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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
COMMISSION FILE NUMBER 0-22162
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3209241
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6600 POWERS FERRY ROAD, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 644-6700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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Aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 18, 1998: $74,538,275.
There were 8,524,466 shares of Common Stock outstanding at March 18,
1998.
Documents incorporated by reference in this Form 10-K: Portions of the
definitive proxy statement relating to the 1998 Annual Meeting of Stockholders
in Part III, Items 10 (as related to Directors), 11, 12 and 13.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Executive Management of the Registrant 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Consolidated Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules
and Reports on Form 8-K 28
Index to Consolidated Financial Statements F-1
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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PART I
ITEM 1. BUSINESS
Certain statements set forth in this Annual Report on Form 10-K
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
subject to the safe harbor created by such sections. When used in this report,
the words "believe," "anticipate," "estimate," "expect," and similar expressions
are intended to identify forward-looking statements. Although Simione Central
Holdings, Inc. (the "Company") believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
When appropriate, certain factors that could cause results to differ materially
from those projected in the forward-looking statements are enumerated. This
Annual Report on Form 10-K should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information and are made available to customers in two
arrangements: a Shared Resource Solution and an In-House Solution. The Company's
Shared Resource Solution offers customers an outsourcing opportunity which
incorporates the Company's proprietary software. Under this arrangement, the
Company operates a data center which stores customer data and allows real-time,
secure access through a wide area communications network. The Company's In-House
Solution is licensed to customers for use on their own computer systems. In
addition to its software solutions and related software support services, the
Company's home health care consulting services assist providers in addressing
the challenges of reducing costs, maintaining quality, streamlining operations
and re-engineering organizational structures. The Company also provides
comprehensive agency support services which include administrative, billing and
collection, training, reimbursement and financial management services, among
others.
The Company has recently introduced the following three new products:
(i) SC Synergy, a comprehensive, fully-integrated home health care software
product which uses both client/server and IBM's AS400 technology to provide a
complete business solution; (ii) MAPP Plus, a fully-automated point-of-care
product which incorporates over 60 clinical pathways to collect outcomes data by
encounter and over an entire episode of care using a consistent methodology; and
(iii) Enterprize Management Solutions 7.0 ("Enterprize 7.0"), a Windows based
product for home medical equipment businesses.
During 1997, the Company had over 2,100 customers nationwide, including
hospital-based companies, free-standing home health care providers,
alternate-site care organizations, home medical equipment providers, integrated
delivery systems and government-managed organizations. The Company's customers
include Columbia/HCA Healthcare Corporation ("Columbia/HCA"), Tenet Healthcare
Corporation ("Tenet"), The Visiting Nurse Association of Texas ("VNA - Texas"),
Mercy Health Services, a Michigan not-for-profit corporation ("Mercy"), and
Advocate Health System ("Advocate").
Effective December 1, 1997, the Company purchased substantially all of
the assets of Dezine Healthcare Solutions, Inc. ("Dezine"), a provider of
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information solutions for home medical equipment ("HME") businesses. The Company
accounted for the acquisition using the purchase method (the "Dezine
Acquisition"). Accordingly, the $9.4 million purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair values,
with approximately $8.1 million allocated to purchased in-process research and
development, which was written off as of the date of the Dezine Acquisition. In
addition, approximately $1.3 million of the purchase price was allocated to
certain identifiable intangible assets and are being amortized over the related
assets' useful lives which range from 5 to 10 years.
For information regarding the Company's history, see Notes 1 and 2 to
Notes to Consolidated Financial Statements.
Unless the context otherwise requires, references to the Company herein
include Simione Central Holdings, Inc. and its subsidiaries. The Company's
executive offices are located at 6600 Powers Ferry Road, Atlanta, Georgia 30339
and its telephone number is 770-644-6700.
INDUSTRY OVERVIEW
Home health care is one of the fastest growing segments of the health
care industry, with total estimated expenditures having increased to
approximately $42 billion in 1997 from approximately $13 billion in 1990. The
increasing importance of home health care has principally been a result of
significant economic pressures within the health care industry. In recent years,
U.S. health care expenditures have increased rapidly and have been estimated to
have exceeded $1.1 trillion in 1997. In response to these escalating
expenditures, payors, such as Medicare and managed care organizations, have
applied increasing pressure on physicians, hospitals and other providers to
contain costs. This pressure has led to the growth of lower cost alternate-site
care, such as home health care, and to reduced hospital admissions and lengths
of stay. In addition, home health care has grown rapidly as a result of advances
in medical technology, which have facilitated the delivery of services in
alternate sites, demographic trends, such as an aging population, and
preferences among patients to receive health care in their homes.
Home health care consists of many elements, including skilled nursing,
durable medical equipment ("DME"), intravenous and infusion therapy ("IV
Therapy") and hospice. Historically, this industry has been highly fragmented
and characterized by small, local providers offering a limited range of
services. With the advent of managed care and integrated delivery systems, home
health care providers have had to expand their geographic scope and range of
product and service offerings. In addition, the overall growth in the home
health care industry has allowed providers to grow and realize increased
operating efficiencies. As a result of these developments, the home health care
industry has been in a period of rapid consolidation.
Medicare currently reimburses a majority of home health care services
at amounts that cannot exceed the costs of services provided, resulting in a
direct relationship between the number of home health care visits and
reimbursement. However, the Balanced Budget Act of 1997, enacted on August 5,
1997 (the "BBA"), contained provisions that significantly change the manner in
which home health agencies and home care services will be reimbursed in the
future by the Medicare and Medicaid programs. Additionally, in late 1997, the
Health Care Financing Administration ("HCFA"), the federal agency that
administers Medicare reimbursement for the home health care industry, imposed
further reimbursement limitations which created restrictions on the amount of
cost reimbursement per Medicare beneficiary. In 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 the
surety bond and capitalization requirements for home health agencies. As
mandated by the BBA, HCFA has also announced the implementation, effective
October 1, 1999, of a Prospective Payment System ("PPS"), which would limit
reimbursement to a fixed amount for all services rendered per episode of
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care. In addition to the potential impact of PPS, the growth in the number of
Medicare members enrolling in managed care plans, which have also begun to take
measures to contain costs, will have a significant impact on how providers may
operate profitably.
As a result of consolidation and measures to address ongoing cost
pressures, home health care providers will increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. The Company 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.
THE SIMIONE CENTRAL SOLUTIONS
The Company offers a comprehensive set of solutions to address the
changing needs of home health care providers. These solutions include
information systems and support, consulting services and agency support
services. The Company's systems and services are designed to enable home health
care providers to generate and utilize comprehensive financial, operational and
clinical information and address organizational issues in order to make informed
decisions, more effectively operate their businesses and compete in a managed
care and/or PPS environment. These solutions can be packaged and customized to
serve the individual needs of customers.
STRATEGY
The Company's objective is to enhance its position as a leading
provider of solutions to the home health care industry. Principal elements of
the Company's strategy include:
- Leverage Existing Customer Base. The Company currently has a
base of over 2,100 customers nationwide. The Company believes
that a significant opportunity exists to cross-sell its
existing systems and services as well as introduce new systems
and enhancements.
- Generate Recurring Revenue. The Company generates recurring
revenue through a combination of annually renewable
maintenance agreements and multi-year service contracts. These
sources of revenue collectively accounted for 60% of the
Company's net revenues in 1997. The Company attempts to
maximize recurring revenue opportunities through a combination
of periodic system enhancements and comprehensive customer
service.
- Capitalize on Changing Industry Dynamics. As the home health
care industry consolidates, the Company believes it is well
positioned to increase its market share by leveraging its
existing relationships with large providers such as
Columbia/HCA, Tenet, Advocate and Mercy. The Company also
believes its comprehensive solutions will become increasingly
important to home health care providers as they address the
challenges presented by health care reform and as integrated
delivery systems become more prevalent.
- Expand Through Acquisitions and Strategic Alliances. Through
selective strategic acquisitions such as the Dezine
Acquisition, the Company intends to continue to expand its
system and service offerings, expand its customer base and
increase its market share. The Company also intends to
selectively establish strategic alliances to expand its system
and service offerings and grow its distribution capabilities.
For example, the Company has a marketing agreement with
International Business Machines Corporation ("IBM") in order
to leverage IBM's presence in the hospital and integrated
delivery system marketplace.
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- Broaden System and Service Lines. The Company has recently
introduced three new products: SC Synergy, MAPP Plus and
Enterprize 7.0. The Company intends to continue to develop and
enhance its systems and services and is developing several new
products and enhancements.
SYSTEMS AND SERVICES
The Company provides a comprehensive set of solutions for home health
care providers through a broad range of systems and services, including: (i)
several comprehensive, flexible software solutions; (ii) software support
services; (iii) comprehensive agency support services; and (iv) consulting
services. These systems and services are designed to address the evolving
strategic, financial, operational and clinical needs of home health care
providers as illustrated below:
[Graphic illustration enumerating the various strategic, operational, financial
and clinical needs of home health care providers.]
INFORMATION SYSTEMS
The Company offers several comprehensive and flexible software
solutions to meet various customers' needs. Each of these solutions offers a
core platform of software applications which address the complete business
requirements of home health care providers. These applications are designed to
provide real-time reporting capabilities, speed information processing, reduce
redundant data entry, improve efficiencies and assist management with making
informed decisions. In addition to the core elements, the Company offers several
specialized modules that can be integrated with the Company's core applications
based on customer demand.
Core Software Solutions. The Company's core software solutions are as follows:
STAT2. A complete, flexible and fully-integrated home health care
management system. The STAT2 core platform of software applications
includes:
Client Intake Billing/Accounts Receivable
Treatment Plans General Ledger
Employee Tracking Accounts Payable
Scheduling Payroll
Electronic Transmission/
Remittance
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This core functionality can be enhanced with specialized modules
including hospice, IV Therapy, DME, imaging, telephony and cost
reporting. The STAT2 system allows a customer to exchange clinical and
financial information with external systems in either a real-time or
batch mode through interface engine technology or customized
interfaces.
NAHC IS. The Company's second complete, fully integrated home health
care management system. The NAHC IS core platform of software
applications contains similar functionality as the STAT2 system. In
addition, NAHC IS' core functionality includes the following
applications:
Human Resources Purchasing/Inventory Management
Fixed Asset Management Occurrence Tracking
Both the STAT2 and NAHC IS software systems are designed to increase
staff productivity by fully integrating the systems' clinical,
financial and operational applications and thereby eliminating
redundant data entry. These solutions emphasize their ability to
customize system features as well as their ability to expand with the
customer's business. A major feature of each system is its real-time
reporting capabilities.
DME IV. A PC-based software application for home medical equipment and
medical supply businesses. The DME IV core platform of software
applications includes:
Order Entry Billing
Inventory Management Accounts Receivable
General Ledger Purchase Orders
DME IV features the following add-on modules: Retail Sales, Bar Coding
and IV Therapy. Versions of this software are available for any size
operation. The software provides easy to use data import/export
capabilities.
Software Delivery Arrangements. The Company offers two different delivery
options for its software solutions: the Shared Resource Solution and
the In-House Solution.
Shared Resource Solution. The Company's Shared Resource Solution offers
an outsourcing opportunity which can incorporate any of the Company's
proprietary software. Under this arrangement, the Company operates a
data center which stores customer data and allows customers real-time,
secure access through a wide area communications network. The services
provided by the Company include processing access to computer and
communication hardware, disaster recovery services, new technology and
capacity upgrades and software support. The host systems, which are
maintained by Integrated Systems Solutions Corporation, a subsidiary of
IBM ("IBM Global Services"), can be accessed by customers using their
own workstations or LAN-based PCs over secure network connections,
which allow customers to input, modify, access and analyze data on a
real-time basis.
The Shared Resource Solution allows customers to reduce up-front
capital costs and minimize the need for in-house technical personnel.
Moreover, customers obtain immediate expansion capabilities and
automatic system upgrades and enhancements. The Company believes that
the Shared Resource Solution is well-suited for the needs of a
consolidating industry since it allows customers to avoid having to
deploy and maintain extensive networks. The Company prices its Shared
Resource Solution under two different pricing models which result in
recurring monthly user fees based on either the number of users
accessing the system or the number of billed home health care visits
for its certified home health care customers. Revenues derived from
contracts for
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these services typically range from several hundred thousand dollars to
several million dollars per year.
In-House Solution. For customers who have already made, or are planning
to make, an investment in a data center, information systems personnel
and either remote site connection equipment or a wide area
communications network, the Company offers its In-House Solution. Under
this arrangement, the selected software solution is licensed to
customers for use on their own computer system which allows them to
manage their financial, operational and clinical data. Customers obtain
non-exclusive licenses of the selected system software modules for a
license fee and contract for annual maintenance and support services.
The selected software system can be loaded on a customer's existing
customer hardware or on new hardware ordered by the Company on behalf
of the customer for installed delivery. License fees are determined by
the number of software modules licensed and by the number of users
accessing the system and can range from ten thousand dollars to a few
million dollars.
Specialized Software Solutions. The Company offers the following specialized
software solutions:
STAT2 Medical Records. STAT2 Medical Records is designed to help STAT2
customers improve patient care while reducing costs through improved
productivity. STAT2 Medical Records allows field staff, using handheld
point-of-care units, to enter, update and transmit patient information
from remote locations to the home office via modem connection, updating
the central STAT2 system on a real-time basis. Customers can use STAT2
Medical Records to measure outcomes, establish or import clinical
pathways and report on variances to a care plan. STAT2 Medical Records
is comprised of modules which are integrated with other clinical,
financial and operational STAT2 system software modules for
collaborative reporting and analysis.
SC STATScan. SC STATScan is a Windows-based imaging system which scans
and stores paper forms into a customer's system. Documents are scanned,
digitized, stored on optical disks, indexed according to user defined
fields and recalled for instant use. SC STATScan also provides an
automated workflow application which allows the user to define the flow
of image information to various groups within the organization.
Additionally, SC STATScan provides its customers with increased
security and control of information, faster information retrieval and
an enhanced ability to share information in a real-time environment.
SC TELTime. SC TELTime is an interactive voice response system which
records visit, mileage, payroll and billing data from field staff using
telephones in place of computers. This data can be automatically
exported into a customer's payroll and billing applications. SC TELTime
is designed to provide users with a more cost effective way to record
data and produce records and can accelerate a customer's billing
activities.
MAPPScan. The Company's initial version of its Managed Avenue of
Patient Progress ("MAPP") point-of-care products is MAPPScan. MAPPScan
uses scanning technology to input and analyze a wide array of clinical
data. MAPPScan paper documentation incorporates HCFA data elements and
utilizes pre-defined pathways which guide patient care delivery and
allows for the analysis of data associated with clinical care, outcomes
and patient satisfaction.
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New Products. The Company has recently introduced the following new products:
SC Synergy. A comprehensive, integrated home care information
management solution designed to allow home health care providers to
more effectively operate their businesses and compete in a managed care
environment. This system was developed to replace the Company's NAHC IS
software solution and was structured to take advantage of client
server/GUI technology as well as the reliability and processing power
of IBM's AS400 technology. The system's core applications include:
Client Intake Order Entry
Verification/Authorization Resource and Encounter Management
Admissions Revenue Management
Activity Entry Occurrence Tracking
Accounts Receivable/Collections
Additionally, the system has significant standard and ad hoc reporting
capabilities as well as enhanced data import/export features. This
system has been designed to automatically interface with the Company's
financial applications (General Ledger, Accounts Payable, Purchasing,
Inventory Management, Fixed Assets, Payroll and Human Resources). SC
Synergy began initial Beta testing in March 1998 and is expected to be
released in the second quarter of 1998.
