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FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-22162
CARECENTRIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3209241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2625 Cumberland Parkway, Suite 310 30339
Atlanta, Georgia (zip code)
(Address of principal
executive offices)
(Registrant's telephone number,
including area code) (678) 264-4400
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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Outstanding at
Class 7/31/2001
----- ---------
Common Stock, $.001 par value 4,381,350 shares
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CARECENTRIC, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2001 (unaudited) and
December 31, 2000 (audited).
Consolidated Statements of Operations - Three Months Ended June
30, 2001 (unaudited) and 2000 (unaudited).
Consolidated Statements of Shareholders' Equity - Six Months
Ended June 30, 2001 (unaudited).
Consolidated Statements of Cash Flows - Three Months and Six
Months Ended June 30, 2001 (unaudited) and 2000 (unaudited).
Notes to Consolidated Financial Statements - June 30, 2001
(unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
by CareCentric, Inc. ("CareCentric" or the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments (consisting only of normal recurring entries) necessary
for the fair presentation of the Company's results of operations, financial
position and cash flows for the periods presented have been included.
3
CARECENTRIC, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
----------------- -------------------
2001 2000
----------------- -------------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 45,000 $ 362,000
Accounts receivable, net of allowance for
doubtful accounts of $525,000 and $237,000
respectively 8,075,000 8,484,000
Prepaid expenses, inventory and other
current assets 943,000 701,000
----------------- -------------------
Total current assets 9,063,000 9,547,000
Purchased software, furniture and equipment, net 1,819,000 1,957,000
Intangible assets, net 21,571,000 23,405,000
Other assets 350,000 211,000
----------------- -------------------
Total assets $ 32,803,000 $ 35,120,000
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 5,996,000 $ 5,996,000
Note payable 647,000 600,000
Accounts payable 2,713,000 1,156,000
Accrued compensation expense 817,000 616,000
Accrued liabilities 7,435,000 7,447,000
Customer deposits 2,206,000 2,496,000
Unearned revenues 3,609,000 5,001,000
----------------- -------------------
Total current liabilities 23,423,000 23,312,000
Accrued liabilities, less current portion 36,000 128,000
Notes payable long-term 3,575,000 600,000
----------------- -------------------
Total liabilities 27,034,000 24,040,000
Shareholders' equity:
Preferred stock; 10,000,000 shares authorized
Series B Preferred, $.001 par value; 5,600,000 issued
and outstanding 6,000 6,000
Series C Preferred, $.001 par value; 850,000 issued
and outstanding 1,000 1,000
Series D Preferred, $.001 par value; 398,000 issued and
outstanding - -
Common stock, $.001 par value; 20,000,000 shares authorized,
4,381,350 shares issued and outstanding at June 30, 2001, and
3,849,816 shares issued and outstanding at December 31, 2000; 4,000 4,000
Additional paid-in capital 21,070,000 21,070,000
Stock warrants 1,000,000 1,000,000
Accumulated deficit (16,312,000) (11,001,000)
----------------- -------------------
Total shareholders' equity 5,769,000 11,080,000
----------------- -------------------
Total liabilities and shareholders' equity $ 32,803,000 $ 35,120,000
================= ===================
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.
4
CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2001 2000 2001 2000
------------- ---------------- ---------------- --------------
Net revenues: $ 6,549,000 $ 6,257,000 $ 13,393,000 $ 10,258,000
Costs and expenses:
Cost of revenues 3,135,000 3,954,000 6,403,000 6,501,000
Selling, general and administrative 2,711,000 2,807,000 5,536,000 4,259,000
Research and development 1,609,000 1,780,000 3,376,000 2,491,000
Depreciation and amortization 1,084,000 1,183,000 2,169,000 1,610,000
Restructuring charge 675,000 - 675,000 -
------------- ---------------- ---------------- ---------------
Total costs and expenses 9,214,000 9,724,000 18,159,000 14,861,000
------------- ---------------- ---------------- ---------------
Loss from operations (2,665,000) (3,467,000) (4,766,000) (4,603,000)
Other (expense) income:
Interest expense (383,000) (189,000) (739,000) (266,000)
Interest and other income 68,000 28,000 194,000 34,000
-------------- ---------------- ---------------- ----------------
Net loss before taxes (2,980,000) (3,628,000) (5,311,000) (4,835,000)
-------------- --------------- ---------------- -----------------
Income tax benefit - - - 157,000
-------------- --------------- ---------------- -----------------
Net loss $ (2,980,000) $ (3,628,000) $ (5,311,000) $ (4,678,000)
============== =============== ================ =================
Net loss per share - basic and diluted $ (0.67) $ (0.94) $ (1.27) $ (1.57)
=============== ================ ================ ================
Weighted average common shares -
basic and diluted 4,418,000 3,850,000 4,178,000 2,983,000
=============== ================ ================ ================
See notes to consolidated financial statements.
