SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
COMMISSION FILE NUMBER 0-22162
CARECENTRIC, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3209241
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2625 CUMBERLAND PARKWAY, SUITE 310, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (678) 264-4400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE NONE
Securities registered pursuant to Section
12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 30, 2001; $4,263,640.
There were 4,443,484 shares of Common Stock outstanding at March 30, 2001.
Documents incorporated by reference in this Form 10-K: Portions of the
definitive proxy statement relating to the 2000 Annual Meeting of Stockholders
in Part III, Items 10 (as related to Directors), 11, 12 and 13.
Note: The discussions in this Form 10-K contain forward-looking statements
that involve risks and uncertainties. Statements contained in this Form 10-K
that are not historical facts are forward-looking statements that are subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995.
A number of important factors could cause future results of CareCentric and its
subsidiaries to differ materially and significantly from those expressed or
implied in past results and in any forward looking statements made by, or on
behalf of, the Company. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Form 10-K. These
factors include, without limitation, those listed in "Risk Factors" in the
Company's Registration Statement on Form S-4 (File No. 333-96529).
PART I
ITEM 1. BUSINESS
OVERVIEW
CareCentric, Inc. (formerly known as Simione Central Holdings, Inc.)
("CareCentric" or the "Company") is a leading provider of information technology
systems and related services and consulting services designed to help home
health care providers more effectively operate their businesses in today's
environment. The Company's focus is to help home health care providers
streamline their operations and better serve their patients. CareCentric offers
several comprehensive software solutions. Each of these solutions provides a
basic set of software applications and specialized modules which can be added
based on customer needs. These software solutions are designed to enable
customers to generate and utilize comprehensive financial, operational and
clinical information. In addition to its software solutions and related software
support services, CareCentric's home health care consultants assist providers in
addressing the challenges of:
- reducing costs;
- regulatory compliance;
- maintaining quality;
- streamlining operations;
- re-engineering organizational structures; and
- analyzing and performing due diligence in mergers and
acquisitions.
CareCentric has over 2,500 customers nationwide, including:
- hospital-based facilities;
- free-standing home health care providers;
- alternate-site care organizations;
- home medical, IV, infusion and rehabilitation equipment
providers;
- integrated delivery networks (IDN); and
- government-managed organizations.
CareCentric formerly provided comprehensive agency support services which
included administrative, billing and collection, training, reimbursement and
financial management services, among others. CareCentric discontinued this line
of business in December 1999.
Unless the context otherwise requires, references to CareCentric include
CareCentric, Inc. and its subsidiaries. Our executive offices are located at
2625 Cumberland Parkway, Suite 310, Atlanta, Georgia 30339 and the telephone
number is 678-264-4400.
RECENT DEVELOPMENTS
In December 2000, CareCentric changed its Nasdaq Small Cap Market symbol
from "SCHI" to "CURA". On January 30, 2001, the Company changed its name from
Simione Central Holdings, Inc. to CareCentric, Inc. pursuant to a Certificate of
Ownership and Merger filed under applicable provisions of the Delaware General
Corporation Law. On the same date, the Company's two operating subsidiaries also
changed their names, with Simione Central Consulting, Inc. changing its name to
Simione Consulting, Inc. and Simione Central National, LLC changing its name to
CareCentric National, LLC pursuant to filings made with the Georgia Secretary of
State's office.
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INDUSTRY OVERVIEW
Home health care is an important part of the health care industry's
continuum of care services.
Home health care consists of various lines of services, including:
- skilled nursing;
- private duty;
- physical, occupational and speech therapies;
- durable medical and rehabilitation equipment and supplies;
- intravenous and infusion therapy; and
- hospice.
The importance of home health care throughout the 1980's and 1990's was
principally a result of payor choices and significant economic pressures within
the health care industry. In those years, U.S. health care expenditures
increased rapidly. In response to these escalating expenditures, payors, such as
Medicare and managed care organizations, have applied increasing pressure on
physicians, hospitals and other providers to contain costs. During the 1980s and
early 1990s, this pressure led to the growth of lower cost alternate-site care,
such as home health care, and to reduced hospital admissions and lengths of
stay. In addition, home health grew rapidly as a result of advances in medical
technology, which facilitated the delivery of services in alternate sites,
demographic trends, such as an aging population, and preferences among patients
to receive health care in their homes. Historically, this industry has been
highly fragmented and characterized by small, local providers offering a limited
range of services. With the advent of managed care and integrated delivery
networks (IDN) and changes in state regulations, home health care providers
sought to expand their geographic scope and range of product and service
offerings. As a result of these developments and legislation and regulatory
pressures, the home health care industry went into a period of rapid growth and
consolidation.
This trend of growth and consolidation began to reverse with the
implementation of the Interim Payment System (IPS) by the Health Care Finance
Administration (HCFA) the federal agency that administers Medicare reimbursement
for the home health care industry, pursuant to the Balanced Budget Act of 1997
enacted on August 5, 1997. Medicare traditionally reimbursed a majority of home
health care services at reasonable and customary amounts that could not exceed
the costs of services provided, resulting in a direct relationship between the
number of home health care visits and reimbursement. However, the Balanced
Budget Act of 1997 contained provisions that significantly change the manner in
which home health agencies and home care services were reimbursed by Medicare.
The legislation created IPS which lowered the cost per visit limitations and
created restrictions on the amount of cost reimbursement per Medicare
beneficiary. In late January 1998, HCFA published a notice revising the schedule
of limits on home health agency costs for cost reporting periods beginning on or
after October 1, 1997, which reduced the cost per visit limitations. At the same
time, HCFA issued a rule setting forth surety bond and capitalization
requirements for home health agencies. IPS has had a significant impact on the
home health industry, resulting in numerous closings of home health agencies,
consolidation of agencies and decisions by home health agencies to no longer
participate in the Medicare program or serve Medicare beneficiaries.
Consolidation of the industry continued, but at a slower pace, as first,
uncertainties about the effect of IPS, and second, the significantly poorer
operating results (especially for home health agencies that were part of an IDN
or hospital-based system or had modified operations to adapt to a managed-care
environment), slowed the pace of home health merger and acquisition activity.
Also, as mandated by the Balanced Budget Act, HCFA announced the
implementation, effective October 1, 2000, of a prospective payment system (PPS)
which would limit reimbursement to a fixed amount for all services rendered per
episode of care based upon home health care resource groups (HHRG) indicated by
clinical assessments (OASIS). Once fully-implemented, PPS could also potentially
impact the home health industry in the same manner as IPS. In addition to the
impact of IPS and PPS, the growth in the number of Medicare members enrolling in
managed care plans, which have taken measures to contain costs, has and will
have a significant impact on how providers may operate profitably. The
uncertainty in the home health care industry concerning these changing
regulations, and HCFA's continuing "clarifications" of the regulations,
adversely impacted CareCentric's business in 1998, 1999 and 2000 as many
providers dissolved, conserved cash, cut back on IT spending or delayed
purchasing decisions. These negative factors increased during the fourth quarter
of 2000 as PPS took effect and home health providers faced greater uncertainty
and were further distracted. While HME and IV/infusion service providers were
not significantly affected by IPS or PPS, other cost-cutting initiatives of HCFA
had a deleterious effect on such providers' interest in upgrading or acquiring
information technology products and services. CareCentric cannot predict how new
regulations will impact its business in the future, although the costs of
addressing hundreds of pages of regulations with fixed implementation dates,
last minute changes and post-effective amendments and "clarifications" in
comprehensive and integrated legacy and client/server systems are extensive and
disruptive to product development, deployment and support operations.
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As a result of consolidation and measures to address ongoing cost pressures
and the complexities of PPS, home health care providers will increasingly
require enhanced management expertise, specialized industry knowledge and
standardized financial, operational and clinical data, information, reports and
transactional forms in order to compete. CareCentric believes that many existing
home health care information systems are inadequate to address the changing
needs of home health care providers. Generally, these systems were designed to
generate patient billing information and cost reports for Medicare reimbursement
and, as a result, may be unable to provide the detailed information required for
meaningful business analyses and financial and clinical data collection under
the new system. The Company believes providers need reports and real-time data
on operational or financial matters and complete, organized and timely clinical
records to effectively treat patients and to co-manage the cost and quality of
the clinical care necessary to achieve favorable patient outcomes.
Thus PPS, in transferring the cost risk to home health providers already
committed to quality clinical outcomes, creates the opportunity for the Company
and its competitors to work with the providers to develop information technology
software applications that will be tools in facilitating best practices, process
improvement, decision support, activity-based costing, and electronic records
and form transmission.
MARKET POSITION
CareCentric's objective is to enhance and grow its position as a major
provider of comprehensive and integrated information technology solutions,
focused solely on the home health care industry. The principal elements of
CareCentric's business and product strategies are described below. During 2000,
significant progress in the execution of many of the strategies was made.
Specifically, the absorption of The Smart Clipboard(R) and Outcomes Planner
products acquired in 1999 combined with the acquisition of the MestaMed(R) and
HMExpress products through the merger with MCS, signed in May 1999 and completed
in March 2000, has provided a realization of many of the resources and products
needed to enhance CareCentric's market position. Accordingly, the products and
services that have become part of CareCentric's offerings to the industry with
the completion of the MCS merger, have been included in the current Core
Software Solutions, Specialized Software Product Solutions, Clinical Content
Options and Service Solutions sections below.
BUSINESS STRATEGIES
Create Growth Through Technology and Co-Marketing Partnerships. Because
information technology tools are becoming more platform independent and
adaptable to the "Plug and Play" environment, we will not develop specialized
programs and tool sets already well developed by other vendors. We intend to
partner with such vendors by interface, integration or incorporation of their
products into our comprehensive information technology solutions. Examples of
this include agreements to provide web-enablement of process improvement
solutions, on-line collection, validation, submittal and benchmark-reporting of
OASIS and ORYX data and medication dictionaries and drug interactions. The
Company continues to negotiate alliances to utilize e-commerce and e-signature
capabilities.
Leverage Existing Customer Base. CareCentric has a base of over 2,500
customers nationwide. CareCentric believes that a significant opportunity exists
to sell add-on products and services to existing customers and to cross-sell its
existing systems and services as well as introduce new systems and enhancements.
Generate Recurring Revenue. CareCentric generates recurring revenue through
a combination of annually renewable maintenance agreements and multi-year
service contracts. CareCentric 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, CareCentric believes it is well positioned to increase its market
share by leveraging its existing relationships with large providers such as
Tenet, Walgreens and American Home Patient. CareCentric also believes its
comprehensive and integrated solutions will become increasingly important to
home health care providers as they address the challenges presented by health
care reform and changing demographics and as integrated delivery systems become
more prevalent.
Consolidate Duplicative Products and Services. CareCentric believes that
improved efficiency and lower cost of operations will be realized through
consolidation of similar products and services within the same market space.
These consolidations will present customers with more effective control and
flexibility of their product and service strategies. Some examples include:
PharmWorks and the MestaMed(R) IV module were consolidated and improved into
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PharmMed Rx(TM), an application which fully automates processes unique to home
infusion pharmacy providers including streamlined order processing, enhanced
clinical documentation, improved workflow and increased reporting power. Also,
support of DME VI was consolidated into the MestaMed(R) "Real Time" support
system in 2000. In 2001, we intend to complete development of the "Real Time"
Smart Clipboard(R) support operation and convert STAT2 support to the "Real
Time" model.
Consolidate Functional Business Needs. Work continues throughout the
Company to build on successful consolidation of business functions that occurred
in 2000, including human resources, finance and accounting, inside sales,
territorial sales, marketing and promotion, internal management information
systems, classroom training and product management as well as the adoption of
best practices and methods in quality assurance, customer support, product
development process, product documentation and product deployment.
Integration of Core Products. Based on market demand, CareCentric's
products are in the process of becoming architecturally integrated to create
multi-faceted information technology solutions that provide customer control
over rules-based processing and seamless data entry and data accessibility. In
2000, the STAT2 financial and billing management system was integrated by means
of a data gateway to the Smart Clipboard(R) system. Patient master files,
information on admissions, discharges and transfers, orders and PPS data are
transferred across the data interface created by the Gateway. A similar
integration between MestaMed(R) and Smart Clipboard(R) will go to beta test in
the second quarter of 2001. The Gateways allow users of the STAT2 system and of
the MestaMed(R) HHA module (which is integrated with HME, PharmMed Rx(TM) and
rehab modules) to add Smart Clipboard(R) point-of-care and other intuitive
clinical tools to achieve comprehensive and efficient clinical practice.
Alternative Delivery Systems. CareCentric is developing business modeling
and product requirements for information technology solutions that can be web
enabled with the ability to operate in both distributed and Application Service
Provider (ASP) environments.
Focus on Process Improvement. CareCentric is enhancing selected features of
existing products and developing new products to help its customers improve
workflow and operational process. Such activities will help customers manage and
reduce costs through process improvement, timely access to relevant data and
efficient utilization of resources while maintaining quality clinical outcomes,
which are believed to be a necessity for business survival under PPS.
THE CARECENTRIC SOLUTIONS
CareCentric offers a comprehensive set of product and service solutions to
address the changing needs of home health care providers through information
technology software systems, training (including e-Learning products),
technical, deployment and consulting services and customer support.
Carecentric's systems and services are designed to enable home health care
providers to generate and utilize comprehensive financial, operational and
clinical information and address organizational issues in order to make informed
business decisions, more effectively operate their businesses and compete in a
managed care and/or PPS environment. These information technology solutions will
help home health care providers:
- reduce costs, improve cash flow and build financial strength
- co-manage cost and quality, establish outcomes-based clinical practice
and empower clinicians to make better decisions at the point-of-care
- maximize return on technology investment through comprehensive product
deployment services to optimally configure and run the application
- increase understanding of key industry issues and optimal product
usage with specialized training and e-Learning products
- get real time responses to system usage issues through in-depth
customer support and call tracking
- devise business strategies and enhance processes with the help of our
knowledgeable and experienced Simione consultants
PPS, in transferring the cost risk to home health providers already committed to
quality clinical outcomes, creates an opportunity for the Company to develop
software applicaitons and related services that will be tools in facilitating
best practices, process improvement, decision support, actvity-based costing and
efficient, electronic transmission of medical records and forms. Current
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information, which is the life-blood of quality health care, must be organized,
available and affordable. Investment in information technology is more critical
in home health care because the information needs both to be shared and secured
and the users can be both distributed and disconnected. CareCentric is working
to direct its information technology solutions at these opportunities.
Information technology solutions can be packaged and customized to serve the
individual needs of customers.
INFORMATION SYSTEMS
CareCentric offers comprehensive and flexible software solutions to address
the information processing needs defined by a number of unique home care market
segments including home medical equipment suppliers, infusion pharmacy
providers, home health agencies, hospice service providers and integrated
delivery networks. Each of CareCentric's software products offers a suite of
core application modules that address the financial and operational, and in some
cases, clinical requirements of home health care providers. These applications
are designed to:
- Promote improvement in the efficiency of customer processes and
operations
- Operate in a number of popular technology environments
- Provide scalability and growth options
- Facilitate open data access
- Produce management reporting and decision support tools
- Facilitate regulatory compliance
CORE SOFTWARE SOLUTIONS
CareCentric's core software solutions are as follows:
Smart Clipboard(R)
------------------
The Smart Clipboard(R) is a clinical information system designed to enable
home health agencies to compete effectively in the changing health care delivery
environment. Originally conceived in 1993, it was the first home health
point-of-care information system developed around pen-based computer technology
and home health clinical processes. The Smart Clipboard(R) provides a clinical
solution designed to assist home care providers in co-managing the cost and
quality of the care they deliver by helping them understand their clinical and
administrative processes. The Smart Clipboard(R) software suite was released in
1996 and has been significantly enhanced since then. It is a Windows-based
client/server application that uses replication technology to maintain
synchronized subsets of the master database in each tablet computer for data
collection and validation at the point-of-care. This facilitates disconnected,
distributed operations that characterize the information and operational needs
of home health operations spread over large areas or across a region. It has
been the experience of home health agencies that install the Smart Clipboard(R)
that use of its features by well-trained clinical staff generally delivers a
significant return on investment due to the automation of previously manual
tasks and access to electronically linked information replacing paper-based
systems. The Smart Clipboard(R) provides home care and hospice nurses,
therapists, and other clinicians with a means to capture complete patient
information and assist in making timely, informed clinical decisions at the
point-of-care. The Smart Clipboard(R) application was created to organize all
clinical information in a structured, interrelated fashion that automatically
links assessments to problems, problems to outcomes, and outcomes to
interventions and actions.
By using The Smart Clipboard(R), a home health agency has a tool to use and
modify its existing clinical assessment criteria and care plans. As a result,
structured clinical data is presented and captured in a user-friendly manner at
the point-of-care. Finally, there is also a suite of data analysis reports and
ad-hoc queries to facilitate clinical process understanding and improvement. The
Smart Clipboard(R)'s point-of-care features can assist clinicians in capturing
documentation of, and variance from, planned patient care processes. Other
features allow clinicians to have access to patient caseload data and libraries
of medical information. Through a relationship with Outcome Concept Systems, the
system provides OASIS and ORYX data entry, validation, submittal and
benchmark-reporting capabilities as required under federal regulations and JHACO
industry standards. The Company designed the Smart Clipboard(R) system to work
in conjunction with the STAT2 system through our proprietary data gateway to
give home health agencies seamless data exchange from clinical to operational to
financial functions and back as indicated or required. The data gateway to the
MestaMed(R) comprehensive, integrated system will undergo a beta test beginning
in the second quarter of 2001.
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STAT2
-----
STAT2 is designed as a complete, flexible and fully integrated home health
agency management system. The STAT2 core set of software applications includes:
- Client Intake - Billing/Accounts Receivable
- Treatment Plans - General Ledger
- Employee Tracking - Accounts Payable
- Scheduling - Payroll
- Electronic Transmission/Remittance
This core set of applications and their underlying features and functions
can be enhanced with specialized features including hospice, telephony (through
the TEMS system described in Specialized Product Solutions below) and cost
reporting. The STAT2 system allows a customer to exchange clinical and financial
information with external systems such as demographics and patient master files
from affiliates or referring institutions in either a real-time or batch mode
through HL-7 interface engine technology or customized interfaces. STAT2 is
designed to increase staff productivity by fully integrating the system's
clinical, financial and operational applications and thereby eliminating
redundant data entry. STAT2 has the ability to customize system features as well
as the ability to expand with the customers' business. The STAT2 system can also
be used with The Smart Clipboard(R) point-of-care system by means of a data
gateway interface.
MestaMed(R)
-----------
MestaMed(R) is a fully integrated billing, accounting and inventory control
system for providers of home health services including:
- Home Medical Equipment & Supplies - Rehabilitation Equipment
- Home Health Care - Hospice Services
- Infusion and IV Therapy
MestaMed(R) customers are home health care providers who use MestaMed(R) to
track the delivery of home medical equipment and related supplies and infusion
pharmacy, skilled nursing and hospice services to patients and to meet the
complex requirements necessary to obtain reimbursement from Medicare, Medicaid
and other third-party payers. CareCentric believes MestaMed(R) is the only
system which fully integrates information on operational and financial
management for multiple lines of service homecare providers.
