<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1997
REGISTRATION NO. 333-18923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST EFFECTIVE
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INFOCURE CORPORATION
(Name of small business issuer in its charter)
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<S> <C> <C>
DELAWARE 7372 58-2271614
(State or other jurisdiction of (Primary SIC Code) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Address and telephone number of principal executive offices)
---------------------
FREDERICK L. FINE
CHIEF EXECUTIVE OFFICER
INFOCURE CORPORATION
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Name, address and telephone number of agent for service)
---------------------
Copies to:
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<S> <C>
UGO F. IPPOLITO, ESQ. STEPHEN H. KAY, ESQ.
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
1409 PEACHTREE STREET, N.E. 551 FIFTH AVENUE
ATLANTA, GEORGIA 30309 NEW YORK, NEW YORK 10176
(404) 885-6705 (212) 661-6500
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 7, 1997
1,400,000 SHARES
[INFOCURE LOGO]
INFOCURE CORPORATION
COMMON STOCK
All of the 1,400,000 shares of Common Stock offered hereby are being sold
by InfoCure Corporation (the "Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently anticipated that the initial offering
price will be between $5.00 and $6.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial offering
price. The Company has been approved for listing on the American Stock Exchange
under the symbol "INC."
Concurrently with the offering made pursuant to this Prospectus and as a
condition to the closing thereof, the Company will issue 4,157,839 shares of
Common Stock pursuant to Registration Statements on Form S-4 to the stockholders
of the Founding Businesses (as hereinafter defined) being acquired by the
Company.
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, INCLUDING MATERIAL
CONTINGENCIES RELATING TO THE ACQUISITION OF THE FOUNDING BUSINESSES, SEE "RISK
FACTORS" COMMENCING ON PAGE 14 AND "DILUTION" COMMENCING ON PAGE 22.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
=============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total (3)......................... $ $ $
=============================================================================================================
</TABLE>
(1) Excludes additional compensation payable to the Representatives of the
several Underwriters in the form of a non-accountable expense allowance.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933
(the "Securities Act"). See "Underwriting" for a description of the
foregoing and certain other arrangements between the Company and the
Underwriters.
(2) Before deducting offering expenses estimated to be approximately $
payable by the Company and the non-accountable expense allowance payable by
the Company to the Representatives of the several Underwriters.
(3) Certain stockholders of the Company (the "Selling Stockholders") have
granted the Underwriters a 30-day option to purchase up to 210,000
additional shares of Common Stock solely to cover over-allotments, if any,
on the same terms and conditions as the shares offered hereby. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Josephthal Lyon & Ross Incorporated, New
York, New York, on or about , 1997.
---------------------
JOSEPHTHAL LYON & ROSS INCORPORATED
The date of this Prospectus is , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS, PENALTY BIDS AND SHORT SALES. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
This Prospectus includes tradenames, trademarks and registered trademarks
of companies other than the Company.
<PAGE> 4
PROSPECTUS SUMMARY
Prior to and as a condition to the consummation of the offering made by
this Prospectus (the "Offering"), InfoCure Corporation will acquire (the
"Acquisitions") six practice management systems businesses (the "Founding
Businesses"). Unless otherwise indicated, all references herein to "InfoCure"
shall mean InfoCure Corporation prior to the consummation of the Acquisitions,
and references herein to the "Company" shall mean InfoCure and the Founding
Businesses. The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information set forth herein
assumes (i) the consummation of the Acquisitions, (ii) an initial public
offering price of $5.50 per share (iii) an aggregate of 960,637 Equivalent
Shares of Common Stock outstanding immediately prior to the Acquisitions is
subject to increase or decrease depending upon whether the initial public
offering price of a share of Common Stock is less than or greater than $5.50 per
share, respectively; and (iv) no exercise of the Underwriters' over-allotment
option. "Equivalent Shares of Common Stock" means the number of shares of Common
Stock which are to be issued to the holders of common stock of American Medcare
Corporation ("AMC") upon the merger of AMC into InfoCure.
This Prospectus includes forward-looking statements which involve known and
unknown risks and uncertainties or other factors that may cause actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed under the heading "Risk Factors." In
addition to statements which explicitly describe such risks and uncertainties,
investors are urged to consider statements labeled with the terms "believes,"
"belief," "expects," "intends," "plans" or "anticipates" to be uncertain and
forward-looking.
THE COMPANY
The Company is a leading provider of practice management software products
and related services that address the growing needs of health care providers to
manage and communicate cost-effectively administrative, clinical and financial
data. The Company's practice management systems are used primarily by small to
mid-size medical practices, including multi-provider management services
organizations and independent physician alliances. Recently, the Company
developed and introduced an all-payor-based electronic data interchange ("EDI")
system to enable its customers to realize significant cost savings by replacing
paper-based transactions with electronic transaction processing. The Company has
an installed customer base of approximately 17,000 health care providers in a
broad range of specialties at over 6,000 client sites.
Health care costs totalled approximately $1.0 trillion in 1995, having
risen at a rate approximately twice that of inflation during the last decade.
The escalation of such expenditures has led to pressure to contain costs and
attempts to shift the financial risk of delivering health care from payors to
providers. Many providers now participate in complex reimbursement arrangements,
resulting in multiple transactions, information exchanges and other
communications with payors per patient visit. As a result of these trends,
health care providers increasingly need to reduce operating costs, improve cash
flows and manage their businesses more efficiently while responding to the
increased administrative burdens and informational demands placed upon them by
payors. The Company's practice management systems address the efficiencies and
cost savings demanded by health care providers.
The Company's existing customer base comprises primarily office-based
health care practices that range in size from single practitioners to up to
several hundred providers with an emphasis on small and mid-size (up to 25
providers) health care practices. Based on industry sources, 60% of the
physicians in the United States are organized into approximately 190,000
office-based health care practices. Nearly all of these practices are small to
mid-size; there are fewer than 1,000 office-based medical practices in the
United States with more than 25 providers. Small and mid-size medical practices
are significantly under-penetrated with regard to practice management software
and EDI transaction processing. For example, while it is estimated that the
majority of hospitals submit their claims electronically, among small and
mid-size medical practices only approximately 35% submit claims electronically.
3
<PAGE> 5
The Company markets a broad range of software products and services
designed to automate office-based practices of varying sizes; therefore, the
Company believes that it is well-positioned to take advantage of the increased
technology needs of the health care industry, particularly among practices with
fewer than 25 health care providers. As the supplier of the core practice
management system adopted by its customers, the Company has established its
technology at its customer sites, which, the Company believes, will yield
significant growth opportunities and competitive advantages. The Company's
primary growth strategies include (i) increasing its recurring transactional
revenue by expanding its customers' utilization of EDI services, (ii) acquiring
established practice management system companies and consolidating niche
specialities, (iii) leveraging its customer base by cross-selling its products
and services, (iv) expanding its national sales efforts, (v) continuing to
develop and provide sophisticated practice management systems and (vi)
capitalizing on synergistic opportunities resulting from the Acquisitions.
InfoCure has entered into agreements to acquire, prior to and as a
condition to the consummation of the Offering, the Founding Businesses. The
integration of these businesses will combine existing and proven products,
research and development, sales, marketing and support efforts. Following
consummation of the Acquisitions, the Founding Businesses will be consolidated
into three operating divisions according to technical platform, thereby allowing
the Company to market and service cost-effectively its practice management
systems to a wide range of health care providers.
InfoCure was incorporated in Delaware in November 1996. InfoCure will have
a January 31 year-end. InfoCure's executive offices are located at 2970
Clairmont Road, Suite 950, Atlanta, GA 30329, and its telephone number is
(404)633-0046.
THE OFFERING
Common Stock Offered by the Company..... 1,400,000 shares
Common Stock to be Outstanding after the
Offering................................ 5,557,839 shares (1)
Use of Proceeds......................... For payments due upon the
consummation of the Acquisitions,
repayment of certain assumed
indebtedness, working capital and
general corporate purposes
including future acquisitions. See
"Use of Proceeds."
American Stock Exchange Symbol.......... "INC"
- ---------------
(1) Excludes an aggregate of (i) 800,000 shares of Common Stock reserved for
future issuance under the Company's Stock Option Plan, (ii) 279,836
Equivalent Shares of Common Stock reserved for issuance pursuant to
outstanding stock options and a warrant to be assumed by the Company upon
the consummation of the Acquisitions, (iii) 140,000 shares of Common Stock
reserved for issuance pursuant to warrants issuable to the Representatives
of the Underwriters upon consummation of the Offering, (iv) 23,357
Equivalent Shares of Common Stock reserved for issuance to the stockholders
of Millard-Wayne, Inc. upon it meeting certain specific revenue or
operating profit amounts for each of the 12 month periods ending July 31,
1998 and 1999, (v) 409,091 Equivalent Shares of Common Stock reserved for
issuance to the stockholders of Rovak, Inc. upon it meeting certain
specified net operating profit amounts for the 12-month period ending
January 31, 1998, subject to adjustment based upon the initial public
offering price of a share of Common Stock, (vi) 181,818 Equivalent Shares
of Common Stock reserved for issuance to stockholders of KComp Management
Systems, Inc. upon it meeting certain specified operating income amounts
for the 12-month period ending July 31, 1998, subject to adjustment based
upon the initial public offering price of a share of Common Stock, (vii)
210,087 Equivalent Shares of Common Stock to be assigned and transferred to
AMC for cancellation prior to the consummation of the Offering, pursuant to
a written agreement dated November 19, 1996 and (viii) 114,934 Equivalent
Shares of Common Stock that AMC has the right to redeem upon the payment of
$65,000. See "Shares Eligible for Future Sale," "Management--Stock
Options," "Underwriting" and "AMC Financial Statements -- Note 3."
4
<PAGE> 6
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
InfoCure will acquire the Founding Businesses prior to and as a condition
to the consummation of the Offering. For financial statement presentation
purposes, AMC, a holding company and parent of International Computer Solutions,
Inc. ("ICS") and Health Care Division, Inc. ("HCD"), has been identified as the
accounting acquiror. The following summary unaudited pro forma combined
financial data present certain data for the Company as adjusted for (i) the
effects of the acquisition by AMC of the capital stock of Millard-Wayne, Inc.
("Millard-Wayne") prior to the consummation of the AMC Merger (as defined
herein) and the acquisition by HCD, a wholly-owned AMC subsidiary founded in
November 1996, of the assets of the Health Care Division of Info Systems of
North Carolina, Inc. ("Info Systems") on December 3, 1996 (the "HCD
Acquisition"), using the purchase method of accounting at their estimated fair
values, (ii) the effects of the merger of AMC with and into InfoCure (the "AMC
Merger"), (iii) the effects of the acquisitions by InfoCure of the capital stock
of KComp Management Systems, Inc. ("KComp"), DR Software, Inc. ("DR Software")
and Rovak, Inc. ("Rovak") using the purchase method of accounting at their
estimated fair values and (iv) the effects of certain pro forma adjustments to
the combined financial statements. KComp was founded in December 1995;
accordingly, results of KComp are included only for the year ended January 31,
1997 and the three months ended April 30, 1997. See "The Company," "Management's
Discussion and Analysis of Pro Forma Combined Financial Condition and Pro Forma
Combined Results of Operations" and the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------
YEAR ENDED JANUARY 31, THREE MONTHS
---------------------- ENDED APRIL 30,
1996 1997 1997
--------- --------- --------------------
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software............................... $ 9,746 $ 9,655 $2,075
Maintenance and support............................ 6,034 8,580 2,080
Other.............................................. 762 871 184
------- ------- -------
Total revenues................................... 16,542 19,106 4,339
Cost of revenues...................................... 5,137 5,656 1,386
------- ------- -------
Gross profit.......................................... 11,405 13,450 2,953
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)... 8,386 10,053 2,294
Depreciation and amortization (6).................. 1,337 1,402 330
------- ------- -------
Operating income...................................... 1,682 1,995 329
Other expense (income):
Interest expense (7)............................... 77 73 23
Other.............................................. (121) (41) (9)
------- ------- -------
Income before taxes................................... 1,726 1,963 315
Income tax (8)........................................ 842 938 165
------- ------- -------
Net income............................................ $ 884 $ 1,025 $ 150
======= ======= =======
Pro forma net income per share........................ $ 0.16 $ 0.19 $ 0.03
Pro forma weighted average shares outstanding (9)..... 5,485 5,485 5,485
======= ======= =======
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AS OF APRIL 30, 1997
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
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SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 449 $ 1,376
Working capital........................................... (3,259) (2,332)
Total assets.............................................. 17,760 18,687
Short-term debt........................................... 495 495
Long-term debt, less current portion...................... 491 491
Total stockholders' equity................................ 11,674 12,636
</TABLE>
5
<PAGE> 7
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the selected pro forma statements of operations data,
and as of April 30, 1997, in the case of the selected pro forma balance
sheet data. The pro forma combined financial data are based upon
preliminary estimates, available information and certain assumptions that
management believes are appropriate. The selected pro forma combined
financial data presented herein are not necessarily indicative of the
results the Company would have obtained had such events occurred at the
beginning of the period or of the future results of the Company. The
selected pro forma combined financial data should be read in conjunction
with the other financial data and notes thereto included elsewhere in this
Prospectus.
(2) Includes pro forma adjustments to reflect (i) the elimination, as provided
in the respective acquisition agreements, of duplicative administrative
functions at the Company of approximately $1,773,000, $1,830,000 and
$175,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively, and (ii) the additional overhead
expenses at the Founding Businesses of approximately $452,000, $475,000 and
$30,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively. The Company considers that the
elimination of approximately $1,130,000 of these expenses, on an annualized
basis, was effected concurrent with the HCD Acquisition on December 3,
1996.
(3) Includes pro forma adjustments to reflect the elimination of allocations
from Info Systems for (i) overhead of approximately $476,000 and $328,000
for the years ended January 31, 1996 and 1997, respectively, and (ii)
expense related to HCD's participation in Info System's employee stock
ownership plan of approximately $159,000 and $75,000 for the years ended
January 31, 1996 and 1997, respectively. Upon the consummation of the HCD
Acquisition on December 3, 1996, these eliminations were effected.
(4) Includes pro forma adjustments to reflect the elimination of rent and other
expenses of approximately $352,000, $350,000 and $88,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 1997,
respectively. Upon the consummation of the HCD Acquisition on December 3,
1996, the elimination of $117,000 of such expenses, on an annualized basis,
was effected.
(5) Includes pro forma adjustments to reflect the elimination of certain
commissions and royalties which are payable by Rovak under agreements that
will be terminated following the consummation of the Offering. Such
adjustments are approximately $125,000, $323,000 and $80,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 1997,
respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$782,000, $753,000 and $154,000 for the years ended January 31, 1996 and
1997 and the three months ended April 30, 1997, respectively. Also includes
pro forma adjustments to depreciation and amortization expense, after
adopting appropriate useful lives for related assets, of $300,000, $240,000
and $40,000 for the years ended January 31, 1996 and 1997 and the three
months ended April 30, 1997, respectively.
(7) Includes pro forma adjustments to reflect a reduction in interest expense
related to debt reduction, in connection with the Acquisitions and the
Offering, of $185,000, $254,000 and $88,000 for the years ended January 31,
1996 and 1997 and the three months ended April 30, 1997, respectively.
(8) The pro forma provision for income taxes includes (i) the effects of the
non-deductible portion of goodwill for tax purposes and (ii) assumes that
the deferred tax asset represented by AMC's net operating loss
carryforwards of approximately $1,600,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 100 shares
issued to the incorporators of the Company, (ii) 5,337,836 shares to be
issued in connection with the Acquisitions and the Offering and (iii)
147,500 Equivalent Shares of Common Stock issuable upon outstanding stock
options and a warrant.
(10) The selected pro forma combined balance sheet data reflects the adjustments
referenced above but excludes the effects of the receipt and application of
the net proceeds of the Offering. The pro forma combined balance sheet data
as adjusted reflects the changes that are expected to occur from the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds" and "Capitalization."
6
<PAGE> 8
THE COMPANY
InfoCure was incorporated in November 1996 to develop, market and service
practice management systems for use by health care providers throughout the
United States. Prior to and as a condition to the consummation of the Offering,
InfoCure will acquire the six Founding Businesses, which will be consolidated
into three operating divisions according to technical platform: the Desktop
Division (DOS and Windows-based products), the Mid-Range Division (UNIX and
AIX-based products) and the Enterprise Division (IBM AS/400-based products).
All of the Founding Businesses provide practice management software
products to physicians and other professionals which are designed to automate
the administrative, financial, practice management and clinical requirements of
a professional's office practice. These systems range in capacity from one to
hundreds of users, allowing the Company to address the needs of both small and
large customers. The combination of the Founding Businesses will position the
Company as a national supplier of practice management products and services to
office-based health care providers. The Company believes that the combination of
the Founding Businesses will provide unique opportunities for (i) the
coordination of product research and development, sales and marketing, (ii) the
reduction of redundant expenses and operations and (iii) the maximization of the
experience of the assembled management team.
THE FOUNDING BUSINESSES
DR Software, Inc. ("DR Software")
DR Software was founded in 1983 and is headquartered in Atlanta, Georgia.
DR Software markets DOS and Windows-based practice management systems to small
(one to two providers) medical practices. DR Software currently has
approximately 2,200 clients serving an estimated 3,150 health care providers,
including approximately 25% of all podiatry practices in the United States. Upon
the consummation of the Acquisitions, DR Software will be organized into the
Company's Desktop Division. Donald M. Rogers, the founder of DR Software, will
become President of the Desktop Division.
Key technologies developed by DR Software include DR Dictation(TM), a
voice-activated medical records software product designed to give physicians and
other health care providers the power to dictate directly into the computer and
to create accurate medical reports in seconds. Additionally, Wisdom(TM), DR
Software's new Windows-based practice management software application, is
positioned to serve medical practices of a wide range of sizes and specialties,
and was created in a rapid development language applying relational database and
object-oriented technology. Wisdom(TM) incorporates a comprehensive suite of EDI
services that are fully integrated with the core practice management system, as
well as complying with open database connection ("ODBC") standards.
KComp Management Systems, Inc. ("KComp")
KComp was founded in December 1995 to acquire certain assets of a software
developer and is headquartered in Los Angeles, California. KComp markets DOS and
Windows-based practice management systems to small to mid-size (three to 25
providers) dental and oral surgery practices. KComp currently has approximately
725 clients serving an estimated 1,600 health care providers. Upon the
consummation of the Acquisitions, KComp will be organized into the Company's
Desktop Division. Key technologies of KComp include The Dental Wizard(TM), a
comprehensive Windows-based practice management software system designed to be
utilized by dental practices of all sizes and specialty concentrations.
International Computer Solutions, Inc. ("ICS")
ICS, which was founded in 1985 and acquired in 1993 by AMC, is
headquartered in Atlanta, Georgia. ICS markets DOS, Windows and UNIX-based
practice management systems to small to mid-size health care providers. ICS
currently has approximately 600 desktop clients serving an estimated 750 health
care providers and approximately 500 mid-range clients serving an estimated
1,800 health care providers. Upon the consummation of the Acquisitions, ICS's
DOS and Windows-based operations will be organized into the
7
<PAGE> 9
Company's Desktop Division and its UNIX operations will be organized into the
Company's Mid-Range Division. Key technologies of ICS include The Provider
Information Manager(TM), a Windows-based product which was created for use by
the professional business manager or managing physician to provide a "top down"
view of the practice, identifying financial, payor, patient, clinical, system
and EDI utilization, practice demographic and practice profitability trends.
Rovak, Inc. ("Rovak")
Rovak was founded in 1984 and is headquartered in Lake Elmo, Minnesota.
Rovak markets UNIX and AIX-based practice management software to mid-size
medical practices and clinics. Rovak's software products are targeted
specifically to meet the practice management needs of oral surgeons and
orthodontists. Rovak currently has approximately 1,000 clients serving an
estimated 1,800 health care providers. Upon the consummation of the
Acquisitions, Rovak will be organized into the Company's Mid-Range Division.
Brad Schraut, the President of Rovak, will become President of the Mid-Range
Division. Key technologies developed by Rovak include the Optical Mark
System(R), which uses optical scanning technologies to automate daily tasks and
eliminate data entry. Additionally, Rovak has developed its Digital Record
Keeping System(TM) which operates with third-party products to enable a practice
to store and merge radiographic and photographic images with correspondence and
clinical medical records.
Millard-Wayne, Inc. ("Millard-Wayne")
Millard-Wayne, which was founded in 1977 and will be acquired by AMC
immediately prior to the consummation of the Offering, is headquartered in
Atlanta, Georgia. Millard-Wayne markets IBM AS/400-based enterprise-wide
practice management systems to mid-size to large (over 25 providers) medical
practices and clinics. Millard-Wayne currently has approximately 190 clients
serving an estimated 2,000 health care providers. Upon the consummation of the
Acquisitions, Millard-Wayne will be organized into the Company's Enterprise
Division. M. Wayne George, the founder of Millard-Wayne, will become President
of the Enterprise Division. Key technologies developed by Millard-Wayne include
a graphical user interface ("GUI") technology to work in conjunction with its
practice management system, which operates on the IBM AS/400.
Health Care Division, Inc. ("HCD")
HCD, which was founded in 1996 by AMC to acquire certain assets of Info
Systems, is headquartered in Charlotte, North Carolina. HCD markets IBM
AS/400-based practice management systems to mid-size to large medical practices
and clinics. HCD currently has approximately 200 clients serving an estimated
5,000 health care providers. Upon the consummation of the Acquisitions, HCD will
be organized into the Company's Enterprise Division. Key technologies developed
by HCD include a comprehensive managed care module designed for use in
conjunction with its practice management products which run on the IBM AS/400.
THE ACQUISITIONS
Prior to and as a condition to the consummation of the Offering (i) AMC, a
holding company and the parent company of ICS and HCD, will acquire
Millard-Wayne and immediately thereafter merge with and into InfoCure, with
InfoCure as the surviving corporation, and (ii) InfoCure will acquire all of the
outstanding capital stock of each of DR Software, KComp and Rovak. Upon the
consummation of the Acquisitions, each of the Founding Businesses will become a
wholly-owned subsidiary of InfoCure. See "Certain Transactions" and "Shares
Eligible for Future Sale."
The aggregate consideration to be paid by InfoCure to acquire the Founding
Businesses consists of approximately $3.0 million in cash, $4.2 million in
assumed indebtedness and 4,157,839 shares of Common
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<PAGE> 10
Stock. The following table summarizes the consideration paid or payable upon the
consummation of the Acquisitions:
<TABLE>
<CAPTION>
ACQUISITION CONSIDERATION
-----------------------------------------------
INDEBTEDNESS SHARES OF
FOUNDING BUSINESS CASH ASSUMED (1) COMMON STOCK (2)
----------------- ------------ ------------ ----------------
<S> <C> <C> <C>
AMC (3)(4)(5)............................. $ 500,000 $2,573,095 3,419,437
Rovak (5)(6).............................. 100,000 1,220,321 404,909
KComp (5)(7).............................. 250,000 273,400 258,500
DR Software............................... 2,128,500 95,915 74,993
---------- ---------- ---------
Total........................... $2,978,500 $4,162,731 4,157,839
========== ========== =========
</TABLE>
- ---------------
(1) Assumed indebtedness is as of April 30, 1997, prior to application of the
proceeds of the Offering. Excludes the assumption of current liabilities
except the current portion of the indebtedness.
(2) Excludes 100 shares of Common Stock issued to the incorporators of the
Company.
(3) Includes ICS, HCD and Millard-Wayne. AMC formed HCD in November 1996 to
consummate the HCD Acquisition and will acquire Millard-Wayne immediately
prior to the consummation of the Offering.
(4) Includes (i) the cash portion of the purchase price of Millard-Wayne and
(ii) 181,818 Equivalent Shares of Common Stock to be issued in satisfaction
of $1,000,000 of the principal amount of the note payable to InfoSystems of
North Carolina, Inc., the seller of the business of HCD. See "AMC Financial
Statements -- Note 8."
(5) Includes 132,448 Equivalent Shares of Common Stock to be issued upon the
consummation of the AMC Merger to stockholders of Millard-Wayne in
connection with AMC's acquisition of Millard-Wayne, 109,091 Equivalent
Shares of which are subject to adjustment based upon the initial public
offering price of a share of Common Stock. Excludes an aggregate of (i)
279,836 Equivalent Shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and a warrant of AMC assumed by the
Company, (ii) 114,934 Equivalent Shares of Common Stock which AMC has the
right to purchase for $65,000 (see "AMC Financial Statements -- Note 3"),
(iii) 23,357 Equivalent Shares of Common Stock reserved for issuance if
Millard-Wayne meets certain specified revenue or operating profits for the
12-month periods ending July 31, 1998 and 1999, (iv) 409,091 shares of
Common Stock reserved for issuance if Rovak meets a certain specified level
of net income for the 12-month period ending January 31, 1998, subject to
adjustment based upon the initial public offering price of a share of Common
Stock, (v) 181,818 Equivalent Shares of Common Stock reserved for issuance
if KComp meets a certain specified level of operating income for the
12-month period ending July 31, 1998, subject to adjustment based upon the
initial public offering price of a share of Common Stock, and (vi) 210,087
Equivalent Shares of Common Stock to be assigned and transferred to AMC for
cancellation prior to the consummation of the Offering, pursuant to a
written agreement dated November 19, 1996.
(6) Includes reduction for an estimated post-closing adjustment of $478,000
based upon the financial statements of Rovak as of April 30, 1997. Any
adjustment will be made only to the number of shares of Common Stock to be
issued.
(7) Includes addition for an estimated post-closing adjustment of $58,000 based
upon the financial statements of KComp as of April 30, 1997. Any adjustment
will be made 21% in cash and 79% in the number of shares of Common Stock to
be issued.
InfoCure has filed registration statements on Form S-4 for the concurrent
offering of 4,157,839 shares of Common Stock to be issued to the stockholders of
certain of the Founding Businesses upon the consummation of the Acquisitions.
The following is a summary of the material terms of the Acquisitions.
AMC Acquisition. The merger agreement ("AMC Merger Agreement") between
InfoCure and AMC provides that AMC shall merge with and into InfoCure, with
InfoCure continuing as the surviving corporation ("AMC Merger"). The AMC Merger
will occur at the time the Offering becomes effective. Upon the consummation of
the AMC Merger, the holders of common stock of AMC will receive an aggregate of
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<PAGE> 11
3,419,437 shares of Common Stock of InfoCure, an estimated 0.05966 ("Exchange
Ratio") of a share of Common Stock for each share of common stock of AMC owned
of record (the equivalent of one share of Common Stock for approximately 16.76
shares of common stock of AMC). 223,364 Equivalent Shares of Common Stock of
Common Stock to be issued upon the AMC Merger are subject to being increased or
decreased depending on whether the initial public offering price of a share of
Common Stock is less than or greater than $5.50 per share, respectively.
Outstanding stock options and warrants to purchase common stock of AMC which are
not exercised prior to the AMC Merger will not be terminated upon the AMC Merger
and may be exercised after the AMC Merger for a number of shares of Common Stock
of InfoCure equal to the product of the Exchange Ratio times the number of
shares of common stock of AMC such holder would have otherwise been entitled to
purchase. At the time of the AMC Merger, ICS, HCD and Millard-Wayne will be
wholly-owned subsidiaries of AMC.
InfoCure and AMC make certain representations and warranties in the AMC
Merger Agreement as to, among other matters, their respective financial
positions, corporate existence, business and capital structure. The consummation
of the AMC Merger is subject to the fulfillment of various conditions at or
prior to the effective date of the AMC Merger including, among others, the
correctness of the representations and warranties and the absence of any
material and adverse change in the business of AMC.
InfoCure and AMC may, by written agreement, (i) extend the time for the
performance of any obligation or other act of the parties, (ii) waive any
inaccuracies in the representations or warranties contained in the AMC Merger
Agreement and (iii) waive compliance with or modify, amend or supplement any of
the covenants, agreements, representations or warranties contained in the merger
agreement or waive or modify performance of any of the obligations of any of the
parties to the AMC Merger Agreement.
The AMC Merger Agreement provides that it may be terminated prior to the
effective date of the AMC Merger, notwithstanding the approval of the holders of
a majority of outstanding shares of InfoCure and AMC, (i) by the mutual consent
of InfoCure and AMC, (ii) at any time after July 17, 1997 (or such later date as
the parties shall have agreed to in writing) by InfoCure if the conditions
precedent to its obligations have not been fulfilled or waived by it or (iii) at
any time after July 17, 1997 (or such later date as the parties shall have
agreed to in writing) by AMC if the conditions precedent to its obligations have
not been fulfilled or waived by it.
