Back to GetFilings.com
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, 2002
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 February 28, 2003 was $2,173,957.
There were 4,371,350 shares of Common Stock outstanding at March 10, 2003.
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.
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 effectively operate their businesses in today's environment. The
Company's focus is to provide software products for home health care providers
to streamline their operations, meet regulatory requirements, receive payment
and better serve their patients. For more than 20 years, CareCentric has
provided comprehensive enterprise solutions to its markets in home healthcare.
Currently, the Company is leveraging its long history and success to migrate its
product solutions to new technology platforms that are being licensed or built.
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; speed up
reimbursement; add new product solutions; and enhance customer options for
reporting to meet 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 health agencies
as it has done for many years with a full enterprise suite of products.
Similarly, MestaMed(R) and Dezine DME VI services thousands of home health care
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(R), Visit Assistant(TM) and Delivery Assistant(TM),
are adding 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 free-standing home health care providers;
o alternate-site care organizations;
o respiratory therapy service providers;
o home medical, IV, infusion and rehabilitation equipment providers;
o integrated delivery networks (IDN); and
o government-managed organizations.
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
On January 29, 2003, CareCentric received an offer to merge with Borden
Associates, Inc. In the proposed transaction, Borden would merge into
CareCentric and purchase the shares of shareholders holding less than 4,000
shares for $0.55 per share. Each share of CareCentric common stock owned of
record by a holder of 4,000 shares or more of CareCentric common stock will
continue to represent one share of common stock after the merger. The
outstanding shares of Borden Associates capital stock will, in the aggregate, be
converted into the right to receive that number of shares of CareCentric common
stock equal to the quotient of the total cash consideration paid to the holders
of fewer than 4,000 shares of CareCentric common stock divided by the $0.55 per
share price. CareCentric would remain the surviving entity. This transaction, if
consummated, may result in the Company becoming private so that it would no
longer be a reporting company under SEC regulations or be publicly traded on the
OTC Bulletin Board. The Board of Directors is evaluating the proposal and has
formed a special committee of independent directors, consisting of Winston R.
Hindle, Jr. and William J. Simione, Jr., to evaluate, respond or negotiate the
proposal with the principals of Borden Associates. Borden Associates is an
investment company formed for the purpose of this transaction and owned by John
Reed, Stewart Reed and James Burk. John Reed and Stewart Reed are material
shareholders of CareCentric and members of its Board of Directors. As of March
10, 2003, the special committee of the Board has selected legal counsel and an
investment banking firm to assist in the special committee's review of the offer
by Borden Associates.
In January 2003, CareCentric reached agreement with Columbia HCA regarding
certain litigation between the companies involving services contract obligations
related to health agency activities which the Company had been involved in prior
to 1999 when it was known as Simione Central Holdings, Inc. The settlement was
completed in February 2003 with no future obligation due from the Company and a
payment of $290,000 made to the Company.
On January 31, 2003, CareCentric licensed, as a reseller, a home health
care agency processing software set to service the small agency and middle
market service providers pursuant to a reseller agreement with Riversoft, Inc.
of Melbourne, Florida. The Company will enhance, re-brand and resell the
software on a royalty basis. This product will provide a cost-effective solution
to service the largest part of the market without material investment in
research and development by CareCentric.
INDUSTRY OVERVIEW
The home health industry is comprised of agencies that are freestanding,
community based, provider based, hospital based, not for profit, for profit,
large corporate chains and small agencies. Services provided include home
health, hospice, private duty, infusion therapy, durable medical equipment and
rehabilitation services. The largest payer for home health services is Medicare.
Home health care consists of various lines of services, including:
o skilled nursing;
o private duty;
o physical, occupational and speech therapies;
o respiratory therapy;
o durable medical and rehabilitation equipment and supplies;
o intravenous and infusion therapy; and
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
2
stay. In addition, home health care 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 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"). CMS is 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 negative impact
on the home health industry, resulting in numerous closings of home health
agencies, consolidation of agencies and decisions by home health executives 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. 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 on providers'
operations as they strive to maintain profitability. The uncertainty in the home
health care industry concerning these changing regulations, and CMS' continuing
updates 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.
In 2002, the home health industry waited patiently for the elimination of
the 15% reduction in payment rates which had been part of the original PPS
legislation. The 15% reduction scheduled to take place on October 1, 2002 was
effectively enacted because the U.S. Senate failed to take timely action on a
Medicare relief bill passed by the House. Home health agencies were once again
dealing with significant cash flow and credit line issues. Other issues on the
home health front during 2002 included medical supply bundling, Outcomes Based
Quality Indicators (OBQI), reduction in the Outcome and Assessment Information
Set (OASIS) requirements, and the publishing of the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) privacy regulations. Management believes
3
that these issues will continue into 2003 and will continue to impact
information systems including CareCentric products. In addition, the industry
wanted a permanent extension of the 10% rural add-on. This rural add-on, a 10%
increased reimbursement to agencies that have additional costs and expenses
associated with doing business in rural areas, is due to expire on April 1,
2003. The expiration of the add-on could begin to affect reimbursement
associated with "episodes of care," defined periods of caregiving for specific
sickness used for purposes of cost reimbursement, beginning February 1, 2003.
The MedPAC report, scheduled for release in March 2003, is expected to remain
silent on the 15% cut and to propose a 5% rural add-on. Home health care
executives are said to be facing these cuts head on and are implementing the
necessary steps to live with these reductions and, in doing so, are stabilizing
the industry. 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 updates in comprehensive and integrated legacy and
client/server systems are extensive. These developments also are disruptive to
product development, deployment and support operations.
With the advent of the ongoing cost pressures and the complexities of PPS,
home health care providers will continue to 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 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 and processing. Together, these
capabilities will enable an agency to better manage costs, stay current, improve
productivity and patient outcomes and ultimately operate profitably through
enhanced revenues and lower cost.
An additional major factor affecting the health care industry is a shortage
of qualified nursing personnel. This shortage has had a significant impact on
all service areas including home health, hospice, private duty and infusion
therapy. A priority for agency executives in 2003 will be to actively address
the issues of recruitment and retention. Once hired, employee job satisfaction
will become the number one issue on the table. One consequence of the shortage
is that employees are influencing agency operations by demanding tools which
reduce paperwork, are user friendly, and improve and measure patient outcomes.
Another issue of significant importance is HIPAA, or more specifically the
impact of the HIPAA privacy regulations on home health operations. These
regulations mandate the protection of health information and require the
development and implementation of many policies and procedures. The added
financial burden of these requirements is great. Agencies that do not put these
requirements into practice will face the possibility of financial ruin due to
the fines associated with non-compliance.
Moving into 2003 with less Medicare money, less Medicaid money, and fewer
staff, home health organizations are going to rely on systems and technology to
operate cost efficiently, improve operating performance and enhance quality
patient care. To be successful, CareCentric believes that home health executives
will focus their efforts on managing their costs and knowing where their
agencies stand financially and operationally. To do this they will depend on
4
real time reports to make decisions and will continue to look at ways to take
advantage of available technology like the Internet. Using new and available
Internet applications to conduct business transactions will enhance business
practices by decreasing time, improving staff productivity, improving compliance
with regulations and facilitating best practices.
MARKET POSITION
CareCentric's objective is to enhance and grow its position as a major
developer and 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 2002
continued 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(TM) products through the merger with MCS, signed in May 1999 and
completed in March 2000, has provided an increased breadth of products and
services capable of enhancing CareCentric's market position. In 2002, the
Company accelerated its strategy by adding to its list of available products and
solutions. The Company released new products including Visit Assistant(TM),
Inventory Assistant and Santrax telephony services for distribution. These new
products and alliances have dramatically increased the variety and affordability
of information solutions for existing customers and new prospects alike.
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 described below.
BUSINESS STRATEGIES
Under the guidance of John R. Festa, the Company's President and Chief
Executive Officer, CareCentric has embarked upon an aggressive strategy in 2003,
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(TM) provides small and medium-sized
home health agencies with a solution to point-of-care data capture at attractive
pricing levels. Delivery Assistant(TM) provides a similar opportunity for the
home equipment market. At the higher end of the product spectrum, Smart
ClipBoard(R) 4.0 is expected to continue providing upgraded, comprehensive
clinical, administrative and reimbursement capabilities to streamline
productivity, speed up reimbursement, provide clinical data continuity and meet
current and future regulatory requirements. In the home health care market, the
Company is launching AC-CURA(TM), a newly licensed enterprise-wide software
package servicing the small agency and middle market service providers where
management believes that there are the greatest number of agencies and the least
number of software provider solutions. Licensed from Riversoft, Inc. of
Melbourne, Florida, AC-CURA(TM) will be enhanced and sold directly by
CareCentric's field sales force using more direct mail, telemarketing, and
innovative marketing techniques for the home health industry. Additionally,
CareCentric will be using more flexible pricing options to aid the customer in
faster buying decisions. PharmMed(R) adds 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.
Organizational changes made by CareCentric in 2002 have created and
intensified an existing commitment to improve customer service and
responsiveness. Activities continued 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
5
more rapid development and deployment of 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 offerings. The changes had a dramatic effect in
2002 by providing reduced costs, increased focus on sales, better operational
systems, fewer customer complaints and better customer service.
CareCentric management believes that CareCentric's products are regarded by
many home health care providers as the most feature rich in the industry but
management recognizes that the products' technology platforms need improvement
for wider acceptance. In 2003 and beyond, CareCentric will continue to invest in
new delivery and technology platforms for servicing its customers in creative
ways, combining increased flexibility, proven technology, and scalable and open
ubiquitous platforms. Additionally, CareCentric will look for more partnering
opportunities to add new product offerings and services on a reasonable license
basis to leverage the Company's infrastructure and to manage research and
development expense.
The rapid evolution of computer technology provides for "faster to market"
products and open platforms, which use more industry accepted technology tools
that can remain ever flexible to meet future needs. During the next two years,
CareCentric expects to devote substantial 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, platform options will provide
customer specified configurations allowing scale, function, and financial
characteristics to be designed and determined on an individual basis.
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 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 providers and caregivers through
information technology software systems, training, deployment resources and
customer support. CareCentric's systems and services are designed to enable home
health care, supply and equipment providers to produce and utilize comprehensive
information reports to optimize the performance of their organization. These
reports include financial, operational and clinical information designed to
address organizational issues in order to make informed business decisions, more
cost effectively operate their businesses, generate more revenues and compete in
a cost-contained regulatory environment. Management believes these information
technology solutions should help home health care providers:
o improve revenue opportunities
o reduce costs, improve cash flow and build financial strength
o accelerate payment reimbursement
o handle rapidly changing reimbursement rules and privacy regulations.
o manage inventories
o co-manage cost and quality and empower clinicians to make better
decisions at the point-of-care
o maximize return on technology investment through comprehensive product
services to optimally use the application in conjunction with process
re-engineering and optimization
o increase understanding of key industry issues and optimal product
usage with specialized training
o receive real time response to system usage issues through expert
customer support and call tracking
o leverage best practice solutions against a large national base of
current users
o meet regulatory requirements
6
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(R), MSS, and DME VI service the home medical equipment and
supply markets with a complete suite of accounting, regulatory,
tracking, reporting, invoicing, inventory management and utilization
management systems for agencies of varying sizes.
o PharmMed(R) services the home health Infusion and IV market with a
comprehensive application of prescription, patient tracking, inventory
control and regulatory functions.
o Smart ClipBoard(R) services the high-end point-of-care market for the
acquisition of clinical, accounting, administrative, reimbursement and
regulatory data.
o Visit Assistant(TM) 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(TM) services the home equipment market in capturing
delivery data for accounting, tracking and reimbursement purposes.
o AC-CURA(TM) services the home health agency market by providing a
Windows-based comprehensive information management system for managing
operations, finance and clinical functions of a small agency.
o Santrax is the nations largest supplier of home health telephony
services. It provides patient based confirmed time, expense, activity
and attendance reporting.
o Remaining product offerings include eCMN Processing and Inventory
Assistant which provide critical ancillary products to complete the
suite of critical home health enterprise applications.
Opportunity exists for the Company to extend its current offerings to
current and future customers. CareCentric will continue to leverage its software
applications and related services by leveraging existing platforms into a
growing suite of tools that will facilitate new revenues, faster payment, best
practices, process improvement, decision support, secure transactions and
efficient, electronic transmission of medical records and claim forms.
Investment in information technology is more critical in home health care
because the information needs both to be shared and secured while users are both
distributed and disconnected. CareCentric is directing its information
technology solutions at these opportunities. CareCentric plans to package
information technology solutions and services 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
o Speed reimbursement for services
o Improve patient care
o Provide scalability and growth options
o Facilitate open data access and ubiquitous connectivity to third-party
solutions
o Produce management reporting and decision support tools
o Facilitate regulatory compliance
7
o Manage inventories
o Ease the burden of HIPAA compliance
CORE SOFTWARE SOLUTIONS
CareCentric's current core software solutions are as follows:
STAT2
STAT2 is designed as a feature rich, 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
o HIPAA compliance o Interface with Point of Care
This core set of applications and their underlying features and functions
can be enhanced with specialized features including, telephony 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(TM). Smart Clipboard(R) and Visit Assistant(TM) are discussed
further below.
MestaMed(R)
MestaMed(R) is a stand-alone fully integrated billing, accounting and
inventory control system for providers of multiple line-of-business 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 and multiple
thousands of users from independent providers to large, regional and national
companies. It is 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 operations, such as intake, by location or line of
business; and centralize other functions, such as billing and collections,
across locations and business lines.
8
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. Recent product releases include Delivery
Assistant(TM), a point of delivery PDA solution and Inventory Assistant, a
physical inventory barcode-scanning PDA solution. MestaMed(R) was the first
system nationwide to deliver an electronic CMN solution through and alliance
with Trac Medical. 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, Windows 2000, AIX and various Intel, Alpha
and RS 6000 computer systems.
DME VI
DME VI is a PC-based software application for mid-size 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.
Delivery Assistant(TM), Inventory Assistant and eCMN features are planned for
DME VI in 2003.
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(TM) automates order processing, CMN management, billing, accounts
receivable, inventory and rental management; the core operational areas of any
HME business. HMExpress(TM) 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, HIPAA compliant 837 and 835 standard billing
formats, 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.
AC-CURA(TM)
AC-CURA(TM) is a Windows 2000/XP open architecture complete home health
agency information system application. It is fully scaleable, and capable of
supporting centralized or decentralized organizations. AC-CURA(TM) offers
complete scheduling, billing, operations, financial, and QA functionality.
AC-CURA(TM) offers a simple and reliable interface solution to virtually any
point-of-care device, telephony, and care plan management.
AC-CURA(TM) has hundreds of users operating in 23 states. AC-CURA(TM) is
designed to handle all types of payers including Medicare, Medicaid, Private Pay
and Staffing. AC-CURA(TM) can be configured in a client server or a
decentralized data base environments. AC-CURA(TM) is sold under a business
alliance based on a reseller agreement with Riversoft, Inc.
SPECIALIZED SOFTWARE PRODUCT SOLUTIONS
CareCentric offers the following specialized software solutions:
9
The Smart Clipboard(R)
The Smart Clipboard(R) is a point-of-care clinical information system that
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)
is a 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. 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. Through a
relationship with Outcome Concept Systems, the system provides OASIS and ORYX
data entry, validation, submittal and benchmark-reporting capabilities. The
Company designed The Smart Clipboard(R) system to work in conjunction with the
STAT2 and MestaMed(R) HHA back-office systems to give home health agencies
seamless data exchange from clinical to operational to financial functions and
back as indicated or required.
Visit Assistant(TM)
CareCentric Visit Assistant(TM) 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(TM) is the latest in CareCentric's line of mobile
computing solutions. Visit Assistant(TM) is based on a Palm Operating System(R)
device and provides a cost-effective solution for any size agency.