MestaMed(R) is in use nationwide by hundreds of organizations, from
independent providers to large, regional and national companies. In practice it
has proven to be well-suited to meet the needs of larger, multi-location home
care providers. MestaMed(R) is designed to be cost-effective and scalable and to
readily expand to meet future information processing requirements and provide
management flexibility. Multi-service providers can de-centralize certain
operations, such as intake, by location or line of business; and centralize
other functions, such as billing and collections, across locations and business
lines.
The complete MestaMed(R) system consists of a core management module and
three separate, yet fully-integrated operations modules that automate various
functions as well as create, track, and manage documents unique to each line of
business. MestaMed(R) Management System includes a core set of routines common
to all lines of business. On the front end, these routines set up and maintain
all master file information and perform patient intake. On the back end, core
routines generate bills, manage claims and collections, product reports and
interface to third-party applications. The MestaMed(R) HHA module produces all
required clinical documentation, schedules visits, and tracks physicians orders.
The MestaMed(R) HME module processes medical equipment and supply orders,
including recurring rentals and sales, generates certificates of medical
necessity (CMNs) and prior authorizations (PARs), and tracks serialized
inventory. The PharmMed Rx(TM) module, a home infusion pharmacy module, provides
the functionality to enter, process, and manage prescriptions and related
orders. In addition, we expect that MestaMed(R) will be able to work with The
Smart Clipboard(R) point-of-care system through a data gateway after the beta
test in the second quarter of 2001.
MestaMed(R) HHA is an office-based application that runs from desktops and
readily supports one or more locations. It works in conjunction with the
MestaMed(R) Management System to deliver a complete solution for multi-service
home care agencies. For agencies seeking a more robust, point-of-care based
clinical system, it will be integrated with The Smart Clipboard(R) in 2001.
MestaMed(R) HHA offers the following functions:
The MestaMed(R) HME module works in conjunction with the MestaMed(R)
Management System to deliver a comprehensive solution for home medical and
rehabilitation equipment and supplies providers. An office-based application
that adapts to both centralized and/or decentralized operations, MestaMed(R) HME
supports multiple locations and offers order entry, recurring rentals and sales,
HME billing, certificates of medical necessity (CMNs), prior authorizations
(PARs), serialized inventory, scanner-based point of delivery, physical
inventory, asset maintenance, and rehabilitative equipment.
A number of additional add-on features and supplemental modules can be
optionally purchased to satisfy the information technology requirements of a
particular home care provider. MestaMed(R) is designed to easily and cost
effectively meet the needs of large providers who have high transaction volumes,
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large numbers of users, multiple branches and remote processing requirements.
MestaMed(R) is available on a variety of hardware platforms and operating
environments including Open VMS, UNIX, Windows NT, AIX and various Intel, Alpha
and RS 6000 computer systems. Computer-based training courses on the efficient
operations of various features and functions of the MestaMed(R) HME Module are
available from our e-Learning group. MestaMed(R) customers are also afforded
real-time customer support coverage and services.
DME VI
------
DME VI is a PC-based software application for mid-size to large home
medical equipment and medical supply businesses. The DME VI core set of software
applications includes:
- Order Entry - Billing
- Inventory Management - Accounts Receivable
- General Ledger - Purchase Orders
DME VI features add-on modules such as retail sales and bar coding. The DME
VI software provides easy to use data import/export capabilities. DME VI
customers are also afforded real-time customer support coverage and services.
Computer-based training (CBT) courses on the efficient use of various features
and functions of the DME VI software are available from our e-Learning group.
More CBT titles will be added in 2001.
HMExpress
---------
HMExpress is a Windows-based, cost-effective and proven suite of
applications designed for small to mid-sized home medical equipment providers.
HMExpress automates order processing, CMN management, billing, accounts
receivable, inventory and rental management - the core operational areas of any
HME business. A subset of the more functionally robust MestaMed(R) product,
HMExpress packages years of research and development into an affordable
out-of-the-box HME solution.
HMExpress features HME patient intake and order processing, equipment
pickups and exchanges, rental equipment management, recurring rental billing,
capped rental processing, CMN printing and tracking, Medicare Form 1500 bill
printing, private-pay statements, Durable Medical Equipment Regional Carrier
(DMERC) Electronic Claims Submission, billing system, accounts receivable
system, perpetual inventory, management reporting and multi-branch processing.
In addition to the core components of HMExpress, several add-on products
are available, including a user-friendly Report Writer, Electronic Remittance
Notice processing and Electronic Medicaid Claims Processing. HMExpress comes
complete with Computer-based training courses, comprehensive user documentation
and free regional training sessions. HMExpress customers are also afforded
real-time customer support coverage and services. HMExpress can grow with a
business or customers can upgrade to other compatible CareCentric products.
Optional ODBC capability addresses the data reporting and integration needs of
customers.
SPECIALIZED SOFTWARE PRODUCT SOLUTIONS
CareCentric offers the following specialized software solutions:
OASIS/ORYX Reporting and Benchmarking
-------------------------------------
In 2000, CareCentric entered into an agreement with Outcome Concept
Systems, Inc. (OCS), establishing OCS as CareCentric's exclusive ORYX and OASIS
benchmarking and outcomes solution partner. This agreement will enable
CareCentric to offer the complete suite of OCS products to all CareCentric
customers who use outcome measures to define patient care goals. The OCS
products allow home healthcare companies to collect, manage, report and analyze
clinical data. HCFA has mandated the collection of a standardized set of patient
assessment data (OASIS). Several accreditation organizations such as JCAHO
require the collection and submission of key assessment indicators (ORYX) as
well. The OCS-OASIS(TM) program incorporates JCAHO accepted measures and OASIS
requirements into one program for data input, real-time, desktop reporting and
graphing, and online access to quarterly benchmarks. Comprehensive collection
and benchmarking software allows agencies to transmit required clinical data to
state agencies, to provide flexible in-house reporting features, to receive
periodic comparative statistics from other member agencies and to access
clinical data in an open architecture for ad-hoc reporting. The OCS-OASIS(TM)
program has been incorporated into The Smart Clipboard(R) system to allow OASIS
and ORYX data entry and validation at the point-of-care.
PharmMed Rx(TM)
---------------
PharmMed Rx(TM) is CareCentric's enhanced, comprehensive, Windows-based,
home care pharmacy software. PharmMed Rx(TM), when used with the MestaMed(R)
Management System, is designed to be a fully functional, completely integrated
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pharmacy software system specifically enhanced to facilitate multiple types of
prescription processing and consolidated claims management. PharmMed Rx(TM) uses
an SQL database through the MestaMed(R) PDBC gateway.
PharmMed Rx(TM) works in conjunction with the MestaMed(R) Management System
to fully automate many processes unique to home infusion therapy providers. A
Windows-based application that adapts to both centralized and/or decentralized
operations, PharmMed Rx(TM) supports multiple locations and offers streamlined
order processing, enhanced clinical documentation, improved operations to
facilitate more efficient workflow, and improved reporting to aid regulatory
compliance.
TEMS (Telephone Entry Management System)
----------------------------------------
TEMS is a Windows-based software application that enables home care field
employees to record baseline timecard and visit information using standard
touch-tone or cellular telephones. It was designed as a simple, low-cost means
for capturing key information at the point-of-care. TEMS confirms staff visits
through caller identification. Once collected, information may be automatically
exported into an agency's payroll and billing applications. The Company believes
that TEMS is well suited for use by paraprofessionals or home health aides.
TEMS, under a patent licensed from MCI/WorldCom(R), uses telephones like
terminals to affordably document baseline visit, mileage, payroll and billing
information in a manner that the Company believes is affordable.
In 2001, CareCentric hopes to develop applications for TEMS for providers
of home medical equipment and infusion pharmacy services.
Decision Support / Data Warehousing
-----------------------------------
During 2001, CareCentric intends to continue the design and development of
data warehouse features that will allow agencies to access and gather data in an
orderly manner to perform "what-if" analysis utilizing the latest On-Line
Analytical Processing (OLAP) compliant tools working through open data base
compliant (ODBC) features and gateways currently in MestaMed(R), STAT2 and The
Smart Clipboard(R). Using these tools, we expect that agencies will be able to
merge and combine data across multiple databases to produce a number of decision
support scenarios that can be easily modified to accommodate new criteria and
market conditions. Automated routines to move consolidated financial and
clinical data to a common data repository from a number of CareCentric software
product databases would constantly update the historical databases used to
analyze data. Pre-defined data cubes, reports, graphs, charts and decision
support software would provide additional value to agency management groups.
Each of the comprehensive applications - MestaMed(R), Smart Clipboard(R) and
STAT2 - offer ODBC features that facilitate the use of third-party report writer
applications.
e-Learning Products
-------------------
CareCentric's e-Learning group has produced a number of interactive
computer-based training (CBT) courses that cover a variety of homecare industry
and product-specific topics. CBT courseware features leading industry experts
and allows CareCentric to deliver quality training and educational courseware at
a fraction of the cost of traditional training options. CareCentric offers
computer-based training using CD-ROM media, as well as web-based training (WBT),
affording the ability to provide timely training topics - at the provider's
convenience - directly related to job performance and compliance requirements.
In 2001, the Company intends to focus its development on CBT's that train users
of its software products to reduce the cost of installation and re-training.
CBT's to train and educate the users of DME VI will be completed in 2001 and
those for the training of users of The Smart Clipboard(R) will be undertaken in
2001 with completion anticipated in 2002. CBT/WBT courseware provides an
interactive, self-paced, individualized learning environment. Multimedia
technology (text, images, sound, animation, video) and workstations are used to
present courseware in an interactive manner. Instructions contain presentations,
demonstrations, and simulations complete with question and response capability.
Forms
-----
Through an outside printing contractor, CareCentric offers a vast variety
of standard Medicare, Medicaid and other forms used by home medical equipment
providers.
CLINICAL CONTENT OPTIONS
SmartCare
---------
The SmartCare suite of patient care plans and assessments allows home
health agencies to implement paper-based and electronic clinical data collection
processes by defining treatment plans for a variety of medical diagnosis-based
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conditions common to skilled nursing, hospice services and therapies. Over 30
plans of care and supported assessments facilitate immediate implementation of a
structured clinical process.
Outcomes Planner System
-----------------------
The Outcomes Planner System (OPS) is currently available to CareCentric
customers as a paper-based documentation solution designed to give agencies a
teaching-oriented set of clinical care pathway options. CareCentric's Outcomes
Planner System is a disease-specific, clinical care path and care plan
documentation package that includes discipline-specific OASIS and ORYX
assessments for skilled nursing, hospice and therapy. Compliant with both OASIS
and ORYX, OPS defines and measures outcomes for each visit or patient encounter
and provides documentation along critical paths for management of over 100
medical conditions. The electronic form of OPS which can be used with The Smart
Clipboard(R) has modules for skilled nursing. Modules for physical, occupational
and speech therapy, social work and hospice are in development. OPS is a
highly-effective tool for use under PPS. Home health agencies can use OPS to
assist them in meeting the continuing challenge of fewer dollars, sicker
patients and shorter lengths of stay. OPS enables a home health agency to
sharpen its management focus while ensuring quality of patient care to:
- access over 200 disease-specific clinical care pathways based on best
standards of care
- document visits based on standardized, measurable clinical assessments
- investigate care behavior that affects patient outcomes and PPS
reimbursement
- provide payors/surveyors with documentation of quality care
- ensure compliance with the approved Outcome-Based Quality Improvement
Model (OBQI)
CareCentric plans to continue introduction of the electronic content
version of the various modules of the OPS system for use with The Smart
Clipboard(R), CareCentric's advanced clinical management system, in 2001.
CareCentric will continue to employ and utilize a significant number of
clinical healthcare professionals and advisors to develop content-based
solutions to supplement its clinical content options and software products.
Regulatory Enhancements
-----------------------
CareCentric will continue to expend professional resources to address the
healthcare-related regulatory issues currently facing home care providers
including:
Prospective Payment System (PPS). As a result of the Balanced Budget Act of
1997 and the OCESSA Act of 1999, implementation of a prospective payment system
(PPS) was mandated for home health agencies. CareCentric provides educational
and consulting services as well as clinical and software modifications necessary
for PPS compliance. CareCentric offers the PPS Calculator, which enables
healthcare agencies to assess PPS compliance and includes the final regulation
requirements and the ability to produce the following valuable management
reports:
- The Summary Report summarizes all episodes, including prorated and
outlier episodes, by profit and loss by type of episode, including
gross and net reimbursement, average episode cost, average supply cost
by episode, and visits by discipline for each type of episode.
- The Diagnosis Analysis Report shows profit and loss by the top 20 most
profitable and least profitable diagnoses, their medical supply costs,
and visits by discipline for the episode.
- Profit and Loss by Utilization and Diagnosis identifies the top 5
diagnoses with the highest utilization, supply cost, profit and loss,
and type of episode.
- Clinical, Functional, and Service Dimension report shows the
utilization by discipline and resulting profit or loss by dimension.
- The Analysis by Therapy Utilization pinpoints the number of visits
which convert a patient's visits from a loss to a profit.
- The Summary Analysis by HHRG will identify the most common HHRG's for
an agency, total patients and visits for that HHRG, profit/loss, and
total episode days.
- The Medical Supply Cost Report will show the medical supply costs and
associated number of patients, and profit and loss for each group.
10
HIPAA. The Company expects that the Health Insurance Portability and
Accountability Act of 1996 will necessitate security, privacy and electronic
transmission-related enhancements to current software products. As specific
implementation regulations, guidelines and timetables are promulgated and
finalized, CareCentric will respond by allocating the resources it believes will
be needed to gain compliance for its product and service offerings and its
operations.
See also the section below entitled Government Regulation and Health Care
Reform.
SERVICE SOLUTIONS
Software Services
-----------------
CareCentric believes that providing comprehensive software services to
customers is critical to its success in the home health care industry.
CareCentric employs in excess of 150 professionals dedicated to this effort who
provide the following services:
- Implementation: Implementation services include an assessment of
existing customer business processes, project planning, system
training, business process re-engineering and data conversion
assistance.
- Training: Training and education services are offered on a continuing
basis to existing customers either at the customer's site or at
CareCentric's classroom training facilities in Pittsburgh,
Pennsylvania, Houston, Texas and Norcross, Georgia.
- Software Support: CareCentric offers on-call telephone software
support seven days a week and provides maintenance releases on a
periodic basis to address non-conforming software, certain regulatory
updates and certain product feature and function enhancements.
Releases of software enhancements are generally made available to
customers periodically. These enhancements include unspecified
improvements and regulatory updates. This support does not include
major functional or computer platform changes that would be offered to
customers as new product sale opportunities.
- Technical Consulting: CareCentric provides software customization and
integration, technical audits of the customer's information systems,
integration and network planning and strategic and tactical
information systems planning.
- Custom Programming: CareCentric provides customized programming for
its STAT2 customers on a fixed fee and per hour basis.
Software support services represent a source of recurring revenue, as these
services are provided through annual renewable maintenance contracts which
provide access to customer support, updates to respond to changes in
reimbursement and regulatory policies, and certain unspecified product
enhancements. The software in installations which do not have maintenance
agreements rapidly becomes obsolete. Other services are generally charged on a
time and materials usage basis. Travel costs are billed separately.
CareCentric's technical personnel also provide on-site and on-call technical
audit and server support.
Consulting Services
-------------------
CareCentric's home health care consulting services, Simione Consulting,
assist providers in addressing the challenges of a managed care and/or PPS
environment, such as reducing the cost of delivering care while maintaining or
improving quality of care, streamlining operational structures and
re-engineering organizational structures. CareCentric's consulting operations,
which were acquired by Simione in January 1996, have been providing consulting
advice to the home health care industry since 1963. The consulting staff is
comprised of approximately 30 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 - Organizational Reviews - Operational Re-engineering
- Consultation - Management - Medical Records
- Medicare Compliance - Cost Report Preparation
The Simione Consulting group of CareCentric provides consulting services on
a time and materials usage basis. Travel costs and business expenses are billed
separately. 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
CareCentric'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.
11
The consulting services business is highly dependent upon the skills of
individual professionals. The Company has no assurance that these professionals
can be retained in sufficient numbers to assure continuation of these services.
CUSTOMERS
CareCentric has over 2,500 customers nationwide, including:
- hospital-based companies;
- home health care providers;
- alternate-site care organizations;
- home medical equipment providers;
- integrated delivery systems; and
- government-managed organizations.
SALES AND MARKETING
CareCentric, led by a Senior Vice President of Sales and Marketing, markets
its information technology systems and services through a direct sales force in
three national territories located throughout the United States each led by a
Regional Vice President. Territorial account executives numbered twelve (12) at
March 30, 2001. An inside sales force of eight (8) handles non-system, CBT,
forms and supplies sales. A Vice President of business development handles
national accounts. CareCentric also employs a marketing and sales support staff
to assist its sales force. Recognizing the importance of maintaining good
communication and obtaining valuable input from its customers, CareCentric
sponsors customer advisory groups and national user group meetings. Regional
user group meetings are also held to discuss customer comments, suggestions,
industry trends, and related system issues.
BACKLOG
CareCentric had backlog of $4.1 million on December 31, 2000, $1.0 million
on December 31, 1999, and $0.8 million on December 31, 1998. If the historical
operations of Simione, MCS and CareCentric Solutions, Inc. (CSI) are
arithmetically combined for purposes of comparability, CareCentric had backlog
of $4.1 million on December 31, 2000, $1.6 million on December 31, 1999, and
$4.1 million on December 31, 1998. Backlog consists of the unrecognized portion
of contractually committed software license fees, hardware, estimated
installation fees and professional services. The length of time required to
complete an implementation depends on many factors outside the control of
CareCentric, including the state of the customer's existing information systems
and the customer's ability to commit the personnel and other resources necessary
to complete the implementation process. As a result, CareCentric may be unable
to predict accurately the amount of revenue it will recognize in any period and,
therefore, can make no assurances that the amounts in backlog will be recognized
in the next twelve months.
TECHNOLOGY
The Smart Clipboard(R) system operates in all Windows environments and its
point-of-care features operate on tablets, laptops and other scaleable devices.
It features a flexible relational database capable of accurate replication
necessary to support distributed and remote information systems.
The STAT2 system operates on multiple operating systems, including Windows,
and is designed for use on microcomputers, network PCs, and IBM and DEC computer
hardware. The STAT2 system allows a customer to exchange clinical and financial
information with external systems in either an immediate connection or by
accumulating data to transmit later in batches or batch mode.
The DME VI system operates on MS-DOS and Windows operating systems and is
designed for use on microcomputers or network PCs.
The integrated MestaMed(R) system operates on multiple operating systems
including Open VMS, Windows NT, UNIX, AIX and other primary platforms. An ODBC
gateway has been developed to allow efficient queries of its proprietary
database.