The AMC Merger has been approved by the boards of directors of AMC and
InfoCure. The membership of each board is identical. Under the Delaware General
Corporation Law, the written consent to the AMC Merger of the holders of a
majority of the outstanding shares of common stock of AMC and of InfoCure is
sufficient to approve the merger. AMC has obtained the written consents of the
holders of a majority of the outstanding shares of common stock of AMC approving
the AMC Merger. All of the outstanding shares of InfoCure are owned by its
directors and officers and such stockholders voted for the AMC Merger.
AMC conducts business solely through its subsidiaries ICS, HCD and, upon
its acquisition, Millard-Wayne. The current directors of AMC, Messrs. Fine and
Price, and executive officers of AMC, Messrs. Fine, Price, Warren and Chastain,
are also executive officers of InfoCure. Also, employment agreements have been
or will be entered into between AMC or InfoCure and certain of their respective
officers. See "Management."
For a description of transactions between AMC and any director, executive
officer and any holder of more than 5% of the common stock of AMC and their
affiliates, see "Certain Transactions."
DR Software Acquisition. The stock purchase agreement among the
stockholders of DR Software and InfoCure ("DR Stock Purchase Agreement")
provides that InfoCure will acquire all of the outstanding capital stock of DR
Software ("DR Software Acquisition") at the time the Offering becomes effective
for consideration consisting of (i) $2,128,500 payable in cash upon the closing
of the Offering and (ii) 74,993 shares of Common Stock. In addition, the DR
Stock Purchase Agreement provides for a reduction to the purchase price in the
event the net worth of DR Software at the time of the acquisition is less than a
negative $100,000 and an increase to the purchase price in the event the net
worth exceeds such amount. Shares of Common Stock and/or cash having a value
equivalent to 10% of the aggregate consideration payable will be held in escrow
as a source of recovery of damages to InfoCure in the event of breach of any
warranty,
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<PAGE> 12
representation or covenant of the stockholders of DR Software or adjustment to
the purchase price. Donald M. Rogers, a stockholder of DR Software, has also
agreed not to compete with the business of DR Software for a period of five
years after the closing. See "Risk Factors -- Dependence on Key Personnel."
InfoCure and the stockholders of DR Software will make certain
representations and warranties in the DR Stock Purchase Agreement as to, among
other matters, the financial position, corporate existence, business and capital
structure of InfoCure or DR Software. The consummation of the sale/purchase of
the capital stock of DR Software by its stockholders and InfoCure is subject to
the fulfillment of various conditions at or prior to the commencement date of
the Offering including, among others, the correctness of the representations and
warranties and the absence of any material, adverse change in the business of DR
Software.
InfoCure and the stockholders of DR Software may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the DR Stock Purchase Agreement, (ii) waive any inaccuracies
in the representations and warranties contained in the DR Stock Purchase
Agreement and (iii) waive compliance with or modify, amend or suspend any of the
covenants, agreements, representations or warranties contained in the DR Stock
Purchase Agreement or waive or modify performance of any of the obligations of
any of the parties to the DR Stock Purchase Agreement.
The DR Stock Purchase Agreement provides that it may be terminated or
abandoned prior to the commencement of the Offering (i) by mutual consent of
InfoCure and the stockholders of DR Software, (ii) at any time after July 17,
1997 (or such later date as the parties shall have agreed to in writing) by
InfoCure if the conditions precedent to its obligations have not been fulfilled
or waived by it or (iii) at any time after July 17, 1997 (or such later date as
the parties shall have agreed to in writing) by the stockholders of DR Software
if the conditions precedent to their obligations have not been fulfilled or
waived by them. In event of termination, each party shall pay its own expenses
incurred in connection with the DR Stock Purchase Agreement.
Donald M. Rogers, a director, officer and principal stockholder of DR
Software, will become an officer of InfoCure. In addition, Mr. Rogers will enter
into an employment agreement with InfoCure upon the consummation of the
acquisition. See "Management."
Rovak Acquisition. The plan of merger entered into among all of the
stockholders of Rovak and InfoCure ("Rovak Plan of Merger") provides that Rovak
will merge ("Rovak Acquisition") into RI Acquisition Corporation, a wholly owned
subsidiary of InfoCure ("RIA"), at the time the Offering commences and the
stockholders of Rovak will receive consideration consisting of $100,000 payable
in cash and $2,705,000 in Common Stock based upon the offering price pursuant to
the Offering. The Rovak Plan of Merger will provide for an adjustment to the
consideration in the event the net worth of Rovak at the time of the acquisition
is less than or more than a negative $161,000. Any adjustment will be made to
the number of shares of Common Stock to be issued. In addition, the
consideration is to be increased ("Earn Out") if the net income before interest
and taxes ("net income") of Rovak for the 12-month period ending January 31,
1998 is more than $371,000. The maximum Earn Out of $1,000,000 is applicable if
such net income is $500,000 or more and is prorated if it is less than $500,000
and more than $371,000. The consideration is to be further increased
("Additional Earn Out") if the net income of Rovak for the 12-month period ended
January 31, 1998 is more than $550,000. The maximum Additional Earn Out of
$1,250,000 is applicable if such net income is $750,000 or more and is prorated
if it is less than $750,000 and more than $550,000. The Earn Out and the
Additional Earn Out are payable one-half in cash and one-half in Common Stock
based upon the offering price pursuant to the Offering. Cash consideration and
shares of Common Stock which comprise the Earn Out and Additional Earn Out, will
be sources of recovery of damages to InfoCure in the event of breach of any
warranty, representation or covenant of the stockholders of Rovak or an
adjustment to the purchase price. Certain stockholders of Rovak have also agreed
not to compete with the business of Rovak for a period of five years after the
closing. See "Risk Factors -- Dependence on Key Personnel."
InfoCure and the stockholders of Rovak will make certain representations
and warranties in the Rovak Plan of Merger as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or Rovak. The consummation of the Rovak Plan of Merger by its
stockholders and
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<PAGE> 13
InfoCure is subject to the fulfillment of various conditions at or prior to the
commencement of the Offering including, among others, the correctness of the
representations and warranties and the absence of any material, adverse change
in the business of Rovak.
InfoCure and the stockholders of Rovak may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the Rovak Plan of Merger, (ii) waive any inaccuracies in the
representations and warranties contained in the Rovak Plan of Merger and (iii)
waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the Rovak Plan of Merger
or waive or modify performance of any of the obligations of any of the parties
to the Rovak Plan of Merger.
The Rovak Plan of Merger will provide that it may be terminated or
abandoned prior to the commencement of the Offering (i) by mutual consent of
InfoCure and the stockholders of Rovak, (ii) at any time after July 17, 1997 (or
such later date as the parties shall have agreed to in writing) by InfoCure if
the conditions precedent to its obligations have not been fulfilled or waived by
it or (iii) at any time after July 17, 1997 (or such later date as the parties
shall have agreed to in writing) by the stockholders of Rovak if the conditions
precedent to their obligations have not been fulfilled or waived by them. In the
event of termination, each party shall pay its own expenses incurred in
connection with the Rovak Stock Purchase Agreement.
A two-year employment agreement is to be entered into by the Company and
Brad Schraut, a director, officer and principal stockholder of Rovak, Mr.
Schraut will become an officer of InfoCure upon the Rovak Acquisition. The
employment agreement will provide for an annual based salary of $110,000 and a
seven-year incentive stock option with an exercise price at the fair market
value of the Common Stock at the time the stock option is granted. Also, Mr.
Schraut will be eligible for a bonus based upon his performance. The number of
shares of Common Stock to be subject to the stock option and the terms of the
bonus have not been determined as of this date.
Ronald M. Vagle, the Chairman and a principal stockholder of Rovak, is a
director of InfoCure.
KComp Acquisition. The plan of merger is to be entered into among all of
the stockholders of KComp, CMA Corporation, a wholly-owned subsidiary of
InfoCure ("CMA"), and InfoCure ("KComp Merger Agreement") which will provide
that KComp will merge into CMA ("KComp Acquisition") at the time of the Offering
and the shareholders of KComp will receive consideration consisting of $250,000
payable in cash and 245,455 shares of Common Stock assuming an initial offering
price of $5.50 per share. The KComp Merger Agreement provides for a reduction to
the consideration in the event the net worth of KComp at the time of the KComp
Acquisition is less than negative $242,703 and an increase to the consideration
in the event the net worth exceeds such amount. In addition the purchase price
is to be increased in the event the operating income for the 12-month period
ending July 31, 1998 exceeds $400,000 and is less than $750,000. If the
operating income of KComp for the 12-month period ending July 31, 1998 exceeds
$400,000, the purchase price is to be increased by an amount equal to 5.5 times
the operating profit which is in excess of $400,000 and less than $427,273 (a
maximum of $150,000) payable one-half in cash and one-half in stock, valued at
the initial public offering price per share. If operating income exceeds
$427,273 and is less than $750,000 ("Excess"), the purchase price is to be
further increased by an amount equal to the Excess times 3.0986, payable
one-half in cash and one-half in stock, valued at the initial public offering
price per share. As a source of recovery of damages to InfoCure in the event of
breach of any warranty, representation or covenant of the stockholders of KComp
or adjustment to the purchase price in favor of InfoCure, an escrow account will
be established in the amount of $80,000 and InfoCure will be granted a right of
offset against certain notes of KComp payable to its stockholders in the
principal amount of $250,000 and any additional purchase price to be paid as
described above. In addition, InfoCure has agreed to grant to the holders of
certain notes of KComp and recipients of deferred bonuses from KComp a right to
purchase an aggregate of $535,000 in value of Common Stock at 120% of the
initial public offering price of the Common Stock of InfoCure. The right is
exercisable within 30 days of the final installment of such payments, which are
due no later than the second anniversary of the KComp Acquisition.
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<PAGE> 14
InfoCure and the stockholders of KComp will make certain representations
and warranties in the KComp Merger Agreement as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or KComp. The consummation of the KComp Acquisition by its stockholders
and InfoCure is subject to the fulfillment of various conditions at or prior to
the effective date of the Offering including, among others, the correctness of
the representations and warranties and the absence of any material and adverse
change in the business of KComp.
InfoCure and the stockholders of KComp may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the stock purchase agreement, (ii) waive any inaccuracies in
the representations and warranties contained in the stock purchase agreement and
(iii) waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the KComp Merger
Agreement or waive or modify performance of any of the obligations of any of the
parties to the KComp Merger Agreement.
The KComp Merger Agreement provides that it may be terminated prior to the
commencement of the Offering (i) by mutual consent of InfoCure and the
stockholders of KComp, (ii) at any time after July 17, 1997 (or such later date
as the parties shall have agreed to in writing) by InfoCure if the conditions
precedent to its obligations have not been fulfilled or waived by it or (iii) at
any time after July 17, 1997 (or such later date as the parties shall have
agreed to in writing) by the stockholders of KComp if the conditions precedent
to their obligations have not been fulfilled or waived by them. In event of
termination, each party shall pay its own expenses incurred in connection with
the KComp Merger Agreement.
A two-year employment agreement is to be entered into by the Company and
Marc Kloner, a principal stockholder of KComp, upon the consummation of the
KComp Acquisition. The employment agreement will provide for an annual based
salary of $110,000. Mr. Kloner will be eligible for a bonus based upon his
performance after the first year of employment.
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<PAGE> 15
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the other
information contained in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; OPERATING LOSSES
InfoCure was incorporated in November 1996 and to date has conducted no
operations and generated no revenue. InfoCure has entered into agreements to
acquire the Founding Businesses concurrently with the consummation of the
Offering. The Founding Businesses have been operating as separate independent
entities, and there can be no assurance that the Company will be able to
successfully integrate the operations of these businesses or institute the
necessary company-wide systems and procedures to successfully manage the
combined enterprise on a profitable basis. Although the unaudited pro forma
combined financial statements indicate that the Company had pro forma net income
of $884,000, $1,025,000 and $150,000, for the years ended January 31, 1996 and
1997, and the three months ended April 30, 1997 respectively, the pro forma
combined financial results of the Company cover periods when the Founding
Businesses were not under common control or management and include adjustments
to compensation expense and certain other operating expenses as provided in the
respective purchase agreements to levels effective concurrent with the
Acquisitions. These adjustments total $2,136,000, $2,172,000 and $287,000, for
the years ended January 31, 1996 and 1997, and the three months ended April 30,
1997 respectively. The management believes that these adjustments reflect
appropriate provisions of the several acquisition agreements which provide for
reductions in the combined workforce of the Founding Businesses of approximately
14%. With this reduction in the workforce, there can be no assurance that the
Company will be able to effectively integrate the Founding Businesses or perform
all of the current functions and maintain historic sales levels. Such pro forma
financial results may not be indicative of the Company's future financial
condition or operating results. AMC, which is considered the predecessor to the
Company for accounting purposes, had a net loss of $180,196 for the year ended
January 31, 1996, a pre-tax loss of $636,906, before income tax benefit, for the
year ended January 31, 1997 and a pre-tax loss of $106,296 for the three months
ended April 30, 1997. In addition, each of DR Software, Rovak and Millard-Wayne
recorded a net loss for certain of the periods reflected in their respective
financial statements and notes thereto included elsewhere in this Prospectus.
Moreover upon the Acquisitions, the Company will assume commitments of the
Founding Businesses and commitments pursuant to the acquisition agreements,
including the earn outs under the acquisition agreements, salaries and fees
payable to employees and consultants, rents and other contractual commitments.
The inability of the Company to successfully integrate the Founding Businesses
and reduce operating expenses in the manner described in the Notes to the
Unaudited Pro Forma Combined Financial Statements, or otherwise improve results
of operations, could have a material adverse effect on the Company's results of
operations, financial condition or business and could negatively impact the
Company's ability to acquire other companies or otherwise execute its business
strategy. See "Management's Discussion and Analysis of Pro Forma Combined
Financial Condition and Pro Forma Combined Results of Operations,"
"Business--Business Strategy," "Management" and Unaudited Pro Forma Combined
Financial Statements and the Notes thereto.
MATERIAL CONTINGENCIES RELATING TO THE FOUNDING BUSINESSES
InfoCure has entered into definitive agreements to acquire the Founding
Businesses. InfoCure and each of the Founding Businesses have made certain
representations and warranties in the definitive agreements as to, among other
matters, their respective financial positions, corporate existence, business and
capital structure. The consummation of each Acquisition is subject to the
fulfillment of various conditions at or prior to the effective date of each
Acquisition, including, among others, the correctness of the representations and
warranties and the absence of any material and adverse change in the business of
the respective Founding Business. There can be no assurances that InfoCure will
consummate all of the Acquisitions, which is a condition precedent to the
consummation of the Offering. See "The Company -- The Acquisitions."
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<PAGE> 16
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to acquire additional
companies providing health care practice management systems and complementary
products and technologies. Increased competition for acquisition candidates may
develop, in which event there may be fewer acquisition opportunities available
to the Company as well as higher acquisition prices. There can be no assurance
that the Company will be able to identify, acquire or profitably integrate and
manage additional companies or complementary products or technologies, if any,
into the Company without substantial costs, delays or other operational or
financial problems. Further, acquisitions involve a number of special risks,
including possible adverse effects on the Company's operating results, diversion
of management's attention, failure to retain key personnel of the acquired
companies, amortization of acquired intangible assets and risks associated with
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's results of operations, financial condition or
business. Customer dissatisfaction or performance problems at a single acquired
company could have an adverse effect on the reputation of the Company. In
addition, there can be no assurance that the Founding Businesses or other
companies or complementary products or technologies acquired in the future will
achieve anticipated revenue and earnings. See "The Company -- The Acquisitions",
"Business--Business Strategy", "Principal Stockholders", "Certain Transactions"
and Unaudited Pro Forma Combined Financial Statements and the Notes thereto.
POSSIBLE NEED FOR FUTURE ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using the
remaining net proceeds of the Offering and/or issuing shares of its Common Stock
for all or a substantial portion of the consideration to be paid. In the event
that its Common Stock does not maintain a sufficient market value or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. There can be no assurance that the
Company will be able to obtain the financing it will need on terms it deems
acceptable, or at all. See "Use of Proceeds" and "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON EDI
The Company's business strategy is largely based upon increasing the
percentage of its customers who utilize EDI for establishing patient eligibility
with insurers, precertification and eligibility of insurance claims, insurance
claims submission, claim status, remittance advice and patient statements.
Failure to increase the use of EDI services by health care providers in general,
and by the Company's customers in particular, could have a material adverse
effect on the Company's results of operations, financial condition or business.
A decrease or limited growth in the net fees realized by the Company for EDI
services could have a material adverse effect on the Company's future results of
operations, financial condition or business. See "Business--Business Strategy."
DIFFICULTIES IN MANAGING GROWTH
The continued growth of the Company may place a significant strain on the
Company's management and operations. Certain of the Company's key personnel have
recently joined the Company, and none of the Company's officers has had
experience in managing a large, public health care information services company.
The Company's future growth will depend in part of the ability of its officers
and other key employees to implement and expand financial control systems and to
expand, train and manage its employee base and provide support to an expanded
customer base. The Company's inability to manage growth effectively could have a
material adverse affect on the Company's results of operations, financial
condition or business.
DEPENDENCE ON PROPRIETARY SOFTWARE; RISK OF INFRINGEMENT
The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company relies on a combination of trade secret, copyright
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<PAGE> 17
and trademark laws, license agreements, nondisclosure and other contractual
provisions and technical measures to establish and protect its proprietary
rights in its products. The Company's software technology is not patented and
existing copyright laws offer only limited practical protection. There can be no
assurance that the legal protections afforded to the Company or the steps 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 competitive products or services. The Company
believes that its products, trademarks and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the company in the future or that any such assertion will not require
the Company to enter into a license agreement or royalty arrangement with the
party asserting such a claim. As competing health care information systems
increase in complexity and overall capabilities and the functionality of these
systems further overlap, providers of such systems may become increasingly
subject to infringement claims. Responding to and defending any such claims may
require significant management resources and otherwise have a material adverse
effect on the Company's results of operations, financial condition or business.
See "Business--Product Protection."
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by
technological advances and rapid changes requiring ongoing expenditures for
research and development and the timely introduction of new products and
enhancements of existing products. The Company's future success will depend in
part upon its ability to (i) enhance its current products, (ii) respond
effectively to market requirements and technological changes, (iii) sell
additional products to its existing customer base and (iv) introduce new
products and technologies that address the increasingly sophisticated needs of
its customers and the health care industry. The Company will be required to
devote significant resources to the development of enhancements to its existing
products and the migration of existing products to new software platforms. There
can be no assurance that the Company will successfully complete the development
of new products or the migration of existing products to new platforms or that
the Company's current or future products will satisfy the needs of the market
for practice management systems. Further, there can be no assurance that
products or technologies developed by others will not adversely affect the
Company's competitive position or render its products or technologies
noncompetitive or obsolete. See "Business--Product Research and Development."
COMPETITION
The market for practice management systems, such as those marketed by the
Company, is highly competitive. The Company's competitors vary in size and in
the scope and breadth of the products and services they offer. The Company's
principal competitors are providers of health care information systems such as
Medic Computer Systems, Inc., IDX Systems Corporation, Physician Computer
Network, Inc., Medical Manager Corporation, Quality Systems, Inc., Reynolds and
Reynolds, Inc. (HealthCare Division) and National Data Corporation (Dental
Division). Many of the Company's competitors have greater financial, research
and development, technical, marketing and sales resources than the Company,
including the competitors named herein. In addition, other entities not
currently offering products and services similar to those offered by the
Company, including claims processing organizations, third-party administrators,
insurers and others, may enter certain markets in which the Company competes.
There can be no assurance that future competition and industry pressures for
cost reduction and containment will not have a material adverse effect on the
Company's results of operations, financial condition or business. See
"Business--Competition."
PRODUCT RELATED CLAIMS; PRODUCT ACCEPTANCE CONCERNS
Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information
could result in product liability or breach of contract litigation against the
Company by its clients, their patients or others. In addition, because the
Company's products facilitate electronic claims submissions, any resulting loss
of financial data could result in claims against the Company. The Company
currently does not maintain product liability insurance but intends to obtain
insurance to protect against claims associated with the use of its products;
however, there can be no assurance that such insurance coverage will be
available or, if available, at a reasonable cost or will adequately cover any
claim asserted
16
<PAGE> 18
against the Company. A successful claim brought against the Company in excess of
its insurance coverage could have a material adverse effect on the Company's
results of operations, financial condition or business. Even unsuccessful claims
could result in the expenditure of funds in litigation, as well as diversion of
management time and resources. Additionally, such failures or errors may result
in the loss of, or delay in, market acceptance of the Company's products.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers. Furthermore, the Company will likely be dependent on the
senior management of any businesses acquired in the future. If any of these
persons becomes unable or unwilling to continue in his or her role with the
Company, or if the Company is unable to attract and retain other qualified
employees, the Company's business or prospects could be adversely affected.
Although the Company will have entered into an employment agreement upon the
consummation of the Offering with each of the Company's executive officers,
which will include confidentiality and non-compete provisions, there can be no
assurance that any individual will continue in his or her present capacity with
the Company for any particular period of time or that the non-compete provisions
will be enforceable or free from certain limitations under the laws of all
jurisdictions. The success of the Company is also dependent to a significant
degree on its ability to attract, motivate and retain highly skilled sales,
marketing and technical personnel, including software programmers and systems
architects skilled in the computer language with which the Company's products
operate. Competition for such personnel in the software and information services
industries is intense. The loss of key personnel or the inability to hire or
retain qualified personnel could have a material adverse effect on the Company's
results of operations, financial condition or business. The Company does not
intend to maintain key man insurance on its executive officers or key employees.
Although the Company has been successful to date in attracting and retaining
skilled personnel, there can be no assurance that the Company will continue to
be successful in attracting and retaining the personnel it requires to
successfully develop new and enhanced products and to continue to grow and
operate profitably. See "Business--Employees" and "Management."
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT REGULATION
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. Governmental
organizations account for a substantial portion of revenues paid to health care
providers in the United States and impose significant regulatory burdens. From
time to time, certain proposals to reform the health care system have been
considered by Congress and further proposals may be considered in the future.
These reforms may increase government involvement in health care, lower
reimbursement rates and otherwise adversely affect the operating environment for
the Company's clients. Health care organizations may react to these reforms by
curtailing or deferring investments, including those for the Company's products
and services. The Company cannot predict with any certainty what impact, if any,
such health care reforms might have on its results of operations, financial
condition or business.
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. It is unclear to what extent the Company's
Digital Record Keeping System, when marketed with the Company's practice
management applications, would be deemed to be a medical device subject to FDA
regulation. The FDA has issued a draft policy statement under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications and otherwise comply
with the requirements of the FDC Act applicable to medical devices. Recently,
the FDA has initiated agency rulemaking which may exempt certain medical image
management devices from premarket notification procedures, but there can be no
assurance that such an exemption actually will be adopted and, if so, that the
rulemaking will apply to the Company's product.
Enforcement action may consist of warning letters, refusal to approve or
clear products, revocation of approvals or clearances previously granted, civil
penalties, product seizures, injunctions, recalls, operating
17
<PAGE> 19
restrictions and criminal prosecutions. Any enforcement action by the FDA could
have a material adverse effect on the Company's ability to market its Digital
Record Keeping System.
The Health Insurance Portability and Accounting Act of 1996, signed into
law by the President on August 21, 1996 requires that the Department of Health
and Human Services ("HHS") study security provisions relating to electronic data
transmission and make recommendations to Congress by August 21, 1997, regarding
the development of standards to protect the privacy of individually identifiable
health information. If Congress does not enact legislation by August 21, 1999,
adopting standards for the privacy of health information, HHS must do so by
regulation no later than February 21, 2000. The law also provides penalties for
knowingly obtaining or disclosing individually identifiable health information.
The Company cannot predict what impact, if any, such security provisions might
have on its results of operations, financial condition or business. See
"Business--Government Regulation."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES; INTERESTS OF CERTAIN
PERSONS
Approximately $3.0 million, representing approximately 49% of the net
proceeds of the Offering will be paid and 4,157,839 shares of Common Stock will
be issued, upon the consummation of the Acquisitions. Approximately $2.9 million
of such payments and 3,227,285 shares of Common Stock will be paid or issued, as
the case may be, directly or indirectly, to stockholders of the Founding
Businesses who will become directors or executive officers of the Company or
holders of more than 5% of the outstanding Common Stock. In addition, upon the
consummation of the Acquisitions and the Offering, Messrs. Fine, Price, Warren,
Chastain, Rogers, George and Schraut, former executive officers of the Founding
Businesses, will become executive officers of the Company. Proceeds available
for repayment of indebtedness, working capital and other uses by the Company
will be approximately $3.1 million, representing 51% of the net proceeds of the
Offering. See "The Company -- The Acquisitions," "Use of Proceeds," "Management"
and "Certain Transactions."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the consummations of the Acquisitions and the Offering, the
Company's directors, executive officers and holders of more than 5% of the
Common Stock will beneficially own approximately 37.6% of the outstanding shares
of Common Stock. Although these persons do not presently have any agreements or
understanding to act in concert, any such agreement or understanding would make
it difficult for others to elect the entire Board of Directors and to control
the disposition of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
SUBSTANTIAL SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following the Offering. The 1,400,000 shares of Common Stock being
sold in the Offering will be freely tradable unless acquired by affiliates of
the Company. Concurrently with the consummation of the Offering, not more than
4,157,839 shares of Common Stock will be issued in connection with the AMC
Merger and the Acquisitions of which 3,227,285 shares of Common Stock will be
issued to affiliates of the Company and the Founding Businesses and 930,554
shares of Common Stock to persons who are not affiliates. In addition 147,837
Equivalent Shares of Common Stock are subject to outstanding stock options and a
warrant which may be exercised prior to the consummation of the AMC Merger. Such
shares will be registered under the Securities Act and therefore also will be
freely tradable unless acquired by affiliates of the Company. The future sales
of such shares may have a depressive effect on the market price of the Common
Stock.
The Company, its directors, executive officers and certain of its
stockholders, including all affiliates of the Company, holding an aggregate of
2,866,339 Equivalent Shares of Common Stock (and have the right to acquire
141,126 shares of Common Stock pursuant to immediately exercisable stock options
and a warrant), have agreed not to offer or dispose of, without the prior
written consent of Josephthal Lyon & Ross Incorporated, any shares of Common
Stock for a period of six months (the "Lock-Up Period") following the date the
public trading of the Common Stock commences. In addition, holders of more than
5% of the outstanding shares of Common Stock which hold 2,306,364 shares have
agreed, for a period of three months
18
<PAGE> 20
following expiration of the Lock-Up Period, not to offer or dispose of any
shares of Common Stock except with respect to shares of Common Stock being sold
in connection with the Offering. The Company may issue Common Stock in
connection with future acquisitions and upon the exercise of stock options and
warrants. See "Principal Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained upon consummation of the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price for the Common Stock will be determined by
negotiation among the Company and the Representatives of the Underwriters and
may not be indicative of the prices that will prevail in the public market. The
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including variations in the annual or quarterly
financial results of the Company or its competitors, changes by financial
research analysts in their estimates of the earnings of the Company, conditions
in the economy in general or in the health care or technology sectors in
particular, announcements of technological innovations or new products or
services by the Company or its competitors, proprietary rights development,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the health
care or technology sectors. Moreover, from time to time, the stock market
experiences significant price and volume volatility that may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.
See "Underwriting."
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter, in part because of changes in customer purchasing patterns,
competition, the timing of the recognition of licensing revenues and the timing
of, and costs related to, any new product introductions. The Company operates
without any backlog of product orders and a majority of the revenues realized in
a quarter result from orders received or services rendered in that quarter. The
Company's operating results for any particular quarter are not necessarily
indicative of any future results. The uncertainties associated with the
introduction of any new products and with general market trends may limit
management's ability to forecast short-term results of operations accurately.
The Company is subject to slight seasonal increases in its systems and software
sales in the fourth quarter of its fiscal year. Additionally, a high percentage
of the Company's expenses is relatively fixed, including costs of personnel, and
are not susceptible to rapid reduction. See "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $5.37 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock pursuant to the Offering may experience
further dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND EMPLOYMENT AGREEMENT PROVISIONS AND
DELAWARE LAW
Certain provisions of Delaware law, the Company's Certificate of
Incorporation and certain of its executive employment agreements could, together
or separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company and limit the price that certain investors
might be willing to pay in the future for the Company's Common Stock. These
provisions include the right of the Company's Board of Directors to issue,
without further stockholder approval, one or more series of preferred stock with
rights and preferences senior to the rights associated with the Common Stock.
