<PAGE>   1

                       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, 1998

                                       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

                         SIMIONE CENTRAL HOLDINGS, INC.
             (Exact name of Registrant as specified in its charter)

              DELAWARE                                   22-3209241
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

                 6600 POWERS FERRY ROAD, ATLANTA, GEORGIA 30339
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (770) 644-6700

           Securities registered pursuant to Section 12(b) of the Act:

                                                        NAME OF EACH EXCHANGE
    TITLE OF EACH CLASS                                  ON WHICH REGISTERED
    -------------------                                  -------------------
 
          NONE                                                   NONE

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $.001 PAR VALUE
                                (Title of class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]   No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]

         Aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 24, 1999: $9,165,210.

         There were 8,554,673 shares of Common Stock outstanding at March 24,
1999.

         Documents incorporated by reference in this Form 10-K: Portions of the
definitive proxy statement relating to the 1999 Annual Meeting of Stockholders
in Part III, Items 10 (as related to Directors), 11, 12 and 13.



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                                     PART I

ITEM 1.  BUSINESS

         Certain statements set forth in this Annual Report on Form 10-K
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
subject to the safe harbor created by such sections. When used in this report,
the words "believe," "anticipate," "estimate," "expect," and similar expressions
are intended to identify forward-looking statements. Although Simione Central
Holdings, Inc. (the "Company") believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
When appropriate, certain factors that could cause results to differ materially
from those projected in the forward-looking statements are enumerated. This
Annual Report on Form 10-K should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.


OVERVIEW

         The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. In addition to its software solutions and related
software support services, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.

         During 1998, the Company had over 2000 customers nationwide, including
hospital-based companies, free-standing home health care providers,
alternate-site care organizations, home medical equipment providers, integrated
delivery systems and government-managed organizations. The Company's customers
include Columbia/HCA Healthcare Corporation ("Columbia/HCA"), Tenet Healthcare
Corporation ("Tenet"), The Visiting Nurse Association of Texas ("VNA - Texas"),
Mercy Health Services, a Michigan not-for-profit corporation ("Mercy"), and
Advocate Health System ("Advocate").

         For information regarding the Company's history and Management's Plan 
to improve the Company's performance, see Notes 1 and 9 to
Notes to Consolidated Financial Statements.

         Unless the context otherwise requires, references to the Company herein
include Simione Central Holdings, Inc. and its subsidiaries. The Company's
executive offices are located at 6600 Powers Ferry Road, Atlanta, Georgia 30339
and the telephone number is 770-644-6700.


INDUSTRY OVERVIEW

         Home health care is an integral part of the health care industry's
continuum of care. The increasing importance of home health care has principally
been a result of significant economic pressures within the health care industry.
In recent years, U.S. health care expenditures have increased rapidly. In
response to these escalating expenditures, payors, such as Medicare and managed
care organizations, have applied increasing pressure on physicians, hospitals
and other providers to contain costs. This pressure has led to the growth of
lower cost alternate-site care, such as home health care, and to reduced
hospital admissions and lengths of stay. In addition, home health care has grown
rapidly as a result of advances in medical technology, which have facilitated
the delivery of services in alternate sites, demographic trends, such as an
aging population, and preferences among patients to receive health care in their
homes.

         Home health care consists of many elements, including skilled nursing,
durable medical equipment ("DME"), intravenous and infusion therapy ("IV
Therapy") and hospice. Historically, this industry has been highly fragmented
and characterized by small, local providers offering a limited range of
services. With the advent of managed care and integrated delivery systems, home
health care providers have had to expand their geographic scope and range of
product and service offerings. In addition, the overall growth in the home
health care industry has allowed providers to grow and realize increased
operating efficiencies. As a result of these developments and legislation and
regulatory pressures, the home health care industry has been in a period of
rapid consolidation.

         Medicare traditionally reimbursed a majority of home health care
services at 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, enacted on August
5, 1997 (the "BBA"), contained provisions that significantly change the manner
in which home health agencies and home care services will be reimbursed in the
future by Medicare. The legislation created the interim payment system
("IPS") which lowered the cost per visit limitations and created restrictions on
the amount of 



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cost reimbursement per Medicare beneficiary. In late January, 1998, the Health
Care Financing Administration ("HCFA"), the federal agency that administers
Medicare reimbursement for the home health care industry, published a notice
revising the schedule of limits on home health agency costs for cost reporting
periods beginning on or after October 1, 1997, which reduced the cost per visit
limitations. At the same time, HCFA issued a rule setting forth the surety bond
and capitalization requirements for home health agencies. As mandated by the
BBA, HCFA has also announced the implementation, effective October 1, 2000, of a
Prospective Payment System ("PPS"), which would limit reimbursement to a fixed
amount for all services rendered per episode of care. 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. Further, once fully-implemented, PPS could also potentially
impact the home health industry in the same manner. In addition to the impact of
IPS and PPS, the growth in the number of Medicare members enrolling in managed
care plans, which have also begun to take measures to contain costs, will have a
significant impact on how providers may operate profitably. The uncertainty in
the home health care industry concerning these changing regulations adversely
impacted the Company's business in 1998 as many providers dissolved or delayed
purchasing decisions. The Company cannot predict how new regulations will impact
its business in the future.

         As a result of consolidation and measures to address ongoing cost
pressures, home health care providers will increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. The Company believes
that many existing home health care information systems are inadequate to
address the changing needs of home health care providers. Generally, these
systems were designed to generate patient billing information and cost reports
for Medicare reimbursement and, as a result, may be unable to provide the
detailed information required for meaningful business analyses.

THE SIMIONE CENTRAL SOLUTIONS

         The Company offers a comprehensive set of solutions to address the
changing needs of home health care providers. These solutions include
information systems and support, consulting services and agency support
services. The Company's systems and services are designed to enable home health
care providers to generate and utilize comprehensive financial, operational and
clinical information and address organizational issues in order to make informed
decisions, more effectively operate their businesses and compete in a managed
care and/or PPS environment. These solutions can be packaged and customized to
serve the individual needs of customers.

STRATEGY

         The Company's objective is to enhance its position as a leading
provider of solutions to the home health care industry. Principal elements of
the Company's strategy include:

         -        Leverage Existing Customer Base. The Company currently has a
                  base of over 2000 customers nationwide. The Company believes
                  that a significant opportunity exists to cross-sell its
                  existing systems and services as well as introduce new systems
                  and enhancements.

         -        Generate Recurring Revenue. The Company generates recurring
                  revenue through a combination of annually renewable
                  maintenance agreements and multi-year service contracts. These
                  sources of revenue collectively accounted for 14% of the
                  Company's net revenues in 1998. The Company attempts to
                  maximize recurring revenue opportunities through a combination
                  of periodic system enhancements and comprehensive customer
                  service.

         -        Capitalize on Changing Industry Dynamics. As the home health
                  care industry consolidates, the Company believes it is well
                  positioned to increase its market share by leveraging its
                  existing relationships with large providers such as Tenet,
                  Advocate and Mercy. The Company also believes its
                  comprehensive solutions will become increasingly important to
                  home health care providers as they address the challenges
                  presented by health care reform and as integrated delivery
                  systems become more prevalent.

         -        Expand Through Acquisitions and Strategic Alliances. Through
                  selective strategic acquisitions the Company intends to
                  continue to expand its system and service offerings, expand
                  its customer base and increase its market share. The Company
                  also intends to selectively establish strategic alliances to
                  expand its system and service offerings and grow its
                  distribution capabilities.



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SYSTEMS AND SERVICES

         The Company provides a comprehensive set of solutions for home health
care providers through a broad range of systems and services, including: (i)
several comprehensive, flexible software solutions; (ii) software support
services; (iii) comprehensive agency support services; and (iv) consulting
services. These systems and services are designed to address the evolving
strategic, financial, operational and clinical needs of home health care
providers as illustrated below:


[GRAPHIC OMITTED]


FORMATION SYSTEMS

         The Company offers several comprehensive and flexible software
solutions to meet various customers' needs. Each of these solutions offers a
core platform of software applications which address the complete business
requirements of home health care providers. These applications are designed to
provide real-time reporting capabilities, speed information processing, reduce
redundant data entry, improve efficiencies and assist management with making
informed decisions. In addition to the core elements, the Company offers several
specialized modules that can be integrated with the Company's core applications
based on customer demand.

Core Software Solutions.  The Company's core software solutions are as follows:

         STAT2. A complete, flexible and fully integrated home health care
         management system. The STAT2 core platform of software applications
         includes:

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

         This core functionality can be enhanced with specialized modules
         including hospice, IV Therapy, DME, imaging, telephony and cost
         reporting. The STAT2 system allows a customer to exchange clinical and
         financial information with external systems in either a real-time or
         batch mode through interface engine technology or customized
         interfaces. 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. A major feature of the system is
         its real-time reporting capabilities.



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         DME 6.3 A PC-based software application for home medical equipment and
         medical supply businesses. The DME 6.3 core platform of software
         applications includes:

              Order Entry                            Billing
              Inventory Management                   Accounts Receivable
              General Ledger                         Purchase Orders

         DME 6.3 features the following add-on modules: Retail Sales, Bar Coding
         and IV Therapy. Versions of this software are available for any size
         operation. The software provides easy to use data import/export
         capabilities.

         The Company discontinued marketing its NAHC IS system during 1998 and
         determined to concentrate its development efforts around windows based
         technology.

Specialized Software Solutions. The Company offers the following specialized
software solutions:

         STAT2 Medical Records. STAT2 Medical Records is designed to help STAT2
         customers improve patient care while reducing costs through improved
         productivity. STAT2 Medical Records allows field staff, using handheld
         point-of-care units, to enter, update and transmit patient information
         from remote locations to the home office via modem connection, updating
         the central STAT2 system on a real-time basis. Customers can use STAT2
         Medical Records to measure outcomes, establish or import clinical
         pathways and report on variances to a care plan. STAT2 Medical Records
         is comprised of modules which are integrated with other clinical,
         financial and operational STAT2 system software modules for
         collaborative reporting and analysis.

         SC STATScan. SC STATScan is a Windows-based imaging system which scans
         and stores paper forms into a customer's system. Documents are scanned,
         digitized, stored on optical disks, indexed according to user defined
         fields and recalled for instant use. SC STATScan also provides an
         automated workflow application which allows the user to define the flow
         of image information to various groups within the organization.
         Additionally, SC STATScan provides its customers with increased
         security and control of information, faster information retrieval and
         an enhanced ability to share information in a real-time environment.

         TEMMS. TEMMS is an interactive voice response system which records
         visit, mileage, payroll and billing data from field staff using
         telephones in place of computers. This data can be automatically
         exported into a customer's payroll and billing applications. TEMMS is
         designed to provide users with a more cost effective way to record data
         and produce records and can accelerate a customer's billing activities.

         MAPPScan. The Company's initial version of its Managed Avenue of
         Patient Progress ("MAPP") point-of-care products is MAPPScan. MAPPScan
         uses scanning technology to input and analyze a wide array of clinical
         data. MAPPScan paper documentation incorporates HCFA data elements and
         utilizes pre-defined pathways which guide patient care delivery and
         allows for the analysis of data associated with clinical care, outcomes
         and patient satisfaction.

         MAPP Plus. The Company is currently finalizing its fully-automated
         version of its MAPP point-of-care product, MAPP Plus. This product is
         separately licensed and offers a means of documenting the provision of
         home health care services and patient outcomes. MAPP collects outcomes
         data by encounter and over an entire episode of care using a consistent
         methodology for data collection. MAPP incorporates HCFA data elements
         and utilizes pre-defined pathways, which may be expanded by the user
         and guide patient care delivery. The Company has developed a functional
         level of care model and over 60 clinical pathways related to specific
         medical diagnoses. MAPP will also generate cost data associated with
         clinical care, tracks outcomes variances and records patient
         satisfaction. MAPP's clinical functionality is based on home health
         care specific clinical knowledgeware developed through years of
         practical application and clinical research. MAPP Plus utilizes
         fully-automated front-end data collection via a mobile, pen-based
         computer and has significant data analysis capabilities.

         REMM. The Company is currently finalizing REMM, a client /server,
         Windows based application designed to meet the demanding task of
         resource scheduling in home care. A graphical calendar user interface
         and wizard style display easily guide users through the scheduling
         process. Resource assignment for encounters with clients extends beyond
         the personnel disciplines and users may define multiple encounters such
         as deliveries, hospital admissions, meals on wheels, telephone wellness
         checks, in-service lectures, and staff meetings. The user determines
         the level of detail needed for attachment to each encounter. This
         includes treatments, labs, supplies, medications, directions and more.
         REMM also tracks and validates service area, workload, availability,
         competency, skill levels and preferences for encounter matching.
         Licensure and certifications are also tracked and validated. Custom
         report screens allow the user to tailor the information provided on any
         of the numerous system reports. REMM is available as a stand alone
         application, a module of STAT2, or it may be interfaced to other back
         office systems.



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         PharmWorks. PharmWorks is a complete pharmacy management solution
         designed to meet the needs of infusion, retail, mail order,
         institutional, and hospital outpatient pharmacies. This PC-based
         application is scaleable and able to meet the business requirements of
         both large and small organizations. The software and hardware
         components are able to accommodate virtually unlimited growth for the
         pharmacy. PharmWorks has a modular architecture and is built around a
         relational data base for maximum user flexibility and performance. The
         core programs that comprise the application are: Pharmacy Management,
         Accounts Receivables, Material Management, and DME. Additional modules
         are available for Electronic Claims Submission, Manufacturing
         Management, and Nursing Home Management. With over 100 reports and data
         download capability, the system allows for quick access to the most
         critical information.


SERVICE SOLUTIONS

         Software Support Services. The Company believes that providing
comprehensive software support services to customers is critical to its success
in the home health care industry. The Company employs 83 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 services are offered on a 
                                    continuing basis to existing customers
                                    either at the customer's site or at a
                                    Company location.

  Software Support:                 The Company offers on-call telephone 
                                    software support seven days a week and
                                    provides maintenance releases on a periodic
                                    basis. Releases of software enhancements are
                                    generally made available to customers
                                    annually.

  Technical Consulting:             The Company provides software customization 
                                    and integration, technical audits of the
                                    customer's information systems, integration
                                    and network planning and strategic and
                                    tactical information systems planning.

         Support services represent a source of recurring revenue, as these
services are provided through annual renewable service contracts. Other services
are generally charged on a time and materials usage basis. The Company's
technical personnel also provide on-site and on-call hardware support.

         Consulting Services. The Company's home health care consulting services
assist providers in addressing the challenges of 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. The Company's consulting operations,
which were acquired in January 1996, have been providing consulting advice to
the home health care industry since 1963. The consulting staff is comprised of
41 professionals with home health care industry specific experience. Consulting
engagements generally focus on:

<TABLE>
         <S>                                <C>                            <C> 
         Strategic Planning                 Marketing Studies              Acquisition Due Diligence
         Operational Reviews                Business Valuations            Quality Assurance Reviews
         Reimbursement Consultation         Organizational Reviews         Operational Re-engineering
         Medicare Compliance                Medical Records                Cost Report Preparation
</TABLE>

         The Company provides consulting services on a time and materials usage
basis. The Company believes that its consulting services group effectively
complements its software and services, provides a valuable outlook on the
changing home health care industry and is a source of innovative ideas for the
Company's information systems enhancements. Furthermore, consulting services are
designed to build new customer relationships and provide opportunities for the
sale of additional information systems and services.



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         Outsourcing Services. For home health care providers seeking to address
the challenges posed by changing industry dynamics, the Company provides
comprehensive support services to supplement their core competencies. The
Company's support services provide day-to-day personnel outsourcing for certain
critical customer operational functions. For new customers, the Company will
initially analyze and re-engineer, as appropriate, all aspects of a customer's
home health care operation. These services are provided by over 24 home health
care specialists. This combination of services is designed to enable customers
to create an efficient organizational structure that seeks to provide both
cost-effective results and promotes the delivery of high quality patient care.
Components of these services include:

<TABLE>
         <S>                           <C>                                 <C> 
         Management Oversight          Clinical Program Development        Compliance & Ethics Audits
         Training & Development        Fiscal Intermediary Relations       Community Awareness Programs
         Human Resources               Operations/Systems Management       Accounting Support
         Reimbursement Planning        Billing/Collection                  Budget Preparation/Analysis
</TABLE>

         The Company provides outsourcing services under multi-year contracts.
Fees for these services are billed monthly. The Company believes the delivery of
agency support services provides another valuable opportunity to introduce its
information systems and services to an additional customer base.