The above financial statements reflect the fact that for accounting purposes
MCS, Inc. is deemed to have acquired Simione Central Holdings, Inc. on March 7,
2000, the date of the merger, as more fully explained in Notes 1 and 2 to the
Consolidated Financial Statements. The weighted average shares computations have
been recast to give effect to the shares of CareCentric common stock issued to
MCS stockholders in connection with the MCS merger for both periods shown, as
more fully described in Note 1 to the Consolidated Financial Statements.
5
CARECENTRIC, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the six months ended June 30, 2001
Total
Common Preferred Paid-in Accumulated Shareholders'
Shares Stock Shares Stock Capital Warrants Deficit Equity
----------- ----------- ----------- ----------- ------------- ------------ ------------- ---------------
Balance at
December 31, 2000 3,850,000 $ 4,000 6,848,000 $ 7,000 $ 21,070,000 $ 1,000,000 $(11,001,000) $ 11,080,000
Issuance of
$.001 par value
common stock (1) 593,000 - - - - - - -
Cancellation of
$.001 par value
common stock (1) (62,000) - - - - - - -
Net loss - - - - - - (5,311,000) (5,311,000)
------------ ----------- ----------- ----------- ------------- ------------ ------------- -------------
Balance at
June 30, 2001 4,381,000 $ 4,000 6,848,000 $ 7,000 $ 21,070,000 $ 1,000,000 $(16,312,000) $ 5,769,000
============ ========== =========== =========== ============= ============ ============= =============
(1) See Note 8 to the consolidated financial statements.
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.
6
CARECENTRIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months ended June 30, Six Months ended June 30,
------------------------------ ---------------------------
2001 2000 2001 2000
---------------- ------------- ------------ ------------
Cash flows from operating activities:
Net loss $(2,980,000) $(3,628,000) $(5,311,000) $(4,678,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Provision for doubtful accounts 84,000 281,000 153,000 352,000
Amortization and depreciation 1,084,000 1,184,000 2,178,000 1,610,000
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable 1,423,000 494,000 376,000 (870,000)
Prepaid expenses and other current assets 166,000 197,000 (242,000) 15,000
Other assets (146,000) (137,000) (139,000) (136,000)
Accounts payable (125,000) (1,044,000) 1,557,000 (873,000)
Accrued compensation expense (196,000) (308,000) 201,000 (82,000)
Accrued liabilities 467,000 147,000 (12,000) (683,000)
Customer deposits (194,000) 714,000 (290,000) 819,000
Unearned revenues (828,000) 598,000 (1,392,000) 1,612,000
------------ ------------ ------------ ------------
Net cash used in operating activities (1,245,000) (1,502,000) (2,921,000) (2,914,000)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of software, furniture and equipment (256,000) (110,000) (375,000) (271,000)
------------ ------------ ------------ ------------
Net cash used in investing activities (256,000) (110,000) (375,000) (271,000)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Cash received in connection with MCS merger - - - 3,547,000
Proceeds from issuance of preferred stock - 1,000,000 - 1,000,000
Proceeds from issuance of notes payable 1,292,000 583,000 2,979,000 590,000
------------ ------------ ------------ ------------
Net cash provided by financing activities 1,292,000 1,583,000 2,979,000 5,137,000
------------ ------------ ------------ ------------
Net increase/(decrease) in cash
and cash equivalents (209,000) (29,000) (337,000) 1,952,000
Cash and cash equivalents, beginning of period 254,000 2,028,000 362,000 47,000
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 45,000 $1,999,000 $ 45,000 $1,999,000
============ ============ ============ ============
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.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(Unaudited)
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" or the "Company") and MCS, Inc. ("MCS") merged in a
transaction 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 six months ended June 30, 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, 2000 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 and are unaudited (except for the December 31, 2000 balance sheet).
In the opinion of management, all adjustments, which consist of normal recurring
adjustments, considered necessary for a fair presentation have been included.
All inter-company balances and transactions have been eliminated. Interim
results are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001.
Certain financial information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
as of December 31, 2000 appearing in the Company's Report on Form 10-K for the
year ended December 31, 2000.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and amounts and
classification of liabilities that might be necessary should the Company be
unable to continue to operate in the normal course of business. See the
Liquidity section of Management Discussion and Analysis on page 14.
Certain prior period amounts have been reclassified to conform to the 2001
financial statement presentation.
Description of Business
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. The Company offers several comprehensive software
solutions. Each of these solutions provides a basic set of software applications
and specialized modules that can be added based upon customer needs. These
software solutions are designed to enable customers to generate and utilize
8
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.