Visit Assistant(TM) enables improved clinical processes through the ability
to collect OASIS, 485, Assessment and Clinical Notes in the field. With Visit
Assistant(TM), agencies can perform regulatory functions to generate 485 forms,
calculate HHRG and submit OASIS data sets validated at the point-of-care to
ensure consistency and compliance. Visit Assistant(TM) is designed for use with
the STAT 2 and MestaMed(R) HHA clinical and financial system for billing and
operational efficiency.
Visit Assistant(TM) is sold under a business alliance with a vendor
company, Golden Rule Software, Inc. based on a license and distribution
agreement.
Delivery Assistant(TM)
CareCentric Delivery Assistant(TM) 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.
Fully integrated to the MestaMed(R) management system, the Delivery
Assistant(TM) enables delivery technicians to scan bar-coded orders, supplies
and equipment information to confirm delivery transactions. In addition, the
Delivery Assistant(TM) captures insurance verification information and cash
receipts. Daily activity can be automatically transferred to the MestaMed(R)
system for inventory control and operational efficiency. Delivery Assistant(TM)
is a key addition to the MestaMed(R) Home Medical Equipment line of products. It
provides valuable inventory, delivery and payment needs that speed the delivery,
reduces backlog, increase productivity and speeds reimbursement. In 2003, the
company plans integrate the Delivery Assistant(TM) into the DME VI HME system.
OASIS/ORYX Reporting and Benchmarking
CareCentric continues to enjoy value-added Retailer agreement with Outcome
Concept Systems, Inc. (OCS). This agreement enables 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.
10
PharmMed(R)
PharmMed(R) is CareCentric's enhanced, comprehensive, Windows-based, home
care pharmacy software. PharmMed(R) works in conjunction with the MestaMed(R)
Management System to fully automate 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(R) 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. Compounded, Non-compounded and TPN prescription processing is
supported. A number of productivity enhancing interfaces including TPN
compounder interfaces to Baxter and BAXA products are available.
Santrax
In 2002, CareCentric entered into a value added reseller agreement with
SanData Systems, Inc. to provide a best-of-breed telephony solution to
CareCentric's home health customers. Santrax is a browser-based ASP application
that enables home care field employees to record 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. Santrax confirms staff
visits through on-site caller identification. Once collected, information is
automatically exported into an agency's payroll and billing applications.
Santrax is well suited for use by paraprofessionals or home health aides.
Santrax 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. Interfaces to the MestaMed(R) HHA system are expected to be
available in 2003.
CLINICAL CONTENT OPTIONS
SmartPlans
The SmartPlans suite of patient care plans and assessments integrated into
CareCentric's Smart Clipboard(R) that allows home health agencies to implement
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.
Outcomes Planner System
The Outcomes Planner System (OPS) is an alternative option available to
CareCentric Smart Clipboard(R) customers 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. Modules for physical, occupational and speech
therapy as well as hospice are also available.
HIPAA Enhancements
The Company expects that the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) will necessitate on-going 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
and delivering regulation compliant, productivity enhancing modules it believes
will be needed to gain compliance for its own employees, product and service
offerings and its operations.
11
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 100 professionals dedicated to this effort who
provide the following services:
o Implementation: Implementation services provide a proven 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.
Quality assurance measurements are required after each on-site visit.
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 Atlanta, 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 with CareCentric
software solutions. This critical aspect of sales and implementation
provides the customer with the 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 and emergency telephone support on evenings and weekends. The
support is available at standard 8:30 a.m. to 8:30 p.m. EST hours or
can be specially tailored to the different types of healthcare
operations serviced by the product. Weekend support is available on an
on-call basis by support staff of the Company. Customers can purchase
added platinum/premium level support. In these cases, key support
personnel are on call to handle critical issues during extended hours.
Support coverage includes selected training questions, 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
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.
o CareCentric is assembling a standardized business optimization package
of services. This package of services will provide on-site review of
customers' existing procedures and recommend "best-practice" policies
and procedures designed to maximize the customer's utilization of the
CareCentric's software product features.
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 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's technical personnel also provide on-site and on-call support as
requested.
12
Business Consulting Services:
This segment was discontinued at the end of the third quarter of 2001.
CUSTOMERS
CareCentric has over 1,500 customers nationwide, including:
o hospital-based companies;
o home health care service providers;
o alternate-site care organizations;
o home medical equipment providers;
o integrated delivery systems;
o government-managed organizations;
o respiratory service providers; 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 focused on home medical equipment and IV pharmacy providers. There were 12
account executives at February 28, 2003. An inside sales force of six employees
handles additional licenses, add-on modules, accessories, 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. In addition, CareCentric maintains a national advertising
campaign, direct mail campaigns and an active national, regional and state trade
show presence.
BACKLOG
CareCentric had backlog of $3.8 million at December 31, 2002, $3.2 million
on December 31, 2001, and $4.1 million on December 31, 2000. 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) 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
13
database engine, Adaptive Server Anywhere, for its rich feature set and
replication support. The Smart Clipboard(R) product is currently deployed on
Microsoft's Windows operating systems platforms. 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.
STAT2 The STAT2 system is an 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. Several components of the
Cache database and development environment will be incorporated in 2003 to allow
support under a larger family of operating systems and to eliminate the need for
third-party ODBC tools.
DME VI The DME VI 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(R) The MestaMed(R) 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 Windows NT,
Windows 2000, Unix, AIX 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.
VISIT ASSISTANT(TM) The Visit Assistant(TM) (VA) operates on the Palm operating
system. The handheld units synchronize to any PC on the same network where the
Visit Assistant(TM) server resides. The VA server uses an SQL database and users
can work with the synchronized handheld data from a workstation. Visit
Assistant(TM) data are exchanged with the back-office STAT2 product, eliminating
dual data entry. Visit Assistant(TM) is sold 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 and MestaMed(R) back office
systems.
PHARMMED(R) The PharmMed(R) software is a front-end windows-based GUI pharmacy
and prescription processing system designed to manage the specialized mixing and
delivery needs of infusion therapy. The PharmMed(R) system is a fully integrated
product that leverages the MestaMed(R) patient intake, backoffice billing,
accounts receivable and management system features. PharmMed(R) can operate on
Windows NT and Windows 2000. The system fully supports local and wide-area
networks through TCP/IP network protocol. The PharmMed(R) product is also
powered by use of the Synergy development toolset and language.
DELIVERY ASSISTANT(TM) The MestaMed(R) Delivery Assistant(TM) 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(TM) 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.
INVENTORY ASSISTANT The MestaMed(R) Inventory Assistant is a handheld physical
inventory system. The solution is deployed on a Personal Data Assistant (PDA)
using the Palm operating system. The Inventory Assistant is fully integrated
with the MestaMed(R) System to automatically scan bar-coded inventories to
expedite physical inventory counts. 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
14
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.
RESEARCH AND DEVELOPMENT
CareCentric maintains a staff of approximately 38 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, to investigate
and partner with third-party vendors whose products provide complimentary
solutions to existing CareCentric products and to enhance and develop its suite
of product and re-engineering services.
CareCentric continuously engages in enhancing selected features of existing
products to help its customers meet constantly changing regulatory requirements
as well as to improve operational and clinical processes. The Company believes
that such activities will help customers manage and reduce costs while
increasing the opportunities to improve revenue generation and collection.
CareCentric has also engaged in the design of an "n-tier platform"
multiple-line-of-business solution designed to operate in the Microsoft .NET
environment as both an in-house and ASP deployable solution. Plans to move the
project to its development phases through a combination of available and
integratable third-party components in conjunction with a number of in-house
developed components in 2003 are underway.
A large development team remains in place to add new features and value-add
products 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 has resulted in the ongoing entry and exit of vendors
each year. CareCentric believes that the primary factors affecting competition
are:
o features and 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
o financial stability
15
o pricing
CareCentric believes it is a strong competitor in features and functions,
system performance and reliability, ability to provide regulatory enhancements,
customer support and potential for enhancements, thus providing the customer
with a return on investment. CareCentric provides customer support through a
real-time, telephone-based system that has proven effective in satisfying
customer needs in a timely fashion. 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, its deep industry
knowledge and the feature and function of its products.
Management believes that CareCentric's name recognition has been expanding
since its debut in January 2001. Advertising of the name, logo and tag line -
Achieve Your Potential - continued throughout 2002 and has been successful in
beginning to establish a single branded identity representing multiple flagship
products and services. Management believes that the market continues to identify
with CareCentric's products - MestaMed(R), STAT 2(R), Smart Clipboard(R) and
PharmMed(R) - indicating a strong product allegiance by the customer.
CareCentric's competitors include other providers of home health care
information systems and services. 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 McKesson Information Systems;
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;
o Computer Applications Unlimited; and
o Computers 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. 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 and the DME VI solution
acquired from Dezine, the Smart Clipboard(R) system acquired in its 1999 merger
with CareCentric Solutions, Inc. (CSI), the MestaMed(R), PharmMed(R) and
HMExpress(TM) products acquired in its 2000 merger with MCS, Inc. (MCS) and has
applied for AC-CURA(TM) as the product copyright name for its newly
reseller-licensed HHA product. 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 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
16
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.
Regulations enacted by the United States government are created through
several agencies and specific regulations. The Department of Health and Human
Services (HHS) is the agency responsible for protecting the health of all
Americans. The Centers for Medicare and Medicaid Services (CMS), a department
within HHS, is responsible for administering the Medicare and Medicaid programs
and for enforcing the transaction and code set standards that are part of the
Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Office
of Civil Rights (OCR) is responsible for enforcing the HIPAA privacy standards.
The Office of Inspector General (OIG) is responsible for protecting the
integrity of HHS. The OIG conducts audits, investigations, inspections and other
related activities to ensure program integrity and to identify fraud and abuse.
These government agencies and the regulations they oversee all have a
significant impact on how home health companies conduct business each day.
Each year the OIG publishes a Work Plan that identifies specific areas of
investigation for the coming year. In 2003 home health, hospice and durable
medical equipment businesses are once again included in the Work Plan. Home
health will be the focus of two studies, hospice one study and durable medical
equipment four studies. For home health the OIG will investigate the effect the
prospective payment system is having on quality of home health care. The goal is
to determine whether any changes have occurred in the level or mix of service,
the number of hospital re-admissions or emergency room admissions and the number
of deficiencies identified on survey and certification. The second study will
look at payment controls and whether services were properly coded and whether
any services were inappropriately unbundled and paid separately by Medicare. The
OIG's focus for hospice will be a re-examination of a past area of scrutiny;
hospice and nursing home relationships. Specifically this study will focus on
the private paying hospice patient who resides in a nursing facility and will
determine whether services were provided according to the plan of care. Durable
medical equipment companies will see the OIG scrutinizing the area of medical
necessity of wheelchairs, payments for enteral therapy, parenteral nutrition,
oxygen and therapeutic shoes. The activities of the OIG support the need for
agencies to develop and improve their corporate compliance plans. Implementing
system controls and safe guards are a must in this environment of regulatory
control and scrutiny.
17
All of these areas could potentially impact CareCentric through the need
for additional system controls and safeguards. Any required changes resulting
from the Inspector General's review of the home health industry 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.
The enactment of the Health Insurance Portability and Accountability Act by
Congress in 1996 began a new era in the field of information management. Among
other requirements, HIPAA called for the adoption of standards governing the
electronic transmission, privacy and security of health information. HIPAA
required the Secretary of the Department of Health and Human Services (DHHS) 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.
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 Coordinating of benefits
o Health care payment and remittance advice
o Health plan premium payments
o Health claim status
o Referral certification and authorization
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. The Department of
Health and Human Services 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.
The proposed Security Rule published in 1998 was expected to become final
in the first quarter of 2003 with a compliance date of February 2005. The
Security Rule consists of several standards that require covered entities to
maintain reasonable and appropriate administrative, technical, and physical
safeguards to ensure the integrity and confidentiality of health information and
prevent the unauthorized use or disclosure of health information. Home health
agencies are just beginning to prepare for the impact of the HIPAA privacy
standards.
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
18
that OASIS assessments must be completed on all adult patients, with the
exception of maternity or personal care/housekeeping services. However, the
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.
In 2002, CMS's committee on Regulatory Reform recommended streamlining home
health paperwork. This resulted in the development of a shorter version of the
OASIS tool. The new version decreased the number of required fields and added a
new field required to comply with ICD-9-CM coding requirements mandated by
HIPAA. The committee's goal was to require only those assessment items needed to
promote quality patient care and to ensure proper payment. This recommendation
was approved by the OMB in January 2003. Home Health agencies could implement
the shorter OASIS immediately. The compliance date for the changes to the OASIS
data set is October 1, 2003.
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 have 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.
The Standards for Electronic Transactions and Code Sets Final Rule
published in the August 17, 2000 Federal Register became effective October 16,
2000. 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.
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.
19
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.
In 2002, the 15% reduction on payment limits for home health services took
effect with episodes beginning on October 1, 2002. From 1998 to 2002 the home
health industry was targeted for 16 billion dollars in reductions this number
however climbed to 70 billion with the 15% reduction on October 1, 2002. The
impact of these reductions certainly could affect the ability of CareCentric's
customers to purchase new products and on new customers purchasing any product.
The Standards for Privacy of Individually Identifiable Health Information
Final Rule issued on December 20, 2000 and modified on August 14, 2002 protects
all patient records, including paper, electronic, and oral communications. The
compliance date for the privacy standards is April 14, 2003.
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, 2002, CareCentric employed 158 individuals. 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 15,431 square feet. The lease on this space expires on
April 30, 2008.
20
CareCentric also leases office space for its operations in the following
locations:
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
-------- -------------- ----------------
Norcross, Georgia 19,704 May 31, 2003*
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
*CareCentric believes that its present facilities, excluding the Norcross
facility, which will be vacated in May 31, 2003 in accordance with early lease
termination rights with the landlord, 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 February
28, 2003, 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
Not applicable.
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 for periods prior to March 7, 2000 are therefore the
historical financial statements of MCS, Inc. only, except where specifically
noted.
The common stock of CareCentric has been traded on the Over the Counter
Bulletin Board (OTCBB) since August 22, 2002 under the symbol CURA.OB. Between
December 26, 2000 and August 21, 2002, the Company's common stock was traded on
The Nasdaq Stock Market's SmallCap Market under the symbol CURA. From June 6,
21
2000 until December 26, 2000, the common stock traded on the Nasdaq SmallCap
Market 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.
As of March 10, 2003, CareCentric common stock was held by approximately
3,108 holders of record. For this purpose, stockholders whose shares are held by
brokers on behalf of stockholders are not included.
The table below shows the reported quarterly high and low sales price for
CareCentric common stock on the Nasdaq National Market, Nasdaq SmallCap Market
and OTCBB for the periods after January 1, 2001. The information set forth below
does not include retail mark-ups, markdowns or commissions.
2002 2001
-------------------- ---------------------
HIGH LOW HIGH LOW
-------------------- ---------------------
First Quarter 1.010 0.550 4.530 1.500
Second Quarter 0.800 0.400 3.000 1.630
Third Quarter 0.600 0.300 2.950 1.340
Fourth Quarter 0.700 0.230 1.700 0.460
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 January 29, 2003, CareCentric received an offer to merge with Borden
Associates, Inc. In the proposed transaction, Borden would merge into
CareCentric and purchase the shares of shareholders holding less than 4,000
shares for $0.55 per share. Each share of CareCentric common stock owned of
record by a holder of 4,000 shares or more of CareCentric common stock will
continue to represent one share of common stock after the merger. The
outstanding shares of Borden Associates capital stock will, in the aggregate, be
converted into the right to receive that number of shares of CareCentric common
stock equal to the quotient of the total cash consideration paid to the holders
of fewer than 4,000 shares of CareCentric common stock divided by the $0.55 per
share price. CareCentric would remain the surviving entity. This transaction, if
consummated, may result in the Company becoming private so that it would no
longer be a reporting company under SEC regulations or be publicly traded on the
OTC Bulletin Board. The Board of Directors is evaluating the proposal and has
formed a special committee of independent directors, consisting of Winston R.