MAPP Plus. The Company recently introduced its fully-automated version
of its MAPP point-of-care product, MAPP Plus. This product is
separately licensed and offers a means of documenting the provision of
home health care services and patient outcomes. MAPP collects outcomes
data by encounter and over an entire episode of care using a consistent
methodology for data collection. MAPP incorporates HCFA data elements
and utilizes pre-defined pathways, which may be expanded by the user
and guide patient care delivery. The Company has developed a functional
level of care model and over 60 clinical pathways related to specific
medical diagnoses. MAPP will also generate cost data associated with
clinical care, tracks outcomes variances and records patient
satisfaction. MAPP's clinical functionality is based on home health
care specific clinical knowledgeware developed through years of
practical application and clinical research.
MAPP Plus, utilizes fully-automated front-end data collection via a
mobile, pen-based computer and has significant data analysis
capabilities. The Company is currently developing modules to its STAT2
and SC Synergy software solutions which will provide users with a
seamless interface. MAPP Plus has been in Beta since the fourth quarter
of 1997 and is expected to be released in the second quarter of 1998.
Enterprize 7.0. Enterprize 7.0 is a new product for the home medical
equipment provider and has significant enhancements to the Company's
current DME IV product. This product features enhanced security,
increased reporting capabilities and improved productivity tools as
well as significant connectivity improvements. Enterprize 7.0 began
initial Beta testing in February 1998 and is expected to be released in
the second quarter of 1998.
SERVICE SOLUTIONS
Software Support Services. The Company believes that providing
comprehensive software support services to customers is critical to its success
in the home health care industry. The Company employs 112 professionals
dedicated to this effort who provide the following services:
Implementation: Implementation services include an assessment of
existing customer business processes, project
planning, system training, business process
re-engineering and data conversion assistance.
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Training: Training services are offered on a continuing basis
to existing customers either at the customer's site
or at a Company location.
Software Support: The Company offers on-call telephone software support
seven days a week and provides maintenance releases
on a periodic basis. Releases of software
enhancements are generally made available to
customers annually.
Technical Consulting: The Company provides software customization and
integration, technical audits of the customer's
information systems, integration and network planning
and strategic and tactical information systems
planning.
Under the In-House Solution, support services represent a source of
recurring revenue, as these services are provided through annual renewable
service contracts. Support services for the Shared Resource Solution, however,
are included as part of the service fee paid by the customer. Other services are
generally charged on a time and materials usage basis. The Company's technical
personnel also provide on-site and on-call hardware support.
Consulting Services. The Company's home health care consulting services
assist providers in addressing the challenges of both a managed care and a PPS
environment, such as reducing the cost of delivering care while maintaining or
improving quality of care, streamlining operational structures and
re-engineering organizational structures. The Company's consulting operations,
which were acquired in January 1996, have been providing consulting advice to
the home health care industry since 1963. The consulting staff is comprised of
40 professionals with home health care industry specific experience. Consulting
engagements generally focus on:
Strategic Planning Marketing Studies Acquisition Due Diligence
Operational Reviews Business Valuations Quality Assurance Reviews
Reimbursement Consultation Organizational Reviews Operational Re-engineering
Medicare Compliance Medical Records Cost Report Preparation
The Company provides consulting services on a time and materials usage
basis. The Company believes that its consulting services group effectively
complements its software and services, provides a valuable outlook on the
changing home health care industry and is a source of innovative ideas for the
Company's information systems enhancements. Furthermore, consulting services are
designed to build new customer relationships and provide opportunities for the
sale of additional information systems and services.
Agency Support Services. For home health care providers seeking to
address the challenges posed by changing industry dynamics, the Company provides
comprehensive agency support services to supplement their core competencies. The
Company's agency support services provide day-to-day personnel outsourcing for
certain critical customer operational functions. For new customers, the Company
will initially analyze and re-engineer, as appropriate, all aspects of a
customer's home health care operation. These services are provided by over 60
home health care specialists. This combination of services is designed to enable
customers to create an efficient organizational structure that seeks to provide
both cost-effective results and promotes the delivery of high quality patient
care. Components of these services include:
Management Oversight Clinical Program Development Compliance & Ethics Audits
Training & Development Fiscal Intermediary Relations Community Awareness Programs
Human Resources Operations/Systems Management Accounting Support
Reimbursement Planning Billing/Collection Budget Preparation/Analysis
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The Company provides agency support services under multi-year
contracts. Fees for these services are billed monthly. The Company believes the
delivery of agency support services provides another valuable opportunity to
introduce its information systems and services to an additional customer base.
CUSTOMERS
During 1997, the Company had over 2,100 customers nationwide, including
hospital-based companies, free-standing home health care providers,
alternate-site care organizations, home medical equipment providers, integrated
delivery systems and government-managed organizations. The Company's customers
include Columbia/HCA, Tenet, VNA-Texas, Mercy and Advocate. The Company
presently anticipates that Columbia/HCA will account for a substantial portion
of the Company's consolidated net revenues for 1998. A significant number of the
Columbia/HCA contracts provide that the pricing terms may be renegotiated in the
event that HCFA replaces the current cost-based Medicare reimbursement system
for home health care with PPS, providing for fixed payments per episode of care.
In addition, the Columbia/HCA contracts provide for a reduction in the payments
to the Company in the event and to the extent that such payments are determined
not to be a reimbursable cost under Medicare. Although the Company believes that
such payments are reimbursable, certain components of such reimbursements have
been subject to increasing scrutiny and there can be no assurance that payments
under the Columbia/HCA contracts will not be subject to challenge. Except for
Columbia/HCA, no other customer is expected to account for 10% or more of the
Company's consolidated net revenues during the year ending December 31, 1998.
Some of the Company's representative customers include:
HOSPITAL BASED ALTERNATE-SITE
Columbia/HCA Healthcare Corporation APRIA Health Care Group
Mercy Health Services Karmanos Cancer Institute
Mount Sinai Medical Center Massachusetts Easter Seal Society
Tenet Healthcare Corp. Valentine Services Company, Inc.
FREE STANDING FOR PROFIT/NOT-FOR-PROFIT INTEGRATED DELIVERY SYSTEMS
Associated Professional Home Health Care Advocate Health System
Lifetime Medical Home Care Health Group of Alabama
Nurses Unlimited Sisters of Providence in Oregon
VNA of Greater Philadelphia University of Penn Health Systems
VNA of Greater Woonsocket
VNA of Texas
HOME MEDICAL EQUIPMENT PROVIDERS GOVERNMENT-MANAGED
Walgreens Advance Care Community Home Health Agency,
The Mayo Store of Mayo Clinics Rochester, NY
Health and Home, a subsidiary of Orleans County Health Department,
American Stores/Home and Health Milwaukee, WI
Johns Hopkins Home Care Group Putnam County Health Department,
Brewster, NY
South Carolina Department of Health,
Columbia, SC
SALES AND MARKETING
The Company markets its systems and services through a direct sales
force which consists of one executive vice president, three national sales
managers, and 24 sales and telemarketing representatives located throughout the
United States. The Company also employs a marketing and sales support staff of
14 people to assist its sales force. Recognizing the importance of maintaining
good communication and obtaining valuable input from its customers, the Company
sponsors national user group meetings. Regional user group meetings are also
held to discuss customer comments, suggestions, industry trends and related
system issues.
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Strategic Relationships. The Company has entered into a cooperative
marketing agreement with IBM, whereby IBM health care marketing representatives
will market and receive commissions related to the sales of the Company's
systems. The Company believes that this relationship should provide additional
opportunities focused primarily on the hospital and integrated delivery system
marketplace. In addition, NAHC Plus, Inc., a wholly-owned for-profit subsidiary
of the National Association for Home Care and Hospice ("NAHC"), has exclusively
licensed its name to the Company for use in connection with the Company's NAHC
IS system. The Company believes that this endorsement and the Company's
relationship with NAHC Plus, Inc. should be beneficial to the Company in its
marketing efforts as it provides a direct link to the home health care
industry's main trade association and its members. The Company is also exploring
other strategic alliances to broaden its sales and marketing activities.
BACKLOG
The Company had backlog associated with its In-House Solution of $7.1
million and $4.9 million on December 31, 1997 and 1996, respectively. Backlog
consists of the unrecognized portion of contractually committed software license
fees, hardware, estimated installation fees and professional services. The
length of time required to complete an implementation depends on many factors
outside the control of the Company, including the state of the customer's
existing information systems and the customer's ability to commit the personnel
and other resources necessary to complete the implementation process. As a
result, the Company may be unable to predict accurately the amount of revenue it
will recognize in any period and, therefore, can make no assurances that the
amounts in backlog will be recognized in the next twelve months.
The Company enters into multi-year contracts with its customers in
connection with its Shared Resource Solution. In general, these contracts
provide for the payment of monthly fees based on the number of users or billed
home care visits made by the customer. Accordingly, the Company does not
maintain a backlog with respect to its Shared Resources Solution.
TECHNOLOGY
The STAT2 system operates on multiple operating systems, including
Windows NT, and is designed for use on microcomputers, LAN-based PCs, IBM
RS/6000 and DEC Alpha hardware. The STAT2 system can be implemented on
client/server or host/dumb terminal architecture and offers SQL-compliant
databases in both configurations. The system allows any Windows SQL report
writer to access the STAT2 system database and to merge data with other customer
SQL-compliant databases. The STAT2 system allows a customer to exchange clinical
and financial information with external systems in either a real-time or batch
mode through interface engine technology or customized interfaces.
The NAHC IS host systems, built around IBM AS/400 RISC technology, are
located in a secure and commercially hardened IBM Global Services data center
site. Access to these host systems is provided via a secure, fully-managed,
multi-protocol wide area network, which is also maintained by IBM Global
Services. Customers can interface with the NAHC IS system through a wide range
of deployable site/desktop technologies. The NAHC IS system also incorporates
certain financial applications provided by Infinium Software, Inc. (formerly
known as Software 2000, Inc.).
The DME IV system operates on the MS-DOS and Windows NT operating
systems and is designed for use on microcomputers or LAN-based PCs.
The Company's systems are dependent upon many third-party software and
hardware products and related services, including Infinium Software, Inc. and
IBM Global Services. There can be no assurance that financial or other
difficulties experienced by such third-party vendors will not have an adverse
effect on the Company's abilities to provide its systems or that the Company
will be able to replace such third-party products and services if they become
unavailable.
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RESEARCH AND DEVELOPMENT
The Company maintains a staff of approximately 90 programmers, systems
analysts, quality assurance analysts and documentation specialists who monitor
developments in the computer software and health care industries and who
continuously work to enhance the Company's systems. The Company's research and
development expenses were approximately $6.7, $5.7 and $2.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively. In addition, the
Company incurred approximately $8.1 million of purchased in-process research and
development expense in 1997 related to the Dezine Acquisition and $12.6 million
in 1996 related to the acquisition of InfoMed Holdings, Inc. ("IMHI").
STAT2 system research and development plans include upgrading key
modules to a graphical user interface. The Company's NAHC IS system is scheduled
for replacement by SC Synergy; therefore, no significant enhancements are
planned for this system. SC STATScan is being enhanced with data capture
capabilities which will allow a customer to eliminate duplicate entry of key
clinical data as well as increased inquiry capabilities.
The Company has additional research and development activities underway
to make certain product functionality web-enabled. Additionally, the Company
plans to develop or enhance interface capabilities between all of its software
products.
The Company recognizes the need to respond to the rapid technological
change that is occurring in the software and health care industries. There can
be no assurance, however, that the Company will be able to develop products on a
timely basis or that its future products will fully address the needs of its
current or prospective customers.
COMPETITION
Competition in the market for home health care information systems and
services is intense and is expected to increase. The Company believes that the
primary factors affecting competition are system performance and reliability,
customer support, service, system flexibility and ease of use, pricing,
potential for providing enhancements, reputation and financial stability. The
Company's competitors include other providers of home health care information
systems and services, management companies and home health care consulting
firms. Furthermore, other major health care information companies not presently
offering home health care information systems, or major information system
companies not currently in the health care industry, could develop the
technology and enter the Company's markets. The Company believes its most
significant competitors are Delta Health Systems (owned by Shared Medical
Systems Corp.), Springfield Products Group (formerly known as Management
Software, Inc. and owned by HBO & Company), Patient Care Technologies, Inc.
(partially owned by Meditec), Home Care Information Systems, Inc. (owned by
Medic Computer Systems, Inc.) and the home health care management division of
Olsten Corp. Increased competition could result in price reductions, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations. In
addition, many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company. Many of the Company's
competitors also currently have, or may develop or acquire, substantial
installed customer bases in the home health care industry. As a result of these
factors, the Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the development, promotion and sale of their systems and services
than the Company. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, financial condition and results of operations.
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PROPRIETARY RIGHTS AND PRODUCT PROTECTION
The Company owns the copyrights on its STAT2 system. The Company also
has pending applications to register trademarks related to its MAPP products.
The Company depends upon a combination of trade secret, copyright and trademark
laws, license agreements, nondisclosure and other contractual provisions and
various security measures to protect its proprietary rights. There can be no
assurance that the legal protections afforded to the Company or the precautions
taken by the Company will be adequate to prevent misappropriation of the
Company'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 the Company's
technology by third parties. Any infringement or misappropriation of the
Company's proprietary software could have a material adverse effect on the
Company. As the number of home health care software information systems
increases and the functionality of these systems further overlap, health care
information systems may increasingly become subject to infringement claims.
Although there has been no litigation with respect to such claims, there can be
no assurance that the Company will not be subject to litigation in the future or
additional infringement claims. The Company 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 the Company will
prevail in any infringement litigation brought against it. 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 the Company's business, financial condition and results of operations.
Adverse determinations in such claims or litigation may require the Company 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 the Company'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. These proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for the Company's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in the Company's systems and services. The Company cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.
The confidentiality of patient records and the circumstances under
which such records may be released for inclusion in databases maintained on the
Company's systems are subject to substantial regulation by state governments and
certain federal legislation governing specialized medical information and
records. Although compliance with these laws and regulations is principally the
responsibility of the hospital, physician or other home health care provider
with access to the Company's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 includes provisions directing the
Secretary of the Department of Health and Human Services to adopt standards
governing the electronic transmission of data in connection with a number of
transactions involving health information, including submission of health
claims. These standards are to cover security measures and safeguards with
respect to health information, as well as standardization of data, assignment of
identifiers and authentication of electronic signatures. 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
12
16
to implement and costly to the Company. 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 the Company's systems or impose requirements which are incompatible with the
Company's current systems.
The United States Food and Drug Administration (the "FDA") is
responsible for assuring the safety and effectiveness of medical devices under
the Federal Food, Drug and Cosmetic Act. Computer products are subject to
regulation when they are used or are intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body.
Although the Company believes that its systems are not subject to FDA
regulation, the FDA could determine in the future that predictive applications
of the Company's systems could make them clinical decision tools subject to FDA
regulation. Compliance with FDA regulations could be burdensome, time consuming
and expensive. The Company 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 the Company in other respects
not presently foreseeable. The Company cannot predict the effect of possible
future legislation and regulation.
