarily to losses incurred by MCS between January
1, 2000 and March 7, 2000 while it was a subsidiary of Mestek. The income tax
benefit arises due to the inclusion of MCS's results for this period in Mestek's
consolidated federal and state income tax filings for 2000.

Loss on Discontinued Operations. As more fully described in Note 7 of the
accompanying Financial Statements, the Company completed the sale of certain
assets of the Consulting business segment and discontinued its Consulting
business on September 28, 2001. The loss from the discontinuance of the business
was $3.1 million, which resulted mainly from the write off of $2.6 million of
intangible assets recorded as associated with the Consulting business at the
time of the merger with MCS.

Loss from Operations of Discontinued Segment. The loss of ($483,000) for
the twelve months ended December 31, 2001 from operations of the discontinued
Consulting segment compares to a (loss) for the twelve months ended December 31,
2000 of ($442,000).

31


COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999

Net Revenues. Revenues (exclusive of the Consulting segment which was
discontinued in September 2001) were $21.9 million for the twelve months ended
December 31, 2000 and $32.6 million for the twelve months ended December 31,
1999. Revenues from software systems decreased $10.6 million, or 52.7%, to $9.5
million in 2000 from $20.1 million in 1999. Software maintenance revenues were
unchanged in 2000 from 1999 at $12.5 million.

These significantly reduced "comparable revenues" were attributable
principally to reduced bookings of software and equipment sales in the final
quarter of 1999 and early part of 2000, as well as relatively weak software and
hardware sales in the last quarter of 2000. The Company believes these results
were attributable generally to adverse economic conditions prevailing in the
home healthcare marketplace and more specifically to uncertainties surrounding
the MCS/Simione merger on March 7, 2000 and customer concerns related to "Year
2000 functionality". Other factors include discontinuation of product lines and
consolidation of certain operations and functions in connection with the merger
or to reduce costs. Finally, the results were affected by uncertainties in the
marketplace related to a new home health care provider reimbursement system, the
Prospective Payment System, or PPS, implemented by the Health Care Financing
Administration (HCFA) in October of 2000. The PPS payment system is based upon
pre-set per episode fees, in contrast to the former Interim Payment System,
(IPS), which it replaced, which was based upon Medicare's historical cost
reimbursement practice. As such, PPS represented a radical departure from past
practice and introduced significant uncertainty in the home health care
industry. This uncertainty surrounding PPS resulted in an adverse effect on
information technology spending in the home health industry.

Cost of Revenues. Cost of revenues decreased $12.5 million, or 57.4%, to
$9.2 million in 2000 from $21.7 million in 1999. As a percentage of total net
revenues, cost of revenues decreased to 42.3% in 2000 from 66.6% in 1999. The
$12.5 million decrease resulted primarily from the corresponding decrease in
revenue for software and services. The decrease as a percentage of total net
revenues is principally due to the impact of a higher ratio of margin sales to
total sales.

Selling, General and Administrative. Selling, general and administrative
expenses decreased $6.8 million, or 35.7%, to $12.2 million in 2000 from $19.0
million in 1999. As a percentage of total net revenues, selling, general and
administrative expenses were 55.8% in 2000 and 58.3% in 1999. This dollar
decrease was attributable to synergies derived from the merger and cost savings
initiatives implemented in 2000. Cost savings were primarily realized through
the centralization of administrative functions and elimination of non-essential
facilities and excess capacity. These initiatives continued in 2001.

Research and Development. Research and development expenses increased $0.9
million, or 14.0%, to $6.9 million in 2000 from $6.1 million in 1999. As a
percentage of total net revenues, research and development expenses increased to
31.8% in 2000 from 18.7% in 1999. This dollar increase was attributable to
additional development costs for all continuing products, but especially for The
Smart Clipboard(R), PharmMed Rx(TM) and HM Express.

Amortization and Depreciation. Amortization and depreciation increased by
$1.0 million to $4.2 million in 2000 from $3.2 million in 1999. This increase
includes approximately $1.5 million of amortization expenses attributable to the
Simione/MCS merger on March 7, 2000. See Note 6 and Note 7 to the accompanying
Consolidated Financial Statements.

Operating Loss. The Company's operating (loss) from continuing operations,
reflecting the same assumptions as above for purposes of comparability,
decreased from $17.4 million for the twelve months ended December 31, 1999 to
$10.8 million for the twelve months ended December 31, 2000. Management believes
this reduced operating loss, despite significantly reduced revenues on a
comparable basis, is primarily the result of the aforementioned cost saving
initiatives implemented subsequent to the MCS/Simione merger on March 7, 2000.

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 $657,000. Interest and other income consist


32


principally of interest income related to customer finance charges and the
Company's short term cash investments and have decreased by approximately
$130,000. The Company saw further increases in 2001 due to increased borrowing.

Income Taxes. The Company has not incurred or paid any substantial income
taxes since March 2000. At December 31, 2000, CareCentric had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $28.6
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, 2000, and accordingly, a 100% deferred tax
valuation allowance has been recorded against these assets. See Note 10 to the
accompanying Consolidated Financial Statements.

The income tax benefit of $154,000 reflected in the financial statements
for 2000 relates primarily to losses incurred by MCS between January 1, 2000 and
March 7, 2000 while it was a subsidiary of Mestek. The income tax benefit arises
due to the inclusion of MCS's results for this period in Mestek's consolidated
federal and state income tax filings for 2000.

Loss from Operations of Discontinued Segment. The loss of ($442,000) for
the twelve months ended December 31, 2000 from operations of the discontinued
Consulting segment compares to a profit of $151,000 for the twelve months ended
December 31, 1999.


QUARTERLY FINANCIAL RESULTS

The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. 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 can be long and difficult to predict, resulting
in variability of revenues. In addition, the implementation period related to
new installations of the Company's information systems can range from a few
months to one year while add-ons can occur more quickly. 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.


LIQUIDITY AND CAPITAL RESOURCES

In May 1999, Simione entered into a definitive agreement to merge with MCS,
a wholly owned subsidiary of Mestek, as more fully explained in Note 1 to the
Consolidated Financial Statements. 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. (CSI) 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. The total
purchase price was approximately $12 million, of which $0.2 million was paid in
cash, $2.7 million was in the form of assumed liabilities, and $9.3 million was
in the form of Series A Preferred Stock of Simione. At the merger, Series A
Preferred Stock was converted into 606,904 shares of common stock, 150,740
shares of which remained in escrow. Pursuant to a later settlement, 88,586


33


shares were released from escrow and 62,150 shares were cancelled. Under the
terms of the merger, Simione was required to issue up to an additional
approximately 3.0 million shares, pre-split, of common stock if Simione's common
stock did not meet certain price targets during the fourth quarter of 2000.
Because those price targets were not satisfied, in March 2001, Simione (now
CareCentric, Inc.) issued 593,668 shares of its common stock to former holders
of CSI preferred stock and CSI noteholders; 13,216 shares were not issued
pursuant to a settlement. In conjunction with the acquisition of CSI in August
1999, Simione assumed a loan from a bank with an outstanding balance of $1.5
million. The $1.5 million bank loan was retired in connection with a new loan
extended by Mestek to Simione in September 1999, described in the next
paragraph.

In September 1999, in connection with an amendment of the MCS merger
agreement, Simione received $3.0 million in 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 CSI and to fund operating needs. When the MCS
merger was completed, Mestek's note evidencing this loan and other loans
described below were converted into Series B Preferred Stock and a warrant to
purchase CareCentric 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 850,000 shares of newly issued Series C Preferred stock of
Simione at the closing of the MCS merger having 170,000 common shares votes and
which are entitled to an 11.0% annual cumulative dividend. The loan from Mr.
O'Donnell along with $100,000 in deferred salary were exchanged for a $600,000
subordinated note, convertible into common stock at $2.51 per share, with
interest at 9% per annum and a maturity date of August 8, 2005. In January 2002,
this loan was amended to change the interest rate to prime plus two percent and
to change the terms of payment of interest for 2002 to require that one-half of
the accrued interest be timely paid each quarter and the balance to be paid on
December 31, 2003 or to be converted into an additional convertible note. The
loan from Dr. Ellis was paid in full on July 12, 2000 from the credit facility
provided by Wainwright Bank and Trust Company. See Note 8 to the accompanying
Consolidated Financial Statements.

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 and Mestek's notes evidencing
the $1.0 million and $3.0 million loans, together with an additional $2.0
million in cash from Mestek were converted into Series B Preferred Stock and a
warrant to purchase CareCentric common stock. The consolidation of the accounts
receivable of MCS into the then outstanding balance of Simione's accounts
receivable provided an additional $1.5 million of borrowing capacity on the $5.0
million bank line of credit established by Simione in September 1999.

Immediately after the Simione/MCS merger on March 7, 2000, the Company had
cash and cash equivalents of $3.5 million and short and long term debt from all
sources of $2.5 million, for a positive net cash/(debt) position of
approximately $1.0 million. In order to supplement its capital resources, the
Company, subsequent to the merger, undertook a search for additional capital
resources which resulted in the creation of the following credit and debt
facilities and preferred equity securities:




SOURCE FUNDING FORM DATE CLOSED
- ------------------------------ -------------------- ---------------------- ------------------------

John E. Reed $ 1,000,000 Series D Preferred June 22, 2000
Stock

John E. Reed 6,000,000 Line of Credit June 22, 2000

Wainwright Bank and Trust 6,000,000 Line of Credit July 12, 2000
Company
--------------------

$ 13,000,000
====================


34


These three transactions are described in greater detail in Note 8 to the
accompanying Consolidated Financial Statements. The Wainwright Bank and Trust
Company line of credit was used to pay off the Silicon Valley Bank line of
credit, certain short-term loans from Mestek, and the note payable to David O.
Ellis. The Wainwright Line of Credit expired July 11, 2001 and was renewed
through July 11, 2002. Payment of the Wainwright Line of Credit is guaranteed by
Mestek. Based upon representations received from Wainwright Bank, the Company
expects the Line of Credit to be renewed through July 11, 2003. As of April 8,
2002, the Company owes Wainwright approximately $5,967,000 million under the
Line of Credit.

The Company is obligated under an eighteen month unsecured promissory note
in the principal amount of $1,018,000 payable to Mestek Inc. which bears
interest at prime plus one and one half percent (1.5%), with interest payable
semiannually and which matures on June 30, 2003. This note covers funds advanced
by Mestek to CareCentric to cover payroll and accounts payable obligations
incurred by the Company during the period of its transition of senior lenders
from Silicon Valley Bank to Wainwright Bank and Trust Company, accrued and
unpaid interest thereon and the unreimbursed portion of Mr. Bruce Dewey's salary
for the periods from November 9, 1999 to October 31, 2001.

On June 22, 2000, the Company closed a financing with John E. Reed, a
CareCentric director and the chief executive officer of Mestek, of up to $7
million. The financing consisted of $1 million in equity, and a $6 million
subordinated revolving line of credit facility, convertible into common stock of
CareCentric, with a 9% interest rate and five-year maturity. On December 31,
2001, the outstanding amount under the Credit Facility was $3.5 million, $1.0
million of which was participated to Mestek, Inc. and the balance was retained
by Mr. Reed. On December 31, 2001, the facility was amended to change the
interest rate to prime plus two percent, to change the payment terms for unpaid
2001 interest to require payment at December 31, 2003 or to convert the
outstanding unpaid interest to additional convertible notes in the amount of
$184,438 at the option of Mr. Reed, and in the amount of $40,463 at the option
of Mestek, and to change the terms of payment of interest for 2002 to require
that one-half be timely paid each quarter and the balance to be paid on December
31, 2003 or to be converted to additional convertible notes.