CareCentric's systems are dependent upon many third-party software and
hardware products and related services and alliances with other product and
development partners. There can be no assurance that financial or other
difficulties experienced by such third-party vendors will not have an adverse
effect on CareCentric's abilities to provide its systems or that CareCentric
will be able to replace such third-party products and services if they become
unavailable.
12
The third-party software is composed of varying types and contractual
arrangements. The nature and scope of the third-party software is described in
the table below. The software licensed from third parties falls into one of the
four categories listed below. All of CareCentric's products use these
third-party software products to some varying degree. Fees charged by the
third-party software vendors are passed on to CareCentric's customers in the
license fees, annual fees or maintenance fees charged by CARECENTRIC. The
software is either embedded in CareCentric's software prior to sale or accessed
by CareCentric's software as an external data file.
TERMS OF LICENSE
MONTHLY ONE TIME PER USER OR EMBEDDED DATA
MAINTENANCE FEE PER SEAT SOFTWARE FILE
----------- --- -------- -------- ----
Operating System X X X X
Medical Content X X X X
Report Writer X X X X
Data Base Manager X X X X
RESEARCH AND DEVELOPMENT
CareCentric maintains a staff of approximately 90 product and project
managers, programmers, data base engineers and analysts, systems and application
analysts, quality assurance analysts and documentation specialists who monitor
developments in the computer software and health care industries and who
continuously work to enhance and develop CareCentric's systems. CareCentric's
research and development expenses were approximately $6.2, $1.1, and $1.2
million for the years ended December 31, 2000, 1999, and 1998, respectively. If
the historical operations of Simione, MCS and CareCentric Solutions, Inc. (CSI)
are arithmetically combined for purposes of comparability, research and
development expenses increased $1.1 million, or 20%, to $6.4 million in 2000
from $5.3 million in 1999. As a percentage of total net revenues, research and
development expenses increased to 22.7% in 2000 from 12.9% in 1999.
CareCentric is enhancing selected features of existing products and
developing new products to help its customers improve workflow and operational
and clinical process. The Company believes that such activities will help
customers manage and reduce costs while maintaining quality clinical outcomes,
which are believed to be a necessity for business survival under the prospective
payment system (PPS). CareCentric has multiple additional research and
development activities underway.
CareCentric recognizes the need to respond to the rapid technological
change that is occurring in the software and health care industries. In 2001,
CareCentric began Project UNIFY, a multi-disciplinary approach to product
development based upon the Rational Unified Process(R) and its associated tool
sets. The Company has undertaken development assessments of two of its
development centers, successfully run two pilot projects using the new
development process (both slated for inclusion in the planned Release 3.1 of The
Smart Clipboard(R)) and begun planning a new approach to "change and
configuration" management. There can be no assurance, however, that CareCentric
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. CareCentric believes that the
primary factors affecting competition are:
- system performance and reliability
- ability to operate in a changing regulatory environment
- customer support
- service
- system flexibility and ease of use
- potential for providing feature enhancements
- reputation o financial stability
13
CareCentric believes it is a strong competitor in system performance and
reliability in its legacy products, ability to provide regulatory enhancements,
customer support and potential for enhancements. CareCentric provides customer
support through a real-time, telephone-based system which CareCentric believes
has been effective in satisfying customer needs. CareCentric believes it has a
competitive advantage in the service area because it offers a more complete
health care industry consulting service that supplements and supports its
systems-related services, and strengthens customer relationships. Pricing in
this industry is very competitive, with no particular company, including
CareCentric, having a clear advantage. CareCentric's reputation is tied mainly
to the performance of each of its products. As comprehensive systems, they are
known for broad functionality, but require extensive education and training.
Overall the Company believes its workforce is gaining a reputation for clinical
knowledge.
CareCentric's name recognition within the market is not as well established
as many of its competitors. Advertising of the name, new logo and tag line
-Achieve Your Potential--began in early 2001 and is intended to increase the
Company's name recognition and visibility in the market place. CareCentric is at
a competitive disadvantage with respect to financial stability because its
financial position is not as strong as that of its major competitors.
CareCentric's competitors include other providers of home health care
information systems and services, management companies and home health care
consulting firms. Furthermore, other major health care information companies not
presently offering home health care information systems, or major information
system companies not currently in the health care industry, could develop the
technology and enter CareCentric's markets. CareCentric believes its most
significant competitors are:
- Delta Health Systems (a division of Shared Medical Systems Corp. owned
by Siemens);
- McKesson HBOC;
- Patient Care Technologies, Inc. (partially owned by Meditech);
- Home Care Information Systems, Inc. (owned by Misys PLC);
- 3M
- Beyond Now Technologies
- Fastrack Healthcare System
- Computer Applications Unlimited
Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
CareCentric's business, financial condition and results of operations. In
addition, many of CareCentric's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than CareCentric. Many of CareCentric's
competitors also currently have, or may develop or acquire, substantial
installed customer bases in the home health care industry. As a result of these
factors, CareCentric's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the development, promotion and sale of their systems and services
than CareCentric. There can be no assurance that CareCentric will be able to
compete successfully against current and future competitors or that competitive
pressures faced by CareCentric will not materially adversely affect its
business, financial condition and results of operations.
PROPRIETARY RIGHTS AND PRODUCT PROTECTION
CareCentric owns the copyrights on its STAT2 system, the DME VI acquired
from Dezine, The Smart Clipboard(R) system acquired in its 1999 merger with
CareCentric Solutions, Inc. (CSI) and the MestaMed(R) and HMExpress products
acquired in its 2000 merger with MCS, Inc. (MCS). CareCentric depends upon a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions, confidentiality policies and
various security measures to protect its proprietary rights. There can be no
assurance that the legal protections afforded to CareCentric or the precautions
taken by CareCentric will be adequate to prevent misappropriation of
CareCentric's technology. In addition, these protections do not prevent
independent third-party development of functionally equivalent or superior
technologies, systems or services, or the obtaining of a patent with respect to
CareCentric's technology by third parties. Any infringement or misappropriation
of CareCentric's core proprietary software could have a material adverse effect
on CareCentric. Although there has been no significant litigation with respect
to these claims, as the number of home health care software information systems
increases and the functions of these systems further overlap, health care
information systems may increasingly become subject to infringement claims.
14
CareCentric believes that its current systems and products do not infringe
on the patent or trademark rights of any third parties. There has, however, been
substantial litigation and uncertainty regarding copyright, patent and other
intellectual property rights involving computer software companies and there can
be no assurance that CareCentric will prevail in any infringement litigation in
which it becomes involved. To resolve an infringement inquiry from
MCI/Worldcom(R) involving CareCentric's TEMS software, CareCentric signed a
settlement and licensing agreement in 2000 requiring a call counter and
quarterly royalty payments which will be immaterial to the Company's financial
performance. Any claims or litigation, with or without merit, could be costly
and could result in a diversion of management's attention which could have a
material adverse effect on CareCentric's business, financial condition and
results of operations. Adverse determinations in such claims or litigation may
require CareCentric to cease selling certain systems or products, obtain a
license and/or pay damages, any of which could also have a material adverse
effect on CareCentric's business, financial condition and results of operations.
GOVERNMENT REGULATION AND HEALTH CARE REFORM
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of home health care organizations. During the past several years, the United
States health care industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates and certain proposals to
reform various aspects of the United States health care system have periodically
been considered by Congress. Future proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for CareCentric's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in CareCentric's systems and services. CareCentric cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.
The Office of Inspector General of the Department of Health and Human
Services had identified in its Work Plan for Fiscal Year 2000 several projects
within the home health industry which were the focus of the Inspector General's
scrutiny in fiscal year 2000. Each year the Inspector General sets forth in its
Work Plan for that year the areas that will be scrutinized. For example, the
2000 Work Plan set forth that the Inspector General would focus on home health
compliance programs, physician involvement in approving home health care,
screening of home health beneficiaries, payments based on location of service,
and reasonableness of current payments. In addition to most of the items in the
2000 Work Plan, the 2001 Work Plan sets forth that the Inspector General will
focus on the impact of the prospective payment system (PPS) on access to and
quality of care, home health prospective payment system controls, assessments
used for case-mix adjustment, and Medicare's debt management process. Screening
of home health beneficiaries and reasonableness of current payments are not
included in the 2001 Work Plan. Additionally, the Inspector General has focused
in recent years on how third-party billing companies, such as CareCentric,
provide billing and collection services to its customers. The Inspector General
has also stressed the importance of compliance programs for aspects of the
health care industry. Although currently implementation of such programs is
voluntary, such compliance programs may become a requirement in the future as a
condition of being reimbursed under any federal or state programs or by private
health plan payors. The Inspector General released in December 1998 a compliance
program intended as guidance to third-party medical billing companies and their
agents and subcontractors in developing internal controls promoting adherence to
applicable law and the program requirements of federal, state and private health
plan payors. Any changes resulting from the Inspector General's review of the
home health industry and how home health services are billed could increase the
costs and time necessary for CareCentric to provide its administrative services
to its customers and could affect CareCentric in other respects not currently
foreseeable.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in databases maintained on
CareCentric's systems are subject to substantial regulation by state governments
and federal legislation governing specialized medical information and records.
Although compliance with these laws and regulations is principally the
responsibility of the hospital, physician or other home health care provider
with access to CareCentric's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) includes provisions directing
the Secretary of the Department of Health and Human Services to adopt standards
governing the electronic transmission of data in connection with a number of
transactions involving health information, including submission of health
claims. These standards are intended to cover security measures and safeguards
with respect to health information, as well as standardization of data,
assignment of identifiers and authentication of electronic signatures. There are
a number of standards to be included in the rulemaking for the provisions of
HIPAA. Of the nine provisions, a Notice of Proposed Rule has been published for
five of the standards. Of these five standards, only two have final rule
publication. The Standards for Electronic Transactions and Code Sets Final Rule
was published in the August 17, 2000 Federal Register and would be effective
October 16, 2000, setting an effective compliance date of October 16, 2002. The
15
goal of this regulation is to simplify electronic transfer of data by requiring
a single set of standards be used throughout the health care industry. This
single set of electronic standards will be required for all health plans and
providers, as well as claims clearinghouses, whether in the government or
private sector. This regulation includes eight electronic transactions and four
code sets to be used in those transactions. These are:
- Health claims and equivalent encounter information
- Enrollment and disenrollment in a health plan
- Eligibility for a health plan
- Health care payment and remittance advice
- Health plan premium payments
- Health claim status
- Referral certification and authorization
- Coordination of benefits
Many of these transactions are integrated into the operations of home
health agencies and the Company expects that they will impact CareCentric's
coding and transaction processes.
The Standards for Privacy of Individually Identifiable Health Information
Final Rule was issued on December 20, 2000. This regulation protects all patient
records, including paper, electronic, and oral communications. HHS has delayed
the effective date of the privacy rules by two months, setting a new effective
date as of April 14, 2001, with a new compliance date of April 14, 2003. This
rule will require significant changes in CareCentric's systems and its
operations regarding access to records, masking, and confidentiality.
In January 1999, HCFA published an interim final rule and a final rule
requiring home health agencies to report electronically data obtained from the
Outcome and Assessment Information Set ("OASIS") as a condition of participation
by such agencies in the Medicare program. OASIS requires information regarding
patients to be submitted electronically to HCFA, and the January 1999 rules set
forth requirements for maintaining the privacy of patient identifiable
information generated by OASIS. Further, these rules require the home health
agency or its agent to maintain the confidentiality of all patient identifiable
information contained in the clinical record and neither can release such
patient identifiable OASIS information to the public. Any agent acting on behalf
of an agency in connection with the transmission of OASIS data must be doing so
pursuant to a written agreement with the home health agency. Additional
legislation governing the dissemination of medical record information has been
proposed at both the state and federal level. This legislation may require
holders of such information to implement additional security measures which may
be difficult to implement and costly to CareCentric. There can be no assurance
that changes to state or federal laws and regulations will not materially
restrict the ability of home health care providers to submit information from
patient records to CareCentric's systems or impose requirements which are
incompatible with CareCentric's current systems. During 2000, HCFA announced
that OASIS assessments must be completed on all adult patients, with the
exception of maternity or personal care/housekeeping services. However, the
encoding and transmission requirement currently applies to Medicare and Medicaid
patients only. OASIS requirements have been delayed for patients receiving only
personal care (non-skilled) services.
On July 3, 2000, HCFA released the Prospective Payment System for Home
Health Agencies Final Rule for reimbursement of home health providers under
Medicare which was effective on October 1, 2000. Under this rule, Medicare
reimburses home health providers fixed amounts for 60 day episodes of care
determined by home health resource group case-mix classifications on the basis
of an initial OASIS assessment adjusted for regional labor cost differences. The
Rule specifies that reimbursement will be 60% at the start of the first episode
and 40% after the final claim with all adjustments has been transmitted. For
subsequent episodes, the agency will be paid 50% at the start of the episode and
50% upon receipt of the final clam. Agencies must submit a Request for
Anticipated Payment (RAP) after the first billable visit, which will trigger the
initial payment. Adjustments will be allowed for low utilization, partial
episodes, significant changes in condition, delivery of therapy services and
other excessive cost situations. Additional submittals required include
identification of the appropriate case mix group, source of admission, and a one
line universal bill submission.
These changes to the Medicare payment system have required extensive
changes to the manner in which home health care providers do business because
they are required to reduce or manage the costs of care per episode so the costs
will not exceed the allowed reimbursement, while maintaining the quality of
medical outcomes required by the patient, the payor or other governmental
regulatory and self-regulating organizations. Such changes have required
extensive changes to CareCentric's software products, especially STAT2, The
Smart Clipboard(R) and the MestaMed(R) HHA module.
16
In the Omnibus Consolidated and Emergency Supplemental Appropriation Act of
1999, the portions of the Balanced Budget Act of 1997 that were applicable to
the reimbursement of home health care providers under Medicare were amended to:
- defer the 15% additional funding cut until October 2000;
- provide for three year extended payments of prior Medicare
over-reimbursements with the first year interest-free;
- eliminate the bundling of home medical equipment billings with home
health agency billings; and o provide other minor relief.
These changes were intended to increase the cash flow of our customers and
potential customers but do not provide the permanent relief sought by the
industry. The non-bundling change eliminates an opportunity to sell the
MestaMed(R) product, which has a software program that would facilitate such
bundling of billing. This legislation will not require significant changes to
our software programs.
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
(BIPA) of 2000 established positive payment changes for home health agencies.
These changes were:
- Additional delay in application of 15% reduction on payment limits for
home health services until October 1, 2002;
- Restoration of full market basket update for home health services for
fiscal year (FY) 2001;
- Temporary two-month periodic interim payment extension;
- Clarification in the use of telehealth in delivery of home health
services;
- General Accounting Office (GAO) study on costs to home health agencies
of purchasing non-routine medical supplies;
- Clarification of criteria for branch offices and a GAO study on
supervision of home health care provided in rural areas;
- Clarification of the "Homebound" definition;
- Temporary 10% increase for home health services furnished in rural
areas;
- Revisions to Medicare appeals process; and
- A full market-basket update for home medical equipment for fiscal year
2001.
The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug and
Cosmetic Act administered by the Food and Drug Administration (FDA). Computer
products are subject to regulation when they are used or are intended to be used
in the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment or prevention of disease, or are intended to affect the structure or
function of the body. Although CareCentric believes that its systems are not
subject to FDA regulation, the FDA could determine in the future that predictive
applications of CareCentric's systems could make them clinical decision tools
subject to FDA regulation. Compliance with FDA regulations could be burdensome,
time consuming and expensive. CareCentric also could become subject to future
legislation and regulations concerning the manufacture and marketing of medical
devices and health care information systems. These could increase the costs and
time necessary to market new systems and could affect CareCentric in other
respects not presently foreseeable. CareCentric cannot predict the effect of
possible future legislation and regulation.
EMPLOYEES
As of December 31, 2000, CareCentric employed 298 individuals. CareCentric
believes that its future success depends in large part upon recruiting,
motivating and retaining highly skilled and qualified employees in all aspects
of CareCentric's business. None of CareCentric's employees is represented by a
labor union. CareCentric believes that its employee relations are good.
ITEM 2. PROPERTIES
CareCentric's principal executive offices are located at 2625 Cumberland
Parkway, Suite 310, Atlanta, Georgia 30339. The principal executive offices
consist of approximately 12,000 square feet. The lease on this space expires on
January 31, 2003.
CareCentric also leases office space for its operations in the following
locations:
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
Pompano Beach, Florida.............. 20,291 December 31, 2001*
Duluth, Georgia..................... 8,370 March 31, 2001*
Westborough, Massachusetts.......... 3,020 August 30, 2001
Stafford, Texas..................... 2,868 November 30, 2002
17
Hamden, Connecticut................. 6,500 December 31, 2002
Atlanta, Georgia.................... 64,324 December 31, 2002*
Irving, Texas....................... 1,645 March 31, 2003*
Pleasanton, California.............. 2,463 March 31, 2004*
East Brunswick, New Jersey.......... 1,082 August 31, 2005
Pittsburgh (Monroeville), Pennsylvania 24,308 September 30, 2005
Norcross, Georgia................... 19,704 February 28, 2007
*See below
In September 1999 CareCentric entered into a non-cancelable agreement to
sublease approximately 43,000 square feet of the former principal executive
office in Atlanta, Georgia through the remaining term of the lease. In January
2001, CareCentric entered into a non-cancelable agreement to sublease the
remaining space formerly occupied by CareCentric as its principal executive
offices through the remaining term of the lease. In February 2000 CareCentric
entered into a non-cancelable agreement to sublease all of the 1,645 square feet
of office space at its Irving, Texas location through the remaining term of the
lease. During 2000 CareCentric also entered into non-cancelable agreements to
sublease approximately 6,800 square feet of the Pompano Beach, Florida office.
All these subleases are coterminous with CareCentric's leases. The operations at
the Duluth, Georgia office have been moved to Norcross, Georgia and the Duluth
lease was terminated upon its expiration. The Company is currently negotiating
to return the Pleasanton, California office to the landlord.
The landlord of the Connecticut office is a company controlled by Barrett
O'Donnell, a director of CareCentric, and Reid Horovitz, former General Counsel
and Secretary of CareCentric.
CareCentric believes that its present facilities are adequate to meet
CareCentric's current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
Neither CareCentric nor any of its subsidiaries is currently a party to any
legal proceedings which would be material to the business or financial condition
of CareCentric on a consolidated basis.
Simione Central Holding, Inc., a subsidiary of CareCentric now known as SC
Holding, Inc. ("SC Holding") was one of several defendants named in a
"whistleblower" lawsuit related to alleged Medicare fraud filed under the False
Claims Act in the Northern District of Georgia (U.S. ex rel. McLendon v.
Columbia/HCA Healthcare Corp., et al., No. 97-VC-0890 (N.D. Ga.)). The lawsuit
involves alleged claims that SC Holding allegedly participated in a conspiracy
with Columbia/HCA and other third parties to bill inflated and fraudulent claims
to Medicare. On July 21, 1999, the Justice Department issued notice that it had
elected not to join in the claims asserted against SC Holding by Donald
McLendon, who is a former employee of an unrelated service provider to
Columbia/HCA. Although the Justice Department joined the suit with regard to
other defendants, it specifically declined to intervene with regard to SC
Holding. In late 2000, CareCentric was advised by Mr. McLendon's attorney that
notwithstanding the declination by the Justice Department, Mr. McLendon intends
to pursue "whistleblower" claims against SC Holding directly. In the event these
claims are asserted, CareCentric and SC Holding intend to vigorously defend
against them.