The Company is also subject to Section 203 of the Delaware General Corporation
Law, which may inhibit or discourage a change in control of the Company. In
addition, the provisions of certain executive employment agreements and stock
option agreements may result in economic benefits to the holders thereof upon
the occurrence of a change in control. See "Management--Stock Options,"
"--Employment Agreements," "Description of Capital Stock--Preferred Stock" and
"--Delaware Anti-Takeover Law."
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,400,000 shares of Common
Stock offered hereby are estimated to be approximately $6.1 million after
deducting underwriting discount and estimated expenses of the Offering payable
by the Company. If the Underwriters exercise the over-allotment option, proceeds
of the first 181,818 shares of Common Stock sold will go to a certain Selling
Stockholder. Net proceeds of any shares in excess of this amount will go to the
Company. See "Principal Stockholders."
The Company intends to use approximately $3.0 million of the net proceeds
for payments due upon the consummation of the Acquisitions, approximately $2.1
million for the repayment of certain outstanding indebtedness and approximately
$138,000 principally for expenses related to the Acquisitions. Of the $2.1
million intended to discharge indebtedness, $500,000 will repay a portion the
10.25% note issued by AMC in the December 3, 1996 acquisition of HCD (the
balance is to be satisfied by issuance prior to the consummation of the Offering
of 181,818 Equivalent Shares of Common Stock), $355,000 will be used to repay an
AMC 11.25% note scheduled to mature in 2003 and $560,000 will be used to repay
three Rovak variable rate notes (10.25% at March 31, 1997) which mature
variously from 1998 through 2000. The balance will be used to liquidate a number
of smaller notes payable principally to banks. The balance of the net proceeds,
approximately $900,000, will be used for working capital and other general
corporate purposes, which are expected to include the acquisition of businesses
offering products or technologies that are complementary to the Company's
existing business. Although the Company is exploring acquisition opportunities,
it has no agreements or understandings at this time to make any additional
acquisitions and is not involved in any negotiation with respect to any such
transactions except that the Company has entered into a letter of intent to
acquire the business of a practice management systems provider which markets its
products and services to podiatrists. The consideration payable is $500,000
payable in cash and Common Stock at the closing and an earnout of an additional
$200,000 based upon future revenues. The revenues of the Company for its fiscal
year ended December 31, 1996 were approximately $995,000. If acquired, this new
business would be included in the Desktop Division. There can be no assurances
that a definitive agreement will be entered into among the shareholders of the
new business and the Company or that the acquisition will be consummated.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds from the sale of the Common Stock offered hereby based upon the
current state of its business operations, its current plans and current economic
and industry conditions and is subject to reallocation among the categories
listed above. The amounts and timing of actual expenditures will depend on
numerous factors, including the status of the Company's income, the availability
of alternative financing for acquisitions, the Company's business development
activities and competition. Pending the aforementioned uses, the net proceeds
from the Offering will be invested in interest-bearing government securities or
short-term, investment grade securities.
The Company has entered into a letter of intent with FINOVA Capital
Corporation ("FINOVA") to obtain a line of credit to be used for working capital
and other general corporate purposes, including future acquisitions. The Company
anticipates entering into a definitive line of credit agreement following the
consummation of the Offering. There can be no assurance that a line of credit
will be obtained or that, if obtained, it will be on terms that are favorable to
the Company. See "Management's Discussion and Analysis of Pro Forma Combined
Financial Condition and Pro Forma Combined Results of Operations -- Liquidity
and Capital Resources."
DIVIDEND POLICY
The Company intends to retain its earnings to finance the development and
continued expansion of its business and for general corporate purposes and
therefore does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. Any future payment of dividends will be at the
discretion of the Board of Directors and will depend upon the Company's
financial condition, results of operations and such other factors as the Board
of Directors deems relevant. There can be no assurance that dividends will ever
be paid by the Company.
There are no current contractual restrictions on the payment of dividends.
However, it is anticipated that if a line of credit agreement is entered into
hereafter, the definitive line of credit terms will contain restrictions on the
payment of dividends. See "Use of Proceeds."
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of April 30, 1997 (i) on a pro forma basis to give effect to the Acquisitions
and the repayment of certain outstanding indebtedness and (ii) on a pro forma
basis adjusted to give effect to the Acquisitions, the consummation of the
Offering and the application of the estimated net proceeds of the Offering. This
table should be read in conjunction with the Unaudited Pro Forma Combined
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 495 $ 495
Long-term debt, excluding current portion................... 491 491
Stockholders' equity:
Preferred Stock, $0.001 par value; 2,000,000 shares
authorized and no shares issued and outstanding........ -- --
Common Stock, $0.001 par value; 15,000,000 shares
authorized; 5,337,768 shares issued and outstanding pro
forma and 5,557,839 shares issued and outstanding pro
forma as adjusted (1).................................. 5 6
Additional paid-in capital................................ 14,994 15,955
Accumulated deficit....................................... (3,325) (3,325)
------- -------
Total stockholders' equity............................. 11,674 12,636
------- -------
Total capitalization................................. $12,660 $13,622
======= =======
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) 279,836 Equivalent Shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options and a
stock warrant, (ii) 210,087 Equivalent Shares of Common Stock to be
assigned and transferred to AMC for cancellation prior to the consummation
of the Offering, pursuant to a written agreement dated November 19, 1996
and (iii) 114,934 Equivalent Shares of Common Stock which AMC has the right
to redeem for $65,000. See "AMC Financial Statements -- Note 3."
21
<PAGE> 23
DILUTION
The pro forma net tangible book value (deficit) of the Company's Common
Stock as of April 30, 1997, after giving pro forma effect to the Acquisitions
and certain debt repayments was approximately $(1,671,000), or $(0.31) per share
of Common Stock. The pro forma net tangible book value per share is equal to the
total tangible assets of the Company less total liabilities divided by the
number of shares of Common Stock outstanding. After giving effect to the sale of
1,400,000 shares of Common Stock offered hereby (after deducting the
underwriting discount and estimated expenses of the Offering payable by the
Company), the adjusted pro forma net tangible book value of the Company as of
April 30, 1997 would have been approximately $(709,000), or $(0.13) per share,
representing an immediate increase in pro forma net tangible book value of $0.18
share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $5.37 per share, or 97.6%, to investors purchasing shares
at the assumed initial public offering price in the Offering. The following
table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $5.50
Pro forma net tangible book value per share before the
Offering.................................................. $(0.31)
Increase in net tangible book value per share attributable
to new investors.......................................... 0.18
------
Adjusted pro forma net tangible book value per share after
the Offering.............................................. 0.13
-----
Dilution in net tangible book value per share to new
investors................................................. $5.37
=====
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share of Common Stock after the consummation of the
Offering will not change because the shares sold to meet the over-allotment
option will be from outstanding shares held by the Selling Stockholders.
The following table summarizes as of April 30, 1997, after giving pro forma
effect to the Acquisitions, certain debt repayments and the total consideration
paid and the average price paid per share of Common Stock by existing
stockholders and new investors in the Offering (before deducting the
underwriting discount and estimated expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)....... 4,157,839 74.8% $ 3,629,918 32.0% $0.87
New investors................... 1,400,000 25.2 7,700,000 68.0 5.50
--------- ----- ----------- -----
Total................. 5,557,839 100.0% $11,329,918 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) stock options and a warrant to purchase an
aggregate of 279,836 Equivalent Shares of Common Stock outstanding at a
weighted average per share exercise price of $2.60, (ii) 210,087 Equivalent
Shares of Common Stock to be assigned and transferred to AMC for
cancellation prior to the consummation of the Offering and (iii) 114,934
Equivalent Shares of Common Stock which AMC has the right to redeem for
$65,000. See "AMC Financial Statements -- Note 3."
22
<PAGE> 24
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
InfoCure will acquire the Founding Businesses prior to and as a condition
to the consummation of the Offering. For financial statement presentation
purposes, AMC has been identified as the accounting acquiror. The following
summary unaudited pro forma combined financial data present certain data for the
Company, as adjusted for (i) the effects of the AMC Merger on an historical
basis, (ii) the effects of the HCD Acquisition, the acquisition by AMC of
Millard-Wayne and the acquisitions by InfoCure of KComp, DR Software and Rovak
using the purchase method of accounting at their estimated fair values and (iii)
the effects of certain pro forma adjustments to the combined financial
statements. KComp was founded in December 1995; accordingly, results of KComp
are included only for the year ended January 31, 1997 and the three months ended
April 30, 1997. See "Management's Discussion and Analysis of Pro Forma Combined
Financial Condition and Pro Forma Combined Results of Operations" and the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------
YEAR ENDED JANUARY 31, THREE MONTHS
--------------------------- ENDED APRIL 30,
1996 1997 1997
----------- ---------- ---------------
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software sales....................... $ 9,746 $ 9,655 $2,075
Maintenance and support.......................... 6,034 8,580 2,080
Other............................................ 762 871 184
------- ------- ------
Total revenues................................. 16,542 19,106 4,339
Cost of revenues.................................... 5,137 5,656 1,386
------- ------- ------
Gross profit........................................ 11,405 13,450 2,953
Operating expenses:
Selling, general and administrative
(2)(3)(4)(5)................................... 8,386 10,053 2,294
Depreciation and amortization (6)................ 1,337 1,402 330
------- ------- ------
Operating income.................................... 1,682 1,995 329
Other expense (income):
Interest expense (7)............................. 77 73 23
Other............................................ (121) (41) (9)
------- ------- ------
Income before taxes................................. 1,726 1,963 315
Income tax (8)...................................... 842 938 165
------- ------- ------
Net income.......................................... $ 884 $ 1,025 $ 150
======= ======= ======
Pro forma net income per share...................... $ 0.16 $ 0.19 $ 0.03
Pro forma weighted average shares outstanding (9)... 5,485 5,485 5,485
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
-------------- ----------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 449 $ 1,376
Working capital........................................... (3,259) (2,332)
Total assets.............................................. 17,760 18,687
Short-term debt........................................... 495 495
Long-term debt, less current portion...................... 491 491
Total stockholders' equity................................ 11,674 12,636
</TABLE>
- ---------------
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the selected pro forma statements of operations data,
and as of April 30, 1997, in the case of the selected pro forma balance
sheet data. The pro forma combined financial data are based upon
preliminary estimates, available information and certain assumptions that
management believes are appropriate. The selected pro forma combined
financial data presented herein are not necessarily indicative of the
results the Company would have obtained had such events occurred at the
beginning of the period or of the future
23
<PAGE> 25
results of the Company. The selected pro forma combined financial data
should be read in conjunction with the other financial data and notes
thereto included elsewhere in this Prospectus.
(2) Includes pro forma adjustments to reflect (i) the elimination, as provided
in the respective acquisition agreements, of duplicative administrative
functions at the Company of approximately $1,773,000, $1,830,000 and
$175,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively, and (ii) the additional overhead
expenses at the Founding Businesses of approximately $452,000, $475,000 and
$30,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively. The Company considers that the
elimination of approximately $1,130,000 of these expenses, on an annualized
basis, was effected concurrent with the HCD Acquisition on December 3,
1996.
(3) Includes pro forma adjustments to reflect the elimination of allocations
from Info Systems for (i) overhead of approximately $476,000 and $328,000
for the years ended January 31, 1996 and 1997, respectively, and (ii)
expense related to HCD's participation in Info System's employee stock
ownership plan of approximately $159,000 and $75,000 for the years ended
January 31, 1996 and 1997, respectively. Upon the consummation of the HCD
Acquisition on December 3, 1996, these eliminations were effected.
(4) Includes pro forma adjustments to reflect the elimination of rent and other
expenses of approximately $352,000, $350,000 and $88,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 1997,
respectively. Upon the consummation of the HCD Acquisition on December 3,
1996, the elimination of $117,000 of such expenses, on an annualized basis,
was effected.
(5) Includes pro forma adjustments to reflect the elimination of certain
commissions and royalties which are payable by Rovak under agreements that
will be terminated following the consummation of the Offering. Such
adjustments are approximately $125,000, $323,000 and $80,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 1997,
respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$782,000, $753,000 and $154,000 for the years ended January 31, 1996 and
1997 and the three months ended April 30, 1997, respectively. Also includes
pro forma adjustments to depreciation and amortization expense, after
adopting appropriate useful lives for related assets, of $300,000, $240,000
and $40,000 for the years ended January 31, 1996 and 1997 and the three
months ended April 30, 1997, respectively.
(7) Includes pro forma adjustments to reflect a reduction in interest expense
related to debt reduction, in connection with the Acquisitions and the
Offering, of $185,000, $254,000 and $88,000 for the years ended January 31,
1996 and 1997 and the three months ended April 30, 1997, respectively.
(8) The pro forma provision for income taxes includes (i) the effects of the
non-deductible portion of goodwill for tax purposes and (ii) assumes that
the deferred tax asset represented by AMC's net operating loss
carryforwards of approximately $1,600,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 100 shares
issued to the incorporators of the Company, (ii) 5,337,836 shares to be
issued in connection with the Acquisitions and the Offering and (iii)
147,500 Equivalent Shares of Common Stock issuable upon outstanding stock
options and a warrant.
(10) The selected pro forma combined balance sheet data reflects the adjustments
referenced above but excludes the effects of the receipt and application of
the net proceeds of the Offering. The pro forma combined balance sheet data
as adjusted reflects the changes that are expected to occur from the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds" and "Capitalization."
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
InfoCure was incorporated in November 1996 to develop, market and service
practice management systems for use by health care providers throughout the
United States.
Prior to and as a condition to the consummation of the Offering, InfoCure
will acquire the six Founding Businesses, which will be consolidated into three
operating divisions: the Desktop Division, the Mid-Range Division and the
Enterprise Division. The Desktop Division markets DOS and Windows-based practice
management systems and other software products primarily to small to mid-size
medical practices, including podiatric, dental, oral and maxillofacial
providers. The Mid-Range Division offers AIX and UNIX-based practice management
systems to mid-size medical practices, including oral surgeons and
orthodontists. The Enterprise Division markets IBM AS/400-based practice
management systems to mid-size to large medical practices and clinics.
The Company's total revenues are derived primarily from the delivery of
systems and software sales and maintenance and support services. Systems and
software sales include revenue from new systems, hardware, training and other
services provided during a customer installation as well as upgrades to existing
customers. Maintenance and support services revenues are generated by providing
customers with training, updates, enhancements and telephone support.
The Company recognizes systems revenue in accordance with the provisions of
AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
performed ratably over the contract period, which typically is one quarter or a
full year. Revenue from other services is recognized as the services are
provided.
Selling, general and administrative expense consists primarily of
marketing, advertising, administrative, research, software development and other
overhead costs. The Company's pro forma combined financial results cover periods
when the Founding Businesses were not under common control or management and
include adjustments to compensation expense and certain other operating expenses
to levels the Company intends to or has implemented in connection with the
Acquisitions. See "Risk Factors -- Absence of Combined Operating History;
Operating Losses" and Unaudited and Pro Forma Combined Financial Statements and
the Notes thereto.
The Company's acquisition strategy is to take advantage of the
consolidation opportunities existing in the practice management systems sector.
This strategy involves acquiring a significant customer base of software
installations and expanding customer and electronic services. The Company has an
installed customer base of approximately 17,000 health care providers in a broad
range of specialties at over 6,000 client sites.
RESULTS OF OPERATIONS
The following pro forma combined financial data contain the results of
operations for the years ended January 31, 1997 and 1996. KComp was established
in December 1995. The only results of KComp included in the pro forma combined
financial data are for the year ended January 31, 1997.
The following discussions should be read in conjunction with the Selected
Pro Forma Combined Financial Data, the Selected Financial Data of AMC and the
other financial statements and notes thereto appearing elsewhere in this
Prospectus.
YEAR ENDED JANUARY 31, 1997 COMPARED WITH YEAR ENDED JANUARY 31, 1996
Revenues increased by $2,564,000, or 15.5%, to $19,106,000 for the year
ended January 31, 1997 from $16,542,000 for the year ended January 31, 1996.
Maintenance and support revenue increased by $2,546,000 or 42.2% to $8,580,000
for the year ended January 31, 1997 from $6,034,000 for the year ended January
31, 1996. The increase primarily was due to the formation of KComp, which
contributed maintenance and support revenues of $1,759,000, and additional
revenues from onsite training services.
25
<PAGE> 27
Systems and software sales decreased $91,000, or 1.0%, to $9,655,000 for
the year ended January 31, 1997 from $9,746,000 for the year ended January 31,
1996.
Cost of revenue increased by $519,000, or 10.1%, to $5,656,000 for the year
ended January 31, 1997 from $5,137,000 for the year ended January 31, 1996. As a
percentage of revenue, cost of sales decreased to 29.6% for the year ended
January 31, 1997 from 31.0% for the year ended January 31, 1996. This decrease
in cost of revenue as a percentage of sales principally reflects a change in
product mix, whereby maintenance and support revenue increased to 44.9% of total
revenues for the year ended January 31, 1997 from 36.5% for the year ended
January 31, 1996. The cost of revenue for KComp for the year ended January 31,
1997 was $233,000, or 10.8% of its total revenues.
Selling, general and administrative expense increased by $1,667,000, or
19.9%, to $10,053,000 for the year ended January 31, 1997 from $8,386,000 for
the year ended January 31, 1996. This increase primarily is due to the formation
of KComp, which added $1,494,000 to selling, general and administrative expense.
As a result of the foregoing factors, operating income increased by
$313,000, or 18.6%, to $1,995,000 for the year ended January 31, 1997 from
$1,682,000 for the year ended January 31, 1996. The increase reflects the
operating income of $325,000 from KComp's operations for the year ended January
31, 1997, which was not included in the prior year. As a percentage of revenues,
income from operations increased to 10.4% for the year ended January 31, 1997
from 10.2% for the year ended January 31, 1996.
Interest expense decreased by $4,000, or 5.2%, to $73,000 for the year
ended January 31, 1997 from $77,000 for the year ended January 31, 1996,
primarily due to the repayment of notes payable and long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
The Founding Businesses have lines of credit providing for combined
advances of up to $175,000, with borrowings outstanding at January 31, 1997
totalling $120,000. Following consummation of the Acquisitions and the Offering,
the Company will have outstanding long-term debt of $840,000, including $328,000
which will be classified as the current portion of long-term debt. Additionally,
the Company has other notes payable of $73,000.
The Company has gross cash flow from operations (net income plus
depreciation and amortization) for the year ended January 31, 1997 of
$2,427,000. The Company believes that funds generated from operations, together
with the net proceeds of the Offering, will be sufficient to finance its current
operations, potential obligations relating to the Acquisitions and planned
capital expenditure requirements at least through the next 18 months. In the
longer term, the Company may require additional sources of capital to fund
future growth and acquisitions. Such sources of capital may include additional
equity or debt financings.
The Company has entered into a letter of intent with FINOVA to obtain a
line of credit to be used for working capital and other general corporate
purposes, including future acquisitions. Under the line of credit FINOVA would
advance up to an agreed upon percentage of acceptable accounts receivables.
Advances for acquisitions would be subject to the sole discretion of FINOVA. The
funds advanced will be secured by a security interest in the tangible and
intangible assets of the Company. The Company anticipates entering into a
definitive line of credit following the consummation of the Offering. There can
be no assurances that a line of credit will be obtained or that, if obtained, it
will be on terms that are favorable to the Company.
SEASONALITY AND FLUCTUATIONS
The Company is subject to slight seasonal increases in its systems and
software sales in the fourth quarter of its fiscal year.
26
<PAGE> 28
SELECTED FINANCIAL DATA OF AMC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data present certain data for AMC for the
years ended January 31, 1996 and 1997 and the three months ended April 30, 1996
and 1997. The selected financial data presented for AMC should be read in
conjunction with its financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30
----------------- -------------------
1996 1997 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues:
Maintenance and support.............................. $ 1,311 $ 1,419 $ 389 $ 681
Systems and software sales........................... 1,102 1,076 210 809
------- ------- ------- -------
Total revenues..................................... 2,413 2,495 599 1,490
Cost of revenues........................................ 516 475 122 673
------- ------- ------- -------
Gross profit............................................ 1,897 2,020 477 817
Operating expenses:
Salaries and operating expenses...................... 2,016 2,469 471 805
Depreciation and amortization........................ 114 111 17 61
------- ------- ------- -------
Loss from operations.................................... (233) (560) (11) (49)
Other income (expense):
Interest expense..................................... (68) (83) (19) (61)
Other................................................ 121 6 -- 4
------- ------- ------- -------
Loss before income tax benefit.......................... (180) (637) (30) (106)
Income tax benefit...................................... -- 891 -- 32
------- ------- ------- -------
Net income (loss)....................................... $ (180) $ 254 $ (30) $ (74)
======= ======= ======= =======
Net income (loss) per share............................. $ (0.00) $ 0.01 $ (0.00) $ (0.00)
Weighted average shares outstanding..................... 41,387 43,186 41,439 55,184
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF APRIL 30,
----------------- ---------------
1996 1997 1997
------- ------- -----------------
<S> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 250 $ 199 $ 600
Working capital......................................... (1,201) (1,127) (1,340)
Total assets............................................ 567 4,182 4,584
Short-term debt......................................... 336 50 50
Long-term debt, less current portion.................... 545 2,304 684
Total stockholders' equity.............................. (1,618) 172 352
</TABLE>
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMC
GENERAL
For financial statement purposes, AMC has been presented herein as the
acquiring company. Prior to December 3, 1996, AMC functioned with operations
exclusively through a single operating subsidiary, ICS. On December 3, 1996, HCD
became, and upon the commencement of the Offering, Millard-Wayne will become,
subsidiaries of AMC in transactions accounted for as purchases. The following
discussion and analysis should be read in conjunction with the audited financial
statements and notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Three Months Ended April 30, 1997 Compared to Three Months Ended April 30, 1996
Overall revenues increased by $890,950, or 149%, to $1,489,957 for the
three months ended April 30, 1997 from $599,007 for the three months ended April
30, 1996. This increase was primarily due to the purchase of the HCD customer
base, maintenance and revenue streams, which contributed revenues of $1,058,153.
System and software sales revenue increased by $599,382, or 285%, to
$809,429 for the three months ended April 30, 1997 from $210,047 for the three
months ended April 30, 1996. This change was due to the inclusion of $712,176 in
HCD sales revenue, and a decrease in ICS sales revenues of $110,000 resulting
from a shift in marketing and sales focus from new customer sales towards
maintenance and electronic transaction services.
Software maintenance and electronic services revenue increased by $291,568,
or 75%, to $680,528 for the three months ended April 30, 1997 from $388,960 for
the three months ended April 30, 1996. This increase was primarily due to an
additional $345,977 of sales revenue from the acquisition of the HCD customer
and maintenance base.
The gross margin for the current quarter increased by $340,037, or 71%, to
$816,683 for the three months ended April 30, 1997 from $476,646 for the three
months ended April 30, 1996. This increase was due primarily to the purchase of
HCD, which contributed $430,324.
Operating expenses increased by $377,806, or 77%, to $865,520 for the three
months ended April 30, 1997 from $487,714 for the three months ended April 30,
1996. This increase was due to operating expenses totalling $200,217 associated
with the HCD purchase, and the additional personnel and overhead associated with
opening the second office for purposes of implementing AMC's acquisition
strategy. Depreciation and amortization increased by $44,236, or 264%, to
$61,022 for the three months ended April 30, 1997 from $16,786 for the three
months ended April 30, 1996. This increase was primarily due to the additional
goodwill and depreciation expenses associated with the HCD acquisition.
The loss from operations increased by $37,769 to $48,837 for the three
months ended April 30, 1997 from a loss of $11,068 for the three months ended
April 30, 1996. This loss was due to increased compensation expenses and
additional operating expenses associated with AMC's acquisition strategy.
Year Ended January 31, 1997 Compared with Year Ended January 31, 1996
Total revenues increased by $81,829, or 3.4%, to $2,494,563 for the year
ended January 31, 1997 from $2,412,734 for the year ended January 31,1996. This
increase included revenue from HCD, totalling $354,250 for the period subsequent
to the HCD Acquisition on December 3, 1996.
Maintenance and support revenues increased by $108,499, or 8.3%, to
$1,418,884 for the year ended January 31, 1997 from $1,310,385 for the year
ended January 31, 1996. The maintenance and support revenues associated with the
HCD operations totalled $209,328 for the period December 3, 1996 to January 31,
1997. Excluding HCD's operations, maintenance and support revenues decreased by
$100,829 due
28
<PAGE> 30
to lower registration fees within the Desktop product, lower contract training
service revenue, decreased maintenance for the UNIX and DOS products, and lower
hardware maintenance revenue due to reduced hardware requirements.
The method by which EDI revenues and costs were recorded was changed from a
gross amount to a net amount during the year ended January 31, 1996. As a
result, EDI revenues decreased by $6,372, although the transaction volume
increased in the comparative periods. EDI revenues were at a net amount of
$355,999 for the year ended January 31, 1997 compared to $362,371 for the year
ended January 31, 1996. The overall EDI transaction volume increased by 220,456
transactions, or 24.1%, to 1,133,094 transactions for the year ended January 31,
1997 from 912,638 transactions for the year ended January 31, 1996.
Systems and software sales revenue decreased by $26,670, or 2.4%, to
$1,075,679 for the year ended January 31, 1997 from $1,102,349 for the year
ended January 31, 1996. The HCD Acquisition increased systems and software sales
by $144,922 for the period December 3, 1996 to January 31, 1997. The overall
decrease in systems and software sales was due to several factors. System sales
for the UNIX products decreased by $107,139, and overall hardware sales
decreased by $36,319. Other decreases totalled $28,134. The decreased sales also
reflected a change in the sales and marketing focus from new customer sales
towards a focus on recurring services, maintenance and transaction revenue.
Cost of sales decreased by $41,641, or 8.1%, to $474,201 for the year ended
January 31, 1997 from $515,842 for the year ended January 31, 1996. As a
percentage of revenue, cost of sales decreased to 19.0% for the year ended
January 31, 1997 from 21.4% for the year ended January 31, 1996. The decrease in
cost of sales as a percentage of revenue reflects a change in product mix, with
the higher margins associated with transaction services.
Salaries and operating expenses increased by $453,602, or 22.5%, to
$2,469,249 for the year ended January 31, 1997 from $2,015,647 for the year
ended January 31, 1996. Increased compensation expenses were due to additional
personnel and the other corporate overhead associated with opening a second
office for purposes of implementing AMC's acquisition strategy. This increase
was also due to an increase in contract labor, as AMC identified specific tasks
to be performed by outside contractors for training and installation services.
In addition, compensation expenses totalling $110,000 were recognized in
conjunction with the settlement of an option agreement with a former director of
the Company for services previously rendered.
As a result of the foregoing factors, AMC had a loss from operations of
$559,522 for the year ended January 31, 1997, as compared to a loss of $232,811
for the year ended January 31, 1996. Through application of its net operating
loss carry-forward ("NOL"), AMC recognized $891,000 in tax benefits, with a
resulting net income of $254,094 for the year ended January 31, 1997, compared
with a loss in the prior year of $180,196.
The recognition of the tax benefit associated with the NOL includes
$671,000 representing a decrease in the deferred tax asset valuation allowance.
This adjustment reflects management's assessment that the benefits to be derived
from the HCD Acquisition and the resolution of the contingencies associated with
previous failed acquisitions makes it more likely than not that the NOL will be
utilized.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended April 30, 1997 Compared with Three Months Ended April 30,
1996
Overall AMC had a net loss of $74,296 for the three months ended April 30,
1997, compared with a loss of $29,572 for the three months ended April 30, 1996.
Cash used in operations was $158,975 for the three months ended April 30,
1997, due primarily to decreased accounts receivable, decreased payables and
decreased deferred claims revenue. Cash used for investing activities totalled
$73,561; this cash was used primarily for expenses associated with the planned
public offering.
Cash provided by financing activities during the three months ended April
30, 1997 was $266,162, which came primarily from the sale of common stock during
the quarter.
29
<PAGE> 31
Year Ended January 31, 1997 Compared with Year Ended January 31, 1996
For the year ended January 31, 1997, cash used for operating activities
totalled $848,776, cash used for investing activities totalled $396,082, and
cash provided by financing activities totalled $1,193,895. Cash used for
investing activities included expenditures made for the acquisition of HCD, and
certain expenses associated with the Offering and Acquisitions. Cash provided by
financing activities were generated from the issuance of common stock.