During 2000 and 2001 the Company incurred operating losses and experienced
significant problems collecting its accounts receivable because of the uncertain
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 Smart Clipboard(R) product, which
have been much higher than anticipated. In addition, sales revenue in 2000 was
lower than planned in the core MestaMed(R), DME VI and STAT2 products while new
sales of The Smart Clipboard(R) and Tropical products (now discontinued) did not
develop as quickly as projected. The merger with Simione added additional
products and resources and, importantly, added to the Company's critical mass of
installed sites but the Company's longer term success will depend upon increased
sales of new software systems and successful installation performance, including
its point-of-care and MestaMed(R) systems. In this connection, the Company
recorded a significant increase in bookings of new systems in several of its
major product lines through March, 2002. Bookings have increased steadily
through the first quarter of 2002 and prospect opportunities have been clearly
identified. The existing pipeline, if realized, will exceed the Company's 2002
bookings budget and cash flow needs. Notwithstanding the financial conditions
prevailing in the home health marketplace, the Company continued to fund
significant product development initiatives during 2001. Accordingly, until
revenues increase sufficiently to cover these forward-looking costs and
operating expenses, the Company remains dependent on outside funding sources,
including John E. Reed, Mestek, Inc. and Wainwright Bank and Trust Company, for
its working capital financing.

On April 8, 2002, the Company secured two commitments for additional
financing, from existing shareholders John Reed and Mestek. See Note 17 to the
Financial Statements. Mr. Reed and Mestek have agreed to provide $871,117 and
$1,092,000 in short-term debt financing, respectively, to be refinanced along
with other debt of the Company due such parties upon obtaining shareholder
approval in June 2002.

As of April 8, 2002, the Company has untapped credit capacity of
approximately $0.6 million from the aforementioned Reed and Wainwright Bank
facilities. The Company believes that a successful completion of its refinancing


35


commitments from John Reed and Mestek, 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, until at
least December 31, 2002. See also Note 17 to Financial Statements.

The table below summarizes the Company's debt and other contractual
obligations:



PAYMENTS DUE BY PERIOD
----------------------
LESS THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4 - 5 YEARS
----------- ----------- ----------- ------------
Long-Term Debt $5,343,000 $1,243,000 $4,100,000
Capital Lease Obligations 36,000 36,000 -- --
Operating Leases 5,635,000 2,359,000 2,114,000 1,162,000
Line of Credit 5,572,000 5,572,000 -- --
Other Long-Term Obligations 1,452,000 702,000 750,000 --
----------- ----------- ----------- ------------
Total Contractual Cash Obligations $18,038,000 $8,669,000 $4,107,000 $5,262,000
=========== =========== -========== ============


As of December 31, 2001, the Company had negative working capital of $15.6
million and cash equivalents of $0.2 million. The Company's current liabilities
as of December 31, 2001 include customer deposits of $2.1 million and unearned
revenues of $4.0 million.

Net cash provided by (used in) operating activities for the years ended
December 31, 2001, 2000 and 1999 was ($3.9) million, ($7.2) million and ($0.3)
million, respectively. Cash used in 2001 principally funded operating losses and
was also used to pay various liabilities reflected on the CareCentric balance
sheet as of March 7, 2000. The pre-merger CareCentric liabilities paid in this
manner include severance pay, excess office space, excess leased computer
equipment, settlement of litigation and legal fees.

Cash flows from financing activities include the Wainwright and Reed lines
of credit borrowings during 2001.

Inflation has not had, and is not expected to have, a material impact on
the Company's operations. If inflation increases, the Company will attempt to
increase its prices to offset increased expenses. No assurance can be given,
however, that the Company will be able to adequately increase its prices in
response to inflation.

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 first quarter of the fiscal year ending December 31,
2001. The adoption of SFAS No. 133 did not have a material impact on the
Company's financial position or results of operations.

On December 3, 1999, the SEC released Staff Accounting Bulletin 101, (SAB
101) "Revenue Recognition in Financial Statements." This bulletin established
more clearly defined revenue recognition criteria than previously existing
accounting pronouncements. On June 26, 2000, the SEC released SAB 101B, which
delayed the required implementation of SAB 101 until no later than the fourth
quarter of fiscal years ending December 31, 2000. The effects of this bulletin
were not material to the Company's financial position, results of operations or
cash flow.

36


In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 addresses financial accounting and reporting for all business
combinations and requires that all business combinations entered into subsequent
to June 2001 be recorded under the purchase method. This statement also
addresses financial accounting and reporting for goodwill and other intangible
assets acquired in a business combination at acquisition. SFAS No. 142 addresses
financial accounting and reporting for intangible assets acquired individually
or with a group of other assets at acquisition. This statement also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. These statements were adopted by the Company on
January 1, 2002. Under SFAS 142, goodwill is no longer amortized. In the place
of amortization, the Company is required to periodically review the valuation of
the Company's intangible assets using a discounted cash flow estimation
approach. Following the accounting for impairment discussed immediately below,
which has been made under the rules of SFAS 121, the Company believes that the
effect of adopting SFAS No. 141 and 142 will be limited to changes in
amortization expense for the periods after December 31, 2001. Additionally, the
assembled workforce intangible asset will be recharacterized as goodwill, which
will not be amortized under the rules of SFAS No. 142.

Accounting for impairment. For the years ended December 31, 2001, 2000 and
1999, the Company reported its accounting for intangible assets under SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and the accounting and reporting provisions of APB
Opinion No. 30. Under the rules of SFAS 121, the Company performs periodic
analysis to determine if the Company's intangible assets have been impaired
using a combination of discounted and undiscounted estimated cash flow
estimations. In the fourth quarter of 2001, the Company determined that the
combination of new technologies being integrated in the Company's current and
future products would result in its existing product platforms having smaller
future revenue generation capability. Additionally, the Company determined that
the continued support of existing products while migrating to new technology
platforms would result in a lower estimated cash value to the Company of
existing products. The resulting impairment to the intangible assets of the
Company was $11.8 million. As further detailed in Note 7 of the Financial
Statements, the intangible assets of the Company, after the impairment charge,
will be Developed Technologies, Customer Base and Assembled Workforce.

On October 3, 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that replaced SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of." The primary objectives of this project were to develop one
accounting model based on the framework established in SFAS No. 121 for
long-lived assets to be disposed of by sales and to address significant
implementation issues. The accounting model for long-lived assets to be disposed
of by sale applies to all long-lived assets, including discontinued operations,
and replaces the provisions of Account Principles Board (APB Opinion No. 30,
Reporting Results of Operations-Reporting the Effects of Disposal of a Segment
of a Business, for the disposal of segments of a business. SFAS No. 144 requires
that those long-lived assets be measured at the lower of carrying amount or fair
value less cost to see whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. The provisions of SFAS No. 144 apply to the Company
effective January 1, 2002. The Company is currently reviewing the impact of
those provisions.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2001, the Company's obligations include variable rate
notes payable and a line of credit bank note with aggregate principal balances
of approximately $10.9 million which mature at various dates through 2005. The
Company is exposed to the market risk of significant increases in future
interest rates. Each incremental point in the prime interest rate would increase
the Company's interest expense by approximately $109,000 per year.

At December 31, 2001, the Company had accounts receivable of approximately
$4.2 million (net of an allowance for doubtful accounts of $1.0 million). These
amounts compare to accounts receivable of approximately $8.5 million (net of an
allowance for doubtful accounts of $0.5 million) at December 31, 2000. The
Company is subject to a concentration of credit risk because most of the
accounts receivable are due from companies in the home health industry.

37



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial Statements and Supplementary Data appear on pages 45 to 75 of
this Annual Report on Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Effective June 9, 2000, the Company decided to appoint Grant Thornton LLP
as the Company's independent certified public accountants for the fiscal year
ended December 31, 2000 and dismissed Arthur Andersen LLP. The decision to
change accountants was recommended by the Audit Committee and approved by the
Board of Directors of the Company. Grant Thornton had been the auditor for MCS
prior to the merger.

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 three fiscal
years or in the subsequent interim period to June 9, 2000.

Except as described below, during the last two fiscal years and subsequent
interim period to June 9, 2000, the Company did not consult with Grant Thornton
LLP regarding any of the matters or events set forth in Item (304)(a)(2)(i) and
(ii) of Regulation S-K. Grant Thornton LLP had been the auditor for MCS, Inc.
for several years for the period preceding the merger. After the completion of
the MCS merger, the historical financial statements of MCS, Inc. were deemed to
be the financial statements of the Company. The Company consulted with Grant
Thornton LLP regarding the financial statements after the completion of the
merger. Simione did not consult with Grant Thornton LLP regarding accounting
matters pertaining to the financial statements of the Company prior to the MCS
merger.


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 2002 Annual Meeting of Stockholders.


38



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.

2.3(1) -- Purchase and Sale Agreement dated September 28, 2001 by and
between the Company, Simione Consulting, Inc. and Simione
Consultants, L.L.C. (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K dated October 12, 2001
as filed with the Securities and Exchange Commission).

3.1 -- Amended and Restated Certificate of Incorporation of the Company.

3.2 -- Certificate of Ownership and Merger of Simione Central Holdings,
Inc. with and into CareCentric, Inc. (Incorporated by reference
to the Company's Annual Report 8-K dated as of January 31, 2001
(File No. 000-22162)).

3.3 -- 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).

3.4* -- Certificate of Designations, Preferences and Rights of Series E
Preferred Stock of the Company.

4.1(5) -- Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000 as filed with
the Securities and Exchange Commission).

4.2 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the Company's
Certificate of Incorporation and Bylaws governing the rights of
holders of securities of the Company.

39


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).

40


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+ -- CareCentric, 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+ -- CareCentric, 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 CareCentric, 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).

10.16.1(5)+-- Addendum to Executive Employment Agreement dated December 20,
2000 between Simione Central Holdings, Inc. and William J.
Simione, Jr.

41


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 CareCentric, 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).

10.25 -- Remarketing Agreement dated April 17, 1998 between Simione
Central National, Inc. and Eclipsys Corporation.

10.26 -- Stock Purchase Agreement dated April 17, 1998 between
CareCentric, 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.

10.29 -- Warrant to Purchase Common Stock dated March 7, 2000 by and
between the Company and Mestek, Inc. (Incorporated by reference
to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2000, (File No. 000-22162)).

10.30(4) -- Merger Option Agreement by and between the Company and Mestek,
Inc. dated March 7, 2000.

10.31(4) -- Series D Convertible Preferred Stock Purchase Agreement dated
June 12, 2000 between the Company and John E. Reed.

42


10.32.1* -- First Amendment to Secured Convertible Credit Facility and
Security Agreement dated as of December 31, 2001 by and between
the Company, CareCentric National, LLC, and CareCentric
Consulting, Inc.

10.32.2* -- Promissory Note dated December 31, 2001 of the Company in favor
of John E. Reed.

10.32.3* -- Promissory Note dated December 31, 2001 of the Company in favor
of Mestek, Inc.

10.32(4) -- Secured Convertible Credit Facility and Security Agreement dated
June 12, 2000 between the Company, Simione Central National, LLC
and Simione Central Consulting, Inc. and John E. Reed.