CUSTOMERS

         During 1998, the Company had over 2000 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. The Company's customers include Columbia/HCA,
Tenet, VNA - Texas, Mercy and Advocate. No customer is expected to account for
10% or more of the Company's consolidated net revenues during the year ending
December 31, 1999.

SALES AND MARKETING

         The Company markets its systems and services through a direct sales
force which consists of one senior vice president, two vice presidents and 17
sales and telemarketing representatives located throughout the United States.
The Company also employs a marketing and sales support staff of 9 people to
assist its sales force. Recognizing the importance of maintaining good
communication and obtaining valuable input from its customers, the Company
sponsors national user group meetings. Regional user group meetings are also
held to discuss customer comments, suggestions, industry trends and related
system issues.


BACKLOG

         The Company had backlog of $4.1 million and $7.1 million on December
31, 1998 and 1997, 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.

TECHNOLOGY

         The STAT2 system operates on multiple operating systems, including
Windows NT, and is designed for use on microcomputers, LAN-based PCs, IBM
RS/6000 and DEC Alpha hardware. The STAT2 system can be implemented on
client/server or host/dumb terminal architecture and offers SQL-compliant
databases in both configurations. The system allows any Windows SQL report
writer to access the STAT2 system database and to merge data with other customer
SQL-compliant databases. The STAT2 system allows a customer to exchange clinical
and financial information with external systems in either a real-time or batch
mode through interface engine technology or customized interfaces.

         The DME 6.3 system operates on the MS-DOS and Windows NT operating
systems and is designed for use on microcomputers or LAN-based PCs.

         The Company's systems are dependent upon many third-party software and
hardware products and related services. There can be no assurance that financial
or other difficulties experienced by such third-party vendors will not have an
adverse effect on the Company's abilities to provide its systems or that the
Company will be able to replace such third-party products and services if they
become unavailable.



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RESEARCH AND DEVELOPMENT

         The Company maintains a staff of approximately 67 programmers, systems
analysts, quality assurance analysts and documentation specialists who monitor
developments in the computer software and health care industries and who
continuously work to enhance the Company's systems. The Company's research and
development expenses were approximately $6.7, $6.7 and $5.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.

         STAT2 system current research and development plans include upgrading
key modules to a graphical user interface. The Company has additional research
and development activities underway to make certain product functionality
web-enabled. Additionally, the Company plans to develop or enhance interface
capabilities between all of its software products.

         The Company recognizes the need to respond to the rapid technological
change that is occurring in the software and health care industries. There can
be no assurance, however, that the Company will be able to develop products on a
timely basis or that its future products will fully address the needs of its
current or prospective customers.

COMPETITION

         Competition in the market for home health care information systems and
services is intense and is expected to increase. The Company believes that the
primary factors affecting competition are system performance and reliability,
customer support, service, system flexibility and ease of use, pricing,
potential for providing enhancements, reputation and financial stability. The
Company's competitors include other providers of home health care information
systems and services, management companies and home health care consulting
firms. Furthermore, other major health care information companies not presently
offering home health care information systems, or major information system
companies not currently in the health care industry, could develop the
technology and enter the Company's markets. The Company believes its most
significant competitors are Delta Health Systems (owned by Shared Medical
Systems Corp.), HBO & Company, Patient Care Technologies, Inc. (partially owned
by Meditech), and Home Care Information Systems, Inc. (owned by Misys PLC).
Increased competition could result in price reductions, reduced gross margins
and loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. In addition,
many of the Company's competitors and potential competitors have significantly
greater financial, technical, product development, marketing and other resources
and market recognition than the Company. Many of the Company's competitors also
currently have, or may develop or acquire, substantial installed customer bases
in the home health care industry. As a result of these factors, the Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their systems and services than the Company.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect its business, financial
condition and results of operations.

PROPRIETARY RIGHTS AND PRODUCT PROTECTION

         The Company owns the copyrights on its STAT2 system. The Company also
has pending applications to register trademarks related to its MAPP products.
The Company depends upon a combination of trade secret, copyright and trademark
laws, license agreements, nondisclosure and other contractual provisions and
various security measures to protect its proprietary rights. There can be no
assurance that the legal protections afforded to the Company or the precautions
taken by the Company will be adequate to prevent misappropriation of the
Company's technology. In addition, these protections do not prevent independent
third-party development of functionally equivalent or superior technologies,
systems or services, or the obtaining of a patent with respect to the Company's
technology by third parties. Any infringement or misappropriation of the
Company's proprietary software could have a material adverse effect on the
Company. As the number of home health care software information systems
increases and the functionality of these systems further overlap, health care
information systems may increasingly become subject to infringement claims.
Although there has been no litigation with respect to such claims, there can be
no assurance that the Company will not be subject to litigation in the future or
additional infringement claims. The Company believes that its current systems
and products do not infringe on the patent or trademark rights of any third
parties. There has, however, been substantial litigation and uncertainty
regarding copyright, patent and other intellectual property rights involving
computer software companies and there can be no assurance that the Company will
prevail in any infringement litigation brought against it. Any claims or
litigation, with or without merit, could be costly and could result in a
diversion of management's attention which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Adverse determinations in such claims or litigation may require the Company to
cease selling certain systems or products, obtain a license and/or pay damages,
any of which could also have a material adverse effect on the Company's
business, financial condition and results of operations.



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<PAGE>   9

GOVERNMENT REGULATION AND HEALTH CARE REFORM

         The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of home health care organizations. During the past several years, the United
States health care industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates and certain proposals to
reform various aspects of the United States health care system have periodically
been considered by Congress. These proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for the Company's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in the Company's systems and services. The Company cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.

         The Office of Inspector General ("OIG") of the Department of Health and
Human Services has identified in its Work Plan for Fiscal Year 1999 (the "1999
Work Plan") several projects within the home health industry which will be the
focus of the OIG's scrutiny in fiscal year 1999. Each year the OIG sets forth in
its Work Plan for that year the areas that will be scrutinized. For example, the
1999 Work Plan sets forth that the OIG will focus on audits of home health base
year costs, location of service requirements, assessment of the impact of IPS on
beneficiary access, physicians case management billings, utilization patterns of
home health agencies, and claims for home health aides. Additionally, the OIG
has focused in recent years on how third party billing companies, such as this
Company, provide billing and collection services to its customers. The OIG has
also stressed the importance of compliance programs for aspects of the health
care industry. Such compliance programs, while currently implementation of such
programs is voluntary, 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 OIG 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 OIG's review of the home health industry
and how home health services are billed could increase the costs and time
necessary for the Company to provide its administrative services to its
customers and could affect the Company 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 the
Company's systems are subject to substantial regulation by state governments and
certain federal legislation governing specialized medical information and
records. Although compliance with these laws and regulations is principally the
responsibility of the hospital, physician or other home health care provider
with access to the Company's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 includes provisions directing the
Secretary of the Department of Health and Human Services to adopt standards
governing the electronic transmission of data in connection with a number of
transactions involving health information, including submission of health
claims. These standards are to cover security measures and safeguards with
respect to health information, as well as standardization of data, assignment of
identifiers and authentication of electronic signatures. 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 an
agent acting on such agencies behalf, 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 the Company. There can be no
assurance that changes to state or federal laws and regulations will not
materially restrict the ability of home health care providers to submit
information from patient records to the Company's systems or impose requirements
which are incompatible with the Company's current systems.

         The United States Food and Drug Administration (the "FDA") is
responsible for assuring the safety and effectiveness of medical devices under
the Federal Food, Drug and Cosmetic Act. Computer products are subject to
regulation when they are used or are intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body.
Although the Company believes that its systems are not subject to FDA
regulation, the FDA could determine in the future that predictive applications
of the Company's systems could make them clinical decision tools subject to FDA
regulation. Compliance with FDA regulations could be burdensome, time consuming
and expensive. The Company also could become subject to future legislation and
regulations concerning the manufacture and marketing of medical devices and
health care information systems. These could increase the costs and time
necessary to market new systems and could affect the Company in other respects
not presently foreseeable. The Company cannot predict the effect of possible
future legislation and regulation.



                                       9
<PAGE>   10

EMPLOYEES

         As of March 1, 1999, the Company employed approximately 285
individuals. The Company believes that its future success depends in large part
upon recruiting, motivating and retaining highly skilled and qualified employees
in all aspects of the Company's business. None of the Company's employees is
represented by a labor union. The Company believes that its employee relations
are good.



                                       10
<PAGE>   11

ITEM 2.  PROPERTIES

         The Company's principal executive offices are located at 6600 Powers
Ferry Road, Atlanta, Georgia 30339. The principal executive offices consist of
approximately 56,924 square feet, of which approximately 49,162 square feet is
leased directly from the owner of the office building in which the Company's
principal executive offices are located pursuant to a lease expiring December
31, 2002 (the "Corporate Headquarters Office Building Lease"), and of which
approximately 7,762 square feet are subleased pursuant to a sublease expiring
February 28, 2001 (the "Corporate Headquarters Sublease"). Upon the expiration
of the Corporate Headquarters Sublease, the space subleased thereunder will be
leased directly from the office building owner pursuant to the Corporate
Headquarters Building Lease.

         The Company also leases approximately 20,291 square feet of office
space in Pompano Beach, Florida pursuant to a lease that expires on December 31,
2000, and approximately 6,500 square feet of office space in Hamden, Connecticut
pursuant to a lease that expires on December 31, 2002. The landlord of the
Connecticut office is a company comprised of certain officers and a director of
the Company. See "Item 13. Certain Relationships and Related Transactions." In
addition, the Company leases approximately 8,540 square feet of office space in
East Brunswick, New Jersey pursuant to a lease that expires on September 30,
2000, and approximately 7,900 square feet of office space in Sugar Land, Texas
pursuant to a lease that expires on September 30, 2000. Finally, the Company
leases small offices in Westborough, Massachusetts, San Diego, California,
Irving, Texas and Jacksonville, Florida.

         The Company believes that its present facilities are adequate to meet
the Company's current and foreseeable needs.

ITEM 3.  LEGAL PROCEEDINGS

         Neither the Company nor any of its subsidiaries is currently a party to
any legal proceedings which would be material to the business or financial
condition of the Company on a consolidated basis. The Company was, however,
served on July 17, 1997 with an administrative subpoena issued by the United
States Department of Health and Human Services, Office of Inspector General. In
connection with that subpoena, the Department of Justice ("DOJ") has advised the
Company that certain aspects of the Company's past relationship with affiliates
of Columbia/HCA are within the scope of an ongoing grand jury investigation.
However, the DOJ has confirmed to the Company that neither the Company, nor any
of its officers, directors or employees, is a target in this investigation and,
based upon the information known to the DOJ at this time, neither the Company,
nor any of its officers, directors or employees, is likely to become one. The
Company is cooperating fully with the government and does not currently believe
that this inquiry will have any material effect on its overall business or
financial condition.

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

         None.


EXECUTIVE MANAGEMENT OF THE REGISTRANT

<TABLE>
         <S>                                   <C>            <C>  
         Barrett C. O'Donnell                  45             Chairman of the Board,
                                                              President and Chief Executive
                                                              Officer
         William J. Simione, Jr.               57             Vice Chairman of the Board
                                                              and Executive Vice President
         Jack Arthur                           61             Sr. Vice President of Product
                                                              Development and Product Management
         Jim Hall                              38             Sr. Vice President of Sales &
                                                              Marketing
         Eugene Horn                           57             Sr. Vice President of Acquisition Operations
         Reid Horovitz                         33             General Counsel and Secretary
         Kathie McClellan                      45             Sr. Vice President of Customer
                                                              Services and Support
         Lori Nadler Siegel                    35             Chief Financial Officer
                                                              and Treasurer
         Bob Simione                           49             Sr. Vice President of Consulting
</TABLE>



                                       11
<PAGE>   12

         BARRETT C. O'DONNELL has served as Chairman of the Board, Chief
Executive Officer and President of the Company since July of 1998 and has been a
director of the Company since October of 1996. Mr. O'Donnell served as Chairman
of the Board of InfoMed Holdings, Inc. (a predecessor entity of the Company)
("InfoMed") from October of 1992 until October of 1996 and as Chief Executive
Officer of InfoMed from November of 1994 until October of 1996. From 1978 until
the present, Mr. O'Donnell has been Chairman of the Board, President and Chief
Executive Officer of O'Donnell Davis, Inc., a consulting and investment advisory
services company.

         WILLIAM J. SIMIONE, JR. is a certified public accountant who has served
as Vice Chairman of the Board and Executive Vice President of the Company since
October of 1996. From January of 1996 until October of 1996, Mr. Simione served
as the President of Simione Central, Inc., a wholly-owned subsidiary of the
Company. From January of 1975 until December of 1995, Mr. Simione was Managing
Partner of the Home Health Care Consulting Division of Simione & Simione, CPA's
("Simione & Simione"). Since September of 1995, Mr. Simione also serves as a
director and an audit and governance committee member of Personnel Group of
America, Inc., a leading provider of information technology services and
commercial staffing solutions.

         JACK ARTHUR has served as Senior Vice President of Product Development
and Product Management of the Company since January of 1999. From July of 1998
until December of 1998, Mr. Arthur was a manager of product development with
Eclipsys, Inc., an information systems provider. From October of 1995 until June
of 1998, Mr. Arthur was the owner of Healthcare Consulting, Inc., a healthcare
information systems consulting company. From June of 1985 until October of 1995,
Mr. Arthur held various product development management positions with SMS, Inc.,
an information systems provider.

         JIM HALL has served as Senior Vice President of Sales and Marketing of
the Company since February of 1999. From October of 1996 until October of 1998,
Mr. Hall was Senior Vice President of Sales of IMNET Systems, Inc., an
information systems provider. From September of 1995 until October of 1996, Mr.
Hall was Vice President of Sales of The Compucare Company, an information
systems provider. From February of 1987 until June of 1995, Mr. Hall held
various sales management positions with First Data Corp, an information
technology company.

         EUGENE HORN has served as Senior Vice President of Acquisition
Operations of the Company since January of 1998. From December of 1991 until
July of 1997, Mr. Horn was a Vice President with National Data Corp., a
financial services company.

         REID HOROVITZ has served as General Counsel and Secretary of the
Company since July of 1998. From June of 1997 until June of 1998, Mr. Horovitz
was Assistant General Counsel of Micro Warehouse, Inc., a computer reseller.
From April of 1993 until June of 1997, Mr. Horovitz was General Counsel of
InfoMed.

         KATHIE MCCLELLAN has served as Senior Vice President of Customer
Services and Support of the Company since November of 1998. From June of 1996
until November of 1998, Ms. McClellan held various operational and customer
services positions with the Company. From April of 1991 until June of 1996, Ms.
McClellan was an administrator and director of Memorial Medical Center.

         LORI NADLER SIEGEL is a certified public accountant who has served as
the Chief Financial Officer and Treasurer of the Company since October of 1996.
From June of 1996 until October of 1996, Ms. Siegel served as Chief Financial
Officer of Central Health Holding Company, Inc. ("CHHC"). From January of 1995
until May of 1996, Ms. Siegel served as Assistant Vice President of Finance for
Central Health Services, Inc. ("CHS") after holding various accounting and
finance positions there from July 1991 until December 1994.

         BOB SIMIONE has served as Senior Vice President of Consulting of the
Company since October of 1996. From January of 1976 until September of 1996, Mr.
Simione was a principal of Simione & Simione.




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

         The common stock of the Company, par value $.001 per share (the "Common
Stock"), has been traded on the Nasdaq Stock Market under the symbol SCHI since
June 30, 1997. Prior to June 30, 1997, the Common Stock was traded on the OTC
Bulletin Board under the symbol SCHI from December 24, 1996 to June 29, 1997. As
of March 24, 1999, the Common Stock was held by approximately 1,933 holders of
record.