As of January 31, 1997, AMC had an accumulated deficit of $3,250,786 and a
working capital deficiency of $1,126,809.
30
<PAGE> 32
BUSINESS
The Company is a leading provider of practice management software products
and related services that address the growing needs of health care providers to
manage and communicate cost-effectively administrative, clinical and financial
data. The Company's practice management systems are used primarily by small to
mid-size medical practices, including multi-provider management services
organizations and independent physician alliances. Recently, the Company
developed and introduced an all-payor-based electronic data interchange ("EDI")
system to enable its customers to realize significant cost savings by replacing
paper-based transactions with electronic transaction processing. The Company has
an installed customer base of approximately 17,000 health care providers in a
broad range of specialties at over 6,000 client sites.
InfoCure has entered into agreements to acquire, concurrently with the
consummation of the Offering, the six Founding Businesses. In connection
therewith, InfoCure has filed a registration statement on Form S-4 for the
offering of 3,720,164 shares of Common Stock to be issued to the stockholders of
certain of the Founding Businesses upon the consummation of the Acquisitions.
The integration of these businesses will combine existing and proven products,
research and development, sales, marketing and support efforts. Following
consummation of the Acquisitions, the Founding Businesses will be consolidated
into three operating divisions, according to technical platform, thereby
allowing the Company to market and service cost-effectively its practice
management systems to a wide range of health care providers.
The Company's existing customer base comprises primarily office-based
health care practices that range in size from single practitioners to up to
several hundred providers with an emphasis on small and mid-size (up to 25
providers) health care practices. Based on industry sources, 60% of the
physicians in the United States are organized into approximately 190,000
office-based medical practices. Nearly all of these practices are small to
mid-size; there are fewer than 1,000 office-based medical practices in the
United States with more than 25 providers. Small and mid-size health care
practices are significantly under-penetrated with regard to practice management
software and EDI transaction processing. For example, while it is estimated that
the majority of hospitals submit their claims electronically, among small and
mid-size medical practices only approximately 35% submit claims electronically.
INDUSTRY BACKGROUND
Health care costs totalled approximately $1.0 trillion in 1995, having
risen at a rate approximately twice that of inflation during the last decade.
The escalation of such expenditures has led to pressure to contain costs and
attempts to shift the financial risk of delivering health care from payors to
providers. Many providers now participate in complex reimbursement arrangements,
resulting in multiple transactions, information exchanges and other
communications with payors per patient visit. As a result of these trends,
health care providers increasingly need to reduce operating costs, improve cash
flow and manage their businesses more efficiently while responding to the
increased administrative burdens and informational demands placed upon them by
payors. The Company's practice management systems address the efficiencies and
cost savings demanded by health care providers.
The Company believes that increased utilization of information
technologies, including EDI, can provide cost savings to providers and payors,
and to the health care system as a whole. Both payors and providers benefit from
reduced overhead as a result of the administrative simplification provided by
the direct electronic interchange of data traditionally handled manually (i.e.,
eligibility verification and claim status inquiries). In addition, payors are
able to detect fraud more easily and screen for unusual utilization trends. By
processing claims electronically, all providers, but especially office-based
providers, can reduce staff time and help meet the challenges of health care
cost containment initiatives. Providers also benefit from improved accounts
receivable turnover as a result of EDI.
The Company believes that the foregoing trends in the health care industry
will encourage greater consolidation within the practice management software
business, as many of the smaller practice management software companies find it
difficult to address the needs of providers in this rapidly changing
environment. Historically, sellers of health care information systems to
office-based health care providers have been focused either regionally or by
specialty. Due to the fragmented nature of practice management systems
suppliers, the
31
<PAGE> 33
Company believes that opportunities exist to increase its market share of
installed customers through acquisitions of complementary businesses, products
and services.
BUSINESS STRATEGY
The Company believes that it is well-positioned to take advantage of the
increased technology needs of the health care industry particularly among
smaller health care providers. As the supplier of the core practice management
system adopted by its customers, the Company has established its technology in
many customer sites, which, it believes, will yield significant growth
opportunities and competitive advantages.
The Company's primary growth strategies are to:
- Accelerate the Integration of EDI Services. The Company believes that
EDI services address the needs of patients, physicians and third-party
payors to increase efficiency and reduce overall costs while providing
the Company with a potential recurring revenue source. The Company
intends to introduce new EDI services in 1997 which will include
electronic eligibility and referral authorization, precertification,
claims status, encounter and payment approval. The Company intends to
promote the use of EDI services, primarily among the smaller practices
that constitute the core of the Company's existing customer base.
- Expand Through Strategic Acquisitions. The Company intends to acquire
companies that (i) have an established base of customers using practice
management software, (ii) own either key technologies or distribution
networks that complement existing products or (iii) provide the Company
with the opportunity for market leadership within specialty niches.
- Leverage its Customer Base. The Company's wide range of products and
services provides its sales force with opportunities to cross-sell
among its operating divisions. The Company intends to generate revenues
from existing customers by providing (i) system maintenance and
services, (ii) system upgrades, (iii) additional software applications
and (iv) EDI services. To generate new sales opportunities, the Company
will continue to devote significant resources to developing and
maintaining relationships with its existing customers and their
business systems consultants. The Company also will continue to
transition its customers gradually to newer technologies in order to
protect their system investments and minimize operational disruption.
- Expand its National Sales Efforts. The Company intends to expand its
direct sales efforts to market its products and services to a greater
number of health care providers. The Company believes that it can
increase its sales effectiveness and can better address the needs of
small, mid-size and large practices as a result of its organization
into three operating divisions. See "-- Sales and Marketing."
- Continue to Develop and Provide Sophisticated Practice Management
Software Products. In order to serve its customers' needs, the Company
will continue to make available innovative products and develop and
enhance its core practice management applications. In addition, where
appropriate, the Company will integrate software products developed by
third parties into its practice management systems.
- Capitalize on the Combination of Founding Businesses. The Company
believes that the combination of the Founding Businesses provides
unique opportunities for (i) the coordination of product research and
development, sales and marketing, (ii) the reduction of redundant
expenses and operations and (iii) the maximization of the experience of
the assembled management team.
PRODUCTS AND SERVICES
EDI Services
The Company has developed software allowing it to offer transaction-based
EDI services, including patient billing and insurance claims submission. The
Company believes that these services address the needs of patients, physicians
and third-party payors to increase efficiencies and reduce overall costs and
that EDI
32
<PAGE> 34
services present the Company with a new recurring revenue source. The Company
provides EDI services on a fee per transaction basis or for a fixed fee
determined on the basis of estimated volume and type of electronic transactions.
The Company estimates that over 200 million potential annual recurring
transactions are now being generated via non-electronic methods by its base of
installed customers. The Company's current EDI services include:
<TABLE>
<S> <C>
Electronic Claims Submission.................... Submits insurance claims electronically
from practices to an independent national
clearinghouse which forwards, either
electronically or on paper, to the
appropriate payors for payment.
Electronic Patient Billing...................... Submits patient billing information
electronically from practices to an
independent national clearinghouse which
processes, prints and mails bills and
provides billing reports to the practice.
Electronic Claims Remittance.................... Remits insurance payment from payor via
electronic payment which automatically
posts explanation of benefits into the
practice management system.
</TABLE>
The Company intends to market a suite of additional EDI services in 1997
which are currently available through clearinghouses engaged by the Company.
These additional EDI services include electronic eligibility and referral
authorization, precertification, claims status, encounter and payment approval.
In January 1996, ICS entered into an agreement with Envoy Corporation
("Envoy") pursuant to which ICS will exclusively promote to its customers the
electronic processing of health care insurance claims by Envoy. The Company
intends to establish a broader alliance with Envoy or another major
clearinghouse after the consummation of the Offering and believes that such an
alliance is important to the EDI strategy of the Company. There can be no
assurances that such alliance will be entered into.
Core Software Products
All of the practice management software products offered by the Company
provide physicians and other professionals with comprehensive office management
software designed to automate the administrative, financial, practice management
and clinical requirements of a professional's office practice. These systems
range in capacity from one to hundreds of users, allowing the Company to address
the needs of both small and large customers. The Company believes that its
practice management products meet the information requirements of the vast
majority of all medical specialties and office-based practices in the United
States by providing the following applications:
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL APPLICATIONS
Patient Billing................................. Prepares patient statements. Accommodates
family billing or individual patient
billing and open item billing.
Patient Records................................. Maintains patient demographic, insurance,
financial, referral, diagnosis and other
user defined records.
Insurance Processing............................ Processes and prints claims. Coordinates
benefits when multiple insurance carriers
are involved. Tracks aging and payments of
all claims.
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C>
Refund Processing............................... Prints refund checks for all credit
balances and posts adjusting entries to
patient accounts.
Collection...................................... Enhances the effectiveness of collection
procedures. Standardizes in-house
collection process, tracks collection
results and integrates a series of
delinquency correspondence.
ADMINISTRATIVE APPLICATIONS
Patient Communication........................... Integrates word processor with database to
allow user to create form letters and other
types of repetitive correspondence.
Appointment Scheduling.......................... Automates appointment scheduling. Provides
on-line patient appointment inquiry,
cancellation history, balance inquiry,
credit alerts and patient notes.
Referral Analysis............................... Tracks and analyzes all referral sources,
both statistically and financially.
Categorizes referrals by specialty and
volume.
PRACTICE MANAGEMENT APPLICATIONS
Management Reporting............................ Generates reports including aged accounts
receivable, insurance claims analysis and
aging, physician financial analysis, audit
report, receipts analysis, service
analysis, financial and procedure analysis
and revenue categories.
Report Generator................................ Creates custom reports from practice
management database with ability to store
report formats in a library format.
Graphic Analysis................................ Produces graphs displaying practice
management information and allows formats
to be stored in a library format.
Managed Care Analysis........................... Tracks managed care plans and analyzes them
for profitability to help the practice
manage plan participation.
CLINICAL APPLICATIONS
Patient Medical History......................... Stores and allows retrieval of patient
medical history such as allergies, current
and past diagnoses, procedures with
analysis by gender and age categories.
Patient Treatment Planning...................... Allows automated treatment planning and
tracking.
Hospital Link................................... Permits user's computer to emulate a
terminal connected to hospital system in
order to extract hospital data.
</TABLE>
The Company's core product offerings and services include software,
hardware, installation and training. The prices of the Company's products depend
upon a number of factors, including number of providers, number of system users
and technical platform, and range from $1,500 to over $500,000. Each customer
typically contracts with the Company for maintenance services, with annual fees
ranging from $360 to $40,000. Maintenance contracts are renewable annually.
34
<PAGE> 36
Add-On Software Modules
The Company has developed information modules to address certain specific
needs of health care practices. These modules can be integrated with the
Company's practice management software products to enhance their capabilities,
which include:
<TABLE>
<S> <C>
Voice Automated Medical Records................. Designed to give physicians the power to
dictate directly to the computer and to
create accurate medical reports in seconds.
Digital Record Keeping(TM)...................... Enables a practice to store and merge
radiographic and photographic images with
correspondence and clinical medical
records.
Optical Mark System(R).......................... Uses optical scanner technology to automate
daily tasks and eliminate data entry.
Laboratory Interface............................ Interfaces with outside medical
laboratories to automate independent
laboratory test requisition and results
reporting processes.
Advanced Analytical Software Products........... Created for use by the professional
business manager or managing physician to
provide a "top down" view of the practice,
identifying financial, payor, patient,
clinical, system and EDI utilization,
practice demographic and practice
profitability trends.
</TABLE>
PRODUCT RESEARCH AND DEVELOPMENT
The Company believes that the health care information system industry is in
a technological transition from older, more structured data base system designs
to products designed to take advantage of (i) newer programming techniques, (ii)
greater processing capability, (iii) increases in data storage, compression and
retrieval capacity, (iv) faster communications, (v) graphical interfaces, (vi)
optical input and digital output and (vii) broad based client server
architecture. The Company is developing a new core practice management product
anticipated to be released in 1997 that utilizes the client server architecture
programmed in a rapid development language applying relational data base and
object oriented technology. The product will incorporate a comprehensive suite
of EDI services that are fully integrated with the core practice management
system, as well as complying with ODBC standards. This new product is in beta
testing. The Company intends to continue to invest in product development and to
emphasize Windows-based products, software improvements and enhancements to its
EDI programs. Also, the Company intends to expand its voice activation and other
technologies, such as imaging and scanning. See "Risk Factors--Product
Development."
As of April 30, 1997, the Company had 26 employees responsible for product
development and technical services.
35
<PAGE> 37
SALES AND MARKETING
The Company markets its products to its existing customers via a dedicated
sales force who promote and sell system upgrades, maintenance services,
peripherals, add-on software products and EDI services. The Company believes
that the decision making process of providers to purchase practice management
systems is often influenced by the recommendations of other providers, practice
management consultants and payors. Therefore, the Company intends to target
consultants and payors for sales opportunities. In addition, the Company targets
markets through industry seminars, trade shows, direct telephone and mail
campaigns and advertisements in various publications. The Company markets its
products nationally to new customers through a direct sales force consisting of
27 sales representatives located in: Atlanta, Georgia; Lake Elmo, Minnesota and
Los Angeles, California.
The Company believes that the nature, scope and structure of the purchasers
of health care information systems technology are changing. To address the
complex needs of larger potential customers, the Company is forming an executive
sales group, which will be directed by the Vice President of Sales. Senior
divisional and corporate management also will assist in the sales and marketing
to larger and more technically advanced potential customers.
The Company believes that its fundamental strength lies in its diverse base
of installed customers, which will require more of the Company's products and
services as a result of the impact of managed care on health care providers. It
is a primary focus of the Company to direct a substantial portion of its sales
and marketing efforts to cross-selling its existing customer base for the
introduction of new software products, maintenance and support services and EDI
services.
CUSTOMER SUPPORT AND SERVICES
The Company offers software maintenance and support, enhancements, training
and, to a limited extent, custom development services to its customers. The
Company generally provides a limited warranty of 90 days or less with its
software products. Thereafter, maintenance and support services are available
for an additional charge. Maintenance and support services include telephone
support, maintenance updates, new releases which operate on new operating
systems and/or contain additional features and functions.
The Company believes that support is critical to the successful
installation and on-going operation of its practice management systems, and it
has dedicated substantial resources to customer support. As of April 30, 1997,
the Company had 90 full-time employees engaged in customer services. The Company
offers several toll free support lines staffed by experienced personnel who
answer general questions about the systems and solve operational difficulties.
Technical and research development staff provide additional technical expertise
to solve more complex issues and questions.
The Company operates eight regional customer training, support and service
facilities in: Atlanta, Georgia (three facilities); Lake Elmo, Minnesota; Los
Angeles, California; Charlotte, North Carolina and Pittsburgh, Pennsylvania.
Annual customer meetings are held at various times during the year, and
newsletters are distributed to the Company's customers on a periodic basis.
CUSTOMERS
The Company has installed more than 6,000 practice management systems,
serving approximately 17,000 health care providers that range in practice size
from one to more than 200 providers in all 50 states. The Company has customers
in all major specialties and subspecialties. No single customer accounted for
more than 3% of revenue during fiscal 1996 or 1997.
COMPETITION
The practice management systems industry is highly competitive. There are
numerous competitors, both regional and national, that market in this fragmented
industry. The Company believes that the primary competitive factors in this
market are service, support and customer satisfaction combined with price,
functionality, user friendliness, ongoing product enhancements and the
reputation and stability of the seller.
36
<PAGE> 38
The Company believes that its principal competitive advantages are its
commitment to providing the highest level of service and support, its offerings
of feature-rich products customized to meet its customer's needs and size and
its substantial installed customer base. The Company's principal competitors
include other practice management system companies and local software resellers.
In addition, the Company competes with certain national and regional companies
which provide health care information systems and data processing which provide
computerized billing, insurance processing and record management services to
practices. Among the Company's principal competitors are IDX Systems
Corporation, Medic Computer Systems, Inc., Medical Manager Corporation,
Physician Computer Network, Inc. and Quality Systems, Inc. Certain of the
Company's competitors have greater financial, development, technical, marketing
and sales resources than the Company, although the Company believes that none of
its competitors dominates the overall practice management systems market.
Additionally, as the markets for the Company's products and services develop,
additional competitors may enter those markets and competition may intensify.
See "Risk Factors -- Competition."
PRODUCT PROTECTION
The Company regards its software as proprietary. The Company enters into
written license agreements with its customers which limit the use and copying of
its software. "Shrink wrap" licenses are used in connection with certain end
users sales. The Company relies principally on copyright law and trade secret
protection to protect its proprietary software. The software usually is
furnished in object code only, although source code licenses are granted in a
limited number of situations. The Company has not applied for any patents for
its software and does not believe that patent laws will be a source of
protection of the Company's products. Employees and technical consultants of the
Company are required to execute agreements providing for the confidentiality of
information and the assignment to the Company of proprietary property. See "Risk
Factors--Product Protection."
GOVERNMENT REGULATION
Many aspects of the health care industry presently are subject to extensive
federal and state government regulation. Certain of these laws and regulations
are applicable to the record keeping and reporting requirements of health care
providers. The Company will continue to modify its products to assist health
care providers to comply with all applicable laws.
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. It is unclear to what extent the Company's
Digital Record Keeping System, when marketed with the Company's practice
management applications, would be deemed to be a medical device subject to FDA
regulation. The FDA has issued a draft policy statement under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications and otherwise comply
with the requirements of the FDC Act applicable to medical devices. Recently,
the FDA has initiated agency rulemaking which may exempt certain medical image
management devices from premarket notification procedures, but there can be no
assurance that such an exemption actually will be adopted and, if so, that the
rulemaking will apply to the Company's products.
Enforcement action can consist of warning letters, refusal to approve or
clear products, revocation of approvals or clearances previously granted, civil
penalties, product seizures, injunctions, recalls, operating restrictions and
criminal prosecutions. Any enforcement action by the FDA could have a material
adverse effect on the Company's ability to market its Digital Record Keeping
System.
The Health Insurance Portability and Accountability Act of 1996, signed
into law by the President on August 21, 1996 requires that the Department of
Health and Human Services ("HHS") study security provisions relating to
electronic data transmission and make recommendations to Congress by August 21,
1997, regarding the development of standards to protect the privacy of
individually identifiable health information. If Congress does not enact
legislation by August 21, 1999, adopting standards for the privacy of
37
<PAGE> 39
health information, HHS must do so by regulation no later than February 21,
2000. The law also provides penalties for knowingly obtaining or disclosing
individually identifiable health information. The Company cannot predict what
impact, if any, such security provisions might have on its results of
operations, financial condition, or business. See "Risk Factors--Uncertainty in
Health Care Industry; Government Regulation."
EMPLOYEES
As of April 30, 1997, the Company employed 186 persons, including 27 in
marketing and sales, 90 in customer support services, 26 in product research and
development and 43 in administration, finance and management. None of the
employees of the Company is represented by a labor union.
FACILITIES
The Company leases nine facilities, having an aggregate of 53,409 square
feet and located in: Atlanta, Georgia (four facilities); Lake Elmo, Minnesota;
Los Angeles, California; Charlotte, North Carolina and Pittsburgh, Pennsylvania.
Sales, product development and administrative functions are conducted at each
facility. The leases have remaining terms ranging between one and five years.
The Company believes that its facilities are adequate for its current needs,
that suitable additional space will be available as required and that
opportunities exist for the Company to consolidate operations in a manner that
may reduce the Company's facilities requirements and rental costs.
LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that would have a
material adverse effect on its business, results of operations or financial
condition.
38
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frederick L. Fine.......................... 38 Chairman of the Board, President and Chief
Executive Officer (1)
James K. Price............................. 39 Executive Vice President and Director
Michael E. Warren.......................... 43 Chief Financial Officer and Director
R. Ernest Chastain......................... 47 Vice President -- Sales and Marketing
Donald M. Rogers........................... 38 President, Desktop Division
M. Wayne George............................ 56 President, Enterprise Division
Brad E. Schraut............................ 36 President, Mid-Range Division
James D. Elliott........................... 36 Director (1)(2)
Richard E. Perlman......................... 50 Director (1)(2)
Ronald M. Vagle............................ 53 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
The directors are elected annually by the stockholders and hold office
until the next annual meeting of stockholders or until their respective
successors are duly elected and qualified or until their earlier resignation or
removal.
The business experience, principal occupation and employment, as well as
the periods of service of each of the directors and executive officers of the
Company during at least the last five years, are set forth below:
Frederick L. Fine is a founder of the Company. Mr. Fine has served as
president of AMC since 1995 and as president of ICS since 1994. From 1993 to
1995, Mr. Fine served as executive vice president of AMC, and from 1985 to 1994
served as executive vice president of ICS, which he co-founded in 1985. From
1991 to 1993, Mr. Fine served as vice president of Newport Capital, Inc.
("Newport"), predecessor to AMC. Mr. Fine has served as a director of AMC, ICS
and Newport throughout the terms of his employment by each company. From 1983 to
1985, Mr. Fine was a regional manager with Informatics General Corporation, a
supplier of accounting software and from 1981 to 1983 was a sales representative
with Moore Business Systems, a provider of practice management systems. Mr. Fine
holds a B.S. in Economics from the University of Georgia.
James K. Price is a founder of the Company. Mr. Price has served as
executive vice president of AMC since 1995 and was vice president from 1993 to
1995. Mr. Price co-founded ICS and has served as its executive vice president
since 1994, as vice president from 1987 to 1994 and as president from 1985 to
1987. In addition, from 1991 to 1993, Mr. Price was a vice president of Newport.
Mr. Price has served as a director of AMC, ICS and Newport throughout the terms
of his employment by each company. From 1983 to 1985, Mr. Price was health care
sales manager of Executive Business Systems, a practice management systems
supplier, and from 1981 to 1983 was a sales representative with Moore Business
Systems. Mr. Price holds a B.A. in Marketing from the University of Georgia.
Michael E. Warren, since joining AMC in August 1994, has served as its vice
president of operations and as chief financial officer. From 1992 to 1994, Mr.
Warren was director of provider systems at Millennium Healthcare, a supplier of
electronic health care services. From 1986 to 1992, Mr. Warren was director of
the Computer Risk Management Practice in the Southeast of Arthur Andersen, LLP.
From 1983 to 1986, Mr. Warren worked as Manager of Systems Auditing for
NationsBank, and from 1980 to 1983 was an accountant with Coopers & Lybrand,
LLP. Mr. Warren holds a Masters in Business Information Systems from Georgia
State University and a B.A. in Accounting from the University of Georgia. Mr.
Warren is a CPA, a member of the AICPA and a member of the Georgia Society of
CPAs.
39
<PAGE> 41
R. Ernest Chastain joined AMC in November 1996. From 1994 until his
employment by AMC he served as vice president of sales of Quality Systems, Inc.,
a health care practice management company; and from 1993 to 1994, Mr. Chastain
served as vice president of sales for ELCOMP, Inc., a health care practice
management company; and from 1983 to 1986, Mr. Chastain served as regional vice
president for Contel Business Systems, Inc., a supplier of practice management
systems, which was acquired in 1986 by Versyss, Inc., another practice
management system supplier. From 1986 to 1992, Mr. Chastain served as vice
president of sales management for Versyss, Inc. Mr. Chastain holds a B.A. in
Marketing from the University of Georgia.
Donald M. Rogers is a founder of DR Software and has served as its
president since its formation in 1984. From 1983 to 1984, Mr. Rogers was an
account manager at HBO & Company, health care software company, and from 1980 to
1983 was a systems analyst at NCR Corporation, a computer hardware manufacturer.
Mr. Rogers holds a B.S. in Management from the State University of New York at
Buffalo.
M. Wayne George is the founder of Millard-Wayne and has served as its
president and chief executive officer since its formation in 1977. From 1975 to
1977, Mr. George was a principal of Dynamic Control Corp, a hospital information
systems developer. From 1971 to 1975, Mr. George served in sales and marketing
capacities for General Systems Division of IBM. Mr. George holds a B.S. in
Industrial Management from the Georgia Institute of Technology.
Brad E. Schraut has served as the president of Rovak, Inc. since 1993. From
1985 to 1993, Mr. Schraut served as Rovak's vice president and was one of the
original founders of the company. From 1984 to 1985 Mr. Schraut was General
Manager of the Los Angeles plant of Scientific Coatings, Inc.
James D. Elliott has been the president of GE Integrated Technology
Solutions ("GE") since March, 1997 and its executive vice president and general
manager since August 1996. Prior to his current employment, Mr. Elliott
co-founded Universal Data Consultants, Inc., a systems integrator, in 1983 and
served as its president from 1983 until it was purchased by an affiliate of GE
in July 1996. Mr. Elliott holds a B.S. in Economics from the University of
Georgia.
Richard E. Perlman is the founder of Compass Partners, L.L.C., a merchant
banking and financial advisory firm specializing in corporate restructuring and
middle market companies and has served as its president since its inception in
May 1995. From 1991 to 1995, Mr. Perlman was executive vice president of Matthew
Stuart & Co., Inc., an investment banking firm. Mr. Perlman received a B.S. in
Economics from The Wharton School of The University of Pennsylvania and a
Masters in Business Administration from the Columbia University Graduate School
of Business.
Ronald M. Vagle is one of the original founders of Rovak and has served as
its chairman since 1993. From 1985 to 1993 Mr. Vagle was president of Rovak. Mr.
Vagle holds a B.A. in Aeronautical Engineering from the University of Minnesota.
EXECUTIVE COMPENSATION
InfoCure was incorporated in November 1996 and has not conducted any
operations prior to the Offering; however, the Company anticipates that during
fiscal 1998 annualized base salaries of the chief executive officer and the five
other most highly compensated officers will be as follows: Mr. Fine at $125,000,
Mr. Price at $125,000, Mr. Chastain at $125,000, Mr. Schraut at $110,000, Mr.
Rogers at $110,000 and Mr. George at $110,000. No compensation is payable to
directors for services rendered in such capacity.
STOCK OPTIONS
In October 1996, AMC adopted and issued stock options under AMC's 1996
Stock Option Plan (the "AMC Plan"). All stock options outstanding under the AMC
Plan at the time of the consummation of the Offering will be assumed by the
Company; however, no additional stock options under the AMC Plan will be granted
thereafter. In addition, InfoCure's Board of Directors has adopted the InfoCure
Corporation 1996 Stock Option Plan (the "Company's Plan"), subject to
stockholder approval, and intends to grant stock options to certain key
employees thereunder. A maximum of 800,000 shares of Common Stock may be issued
under the Company's Plan.
40
<PAGE> 42
The Company's Plan and the AMC Plan (collectively, the "Stock Option
Plans") each provide for the granting to key employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code and for
the granting of nonstatutory stock options to employees and consultants. The
Stock Option Plans are administered by the board of directors, or a committee
thereof, which determines the term of the option grant, exercise price, number
of shares subject to the option, the vesting schedule and the form of
consideration payable upon its exercise.
Options granted under the Stock Option Plans are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by the optionee.
The exercise price of all incentive stock options granted under the Stock Option
Plans must be at least equal to the fair market value of the common stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the outstanding common stock of
the issuer, the exercise price of any incentive stock option granted must equal
at least 110% of the fair market value on the grant date and the maximum term of
the option must not exceed five years. The term of all options granted under the
Stock Option Plans may not exceed ten years. Stock options may be granted within
ten years of the adoption of the Stock Option Plan by the board of directors.
All stock options under the Stock Option Plans granted in 1996 and to be
granted to executive officers upon the consummation of the Acquisitions shall
expire seven years after the date of grant and vest 25% on each anniversary date
of an option grant, thus becoming fully exercisable on the fourth anniversary of
its grant. The board of directors determines the fair market value of the common
stock on the date of grant. If the executive officer's employment is terminated
for any reason, except a change in control, prior to the vesting of the option,
that portion of the option which has not vested shall be terminated. Upon a
change in control of the Company, all options become fully vested.
As of the date of this Prospectus, options to purchase the equivalent of
129,761 shares of Common Stock were outstanding under the AMC Plan at an
equivalent weighted average exercise price of $4.18 per share. No stock options
granted to date to key employees under the AMC Plan will vest before October 1,
1997. It is contemplated that no additional stock options will be granted under
the AMC Plan. To date, no stock options have been granted under the Company's
Plan.
Michael E. Warren, chief financial officer, was granted two non-qualified
stock options upon his employment with AMC in September 1994. One option, for
the equivalent of 29,830 shares of Common Stock for an aggregate consideration
of $500, was exercised in 1996. The other option, for the equivalent of 29,830
shares of Common Stock at an exercise price of $1.68 per share, is exercisable
at any time prior to September 25, 2000. The stock options granted to Mr.