10.33(4) -- Warrant dated June 12, 2000 by and between the Company and
Mestek, Inc.

10.34 -- Warrant dated July 12, 2000 by and between the Company and
Mestek, Inc. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).

10.35 -- Loan and Security Agreement by and between the Company, Simione
Central National, LLC, Simione Central Consulting, Inc. and
Wainwright Bank and Trust Company, dated July 10, 2000
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000 (File No. 000-22162)).

10.36(5) -- Lease Agreement dated January 16, 2001 between Prentiss
Properties Acquisition Partners, L.P. and Simione Central
Holdings, Inc.

10.37(5) -- Sublease dated June 17, 1999 between Healthfield, Inc. and
Simione Central Holdings, Inc., and consented to by Environmental
Design International, Ltd.

10.38(5) -- Sublease dated December 20, 2000 between International Paper,
Inc. and Simione Central Holdings, Inc.

10.39(5) -- Sublease Agreement dated January 15, 2000 between The Profit
Recovery Group International USA, Inc. and Simione Central
Holdings, Inc.

10.39* -- Lease Agreement dated December 31, 2001 between Coneca
Properties, L.C. and the Company.

10.40 -- First Amendment to Voting Agreement Regarding Simione Directors
dated as of July 12, 2000 by and among the Company, Mestek, Inc.,
John E. Reed, Stewart B. Reed, E. Herbert Burk, Daniel J.
Mitchell and Jesse I. Treu (Incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001).

10.41 -- Settlement Agreement and Mutual Release dated as of May 16, 2001
by and between the Registrant and the former shareholders and
noteholders of CareCentric Solutions, Inc. by and through Daniel
J. Mitchell as their representative and agent (Incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001).

10.42 -- Purchase and Sale Agreement dated September 28, 2001 by and
between the Registrant, Simione Central Consulting, Inc. n/k/a
CareCentric Consulting, Inc., and Simione Consultants, L.L.C.
(Incorporated by reference to Exhibit 2.1, filed with
Registrant's Current Report on Form 8-K (Filed October 12,
2001)).

10.43* -- Employment Offer letter between John R. Festa and the Company
dated October 22, 2001.

43


10.44* -- Stock Grant Agreement between John R. Festa and the Company dated
January 23, 2002.

10.45* -- Indemnification Agreement between John R. Festa and the Company
dated January 23, 2002.

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).

16.2 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form
8-K dated June 14, 2000 as filed with the Securities and Exchange
Commission).

21.1* -- Subsidiaries of the Company.

23.1* -- Consent of Grant Thornton LLP.

- -----------------------
* 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 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 Company's Current Report on Form 8-K dated
as of August 12, 1999 (File No. 000-22162).
(4) Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2000 (File No. 000-22162).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 (File No. 000-22162).

(b) Reports on Form 8-K.

On October 12, 2001, the Company filed a Current Report on Form 8-K
reporting the sale of certain assets of its subsidiary, Simione Consulting,
Inc.

On February 6, 2002, the Company filed a Current Report on Form 8-K
reporting its plan to realign its business.

On March 29, 2002 the Company filed a Current Report on Form 8-K reporting
the $11.8 million impairment adjustment on its intangible assets.


44


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.


CARECENTRIC, INC.

Date: April 15, 2002 /s/ JOHN R. FESTA
-------------------------------------------
By: John R. Festa
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/ JOHN R. FESTA President, Chief Executive Officer April 15, 2002
- -------------------------------- and Director (principal executive
John R. Festa officer)

/s/ H. FOREST RALPH Principal Financial and Accounting April 15, 2002
- -------------------------------- Officer
H. Forest Ralph

/s/ WILLIAM J. SIMIONE, JR. Director April 15, 2002
- --------------------------------
William J. Simione, Jr.

/s/ DAVID O. ELLIS Director April 15, 2002
- --------------------------------
David O. Ellis

/s/ WINSTON R. HINDLE, JR. Director April 15, 2002
- --------------------------------
Winston R. Hindle, Jr.

Director April 15, 2002
- --------------------------------
Barrett C. O'Donnell

/s/ JOHN E. REED Chairman and Director April 15, 2002
- --------------------------------
John E. Reed

/s/ EDWARD K. WISSING Director April 15, 2002
- --------------------------------
Edward K. Wissing

/s/ R. BRUCE DEWEY Vice Chairman and Director April 15, 2002
- --------------------------------
R. Bruce Dewey




45



CARECENTRIC, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





PAGE
Report of Independent Certified Public Accountants - Grant Thornton LLP..........................................47

Consolidated Balance Sheets......................................................................................48

Consolidated Statements of Operations............................................................................49

Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 2001,
2000, and 1999..............................................................................................50

Consolidated Statements of Cash Flow for the years ended December 31, 2001, 2000, and 1999.......................51

Notes to Consolidated Financial Statements.......................................................................52




46



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and the Board of Directors of CareCentric, Inc.:

We have audited the accompanying consolidated balance sheets of CARECENTRIC,
INC. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the years in the three year period ended
December 31, 2001. 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 of America. 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 CareCentric, Inc. and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II included herein 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/ GRANT THORNTON LLP

Boston, Massachusetts
April 12, 2002



47


CARECENTRIC, INC.
CONSOLIDATED BALANCE SHEETS



DECEMBER 31,
--------------------------------------
2001 2000
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 201,000 $ 362,000
Accounts receivable, net of allowance for
doubtful accounts of $1,042,000 and $551,000,
respectively 4,185,000 8,484,000
Prepaid expenses and other current assets 608,000 701,000
Notes receivable 413,000 -
---------------- ---------------
Total current assets 5,407,000 9,547,000

Purchased software, furniture and equipment, net 1,533,000 1,957,000
Intangible assets, net 5,437,000 23,405,000
Other assets 431,000 211,000
---------------- ---------------
Total assets $ 12,808,000 $ 35,120,000
================ ===============

LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
Current liabilities:
Line of credit $ 5,572,000 $ 5,996,000
Notes Payable - 600,000
Accounts payable 2,185,000 1,156,000
Accrued compensation expense 593,000 616,000
Accrued liabilities 6,574,000 7,447,000
Customer deposits 2,120,000 2,496,000
Unearned revenues 3,981,000 5,001,000
---------------- ---------------
Total current liabilities 21,025,000 23,312,000


Accrued liabilities, less current portion 750,000 128,000

Notes payable long-term 5,343,000 600,000

Commitments and contingencies

Shareholders' equity (Deficit):
Preferred Stock ; 10,000,000 shares authorized
Series B Preferred, $.001 par value;
5,600,000 issued and outstanding; liquidation
value $1.27 6,000 6,000
Series C Preferred, $.001 par value;
850,000 issued and outstanding; liquidation
value $1.35 1,000 1,000
Series D Preferred, $.001 par value;
398,000 issued and outstanding; liquidation
value $2.92 - -
Series E Preferred, $.001 par value;
210,000 issued and outstanding; liquidation
value $1.00 - -
Common stock, $.001 par value; 20,000,000 shares
authorized;
4,371,350 shares issued and outstanding at
December 31, 2001
3,849,816 shares issued and outstanding at 4,000 4,000
December 31, 2000

Additional paid-in capital 21,070,000 21,070,000
Stock warrants 1,000,000 1,000,000
Accumulated deficit (36,391,000) (11,001,000)
---------------- ---------------
Total shareholders' equity (Deficit) (14,310,000) 11,080,000
---------------- ---------------
Total liabilities and shareholders' equity (Deficit) $ 12,808,000 $ 35,120,000
================ ===============


See notes to consolidated financial statements



48


CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS



YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999
-------------- --------------- --------------
Net revenues $ 20,446,000 $ 19,574,000 $16,648,000

Costs and expenses:
Cost of revenues 8,217,000 8,478,000 10,563,000
Selling, general and administrative 10,715,000 10,756,000 4,077,000
Research and development 6,158,000 6,174,000 1,051,000
Amortization and depreciation 3,865,000 3,481,000 230,000
Write down of intangibles 11,799,000 - -
Restructuring charge 675,000 - -
-------------- --------------- --------------
Total costs and expenses 41,429,000 28,889,000 15,921,000
-------------- --------------- --------------

Loss from operations (20,983,000) (9,315,000) 727,000

Other income (expense):
Other income (expense) - (6,000) -
Interest expense (1,314,000) (710,000) -
Interest and other income 37,000 74,000 45,000
-------------- --------------- --------------
Income (loss) before taxes $(22,260,000) $ (9,957,000) $ 772,000
============== =============== ==============

Income tax benefit (expense) (15,000) 154,000 (306,000)
-------------- --------------- --------------
Income (loss) from continuing operations $(22,275,000) $(9,803,000) $ 466,000

Discontinued operations
Loss on disposal of discontinued operations (2,632,000) - -

Income (loss) from operations of
discontinued segment before taxes (483,000) (442,000) 251,000

Applicable tax expense - - 100,000
-------------- --------------- --------------
Net (loss) income from discontinued operations (3,115,000) (442,000) 151,000
-------------- --------------- --------------

Net (loss) income $(25,390,000) $(10,245,000) $ 617,000
============== =============== ==============

Cumulative preferred dividends (722,000) (569,000) -

Net (loss) income available to common shareholders $(26,112,000) $(10,814,000) $ 617,000
============== =============== ==============

(Loss) income per share - basic and diluted
From continuing operations $ (5.21) $ (2.87) $ 0.31
Weighted average common shares -
basic and diluted 4,272,000 3,418,000 1,490,000
============== =============== ==============
Net (loss) income per share - basic and diluted
From discontinued operations $ (0.73) $ (0.13) $ 0.10
Weighted average common shares -
basic and diluted 4,272,000 3,418,000 1,490,000
============== =============== ==============
Net (loss) income per share - basic and diluted $ (5.94) $ (3.00) $ 0.41
Weighted average common shares -
basic and diluted 4,272,000 3,418,000 1,490,000
============== =============== ==============

Net loss (income) per share - basic and diluted available
to common shareholders $ (6.11) $ (3.16) $ 0.41

Weighted average common shares -
basic and diluted 4,272,000 3,418,000 1,490,000
============== =============== ==============


See notes to consolidated financial statements



49




CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, 1999



COMMON PREFERRED ADDITIONAL TOTAL
----------------------- ---------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES STOCK SHARES STOCK CAPITAL WARRANTS DEFICIT EQUITY
----------- ----------- ---------- ----------- ----------- ---------- ------------ -------------

Balance at December 31, 1998 1,000 $ 1,000 - $ - $ 230,000 $ - $(1,212,000) $ (981,000)
----------- ----------- ---------- ----------- ----------- ---------- ------------ -------------

Net income 617,000 617,000

Distribution of ProfitWorks
Division 80,000 80,000
Contribution to Paid in
Capital 950,000 950,000
Dividend paid (161,000) (161,000)
----------- ----------- ---------- ----------- ----------- ---------- ------------ -------------
Balance at December 31, 1999 1,000 $1,000 - $ - $1,260,000 $ - $(756,000) $ 505,000
----------- ----------- ---------- ----------- ----------- ---------- ------------ -------------

MCS, Inc. shares eliminated
in merger (1,000) (1,000) (1,000)

CareCentric, Inc.
Shares post merger, $.001
par value 3,850,000 4,000 - - 19,810,000 1,000,000 20,814,000