Cash Equivalents
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
Intangible Assets and Long-lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset's
carrying amount.
The 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 Note 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 quarters ended June
30, 2000 and 2001 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 quarters ended June 30, 2000 and 2001. Per share amounts for
all periods have been presented in conformity with SFAS No. 128 requirements.
Stock Based Compensation
Stock options are accounted for under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and 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.
9
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
became effective for the Company's fiscal quarter ended June 30, 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.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets",
which, for all intents and purposes for the Company, will become effective
December 31, 2001. Goodwill generated in purchase transactions will be recorded
as a non-wasting asset subject to an impairment test at least once per year.
Amortization of goodwill currently on the Company's books will cease as of
January 1, 2002. The Company is currently evaluating the effect that adoption of
FAS 142 will have on its financial position and results of operations in 2002.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of New Accounting Standards" below.
NOTE 2 - CARECENTRIC/MCS MERGER
On March 7, 2000, MCS completed the merger with CareCentric. CareCentric issued
1,489,853 shares of common stock to MCS stockholders in exchange for all of the
outstanding shares of MCS common stock. This number of shares has been adjusted
to reflect a one-for-five reverse stock split that was completed by CareCentric
immediately prior to the merger. In connection with the closing of the merger,
Mestek invested $6.0 million in CareCentric in exchange for 5.6 million shares
of Series B preferred stock and warrants to purchase 400,000 shares (on a split
adjusted basis) of CareCentric common stock and converted a pre-existing
$850,000 note receivable into 850,000 shares of Series C preferred stock.
Additional information on the merger is included in the Company's Registration
Statement on Form S-4 (Registration No. 333-96529).
As required by generally accepted accounting principles (GAAP), the effects of
the merger on the Company's assets and liabilities have been excluded from the
operating section of the cash flow statement for reporting purposes.
Pro-forma unaudited results assuming the merger took place as of January 1, 2000
are as follows:
For Six Months Ended June 30,
------------------------------------------
2001 2000
-------------------- ---------------------
Net revenues $ 13,393,000 $ 13,626,000
Net (loss) $ (5,311,000) $ (6,439,000)
Net (loss) per share - basic and diluted $ (1.27) $ (1.64)
NOTE 3 - RESTRUCTURING AND OTHER CHARGES
In April 2001, CareCentric approved a plan to close one remote support office
and to downsize the workforce at its remaining facilities. As a result of these
actions the Company recorded a total charge of $675,000 in the quarter ended
June 30, 2001.
The restructuring charge includes $598,000 of employee severance costs and
$77,000 in other exit costs (principally lease termination costs and functional
relocation expenses). The plan entails the elimination of 33 positions, the
layoff of six additional employees and the closing of one non-essential training
and support facility. The Company expects to pay $585,000 in cash related to the
restructuring plan. During the quarter ended June 30, 2001 the Company paid
$294,000 in employee costs and $18,000 in other exit costs. As of July 31, 2001,
39 employees had been separated under the plan.
10
NOTE 4 - PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
Depreciation
June 30, December 31, Estimated
2001 2000 Useful lives
----------------- ------------------ ---------------
Software $ 1,677,000 $ 1,635,000 3 years
Furniture and fixtures 1,577,000 1,551,000 10 years
Computer equipment 4,552,000 4,415,000 5 years
----------------- ------------------
7,806,000 7,601,000
Accumulated depreciation (5,987,000) (5,644,000)
----------------- ------------------
Net purchased software, furniture and
equipment $ 1,819,000 $ 1,957,000
================= ==================
NOTE 5 - INTANGIBLE ASSETS
Intangible assets at June 30, 2001 consisted of the following:
Accumulated Net Book Amortization
Cost Amortization Value Period
----------------- -------------------- ---------------- ----------------
Developed technology $10,650,000 $ (1,775,000) $ 8,875,000 8 years
Assembled workforce 2,300,000 (613,000) 1,687,000 5 years
Customer base 1,700,000 (252,000) 1,448,000 9 years
Goodwill 11,851,000 (2,290,000) 9,561,000 7 years
--------------- ------------------- ----------------
$26,501,000 $ (4,930,000) $ 21,571,000
=============== =================== ================
See also Note 1, "Summary of Significant Accounting Policies - Recently Adopted
Accounting Standards".
NOTE 6 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
June 30, 2001 December 31, 2000
------------- -----------------
Short Term:
Line of Credit $ 5,996,000 $ 5,996,000
Note Payable - Mestek $ 647,000 $ 600,000
Long Term:
Convertible Note Payable - Barrett C. O'Donnell $ 600,000 $ 600,000
Convertible Note Payable - J.E Reed $ 2,975,000 $ -
----------- --------------
Total Long-term Notes Payable $ 3,575,000 $ 600,000
=========== ==============
Line of Credit:
On July 12, 2001, the Company renewed 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
initially 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, and then to
fund the Company's operations. Borrowings under the Wainwright Facility accrue
interest, at the bank's prime rate per annum, require monthly payments of
interest and mature on July 12, 2002. The Company's obligations under the
11
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.