Warren, to the extent not exercised prior to the consummation of the Offering,
will be assumed by the Company. These stock options were not granted under a
stock option plan under which other persons were granted stock options.
The Company intends to file a registration statement covering the shares of
Common Stock which may be acquired under the Stock Option Plans and the option
granted to Michael E. Warren within 180 days from the date of consummation of
the Offering.
EMPLOYMENT AGREEMENTS
The Company will either enter into employment agreements or assume
employment agreements entered into by AMC with all persons who will become
executive officers of the Company upon the consummation of the Offering.
The Company will enter into five-year employment agreements with Frederick
L. Fine and James K. Price concurrently with the consummation of the
Acquisitions. Each agreement will provide for an annual base salary of $125,000
and a severance payment equal to the then-current annual base salary rate upon
the termination of employment by the Company without cause and a voluntary
termination in the event of a change in control of the Company following the
consummation of the Offering.
Michael E. Warren entered into a three-year employment agreement with AMC
on September 23, 1994. His current annual base salary is $95,000. In addition,
he was granted the two stock options described above.
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<PAGE> 43
Upon consummation of the AMC Merger, the Company shall assume the obligations of
AMC under this employment agreement. See "Business--Stock Options."
R. Ernest Chastain, upon his employment with AMC in November 1996, entered
into a two-year employment agreement at an annual base salary of $125,000. At
that time he was granted an incentive stock option to acquire the equivalent of
80,541 Equivalent Shares of Common Stock at an exercise price of $4.18 per
share. Upon consummation of the AMC Merger, the Company shall assume the
obligations of AMC under this employment agreement.
The Company will enter into two-year employment agreements with M. Wayne
George, Donald M. Rogers and Brad Schraut upon the consummation of the
Acquisitions, each of which will provide an annual base salary of $110,000. In
addition, each agreement will grant the employee a seven-year incentive stock
option with an exercise price equal to the fair market value of the Common Stock
at the time the stock option is granted. The number of shares for which such
stock options will be exercised has not been determined at this time.
Each of the foregoing employment agreements has, or will have, a covenant
that the executive may not compete with the Company for a period of one year
following termination of employment. In addition, certain executive officers,
who are stockholders of the Founding Business, may not compete with the Company
for a period of five years following the consummation of the Acquisitions.
The Company has not adopted a formal bonus plan. However, all executive
officers of the Company are eligible for a bonus depending upon their individual
performance and the performance of the Company to be awarded at the sole
discretion of the Board of Directors.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Accordingly,
indemnification may occur for liabilities arising under the Securities Act. The
Company and the Underwriters have agreed to indemnify each other (including
officers and directors) against certain liabilities, including liabilities under
the Securities Act. See "Underwriting." Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
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<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock, after giving effect to the
Acquisitions, by (i) each person who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each named executive officer of the
Company (iii) each director and person who is or will become a director upon the
consummation of the Offering and (iv) all directors and executive officers as a
group. Except as otherwise indicated, each named beneficial owner has sole
voting and investment power with respect to the shares listed.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND COMMON STOCK OWNED
NATURE OF ---------------------------
BENEFICIAL BEFORE AFTER
NAME OWNERSHIP(1) OFFERING OFFERING(2)
---- ------------ ------------ ------------
<S> <C> <C> <C>
Norson's International, LLC (3)(4)....................... 544,027 13.0% 9.8%
Frederick L. Fine (3)(5)................................. 409,434 9.8 7.4
James K. Price (3)(6).................................... 409,434 9.8 7.4
Robert L. Fine (3)....................................... 331,417 8.0 6.0
William A. Baker (3)..................................... 213,949 5.1 3.8
Ronald M. Vagle.......................................... 196,786 4.7 3.5
Marc Kloner.............................................. 258,500 6.2 4.7
W. K. Price (3)(7)....................................... 203,249 4.9 3.7
Michael E. Warren........................................ 73,115 2.2 1.3
James D. Elliott......................................... 19,887 * *
Richard E. Perlman (8)................................... 195,691 4.6 3.5
All directors and executive officers as a group (10
persons)............................................... 1,673,144 38.9% 29.4%
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Includes shares subject to outstanding options, which options are
exercisable on the date hereof, and includes all shares of Common Stock
beneficially owned by Compass Partners, L.L.C. ("Compass").
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 240,000 shares of Common Stock from certain stockholders. See
"Underwriting." It is contemplated that if the over-allotment option is
exercised the first 181,818 shares of Common Stock will be sold by Info
Systems of North Carolina, Inc. ("ISI") and the balance, is 28,182, by
Norson's International, LLC. The Company will not receive any proceeds from
the sale of Common Stock by the stockholders.
(3) Frederick L. Fine's and James K. Price's address is 2970 Clairmont Road,
Suite 950, Atlanta, Georgia 30329; Norson's address is 1411 Rouse Lane,
Suite 201, Roswell, Georgia 30076; Robert L. Fine's address is 7675 Fox
Court, Duluth, Georgia 30155; William A. Baker's address is 781 Brentwood
Trail, Atlanta, Georgia 30201 and W. K. Price's address is 3987 Land O'
Lakes Drive, Atlanta, Georgia 30342.
(4) Excludes 28,577 Equivalent Shares of Common Stock and a warrant (which
warrant is exercisable on the date hereof) to acquire 111,296 Equivalent
Shares of Common Stock owned by Compass, of which Norson's has shared
dispositive powers with Richard E. Perlman, a director of the Company.
(5) Includes 3,580 Equivalent Shares of Common Stock owned as custodian for his
children and 1,193 Equivalent Shares of Common Stock held in a charitable
trust over which he has sole voting and investment power.
(6) Includes 3,225 Equivalent Shares of Common Stock over which he has sole
voting power.
(7) Includes 6,450 Equivalent Shares of Common Stock over which he has sole
voting power.
(8) Includes 28,577 Equivalent Shares of Common Stock currently outstanding;
55,818 Equivalent Shares issuable upon the Consummation of the
Acquisitions; and as compensation for acquisition related services, a
warrant (which warrant is exercisable on the date hereof) to acquire
111,296 Equivalent Shares of Common Stock owned by Compass, in which Mr.
Perlman has a majority interest and over which Mr. Perlman and Norson's
have shared dispositive powers.
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<PAGE> 45
CERTAIN TRANSACTIONS
THE ACQUISITIONS
In connection with the Acquisitions, and as consideration for their
ownership interests in the Founding Businesses, certain persons who are, or are
to become, executive officers of the Company upon the consummation of the
Acquisitions or the holders of more than 5% of the outstanding shares of Common
Stock of the Company will receive shares of Common Stock and/or cash as follows:
Frederick L. Fine, 404,661 shares of Common Stock; James K. Price, 406,209
shares of Common Stock; Robert L. Fine, 331,417 shares of Common Stock; William
A. Baker, 213,949 shares of Common Stock; W. K. Price, 196,799 shares of Common
Stock; Michael E. Warren, 43,285 shares of Common Stock and an option to acquire
29,830 shares of Common Stock; Norson's, 544,027 shares of Common Stock; Donald
M. Rogers, 71,993 shares of Common Stock and approximately $2.1 million in cash;
M. Wayne George, 132,448 shares of Common Stock and approximately $500,000 in
cash; Brad Schraut, 70,454 shares of Common Stock and approximately $17,400 in
cash; and Ron Vagle, 196,786 shares of Common Stock and approximately $48,600 in
cash. Robert L. Fine is the father of Frederick L. Fine. W. K. Price is the
father of James K. Price. If Millard-Wayne meets certain financial criteria
after the Offering, Wayne George may receive up to an additional 132,448 shares
of Common Stock. If Rovak achieves certain financial criteria after the
Offering, Brad Schraut may receive up to 71,182 shares of Common Stock, and Ron
Vagle may receive up to 198,818 shares of Common Stock. In addition, Rovak
leases 7,500 square feet of office space from an entity in which Brad Schraut,
an executive officer of the Company, has a 26% equity interest, and Ron Vagle, a
director of the Company, has a 41% equity interest in Rovak. The annual rental
is $90,000 plus taxes and insurance. The lease may be terminated by either party
in June 2000. The Company believes that the rental rate is comparable to a rate
that could be obtained from an independent third party. Pursuant to certain
agreements to be entered into in connection with the Acquisitions, Messrs.
George, Rogers and Schraut have agreed not to compete with the Company for five
years, commencing on the date of consummation of the Offering. See "The
Company -- The Acquisitions" and "Risk Factors -- Dependence on Key Employees."
COMPASS
In June 1996, pursuant to a written agreement, AMC engaged Compass to
render financial advisory services in connection with AMC's acquisition program.
Compass received an initial retainer of $15,000 and a monthly retainer of $5,000
per month commencing July 1, 1996, and $10,000 per month from October 1, 1996
through June 30, 1997. As compensation for services, Compass received 28,577
Equivalent Shares of Common Stock and a warrant exercisable within five years to
purchase the equivalent of 111,296 Equivalent Shares of Common Stock at an
exercise price equal to the AMC stock price as of the date of the agreement
($1.09 per Equivalent Share of Common Stock) subject to the consummation of the
Acquisitions. In addition, pursuant to the agreement, Compass will receive
approximately 55,818 Equivalent Shares of Common Stock and approximately
$103,000 in cash upon the consummation of the Acquisitions. Mr. Perlman, a
director of the Company, is the president and founder of Compass and holds a
majority equity interest in Compass. In addition, Compass shall be entitled to a
fee of $200,000 in the event a definitive line of credit agreement is entered
into by the Company with FINOVA. "See Use of Proceeds."
NORSON'S
In July 1996, AMC sold to Norson's in a private placement 104,563
Equivalent Shares of Common Stock for $50,000, and in November 1996, AMC sold
Norson's 439,464 Equivalent Shares of Common Stock for $750,000. These sales of
the common stock of AMC to Norson's were made by AMC pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act. Norson's
entered into an agreement whereby it represented that it was acquiring the
securities for its own account and not with a view to the distribution of such
securities. Norson's is a personal investment company and is considered to be a
sophisticated investor.
44
<PAGE> 46
LOAN BY ROBERT L. FINE
In April 1995, Robert L. Fine loaned AMC $94,500 in exchange for a
promissory note bearing interest at 12% and payable in a balloon payment of
principal and interest in April 1997. The payment date has been extended to June
30, 1997. Prior to the merger of AMC into InfoCure, the note will be exchanged
for 17,182 Equivalent Shares of Common Stock.
RELEASE OF STOCKHOLDERS' GUARANTY
In November 1996, AMC, ICS, Robert L. Fine, Frederick L. Fine, W.K. Price,
James K. Price and William A. Baker entered into a termination agreement (the
"Termination Agreement") with MDP Corporation ("MDP") and Jonathan J. Oscher,
pursuant to which, upon consummation of the Offering, Robert L. Fine, Frederick
L. Fine, W.K. Price, James K. Price and William A. Baker will be released from
their obligation to pay a termination fee to MDP if the agreement whereby MDP
agreed to act as an electronic claims processing clearinghouse for ICS is
terminated for certain events. In addition, Robert L. Fine and W.K. Price had
secured such obligation with certain real estate parcels with an approximate
value of $300,000, and the Termination Agreement will release these parcels from
such security upon consummation of the Offering. As of the date of this
Prospectus, the termination fee, if triggered, would total approximately
$227,000. The Termination Agreement shall be null and void if the Offering is
not consummated on or before June 30, 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of InfoCure consists of 17,000,000 shares of
capital stock, consisting of 15,000,000 shares of Common Stock, par value $.001
per share, and 2,000,000 shares of preferred stock, par value $.001 per share
(the "Preferred Stock"). As of May 31, 1997, there were 100 shares of Common
Stock of InfoCure outstanding, 50 shares held of record by each of Frederick L.
Fine and James K. Price. The outstanding shares of Common Stock are, and the
shares to be issued pursuant to the Offering will be, fully paid and
nonassessable. No shares of Preferred Stock are outstanding or are to be issued
in connection with the Acquisitions.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share held of record
on each matter submitted to a vote of stockholders. The holders of Common Stock
have no cumulative voting rights, no pre-emptive rights and no rights to convert
their shares of Common Stock into any other securities. Because holders of
Common Stock do not have cumulative voting rights, the holders of the majority
of the shares of Common Stock represented at the annual meeting of stockholders
can elect all the directors. Under Delaware law, the affirmative vote of a
majority of the outstanding shares of Common Stock is necessary for certain
corporate actions, including merger or consolidation with another corporation,
sale or other disposition of all or substantially all of the Company's property
and assets and voluntary dissolution of the Company. Delaware law allows the
Company to establish a higher percentage of stockholder approval necessary to
take such corporate action.
Holders of Common Stock are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends. The Company
does not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
Upon dissolution, liquidation or sale of all or substantially all of the
assets of the Company, and after payment in full of all amounts required to be
paid to creditors and liquidation preferences, if any, the holders of the Common
Stock will be entitled to receive pro rata the net assets of the Company
available for distribution.
PREFERRED STOCK
The Board of Directors is authorized by the Company's Certificate of
Incorporation, without any action of the stockholders, to issue one or more
classes and series of Preferred Stock with respect to which the Board of
Directors may determine voting, conversion, redemption and other rights which
could adversely affect the
45
<PAGE> 47
rights of holders of Common Stock. The rights of the holders of the Common Stock
would generally be subject to the prior rights of the Preferred Stock with
respect to dividends, liquidation preferences and other matters. Among other
things, Preferred Stock could be issued by the Company to raise capital or to
finance acquisitions. The issuance of Preferred Stock under certain
circumstances could have the effect of delaying or preventing a change of
control of the Company. There are no agreements or understandings for the
issuance of Preferred Stock, and the Company has no present plans to issue any
shares of Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3 of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is American Stock
Transfer & Trust, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Acquisitions and the Offering, the Company
will have 5,557,839 shares of Common Stock outstanding. In addition, outstanding
stock options and a warrant to acquire 147,837 shares of Common Stock are
immediately exercisable as of the date of this Prospectus. The Company, its
executive officers and directors and stockholders holding more than 5% of the
outstanding Common Stock who hold an aggregate of 2,866,339 shares of Common
Stock (and have the right to acquire 141,126 shares of Common Stock pursuant to
immediately exercisable stock options and a warrant), have agreed with the
Underwriters not to offer or dispose of, directly or indirectly, without the
prior written consent of Josephthal Lyon & Ross Incorporated, any of the
remaining Common Stock held by them for a period of six months (the "Lock-Up
Period") following the date the public trading of the Common Stock commences. In
addition, holders of more than 5% of the outstanding shares of Common Stock,
which hold 3,227,285 shares, have agreed, for a period of three months following
expiration of the Lock-Up Period, not to offer or dispose of any shares of
Common Stock, except with respect to shares of Common Stock being sold in
connection with the Offering. The Company may issue shares of Common Stock in
connection with acquisitions or upon the exercise of stock options. Josephthal
Lyon & Ross Incorporated has no current intention to waive or shorten the
Lock-Up Period. See "Risk Factors -- Substantial Shares Eligible for Future
Sale."
In general under Rules 144 and 145, a person (or group of persons whose
shares are aggregated) who are "affiliates" (as defined in Rule 144) of the
Company or the Founding Businesses, will be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of the Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
forwarding of the notice of proposed sale to the Commission. The sales are also
subject to certain manner of sale limitations, notice requirements and the
availability of current public information about the Company. Under Rule 145,
the restrictions applicable to persons who were "affiliates" of the Founding
Businesses but do not become "affiliates" of the Company shall extend for one
year. Upon the consummation of the Acquisitions, persons who were not
"affiliates" of the Founding Businesses and who have not been "affiliates" of
the Company for the 90 days preceding a sale will be entitled
46
<PAGE> 48
to sell such shares in the public market without restriction. Securities
properly sold in reliance upon Rules 144 and 145 are thereafter freely tradeable
without restrictions or registration under the Securities Act, unless thereafter
held by an "affiliate" of the Company.
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's Common Stock in the public market could
adversely affect market prices. See "Risk Factors -- Substantial Shares Eligible
for Future Sale."
47
<PAGE> 49
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Josephthal Lyon & Ross Incorporated (the "Representative"), have severally
agreed, subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Josephthal Lyon & Ross Incorporated.........................
---------
Total............................................. 1,400,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share and the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
ISI and the Company have granted to the Underwriters an over-allotment
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to a maximum of 210,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent the Underwriters exercise such
over-allotment option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise this
over-allotment option only to cover over-allotments made in connection with the
Offering.
In connection with the Offering, the Company has agreed (i) to pay the
Representative of the Underwriters a non-accountable expense allowance equal to
1 3/4% of the total public offering price and (ii) to issue and sell to the
Representative, for nominal consideration, warrants to purchase a number of
shares of Common Stock equal to 10% of the shares of Common Stock sold in the
Offering, exclusive of any shares of Common Stock sold pursuant to the
Underwriters' over-allotment option (the "Representative's Warrants"). The
Representative's Warrants will be initially exercisable at a price per share
equal to 120% of the public offering price, commencing one year from the date of
this Prospectus, and will continue to be exercisable for a period of four years
after such date. The Representative's Warrants are restricted from sale,
transfer, assignment or hypothecation for a period of 12 months from the
effective date of the Offering, except to officers, partners or successors of
the Representative. The exercise price of the Representative's Warrants and the
number of shares of Common Stock issuable upon exercise thereof are subject to
adjustment under certain circumstances. The Representative's Warrants grant to
the holders thereof certain rights regarding the registration of the Common
Stock issuable upon exercise of the Representative's Warrants.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, its officers, directors and certain of its stockholders,
including all affiliates of the Company, holding an aggregate of 2,866,339
Equivalent Shares of Common Stock (and having the right to acquire 147,837
shares of Common Stock pursuant to immediate exercisable options and a warrant)
have agreed not to offer or dispose of, without the prior written consent of
Josephthal Lyon & Ross Incorporated, any shares of Common Stock for a period of
six months (the "Lock-Up Period") following the date the public trading of the
Common Stock commences. In addition, holders of more than 5% of the outstanding
shares of
48
<PAGE> 50
Common Stock, which hold 3,227,285 shares, are expected to agree, for a period
of three months following expiration of the Lock-Up Period, not to offer or
dispose of any shares of Common Stock, except with respect to shares of Common
Stock being sold in connection with the Offering.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public price was determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were the history of and prospects for the
Company and the industry in which it operates, an assessment of the Company's
management, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of securities markets at the time of the
Offering and the market price of publicly traded stock of comparable companies
in recent periods.
During and after the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company and the
Selling Stockholders by Glass, McCullough, Sherrill & Harrold, LLP, 1409
Peachtree Street, N.E., Atlanta, Georgia 30309. Ugo F. Ippolito, a partner of
the firm, owns 2,386 Equivalent Shares of Common Stock. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York 10176.
EXPERTS
The historical financial statements as indicated on pages F-1 and F-2 of
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in its reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
49
<PAGE> 51
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act, with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Certain items were omitted in accordance with the rules and regulations of the
Commission. Any interested party may inspect the Registration Statement without
charge at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and may obtain copies of all or any part of it
from the Commission upon payment of the fees prescribed by the Commission.
Statements contained herein which refer to a document as filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to the
copy of such document filed with the Commission.
Following the effectiveness of the Registration Statement, the Company will
be subject to the information requirements of the Securities Exchange Act of
1934, (the "Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy statements and other information regarding the Company at
http://www.sec.gov. AMC has filed reports and other information with the
Commission pursuant to the Exchange Act.
50
<PAGE> 52
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFOCURE CORPORATION AND FOUNDING BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation..................................... F-3
Pro Forma Combined Balance Sheet as of April 30, 1997..... F-4
Pro Forma Combined Statement of Operations for the three
months ended April 30, 1997............................ F-6
Pro Forma Combined Statement of Operations for the year
ended January 31, 1997................................. F-7
Pro Forma Combined Statement of Operations for the year
ended January 31, 1996................................. F-8
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-9
INFOCURE CORPORATION
Report of Independent Certified Public Accountants........ F-13
Balance Sheet............................................. F-14
Notes to Balance Sheet.................................... F-15
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants........ F-16
Consolidated Balance Sheets............................... F-17
Consolidated Statements of Operations..................... F-18
Consolidated Statements of Stockholders' Equity (Capital
Deficit)............................................... F-19
Consolidated Statements of Cash Flows..................... F-20
Notes to Consolidated Financial Statements................ F-21
KCOMP MANAGEMENT SYSTEMS, INC.
Report of Independent Certified Public Accountants........ F-31
Balance Sheets............................................ F-32
Statements of Operations.................................. F-33
Statements of Changes in Stockholders' Equity............. F-34
Statements of Cash Flows.................................. F-35
Notes to Financial Statements............................. F-36
MILLARD-WAYNE, INC.
Report of Independent Certified Public Accountants........ F-40
Balance Sheets............................................ F-41
Statements of Operations and Retained Earnings............ F-42
Statements of Cash Flows.................................. F-43
Notes to Financial Statements............................. F-44
HEALTH CARE DIVISION (A DIVISION OF INFO SYSTEMS OF NORTH
CAROLINA, INC.)
Report of Independent Certified Public Accountants........ F-48
Balance Sheets............................................ F-49
Statements of Operations.................................. F-50
Statements of Cash Flows.................................. F-51
Notes to Financial Statements............................. F-52
ROVAK, INC.
Report of Independent Certified Public Accountants........ F-58
Balance Sheets............................................ F-59
Statements of Operations and Accumulated Deficit.......... F-60
Statements of Cash Flows.................................. F-61
Notes to Financial Statements............................. F-62
</TABLE>
F-1
<PAGE> 53
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DR SOFTWARE, INC.
Report of Independent Certified Public Accountants........ F-68
Balance Sheets............................................ F-69
Statements of Operations.................................. F-70
Statements of Stockholders' Equity........................ F-71
Statements of Cash Flows.................................. F-72
Notes to Financial Statements............................. F-73
</TABLE>
F-2
<PAGE> 54
INFOCURE CORPORATION AND FOUNDING BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following pro forma combined financial statements give effect to the
acquisition by InfoCure Corporation of six businesses (the "Founding
Businesses", collectively, the "Company"). The Founding Businesses are (i)
International Computer Solutions, Inc. ("ICS"), a subsidiary of AMC, (ii) Health
Care Division, Inc. ("HCD"), a subsidiary of AMC founded in November 1996 to
acquire the assets of Health Care Division of Info Systems of North Carolina,
Inc., (iii) Millard-Wayne, Inc. ("Millard-Wayne"), (iv) DR Software, Inc. ("DR
Software"), (v) KComp Management Systems, Inc. ("KComp") and (vi) Rovak, Inc.
("Rovak"). The merger of AMC with and into InfoCure Corporation will occur
contemporaneously with the closing of the Company's initial public offering (the
"Offering"). Prior to the AMC Merger, AMC will have acquired HCD and
Millard-Wayne. AMC is considered the predecessor to the Company and this
transaction will be accounted for as a combination at historical cost for
accounting purposes. The remaining acquisitions will also be treated as
occurring simultaneously with the closing and will be accounted for as purchases
at estimated fair value for accounting purposes.
Inasmuch as AMC is the predecessor to the Company, the Unaudited Pro Forma
Combined Financial Statements are presented on AMC's reporting period. The
Founding Businesses report on a calendar year, except for HCD, which reported on
a June 30 year and was acquired by AMC December 3, 1996, and KComp, which has a
March 31 year-end. The Pro Forma Combined Balance Sheet as of April 30, 1997
includes the balance sheet of AMC at that date (including HCD) and the balance
sheets of the Founding Businesses (except for HCD) as of March 31, 1997. The Pro
Forma Combined Statements of Operations for the three months ended April 30,
1997 and the years ended January 31, 1997 and 1996 include the statements of
operations for AMC for the respective periods and the statements of operations
for the Founding Businesses for the three months ended March 31, 1997 and the
years ended December 31, 1996 and 1995. HCD's statement of operations data for
the period ended December 31, 1996 has been adjusted to reflect the fact that
its operations since December 3, 1996 are incorporated in AMC's Statement of
Operations for its year ended January 31, 1997. These statements are based on
historical financial statements of the Founding Businesses, updated as
appropriate, included elsewhere in this Prospectus and the estimates and
assumptions set forth below and in the notes to the Unaudited Pro Forma Combined
Financial Statements of the Company.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Acquisitions and the Offering as if they had occurred on April 30, 1997. The
Unaudited Pro Forma Combined Statements of Operations give effect to these
transactions as if they had occurred at the beginning of each period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein do not purport to
represent what the Company's financial position or results of operations would
have actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Company. The
Unaudited Pro Forma Combined Financial Statements should be read in conjunction
with the other financial statements and notes thereto included elsewhere in this
Prospectus. Also see "Risk Factors" included elsewhere in this Prospectus.