The Company reached a settlement on June 30, 2000 with IBM relative to
the early cancellation of the Company's service agreement with IBM for services
provided to a former customer of CareCentric and related fees for services. The
settlement was fully reserved for in connection with the accounting for the
Simione/MCS merger on March 7, 2000 and, accordingly, did not have a material
adverse impact upon the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
EXECUTIVE MANAGEMENT OF THE REGISTRANT
R. Bruce Dewey............ 49 Chief Executive Officer, President and
Director
William J. Simione, Jr.... 58 Executive Vice President and Director,
President of Simione Consulting
Jack Arthur............... 62 Senior Vice President of Product
Management and Quality Assurance
Stephen M. Shea........... 45 Senior Vice President and Chief
Financial Officer
Mark A. Kulik............. 42 Senior Vice President of Sales and
Marketing
Kathryn B. McClellan...... 46 Senior Vice President of Corporate
Relations
Charles N. Mead, M.D...... 53 Chief Science and Technology Officer
Michael Quinn............. 47 Senior Vice President of Operations
Robert J. Simione......... 50 Senior Vice President of Consulting
R. Bruce Dewey was appointed the Chief Executive Officer of Simione as of
September 9, 1999 in accordance with the terms of the MCS/Simione merger
agreement and remains in that capacity with CareCentric. Mr. Dewey remains
Senior Vice President and Secretary of Mestek, Inc. and spends approximately 75%
of his time in his capacity as CareCentric's Chief Executive Officer. He has
served as Senior Vice President and General Counsel of Mestek since 1994 and
Secretary of Mestek since 1992. Mr. Dewey was Vice President-Administration of
Mestek prior to 1994. Prior to joining Mestek in 1990, Mr. Dewey was an attorney
in private practice in Seattle, Washington, most recently with Cairncross, Ragen
& Hempelmann from 1987 to 1990. Mr. Dewey was a director of MCS, Inc. from June
1992 to August 1999.
William J. Simione, Jr. is a certified public accountant who has served as
Vice Chairman of the Board and Executive Vice President of Simione from October
1996 to the date of the MCS/Simione merger. From January 1996 until October
1996, Mr. Simione served as the President of Simione Central, Inc., a wholly
owned subsidiary of Simione. From January 1975 until December 1995, Mr. Simione
was Managing Partner of the Home Health Care Consulting Division of Simione &
Simione, CPAs. Since September 1995, Mr. Simione has also served as a director
and an audit committee member of Personnel Group of America, Inc., a leading
provider of information technology services and commercial staffing solutions.
Mr. Simione has 33 years of experience in the home health care industry.
Jack Arthur served as Senior Vice President of Product Development and
Product Management of Simione from January 1999 to the date of its merger with
MCS, Inc. when he became Senior Vice President of Product Management and Quality
Assurance. From July 1998 until December 1998, Mr. Arthur was a manager of
product development with Eclipsys, Inc., an information systems provider. From
October 1995 until June 1998, Mr. Arthur was the owner of Healthcare Consulting,
Inc., a health care information systems consulting company. From June 1985 until
October 1995, Mr. Arthur held various product development management positions
with SMS, Inc., an information systems provider.
Stephen M. Shea has served as Chief Financial Officer of CareCentric since
April 2000. Mr. Shea was Senior Vice President-Finance of MCS, Inc. from 1994
until its merger into Simione on March 7, 2000. Mr. Shea has been employed in
various financial roles by Mestek, Inc. since 1985 and has served as Chief
Financial Officer of Mestek since 1990, and as Senior Vice President-Finance
since 1994. Mestek was the parent company of MCS, Inc. before it merged into
Simione on March 7, 2000.
Mark A. Kulik became Senior Vice President of Sales and Marketing of
CareCentric in October 2000. Mr. Kulik has spent the majority of his 21-year
career in the healthcare industry including hospital supply distribution, home
health care, home medical equipment, home infusion, and healthcare information
management. Prior to joining CareCentric, Mr. Kulik served as Executive Vice
President for several health care management and information service companies,
the most recent being Healthcare Credentials Management Services from December
1998 to February 2000 and Equifax Healthcare Information Services from July 1994
to December 1998. Earlier in his career, he served as Area Vice-President for
Abbey/Foster Medical, Inc. from July 1986 to February 1991.
Kathryn B. McClellan became Senior Vice President of Corporate Relations of
CareCentric in May 2000. She previously served as Senior Vice President of
Customer Services and Support of Simione from November 1998 to the date of the
merger with MCS, Inc. when she became Senior Vice President of Product Services.
From June 1996 until November 1998, Ms. McClellan held various operational and
customer services positions with Simione. From April 1991 until June 1996, Ms.
McClellan was an administrator and director of Memorial Medical Center.
19
Charles N. Mead, M.D. served as Chief Science and Technology Officer of
Simione from August 1999 to the date of the MCS/Simione merger. From June 1993
to the date of its acquisition by the Company, Dr. Mead was Vice Chairman, Chief
Scientist and a director of CareCentric Solutions, Inc., which he co-founded in
1993. Dr. Mead has a long-standing involvement in biomedical computing and the
application of computers to medicine.
Michael Quinn served as Senior Vice President of Operations of MCS, Inc.
since 1985 and became an officer of CareCentric upon the merger with MCS, Inc.
when he became Senior Vice President of Operations, responsible for corporate
resources and customer support. He was a director of MCS, Inc. since 1992 until
the merger with Simione. From 1977 to 1985, Mr. Quinn worked in various
programming and sales capacities for MCS, Inc. and its parent company
supervising sales, product development and product support.
Robert J. Simione has served as Senior Vice President of Consulting of
Simione from October 1996 to the date of the MCS/Simione merger. From January
1976 until September 1996, Mr. Simione was a principal of Simione & Simione. Mr.
Simione has significant experience in the financial and operational management
of hospice providers and home health operations inside integrated delivery
networks.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As more fully explained in Notes 1 and 2 to the Consolidated Financial
Statements, MCS, Inc. is considered to have acquired Simione Central Holdings,
Inc. on March 7, 2000, and the historical financial statements of the "Company"
as discussed herein are therefore the historical financial statements of MCS,
Inc. only, except where specifically noted.
Conversely, the table below sets forth the high and low sales prices of
CareCentric common stock subsequent to the merger and the high and low sales
prices of Simione prior to the merger as reported on The Nasdaq Stock Market for
the calendar periods indicated.
The common stock of CareCentric has traded on The Nasdaq Stock Market's
Smallcap Market under the symbol CURA since December 26, 2000. From June 6, 2000
until December 26, 2000, the common stock traded on the Nasdaq SmallCap Market
under the symbol SCHI. From June 30, 1997 until June 6, 2000, the common stock
traded on the Nasdaq National Market under the symbol SCHI, and prior to June
30, 1997 it traded on the OTC Bulletin Board under the symbol SCHI. During March
2000, the common stock was traded temporarily under the symbol SCHID on Nasdaq
to reflect the 1-for-5 reverse stock split.
As of March 30, 2001, CareCentric common stock was held by approximately
3,591 holders of record. For this purpose, stockholders whose shares are held by
brokers on behalf of stockholders are not separately counted.
The table below shows the reported quarterly high and low bid prices for
CareCentric common stock on the OTC Bulletin Board for the period January 1,
1997 to June 29, 1997, and the reported quarterly high and low sales price for
the CareCentric common stock on the Nasdaq National Market and Nasdaq Smallcap
Market for the periods after June 30, 1997. The information set forth below does
not include retail mark-ups, mark-downs or commissions. In addition,
over-the-counter prices reflect inter-dealer prices, and may not necessarily
represent actual transactions. The sales prices after the second quarter of 1997
reflect the value of CareCentric common stock following a 1-for-2 reverse stock
split which occurred on June 30, 1997. The sales prices have been adjusted to
reflect the effect of the 1-for-5 reverse stock split which occurred on March 7,
2000.
2000 1999 1998 1997
------------------- -------------------- --------------------- ----------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- ---------- --------- --------- ---------- ----------
First Quarter 11.250 3.250 17.500 6.250 60.625 32.500 38.370 21.250
Second Quarter 4.875 2.000 21.250 6.875 81.250 31.250 33.750 25.000
Third Quarter 3.500 1.500 15.000 6.250 41.250 4.375 73.750 47.500
Fourth Quarter 4.125 2.250 9.375 5.000 16.250 5.000 70.625 35.000
CareCentric has never declared or paid cash dividends on CareCentric common
stock. CareCentric currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future. CareCentric's line of credit includes restrictions on the
payment of dividends.
20
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, 2000, 1999, 1998, 1997 and 1996 are derived from the
audited consolidated financial statements of the Company. As more fully
explained in Note 1 to the Consolidated Financial Statements, MCS, Inc. is
considered to have acquired Simione Central Holdings, Inc. on March 7, 2000, and
the historical financial statements of the "Company" as discussed herein are
therefore the historical financial statements of MCS, Inc. only, except where
specifically otherwise noted. See Note 1 to Notes to Consolidated Financial
Statements for information about the Company's history. The data should be read
in conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company included herein.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- -------------- --------------- -------- ------------
(in thousands, except per share data)
Net revenues: $ 24,968 $ 16,648 $ 14,901 $ 15,433 $ 14,636
Costs and expenses:
Cost of revenues 13,646 10,563 9,225 8,885 8,350
Selling, general and
administrative 10,756 4,077 3,586 3,540 3,378
Research and development 6,174 1,051 231 - -
Amortization and depreciation 3,960 230 194 119 94
-------------- -------------- ------------- ---------- -------------
Total costs and expenses 34,536 15,921 13,236 12,544 11,822
-------------- -------------- ------------- ---------- -------------
(Loss) income from operations (9,568) 727 1,665 2,889 2,814
Other (expense) income:
Interest expense (899) - - - -
Interest and other income 68 45 47 74 52
-------------- -------------- ------------- ---------- -------------
Net (loss) income before taxes (10,399) 772 1,712 2,963 2,866
-------------- -------------- ------------- ---------- -------------
Income tax benefit (expense) 154 (306) (686) (1,195) (1,158)
--------------- -------------- ------------- ---------- -------------
Net (loss) income from continuing
operations (10,245) 466 1,026 1,768 1,708
--------------- -------------- ------------- ---------- -------------
Discontinued operations
Income from operations of
discontinued segment before
taxes - 251 671 401 249
Applicable tax expense - 100 268 160 100
Net income from operations of
discontinued segment - 151 403 241 149
--------------- -------------- ------------ ---------- ------------
Net (loss) income $(10,245) $ 617 $ 1,429 $2,009 $1,857
=============== ============== ============ ========== ============
Net (loss) income per share -
basic and diluted
From continuing operations $ (3.00) $ 0.31 $ 0.69 $ 1.19 $ 1.15
Weighted average common shares -
basic and diluted 3,418 1,490 1,490 1,490 1,490
=============== ============================== =========== ==========
Net (loss) income per share -
basic and diluted
From discontinued operations $ - $ 0.10 $ 0.27 $ 0.16 $ 0.10
Weighted average common shares -
basic and diluted 3,418 1,490 1,490 1,490 1,490
=============== ============== =============== =========== ==========
Net (loss) income per share -
basic and diluted
From operations $ (3.00) $ 0.41 $ 0.96 $ 1.35 $1.25
Weighted average common shares -
basic and diluted 3,418 1,490 1,490 1,490 1,490
=============== ============== =============== =========== ===========
21
DECEMBER 31,
2000 1999 1998 1997 1996
(UNAUDITED)
--------------- -------------- --------------- -------------- ---------------
(in thousands)
BALANCE SHEET DATA
Cash and cash equivalents $ 362 47 60 40 34
Working capital (deficit) (13,765) (1,542) (1,745) (2,110) (1,754)
Total assets 35,120 6,696 5,279 4,895 4,489
Long-term obligations 728 - - - -
Shareholders' equity (deficit) $ 11,080 $ 505 (981) (1,640) (1,312)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
the Private Securities Litigation Reform Act of 1995, and are subject to the
safe harbor created by such sections. When used in this report, the words
"believe", "anticipate", "estimate", "expect", and similar expressions are
intended to identify forward-looking statements. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-K which address activities, events, or developments which the Company
expects or anticipates will or may occur in the future, including statements
regarding the Company's competitive position, the successful development of its
software products, the impact on the Company of actual or proposed regulatory
changes, the Company's expectations regarding the adequacy of current financing
arrangements, product demand and market growth, and other statements regarding
future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions, and expected future developments as well as other
factors it believes are appropriate in the circumstances. The Company's future
financial performance could differ significantly from that set forth herein, and
from the expectations of management. Important factors that could cause the
Company's financial performance to differ materially from past results and from
those expressed in any forward looking statements include, without limitation,
the inability to obtain additional capital resources, variability in quarterly
operating results, customer concentration, product acceptance, long sales
cycles, long and varying delivery cycles, the Company's dependence on business
partners, emerging technological standards, changing regulatory standards,
inability to retain or hire experienced and knowledgeable employees, risks
associated with acquisitions, increased regulation of the health care industry,
future consolidation of the health care industry, potential liability in
connection with the Department of Labor investigation or IRS audit, the need to
develop new and enhanced products, product delays and errors, competition,
difficulty protecting intellectual property rights, and the risk factors
detailed in the Company's Registration Statement on Form S-4 (File No.
333-96529) and in the Company's periodic reports filed with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto. The Company assumes no obligation to
update publicly any such forward-looking statements, whether as a result of new
information, future events, or otherwise.
The following is a discussion of the consolidated financial condition and
results of operation of the Company for the three years ended December 31, 2000
and certain factors that will affect the Company's financial condition. In these
discussions, most percentages and dollar amounts have been rounded to aid
presentation; as a result, all such figures are approximations. References to
such approximations have generally been omitted.
As more fully explained in Notes 1 and 2 to the Consolidated Financial
Statements, MCS, Inc. is considered to have acquired Simione Central Holdings,
Inc. on March 7, 2000, and the historical financial statements of the "Company"
as discussed herein are therefore the historical financial statements of MCS,
Inc. only, except where specifically noted.
22
OVERVIEW
CareCentric, Inc. (formerly known as Simione Central Holdings, Inc.)
("CareCentric" or the "Company") is a leading provider of information technology
systems and related services and consulting services designed to help home
health care providers more effectively operate their businesses in today's
environment. The Company's focus is to help home health care providers
streamline their operations and better serve their patients. CareCentric offers
several comprehensive software solutions. Each of these solutions provides a
basic set of software applications and specialized modules which can be added
based on customer demand. These software solutions are designed to enable
customers to generate and utilize comprehensive financial, operational and
clinical information. In addition to its software solutions and related software
support services, CareCentric's home health care consulting services assist
providers in addressing the challenges of:
- reducing costs;
- regulatory compliance;
- maintaining quality;
- streamlining operations;
- re-engineering organizational structures; and
- analyzing and performing due diligence in mergers and acquisitions.
CareCentric has over 2,500 customers nationwide, including:
- hospital-based facilities;
- free-standing home health care providers;
- alternate-site care organizations;
- home medical IV, infusion and rehabilitation equipment providers;
- integrated delivery networks (IDN); and
- government-managed organizations.
Through a subsidiary, Simione Central Holdings, Inc. formerly provided
comprehensive agency support services which included administrative, billing and
collection, training, reimbursement and financial management services, among
others. This line of business was discontinued in December 1999.
The Company sells its software pursuant to non-exclusive license agreements
which provide for the payment of a one-time license fee. In accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Revenue Recognition", these revenues are recognized when products are delivered
and the collectibility of fees is probable, provided that no significant
obligations remain under the contract. Revenues derived from the sale of
software products requiring significant modification or customization are
recognized when products are delivered and collectibility of fees is probable,
provided that no significant obligations remain under the contract. The price of
the Company's software varies depending on the number of software modules
licensed and the number of users accessing the system and can range from under
ten thousand dollars to a few million dollars. The Company generally requires
payment of a deposit upon the signing of a customer order as well as certain
additional payments prior to delivery. As a result, the Company's balance sheet
reflects significant customer deposits.
Third-party software and computer hardware revenues are recognized when the
related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company generally charges for software implementation, training
and technical consulting services as well as management consulting services on
an hourly or daily basis. The Company is now offering "tiered pricing" for
implementation of new systems whereby the customer pays a fixed fee for a
certain level of packaged services and daily fees for services beyond the
package. Consulting services are sometimes sold on a fixed, per engagement,
basis. The price of such services varies depending on the level and expertise of
the related professionals. These revenues are recognized as the related services
are performed.
The Company defines recurring revenues as revenues derived under software
support agreements, whether annual or otherwise. These revenues were
approximately $11.0 million, or 44% of total net revenues, for the year ended
December 31, 2000, $3.5 million, or 23.3% of total net revenues, for the year
ended December 31, 1999, and $3.3 million, or 21.2% of total net revenues, for
the year ended December 31, 1998. Unless and until revenues generated from sales
of new systems increases, recurring revenues will represent a greater portion of
its total net revenues.
The Company believes that continued development and enhancement of its
software systems are critical to its future success, and anticipates that the
total amount of research and development expense will increase, but should
decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. For the years
ended December 31, 2000, 1999, and 1998, the Company had no capitalized computer
software and development costs.
23
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Results of operations for the twelve months ended December 31, 2000
included the operations of the former MCS for the full twelve months and the
operations of Simione Central Holdings, Inc. (Simione) only for the period
subsequent to March 7, 2000. Results of operations for the twelve months ended
December 31, 1999 included only the operations of the former MCS. Consequently,
a comparison of the 2000 and 1999 Statements of Operations is not meaningful to
an understanding of the Company's relative performance in 2000. For purposes of
comparability, therefore, the following discussion reflects the pro forma
assumption that the operations of Simione, MCS and CareCentric Solutions, Inc.
(CSI) were arithmetically combined for each of the twelve month periods ended
December 31, 2000 and 1999.
Net Revenues. Revenues (exclusive of Simione's Outsourcing Segment which
was discontinued at the end of 1999) were $27.3 million for the twelve months
ended December 31, 2000 and $40.0 million for the twelve months ended December
31, 1999. Revenues from software systems decreased $10.6 million, or 53%, to
$9.5 million in 2000 from $20.1 million in 1999. Software maintenance revenues
were unchanged in 2000 from 1999 at $12.5 million. Revenues from consulting
services decreased $2.1 million, or 28%, to $5.3 million in 2000 from $7.4
million in 1999.