Issuance of $.001 par value
preferred stock in
connection with merger - - 6,848,000 7,000 - 7,000
Series B, 5,600,000 shares
Series C, 850,000 shares
Series D, 398,000 shares -

Net loss (10,245,000) (10,245,000)
----------- ----------- ---------- ----------- ----------- ---------- ------------ -------------
Balance at December 31, 2000 3,850,000 $4,000 6,848,000 $ 7,000 21,070,000 1,000,000 (11,001,000) 11,080,000
----------- ----------- ---------- ----------- ----------- ---------- ------------ -------------

Issuance of $.001 par value
common stock 593,000 -

Cancellation of $.001 par
value common stock (72,000) -

Issuance of $.001 par value
Series E preferred stock,
210,000 shares - - -

Net loss (25,390,000) (25,390,000)
----------- ----------- ---------- ---------- ----------- ---------- ------------ --------------
Balance at December 31, 2001 4,371,000 $4,000 6,848,000 $ 7,000 $21,070,000 $1,000,000 $(36,391,000) $(14,310,000)
=========== =========== ========== ========== =========== ========== ============ ==============

See notes to Consolidated Financial Statements


50



CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW




YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999
---------------- ----------------- ------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(25,390,000) $ (10,245,000) $ 617,000


ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Provision for doubtful accounts 500,000 538,000 -
Amortization and depreciation 4,252,000 3,960,000 240,000
Loss on discontinued operations 2,632,000 - -
Write down of intangibles 11,799,000 - -

CHANGES IN ASSETS AND LIABILITIES, NET OF
ACQUISITIONS:
Accounts receivable 2,101,000 (929,000) (205,000)
Prepaid expenses and other current assets 90,000 159,000 115,000
Other assets 138,000 1,122,000 (983,000)
Accounts payable 1,447,000 (2,684,000) 281,000
Accrued compensation (23,000) (88,000) (395,000)
Accrued liabilities (26,000) (730,000) 557,000
Customer deposits (376,000) 949,000 (270,000)
Unearned revenues (1,020,000) 726,000 (242,000)
---------------- ----------------- ------------------
Net cash used in operating activities (3,876,000) (7,222,000) (285,000)
---------------- ----------------- ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Assets and liabilities disposed of (16,000) - -
Purchase of software, furniture and equipment (327,000) (658,000) (597,000)
---------------- ----------------- ------------------
Net cash used in investing activities (343,000) (658,000) (597,000)
---------------- ----------------- ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in connection with MCS merger - 3,547,000 -
Capital contribution from former parent Mestek to MCS - - 1,030,000
Payment on notes payable - (150,000) -
Proceeds from notes payable - 600,000 -
Increase (decrease) in line of credit 4,058,000 4,198,000 -
Dividends paid (to Mestek by MCS) - - (161,000)
---------------- ----------------- ------------------
Net cash provided by financing
activities 4,058,000 8,195,000 869,000
---------------- ----------------- ------------------

Net change in cash and cash equivalents (161,000) 315,000 (13,000)

Cash and cash equivalents, beginning of period 362,000 47,000 60,000
---------------- ----------------- ------------------

Cash and cash equivalents, end of period $ 201,000 $ 362,000 $ 47,000
================ ================= ==================


See notes to consolidated financial statements




51



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MCS AS DEEMED ACQUIRER OF CARECENTRIC, INC.

On March 7, 2000, CareCentric, Inc. (formerly known as Simione Central
Holdings Inc.) ("CareCentric") and MCS, Inc. ("MCS") merged in a transaction
("the CareCentric/MCS merger", also described as "the MCS/Simione merger")
accounted for as a reverse acquisition for financial reporting purposes. In
connection with the acquisition, CareCentric issued 1,489,853 shares of its
common stock in exchange for all the outstanding common stock of MCS, and
thereby, the former shareholders of MCS acquired control of CareCentric. As a
result, for financial reporting purposes MCS is considered the acquiring
company; hence, the historical financial statements of MCS became the historical
financial statements of CareCentric and include the results of operations of
CareCentric only from the effective acquisition date.

The weighted average common shares for the year ended December 31, 2000 are
recast in the accompanying Consolidated Statements of Operations to give effect
to the 1,489,853 shares of CareCentric common stock that were issued to the MCS
shareholders in connection with the CareCentric/MCS merger on March 7, 2000 as
though such shares had been outstanding for the entire period. For the period
from January 1, 2000 through March 6, 2000, therefore, 1,489,853 shares of
issued and outstanding CareCentric common stock are deemed to be owned by the
MCS shareholders. For the period from March 7, 2000 through December 31, 2000,
there were 3,849,816 total shares of issued and outstanding Company common stock
(after giving effect to the CareCentric/MCS merger). The weighted average shares
for the year ended December 31, 1999 are also recast to give effect to the
1,489,853 shares of CareCentric common stock that were issued to the MCS
shareholders pursuant to the CareCentric/MCS merger as though such shares had
been outstanding for the entire period.

BASIS OF PRESENTATION

The consolidated financial statements prepared by the Company include the
results of operations of the parent company and its wholly owned subsidiaries.
All inter-company balances and transactions have been eliminated.

These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or classification of
liabilities that might be necessary should the Company be unable to continue to
operate in the normal course of business. See Note 17 to the accompanying
Consolidated Financial Statements.

Certain prior period amounts have been reclassified to conform to the 2001
financial statement presentation of discontinued operations.

DESCRIPTION OF BUSINESS

The Company is a provider of information technology systems and related
services and consulting services designed to enable home health care providers
to more effectively operate their businesses and compete in the prospective
payment system (PPS) and managed care environments. The Company's focus is to
help home health care providers streamline their operations and better serve
their patients. CareCentric offers several comprehensive software solutions.
Each of these software solutions is designed to enable customers to generate and
utilize comprehensive financial, operational and clinical information. In
addition to its software solutions and related software support services, the
Company's home health care consulting services assist providers in addressing
the challenges of reducing costs, maintaining quality, streamlining operations
and re-engineering organizational structures, as well as assisting with
regulatory compliance and merger and acquisition due diligence.

52


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

The Company recognizes revenue 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) delivery has occurred; (3) the license fee is
fixed and determinable; (4) collection is probable; and (5) remaining
obligations under the license agreement are immaterial. The Company sells and
invoices software licenses and maintenance fees as separate contract elements,
except with respect to first year maintenance which is sold in the form of a
bundled turnkey system. The Company has established vendor specific objective
evidence related to the value of maintenance fees. Where applicable, the Company
uses the residual value method to allocate software revenue between licenses and
first year maintenance.

Revenues are derived from the licensing and sub-licensing of software, the
sale of computer hardware, accessories and supplies, implementation and training
products and services, forms and case plans, and software maintenance and
support services. For the year ended December 31, 2001, the Company recorded
total revenues of $20.4 million. The Company's core product lines of STAT2 and
MestaMed accounted for 28.0% and 38.3% respectively of the $20.4 million in
revenues.

To the extent that software and services revenues result from 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 collectability of fees is determined to
be probable, provided that no significant obligation remains under the contract.
Limited amounts of revenues derived from the sale of software licenses requiring
significant modification or customization are recorded based upon the percentage
of completion method using labor hours or contract milestones. Software support
or maintenance allows customers to receive unspecified enhancements and
regulatory data updates in addition to telephone support.

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 generally charges for software implementation, training
and technical consulting services as well as management consulting services on
an hourly or daily basis. The Company is now offering "tiered pricing" for
implementation of new systems whereby the customer pays a fixed fee for a
certain level of packaged services and daily fees for services beyond the
package.

Revenues for post-contract customer support are recognized ratably over the
term of the support period, which is typically one year. Post contract customer
support fees typically cover incremental product enhancements, regulatory
updates and correction of software errors. Separate fees are charged for
significant product enhancements, new software modules, additional users, and
migrations to different operating system platforms.

Subsequent to delivery, the Company frequently delivers a variety of add-on
software and hardware components. Revenues from these sales are recognized upon
shipment.

In addition to software licenses, software maintenance and support, and
related hardware, the Company also provides computer-based training, CD-ROMs and
a number of ancillary services including on site implementation and training,
classroom training, consulting and "premium" and after-hours support. Revenues
from such products and services are recognized monthly as such products are
delivered and such services are performed.

53


Unbilled receivables typically represent revenues from ancillary services
performed and earned in the current period but not billed until subsequent
periods, usually within one month. Unearned revenues represent amounts billed
for which revenue recognition has not yet occurred.


PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT

Purchased software, furniture and equipment are carried at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income for the period.


SOFTWARE DEVELOPMENT EXPENSES

Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. For the years
ended December 31, 2001, 2000, 1999, the Company had no capitalized computer
software and development costs.

CASH EQUIVALENTS

All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.


INTANGIBLE ASSETS AND LONG-LIVED ASSETS

Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset's
carrying amount. The application of SFAS No. 121 resulted in an impairment loss
of $11.8 million recorded in the fourth quarter of 2001, see Note 7. Prior to
the impairment adjustment, the intangible assets arising from the
CareCentric/MCS merger were amortized using the straight-line method over the
estimated useful lives of the related assets as more fully disclosed in Notes 6
and 7. The measurement of the recorded impairment was based upon comparing the
projected undiscounted future cash flow from the use of the assets against the
unamortized carrying value of the assets in the financial statements.

Effective July 1, 2001, the Company adopted SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Intangible Assets in 2001" is
effective January 1, 2002 and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," is effective January 1, 2002. These new
standards supersedes the Company's current accounting for Intangible Assets
under SFAS No. 121 as discussed below in the section Recent Accounting
Pronouncements.


INCOME TAXES

The Company accounts for income taxes using the asset/liability method
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities.

54


NET (LOSS) EARNINGS PER SHARE

The Company calculates earnings per share under SFAS No. 128, "Earnings Per
Share." Basic earnings per share exclude any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share for the years
2001 and 2000 exclude the effects of options, warrants and conversion rights as
they would be anti-dilutive, and as a result, basic and diluted earnings are the
same for the years 2001 and 2000. For the year 1999, there were no potentially
dilutive instruments outstanding.




FOR YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2001 2000 1999
--------------- --------------- ------------
Numerator:
Net (loss) income after cumulative
deferred dividends $(26,112,000) $(10,814,000) $ 617,000
=============== =============== ============

Denominator:
Denominator for basic and diluted
earnings per share- weighted -
average shares 4,272,000 3,418,000 1,490,000
=============== =============== ============

Net (loss) income per share - basic
and diluted for common shareholders $ (6.11) $ (3.16) $ 0.41
=============== =============== ============



STOCK BASED COMPENSATION

Employee stock options are accounted for under SFAS No. 123 (and its
related interpretations) which allows the use of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" which allows
providing disclosure of compensation cost - see Note 12 to the Consolidated
Financial Statements.

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 receivable and payable: The carrying amounts of the Company's notes
receivable and payable approximates their fair value.

RECENT ACCOUNTING PRONOUNCEMENTS

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 adoption of SFAS No. 133 did not have a material impact on the
Company's financial position or results of operations.

On December 3, 1999, the SEC released Staff Accounting Bulletin 101, (SAB
101) "Revenue Recognition in Financial Statements". This bulletin established
more clearly defined revenue recognition criteria than previously existing
accounting pronouncements. On June 26, 2000, the SEC released SAB 101B, which
delayed the required implementation of SAB 101 until no later than the fourth
quarter of fiscal years ending December 31, 2000. The effects of this bulletin
were not material to its financial position, results of operations or cash flow.