Convertible Note Payable - Barrett C. O'Donnell:
On November 11, 1999, Simione Central Holdings, Inc. ("Simione") borrowed
$500,000 from Barrett C. O'Donnell on an unsecured basis and executed a
promissory note in connection therewith. Mr. O'Donnell is a director of the
Company. When the CareCentric/MCS merger was completed on March 7, 2000, the
Company succeeded to this obligation. 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 an unsecured promissory note in the principal
amount of $600,000 payable to Mestek Inc. which bears interest at prime plus one
percent with interest payable semiannually and which matures on July 30, 2002.
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 payable quarterly, 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. Borrowings totaling $2.975 million were outstanding under the
J. E. Reed Facility as of July 31, 2001. The unused capacity under the J.E. Reed
line as of July 31, 2001 was $3.025 million.
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 7 - 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.
NOTE 8 - SHAREHOLDERS' EQUITY
Subsequent to December 31, 2000, changes in the Company's Shareholders' Equity
(all on a split-adjusted basis) are as follows:
Common Shares - 20,000,000 shares authorized, $.001 par value, 4,381,330 shares
issued and outstanding. Of such shares, 1,489,853 were issued on March 7, 2000
to the former MCS common shareholders, 606,904 were issued on March 7, 2000 to
the holders of CareCentric Series A Preferred Stock (the former preferred
shareholders and noteholders of CareCentric Solutions, Inc.), which shares were
converted into CareCentric common shares in connection with the merger, and
531,534 were issued on March 19, 2001 to the former preferred shareholders and
noteholders of CareCentric Solutions, Inc. as described below.
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 did not equal $15.00 per share. Since the Company's average closing stock
12
price for the fourth quarter of 2000 was less than $15.00 per share, on March
20, 2001, the Company issued 593,688 shares of its common stock to the former
preferred shareholders and noteholders of CareCentric Solutions. The Company
asserted that it was not required to issue 13,216 additional shares of its
common stock as well as 150,740 shares of common stock that were being held by
it in escrow under the terms of the CareCentric Solutions Merger Agreement based
upon various indemnification and expense overages claims it believed it had
against the former CareCentric Solutions preferred shareholders and noteholders.
On May 16, 2001, the Company finalized a settlement of these claims with the
representative of the former CareCentric Solutions parties pursuant to which
88,586 shares of common stock were released from escrow and distributed to the
former CareCentric Solutions preferred shareholders and noteholders, the
remaining 62,154 escrow shares were cancelled, no additional shares of common
stock will be issued, and the parties executed a comprehensive settlement
agreement.
Stock Options - The Company has granted options to purchase an aggregate of
571,659 shares (on a split adjusted basis) of common stock as of July 31, 2001,
of which 2,500 options with an exercise price of $3.00 per share were granted
during the three month period ended June 30, 2001. Of the options granted, none
were exercised prior to July 31, 2001 and 41,705 have been cancelled. Of the
remaining 557,454 options, 256,254 are vested and exercisable as of July 31,
2001. The exercise prices range from $2.51 to $73.55 per share, both on a split
adjusted basis.
NOTE 9 - 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.
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
profits (losses) and assets of the Company include the operations of MCS only
from January 1, 2000 through March 7, 2000 and CareCentric from March 7, 2000
forward. Accordingly, because CareCentric's 2000 results from operations are not
fully included, comparability between the 2000 and 2001 figures is compromised.