These significantly reduced "comparable revenues" are attributable
principally to reduced bookings of software and equipment sales in the final
quarter of 1999 and early part of 2000, as well as relatively weak software and
hardware sales in the last quarter of 2000. The Company believes these results
are traceable generally to adverse economic conditions prevailing in the home
healthcare marketplace and more specifically to uncertainties surrounding the
MCS/Simione merger on March 7, 2000 and customer concerns related to "Year 2000
functionality". Other factors include discontinuance of product lines and
consolidation of certain operations and functions in connection with the merger
or to reduce costs. Finally, the results were affected by uncertainties in the
marketplace related to a new home health care provider reimbursement system, the
Prospective Payment System, or PPS, implemented by the Health Care Financing
Administration (HCFA) in October of 2000. The PPS payment system is based upon
pre-set per episode fees, in contrast to the former Interim Payment System,
(IPS), which it replaced, which was based upon Medicare's historical cost
reimbursement practice. As such, PPS represented a radical departure from past
practice and introduced significant uncertainty in the home health care
industry. While the Company expects this to be a short-lived phenomenon as the
impact of PPS becomes clearer and the Company's core customer base gains
experience in the PPS environment, in the short run, information technology
spending in the home health industry has been and continues to be adversely
affected.
Cost of Revenues. Cost of revenues decreased $13.2 million, or 48%, to
$14.4 million in 2000 from $27.6 million in 1999. As a percentage of total net
revenues, cost of revenues decreased to 52.8% in 2000 from 69.0% in 1999. The
$13.2 million decrease resulted primarily from the corresponding decrease in
revenue for both software and services and consulting. The decrease as a
percentage of total net revenues is principally due to the impact of a higher
ratio of higher margin sales to total sales.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $6.8 million, or 36%, to $12.2 million in 2000 from $19.0
million in 1999. As a percentage of total net revenues, selling, general and
administrative expenses were 44.8% in 2000 and 47.5% in 1999. This dollar
decrease was attributable to synergies derived from the merger and cost savings
initiatives implemented in 2000. Cost savings were primarily realized through
the centralization of administrative functions and elimination of non-essential
facilities and excess capacity. These initiatives are continuing in 2001.
Research and Development. Research and development expenses increased $0.9
million, or 14.8%, to $7.0 million in 2000 from $6.1 million in 1999. As a
percentage of total net revenues, research and development expenses increased to
25.5% in 2000 from 15.0% in 1999. This dollar increase was attributable to
additional development costs for all continuing products, but especially for The
Smart Clipboard(R), PharmMed Rx(TM) and HMExpress.
Amortization and Depreciation. Amortization and depreciation increased by
$1.1 million to $4.7 million in 2000 from $3.6 million in 1999. This increase
includes approximately $1.0 million of amortization expenses attributable to the
Simione/MCS merger on March 7, 2000. See Notes 3 and 4 to the accompanying
Consolidated Financial Statements.
Operating Loss. The Company's operating loss from continuing operations,
reflecting the same assumptions as above for purposes of comparability,
decreased from ($15,483,000) for the twelve months ended December 31, 1999 to
($11,789,000) for the twelve months ended December 31, 2000. Management believes
this reduced operating loss, despite significantly reduced revenues on a
comparable basis, is primarily the result of the aforementioned cost saving
initiatives implemented subsequent to the MCS/Simione merger on March 7, 2000.
24
Other Income (Expense). Interest expense relates to the borrowings under
the Company's line of credit agreements and capital lease obligations and has
increased by approximately $657,000. Interest and other income consists
principally of interest income related to customer finance charges and the
Company's short term cash investments and has decreased by approximately
$130,000. The Company expects further increases in 2001 due to increased
borrowing.
Income Taxes. The Company has not incurred or paid any income taxes since
its inception. At December 31, 2000, CareCentric had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $28.6 million. Such
losses expire beginning in 2010, if not utilized. The Tax Reform Act of 1986, as
amended, contains provisions that limit the NOL and tax credit carryforwards
available to be used in any given year when certain events occur, including
additional sales of equity securities and other changes in ownership. As a
result, certain of the NOL carryforwards may be limited as to their utilization
in any year. The Company has concluded that it is more likely than not that
these NOL carryforwards will not be realized based on a weighing of available
evidence at December 31, 2000, and accordingly, a 100% deferred tax valuation
allowance has been recorded against these assets. See Note 7 to the accompanying
Consolidated Financial Statements.
The income tax benefit of $154,000 reflected in the financial statements
for 2000 relates primarily to losses incurred by MCS between January 1, 2000 and
March 7, 2000 while it was a subsidiary of Mestek. The income tax benefit arises
due to the inclusion of MCS's results for this period in Mestek's consolidated
federal and state income tax filings for 2000.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Results of operations for the twelve months ended December 31, 1999 and
1998 reflect the operations of MCS only. The discussion which follows is
therefore not reflective of the Company as constituted subsequent to the
Simione/MCS merger on March 7, 2000. No attempt has been made for purposes of
the following discussion to arithmetically combine the 1999 and 1998 results of
operations of MCS, Simione, and CSI for purposes of comparability as the results
would not be meaningful to an understanding of the Company as presently
constituted.
Net Revenues. Total net revenues increased $1.7 million, or 11.7%, to $16.6
million in 1999 from $14.9 million in 1998. This increase was traceable
principally to improved delivery of MestaMed(R) software system sales based upon
high bookings in the fourth quarter of 1998 and accelerated shipment of systems
sold in the fourth quarter of 1999.
Cost of Revenues. As a percentage of total net revenues, cost of revenues
increased to 63.4% in 1999 from 61.9% in 1998 owing principally to increased
spending on the Company's customer support infrastructure.
Selling, General and Administrative. Selling, general and administrative
expenses increased $0.5 million, or 13.7%, to $4.1 million in 1999 from $3.6
million in 1998. As a percentage of total net revenues, selling, general and
administrative expenses were 24.5% in 1999 and 24.1% in 1998. The increase in
cost was attributable principally to a revised sales compensation program and
incremental spending on outside marketing consulting services.
Research and Development. Research and development expenses increased $0.8
million, to $1.1 million in 1999 from $0.2 million in 1998. As a percentage of
total net revenues, research and development expenses increased to 6.3% in 1999
from 1.5% in 1998. The increased spending related to development work on (1)
Mentor, an interactive multimedia training system, (2) open data base
connectivity (ODBC) for the Company's MestaMed(R) product and (3) a graphical
user interface (GUI) for MestaMed(R).
Amortization and Depreciation. Amortization and depreciation expense was
relatively unchanged at $0.2 million in 1999 and 1998.
Other Income (Expense) Other income consists principally of interest income
related to the customer finance charges and the Company's short term cash
investments and has decreased by approximately $2,000.
Income Taxes. The Company's federal and state income tax provisions
approximated 40% for both 1999 and 1998.
25
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. Revenues can be expected to
vary significantly as a result of the acceleration or delay of system
implementations due to customer requirements or other factors beyond the
Company's control, fluctuations in demand for existing systems and services and
the Company's ability to manage successfully any future growth. The sales cycles
related to its systems offerings and agency support contracts can be long and
difficult to predict, resulting in variability of revenues. In addition, the
implementation period related to new installations the Company's information
systems can range from a few months to one year while add-ons can occur more
quickly. The unpredictability of revenues could in any quarter result in a
shortfall relative to quarterly expectations. Many other factors may contribute
to fluctuations in the Company's operating results. Accordingly, the Company
believes that period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance.
The following table sets forth certain unaudited consolidated quarterly
financial data for each of the four quarters for the period ended December 31,
2000 and includes the operations of the former MCS for the full twelve months
and the operations of Simone for the period subsequent to March 7, 2000. This
information is unaudited, but, in the opinion of the Company's management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the information in accordance with generally
accepted accounting principles generally accepted in the United States. These
quarterly results of operations are not necessarily indicative of future
operating results. Quarterly information for periods prior to 2000 is not shown
as this data relates to MCS only and is, therefore, not meaningful in comparison
to the 2000 data. A Combinted Total column is included reflecting the
combination of the results of operations of MCS and Simione for the full year
2000.
FISCAL YEAR 2000
(dollars in thousands)
-----------------------------------------------------------------------------
COMBINED
MAR 31 JUNE 30 SEP30 DEC 31 TOTAL TOTAL
--------- -------- -------- --------- ---------- -----------
Net revenues: $ 4,000 $ 6,257 $ 8,547 $ 6,164 $ 24,968 $27,277
Costs and expenses:
Cost of revenues 2,547 3,954 3,756 3,389 13,646 14,415
Selling, general and administrative 1,453 2,807 3,262 3,234 10,756 12,214
Research and development 711 1,780 1,897 1,786 6,174 6,952
Amortization and depreciation 426 1,183 1,171 1,180 3,960 4,700
--------- -------- -------- --------- ---------- -----------
Total costs and expense 5,137 9,724 10,086 9,589 34,536 38,281
--------- -------- -------- --------- ---------- -----------
(Loss) income from operations (1,137) (3,467) (1,539) (3,425) (9,568) (11,004)
Other (expense) income:
Other (expense) income (6) - - - (6)
Interest expense (76) (189) (316) (318) (899) (939)
Interest and other income 12 28 17 17 74 -
--------- -------- -------- --------- ---------- -----------
Net (loss) income before income taxes (1,207) (3,628) (1,838) (3,726) (10,399) (11,943)
--------- -------- -------- --------- ---------- -----------
Income tax benefit (expense) 157 - (7) 4 154 154
--------- -------- -------- --------- ---------- -----------
Net (loss) income (1,050) (3,628) (1,845) (3,722) (10,245) (11,789)
--------- -------- -------- --------- ---------- -----------
Net (loss) income per share - basic
and diluted $(0.50) $(0.94) $(0.48) $(0.97) $(3.00)
Weighted average common shares - basic
and diluted 2,113 3,850 3,850 3,850 3,418
========= ======== ======== ========= ==========
Note: Quarterly earnings per share figures do not arithmetically add to the full
year 2000 earnings per share due to interim changes in weighted average shares
outstanding during 2000. The above numbers reflect the effect of a one for five
reverse stock split effected in connection with the MCS/Simione merger on March
7, 2000.
26
LIQUIDITY AND CAPITAL RESOURCES
In May 1999, Simione entered into a definitive agreement to merge with MCS,
a wholly owned subsidiary of Mestek, as more fully explained in Note 1 to the
Consolidated Financial Statements. For every share of outstanding Simione common
stock, Simione agreed to issue approximately 0.85 shares of its common stock to
Mestek in the exchange. MCS was a leading provider of information systems and
services to the home health care industry with approximately $14.9 million in
revenues and $1.4 million in net income in 1998.
In August 1999, Simione acquired CareCentric Solutions, Inc. (CSI) pursuant
to a merger for approximately 3.0 million shares (before giving effect to
Simione's one for five split) of Simione's Series A Preferred Stock. The
preferred stock was valued at $3.00 per share, pre-split, at closing. The total
purchase price was approximately $12 million, of which $0.2 million was paid in
cash, $2.7 million was in the form of assumed liabilities, and $9.3 million was
in the form of Series A Preferred Stock of Simione. Under the terms of the
merger, Simione was required to issue up to an additional approximately 3.0
million shares, pre-split, of common stock if Simione's common stock did not
meet certain price targets during the fourth quarter of 2000. Because those
price targets were not satisfied, in March 2001, Simione (now CareCentric, Inc.)
issued 593,668 shares of its common stock to former holders of CSI preferred
stock and CSI noteholders. In conjunction with the acquisition of CSI in August
1999, Simione assumed a loan from a bank with an outstanding balance of $1.5
million. The $1.5 million bank loan was retired in connection with a new loan
extended by Mestek to Simione in September 1999, described in the next
paragraph.
In September 1999, in connection with an amendment of the MCS merger
agreement, Simione received $3.0 million in loan proceeds from Mestek, the
parent company of MCS. The Mestek loan accrued interest at the BankBoston prime
rate plus 2%. The loan proceeds were used to retire $1.5 million of term loans
assumed with the acquisition of CSI and to fund operating needs. When the MCS
merger was completed, Mestek's note evidencing this loan and other loans
described below were converted into Series B Preferred Stock and a warrant to
purchase CareCentric common stock.
In November 1999, Simione received $1.6 million of loans from Mestek
($850,000) and two stockholders of Simione ($750,000), Barrett C. O'Donnell and
David Ellis, to fund operating needs and continue the execution of product
strategies in the fourth quarter of 1999. The $850,000 loan from Mestek was
converted into newly issued Series C Preferred stock of Simione at the closing
of the MCS merger. The loan from Mr. O'Donnell along with $100,000 in deferred
salary were exchanged for a $600,000 subordinated note, convertible into common
stock at $2.51 per share, with interest at 9% per annum and a maturity date of
August 8, 2005. The loan from Dr. Ellis was paid in full on July 12, 2000 from
the credit facility provided by Wainwright Bank and Trust Company. See Note 5 to
the accompanying Consolidated Financial Statements.
In February 2000, Simione received an additional $1.0 million of loan
proceeds from Mestek. The loan proceeds were used to fund Simione's operating
needs until completion of the merger with MCS, and carried the same terms and
security as the $3.0 million loan received from Mestek in September 1999. On
March 7, 2000, the merger with MCS was completed and Mestek's notes evidencing
the $1.0 million and $3.0 million loans, together with an additional $2.0
million in cash from Mestek were converted into Series B Preferred Stock and a
warrant to purchase CareCentric common stock. The consolidation of the accounts
receivable of MCS into the then outstanding balance of Simione's accounts
receivable provided an additional $1.5 million of borrowing capacity on the $5.0
million bank line of credit established by Simione in September 1999.
Immediately after the Simione/MCS merger on March 7, 2000, the Company had
cash and cash equivalents of $3.5 million and short and long term debt from all
sources of $2.5 million, for a positive net cash/(debt) position of
approximately $1.0 million. In order to supplement its capital resources, the
Company, subsequent to the merger, undertook a search for additional capital
resources which resulted in the creation of the following credit and debt
facilities and preferred equity securities:
SOURCE FUNDING FORM DATE CLOSED
------------------------------- -------------------- ---------------------- ------------------------
John E. Reed $ 1,000,000 Series D Preferred Stock June 22, 2000
John E. Reed 6,000,000 Line of Credit June 22, 2000
Wainwright Bank and Trust 6,000,000 Line of Credit July 12, 2000
Company
--------------------
$ 13,000,000
====================
27
These three transactions are described in greater detail in Notes 5 and 9
to the accompanying Consolidated Financial Statements. The Wainwright Bank and
Trust Company line of credit was used to pay off the Silicon Valley Bank line of
credit, certain short term loans from Mestek, and the note payable to David O.
Ellis. The Wainwright Line of Credit expires July 11, 2001 and payment is
guaranteed by Mestek.
Subsequent to March 7, 2000, the Company's consumption of cash as
illustrated by the total of its net debt (borrowings less cash) and preferred
equity position has evolved as follows:
Net Debt
Preferred Equity Position Net Change
------------------------- ----------
March 7, 2000 ($ 5,851,000)
March 31, 2000 ($ 8,052,000) ($2,201,000)
June 30, 2000 ($ 9,663,000) ($1,611,000)
September 30, 2000 ($11,987,000) ($2,324,000)
December 31, 2000 ($14,684,000) ($2,697,000)
March 31, 2001 ($16,596,000) ($1,912,000)
During 2000 the Company incurred operating losses and experienced
significant problems collecting its accounts receivable because of the depressed
operating condition of its customers due to the negative effects of the current
government limits over home medical cost reimbursement and the costs to date of
developing, implementing and supporting The Smart Clipboard(R) product, which
have been higher than anticipated. In addition, sales revenue in 2000 was lower
than planned in the core MestaMed(R), DME VI and STAT2 products while new sales
of The Smart Clipboard(R) and Tropical products (now discontinued) did not
develop as quickly as projected. The merger with Simione added additional
products and resources and, importantly, added to the Company's critical mass of
installed sites but the Company's longer term success will depend upon increased
sales of new software systems and successful installation performance, including
in particular The Smart Clipboard(R) and MestaMed(R). In this connection, the
Company recorded a significant increase in bookings of new systems in all of its
major product lines in March, 2001. Notwithstanding the financial conditions
prevailing in the home health marketplace, the Company continued to fund
significant product development initiatives during 2000 and during the first
quarter of 2001. Accordingly, until revenues increase sufficiently to cover
these forward-looking costs and operating expenses, the Company remains
dependent on its majority shareholder for its working capital financing. The
Company's majority shareholder has stated his intention and ability to continue
to advance cash to the Company in accordance with the terms of his credit
facility.
As of March 31, 2001, the Company has untapped credit capacity of
approximately $4.3 million from the aforementioned facilities. The Company
believes that its funding sources, in combination with the funds available from
its cash, cash equivalents and cash to be generated from future operations, will
be sufficient to meet the Company's operating requirements, assuming no material
adverse change in the operation of the Company's business, until at least
December 31, 2001.
As of December 31, 2000, the Company had negative working capital of $13.8
million and cash and cash equivalents of $0.4 million. The Company's current
liabilities as of December 31, 2000 include customer deposits of $2.5 million
and unearned revenues of $5.0 million.
Net cash provided by (used in) operating activities for the years ended
December 31, 2000, 1999, and 1998 was ($7.2) million, ($0.3) million, and $1.3
million, respectively. Cash used in 2000 principally funded operating losses and
was also used to pay various liabilities reflected on the Simione balance sheet
as of March 7, 2000. The pre-merger Simione liabilities paid in this manner
include severance pay, excess office space, excess leased computer equipment,
and legal fees.
Cash flows from financing activities include (1) net line of credit and
other borrowings during 2000 (excluding debt acquired in the merger), (2) $1
million of capital raised via the issuance in June of 2000 of the Series D
Preferred Stock, and (3) cash acquired in the merger on March 7, 2000 of
approximately $3.5 million.
Inflation has not had, and is not expected to have, a material impact on
the Company's operations. If inflation increases, the Company will attempt to
increase its prices to offset increased expenses. No assurance can be given,
however, that the Company will be able to adequately increase its prices in
response to inflation.
IMPACT OF NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for the Company's first quarter of the fiscal year ending December 31,
2001. The Company's management does not believe that the adoption of SFAS No.
133 will have a material impact on the Company's financial position or results
of operations.
On December 3, 1999, the SEC released Staff Accounting Bulletin 101, (SAB
101) "Revenue Recognition in Financial Statements." This bulletin established
more clearly defined revenue recognition criteria than previously existing
accounting pronouncements. On June 26, 2000, the SEC released SAB 101B, which
delayed the required implementation of SAB 101 until no later than the fourth
28
quarter of fiscal years ending December 31, 2000. The Company believes that the
effects of this bulletin were not material to its financial position, results of
operations or cash flow.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of December 31, 2000, the Company's obligations include variable rate
notes payable and a line of credit bank note with aggregate principal balances
of approximately $7.2 million which mature at various dates through 2005. The
Company is exposed to the market risk of significant increases in future
interest rates. Each incremental point in the prime interest rate would increase
the Company's interest expense by approximately $66,000 per year.