F-3
<PAGE> 55
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1)
AS OF APRIL 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP ROVAK WAYNE
------- -------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................... $ 232 $ 198 $ 12 $ -- $ 7
Accounts receivable, net.......................... 294 275 40 245 353
Inventory......................................... -- 85 -- 191 --
Deferred tax assets............................... -- -- 7 -- 74
Prepaid expenses and other........................ 75 80 22 645 4
------- ------ ----- ------ ----
Total current assets...................... 601 638 81 1,081 438
Property and equipment, net......................... 81 152 78 359 110
Capitalized software costs, net..................... 48 744 255 -- 343
Goodwill, net....................................... 1,983 -- 410 -- --
Deferred acquisition costs.......................... 946 -- -- -- --
Deferred tax assets................................. 903 -- -- 140 --
Other............................................... 54 -- -- 221 16
------- ------ ----- ------ ----
Total assets.............................. $ 4,616 $1,534 $ 824 $1,801 $907
======= ====== ===== ====== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank............................. $ -- $ 70 $ 30 $ 438 $ --
Other notes payable............................... -- -- -- -- 72
Current portion of long-term debt................. 50 9 243 241 145
Accounts payable.................................. 626 69 153 365 185
Accrued expenses.................................. 463 152 125 83 58
Deferred revenue and customer deposits............ 802 1,203 98 233 352
------- ------ ----- ------ ----
Total current liabilities................. 1,941 1,503 649 1,360 812
Other notes payable................................. 1,606 -- -- 84 --
Long term debt, less current portion................ 684 17 -- 458 15
------- ------ ----- ------ ----
Total liabilities......................... 4,231 1,520 649 1,902 827
------- ------ ----- ------ ----
Stockholders' equity (deficit):
Common stock...................................... 56 52 4 158 1
Stock purchase warrant............................ 80 -- -- -- --
Additional paid-in capital........................ 3,739 -- 41 -- 43
(Deficit) retained earnings....................... (3,325) (38) 130 (259) 36
Treasury stock.................................... (165) -- -- -- --
------- ------ ----- ------ ----
Total stockholders' equity (deficit)...... 385 14 175 (101) 80
------- ------ ----- ------ ----
Total liabilities and stockholders' equity
(deficit)............................... $ 4,616 $1,534 $ 824 $1,801 $907
======= ====== ===== ====== ====
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 56
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1) -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
---------------------------- PRO FORMA
SUBTOTAL A B C ADJUSTMENTS TOTAL
-------- -------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................... $ 449 $ (2,979) $(2,219) $ 6,125 $ 927 $ 1,376
Accounts receivable, net..................... 1,207 -- -- -- -- 1,207
Inventory.................................... 276 -- -- -- -- 276
Deferred tax assets.......................... 81 -- -- -- -- 81
Prepaid expenses and other................... 826 (538) -- -- (538) 288
------- -------- ------- ------- ------- -------
Total current assets.................. 2,839 (3,517) (2,219) 6,125 389 3,228
Property and equipment, net.................... 780 -- -- -- -- 780
Capitalized software costs, net................ 1,390 -- -- -- -- 1,390
Goodwill, net.................................. 2,393 9,459 103 -- 9,562 11,955
Deferred acquisition costs..................... 946 (946) -- -- (946) --
Deferred tax assets............................ 1,043 -- -- -- -- 1,043
Other.......................................... 291 -- -- -- -- 291
------- -------- ------- ------- ------- -------
Total assets.......................... $ 9,682 $ 4,996 $(2,116) $ 6,125 $ 9,005 $18,687
======= ======== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank........................ $ 538 $ -- $ (438) $ -- $ (438) $ 100
Other notes payable.......................... 72 -- -- -- -- 72
Current portion of long-term debt............ 688 -- (365) -- (365) 323
Accounts payable............................. 1,398 -- -- -- -- 1,398
Accrued expenses............................. 881 360 (35) -- 325 1,206
Deferred revenue and customer deposits....... 2,688 (227) -- -- (227) 2,461
------- -------- ------- ------- ------- -------
Total current liabilities............. 6,265 133 (838) -- (705) 5,560
Other notes payable............................ 1,690 (1,095) (595) -- (1,690) --
Long-term debt, less current portion........... 1,174 -- (683) -- (683) 491
------- -------- ------- ------- ------- -------
Total liabilities..................... 9,129 (962) (2,116) -- (3,078) 6,051
------- -------- ------- ------- ------- -------
Stockholders' equity (deficit):
Common stock................................. 271 (266) -- 1 (265) 6
Stock purchase warrant....................... 80 -- -- -- -- 80
Additional paid-in capital................... 3,823 5,928 -- 6,124 12,052 15,875
(Deficit) retained earnings.................. (3,456) 131 -- -- 131 (3,325)
Treasury stock............................... (165) 165 -- -- 165 --
------- -------- ------- ------- ------- -------
Total stockholders' equity
(deficit)........................... 553 5,958 -- 6,125 12,083 12,636
------- -------- ------- ------- ------- -------
Total liabilities and stockholders'
equity (deficit).................... $ 9,682 $ 4,996 $(2,116) $ 6,125 $ 9,005 $18,687
======= ======== ======= ======= ======= =======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 57
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
THREE MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP ROVAK WAYNE
------ -------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales................................ $ 809 $ 403 $ 91 $ 835 $ 65
Maintenance and support................................... 681 370 402 170 329
Other..................................................... -- -- -- 175 9
------ ----- ---- ------ ----
Total revenues...................................... 1,490 773 493 1,180 403
Cost of revenues............................................ 673 174 53 464 22
------ ----- ---- ------ ----
Gross profit................................................ 817 599 440 716 381
------ ----- ---- ------ ----
Operating expenses:
Selling, general and administrative....................... 805 562 291 549 400
Depreciation.............................................. 13 14 13 24 9
Amortization.............................................. 48 43 20 -- 32
------ ----- ---- ------ ----
Total operating expenses............................ 866 619 324 573 441
------ ----- ---- ------ ----
Gross operating income (loss)............................... (49) (20) 116 143 (60)
------ ----- ---- ------ ----
Other expense (income):
Interest expense.......................................... 61 2 8 33 7
Other..................................................... (4) (5) -- -- --
------ ----- ---- ------ ----
Total other expense (income)........................ 57 (3) 8 33 7
------ ----- ---- ------ ----
Income (loss) before taxes.................................. (106) (17) 108 110 (67)
Taxes (benefit)............................................. (32) -- 42 45 (12)
------ ----- ---- ------ ----
Net income (loss)................................... $ (74) $ (17) $ 66 $ 65 $(55)
====== ===== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
--------------------------- PRO FORMA
SUBTOTAL D E F G ADJUSTMENTS TOTAL
-------- ---- ----- ---- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales............................... $2,203 $ -- $ -- $ -- $ -- $ -- $2,203
Maintenance and support.................................. 1,952 -- -- -- -- -- 1,952
Other.................................................... 184 -- -- -- -- -- 184
------ ---- ----- ---- ----- ----- ------
Total revenues..................................... 4,339 -- -- -- -- -- 4,339
Cost of revenues........................................... 1,386 -- -- -- -- -- 1,386
------ ---- ----- ---- ----- ----- ------
Gross profit............................................... 2,953 -- -- -- -- -- 2,953
------ ---- ----- ---- ----- ----- ------
Operating expenses:
Selling, general and administrative...................... 2,607 -- -- -- (313) (313) 2,294
Depreciation............................................. 73 -- (20) -- -- (20) 53
Amortization............................................. 143 -- 134 -- -- 134 277
------ ---- ----- ---- ----- ----- ------
Total operating expenses........................... 2,823 -- 114 -- (313) (199) 2,624
------ ---- ----- ---- ----- ----- ------
Gross operating income (loss).............................. 130 -- (114) -- 313 199 329
------ ---- ----- ---- ----- ----- ------
Other expense (income):
Interest expense......................................... 111 -- -- (88) -- (88) 23
Other.................................................... (9) -- -- -- -- -- (9)
------ ---- ----- ---- ----- ----- ------
Total other expense (income)....................... 102 -- -- (88) -- (88) 14
------ ---- ----- ---- ----- ----- ------
Income (loss) before taxes................................. 28 -- (114) 88 313 287 315
Taxes (benefit)............................................ 43 (32) (2) 34 122 122 165
------ ---- ----- ---- ----- ----- ------
Net income (loss).................................. $ (15) $ 32 $(112) $ 54 $ 191 $ 165 $ 150
====== ==== ===== ==== ===== ===== ======
Pro forma income per share................................. $ 0.03
======
Shares used in computing pro forma income per share (H).... 5,464
======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 58
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP HCD ROVAK WAYNE
------ -------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales................................ $1,076 $1,909 $ 394 $2,054 $3,246 $ 976
Maintenance and support................................... 1,419 1,450 1,759 1,767 865 1,320
Other..................................................... -- -- -- 68 743 60
------ ------ ----- ------ ------ ------
Total revenues...................................... 2,495 3,359 2,153 3,889 4,854 2,356
Cost of revenues............................................ 475 785 233 1,354 2,311 498
------ ------ ----- ------ ------ ------
Gross profit................................................ 2,020 2,574 1,920 2,535 2,543 1,858
------ ------ ----- ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 2,469 2,260 1,494 2,323 2,234 1,704
Depreciation.............................................. 37 59 21 5 73 47
Amortization.............................................. 74 226 80 120 -- 147
------ ------ ----- ------ ------ ------
Total operating expenses............................ 2,580 2,545 1,595 2,448 2,307 1,898
------ ------ ----- ------ ------ ------
Gross operating income (loss)............................... (560) 29 325 87 236 (40)
------ ------ ----- ------ ------ ------
Other expense (income):
Interest expense.......................................... 83 13 46 35 125 25
Other..................................................... (6) (37) 1 1 -- --
------ ------ ----- ------ ------ ------
Total other expense (income)........................ 77 (24) 47 36 125 25
------ ------ ----- ------ ------ ------
Income (loss) before taxes.................................. (637) 53 278 51 111 (65)
Taxes (benefit)............................................. (891) -- 122 12 50 (11)
------ ------ ----- ------ ------ ------
Net income (loss)................................... $ 254 $ 53 $ 156 $ 39 $ 61 $ (54)
====== ====== ===== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL D E F G ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales........................... $ 9,655 $ -- $ -- $ -- $ -- $ -- $ 9,655
Maintenance and support.............................. 8,580 -- -- -- -- 8,580
Other................................................ 871 -- -- -- -- -- 871
------- ----- ----- ----- ------- ------- -------
Total revenues................................. 19,106 -- -- -- -- -- 19,106
Cost of revenues....................................... 5,656 -- -- -- -- -- 5,656
------- ----- ----- ----- ------- ------- -------
Gross profit........................................... 13,450 -- -- -- -- -- 13,450
------- ----- ----- ----- ------- ------- -------
Operating expenses:
Selling, general and administrative.................. 12,484 -- -- -- (2,431) (2,431) 10,053
Depreciation......................................... 242 -- (40) -- -- (40) 202
Amortization......................................... 647 -- 553 -- -- 553 1,200
------- ----- ----- ----- ------- ------- -------
Total operating expenses....................... 13,373 -- 513 -- (2,431) (1,918) 11,455
------- ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... 77 -- (513) -- 2,431 1,918 1,995
------- ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... 327 -- -- (219) (35) (254) 73
Other................................................ (41) -- -- -- -- -- (41)
------- ----- ----- ----- ------- ------- -------
Total other expense (income)................... 286 -- -- (219) (35) (254) 32
------- ----- ----- ----- ------- ------- -------
Income (loss) before taxes............................. (209) -- (513) 219 2,466 2,172 1,963
Taxes (benefit)........................................ (718) 644 (35) 85 962 1,656 938
------- ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ 509 $(644) $(478) $ 134 $ 1,504 $ 516 $ 1,025
======= ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.19
=======
Shares used in computing pro forma income per share
(H).................................................. 5,464
=======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-7
<PAGE> 59
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)
YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE HCD ROVAK WAYNE
------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales................................ $1,102 $2,192 $2,957 $2,695 $ 800
Maintenance and support................................... 1,311 1,212 1,764 503 1,244
Other..................................................... -- -- 85 604 73
------ ------ ------ ------ ------
Total revenues...................................... 2,413 3,404 4,806 3,802 2,117
Cost of revenues............................................ 516 1,074 1,445 1,811 291
------ ------ ------ ------ ------
Gross margin................................................ 1,897 2,330 3,361 1,991 1,826
------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 2,016 2,050 3,167 2,065 1,521
Depreciation.............................................. 33 49 4 68 64
Amortization.............................................. 80 244 141 -- 172
------ ------ ------ ------ ------
Total operating expenses............................ 2,129 2,343 3,312 2,133 1,757
------ ------ ------ ------ ------
Gross operating income (loss)............................... (232) (13) 49 (142) 69
------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 69 11 26 133 23
Other..................................................... (121) (12) -- (5) 17
------ ------ ------ ------ ------
Total other expense (income)........................ (52) (1) 26 128 40
------ ------ ------ ------ ------
Income (loss) before taxes.................................. (180) (12) 23 (270) 29
Taxes (benefit)............................................. -- -- 9 (99) (5)
------ ------ ------ ------ ------
Net income (loss)................................... $ (180) $ (12) $ 14 $ (171) $ 34
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL D E F G ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales........................... $ 9,746 $ -- $ -- $ -- $ -- $ -- $ 9,746
Maintenance and support.............................. 6,034 -- -- -- -- -- 6,034
Other................................................ 762 -- -- -- -- -- 762
------- ----- ----- ----- ------- ------- -------
Total revenues................................. 16,542 -- -- -- -- -- 16,542
Cost of revenues....................................... 5,137 -- -- -- -- -- 5,137
------- ----- ----- ----- ------- ------- -------
Gross profit........................................... 11,405 -- -- -- -- -- 11,405
------- ----- ----- ----- ------- ------- -------
Operating expenses:
Selling general and administrative................... 10,819 -- -- -- (2,433) (2,433) 8,386
Depreciation......................................... 218 -- -- -- -- -- 218
Amortization......................................... 637 -- 482 -- -- 482 1,119
------- ----- ----- ----- ------- ------- -------
Total operating expenses....................... 11,674 -- 482 -- (2,433) (1,951) 9,723
------- ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... (269) -- (482) -- 2,433 1,951 1,682
------- ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... 262 -- -- (159) (26) (185) 77
Other................................................ (121) -- -- -- -- -- (121)
------- ----- ----- ----- ------- ------- -------
Total other expense (income)................... 141 -- -- (159) (26) (185) (44)
------- ----- ----- ----- ------- ------- -------
Income (loss) before taxes............................. (410) -- (482) 159 2,459 2,136 1,726
Taxes (benefit)........................................ (95) (73) (11) 62 959 937 842
------- ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ (315) $ 73 $(471) $ 97 $ 1,500 $ 1,199 $ 884
======= ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.16
=======
Shares used in computing pro forma income per
share(H)............................................. 5,464
=======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-8
<PAGE> 60
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. INFOCURE CORPORATION BACKGROUND
InfoCure Corporation ("InfoCure") was formed to bring together in one
entity the research, development, service and support and sales and marketing
efforts for a comprehensive array of practice management systems. InfoCure has
conducted no operations to date and will acquire the Founding Businesses
contemporaneously with the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of all the Founding Businesses and were derived from the
respective financial statements where indicated. The audited historical
financial statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
3. ACQUISITION OF FOUNDING COMPANIES
Contemporaneously with the consummation of the Offering, InfoCure will
acquire substantially all of the net assets of the Founding Businesses. The AMC
Merger (for 3,419,437 shares) will be accounted for as a combination at
historical cost and the acquisition of the Founding Businesses will be recorded
at fair value.
The following table sets forth for the Founding Businesses the
consideration to be paid to their common stockholders in cash and in shares of
common stock of InfoCure:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
FAIR VALUE OF
CASH SHARES SHARES(1)
------- -------- --------------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C>
DR Software........................................... $ 2,128 74,993 $ 412
KCOMP................................................. 250 258,500 1,422
Rovak................................................. 100 404,909 2,227
Millard-Wayne......................................... 500 132,448 729
------- -------- -------
Total....................................... $ 2,978 870,850 $ 4,790
======= ======== =======
Total consideration for these companies(2)................................ $ 7,768
Net book value (deficit) of these companies' assets....................... (730)
-------
Consideration allocated to goodwill(3).................................... $ 8,498
=======
</TABLE>
- ---------------
(1) Estimated at $5.50 per share, the assumed initial public offering price.
(2) Excludes contingent consideration payable or issuable to the selling
stockholders of Millard-Wayne, Rovak and KComp.
(3) Excludes $654,000 in acquisition related costs already incurred by AMC.
Due to the nature of the identifiable net assets, the book values were
determined to approximate fair value at the date of the acquisition. Property
and equipment are assigned lives of 3 to 5 years. Capitalized software costs
represent the intangible asset associated with enhancements and new modules for
existing products. Such costs are capitalized when technological feasibility is
determined and expensed when available for general release. These costs
generally have an estimated useful life of four years. The allocation to
goodwill of the consideration in excess of net book value for these acquisitions
recognizes the absence of other specifically identifiable intangible assets and
is reflective of the value ascribed to the ongoing businesses and the revenue
potential for existing and future products and services, particularly electronic
transactions processing, which the Company feels can be derived from the
installed customer base being acquired.
F-9
<PAGE> 61
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(A) Records the cash portion to be paid and the shares of stock to be issued to
the stockholders of the Founding Businesses in connection with the
acquisitions and elimination of subsidiary equity accounts for the combined
pro forma balance sheet. Additionally, reflects adjustments for certain
assets and liabilities not acquired and/or converted to equity concurrent
with the consummation of the acquisitions, including certain expenses
relating to the acquisitions.
(B) Records the repayment of certain debt obligations and other pro forma
adjustments. Of the anticipated debt repayment: $866,535 reduces AMC's
obligations under terms of the 10.25% note payable for the HCD acquisition
($511,533) and an 11.25% note payable to the Small Business Administration
("SBA") ($355,002); $133,253 reduces Millard-Wayne's obligations under
10.25% bank notes payable and $1,081,882 reduces Rovak's obligations under
a prime plus .5% bank note payable ($437,500), prime plus 2% notes payable
to the SBA ($560,379), and other miscellaneous notes payable to
stockholders ($84,003). Additionally, payments totalling $35,000 are
anticipated to eliminate AMC's obligations for certain accrued expenses.
Further, approximately $103,000 in additional acquisition-related expenses
are to be paid from proceeds of the Offering.
(C) Records the proceeds from the issuance of 1,400,000 shares of InfoCure
Common Stock, net of estimated offering costs of $1,574,000 (based on an
assumed initial public offering price of $5.50 per share, the midpoint of
the estimated price range); offering costs consist primarily of
underwriting discounts and commissions, legal fees, accounting fees and
printing expenses. These offering costs do not include approximately
$215,000 of costs that have already been paid.
The holders of 2,866,339 shares of Common Stock issued in partial payment
of the Acquisitions have agreed not to offer, sell or otherwise dispose of any
of those shares for designated periods after the Offering.
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(D) Records the adjustment to the provision for federal and state income taxes
to recognize the tax benefit of AMC's net operating loss carryforward as if
it had been realized January 31, 1995 and to recognize the tax effect of
filing a consolidated return.
(E) Records pro forma adjustment to depreciation and amortization expense as
follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE
JANUARY 31, MONTHS ENDED
-------------- APRIL 30,
1996 1997 1997
----- ----- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) due to:
Amortization of goodwill over life of 15 years on a
straight-line basis.............................. $ 782 $ 753 $ 154
Adjustment to amortization of capitalized software
to uniform application of a four-year life....... (300) (200) (20)
Adjustment to depreciation of property and equipment
to uniform lives of three to five years.......... -- (40) (20)
----- ----- -----
$ 482 $ 513 $ 114
===== ===== =====
</TABLE>
The 15-year estimated useful life of goodwill is derived from management's
analysis of (i) the historical lives and the future estimated useful life
of customer relationships which are the core of its business, (ii) the
longevity and continuing use of the Founding Businesses' base practice
management system products and (iii) the relatively minor impact of
technological obsolescence on the business applications provided to the
office-based physician by the Founding Businesses' products and services.
F-10
<PAGE> 62
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Founding Businesses provide practice management software systems and
related services to small and mid-size, office-based medical practices.
These products and services provide the customer an infrastructure to
manage their business on a long-term basis. The functions provided are
those of basic accounting, record-keeping and business management which are
essentially constant and generally not impacted by technological changes
which may affect diagnostic and treatment.
Consequently, the base products, while enhanced and updated periodically,
remain in service for extended periods fundamentally unchanged. These
factors, coupled with a natural resistance to change of a core component of
the business, give a relatively long life to both the product and the
customer relationship. The experience of the Founding Businesses indicates
that products introduced 15 to 20 years ago are, with appropriate
enhancements, in service today to many of the same customers.
Management believes these factors support a 15-year life for the goodwill
arising from the acquisition of the Founding Businesses.
(F) Records the pro forma change in interest expense for pro forma adjustments
to debt.
(G) Records pro forma adjustments to compensation expense and certain other
operating expenses pursuant to the acquisition agreements of the Founding
Businesses where certain personnel will be eliminated. Corporate overhead
and interest expense allocation from the former parent company of HCD is
also eliminated pursuant to terms of the acquisition agreement. These
adjustments are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE
JANUARY 31, MONTHS ENDED
--------------- APRIL 30,
(IN THOUSANDS) 1996 1997 1997
- -------------- ------ ------ ------------
<S> <C> <C> <C>
Reduction of compensation and related expenses........ $1,773 $1,830 $ 175
Reduction in rental and certain operating expenses.... 477 673 168
Reduction in corporate allocations to HCD:
Corporate overhead.................................. 476 328 --
ESOP expenses....................................... 159 75 --
Interest............................................ 26 35 --
Increase in the Company's overhead expenses to
integrate the acquisitions.......................... (452) (475) (30)
------ ------ -----
$2,459 $2,466 $ 313
====== ====== =====
</TABLE>
The pro forma adjustment to compensation and related expenses is derived
from position reductions at several of the Founding Businesses specifically
provided for in the acquisition and related agreements and are summarized
by division in the following table:
<TABLE>
<CAPTION>
NUMBER OF AS A PERCENTAGE
POSITIONS OF TOTAL
OPERATION DIVISION ELIMINATED PERSONNEL
- ------------------ ---------- ---------------
<S> <C> <C>
Enterprise.................................................. 26 27%
Mid-Range................................................... 3 6
Desktop..................................................... 3 4
-- --
Total............................................. 32 14%
</TABLE>
The foregoing position eliminations are duplicative in nature and
attributable in large part to administrative activities and redundancies in
sales and support. As such, it is management's opinion that the reductions
will not materially adversely affect the ability of the Company to continue
service levels, sales efforts and other functions required to maintain
sales levels consistent with those historically achieved
F-11
<PAGE> 63
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and, assuming no unforeseen changes in economic or other factors, that
these levels could be maintained for at least 12 months or through the
period required to achieve integration of the business units. Additionally,
as reflected in the table summarizing the pro forma adjustments, management
has provided for an addition to the Company's overhead, including an
increase in appropriate corporate management and administrative personnel,
to facilitate integration of the acquisitions.
Assuming constant sales levels, management believes that no additional
change in personnel is required, called for or anticipated. Any increase in
personnel requirements would be based on growth or the introduction of new
products and services. The specifically negotiated reductions in the
workforce give recognition to the economies of scale and synergies to be
attained as a result of integration of the Founding Businesses.
The acquisition of HCD was consummated on December 3, 1996. As a result,
certain personnel and costs which were not part of the acquisition have
been eliminated. Consequently, the Company considers that, on an annualized
basis, such costs savings have been effected as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) AMOUNT
- -------------- ------
<S> <C>
Compensation, primarily duplicative administrative
functions................................................. $1,130
Allocations from the division's former parent company:
Overhead.................................................. 476
ESOP expenses............................................. 159
Rent...................................................... 117
Interest.................................................. 26
------
$1,908
======
</TABLE>
Additionally, pro forma reductions in rental and other operating expenses
include the elimination of certain commissions and royalties which are
payable by Rovak under agreements that will be terminated following
consummation of the Acquisitions. Such adjustments are approximately
$125,000 and $323,000 for the year ended January 31, 1996 and 1997,
respectively.
Finally, of the remaining pro forma expense reductions for the year ended
January 31, 1997, approximately $100,000 relate to adjustments in
compensation of certain key executives as part of employment agreements to
be effective upon consummation of the Acquisitions. The balance relates to
costs associated with duplicative functions to be eliminated, net of
increases in certain administrative costs deemed appropriate to effect
integration of the Acquisitions. These adjustments are made based on
appropriate provisions of the respective acquisition agreements.
(H) The weighted average number of shares used to calculate pro forma earnings
per share included the following:
<TABLE>
<S> <C>
Issued to incorporators of the Company...................... 100
Issued to acquire Founding Businesses....................... 4,043,466
Issued to pay cash portion of Acquisitions.................. 680,667
Issued to pay certain indebtedness.......................... 534,247
Issued to pay certain costs................................. 79,356
Shares assumed issued from exercise of options and a
warrant................................................... 279,835
Shares assumed repurchased from proceeds from shares assumed
issued from exercise of options........................... (132,335)
---------
Shares estimated to be outstanding.......................... 5,485,336
---------
</TABLE>
F-12
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
InfoCure Corporation
Atlanta, Georgia
We have audited the accompanying balance sheet of InfoCure Corporation as
of April 30, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the balance sheet, the Company was formed in
November 1996 and has entered into definitive agreements for the acquisition of
six healthcare information systems businesses ("the Founding Businesses")
through transactions involving American Medcare Corporation, Inc. and its
subsidiaries International Computer Solutions, Inc. and Health Care Division,
Inc.; Millard-Wayne, Inc.; DR Software, Inc.; KComp Management Systems, Inc. and
Rovak, Inc. concurrently with an initial public offering of its common stock.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of InfoCure Corporation as of April
30, 1997 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
June 19, 1997
Atlanta, Georgia
F-13
<PAGE> 65
INFOCURE CORPORATION
BALANCE SHEET
AS OF APRIL 30, 1997
<TABLE>
<S> <C>
ASSETS:
Subscription receivable..................................... $ 1
----------
$ 1
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Stockholders' equity:
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized, none issued and outstanding................ $ --
Common Stock, $0.001 par value, 15,000,000 shares
authorized, 100 shares issued and outstanding.......... 1
----------
Total stockholders' equity........................ $ 1
==========
</TABLE>
See accompanying notes to balance sheet.
F-14
<PAGE> 66
INFOCURE CORPORATION
NOTES TO BALANCE SHEET
APRIL 30, 1997
NOTE 1 -- ORGANIZATION AND GENERAL
InfoCure Corporation ("InfoCure") was formed in November 1996 to develop,
market and service healthcare information systems for use by healthcare
providers throughout the United States. InfoCure has conducted no operations to
date and will acquire the Founding Businesses concurrently with the consummation
of an initial public offering of its common stock.
F-15
<PAGE> 67
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of
American Medcare Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of American
Medcare Corporation and subsidiaries as of January 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (capital
deficit) and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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
American Medcare Corporation and subsidiaries at January 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
April 15, 1997
(Except for Notes 2 and 8,
as to which date is
June 19, 1997)
F-16
<PAGE> 68
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- APRIL 30,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................. $ 249,698 $ 198,735 $ 232,361
Accounts and notes receivable, net of allowance of
$90,000, $35,000 and $24,000....................... 156,936 318,405 293,419
Prepaid expenses and other current assets............. 32,620 62,364 75,120
----------- ----------- -----------
Total current assets.......................... 439,254 579,504 600,900
Property and equipment, net............................. 54,372 94,157 81,310
Miscellaneous........................................... 73,315 100,389 101,283
Goodwill, net of accumulated amortization of $21,408 and
$53,508............................................... -- 2,015,309 1,983,209
Deferred acquisition costs.............................. -- 521,871 946,425
Deferred tax asset...................................... -- 871,000 903,000
----------- ----------- -----------
$ 566,941 $ 4,182,230 $ 4,616,127
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT):
Current liabilities:
Accounts payable...................................... $ 374,824 $ 483,730 $ 625,666
Accrued expenses...................................... 448,627 358,671 462,958
Deferred revenue...................................... 481,224 814,383 802,691
Current portion of long-term debt..................... 335,542 49,529 50,029
----------- ----------- -----------
Total current liabilities..................... 1,640,217 1,706,313 1,941,344
Long-term debt, less current portion.................... 450,280 698,252 683,914
Note payable to stockholder............................. 94,500 94,500 94,500
Note payable -- other................................... -- 1,511,533 1,511,533
----------- ----------- -----------
Total liabilities............................. 2,184,997 4,010,598 4,231,291
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock.......................................... 41,577 54,965 55,765
Stock purchase warrant................................ 500,000 80,000 80,000
Additional paid-in capital............................ 1,445,247 3,452,453 3,739,153
Deficit............................................... (3,504,880) (3,250,786) (3,325,082)
Treasury stock and accrued stock repurchase, at
cost............................................... (100,000) (165,000) (165,000)
----------- ----------- -----------
Total stockholders' equity (capital
deficit).................................... (1,618,056) 171,632 384,836
----------- ----------- -----------
$ 566,941 $ 4,182,230 $ 4,616,127
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 69
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, THREE MONTHS ENDED APRIL 30,
-------------------------- ----------------------------
1996 1997 1996 1997
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Maintenance and support............... $ 1,310,385 $ 1,418,884 $ 388,960 $ 680,528
Systems and software sales............ 1,102,349 1,075,679 210,047 809,429
----------- ----------- ----------- -----------
Total revenues........................ 2,412,734 2,494,563 599,007 1,489,957
Cost of revenues........................ 515,842 474,201 122,361 673,274
----------- ----------- ----------- -----------
Gross margin............................ 1,896,892 2,020,362 476,646 816,683
----------- ----------- ----------- -----------
Operating expenses:
Salaries and operating expenses....... 2,015,647 2,469,249 470,928 804,498
Depreciation and amortization......... 114,056 110,635 16,786 61,022
----------- ----------- ----------- -----------
Total operating expenses.............. 2,129,703 2,579,884 487,714 865,520
----------- ----------- ----------- -----------
Loss from operations.................... (232,811) (559,522) (11,068) (48,837)
Other income (expense):
Interest.............................. (68,609) (82,900) (19,175) (60,820)
Other income, net..................... 121,224 5,516 671 3,361
----------- ----------- ----------- -----------
Loss before taxes....................... (180,196) (636,906) (29,572) (106,296)
Income tax (benefit).................... -- (891,000) -- (32,000)
----------- ----------- ----------- -----------
Net income (loss)....................... $ (180,196) $ 254,094 (29,572) (74,296)
=========== =========== =========== ===========
Net income (loss) per common share...... $ (0.00) $ 0.01 $ (0.00) $ (0.00)
=========== =========== =========== ===========
Weighted average common shares
outstanding........................... 41,387,381 43,185,916 41,349,299 55,184,993
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 70
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLAR VALUE
--------------------- ------------------- ACCRUED STOCK ADDITIONAL
COMMON TREASURY COMMON TREASURY STOCK PURCHASE PAID-IN
STOCK STOCK STOCK STOCK REPURCHASE WARRANT CAPITAL DEFICIT
---------- -------- ------- --------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at January 31, 1995.... 41,577,788 -- $41,577 $ -- $ -- $ 500,000 $1,415,249 $(3,324,684)
Acquisition of treasury
stock........................ -- (228,489) -- (100,000) -- -- -- --
Issuance of stock options...... -- -- -- -- -- -- 29,998 --
Net loss........................ -- -- -- -- -- -- -- (180,196)
---------- -------- ------- --------- -------- --------- ---------- -----------
Balance, at January 31, 1996.... 41,577,788 (228,489) 41,577 (100,000) -- 500,000 1,445,247 (3,504,880)
Issuance of common stock....... 13,387,440 -- 13,388 -- -- -- 1,417,206 --
Cancellation of warrant........ -- -- -- -- -- (500,000) 450,000 --
Issuance of warrant............ -- -- -- -- -- 80,000 -- --
Issuance of stock options...... -- -- -- -- -- -- 30,000 --
Capital contribution........... -- -- -- -- -- -- 110,000 --
Pending repurchase of common
stock........................ -- -- -- -- (65,000) -- -- --
Net income..................... -- -- -- -- -- -- -- 254,094
---------- -------- ------- --------- -------- --------- ---------- -----------
Balance, at January 31, 1997.... 54,965,228 (228,489) 54,965 (100,000) (65,000) 80,000 3,452,453 (3,250,786)
Period ended April 30, 1997
(unaudited)
Issuance of common stock....... 800,000 -- 800 -- -- -- 279,200 --
Issuance of stock options...... -- -- -- -- -- -- 7,500 --
Net loss....................... -- -- -- -- -- -- -- (74,296)
---------- -------- ------- --------- -------- --------- ---------- -----------
Balance, at April 30, 1997
(unaudited).................... 55,765,228 (223,489) $55,765 $(100,000) $(65,000) $ 80,000 $3,739,153 $(3,325,082)
========== ======== ======= ========= ======== ========= ========== ===========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance, at January 31, 1995.... $(1,367,858)
Acquisition of treasury
stock........................ (100,000)
Issuance of stock options...... 29,998
Net loss........................ (180,196)
-----------
Balance, at January 31, 1996.... (1,618,056)
Issuance of common stock....... 1,430,594
Cancellation of warrant........ (50,000)
Issuance of warrant............ 80,000
Issuance of stock options...... 30,000
Capital contribution........... 110,000
Pending repurchase of common
stock........................ (65,000)
Net income..................... 254,094
-----------
Balance, at January 31, 1997.... 171,632
Period ended April 30, 1997
(unaudited)
Issuance of common stock....... 280,000
Issuance of stock options...... 7,500
Net loss....................... (74,296)
-----------
Balance, at April 30, 1997
(unaudited).................... $ 384,836
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 71
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
----------------------- ---------------------
1996 1997 1996 1997
---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)............................... $(180,196) $ 254,094 $ (29,572) $ (74,296)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization................ 114,056 110,635 16,786 61,022
Allowance for doubtful accounts.............. 18,368 (55,086) (51,000) (11,000)
Compensatory stock options................... 29,998 30,000 7,500 7,500
Option cancellation expense.................. -- 110,000 -- --
Income tax benefit........................... -- (891,000) -- (32,000)
Changes in current assets and liabilities,
net of effects of acquisition:
Accounts and notes receivable.............. 107,540 47,975 (5,217) 35,986
Prepaid expenses and other assets.......... (5,424) (43,526) 1,721 (20,718)
Accounts payable and accrued expenses...... (47,235) (312,703) (65,520) (113,777)
Deferred revenue........................... (21,692) (99,165) (27,117) (11,692)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................... 15,415 (848,776) (152,419) (158,975)
--------- --------- --------- ---------
Cash used in investing activities:
Property and equipment expenditures............. (15,189) (16,941) (3,622) --
Cash paid for deferred acquisition costs........ -- (196,680) -- (64,554)
Expenditures for software development costs..... -- (32,461) (7,073) (9,007)
Cash paid for acquisition of HCD................ -- (150,000) -- --
Proceeds from collection of notes and other
receivables.................................. 4,213 -- -- --
--------- --------- --------- ---------
Net cash used in investing activities........... (10,976) (396,082) (10,695) (73,561)
--------- --------- --------- ---------
Cash provided by (used in) financing activities:
Proceeds from issuance of common stock.......... -- 1,320,402 -- 280,000
Proceeds from note payable to stockholder....... 94,500 -- -- --
Repayment of note payable to stockholder........ (73,027) -- -- --
Proceeds from issuance of long-term debt........ 366,665 -- -- --
Principal payments on long-term debt............ (47,563) (76,507) (11,571) (13,838)
Repurchase of common stock...................... (100,000) -- -- --
Repurchase of common stock warrant.............. -- (50,000) -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................... 240,575 1,193,895 (11,571) 266,162
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 245,014 (50,963) (174,685) 33,626
Cash and cash equivalents, beginning.............. 4,684 249,698 249,698 198,735
--------- --------- --------- ---------
Cash and cash equivalents, ending................. $ 249,698 $ 198,735 $ 75,013 $ 232,361
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 72
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND NATURE OF BUSINESS
American Medcare Corporation (the "Company" or "AMC") was incorporated on
January 11, 1983, and was originally formed to provide management services to
professional corporations practicing family and emergency medicine.