EMPLOYEES
As of March 1, 1998, the Company employed approximately 415
individuals. The Company believes that its future success depends in large part
upon recruiting, motivating and retaining highly skilled and qualified employees
in all aspects of the Company's business. None of the Company's employees is
represented by a labor union. The Company believes that its employee relations
are good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 6600 Powers
Ferry Road, Atlanta, Georgia 30339. The principal executive offices consist of
approximately 56,924 square feet, of which approximately 49,162 square feet are
leased directly from the owner of the office building in which the Company's
principal executive offices are located pursuant to a lease expiring on December
31, 2002 (the "Corporate Headquarters Office Building Lease"), and of which
approximately 7,762 square feet are subleased pursuant to a sublease expiring on
February 28, 2001 (the "Corporate Headquarters Sublease"). Upon the expiration
of the Corporate Headquarters Sublease, the space subleased thereunder will be
leased directly from the office building owner pursuant to the Corporate
Headquarters Building Lease.
The Company also leases approximately 20,291 square feet of office
space in Pompano Beach, Florida pursuant to a lease that expires on December 31,
2000, and approximately 6,500 square feet of office space in Hamden, Connecticut
pursuant to a lease that expires on December 31, 2002. The landlords of both of
these offices are companies comprised of certain directors and related parties
of the Company. See "Item 13. Certain Relationships and Related Transactions."
In addition, the Company leases approximately 8,540 square feet of office space
in East Brunswick, New Jersey, and approximately 7,900 square feet of office
space in Sugar Land, Texas pursuant to leases that both expire on September 30,
2000. Finally, the Company leases small offices in Westborough, Massachusetts,
San Diego, California, Irving, Texas and Jacksonville, Florida.
The Company believes that its present facilities are adequate to meet
the Company's current and foreseeable needs.
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ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is currently a party to
any legal proceedings which would be material to the business or financial
condition of the Company on a consolidated basis. The Company was, however,
served on July 17, 1997 with an administrative subpoena issued by the United
States Department of Health and Human Services, Office of Inspector General. In
connection with that subpoena, the Department of Justice ("DOJ") has advised the
Company that certain aspects of the Company's past relationship with affiliates
of Columbia/HCA are within the scope of an ongoing grand jury investigation.
However, the DOJ has confirmed to the Company that neither the Company, nor any
of its officers, directors or employees, is a target in this investigation and,
based upon the information known to the DOJ at this time, neither the Company,
nor any of its officers, directors or employees, is likely to become one. The
Company is cooperating fully with the government and does not currently believe
that this inquiry will have any material effect on its overall business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE MANAGEMENT OF THE REGISTRANT
Gary M. Bremer .................. 58 Chairman of the Board
James R. Henderson .............. 52 President and Chief Executive
Officer
William J. Simione, Jr. ......... 56 Vice Chairman of the Board
and Executive Vice President
Gary W. Rasmussen ............... 43 Chief Operating Officer
Lori Nadler Siegel............... 34 Chief Financial Officer
and Treasurer
M. Henry Day, Jr. ............... 44 General Counsel and Secretary
GARY M. BREMER has served as Chairman of the Board of the Company since
October 8, 1996, and from October 8, 1996 to April 10, 1997 also served as the
Company's Chief Executive Officer. From 1978 until October 1996, Mr. Bremer
served as President and Chief Executive Officer of Central Health Holding
Company, Inc. ("CHHC") and Central Health Services, Inc., a subsidiary of CHHC
("CHS"). Mr. Bremer has 23 years of experience in the home health care industry.
JAMES R. HENDERSON has served as President and as a director of the
Company since October 8, 1996, and since April 10, 1997 has also served as the
Company's Chief Executive Officer. From November 1995 to October 1996, Mr.
Henderson acted as a private consultant to various companies in the information
services industry, and from July 1992 to November 1995, Mr. Henderson served as
Executive Vice President for National Data Corporation, an information services
company. From February 1991 to June 1992, he served as Executive Vice President,
Worldwide Sales, Marketing and Operations, of QMS, Inc., a computer printer
company. From 1988 to January 1991, he served as Executive Vice President of Dun
and Bradstreet Software Services, Inc., a client server software solutions
company. Mr. Henderson has 31 years of experience in the information services
industry.
WILLIAM J. SIMIONE, JR. is a certified public accountant who has served
as Vice Chairman of the Board and Executive Vice President of the Company since
October 8, 1996. From January 1996 until October 1996, Mr. Simione served as the
President of Simione Central, Inc., a wholly-owned subsidiary of the Company.
From January 1975 until December 1995, Mr. Simione was Managing Partner of the
Home Health Care Consulting Division of Simione & Simione, CPA's ("Simione &
Simione"). Since September 1995, Mr. Simione has also served as a director and
an audit committee member of Personnel Group of America, Inc., a leading
provider of information technology services and commercial staffing solutions.
Mr. Simione has 32 years of experience in the home health care industry.
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GARY W. RASMUSSEN is a certified public accountant who has served as
Chief Operating Officer of the Company since October 8, 1996. From June 1996 to
October 1996, Mr. Rasmussen served as Chief Operating Officer of CHHC. He also
served as Chief Financial Officer of CHHC from January 1996 to May 1996, and as
Chief Financial Officer of CHS from October 1994 to December 1995. Mr. Rasmussen
served as Chief Financial Officer of Surgical Health Corporation, an outpatient
surgery center company, from May 1992 until September 1994, and was an Audit
Partner with Ernst & Young LLP from October 1987 to May 1992.
LORI NADLER SIEGEL is a certified public accountant who has served as
the Chief Financial Officer and Treasurer of the Company since October 8, 1996.
From June 1996 to October 1996, Ms. Siegel served as Chief Financial Officer of
CHHC. From January 1995 until May 1996, Ms. Siegel served as Assistant Vice
President of Finance for CHS after holding various accounting and finance
positions at CHS from July 1991 until December 1994.
M. HENRY DAY, JR. has served as General Counsel and Secretary of the
Company since January 2, 1998. From November 4, 1997 to December 31, 1997, Mr.
Day served as Vice President and Associate General Counsel of Paragon Health
Network, Inc., a leading provider of post-acute care services and the successor
corporation to the merger of GranCare, Inc. and Living Centers of America, Inc.
From September 1994 to November 4, 1997, Mr. Day served as Vice President,
Assistant General Counsel and Assistant Secretary of GranCare, Inc. From March
1993 to September 1994, Mr. Day served as General Counsel of Life Care Centers
of America, Inc., a privately-owned provider of post-acute care services.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company, par value $.001 per share (the "Common
Stock") has been traded on the Nasdaq Stock Market under the symbol SCHI since
June 30, 1997. Prior to June 30, 1997, the Common Stock was traded on the OTC
Bulletin Board under the symbol SCHI from December 24, 1996 to June 29, 1997,
and under the symbol IMHI from December 21, 1995 to December 24, 1996. As of
March 18, 1998, the Common Stock was held by approximately 132 holders of
record. The table below sets forth the reported quarterly high and low bid
prices for the Common Stock on the OTC Bulletin Board for the period January 1,
1996 to June 29, 1997, and the reported quarterly high and low sales prices for
the Common Stock on the Nasdaq Stock Market for the period June 30, 1997 to
December 31, 1997. The information set forth below does not include retail
mark-ups, mark-downs or commissions. In addition, over-the-counter prices
reflect inter-dealer prices and may not necessarily represent actual
transactions.
1997(1) 1996
---- ----
High Low High Low
---- --- ---- ---
First Quarter $ 7 3/4 4 1/4 $1 3/4 3/4
Second Quarter 6 3/4 5 3 1/4 7/8
Third Quarter 14 3/4 9 l/2 5 3/8 1 7/8
Fourth Quarter 14 1/8 7 6 5/8 4
(1)The quarterly high and low sales prices for the third and fourth
quarters of 1997 reflect the value of the Common Stock following a 1-for-2
reverse stock split effected by the Company on June 30, 1997.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future.
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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, 1997, 1996, 1995, 1994 and 1993 are derived from
the audited consolidated financial statements of the Company. The selected
consolidated financial data for the year ended December 31, 1996 includes the
operating results of Simione & Simione acquired effective January 1, 1996 and
IMHI for the period October 8, 1996 (the effective date of the acquisition of
IMHI (the "IMHI Acquisition")) to December 31, 1996. The selected consolidated
financial data as of and for the year ended December 31, 1997 includes the
operating results of Dezine for the period December 1, 1997 (the effective date
of the Dezine Acquisition) to December 31, 1997. As of and for the years ended
December 31, 1993, 1994 and 1995, the Company was a subsidiary of CHHC. See
Notes 1 and 2 to Notes to Consolidated Financial Statements for a description of
the Company's history. The data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto of the
Company included herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Year Ended December 31,
-----------------------
1997 1996(2) 1995(2) 1994 1993
------- ------- ------- ------- ------
(in thousands, except per share data)
Statement of Operations Data:
Net revenues:
Software and services $27,356 $15,308 $ 5,387 $ 4,875 $1,891
Agency support 14,680 7,324 7,835 7,235 3,317
Consulting services 4,909 3,363 -- -- --
------- ------- ------- ------- ------
Total net revenues 46,945 25,995 13,222 12,110 5,208
Costs and expenses:
Costs of revenues 22,715 14,698 8,154 7,694 4,328
Selling, general and administrative 12,508 7,037 3,095 2,959 810
Research and development 6,670 5,677 2,929 2,165 276
Amortization and depreciation 1,714 785 -- -- --
Purchased in-process research and
development 8,127 12,574 -- -- --
Severance and other
restructuring charges -- 1,215 -- -- --
------- ------- ------- ------- ------
Total costs and expenses 51,734 41,986 14,178 12,818 5,414
------- ------- ------- ------- ------
Loss from operations (4,789) (15,991) (956) (708) (206)
Other income (expense):
Interest expense (215) (115) -- -- --
Interest and other income 490 207 -- -- --
------- ------- ------- ------- ------
Net loss $(4,514) $(15,899) $ (956) $ (708) $ (206)
======= ======= ======= ======= ======
Net loss per share - basic
and diluted (1), (3) $ (0.63) $ (3.71) $ (0.32) $ (0.24) $(0.07)
======= ======= ======= ======= ======
Weighted average common shares
- basic and diluted (1), (3) 7,164 4,288 2,995 2,995 2,995
======= ======= ======= ======= ======
December 31,
------------
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 8,267 $ 3,385 $ 323 $ 463 $2,620
Working capital (deficit) 9,019 (1,203) 189 (837) (130)
Total assets 28,919 18,776 1,828 1,340 2,907
Long-term obligations -- 2,986 -- -- --
Shareholders' equity (deficit) 19,489 4,680 650 (837) (130)
(1) The number of shares used to compute the net loss per share reflects
the 2,994,856 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1 and 12 in the Notes to Consolidated
Financial Statements.
(2) Certain amounts in the 1996 and 1995 Statements of Operations have been
reclassified to conform with the 1997 presentation.
(3) All amounts have been restated in accordance with SFAS 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition
and results of operation of the Company for the three years ended December 31,
1997 and certain factors that will effect the Company's financial condition.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information and are made available to customers in two
arrangements: a Shared Resource Solution or an In-House Solution.
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The Company's Shared Resource Solution offers customers an outsourcing
opportunity which incorporates the Company's proprietary software. Under this
arrangement, the Company operates a data center which stores customer data and
allows real-time, secure access through a wide area communications network. The
Company's In-House Solution is licensed to customers for use on their own
computer systems. In addition to its software solutions and related software
support services, the Company's home health care consulting services assist
providers in addressing the challenges of reducing costs, maintaining quality,
streamlining operations and re-engineering organizational structures. The
Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others. During 1997, the Company had over 2,100
customers nationwide.
The Company enters into multi-year contracts (generally 3 to 5 years)
with its customers in connection with its Shared Resource Solution and its
provision of agency support services. In general, these contracts provide for
the payment of monthly fees based on the number of billed home care visits made
by the customer or for its Shared Resource Solution customers on the number of
users of the system. Revenues derived under these contracts are recognized
monthly as the related services are rendered and typically range from several
hundred thousand dollars to several million dollars per year. As a result, the
loss of any of these contracts could have a material adverse impact on the
Company's business, financial condition and results of operations.
The Company sells its In-House Solution pursuant to non-exclusive
license agreements which provide for the payment of a one-time license fee. In
accordance with SOP 91-1, these revenues are recognized when products are
delivered and the collectibility of fees is probable, provided that no
significant obligations remain under the contract. Revenues derived from the
sale of software products requiring significant modification or customization
are recognized based upon the percentage of completion method. The price of the
Company's In-House Solution varies depending on the number of software modules
licensed and the number of users accessing the system and can range from ten
thousand dollars to a few million dollars. The Company generally requires
payment of a deposit upon the signing of a customer order as well as certain
additional payments prior to delivery. As a result, the Company's balance sheet
reflects significant customer deposits.
Third party software and computer hardware revenues are recognized when
the related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company charges for software implementation, training and
technical consulting services as well as management consulting services on an
hourly or daily basis. The price of such services varies depending on the level
and expertise of the related professionals. These revenues are recognized as
the related services are performed.
The Company typically experiences long sales cycles for information
systems and agency support services, which may extend up to one year. In
addition, the implementation period related to its information systems can range
from three months to one year.
The Company defines recurring revenues as revenues derived under
multi-year contracts in addition to annual software support agreements. These
revenues were approximately $28.2 million, or 60% of total net revenues for the
year ended December 31, 1997 and $7.4 million, or 29% of total net revenues, for
the year ended December 31, 1996. The Company anticipates that recurring
revenues should remain constant as a percentage of its total net revenues in the
foreseeable future.
For the ten months ended October 31, 1996, and for the year ended
December 31, 1995, 63% and 69%, respectively, of the Company's total net
revenues were derived from contracts with home health care agencies
wholly-owned by CHHC.
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These contracts were terminated October 31, 1996, in connection with the sale of
CHHC to Columbia/HCA. Revenues derived from these contracts were recorded in an
amount equal to the costs of the services provided, and, as a result, the
Company recognized no operating profit under these contracts. Subsequent to the
sale of CHHC to Columbia/HCA, affiliates of Columbia/HCA entered into multi-year
contracts with the Company to provide its Shared Resource Solution as well as
agency support services to certain of the home health care agencies formerly
owned by CHHC. The Company believes that its current contracts with the
Columbia/HCA affiliates were negotiated on an arms-length basis. The historical
results of operations attributable to the terminated CHHC contracts may not
therefore be indicative of future results of operations. For the year ended
December 31, 1997 and the three months ended December 31, 1996, the Company
derived 48% and 39%, respectively, of its total net revenues from contracts with
affiliates of Columbia/HCA. The loss of any of the Columbia/HCA contracts could
have a material adverse impact on the Company's business, financial condition
and results of operations.
The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total amount of research and development expense will continue to increase, but
should decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. As of
December 31, 1997 and 1996, the Company capitalized $616,000 and $0,
respectively, of computer software development costs.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
from the consolidated statements of operations expressed as a percentage of
total net revenues. The Company's historical operating results are not
necessarily indicative of the results for any future period.
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Year Ended December 31,
-----------------------
1997 1996 1995
----- ----- -----
Percentage of Net Revenues:
Net revenues:
Software and services 58.3 % 58.9 % 40.7 %
Agency support 31.3 28.2 59.3
Consulting services 10.4 12.9 --
----- ----- -----
Total net revenues 100.0 100.0 100.0
Costs and expenses:
Costs of revenues 48.4 56.5 61.7
Selling, general and administrative 26.6 27.1 23.4
Research and development 14.2 21.8 22.1
Amortization and depreciation 3.6 3.0 --
Purchased in-process research and
development 17.3 48.4 --
Severance and other restructuring
charges -- 4.7 --
----- ----- -----
Total costs and expenses 110.1 161.5 107.2
----- ----- -----
Loss from operations (10.1) (61.5) (7.2)
Other income (expense):
Interest expense (0.5) (0.5) --
Interest and other income 1.0 0.8 --
===== ===== =====
Net loss (9.6)% (61.2)% (7.2)%
===== ===== =====
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Revenues. Total net revenues increased $20.9 million, or 80.4%, to
$46.9 million in 1997 from $26.0 million in 1996. This increase in total net
revenues includes $11.7 million attributable to the business acquired in the
IMHI Acquisition which was completed in October 1996, $16.4 million in
additional revenues from contracts with affiliates of Columbia/HCA and a
decrease of $12.0 million resulting from the termination of contracts with home
health care agencies wholly-owned by CHHC. The remaining increase was
principally attributable to revenues from new customers.