55


The Financial Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Intangible Assets in 2001.
SFAS No. 141 is effective for all business combinations completed after June 30,
2001. SFAS No. 142 is effective for fiscal years beginning after December 15,
2001; however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of SFAS
No. 142. Major provisions of these Statements and their effective dates for the
Company are as follows: (i) all business combinations initiated after June 30,
2001 must use the purchase method of accounting. The pooling of interest method
of accounting is prohibited except for transactions initiated before July 1,
2001, (ii) intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal rights or
are separable from the acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a related contract, asset
or liability, (iii) goodwill and intangible assets with indefinite lives
acquired after June 30, 2001, will not be amortized (effective January 1, 2002,
all previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization), (iv) effective January 1, 2002,
goodwill and intangible assets with indefinite lives will be tested for
impairment annually and whenever there is an impairment indicator and (v) all
acquired goodwill must be assigned to reporting units for purposes of impairment
testing and segment reporting. Following the accounting for impairment discussed
below, which has been made under the rules of SFAS 121, the Company believes
that the effect of adopting SFAS No. 141 and 142 will be limited to changes in
amortization expense for periods after December 31, 2001. Additionally, the
assembled workforce intangible asset will be recharacterized as goodwill, which
will not be amortized under the rules of SFAS No. 142.

On October 3, 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that replaced SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of." The primary objectives of this project were to develop one
accounting model based on the framework established in SFAS No. 121 for
long-lived assets to be disposed of by sales and to address significant
implementation issues. The accounting model for long-lived assets to be disposed
of by sale applies to all long-lived assets, including discontinued operations,
and replaces the provisions of Account Principles Board (APB) Opinion no. 30,
Reporting Results of Operations-Reporting the Effects of Disposal of a Segment
of a Business, for the disposal of segments of a business. SFAS No. 144 requires
that those long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. The provisions of SFAS No. 144 will apply to the Company
effective January 1, 2002. The Company is currently reviewing the impact of
these provisions.


NOTE 2 -- DISCONTINUED OPERATIONS

The discontinued operations reported in the Company's results of operations
for the year ending December 31, 2001 relate to the Company's Simione Consulting
segment which was sold on September 28, 2001. The Consulting business, previous
to its sale, was the Company's only separately reported segment of business.
Accordingly, the Company no longer reports segment information. The Consulting
business segment was discontinued through a transaction which sold certain of
the assets of the Company's wholly-owned subsidiary, Simione Consulting, Inc.,
to Simione Consultants, L.L.C. ("Simione"), which is owned and controlled by
William Simione, Jr., a director of the Company. The total sales price was
approximately $2.0 million plus the assumption of certain liabilities by
Simione. The Company's net pre-tax loss on the disposal was approximately $2.6
million and resulted from a write-off of the intangible assets associated with
the Consulting segment as identified at the merger date of March 7, 2000 with
MCS.

Summarized financial information for the discontinued Consulting segment is
as follows:

56


000'S
----------------------
2001 2000
----------- ----------
Operating Revenue $3,417 $5,393

(Loss) before Provision for Income Taxes (484) (442)

(Loss) from Discontinued Operations
Net of Income Tax (484) (442)

Current Assets -- 1,033
Total Assets -- 4,472

Net Assets of Discontinued Operations $ -- $1,643

The discontinued operations reported in the Company's results of operations
for the year ending December 31, 1999 relate to MCS's Profitworks segment which
was distributed to MCS's former parent company, Mestek Inc., on September 1,
1999.


NOTE 3 - RESTRUCTURING CHARGE

A restructuring charge of $675,000 (including terminated leases and
contracts of $244,000 and severance of $431,000, respectively) was incurred in
April 2001 as the result of the Company approving a plan to close one remote
support office and to downsize the workforce at its remaining facilities. As of
December 31, 2001, that plan was fully completed and the restructuring charge
was completely expended.


NOTE 4 - CARECENTRIC/MCS MERGER

On March 7, 2000, MCS completed the merger with CareCentric, Inc. (formerly
known as Simione Central Holdings Inc.) ("CareCentric"). CareCentric issued
1,489,853 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 by CareCentric
immediately prior to the merger. In connection with the closing of the merger,
Mestek invested $6.0 million in CareCentric in exchange for 5.6 million shares
of Series B preferred stock and warrants to purchase 400,000 shares (on a split
adjusted basis) of CareCentric common stock and $0.87 million in exchange for
170,000 shares of Series C Preferred Stock.

As required by Generally Accepted Accounting Principles (GAAP), the effects
of the merger on the Company's assets and liabilities have been excluded from
the operating section of the cash flow statement for reporting purposes.

Pro-forma unaudited results assuming the merger took place as of January 1,
1999, and further assuming that the acquisition of CareCentric Solutions, Inc.
by CareCentric on August 12, 1999 took place on January 1, 1999, are as follows:

57





FOR YEAR ENDED DECEMBER 31,
2000 1999
----------------- ------------------
Revenue $ 23,586,000 $ 35,221,000
(loss) continuing operations $ (11,654,000) $ (12,066,000)
(loss) discontinued operations $ - $ 15,100
(loss) per share -continuing basic and diluted $ (3.41) $ (8.10)
(loss) per share -discontinuing basic and diluted $ 0.00 $ 0.64
Net (loss) per share - basic and diluted $ (3.41) $ (7.45)



NOTE 5 - NOTES RECEIVABLE

The Company has certain Notes Receivable of varying maturities which have
resulted from the sale of the assets of the Consulting segment, financing to a
customer for purchase of a new software system, and the employment contract of
Mr. Jack Arthur, former Senior Vice President of Information Technology. The
Consulting segment Note Receivable is due from Mr. William Simione Jr.,
currently a Director of the Company, and the President and Chief Executive
Officer of the acquirer of the Consulting business, Simione Consulting, LLC, and
past Chief Executive Officer of the Consulting segment when it was part of the
Company. The Customer note occurred in the normal course of business. The Note
receivable from Mr. Jack Arthur was the final balance resulting from a term in
Mr. Arthur's employment agreement with the Company. Mr. Arthur's employment was
terminated during 2001 and the balance of the note was forgiven as part of the
restructuring charge discussed in Note 3 above.

The amounts and term of each note is summarized in the table below.

NOTES RECEIVABLE
-------------------------------------------------
CUSTOMER
CONSULTING MR. ARTHUR NOTE TOTAL
----------- ------------ --------- ----------
Balance 12-31-00 - $157,000 - $157,000
=========== ============ ========= ==========
Balance 12-31-01 $707,000 - $137,000 $844,000
=========== ============ ========= ==========

Interest Rate 8.50% 7.00% 5.65%

Obligation Term

Principal amounts due
2002 $298,000 - $115,000 $413,000
2003 $215,000 - $22,000 $237,000
2004 $194,000 - - $194,000
----------- ------------ --------- ----------
$707,000 $ -- $137,000 $844,000
=========== ============ ========= ==========


NOTE 6 - PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT

Purchased software, furniture and equipment consisted of the following:

58

DEPRECIATION
DECEMBER DECEMBER ESTIMATED
31, 2001 31, 2000 USEFUL LIVES
------------ ------------ -------------

Furniture and Fixtures $ 1,428,000 $1,551,000 10 years
Computer equipment and
purchased software 6,237,000 6,050,000 5 years
------------ ------------
7,665,000 7,601,000

Accumulated depreciation (6,132,000) (5,644,000)
------------ ------------

$ 1,533,000 $ 1,957,000
============ ============


NOTE 7 - INTANGIBLE ASSETS

As a result of the merger with MCS on March 7, 2000, the Company
capitalized $26.5 million of intangible assets. Those assets were amortized
according to various lives ranging from five to nine years. In accordance with
Financial Accounting Standard No. 121, the Company is required to periodically
review the value of its intangible assets. During the fourth quarter of 2001,
the Company's analysis and review, utilizing the methodology of SFAS No. 121,
resulted in an $11.8 million impairment loss of the intangible assets of the
Company. The major reasons for the impairment were new technologies being
integrated in the Company's current and future products causing its existing
product platforms to have reduced future revenue generation capability, and an
expectation that immediate opportunities for new software sales are lower than
were forecasted at the time of the merger with MCS.

The following table summarizes the Company's changes in account balances
for its Intangible Assets during the year ended December 31, 2001.




12/31/01
ORIGINAL ASSETS IMPAIRMENT ACCUMULATED NET BOOK AMORTIZATION
COST DISPOSED WRITE-DOWN AMORTIZATION VALUE PERIOD
------------- ------------ ------------- ------------- ------------- --------------
Developed technology $10,650,000 $ - $(4,220,000) $(2,441,000) $ 3,989,000 8 years
Customer base 1,700,000 (510,000) - (242,000) $948,000 9 years
Assembled workforce 2,300,000 (422,000) (941,000) (437,000) 500,000 5 years
Goodwill 11,851,000 (2,484,000) (6,639,000) (2,728,000) - -
------------- ------------ ------------- ------------- -------------
$26,501,000 $(3,416,000) $(11,800,000) $(5,848,000) $5,437,000
============= ============ ============= ============= =============



59


NOTE 8 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS



DECEMBER 31, DECEMBER
2001 31, 2000
-------------- -------------
SHORT TERM:
Line of Credit $5,572,000 $5,996,000
Note Payable - Mestek - 600,000
-------------- -------------
$5,572,000 $6,596,000
============== =============
LONG TERM:
Convertible Note Payable - B.C. O'Donnell $ 600,000 $ 600,000
Convertible Note Payable - J.E. Reed (1) 3,500,000 -
Note Payable - Mestek 1,019,000 -
Note Payable - Mestek Capitalized Interest 40,000 -
Note Payable - J.E. Reed Capitalized interest 184,000 -
-------------- -------------
$5,343,000 $ 600,000
============== =============


(1) Includes Mestek's participation in the J.E. Reed Facility

Line of Credit:

On July 12, 2000, the Company entered into a $6.0 million Loan and Security
Agreement facility with Wainwright Bank and Trust Company (the Wainwright
Facility), a commercial bank, under which the Company granted a first priority
position on substantially all of its assets as security. The Wainwright Facility
was used to pay off the line of credit with Silicon Valley Bank, certain
short-term loans from Mestek, Inc. (a related party, See Note 14), and a loan
from David O. Ellis. Borrowings under the Wainwright Facility accrue interest,
at the bank's prime rate per annum, require monthly payments of interest and
mature on July 12, 2002. The Company's obligations under the Wainwright Facility
are guaranteed by Mestek in consideration of which the Company has issued a
warrant to Mestek to purchase 104,712 shares of the Company's common stock as
more fully explained in Note 12 to these Financial Statements.

Convertible Note Payable - Barrett C. O'Donnell:

On November 11, 1999, Simione borrowed $500,000 from Barrett C. O'Donnell
and $250,000 from David O. Ellis, both on an unsecured basis, and executed
promissory notes in connection therewith. Dr. Ellis and Mr. O'Donnell are
directors of the Company. When the CareCentric/MCS merger was completed on March
7, 2000, the Company succeeded to both of these obligations. The note payable to
Dr. Ellis, which accrued interest at 9% per annum, was paid in full on July 12,
2000 in advance of its August 15, 2000 maturity. The note payable to Mr.
O'Donnell included interest at 9% per annum, was scheduled to mature on May 11,
2002, and required quarterly payments of accrued interest. On August 8, 2000,
the $500,000 note payable to Mr. O'Donnell, together with $100,000 of deferred
salary, was cancelled in exchange for a $600,000 subordinated note, convertible
into CareCentric common stock at a strike price of $2.51 per share, with
interest at 9% per annum and a five-year maturity. In January 2002, this loan
was amended to change the interest rate to prime plus two percent and to change
the terms of payment of interest for 2002 to require that one-half of the
accrued interest be timely paid each quarter and the balance to be paid on
December 31, 2003 or to be converted into an additional convertible note.