In May 1993, the Company merged with Newport Capital, Inc. ("Newport"),
whose principal asset was its wholly-owned subsidiary, International Computer
Solutions, Inc. ("ICS"). The Company, through its operating subsidiaries,
develops, markets and supports health care data processing and claims
transmission systems, including hardware and software packages, primarily for
physician and dentist practice offices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 3 for accounting
for failed acquisitions.
USE OF 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from these estimates.
The Company has recorded a deferred tax asset of $871,000 at January 31,
1997, reflecting the benefit of approximately $2.2 million in loss
carryforwards, which expire in varying amounts between 2003 and 2011.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in future periods if estimates of future
taxable income during the carryforward period are reduced.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets using both straight line and
accelerated methods for financial reporting and accelerated methods for income
tax purposes. Substantial betterments to property and equipment are capitalized
and repairs and maintenance are expensed as incurred.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally two to
three years). Development costs include detailed design, prototyping, coding,
testing, documentation, production and quality assurance. Such costs are
capitalized once the product's technological feasibility is established and are
expensed after the product is available for general release. During the year
ended January 31, 1997, the Company capitalized $32,461 of software development
costs. Amortization of capitalized software development costs for the years
ended January 31, 1996, and 1997, was $42,925 and $15,914, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and
F-21
<PAGE> 73
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determine whether the software should be completely or partially written off or
the amortization period accelerated. The Company will recognize an impairment if
undiscounted estimated future cash flows of the capitalized software is
determined to be less than the carrying amount of capitalized software.
INTANGIBLE ASSETS
Intangible assets have been recorded as the result of the acquisition of
HCD and costs associated with potential acquisitions. Intangible assets consist
of goodwill which is being amortized over 15 years and deferred acquisition
costs which will be amortized upon completion of the Company's pending
acquisitions (Note 2). Amortization of goodwill for the year ended January 31,
1997 was $21,408. The Company periodically evaluates the carrying amount of
goodwill based on projected undiscounted cash flows of HCD.
REVENUE RECOGNITION
Revenue is recognized, net of allowances for estimated returns, from the
sale of computer hardware and computer software when the product is shipped and
when training services, where applicable, are provided. Revenue from hardware
maintenance and customer support contracts and claims processing services are
recognized in the period in which the services are provided; amounts not yet
earned are recorded as deferred revenue. Revenue from contract services for
maintenance and support were approximately $805,000 and $747,000 for 1996 and
1997, respectively. Revenue from claims processing services totaled
approximately $338,000 and $290,000 for 1996 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than possible enactments of changes in the tax laws or rates.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during each
year.
NEW ACCOUNTING PRONOUNCEMENTS
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" is effective for years beginning after December 15, 1995 and was adopted by
the Company as of February 1, 1996. This statement requires that long-lived
assets, including certain intangibles, held and used by the Company be reviewed
for potential impairment. This new pronouncement did not have a material effect
on the Company's financial statements when adopted.
SFAS No. 123, "Accounting for Stock Based Compensation" is effective for
years beginning after December 15, 1995 and was adopted by the Company as of
February 1, 1996. This statement establishes financial accounting and reporting
standards for stock based employee compensation plans. SFAS No. 123 permits, but
does not require, a fair-value based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. As permitted by SFAS No. 123, the Company will provide pro
forma disclosure of net income and earnings per share, as applicable in the
notes to the consolidated financial statements.
F-22
<PAGE> 74
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 128, "Earnings Per Share" is effective for periods ending after
December 15, 1997. This statement revises the manner in which earnings per share
is calculated and requires the restatement, when first applied, of prior period
earnings per share data. The Company does not expect the adoption of this
pronouncement to have a material effect on the previously reported earnings per
share data.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Accounts receivable
arise from sale of healthcare practice management systems to the Company's
customer base located throughout the United States. The Company performs ongoing
credit evaluations of its customers' financial condition, and generally requires
no collateral from its customers. The Company's credit losses are subject to
general economic conditions of the healthcare industry.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts of the Company's financial instruments included in the
accompanying consolidated balance sheets approximate estimated fair value as of
January 31, 1997 and 1996.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at April
30, 1997 and its results of operations and its cash flows for the three months
ended April 30, 1996 and 1997. The results of operations and its cash flows for
the interim periods are not necessarily indicative of the results to be expected
for the full year.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. BUSINESS ACQUISITIONS
In fiscal 1997, AMC initiated an acquisition program to strengthen its
market position and leverage its customer base. AMC targeted similar and
compatible companies in various locations throughout the United States and, as
described below, completed one acquisition and entered into agreements for four
others.
In addition, AMC agreed to merger terms with InfoCure Corporation,
("InfoCure"), a newly-formed Delaware corporation, whereby AMC shareholders
would receive approximately 3.4 million shares of InfoCure Common Stock in
exchange for all outstanding shares of AMC common stock (approximately one
InfoCure "Equivalent Share" for every 17 AMC shares). AMC, together with the
targeted acquisitions described below, would be Founding Businesses of InfoCure
contingent upon successful completion of InfoCure's public offering which was
pending at the date of these financial statements.
In December 1996, the Company acquired certain assets and assumed certain
liabilities of the Health Care Division ("HCD") (formerly a division of Info
Systems of North Carolina, Inc. ("ISI")). HCD is engaged in designing,
programming, licensing, installing, and supporting hardware and software systems
to the
F-23
<PAGE> 75
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
medical industry throughout the United States. HCD has long-term marketing
rights to and ownership of licensed software in various industry segments. As
consideration, the Company paid $150,000 and issued a $1.55 million note payable
for an aggregate purchase price of $1.7 million. The acquisition is accounted
for under the purchase method of accounting. HCD's results of operations from
December 3, 1996, to January 31, 1997, are included in the accompanying
financial statements.
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if the acquisition had occurred as of
February 1, 1995. The pro forma information is not necessarily indicative of
what would have occurred had the acquisition been made as of February 1, 1995,
nor is it indicative of future results of operations. The pro forma amounts give
effect to appropriate adjustments for the fair value of the net assets acquired,
reductions for personnel costs and other operating expenses not assumed as part
of the acquisition, amortization of goodwill, interest expense, and income
taxes.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
THREE MONTHS ENDED ------------------------
APRIL 30, 1996 1996 1997
------------------ ------ ------
(000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Net sales................................. $1,518 $8,051 $6,383
Net income................................ 355 824 584
Earnings per share........................ 0.01 0.02 0.01
</TABLE>
The fair values of the net assets acquired and liabilities assumed were as
follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 154,358
Property and equipment...................................... 60,000
Goodwill.................................................... 1,926,717
Other assets................................................ 8,902
Deferred revenue............................................ (432,324)
Accounts payable............................................ (14,305)
Notes payable............................................... (1,550,000)
Customer deposits........................................... (3,348)
-----------
Cash used for acquisition................................... $ 150,000
===========
</TABLE>
The Company or InfoCure has entered into Agreements to acquire the
following companies:
<TABLE>
<CAPTION>
NAME LOCATION
- ---- -----------------------
<S> <C>
Millard-Wayne, Inc. ............................... Atlanta, Georgia
DR Software, Inc. ................................. Atlanta, Georgia
ROVAK, Inc......................................... Lake Elmo, Minnesota
KComp Management Systems, Inc...................... Los Angeles, California
</TABLE>
Aggregate consideration for the foregoing acquisitions is approximately $9
million, including approximately $7 million cash and the balance in common
stock. Closing of these acquisitions is contingent upon the successful
completion of InfoCure's pending public offering.
As of January 31, 1997, the Company had incurred approximately $631,000 in
costs, principally professional fees, relating directly to its acquisition
program. A portion of these costs were allocated to goodwill in connection with
the HCD Acquisition. The remaining $521,000 will be allocated appropriately as
the remaining acquisitions are completed.
3. FAILED ACQUISITIONS
On July 22, 1994, Integrated Computer Systems, Inc. ("Integrated") and
Electronic Transmitting Solutions, Inc. ("Electronic"), two wholly-owned
subsidiaries of the Company, filed voluntary petitions for Chapter 7 bankruptcy
with the United States Bankruptcy Count -- Northern District of Georgia. The
F-24
<PAGE> 76
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company also filed suit against the sellers of Integrated and Electronic in 1996
in the United States Bankruptcy Court -- Northern District of Georgia. The suit
called for rescission of the October 29, 1993 acquisitions along with the return
of the stock issued to the sellers. In addition, the suit asks for damages for
monetary amounts incurred by the Company as a result of problems related to the
acquisitions.
The shares of common stock issued in connection with the acquisition of
Integrated and Electronic are reflected as being outstanding in the accompanying
consolidated balance sheets and statements of shareholders' equity (capital
deficit). The Company has entered into an agreement with the sellers and the
trustee in bankruptcy granting the Company the right to purchase these 1,926,470
shares (114,934 Equivalent Shares of InfoCure Common Stock) for $65,000. The
purchase is contingent upon the approval of the settlement by the bankruptcy
court. The pending repurchase has been reflected in the financial statements as
accrued stock repurchase.
The Company has also reached agreement with the trustee for settlement of
all other matters associated with the bankruptcy of these former subsidiaries.
Costs attributable thereto are not material.
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current deferred tax asset.................................. $ -- $25,000
Deposits.................................................... 850 11,414
Prepaid expenses............................................ 17,365 5,396
Other....................................................... 14,405 20,554
------- -------
$32,620 $62,364
======= =======
</TABLE>
5. PROPERTY, EQUIPMENT AND DEPRECIATION
Major classifications of property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Computer equipment.................................... 3-5 $331,436 $441,464
Furniture and fixtures................................ 5-7 293,381 240,898
--- -------- --------
624,817 682,362
Less accumulated depreciation......................... 570,445 588,205
-------- --------
$ 54,372 $ 94,157
======== ========
</TABLE>
Depreciation was $34,389 and $37,156 for the years ended January 31, 1996
and 1997, respectively.
6. MISCELLANEOUS ASSETS
Miscellaneous assets consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred rent asset, net.................................... $52,547 $ 59,136
Capitalized software development costs, net................. 19,511 41,253
Long-term notes receivable.................................. 1,257 --
------- --------
$73,315 $100,389
======= ========
</TABLE>
F-25
<PAGE> 77
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized software development costs are stated net of accumulated
amortization of $656,505 and $657,115, at January 31, 1996 and 1997,
respectively.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Taxes other than income..................................... $ 57,995 $ 84,503
Compensation................................................ 151,537 82,371
Interest.................................................... 5,095 75,182
Accrued stock repurchase.................................... -- 65,000
Professional fees........................................... 50,000 30,000
Customer costs.............................................. 28,606 3,924
Expenses related to loss on failed acquisition.............. 119,590 --
Other....................................................... 35,804 17,691
-------- --------
$448,627 $358,671
======== ========
</TABLE>
8. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Notes payable to banks...................................... $396,042 $366,932
Other....................................................... 389,780 380,849
-------- --------
785,822 747,781
Less current portion........................................ 335,542 49,529
-------- --------
$450,280 $698,252
======== ========
</TABLE>
During fiscal 1994, ICS refinanced its existing bank loans with a new note
payable to a bank which is guaranteed by the Small Business Administration
("SBA"). This loan bears interest at a rate of 11.25% and is payable in monthly
installments through May 2003. The loan is secured by substantially all of the
assets of ICS, and certain other real estate owned by two stockholders. In
addition, the loan is personally guaranteed by five of the Company's
stockholders.
In January 1996, the Company received a loan from a third party in the
amount of $366,666 in the form of a promissory note payable bearing interest at
a rate of 9.95%. In conjunction with this note the Company has entered into an
agreement to exclusively promote the third party's claims processing services as
a component of the Company's products. The note is to be repaid based on fees
charged by the third party for claims submitted by the Company for processing.
As of January 31, 1997, no material amount of such claims had been submitted.
The note is payable together with accrued and unpaid interest at December 31,
1998 and is included in other long-term debt.
Also included in other long-term debt are capital leases of $19,612 and
$10,682 at January 31, 1996 and 1997, respectively.
F-26
<PAGE> 78
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of January 31, 1997, future maturities of these obligations are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1998........................................................ $ 49,529
1999........................................................ 419,637
2000........................................................ 52,344
2001........................................................ 58,691
2002........................................................ 65,808
Thereafter.................................................. 101,772
--------
$747,781
========
</TABLE>
In April 1995, the Company borrowed $94,500 from a stockholder of the
Company in exchange for a promissory note bearing interest at 12% payable in a
balloon payment of principal and interest in April 1998.
As partial consideration for the acquisition of HCD, the Company issued ISI
a note payable in the original amount of $1.55 million. The original note
balance was subsequently reduced for post-closing adjustments, and the balance
is payable on June 2, 1998, or within 5 days of a successful public offering by
the Company or its successor. The note bears interest of prime plus 2% (10.25%
at January 31, 1997) and is collateralized by HCD's assets. The foregoing
schedule of future maturities excludes this note and the note payable to
stockholder described above.
Subsequent to the date of these financial statements and in conjunction
with the proposed public offering (Note 2) ISI agreed to accept 181,818 shares
of Common Stock of InfoCure in satisfaction of $1,000,000 of the principal due
under terms of its note due from the Company. If such shares are sold at an
average price of less than the public offering price, the Company agreed to pay
ISI an additional amount equal to the difference.
9. COMMITMENTS
The Company leases certain office equipment under noncancellable operating
leases with initial or remaining terms of one year or more. At January 31, 1997,
the remaining amounts due under these leases totaled approximately $45,000 in
the aggregate.
The Company leases office space with future minimum annual rental payments
of approximately $126,000 and $76,000 for 1998 and 1999, respectively. The
Company issued an aggregate of 1,087,762 shares of common stock from 1995 to
1997 to the lessor as partial consideration for rent.
Rent expense for 1996 and 1997, which included lease payments for office
space, was approximately $101,000 and $140,000, respectively.
The Company has a 401(k) plan eligible to substantially all employees of
the Company. Company contributions to the plan are discretionary. No
contributions have been made for the years ended January 31, 1996 or 1997.
10. COMMON STOCK
The Company had 50,000,000 and 75,000,000 shares of common stock, par value
$.001 per share, authorized at January 31, 1996 and 1997, respectively. Shares
of common stock outstanding totaled 41,349,299 and 54,736,739 at January 31,
1996 and 1997, respectively.
In 1996, the Company acquired 228,489 shares of treasury stock as payment
for a note receivable from one of the Company's former salespersons in the
amount of $100,000, which is the basis for the valuation of the treasury stock.
F-27
<PAGE> 79
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As indicated in Note 3, the Company has accrued $65,000 for the anticipated
repurchase of 1,926,470 shares issued to sellers of Integrated and Electronic,
former subsidiaries. Completion of the repurchase is pending approval of the
bankruptcy court.
11. STOCK PURCHASE WARRANT AND OPTIONS
On January 4, 1991, the Company issued to Moore Business Forms, Inc.
("Moore") a stock purchase warrant, exercisable through December 31, 2000, for
20% of ICS common stock, in full satisfaction of approximately $445,000 of
amounts owed to Moore. In addition, Moore transferred ownership of the Medical
Practice Manager, Dental Practice Manager and Oral Surgeon Practice Manager
software and source code to ICS. The warrant was assigned a value of $500,000
and the Company recorded approximately $55,000 as the value of the software and
source code. Pursuant to terms of an agreement dated December 20, 1996, the
Company repurchased the warrant for $50,000 and terminated all related
obligations and liabilities.
During fiscal 1995, the Company granted options to a director and an
officer of the Company. The options enabled the holders to purchase up to
4,000,000 shares of common stock (3,000,000 shares for the director; 1,000,000
shares for the officer) at prices ranging from $0.01 to $1.00 per share. The
options had exercise dates at various times through September 1999. In fiscal
1997, the officer exercised options to purchase 500,000 shares for $500. Also in
fiscal 1997, the director resigned and certain shareholders transferred to the
former director an aggregate of 1,000,000 shares of common stock from their
personal holdings to retire the 3,000,000 options. The Company accounted for
this transaction as a contribution to capital for $110,000, the estimated fair
value of the shares involved, with a corresponding charge to operating expenses
to recognize the cost of cancelling the options.
During fiscal 1997, the Company granted 2,325,000 options to several
employees and an officer of the Company. Each option enables the holders to
purchase one share of common stock at prices ranging from $0.125 to $0.25. The
exercise prices approximate fair market value of the common stock on the
issuance dates. The options may be exercised at various times through November
15, 2004. Additionally, in conjunction with the pending acquisitions, the
Company granted 1,865,500 warrants to a third party for assistance in securing
potential acquisitions. Each warrant enables the holder to purchase one share of
common stock at $0.0625, and the warrants are currently exercisable. The
warrants' estimated fair value of $80,000 was accounted for as additional
deferred acquisition costs.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recorded in conjunction with options
issued to employees. Had compensation cost been determined based on the fair
value of the options at the grant date, consistent with the method prescribed by
SFAS No. 123, the Company's net earnings would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Net income (loss) -- as reported............................ $(180,196) $254,094
Net income (loss) -- pro forma.............................. (180,196) 14,388
Net income (loss) per common share -- pro forma............. (0.00) 0.00
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997: expected volatility of 0%; risk-free interest rate of 7.50%;
and expected lives from five to eight years.
F-28
<PAGE> 80
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... -- 5,000
-------- ---------
Total current..................................... -- 5,000
-------- ---------
Deferred
Federal................................................... (66,000) (195,000)
State..................................................... (11,000) (30,000)
-------- ---------
Total deferred.................................... (77,000) (225,000)
-------- ---------
Change in deferred tax
Asset valuation allowance................................. 77,000 (671,000)
-------- ---------
Net income tax expense (benefit).................. $ -- $(891,000)
======== =========
</TABLE>
Deferred taxes result from temporary differences between the bases of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The sources of the temporary differences
and their effect on deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Current:
Deferred tax assets
Allowance for doubtful accounts........................ $ 34,000 $ 14,000
Accrued expenses....................................... 8,000 11,000
--------- --------
42,000 25,000
--------- --------
Noncurrent:
Deferred tax assets (liabilities)
Basis difference of capitalized software costs and
other assets......................................... (75,000) (40,000)
Net operating loss carryforwards....................... 704,000 911,000
--------- --------
629,000 871,000
--------- --------
Gross deferred tax assets................................... 671,000 896,000
Valuation allowance......................................... (671,000) --
--------- --------
Net deferred tax assets........................... $ -- $896,000
========= ========
</TABLE>
Reduction of the deferred tax asset valuation allowance reflects the
anticipated impact of the Company's acquisition of HCD (Note 2) and the
resolution of previous contingencies associated with failed acquisitions (Note
3). In the opinion of management, it is now "more likely than not" that the
future tax benefits represented by the net operating loss carryforwards will be
realized.
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Expected tax expense (benefit).............................. $(61,000) $(217,000)
Increase (decrease) in income taxes resulting from:
State income taxes........................................ 11,000 21,000
Effect of graduated rates................................. (17,000) (14,000)
Other, net................................................ (10,000) (10,000)
Change in deferred tax asset valuation allowance....... 77,000 (671,000)
-------- ---------
Net income tax expense (benefit).................. $ -- $(891,000)
======== =========
</TABLE>
F-29
<PAGE> 81
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of January 31, 1997, the Company and its subsidiaries have net operating
loss carryforwards for Federal income tax purposes of approximately $2.2 million
which expire at various dates from 2003 to 2011.
13. CLAIM PROCESSING AGREEMENT
ICS has an agreement with another company whereby ICS assisted in the
establishment of an electronic claims processing clearinghouse and in the
subsequent marketing of the clearinghouse by submitting electronic claims of ICS
customers for processing through the clearinghouse. The other company is owned
by a minority stockholder of the Company. ICS received a fee which included the
cancellation of a $324,000 note payable to this minority stockholder, plus
additional periodic payments totaling $100,000.
As part of the agreement, ICS agreed to submit all its eligible electronic
claims exclusively to the other company for processing and will pay $0.25 per
claim processed. The agreement commenced September 1, 1992 and will terminate
upon the processing of 11,800,000 claims, or certain other events (principally
related to the transfer of ownership of ICS) or discontinuance of electronic
claim-related business activities. If the agreement is terminated due to the
other events, five shareholders of the Company shall pay a termination fee of
$324,000 less the number of claims processed to date times $0.05 per claim, plus
an annual interest surcharge of prime plus 3%. ICS has guaranteed the
shareholders' obligation for the termination fee which totaled approximately
$234,000 at January 31, 1997. The service center became functional in September
of 1993 and processed approximately 431,000 and 495,000 claims from ICS
customers in fiscal 1996 and 1997, respectively. As of January 31, 1996 and
1997, approximately $284,000 and $234,000, respectively, was included in
deferred revenue related to this agreement.
In November 1996, the Company entered into an agreement to terminate this
agreement in consideration of a $25,000 payment and tender of the remaining
outstanding balance to be paid upon the successful completion of a public
offering of the Company or its successor.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest amounted to $55,338 and $42,626 for the years
ended January 31, 1996 and 1997, respectively.
In fiscal 1997, the Company issued common stock and a warrant with an
aggregate fair value of $190,192 for services rendered to the Company.
In fiscal 1997, the Company acquired certain assets and assumed certain
liabilities of HCD for consideration of a $1,550,000 note and $150,000 cash
(Note 2).
F-30
<PAGE> 82
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
KComp Management Systems, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of KComp Management
Systems, Inc. as of March 31, 1996 and 1997, and the related statements of
operations, changes in stockholders' equity and cash flows for the period from
inception (December 15, 1995) to March 31, 1996 and for the year ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of KComp Management Systems,
Inc. at March 31, 1996 and 1997, and the results of its operations and its cash
flows for the period from inception (December 15, 1995) to March 31, 1996 and
for the year ended March 31, 1997, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
April 25, 1997
F-31
<PAGE> 83
KCOMP MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash...................................................... $ 33,427 $ 11,403
Accounts receivable -- trade.............................. 27,453 40,206
Accounts receivable -- other.............................. 172,914 --
Other..................................................... -- 29,135
-------- --------
Total current assets.............................. 233,794 80,744
-------- --------
Property and equipment:
Computer equipment........................................ 62,051 62,051
Phone equipment........................................... 29,409 38,683
Other..................................................... 3,171 3,171
-------- --------
Total property and equipment...................... 94,631 103,905
Less accumulated depreciation............................. 6,153 26,230
-------- --------
Net property and equipment........................ 88,478 77,675
-------- --------
Other assets:
Capitalized software development costs, less accumulated
amortization of $11,706 and $67,340.................... 128,765 255,474
Goodwill less accumulated amortization of $9,995 and
$39,978................................................ 439,759 409,776
-------- --------
Total assets...................................... $890,796 $823,669
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Lines of credit........................................... $ 24,134 $ 29,919
Accounts payable.......................................... 235,550 152,286
Accrued expenses.......................................... 72,686 52,998
Income taxes payable...................................... -- 72,000
Deferred revenue.......................................... 79,248 98,077
Current portion of notes payable.......................... 448,435 243,481
-------- --------
Total current liabilities......................... 860,053 648,761
Notes payable............................................... 27,761 --
-------- --------
Total liabilities........................................... 887,814 648,761
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, $0.01 stated value, 500,000
shares authorized; 30,000 and 357,240 shares issued and
outstanding............................................ 300 3,572
Additional paid-in capital................................ 3,682 41,141
Retained earnings (accumulated deficit)................... (1,000) 130,195
-------- --------
Total stockholders' equity........................ 2,982 174,908
-------- --------
Total liabilities and stockholders' equity........ $890,796 $823,669
======== ========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 84
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15,
1995) TO YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------- ----------
<S> <C> <C>
Revenues:
Systems and hardware sales................................ $172,781 $ 312,938
Maintenance and support................................... 486,764 1,673,622
-------- ----------
Total revenues.................................... 659,545 1,986,560
-------- ----------
Cost and expenses:
Salaries and wages........................................ 467,390 993,424
Telephone................................................. 73,904 196,751
Write-off of accounts receivable -- other................. -- 189,892
Depreciation and amortization............................. 27,854 105,695
Rent...................................................... 27,280 90,020
Insurance................................................. 10,045 12,646
Other..................................................... 40,328 159,891
-------- ----------
Total cost and expenses........................... 646,801 1,748,319
-------- ----------
Income from operations...................................... 12,744 238,241
Other income (expense):
Interest expense.......................................... (13,079) (40,894)
Other income (expense).................................... (665) (1,152)
-------- ----------
Income (loss) before taxes.................................. (1,000) 196,195
Income tax provision........................................ -- 65,000
-------- ----------
Net income (loss)........................................... $ (1,000) $ 131,195
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 85
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 15, 1995 (inception).......... -- $ -- $ -- $ -- $ --
Issuance of common stock...................... 30,000 300 3,682 -- 3,982
Net loss for the period....................... -- -- -- (1,000) (1,000)
------- ------ ------- -------- --------
Balance, March 31, 1996......................... 30,000 300 3,682 (1,000) 2,982
Issuance of common stock, pursuant to exercise
of warrant................................. 327,240 3,272 37,459 40,731
Net income for the year ended March 31,
1997....................................... 131,195 131,195
------- ------ ------- -------- --------
357,240 $3,572 $41,141 $130,195 $174,908
======= ====== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 86
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15,
1995) TO
MARCH 31, MARCH 31,
1996 1997
------------- ---------
<S> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)......................................... $ (1,000) $ 131,195
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 27,854 105,694
Write-off of accounts receivable -- other.............. -- 189,892
Increase (decrease) from change in:
Accounts receivable.................................. (200,367) (29,731)
Accounts payable and accrued expenses................ 154,793 (62,221)
Income taxes payable................................. -- 72,000
Deferred revenue..................................... 54,131 18,829
Other................................................ -- (29,135)
--------- ---------
Net cash provided by operating activities................. 35,411 396,523
--------- ---------
Cash provided by (used in) investing activities:
Purchase of equipment..................................... (5,191) (9,274)
Increase in software development costs.................... -- (182,343)
--------- ---------
Net cash used in investing activities..................... (5,191) (191,617)
--------- ---------
Cash provided by (used in) financing activities:
Proceeds from line of credit, net......................... 24,134 5,785
Increase in notes payable................................. 77,425 --
Payments on notes payable................................. (102,334) (232,715)
Issuance of common stock.................................. 3,982 --
--------- ---------
Net cash provided by (used in) financing activities....... 3,207 (226,930)
--------- ---------
Net increase (decrease) in cash............................. 33,427 (22,024)
Cash, beginning............................................. -- 33,427
--------- ---------
Cash, ending................................................ $ 33,427 $ 11,403
========= =========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 87
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
KComp Management Systems, Inc. (the "Company") was formed in March 1995 and
began operations in December 1995, following the acquisition of certain assets
and assumption of certain liabilities of Songbird Data Systems, Inc.