Net revenues from Software and Services include revenues from the
Company's Shared Resource and In-House Solutions including software licenses,
service fees, computer hardware sales, software support, implementation,
training and technical consulting services. These revenues increased $12.1
million, or 79.1%, to $27.4 million in 1997 from $15.3 million in 1996. This
increase is primarily attributable to the business acquired in the IMHI
Acquisition.
Net revenues from Agency Support increased $7.4 million, or 101.4%, to
$14.7 million in 1997 from $7.3 million in 1996. This increase includes $10.0
million in additional revenues from contracts with affiliates of Columbia/HCA
and a decrease of $1.3 million resulting from the termination of contracts with
home health care agencies wholly-owned by CHHC.
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Net revenues from Consulting Services increased $1.5 million, or 44.1%,
to $4.9 million in 1997 from $3.4 million in 1996 and was attributable to
revenues from new customers.
Cost of Revenues. Cost of revenues increased $8.0 million, or 54.4%, to
$22.7 million in 1997 from $14.7 million in 1996. As a percentage of total net
revenues, cost of revenues decreased to 48.4% in 1997 from 56.5% in 1996. This
dollar increase includes $3.3 million in costs attributable to the business
acquired in the IMHI Acquisition and the remaining increase primarily results
from the increased cost of personnel and the cost of computer and communication
technology. The reduction as a percentage of total net revenues is principally
due to the higher margins related to the business acquired in the IMHI
Acquisition, and increased margins derived from new customers.
Selling, General and Administrative. Selling, general and
administrative expenses increased $5.5 million to $12.5 million in 1997 from
$7.0 million in 1996. As a percentage of total net revenues, selling, general
and administrative expenses were 26.6% in 1997 and 27.1% in 1996. This dollar
increase was attributable to approximately $3.8 million in costs related to the
business acquired in the IMHI Acquisition and the remainder principally relates
to increased administrative personnel to support growth.
Research and Development. Research and development expenses increased
$1 million to $6.7 million in 1997 from $5.7 million in 1996. As a percentage of
total net revenues, research and development expenses decreased to 14.2% in 1997
from 21.8% in 1996. This dollar increase was attributable principally to the
business acquired in the IMHI Acquisition. During 1997, the Company capitalized
approximately $600,000 of software development costs. The Company anticipates
that the total dollar amount of research and development expense will continue
to increase although such expenses should not increase as a percentage of total
net revenues assuming that the Company's revenues continue to increase in the
future.
Amortization and Depreciation. Amortization and depreciation increased
by approximately $900,000 to $1.7 million in 1997 from $800,000 in 1996. This
increase includes approximately $600,000 of amortization expenses attributable
to the IMHI Acquisition in October 1996 and approximately $300,000 associated
with the depreciation and amortization of purchased software, furniture, and
equipment acquired in 1997.
Purchased In-Process Research and Development. In connection with the
Dezine Acquisition in 1997, the purchase price of $9.4 million was allocated
based on relative fair value of the assets acquired and liabilities assumed.
Pursuant to a study conducted by an independent third party valuation firm, $8.1
million related to the Dezine Acquisition purchase price was allocated to
purchased in-process research and development and, in accordance with generally
accepted accounting principles, was charged to operations as it was not deemed
to have reached technological feasibility and had no alternative future use.
Additionally, the Company has a two year plan for the expansion of the DME
product line, to include a Windows based graphical user interface/open system.
It is anticipated that the Company will incur approximately $1.5 to $2.5 million
of direct research and development expenses in connection with the completion of
its DME development plans.
In connection with the IMHI Acquisition in 1996, the purchase price of
$16.8 million was allocated based on relative fair value of the assets acquired
and liabilities assumed. Pursuant to a study conducted by an independent third
party valuation firm, $12.6 million related to the IMHI Acquisition purchase
price was allocated to purchased in-process research and development and, in
accordance with generally accepted accounting principles, was charged to
operations as it was not deemed to have reached technological feasibility and
had no alternative future use. Subsequent to the IMHI Acquisition, the Company
completed the development of certain in-process versions of software products,
SC STATScan and SC TELTime, and has scheduled further enhancements to each of
these products.
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Severance and Other Restructuring Charges. As a result of the change in
focus of the Company's business from providing services to affiliates of CHHC,
the Company incurred severance and certain other restructuring costs totaling
$1.2 million in the fourth quarter of 1996. These expenses primarily relate to
the severance of several key employees and costs to buyout a lease of equipment
no longer useful to the Company.
Other Income (Expense). Interest expense relates to the borrowings
under the Company's line of credit agreements and capital lease obligations and
increased by $100,000 to $200,000 in 1997 from $100,000 in 1996. This increase
is principally attributable to the increased borrowings under the line of credit
agreements. Interest and other income consist principally of interest income
related to the Company's short term cash and restricted cash investments and
increased by $300,000 to $500,000 in 1997 from $200,000 in 1996. This increase
is principally attributable to the interest received on the $17.7 million in net
proceeds from the issuance and sale of 2,000,000 shares of Common Stock at
$10.00 per share in July 1997, pursuant to a Registration Statement on Form S-1
filed with the Securities and Exchange Commission.
Income Taxes. The Company has not incurred or paid any income taxes
since its inception. At December 31, 1997, the Company had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $4.6 million,
such losses expire $1,824,000 in 2010 and $2,816,000 in 2011, if not utilized.
The Company also has research and development and alternative minimum tax
credits ("tax credits") of approximately $96,000 available to reduce future
income tax liabilities. The Tax Reform Act of 1986, as amended, contains
provisions that limit the NOL and tax credit carryforwards available to be used
in any given year when certain events occur, including additional sales of
equity securities and other changes in ownership. As a result, certain of the
NOL and tax credit carryforwards may be limited as to their utilization in any
year. The Company has concluded that it is more likely than not that these NOL
and tax credit carryforwards will not be realized based on a weighing of
available evidence at December 31, 1997, and as a result a 100% deferred tax
valuation allowance has been recorded against these assets. Of the $4.4 million
net deferred tax asset at December 31, 1997, approximately $500,000 relates to
the IMHI Acquisition and, if and when realized, will result in a credit to
intangible assets recorded in the acquisition.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Revenues. Total net revenues increased $12.8 million, or 97.0%, to
$26.0 million in 1996 from $13.2 million in 1995. This increase in total net
revenues includes $3.4 million attributable to the business acquired in the
Simione & Simione acquisition (the "Simione Acquisition") which was completed in
January 1996, $2.4 million attributable to the business acquired in the IMHI
Acquisition which was completed in October 1996, a net increase of $3.0 million
in revenues from contracts with affiliates of CHHC, and the remaining increase
principally attributable to revenues from new customers.
Net revenues from Software and Services include revenues from the
Company's Shared Resource and In-House Solutions including software licenses,
service fees, computer hardware sales, software support, implementation,
training and technical consulting services. These revenues increased $9.9
million, or 183.3%, to $15.3 million in 1996 from $5.4 million in 1995. This
increase includes $2.5 million attributable to the business acquired in the IMHI
Acquisition, $5.4 million from contracts with affiliates of CHHC, and the
remaining increase primarily attributable to revenues from new customers.
Net revenues from Agency Support decreased $500,000, or 6.4%, to $7.3
million in 1996 from $7.8 million in 1995. This decrease includes an increase of
$3.8 million in revenues from new and existing customers offset by decreases of
$2.4 million from agency support revenues from affiliates of CHHC, and $1.9
million in agency support revenues from Healthfield, Inc. See Note 15 to Notes
to Consolidated Financial Statements of the Company.
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Net revenues from Consulting Services were approximately $3.4 million
and were attributable entirely to the business acquired in the Simione
Acquisition.
Cost of Revenues. Cost of revenues increased $6.5 million, or 79.3%, to
$14.7 million in 1996 from $8.2 million in 1995. As a percentage of total net
revenues, total cost of revenues decreased to 56.5% in 1996 from 61.7% in 1995.
This dollar increase includes $2.4 million in costs attributable to the business
acquired in the Simione Acquisition, approximately $800,000 in costs
attributable to the business acquired in the IMHI Acquisition and the remaining
increase primarily resulting from the increased cost of computer and
communication technology.
Selling, General and Administrative. Selling, general and
administrative expenses increased $3.9 million to $7.0 million in 1996 from $3.1
million in 1995. As a percentage of total net revenues, selling, general and
administrative expenses were 27.1% in 1996 compared with 23.4% in 1995. These
increases were attributable principally to approximately $1.1 million in costs
related to the business acquired in the IMHI Acquisition and an increase of $1.2
million in sales and marketing costs primarily associated with the marketing
rollout of the Company's NAHC IS product which was released in late 1996. The
remaining increase relates to additional salary and benefit costs as well as
administrative infrastructure costs associated with establishing the Company as
a separate business entity from CHHC.
Research and Development. Research and development expenses increased
$2.8 million to $5.7 million in 1996 from $2.9 million in 1995. As a percentage
of total net revenues, research and development expenses remained relatively
constant at 21.8% in 1996 and 22.1% in 1995. The dollar increase was
attributable principally to $1.2 million in increased salary and benefit costs
associated with the Company's software enhancement efforts and approximately
$400,000 related to the business acquired in the IMHI Acquisition.
Amortization and Depreciation. Amortization and depreciation for 1996
includes approximately $200,000 attributable to the Simione Acquisition in
January 1996, approximately $200,000, representing three months' amortization,
attributable to the IMHI Acquisition in October 1996, and approximately $400,000
associated with the depreciation and amortization of purchased software,
furniture, and equipment acquired in 1996.
Purchased In-Process Research and Development. In connection with the
IMHI Acquisition, the purchase price of $16.8 million was allocated based on
relative fair value of the assets acquired and liabilities assumed. Pursuant to
a study conducted by an independent third party valuation firm, $12.6 million of
the purchase price was allocated to purchased in-process research and
development and, in accordance with generally accepted accounting principles,
was charged to operations as it was not deemed to have reached technological
feasibility and had no alternative future use.
Severance and Other Restructuring Charges. As a result of the change in
focus of the Company's business from providing services to affiliates of CHHC,
the Company incurred severance and certain other restructuring costs totaling
$1.2 million in the fourth quarter of 1996. These expenses primarily relate to
the severance of several key employees and costs to buyout a lease of equipment
no longer useful to the Company.
Other Income (Expense). Interest expense in 1996 of approximately
$100,000 resulted from borrowings under the Company's line of credit agreements
and capital lease obligations. Interest income of approximately $200,000 in 1996
resulted from interest earned on stock subscription receivables and cash
balances.
Income Taxes. At December 31, 1996, the Company had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $6.0 million,
which will expire at various dates through 2011, if not utilized. The Company
also had research and development and alternative minimum tax credits ("tax
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credits") of approximately $96,000 available to reduce future income tax
liabilities. Certain of the NOL and tax credit carryforwards may be limited as
to their utilization in any year. The Company concluded that it is more likely
than not that these NOL and tax credit carryforwards would not be realized based
on a weighing of available evidence at December 31, 1996, and as a result a 100%
deferred tax valuation allowance was recorded against these assets.
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. The Company believes that
the timing of potential future acquisitions may cause fluctuations in its
quarterly operating results. Additionally, revenues can be expected to vary
significantly as a result of acceleration or delay of system implementations due
to customer requirements or other factors beyond the Company's control,
fluctuations in demand for existing systems and services and the Company's
ability to manage successfully any future growth. The sales cycles related to
its systems offerings and agency support contracts can be long and difficult to
predict, resulting in variability of revenues. The unpredictability of revenues
could in any quarter result in a shortfall relative to quarterly expectations.
Many other factors may contribute to fluctuations in the Company's operating
results. Accordingly, the Company believes that period-to-period comparisons of
results of operations are not necessarily meaningful and should not be relied
upon as any indication of future performance.
The following table sets forth certain unaudited consolidated quarterly
financial data for each of the eight quarters for the period ended December 31,
1997. This information is unaudited, but, in the opinion of the Company's
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the information in accordance
with generally accepted accounting principles. These quarterly results of
operations are not necessarily indicative of future operating results.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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FISCAL YEAR 1997(1) FISCAL YEAR 1996(1)
-------------------------------------------- --------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Software and services $ 5,682 $ 6,480 $ 7,467 $ 7,727 $ 3,362 $ 3,302 $ 3,680 $ 4,964
Agency Support 4,552 3,615 3,435 3,078 946 1,079 995 4,304
Consulting services 1,194 1,145 1,207 1,363 858 966 844 695
------- ------- ------- ------- ------- ------- ------- --------
Total net revenues 11,428 11,240 12,109 12,168 5,166 5,347 5,519 9,963
Costs and expenses:
Costs of revenues 5,473 5,142 5,516 6,584 3,219 3,213 3,254 5,012
Selling, general and
administrative 3,083 3,381 3,320 2,725 1,138 1,164 1,354 3,381
Research and development 1,756 1,686 1,731 1,496 1,114 1,234 1,333 1,996
Amortization and depreciation 424 403 411 476 104 128 130 423
Purchased in-process research
and development -- -- -- 8,127 -- -- -- 12,574
Severance and other
restructuring charges -- -- -- -- -- -- -- 1,215
------- ------- ------- ------- ------- ------- ------- --------
Total costs and expenses 10,736 10,612 10,978 19,408 5,575 5,739 6,071 24,601
------- ------- ------- ------- ------- ------- ------- --------
Income (loss) from operations 692 628 1,131 (7,240) (409) (392) (552) (14,638)
Other income (expense):
Interest expense (77) (68) (41) (29) (4) (21) (27) (63)
Interest and other income 28 17 202 243 18 68 59 62
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss) $ 643 $ 577 $ 1,292 $(7,026) $ (395) $ (345) $ (520) $(14,639)
======= ======= ======= ======= ======= ======= ======= ========
Net income (loss) per share
- basic (2) $ 0.11 $ 0.10 $ 0.16 $ (0.83) $ (0.12) $ (0.09) $ (0.13) $ (2.47)
======= ======= ======= ======= ======= ======= ======= ========
Weighted average common shares
- basic (2) 5,977 6,027 8,216 8,515 3,284 3,959 3,959 5,926
======= ======= ======= ======= ======= ======= ======= ========
Net income (loss) per share
- diluted (2) $ 0.09 $ 0.08 $ 0.14 $ (0.83) $ (0.12) $ (0.09) $ (0.13) $ (2.47)
======= ======= ======= ======= ======= ======= ======= ========
Weighted average common shares
and common equivalent shares
- diluted (2) 7,364 7,234 9,052 8,515 3,284 3,959 3,959 5,926
======= ======= ======= ======= ======= ======= ======= ========
(1) Certain amounts in both 1996 and 1997 quarterly statements of
operations have been reclassified to conform with the presentation of
the 1997 audited consolidated financial statements.