Hindle, Jr. and William J. Simione, Jr., to evaluate, respond or negotiate the
proposal with the principals of Borden Associates. Borden Associates is an
investment company formed for the purpose of this transaction and owned by John
Reed, Stewart Reed and James Burk. John Reed and Stewart Reed are material
shareholders of CareCentric and members of its Board of Directors. As of March
10, 2003, the special committee of the Board has selected legal counsel and an
investment banking firm to assist in the special committee's review of the offer
by Borden Associates.
EQUITY COMPENSATION PLAN INFORMATION
The following chart gives aggregate information regarding grants under all
equity compensation plans of CareCentric through December 31, 2002.
22
Number of securities
remaining available
Number of securities Weighted-average for future issuance and
to be issued upon exercise price of equity compensation
exercise of outstanding plans (excluding
outstanding options, options, securities reflected
Plan category warrants and rights warrants and rights in 1st column)
- ------------------------------------------ ---------------------- -------------------- -------------------------
Equity compensation plans approved by
securityholders (1) 469,836 $ 5.03 383,586
Equity compensation plans not approved
by securityholders (2) 108,453 20.75 -0-
---------------------- -------------------- -------------------------
Total 578,289 $ 7.55 383,586
====================== ==================== =========================
(1) Represents options granted under the following plans, each of which was
approved by shareholders: 1997 Non-Qualified Directors Stock Option Plan,
and the Simione Central Holdings, Inc. 1997 Omnibus Equity-based Incentive
Stock Option Plan, as amended.
(2) Represents non-plan options granted prior to December 31, 2002.
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, 2002, 2001, 2000, 1999 and 1998 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 for periods prior to March 7, 2000 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.
23
SUMMARY OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ -------------- ---------- ------------ -------------
(in thousands, except per share data)
Net revenues: $ 22,015 $ 20,446 $ 19,574 $ 16,648 $ 14,901
Costs and expenses:
Cost of revenues 6,408 8,217 8,478 10,563 9,225
Selling, general and administrative 9,770 10,715 10,756 4,077 3,780
Research and development 3,431 6,158 6,174 1,051 231
Amortization and depreciation 1,696 3,865 3,481 230 -
Write down of intangibles - 11,799 - - -
Restructuring Charge - 675 - - -
------------ ------------- ---------- ------------ -------------
Total costs and expenses 21,305 41,429 28,889 15,921 13,236
------------ ------------- ---------- ------------ -------------
Income (loss) from operations 710 (20,983) (9,315) 727 1,665
Other income (expense) :
Other (expense) income 250 - (6) - -
Interest expense (712) (592) (141) - -
Interest and other income 45 37 74 45 47
------------ ------------- ---------- ------------ -------------
Income (loss) before taxes 293 (21,538) (9,388) 772 1,712
------------ ------------- ---------- ------------ -------------
Income tax benefit (expense) - (15) 154 (306) (686)
------------ -------------- ---------- ----------- ------------
Income (loss) from continuing
operations 293 (21,553) (9,234) 466 1,026
------------ -------------- ---------- ----------- ------------
Discontinued operation
Loss on disposal of discontinued
operations - (2,632) - - -
Income (loss) from operations of
discontinued segment before taxes - (483) (442) 251 671
Applicable tax expense 100 268
------------ ------------- --------- ----------- ------------
Income (loss) from operations and
disposal of discontinued segment - (3,115) (442) 151 403
------------ ------------- --------- ----------- ------------
Net income (loss) $ 293 $ (24,668) $ (9,676) $ 617 $ 1,429
============ ============= ========= =========== ============
Cumulative preferred dividends (467) (722) (569) - -
Net income (loss) available to common
shareholders $ (174) $ (25,390) $(10,245) $ 617 $ 1,429
============ ============== ========== ============ =============
Net income (loss) per share - basic and
diluted
From continuing operations $ 0.07 $ (5.06) $ (2.70) $ 0.31 $ 0.69
Weighted average common shares
--basic and diluted 4,371 4,272 3,418 1,490 1,490
============ ========================== ============ =============
From discontinued operations - $ (0.73) $ (0.13) $ 0.10 $ 0.27
Weighted average common shares -
basic and diluted 4,371 4,272 3,418 1,490 1,490
============ ============== ========== ============ =============
Net income (loss) per share - basic and
diluted
From operations $ 0.07 $ (5.77) $ (2.83) $ 0.41 $ 0.96
Weighted average common shares -
basic and diluted 4,371 4,272 3,418 1,490 1,490
============ ============== ========== ============ =============
Net income (loss) per share - basic & $ (0.04) $ (5.94) $ (3.00) $ 0.41 $ 0.96
diluted for common shareholders
Weighted average common shares - basic
and diluted 4,371 4,272 3,418 1,490 1,490
============ ============== ========== ============ =============
24
SUMMARY OF FINANCIAL POSITION
AS OF DECEMBER 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ----------- ------------ ----------- --------------
(in thousands, except per share data)
Cash and cash equivalents $ 826 $ 201 $ 362 $ 47 $ 60
Working capital (deficit) (12,127) (15,618) (13,765) (1,542) (1,745)
Total Assets 11,907 12,808 35,120 6,696 5,279
Long-term obligations 8,670 6,093 728 - -
Shareholders' equity (deficit) $ (15,259) $ (14,310) $ 11,080 $ 505 $ (981)
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, 2002
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.
25
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 for periods prior to march 7, 2002 are therefore the
historical financial statements of MCS, 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.
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
o accelerate payment reimbursement
CareCentric has over 1,500 customers nationwide in the following categories:
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
o respiratory service providers
The Company defines recurring revenues as revenues derived under software
support agreements, whether annual or otherwise. These revenues were
approximately $12.1 million, or 55.0% of total net revenues, for the year ended
December 31, 2002, $11.3 million, or 55.1% of total net revenues, for the year
ended December 31, 2001 and $12.5 million, or 57.1% of total net revenues, for
the year ended December 31, 2000.
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 increases 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, 2002, 2001 and 2000, the Company had no capitalized computer
software and development costs.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the Securities
and Exchange Commission in December 2001, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
26
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. Revenue is recognized for instances where tiered pricing is used
according to separately defined portions of service and software as those
portions are completely delivered to the customer.
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.
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.
27
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 under-performance 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 (20%) determined by our management to be
commensurate with the risk inherent in our current business model. As of
December 31, 2002 no event or business situation had been identified which
indicated the carrying value of the intangibles and long-lived assets and
related goodwill and enterprise level of goodwill should be adjusted. As of
December 31, 2001, a $11.8 million impairment adjustment was recorded resulting
in net intangible assets amounting 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 2002 and
2001 Statements of Operations present 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. 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.
In addition to the proforma information discussed in the paragraph
immediately above, the following comparison of the years ended December 31,
2002, 2001 and 2000 have been prepared after reduction in the years 2001 and
2000 for the discontinued operations of the Consulting segment of Simione
Central Holdings, Inc. in September of 2001. See Note 2 to the accompanying
Financial Statements.
28
COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2001
Net Revenues. Revenues (exclusive of the Consulting segment which was
discontinued in September 2001) were $22.0 million for the twelve months ended
December 31, 2002 and $20.4 million for the twelve months ended December 31,
2001. The $1.6 million increase was mostly attributable to an increase in
maintenance revenues of $0.7 million to $12.1 million in 2002 from $11.4 million
in 2001, and an increase in revenues from software systems of $0.7 million to
$6.8 million for the twelve months ended December 31, 2002 from $6.1 million for
the twelve months ended December 31, 2001.
The Company believes these increases in revenues are attributable generally
to the combined effect of continued customer account retention, growth of
existing customer's businesses and price increases. The Company also recognizes
the importance of successfully introducing new products using more current
technologies and plans to continue to develop and invest in new products in 2003
and beyond.
Cost of Revenues. Cost of revenues decreased $1.8 million, or 22.0%, to
$6.4 million in 2002 from $8.2 million in 2001. As a percentage of total net
revenues, cost of revenues decreased to 29.1% in 2002 from 40.2% in 2001. The
$1.8 million decrease resulted primarily from cost cutting combined with changes
in product mix. 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 $0.9 million, or 8.8%, to $9.8 million in 2002 from $10.7
million in 2001. As a percentage of total net revenues, selling, general and
administrative expenses were 44.4% in 2002 and 52.4% in 2001. This dollar
decrease was attributable to synergies derived from the merger with MCS in March
2000 and cost savings initiatives completed in 2002. Cost savings were primarily
realized through the centralization of administrative functions and elimination
of non-essential facilities.
Research and Development. Research and development expenses decreased
approximately $2.7 million, or 44.3%, to $3.4 million in 2002 from $6.2 million
in 2001. As a percentage of total net revenues, research and development
expenses decreased to 15.6% in 2002 from 30.1% in 2001. The reduction in
research and development expenses in 2002 was primarily due to efforts to reduce
overall expenses while revamping the Company's overall product strategies. The
Company expects research and development costs to increase in 2003 to a level
between the 2002 and 2001 reported expenditures and percentages of total net
revenues.
Amortization and Depreciation. Amortization and depreciation decreased by
approximately $2.2 million to $1.7 million in 2002 from $3.9 million in 2001.
This decrease is attributable to the write down of the Intangibles at December
31, 2001 in accordance with SFAS No. 121 of $11.8 million.
Operating Loss. The Company's operating income from continuing operations
improved from a loss of $21.0 million for the twelve months ended December 31,
2001 to a profit of $0.7 million for the twelve months ended December 31, 2002.
This increase resulted from the combined effect of increases in sales, improved
gross profit margins and reductions in all reported operating expense
categories.
Other Income (Expense). Interest expense related to borrowings under the
Company's line of credit agreements and capital lease obligations decreased by
approximately $0.6 million to $0.7 million for the twelve months ended December
31, 2002 from $1.3 million for the twelve months ended December 31, 2001. The
Company expects interest expense in 2003 to be comparable to that of 2002.
Interest and other income consist principally of interest income related to
customer finance charges. The Company's short-term cash investments were
materially unchanged at $45,000 and $37,000 for the years ended December 31,
2002 and December 31, 2001 respectively.
Income Taxes. The Company has not incurred or paid any substantial income
taxes since March 2000. At December 31, 2002, CareCentric had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $38.5
29
million. Such losses expire beginning in 2008, 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, 2002, and accordingly, a 100% deferred tax
valuation allowance has been recorded against these assets. See Note 10 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 the reduction in revenues was attributable generally
to adverse economic conditions prevailing in the home healthcare marketplace.
Additionally, the Company believes certain customers were reluctant to invest in
existing software systems while new products with technologically advanced
platforms were under initial development..
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 continued 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 Smart Clipboard(R),
PharmMed(R) and HM Express(TM).
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
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
30
capability, and an expectation that immediate opportunities for new software
sales were lower than 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 from 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).
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
31
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 November 1999, CareCentric, prior to the merger with MCS and when its
pre-merger name was Simione Central Holdings, Inc. (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 were 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 6 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 a $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 as more fully explained in Note 6 to the
accompanying Consolidated Financial Statements. 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. 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 July 12, 2000,
the Company closed a financing with Wainwright Bank and Trust Company for access
to a $6.0 million revolving line of credit, which was guaranteed by Mestek, Inc.
These three transactions are described in greater detail in Note 6 to the
accompanying Consolidated Financial Statements and resulted in the creation of
the following credit and debt facilities and preferred equity securities:
32
CREDIT AND DEBT AND PREFERRED EQUITY SECURITIES IN JULY 2000
- -------------------------------------------------------------------------------------------------------------------
SOURCE FUNDING FORM DATE CLOSED
- ----------------------------------------- --------------- ------------------------------ -----------------------
Barrett C. O'Donnell $ 600,000 Convertible Note November 11, 1999
Mestek, Inc. $ 6,000,000 Convertible Preferred Stock March 7, 2000
Series B; 9% cumulative
dividend
Mestek, Inc. $ 850,000 Preferred Stock Series C; March 7, 2000
11% cumulative dividend
John E. Reed $ 1,000,000 Convertible Preferred Stock June 22, 2000
Series D; 9% cumulative
dividend
John E. Reed $ 6,000,000 Line of Credit June 22, 2000
Wainwright Bank and Trust Company $ 6,000,000 Line of Credit July 12, 2000
---------------
$ 20,450,000
===============
Throughout 2000 and 2001, advances were made on the John E. Reed line of
credit such that on December 31, 2001, the outstanding amount under the Credit
Facility was $3.5 million, $1.0 million of which was participated to Mestek, and
the balance of which 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 became obligated under an 18 month
unsecured promissory note in the principal amount of $1,019,000 payable to
Mestek which earned interest at prime plus one and one half percent (1.5%), with
interest payable semiannually and which matured on September 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. R. Bruce
Dewey's salary for the periods from November 9, 1999 to October 31, 2001.
Also during 2000, 2001 and the first quarter of 2002, the Company incurred
operating losses resulting from numerous factors, including the uncertain
operating condition of its customers due to the negative effects of the current
government limits over home medical cost reimbursement, higher than anticipated
costs of developing, implementing and supporting The Smart Clipboard(R) product
and slower than expected completion of effective integration of the MCS and
Simione Central organizations. 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.
On April 8, 2002, the Company secured two commitments for additional
financing, from existing shareholders John Reed and Mestek, Inc. Mr. Reed and
Mestek provided $871,117 and $1,092,000 in short-term debt financing,
respectively.
Also on April 8, 2002, the Company initialized a recapitalization of its
interest bearing debt and preferred equity instruments. The recapitalization
plan was approved by the Company's shareholders at the June 6, 2002 annual
stockholders meeting and completed on July 1, 2002. See Notes 6 and 8 to the
accompanying Financial Statements for the impact of the recapitalization plan on
33
each class of debt and preferred stock. As of December 31, 2002, and including
the effect of the completed recapitalization plan, the Company's credit and debt
facilities and related preferred equity securities consisted of the following:
CREDIT AND DEBT AND PREFERRED EQUITY SECURITIES AT DECEMBER 31, 2002
- -------------------------------------------------------------------------------------------------------------------
SOURCE FUNDING FORM DATE CLOSED
- ----------------------------------------- ----------------- ------------------------------ -----------------------
Barrett C. O'Donnell $ 600,000 Convertible Note maturing November 11, 1999
June 30, 2007
Mestek, Inc. $ 6,000,000 Convertible Preferred Stock March 7, 2000
Series B; 9% cumulative
dividend
John E. Reed $ 1,000,000 Convertible Preferred Stock June 22, 2000
Series D; 9% cumulative
dividend
Mestek, Inc. $ 4,000,000 Convertible deferred interest July 1, 2002
Note maturing June 30, 2007
John E. Reed $ 3,555,555 Convertible deferred interest July 1, 2002
Note maturing June 30, 2007
John E. Reed $ 103,818 Capitalized deferred interest July 1, 2002
Note maturing June 30, 2007
Wainwright Bank and Trust Company $ 6,000,000 Line of Credit July 12, 2000
-----------------
$ 21,259,373
=================
The John E. Reed and Mestek, Inc. debt and equity amounts have all been
fully funded to the Company as of December 31, 2002. Between July 1, 2002 and
December 31, 2002, the Company paid off $1.4 million of the Wainwright Bank and
Trust Company line of credit resulting in an outstanding balance of $4.5 million
at December 31, 2002.