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:
Three months ended June 30, Six months ended June 30,
------------------------------------- --------------------------------------
2001 2000 2001 2000
---------------- ----------------- ----------------- -----------------
Revenues
Software systems $ 5,324,000 $ 5,233,000 $ 10,979,000 $ 8,768,000
Consulting services 1,225,000 1,024,000 2,414,000 1,490,000
---------------- ----------------- ----------------- -----------------
Total $ 6,549,000 $ 6,257,000 $ 13,393,000 $ 10,258,000
================ ================= ================= =================
Cost of Sales
Software systems $ 2,054,000 $ 2,927,000 $ 4,542,000 $ 5,049,000
Consulting services 1,081,000 1,027,000 1,861,000 1,452,000
---------------- ----------------- ----------------- -----------------
Total $ 3,135,000 $ 3,954,000 $ 6,403,000 $ 6,501,000
================ ================= ================= =================
Research & development
Software systems $ 1,609,000 $ 1,780,000 $ 3,376,000 $ 2,491,000
================ ================= ================= =================
Depreciation and amortization
Software systems $ 947,000 $ 1,040,000 $ 1,894,000 $ 1,430,000
Consulting services 137,000 143,000 275,000 180,000
---------------- ----------------- ----------------- -----------------
Total $ 1,084,000 $ 1,183,000 $ 2,169,000 $ 1,610,000
================ ================= ================= =================
13
Net income (loss) from continuing operations
Software systems $ (2,735,000) $ (3,285,000) $ (5,054,000) $ (4,532,000)
Consulting services (245,000) (343,000) (257,000) (303,000)
----------------- ----------------- ----------------- -----------------
Total $ (2,980,000) $ (3,628,000) $ (5,311,000) $ (4,835,000)
Three months ended June 30, Six months ended June 30,
------------------------------------ --------------------------------------
2001 2000 2001 2000
--------------- ----------------- ----------------- -----------------
Interest expense
Software systems 377,000 189,000 726,000 266,000
Consulting services 6,000 - 13,000 -
--------------- ----------------- ----------------- -----------------
Total $ 383,000 $ 189,000 $ 739,000 $ 266,000
=============== ================= ================= =================
Income taxes
Software systems - - - $ (157,000)
================ ================= ================= =================
Expenditures for long-lived assets
Software systems $ 256,000 $ 271,000 $ 375,000 $ 432,000
================ ================= ================= =================
June 30, December 31,
2001 2000
---------------- -----------------
Assets
Software systems $ 28,309,000 $ 30,648,000
Consulting services 4,494,000 $ 4,472,000
----------------- -----------------
Total $ 32,803,000 $ 35,120,000
================= =================
Certain categories of expenses are omitted. See Consolidated Financial
Statements above.
The Net Income (loss) from continuing operations reported above has been
affected by non-cash depreciation and amortization charges as reported above.
NOTE 10 - 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 11 - SUBSEQUENT EVENTS
The Company and the management of its wholly-owned subsidiary, Simione
Consulting, Inc., recently have been evaluating the operations of Simione
Consulting and its ability to maximize its business and methods of realizing its
synergies with the Company. On July 31, 2001, William J. Simione, Jr., a
Director and Executive Vice President of the Company and President of Simione
Consulting and Robert J. Simione, Senior Vice President of Simione Consulting,
each delivered written notice to the Company of their election to terminate
their employment with Simione Consulting effective as of September 30, 2001. The
Company has entered into and anticipates completing negotiations regarding the
separation of Messrs. William and Robert Simione from the Company prior to that
date and the orderly and mutually beneficial transition of the Company's
consulting business. These negotiations are very preliminary and the ultimate
financial effect on the Company resulting from these negotiations is currently
uncertain; however, the Company expects that Messrs. William and Robert Simione
will form a new stand-alone company employing the current consulting employees.
While the Company believes that in the short term it will lose revenue
associated with the consulting business, the Company believes that it will
benefit in the longer term from greater management focus on the Company's core
software businesses and from an arms length relationship with independent
consultants. The Company is pleased that Mr. William Simione Jr. intends to
remain on the Company's Board of Directors.
Item 2. 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 Act of 1934, as amended, 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. 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 close the transactions required to obtain the additional
capital resources described herein, 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 ,the effects of changes in regulations affecting health
care providers, uncertainties regarding the restructuring described herein,
risks associated with acquisitions 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.
14
Liquidity and Capital Resources
The Company secured $13.0 million in new debt and equity capital during 2000 as
follows:
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 Company 6,000,000 Line of Credit July 12, 2000
------------------
$ 13,000,000
==================
Details on the line of credit transactions referenced above are described in
greater detail in Note 6 to the accompanying Financial Statements.
The Wainwright Bank and Trust Company Line of Credit was initially used to pay
off the Silicon Valley Bank Line of Credit, certain short term loans from Mestek
Inc., and the note payable to David O. Ellis, and then to fund the Company's
operations. As of July 31, 2001, the unused capacity under the John E. Reed and
Wainwright Bank and Trust Company lines of credit are $3,025,000 and $0,
respectively.
Notwithstanding the Company's continued commitment to marketing, research and
development, its net borrowings from all sources, representing in effect the
Company's cash utilization rate, were significantly reduced during the three
months ended June 30, 2001, to $1.275 million, as compared with $1.7 million for
the three months ended March 31, 2001 and $2.7 million for the three months
ended December 31, 2000. The Company had no borrowings during the month of July
and, based upon internally generated cash forecasts, expects to borrow less than
$500,000 though the quarter ending September 30, 2001. As of July 31, 2001 the
Company had $3.025 million in available capacity remaining under the J E Reed
line. As disclosed in the financial statements, the Company has a working
capital deficit of $14.4 million at June 30, 2001.