(2) All amounts have been restated in accordance with FAS 128.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through its spinoff in January 1996, the Company
principally funded its operations through borrowings of $3.5 million from CHS.
In November 1995, CHHC made a capital contribution of $2.4 million to the
Company which was then used to repay indebtedness owed to CHS. During 1996, the
Company repaid the remaining $1.1 million of indebtedness owed to CHS.
In January 1996, CHHC made a cash capital contribution of $4.0 million
to the Company. Additionally, in March 1996, the Company issued common stock
that netted $3.1 million - $2.2 million of which was collected in 1996 and
$900,000 of which was collected in 1997.
In January 1996, the Company established lines of credit in the
aggregate amount of $2.5 million. These lines of credit had been fully drawn as
of December 31, 1996. During 1997, the Company repaid these lines of credit and
terminated them.
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In June 1997, the Company established a revolving credit facility
pursuant to which the maximum principal amount at any time outstanding could not
exceed the lesser of $5 million or the "Borrowing Base" (as defined in the
revolving credit facility agreement).
In July 1997, the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission and sold 2,000,000 shares of its
Common Stock for $10.00 per share and received approximately $17.7 million in
net cash proceeds. The Company intends to use the net proceeds from this
offering for general corporate purposes and working capital, including potential
strategic acquisitions.
The cumulative proceeds from the Company's equity infusions and debt
financing have provided sufficient funds to support the Company's operating
activities. As of December 31, 1997, the Company had cash and cash equivalents
of $8.3 million.
The Company made capital expenditures (including capital leases)
totaling approximately $1.2 million, $1.3 million and $400,000 during 1997,
1996, and 1995, respectively. In January 1996, the Company completed the Simione
Acquisition for $2.0 million in cash. In October 1996, the Company completed the
IMHI Acquisition resulting in an increased cash balance of approximately
$700,000. In December 1997, the Company completed the Dezine Acquisition for a
purchase price of $9.4 million.
As of December 31, 1997, the Company had working capital of $9.0
million. The Company's current liabilities as of December 31, 1997 include
customer deposits of $1.5 million and unearned revenues of $1.5 million.
The Company believes that its available cash, cash equivalents and cash
to be generated from its future results of operations will be sufficient to meet
the Company's operating requirements, assuming no change in the operation of the
Company's business, for at least the next twelve months.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), which changes the current method of computing earnings per share.
SFAS 128 requires presentation of basic earnings per share and diluted earnings
per share amounts, as defined. See Note 1 in the Notes to Consolidated Financial
Statements. SFAS 128 is effective for the Company's year ending December 31,
1997, and all prior-period earnings per share data presented have been restated
to conform with the provisions of the new pronouncement.
In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. SFAS 130 is effective for fiscal years beginning after
December 15, 1997.
In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS 131 requires reporting segment profit or loss,
certain specific revenue and expense items, and segment assets. It requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding
amounts in the enterprise's general-purpose financial
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statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier periods is to
be restated.
The Company intends to adopt the provisions of SFAS 130 and 131 in 1998
and does not expect their application to have a material impact on the financial
statements of the Company.
In October 1997 the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), which supersedes SOP 91-1 and is effective for transactions
entered into for fiscal years beginning after December 15, 1997. While some
principles remain the same, there are several key differences between the two
pronouncements, including accounting for multiple element arrangements. SOP 97-2
addresses revenue recognition from a conceptual level and does not specifically
provide implementation guidance. The Company is evaluating the impact of
adopting SOP 97-2; however, at this time, the Company believes that this
Statement will have no material impact on the financial statements of the
Company.
YEAR 2000 ISSUE
The Company is in the process of analyzing Year 2000 issues with
respect to the Company's products and software used internally. The Company has
developed and is implementing a plan to resolve Year 2000 compliance issues with
respect to its products. At this time, the Company does not believe that it will
need to modify or replace significant portions of its internally used software
so that its computer systems will function properly with respect to dates in the
Year 2000 and beyond. The Company has initiated discussions with its significant
vendors to ensure that they have appropriate plans to remediate potential Year
2000 issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective January 23, 1997, the Company appointed Ernst & Young LLP as
the Company's independent accountants for the fiscal year ended December 31,
1996 and replaced Arthur Andersen LLP. The decision to change accountants was
approved by the Audit Committee of the Board of Directors of the Company acting
pursuant to authority granted by the Board of Directors.
Arthur Andersen LLP's reports on IMHI's Financial Statements during the
three years ended June 30, 1996 contained no adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the last three fiscal years ended June 30, 1996, there were no
disagreements between IMHI and Arthur Andersen LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to IMHI during the last three fiscal years
or in the subsequent interim period to the date hereof.
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During the last three fiscal years and subsequent interim period to the
date hereof, the Company did not consult with Ernst & Young LLP regarding any of
the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
With the exception of information relating to the executive officers of
the Company which is provided in Part I hereof, all information required by Part
III (Items 10, 11, 12 and 13) is incorporated by reference to the Company's
definitive proxy statement relating to the 1998 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. See Index to Consolidated
Financial Statements on Page F-1 hereof.
2. Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
Certain financial statement schedules have been
omitted because they are not applicable.
3. Exhibits Incorporated by Reference or Filed with this
Report.
The following exhibits are filed as part of this Report. Where such
filing is made by incorporation by reference to a previously filed statement or
report, such statement or report is identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 -- Asset Purchase Agreement dated as of December 17, 1997 by and
among DHS Acquisition, L.L.C., the Company, Dezine Healthcare
Solutions, Inc. and Companion Technologies Corporation
(Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated December 31, 1997 as filed
with the Securities and Exchange Commission).
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as filed
with the Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).
3.3 -- Certificate of Amendment of the Certificate of Incorporation
of Simione Central Holdings, Inc., filed June 30, 1997 with
the Secretary of State of the State of Delaware (Incorporated
by reference to Exhibit 3.3 of the Company's Current Report on
Form 8-K dated July 9, 1997 as filed with the Securities and
Exchange Commission).
3.4 -- Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.3 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.5 -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference to
Exhibit 3.5 of 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).
4.1 -- Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
4.2 -- See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the
Company's Certificate of Incorporation and Bylaws governing
the rights of holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those stockholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those stockholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
9.1 -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A. Curtis
Eade, James A. Tramonte, John Isett, Cindy Lumpkin, Douglas E.
Caddell, Robert J. Simione, Kenneth L. Wall, Allen K. Seibert,
III, Jerry Sevy, Larry Clark and Lori N. Siegel, Gary M.
Bremer, Richard A. Parlontieri, and James R. Henderson
(Incorporated by reference to Exhibit 9.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996 as filed with the Securities and Exchange
Commission).
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated October
8, 1996 as filed with the Securities and Exchange Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as of
September 5, 1996 by and among InfoMed Holdings, Inc., Simione
Central Holding, Inc. and InfoSub, Inc. (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated September 5, 1996 as filed with the Securities
and Exchange Commission).
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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
Exhibit 10.3 of 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 Exhibit 10.4 of
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 -- Settlement Agreement, dated February 28, 1995, between
InfoMed Holdings, Inc. and Frederick Neufeld (Incorporated by
reference to Exhibit 5.5 of the Company's Current Report on
Form 8-K dated March 7, 1995 as filed with the Securities and
Exchange Commission).
10.6 -- 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 Exhibit 10.6 of 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).
10.7 -- Form of 1996 Non-Qualified Stock Option Agreement dated
September 4, 1996 between Simione Central Holding, Inc. and
each of Gary M. Bremer, James A. Tramonte, Gary W. Rasmussen,
Don VanderBeke and Lori N. Siegel (Incorporated by reference
to Exhibit 10.7 of 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 -- Form of Stock Option Agreement dated October 7, 1996 between
InfoMed Holdings, Inc., and Reid Horovitz, Zola Horovitz,
O'Donnell Davis, Inc., EGL Holdings, Inc., David O. Ellis,
Erin Dosdourian, Rodger Johnson, Richard V. Lawry, Salvatore
A. Massaro and Murali Anantharaman (Incorporated by reference
to Exhibit 10.8 of 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).
30
34
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.9 -- 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).
10.10 -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended (Incorporated by reference to
Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.11 -- Simione Central Holdings, Inc. Section 125 Plan effective date
January 1, 1997 sponsored by the Company (Incorporated by
reference to Exhibit 10.11 of 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).
10.12 -- Headquarters at Gateway Lake Lease Agreement dated January 1,
1996 by and between Gateway LLC and InfoMed Holdings, Inc.
(Incorporated by reference to Exhibit 10.54 of 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).
10.13 -- Sublease dated November 22, 1996 between Environmental Design
International, Ltd. and Simione Central, Inc. (Incorporated by
reference to Exhibit 10.13 of 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).
10.14* -- Lease Amendment dated August 7, 1992 by and between Sugar Land
Plaza Building Corporation and Medical Solutions, Inc.
10.15* -- Lease dated August 13, 1992 between Unum Life Insurance
Company of America and Dezine Associates, Inc.
10.16* -- Indenture of Lease dated January 1, 1998 by and between S&S
Realty and Simione Central Consulting, Inc.
10.17* -- Lease dated December 18, 1996 by and between Resurgens Plaza
South Associates, L.P. and Simione Central, Inc.
10.18 -- Executive Employment Agreement dated December 10, 1996 between
InfoMed Holdings, Inc. and Gary M. Bremer (Incorporated by
reference to Exhibit 10.15 of 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 -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr.
(Incorporated by reference to Exhibit 10.16 of 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 -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc. and EGL Holdings, Inc. (Incorporated by
reference to Exhibit 10.17 of 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).
31
35
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.21 -- Information Systems Management Agreement dated January 4,
1996 between Integrated Systems Solutions Corporation and
Central Health Management Services, Inc. (Incorporated by
reference to Exhibit 10.18 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 as filed
with the Securities and Exchange Commission).
10.22 -- Micronetics Design Corporation Value Added Reseller Agreement
Renewal dated July 10, 1996 between Micronetics Design
Corporation and InfoMed Holdings, Inc. (Incorporated by
reference to Exhibit 10.19 of 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).
10.23 -- 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 Exhibit
10.20 of 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).
10.24 -- Guaranty Agreement dated October 31, 1996 by Simione Central,
Inc. in favor of HCA, Inc. (Incorporated by reference to
Exhibit 10.21 of 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).
10.25 -- Lease Agreement dated March 18, 1996 between National Leasing,
Inc. and Simione Central, Inc. (Incorporated by reference to
Exhibit 10.22 of 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).
10.26 -- IBM Vendor Marketing Programs Cooperative Services Marketing
Agreement dated December 16, 1996 between IBM Corporation and
Simione Central Holding, Inc. (Incorporated by reference to
Exhibit 10.23 of 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).
10.27 -- Loan and Security Agreement by and between National Bank of
Canada and the Company, 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 27, 1997 as filed with the Securities
and Exchange Commission).
10.28 -- 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).
10.29 -- Simione Central Holdings, Inc. Omnibus Equity-based Incentive
Plan (Incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-1 (Registration
Number 333-25551) as filed with the Securities and Exchange
Commission).
10.30 -- Simione Central Holdings, Inc. 1997 Non-Qualified Formula
Stock Option Plan (Incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-1
(Registration Number 333-25551) as filed with the Securities
and Exchange Commission).
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 January 27, 1997 as filed with the Securities
and Exchange Commission).
21.1* -- Subsidiaries of the Company.
32
36
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
23.1* -- Consent of Ernst & Young LLP.
27.1* -- Financial Data Schedule (for SEC use only).
27.2* -- Restated Financial Data Schedule (for SEC use only).
27.3* -- Restated Financial Data Schedule (for SEC use only).
27.4* -- Restated Financial Data Schedule (for SEC use only).
- ----------
* Filed herewith
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated December 31, 1997
announcing the acquisition of substantially all of the assets of Dezine
Healthcare Solutions, Inc., a South Carolina corporation, for $9,500,000 by the
Company's wholly-owned subsidiary, DHS Acquisition L.L.C., a Georgia limited
liability company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
33
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIMIONE CENTRAL HOLDINGS, INC.
By: /s/ James R. Henderson
James R. Henderson
President and Chief Executive Officer
Date: March 26, 1998
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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ James R. Henderson President, Chief Executive Officer March 26, 1998
- ------------------------------ and Director (Principal Executive
James R. Henderson Officer)
/s/ Lori Nadler Siegel Chief Financial Officer and Treasurer March 26, 1998
- ------------------------------ (Principal Financial and Accounting
Lori Nadler Siegel Officer)
/s/ Gary M. Bremer Chairman of the Board March 26, 1998
- ------------------------------
Gary M. Bremer
/s/ William J. Simione, Jr. Vice Chairman of the Board and March 26, 1998
- ------------------------------ Executive Vice President
William J. Simione, Jr.