During the months of January and February of 2003, the Company has paid off
an additional $0.3 million on the Wainwright Bank line of credit, resulting in
$1.8 million of unused credit capacity as of February 28, 2003. The Company
believes the combination of the funds available from cash to be generated from
future operations and the Wainwright Bank facility will be sufficient to meet
the Company's operating requirements through at least December 31, 2003,
assuming no material adverse change in the operation of the Company's business.
See also Note 17 to the Financial Statements.
The table below summarizes the Company's debt and other contractual
obligations at December 31, 2002:
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 2-3 YEARS 4 - 6 YEARS
---------------- ---------------------------------------------------
Long-Term Debt $ 8,520,000 $ - $ - $ 8,520,000
Capital Lease Obligations - - - -
Operating Leases 2,647,000 744,000 1,300,000 603,000
Line of Credit 4,525,000 4,525,000 - -
Other Long-Term Obligations 1,252,000 1,102,000 150,000 -
---------------- ---------------- --------------- ------------------
Total Contractual Cash
Obligations $ 16,944,000 $ 6,371,000 $ 1,450,000 $ 9,123,000
================ ================ =============== ==================
34
As of December 31, 2002, the Company had negative working capital of $12.1
million and cash equivalents of $0.8 million. The Company's current liabilities
as of December 31, 2002 include customer deposits of $1.5 million and unearned
revenues of $4.2 million.
Net cash provided by (used in) operating activities for the years ended
December 31, 2002, 2001 and 2000 was ($0.8) million, ($3.9) million and ($7.2)
million, respectively. Cash used in 2002 principally funded operating losses
which occurred in the first quarter of 2002. The significant reductions in
negative cash flow from operations during the three years ended December 31,
2000 to December 31, 2002 have greatly improved the Company's ability to
maintain the liquidity it needs to manage its business. The improvement in cash
flow is the result of reductions in all reported areas of operating expense
including cost of revenues, selling, general and administrative expenses and
research and development. These reduced expenses, as more specifically discussed
in Management's Discussion and Analysis of Operations, have resulted from cost
efficiencies derived from the merger of MCS, Inc. and Simione Central Holdings,
Inc., more efficient use of research and development resources combined with
active efforts by the Company to license the rights to sell non-Company
developed software, and stringent cost control procedures by the reorganized
management team during 2002. Management of the Company expects these same
actions to be continued such that the improved cash liquidity of the Company is
repeated with the intent to direct this liquidity at future product initiatives.
Cash flows from financing activities during the twelve months ended
December 31, 2002 include John E. Reed and Mestek, Inc. borrowings made before
the recapitalization plan was completed on July 1, 2002. During the twelve
months ended December 31, 2002, the Company achieved a net reduction in the
Wainwright Line of Credit outstanding of $1.1 million.
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
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.
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 was 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. Prior to adoption of SFAS No.
142, the Company had an intangible asset classified as Assembled workforce
valued at $500,000 after accounting for impairment discussed immediately below.
The assembled workforce intangible asset has been recharacterized as goodwill,
under the rules of SFAS No. 142, which will not be amortized. There has been no
event or indicator identified by the Company through February 28, 2003 which
35
indicates there has been any impairment in the $500,000 value of Goodwill
included in the Company's Statement of Financial Condition for the year ended
December 31, 2002.
Accounting for impairment. For the years ended December 31, 2001 and 2000,
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 performed periodic analysis to
determine if the Company's intangible assets had 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.
See Note 7 of the Financial Statements.
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 effect of adoption of SFAS No. 144 effective January
1, 2002 had no material to the Company's financial position, results of
operations or cash flow.
On December 31, 2002, FASB issued FASB No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure." This Statement amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for companies that voluntarily change to the fair-value-based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of FASB No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company does not believe FAS 148 will have
a material effect on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2002, the Company's obligations include fixed rate notes
payable and a variable rate line of credit bank note with aggregate principal
balances of approximately $13.0 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 $45,000 per year.
At December 31, 2002, the Company had accounts receivable of approximately
$4.6 million (net of an allowance for doubtful accounts of $1.3 million). These
amounts compare to accounts receivable of approximately $4.2 million (net of an
allowance for doubtful accounts of $1.0 million) at December 31, 2001. The
Company is subject to a concentration of credit risk because most of the
accounts receivable are due from companies in the home health care industry.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements and Supplementary Data appear on pages 47 to 77 of
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AMD EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE MANAGEMENT OF THE REGISTRANT
John R. Festa.................... 51 Chief Executive Officer, President and
Director
Mark A. Kulik.................... 45 Senior Vice President of Sales and
Marketing
Michael Quinn.................... 49 Senior Vice President of Operations
Ana M. McGary.................... 41 Senior Vice President of Human Resources
and Administration
George M. Hare................... 48 Senior Vice President and Chief
Financial Officer
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, an
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
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
37
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 Senior Vice President of Human Resources and
Administration of CareCentric since April 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.
George M. Hare has served as Senior Vice President and Chief Financial
Officer of CareCentric, Inc. since April 2002. Mr. Hare previously served as
Chief Financial Officer of the Company from March 1999 until April 2000. Prior
to joining CareCentric in April 2002, Mr. Hare was a Partner with Tatum CFO
Partners, LLP. Prior to Tatum, he was a Vice President of ADT Security Systems,
Inc. where he was heavily involved in business development and business
turnaround activities. He previously held positions in strategic planning,
logistics management and financial planning for Campbell Soup Company.
Additionally, Mr. Hare's business experience has included operating
responsibilities for businesses in Europe, Australia, and the United States in
various industries including manufacturing, distribution, labor intensive
services and start-ups. Mr. Hare has an MBA from Lehigh University and is a CPA
in the state of Pennsylvania.
DIRECTORS OF THE REGISTRANT
Dr. David O. Ellis, age 61, has been a director of CareCentric since March
7, 2000. Dr. Ellis is President and a director of EGL Holdings, Inc., an
Atlanta-based merchant banking group providing investment services and capital
to United States middle market companies. He has been with EGL and its
predecessor company, Corporate Finance Associates, since 1982. Dr. Ellis is
currently a director of several privately held companies.
John R. Festa, age 51, became a director of CareCentric by appointment of
the Board of Directors of the Company on November 28, 2001. He was appointed
President and Chief Executive Officer on November 1, 2001. Prior to joining
CareCentric, Mr. Festa served as Managing Director and General Partner at EGL
III, LLC, as President and Chief Executive Officer of two software companies,
Buypass Corporation and Iterated Systems, and as a senior executive with the
Information Processing Group of American Express. He remains a director of
Iterated Systems.
Winston R. Hindle, Jr., age 72, became a director of CareCentric on March
7, 2000 upon the closing of the MCS/Simione merger pursuant to the terms of the
Merger Agreement. Mr. Hindle has been a director of Mestek since 1994. Mr.
Hindle was Senior Vice President of Digital Equipment Corporation, Maynard,
Massachusetts, prior to his retirement in July 1994. In his 32 years with
Digital, he managed both corporate functions and business units and was a member
of Digital's Executive Committee. Mr. Hindle was a director of MCS, Inc. from
1994 until the date of the MCS merger in March 2000. Mr. Hindle is also a
director of Keane, Inc., of Boston, Massachusetts.
Barrett C. O'Donnell, age 49, became a director of CareCentric (then
Simione Central Holdings, Inc.) in October 1996. He served as Chairman of the
Board of Directors of the Company from June 15, 1998 to August 8, 2000, and
served as Chief Executive Officer and President from June 15, 1998 to September
9, 1999. From October 1992 until October 1996, Mr. O'Donnell served as Chairman
of the Board of InfoMed Holdings, Inc., a Delaware corporation that merged with
Simione Central Holding, Inc., a Georgia corporation, to form Simione effective
October 8, 1996. Mr. O'Donnell also served as Chief Executive Officer of InfoMed
from November 1994 to October 1996. From 1978 to present, Mr. O'Donnell has been
Chairman of the Board, President and Chief Executive Officer of O'Donnell Davis,
Inc., which is in the consulting and investment advisory services business.
John E. Reed, age 87, became a director of CareCentric on March 7, 2000
upon the closing of the MCS/Simione merger pursuant to the terms of the Merger
Agreement. He became Chairman of the Board of Directors of the Company on August
38
8, 2000. Mr. Reed had been the Chairman of the Board of MCS from 1986 to the
date of the MCS/Simione merger. Mr. Reed has been a director of Mestek since
1986 and Chairman of the Board since 1989. From 1986 until 2001 he was
President, and he has been Chief Executive Officer from 1986 to the present, of
Mestek, Inc. Prior to the 1986 merger of Mestek, Inc. and Reed National Corp.,
Mr. Reed was President and Chief Executive Officer of Reed National since he
founded it in 1946. Mr. Reed is also a director of Wainwright Bank & Trust Co.,
Boston, Massachusetts.
Stewart B. Reed, age 54, became a director of CareCentric on June 6, 2002.
Mr. Reed is a director of Mestek since 1986 and serves as a consultant to Mestek
as well as a private investor in various enterprises. Mr. Reed previously served
as a director of the Company from March 2000 until August 2000. Mr. Reed served
as Executive Vice President of Mestek from 1986 to 1996. Prior to the 1986
merger of Mestek, Inc. and Reed National Corp., Mr. Reed had been Executive Vice
President of Reed National Corp. in charge of corporate development. Mr. Reed
had been employed by Reed National Corp. since 1970. Mr. Reed is the son of John
E. Reed, Chairman of the Board, President and Chief Executive Officer of Mestek
and the Chairman of the Board of the Company. Mr. Reed holds a substantial
ownership interest in Wainwright Bank & Trust Co., the provider of a $6.0
million line of credit to the Company.
William J. Simione, Jr., age 61, became a director of CareCentric (then
Simione) in October 1996. He left the Board of Directors in June 2000 when its
membership was reduced to seven, and was re-appointed to the Board of Directors
in November 2000 upon the occurrence of a vacancy. He served as Executive Vice
President of CareCentric and President of its subsidiary, Simione Consulting,
Inc. until October 31, 2001, when he left the Company to form Simione
Consultants, LLC. He is a certified public accountant who previously served as
Vice Chairman of the Board and Executive Vice President of the Company from
October 1996 to March 2000. From January 1996 until October 1996, Mr. Simione
served as the President of Simione Central, Inc., a wholly owned subsidiary of
CareCentric. From January 1975 until December 1995, Mr. Simione was Managing
Partner of the Home Health Care Consulting Division of Simione & Simione, CPAs.
Since September 1995, Mr. Simione has also served as a director and an audit and
governance committee member of Personnel Group of America, Inc., a leading
provider of information technology services and commercial staffing solutions.
Mr. Simione has 35 years of experience in the home health care industry.
Edward K. Wissing, age 64, became a director of CareCentric on March 7,
2000 upon the closing of the MCS/Simione merger pursuant to the terms of the
Merger Agreement. Mr. Wissing retired in 1998 from American HomePatient of
Nashville, Tennessee, a regional provider of home health care products and
services, a company which he founded. He maintains an active role in the home
health care industry and has twice chaired the Health Industry Distributors
Association (HIDA). Mr. Wissing has also served as chairman of HIDA's
Educational Foundation and serves on the board of American HomePatient and
Psychiatric Solutions, Inc., a Nashville-based mental health services provider.
39
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------------- --------------------------
Number of
Securities
Retired Underlying
Stock Options All Other
Salary Bonus Other Awards Grants Compensation
Name and Principal Position Year ($) ($) ($)(2) ($) (#) ($)(1)
- --------------------------------------- --------- ----------- ---------- --------- ----------- ------------ -------------
John R. Festa (3) 2002 206,861 -- -- -- -- 1,571
President and Chief Executive Officer 2001 31,795 -- -- -- 210,000 1,227
2000 -- -- -- -- -- --
George M. Hare (4) 2002 107,606 -- -- 11,200 17,500 214
Senior Vice President and Chief 2001 -- -- -- -- -- --
Financial Officer 2000 51,890 22,500 -- -- -- --
Ana M. McGary (5) 2002 99,230 -- -- -- -- 1,508
Senior Vice President-Human Resources & 2001 99,231 20,000 -- -- -- 1,843
Administration 2000 95,000 8,000 -- -- 2,000 719
Mark A. Kulik (6) 2002 183,577 -- -- -- -- 2,527
Senior Vice President-Sales and 2001 136,250 33,750 -- -- 125,000 2,426
Marketing 2000 33,333 7,500 -- -- 7,500 28
Michael L. Quinn (7) 2002 163,800 -- -- -- -- 2,512
Senior Vice President of Operations 2001 163,800 -- -- -- -- 2,532
2000 139,737 51,824 -- -- 5,000 2,965
(1) Represents 401(k) match, excess group life insurance and other compensation
specified in notes below.
(2) In accordance with the rules on executive officer compensation adopted by
the Securities and Exchange Commission, amounts of Other Annual
Compensation for 2000, 2001 and 2002 which would include the incremental
costs to the Company of perquisites and personal benefits, are excluded
because they are less than $50,000 or less than 10% of the total annual
salary and bonus compensation for each of such individuals in the Summary
Compensation Table.
(3) Mr. Festa became Chief Executive Officer November 1, 2001. The salary and
all other compensation, including reimbursement of the premiums of a
disability insurance policy, set forth herein for 2002 are based on
payments made by CareCentric for the period from January 1, 2002 to
December 31, 2002.
(4) Mr. Hare has served as Senior Vice President and Chief financial officer of
CareCentric, Inc. since April of 2002. Mr. Hare also served as Chief
Financial Officer during the final four months of 2000. In 2002, Mr. Hare
received options to purchase 17,500 shares of the Company's common stock
pursuant to the CareCentric, Inc. Omnibus Equity-based Incentive Plan,
which shall vest 33-1/3% on each of the first, second and third
anniversaries of the date of the resolution. The exercise price of the
above shares vesting on the first anniversary shall be equal to $1.00 per
share. Mr. Hare also received grant of 17,500 shares of restricted common
stock. The value shown above for the restricted stock is based upon a
closing price of $0.64 per share on April 22, 2002.
(5) Ms. McGary became an executive officer of the Company in July 2001. Ms.
McGary has served as Senior Vice President of Human Resources and
Administration since April of 1999. In February of 2000, Ms. McGary was
elected as Assistant Secretary. In August of 2000 Ms. McGary was elected
Secretary of the Company.
(6) Mr. Kulik became an executive officer of the Company in July 2001. Mr.
Kulik has served as Senior Vice President of Sales and Marketing since
October 2000. Prior to joining CareCentric, he served in senior management
40
positions at Healthcare Credentials Management Services and at Equifax
Healthcare Information Services.
(7) Mr. Quinn served as Senior Vice President of Operations of MCS, Inc. since
1985 and became an officer of CareCentric upon the merger with MCS, Inc.
when he became Senior Vice President of Operations, responsible for
customer support and operations.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options by the Company to the named Executive
Officers during the year ended December 31, 2002.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of
Underlying Options/SARs Appreciation for
Options/SARs Granted to Option Term (2)
Granted Employees in Exercise Price Expiration ___________________
Name (#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ------------------------- --------------- ------------------ ---------------- -------------- ------------------------
George M. Hare 17,500 30% $1.00 04-22-12 11,006 27,890
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the value of
unexercised stock options held at the end of the fiscal year ended December 31,
2002 by each named Executive Officer. There were no options exercised during the
fiscal year ended December 31, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of in-the-Money
Unexercised Options at Options at
December 31,2002 (#) December 31, 2002 ($) (1)
----------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
John R. Festa 0 0 0 0
George M. Hare 0 17,500 0 0
Ana M. McGary 4,333 667 0 0
Mark A. Kulik 46,667 85,833 0 0
Michael L. Quinn 3,333 1,667 0 0
- ------------------
(1) Dollar values were calculated by determining the difference between the
fair market value of the underlying securities at year-end at $0.60 per
share, as adjusted for the one-for-five reverse split effected on March 7,
2000, and the exercise price of the options.