In furtherance of its plan to achieve a breakeven cash utilization rate in the
near term, the Company implemented a restructuring plan in April 2001, as more
fully described herein, in addition to the various other ongoing cost reduction
initiatives undertaken subsequent to the MCS/CareCentric merger on March 7,
2000. The Company believes in light of these cost reduction efforts that its
funding sources, as described above, will be sufficient to meet its working
capital needs in 2001. The Company remains dependent, however, on its majority
shareholder, J. E. Reed, for its working capital financing needs.
As part of the restructuring plan, the Company recorded a restructuring charge
of $675,000 to cover the cost of employee severance and related benefits for the
elimination of 33 positions, the layoff of 6 employees, and the closing of one
non-essential training and support facility. The total annual payroll and
associated benefits for the affected employees is approximately $3.8 million and
the total annual operating cost for the closed facility is approximately
$55,000.
The Company's operating earnings for the three months ended June 30, 2001, after
adding back non-cash charges (amortization and depreciation), spending on
research and development, and the restructuring charge was $703,000, computed as
follows:
(Loss) Income from operations $ (2,665,000)
Amortization and depreciation 1,084,000
Research and development 1,609,000
Restructuring charge 675,000
-------------------
$ 703,000
===================
15
Background
CareCentric, Inc. (formerly known as Simione Central Holdings, Inc.)
("CareCentric" or the "Company") is a leading provider of information technology
systems and related software support 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, 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.
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 SOP
97-2, these revenues are recognized when products are delivered and the
collectibility of fees is probable, provided that no significant obligations
remain under the contract. The Company generally requires payment of a deposit
upon the signing of a customer order as well as certain additional payments
prior to delivery. As a result, the Company's balance sheet reflects significant
customer deposits.
Third party software and computer hardware revenues are recognized when the
related products are shipped. Software support agreements are generally
renewable for one-year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company charges for software implementation, training and
technical consulting services as well as management consulting services on an
hourly or daily basis. The price of such services varies depending on the level
and expertise of the related professionals. These revenues are recognized as the
related services are performed.
The Company believes that continued enhancement of its software systems is
critical to its future success, and anticipates that investment in existing and
new products will continue as needed to support the Company's product
strategies. 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 three
months ended June 30, 2001 and 2000, the Company did not capitalize any computer
software development costs.
Backlog
The Company had backlog associated with its software operations of approximately
$3.1 million, $3.7 million, and $4.1 million on June 30, 2001, March 31, 2001,
and December 31, 2000, respectively. Backlog consists of the unrecognized
portion of contractually committed software license fees, hardware, estimated
installation fees and professional services. The length of time required to
complete an implementation depends on many factors outside the control of the
Company, including the state of the customer's existing information systems and
the customer's ability to commit the personnel and other resources necessary to
complete the implementation process. As a result, the Company may be unable to
predict accurately the amount of revenue it will recognize in any period and
therefore can make no assurances that the amounts in backlog will be recognized
in the next twelve months.
Results of Operations for Three Months ended June 30, 2001
Net Revenues. Total net revenues for the three months ended June 30, 2001
increased by $0.3 million, or 4.6%, to $6.5 million in 2001 from $6.2 million
for the three months ended June 30, 2000. Revenues from software systems
increased $.3 million, or 11.7%, to $2.3 million in 2001 from $2.0 million in
2000. Revenues from software maintenance decreased by $0.2 million, or 6.6%, to
16
$3.0 million in 2001 from $3.2 million in 2000. Revenue from consulting services
increased by $0.2 million, or 19.6%, to $1.2 million in 2001 from $1.0 million
in 2000.
Cost of Revenues. Total cost of revenues decreased approximately $0.8 million,
or 20.7%, to $3.1 million for the three months ended June 30, 2001 from $3.9
million for the three months ended June 30, 2000. As a percentage of total
revenues, cost of revenues decreased to 47.9% in 2001 from 63.2% in 2000. The
$0.8 million decrease resulted primarily from efficiencies achieved from the
combination of support operations, elimination of excess capacity and cost
management after the merger. The improvement in gross margin percentage resulted
from efficiencies achieved from the combination of support operations and other
cost management activities, as well as an increase in software sales, which
carry a higher gross margin, as compared to total sales.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses decreased $0.1 million to $2.7 million for the three
months ended June 30, 2001 from $2.8 million for the three months ended June 30,
2000. This decrease is principally attributable to synergies derived from
centralization of administrative functions and elimination of non-essential
facilities and excess capacity, and the reduction in force (described in Note 3
to the financial statements) totaling $0.4 million, which were partially offset
by one-time expenditures surrounding the change in corporate identity and
increased advertising and marketing costs totaling $0.3 million. As a percentage
of total net revenues, selling, general and administrative expenses were 41.4%
for the three months ended June 30, 2001 compared with 44.9% for the three
months ended June 30, 2000.