/s/ Murali Anantharaman Director March 26, 1998
- ------------------------------
Murali Anantharaman
/s/ James A. Gilbert Director March 26, 1998
- ------------------------------
James A. Gilbert
/s/ Richard D. Jackson Director March 26, 1998
- ------------------------------
Richard D. Jackson
/s/ Barrett C. O'Donnell Director March 26, 1998
- ------------------------------
Barrett C. O'Donnell
34
38
SIMIONE CENTRAL HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors F-2
Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the three years ended
December 31, 1997 F-4
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1997 F-5
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
39
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Simione
Central Holdings, Inc. as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
include the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simione Central Holdings, Inc. as of December 31, 1997 and 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
February 23, 1998
F-2
40
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,266,860 $ 3,384,728
Accounts receivable, net of allowance for doubtful
accounts of $1,915,000 and $1,063,000, respectively 9,025,666 5,651,415
Prepaid expenses and other current assets 1,157,168 870,729
------------ ------------
Total current assets 18,449,694 9,906,872
Purchased software, furniture and equipment, net 2,365,508 1,867,996
Intangible assets, net 7,448,911 5,922,755
Other assets including restricted cash at December 31, 1996 655,377 1,078,056
------------ ------------
Total assets $ 28,919,490 $ 18,775,679
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 773,599 $ --
Accounts payable 1,876,688 3,199,353
Accrued compensation expense 560,334 666,650
Accrued liabilities 3,174,762 3,251,636
Customer deposits 1,460,653 1,679,565
Unearned revenues 1,527,173 2,006,044
Current portion of capital lease obligations 57,622 306,466
------------ ------------
Total current liabilities 9,430,831 11,109,714
Notes payable and capital lease obligations,
less current portion -- 2,986,267
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000
shares authorized; none
issued or outstanding -- --
Common stock, $.001 par value; 20,000,000 shares
authorized; 8,522,978 and 5,952,166 shares issued and outstanding
at December 31, 1997 and 1996, respectively 8,523 5,952
Additional paid-in capital 41,686,109 23,216,050
Stock subscription receivable -- (850,000)
Accumulated deficit (22,205,973) (17,692,304)
------------ ------------
Total shareholders' equity 19,488,659 4,679,698
------------ ------------
Total liabilities and shareholders' equity $ 28,919,490 $ 18,775,679
============ ============
See notes to consolidated financial statements
F-3
41
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
----------- ------------ -----------
Net revenues:
Software and services $27,355,995 $ 15,307,906 $ 5,387,044
Agency support 14,680,310 7,323,540 7,834,999
Consulting services 4,908,965 3,363,195 --
----------- ------------ -----------
Total net revenues 46,945,270 25,994,641 13,222,043
Costs and expenses:
Cost of revenues 22,715,095 14,698,177 8,153,914
Selling, general and administrative 12,508,512 7,037,446 3,095,293
Research and development 6,669,500 5,676,898 2,928,961
Amortization and depreciation 1,714,207 784,502 --
Purchased in-process research and
development 8,126,947 12,573,931 --
Severance and other restructuring
charges -- 1,214,669 --
----------- ------------ -----------
Total costs and expenses 51,734,261 41,985,623 14,178,168
----------- ------------ -----------
Loss from operations (4,788,991) (15,990,982) (956,125)
Other income (expense):
Interest expense (214,508) (114,817) --
Interest and other income 489,830 206,902 --
----------- ------------ -----------
Net loss $(4,513,669) $(15,898,897) $ (956,125)
=========== ============ ===========
Net loss per share - basic and diluted $ (0.63) $ (3.71) $ (0.32)
=========== ============ ===========
Weighted average common shares - basic and diluted 7,164,398 4,287,956 2,994,856
=========== ============ ===========
See notes to consolidated financial statements
F-4
42
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
ADDITIONAL STOCK TOTAL
COMMON PAID-IN SUBSCRIPTION ACCUMULATED SHAREHOLDERS'
SHARES STOCK CAPITAL RECEIVABLE DEFICIT EQUITY
--------- ----------- ----------- ------------ ------------ ------------
Balance at January 1, 1995 11 $ -- $ -- $ -- $ (837,282) $ (837,282)
Capital contribution from
former parent company -- 2,443,013 -- -- -- 2,443,013
Net Loss -- -- -- -- (956,125) (956,125)
--------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1995 11 2,443,013 -- -- (1,793,407) 649,606
Capital contribution from
former parent company -- 4,000,000 -- -- -- 4,000,000
Distribution of 2,994,856
shares of no par common
stock and cancellation of
11 shares of common stock
held by CHHC 2,994,845 -- -- -- -- --
Issuance of 964,418 shares
of no par Class A common stock 964,418 3,051,369 -- (850,000) -- 2,201,369
Purchase and cancellation of
918 shares of no par
Class A common stock not
exchanged in reverse
acquisition (918) (9,866) -- -- -- (9,866)
Exchange of 3,958,356 shares
of no par Class A and B
common stock for 3,958,356
shares of IMHI $.001 par
value common stock -- (9,480,558) 9,480,558 -- -- --
Issuance of 1,949,269 shares
of IMHI $.001 par value
common stock for purchase
of IMHI in reverse
acquisition 1,949,269 1,949 13,514,288 -- -- 13,516,237
Issuance of 44,541 shares of
$.001 par value common
stock as compensation and
from exercise of stock
options and warrants 44,541 45 221,204 -- -- 221,249
Net loss -- -- -- -- (15,898,897) (15,898,897)
--------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1996 5,952,166 5,952 23,216,050 (850,000) (17,692,304) 4,679,698
Issuance of 555,259 shares of
$.001 par value common
stock from exercise of stock
options and warrants 555,259 555 548,403 -- -- 548,958
Issuance of 15,553 shares
of $.001 par value
common stock in connection
with an acquisition 15,553 16 199,984 -- -- 200,000
Issuance of 2,000,000 shares of
$.001 par value common
stock, net of offering costs 2,000,000 2,000 17,721,672 -- -- 17,723,672
Payment of stock subscription -- -- -- 850,000 -- 850,000
Net loss -- -- -- -- (4,513,669) (4,513,669)
--------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1997 8,522,978 $ 8,523 $41,686,109 $ -- $(22,205,973) $ 19,488,659
========= =========== =========== ========= ============ ============
See notes to consolidated financial statements
F-5
43
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
------------- ------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,513,669) $ (15,898,897) $ (956,125)
Adjustments to reconcile net loss to net
cash used in operating activities:
Purchased in-process research and
development 8,126,947 12,573,931 --
Provision for doubtful accounts 1,329,563 395,046 --
Amortization and depreciation 1,714,207 784,502 --
Value assigned to stock purchase warrant -- 100,000 --
Stock compensation expense -- 58,500 --
Loss on sale of assets 25,887 3,636 --
Changes in assets and liabilities:
Accounts receivable (3,919,939) (3,305,003) 95,360
Prepaid expenses and other current assets (29,355) (553,630) (47,017)
Other assets (577,322) (26,925) --
Accounts payable (1,598,616) 2,264,539 (11,414)
Accrued compensation expense (106,316) 142,867 23,158
Accrued liabilities (525,519) 768,284 (7,771)
Customer deposits (218,912) 272,724 --
Unearned revenues (1,150,135) 616,518 --
------------- ------------- -----------
Net cash used in operating
activities (1,443,179) (1,803,908) (903,809)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies, net of cash acquired (9,807,587) (1,249,798) --
Purchase of software, furniture and
equipment (915,581) (635,997) (424,000)
Decrease (increase) in restricted cash 1,000,000 (1,000,000) --
Increase in other intangible assets (585,000) (64,123) --
------------- ------------- -----------
Net cash used in investing activities (10,308,168) (2,949,918) (424,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former
parent company -- 4,000,000 --
Proceeds from repayment of stock subscription 850,000 -- --
Proceeds from (payments on) notes payable (1,726,201) 2,499,800 --
Issuance of common stock, net of
cash expenses 17,723,672 2,191,503 --
Advances from (payments to) former
parent company -- (1,076,855) 1,440,309
Repayment (issuance) of note receivable
from officer -- 252,075 (252,075)
Payments on capital lease obligations (732,778) (45,741) --
Payments of related party notes (30,172) (68,000) --
Proceeds from exercise of stock options
and warrants 548,958 62,749 --
------------- ------------- -----------
Net cash provided by financing activities 16,633,479 7,815,531 1,188,234
------------- ------------- -----------
Net increase (decrease) in cash
and cash equivalents 4,882,132 3,061,705 (139,575)
Cash and cash equivalents, beginning of year 3,384,728 323,023 462,598
------------- ------------- -----------
Cash and cash equivalents, end of year $ 8,266,860 $ 3,384,728 $ 323,023
============= ============= ===========
Supplemental disclosure of non-cash
investing and financing activities:
Capital contribution from former
parent company $ -- $ -- $ 2,443,013
Software, furniture and equipment
obtained through capital lease $ -- $ 690,490 $ --
See notes to consolidated financial statements
F-6
44
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Background: Incorporated in September 1991, as a wholly-owned
subsidiary of Central Health Holding Company, Inc. ("CHHC"), Central Health
Management Services, Inc. ("CHMS") provided information and management support
services to home health care providers. Central Health Services, Inc. ("CHS"),
also a wholly-owned subsidiary of CHHC, provided similar services to home health
care agencies owned by CHHC. On January 1, 1996, CHHC transferred at book value
the assets and employees related to CHS's information services and certain
clinical and financial support services to CHMS. Accordingly, the consolidated
financial statements for the year ended December 31, 1995 give effect to the
reorganization of these entities under common control and reflect the combined
operating results of CHMS and the transferred CHS operations. On January 17,
1996, CHHC completed a pro-rata distribution of the outstanding common stock of
CHMS to its shareholders.
On October 8, 1996, InfoMed Holdings, Inc. ("IMHI") and CHMS merged in
a transaction accounted for as a reverse acquisition for financial reporting
purposes. In connection with the merger, IMHI issued 3,958,356 shares of its
common stock in exchange for all the outstanding common stock of CHMS, and
thereby, the former shareholders of CHMS acquired control of IMHI. As a result,
CHMS is considered the acquiring company; hence, the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective acquisition
date. On December 19, 1996, IMHI changed its name to Simione Central Holdings,
Inc. (the "Company").
Overview: The Company is a leading provider of integrated systems and
services designed to enable home health care providers to more effectively
operate their businesses and compete in a managed care environment. The Company
offers several comprehensive and flexible software solutions, each of which
provide a core platform of software applications and which incorporate selected
specialized modules based on customer demand. These software solutions are
designed to enable customers to generate and utilize comprehensive financial,
operational and clinical information and are made available to customers in two
arrangements: a Shared Resource Solution or an In-House Solution. The Company's
Shared Resource Solution offers customers an outsourcing opportunity which
incorporates the Company's proprietary software. Under this arrangement, the
Company operates a data center which stores customer data and allows them
real-time, secure access through a wide area communications network. The
Company's In-House Solution is licensed to customers for use on their own
computer systems. In addition to its software solutions and related software
support services, the Company's home health care consulting services assist
providers in addressing the challenges of reducing costs, maintaining quality,
streamlining operations and re-engineering organizational structures. The
Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are derived from shared resource information management
services, agency support services, the licensing and sub-licensing of software,
the sale of computer hardware, professional and technical consulting services,
implementation and training services, software maintenance and support services,
as well as home health care management consulting services. Shared resource
information management and agency support services are provided under
contractual arrangements with terms typically ranging from three to five years.
F-7
45
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION -
(CONTINUED)
To the extent that software and services revenues result from shared
resource information management, software support, implementation, training and
technical consulting services, such revenues are recognized monthly as the
related services are rendered or, for software support revenues, over the term
of the related agreement. To the extent that software and services revenues
result from software licenses, computer hardware and third-party software
revenues, such revenues are recognized when the related products are delivered
and collectibility of fees is determined to be probable, provided that no
significant obligation remains under the contract. Revenues derived from the
sale of software licenses requiring significant modification or customization
are recorded based upon percentage of completion using labor hours or contract
milestones. Agency support and consulting services revenues are recognized
monthly as the related services are performed.
CONCENTRATIONS AND MAJOR CUSTOMERS
The Company sells its systems and services to various companies in the
health care industry. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Current operations are charged with an allowance for doubtful
accounts based upon experience and any unusual circumstances which affect the
collectibility of receivables. Amounts deemed uncollectible are charged against
this allowance.
During 1995 and through October 1996, the Company derived the majority
of its revenue from services provided to its former parent company, see Note 14.
In addition, the Company had other major customers which comprised the following
percentages of total net revenue:
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
Customer A -- -- 14%
Customer B 48% 22% --
The Company is dependent upon certain third party software arrangements
as well as certain contractual arrangements for provision of certain of its
services, see Note 16.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
RESTRICTED CASH
The Company's restricted cash at December 31, 1996 of $1,000,000 was
invested in a certificate of deposit and secured $1,000,000 of borrowings
outstanding under the Company's lines of credit agreements, see Note 6.
PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment is stated at cost.
Depreciation is calculated for financial reporting purposes using the
straight-line method over the estimated useful lives (ranging from 1 to 10
years) of the assets or lease term, whichever is shorter.
SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of computer
software products are research and development expense and are charged to
expense as incurred. The Company capitalizes costs incurred between the point of
establishing technological feasibility and general release when such costs are
material. The Company capitalized $616,000 of software development costs during
1997. The Company had no capitalized computer software development costs as of
December 31, 1996.
F-8
46
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INTANGIBLE ASSETS
Intangible assets, arising principally from the accounting for acquired
businesses, are amortized using the straight-line method over the estimated
useful lives of the related assets which range from 4 to 11 years. The Company
reviews its long-lived and intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flow from the use of the asset is
less than the carrying amount of the asset. As of December 31, 1997, in the
opinion of management, there has been no such impairment.
INCOME TAXES
The Company accounts for income taxes using the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and the tax bases of assets and liabilities.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average
number of common shares outstanding during the period. The 2,994,856 shares of
Class A common stock issued in the reorganization of the Company on January 17,
1996 (see Note 12) have been treated as outstanding since January 1, 1995. Due
to the net loss incurred by the Company in each year, basic and diluted loss per
share do not differ. Common stock equivalents relate to shares potentially
issuable under outstanding option and warrant agreements and are included in the
diluted loss per share calculation if dilutive.
STOCK BASED COMPENSATION
Stock options are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. The Company has included in these consolidated financial
statements the pro forma disclosure information required by SFAS No. 123, see
Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and restricted cash: The carrying amounts
reported in the balance sheet for cash and cash equivalents and restricted cash
approximate their fair value.
Notes payable: The carrying amounts of the Company's notes payable
approximate their fair value.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of SFAS No. 121 did not
have an impact on the Company's financial statements.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Per share amounts for all
periods have been presented in conformity with SFAS No. 128 requirements.
F-9
47
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
In October 1997 the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition,"
("SOP 97-2"), which supersedes SOP 91-1 and is effective for transactions
entered into for fiscal years beginning after December 15, 1997. While some
principles remain the same, there are several key differences between the two
pronouncements, including accounting for multiple element arrangements. SOP 97-2
addresses revenue recognition from a conceptual level and does not specifically
provide implementation guidance. However the Company certainly believes, based
on its reading and interpretation of SOP 97-2, that future license and services
agreements that require modifications to the software will likely require
contract accounting for both the license fees and services and result in a
deferral of license revenue compared to revenue recognition under SOP 91-1 for
some agreements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1997 financial statement presentation.
2. ACQUISITIONS
Effective January 1, 1996, the Company purchased certain assets of
Simione & Simione, CPA's--Consulting Division (a division of Simione & Simione,
CPAs, a Partnership) ("Simione & Simione") for $2,000,000 in cash. Simione &
Simione provided a wide range of home health care consulting services. This
acquisition was accounted for using the purchase method. The entire purchase
price was allocated to goodwill and is being amortized over 10 years.
On October 8, 1996, IMHI merged with CHMS. IMHI provided a
comprehensive package of software applications for home health care providers
marketed under the name STAT 2. In connection with the acquisition, each issued
and outstanding share of CHMS common stock was converted into and exchanged for
the right to receive .22021 shares of IMHI common stock as of the effective
date. As a result, IMHI issued 3,958,356 shares of common stock to CHMS's
shareholders. In addition, each of the outstanding shares of IMHI Class A
Convertible Preferred Stock was converted into and exchanged for shares of IMHI
common stock and all outstanding options and warrants to purchase CHMS common
stock as of the effective date were converted into the right to purchase shares
of IMHI common stock, provided that the number of shares to be so purchased and
the respective exercise prices thereof have been adjusted by the exchange ratio.
The merger was accounted for as a reverse acquisition under the purchase method
of accounting. As a result, for accounting purposes CHMS was considered as
having acquired IMHI. The historical financial statements of CHMS became the
historical financial statements of IMHI and include the results of operations of
both companies from the effective date. All share amounts have been
retroactively restated giving effect to the .22021 exchange ratio of CHMS shares
for IMHI shares. CHMS had been on a December 31 fiscal year end, and, therefore,
the fiscal year end of IMHI was changed to December 31. Effective December 19,
1996, IMHI changed its name to Simione Central Holdings, Inc. (the "Company").
The purchase price of approximately $16,797,000 (including $760,000 of
acquisition costs and net liabilities assumed of $2,521,000) was allocated based
on the relative fair values of the assets acquired and liabilities assumed.
Approximately $12,574,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$4,223,000 of the purchase price was allocated to certain identifiable
intangible assets and is being amortized over the related assets estimated
useful lives, see Note 5. The purchase price was determined based on the
estimated value of the outstanding 1,949,269 shares of IMHI common stock and
options and warrants to purchase IMHI common stock outstanding at the merger
date.
Effective December 1, 1997, the Company purchased substantially all the
assets of Dezine Healthcare Solutions, Inc. ("Dezine"). Dezine provided a
comprehensive package of software applications for home medical equipment
providers. This acquisition was accounted for using the purchase method. The
purchase price of approximately $9,379,000 (including $200,000 of acquisition
costs and net liabilities assumed of $71,000) was allocated based on the
relative fair values of the assets acquired and liabilities assumed.