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the number of shares of
CareCentric common stock that will be beneficially owned as of March 10, 2003 as
follows:
o each director of CareCentric;
o the Chief Executive Officer and the four other most highly compensated
executive officers of CareCentric;
o all CareCentric directors and executive officers, as a group; and
o each person, entity, or group of affiliated persons known by
CareCentric to be the beneficial owner of more than 5% of
CareCentric's common stock, based on that person's or entity's
ownership of CareCentric common stock and the number of outstanding
shares of CareCentric common stock as of April 18, 2002.
For purposes of this table, beneficial ownership of securities is defined
according to the rules of the Securities and Exchange Commission and means
generally the power to vote or exercise investment discretion with respect to
securities, regardless of any economic interests therein. Except as otherwise
indicated, CareCentric believes that the beneficial owners of shares of
CareCentric common stock listed below will have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable. In addition, for purposes of this table, a person or group is deemed
to have beneficial ownership of any shares which such person has the right to
acquire within 60 days after the date as of which these data are presented. For
purposes of calculating the percentage of outstanding shares held by each person
42
named above, any shares which this person has the right to acquire within 60
days after the date as of which these data are presented are deemed to be
outstanding, but not for the purpose of calculating the percentage ownership of
any other person.
The percentages were calculated based on the ratio of the number of shares
of CareCentric common stock beneficially owned by such beneficial owner as of
March 10, 2003 to the sum of:
o 4,371,350, the total number of outstanding shares of common stock;
o the number of shares of common stock issuable upon exercise of options
or warrants held by the applicable beneficial owner exercisable within
60 days of March 10, 2003; and
o the number of shares of common stock issuable upon the conversion of
the Company's Series D Preferred Stock and Series E Preferred Stock by
the applicable beneficial owner.
The table reflects the one-for-five reverse stock split (the "Reverse
Split") that became effective on March 7, 2000. The number of shares shown below
reflects ownership of 5,600,000 shares of Series B Preferred Stock, 398,406
shares of Series D Preferred Stock and 210,000 shares of Series E Preferred
Stock.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
-----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ -------------- ----------
Mestek, Inc.(1)(2) 10,890,396 71.4%
John E. Reed(1)(2)(3) 5,616,257 62.9
Stewart B. Reed(2)(4) 552,649 12.6
Barrett C. O'Donnell(5)(8) 233,728 5.2
Dr. David O. Ellis(6)(8) 221,374 5.0
William J. Simione, Jr. 11,254 *
Winston R. Hindle, Jr.(2)(7) 6,866 *
Edward K. Wissing(2)(7) 3,333 *
John R. Festa(8) 210,000 4.6
George M. Hare(9) 17,500 *
Mark A. Kulik(10) 46,667 1.1
Ana M. McGary(11) 4,333 *
Michael L. Quinn(7) 3,333 *
All directors and executive officers
as a group (10 persons)(12) 6,374,645 68.5%
- ---------------------
* Less than 1%.
(1) Includes (a) warrant to purchase 400,000 shares of the Company's common
stock at a per share price of $1.00 received on July 1, 2002 in exchange of
a prior warrant, pursuant to the closing of a Secured Convertible Credit
Facility (the "Mestek Credit Facility") between Mestek, Inc. ("Mestek") and
CareCentric dated as of July 1, 2002, which warrant expires on June 15,
2004, (b) a warrant to purchase 490,396 shares of the Company's common
stock at a per share price of $1.00 on July 1, 2002 received in exchange of
a prior warrant, pursuant to the closing of the Mestek Credit Facility
dated as of July 1, 2002, which warrant expires on June 15, 2004, (c)
4,000,000 shares of the Company's common stock issuable upon conversion of
outstanding indebtedness under the Mestek Credit Facility, and (d)
6,000,000 shares of the Company's common stock issuable upon conversion of
5,600,000 shares of the Company's Series B Preferred Stock. As of the date
of this Report, Mestek does not have any issued shares of the Company's
common stock.
(2) The address is 260 North Elm Street, Westfield, Massachusetts 01085.
(3) Includes: (a) 8,163 shares of CareCentric's common stock, (b) 1,000,000
shares of common stock issuable upon conversion of the Series D Preferred
Stock; (c) 3,555,555 shares of common stock issuable upon conversion of
outstanding indebtedness under that certain Amended and Restated Secured
Convertible Credit Facility and Security Agreement, dated as of July 1,
2002 among CareCentric, SC Holding, Inc., CareCentric National, LLC, and
43
John E. Reed; and (d) options held by John E. Reed to purchase 1,666 shares
of common stock. Also includes: (a) 490,533 shares of common stock which
are held by John E. Reed as trustee for various family trusts, but for
which he is not the beneficiary; (b) 89,458 shares of common stock owned by
Sterling Realty Trust, a Massachusetts business trust of which John E. Reed
is the trustee and of which he and a family trust are the beneficiaries;
(c) 470,882 shares of common stock held by trusts for the benefit of John
E. Reed. Excludes: (a) 2,267 shares of common stock which are held by John
E. Reed's wife, (b) 3,267 shares of common stock which are held by a family
trust for which he is not trustee, to which he disclaims ownership; (c)
400,000 shares of common stock issuable upon exercise of a Warrant issued
to Mestek in exchange for a prior Warrant on July 1, 2002, (d) 490,396
shares of common stock issuable upon exercise of a Warrant issued to Mestek
in exchange for a Warrant on July 1, 2002, and (e) 4,000,000 shares of
common stock issuable upon conversion of outstanding indebtedness under
that certain Secured Convertible Credit Facility and Security Agreement
dated July 1, 2002 between CareCentric and Mestek. John E. Reed expressly
disclaims beneficial ownership of all shares of common stock underlying the
Mestek Warrants and the Mestek convertible indebtedness. (f) the right to
vote, pursuant to an agreement dated March 29, 2002 between John E. Reed
and Mestek, 5,600,000 shares of Series B Preferred Stock issued to Mestek,
each of which entitles the holder to 1/5th of a vote in all matters voted
upon by Issuer's stockholders, or an aggregate of 1,120,000 votes (the
right to vote shares of common stock received upon conversion Series B
Preferred Stock revert to Mestek under the voting agreement).
(4) Includes 225,921 shares of common stock which are owned by the Stewart B.
Reed Trust, of which Stewart B. Reed is the beneficiary and John E. Reed is
the trustee.
(5) Includes 87,529 shares issuable upon exercise of options (53,333 shares
individually and the balance through O'Donnell Davis, Inc.). Mr. O'Donnell
is a stockholder, director and officer of O'Donnell Davis, Inc.
Accordingly, pursuant to Rule 13d-3 under the Exchange Act, he is deemed to
be an indirect beneficial owner of CareCentric's securities beneficially
owned by O'Donnell Davis, Inc.
(6) Includes 170,786 shares held by, and 6,189 shares issuable upon exercise of
options by, Rowan Nominees Limited ("Rowan"). EGL Holdings, Inc. manages
accounts on behalf of Mercury Asset Management or its successors though its
nominee, Rowan. Mr. Ellis is president and a director of EGL Holdings, Inc.
Includes 1,837 shares held by Mr. Ellis' wife. Includes 11,353 shares
issuable upon exercise of options.
(7) Includes 3,333 shares issuable upon exercise of options.
(8) All shares are Series E Preferred Stock convertible into shares of common
stock. 105,000 of the shares vest over a three (3) year period and 105,000
of the shares are forfeitable pro rata over a three (3) year period if the
Company's financial, cash flow and performance milestone goals are not
achieved.
(9) Includes 17,500 shares of restricted stock.
(10) Includes 46,667 shares issuable upon exercise of options.
(11) Includes 4,333 shares issuable upon exercise of options.
(12) Includes 166,069 shares issuable upon exercise of options and 890,396
shares issuable upon exercise of warrants. Includes 1,000,000 shares
issuable upon conversion of Series D Preferred Stock, 210,000 shares
issuable upon conversion of Series E Preferred Stock, and 3,555,555 shares
issuable upon conversion of notes.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company subleased certain space to Healthfield, Inc. which is a
MestaMed(R) 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 expired on December 31, 2002 and required annual sublease payments
equal to the original lease payments of approximately $730,000.
44
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 the Financial Statements included in this Report.
The Company has a note receivable from Simione Consultants, LLC of $409,000
at December 31, 2002. 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 a
5-month term. The cash proceeds were used to pay down CareCentric's line of
credit.
On December 13, 2002, the Company entered into a racing sponsorship
agreement for a one-year sponsorship of a racing team at a total cost of
approximately $125,000. The son of John Festa, the Company's President and Chief
Executive Officer, is one of several members of the racing team being sponsored.
The Company believes that the terms of the agreement are arms-length and that
third parties are paying comparable amounts of at least $120,000 for similar
arrangements. The Company will use the sponsorship in its advertising program,
tradeshows and launch of the AC-CURA(TM) product. Mr. Festa will receive no
financial benefit from the sponsorship.
As of December 31, 2002, the Company had a promissory note outstanding to
Barrett C. O'Donnell, a director of the Company, as described in Note 8 to the
Financial Statements included in this Report. Barrett C. O'Donnell also owns
25,000 warrants for the purchase of common shares of the Company at an exercise
price of $5.00 per share.
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 included in this Report.
John E. Reed, Chairman of the Company and Chairman and Chief Executive
Officer of Mestek, Inc., has at December 31, 2002 provided the Company $3.7
million, including accrued interest, (unrelated to the Wainwright Bank and Trust
$6.0 million line of credit described above) of financing in the form of
convertible notes payable as more fully described in Note 8 to the Financial
Statements and also owns $1.0 million of the Company's Series D Preferred Stock
as more fully described in Note 12 to the Financial Statements included in this
Report. 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. On July 1, 2002, the Company recapitalized certain loans
and preferred stock in accordance with a shareholder approved plan under which
the conversion price for Mr. Reeds notes payable and Series D Preferred Stock
was changed to $1.00. See Note 8 to the Financial Statements.
Mestek, Inc. has, at December 31, 2002, provided the Company $4.1 million
of financing in the form of convertible notes payable as more fully described in
Note 8 to the Financial Statements and also is the Guarantor of the $6.0 million
Wainwright Bank and Trust line of credit. Additionally, Mestek, Inc. owns $6.0
million of the Company's Series B Preferred Stock. Warrants were granted in June
2000 by the Company to Mestek, Inc. in connection with its waiver of certain
voting rights previously granted to it in connection with its purchase of the
Series B Preferred Stock of the Company. On July 1, 2002, the Company
recapitalized certain loans and preferred stock in accordance with a shareholder
approved plan under which the conversion price for Mestek's Series B Preferred
Stock and notes payable was changed to $1.00. The terms of the warrants (as
45
described in more detail in Note 12 to the Financial Statements) were based on
negotiations by independent committees of the Boards of Directors of the Company
and Mestek.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Company's directors and executive
officers, and any persons holding more than 10% of the Common Stock outstanding,
are required to report their initial ownership of Common Stock and any
subsequent changes in that ownership to the Securities and Exchange Commission.
Specific due dates have been established and the Company is required to disclose
in this Proxy Statement any failure to file by these dates during the Company's
most recent fiscal year. To the Company's knowledge, all of these filing
requirements were satisfied, except that (1) Mr. Hare filed one late Form 5 to
report one exempt restricted stock grant, (2) Stewart Reed filed one late Form 4
to report five purchases, and (3) Mr. O'Donnell filed one late Form 5 to report
one exempt option grant and one disposition of shares. In making these
disclosures, the Company has relied solely on its review of copies of the
reports that have been submitted to the Company with respect to its most recent
fiscal year, and representations provided by the directors and executive
officers.
ITEM 14 CONTROLS AND PROCEDURES.
In the 90-day period before the filing of this report, the chief executive
and chief financial officers of the Company have evaluated the effectiveness of
the Company's disclosure controls and procedures. These disclosure controls and
procedures are those controls and other procedures management maintains, which
are designed to insure that all of the information required to be disclosed by
the Company in all its periodic reports filed with the SEC is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in its reports filed or submitted under the
Securities Exchange Act of 1934 is accumulated and communicated to Company
management, including the chief executive and chief financial officer of the
Company, as appropriate to allow those persons to make timely decisions
regarding required disclosure.
Subsequent to February 21, 2003, when the disclosure controls and
procedures were evaluated, there have not been any significant changes in the
Company's disclosure controls or procedures or in other factors that could
significantly affect such controls or procedures. No significant deficiencies or
material weaknesses in the controls or procedures were detected, so no
corrective actions needed to be taken.
PART IV
ITEM 15. 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.
46
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 (Incorporated by reference to Exhibit 3.4 of the
Company's Quarterly Report on form 10-Q for the quarter
ended March 31, 2002 (File No. 000-22162))
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 -- Bylaws of the Company dated October 25, 2002 (Incorporated
by reference to Exhibit 3.3 of the Quarterly Report on Form
10-Q for the quarter ended September 30, 2002 (File No.
000-22162) as filed with the Securities and Exchange
Commission).
3.4(6) -- 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.
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
47
10.2 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as
of September 5, 1996 by and among InfoMed Holdings, Inc.,
Simione Central Holding, Inc. and InfoSub, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated September 5, 1996 as filed
with the Securities and Exchange Commission).
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant
for the Purchase of Common Stock of InfoMed Holdings, Inc.
dated October 5, 1996 between InfoMed Holdings, Inc. and
each of O'Donnell Davis, Inc., Rowan Nominees Ltd., David O.
Ellis, Richard V. Lawry, Salvatore A. Massaro, Murali
Anantharaman, Kathleen E.J. Ellis, Jeremy Ellis, Karen
Ellis, Gemma Ellis, Thomas M. Rogers, Jr., and Arnold
Schumacher (Incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated October 8, 1996
as filed with the Securities and Exchange Commission).
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock
of Simione Central Holding, Inc., dated April 12, 1996
between Simione Central Holding, Inc. and Home Health First,
a Texas not-for-profit corporation (Incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.4 -- Common Stock Warrant of InfoMed Holdings, Inc. dated October
8, 1996 between Jefferies & Company, Inc. and InfoMed
Holdings, Inc. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.5+ -- Form of Simione Central Holding, Inc. 1996 Incentive Stock
Option Agreement dated September 4, 1996 by and between
Simione Central Holding, Inc. and each of James R.
Henderson, William J. Simione, Jr., Robert Simione,
Katherine Wetherbee, Sheldon Berman, Betty Gordon, William
J. Simione, III, J. Blake Bremer, Craig Luigart, Kenneth L.
Wald, Marty Cavaiani, Lori Ferrero, Douglas E. Caddell, Andy
Anello and A. Curtis Eade (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.6+ -- 1994 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994
as filed with the Securities and Exchange Commission).
10.7+ -- 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
48
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.
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).
49
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
(Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal eyar ended December 31, 1998 as
filed with the Securities and Exchange Commission).
10.26 -- Stock Purchase Agreement dated April 17, 1998 between
CareCentric, Inc., Eclipsys Corporation and certain
stockholders of the Company (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 as filed with the Securities and
Exchange Commission).
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.
10.32.1(6) -- 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(6) -- Promissory Note dated December 31, 2001 of the Company in
favor of John E. Reed.
10.32.3(6) -- 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.
50
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.
10.39.1(6) -- 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(6)+ -- Employment Offer letter between John R. Festa and the
Company dated October 22, 2001.
10.44(6)+ -- Stock Grant Agreement between John R. Festa and the Company
dated January 23, 2002.
10.45(6) -- Indemnification Agreement between John R. Festa and the
Company dated January 23, 2002.
10.47(7) -- Promissory Note in the original principal amount of
$4,000,000 dated as of July 1, 2002 from the Company and
certain of its subsidiaries in favor of Mestek, Inc.