Note Payable - Mestek:

The Company is obligated under an eighteen month unsecured promissory note
in the principal amount of $1,019,000 payable to Mestek Inc. which bears
interest at prime plus one and one half percent (1.5%), with interest payable
semiannually and which matures on June 30, 2003. This note covers funds advanced
by Mestek to CareCentric to cover payroll and accounts payable obligations
incurred by the Company during the period of its transition of senior lenders
from Silicon Valley Bank to Wainwright Bank and Trust Company, accrued and


60


unpaid interest thereon and the unreimbursed portion of Mr. Bruce Dewey's salary
for the periods from November 9, 1999 to October 31, 2001 when he was Chief
Executive Officer of the Company.

J.E. Reed Facility:

On June 22, 2000, the Company entered into a new financing facility (the J.
E. Reed Facility) provided by John E. Reed, Chairman of CareCentric and the
Chairman and Chief Executive Officer of Mestek, Inc. The J. E. Reed Facility
consists of a $6.0 million subordinated line of credit, convertible into common
stock of the Company at a strike price of $2.51 per share, with interest at 9%
per annum and a five-year maturity. The J. E. Reed Facility can be drawn down by
the Company as needed in $500,000 increments and is secured by a second position
on substantially all of the Company's assets. No borrowings were outstanding
under the J. E. Reed Facility as of December 31, 2000; however, borrowings at
December 31, 2001 stand at $3,500,000, $1,000,000 of which was participated to
Mestek, Inc. effective December 31, 2001 and $2,500,000 of which remains held by
Mr. Reed. On December 31, 2001, the facility was amended to change the interest
rate to prime plus two percent, to change the payment term for unpaid 2001
interest to require payment at December 31, 2003, or to convert the outstanding
unpaid interest to additional convertible notes, in the amount of $184,438 at
the option of Mr. Reed, and in the amount of $40,463 at the option of Mestek,
and to change the terms of payment of interest for 2002 to require that one-half
be timely paid each quarter and the balance be paid on December 31, 2003 or be
converted to additional convertible notes.

The Company is obligated under a number of capital lease obligations
originally entered into by CareCentric related to computer equipment formerly
used in CareCentric's business.

Cash paid interest was $491,000, $510,000 and $0 during the years ended
December 31, 2001, 2000 and 1999, respectively.

Maturities of long-term debt in each of the next five years are as follows
in thousands:

2002 $ -
2003 1,243
2004 -
2005 4,100
2006
-----------
Total $5,343
===========

The fair value of the Company's long-term debt is estimated based on the
current interest rates offered to the Company for debt offered under the
liquidity conditions and credit profile of the Company. Management believes the
carrying value of debt and the contractual values of the outstanding letters of
credit approximate their fair values as of December 31, 2001.


NOTE 9 - COMMITMENTS AND CONTINGENCIES

CONTINGENCIES

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.

Simione Central Holding, Inc., a subsidiary of CareCentric now known as SC
Holding, Inc. ("SC Holding") 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 re. McLendon v.
Columbia/HCA Healthcare Corp., et al., No. 97-VC-0890 (N.D. Ga.)). The lawsuit
involves alleged claims that SC Holding allegedly participated in a conspiracy


61


with Columbia/HCA and other third parties to bill inflated and fraudulent claims
to Medicare. On July 21, 1999, the Justice Department issued notice that it had
elected not to join in the claims asserted against SC Holding 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 SC
Holding. In late 2000, CareCentric was advised by Mr. McLendon's attorney that
notwithstanding the declination by the Justice Department, Mr. McLendon intends
to pursue "whistleblower" claims against SC Holding directly. Through March 22,
2002, no such action has been taken and nothing further has been heard from
McLendon's attorney over one year. Management believes that this claim has been
abandoned. In the event a claim is asserted, however, CareCentric and SC Holding
intend to vigorously defend against it.

COMMITMENTS

The Company leases its office facilities and certain equipment under
various operating lease agreements. These leases require the Company to pay
taxes, insurance, and maintenance expenses and provide for renewal options at
the then fair market rental value of the property.

Aggregate annual rental payments for operating leases with non-cancelable
lease terms in excess of one year, net of non-cancelable subleases, are as
follows:

LEASE OBLIGATIONS
--------------------------------
Net of
Years Ending Gross Sublease
December 31, Obligations Agreements
------------------ -------------- --------------
2002 $ 2,359,000 $ 1,160,000
2003 1,154,000 1,145,000
2004 960,000 960,000
2005 719,000 719,000
2006 443,000 443,000
Thereafter 110,000 110,000
-------------- --------------
Total $ 5,745,000 $ 4,537,000
============== ==============

Aggregate annual rental payments for operating leases with noncancelable
lease terms in excess of one year.

Rent expense approximated $1.1 million, $1.2 million, and $0.3 million for
the years ended December 31, 2001, 2000 and 1999, respectively.


62




NOTE 10 - INCOME TAXES

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:



YEARS ENDED DECEMBER 31,
-----------------------------------
2001 2000
-------------- ---------------
Deferred tax assets:
Net operating loss $ 13,946,000 $ 10,900,000
Severance and other restructuring charges 837,000 837,000
Allowance for doubtful accounts 396,000 929,000
Deferred revenue 2,264,000 2,864,000
Depreciation 33,000 226,000
Other 333,000 575,000
-------------- ---------------
Total deferred tax assets 17,809,000 16,331,000
Valuation allowance (17,809,000) (16,331,000)
-------------- ---------------
$ - $ -
============== ===============


The Company has approximately $36.7 million of net operating losses for
income tax purposes, including approximately $22.0 million incurred by Simione
Central Holdings, Inc. prior to the merger on March 7, 2000, available to offset
future taxable income. Such losses begin expiring in 2006. The Company's use of
the net operating losses incurred by Simione prior to the merger is subject to
limitations in the Internal Revenue Code relating to changes in ownership. A
valuation allowance reducing the total net deferred tax assets set forth above
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, 2001.

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:




YEARS ENDED DECEMBER 31,
2001 2000 1999
-------------- ---------------- ---------------

Federal tax benefit computed at statutory rates $ (7,853,000) $(3,483,000) $ 262,000
State income taxes, net of federal effect (1,351,000) (615,000) 44,000
Other, net 5,217,000 463,000 -
Change in valuation allowance 4,002,000 3,481,000 -
-------------- ---------------- ---------------
Income tax expense (Benefit) $ 15,000 $ (154,000) $ 306,000
============== ================ ===============




NOTE 11 - EMPLOYEE BENEFIT PLANS

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 $140,000, $189,000 and $76,000 in 2001, 2000 and 1999,
respectively. These contributions relate to the MCS 401(k) Plan for 1999 and to
the CareCentric, Inc. 401(k) Plan (formerly Simione Central Holdings, Inc.
Plan), which survived the merger, for 2001 and 2000.


63


NOTE 12 - SHAREHOLDERS' EQUITY

Subsequent to the CareCentric/MCS Merger on March 7, 2000, the Company's
Shareholders' Equity (all on a split-adjusted basis) is comprised of the
following:

Common Shares - 20,000,000 shares authorized, $.001 par value, 4,371,350
shares issued and outstanding as of December 31, 2001. 1,489,853 of such shares
were issued on March 7, 2000 to the former MCS common shareholders. 606,904 of
such shares were issued on March 7, 2000 to the former preferred shareholders
and noteholders of CareCentric Solutions, Inc., which shares were converted from
Series A Preferred Stock into CareCentric (formerly known as Simione Central
Holdings Inc.) common shares in connection with the merger.

Pursuant to the terms of the July 12, 1999 Merger Agreement by which
Simione acquired the stock of CareCentric Solutions, Inc., the Company was
required to issue up to an additional 606,904 shares of common stock to the
former preferred shareholders and noteholders of CareCentric Solutions if the
average closing price of the Company's stock for the period October 1, 2000
through December 31, 2000 is not equal to or greater than $15.00 per share.
Since the Company's average closing stock price for the fourth quarter of 2000
was less than $15.00 per share, on March 19, 2001, the Company issued 593,688
shares of its common stock to the former preferred shareholders and noteholders
of CareCentric Solutions. As required by generally accepted accounting
principles, no value was assigned to these shares as it was deemed not to impact
total consideration paid. The Company asserted that it was not required to issue
13,216 additional shares of its common stock as well as 150,740 shares of common
stock that were being held by it in escrow under the terms of the CareCentric
Solutions Merger Agreement based upon various indemnification and expense
overages claims it believes it had against the former CareCentric Solutions
preferred shareholders and noteholders. On May 16, 2001, the Company finalized a
settlement of these claims with the representative of the former CareCentric
Solutions parties pursuant to which 88,586 shares of common stock were released
from escrow and distributed to the former CareCentric Solutions preferred
shareholders and noteholders, the remaining 62,154 escrow shares were cancelled,
no additional shares of common stock will be issued, and the parties executed a
comprehensive settlement agreement.

Pursuant to a comprehensive settlement agreement on June 28, 2001, between
Sterling Star, Inc., Mr. Wade (President of Sterling Star, Inc.) and the
Company, certain disputes related to the acquisition of a product named Tropical
software, were settled. Under the terms of the settlement, 10,000 shares of
stock originally issued to Sterling Star were returned to the Company and were
cancelled.

Preferred Stock-10,000,000 shares authorized

Series B Preferred Stock -$.001 par value, 5,600,000 shares issued. The
shares of Series B Preferred Stock are held by Mestek, Inc. (Mestek) and were
issued in consideration of $6,000,000 paid to CareCentric, Inc. on March 7,
2000, in the form of cash and debt forgiveness. The Series B Preferred shares,
as originally issued, carried 2,240,000 common share votes (on a split-adjusted
basis) and were entitled to a 9% cumulative dividend, among other rights. In
connection with the Company's application for listing on the Nasdaq SmallCap
Market, the Company reached an agreement with Mestek on June 12, 2000, under
which Mestek agreed to allow the aforementioned number of common share votes to
be reduced to 1,120,000 in consideration for the issuance by the Company to
Mestek of a warrant to acquire up to 490,396 shares of CareCentric common stock,
as more fully described below.

Series C Preferred Stock - $.001 par value, 850,000 shares issued. The
shares of Series C Preferred Stock are held by Mestek, Inc. and result from the
conversion at the March 7, 2000 merger of a pre-existing $850,000 convertible
note payable to Mestek, Inc. The Series C Preferred shares carry 170,000 common
share votes (on a split adjusted basis) and are entitled to an 11% cumulative
dividend, among other rights.

Series D Preferred Stock - $.001 par value, 398,406 shares issued. The
shares of Series D Preferred Stock are held by John E. Reed and were issued on
June 12, 2000 in consideration of $1.0 million paid to the Company in cash. The
Series D Preferred shares have a 9% annual cumulative dividend, are convertible


64


into common stock at an initial conversion price of $2.51 per share, limit the
ability to issue dilutive stock options and have voting rights equal to those of
the common stock, among other rights.