Approximately $8,127,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$1,323,000 of the purchase price was allocated to certain identifiable
intangible assets and will be amortized over the related assets estimated useful
lives, see Note 5. The Company's consolidated statement of operations for the
year ended December 31, 1997 includes the operating results of Dezine for the
period December 1, 1997 (the effective date of the Dezine acquisition) to
December 31, 1997.
F-10
48
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. ACQUISITIONS - (CONTINUED)
Pro forma information (unaudited) giving effect to the acquisitions as
if they took place on January 1, 1996, is as follows:
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
Net revenues $53,397,919 $ 42,239,681
Net income (loss) 3,657,552 (23,829,188)
Net income (loss) per share - basic $ 0.51 $ (4.15)
Net income (loss) per share - diluted $ 0.44 $ (4.15)
The 1996 pro forma net loss includes the $8,127,000 charged to
operations for the in-process research and development purchased in the Dezine
acquisition. This pro forma information does not purport to be indicative of the
results that actually would have occurred if the acquisitions had been effective
on January 1, 1996 or which may be obtained in the future.
3. LEASE RECEIVABLES
The Company provides lease financing to certain customers related to
sales of software licenses and computer hardware. Lease terms are generally five
years. Future minimum lease payments under these sales-type leases as of
December 31, 1997, of which the 1998 portion is classified in accounts
receivable, are as follows:
Year Ending December 31,
------------------------
1998 $143,608
1999 29,600
Thereafter 7,193
--------
Future minimum lease payments 180,401
Interest portion (10,094)
--------
Present value of future minimum lease payments $170,307
========
4. PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
DECEMBER 31,
------------
1997 1996
----------- -----------
Equipment $ 1,736,907 $ 855,428
Purchased software 949,203 840,064
Furniture 664,901 491,666
Leasehold improvements 152,472 58,388
----------- -----------
3,503,483 2,245,546
Accumulated depreciation (1,137,975) (377,550)
----------- -----------
$ 2,365,508 $ 1,867,996
=========== ===========
F-11
49
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
DECEMBER 31,
------------ AMORTIZATION
1997 1996 PERIOD
----------- ----------- ------------
Acquired technology $ 2,809,995 $ 2,054,000 4-5 years
Goodwill 3,204,179 2,000,000 9-10 years
Trade name 1,142,000 1,142,000 11 years
Other 1,695,021 1,128,025 6-10 years
----------- -----------
8,851,195 6,324,025
Accumulated amortization (1,402,284) (401,270)
----------- -----------
$ 7,448,911 $ 5,922,755
=========== ===========
6. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
During 1996, a wholly-owned subsidiary of the Company entered into line
of credit agreements with a bank which provided for aggregate borrowing of
$2,500,000. Borrowings under these agreements aggregated $2,499,800 at December
31, 1996, and were secured by a certificate of deposit of $1,000,000, the
subsidiary's accounts receivable, and certain other assets. Additionally,
borrowings under these agreements aggregating $1,500,000 were personally
guaranteed by a major shareholder and executive officer of the Company. During
1997, the Company repaid amounts outstanding under these line of credit
agreements and terminated them accordingly.
On June 6, 1997, the Company entered into a Loan and Security Agreement
with a bank. Pursuant to the Agreement, the bank agreed to make available to the
Company a revolving credit facility, the maximum principal amount of which at
any time must be equal to the lesser of $5 million or the "borrowing base," as
defined in the revolving credit facility agreement. Interest accrues at a
variable rate per annum equal to the prime rate plus 0.25% (8.75% as of December
31, 1997). Under the terms of the Agreement, the Company granted to the bank a
security interest in all accounts, inventory, equipment, and general
intangibles. Additionally, borrowings under this agreement are secured by the
outstanding capital stock of the Company's subsidiaries. The Company's
subsidiaries have also guaranteed the Company's obligations to the bank under
the Agreement. As of December 31, 1997, $774,000 was outstanding and $4,226,000
was available under this agreement.
The Company has entered into lease agreements with a related party (see
Note 15) for certain office and computer equipment and furniture with
approximate aggregate cost and net book value of $690,000 and $624,000,
respectively, at December 31, 1996. In December 1997, the Company opted for
early termination of these leases and purchased the equipment from the lessor
for $579,000. Additionally, the Company has other equipment under capital leases
with third party lessors with approximate aggregate cost and net book value of
$139,000 and $52,000, respectively, at December 31, 1997. Amortization of
capital lease assets is included in the Company's depreciation expense and
amounted to approximately $283,000 and $84,000 for 1997 and 1996, respectively.
Aggregate annual rental commitments under these capital leases as of
December 31, 1997 are as follows:
YEAR ENDING DECEMBER 31,
------------------------
1998 future minimum payments $ 61,964
Interest portion (4,342)
--------
Present value of future minimum
lease payments $ 57,622
========
7. OPERATING LEASES
The Company leases its office facilities and certain furniture and
equipment under various operating lease agreements, some of which are with
related parties (see Note 15). 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. Amounts expensed under operating
leases were approximately $2,847,000, $3,699,000 and $1,554,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
F-12
50
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. OPERATING LEASES - CONTINUED
Aggregate annual rental payments for operating leases with
noncancelable lease terms in excess of one year are as follows:
YEARS ENDING DECEMBER 31,
-------------------------
1998 $2,484,487
1999 2,032,658
2000 1,813,660
2001 1,318,259
Thereafter 994,320
----------
Total $8,643,384
==========
8. COMMITMENTS AND CONTINGENCIES
On November 1, 1996, Simione Central, Inc. ("SCI"), a wholly-owned
subsidiary of the Company, entered into a series of five year contracts to
provide shared resource information management and agency support services to
several affiliates of Columbia/HCA Health Care Corporation ("Columbia/HCA"). As
part of the negotiation of these contracts with SCI, Columbia/HCA required that
this subsidiary, formerly a subsidiary of CHHC, guarantee certain
indemnification obligations of the former shareholders of CHHC, as such
indemnification obligations relate to the administration and potential
liabilities to the Central Health Holding Company, Inc. Employee Stock Ownership
Plan ( the "Plan") or its participants. Columbia/HCA became indirectly
responsible for these Plan obligations as a result of its acquisition of the
CHHC stock. As a result of the fact that all former CHHC shareholders are also
shareholders of the Company by virtue of the January 1996 spin-off of the
Company, SCI agreed to undertake this contingent obligation. Under the terms of
this guaranty agreement (the "Guaranty"), SCI agreed to guarantee Columbia/HCA
against losses arising from the following: (i) liabilities relating to the Plan
for losses resulting from a fiduciary breach, prohibited transaction or other
violation of law relating to the Plan and (ii) liabilities relating to the Plan
which are not paid by the former stockholders of CHHC other than the Plan, but
only to the extent such losses are not recovered by Columbia/HCA through other
indemnity provisions of its agreement with the former shareholders of CHHC.
These indemnity provisions include any potential recovery from CHHC's insurance
policies as well as recoveries from escrow accounts established for the benefit
of Columbia/HCA by CHHC's former shareholders. This subsidiary's maximum
liability under the Guaranty is $17,500,000 for claims arising before November
1, 1998, and $15,000,000 for claims arising before November 1, 2000. There is no
liability for any claims arising after November 1, 2000. Further, the aggregate
maximum liability under the Guaranty is $20,000,000. Pursuant to the Guaranty,
the subsidiary agreed that on each date that a guaranteed obligation is required
to be paid to Columbia/HCA, the subsidiary shall grant to Columbia/HCA a
security interest equal to the amount of the guaranteed obligation in all the
subsidiary's accounts receivable. This subsidiary also granted to Columbia/HCA
the right to offset any liability arising under the Guaranty against any
obligation of Columbia/HCA or its affiliates to the subsidiary. At December 31,
1997, no claims had been made under the Guaranty and the Company does not
currently anticipate incurring any loss associated with the Guaranty.
Under the terms of an asset purchase agreement dated October 31, 1997,
the Company is obligated to pay additional purchase price if the earnings of the
acquired entity reach certain specified levels of earnings before income tax,
depreciation, and amortization.
The Company is engaged in various legal and regulatory proceedings
arising in the normal course of business which management believes will not have
a material adverse effect on its financial position or results of operations.
The Company was, however, served on July 17, 1997 with an administrative
subpoena issued by the United States Department of Health and Human Services,
Office of Inspector General. In connection with that subpoena, the Department of
Justice ("DOJ") has advised the Company that certain aspects of the Company's
past relationship with affiliates of Columbia/HCA are within the scope of an
ongoing grand jury investigation. However, the DOJ has confirmed to the Company
that neither the Company, nor any of its officers, directors or employees, is a
target in this investigation and, based upon the information known to the DOJ at
this time, neither the Company, nor any of its officers, directors or employees,
is likely to become one. The Company is cooperating fully and does not currently
believe that this inquiry will have any material effect on its overall business
or financial condition.
F-13
51
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. SEVERANCE AND OTHER RESTRUCTURING CHARGES
As a result of the change in focus of the Company's business from
providing services to affiliates of CHHC, the Company incurred severance and
certain other restructuring costs totaling $1,215,000 in the fourth quarter of
1996. These costs primarily relate to severance of seven terminated key
employees and costs to buyout a lease of equipment no longer useful to the
Company. During 1997 and 1996, payments of $855,000 and $347,000, respectively
had been made against the accrued severance and other restructuring charges.
10. INCOME TAXES
The Company has not incurred or paid any income taxes since its
inception.
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:
DECEMBER 31,
------------
1997 1996
----------- -----------
Deferred tax assets:
Net operating loss $ 1,763,040 $ 2,270,669
Accrued liabilities 316,956 547,259
Allowance for doubtful accounts 617,988 409,119
Unearned revenues 35,340 304,934
Purchased intangible assets 3,088,240 --
Tax credit carryforward 95,830 95,830
Other 72,484 62,356
----------- -----------
Total deferred tax assets 5,989,878 3,690,167
Deferred tax liabilities:
Purchased intangible assets (1,242,442) (1,532,009)
Capitalized software (234,096) --
Depreciation (149,316) (159,087)
----------- -----------
Total deferred tax liabilities (1,625,854) (1,691,096)
----------- -----------
Net deferred tax asset 4,364,024 1,999,071
Valuation allowance (4,364,024) (1,999,071)
----------- -----------
$ -- $ --
=========== ===========
The Company has approximately $4,640,000 of net operating losses for
income tax purposes available to offset future taxable income. Such losses
expire $1,824,000 in 2010 and $2,816,000 in 2011 and may be subject to certain
limitations for prior changes in ownership. Additionally, the Company has
research and development and alternative minimum tax credits of approximately
$96,000 which expire in years 2009 through 2011. A valuation allowance reducing
the net deferred tax asset to zero has been recorded based on management's
assessment that it is not "more likely than not" that this net asset is
realizable as of December 31, 1997.
Approximately $500,000 of the net deferred tax assets related to the
IMHI acquisition will result in a credit to intangible assets if and when
recognized.
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,
------------------------
1997 1996
----------- -----------
Tax benefit computed at statutory rates $(1,534,648) $(5,405,624)
State income taxes, net of Federal effect (180,547) (635,956)
Non-deductible purchased in-process
research and development -- 4,778,094
Other, net (649,758) 14,264
Change in valuation allowance 2,364,953 1,249,222
----------- -----------
Income taxes $ -- $ --
=========== ===========
F-14
52
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. INCOME TAXES - CONTINUED
Prior to 1996, the Company's taxable loss was included in the
consolidated tax return of its former parent company. The former parent company
utilized net operating losses generated by the Company and did not allocate any
benefit from use of the net operating losses to the Company.
11. EMPLOYEE BENEFIT PLANS
CHHC sponsored the Central Health Holding Company, Inc. Employee Stock
Ownership Plan (the "Plan"), which covered substantially all full-time employees
of CHHC and its wholly-owned subsidiaries and was funded by cash contributions
from CHHC and its wholly-owned subsidiaries. The major asset of the Plan was
shares of CHHC common stock acquired by the Plan. In connection with the pro
rata distribution of the common stock of CHMS (see Note 1), the Plan received
shares of the Company's common stock. All of the Plan's assets are allocated to
each eligible employee's account and are held in trust until the employee's
termination, retirement, total disability or death. In connection with the sale
of CHHC to Columbia/HCA, the Plan was converted from an employee stock ownership
plan to the Simione Central Holdings, Inc. Profit Sharing Plan Trust, and the
sponsorship of the Plan was transferred from CHHC to the Company.
The consolidated financial statements include the Company's share of
employee benefit expense related to the Plan for the CHMS employees and also the
CHS employees (see Note 1). This expense was approximately $439,000 in 1995.
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 $94,000 and $54,000 in 1997 and 1996, respectively.
12. SHAREHOLDERS' EQUITY
In November 1995, CHHC forgave $2,443,013 of intercompany indebtedness
owed by the Company to CHS. The Company recorded the transaction as a capital
contribution by CHHC.
CHMS was a separate legal entity and a wholly-owned subsidiary of CHHC
as of December 31, 1995. On January 6, 1996, CHMS formed CHMS Transitory Corp.
("Transitory Corp."). Transitory Corp. issued 2,994,856 shares of Class A Common
Stock and one share of Class B Common Stock, all of which were held by CHMS. On
January 16, 1996, CHMS and Transitory Corp. merged with Transitory Corp. as the
survivor. The 11 shares of CHMS Common Stock held by CHHC were canceled and CHHC
received the Class A and Class B Common Stock of Transitory Corp. Immediately
subsequent to the merger, Transitory Corp. amended it articles of incorporation
and changed its name to Central Health Management Services, Inc. On January 17,
1996, CHHC completed a pro-rata distribution to its shareholders of all the
outstanding capital stock of CHMS. The distribution was accomplished through the
issuance of 3.411 Class A shares of CHMS common stock for each share of CHHC's
common stock held by the respective shareholder.
On January 17, 1996, CHHC made a $4,000,000 cash capital contribution
to CHMS. On March 5 and 22, 1996, employees of CHMS purchased 964,418 shares of
Class A Common Stock for aggregate consideration of $3,051,369. These shares
were purchased under the terms of a stock subscription agreement whereby 10% was
due at the date of purchase and the remainder was due on December 5, 1996. Stock
subscription receivable of $850,000 reported as a reduction to common stock
represents the amount not yet collected as of December 31, 1996. During 1997,
this amount was paid in full by the major shareholder and executive officer of
the Company when this individual was relieved from his personal guarantee of
$1,500,000 of the Company's indebtedness (see Note 6).
Holders of up to approximately 4.2 million shares of common stock and
warrants and options to purchase up to approximately 1.4 million shares of
common stock have certain demand or piggyback registration rights, subject to
certain conditions and limitations, which entitle the holders to require the
Company to register all or part of their shares for public resale.
On July 1, 1997, a Registration Statement, filed by the Company with
the Securities and Exchange Commission on Form S-1, became effective. In
conjunction with the effectiveness of the Registration Statement, the Company
effected a one-for-two reverse stock split of the Company's outstanding common
stock. The Company sold 2,000,000 (post-reverse split) shares of its common
stock for $10.00 per share and received approximately $17.7 million in net
proceeds. A shareholder also sold 1,220,000(post-reverse split) shares for
$10.00 per share. The Company did not receive any of the proceeds from the sale
of shares by the selling shareholder.
F-15
53
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. SHAREHOLDERS' EQUITY - (CONTINUED)
All share and per share amounts included in these consolidated
financial statements have been restated to reflect the reverse stock split.
As of December 31, 1997, the Company has reserved 1,769,000 shares of
common stock for future issuance upon the exercise of warrants and options to
purchase common stock.