                                       12
<PAGE>   13

The table below sets forth the reported quarterly high and low bid prices for
the Common Stock on the OTC Bulletin Board for the period January 1, 1997 to
June 29, 1997, and the reported quarterly high and low sales price for the
Common Stock on the Nasdaq Stock Market for the period June 30, 1997 to December
31, 1998. The information set forth below does not include retail mark-up,
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 the Common
Stock following a 1-for-2 reverse stock split effected by the Company on June
30, 1997.

<TABLE>
<CAPTION>
                                                                    1998                        1997
                                                                    ----                        ----
                                                            High            Low          High          Low
                                                            ----            ---          ----          --- 

         <S>                                               <C>             <C>          <C>           <C> 
         First Quarter                                     $11 3/8         6 5/8        $ 7 3/4       4 1/4
         Second Quarter                                     15 1/2         6 5/8          6 3/4           5
         Third Quarter                                           8         1 1/4         14 3/4       9 l/2
         Fourth Quarter                                          3         1 1/4         14 1/8           7
</TABLE>

         The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future.


                                       13
<PAGE>   14

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, 1998, 1997, 1996, 1995 and 1994 are derived from
the audited consolidated financial statements of the Company. The selected
consolidated financial data as of and for the year ended December 31, 1996
includes the operating results of Simione & Simione acquired effective January
1, 1996 and InfoMed Holdings, Inc. ("IMHI") for the period October 8, 1996 (the
effective date of the IMHI Acquisition) to December 31, 1996. The selected
consolidated financial data as of and for the year ended December 31, 1997
includes the operating results of Dezine Healthcare Solutions, Inc. ("Dezine")
for the period December 1, 1997 (the effective date of the Dezine Acquisition)
to December 31, 1997. As of and for the years ended December 31, 1994 and 1995,
the Company was a subsidiary of CHHC. See Notes 1 and 9 to Notes to Consolidated
Financial Statements for a description of the Company's history. The data should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto of the Company included herein.

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                   --------------------------------------------------------
                                                   1998         1997      1996 (2)     1995 (2)        1994
                                                   ----         ----      --------     --------        ----
                                                            (in thousands, except per share data)

<S>                                             <C>          <C>          <C>          <C>          <C> 
Net revenues:
  Software and services                         $ 27,523     $ 27,356     $ 15,308     $  5,387     $  4,875
  Agency support                                   7,686       14,680        7,324        7,835        7,235
  Consulting services                              6,437        4,909        3,363           --           --
                                                ------------------------------------------------------------
          Total net revenues                      41,646       46,945       25,995       13,222       12,110
Costs and expenses:
   Costs of revenues                              24,085       22,715       14,698        8,154        7,694
   Selling, general and administrative            13,823       12,508        7,037        3,095        2,959
   Research and development                        6,741        6,670        5,677        2,929        2,165
   Amortization and depreciation                   2,392        1,714          785           --           --
   Purchased in-process research and                  --        8,127       12,574           --           --
     development
   Severance and other restructuring charges       7,017           --        1,215           --           --
                                                ------------------------------------------------------------
          Total costs and expenses                54,058       51,734       41,986       14,178       12,818
                                                ------------------------------------------------------------
Loss from operations                             (12,412)      (4,789)     (15,991)        (956)        (708)
Other income (expense):
   Interest expense                                 (183)        (215)        (115)          --           --
   Interest and other income                         424          490          207           --           --
                                                ------------------------------------------------------------      
          Net loss                              $(12,171)    $ (4,514)    $(15,899)    $   (956)    $   (708)
                                                ============================================================

          Net loss per share - basic and
            diluted  (1), (3)                   $  (1.42)    $  (0.63)    $  (3.71)    $  (0.32)    $  (0.24)
                                                ============================================================
Weighted average common shares - basic
        and diluted (1), (3)                       8,557        7,164        4,288        2,995        2,995
                                                ============================================================

<CAPTION>

                                                                         December 31,
                                                      --------------------------------------------------
                                                      1998        1997       1996       1995        1994
                                                      ----        ----       ----       ----        ----
                                                                        (in thousands)

<S>                                                <C>         <C>        <C>          <C>         <C> 
Balance Sheet Data:
  Cash and cash equivalents                        $ 10,527    $  8,267   $  3,385     $  323      $  463
  Working capital (deficit)                           1,301       9,019     (1,203)       189        (837)
  Total assets                                       27,857      28,919     18,776      1,828       1,340
  Long-term obligations                               2,671          --      2,986         --          --
  Shareholders' equity (deficit)                      7,724      19,489      4,680        650        (837)
</TABLE>


      (1) The number of shares used to compute the net loss per share reflects
          the 2,994,856 shares issued in the reorganization of the Company on
          January 17, 1996. See Notes 1 and 12 of the Notes to Consolidated
          Financial Statements of the Company.
      (2) Certain amounts in the 1996 and 1995 Statements of Operations have
          been reclassified to conform with the 1998 presentation.
      (3) All amounts have been restated in accordance with SFAS 128.


                                      
<PAGE>   15

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

         The following is a discussion of the consolidated financial condition
and results of operation of the Company for the three years ended December 31,
1998 and certain factors that will effect 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.

OVERVIEW

         The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. In addition to its software solutions and related
software support services, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.

         The Company enters into multi-year contracts (generally 3 to 5 years)
with its customers in connection with its provision of agency support services.
In general, these contracts provide for the payment of monthly fees based on the
number of billed home care visits made by the customer. Revenues derived under
these contracts are recognized monthly as the related services are rendered and
typically range from several hundred thousand dollars to several million dollars
per year. As a result, the loss of any of these contracts could have a material
adverse impact on the Company's business, financial condition and results of
operations.

         The Company sells its 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. Revenues derived from the
sale of software products requiring significant modification or customization
are recognized based upon the percentage of completion method. The price of the
Company's software varies depending on the number of software modules licensed
and the number of users accessing the system and can range from ten thousand
dollars to a few million dollars. The Company generally requires payment of a
deposit upon the signing of a customer order as well as certain additional
payments prior to delivery. As a result, the Company's balance sheet reflects
significant customer deposits.

         Third party software and computer hardware revenues are recognized when
the related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company charges for software implementation, training and
technical consulting services as well as management consulting services on an
hourly or daily basis. The price of such services varies depending on the level
and expertise of the related professionals. These revenues are recognized as the
related services are performed.

         The Company defines recurring revenues as revenues derived under
multi-year contracts in addition to annual software support agreements. These
revenues were approximately $6.3 million, or 14% of total net revenues, for the
year ended December 31, 1998, $28.2 million, or 60% of total net revenues, for
the year ended December 31, 1997, and $7.4 million, or 29% of total net
revenues, for the year ended December 31, 1996. The Company anticipates that
recurring revenues may represent a greater portion of its total net revenues in
the foreseeable future.

         For the ten months ended October 31, 1996, 63% of the Company's total
net revenues were derived from contracts with home health care agencies
wholly-owned by CHHC. These contracts were terminated October 31, 1996, in
connection with the sale of CHHC to Columbia/HCA. Revenues derived from these
contracts were recorded in an amount equal to the costs of the services
provided, and, as a result, the Company recognized no operating profit under
these contracts. Subsequent to the sale of CHHC to Columbia/HCA, affiliates of
Columbia/HCA entered into multi-year contracts with the Company to provide its
information systems and agency support services to certain of the home health
care agencies formerly owned by CHHC. The Company believes that the contracts
with the Columbia/HCA affiliates were negotiated on an arms-length basis. The
historical results of operations attributable to the terminated CHHC contracts
may not therefore be indicative of future results of operations. For the years
ended December 31, 1998 and 1997 and the three months ended December 31, 1996,
the Company derived 35%, 48% and 39%, respectively, of its total net revenues
from contracts with affiliates of Columbia/HCA.


<PAGE>   16

         The contracts with Columbia/HCA were terminated on December 1, 1998 and
a settlement of $7.0 million was agreed to by both parties for the early
termination of the contracts and for specific wind down of activities to be
performed by the Company through March 31, 1999.

         The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total amount of research and development expense will decrease, 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. During 1998,
the Company wrote-off approximately $2.0 million of capitalized software to
reflect the abandonment of certain development projects. As of December 31,
1998, 1997 and 1996, the Company had $0, $616,000 and $0 respectively, of
capitalized computer software development costs.

RESULTS OF OPERATIONS

         The following table sets forth, for the years indicated, certain items
from the consolidated statements of operations expressed as a percentage of
total net revenues. The Company's historical operating results are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                    ------------------------------------
                                                                    1998             1997           1996
                                                                    ----             ----           ----

<S>                                                                <C>              <C>            <C> 
Percentage of Net Revenues:
Net revenues:
    Software and services                                           66.1 %           58.3 %         58.9 %
    Agency support                                                  18.4             31.3           28.2
    Consulting services                                             15.5             10.4           12.9
                                                                   -------------------------------------
         Total net revenues                                        100.0            100.0          100.0
  Costs and expenses:
    Costs of revenues                                               57.8             48.4           56.5
    Selling, general and administrative                             33.2             26.6           27.1
    Research and development                                        16.2             14.2           21.8
    Amortization and depreciation                                    5.8              3.6            3.0
    Purchased in-process research and development                     --             17.3           48.4
    Severance and other restructuring charges                       16.8               --            4.7
                                                                   -------------------------------------
         Total costs and expenses                                  129.8            110.1          161.5
                                                                   -------------------------------------
Loss from operations                                               (29.8)           (10.1)         (61.5)
Other income (expense):
    Interest expense                                                (0.4)            (0.5)          (0.5)
    Interest and other income                                        1.0              1.0             .8
                                                                   -------------------------------------
         Net loss                                                  (29.2)%           (9.6)%        (61.2)%
                                                                   =====================================
</TABLE>

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

         Net Revenues. Total net revenues decreased $5.3 million, or 11.3%, to
$41.6 million in 1998 from $46.9 million in 1997. This decrease in total net
revenues includes a $6.2 million increase attributable to the business acquired
in the Dezine acquisition which was completed in December of 1997, a $1.5
million increase in consulting revenues, a $9.7 million decrease attributable to
the declining number of visits and ultimate termination of the Columbia/HCA
contracts, and a $3.5 million decrease in new software sales and related
services.

         Net revenues from Software and Services include revenues from software
licenses, service fees, computer hardware sales, software support,
implementation, training and technical consulting services. These revenues
decreased $167,000, or 0.4%, to $27.5 million in 1998 from $27.4 million in
1997. This decrease includes a $6.2 million increase attributable to the
business acquired in the Dezine acquisition which was offset by a $3.5 million
decrease in new software sales and related services, and a $2.7 million decrease
attributable to the declining revenue associated with the Columbia/HCA
contracts.

<PAGE>   17

         Net revenues from Agency Support decreased $7.0 million, or 47.6%, to
$7.7 million in 1998 from $14.7 million in 1997. This decrease was attributable
to the declining number of visits and ultimate termination of the Columbia/HCA
contracts.

         Net revenues from Consulting Services increased $1.5 million, or 31.0%,
to $6.4 million in 1998 from $4.9 million in 1997 and was attributable to
revenues from new customers.

         Cost of Revenues. Cost of revenues increased $1.4 million, or 6.2%, to
$24.1 million in 1998 from $22.7 million in 1997. As a percentage of total net
revenues, cost of revenues increased to 57.8% in 1998 from 48.4% in 1997. This
dollar increase includes $2.5 million in costs attributable to the business
acquired in the Dezine acquisition offset by a $1.4 decrease in costs
attributable to the terminated Columbia/HCA contracts. The increase as a
percentage of total net revenues is principally due to the decrease in new
software sales and related services.

         Selling, General and Administrative. Selling, general and
administrative expenses increased $1.3 million, or 10.4%, to $13.8 million in
1998 from $12.5 million in 1997. As a percentage of total net revenues, selling,
general and administrative expenses were 33.2% in 1998 and 26.6% in 1997. This
dollar increase was attributable to approximately $2.1 million in costs related
to the business acquired in the Dezine acquisition offset by approximately $1.0
million in restructuring charges.

         Research and Development. Research and development expenses remained
constant at $6.7 million in 1998 and 1997. As a percentage of total net
revenues, research and development expenses increased to 16.2% in 1998 from
14.2% in 1997. This percentage increase reflects the decrease in total net
revenues compared to a relatively constant level of dollar expenditures.

         Amortization and Depreciation. Amortization and depreciation increased
by $700,000 to $2.4 million in 1998 from $1.7 million in 1997. This increase
includes approximately $300,000 of amortization expenses attributable to the
Dezine acquisition and approximately $400,000 associated with the depreciation
and amortization of purchased software, furniture, and equipment acquired in
1998.

         Purchased In-Process Research and Development. In connection with the
Dezine acquisition in 1997, the purchase price of $9.4 million was allocated
based on relative fair value of the assets acquired and liabilities assumed.
Pursuant to a study conducted by an independent third party valuation firm, $8.1
million related to the Dezine acquisition purchase price was allocated to
purchased in-process research and development and, in accordance with generally
accepted accounting principles, was charged to operations as it was not deemed
to have reached technological feasibility and had no alternative future use.
Additionally, the Company has a two year plan for the expansion of the DME
product line, to include a Windows-based graphical user interface/open system.
It is anticipated that the Company will incur approximately $1.0 million to $1.5
million of direct research and development expenses in connection with the
completion of its DME development plans.

         Severance and Other Restructuring Charges. The Company recorded a
restructuring charge totaling $7.0 million as a result of the change in the home
care business environment resulting from IPS, and the termination of the
Columbia/HCA contracts, coupled with the decision to eliminate certain legacy
development projects including the AS400 effort. Total charges were $11.5
million and included a $2.0 million write-off of capitalized software , $2.1
million in severance from a reduction in force, $3.7 million in costs to
terminate contracts with third party vendors, and $3.7 million in costs related
to excess capacity and other charges. These charges were offset by $4.0 million
of the $7.0 million settlement fee resulting from the termination of the
Columbia/HCA contracts.

         Other Income (Expense). Interest expense relates to the borrowings
under the Company's line of credit agreements and capital lease obligations and
has remained constant at approximately $200,000. Interest and other income
consists principally of interest income related to the Company's short term cash
investments and has remained constant at approximately $450,000.

         Income Taxes. The Company has not incurred or paid any income taxes
since its inception. At December 31, 1998, the Company had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $10.6
million, such losses expire in years 2010 through 2013, if not utilized. The
Company also has research and development and alternative minimum tax credits
("tax credits") of approximately $90,000 available to reduce future income tax
liabilities. The Tax Reform Act of 1986, as amended, contains provisions that
limit the NOL and tax credit carryforwards available to be used in any given
year when certain events occur, including additional sales of equity securities
and other changes in ownership. As a result, certain of the NOL and tax credit
carryforwards may be limited as to their utilization in any year. The Company
has concluded that it is more likely than not that these NOL and tax credit
carryforwards will not be realized based on a weighing of available evidence at
December 31, 1998, and as a result a 100% deferred tax valuation allowance has
been recorded against these assets.


<PAGE>   18

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

         Net Revenues. Total net revenues increased $20.9 million, or 80.4%, to
$46.9 million in 1997 from $26.0 million in 1996. This increase in total net
revenues includes $11.7 million attributable to the business acquired in the
IMHI acquisition which was completed in October of 1996, $16.4 million in
additional revenues from contracts with affiliates of Columbia/HCA and a
decrease of $12.0 million resulting from the termination of contracts with home
health care agencies wholly-owned by CHHC. The remaining increase was
principally attributable to revenues from new customers.

         Net revenues from Software and Services include revenues from software
licenses, service fees, computer hardware sales, software support,
implementation, training and technical consulting services. These revenues
increased $12.1 million, or 79.1%, to $27.4 million in 1997 from $15.3 million
in 1996. This increase is primarily attributable to the business acquired in the
IMHI acquisition.

         Net revenues from Agency Support increased $7.4 million, or 101.4%, to
$14.7 million in 1997 from $7.3 million in 1996. This increase includes $10.0
million in additional revenues from contracts with affiliates of Columbia/HCA
and a decrease of $1.3 million resulting from the termination of contracts with
home health care agencies wholly-owned by CHHC.

         Net revenues from Consulting Services increased $1.5 million, or 44.1%,
to $4.9 million in 1997 from $3.4 million in 1996 and was attributable to
revenues from new customers.