Series E Preferred Stock - $.001 par value, 210,000 shares issued under a
restricted stock award. The shares of Series E Preferred Stock are held by John
R. Festa and the rights to those shares were granted on November 10, 2001. The
Series E Preferred shares are entitled to certain voting, dividend, liquidation
and conversion rights.

Common Stock Warrants - In connection with the issuance of the Series B
Preferred Stock described above, Mestek, Inc. received a warrant to acquire up
to 400,000 shares of the Company's common stock at a per share exercise price
equal to $10.875. In connection with the waiver by Mestek, Inc. of certain
voting rights previously granted to it, Mestek received on June 12, 2000, a
warrant to acquire up to 490,396 shares of the Company's common stock for a term
of 3 years at a per share exercise price equal to $3.21. In connection with
Mestek's guarantee of the Company's obligations under the line of credit from
Wainwright Bank and Trust Company, as more fully explained in Note 5 to these
Financial Statements, Mestek received on July 12, 2000, a warrant to acquire up
to 104,712 shares of the Company's common stock for a term of 3 years at a per
share exercise price equal to $2.51. The aforementioned number of shares and per
share prices are all on a split-adjusted basis. Other warrants existing prior to
the merger transaction to acquire up to 25,000 shares of common stock remain
outstanding.

STOCK OPTIONS - Options totaling 1,000 shares were outstanding and vested
under the now discontinued 1997 SCHI NQ (Directors) Plan at an exercise price of
$60.00. Non-plan options totaling 107,453 shares, of which 90,787 are
exercisable, were outstanding at exercise prices ranging from $2.51 to $45.00.
The Simione Central Holding Inc. 1997 Omnibus Equity-Based Plan (the "Plan") is
the only continuing stock option plan of the Company. The Plan offers both
incentive stock options and non-qualified stock options. The Company is
authorized to grant options of up to 900,000 shares of common stock. Options
totaling 464,206 shares were outstanding, of which 176,045 shares are
exercisable, at exercise prices ranging from $1.25 to $73.55. In 2001, options
totaling 152,500 shares of common stock were granted to directors and employees
of the Company, (127,500 incentive options to employees and 25,000 non-qualified
options to directors), pursuant to the Plan at exercise prices ranging from
$1.25 to $3.25 per share. The foregoing information is provided as of April 8,
2002.


A summary of the Company's stock option activity from December 31, 1999 is
as follows:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
------------ -----------
Outstanding at December 31, 1999 - -
------------ -----------
Options Assumed 398,452 $ 24.10
Granted 274,800 $ 3.70
Exercised - $ -
Forfeited and Cancelled (101,593) $ 33.65
------------ -----------
Outstanding at December 31, 2000 571,659 $ 12.45
------------ -----------
Granted 152,500 $ 2.15
Exercised - $ -
Forfeited and Cancelled (145,870) $ 16.11
------------ -----------
Outstanding at December 31, 2001 578,289 $ 8.11
============ ===========



65




AS OF DECEMBER 31, 2001
-----------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- ----------------------------- ---------------- --------------- -------------- --------------- -------------
$ 2.50 $ 7.36 385,500 9.10 $ 3.09 77,672 $ 3.71
$ 7.36 $ 14.71 122,288 6.20 $ 9.96 111,288 $ 10.07
$ 14.71 $ 22.07 13,000 4.20 $ 15.96 13,000 $ 15.96
$ 29.42 $ 36.78 40,965 5.30 $ 32.22 40,965 $ 32.22
$ 36.78 $ 44.13 5,000 4.70 $ 42.50 5,000 $ 42.50
$ 44.13 $ 51.49 8,000 6.00 $ 45.00 8,000 $ 45.00
$ 51.49 $ 58.84 2,080 5.00 $ 55.63 2,080 $ 55.63
$ 58.84 $ 66.20 1,000 5.40 $ 60.00 1,000 $ 60.00
$ 66.20 $ 73.55 456 2.40 $ 73.55 456 $ 73.55
---------------- --------------- -------------- --------------- -------------
578,289 8.00 $ 8.11 259,461 $ 14.33
================ ===============



In connection with the Simione/MCS merger on March 7, 2000, Mestek was
granted a series of options to purchase a total of approximately 378,295 shares
of the Company's common stock (on a split-adjusted basis). These options are
exercisable only to the extent that outstanding CareCentric options, warrants or
other conversion rights are exercised. These options were designed to prevent
dilution of Mestek's ownership interest in the Company after the merger. As
options, warrants and other common rights are forfeited or cancelled, Mestek's
option rights are correspondingly reduced. Due to the contingent nature of these
options, they have been excluded from the above table. At December 31, 2001,
159,573 shares of such options were available under the original terms of
issuance.

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 4.31% and 5.34%; no dividends; a volatility factor
of the expected market price of the Company's common stock of 1.40685 and
1.40685; and a weighted-average expected life of the options of 3.97 years and
7.10 years for 2001 and 2000, respectively. The weighted average fair value
assigned to options granted in 2001 and 2000 was $1.35 and $3.86, respectively.
For 2001 and 2000 respectively the Company's pro forma net loss and net loss per
share (basic and diluted) are $25,390,000 and $10,941,000 and $5.94 and $3.20
for 2001 and 2000 respectively.


STOCK PURCHASE WARRANTS

At December 31, 2001, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:


66

EXERCISE
COMMON SHARES PRICE EXPIRATION DATE
--------------- -------------- -------------------
25,000 $ 5.00 February 24, 2005
104,712 $ 2.51 July 12, 2003
490,396 $ 3.21 June 30, 2003
400,000 $ 10.88 March 7, 2003
---------------
1,020,108
===============


NOTE 13 -- SELECTED QUARTERLY INFORMATION (UNAUDITED)

The table below sets forth selected quarterly information for each full
quarter of 2001 and 2000.



FISCAL YEAR 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
------------- ------------- -------------- -------------
Net revenues: $ 5,679 $5,302 $ 4,769 $4,696

Costs and expenses:
Cost of revenues 2,108 2,004 1,646 2,459
Selling, general and administrative 2,825 2,711 2,550 2,629
Research and development 1,767 1,609 1,413 1,369
Write down of intangibles - - - 11,799
Amortization and depreciation 951 950 1,011 952
Restructuring Charges - 675 - -
------------- ------------- -------------- -------------
Total costs and expenses 7,651 7,949 6,620 19,209
------------- ------------- -------------- -------------

(Loss) from operations (1,972) (2,647) (1,851) (14,513)

Other (expense) income:
Interest expense (300) (327) (219) (466)
Interest and other income 126 68 29 (187)
------------- ------------- -------------- -------------
(Loss) before taxes (2,146) (2,906) (2,041) (15,166)
------------- ------------- -------------- -------------

Income tax benefit (expense) - - - (15)
------------- ------------- -------------- -------------
Net (loss) income from continuing
operations (2,146) (2,906) (2,041) (15,181)
------------- ------------- -------------- -------------

Discontinued operation
Loss on disposal of discontinued
operations - - (2,632) -

Income from operations of
discontinued segment before taxes (185) (73) (226) -

Applicable tax expense - - - -

Net (loss) from operations and disposal
of discontinued segment (185) (73) (2,858) -
------------- ------------- -------------- -------------
Net (loss) income $ (2,331) $ (2,979) $ (4,899) $ (15,181)
============= ============= ============== =============

Cumulative preferred dividends (176) (178) (180) (186)

Net (loss) available to
common shareholders $ (2,507) $ (3,157) $ (5,079) $ (15,367)
============= ============= ============== =============



67





(Loss) per share - basic and
diluted from continuing operations $ (0.55) $ (0.66) $ (0.47) $ (3.47)
Weighted average common shares -
basic and diluted 3,922 4,418 4,371 4,371
============= =============== ============= =============
Net (loss) per share - basic and diluted
From discontinued operations $ (0.05) $ (0.02) $ (0.65) $ -
Weighted average common shares -
basic and diluted 3,922 4,418 4,371 4,371
============= =============== ============ =============
Net (loss) per share - basic and diluted $ (0.59) $ (0.67) $ (1.12) $ (3.47)
Weighted average common shares -
basic and diluted 3,922 4,418 4,371 4,371
============= ============== ============== =============

Net (loss) per share - basic and diluted
available to common shareholders $ (0.64) $ (0.71) $ (1.16) $ (3.52)

Weighted average common shares -
basic and diluted 3,922 4,418 4,371 4,371
============= ============= ============== =============


FISCAL YEAR 2000
(in thousands, except per share data)
---------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
------------- ------------- ------------- ------------

Net revenues: $ 4,000 $ 6,257 $ 7,177 $2,140

Costs and expenses:
Cost of revenues 2,547 3,954 2,621 (644)
Selling, general and
administrative 1,453 1,624 3,253 4,426
Research and development 711 1,780 1,897 1,786
Amortization and depreciation 426 1,183 1,027 845
------------- ------------- ------------- ------------
Total costs and expenses 5,137 8,541 8,798 6,413
------------- ------------- ------------- ------------

(Loss) from operations (1,137) (2,284) (1,621) (4,273)

Other (expense) income:
Other (expense) income (6) - - -
Interest expense (76) (189) (265) (180)
Interest and other income 12 28 68 (34)
------------- ------------- ------------- ------------
(Loss) income before taxes (1,207) (2,445) (1,818) (4,487)
------------- ------------- ------------- ------------

Income tax benefit (expense) 157 - (6) 3
------------- ------------- ------------- ------------
(Loss) income from continuing
operations (1,050) (2,445) (1,824) (4,484)
------------- ------------- ------------- ------------

Discontinued operation
Loss on disposal of
discontinued operations - - - -

Income from operations of
discontinued segment before
taxes - (303) (21) (118)

Applicable tax expense - - - -



68






Net (loss) from operations and disposal
of discontinued segment - (303) (21) (118)
------------- ------------- ------------- ------------
Net (loss) income $(1,050) $(2,748) $(1,845) $(4,602)
============= ============= ============= ============

Cumulative preferred dividends (42) (161) (185) (181)

Net (loss) available to common
shareholders $(1,092) $(2,909) $(2,030) $(4,783)
============= ============= ============= ============

(Loss) per share - basic and diluted
From continuing operations $(0.50) $(0.64) $(0.47) $ (1.16)
Weighted average common shares -
basic and diluted 2,113 3,850 3,850 3,850
============= ============================ ============
Net (loss) per share - basic and diluted
From discontinued operations $ - $(0.08) $(0.01) $ (0.03)
Weighted average common shares -
basic and diluted 2,113 3,850 3,850 3,850
============= ============================ ============

Net (loss) per share - basic and diluted $ (0.50) $ (0.71) $ (0.48) $(1.20)

Weighted average common shares
- basic and diluted 2,113 3,850 3,850 3,850
============= ============================ ============

Net (loss) per share - basic and diluted
available to common shareholders $ (0.52) $ (0.76) $ (0.53) $(1.24)

Weighted average common shares -
basic and diluted 2,113 3,850 3,850 3,850
============= ============================ ============



Quarterly earnings per share figures do not arithmetically add to the full
years 2001 and 2000 earnings per share due to interim changes in weighted
average shares outstanding during 2001 and 2000 and due to rounding. The numbers
below reflect the effect of a one for five reverse stock split effected in
connection with the MCS/Simione merger on March 7, 2000. The basic loss per
share for the year 2000 has been changed to conform with the 2001 calculation
which includes the dividends associated with each Series of cumulative Preferred
Stock.