STOCK OPTIONS
The Company has established several stock option plans, under which the
Company is authorized to grant options to purchase an aggregate of 903,504
shares of common stock. Options granted under these plans must have an exercise
price not less than the fair market value at the date of grant. In addition to
options granted under these plans, the Company has granted non-plan options to
certain related parties. Such non-plan options were granted with exercise prices
equal to fair market value on the date of grant.
The Company had no stock option activity prior to 1996. A summary of
the Company's stock option activity for 1996 and 1997 follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- --------
Granted in 1996 751,260 $ 6.08
Assumed in IMHI purchase 722,174 $ 2.90
Exercised (26,748) $ 1.04
Forfeited (40,049) $ 5.00
---------
Outstanding at December 31, 1996 1,406,637 $ 4.58
Granted 339,300 $10.88
Exercised (179,266) $ 1.21
Forfeited (408) $ 2.20
---------
Outstanding at December 31, 1997 1,566,263 $ 6.36
=========
The following table summarizes information about options outstanding at
December 31, 1997:
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -----------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
$ 0.74 --$ 2.26 251,254 5.1 $ 1.65 251,254 $1.65
$ 3.00 --$ 5.26 558,211 8.1 $ 3.89 419,117 $3.52
$ 6.25 --$10.50 571,998 8.8 $ 9.14 266,667 $7.86
$11.13 --$14.00 184,800 9.6 $11.62 -- --
--------- ------- -----
1,566,263 8.0 $ 6.36 937,038 $4.25
========= =======
Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123 as if the Company had accounted for employee stock
option grants under the fair value method of SFAS No. 123. The fair value for
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1997:
risk-free interest rates of 6.232%; no dividends; a volatility factor of the
expected market price of the Company's common stock of 0.856; and a
weighted-average expected life of the options of 5 years; for 1996: risk-free
interest rates of 6%; no dividends; a volatility factor of the expected market
price of the Company's common stock of 0.6; and a weighted-average expected life
of the options of 3.5 years. In addition, options assumed in the purchase of
IMHI have been included in the fair value estimates as if the options assumed
were granted by the Company on the purchase date and using an assumed exercise
price of the value of IMHI shares issued in the acquisition. The weighted
average fair value of options granted during 1997 and 1996 was $7.74 and $1.80,
respectively.
F-16
54
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. SHAREHOLDERS' EQUITY - (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of
the stock options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss and net loss per share (basic and diluted) are
$5,268,821 and $0.74 for 1997 and $17,492,350 and $4.08 for 1996.
STOCK PURCHASE WARRANTS
At December 31, 1997, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
------ -------- ----------
125,000 $ 1.00 February 24, 2005
51,679 $ 6.22 October 8, 1999
10,000 $11.26 May 27, 2000
-------
186,679
All outstanding warrants are exercisable.
During 1996, the Company issued, and the holder exercised, a warrant
for the purchase of 11,010 shares of common stock at $3.16 per share. During
1997, warrants were exercised for 375,000 shares of common stock at $1.00 per
share.
13. EARNINGS PER SHARE
The following table set forth the computation of basic and diluted
earnings per share:
1997 1996 1995
----------- ------------ -----------
Numerator:
Net loss $(4,513,669) $(15,898,897) $ (956,125)
Denominator:
Denominator for basic and
diluted earnings per share --
weighted-average shares 7,164,398 4,287,956 2,994,856
Net loss per share - basic and diluted $ (0.63) $ (3.71) $ (0.32)
14. TRANSACTIONS WITH FORMER PARENT COMPANY
The Company derived revenue from charges for the services provided to
the home health care agencies owned by CHHC. The charges were recorded, for
purposes of these consolidated financial statements, in an amount equal to the
cost of the services being provided and therefore generated no operating profit.
Revenues of $12,051,000 and $9,077,000 were recognized in 1996 and 1995,
respectively. In addition, CHHC charged the Company a management fee for
services provided to the Company. These services include facilities management,
legal, accounting, administrative, executive and office support during 1995.
During 1996, the services by CHHC provided were limited to legal and executive.
CHHC's charges included direct costs identified and allocations of shared costs
based on statistical and operational data such as square footage, hours, and
direct operating costs. In the opinion of management, the method of allocation
is reasonable. Management fees in the amount of $432,000 and $3,594,000 were
incurred in 1996 and 1995, respectively. These arrangements terminated
effective October 31, 1996.
F-17
55
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. TRANSACTIONS WITH FORMER PARENT COMPANY - (CONTINUED)
In addition, prior to 1996, the Company was charged by CHHC for its share of
self-insured medical and dental claims. The Company's share of expenses for
this program was $146,000 in 1995.
Prior to the January 17, 1996 spin-off of the Company, CHHC funded all
operating expenses on behalf of the Company. The average balance of the
intercompany payable to CHHC was $1,825,000 in 1995. The intercompany balance
payable to CHHC was paid in cash during 1996.
15. RELATED PARTY TRANSACTIONS
Gateway LLC, a company owned in part by a director of the Company,
leases an office facility to the Company under the terms of an agreement, which
expires December 31, 2001. Rent expense and related operating expenses paid to
Gateway LLC by the Company were $356,000 and $82,000 in 1997 and 1996,
respectively. Future annual rental payments under this lease are $233,000 in
1998, $243,000 in 1999, $254,000 in 2000 and $264,000 in 2001.
A major shareholder and executive officer of the Company, along with
certain other shareholders, are shareholders of Healthfield, Inc.
("Healthfield"). The Company entered into a management services agreement with
Healthfield in February 1994. Healthfield paid the Company approximately
$1,913,000 in management fees during 1995 for certain administrative and
financial services rendered to Healthfield in accordance with the agreement. The
management services agreement with Healthfield was terminated in December 1995.
A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). During 1997 and 1996, the Company entered into various three-year
capital leases with National. In December 1997, the Company opted for early
termination of all the outstanding capital leases with National and purchased
the equipment under lease for approximately $579,000. Payments, excluding the
purchase, to National under these lease agreements totaled $260,000 and $70,000
in 1997 and 1996, respectively.
A shareholder of the Company owns a Company which leased computer
equipment to the Company during 1996 under an operating lease which expired in
December 1996. Total payments in 1996 related to this lease were approximately
$497,000.
A shareholder and executive officer of the Company is a partner in an
entity that leases an office facility to the Company on a month-to-month basis
for $10,800 per month. Rent expense and related operating expenses paid to this
entity were $130,000 and $112,000 in 1997 and 1996, respectively.
The Company has consulting agreements with two entities in which
certain directors of the Company have ownership interests. Aggregate monthly
consulting fees paid to these two entities approximate $20,000 and totaled
$205,000 and $59,000 in 1997 and 1996, respectively.
16. LICENSE AGREEMENTS
Certain software applications of the Company's NAHC IS software
solution incorporates software licensed from a third party. Under this license
agreement, the Company is obligated to pay royalties based on the volume of
transactions processed by the Company. Royalty rates per transaction vary based
on the volume of transactions processed and totaled $255,000 and $117,000 in
1997 and 1996, respectively.
Another license agreement obligates the Company to pay royalties based
on a percentage of net collected revenues from sales of certain covered systems.
Royalty expense under this agreement totaled $161,000 and $500,000 in 1997 and
1996, respectively.
The Company obtains data processing and network communication services
under an agreement with IBM Global Services ("IBM"). The agreement with IBM
expires December 31, 2005, and requires the Company to pay fees based on the
volume of transactions processed. The agreement requires minimum annual payments
approximating $3.6 million through the year 2000, $3.4 million in 2001, and an
aggregate of $12.8 million thereafter. The agreement is cancelable by the
Company for a stated termination charge declining from $1.1 million to $100,000
over the term of the contract. The Company paid fees to IBM of $3.6 million and
$3.3 million in 1997 and 1996, respectively.
F-18
56
SIMIONE CENTRAL HOLDINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Charged
Balance at to Additions Balance at
Beginning Costs and Due to End of
of Period Expenses Acquisitions Deductions(1) Period
----------------------------------------------------------------------
Year ended December 31, 1997
Allowance for Doubtful Accounts $1,063,014 $1,329,563 $ 253,593 $ 731,050 $1,915,120
=======================================================================
Year ended December 31, 1996
Allowance for Doubtful Accounts $ 13,600 $ 395,046 $ 780,701 $ 126,333 $1,063,014
=======================================================================
Year ended December 31, 1995
Allowance for Doubtful Accounts $ -- $ 13,600 $ -- $ -- $ 13,600
=======================================================================
(1) Write-offs of uncollectible accounts.
57
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 -- Assset Purchase Agreement dated as of December 17, 1997 by
and among DHS Acquisition, L.L.C., the Company, Dezine
Healthcare Solutions, Inc. and Companion Technologies
Corporation (Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated December 31, 1997
as filed with the Securities and Exchange Commission).
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as filed
with the Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the
Company (Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-4 (Registration
Number 33-57150) as filed with the Securities and Exchange
Commission).
3.3 -- Certificate of Amendment of the Certificate of Incorporation
of Simione Central Holdings, Inc., filed June 30, 1997 with
the Secretary of State of the State of Delaware (Incorporated
by reference to Exhibit 3.3 of the Company's Current Report on
Form 8-K dated July 9, 1997 as filed with the Securities and
Exchange Commission).
3.4 -- Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.3 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
3.5 -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference to
Exhibit 3.5 of 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).
4.1 -- Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
4.2 -- See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the
Company's Certificate of Incorporation and Bylaws governing
the rights of holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those stockholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those stockholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
9.1 -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A. Curtis
Eade, James A. Tramonte, John Isett, Cindy Lumpkin, Douglas E.
Caddell, Robert J. Simione, Kenneth L. Wall, Allen K. Seibert,
III, Jerry Sevy, Larry Clark and Lori N. Siegel, Gary M.
Bremer, Richard A. Parlontieri, and James R. Henderson
(Incorporated by reference to Exhibit 9.1 of 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).
58
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated October
8, 1996 as filed with the Securities and Exchange Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as of
September 5, 1996 by and among InfoMed Holdings, Inc., Simione
Central Holding, Inc. and InfoSub, Inc. (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated September 5, 1996 as filed with the Securities
and Exchange Commission).
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant for
the Purchase of Common Stock of InfoMed Holdings, Inc. dated
October 5, 1996 between InfoMed Holdings, Inc. and each of
O'Donnell Davis, Inc., Rowan Nominees Ltd., David O. Ellis,
Richard V. Lawry, Salvatore A. Massaro, Murali Anantharaman,
Kathleen E.J. Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis,
Thomas M. Rogers, Jr., and Arnold Schumacher (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated October 8, 1996 as filed with the Securities
and Exchange Commission).
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock of
Simione Central Holding, Inc., dated April 12, 1996 between
Simione Central Holding, Inc. and Home Health First, a Texas
not-for-profit corporation (Incorporated by reference to
Exhibit 10.3 of 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 Exhibit 10.4 of
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 -- Settlement Agreement, dated February 28, 1995, between InfoMed
Holdings, Inc. and Frederick Neufeld (Incorporated by
reference to Exhibit 5.5 of the Company's Current Report on
Form 8-K dated March 7, 1995 as filed with the Securities and
Exchange Commission).
10.6 -- 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 Exhibit 10.6 of 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).
59
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.7 -- Form of 1996 Non-Qualified Stock Option Agreement dated
September 4, 1996 between Simione Central Holding, Inc. and
each of Gary M. Bremer, James A. Tramonte, Gary W. Rasmussen,
Don VanderBeke and Lori N. Siegel (Incorporated by reference
to Exhibit 10.7 of 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 -- Form of Stock Option Agreement dated October 7, 1996 between
InfoMed Holdings, Inc., and Reid Horovitz, Zola Horovitz,
O'Donnell Davis, Inc., EGL Holdings, Inc., David O. Ellis,
Erin Dosdourian, Rodger Johnson, Richard V. Lawry, Salvatore
A. Massaro and Murali Anantharaman (Incorporated by reference
to Exhibit 10.8 of 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 -- 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).
10.10 -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended (Incorporated by reference to
Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.11 -- Simione Central Holdings, Inc. Section 125 Plan effective date
January 1, 1997 sponsored by the Company (Incorporated by
reference to Exhibit 10.11 of 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).
10.12 -- Headquarters at Gateway Lake Lease Agreement dated January 1,
1996 by and between Gateway LLC and InfoMed Holdings, Inc.
(Incorporated by reference to Exhibit 10.54 of 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).
10.13 -- Sublease dated November 22, 1996 between Environmental Design
International, Ltd. and Simione Central, Inc. (Incorporated by
reference to Exhibit 10.13 of 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).
10.14* -- Lease Amendment dated August 7, 1992 by and between Sugar Land
Plaza Building Corporation and Medical Solutions, Inc.
10.15* -- Lease dated August 13, 1992 between Unum Life Insurance
Company of America and Dezine Associates, Inc.
10.16* -- Indenture of Lease dated January 1, 1998 by and between S&S
Realty and Simione Central Consulting, Inc.
10.17* -- Lease dated December 18, 1996 by and between Resurgens Plaza
South Associates, L.P. and Simione Central, Inc.
10.18 -- Executive Employment Agreement dated December 10, 1996 between
InfoMed Holdings, Inc. and Gary M. Bremer (Incorporated by
reference to Exhibit 10.15 of 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).
60
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.19 -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr.
(Incorporated by reference to Exhibit 10.16 of 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 -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc. and EGL Holdings, Inc. (Incorporated by
reference to Exhibit 10.17 of 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 -- Information Systems Management Agreement dated January 4, 1996
between Integrated Systems Solutions Corporation and Central
Health Management Services, Inc. (Incorporated by reference to
Exhibit 10.18 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.22 -- Micronetics Design Corporation Value Added Reseller Agreement
Renewal dated July 10, 1996 between Micronetics Design
Corporation and InfoMed Holdings, Inc. (Incorporated by
reference to Exhibit 10.19 of 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).
10.23 -- 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 Exhibit
10.20 of 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).
10.24 -- Guaranty Agreement dated October 31, 1996 by Simione Central,
Inc. in favor of HCA, Inc. (Incorporated by reference to
Exhibit 10.21 of 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).
10.25 -- Lease Agreement dated March 18, 1996 between National Leasing,
Inc. and Simione Central, Inc. (Incorporated by reference to
Exhibit 10.22 of 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).
10.26 -- IBM Vendor Marketing Programs Cooperative Services Marketing
Agreement dated December 16, 1996 between IBM Corporation and
Simione Central Holding, Inc. (Incorporated by reference to
Exhibit 10.23 of 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).
10.27 -- Loan and Security Agreement by and between National Bank of
Canada and the Company, 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 27, 1997 as filed with the Securities
and Exchange Commission).
10.28 -- 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).
10.29 -- Simione Central Holdings, Inc. Omnibus Equity-based Incentive
Plan (Incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-1 (Registration
Number 333-25551) as filed with the Securities and Exchange
Commission).
10.30 -- Simione Central Holdings, Inc. 1997 Non-Qualified Formula
Stock Option Plan (Incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-1
(Registration Number 333-25551) and filed with the Securities
and Exchange Commission).
61
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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 January 27, 1997 as filed with the Securities
and Exchange Commission).
21.1* -- Subsidiaries of the Company.
23.1* -- Consent of Ernst & Young LLP.
27.1* -- Financial Data Schedule (for SEC use only).
27.2* -- Restated Financial Data Schedule (for SEC use only).
27.3* -- Restated Financial Data Schedule (for SEC use only).
27.4* -- Restated Financial Data Schedule (for SEC use only).
- ----------------
* Filed herewith