Research and Development Expenses. Research and development expenses decreased
$0.2 million, or 9.6%, to $1.6 million for the three months ended June 30, 2001
from $1.8 million for the three months ended June 30, 2000. As a percentage of
total net revenues, these expenses decreased to 24.6% for the three months ended
June 30, 2001 from 28.4% for the three months ended June 30, 2000. This dollar
decrease was attributable primarily to the reduction in force (described in Note
3 to the financial statements).
Amortization and Depreciation. Amortization and depreciation decreased by $0.1
million, or 8.4%, to $1.1 million for the three months ended June 30, 2001 from
$1.2 million for the three months ended June 30, 2000. This decrease resulted
from the normal disposition of fully depreciated assets.
Restructuring and Other Charges. In April 2001, CareCentric approved a plan to
close one remote support office and to downsize the workforce at its remaining
facilities. As a result of these actions the Company recorded a total charge of
$675,000.
The restructuring charge includes $598,000 of employee severance costs and
$77,000 in other exit costs (principally lease termination costs and functional
relocation expenses). The plan entails the elimination of 33 positions (10% of
salaried employees), the layoff of six additional employees and the closing of
one non-essential training and support facility in Houston, Texas. Employees at
impacted locations have been informed of the restructuring initiatives and
benefits available to them under applicable benefit plans or related contractual
provisions have been communicated. Affected employees will leave CareCentric
using a mixture of voluntary and involuntary separation programs and layoffs.
The Company expects to pay $585,000 in cash related to the restructuring plan.
During the quarter ended June 30, 2001, the Company paid $294,000 in employee
costs and $18,000 in other exit costs. As of July 31, 2001, 39 employees had
been separated under the plan. The Company expects to fully realize savings
related to these headcount reductions during the second half of 2001 with
estimated ongoing annual net savings of $3.2 million. The Company expects these
savings will be realized as reductions in cost of sales and selling, general and
administrative expense, and research and development expense.
Other Income (Expense). Interest expense for the three months ended June 30,
2001 relates primarily to borrowings under the Company's lines of credit
agreement and capital lease obligations and has increased by approximately
$194,000 from the interest expense incurred during the three months ended June
30, 2001 as a result of increased borrowing subsequent to June 30, 2000.
Income Taxes. The Company has not incurred or paid taxes since its inception.
17
Results of Operations for the Six Months Ended June 30, 2001
Results of operations for the six months ended June 30, 2000 included the
operations of the former MCS for six months and the operations of CareCentric
(formerly Simione Central Holdings, Inc.) for only the period subsequent to
March 7, 2000. As a result, a comparison of the 2001 and 2000 Statements of
Operations is not meaningful to an understanding of the Company's relative
performance. Therefore, for purposes of comparability, the following discussion
reflects the assumption that the operations of CareCentric and MCS were combined
on a pro-forma basis for the six months ended June 30, 2000, as illustrated in
Table 1 below.
Net Revenues. Total net revenues for the six months ended June 30, 2001
decreased by $0.2 million, or 2.4%, to $13.4 million in 2001 from $13.6 million
in 2000. Revenues from software systems increased by $0.3 million, or 6.2%, to
$4.9 million in 2001 from $4.6 million in 2000. Revenues from software
maintenance decreased by $0.1 million, or 3.5%, to $6.1 million in 2001 from
$6.2 million in 2000. Revenue from consulting services decreased by $0.4
million, or 14.2%, to $2.4 million in 2001 from $2.8 million in 2000.
Cost of Revenues. Total cost of revenues decreased approximately $2.3 million,
or 26.7%, to $6.4 million for the six months ended June 30, 2001 from $8.7
million for the six months ended June 30, 2000. As a percentage of total
revenues, cost of revenues decreased to 47.8% in 2001 from 64.1% in 2000. The
$2.3 million decrease resulted from efficiencies achieved from the combination
of support operations, elimination of excess capacity and cost management after
the CareCentric/MCS merger. The improvement in gross margin percentage resulted
from efficiencies achieved from the combination of support operations and other
cost management activities, as well as a reduction in hardware revenues as a
percentage of total revenues.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses decreased $0.2 million to $5.5 million for the six
months ended June 30, 2001 from $5.7 million for the six months ended June 30,
2000. This decrease is principally attributable to synergies derived from
centralization of administrative functions and elimination of non-essential
facilities and excess capacity totaling $0.6 million, which were partially
offset by one-time expenditures surrounding the change in corporate name and
increased advertising and marketing costs totaling $0.4 million. As a percentage
of total net revenues, selling, general and administrative expenses were 41.0%
for the six months ended June 30, 2001 compared with 42.4% for the six months
ended June 30, 2000.