10.48(7) -- Secured Convertible Credit Facility and Security Agreement
dated as of July 1, 2002 by and between the Company, SC
Holding, Inc., CareCentric National, LLC and Mestek, Inc.
10.49(7) -- Promissory Note in the original principal amount of
$3,555,555 dated as of July 1, 2002 from the Company and
certain of its subsidiaries in favor of John E. Reed.
10.50(7) -- Amended and Restated Secured Convertible Credit Facility and
Security Agreement dated as of July 1, 2002 by and between
the Company, SC Holding, Inc., CareCentric National, LLC and
John E. Reed.
10.51(7) -- Warrant for 400,000 shares of common stock dated as of July
1, 2002 by and between the Company and Mestek, Inc.
10.52(7) -- Warrant Exchange Agreement with respect to 400,000 shares of
common stock dated as of July 1, 2002 by and between the
Company and Mestek, Inc.
51
10.53(7) -- Warrant for 490,396 shares of common stock dated as of July
1, 2002 by and between the Company and Mestek, Inc.
10.54(7) -- Warrant Exchange Agreement with respect to 490,396 shares of
common stock dated as of July 1, 2002 by and between the
Company and Mestek, Inc.
10.55(7) -- Registration Rights Agreement dated as of July 1, 2002 by
and between the Company and Mestek, Inc.
10.56(7) -- Promissory Note in the original principal amount of $103,818
dated as of July 1, 2002 from the Company and certain of its
subsidiaries in favor of John E. Reed.
10.57* -- Convertible Promissory Note dated December 1, 2002
(effective as of July 1, 2002) from the Company in favor of
Barrett C. O'Donnell.
10.58* -- Amended and Restated Convertible Note Agreement dated
December 1, 2002 (effective as of July 1, 2002) between the
Company and Barrett C. O'Donnell.
10.59*+ -- Stock Grant Agreement dated April 22, 2002 between the
Company and George M. Hare.
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* -- 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).
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 (File No. 000-22162).
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002 (File No. 000-22162).
52
(b) Reports on Form 8-K.
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.
On April 30, 2002, the Company filed a Current Report on Form 8-K reporting
that the Company received a notice of possible delisting from the NASDAQ
Stock Market.
On August 20, 2002, the Company filed a Current Report on Form 8-K
reporting that the Company's common stock was being delisted from the
NASDAQ Stock Market and would be traded on the Over the Counter Bulletin
Board (OTCB).
On February 4, 2003, the Company filed a Current Report on Form 8-K
reporting an offer had been received proposing a merger transaction between
the Company and Borden Associates, Inc.
53
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: March 11, 2003 /s/ JOHN R. FESTA
-----------------
By: John R. Festa
President and Chief Executive Officer
CARECENTRIC, INC.
Date: March 11, 2003 /s/ GEORGE M. HARE
------------------
By: George M. Hare
Sr. Vice President and Chief Financial 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 March 11, 2003
John R. Festa and Director (principal executive
officer)
/s/ GEORGE M. HARE
- -------------------------------- Sr. Vice President and Chief March 11, 2003
George M. Hare Financial Officer (principal
financial and accounting officer)
/s/ WILLIAM J. SIMIONE, JR. Director March 11, 2003
- --------------------------------
William J. Simione, Jr.
/s/ DAVID O. ELLIS Director March 11, 2003
- --------------------------------
David O. Ellis
/s/ WINSTON R. HINDLE, JR. Director March 11, 2003
- --------------------------------
Winston R. Hindle, Jr.
/s/ Barrett C. O'Donnell Director March 11, 2003
- ---------------------------------------
Barrett C. O'Donnell
/s/ JOHN E. REED Chairman and Director March 11, 2003
- --------------------------------
John E. Reed
/s/ EDWARD K. WISSING Director March 11, 2003
- --------------------------------
Edward K. Wissing
/s/ STEWART B. REED Director March 11, 2003
- --------------------------------
Stewart B. Reed
54
CareCentric, Inc., Certification for Annual Report on Form 10-K
I, John R. Festa, certify that:
1. I have reviewed this annual report on Form 10-K of CareCentric, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 11, 2003
/s/ John R. Festa .
- --------------------------------------
John R. Festa
President and Chief Executive Officer
55
CareCentric, Inc., Certification for Annual Report on Form 10-K
I, George M. Hare, certify that:
1. I have reviewed this annual report on Form 10-K of CareCentric, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 11, 2003
/s/ George M. Hare .
- -----------------------------------
George M. Hare
Sr. Vice President and Chief Financial Officer
56
CARECENTRIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants - Grant Thornton LLP.......59
Consolidated Balance Sheets...................................................60
Consolidated Statements of Operations.........................................61
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 2002, 2001, and 2000..................62
Consolidated Statements of Cash Flow for the years ended
December 31, 2002, 2001, and 2000........................................63
Notes to Consolidated Financial Statements....................................64
58
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, 2002 and 2001
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, 2002. 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 audits 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, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 2002 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
Atlanta, Georgia
February 20, 2003
59
CARECENTRIC, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------------------
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 826,000 $ 201,000
Accounts receivable, net of allowance for doubtful
accounts of $1,307,000 and $1,042,000 respectively 4,632,000 4,185,000
Prepaid expenses and other current assets 696,000 608,000
Notes receivable 215,000 413,000
---------------- ----------------
Total current assets 6,369,000 5,407,000
Purchased software, furniture and equipment, net 1,036,000 1,533,000
Intangible assets, net 4,308,000 5,437,000
Other assets 194,000 431,000
---------------- ----------------
Total assets $ 11,907,000 $ 12,808,000
================ ================
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
Current liabilities:
Line of credit $ 4,525,000 $ 5,572,000
Accounts payable 1,584,000 2,185,000
Accrued compensation expense 556,000 593,000
Accrued liabilities 6,113,000 6,574,000
Customer deposits 1,495,000 2,120,000
Unearned revenues 4,223,000 3,981,000
---------------- ----------------
Total current liabilities 18,496,000 21,025,000
Accrued liabilities, less current portion 150,000 750,000
Notes payable long-term 8,520,000 5,343,000
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 $1.25 6,000 6,000
Series C Preferred, $.001 par value; liquidation value $1.00
850,000 shares in 2001, cancelled in 2002 (no shares
outstanding) - 1,000
Series D Preferred, $.001 par value; liquidation value $1.23
398,000 issued and outstanding - -
Series E Preferred, $.001 par value; liquidation value $1.04
210,000 issued and outstanding - -
Common stock, $.001 par value; 20,000,000 shares authorized;
4,371,350 shares issued and outstanding at December 31, 2002
and December 31, 2001 4,000 4,000
Unearned compensation (134,000) (210,000)
Additional paid-in capital 20,430,000 21,280,000
Stock warrants 1,000,000 1,000,000
Accumulated deficit (36,565,000) (36,391,000)
---------------- ----------------
Total shareholders' equity (Deficit) (15,259,000) (14,310,000)
---------------- ----------------
Total liabilities and shareholders' equity (Deficit) $ 11,907,000 $ 12,808,000
================ ================
See notes to consolidated financial statements
60
CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
-------------- --------------- --------------
Net revenues $ 22,015,000 $ 20,446,000 $ 19,574,000
Costs and expenses:
Cost of revenues 6,408,000 8,217,000 8,478,000
Selling, general and administrative 9,770,000 10,715,000 10,756,000
Research and development 3,431,000 6,158,000 6,174,000
Amortization and depreciation 1,696,000 3,865,000 3,481,000
Write down of intangibles - 11,799,000 -
Restructuring charge - 675,000 -
-------------- --------------- --------------
Total costs and expenses 21,305,000 41,429,000 28,889,000
-------------- --------------- --------------
Income (loss) from operations 710,000 (20,983,000) (9,315,000)
Other income (expense):
Other income (expense) 250,000 - (6,000)
Interest expense (712,000) (592,000) (141,000)
Interest and other income 45,000 37,000 74,000
-------------- --------------- --------------
Income (loss) before taxes $ 293,000 $ (21,538,000) $ (9,388,000)
Income tax benefit (expense) - (15,000) 154,000
-------------- --------------- --------------
Income (loss) from continuing operations 293,000 $ (21,553,000) $ (9,234,000)
Discontinued operations
Loss on disposal of discontinued operations - (2,632,000) -
Income (loss) from operations of
discontinued segment before taxes - (483,000) (442,000)
Applicable tax expense - - -
-------------- --------------- --------------
Net (loss) from discontinued operations - (3,115,000) (442,000)
-------------- --------------- --------------
Net income (loss) $ 293,000 $ (24,668,000) $ (9,676,000)
============== =============== ==============
Cumulative preferred dividends (467,000) (722,000) (569,000)
-------------- --------------- --------------
Net (loss) available to common shareholders $ (174,000) $ (25,390,000) $(10,245,000)
============== =============== ==============
Net (loss) per share - basic and diluted from
continuing operations $ 0.07 $ (5.06) $ (2.70)
Weighted average common shares -
basic and diluted 4,371,000 4,272,000 3,418,000
============== =============== ==============
Net (loss) per share - basic and diluted $ - $ (0.73) $ (0.13)
Weighted average common shares -
basic and diluted 4,371,000 4,272,000 3,418,000
============== =============== ==============
Net income (loss) per share - basic and diluted $ 0.07 $ (5.77) $ (2.83)
Weighted average common shares -
basic and diluted 4,371,000 4,272,000 3,418,000
============== =============== ==============
Net (loss) per share - basic and diluted
available to common shareholders $ (0.04) $ (5.94) $ (3.00)
============== =============== ==============
Weighted average common shares - basic and
diluted 4,371,000 4,272,000 3,418,000
============== =============== ==============
See notes to consolidated financial statements
61
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
For the years ended December 31, 2002, 2001, 2000
(unaudited)
Unearned Additional Total
Common Preferred Compen- Paid-in Accumulated Shareholders'
Shares Stock Shares Stock sation Capital Warrants Deficit Deficit
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 210,000 (210,000) 210,000
Net loss (25,390,000) (25,390,000)
Balance at
December 31, 2001 4,371,000 $ 4,000 7,058,000 $ 7,000 $(210,000) $21,280,000 $1,000,000 $(36,391,000) $(14,310,000)
========== ======== ========= ======== ========== =========== ========== ============= =============
Amortization of
unearned compensation 76,000 76,000
Cancellation of
Series C
Preferred Stock (850,000) (1,000) (850,000) (851,000)
Net loss (174,000) (174,000)
---------- -------- --------- -------- ---------- ----------- ---------- ------------- -------------
Balance at
December 31, 2002 4,371,000 $ 4,000 6,208,000 $ 6,000 $(134,000) $20,430,000 $1,000,000 $(36,565,000) $(15,259,000)
========== ======== ========= ======== ========== =========== ========== ============= =============
See notes to Consolidated Financial Statements
62
CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
----------------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (174,000) $ (25,390,000) $ (10,245,000)
ADJUSTMENTS TO RECONCILE NET (LOSS)
INCOME TO NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES:
Provision for doubtful accounts 351,000 500,000 538,000
Amortization and depreciation 1,696,000 4,252,000 3,960,000
Stock based Compensation charged to earnings 76,000 - -
Loss on discontinued operations - - -
Write down of intangibles - 2,632,000 -
- 11,799,000 -
CHANGES IN ASSETS AND LIABILITIES, NET OF
ACQUISITIONS:
Accounts receivable (797,000) 2,101,000 (929,000)
Prepaid expenses and other current assets (88,000) 90,000 159,000
Other assets 137,000 138,000 1,122,000
Accounts payable (600,000) 1,447,000 (2,684,000)
Accrued compensation (37,000) (23,000) (88,000)
Accrued liabilities (1,026,000) (26,000) (730,000)
Customer deposits (626,000) (376,000) 949,000
Unearned revenues 242,000 (1,020,000) 726,000
----------------- ---------------- -----------------
Net cash used in operating activities (846,000) (3,876,000) (7,222,000)
----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets and liabilities disposed of - (16,000) -
Purchase of software, furniture and equipment (70,000) (327,000) (658,000)
----------------- ---------------- -----------------
Net cash used in investing activities (70,000) (343,000) (658,000)
----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in connection with MCS merger - - 3,547,000
Payment on notes payable - - (150,000)
Proceeds from notes payable 3,176,000 - 600,000
Increase (decrease) in line of credit (1,047,000) 4,058,000 4,198,000
Payment on capital lease obligation (36,000) - -
Proceeds from Consulting note receivable 298,000 - -
Cancellation of Series C Preferred stock (850,000) - -
----------------- ---------------- ------------------
Net cash provided by financing activities 1,541,000 4,058,000 8,195,000
----------------- ---------------- -----------------
Net change in cash and cash equivalents 625,000 (161,000) 315,000
Cash and cash equivalents, beginning of period 201,000 362,000 47,000
----------------- ---------------- -----------------
Cash and cash equivalents, end of period $ 826,000 $ 201,000 $ 362,000
================= ================ =================
See notes to consolidated financial statements
63
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).
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.
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.
64
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, 2002, the Company recorded
total revenues of $22.0 million. The Company's core product lines of STAT2 and
MestaMed(R) accounted for 24.4% and 36.3% respectively of the $22.0 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.
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.
65
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, 2002, 2001, 2000, 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". Effective January 1, 2002, the company adopted SFAS No. 142,
"Goodwill and Intangible Assets in 2001" and SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". These new standards superseded the
Company's previous accounting for Intangible Assets under SFAS No. 121 as
discussed below in the section Recent Accounting Pronouncements.
In adopting SFAS No. 142, the Company ceased amortizing goodwill and
reassessed the remaining life for developed technologies from 6 years to 4
years. An impairment test is required to be performed upon the adoption of SFAS
No. 142 and at least annually thereafter. On an ongoing basis (absent any
impairment indicators requiring interim review), the Company performs impairment
testing at the end of each fiscal year. Impairment adjustments recognized from
future impairment tests, if any, generally are required to be recognized as
operating expenses. In connection with adopting SFAS No. 142, the Company also
reassesses the useful lives and the classification of its identifiable
intangible assets to determine that they continue to be appropriate.
Actual results of operations for the year ended December 31, 2002 and
adjusted results of operations for the year ended December 31, 2001, had the
Company applied the provisions of SFAS No. 142 in that period, are as follows.
The adjustments to the results of operations for the year ended December 31,
2001 are i) the impact on amortization expense resulting from the cessation of
amortization of goodwill; ii) the effect of changing the remaining life of
66
developed technologies; and iii) the effect of the impairment charge recorded in
the fourth quarter of the year ended December 31, 2001):
YEAR ENDED DECEMBER 31,
---------------------------------------
2002 2001
------------------ -------------------
NET INCOME (LOSS) AVAILABLE TO COMMON $ (174,000) $ (25,390,000)
SHAREHOLDERS
Add back: Goodwill amortization - 1,709,000
Add back: Technology amortization - 334,000
------------------ -------------------
Adjusted net income $ (174,000) $ (23,347,000)
================== ===================
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED
Reported net income $ (0.04) $ (5.94)
Goodwill amortization - 0.40
Technology amortization - 0.08
------------------ -------------------
Adjusted net income $ (0.04) $ (5.47)
================== ===================
Weighted average common shares-
------------------ -------------------
basic and diluted 4,371,000 4,272,000
================== ===================
SFAS No. 144, which became effective for fiscal years beginning after
December 15, 2001, provides a single accounting model for the disposal of
long-lived assets. New criteria must be met to classify the asset as an asset
held for sale. SFAS No. 144 also focuses on reporting the effect of a disposal.
The adoption of SFAS No. 144 did not have a material impact on the Company's
financial position or results of operations.
INCOME TAXES
The Company accounts for income taxes using the asset/liability method
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities.
NET (LOSS) 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
2002, 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 2002, 2001 and 2000.