At December 31, 2000, the Company had accounts receivable of approximately
$8.5 million (net of an allowance for doubtful accounts of $551,000). The
Company is subject to a concentration of credit risk because most of the
accounts receivable are due from companies in the home health industry.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements and Supplementary Data appear on pages 36 to 52 of
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective June 9, 2000, the Company decided to appoint Grant Thornton LLP
as the Company's independent accountants for the fiscal year ended December 31,
2000 and dismissed Arthur Andersen LLP. The decision to change accountants was
recommended by the Audit Committee and approved by the Board of Directors of the
Company. Grant Thorton had been the auditors for MCS prior to the merger.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to the Company during the last three fiscal
years or in the subsequent interim period to June 9, 2000.
Except as described below, during the last two fiscal years and subsequent
interim period to June 9, 2000, the Company did not consult with Grant Thornton
LLP regarding any of the matters or events set forth in Item (304)(a)(2)(i) and
(ii) of Regulation S-K. Grant Thornton had been the auditor for MCS, Inc. for
several years for the period preceding the merger. After the completion of the
MCS merger, the historical financial statements of MCS, Inc. were deemed to be
the financial statements of the Company. The Company consulted with Grant
Thornton regarding the financial statements after the completion of the merger.
Simione did not consult with Grant Thornton regarding accounting matters
pertaining to the financial statements of the Company prior to the MCS merger.
PART III
With the exception of information relating to the executive officers of the
Company which is provided in Part I hereof, all information required by Part III
(Items 10, 11, 12 and 13) is incorporated by reference to the Company's
definitive proxy statement relating to the 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements.
2. Financial Statement Schedule.
Schedule II--Valuation and Qualifying Accounts
Certain financial statement schedules have been omitted because
they are not applicable.
29
3. Exhibits Incorporated by Reference or Filed with this Report.
The following exhibits are filed as part of this Report. Where such filing
is made by incorporation by reference to a previously filed statement or report,
such statement or report is identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1(1,3) -- Agreement and Plan of Merger dated as of July 12, 1999 among the
Company, Simione Acquisition Corporation and CareCentric
Solutions, Inc.
2.2(1,2) -- Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement dated as of October 25, 1999 by and among
MCS, Inc., Mestek, Inc., the Company, John E. Reed, Stewart B.
Reed and E. Herbert Burk.
3.1 -- Amended and Restated Certificate of Incorporation of the Company.
3.2* -- Certificate of Ownership and Merger of Simione Central Holdings,
Inc. with and into CareCentric, Inc.
3.3 -- Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.3 of the Company's Registration Statement
on Form S-1 (Registration Number 333-25551) as filed with the
Securities and Exchange Commission).
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 and 3.2 for provisions of the Company's
Certificate of Incorporation and Bylaws governing the rights of
holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and among
InfoMed Holdings, Inc., those stockholders of Simione Central
Holding, Inc. appearing as signatories to the Registration Rights
Agreement, and those stockholders of InfoMed Holdings, Inc.
appearing as signatories to the Registration Rights Agreement
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated October 8, 1996 as filed with
the Securities and Exchange Commission).
9.1 -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and among
Howard B. Krone, William J. Simione, Jr., Gary Rasmussen, G.
Blake Bremer, Katherine L. Wetherbee, A. Curtis Eade, James A.
Tramonte, John Isett, Cindy Lumpkin, Douglas E. Caddell, Robert
J. Simione, Kenneth L. Wall, Allen K. Seibert, III, Jerry Sevy,
Larry Clark, Lori N. Siegel, Gary M. Bremer, Richard A.
Parlontieri, and James R. Henderson (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and Exchange
Commission).
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management plc,
O'Donnell Davis, Inc., Barrett O'Donnell and certain other
holders of the Class A Convertible Preferred Stock of InfoMed
Holdings, Inc. (Incorporated by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated October 8, 1996 as
filed with the Securities and Exchange Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as of
September 5, 1996 by and among InfoMed Holdings, Inc., Simione
Central Holding, Inc. and InfoSub, Inc. (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report on Form
8-K dated September 5, 1996 as filed with the Securities and
Exchange Commission).
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant for the
Purchase of Common Stock of InfoMed Holdings, Inc. dated October
5, 1996 between InfoMed Holdings, Inc. and each of O'Donnell
Davis, Inc., Rowan Nominees Ltd., David O. Ellis, Richard V.
Lawry, Salvatore A. Massaro, Murali Anantharaman, Kathleen E.J.
Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis, Thomas M. Rogers,
Jr., and Arnold Schumacher (Incorporated by reference to Exhibit
4.1 of the Company's Current Report on Form 8-K dated October 8,
1996 as filed with the Securities and Exchange Commission).
30
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock of
Simione Central Holding, Inc., dated April 12, 1996 between
Simione Central Holding, Inc. and Home Health First, a Texas
not-for-profit corporation (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.4 -- Common Stock Warrant of InfoMed Holdings, Inc. dated October 8,
1996 between Jefferies & Company, Inc. and InfoMed Holdings, Inc.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 as filed with
the Securities and Exchange Commission).
10.5+ -- Form of Simione Central Holding, Inc. 1996 Incentive Stock Option
Agreement dated September 4, 1996 by and between Simione Central
Holding, Inc. and each of James R. Henderson, William J. Simione,
Jr., Robert Simione, Katherine Wetherbee, Sheldon Berman, Betty
Gordon, William J. Simione, III, J. Blake Bremer, Craig Luigart,
Kenneth L. Wald, Marty Cavaiani, Lori Ferrero, Douglas E.
Caddell, Andy Anello and A. Curtis Eade (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.6+ -- 1994 Incentive Stock Option and Non-Qualified Stock Option Plan
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission).
10.7+ -- CareCentric, Inc. Profit Sharing Plan dated October 31, 1996, as
amended (Incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 as filed
with the Securities and Exchange Commission).
10.8+ -- CareCentric, Inc. Section 125 Plan effective date January 1, 1997
sponsored by the Company (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.9 -- Headquarters at Gateway Lake Lease Agreement dated January 1,
1996 by and between Gateway LLC and InfoMed Holdings, Inc.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996 as filed with the
Securities and Exchange Commission).
10.10 -- Sublease dated November 22, 1996 between Environmental Design
International, Ltd. and Simione Central, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission.
10.11 -- Lease Amendment dated August 7, 1992 by and between Sugar Land
Plaza Building Corporation and Medical Solutions, Inc.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 as filed with
the Securities and Exchange Commission).
10.12 -- Lease dated August 13, 1992 between Unum Life Insurance Company
of America and Dezine Associates, Inc. (Incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 as filed with the Securities and Exchange
Commission).
10.13 -- Indenture of Lease dated January 1, 1998 by and between S&S
Realty and Simione Central Consulting, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Securities
and Exchange Commission).
10.14 -- Lease dated December 18, 1996 by and between Resurgens Plaza
South Associates, L.P. and Simione Central, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Securities
and Exchange Commission).
31
10.15+ -- Severance Agreement dated July 22, 1998 between CareCentric, Inc.
and Gary M. Bremer. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997 as filed with the Securities and Exchange Commission).
10.16+ -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr. (Incorporated
by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.16.1* -- Addendum to Executive Employment Agreement dated December 20,
2000 between Simione Central Holdings, Inc. and William J.
Simione, Jr.
10.17 -- Agreement dated October 4, 1996 by and between InfoMed Holdings,
Inc. and EGL Holdings, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.18 -- Information Systems Management Agreement dated January 4, 1996
between Integrated Systems Solutions Corporation and Central
Health Management Services, Inc. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and Exchange
Commission).
10.19 -- Master Software License Agreement Number 96-2283 dated October
31, 1996 by and between Software 2000, Inc. and Simione Central
Holding, Inc. (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
as filed with the Securities and Exchange Commission).
10.20 -- Guaranty Agreement dated October 31, 1996 by Simione Central,
Inc. in favor of HCA, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.21 -- Lease Agreement dated March 18, 1996 between National Leasing,
Inc. and Simione Central, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.22 -- Amendment 2 to Agreement for Information Technology Services
between SC Holding, Inc. and Integrated Systems Solutions
Corporation dated July 31, 1997 (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
August 13, 1997 as filed with the Securities and Exchange
Commission).
10.23 -- Loan and Security Agreement by and between National Bank of
Canada and CareCentric, Inc., dated as of June 6, 1997
(Incorporated by reference to Exhibit 10.34 of the Company's
Current Report on Form 8-K dated June 21, 1997 as filed with the
Securities and Exchange Commission).
10.24 -- Loan and Security Agreement by and between Wachovia Bank, NA and
the Company dated as of May 11, 1998.
10.25 -- Remarketing Agreement dated April 17, 1998 between Simione
Central National, Inc. and Eclipsys Corporation.
10.26 -- Stock Purchase Agreement dated April 17, 1998 between
CareCentric, Inc., Eclipsys Corporation and certain stockholders
of the Company.
10.27(3) -- Form of Shareholder Voting Agreement by and among the Company,
Daniel J. Mitchell as agent for shareholders of CareCentric
Solutions, Inc. and each of Barrett C. O'Donnell and O'Donnell
Davis, Inc.
10.28(3) -- Shareholder Voting Agreement by and among the Company,
CareCentric Agent, and Mestek, Inc.
10.29 -- Warrant to Purchase Common Stock dated March 7, 2000 by and
between the Company and Mestek, Inc. (Incorporated by reference
to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2000, (File No. 000-22162)).
32
10.30(4) -- Merger Option Agreement by and between the Company and Mestek,
Inc. dated March 7, 2000.
10.31(4) -- Series D Convertible Preferred Stock Purchase Agreement dated
June 12, 2000 between the Company and John E. Reed.
10.32(4) -- Secured Convertible Credit Facility and Security Agreement dated
June 12, 2000 between the Company, Simione Central National, LLC
and Simione Central Consulting, Inc. and John E. Reed.
10.33(4) -- Warrant dated June 12, 2000 by and between the Company and
Mestek, Inc.
10.34 -- Warrant dated July 12, 2000 by and between the Company and
Mestek, Inc. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
10.35 -- Loan and Security Agreement by and between the Company, Simione
Central National, LLC, Simione Central Consulting, Inc. and
Wainwright Bank and Trust Company, dated July 10, 2000
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000 (File No. 000-22162)).
10.36* -- Lease Agreement dated January 16, 2001 between Prentiss
Properties Acquisition Partners, L.P. and Simione Central
Holdings, Inc.
10.37* -- Sublease dated June 17, 1999 between Healthfield, Inc. and
Simione Central Holdings, Inc., and consented to by
Environmental Design International, Inc.
10.38* -- Sublease dated December 20, 2000 between International Paper,
Inc. and Simione Central Holdings, Inc.
10.39* -- Sublease Lease Agreement dated January 15, 2000 between The
Profit Recovery Group International USA, Inc. and Simione
Central Holdings, Inc.
16.1 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form
8-K dated February 8, 1999 as filed with the Securities and
Exchange Commission).
16.2 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form
8-K dated June 14, 2000 as filed with the Securities and Exchange
Commission).
21.1* -- Subsidiaries of the Company.
23.1* -- Consent of Grant Thornton LLP.
___________________________________
* Filed herewith
+ Identifies each exhibit that is a "management contract of compensatory plan or
arrangement" required to be filed as an exhibit to this Annual Report on Form
10-K pursuant to Item 14 of Form 10-K
(1) In accordance with Item 601(b)(2) of Regulation S-K, the schedules have been
omitted. There is a list of schedules at the end of the Exhibit, briefly
describing them. The Company will supplementally copy of any omitted schedule to
the Commission upon request.
(2) Incorporated herein by reference to Exhibit 2.1 to the Form 10 of MCS, Inc.
(File No. 000-27829) filed on October 26, 1999.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated as of August 12, 1999 (File No. 000-22162).
(4) Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2000 (File No. 000-22162).
(b) Reports on Form 8-K.
On December 20, 2000, the Company filed a Current Report on Form 8-K reporting
the change of its Nasdaq symbol to "CURA".
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARECENTRIC, INC.
Date: April 17, 2001 /s/ R. BRUCE DEWEY
---------------------------------------
By: R. Bruce Dewey
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ R. BRUCE DEWEY President, Chief Executive Officer April 17, 2001
-------------------------------- and Director (principal executive
R. Bruce Dewey officer)
/s/ STEPHEN M. SHEA Chief Financial Officer and April 17, 2001
-------------------------------- Treasurer (principal financial and
Stephen M. Shea accounting officer)
/s/ WILLIAM J. SIMIONE, JR. Executive Vice President and Director April 17, 2001
--------------------------------
William J. Simione, Jr.
/s/ DAVID O. ELLIS Director April 17, 2001
--------------------------------
David O. Ellis
/s/ WINSTON R. HINDLE, JR. Director April 17, 2001
--------------------------------
Winston R. Hindle, Jr.
/S/ BARRETT C. O'DONNELL Director April 17, 2001
--------------------------------
Barrett C. O'Donnell
/s/ JOHN E. REED Director April 17, 2001
--------------------------------
John E. Reed
/s/ EDWARD K. WISSING Director April 17, 2001
--------------------------------
Edward K. Wissing
34
CARECENTRIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants - Grant Thornton LLP.................36
Consolidated Balance Sheets...................................................37
Consolidated Statements of Operations.........................................38
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 2000, 1999, and 1998........................................39
Consolidated Statements of Cash Flow for the years ended
December 31, 2000, 1999, and 1998........................................40
Notes to Consolidated Financial Statements....................................41
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of CareCentric, Inc.:
We have audited the accompanying consolidated balance sheets of CARECENTRIC,
INC. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the years in the three year period ended
December 31, 2000. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CareCentric, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II included herein is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Boston, Massachusetts
April 2, 2001
36
CARECENTRIC, INC.
CONSOLIDATED BALANCE SHEETS
($000s)
DECEMBER 31,
2000 1999
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 362,000 $ 47,000
Accounts receivable, net of allowance
for doubtful accounts of $551,000
and $166,000 respectively 8,484,000 4,329,000
Prepaid expenses and other current assets 701,000 273,000
---------------- -----------------
Total current assets 9,547,000 4,649,000
Purchased software, furniture and equipment, net 1,957,000 920,000
Intangible assets, net 23,405,000 -
Other assets 211,000 1,127,000
----------------- -----------------
Total assets $ 35,120,000 $ 6,696,000
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 5,996,000 $ -
Notes Payable 600,000 -
Accounts payable 1,156,000 1,137,000
Accrued compensation expense 616,000 393,000
Accrued liabilities 7,447,000 1,334,000
Customer deposits 2,496,000 419,000
Unearned revenues 5,001,000 2,908,000
------------------ -----------------
Total current liabilities 23,312,000 6,191,000
Accrued liabilities, less current portion 128,000 -
Note payable long-term 600,000 -
------------------ -----------------
Total Liabilities 24,040,000 6,191,000
Shareholders' equity:
Preferred Stock; 10,000,000 shares
authorized
Series B Preferred, $.001 par value;
5,600,000 issued and outstanding 6,000 -
Series C Preferred, $.001 par value;
850,000 issued and outstanding 1,000 -
Series D Preferred, $.001 par value;
398,000 issued and outstanding - -
Common stock, $.001 par value; 20,000,000
shares authorized; 3,849,816 shares
issued and outstanding at
December 31, 2000
1,489,853 shares issued and
outstanding at December 31, 1999 4,000 1,000
Additional paid-in capital 21,070,000 1,260,000
Stock warrants 1,000,000 -
Accumulated deficit (11,001,000) (756,000)
------------------ -----------------
Total shareholders' equity 11,080,000 505,000
------------------ -----------------
Total liabilities and
shareholders' equity $ 35,120,000 $ 6,696,000
================== =================
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes,
MCS, Inc. is deemed to have acquired CareCentric, Inc. on March 7, 2000, the
date of the merger, as more fully explained in Notes 1 and 2 to the Consolidated
Financial Statements.
37
CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
Total revenues, net $ 24,968,000 $ 16,648,000 $ 14,901,000
Costs and expenses:
Cost of revenues 13,646,000 10,563,000 9,225,000
Selling, general and administrative 10,756,000 4,077,000 3,586,000
Research and development 6,174,000 1,051,000 231,000
Amortization and depreciation 3,960,000 230,000 194,000
------------------ ------------------ ------------------
Total costs and expenses 34,536,000 15,921,000 13,236,000
------------------ ------------------ ------------------
(Loss) income from operations (9,568,000) 727,000 1,665,000
Other (expense) income:
Interest expense (899,000) - -
Interest and other income 68,000 45,000 47,000
------------------ ------------------ ------------------
(Loss) income from continuing operations
before taxes (10,399,000) 772,000 1,712,000
------------------ ------------------ ------------------
Income tax benefit (expense) 154,000 (306,000) (686,000)
------------------ ------------------ ------------------
(Loss) income from continuing operations $(10,245,000) $ 466,000 $ 1,026,000
------------------ ------------------ ------------------
Discontinued operation:
Income from operations of discontinued
segment before taxes - 251,000 671,000
Applicable tax expense - 100,000 268,000
------------------ ------------------- -----------------
Income from operations of discontinued
segment - 151,000 403,000
------------------ ------------------ ------------------
Net (loss) income $(10,245,000) $ 617,000 $ 1,429,000
================== ================== ==================
Net (loss) income per share - basic and diluted:
From continuing operations $ (3.00) $ 0.31 $ 0.69
From discontinued operations $ - $ 0.10 $ 0.27
------------------ ------------------- -----------------
Net (loss) income $ (3.00) $ 0.41 $ 0.96
================== ================== ==================
Weighted average common shares -
outstanding - basic and diluted 3,418,000 1,490,000 1,490,000
================== ================== ==================
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes,
MCS, Inc. is deemed to have acquired CareCentric, Inc. on March 7, 2000, the
date of the merger, as more fully explained in Notes 1 and 2 to the Consolidated
Financial Statements.
38
CARECENTRIC, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Additional Total
Common Stock Preferred Stock Paid-in Stock Accumulated Shareholders'
Shares Stock Shares Stock Capital Warrants Deficit Equity
------------------------- ---------- ----------- ---------- --------- ------------ ---------- ------------- -------------
Balance at
December 31, 1997 1,000 $ 1,000 $ 230,000 $(1,871,000) $(1,640,000)
Net Income 1,429,000 1,429,000
Dividends Paid to Mestek (770,000) (770,000)
----------- ----------- ----------- ------------ ------------ ---------- ------------ -----------
Balance at
December 31, 1998 1,000 $ 1,000 $ 230,000 $(1,212,000) $ (981,000)
Capital contribution
from Mestek 1,030,000 1,030,000
Net Income 617,000 617,000
Dividends Paid to Mestek (161,000) (161,000)
----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
Balance at
December 31, 1999 1,000 $ 1,000 $1,260,000 $ (756,000) $505,000
MCS, Inc. shares
eliminated in merger (1,000) (1,000) (1,000)
CareCentric, Inc.
shares post merger
$.001 par 3,850,000 4,000 19,810,000 $1,000,000 20,814,000
Issuance of $.001 par
value preferred stock
in connection with
merger 6,848,000 $7,000 7,000
Series B, 5,600,000 shares
Series C, 850,000 shares
Series D, 398,000 shares
Net loss (10,245,000) (10,245,000)
----------- ----------- ----------- ------------ ----------- ---------- ------------ ------------
Balance at
December 31, 2000 3,850,000 $ 4,000 6,848,000 $ 7,000 $21,070,000 1,000,000 $(11,001,000) $11,080,000
=========== =========== =========== ============ =========== ========== ============= =============
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes,
MCS, Inc. is deemed to have acquired CareCentric, Inc. on March 7, 2000, the
date of the merger, as more fully explained in Notes 1 and 2 to the Consolidated
Financial Statements.