Research and Development Expenses. Research and development expenses increased
$0.1 million, or 3.3%, to $3.4 million for the six months ended June 30, 2001
from $3.3 million for the six months ended June 30, 2000. As a percentage of
total net revenues, these expenses increased to 25.4% for the six months ended
June 30, 2001 from 24.06% for the six months ended June 30, 2000. This dollar
increase was attributable to additional development costs for all products, but
especially for The Smart Clipboard(R), PharmMed Rx(TM) and HMExpress(TM).
Amortization and Depreciation. Amortization and depreciation decreased by $0.1
million, or 4.3%, to $2.2 million for the six months ended June 30, 2001 from
$2.3 million for the six months ended June 30, 2000. This decrease resulted from
the normal disposition of fully depreciated assets.
Other Income (Expense). Interest expense for the six months ended June 30, 2001
relates primarily to borrowings under the Company's line of credit agreement and
capital lease obligations and has increased by approximately $0.4 million from
the interest expense incurred during the six months ended June 30, 2001 as a
result of increased borrowing subsequent to June 30, 2000.
Impact of New Accounting Standards
In 1998, the Financial and Accounting Standards Board issued SFAS No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 is effective for the Company's 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 position or results of operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets",
which, for all intents and purposes for the Company, will become effective
December 31, 2001. Goodwill generated in purchase transactions will be recorded
as a non-wasting asset subject to an impairment test at least once per year.
Amortization of goodwill currently on the Company's
18
books will cease as of January 1, 2002. The Company is currently evaluating the
effect that adoption of FAS 142 will have on its financial position and results
of operations in 2002.
Table 1. CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended June 30,
-------------------------------------------
2001 2000
------------------- -------------------
Net revenues: $ 13,393,000 $ 13,626,000
Costs and expenses:
Cost of revenues 6,403,000 8,732,000
Selling, general and administrative 5,536,000 5,770,000
Research and development 3,376,000 3,269,000
Depreciation and amortization 2,169,000 2,267,000
Restructuring and other charges 675,000 -
------------------- -------------------
Total costs and expenses 18,159,000 20,038,000
------------------- -------------------
Loss from operations (4,766,000) (6,412,000)
Other (expense) income:
Interest expense (739,000) (178,000)
Interest and other income 194,000 (3,000)
------------------- -------------------
Net loss before taxes (5,311,000) (6,593,000)
------------------- -------------------
Income tax benefit - (154,000)
------------------- -------------------
Net loss $ (5,311,000) $ (6,439,000)
=================== ===================
Net loss per share - basic and diluted $ (1.27) $ (1.64)
=================== ===================
Weighted average common shares -
basic and diluted 4,178,000 3,926,000
=================== ===================
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
As of June 30, 2001, the Company's obligations include variable rate notes
payable and a line of credit bank note with aggregate principal balances of
approximately $10.2 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 change in the prime interest rate would
correspondingly increase or decrease the Company's interest expense by
approximately $66,000 per year.
At June 30, 2001, the Company had accounts receivable of approximately $8.1
million (net of an allowance for doubtful accounts of $525,000). 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither CareCentric nor any of its subsidiaries is currently a party to any
legal proceedings which management believes would be material to the business or
financial condition of the Company on a consolidated basis.
Item 2. Change in Securities.
In May 2001, the Company released from escrow 88,586 shares of its common stock
to the former preferred shareholders and noteholders of CareCentric Solutions,
Inc. previously issued pursuant to the terms of the July 12, 1999 Merger
Agreement. In issuing shares without registration, the Company takes the
position that this transaction does not constitute an "offer", "offer to sell"
or "sale" under Section 5 of the Securities Act of 1933, and also relies on the
19
exemption from registration provided in Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 of Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The following Exhibits are filed as part of this Quarterly Report on Form
10-Q:
10.1 Settlement Agreement and Mutual Release dated as of May 16, 2001 by and
between the registrant and the former shareholders and noteholders of
CareCentric Solutions, Inc. by and through Daniel J. Mitchell as their
representative and agent.
____________________________
*Filed herewith.
(b) Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements 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.
Dated: August 10, 2001 By:/s/ Stephen M.Shea
--------------------------------------
STEPHEN M. SHEA
Senior Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
20
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Settlement Agreement and Mutual Release dated as of May 16, 2001
by and between the registrant and the former shareholders and
noteholders of CareCentric Solutions, Inc. by and through Daniel
J. Mitchell as their representative and agent.
1384782