         Cost of Revenues. Cost of revenues increased $8.0 million, or 54.4%, to
$22.7 million in 1997 from $14.7 million in 1996. As a percentage of total net
revenues, cost of revenues decreased to 48.4% in 1997 from 56.5% in 1996. This
dollar increase includes $3.3 million in costs attributable to the business
acquired in the IMHI acquisition and the remaining increase primarily results
from the increased cost of personnel and the cost of computer and communication
technology. The reduction as a percentage of total net revenues is principally
due to the higher margins related to the business acquired in the IMHI
acquisition, and increased margins derived from new customers.

         Selling, General and Administrative. Selling, general and
administrative expenses increased $5.5 million to $12.5 million in 1997 from
$7.0 million in 1996. As a percentage of total net revenues, selling, general
and administrative expenses were 26.6% in 1997 and 27.1% in 1996. This dollar
increase was attributable to approximately $3.8 million in costs related to the
business acquired in the IMHI Acquisition and the remainder principally relates
to increased administrative personnel to support growth.

         Research and Development. Research and development expenses increased
$1.0 million to $6.7 million in 1997 from $5.7 million in 1996. As a percentage
of total net revenues, research and development expenses decreased to 14.2% in
1997 from 21.8% in 1996. This dollar increase was attributable principally to
the business acquired in the IMHI acquisition. During 1997, the Company
capitalized $600,000 in software development costs.

         Amortization and Depreciation. Amortization and depreciation increased
by approximately $900,000 to $1.7 million in 1997 from $800,000 in 1996. This
increase includes approximately $600,000 of amortization expenses attributable
to the IMHI acquisition in October of 1996 and approximately $300,000 associated
with the depreciation and amortization of purchased software, furniture, and
equipment acquired in 1997.

         Purchased In-Process Research and Development. In connection with the
Dezine acquisition in 1997, the purchase price of $9.4 million was allocated
based on relative fair value of the assets acquired and liabilities assumed.
Pursuant to a study conducted by an independent third party valuation firm, $8.1
million related to the Dezine acquisition purchase price was allocated to
purchased in-process research and development and, in accordance with generally
accepted accounting principles, was charged to operations as it was not deemed
to have reached technological feasibility and had no alternative future use.
Additionally, the Company has a two year plan for the expansion of the DME
product line, to include a Windows-based graphical user interface/open system.
It is anticipated that the Company will incur approximately $1.5 to $2.5 million
of direct research and development expenses in connection with the completion of
its DME development plans.

         In connection with the IMHI acquisition in 1996, the purchase price of
$16.8 million was allocated based on relative fair value of the assets acquired
and liabilities assumed. Pursuant to a study conducted by an independent third
party valuation firm, $12.6 million related to the IMI acquisition purchase
price was allocated to purchased in-process research and development and, in
accordance with generally accepted accounting principles, was charged to
operations as it was not deemed to have reached technological feasibility and
had no alternative future use. Subsequent to the IMHI acquisition, the Company
completed the development of certain in-process versions of software products,
SC STATScan and TEMMS, and has scheduled further enhancements to each of these
products.


<PAGE>   19

         Severance and Other Restructuring Charges. As a result of the change in
focus of the Company's business from providing services to affiliates of CHHC,
the Company incurred severance and certain other restructuring costs totaling
$1.2 million in the fourth quarter of 1996. These expenses primarily relate to
the severance of several key employees and costs to buyout a lease of equipment
no longer useful to the Company.

         Other Income (Expense). Interest expense relates to the borrowings
under the Company's line of credit agreements and capital lease obligations and
increased by $100,000 to $200,000 in 1997 from $100,000 in 1996. This increase
is principally attributable to the increased borrowings under the line of credit
agreements. Interest and other income consists principally of interest income
related to the Company's short term cash and restricted cash investments and
increased by $300,000 to $500,000 in 1997 from $200,000 in 1996. This increase
is principally attributable to the interest received on the $17.7 million in net
proceeds from the issuance of 2,000,000 shares of common stock at $10.00 per
share in July 1997 in conjunction with a Registration Statement filed with the
Securities and Exchange Commission.

         Income Taxes. The Company has not incurred or paid any income taxes
since its inception. At December 31, 1997, the Company had NOL carryforwards for
federal and state income tax purposes of $4.6 million, such losses expire
$1,824,000 in 2010 and $2,816,000 in 2011, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax credits") of
approximately $96,000 available to reduce future income tax liabilities. The Tax
Reform Act of 1986, as amended, contains provisions that limit the NOL and tax
credit carryforwards available to be used in any given year when certain events
occur, including additional sales of equity securities and other changes in
ownership. As a result, certain of the NOL and tax credit carryforwards may be
limited as to their utilization in any year. The Company concluded that it is
more likely than not that these NOL and tax credit carryforwards will not be
realized based on a weighing of available evidence at December 31, 1997, and as
a result a 100% deferred tax valuation allowance was recorded against these
assets. Of the $4.4 million deferred tax asset at December 31, 1997,
approximately $500,000 relates to the IMHI acquisition and, if and when
realized, will result in a credit to intangible assets recorded in the
acquisition.


SELECTED QUARTERLY FINANCIAL RESULTS

         The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. The Company believes that
the timing of strategic acquisitions may cause fluctuations in its operating
results. 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 the Company's
information systems can range from three months to one year. 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.



<PAGE>   20

         The following table sets forth certain unaudited consolidated quarterly
financial data for each of the eight quarters for the period ended December 31,
1998. This information is unaudited, but, in the opinion of the Company's
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the information in accordance
with generally accepted accounting principles. These quarter results of
operations are not necessarily indicative of future operating results.

<TABLE>
<CAPTION>
                                                        Fiscal Year 1998 (1)                       Fiscal Year 1997(1)
                                             ----------------------------------------  ------------------------------------------
                                             Mar. 31,   June 30,  Sept. 30,  Dec. 31,  Mar. 31,    June 30,  Sept. 30,   Dec. 31,
                                               1998       1998       1998      1998      1997        1997       1997       1997
                                               ----       ----       ----      ----      ----        ----       ----       ----
                                                                    (in thousands, except per share data)

<S>                                         <C>        <C>        <C>        <C>       <C>        <C>        <C>        <C>
Statement of Operations Data:
Net revenues:
   Software and services                    $  9,165   $  9,951   $  6,447   $ 1,960   $  5,682   $  6,480   $  7,467   $  7,727
   Agency support                              2,808      1,859      1,219     1,800      4,552      3,615      3,435      3,078
   Consulting services                         1,447      1,764      1,814     1,412      1,194      1,145      1,207      1,363
                                            ------------------------------------------------------------------------------------
         Total net revenues                   13,420     13,574      9,480     5,172     11,428     11,240     12,109     12,168
Costs and expenses:
   Costs of revenues                           6,325      6,658      6,103     4,999      5,473      5,142      5,516      6,584
   Selling, general and
     administrative                            4,129      3,803      3,179     2,712      3,083      3,381      3,320      2,725
   Research and development                    1,816      1,588      1,936     1,401      1,756      1,686      1,731      1,496
   Amortization and depreciation                 558        601        618       615        424        403        411        476
   Purchased in-process research
     and development                              --         --         --        --         --         --         --      8,127
   Severance and other
     restructuring charges                        --         --      9,578    (2,561)        --         --         --         -- 
                                            ------------------------------------------------------------------------------------
         Total costs and expenses             12,828     12,650     21,414     7,166     10,736     10,612     10,978     19,408
                                            ------------------------------------------------------------------------------------ 
Income (loss) from operations                    592        924    (11,934)   (1,994)       692        628      1,131     (7,240)
Other income (expense):
   Interest expense                              (16)        (9)       (50)     (108)       (77)       (68)       (41)       (29)
   Interest and other income                     111         96         97       120         28         17        202        243
                                            ------------------------------------------------------------------------------------ 
Net income (loss)                           $    687   $  1,011   $(11,887)  $(1,982)  $    643   $    577   $  1,292   $ (7,026)
                                            ====================================================================================
Net income (loss) per share - basic (2)     $   0.08   $   0.12   $  (1.39)  $ (0.23)  $   0.11   $   0.10   $   0.16   $  (0.83)
                                            ====================================================================================
Weighted average common shares - basic (2)     8,523      8,536      8,571     8,596      5,977      6,027      8,216      8,515
                                            ====================================================================================
Net income (loss) per share - diluted (2)   $   0.07   $   0.11   $  (1.39)  $ (0.23)  $   0.09   $   0.08   $   0.14   $  (0.83)
                                            ====================================================================================
Weighted average common shares and
common equivalent shares - diluted (2)         9,222      9,573      8,571     8,596      7,364      7,234      9,052      8,515
                                            ====================================================================================
</TABLE>

(1) Certain amounts in both 1998 and 1997 quarterly income statements have been
reclassified to conform with the presentation of the 1998 audited financial
statements.

(2) All amounts have been restated in accordance with SFAS 128.

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 1998, the Company had working capital of $1.3
million and cash and cash equivalents of $10.5 million.  The Company's current
liabilities as of December 31, 1998 include customer deposits of $1.1 million
and unearned revenues of $1.9 million.

         Net cash used in operating activities for the years ended December 31,
1998, 1997, and 1996 was $1.1 million, $1.4 million, and $1.8 million,
respectively. The changes were principally due to increases in working capital
requirements for research and development and changes in accrued liabilities.

         Net cash used in investing activities for the years ended December 31,
1998, 1997 and 1996 was $1.0 million, $10.3 million and $2.9 million,
respectively. The Company made capital expenditures (including capital leases)
totaling approximately $600,000, $1.2 million and $1.3 million during 1998, 1997
and 1996, respectively.  In January 1996, the Company completed the acquisition
of Simione & Simione for $2.0 million in cash.  In October 1996, the Company
completed the IMHI acquisition resulting in an increased cash balance of
approximately $700,000.  In December of 1997, the Company completed the Dezine
acquisition for a purchase price of $9.4 million.

         Net cash provided by financing activities for the years ended December
31, 1998, 1997, and 1996 was $4.3 million, $16.6 million and $7.8 million,
respectively.  In January of 1996, CHHC made a cash capital contribution of $4.0
million to the Company.  Additionally, in March of 1996, the Company issued
common stock that netted $3.1 million, $2.2 million of which was collected in
1996 and $900,000 of which was collected in 1997.  In July of 1997, the Company
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission and sold 2,000,000 shares of its Common Stock for $10.00 per share
and received approximately $17.7 million in net cash proceeds from this offering
for general corporate purposes and working capital, including potential
strategic acquisitions.

         In January of 1996, the Company established line of credit agreements
which provided for aggregate borrowing of $2.5 million which had been fully
drawn as of December 31, 1996.  During 1997, the Company repaid these lines of
credit and terminated them.

         In June of 1997, the Company established a revolving credit facility
pursuant to which the maximum principal amount at any time outstanding could not
exceed the lesser of $5 million or the "Borrowing Base" (as defined in the
revolving credit facility agreement).  During 1998, the Company repaid this line
of credit and terminated it.

         In May of 1998, the Company entered into a new Loan and Security
Agreement with a bank.  Pursuant to the Agreement, the bank agreed to make
available to the Company a revolving credit facility, the maximum principal
amount of which at any time must be equal to the lesser of $25 million or the
"margin requirement" then in effect.  Interest will accrue at a variable rate
per annum equal to the prime rate for prime borrowings or the LIBOR Rate plus
1.5%-3.0% per annum (depending on the leverage ratio measured quarterly) for the
LIBOR borrowings. Under the terms of the agreement, the Company granted to the
bank a security interest in all accounts, inventory, equipment, and general
intangibles. Additionally, the Company's subsidiaries also guaranteed the
Company's obligations to the bank under the Agreement.  As of December 31, 1998,
there was a balance of $5 million outstanding.  The Company terminated this
credit facility and currently has no line of credit facility available for use.
The Company repaid all obligations to the bank in 1999.  The Company is in the
process of negotiating a new credit facility.

         The Company believes that its available cash, cash equivalents, cash
settlements and cash to be generated from its future results of operations will
be sufficient to meet the Company's operating requirements, assuming no change
in the operation of the Company's business, for at least the next twelve months.
See discussion of Management's Plan to improve the Company's performance in Note
1 of the Financial Statements.


<PAGE>   21

IMPACT OF NEW ACCOUNTING STANDARDS

         In June of 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997 and was adopted by the Company in 1998. For the Company,
there is no difference between comprehensive income (loss) and net income
(loss).

         In June of 1997. the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires reporting segment profit or loss,
certain specific revenue and expense items, and segment assets. It requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding

<PAGE>   22

amounts in the enterprise's general-purpose financial statements. It requires
that all public business enterprises report information about the revenues
derived from the enterprise's products or services (or groups of similar
products and services), about the countries in which the enterprise earns
revenues and holds assets, and about major customers regardless of whether that
information is used in making operating decisions. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997 and was
adopted by the Company in 1998. See Note 13 for detailed segment information.

         In 1998, the Financial 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, 2000. 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 October of 1997, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), which supersedes SOP 91-1 and is effective for
transactions entered into for fiscal years beginning after December 15, 1997.
While some principles remain the same, there are several key differences between
the two pronouncements, including accounting for multiple element arrangements.
SOP 97-2 addresses revenue recognition from a conceptual level and does not
specifically provide implementation guidance. The Company's adoption of SOP 97-2
had no material impact on the financial statements of the Company.

YEAR 2000 ISSUES

         Introduction. Year 2000 issues arise because many computer software and
hardware systems use only two digits to represent the year. As a result, these
systems may not process dates beyond 1999, which may cause errors in information
or system failures. Therefore, some computer software and hardware will need to
be modified prior to the Year 2000 in order to remain functional.

         State of Readiness. The Company is assessing both the readiness of its
internal computer systems and the compliance of its software and computer
products licensed and sold to customers for handling Year 2000 issues. The
Company has appointed a Year 2000 Project Manager and has established a Task
Force to evaluate the Company's products and services, business operations, and
relationships with customers and business partners. The mission of the Task
Force is to actively prepare the Company's systems and assist the Company's
customers for Year 2000 issues, as well as prepare contingency plans for the
potential compromise in the performance of critical systems and services. The
Company expects to implement successfully the systems and programming changes
necessary to address the Year 2000 issues of its major software products. The
majority of STAT 2 is Year 2000 compliant and should be fully compliant by the
end of the second quarter of 1999 and DME 6.3 is currently Year 2000 compliant.
The Company is also assessing and addressing the possible effects on the
Company's operations of the Year 2000 readiness of key vendors and 3rd party
software providers. The Company's reliance on vendors and 3rd party software
providers, and therefore, on the proper functioning of their information systems
and software, means that their failure to address Year 2000 issues could have a
material impact on the Company's operations and financial results. The Company
is contacting such vendors and suppliers and while it has not discovered any
material Year 2000 issues yet, the Company can not guarantee the performance or
representations of such entities.

         Costs. The Company has incurred costs of approximately $500,000 in
addressing Year 2000 issues, consisting primarily of programming expenses and
replacing technology which was not Year 2000 compliant. The Company does not
believe that the remaining costs of achieving Year 2000 readiness will have a
material effect on the Company's results of operations or financial condition.

         Risks. The Company has not currently identified any critical assets
under its control that present a material risk of not being Year 2000 compliant
in a timely manner, or for which an acceptable alternative cannot be
implemented. As testing continues, however, it is possible that certain assets
could be identified that present a material risk of Year 2000 interruption and
it is possible that key supplies or vendors could suffer such interruptions. Any
of such interruptions or the failure of the Company to make its software
products Year 2000 compliant could have a material adverse effect on the
Company's results of operations or financial condition.

         Contingency Plans. The Year 2000 Task Force is currently developing
contingency plans for Year 2000 failures. These contingency plans are in the
early stages of development and will be modified as the risk of potential Year
2000 issues continue to be addressed.


<PAGE>   23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         Effective February 8, 1999, the Company decided to appoint Arthur
Andersen LLP as the Company's independent accountants for the fiscal year ended
December 31, 1998 and dismissed Ernst & Young LLP. The decision to change
accountants was approved by the Audit Committee of the Board of Directors of the
Company acting pursuant to authority delegated by the Board of Directors of the
Company.

         Ernst & Young LLP's reports on the Company's consolidated financial
statements during the last two most recent years contained no adverse opinion or
a disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.