39
CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
--------------- -------------- --------------
2000 1999 1998
--------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (10,245,000) $ 617,000 $ 1,429,000
ADJUSTMENTS TO RECONCILE NET (LOSS)
INCOME TO NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES:
Provision for doubtful accounts 385,000 - 163,000
Amortization and depreciation 3,960,000 240,000 194,000
CHANGE IN ASSETS AND LIABILITIES,
NET OF ACQUISITIONS: (SEE NOTE 2)
Accounts receivable (929,000) (205,000) (304,000)
Prepaid expenses and other current assets 159,000 115,000 129,000
Other assets 1,122,000 (983,000) -
Accounts payable (2,684,000) 281,000 (251,000)
Accrued compensation (88,000) (395,000) (87,000)
Accrued liabilities (730,000) 557,000 70,000
Customer deposits 949,000 (270,000) 30,000
Unearned revenues 726,000 (242,000) (55,000)
--------------- -------------- --------------
Net cash (used in) provided by operating
activities (7,222,000) (285,000) 1,318,000
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of software, furniture and equipment (658,000) (597,000) (528,000)
--------------- -------------- --------------
Net cash used in investing activities (658,000) (597,000) (528,000)
--------------- -------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Cash received in connection with MCS merger 3,547,000 - -
Capital contribution form former parent - 1,030,000 -
Payment on notes payable (150,000) - -
Proceeds from notes payable 600,000 - -
Increase (decrease) in line of credit 4,198,000 - -
Dividends paid (to Mestek by MCS) - (161,000) (770,000)
--------------- -------------- --------------
Net cash provided by financing activities 8,195,000 869,000 (770,000)
--------------- -------------- --------------
Net change in cash and cash equivalents 315,000 (13,000) 20,000
Cash and cash equivalents, beginning of period 47,000 60,000 40,000
--------------- -------------- --------------
Cash and cash equivalents, end of period $ 362,000 $ 47,000 $ 60,000
=============== ============== ==============
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes,
MCS, Inc. is deemed to have acquired CareCentric, Inc. on March 7, 2000, the
date of the merger, as more fully explained in Notes 1 and 2 to the Consolidated
Financial Statements.
40
CARECENTRIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MCS AS DEEMED ACQUIRER OF CARECENTRIC, INC.
On March 7, 2000, CareCentric, Inc. (formerly known as Simione Central
Holdings Inc.) ("CareCentric") and MCS, Inc. ("MCS") merged in a transaction
("the CareCentric/MCS merger", also set forth above as "the MCS/Simione merger")
accounted for as a reverse acquisition for financial reporting purposes. In
connection with the acquisition, CareCentric issued 1,489,853 shares of its
common stock in exchange for all the outstanding common stock of MCS, and
thereby, the former shareholders of MCS acquired control of CareCentric. As a
result, for financial reporting purposes MCS is considered the acquiring
company; hence, the historical financial statements of MCS became the historical
financial statements of CareCentric and include the results of operations of
CareCentric only from the effective acquisition date.
The weighted average common shares for the year ended December 31, 2000 are
recast in the accompanying Consolidated Statements of Operations to give effect
to the 1,489,853 shares of CareCentric common stock that were issued to the MCS
shareholders in connection with the CareCentric/MCS merger on March 7, 2000 as
though such shares had been outstanding for the entire period. For the period
from January 1, 2000 through March 6, 2000, therefore, 1,489,853 shares of
issued and outstanding CareCentric common stock are deemed to be owned by the
MCS shareholders. For the period from March 7, 2000 through December 31, 2000,
there were 3,849,816 total shares of issued and outstanding Company common stock
(after giving effect to the CareCentric/MCS merger). The weighted average shares
for the year ended December 31, 1999 are also recast to give effect to the
1,489,853 shares of CareCentric common stock that were issued to the MCS
shareholders pursuant to the CareCentric/MCS merger as though such shares had
been outstanding for the entire period.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the Company
(which as used herein refers to CareCentric, after giving effect to the merger
with MCS and, as the context requires, MCS, prior to the CareCentric/MCS
merger), include the results of operations of the parent company and its wholly
owned subsidiaries. All inter-company balances and transactions have been
eliminated.
These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or classification of
liabilities that might be necessary should the Company be unable to continue to
operate in the normal course of business. See Note 13 to the accompanying
Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform to the 2000
financial statement presentation.
DESCRIPTION OF BUSINESS
The Company is a provider of information technology systems and related
services and consulting services designed to enable home health care providers
to more effectively operate their businesses and compete in the prospective
payment system (PPS) and managed care environments. The Company's focus is to
help home health care providers streamline their operations and better serve
their patients. CareCentric offers several comprehensive software solutions.
Each of these software solutions are designed to enable customers to generate
and utilize comprehensive financial, operational and clinical information. In
addition to its software solutions and related software support services, the
Company's home health care consulting services assist providers in addressing
the challenges of reducing costs, maintaining quality, streamlining operations
and re-engineering organizational structures, as well as assisting with
regulatory compliance and merger and acquisition due diligence.
41
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
In 1998, the Company adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which supersedes SOP 91-1 and is effective for transactions
entered into for fiscal years beginning after December 31, 1997. While some
principles remain the same, there are several key differences between the two
pronouncements, including accounting for multiple element arrangements. Under
SOP 97-2, the Company recognizes software license revenue when the following
criteria are met: (1) a signed and executed contract is obtained; (2) shipment
has occurred; (3) the license fee is fixed and determinable; (4) collection is
probable; and (5) remaining obligations under the license agreement are
immaterial. The Company sells and invoices software licenses and maintenance
fees as separate contract elements, except with respect to first year
maintenance for the MestaMed(R) product which is sold in the form of a bundled
turnkey system. Prices net of discounts are separately identified at the time of
sale for each element. The Company has established vendor specific objective
evidence related to the value of maintenance fees. The Company uses the residual
value method to allocate MestaMed(R) software revenue between licenses and first
year maintenance. The adoption of SOP 97-2 did not have a material impact on the
Company's financial statements.
Revenues are derived from the licensing and sub-licensing of software, the
sale of computer hardware, accessories and supplies, professional and technical
consulting services, implementation and training products and services, forms
and case plans, software maintenance and support services, outsourcing services,
as well as home health care management consulting services.
To the extent that software and services revenues result from software
support, implementation, training and technical consulting services, such
revenues are recognized monthly as the related services are rendered or, for
software support revenues, over the term of the related agreement. To the extent
that software and services revenues result from software licenses, computer
hardware and third-party software revenues, such revenues are recognized when
the related products are delivered and collectibility of fees is determined to
be probable, provided that no significant obligation remains under the contract.
Limited amounts of revenues derived from the sale of software licenses requiring
significant modification or customization are recorded based upon the percentage
of completion method using labor hours or contract milestones. Software support
or maintenance allows customers to receive unspecified enhancements and
regulatory data updates in addition to telephone support. Consulting services
revenues are recognized monthly as the related services are performed.
Revenues for post-contract customer support are recognized ratably over the
term of the support period, which is typically one year. Post contract customer
support fees typically cover incremental product enhancements, regulatory
updates and correction of software errors. Separate fees are charged for
significant product enhancements, new software modules, additional users, and
migrations to different operating system platforms.
Subsequent to system shipment, the Company frequently delivers a variety of
add-on software and hardware components. Revenues from these sales are
recognized upon shipment.
In addition to software licenses, software maintenance and support, and
related hardware, the Company also provides computer-based training, CD-ROMs and
a number of ancillary services including on site implementation and training,
classroom training, consulting and "premium" and after-hours support. Revenues
from such products and services are recognized monthly as such products are
delivered and such services are performed.
Unbilled receivables typically represent revenues from ancillary services
performed and earned in the current period but not billed until subsequent
periods, usually within one month. Unearned revenues represent amounts billed
and included in accounts receivable for which revenue recognition has not yet
occurred.
42
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income for the period.
SOFTWARE DEVELOPMENT EXPENSES
SFAS No. 86 requires that software development costs incurred subsequent to
the establishment of technological feasibility for the product be capitalized.
The Company has no capitalized development costs as of December 31, 2000 except
those developed technologies capitalized in connection with the CareCentric/MCS
merger on March 7, 2000 as more fully described in Note 4.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment is stated at cost. Depreciation
is calculated for financial reporting purposes using the straight-line method
over the estimated useful lives (ranging from one to ten years) of the assets or
lease term, whichever is shorter.
INTANGIBLE ASSETS AND LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset's
carrying amount.
The intangible assets arising from the CareCentric/MCS merger are amortized
using the straight-line method over the estimated useful lives of the related
assets as more fully disclosed in Notes 2 and 4. 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.
INCOME TAXES
The Company accounts for income taxes using the asset/liability method
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities.
NET (LOSS) EARNINGS PER SHARE
The Company has 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 exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share for the year 2000 exclude the
effects of options, warrants and conversion rights as they would be
antidilutive, and as a result, basic and diluted earnings are the same for the
year 2000. Per share amounts for all periods have been presented in conformity
with SFAS No. 128 requirements.
Numerator:
Net (loss) income $(10,245,000) $ 617,000 $1,429,000
Denominator:
Denominator for basic and
diluted earnings per share -
weighted-average shares 3,418,000 1,489,853 1,489,853
Net (loss) income per share --
basic and diluted $ (3.00) $ 0.41 $ 0.96
43
STOCK BASED COMPENSATION
Stock options are accounted for under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," the provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS No. 123 and related interpretations).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate their fair value.
Notes payable: The carrying amounts of the Company's notes payable
approximates their fair value.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for the Company's first quarter of the fiscal year ending December 31,
2001. The Company's management does not believe that the adoption of SFAS No.
133 will have a material impact on the Company's financial position or results
of operations.
On December 3, 1999, the SEC released Staff Accounting Bulletin 101, (SAB
101) "Revenue Recognition in Financial Statements". This bulletin established
more clearly defined revenue recognition criteria than previously existing
accounting pronouncements. On June 26, 2000, the SEC released SAB 101B, which
delayed the required implementation of SAB 101 until no later than the fourth
quarter of fiscal years ending December 31, 2000. The Company believes that the
effects of this bulletin were not material to its financial position, results of
operations or cash flow.
DISCONTINUED OPERATIONS
The discontinued operations reported in the Company's results of operations
for the year ending December 31, 1999 relate to MCS's Profitworks segment which
was distributed to MCS's former parent company, Mestek Inc., on September 1,
1999.
NOTE 2 - CARECENTRIC/MCS MERGER
On March 7, 2000, MCS completed the merger with CareCentric, Inc. (formerly
known as Simione Central Holdings Inc.) ("CareCentric"). CareCentric issued
1,489,853 shares of common stock to MCS stockholders in exchange for all of the
outstanding shares of MCS common stock. This number of shares has been adjusted
to reflect a one-for-five reverse stock split that was completed by CareCentric
immediately prior to the merger. In connection with the closing of the merger,
Mestek invested $6.0 million in CareCentric in exchange for 5.6 million shares
of Series B preferred stock and warrants to purchase 400,000 shares (on a split
adjusted basis) of CareCentric common stock.
As required by generally accepted accounting principles (GAAP), the effects
of the merger on the Company's assets and liabilities have been excluded from
the operating section of the cash flow statement for reporting purposes.
Pro-forma unaudited results assuming the merger took place as of January 1,
1999, and further assuming that the acquisition of CareCentric Solutions, Inc.
by CareCentric on August 12, 1999 took place on January 1, 1999, are as follows:
FOR YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999
----------------------- -----------------------
Net revenues $ 27,277,000 $ 40,010,000
Net (loss) $(11,943,000) $(15,483,000)
Net (loss) per share - basic $ (3.10) (4.02)
Net (loss) per share - diluted $ (3.10) (4.02)
44
NOTE 3. PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
DEPRECIATION
DECEMBER 31, DECEMBER 31, ESTIMATED
2000 1999 USEFUL LIVES
--------------- ----------------- ---------------
Furniture and Fixtures $ 1,551,000 $ 315,000 10 years
Computer equipment 5 years
6,050,000 1,483,000
---------------- -----------------
Accumulated depreciation 7,601,000 1,798,000
(5,644,000) (878,000)
--------------- -----------------
$ 1,957,000 $ 920,000
=============== =================
NOTE 4. INTANGIBLE ASSETS
Intangible assets consisted of the following:
ACCUMULATED NET BOOK AMORTIZATION
COST AMORTIZATION VALUE PERIOD
----------------- -------------------- ------------------ ---------------------
Developed technology $10,650,000 $ (1,109,000) $ 9,541,000 8 years
Assembled workforce 5 years
2,300,000 (383,000) 1,917,000
Customer base 9 years
1,700,000 (157,000) 1,543,000
Goodwill 7 years
11,851,000 (1,447,000) 10,404,000
----------------- -------------------- ------------------
$26,501,000 $ (3,096,000) $ 23,405,000
================= ==================== ==================
NOTE 5 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
December 31, 2000 December 31, 1999
----------------- -----------------
SHORT TERM:
Line of Credit $ 5,996,000
Note Payable - Mestek 600,000 $ -
=============== ====================
LONG TERM:
Convertible Note Payable -
Barrett C. O'Donnell $ 600,000 $ -
============== =====================
Line of Credit:
On July 12, 2000, the Company entered into a $6.0 million Loan and Security
Agreement facility (the Wainwright Facility) with Wainwright Bank and Trust
Company, a commercial bank, under which the Company granted a first priority
position on substantially all of its assets as security. The Wainwright Facility
was used to pay off the line of credit with Silicon Valley Bank, certain short
term loans from Mestek, Inc., and a loan from David O. Ellis. Borrowings under
the Wainwright Facility accrue interest, at the bank's prime rate per annum,
require monthly payments of interest and mature on July 12, 2001. The Company's
obligations under the Wainwright Facility are guaranteed by Mestek in
consideration of which the Company has issued a warrant to Mestek to purchase
104,712 shares of the Company's common stock as more fully explained in Note 9
to these Financial Statements.
45
Convertible Note Payable - Barrett C. O'Donnell:
On November 11, 1999, Simione borrowed $500,000 from Barrett C. O'Donnell
and $250,000 from David O. Ellis, both on an unsecured basis, and executed
promissory notes in connection therewith. Dr. Ellis and Mr. O'Donnell are
directors of the Company. When the CareCentric/MCS merger was completed on March
7, 2000, the Company succeeded to both of these obligations. The note payable to
Dr. Ellis, which accrued interest at 9% per annum, was paid in full on July 12,
2000 in advance of its August 15, 2000 maturity. The note payable to Mr.
O'Donnell included interest at 9% per annum, was scheduled to mature on May 11,
2002, and required quarterly payments of accrued interest. On August 8, 2000,
the $500,000 note payable to Mr. O'Donnell, together with $100,000 of deferred
salary, was cancelled in exchange for a $600,000 subordinated note, convertible
into CareCentric common stock at a strike price of $2.51 per share, with
interest at 9% per annum and a five-year maturity.
Note Payable - Mestek:
The Company is obligated under a one year unsecured promissory note in the
principal amount of $600,000 payable to Mestek Inc. which bears interest at
prime with interest payable semiannually and which matures on July 30, 2001.
This note covers funds advanced by Mestek to CareCentric to cover payroll and
accounts payable obligations incurred by the Company during the period of its
transition of senior lenders from Silicon Valley Bank to Wainwright Bank and
Trust Company.
J.E. Reed Facility:
On June 22, 2000, the Company entered into a new financing facility (the J.
E. Reed Facility) provided by John E. Reed, Chairman of CareCentric and the
Chairman and Chief Executive Officer of Mestek, Inc. The J. E. Reed Facility
consists of a $6.0 million subordinated revolving line of credit, convertible
into common stock of the Company at a strike price of $2.51 per share, with
interest at 9% per annum and a five-year maturity. The J. E. Reed Facility can
be drawn down by the Company as needed in $500,000 increments and is secured by
a second position on substantially all of the Company's assets. No borrowings
were outstanding under the J. E. Reed Facility as of December 31, 2000.
The Company is obligated under a number of capital lease obligations
originally entered into by CareCentric related to computer equipment formerly
used in CareCentric's business.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal and regulatory proceedings arising
in the normal course of business which management believes will not have a
material adverse effect on its financial position or results of operations.
The Company leases its office facilities and certain equipment under
various operating lease agreements, some of which are with related parties (see
Note 11). These leases require the Company to pay taxes, insurance, and
maintenance expenses and provide for renewal options at the then fair market
rental value of the property.
Aggregate annual rental payments for operating leases with non-cancelable
lease terms in excess of one year, net of non-cancelable subleases, are as
follows:
Years ended December 31,
2001 $1,526,000
2002 1,309,000
2003 1,118,000
2004 879,000
2005 719,000
--------------------------
Thereafter 553,000
----------
Total $6,104,000
NOTE 7. INCOME TAXES
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:
46
YEARS ENDED DECEMBER 31,
2000 1999
Deferred tax assets:
Net operating loss $ 10,900,000 $ -
Severance and other restructuring charges 837,000 -
Allowance for doubtful accounts 929,000 -
Deferred revenue 2,864,000 -
Depreciation 226,000 -
Other 575,000 -
----------------- -----------------
Total deferred tax assets 16,331,000 -
Valuation allowance (16,331,000) -
----------------- -----------------
$ - $ -
================= =================
The Company has approximately $28.6 million of net operating losses for
income tax purposes, including approximately $22.0 million incurred by Simione
Central Holdings, Inc. prior to the merger on March 7, 2000, available to offset
future taxable income. Such losses begin expiring in 2010. The Company's use of
the net operating losses incurred by Simione prior to the merger is subject to
limitations in the Internal Revenue Code relating to changes in ownership. A
valuation allowance reducing the total net deferred tax assets to zero has been
recorded based on management's assessment that it is "more likely than not" that
this net asset is not realizable as of December 31, 2000.
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,
2000 1999 1998
---- ---- ----
Federal tax benefit computed at statutory rates $ (3,536,000) $ 262,000 $ 582,000
State income taxes, net of federal effect (615,000) 44,000 104,000
Other, net 463,000 - -
Change in valuation allowance 3,534,000 - -
--------------- ---------------- ---------------
Income tax expense $ (154,000) $ 306,000 $ 686,000
=============== ================ ===============
NOTE 8. - EMPLOYEE BENEFIT PLANS
The Company has adopted 401(k) plans that cover substantially all
employees. The Company contributes to the plans based upon the dollar amount of
each participant's contribution. The Company made contributions to these plans
of approximately $189,000, $76,000 and $67,000 in 2000, 1999 and 1998,
respectively. These contributions relate to the MCS 401(k) Plan for 1999 and
1998 and to the Simione Central Holdings, Inc. 401(k) Plan, which survived the
merger, for 2000.