NOTE 14 - RELATED PARTY TRANSACTIONS

The Company has subleased certain space to Healthfield, Inc. which is a
Mestamed customer and has a significant shareholder who was a former member of
the board of directors of the Company. The original lease and related sublease
expires on December 31, 2002 and requires annual sublease payments equal to the
original lease payments of approximately $730,000.

R. Bruce Dewey is President and Chief Operating Office of Mestek, Inc. and
Winston R. Hindle, Jr., a director of the Company, is a director of Mestek, Inc.
Mestek has certain investments in the Company in the form of notes, convertible
notes, warrants, stock options and preferred stock as described in Note 8 and
Note 12 to these Financial Statements.

The Company has a note receivable from Simione Consultants, LLC of $707,000
at December 31, 2001. On September 28, 2001, the Company discontinued its
Consulting business segment by closing the sale of certain of the assets of its
wholly-owned subsidiary, Simione Consulting, Inc. ("Consulting") to Simione
Consultants, LLC, which is owned and controlled by William J. Simione, Jr., a
director and former officer of CareCentric. The total sales price was
approximately $2.0 million plus the assumption of certain liabilities. The sale
was made pursuant to an asset purchase agreement. William Simione, Jr. has
resigned as an officer of CareCentric, however, William Simione, Jr. remains a
director of CareCentric. The assets sold under the agreement included the
Consulting accounts receivable, computer equipment, and miscellaneous prepaid
expenses. Consideration received consisted of approximately $1.0 million in cash
and $1.0 million in notes, $770,000 with a 36-month term and $230,000 with
5-month term. The cash proceeds were used to pay down CareCentric's line of
credit.

As of December 31, 2001, the Company had a promissory note outstanding to
Barrett C. O'Donnell, a director of the Company, as described in Note 8 to these
Financial Statements.

John E. Reed is a director and a significant, but not controlling,
shareholder of the Wainwright Bank and Trust Company which has provided the
Company with a $6.0 million line of credit, as more fully explained in Note 8 to
the Financial Statements.

69


John E. Reed, Chairman of the Company and Chairman and Chief Executive
Officer of Mestek, Inc., has provided the Company with a $6.0 million line of
credit (unrelated to the Wainwright Bank and Trust $6.0 million line of credit
described above) as more fully described in Note 8 to the Financial Statements
and has also purchased $1.0 million of the Company's Series D Preferred Stock on
June 12, 2000, as more fully described in Note 12 to these Financial Statements.
An independent committee of the Company's Board of Directors, consisting of
Barrett C. O'Donnell and David O. Ellis, negotiated the terms of Mr. Reed's debt
and equity investments in the Company. The issuance of 398,406 shares of Series
D Preferred Stock to Mr. Reed for his $1.0 million equity investment was based
on a per share price of $2.51, which was the 5-day average closing price of
CareCentric common stock as of the date of the final negotiation of the terms of
Mr. Reed's purchase. The conversion price for Mr. Reed's $6.0 million loan,
which converts into CareCentric common stock as described in more detail in Note
8 to these Financial Statements, is also $2.51 per share. On December 31, 2001,
$3.5 million was outstanding under this credit facility, $2.5 million payable to
Mr. Reed, and $1.0 million payable to Mestek pursuant to a participation
agreement.

Warrants were granted in June 2000 and July 2000 by the Company to Mestek,
Inc. in connection with its waiver of certain voting rights previously granted
to it and in connection with its guarantee of the loan from Wainwright Bank and
Trust Company to the Company. The terms of the warrants (as described in more
detail in Note 12 to these Financial Statements) were based on negotiations by
independent committees of the Boards of Directors of the Company and Mestek.


NOTE 15 - LICENSE AGREEMENTS

The Company licenses certain software products from third parties for
incorporation in, or other use with, its products and is obligated to pay
license fees in connection with such products. The Company sublicenses such
products to its customers and collects fees in connection with such
sublicensees.


NOTE 16 - EXECUTIVE COMPENSATION

The Company has entered into an employment agreement with its President and
Chief Executive Officer, Mr. John Festa. Among other specific contents, Mr.
Festa i) has been granted 210,000 shares of Series E preferred stock, one half
of which vest evenly over the course of three years from his hire date dependent
upon his continued employment as President and CEO and one half of which are
forfeitable pro rata over a three year period if certain financial milestones
are not met, ii) payment of an annual bonus of up to 50% of his annual salary
based on completion of annual performance objectives, iii) the possibility of
receiving a special bonus which varies in dollar amount in the event there is a
sale of the Company while Mr. Festa is President and CEO and for nine months
thereafter.


NOTE 17 - LIQUIDITY

As disclosed in the financial statements, the Company's operations used
significant amounts of cash in 2001. The Company has a working capital deficit
of $15.6 million at December 31, 2001. During the fourth quarter of 2001, the
Company continued to use its Wainwright Bank Credit Line and the Reed Credit
Line in order to meet its working capital needs.

The merger with Simione added additional products and resources and,
importantly, added to the Company's critical mass of installed sites but the
Company's longer term success will depend upon increased sales of new software
systems and successful installation performance. Additionally, the Company's
continuing efforts to develop new products using the latest software and
hardware platforms will be most important to its long-term success.

As of April 8, 2002, the Company has untapped credit capacity of
approximately $0.6 million from combined Wainwright Bank and Reed credit
facilities. As discussed in Note 18 below, and pending shareholder and board of
director approval, which are expected to be obtained, certain terms of the


70


Wainwright and Reed credit facilities will be changed. The Company believes that
a successful completion and closing of the refinancing and recapitalization plan
(described in more detail in Note 18), in combination with the funds available
from cash to be generated from future operations, will be sufficient to meet the
Company's operating requirements through at least June 30, 2003, assuming no
material adverse change in the operation of the Company's business.
Notwithstanding the financial conditions prevailing in the home health
marketplace, the Company continued to fund significant product development
initiatives during 2001 and intends to do so throughout 2002, reinvesting the
moneys saved in its re-engineering undertaken beginning February 5, 2002.
Notwithstanding, until revenues increase sufficiently to cover fluctuations in
forward-looking costs and operating expenses, the Company remains dependent on
its majority shareholder for its working capital financing. The Company's
majority shareholder has stated his intention and ability to continue to advance
cash to the Company in accordance with the terms of his credit facility.


NOTE 18 - SUBSEQUENT EVENTS

In January of 2002, Dennis Brauckman, Chief Financial Officer of
CareCentric resigned as an officer and employee of the Company to pursue other
personal interests. In the absence of an employed Chief Financial Officer, the
Company has designated H. Forest Ralph, a financial consultant engaged by the
Company since January 2002, as the Company's principal financial and accounting
officer for purposes of signing this Form 10-K.

In February 2002, CareCentric reorganized its management structure. This
reorganization was designed to i) streamline management and shorten decision
processes, ii) reallocate funds to the development of new generation product
platforms, iii) create single line functional responsibility and accountability
in the management staff, and iv) reduce unnecessary overhead operating costs.
The reorganization reduced management and cut head count by nearly 25%.
Management believes that this reduction of costs will free up substantial
resources to be reallocated to the development of new systems and the next
generation platforms.

On April 8, 2002, the Company secured two commitments for additional
financing, both from existing shareholders. John E. Reed, a director of the
Company, agreed to provide $871,117 in short-term funds, to be refinanced along
with other debt of the Company due Mr. Reed upon the obtaining of shareholder
approval in June, 2002. The refinancing would be evidenced by a $3,555,555
subordinated, secured convertible term note, with principal payable in a single
balloon payment in 60 months and with interest at a fixed rate of 6.25% deferred
and capitalized for 24 months. Interest would then be payable quarterly. The
note would be convertible at any time for common stock at a price of $1.00 per
share. The conversion rights of Mr. Reed's 398,406 shares of Series D Preferred
Stock would also be amended to increase the conversion exchange rate from one
share of common stock for one share of Series D Preferred to 2.51 shares of
common stock for one share of Series D Preferred Stock.

Mestek, Inc., a preferred shareholder of the Company, agreed to provide
$1,092,000 in short-term funds, to be refinanced along with other debt of the
Company due Mestek upon the obtaining of shareholder approval in June, 2002. The
refinancing would be evidenced by a $4,000,000 subordinated, secured convertible
term note, with principal payable in a single balloon payment in 60 months and
with interest at a fixed rate of 6.25% deferred and capitalized for 24 months.
Interest would then be payable quarterly. The note would be convertible at any
time for common stock of the Company at a price of $1.00 per share. The rights
of Mestek's 5,600,000 shares of Series B Preferred Stock would also be amended
to provide for a conversion exchange rate of 1.0714 shares of common stock for
one share of Series B Preferred Stock. Mestek will also give up its stock
options and a warrant it holds for the purchase of 104,712 shares of common
stock and will exchange a warrant it holds for 400,000 shares of common stock at
$10.875 per share, expiring March 7, 2003, for a Warrant for 400,000 shares of
common stock at $1.00 per share, expiring June 15, 2004. It will also exchange a
warrant it holds for 490,396 shares of common stock at $3.21 per share, expiring
March 7, 2003, for a Warrant for 490,396 shares of common stock at $1.00 per
share, expiring June 15, 2004.

A condition to the refinancing of the Company's debt to Mestek and Mr. Reed
is that the present $6.0 million Wainwright Bank line of credit facility be paid
down by the Company to $5.9 million or less on or before July 31, 2002 and


71


continue to be reduced by no less than $100,000 each month thereafter until all
amounts have been repaid to Wainwright or the Wainwright Facility or any
replacement thereof is obtained by CareCentric without a guarantee of Mestek.

The refinancing and recapitalization transactions between the Company and
each of Mestek and Reed are subject to the satisfaction of various conditions,
including approval by the Company's shareholders at its annual meeting expected
to be held in June 2002 and approvals by Mestek's board of directors and the
Company's senior lender. The transactions contemplated by the commitment
letters, if approved, would i) reduce the total financing facilities of the
Company by approximately $0.3 million, ii) extend the guaranty by Mestek of the
Company's senior line of credit with Wainwright Bank through the end of June
2003, iii) refinance existing debt owed by the Company to Mestek and Reed to
provide a deferral of both interest and principal for a period of two (2) years
following the date that the commitment letters are approved, and (iv)
restructure certain of the Company's existing voting securities and warrants
held by Mestek and Reed.

Management believes the required shareholder approvals will be obtained.


72



CARECENTRIC, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS




ADDITIONS
BALANCE AT CHARGES TO
BEGINNING OF COST AND BALANCE AT
PERIOD EXPENSE DEDUCTIONS (1) END OF PERIOD
--------------- -------------- ---------------- --------------
Year ended December 31, 2001
Allowance for Doubtful Accounts $ 551,000 $ 500,000 $ 9,000 $1,042,000
=============== ============== ================ ==============

Year ended December 31, 2000
Allowance for Doubtful Accounts $ 166,000 $ 538,000 $ 153,000 $ 551,000
=============== ============== ================ ==============

Year ended December 31, 1999
Allowance for Doubtful Accounts $ 166,000 $ - $ - $ 166,000
=============== ============== ================ ==============



(1) Write-offs of uncollectible accounts





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