         During the last two fiscal years and in the subsequent interim period
to February 8, 1999, there were no disagreements between the Company and Ernst &
Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Ernst & Young LLP, would have caused it to
make a reference to the subject matter of the disagreements in connection with
its reports.

         None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to the Company during the last two fiscal
years or in the subsequent interim period to February 8, 1999.

         During the last two fiscal years and subsequent interim period to
February 8, 1999, the Company did not consult with Arthur Andersen LLP regarding
any of the matters or events set forth in Item (304)(a)(2)(i) and (ii) of
Regulation S-K.

                                    PART III

         With the exception of information relating to the executive officers of
the Company which is provided in Part I hereof, all information required by Part
III (Items 10, 11, 12 and 13) is incorporated by reference to the Company's
definitive proxy statement relating to the 1999 Annual Meeting of Stockholders.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K

         (a) The following documents are filed as part of this Report:

                  1.       Financial Statements. See Index to Consolidated
                           Financial Statements on Page F-1 hereof.

                  2.       Financial Statement Schedules.

                           Schedule II--Valuation and Qualifying Accounts

                  CERTAIN FINANCIAL STATEMENT SCHEDULES HAVE BEEN OMITTED
                  BECAUSE THEY ARE NOT APPLICABLE.

                  3.       Exhibits Incorporated by Reference or Filed with this
                           Report.

         The following exhibits are filed as part of this Report. Where such
filing is made by incorporation by reference to a previously filed statement or
report, such statement or report is identified in parentheses.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
------                            -----------
<S>      <C>      <C>                                                         
3.1      --       Certificate of Incorporation of the Company (Incorporated by
                  reference to Exhibit 3.1 of the Company's Registration
                  Statement on Form S-4 (Registration Number 33-57150) as filed
                  with the Securities and Exchange Commission).

3.2      --       Amendment to the Certificate of Incorporation of the Company
                  (Incorporated by reference to Exhibit 3.2 of the Company's
                  Registration Statement on Form S-4 (Registration Number
                  33-57150) as filed with the Securities and Exchange
                  Commission).

3.3      --       Certificate of Amendment of the Certificate of Incorporation
                  of Simione Central Holdings, Inc., filed June 30, 1997 with
                  the Secretary of State of the State of Delaware (Incorporated
                  by reference to Exhibit 3.3 of the Company's Current Report on
                  Form 8-K dated July 9, 1997 as filed with the Securities and
                  Exchange Commission).

3.4      --       Amended and Restated Bylaws of the Company (Incorporated by
                  reference to Exhibit 3.3 of the Company's Registration
                  Statement on Form S-1 (Registration Number 333-25551) as filed
                  with the Securities and Exchange Commission).
</TABLE>
<PAGE>   24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
------                            -----------
<S>      <C>      <C>        
3.5      --       Certificate of Ownership Merging Simione Central Holdings,
                  Inc. into 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).

4.1      --       Specimen Stock Certificate of the Company (Incorporated by
                  reference to Exhibit 4.1 of the Company's Registration
                  Statement on Form S-1 (Registration Number 333-25551) as filed
                  with the Securities and Exchange Commission).

4.2      --       See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the
                  Company's Certificate of Incorporation and Bylaws governing
                  the rights of holders of securities of the Company.

4.3      --       Registration Rights Agreement dated October 7, 1996 by and
                  among InfoMed Holdings, Inc., those stockholders of Simione
                  Central Holding, Inc. appearing as signatories to the
                  Registration Rights Agreement, and those stockholders of
                  InfoMed Holdings, Inc. appearing as signatories to the
                  Registration Rights Agreement (Incorporated by reference to
                  Exhibit 10.1 of the Company's Current Report on Form 8-K dated
                  October 8, 1996 as filed with the Securities and Exchange
                  Commission).

9.1      --       Form of Simione Central Holding, Inc. Shareholders Voting
                  Agreement and Irrevocable Proxy dated March 5, 1996 by and
                  among Howard B. Krone, William J. Simione, Jr., Gary
                  Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A. Curtis
                  Eade, James A. Tramonte, John Isett, Cindy Lumpkin, Douglas E.
                  Caddell, Robert J. Simione, Kenneth L. Wall, Allen K. Seibert,
                  III, Jerry Sevy, Larry Clark, Lori N. Siegel, Gary M. Bremer,
                  Richard A. Parlontieri, and James R. Henderson (Incorporated
                  by reference to the Company's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1996 as filed with the
                  Securities and Exchange Commission).

9.2      --       Agreement dated as of October 7, 1996 by and among InfoMed
                  Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
                  plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
                  other holders of the Class A Convertible Preferred Stock of
                  InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
                  10.2 of the Company's Current Report on Form 8-K dated October
                  8, 1996 as filed with the Securities and Exchange Commission).

10.1     --       Amended and Restated Agreement and Plan of Merger dated as of
                  September 5, 1996 by and among InfoMed Holdings, Inc., Simione
                  Central Holding, Inc. and InfoSub, Inc. (Incorporated by
                  reference to Exhibit 2.1 of the Company's Current Report on
                  Form 8-K dated September 5, 1996 as filed with the Securities
                  and Exchange Commission).

10.2     --       InfoMed Holdings, Inc. Amended and Restated Share Warrant for
                  the Purchase of Common Stock of InfoMed Holdings, Inc. dated
                  October 5, 1996 between InfoMed Holdings, Inc. and each of
                  O'Donnell Davis, Inc., Rowan Nominees Ltd., David O. Ellis,
                  Richard V. Lawry, Salvatore A. Massaro, Murali Anantharaman,
                  Kathleen E.J. Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis,
                  Thomas M. Rogers, Jr., and Arnold Schumacher (Incorporated by
                  reference to Exhibit 4.1 of the Company's Current Report on
                  Form 8-K dated October 8, 1996 as filed with the Securities
                  and Exchange Commission).

10.3     --       Warrant to Purchase 100,000 shares of Class A Common Stock of
                  Simione Central Holding, Inc., dated April 12, 1996 between
                  Simione Central Holding, Inc. and Home Health First, a Texas
                  not-for-profit corporation (Incorporated by reference to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  December 31, 1996 as filed with the Securities and Exchange
                  Commission).

10.4     --       Common Stock Warrant of InfoMed Holdings, Inc. dated October
                  8, 1996 between Jefferies & Company, Inc. and InfoMed
                  Holdings, Inc. (Incorporated by reference to the Company's
                  Annual Report on Form 10-K for the fiscal year ended December
                  31, 1996 as filed with the Securities and Exchange
                  Commission).

10.5+    --       Form of Simione Central Holding, Inc. 1996 Incentive Stock
                  Option Agreement dated September 4, 1996 by and between
                  Simione Central Holding, Inc. and each of James R. Henderson,
                  William J. Simione, Jr., Robert Simione, Katherine Wetherbee,
                  Sheldon Berman, Betty Gordon, William J. Simione, III, J.
                  Blake Bremer, Craig Luigart, Kenneth L. Wald, Marty Cavaiani,
                  Lori Ferrero, Douglas E. Caddell, Andy Anello and A. Curtis
                  Eade (Incorporated by reference to the Company's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1996 as
                  filed with the Securities and Exchange Commission).
</TABLE>
<PAGE>   25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                       DESCRIPTION
------                                       -----------
<S>      <C>      <C>
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+    --       Simione Central Holdings, 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+     --      Simione Central Holdings, Inc. Section 125 Plan effective date
                  January 1, 1997 sponsored by the Company (Incorporated by
                  reference to the Company's Annual Report on Form 10-K for the
                  fiscal year ended December 31, 1996 as filed with the
                  Securities and Exchange Commission).

10.9     --       Headquarters at Gateway Lake Lease Agreement dated January 1,
                  1996 by and between Gateway LLC and InfoMed Holdings, Inc.
                  (Incorporated by reference to the Company's Annual Report on
                  Form 10-K for the fiscal year ended June 30, 1996 as filed
                  with the Securities and Exchange Commission).

10.10    --       Sublease dated November 22, 1996 between Environmental Design
                  International, Ltd. and Simione Central, Inc. (Incorporated by
                  reference to the Company's Annual Report on Form 10-K for the
                  fiscal year ended December 31, 1996 as filed with the
                  Securities and Exchange Commission).

10.11     --      Lease Amendment dated August 7, 1992 by and between Sugar Land
                  Plaza Building Corporation and Medical Solutions, Inc.
                  (Incorporated by reference to the Company's Annual Report on
                  Form 10-K for the fiscal year ended December 31, 1997 as filed
                  with the Securities and Exchange Commission).

10.12     --      Lease dated August 13, 1992 between Unum Life Insurance
                  Company of America and Dezine Associates, Inc. (Incorporated
                  by reference to the Company's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1997 as filed with the
                  Securities and Exchange Commission).

10.13    --       Indenture of Lease dated January 1, 1998 by and between S&S
                  Realty and Simione Central Consulting, Inc. (Incorporated by
                  reference to the Company's Annual Report on Form 10-K for the
                  fiscal year ended December 31, 1997 as filed with the
                  Securities and Exchange Commission).

10.14     --      Lease dated December 18, 1996 by and between Resurgens Plaza
                  South Associates, L.P. and Simione Central, Inc. (Incorporated
                  by reference to the Company's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1997 as filed with the
                  Securities and Exchange Commission).

10.15*+  --       Severance Agreement dated July 22, 1998 between Simione
                  Central Holdings, Inc. and Gary M. Bremer.

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).

10.17     --      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).
</TABLE>
<PAGE>   26

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                       DESCRIPTION
------                                       -----------
<S>      <C>      <C>
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 Simione Central Holdings, 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 Simione
                  Central Holdings, Inc., Eclipsys Corporation, and certain
                  stockholders of the Company.

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).

21.1*    --       Subsidiaries of the Company

23.1*    --       Consent of Arthur Andersen LLP.

23.2*    --       Consent of Ernst & Young LLP.

27.1*    --       Financial Data Schedule (for SEC use only).
</TABLE>

*   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

(b) Reports on Form 8-K.

The Company filed no Reports on Form 8-K during the fourth quarter of 1998.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




<PAGE>   27





                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        SIMIONE CENTRAL HOLDINGS, INC.


Dated: March 30, 1999                   /s/   Barrett C. O'Donnell     
                                        -------------------------------------
                                        By:   Barrett C. O'Donnell
                                        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.

<TABLE>
<CAPTION>

         SIGNATURES                                  TITLE                                       DATE
         ----------                                  -----                                       ----


<S>                                 <C>                                                  <C> 
/s/ BARRETT C. O'DONNELL            Chairman of the Board,
------------------------------      President and Chief Executive
Barrett C. O'Donnell                Officer (Principal Executive                        March 30, 1999
                                    Officer)


/s/ LORI NADLER SIEGEL              Chief Financial Officer and Treasurer               March 30, 1999
------------------------------      (Principal Financial and Accounting
Lori Nadler Siegel                  Officer)


/s/ WILLIAM J. SIMIONE, JR.         Vice Chairman of the Board and                      March 30, 1999
------------------------------      Executive Vice President
William J. Simione, Jr.             


/s/ MURALI ANANTHARAMAN             Director                                           March 30, 1999
------------------------------
Murali Anantharaman


/s/ GARY M. BREMER                  Director                                            March 30, 1999
------------------------------
Gary M. Bremer


/s/ JAMES A. GILBERT                Director                                            March 30, 1999
------------------------------
James A. Gilbert


/s/ GREG WILSON                     Director                                            March 30, 1999
-------------------------------
Greg Wilson
</TABLE>



<PAGE>   28
                         SIMIONE CENTRAL HOLDINGS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Report of Independent Public Accountants                                    F-2
Consolidated Financial Statements
  Consolidated Balance Sheets--December 31, 1998 and 1997                   F-4
  Consolidated Statements of Operations for the years ended
    December 31, 1998, 1997 and 1996                                        F-5
  Consolidated Statements of Shareholders' Equity (Deficit) for the
    years ended December 31, 1998, 1997 and 1996                            F-6
  Consolidated Statements of Cash Flows for the years ended
    December 31, 1998, 1997 and 1996                                        F-7
  Notes to Consolidated Financial Statements                                F-8
</TABLE>


                                                                              F1
<PAGE>   29



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:

We have audited the accompanying consolidated balance sheet of SIMIONE CENTRAL
HOLDINGS, INC. (a Delaware corporation) and subsidiaries as of December 31, 1998
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the year then ended. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Simione Central Holdings, Inc.
and subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statement schedules 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 audit 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.

                                                 Arthur Andersen LLP

Atlanta, Georgia
March 12, 1999


                                                                              F2





<PAGE>   30



                         Report of Independent Auditors




To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:

         We have audited the accompanying consolidated balance sheet of Simione
Central Holdings, Inc. as of December 31, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1997. Our audits also include the
information related to the years ended December 31, 1997 and 1996 included in
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simione Central Holdings, Inc. as of December 31, 1997 and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information related to the years
ended December 31, 1997 and 1996 set forth therein.


                                                       ERNST & YOUNG LLP


Atlanta, Georgia
February 23, 1998



                                                                              F3
<PAGE>   31

                         SIMIONE CENTRAL HOLDINGS, INC.

                           CONSOLIDATED BALANCE SHEETS

                                               
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                      ------------
                                                               1998                1997
                                                               ----                ----
<S>                                                          <C>              <C>        
                                     ASSETS
Current assets:
  Cash and cash equivalents                                  $10,526,816      $ 8,266,860
  Accounts receivable, net of allowance for doubtful
    accounts of $1,674,404 and $1,915,120, respectively        7,679,524        9,025,666
  Prepaid expenses and other current assets                      555,770        1,157,168
                                                             -----------      -----------
         Total current assets                                 18,762,110       18,449,694
Purchased software, furniture and equipment, net               1,852,405        2,365,508
Intangible assets, net                                         7,137,857        7,448,911
Other assets                                                     104,232          655,377
                                                             -----------      -----------
         Total assets                                        $27,856,604      $28,919,490
                                                             ===========      ===========

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Line of credit                                             $ 5,000,000      $   773,599
  Accounts payable                                             1,627,328        1,876,688
  Accrued compensation expense                                   577,964          560,334
  Accrued liabilities                                          7,231,417        3,174,762
  Customer deposits                                            1,144,557        1,460,653
  Unearned revenues                                            1,870,538        1,527,173
  Current portion of capital lease obligations                     9,141           57,622
                                                             -----------      -----------
         Total current liabilities                            17,460,945        9,430,831
                                                             -----------      -----------
Other liabilities, less current portion                        2,671,477               --
                                                             -----------      -----------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, $.001 par value; 10,000,000
    shares authorized; none
    issued or outstanding                                             --               --
  Common stock, 
    $.001 par value; 20,000,000 shares authorized; 
    8,597,729 and 8,597,729 and 8,522,978 shares 
    issued and outstanding at December 31, 1998 
    and 1997, respectively                                         8,598            8,523
  Additional paid-in capital                                  42,093,040       41,686,109
  Accumulated deficit                                        (34,377,456)     (22,205,973)
                                                             -----------      -----------
         Total shareholders' equity                            7,724,182       19,488,659
                                                             -----------      -----------
         Total liabilities and shareholders' equity          $27,856,604      $28,919,490
                                                             ===========      ===========
</TABLE>



                 See notes to consolidated financial statements



                                                                              F4
<PAGE>   32



                         SIMIONE CENTRAL HOLDINGS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                        ------------------------
                                               1998               1997                1996
                                               ----               ----                ----
<S>                                        <C>                <C>                <C>         
Net revenues:
  Software and services                    $ 27,522,926       $ 27,355,995       $ 15,307,906
  Agency support                              7,686,363         14,680,310          7,323,540
  Consulting services                         6,436,846          4,908,965          3,363,195
                                           ------------       ------------       ------------
         Total net revenues                  41,646,135         46,945,270         25,994,641
                                           ------------       ------------       ------------
Costs and expenses:
  Cost of revenues                           24,085,509         22,715,095         14,698,177
  Selling, general and administrative        13,822,674         12,508,512          7,037,446
  Research and development                    6,740,829          6,669,500          5,676,898
  Amortization and depreciation               2,392,321          1,714,207            784,502
  Purchased in-process research and
    development                                      --          8,126,947         12,573,931
  Severance and other restructuring
    charges                                   7,016,766                 --          1,214,669
                                           ------------       ------------       ------------
         Total costs and expenses            54,058,099         51,734,261         41,985,623
                                           ------------       ------------       ------------
Loss from operations                        (12,411,964)        (4,788,991)       (15,990,982)
Other income (expense):
  Interest expense                             (183,495)          (214,508)          (114,817)
  Interest and other income                     423,976            489,830            206,902
                                           ------------       ------------       ------------
Net loss                                   $(12,171,483)      $ (4,513,669)      $(15,898,897)
                                           ============       ============       ============
Net loss per share-
       basic and diluted                   $      (1.42)      $      (0.63)      $      (3.71)
                                           ============       ============       ============
Weighted average common shares-
       basic and diluted                      8,556,990          7,164,398          4,287,956
                                           ============       ============       ============
</TABLE>


                 See notes to consolidated financial statements


                                                                              F5
<PAGE>   33



                         SIMIONE CENTRAL HOLDINGS, INC.