NOTE 9 - SHAREHOLDERS' EQUITY
Subsequent to the CareCentric/MCS Merger on March 7, 2000, the Company's
Shareholders' Equity (all on a split adjusted basis) is comprised of the
following:
Common Shares - 20,000,000 shares authorized, $.001 par value, 3,849,816
shares issued and outstanding. 1,489,853 of such shares were issued on March 7,
2000 to the former MCS common shareholders. 606,904 of such shares were issued
on March 7, 2000 to the former preferred shareholders and noteholders of
CareCentric Solutions, Inc., which shares were converted into CareCentric
(formerly known as Simione Central Holdings Inc.) common shares in connection
with the merger.
Pursuant to the terms of the July 12, 1999 Merger Agreement by which
Simione acquired the stock of CareCentric Solutions, Inc., the Company was
required to issue up to an additional 606,904 shares of common stock to the
former preferred shareholders and noteholders of CareCentric Solutions if the
average closing price of the Company's stock for the period October 1, 2000
through December 31, 2000 is not equal $15.00 per share. Since the Company's
average closing stock price for the fourth quarter of 2000 was less than $15.00
per share, on March 19, 2001, the Company issued 593,688 shares of its common
stock to the former preferred shareholders and noteholders of CareCentric
Solutions. The Company has asserted that it is not required to issue 13,216
additional shares of its common stock as well as 150,740 shares of common stock
currently being held by it in escrow under the terms of the CareCentric
Solutions Merger Agreement based upon various indemnification and expense
overages claims it believes it has against the former CareCentric Solutions
preferred shareholders and noteholders. The Company has negotiated a settlement
of these claims with the representative of the former CareCentric Solutions
parties pursuant to which 88,586 shares of common stock will be released from
escrow and distributed to the former CareCentric Solutions preferred
stockholders and noteholders, the remaining 62,154 escrow shares will be
cancelled, no additional shares of common stock will be issued, and the parties
will execute a comprehensive settlement agreement.
47
Preferred Stock-10,000,000 shares authorized
Series B Preferred Stock -$.001 par value, 5,600,000 shares issued. The
shares of Series B Preferred Stock are held by Mestek, Inc. (Mestek) and were
issued in consideration of $6,000,000 paid to CareCentric, Inc. on March 7,
2000, in the form of cash and debt forgiveness. The Series B Preferred shares,
as originally issued, carried 2,240,000 common share votes (on a split adjusted
basis) and were entitled to a 9% cumulative dividend, among other rights. In
connection with the Company's application for listing on the NASDAQ SmallCap
Market, the Company reached an agreement with Mestek on June 12, 2000 under
which Mestek agreed to allow the aforementioned number of common share votes to
be reduced to 1,120,000 in consideration for the issuance by the Company to
Mestek of a warrant to acquire up to 490,396 shares of CareCentric common stock,
as more fully described below.
Series C Preferred Stock - $.001 par value, 850,000 shares issued. The
shares of Series C Preferred Stock are held by Mestek, Inc. and result from the
conversion of a pre-existing $850,000 convertible note payable to Mestek, Inc.
The Series C Preferred shares carry 170,000 common share votes (on a split
adjusted basis) and are entitled to an 11% cumulative dividend, among other
rights.
Series D Preferred Stock - $.001 par value, 398,406 shares issued. The
shares of Series D Preferred Stock are held by John E. Reed and were issued on
June 12, 2000 in consideration of $1.0 million paid to the Company in cash. The
Series D Preferred shares are entitled to other rights.
Common Stock Warrants - In connection with the issuance of the Series B
Preferred Stock described above, Mestek, Inc. received a warrant to acquire up
to 400,000 shares of the Company's common stock at a per share exercise price
equal to $10.875. In connection with the waiver by Mestek, Inc. of certain
voting rights previously granted to it, Mestek received on June 12, 2000 a
warrant to acquire up to 490,396 shares of the Company's common stock for a term
of 3 years at a per share exercise price equal to $3.21. In connection with
Mestek's guarantee of the Company's obligations under the line of credit from
Wainwright Bank and Trust Company, as more fully explained in Note 5 to these
Financial Statements, Mestek received on July 12, 2000 a warrant to acquire up
to 104,712 shares of the Company's common stock for a term of 3 years at a per
share exercise price equal to $2.51. The aforementioned number of shares and per
share prices are all on a split adjusted basis.
Stock Options - The Company has granted options to purchase an aggregate of
673,252 shares (on a split adjusted basis) of common stock as of December 31,
2000. Of the options granted, none were exercised prior to December 31, 2000 and
101,593 have been cancelled. Of the remaining 571,659 options, 415,426 are
vested and exercisable as of December 31, 2000. The exercise prices range from
$2.51 to $73.55 per share, both on a split adjusted basis.
The following summarizes all stock options as of December 31, 2000: Options
totaling 24,000 shares were outstanding and vested under the now discontinued
1996 Simione (formerly CHMS) Plan at exercise prices ranging from $15.80 to
$25.00. Options totaling 1,000 shares were outstanding and vested under the now
discontinued 1997 SCHI NQ (Directors) Plan at an exercise price of $43.13.
Non-plan options totaling 117,240 shares, of which 87,907 were vested, were
outstanding at exercise prices ranging from $2.51 to $52.50. The Simione Central
Holding, Inc. 1997 Omnibus Equity-Based Plan (the "Plan") is the only continuing
stock option plan of the Company. The Plan offers both incentive stock options
and non-qualified stock options. The Company is authorized to grant options of
up to 450,000 shares of common stock. Options totaling 429,419 shares were
outstanding, of which, 302,519 shares are vested, at exercise prices ranging
from $3.83 to $73.55. Options totaling 274,800 shares were granted to employees
of the Company in 2000, 249,800 shares pursuant to the Plan at exercise prices
ranging from $3.83 to $4.00 per share and 25,000 non-plan options at an exercise
price of $2.51 per share.
On January 5, 2001, non-qualified options totaling 25,000 shares were
granted under the Plan to the non-employee directors at an exercise price of
$3.25 per share.
In connection with the Simione/MCS merger on March 7, 2000, Mestek was
granted a series of options to purchase a total of approximately 378,295 shares
of the Company's common stock (on a split adjusted basis). These options are
exercisable only to the extent that outstanding CareCentric options, warrants or
other conversion rights are exercised. These options were designed to prevent
dilution of Mestek's ownership interest in the Company after the merger. As
options, warrants and other common rights are cancelled, Mestek's option rights
are correspondingly reduced. Due to the contingent nature of these options, they
have been excluded from the following tables. At April 2, 2001, 296,542 of such
options were available under the original terms of issuance.
48
A summary of the Company's stock option activity from December 31, 1999 is
as follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------------- ----------------
Outstanding at December 31, 1999 -
---------------
Options Acquired 398,452 $ 24.10
Granted 274,800 $ 3.70
Exercised $ -
Forfeited
(101,593) $ 33.65
---------------
Outstanding at December 31, 2000 $ 12.45
571,659
===============
Options Outstanding Options Exercisable
-------------------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
------------------------- ---------------- ----------------- --------------------- ------------- ------------
$ - $ 7.36 270,800 9.8 $ 3.75 175,000 $ 3.83
$ 7.36 $14.71 165,238 5.7 $ 9.62 125,016 $ 9.97
$14.71 $22.07 25,990 5.0 $ 15.88 25,990 $ 15.88
$22.07 $29.42 11,010 5.7 $ 25.00 11,010 $ 25.00
$29.42 $36.78 70,302 6.1 $ 32.67 56,536 $ 32.43
$36.78 $44.13 6,000 5.8 $ 42.61 6,000 $ 42.61
$44.13 $51.49 8,000 7.0 $ 45.00 5,333 $ 45.00
$51.49 $58.84 7,180 6.6 $ 55.63 7,180 $ 55.63
$58.84 $66.20 1,000 6.4 $ 60.00 1,000 $ 60.00
$66.20 $73.55 6,139 8.6 $ 73.55 2,361 $ 73.55
---------------- -------------
571,659 7.1 $ 12.45 415,426 $ 13.40
================ =============
For the purposes of pro forma disclosures, the estimated fair value of the
stock options is amortized to expense over the options' vesting periods.
Risk-free interest rates of 5.34%; no dividends; a volatility factor of the
expected market price of the Company's common stock of 1.40685; and a
weighted-average expected life of the options of 7.10 years. The Company's pro
forma net loss and net loss per share (basic and diluted) are $10,941,000 and
$3.20, respectively, for 2000.
Stock Purchase Warrants
At December 31, 2000, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:
Common Exercise Expiration
Shares Price Date
--------------- --------------- ---------------------
25,000 $ 5.00 February 24, 2005
104,712 $ 2.51 July 12, 2003
490,396 $ 3.21 June 30, 2003
400,000 $ 10.88 March 7, 2003
---------------
1,020,108
===============
All outstanding warrants are exercisable.
NOTE 10 - SEGMENT RESULTS
The Company has two reportable segments: Software Systems and Consulting.
The Company's Software Systems segment sells comprehensive and flexible software
solutions and services to enable home health care providers to more effectively
operate their businesses and compete in prospective payment (PPS) and managed
care environments. The Consulting segment assists home health care providers in
addressing the challenges of reducing costs, maintaining quality, streamlining
operations and re-engineering organizational structures, as well as assisting
with regulatory compliance and assisting with merger and acquisition due
diligence.
49
The Company evaluates performance and allocates resources based on profit
or loss from operations, not including gains and losses on the Company's
investment portfolio. The accounting policies of the reportable segments are the
same as those used for the Consolidated Financial Statements. The revenues,
operating (losses) profits and assets of the Company include the operations of
CareCentric from March 7, 2000 to December 31, 2000, the operations of MCS for
the full twelve months ended December 31, 2000, and the operations of MCS only
for the twelve months ended December 31, 1999 and December 31, 1998, as more
fully explained in Note 1. Accordingly, because CareCentric's 1999 results from
operations are not included, comparability between the 1998 and 1999 figures and
the 2000 figures is not meaningful. See Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of revenue and
results of operations on a "comparable" basis. The revenues, operating losses
and assets of the Company by business segment are as follows:
December 31,
-------------------------------------------------------------------
2000 1999 1998
------------------ -------------------- ---------------------
Revenues
Software Systems 20,988,000 $ 16,648,000 $ 14,901,000
Consulting 3,980,000
------------------ -------------------- ---------------------
Total $ 24,968,000 $ 16,648,000 $ 14,901,000
================== ==================== =====================
Cost of sales
Software Systems $ 10,187,000 $ 10,563,000 $ 9,225,000
Consulting 3,459,000
------------------ -------------------- ---------------------
Total 13,646,000 $ 10,563,000 $ 9,225,000
================== ==================== =====================
Research and development
Software Systems $ 6,174,000 $ 1,051,000 $ 231,000
================== ==================== =====================
Depreciation and
amortization
Software Systems $ 3,494,000 $ 230,000 $ 194,000
Consulting 466,000 -
------------------ -------------------- ---------------------
Total $ 3,960,000 $ 230,000 $ 194,000
================== ==================== =====================
Net income (loss)
from Continuing
Operations
Software Systems $ (10,301,000) $ 466,000 $ 1,026,000
Consulting 56,000
-------------------- -------------------- ---------------------
Total (10,245,000) $ 466,000 $ 1,026,000
==================== ==================== =====================
Assets
Software Systems $ 30,648,000 $ 6,696,000 $ 5,279,000
Consulting 4,472,000 - -
-------------------- -------------------- ---------------------
Total $ 35,120,000 $ 6,696,000 $ 5,279,000
==================== ==================== =====================
Interest expense
Software Systems $ 899,000 $ - $ -
-------------------- -------------------- ---------------------
Total $ 899,000 $ - $ -
==================== ==================== =====================
Income taxes
Software Systems $ (154,000) $ 306,000 $ 686,000
-------------------- -------------------- ---------------------
Total $ (154,000) $ 306,000 $ 686,000
==================== ==================== =====================
Expenditures for long-
lived Assets
Software Systems $ 658,000 $ 597,000 $ 528,000
-------------------- -------------------- ---------------------
Total $ 658,000 $ 597,000 $ 528,000
==================== ==================== =====================
The Net Income (loss) from continuing operations reported above has been
affected by non-cash depreciation and amortization charges as reported above.
50
NOTE 11 - RELATED PARTY TRANSACTIONS
A shareholder and director of the Company is a partner in an entity that
leases an office facility to the Company under an operating lease that expires
in December 2002. Annual rental payments under this lease are approximately
$136,000 per year through 2002.
The Company has subleased certain space to Healthfield, Inc. which has a
significant shareholder who was a former member of the board of directors of the
Company.
Certain relatives of William Simione, Jr. and Robert Simione manage a
certified public accounting business which performs services for the Company in
conjunction with services performed for customers of CareCentric.
R. Bruce Dewey remains a Senior Vice President of Mestek while performing
his duties as Chief Executive Officer, President and director of the Company.
Stephen M. Shea remains Senior Vice President and Chief Financial Officer
of Mestek, Inc. while performing his duties as Chief Financial Officer of the
Company.
As of December 31, 2000, the Company had one promissory note outstanding to
a director. The note is described in Note 5 to these Financial Statements.
John E. Reed is a director and a significant, but not controlling,
shareholder of the Wainwright Bank and Trust Company which has provided the
Company with a $6.0 million line of credit, as more fully explained in Note 5 to
the Financial Statements.
John E. Reed, Chairman of the Company and Chairman and Chief Executive
Officer of Mestek, Inc., has provided the Company with a $6.0 million line of
credit (unrelated to the Wainwright Bank and Trust $6.0 million line of credit
described above) as more fully described in Note 9 to the Financial Statements
and has also purchased $1.0 million of the Company's Series D Preferred Stock on
June 12, 2000, as more fully described in Note 9 to these Financial Statements.
An independent committee of the Company's Board of Directors, consisting of
Barrett C. O'Donnell and David O. Ellis, negotiated the terms of Mr. Reed's debt
and equity investments in the Company. The issuance of 398,406 shares of Series
D Preferred Stock to Mr. Reed for his $1.0 million equity investment was based
on a per share price of $2.51, which was the 5-day average closing price of
CareCentric common stock as of the date of the final negotiation of the terms of
Mr. Reed's purchase. The conversion price for Mr. Reed's $6.0 million loan,
which converts into CareCentric common stock as described in more detail in Note
5 to these Financial Statements, is also $2.51 per share.
Warrants were granted in June 2000 and July 2000 by the Company to Mestek,
Inc. in connection with its waiver of certain voting rights previously granted
to it and in connection with its guarantee of the loan from Wainwright Bank and
Trust Company to the Company. The terms of the warrants (as described in more
detail in Note 9 to these Financial Statements) were based on negotiations by
independent committees of the Boards of Directors of the Company and Mestek.
NOTE 12 - LICENSE AGREEMENTS
The Company licenses certain software products from third parties for
incorporation in, or other use with, its products and is obligated to pay
license fees in connection with such products. The Company sublicenses such
products to its customers and collects fees in connection with such
sublicensees.
NOTE 13- LIQUIDITY
As disclosed in the financial statements, the Company's operations have
used significant amounts of cash in 2000 and during the first quarter of fiscal
2001. The Company has a working capital deficit of $13,765,000 at December 31,
2000, and has borrowed since December 31, 2000 approximately $1,700,000 from its
majority shareholder through March 31, 2001, in order to meet its working
capital needs.
The merger with Simione added additional products and resources and,
importantly, added to the Company's critical mass of installed sites but the
Company's longer term success will depend upon increased sales of new software
systems and successful installation performance, including in particular the
Company's Smart ClipBoard(R) and MestaMed(R) products.
51
As of March 31, 2001, the Company has untapped credit capacity of
approximately $4.3 million from its majority shareholder. The Company believes
that its funding sources, in combination with the funds available from cash to
be generated from future operations, will be sufficient to meet the Company's
operating requirements through at least December 31, 2001, assuming no material
adverse change in the operation of the Company's business. Notwithstanding the
financial conditions prevailing in the home health marketplace, the Company
continued to fund significant product development initiatives during 2000 and
during the first quarter of 2001. Accordingly, until revenues increase
sufficiently to cover these forward-looking costs and operating expenses, the
Company remains dependent on its majority shareholder for its working capital
financing. The Company's majority shareholder has stated his intention and
ability to continue to advance cash to the Company in accordance with the terms
of his credit facility.
NOTE 14. SUBSEQUENT EVENTS
On January 31, 2001, the Company changed its name from Simione Central
Holdings, Inc. to CareCentric, Inc. pursuant to a Certificate of Ownership and
Merger filed under applicable provisions of the Delaware General Corporation
Law. On the same date, the Company's two operating subsidiaries also changed
their names, with Simione Central Consulting, Inc. changing its name to Simione
Consulting, Inc. and Simione Central National, LLC changing its name to
CareCentric National, LLC pursuant to filings made with the Georgia Secretary of
State's office.
Pursuant to the terms of the July 12, 1999 Merger Agreement by which the
company acquired the stock of CareCentric Solutions, Inc., the Company was
required to issue up to an additional 606,904 shares of common stock to the
former preferred shareholders and noteholders of CareCentric Solutions if the
average closing price of the Company's stock for the period October 1, 2000
through December 31, 2000 is not equal $15.00 per share. Since the Company's
average closing stock price for the fourth quarter of 2000 was less than $15.00
per share, on March 19, 2001, the Company issued 593,688 shares of its common
stock to the former preferred shareholders and noteholders of CareCentric
Solutions. The Company has asserted that it is not required to issue 13,216
additional shares of its common stock as well as 150,740 shares of common stock
currently being held by it in escrow under the terms of the CareCentric
Solutions Merger Agreement based upon various indemnification and expense
overages claims it believes it has against the former CareCentric Solutions
preferred shareholders and noteholders. The Company has negotiated a settlement
of these claims with the representative of the former CareCentric Solutions
parties pursuant to which 88,586 shares of common stock will be released from
escrow and distributed to the former CareCentric Solutions preferred
shareholders and noteholders, the remaining 62,154 escrow shares will be
cancelled, no additional shares of common stock will be issued, and the parties
will execute a comprehensive settlement agreement.
52
CARECENTRIC, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Additions
Charges
Balance at to Additional Balance at
Beginning Cost and Due to Deductions End of
of Period Expense Acquisition (1) Period
-------------- -------------- -------------- -------------- --------------
Year ended December 31, 2000
Allowance for Doubtful Accounts $ 166,000 $ 538,000 $ - $153,000 $ 551,000
============== ============== ============== ============== ==============
Year ended December 31, 1999
Allowance for Doubtful Accounts $ 166,000 $ - $ - $ - $ 166,000
============== ============== ============== ============== ==============
Year ended December 31, 1998
Allowance for Doubtful Accounts $ 3,000 $ 163,000 $ - $ - $ 166,000
============== ============== ============== ============== ==============
(1) Write-offs of uncollectible accounts
53
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