67
FOR YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2002 2001 2000
---------------- ---------------- ------------------
Numerator:
Net (loss) income after cumulative
deferred dividends $ (174,000) $ (25,390,000) $ (10,245,000)
================ ================ ==================
Denominator:
Denominator for basic and diluted earnings
per share- weighted - average shares 4,371,000 4,272,000 3,418,000
=============== ================ ==================
Net (loss) income per share - basic
and diluted for common shareholders $ (0.04) $ (5.94) $ (3.00)
================ ================ ==================
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
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.
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,
68
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 was 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, effective January 1,
2003 with the adoption of SFAS No. 142, the assembled workforce intangible asset
previously recognized under SFAS 121 was 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 effect of adoption of SFAS No. 144 effective January
1, 2002 had no material impact on the Company's financial position, results of
operations or cash flow.
On December 31, 2002, the Financial Accounting Standards Board (FASB)
issued FASB No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure" This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
companies that voluntarily change to the fair-value-based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of FASB No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company does not believe FAS 148 will have a material effect on its
financial statements.
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:
69
000'S
----------------------
2002 2001
----------- ----------
Operating Revenue $ - $ 3,417
(Loss) before Provision for Income Taxes - (484)
(Loss) from Discontinued Operations
Net of Income Tax - (484)
Current Assets - -
Total Assets - -
Net Assets of Discontinued Operations $ - $ -
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. At
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,
2000 are as follows:
FOR YEAR ENDED DECEMBER 31,
2000
---------------------------
Revenue $ 23,586,000
(loss) continuing operations $ (11,654,000)
(loss) discontinued operations $ -
(loss) per share -continuing basic and diluted $ (3.41)
(loss) per share -discontinuing basic and diluted $ 0.00
Net (loss) per share - basic and diluted $ (3.41)
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. The Consulting segment Note
70
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 amounts and term of each note is summarized in the table below.
NOTES RECEIVABLE
------------------------------------------------
CONSULTING CUSTOMER NOTE TOTAL
------------- ----------------- ------------
Balance 12-31-01 $ 707,000 $ 137,000 $ 844,000
============= ================= ============
Balance 12-31-02 $ 409,000 $ - $ 409,000
============== ================ =============
Interest Rate 8.50% 5.65%
Obligation Term
Principal amounts due
2003 $ 215,000 - $ 215,000
2004 $ 194,000 - $ 194,000
------------- ----------------- -------------
$ 409,000 - $ 409,000
============= ================= =============
NOTE 6 - PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
DEPRECIATION
DECEMBER 31, DECEMBER 31, ESTIMATED
2002 31, 2001 USEFUL LIVES
------------- -------------- -------------
Furniture and Fixtures $ 1,447,000 $ 1,428,000 10 years
Computer equipment and
purchased software 6,288,000 6,237,000 5 years
------------- --------------
7,735,000 7,665,000
Accumulated depreciation (6,699,000) (6,132,000)
------------- --------------
$ 1,036,000 $ 1,533,000
============= ==============
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.
71
The following table summarizes the Company's changes in account balances
for its Intangible Assets during the year ended December 31, 2002.
12/31/02
ORIGINAL ASSETS IMPAIRMENT ACCUMULATED NET BOOK AMORTIZATION
COST DISPOSED WRITE-DOWN AMORTIZATION VALUE PERIOD
------------- ------------ ------------- ------------- ------------- --------------
Developed technology $ 10,650,000 $ - $ (4,220,000) $ (3,438,000) $ 2,992,000 4 years
Customer base 1,700,000 (510,000) - (374,000) 816,000 9 years
Goodwill 14,151,000 (2,906,000) (7,580,000) (3,165,000) 500,000 -
------------- ------------ ------------- ------------- -------------
$ 26,501,000 $(3,416,000) $(11,800,000) $ (6,977,000) $ 4,308,000
============= ============ ============= ============= =============
NOTE 8 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
On July 1, 2002, the Company completed a recapitalization plan initiated on
April 8, 2002. The recapitalization plan was approved by the common shareholders
of the Company at the June 6, 2002 annual stockholders' meeting. The effect of
the recapitalization plan is summarized below for each note payable and
presented comparatively in the following chart at December 31, 2002 and 2001. In
accordance with the terms of the recapitalization plan, the December 31, 2002
balances of Long term convertible notes payable to B. C. O'Donnell, J. E. Reed
and Mestek include capitalized interest accrued from July 1, 2002 and December
31, 2002.
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------- -------------------
SHORT TERM:
Line of Credit $ 4,525,000 $ 5,572,000
------------------- -------------------
$ 4,525,000 $ 5,572,000
=================== ===================
LONG TERM:
Convertible Note Payable - J. E. Reed $ - $ 3,500,000
Note Payable - Mestek - 1,019,000
Convertible Note Payable - B. C. O'Donnell 619,000 600,000
Note Payable - J. E. Reed Capitalized interest - 184,000
Note Payable - Mestek Capitalized Interest - 40,000
Convertible Note - Mestek - 4,126,000
Convertible Note - J.E. Reed - 3,668,000
Note Payable - J.E. Reed Accrued Interest - 107,000
----------------- ------------------
$ 8,520,000 $ 5,343,000
================= ==================
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
72
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 9), and a loan
from David O. Ellis. Borrowings under the Wainwright Facility accrue interest at
the bank's prime rate per annum and require monthly payments of interest. The
Wainwright Facility currently matures on October 1, 2004. The Company's
obligations under the Wainwright Facility are guaranteed by Mestek in
consideration of which the Company issued a warrant to Mestek to purchase
104,712 shares of the Company's common stock. As a result of the July 1, 2002
recapitalization, the warrant was cancelled.
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. In
December 2002, Mr. O'Donnell agreed to adjust the terms of the Note Payable to
provide consistent treatment with the Mestek and J.E. Reed convertible notes
payable as existing after the July 1, 2002 recapitalization plan. The effect of
this adjustment was to reduce the interest rate on the note payable to a fixed
rate of 6.25% and to defer all interest earned from July 1, 2002 through June
30, 2004 at which time the accumulated interest totaling $75,000 will be
capitalized into the principal of the note payable. After June 30, 2004, the
principal and capitalized interest will accumulate interest at the per annum
rate equal to six and one-quarter percent (6.25%) with interest compounded and
payable quarterly beginning on September 30, 2004. Together with any unpaid
principal and accrued interest, the Barrett C. O'Donnell note will mature and
become payable on June 30, 2007. Additionally, the $600,000 note together with
the value of accrued interest may be converted at the rate of $1.00 per share
into CareCentric common stock exercisable at any time after July 1, 2002. The
new notes are subordinated to the Wainwright Bank $6.0 million line of credit.
CONVERTIBLE NOTE PAYABLE - MESTEK:
Prior to the July 1, 2002 recapitalization plan, the Company was obligated
under a) an 18-month unsecured promissory note in the principal amount of
$1,019,000 payable to Mestek Inc., that earned interest at prime plus one and
one half percent (1.5%), with interest payable semiannually and matured on
September 30, 2003 and b) additional notes payable to Mestek in the amounts of
$40,000, $535,000 and $350,000. These additional notes payable earned interest
at prime plus two percent (2.0%) for the $40,000 note and prime plus one percent
(1.0%) for the $535,000 and $350,000 notes until all principal and accrued
interest amounts were paid in full. These funds were advanced by Mestek to
CareCentric to cover payroll and accounts payable obligations incurred by the
Company, working capital needs of 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 when he was Chief Executive Officer of the Company.
On July 1, 2002, under the terms of the recapitalization plan, all notes
payable to Mestek by the Company were consolidated together with a) $1,000,000
of Mestek's previous participation in the J. E. Reed facility, b) accrued unpaid
interest on all notes payable to Mestek aggregating $42,560, c) accrued unpaid
interest on Mestek's participation in the J. E. Reed facility of $33,750, d)
$850,000 of cancelled Mestek Series C Preferred stock, and e) $129,748 of cash
paid on July 1, 2002 by Mestek to the Company to create a single consolidated
$4,000,000 convertible note payable. The terms of the single consolidated Mestek
73
note are that interest accrues and accumulates at a per annum rate equal to six
and one-quarter percent (6.25%) through June 30, 2004, at which time the
accumulated interest will be capitalized into the related note. After June 30,
2004, the principal and capitalized interest will accumulate interest at the per
annum rate equal to six and one-quarter percent (6.25%) with interest compounded
and payable quarterly beginning on September 30, 2004. Together with any unpaid
principal and accrued interest, the Mestek note will mature and become payable
on June 30, 2007. Additionally, the new $4.0 million Mestek note and the $3.6
million J. E. Reed note, together with the value of accrued interest, may be
converted at the rate of $1.00 per share into CareCentric common stock
exercisable at any time after July 1, 2002. The new notes are subordinate to the
Wainwright Bank $6.0 million line of credit.
CONVERTIBLE NOTE PAYABLE - J. E. REED:
Prior to the July 1, 2002 recapitalization plan, the Company was obligated
under a 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 consisted 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 was secured by a second position on substantially all of the
Company's assets. At December 31, 2002 and 2001, borrowings were equal to
$4,668,000 and $3,500,000 respectively, $1,000,000 of which was participated to
Mestek at December 31, 2002 and 2001. On December 31, 2001, the facility was
amended to change the interest rate to prime plus two percent (2.0%) and to
change the payment term for unpaid 2001 interest to require payment on December
31, 2003, or 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. On
March 27, 2002 the Company received an additional $871,117 advance on the J.E.
Reed Facility.
On July 1, 2002, under the terms of the recapitalization plan, all principal
amounts advanced under the J.E. Reed Facility, less the $1,000,000 participation
by Mestek, together with interest accrued through December 31, 2001 were
consolidated into a single consolidated $3,555,555 convertible note payable. The
terms of the single consolidated J.E. Reed note are that interest accrues and
accumulates at a per annum rate equal to six and one-quarter percent (6.25%)
through June 30, 2004, at which time the accumulated interest will be
capitalized into the related note. After June 30, 2004, the principal and
capitalized interest will accumulate interest at the per annum rate equal to six
and one-quarter percent (6.25%) with interest compounded and payable quarterly
beginning on September 30, 2004. Together with any unpaid principal and accrued
interest, the J. E. Reed note will mature and become payable on June 30, 2007.
Additionally, the new $3.6 million J. E. Reed note, together with the value of
accrued interest may be converted at the rate of $1.00 per share into
CareCentric common stock exercisable at any time after July 1, 2002. The new
notes are subordinated to the Wainwright Bank $6.0 million line of credit.
NOTE PAYABLE - J. E. REED ACCRUED INTEREST:
Under the terms of the July 1, 2002 recapitalization, $103,818 of accrued
interest earned on all advances under the J.E. Reed Facility during the period
January 1, 2002 and June 30, 2002 was capitalized into a separate note payable
that accrues and accumulates interest at a per annum rate equal to six and
one-quarter percent (6.25%) through September 30, 2004, with interest compounded
quarterly. After September 30, 2004, the accumulated interest will be
capitalized into the related note and the principal and capitalized interest
will accumulate interest at the per annum rate equal to six and one-quarter
percent (6.25%) with interest compounded and payable quarterly. Together with
any unpaid principal and accrued interest, the separate J. E. Reed accrued
interest note will mature and become payable on June 30, 2007. The J. E. Reed
accrued interest note is subordinated to the Wainwright Bank $6.0 million line
of credit.
74
CAPITAL LEASE OBLIGATIONS:
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.
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, 2002.
Cash paid interest was $285,000, $491,000 and $510,000 during the years
ended December 31, 2002, 2001 and 2000, respectively.
Maturities of long-term debt in each of the next five years are as follows
in thousands:
2003 $ -
2004 -
2005 -
2006 -
2007 8,520
----------
Total $ 8,520
==========
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
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.
75
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 $ 771,000 $ 744,000
2003 761,000 761,000
2004 540,000 540,000
2005 255,000 255,000
2006 263,000 263,000
Thereafter 85,000 84,000
-------------- --------------
Total $ 2,675,000 $ 2,647,000
============== ==============
Aggregate annual rental payments for operating leases with
non-cancelable lease terms in excess of one year.
Rent expense approximated $0.8 million, $1.1 million and $1.2 million, for
the years ended December 31, 2002, 2001 and 2000, respectively.
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,
----------------------------------
2002 2001
--------------- --------------
Deferred tax assets:
Net operating loss $ 14,619,000 $ 13,946,000
Severance and other restructuring charges - 837,000
Allowance for doubtful accounts 496,000 396,000
Deferred revenue 2,158,000 2,264,000
Depreciation 43,000 33,000
Other 342,000 333,000
--------------- --------------
Total deferred tax assets 17,658,000 17,809,000
Valuation allowance (17,658,000) (17,809,000)
--------------- --------------
$ - $ -
=============== ==============
The Company has approximately $38.5 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 2008. 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, 2002.
76
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,
2002 2001 2000
---------------- ----------------- ---------------
Federal tax benefit computed at statutory rates $ 100,000 $ (7,853,000) $ (3,483,000)
State income taxes, net of federal effect 13,000 (1,351,000) (615,000)
Other, net 38,000 5,217,000 463,000
Change in valuation allowance (151,000) 4,002,000 3,481,000
---------------- ----------------- ---------------
Income tax expense (Benefit) $ - $ 15,000 $ (154,000)
================ ================= ===============
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 $114,000, $140,000 and $189,000 in 2002, 2001 and 2000,
respectively. These contributions relate to the CareCentric, Inc. 401(k) Plan
(formerly Simione Central Holdings, Inc. Plan), which survived the merger with
MCS, Inc., for 2002, 2001 and 2000.
NOTE 12 - SHAREHOLDERS' EQUITY
COMMON SHARES - 20,000,000 SHARES AUTHORIZED
Common Shares - 20,000,000 shares authorized, $.001 par value, 4,371,350
shares issued and outstanding as of December 31, 2002 and 2001. Of the 4,371,350
shares of common stock outstanding, 1,489,853 of such shares were issued on
March 7, 2000 to the former MCS common shareholders and 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 $15.00 per share, on March 19, 2001, the Company issued 593,688
shares of its common stock to the former preferred shareholders and noteholders
of CareCentric Solutions. As required by generally accepted accounting
principles, no value was assigned to these shares as it was deemed not to impact
total consideration paid. The Company asserted that it was not required to issue
13,216 additional shares of its common stock as well as 150,740 shares of common
stock that were being held in escrow under the terms of the CareCentric
Solutions Merger Agreement based upon various indemnification and expense
overages claims the Company had against the former CareCentric Solutions
preferred shareholders and noteholders. On May 16, 2001, the Company finalized a
settlement of these claims with the representative of the former CareCentric
Solutions parties pursuant to which 88,586 shares of common stock were released
from escrow and distributed to the former CareCentric Solutions preferred
shareholders and noteholders, the remaining 62,154 escrow shares were cancelled,
no additional shares of common stock will be issued, and the parties executed a
comprehensive settlement agreement.
Pursuant to a comprehensive settlement agreement on June 28, 2001, between
Sterling Star, Inc., Mr. Ted Wade (President of Sterling Star, Inc.) and the
Company, certain disputes related to the acquisition of a product named Tropical
77
Software were settled. Under the terms of the settlement, 10,000 shares of
common stock originally issued to Sterling Star were returned to the Company and
were cancelled.
PREFERRED STOCK-10,000,000 SHARES AUTHORIZED
Series B Preferred Stock -$.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 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% annual 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. On March 29, 2002, in connection with the
refinancing commitments made to the Company by Mestek and John E. Reed (as
further described in Note 14), Mestek transferred the voting rights associated
with the Series B Preferred Stock to Mr. Reed. As a result of the July 1, 2002
recapitalization plan, the terms of the Series B Preferred Stock were amended to
provide that each share is convertible into 1.072 shares of common stock.