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
                                                                           ADDITIONAL    STOCK
                                                             COMMON          PAID-IN   SUBSCRIPTION   ACCUMULATED       TOTAL
                                               SHARES        STOCK          CAPITAL     RECEIVABLE      DEFICIT         EQUITY
                                               ------        -----          -------     ----------      -------         ------
<S>                                         <C>           <C>           <C>            <C>          <C>             <C>         
Balance at January 1, 1996                          11    $ 2,443,013   $         --   $      --    $ (1,793,407)   $    649,606
  Capital contribution from
    former parent company                           --      4,000,000             --          --              --       4,000,000
  Distribution of 2,994,856
    shares of no par common
    stock and cancellation of
    11 shares of common stock
    held by CHHC                             2,994,845             --             --          --              --              --
  Issuance of no par Class A common stock      964,418      3,051,369             --    (850,000)             --       2,201,369
  Purchase and cancellation of
    no par Class A common stock not
    exchanged in reverse acquisition              (918)        (9,866)            --          --              --          (9,866)
  Exchange of 3,958,356 shares
    of no par Class A and B
    common stock for 3,958,356
    shares of IMHI $.001 par
    value common stock                              --     (9,480,558)     9,480,558          --              --              --
  Issuance of 1shares
    of IMHI $.001 par value
    common stock for purchase
    of IMHI in reverse
    acquisition                              1,949,269          1,949     13,514,288          --              --      13,516,237
  Issuance of  $.001 par value common
    stock as compensation and
    from exercise of stock
    options and warrants                        44,541             45        221,204          --              --         221,249
  Net loss                                          --             --             --          --     (15,898,897)    (15,898,897)
                                            ----------    -----------   ------------   ---------    ------------    ------------ 
Balance at December 31, 1996                 5,952,166          5,952     23,216,050    (850,000)    (17,692,304)      4,679,698
  Issuance of  $.001 par value common
      stock from exercise of stock
      options and warrants                     555,259            555        548,403          --              --         548,958
   Issuance  of  $.001 par value
      common stock for purchase
      Benchmark Consulting, Inc.                15,553             16        199,984          --              --         200,000
  Issuance of  $.001 par value common
      stock, net of offering costs           2,000,000          2,000     17,721,672          --              --      17,723,672
   Payment of stock subscription                    --             --             --     850,000              --         850,000
   Net loss                                         --             --             --          --      (4,513,669)     (4,513,669)
                                            ----------    -----------   ------------   ---------     -----------     -----------
 Balance at December 31, 1997                8,522,978          8,523     41,686,109          --     (22,205,973)     19,488,659
   Issuance of $.001 par value common
      stock from exercise of stock
      options                                   32,432             33        110,948          --              --         110,981
   Issuance of  $.001 par value
      common stock for purchase
      Benchmark Consulting, Inc.                42,319             42        295,983          --              --         296,025
   Net loss                                         --             --             --          --     (12,171,483)    (12,171,483)
                                            ----------    -----------   ------------   ---------    ------------    ------------ 
Balance at December 31, 1998                 8,597,729    $     8,598   $ 42,093,040   $      --    $(34,377,456)   $  7,724,182
                                            ==========    ===========   ============   =========    ============    ============
</TABLE>

                 See notes to consolidated financial statements


                                                                              F6
<PAGE>   34


                         SIMIONE CENTRAL HOLDINGS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                   YEARS ENDED DECEMBER 31,
                                                                   ------------------------
                                                             1998             1997          1996
                                                            ----              ----          ----
<S>                                                     <C>             <C>             <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                $(12,171,483)   $ (4,513,669)   $(15,898,897)
Adjustments to reconcile net loss to net
  cash used in operating activities:
  Purchased in-process research and
    development                                                   --       8,126,947      12,573,931
  Provision for doubtful accounts                            791,335       1,329,563         395,046
  Amortization and depreciation                            2,392,321       1,714,207         784,502
  Write-off of capitalized R&D                             2,005,790              --              --
  Write-off of excess furniture & fixtures                    64,279              --              --
  Value assigned to stock purchase warrant                        --              --         100,000
  Stock compensation expense                                      --              --          58,500
  Loss on sale of assets                                          --          25,887           3,636
Changes in assets and liabilities:
  Accounts receivable                                        590,645      (3,919,939)     (3,305,003)
  Prepaid expenses and other current assets                  582,210         (29,355)       (553,630)
  Other assets                                            (1,478,984)       (577,322)        (26,925)
  Accounts payable                                          (249,359)     (1,598,616)      2,264,539
  Accrued compensation expense                                17,630        (106,316)        142,867
  Accrued liabilities                                      3,701,494        (525,519)        768,284
  Customer deposit                                          (317,096)       (218,912)        272,724
  Unearned revenues                                          343,365      (1,150,135)        616,518
  Long term liabilities                                    2,671,477              --              --
                                                        ------------    ------------    ------------
         Net cash used in operating
           activities                                     (1,056,376)     (1,443,179)     (1,803,908)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies,  net of cash acquired       (476,238)     (9,807,587)     (1,249,798)
Purchase of software, furniture and
  equipment                                                 (495,352)       (915,581)       (635,997)
(Increase) decrease  in restricted cash                           --       1,000,000      (1,000,000)
Increase in other intangible assets                               --        (585,000)        (64,123)
                                                        ------------    ------------    ------------
         Net cash used in investing 
           activities                                       (971,590)    (10,308,168)     (2,949,918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former
  parent company                                                  --              --       4,000,000
Proceeds from repayment of stock subscription                     --         850,000              --
Proceeds from (payment on) notes payable                   4,226,401      (1,726,201)      2,499,800
Issuance of common stock, net of cash expenses                    --      17,723,672       2,191,503
Advances from (payments to) former
  parent company                                                  --              --      (1,076,855)
Repayment (issuance) of note receivable
  from officer                                                    --              --         252,075
Payments on capital lease obligations                        (48,480)       (732,778)        (45,741)
Payments of related party notes                                 (980)        (30,172)        (68,000)
Proceeds from exercise of stock options and warrants         110,981         548,958          62,749
                                                        ------------    ------------    ------------
         Net cash provided by
           financing activities                            4,287,922      16,633,479       7,815,531
                                                        ------------    ------------    ------------
         Net increase  in cash
           and cash equivalents                            2,259,956       4,882,132       3,061,705
Cash and cash equivalents, beginning of year               8,266,860       3,384,728         323,023
                                                        ------------    ------------    ------------
Cash and cash equivalents, end of year                  $ 10,526,816    $  8,266,860    $  3,384,728
                                                        ============    ============    ============
Supplemental disclosure of non-cash
  investing and financing activities:
  Software, furniture and equipment
    obtained through capital lease                      $         --    $         --    $    690,490
</TABLE>


See notes to consolidated financial statements


                                                                              F7
<PAGE>   35


                         SIMIONE CENTRAL HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

         Background: Incorporated in September 1991, as a wholly-owned
subsidiary of Central Health Holding Company, Inc. ("CHHC"), Central Health
Management Services, Inc. ("CHMS") provided information and management support
services to home health care providers. Central Health Services, Inc. ("CHS"),
also a wholly-owned subsidiary of CHHC, provided similar services to home health
care agencies owned by CHHC. On January 1, 1996, CHHC transferred at book value
the assets and employees related to CHS's information services and certain
clinical and financial support services to CHMS. On January 17, 1996, CHHC
completed a pro-rata distribution of the outstanding common stock of CHMS to its
shareholders.

         On October 8, 1996, InfoMed Holdings, Inc. ("IMHI") and CHMS merged in
a transaction accounted for as a reverse acquisition for financial reporting
purposes. In connection with the merger, IMHI issued 3,958,356 shares of its
common stock in exchange for all the outstanding common stock of CHMS, and
thereby, the former shareholders of CHMS acquired control of IMHI. As a result,
CHMS is considered the acquiring company; hence, the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective acquisition
date. On December 19, 1996, IMHI changed its name to Simione Central Holdings,
Inc. (the "Company").

         Overview: The Company is a leading provider of integrated systems and
services designed to enable home health care providers to more effectively
operate their businesses and compete in a managed care environment. The Company
offers several comprehensive and flexible software solutions, each of which
provide a core platform of software applications and which incorporate selected
specialized modules based on customer demand. These software solutions are
designed to enable customers to generate and utilize comprehensive financial,
operational and clinical information. In addition to its software solutions and
related software support services, the Company's home health care consulting
services assist providers in addressing the challenges of reducing costs,
maintaining quality, streamlining operations and re-engineering organizational
structures. The Company also provides comprehensive agency support services
which include administrative, billing and collection, training, reimbursement
and financial management services, among others.

MANAGEMENT'S PLAN

         The Company has incurred significant losses in each fiscal year since 
1994 and declining revenues in 1998. The Company has been challenged by the 
changes in the healthcare industry. During fiscal 1998, the Company experienced 
operating losses of $13,412,000. The fiscal 1998 loss is attributable to a 
number of factors:

         -  cancellation of customer contract with Columbia/HCA which had
            generated 35%, 48%, and 22% of the Company's total revenues for the
            years ended 1998, 1997, and 1996, respectively. 
         -  decision to eliminate certain legacy development projects
         -  changes to the government's reimbursement methodology from cost
            reimbursement to set prospective payments which affected the
            Company's customers.

In response to these losses, the Company has taken the following steps:

         -  significant change in senior management
         -  reduce fixed and variable expenditures, including restructuring 
            charges
         -  improve operating efficiencies
         -  continue leveraging existing customer base
         -  continue generating recurring revenue
         -  capitalize on changing industry dynamics
         -  expand through acquisitions and strategic alliances.

         Some steps taken to improve the Company's performance will not provide 
immediate results; however, Management believes that the steps taken in fiscal 
1998 will yield long term benefits, creating an organization that is well 
suited to take advantage of market opportunities. Management plans to continue 
to aggressively market the Company's services, monitor costs, and fund 
development to ensure that the Company's products continue to incorporate 
state-of-the-art technologies and provide customers with value added solutions.

BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

MANAGEMENT ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

         In 1998, the Company adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," ("SOP 97-2"), which supersedes SOP 91-1 and is effective for
transactions entered into for fiscal years beginning after December 31, 1997.
While some principles remain the same, there are several key differences between
the two pronouncements, including accounting for multiple element arrangements.
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, professional and technical consulting services,
implementation and training services, software maintenance and support services,
outsourcing services, as well as home health care management consulting
services. Outsourcing services are provided under contractual arrangements with
terms typically ranging from three to five years.

         To the extent that software and services revenues result from shared
resource information management, software support, implementation, training and
technical consulting services, such revenues are recognized monthly as the
related services are rendered or, for software support revenues, over the term
of the related agreement. To the extent that software and services revenues
result from software licenses, computer hardware and third-party software
revenues, such revenues are recognized when the related products are delivered
and collectibility of fees is determined to be probable, provided that no
significant obligation remains under the contract. Revenues derived from the
sale of software licenses requiring significant modification or customization
are recorded based upon percentage of completion using labor hours or contract
milestones. Agency support and consulting services revenues are recognized
monthly as the related services are performed. 

                                                                              F8
<PAGE>   36

CONCENTRATIONS AND MAJOR CUSTOMERS

         The Company sells its systems and services to various companies in the
health care industry. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Current operations are charged with an allowance for doubtful
accounts based upon experience and any unusual circumstances which affect the
collectibility of receivables. Amounts deemed uncollectible are charged against
this allowance.

         Through October 1996, the Company derived the majority of its revenue
from services provided to its former parent company, see Note 14. See Note 2 for
discussion of the Company's major customer.

         The Company is dependent upon certain third party software arrangements
as well as certain contractual arrangements for provision of certain of its
services, see Note 16.

CASH EQUIVALENTS

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

PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT

         Purchased software, furniture and equipment is stated at cost.
Depreciation is calculated for financial reporting purposes using the
straight-line method over the estimated useful lives (ranging from 1 to 10
years) of the assets or lease term, whichever is shorter.

SOFTWARE DEVELOPMENT COSTS

         Costs incurred to establish the technological feasibility of computer
software products are research and development expense and are charged to
expense as incurred. The Company capitalizes costs incurred between the point of
establishing technological feasibility and general release when such costs are
material. During 1998, the Company wrote-off approximately $2 million of
capitalized software to reflect the abandonment of certain development projects
(see Note 2). The Company capitalized $616,000 of software development costs for
the year ended December 31, 1997 and $1.4 million in 1998 prior to the decision
to abandon the development project.

INTANGIBLE ASSETS AND LONG-LIVED ASSETS

         In 1996, the Company adopted 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." SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The adoption of SFAS No. 121 did not have an impact on the Company's
financial statements.

         Intangible assets, arising principally from the accounting for acquired
businesses, are amortized using the straight-line method over the estimated
useful lives of the related assets which range from 4 to 11 years. The Company
reviews its long-lived and intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flow from the use of the asset is
less than the carrying amount of the asset. As of December 31, 1998, in the
opinion of management, there has been no such impairment.

INCOME TAXES

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

                                                                              F9

<PAGE>   37

NET LOSS PER SHARE

         In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Per share amounts for all
periods have been presented in conformity with SFAS No. 128 requirements.

         Net loss per share is computed on the basis of the weighted average
number of common shares outstanding during the period. The 2,994,856 shares of
Class A common stock issued in the reorganization of the Company on January 17,
1996 (see Note 12) have been treated as outstanding since January 1, 1996. Due
to the net loss incurred by the Company in each year, basic and diluted loss per
share do not differ. Common stock equivalents relate to shares potentially
issuable under outstanding options and warrant agreements and are included in
the diluted loss per share calculation if dilutive.

The following table sets forth the computation of basic and diluted net loss per
share:

<TABLE>
<CAPTION>
                                                           1998               1997             1996
                                                           ----               ----             ----
                  <S>                                  <C>               <C>             <C>          
                  Numerator:
                       Net loss                        $(12,171,483)     $(4,513,669)    $(15,898,897)

                  Denominator:
                       Denominator for basic and
                       diluted earnings per share --
                       weighted-average shares            8,556,990        7,164,398        4,287,956

                  Net loss per share -
                        basic and diluted              $      (1.42)     $     (0.63)    $      (3.71)
</TABLE>

STOCK BASED COMPENSATION

         Stock options are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. The Company has included in these consolidated financial
statements the pro forma equivalent disclosure information required by SFAS No.
123 "Accounting for Stock-Based Compensation", see Note 12.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

         Cash and cash equivalents: 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
approximate their fair value.

RECENTLY ADOPTED ACCOUNTING STANDARDS

         The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130") which is effective for the fiscal year ended December
31, 1998. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. For the Company, there is no difference between
comprehensive income (loss) and net income (loss).

         The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131") for the fiscal year ended
December 31, 1998. SFAS No. 131 requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
separate financial information is available and used regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. See Note 13 for detailed segment information.

         In 1998, the Financial 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, 2000. 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.

RECLASSIFICATIONS

         Certain prior years' amounts have been reclassified to conform to the
1998 financial statement presentation.