Series C Preferred Stock - $.001 par value, 850,000 shares issued. As a
result of the July 1, 2002 recapitalization plan, the Series C Preferred Stock
was cancelled, and the $850,000 of cash value originally contributed by Mestek
was consolidated into a Mestek convertible Note as more fully described in Note
8 above. In addition, $208,000 of accumulated and unpaid dividends through June
30, 2002 on the Series C Preferred Stock were cancelled and recorded as a
reduction in preferred dividend expense and an increase in net income at June
30, 2002.
Prior to the July 1, 2002 capital restructuring, the shares of Series C
Preferred Stock were held by Mestek and resulted from the conversion at the
March 7, 2000 merger of a pre-existing $850,000 convertible note payable to
Mestek. The Series C Preferred shares carried 170,000 common share votes (on a
split adjusted basis) and were entitled to an 11% annual 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
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. As a result of the July 1, 2002
recapitalization plan, the Series D Preferred Stock conversion price per share
was amended from $2.51 to $1.00.
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 have a 3.5% annual non-cumulative dividend, are
convertible into common stock at an initial conversion price of $1.00 per share
and have voting rights equal to those of common stock, among other rights.
As of December 31, 2002, the Company had a cumulative preferred dividends
liability of $1,755,350 comprised of $1,521,000 for Series B Preferred shares,
$227,000 for Series D Preferred shares and $7,350 for Series E Preferred shares.
Cumulative preferred dividends payable are included in the accrued liabilities
account presented on the Consolidated Balance Sheets in the accompanying
financial statements.
WARRANTS AND OPTIONS
Common Stock Warrants - In connection with the issuance of the Series B
Preferred Stock described above, Mestek 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 of certain voting rights
previously granted to it, Mestek received on June 12, 2000 a warrant to acquire
78
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 6 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 is 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.
As a result of the July 1, 2002 capital restructuring, the warrants issued
to Mestek to purchase 490,396 and 400,000 shares of Company common stock were
cancelled and reissued with an exercise price of $1.00 per share and an
expiration date of June 15, 2004. Additionally, the warrants issued to Mestek to
purchase 104,712 shares of the Company's common stock were cancelled. In
accordance with SFAS No. 123, the fair value of the Mestek warrants to purchase
491,396 and 400,000 shares was reviewed immediately prior to and after the
cancellation and reissuance. There was no material accounting impact of the
cancellation and reissuance of the warrants.
At December 31, 2002, the Company had outstanding warrants to purchase shares of
the Company's common stock as follows
BEFORE JULY 1, 2002 After July 1, 2002
---------------------------------- ----------------------------------
DESCRIPTION OF WARRANTS EXERCISE PRICE EXPIRATION DATE EXERCISE PRICE EXPIRATION DATE
- ----------------------- -------------- --------------- -------------- -----------------
25,000 - Barrett C. O'Donnell $ 5.00 February 24 ,2005 $ 5.00 February 24 ,2005
400,000 - Mestek, Inc. $ 10.88 March 7 2003 $ 1.00 June 15, 2004
490,396 - Mestek, Inc. $ 3.21 June 30, 2003 $ 1.00 June 15, 2004
104,712 - Wainwright Bank $ 2.51 July 12, 2003 Cancelled Cancelled
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 97,933 shares, of which 89,600 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 516,414 shares were outstanding, of which 292,749 shares are
exercisable, at exercise prices ranging from $1.00 to $73.55. In 2002, options
totaling 59,000 shares of common stock were granted to employees of the Company,
pursuant to the Plan at exercise prices ranging at $1.00 per share. The
following information is provided as of February 28, 2003.
A summary of the Company's stock option activity from December 31, 2000 is
as follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
------------ -----------
Outstanding at December 31, 2000 571,659 $ -
------------ -----------
Options Assumed 152,500 $ 12.45
Granted $ 2.15
Exercised - $ -
Forfeited and Cancelled (145,870) $ 16.11
------------ -----------
Outstanding at December 31, 2001 578,289 $ 8.11
------------ -----------
79
Granted 59,000 $ 1.00
Exercised - $ -
Forfeited and Cancelled (21,942) $ 16.11
------------ -----------
Outstanding at December 31, 2002 615,347 $ 7.56
============ ===========
AS OF DECEMBER 31, 2002
-----------------------------------------------------------------------------------
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
- ----------------------------- ---------------- --------------- -------------- --------------- -------------
$ 1.00 $ 7.36 433,000 8.40 $ 2.97 201,002 $ 3.44
$ 7.36 $ 14.71 112,768 5.70 $ 9.88 112,768 $ 9.88
$ 14.71 $ 22.07 13,000 3.20 $ 15.96 13,000 $ 15.96
$ 29.42 $ 36.78 40,965 4.30 $ 32.22 40,965 $ 32.22
$ 36.78 $ 44.13 5,000 3.70 $ 42.50 5,000 $ 42.50
$ 44.13 $ 51.49 8,000 5.00 $ 45.00 8,000 $ 45.00
$ 51.49 $ 58.84 1,580 4.70 $ 55.63 1,580 $ 55.63
$ 58.84 $ 66.20 1,000 4.40 $ 60.00 1,000 $ 60.00
$ 66.20 $ 73.55 34 6.30 $ 73.55 34 $ 73.55
---------------- --------------- -------------- --------------- -------------
615,347 7.40 $ 7.56 383,349 $ 10.58
================ ===============
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 tables. At December 31, 2002,
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 4.13% and 4.31%; no dividends; a volatility factor
of the expected market price of the Company's common stock of 1.97998 and
1.40685; and a weighted-average expected life (unchanged) of the options of 3.97
years for 2002 and 2001. The weighted average fair value assigned to options
granted in 2002 and 2001 was $0.63 and $1.35, respectively. For 2002 and 2001
respectively the Company's pro forma net loss and net loss per share (basic and
diluted) are $144,000 and $25,514,000 and $0.03 and $5.97.
NOTE 13 -- SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information for each full
quarter of 2002 and 2001.
80
FISCAL YEAR 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
------------- ------------- ------------- -------------
Net revenues: $ 5,253 $ 5,848 $ 5,646 $ 5,268
Costs and expenses:
Cost of revenues 1,676 1,785 1,739 1,208
Selling, general and administrative 2,699 2,589 2,064 2,418
Research and development 947 942 891 651
Amortization and Depreciation 425 423 424 424
------------- ------------- ------------- -------------
Total costs and expenses 5,747 5,739 5,118 4,701
------------- ------------- ------------- -------------
Income (loss) from operations (494) 109 528 567
Other income (expense):
Other income - - - 250
Interest expense (168) (153) (174) (217)
Interest and other income (2) 15 12 20
------------- ------------- ------------- -------------
Income (loss) before taxes (664) (29) 366 620
------------- ------------- ------------- -------------
Income tax benefit (expense) - - - -
Net income (loss) income from continuing
operations (664) (29) 366 620
------------- ------------- ------------- -------------
Discontinued operation
Loss on disposal of discontinued
operations - - - -
Loss from operations of discontinued
segment before taxes - - - -
Applicable tax expense - - - -
------------- ------------- ------------- -------------
Net (loss) from operations and disposal of
discontinued segment - - - -
------------- ------------- ------------- -------------
Net income (loss) $ (664) $ (29) $ 366 $ 620
============= ============= ============= =============
Cumulative preferred dividends (180) 34 (184) (137)
------------- ------------- ------------- -------------
Net income (loss) available to common
shareholders $ (844) $ 5 $ 182 $ 483
============= ============= ============= =============
Net income (loss) per share - basic and
diluted from continuing operations $ (0.15) $ (0.01) $ 0.08 $ 0.14
Weighted average common shares -
Basic and diluted 4,371 4,371 4,371 4,371
============= =========================== =============
Net (loss) per share - basic and diluted
from discontinued operations $ - $ - $ - $ -
Weighted average common shares - basic and
diluted 4,371 4,371 4,371 4,371
============= =========================== =============
Net income (loss) per share - basic and
diluted $ (0.15) $ (0.01) $ 0.08 $ 0.14
81
Weighted average common shares -basic and
diluted 4,371 4,371 4,371 4,371
============= ============= ============= =============
Net income (loss) per share - basic and
diluted available to common shareholders $ (0.19) $ (0.00) $ 0.04 $ 0.11
Weighted average common shares - basic and
diluted 4,371 4,371 4,371 4,371
============= ============= ============= =============
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 income (expense):
Interest expense (124) (149) (39) (280)
Interest and other income 126 68 29 (187)
------------- ------------- -------------- -------------
(Loss) before taxes (1,970) (2,728) (1,861) (14,980)
------------- ------------- -------------- -------------
Income tax benefit (expense) - - - (15)
------------- ------------- -------------- -------------
Net (loss) income from continuing
operations (1,970) (2,728) (1,861) (14,995)
------------- ------------- -------------- -------------
Discontinued operation
Loss on disposal of discontinued
operations - - (2,632) -
Loss 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 $ (2,155) $ (2 ,801) $ (4,719) $ (14,995)
============= ============= ============== =============
Cumulative preferred dividends (176) (178) (180) (186)
Net (loss) available to common
shareholders $ (2,331) $ (2,979) $ (4,899) $ (15,181)
============= ============= ============== =============
82
(Loss) per share - basic and diluted
from continuing operations $ (0.50) $ (0.62) $ (0.43) $ (3.43)
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 $ (0.55) $ (0.63) $ (1.08) $ (3.43)
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 $ (0.59) $ (0.67) $ (1.12) $ (3.47)
Weighted average common shares - basic
and diluted 3,922 4,418 4,371 4,371
============= ============= ============== =============
Quarterly earnings per share figures do not arithmetically add to the full
year of 2001 earnings per share due to interim changes in weighted average
shares outstanding during 2001 and due to rounding. The numbers above reflect
the effect of a one for five reverse stock split effected in connection with the
MCS/Simione merger on March 7, 2000.
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company subleased certain space to Healthfield, Inc. which is a
MestaMed(R) 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 expired on December 31, 2002 and required annual sublease payments
equal to the original lease payments of approximately $730,000.
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 the Financial Statements included in this Report.
The Company has a note receivable from Simione Consultants, LLC of $409,000
at December 31, 2002. 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 a
5-month term. The cash proceeds were used to pay down CareCentric's line of
credit.
On December 13, 2002, the Company entered into a racing sponsorship
agreement for a one-year sponsorship of a racing team at a total cost of
approximately $125,000. The son of John Festa, the Company's President and Chief
Executive Officer, is one of several members of the racing team being sponsored.
The Company believes that the terms of the agreement are arms-length and that
third parties are paying comparable amounts of at least $120,000 for similar
arrangements. The Company will use the sponsorship in its advertising program,
83
tradeshows and launch of the AC-CURA(TM) product. Mr. Festa will receive no
financial benefit from the sponsorship.
As of December 31, 2002, the Company had a promissory note outstanding to
Barrett C. O'Donnell, a director of the Company, as described in Note 8 to the
Financial Statements included in this report. Barrett C. O'Donnell also owns
25,000 warrants for the purchase of common shares of the Company at an exercise
price of $5.00 per share.
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 included in this report.
John E. Reed, Chairman of the Company and Chairman and Chief Executive
Officer of Mestek, Inc., has at December 31, 2002 provided the Company $3.7
million, including accrued interest, (unrelated to the Wainwright Bank and Trust
$6.0 million line of credit described above) of financing in the form of
convertible notes payable as more fully described in Note 8 to the Financial
Statements and also owns $1.0 million of the Company's Series D Preferred Stock
as more fully described in Note 12 to the Financial Statements included in this
report. 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. On July 1, 2002, the Company recapitalized certain loans
and preferred stock in accordance with a shareholder approved plan under which
the conversion price for Mr. Reeds notes payable and Series D Preferred Stock
was changed to $1.00. See Note 8 to the Financial Statements.
Mestek, Inc. has, at December 31, 2002, provided the Company $4.1 million
of financing in the form of convertible notes payable as more fully described in
Note 8 to the Financial Statements and also is the Guarantor of the $6.0 million
Wainwright Bank and Trust line of credit. Additionally, Mestek, Inc. owns $6.0
million of the Company's Series B Preferred Stock. Warrants were granted in June
2000 by the Company to Mestek, Inc. in connection with its waiver of certain
voting rights previously granted to it in connection with its purchase of the
Series B Preferred Stock of the Company. On July 1, 2002, the Company
recapitalized certain loans and preferred stock in accordance with a shareholder
approved plan under which the conversion price for Mestek's Series B Preferred
Stock and notes payable was changed to $1.00. The terms of the warrants (as
described in more detail in Note 12 to the 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 on October 22, 2001. The agreement
provided for: i) the grant of 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; and 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.
84
The Company, with Mr. Festa's consent, agreed to terminate his right to a
$100,000 cash bonus for the year ending December 31, 2002 and to deploy funds to
a marketing, sales and promotional motorsports racing-based initiative of the
Company.
NOTE 17 - LIQUIDITY
As disclosed in the financial statements, the Company's operations used
significant amounts of cash in 2002. The Company has a working capital deficit
of $12.1 million at December 31, 2002.
The merger of MCS 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 February 28, 2003, the Company had unused credit capacity of
approximately $1.8 million from the Wainwright Bank Loan Facility. The Company
believes that the combination of unused credit capacity from the Wainwright Bank
facility and the funds available from cash to be generated from future
operations will be sufficient to meet the Company's operating requirements
through at least December 31, 2003, assuming no material adverse change in the
operation of the Company's business.
NOTE 18 - SUBSEQUENT EVENTS
In January 2003, the Company reached agreement with Columbia HCA regarding
certain litigation between the companies involving services contract obligations
related to health agency activities which the Company had been involved in prior
to 1999 when it was called Simione Central Holdings, Inc. The settlement was
completed in February 2003 with no future obligation due from the Company and a
payment of $290,000 made to the Company.
On January 29, 2003, CareCentric received an offer to merge with Borden
Associates, Inc. In the proposed transaction, Borden would merge into
CareCentric and purchase the shares of shareholders holding less than 4,000
shares for $0.55 per share. Each share of CareCentric common stock owned of
record by a holder of 4,000 shares or more of CareCentric common stock will
continue to represent one share of common stock after the merger. The
outstanding shares of Borden Associates capital stock will, in the aggregate, be
converted into the right to receive that number of shares of CareCentric common
stock equal to the quotient of the total cash consideration paid to the holders
of fewer than 4,000 shares of CareCentric common stock divided by the $0.55 per
share price. CareCentric would remain the surviving entity. The Company filed a
Form 8-K on February 4, 2003 summarizing the terms of the offer. This
transaction, if consummated, may result in the Company becoming private so that
it would no longer be a reporting company under SEC regulations or be publicly
traded on the OTC Bulletin Board. The Board of Directors is evaluating the
proposal and has formed a special committee of independent directors, consisting
of Winston R. Hindle, Jr. and William J. Simione, Jr., to evaluate, respond or
negotiate the proposal with the principals of Borden Associates. Borden
Associates is an investment company formed for the purpose of this transaction
and owned by John Reed, Stewart Reed and James Burk. John Reed and Stewart Reed
are material shareholders of CareCentric and members of its Board of Directors.
As of March 10, 2003, the special committee of the Board has selected legal
counsel and an investment banking firm to assist in the special committee's
review of the offer by Borden Associates.
85
CARECENTRIC, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGES TO BALANCE AT
BEGINNING OF COST AND END OF
PERIOD EXPENSE DEDUCTIONS(1) PERIOD
Year ended December 31, 2002
Allowance for Doubtful Accounts $ 1,042,000 350,000 85,000 $ 1,307,000
=============== ============== ================ ==============
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
=============== ============== ================ ==============
(1) Net Write-offs of uncollectible accounts
86
1594201