                                                                             F10
<PAGE>   38

2.  SEVERANCE AND OTHER RESTRUCTURING CHARGES

         As a result of the change in focus of the Company's business from
providing services to affiliates of CHHC, the Company incurred severance and
certain other restructuring costs totaling $1,215,000 in the fourth quarter of
1996. These costs primarily relate to severance of seven terminated key
employees and costs to buyout a lease of equipment no longer useful to the
Company. As of December 31, 1997 and 1996, payments of $855,000 and $347,000,
respectively had been made against the accrued severance and other restructuring
charges.

         As a result of the change in the home care business environment
resulting from the interim payment system ("IPS") which lowered the cost per
visit limitations and created restrictions on the amount of cost reimbursement
per Medicare beneficiary, the termination of the Columbia/HCA contracts 
(which accounted for 35%, 48%, and 22% of the Company's total revenue for
the years ended December 31, 1998, 1997, and 1996, respectively) and the
decision to eliminate certain legacy development projects including the AS400
effort, the Company incurred severance and certain other restructuring costs
totaling $11.6 million in 1998. 

         In December of 1998, Columbia/HCA terminated its contracts with the
Company and paid a settlement fee of $7.0 million of which $750,000 was for
services provided in December 1998, $2.3 million for services to be provided in
the first quarter of 1999 and $4.0 million was considered an early termination
fee and reduced the restructuring charges incurred in 1998. The following table
presents a roll forward of the one time charges incurred by the Company in 1998.

<TABLE>
<CAPTION>  
                                             Balance                                                            Balance
                                          December 31,                                                        December 31,
                                          ------------                                                        ------------
                                             1997        Additions       Reductions           Usage               1998
                                          -----------   ------------     ----------         -----------        ----------
<S>                                       <C>           <C>              <C>                <C>                <C>       
Excess capacity                                  --     $ 7,470,073        $(550,000)       $(1,717,024)       $5,203,049
Severance                                        --       2,090,903               --           (758,307)        1,332,596
Product related                                  --       2,005,790               --         (2,005,790)               --
Columbia/HCA termination fee                     --      (4,000,000)              --          4,000,000                --
                                          -----------   -----------        ---------        -----------        ----------
 Total restructuring costs                       --     $ 7,566,766        $(550,000)       $  (481,121)       $6,535,645
                                                        ===========        =========        ===========        ==========
Accrued liability less current portion           --                                                            (3,864,168)
                                          -----------                                                          ----------
Accrued liability, long term              $      --                                                            $2,671,477
                                          ===========                                                          ==========
</TABLE>




                                                                           F11
<PAGE>   39
3.  LEASE RECEIVABLES

         The Company provides lease financing to certain customers related to
sales of software licenses and computer hardware. Lease terms are generally five
years. Future minimum lease payments under these sales-type leases as of
December 31, 1998, of which the 1999 portion is classified in accounts
receivable, are as follows:

<TABLE>
<CAPTION>
         Year Ending December 31,
         ------------------------
         <S>                                                   <C>
         1999                                                  $   13,248
         2000                                                       5,760
         Thereafter                                                   480
                                                               ----------
         Future minimum lease payments                             19,488
         Interest portion                                          (2,273)
                                                               ----------
         Present value of future minimum lease payments        $   17,215
                                                               ==========
</TABLE>

4.  PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT

         Purchased software, furniture and equipment consisted of the following:

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                              ------------
                                      1998                     1997
                                      ----                     ----
<S>                               <C>                      <C>        
Equipment                         $ 2,043,108              $ 1,736,907
Purchased software                  1,114,306                  949,203
Furniture                             510,185                  664,901
Leasehold improvements                166,378                  152,472
                                  -----------              -----------
                                    3,833,977                3,503,483
Accumulated depreciation           (1,981,572)              (1,137,975)
                                  -----------              -----------
                                  $ 1,852,405              $ 2,365,508
                                  ===========              ===========
</TABLE>

5.  INTANGIBLE ASSETS

         Intangible assets consisted of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,           
                                                                  ------------               AMORTIZATION
                                                             1998              1997              PERIOD
                                                             ----              ----          ------------
<S>                                                      <C>                 <C>             <C>    
Developed technology                                     $    2,881,041      $ 2,809,995         4-5 years
Goodwill                                                      4,239,200        3,204,179        9-10 years
Trade name                                                    1,142,000        1,142,000          11 years
Other                                                         1,695,021        1,695,021        6-10 years
                                                         --------------      -----------
                                                              9,957,262        8,851,195
Accumulated amortization                                     (2,819,405)      (1,402,284)
                                                         --------------      -----------
                                                         $    7,137,857      $ 7,448,911
                                                         ==============      ===========
</TABLE>

6.  NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

                  On June 6, 1997, the Company entered into a Loan and Security
Agreement with a bank. Pursuant to the Agreement, the bank agreed to make
available to the Company a revolving credit facility, the maximum principal
amount of which at any time must be equal to the lessor of $5 million or the
"borrowing base" then in effect. Interest accrues at a variable rate per annum
equal to the prime rate plus 0.25% (8.75% as of December 31, 1997). Under the
terms of the Agreement, the Company granted to the bank a security interest in
all accounts receivables, inventory, equipment, and general intangibles.
Additionally, borrowings under this agreement are secured by the outstanding
capital stock of the Company's subsidiaries. The Company's subsidiaries have
also guaranteed the Company's obligations to the bank under the Agreement. As of
December 31, 1997, $774,000 was outstanding and $4,226,000 was available under
this agreement.

         On May 11, 1998, the Company entered into a new Loan and Security
Agreement with a bank. Pursuant to the Agreement, the bank agreed to make
available to the Company a revolving credit facility, the maximum principal
amount of which at any time must be equal to the lesser of $25 million or the
"margin requirement" then in effect. Interest will accrue at a variable rate per
annum equal to the prime rate for prime borrowings (7.75% as of December 31,
1998) or the LIBOR Rate plus 1.5%-3.0% per annum (depending on the leverage
ratio measured quarterly) for the LIBOR borrowings (5.54% as of December 31,
1998). Under the terms of the agreement, the Company granted to the bank a
security interest in all accounts, inventory, equipment, and general
intangibles. Additionally, the Company's subsidiaries have also guaranteed the
Company's obligations to the bank under the Agreement. As of December 31, 1998
there was a balance of $5 million outstanding. The Company terminated this
credit facility and has no line of credit facility available for use. 
The Company repaid all obligations to the bank in 1999.

                                                                             F12
<PAGE>   40
         The Company has entered into lease agreements with a related party (see
Note 15) for certain office and computer equipment and furniture with
approximate aggregate cost and net book value of $690,000 and $624,000,
respectively, at December 31, 1996. In December 1997, the Company opted for
early termination of these leases and purchased the equipment from the lessor
for $579,000. Additionally, the Company has other equipment under capital leases
with third party lessors with approximate aggregate cost of $29,000 and $139,000
and net book value of $7,000 and $52,000, at December 31, 1998 and 1997,
respectively. Amortization of capital leased assets is included in the Company's
depreciation expense and amounted to approximately $45,000, $283,000 and $84,000
for 1998, 1997 and 1996, respectively.


7.  OPERATING LEASES

         The Company leases its office facilities and certain furniture and
equipment under various operating lease agreements, some of which are with
related parties (see Note 15). These leases require the Company to pay taxes,
insurance and maintenance expenses, and provide for renewal options at the then
fair market rental value of the property. Amounts expensed under operating
leases were approximately $3,048,000, $2,847,000, and $3,699,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.

         Aggregate annual rental payments for operating leases with
noncancelable lease terms in excess of one year are as follows:

<TABLE>
<CAPTION>
         YEARS ENDING DECEMBER 31,
         -------------------------
         <S>                                                            <C>
         1999                                                    $   2,562,495
         2000                                                        2,215,818
         2001                                                        1,625,536
         2002                                                          180,986
         Thereafter                                                      8,226
                                                                 -------------
                  Total                                          $   6,593,061 
                                                                 =============
</TABLE>

8.  COMMITMENTS AND CONTINGENCIES

         On November 1, 1996, Simione Central, Inc. ("SCI"), a wholly-owned
subsidiary of the Company, entered into a series of five year contracts to
provide shared resource information management and agency support services to
several affiliates of Columbia/HCA Health Care Corporation ("Columbia/HCA"). As
part of the negotiation of these contracts with SCI, Columbia/HCA required that
this subsidiary, formerly a subsidiary of CHHC, guarantee certain
indemnification obligations of the former shareholders of CHHC, as such
indemnification obligations relate to the administration and potential
liabilities to the Central Health Holding Company, Inc. Employee Stock Ownership
Plan ( the "Plan") or its participants. Columbia/HCA became indirectly
responsible for these Plan obligations as a result of its acquisition of the
CHHC stock. As a result of the fact that all former CHHC shareholders are also
shareholders of the Company by virtue of the January 1996 spin-off of the
Company, SCI agreed to undertake this contingent obligation. Under the terms of
this guaranty agreement (the "Guaranty"), SCI agreed to guarantee Columbia/HCA
against losses arising from the following: (i) liabilities relating to the Plan
for losses resulting from a fiduciary breach, prohibited transaction or other
violation of law relating to the Plan and (ii) liabilities relating to the Plan
which are not paid by the former stockholders of CHHC other than the Plan, but
only to the extent such losses are not recovered by Columbia/HCA through other
indemnity provisions of its agreement with the former shareholders of CHHC.
These indemnity provisions include any potential recovery from CHHC's insurance
policies as well as recoveries from escrow accounts established for the benefit
of Columbia/HCA by CHHC's former shareholders. This subsidiary's maximum
liability under the Guaranty is $17,500,000 for claims arising before November
1, 1998, and $15,000,000 for claims arising before November 1, 2000. There is no
liability for any claims arising after November 1, 2000. Further, the aggregate
maximum liability under the Guaranty is $20,000,000. Pursuant to the Guaranty,
the subsidiary agreed that on each date that a guaranteed obligation is required
to be paid to Columbia/HCA, the subsidiary shall grant to Columbia/HCA a
security interest equal to the amount of the guaranteed obligation in all the
subsidiary's accounts receivable. This subsidiary also granted to Columbia/HCA
the right to offset any liability arising under the Guaranty against any
obligation of Columbia/HCA or its affiliates to the subsidiary. At December 31,
1998, no claims had been made under the Guaranty and the Company does not
currently anticipate incurring any loss associated with the Guaranty.
Columbia/HCA sold the home care agencies under contract with the Company during
1998 and opted for an early termination of the contracts, due to expire in 2001,
with the Company. See Note 2 for settlement details.

         The Company is engaged in various legal and regulatory proceedings
arising in the normal course of business which management believes will not have
a material adverse effect on its financial position or results of operations.
The Company was however, served on July 17, 1997 with an administrative subpoena
issued by the United States Department of Health and Human Services, Office of
Inspector General. In connection with that subpoena, the Department of Justice
("DOJ") had advised the 

                                                                             F13
<PAGE>   41


Company that certain aspects of the Company's past relationship with affiliates
of Columbia/HCA are within the scope of an ongoing grand jury investigation.
However, the DOJ has confirmed to the Company that neither the Company, nor any
of its officers, directors or employees, is a target in this investigation and,
based upon the information known to the DOJ at this time, neither the Company,
nor any of its officers, directors or employees, is likely to become one. The
Company is cooperating fully and does not currently believe that this inquiry
will have any material effect on its overall business or financial condition.


9.  ACQUISITIONS

         Effective January 1, 1996, the Company purchased certain assets of
Simione & Simione, CPA's--Consulting Division (a division of Simione & Simione,
CPAs, a Partnership) ("Simione & Simione") for $2,000,000 in cash. Simione &
Simione provided a wide range of home health care consulting services. This
acquisition was accounted for using the purchase method. The entire purchase
price was allocated to goodwill and is being amortized over 10 years.

         On October 8, 1996, IMHI merged with CHMS. IMHI provided a
comprehensive package of software applications for home health care providers
marketed under the name STAT 2. In connection with the acquisition, each issued
and outstanding share of CHMS common stock was converted into and exchanged for
the right to receive .22021 shares of IMHI common stock as of the effective
date. As a result, IMHI issued 3,958,356 shares of common stock to CHMS's
shareholders. In addition, each of the outstanding shares of IMHI Class A
Convertible Preferred Stock was converted into and exchanged for shares of IMHI
common stock and all outstanding options and warrants to purchase CHMS common
stock as of the effective date were converted into the right to purchase shares
of IMHI common stock, provided that the number of shares to be so purchased and
the respective exercise prices thereof have been adjusted by the exchange ratio.
The merger was accounted for as a reverse acquisition under the purchase method
of accounting. As a result, for accounting purposes CHMS was considered as
having acquired IMHI. The historical financial statements of CHMS became the
historical financial statements of IMHI and include the results of operations of
both companies from the effective date. All share amounts have been
retroactively restated giving effect to the .22021 exchange ratio of CHMS shares
for IMHI shares. CHMS had been on a December 31 fiscal year end, and, therefore,
the fiscal year end of IMHI was changed to December 31. Effective December 19,
1996, IMHI changed its name to Simione Central Holdings, Inc. (the "Company").

         The purchase price of approximately $16,797,000 (including $760,000 of
acquisition costs and net liabilities assumed of $2,521,000) was allocated based
on the relative fair values of the assets acquired and liabilities assumed.
Approximately $12,574,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$4,223,000 of the purchase price was allocated to certain identifiable
intangible assets and is being amortized over the related assets estimated
useful life. The purchase price was determined based on the estimated value of
the outstanding 1,949,269 shares of IMHI common stock and options and warrants
to purchase IMHI common stock outstanding at the merger date.

         Effective December 1, 1997, the Company purchased substantially all the
assets of Dezine Healthcare Solutions, Inc. ("Dezine"). Dezine provided a
comprehensive package of software applications for home medical equipment
providers. This acquisition was accounted for using the purchase method. The
purchase price of approximately $9,379,000 (including $200,000 of acquisition
costs and net liabilities assumed of $71,000) was allocated based on the
relative fair values of the assets acquired and liabilities assumed.
Approximately $8,127,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$1,323,000 of the purchase price was allocated to certain identifiable
intangible assets and will be amortized over the related assets estimated useful
life, see Note 5. The Company's consolidated statement of operations for the
period ended December 31, 1997 includes the operating results of Dezine for the
period December 1, 1997 (the effective date of the Dezine acquisition) to
December 31, 1997.

         Pro forma information (unaudited) giving effect to the acquisitions as
if they took place on January 1, of each year, is as follows:

<TABLE>
<CAPTION>

                                                                YEARS ENDED DECEMBER 31,
                                                               ------------------------- 
                                                                1997               1996
                                                                ----               ----
<S>                                                           <C>             <C>         
Net revenues                                                  $53,397,919     $ 42,239,681
Net income (loss)                                               3,657,552      (23,829,188)
Net income (loss) per share - basic                           $      0.51     $      (4.15)
Net income (loss) per share - diluted                         $      0.44     $      (4.15)
</TABLE>

         The 1996 pro forma net loss includes the $8,127,000 charged to
operations for the in-process research and development purchased in the Dezine
transaction. This pro forma information does not purport to be indicative of the
results that actually would have occurred if the acquisitions had been effective
on January 1, 1997 and 1996 or which may be obtained in the future.


10.  INCOME TAXES

         The Company has not incurred or paid any income taxes since its
inception.

         Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                             ------------
                                                       1998              1997
                                                   ------------      -----------
<S>                                                <C>               <C>        
Deferred tax assets:
     Net operating loss                            $  4,040,000      $ 1,760,000
     Purchased intangible assets                      2,880,000        3,090,000
     Severance and other restructuring charges        2,690,000               --
     Allowance for doubtful accounts                    630,000          620,000
     Other                                              370,000          520,000
                                                   ------------      -----------
Total deferred tax assets                            10,610,000        5,990,000
Deferred tax liabilities:
     Purchased intangible assets                     (1,480,000)      (1,480,000)
     Depreciation                                      (330,000)        (150,000)
                                                   ------------      -----------
Total deferred tax liabilities                       (1,810,000       (1,630,000)
                                                   ------------      -----------
Net deferred tax assets                               8,800,000        4,360,000
Valuation allowance                                  (8,800,000)      (4,360,000)
                                                   ------------      -----------
                                                   $         --      $        --
                                                   ============      ===========
</TABLE>

         The Company has approximately $10.6 million of net operating losses for
income tax purposes available to offset future taxable income. Such losses
expire beginning in 2010 and may be subject to certain limitations for
prior changes in ownership. A valuation allowance reducing the net
deferred tax assets to zero has been 


                                                                            F-14
<PAGE>   42
recorded based on management's assessment that it is "more likely than not"
that this net asset is not realizable as of December 31, 1998.

         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:

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                       1998             1997           1996
                                                    -----------      -----------    -----------
<S>                                                 <C>              <C>            <C>
Federal tax benefit computed at statutory rates     $(4,140,000)     $(1,530,000)   $(5,400,000)
State income taxes, net of Federal effect              (490,000)        (180,000)      (640,000)
Other, net                                              190,000         (650,000)     4,800,000 
Change in valuation allowance                         4,440,000        2,360,000      1,240,000
                                                    -----------      -----------    -----------
     Income tax expense                             $        --      $        --    $        --
                                                    ===========      ===========    ===========
</TABLE>

         Prior to 1996, the Company's taxable loss was included in the
consolidated tax return of its former parent company. The former parent company
utilized net operating losses generated by the Company and did not allocate any
benefit from use of the net operating losses to the Company.

11.  EMPLOYEE BENEFIT PLANS

         CHHC sponsored the Central Health Holding Company, Inc. Employee Stock
Ownership Plan (the "Plan"), which covered substantially all full-time employees
of CHHC and its wholly-owned subsidiaries and was funded by cash contributions
from CHHC and its wholly-owned subsidiaries. The major asset of the Plan was
shares of CHHC common stock acquired by the Plan. In connection with the pro
rata distribution of the common stock of CHMS (see Note 1), the Plan received
shares of the Company's common stock. All of the Plan's assets are allocated to
each eligible employee's account and are held in trust until the employee's
termination, retirement, total disability or death. In connection with the sale
of CHHC to Columbia/HCA, the Plan was converted from an employee stock ownership
plan to the Simione Central Holdings, Inc. Profit Sharing Plan Trust, and the
sponsorship of the Plan was transferred from CHHC to the Company. All expenses
are funded by the plan.

         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 $171,000 $94,000 and $54,000 in 1998, 1997 and 1996,
respectively.

12.      SHAREHOLDERS' EQUITY

         CHMS was a separate legal entity and a wholly-owned subsidiary of CHHC
as of December 31, 1995. On January 6, 1996, CHMS formed CHMS Transitory Corp.
("Transitory Corp."). Transitory Corp. issued 2,994,856 shares of Class A Common
Stock and one share of Class B Common Stock, all of which were held by CHMS. On
January 16, 1996, CHMS and Transitory Corp. merged with Transitory Corp. as the
survivor. The 11 shares of CHMS Common Stock held by CHHC were canceled and CHHC
received the Class A and Class B Common Stock of Transitory Corp. Immediately
subsequent to the merger, Transitory Corp. amended it articles of incorporation
and changed its name to Central Health Management Services, Inc. On January 17,
1996, CHHC completed a pro-rata distribution to its shareholders of all the
outstanding capital stock of CHMS. The distribution was accomplished through the
issuance of 3.411 Class A shares of CHMS common stock for each share of CHHC's
common stock held by the respective shareholder.

         On January 17, 1996, CHHC made a $4,000,000 cash capital contribution
to CHMS. On March 5 and 22, 1996, employees of CHMS purchased 964,418 shares of
Class A Common Stock for aggregate consideration of $3,051,369. These shares
were purchased under the terms of a stock subscription agreement whereby 10% was
due at the date of purchase and the remainder was due on December 5, 1996. Stock
subscription receivable of $850,000 reported as a reduction to common stock
represents the amount not yet collected as of December 31, 1996. During 1997,
this amount was paid in full by the major shareholder and executive officer of
the Company.

         Holders of approximately 4.2 million shares of common stock and
warrants and options to purchase 1.4 million shares of common stock have certain
demand or piggyback registration rights, subject to certain conditions and
limitations, which entitle the holders to require the Company to register all or
part of their shares for public resale.

         On July 1, 1997, a Registration Statement, filed by the Company with
the Securities and Exchange Commission on Form S-1, became effective. In
conjunction with the effectiveness of the Registration Statement, the Company
effected a one-for-two reverse stock split of the Company's outstanding common
stock. The Company sold 2,000,000 (post-reverse split) shares of its common
stock for $10.00 per share and received approximately $17.7 million in net
proceeds. A shareholder also sold 1,220,000(post-reverse split) shares for
$10.00 per share. The Company did not receive any of the proceeds from the sale
of shares by the selling shareholder.


                                                                            F-15
<PAGE>   43

         All share and per share amounts included in these consolidated
financial statements have been restated to reflect the reverse stock split.

         As of December 31, 1998, the Company has reserved 2,839,000 shares of
common stock for future issuance upon the exercise of warrants and options to
purchase common stock.

STOCK OPTIONS

         The Company has established several stock option plans, under which the
Company is authorized to grant options to purchase an aggregate of 1,903,504
shares of common stock. Options granted under these plans must have an exercise
price not less than the fair market value at the date of grant. In addition to
options granted under these plans, the Company has granted non-plan options to
certain related parties. Such non-plan options were granted with exercise prices
equal to fair market value on the date of grant.

         The Company had no stock option activity prior to 1996. A summary of
the Company's stock option activity for 1996, 1997 and 1998 follows:

<TABLE>
<CAPTION>
                                                     WEIGHTED
                                        NUMBER       AVERAGE
                                          OF         EXERCISE
                                       OPTIONS        PRICE
                                      ---------      ------
<S>                                   <C>            <C>
Granted  in 1996                        751,260      $ 6.08
Assumed in IMHI purchase                722,174      $ 2.90
Exercised                               (26,748)     $ 1.04
Forfeited                               (40,049)     $ 5.00
                                      ---------    
Outstanding at December 31, 1996      1,406,637      $ 4.58
Granted                                 339,300      $10.88
Exercised                              (179,266)     $ 1.21
Forfeited                                  (408)     $ 2.20
                                      ---------    
Outstanding at December 31, 1997      1,566,263      $ 6.36
Granted                                 742,000      $ 5.91
Exercised                               (32,432)     $ 3.69
Forfeited                              (391,204)     $ 8.46
                                      ---------    
Outstanding at December 31, 1998      1,884,627      $ 5.77
                                      =========    
</TABLE>

         The following table summarizes information about options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
                                                  OPTIONS OUTSTANDING
                                                       WEIGHTED                        OPTIONS EXERCISABLE
                                                        AVERAGE                       ----------------------
                                                       REMAINING       WEIGHTED                     WEIGHTED
         RANGE OF                                     CONTRACTUAL       AVERAGE                      AVERAGE
         EXERCISE                      NUMBER            LIFE          EXERCISE      NUMBER         EXERCISE
         PRICES                      OUTSTANDING       IN YEARS          PRICE     EXERCISABLE        PRICE
      --------------                 -----------  -------------------- --------    -----------      ---------
      <S>                            <C>          <C>                  <C>         <C>              <C> 
       $0.74--$ 2.26                   409,219            6.5          $  1.73         249,219         $ 1.68
       $3.00--$ 5.26                   470,322            6.6          $  3.72         444,449         $ 3.65
       $6.25--$10.50                   895,582            8.1          $  8.02         349,835         $ 8.48
      $11.13--$14.00                   109,504            7.8          $ 11.27          45,278         $11.42
                                     ---------                                       ---------
                                     1,884,627            7.4          $  5.77       1,088,781         $ 5.06
                                     =========                                       =========
</TABLE>

         For the purposes of pro forma disclosures, the estimated fair value of
the stock options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss and net loss per share (basic and diluted) are
$14,117,771 and $1.65, respectively for 1998, $5,268,821 and $0.74, respectively
for 1997 and $17,492,350 and $4.08, respectively for 1996.



                                                                             F16
<PAGE>   44
STOCK PURCHASE WARRANTS

         At December 31, 1998, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:

<TABLE>
<CAPTION>
               COMMON          EXERCISE                EXPIRATION
               SHARES           PRICE                     DATE
              --------         --------             -----------------
              <S>              <C>                  <C>
               125,000          $ 1.00              February 24, 2005
                51,679          $ 6.22              October 8, 1999
                10,000          $11.26              May 27, 2000
               -------
               186,679
               =======
</TABLE>

         All outstanding warrants are exercisable.

         During 1996, the Company issued, and the holder exercised, a warrant
for the purchase of 11,010 shares of common stock at $3.16 per share. During
1997, warrants were exercised for 375,000 shares of common stock at $1.00 per
share.

13.      SEGMENT RESULTS

         The Company has two reportable segments: product related and
consulting. The Company's product related segment sells comprehensive and
flexible software solutions and services to enable home health care providers to
more effectively operate their businesses and compete in the managed care
environment. The consulting segment assists home health care providers in
addressing the challenges of a reducing costs, maintaining quality, streamlining
operations and re-engineering organizational structures.

The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, not including gains and losses on the
Company's investment portfolio. The accounting policies of the reportable
segments are the same as those describe in the summary of significant accounting
policies (Note 1). The revenues, operating losses and assets of the Company by
business segment are as follows:

<TABLE>
<CAPTION>
                                       1998              1997              1996
                                   ------------      ------------      ------------
<S>                                <C>               <C>               <C>         
Revenues
      Product related              $ 35,209,000      $ 42,036,000      $ 22,632,000
      Consulting                      6,437,000         4,909,000         3,363,000
                                   ------------      ------------      ------------
                    Total          $ 41,646,000      $ 46,945,000      $ 25,995,000
                                   ============      ============      ============
Cost of sales
      Product related              $ 18,640,000      $ 18,184,000      $ 11,371,000
      Consulting                      5,445,000         4,531,000         3,327,000
                                   ------------      ------------      ------------
                    Total          $ 24,085,000      $ 22,715,000      $ 14,698,000
                                   ============      ============      ============

Research and development
      Product related              $  6,741,000      $  6,670,000      $  5,677,000
                                   ============      ============      ============
Depreciation and amortization
      Product related                 1,914,000      $  1,174,000      $    635,000
      Consulting                        394,000           430,000           150,000
      Unallocated amounts
          Corporate overhead             84,000           110,000                --
                                   ------------      ------------      ------------
                     Total         $  2,392,000      $  1,714,000      $    785,000
                                   ============      ============      ============

Purchased R&D
      Product related                        --      $  8,127,000      $ 12,574,000
      Consulting                             --                --                --
      Unallocated amounts
          Corporate overhead                 --                --                --
                                   ------------      ------------      ------------   
                     Total         $         --      $  8,127,000      $ 12,574,000
                                   ============      ============      ============

Restructure expenses
      Product related              $  7,017,000                --      $  1,215,000
      Consulting                             --                --                --
      Unallocated amounts
          Corporate overhead                 --                --                --
                                   ------------      ------------      ------------
                     Total         $  7,017,000      $         --      $  1,215,000
                                   ============      ============      ============

Operating loss
      Product related              $ (8,537,000)     $   (460,000)     $(16,027,000)
      Consulting                        484,000          (126,000)           36,000
      Unallocated amounts
          Corporate overhead         (4,358,000)       (4,203,000)               --
</TABLE>

                                                                             F17
<PAGE>   45

<TABLE>
<S>                                <C>               <C>               <C> 
           Interest income/
              expense - net             240,000           275,000            92,000
                                   ------------      ------------      ------------
                       Total       $(12,171,000)     $ (4,514,000)     $(15,899,000)
                                   ============      ============      ============

Assets
      Product related              $ 11,894,000      $ 17,188,000      $ 16,118,000
      Consulting                      4,713,000         3,874,000         2,658,000
      Unallocated corporate
         assets net of
         eliminations                11,250,000         7,857,000                --
                                   ------------      ------------      ------------
                       Total       $ 27,857,000      $ 28,919,000      $ 18,776,000
                                   ============      ============      ============
</TABLE>


14.  TRANSACTIONS WITH FORMER PARENT COMPANY

         The Company derived revenue from charges for the services provided to
the home health care agencies owned by CHHC. The charges were recorded, for
purposes of these consolidated financial statements, in an amount equal to the
cost of the services being provided and therefore generated no operating profit.
Revenues of $12,051,000 were recognized in 1996. In addition, CHHC charged the
Company a management fee for the services provided related to legal and
executive. CHHC's charges included direct costs identified and allocations of
shared costs based on statistical and operational data such as square footage,
hours, and direct operating costs. In the opinion of management, the method of
allocation is reasonable. A management fee in the amount of $432,000 was
incurred in 1996. These arrangements terminated effective October 31, 1996.

15.  RELATED PARTY TRANSACTIONS

         Gateway LLC, a company owned in part by the Chief Executive Officer and
another officer of the Company, leases an office facility to the Company under
the terms of an agreement, which expires December 31, 2001. Rent expense and
related operating expenses paid to Gateway LLC by the Company were $266,000,
$356,000 and $82,000 in 1998, 1997 and 1996, respectively. Gateway LLC sold the
lease to a third party in August of 1998.

         A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). During 1997 and 1996, the Company entered into various three-year
capital leases with National. In December 1997, the Company opted for early
termination of all the outstanding capital leases with National and purchased
the equipment under lease for approximately $579,000. Payments, excluding the
purchase, to National under these lease agreements totaled $260,000 and $70,000
in 1997 and 1996, respectively.

         A shareholder of the Company owns a Company which leased computer
equipment to the Company during 1996 under an operating lease which expired in
December 1996. Total payments in 1996 related to this lease were approximately
$497,000.

         A shareholder and executive officer of the Company is a partner in an
entity that leases an office facility to the Company under an operating lease
that expires in December, 2002. Rent expense and related operating expenses paid
to this entity were $130,000, $130,000 and $112,000 in 1998, 1997 and 1996,
respectively. Future annual rental payments under this lease are approximately
$136,000 per year for 1999 through 2002.

         The Company has consulting agreements with two entities in which
certain directors of the Company have ownership interests. Aggregate monthly
consulting fees paid to these two entities approximate $20,000 through July,
1998 and $5,000 thereafter. The fees totaled $149,000, $205,000 and $59,000 in
1998, 1997 and 1996, respectively.

16.  LICENSE AGREEMENTS

         Certain software applications of the Company's NAHC IS software
solution incorporates software licensed from a third party. Under this license
agreement, the Company is obligated to pay royalties based on the volume of
transactions processed by the Company. Royalty rates per transaction vary based
on the volume of transactions processed and totaled $77,000, $255,000 and
$117,000 in 1998, 1997 and 1996, respectively.

         Another license agreement obligates the Company to pay royalties based
on a percentage of net collected revenues from sales of certain covered systems.
Royalty expense under this agreement totaled $113,000, $161,000 and $500,000 in
1998, 1997 and 1996, respectively.

         The Company obtains data processing and network communication services
under an agreement with IBM Global Services ("IBM"). The agreement with IBM
expires December 31, 2005, and requires the Company to pay fees based on the
volume of transactions processed. This agreement was canceled during 1998
effective January 31, 1999. Termination and wind down costs are included in the
restructuring charges for 1998. (see Note 2)

                                                                             F18

<PAGE>   46



                         SIMIONE CENTRAL HOLDINGS, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                      ADDITIONS
                                                      CHARGED
                                       BALANCE AT        TO           ADDITIONS                       BALANCE AT
                                       BEGINNING      COSTS AND        DUE TO                           END OF
                                       OF PERIOD      EXPENSES      ACQUISITIONS     DEDUCTIONS(1)      PERIOD
                                       ----------    ----------     ------------     ------------     ----------
<S>                                   <C>            <C>            <C>                <C>            <C>       
Year ended December 31, 1998
  Allowance for Doubtful Accounts     $1,915,120     $  791,235        $     --       $1,031,951     $1,674,404
                                      ==========     ==========        ========       ==========     ==========

Year ended December 31, 1997
  Allowance for Doubtful Accounts     $1,063,014     $1,329,563        $253,593       $  731,050     $1,915,120
                                      ==========     ==========        ========       ==========     ==========

Year ended December 31, 1996
  Allowance for Doubtful Accounts     $   13,600     $  395,046        $780,701       $  126,333     $1,063,014
                                      ==========     ==========        ========       ==========     ==========
</TABLE>


(1)  Write-offs of uncollectible accounts.

                                                                             F19