("Songbird") in December 1995. The Company provides support and training
services for computer software for the dental industry. The Company also updates
and sells the current version of its computer software and other related
auxiliary products.
REVENUE RECOGNITION
Revenue from maintenance and support contracts is recognized ratably over
the contract period. Revenue from software sales is recorded when the product is
delivered.
USE OF 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term securities
purchased with a maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the respective assets on the straight-line basis
ranging from five to seven years.
Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of purchase price over fair value of net assets acquired arises
in connection with business combinations accounted for as purchases and is
amortized on a straight-line basis over fifteen years. Accumulated amortization
amounted to approximately $39,978 for the period from inception (December 15,
1995) to March 31, 1997.
The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other that temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if undiscounted estimated future operating cash flows
of the acquired business are determined to be less than the carrying amount of
goodwill. If the Company determines that goodwill has been impaired, the
measurement of the impairment will be equal to the excess of the carrying amount
of goodwill over the amount of the undiscounted estimated operating cash flows.
If an impairment of goodwill were to occur, the Company would reflect the
impairment through a reduction in the carrying value of goodwill.
F-36
<PAGE> 88
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the year ended March 31,
1997, the Company capitalized approximately $182,000 of software development
costs. Amortization of capitalized software development costs for the period
from inception (December 15, 1995) to March 31, 1996, was approximately $12,000,
and for the year ended March 31, 1997, approximately $55,000.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this approach, deferred income taxes are provided for the temporary differences
between the book and tax bases of assets and liabilities using currently enacted
tax rates. Changes in tax laws or rates are recognized in the deferred tax
balances when enacted.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include receivables, accounts and notes
payable and accrued liabilities. Such instruments are reported at values which
the Company believes are not materially different from their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
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" is effective for years beginning after December 15, 1995 and was adopted by
the Company effective April 1, 1996.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
Adoption of this new pronouncement did not have a material effect on the
Company's financial statements.
2. NOTES PAYABLE
The Company maintains a revolving line of credit with a bank which provide
for an aggregate of $30,000 in borrowings. The line bears interest of 9.75% and
was due March 1997. The line of credit is collateralized by certain certificates
of deposit pledged by the Company's president. Subsequent to March 31, 1997, the
bank renewed the credit line.
F-37
<PAGE> 89
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains several term notes payable to certain officers,
directors and affiliates. The notes bear interest at rates from 7%-12% and
mature during the year ended March 31, 1998.
3. COMMITMENTS
The Company is obligated under terms of operating leases for its office
facilities and certain equipment and utilities. Rent expense was approximately
$27,000 and $90,000 for fiscal 1996 and 1997, respectively. Future minimum
payments under these leases are as follows:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
- --------- --------
<S> <C>
1998........................................................ $180,353
1999........................................................ 54,840
--------
$235,193
========
</TABLE>
The Company has a 401(k) plan eligible to substantially all employees of
the Company. The Company matches 25% of the first 6% of an employee's pre-tax
contribution. The Company contributed approximately $200 and $2,900 for the
period from inception (December 15, 1995) to March 31, 1996, and the year ended
March 31, 1997, respectively.
4. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15, 1995) YEAR ENDED
TO MARCH 31, 1996 MARCH 31, 1997
------------------- --------------
<S> <C> <C>
Current
Federal............................................. $ -- $53,000
State............................................... -- 19,000
------- -------
Total current............................... -- 72,000
------- -------
Deferred
Federal............................................. -- (5,000)
State............................................... -- (2,000)
------- -------
Total deferred.............................. -- (7,000)
------- -------
Net tax expense............................. $ -- $65,000
======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Other current assets
include $7,000 of deferred tax assets related to future deductible expenses,
primarily accrued vacation.
F-38
<PAGE> 90
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15, 1995) YEAR ENDED
TO MARCH 31, 1996 MARCH 31, 1997
------------------- --------------
<S> <C> <C>
Expected tax expense (benefit)...................... $ -- $67,000
Increase (decrease) in income taxes resulting from:
State income taxes................................ -- 18,000
Effect of graduated rates......................... -- (14,000)
Other, net........................................ -- (6,000)
------- -------
$ -- $65,000
======= =======
</TABLE>
5. STOCK WARRANT
In May 1996, the Company issued Marc Kloner a stock purchase warrant to
purchase 327,240 shares of common stock of the Company. The warrant was
exercised and resulted in the reduction of an account payable to Mr. Kloner of
approximately $41,000. Mr. Kloner is a principal in Songbird.
6. SUPPLEMENTAL CASH FLOW INFORMATION
As discussed in Note 1 the Company acquired certain assets and assumed
certain liabilities of Songbird. The assets and liabilities were as follows:
<TABLE>
<S> <C>
Fixed assets................................................ $ 89,440
Capitalized software........................................ 140,471
Accounts payable and accrued expenses....................... (153,443)
Deferred revenue............................................ (25,117)
Notes payable............................................... (501,105)
---------
Net liabilities assumed........................... $(449,754)
=========
</TABLE>
During the early months of operations, Songbird processed credit card
transactions for the Company. The Company generated a receivable from Songbird
arising from unremitted proceeds therefrom. During the year ended March 31,
1997, Songbird filed for protection from creditors under Chapter 7 of the United
States Bankruptcy Code. As a result, the Company wrote off its receivable
balance of $189,892.
Cash paid for interest for the period from inception (December 15, 1995) to
March 31, 1996 and for the year ended March 31, 1997 was approximately $13,000
and $30,000, respectively.
7. SUBSEQUENT EVENT
During the year ended March 31, 1997, the Company signed a letter of intent
to be acquired by American Medcare Corporation ("AMC"), whereby AMC would
acquire all of the common stock of the Company in exchange for an estimated
$1,600,000. The sale is anticipated to occur in the second quarter of 1997.
F-39
<PAGE> 91
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Millard-Wayne, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of Millard-Wayne, Inc. as
of December 31, 1995 and 1996, and the related statements of operations and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of Millard-Wayne, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 15, 1997
F-40
<PAGE> 92
MILLARD-WAYNE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................... $ 8,257 $ 29,257 $ 6,653
Accounts receivable net of allowance of $8,100, $8,100
and $4,500.......................................... 366,741 450,278 353,803
Deferred tax asset..................................... 47,000 62,000 74,000
Other current assets................................... 2,256 414 4,034
-------- ---------- --------
Total current assets........................... 424,254 541,949 438,490
Property and equipment, net of accumulated
depreciation........................................... 132,372 115,984 109,683
Capitalized software development costs, net of
accumulated amortization of $1,339,800, $1,481,512 and
$1,511,554............................................. 249,487 248,634 253,185
Purchased software rights, net of accumulated
amortization of $8,561, $13,637 and $15,386............ 54,539 89,082 89,534
Other assets............................................. 23,625 18,137 16,544
-------- ---------- --------
$884,277 $1,013,786 $907,436
======== ========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable....................................... $ 90,882 $ 252,710 $184,856
Accrued expenses....................................... 59,119 94,283 58,586
Deferred revenue....................................... 377,927 311,756 351,343
Current portion of notes payable....................... 136,672 127,868 145,469
10 1/2% demand note payable to officer................. -- 73,495 72,495
-------- ---------- --------
Total current liabilities...................... 664,600 860,112 812,749
-------- ---------- --------
Notes payable............................................ 30,482 18,514 15,155
-------- ---------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par, 500 shares authorized, issued
and outstanding..................................... 500 500 500
Additional paid-in-capital............................. 42,549 42,549 42,549
Retained earnings...................................... 146,146 92,111 36,483
-------- ---------- --------
Total stockholder's equity..................... 189,195 135,160 79,532
-------- ---------- --------
Total liabilities and stockholder's equity..... $884,277 $1,013,786 $907,436
======== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE> 93
MILLARD-WAYNE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Systems sales.................................... $ 800,434 $ 975,413 $ 62,416 $ 64,613
Support and services............................. 1,243,558 1,319,944 373,996 329,237
Other............................................ 73,492 60,411 12,831 9,139
---------- ---------- -------- --------
Total revenues........................... 2,117,484 2,355,768 449,243 402,989
---------- ---------- -------- --------
Operating costs and expenses:
Salaries and wages............................... 938,408 1,040,846 248,346 243,960
Hardware purchases for resale.................... 290,857 497,899 20,969 22,139
Commissions and support.......................... 115,580 165,104 10,780 16,262
Depreciation and amortization.................... 236,034 193,753 54,799 41,546
Rent............................................. 131,442 132,505 32,660 33,816
Travel and entertainment......................... 65,894 73,266 10,071 19,404
Telephone........................................ 66,884 73,268 18,015 17,107
Insurance........................................ 59,229 63,873 13,873 15,709
Other............................................ 143,572 155,616 42,025 53,771
---------- ---------- -------- --------
Total operating costs and expenses....... 2,047,900 2,396,130 451,538 463,714
---------- ---------- -------- --------
Income (loss) from operations...................... 69,584 (40,362) (2,295) (60,725)
---------- ---------- -------- --------
Other expenses:
Interest expense................................. 22,972 24,673 6,313 6,903
Loss on sale of assets........................... 17,186 -- -- --
---------- ---------- -------- --------
Total other expenses..................... 40,158 24,673 6,313 6,903
---------- ---------- -------- --------
Income (loss) before taxes......................... 29,426 (65,035) (8,608) (67,628)
Income taxes (benefit)............................. (5,528) (11,000) (3,000) (12,000)
---------- ---------- -------- --------
Net income (loss).................................. 34,954 (54,035) (5,608) (55,628)
Retained earnings, beginning....................... 111,192 146,146 146,146 92,111
---------- ---------- -------- --------
Retained earnings, ending.......................... $ 146,146 $ 92,111 $140,538 $ 36,483
========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE> 94
MILLARD-WAYNE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)................................. $ 34,954 $ (54,035) $ (5,608) $(55,628)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization.................. 236,034 193,753 54,799 41,546
Loss on sale of property, plant and
equipment.................................... 17,186 -- -- --
Deferred income taxes.......................... (528) (15,000) (3,000) (12,000)
Decrease (increase) in:
Accounts receivable.......................... 27,266 (83,537) (12,902) 96,475
Other assets................................. (2,819) 6,330 4,287 (2,171)
Accrued expenses............................. (14,168) 35,165 (34,417) (35,697)
Accounts payable............................. (79,248) 161,828 30,891 (67,854)
Deferred revenue............................. -- (66,171) 10,769 39,587
--------- --------- -------- --------
Net cash provided by operating activities......... 218,677 178,333 44,819 4,258
--------- --------- -------- --------
Cash provided by (used in) investing activities:
Proceeds from sale of property, plant and
equipment...................................... 22,745 -- -- --
Purchase of property, plant and equipment......... (64,285) (29,578) (8,937) (3,310)
Increase in software development costs............ (163,439) (140,859) (17,121) (34,593)
Increase in purchased software rights............. (28,100) (39,619) -- (2,201)
--------- --------- -------- --------
Net cash used in investing activities............. (233,079) (210,056) (26,058) (40,104)
--------- --------- -------- --------
Cash provided by (used in) financing activities:
New borrowings.................................... 258,589 125,814 -- 21,000
(Decrease) increase in loans from shareholder..... (6,339) 73,495 595 (1,000)
Payments on notes payable......................... (262,349) (146,586) (14,741) (6,758)
--------- --------- -------- --------
Net cash provided by (used in) financing
activities..................................... (10,099) 52,723 (14,146) 13,242
--------- --------- -------- --------
Net (decrease) increase in cash..................... (24,501) 21,000 4,615 (22,604)
Cash, beginning..................................... 32,758 8,257 8,257 29,257
--------- --------- -------- --------
Cash, ending........................................ $ 8,257 $ 29,257 $ 12,872 $ 6,653
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE> 95
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company develops, sells, installs and services computer software for
the medical industry. The Company also sells computer hardware and supplies.
Costs of sales are included in operating costs and expenses.
REVENUE RECOGNITION
Revenue from sales of hardware and software is recognized when products are
delivered. Revenue from maintenance and support service contracts is recognized
ratably over the contract period. Revenue from other services is recorded when
the service is performed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful life of the assets using straight-line methods. Gains and
losses arising from disposal of property and equipment are included in income.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the years ended December
31, 1995, and 1996, the Company capitalized approximately $163,000 and $141,000,
respectively, of software development costs. Amortization of capitalized
software development costs for the years ended December 31, 1995, and 1996, was
approximately $172,000 and $142,000, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this approach, deferred income taxes are provided for the temporary differences
between the book and tax bases of assets and liabilities using currently enacted
tax rates. Changes in tax laws or rates are recognized in the deferred tax
balances when enacted.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-44
<PAGE> 96
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. Such instruments are reported
at values which the Company believes are not materially different from their
fair values.
NEW ACCOUNTING PRONOUNCEMENTS
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" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at March
31, 1997 and its results of operations and its cash flows for the three months
ended March 31, 1996 and 1997. The results of operations and its cash flows for
the interim periods are not necessarily indicative of the results to be excepted
for the full year.
2. INCOME TAXES
Deferred income taxes relate to temporary differences between financial and
income tax reporting and relate primarily to the Company reporting on a cash
basis for income tax purposes.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... -- --
-------- --------
Total current..................................... -- --
-------- --------
Deferred
Federal................................................... (4,423) (9,000)
State..................................................... (1,105) (2,000)
-------- --------
Total deferred.................................... (5,528) (11,000)
-------- --------
$ (5,528) $(11,000)
======== ========
</TABLE>
F-45
<PAGE> 97
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current:
Deferred income tax assets
Book over tax basis in receivables, net of deferred
revenues, payables and accrued expenses................ $ 47,000 $ 62,000
-------- --------
Noncurrent:
Deferred income tax assets (liabilities)
Net operating loss........................................ 1,000 5,000
Tax credit carryforwards.................................. 81,000 75,000
Book over tax basis in capitalized software............... (77,000) (79,000)
-------- --------
5,000 1,000
-------- --------
Net deferred income tax assets.............................. $ 52,000 $ 63,000
======== ========
</TABLE>
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Expected tax expense (benefit).............................. $ 10,005 $(26,014)
Increase (decrease) in income taxes resulting from:
State income taxes........................................ 1,765 (3,902)
Effect of graduated rates................................. (11,119) 14,958
Other, net................................................ (6,179) 3,958
-------- --------
Net income taxes (benefit).................................. $ (5,528) $(11,000)
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Furniture and equipment..................................... $531,222 $560,800
Transportation equipment.................................... 40,587 40,587
-------- --------
571,809 601,387
Less accumulated depreciation............................... 439,437 485,403
-------- --------
$132,372 $115,984
======== ========
</TABLE>
4. NOTES PAYABLE
Notes payable consist of a $75,000 outstanding balance on a credit line of
$100,000, plus various installment notes. The credit line matures May 1997,
bears interest at prime plus 2.00% and is secured by
F-46
<PAGE> 98
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
certain property and equipment and guarantee of the Company's stockholder.
Interest on the installment notes is at normal market rates for these types of
obligations.
Principal maturities on the note obligations are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1997........................................................ $127,868
1998........................................................ 10,881
1999........................................................ 7,055
2000........................................................ 578
--------
$146,382
========
</TABLE>
5. LEASES
The Company is obligated under terms of operating leases for its office
facilities and certain equipment.
Future minimum payments under these operating leases, which expire in 1997,
totalled $84,000 at December 31, 1996.
Rent expense was approximately $131,000 and $132,000 for the years ended
December 31, 1995 and 1996, respectively.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan for its eligible employees. In addition
to the amount deferred by each employee, the company matches 25% of employee
contributions, up to a maximum amount of 4% of salary on a pay period by pay
period basis. Expense related to this plan was $4,631 and $9,148 for the years
ended December 31, 1995 and 1996, respectively.
7. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire all of the common stock of the Company in
exchange for an estimated $1,100,000 cash and approximately 391,500 shares of
common stock of AMC. An additional 391,500 shares would be contingently issuable
upon meeting certain revenue and/or profit criteria in 1998 and 1999. The sale
is expected to occur in the second quarter of 1997.
F-47
<PAGE> 99
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Management of
Health Care Division (a division of Info Systems of North Carolina, Inc.)
Charlotte, North Carolina
We have audited the accompanying balance sheets of Health Care Division (a
division of Info Systems of North Carolina, Inc.) as of June 30, 1995 and 1996,
and the related statements of operations and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Health Care Division (a
division of Info Systems of North Carolina, Inc.) as of June 30, 1995 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 8, 1996
F-48
<PAGE> 100
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------- DECEMBER 2,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Accounts receivable, less reserves for uncollectible
accounts of $25,000, $20,000 and $12,000,
respectively.......................................... $1,348,602 $ 325,121 $ 154,376
Work-in-progress......................................... 68,545 18,914 8,902
Prepaid expenses......................................... 40,745 27,438 --
Deferred income tax assets............................... 50,000 24,000 21,000
---------- ---------- ---------
Total current assets............................. 1,507,892 395,473 184,278
---------- ---------- ---------
Property and equipment:
Property and equipment, at cost.......................... 197,277 183,675 193,967
Accumulated depreciation and amortization................ (153,394) (127,689) (133,521)
---------- ---------- ---------
Total property and equipment..................... 43,883 55,986 60,446
---------- ---------- ---------
Capitalized software development costs, net of accumulated
amortization of $161,823, $302,572 and $350,719,
respectively............................................. 269,929 148,679 105,407
---------- ---------- ---------
Total assets..................................... $1,821,704 $ 600,138 $ 350,131
========== ========== =========
LIABILITIES AND DIVISIONAL EQUITY (DEFICIT):
Current liabilities:
Lines-of-credit.......................................... $ 405,808 $ 491,380 $ --
Current portion of long-term debt........................ 152,295 171,518 113,435
Accounts payable and accrued expenses.................... 1,051,580 71,927 59,921
Deferred maintenance and service fees.................... 443,190 535,641 432,324
Income taxes payable..................................... 15,000 14,000 64,000
Customer deposits........................................ 70,361 4,335 3,348
---------- ---------- ---------
Total current liabilities........................ 2,138,234 1,288,801 673,028
Long-term debt, less current portion....................... 270,746 227,362 138,851
Deferred income tax liabilities............................ 92,000 52,000 34,000
---------- ---------- ---------
Total liabilities................................ 2,500,980 1,568,163 845,879
---------- ---------- ---------
Commitments and contingencies
Divisional equity (deficit)................................ (679,276) (968,025) (495,748)
---------- ---------- ---------
Total liabilities and divisional equity
(deficit)...................................... $1,821,704 $ 600,138 $ 350,131
========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 101
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
SIX MONTHS JULY 1,
ENDED 1996 TO
YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 2,
----------------------- ------------ -----------
1995 1996 1995 1996
---------- ---------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Systems and software sales................. $4,675,581 $1,833,211 $1,125,380 $1,346,485
Maintenance and support.................... 2,106,571 2,099,720 1,028,301 695,498
Other...................................... 96,691 104,146 45,004 8,289
---------- ---------- ---------- ----------
Total revenues..................... 6,878,843 4,037,077 2,198,685 2,050,272
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of hardware and certain software
sales................................... 3,345,509 750,242 429,622 1,033,436
Personnel costs............................ 2,107,663 2,167,934 1,118,049 534,307
Other selling, general and administrative
expenses................................ 534,846 452,984 214,874 98,105
Allocated corporate selling, general and
administrative.......................... 595,089 405,455 231,163 153,579
Employee benefit contribution expense...... 170,860 80,044 39,780 34,436
Depreciation and amortization.............. 142,495 147,448 76,476 53,979
---------- ---------- ---------- ----------
Total operating costs and
expenses......................... 6,896,462 4,004,107 2,109,964 1,907,842
---------- ---------- ---------- ----------
Operating income (loss)...................... (17,619) 32,970 88,721 142,430
Other expenses:
Interest expense, net...................... 35,437 29,887 11,950 17,167
---------- ---------- ---------- ----------
Income (loss) before taxes................... (53,056) 3,083 76,771 125,263
Income tax expense (benefit)................. (17,000) -- 37,000 49,000
---------- ---------- ---------- ----------
Net income (loss)............................ $ (36,056) $ 3,083 $ 39,771 $ 76,263
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 102
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
SIX MONTHS JULY 1,
YEAR ENDED JUNE 30, ENDED 1996 TO
---------------------- DECEMBER 31, DECEMBER 2,
1995 1996 1995 1996
--------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)............................. $ (36,056) $ 3,083 $ 39,771 $ 76,263
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization.............. 142,495 147,448 76,476 53,979
Deferred taxes............................. (32,000) (14,000) (21,000) (15,000)
Decrease (increase) in:
Accounts receivable...................... (535,411) 1,023,481 527,757 170,745
Work in progress......................... (35,254) 49,631 34,327 10,012
Prepaid expenses......................... (27,060) 13,307 (7,855) 27,438
Increase (decrease) in:
Accounts payable and accrued expenses.... (6,630) (979,653) (926,387) (12,006)
Deferred maintenance and service fees and
customer deposits..................... 74,249 26,425 140,030 (104,304)
Income taxes payable..................... 15,000 (1,000) 4,000 50,000
--------- ---------- --------- ---------
Net cash provided by (used in) operating
activities................................. (440,667) 268,722 (132,881) 257,127
--------- ---------- --------- ---------
Cash provided by (used in) investing activities:
Purchase of property and equipment, net....... (35,144) (18,803) (146,542) (10,292)
Capitalized software development costs........ (57,552) (19,498) (6,507) (4,875)
--------- ---------- --------- ---------
Net cash used in investing activities......... (92,696) (38,301) (153,049) (15,167)
--------- ---------- --------- ---------
Cash used in financing activities:
Proceeds from (reduction of) lines of credit,
net........................................ 405,808 85,572 42,786 (491,380)
Proceeds from long-term debt.................. 42,172 118,158 124,325 93,925
Repayment of long-term debt................... (304,399) (142,319) (180,171) (240,519)
--------- ---------- --------- ---------
Net cash provided by (used in) financing
activities................................. 143,581 61,411 (13,060) (637,974)
--------- ---------- --------- ---------
Net cash retained (disbursed) by Company........ $(389,782) $ 291,832 $(298,990) $(396,014)
========= ========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 103
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Health Care Division ("HCD"), a division of Info Systems of North Carolina,
Inc., (the "Company") is engaged in designing, programming, licensing,
installing, and supporting hardware and software systems to the medical industry
throughout the United States. HCD has long-term marketing rights to and
ownership of licensed software in various industry segments. The assets and
liabilities of HCD were acquired by American Medcare Corporation on December 3,
1996. Unaudited information is provided for the interim period up to this date
and for the comparable period for 1995.
BASIS OF PRESENTATION
The accompanying financial statements present the financial position,
results of operations and cash flows of HCD. The balance sheets present the
assets and liabilities which are specifically identifiable to HCD and a pro rata
allocation of the Company's long-term debt. The statements of operations include
an allocation of Company general and administrative expenses incurred on behalf
of HCD. Expenses allocated to HCD are allocated based on factors such as ratios
of sales or personnel in HCD to total sales or personnel in consolidated
entities. Company management believes the allocations are reasonable, however,
these allocated expenses are not necessarily indicative of expenses that would
have been incurred by HCD on a stand-alone basis.
REVENUE RECOGNITION
Professional services revenue represents fees for designing, programming,
consulting and other installation services and is recognized as revenue as the
related services are performed, or under the percentage of completion method for
fixed price contracts. Maintenance fees are recognized ratably over the term of
the related contract. Deferred revenues include the unearned portion of all
maintenance and service agreements.
Software licensing fees represent revenues under licensing agreements that
provide customers with the right to use HCD's software products. Certain
agreements also provide for professional services such as installation of the
software and customer training. Software licensing fees are recognized as
revenue when the related software is delivered.
COSTS OF HARDWARE AND CERTAIN SOFTWARE SALES
Costs of hardware and certain software sales include those costs incurred
related to software licensing fees (primarily royalty and referral expenses) and
amounts paid for the purchase of hardware from IBM and other vendors under HCD's
remarketing arrangements.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the years ended June 30,
1995, and 1996, the Company capitalized $57,552 and $19,498, respectively, of
software development costs. Amortization of capitalized software development
costs for the years ended June 30, 1995, and 1996, was $131,383 and $142,548,
respectively.
F-52
<PAGE> 104
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
CUSTOMER DEPOSITS
Customer deposits represent deposits received on licensing agreements and
hardware sales agreements (prior to delivery of the software and hardware) and
the portion of licensing fee revenue relating to installations and customer
training that have not been completed as of year-end.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes.
INCOME TAXES
The Company uses the asset and liability approach where deferred income
taxes are provided for temporary differences between the book and tax bases of
assets and liabilities using the tax rates, under existing legislation, expected
to be in effect at the date temporary differences are expected to reverse. The
effects of changes in tax laws or rates are recognized in deferred tax balances
when enacted.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
HCD sells its systems and services to a wide variety of customers in
several geographic areas. This diversity limits the concentration of credit risk
which may arise from the resultant accounts receivable. The Division had two
customers in 1996 which accounted for approximately $478,000 and $464,000,
respectively, of its revenue and three customers in 1995 which accounted for
approximately $1,915,000, $1,071,000, and $711,000, respectively, of total
revenue.
FAIR VALUE OF FINANCIAL INSTRUMENTS
HCD's financial instruments include accounts receivables, accounts payable,
accrued liabilities and long-term debt. Such instruments are reported at values
which HCD believes are not materially different from their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
F-53
<PAGE> 105
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
This statement required that long-lived assets, including certain
intangibles, held and used by HCD be reviewed for potential impairment. This new
pronouncement did not have a material effect on HCD's financial statements when
adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly HCD's financial position at December 2,
1996 and its results of operations and its cash flows for the six months ended
December 31, 1995 and the period ended December 2, 1996. The results of
operations and its cash flows for the interim periods are not necessarily
indicative of the results to be expected for the full year.
SIGNIFICANT TRANSACTIONS
In fiscal 1995, HCD benefitted from a significant, non-recurring sale of
hardware. Sales, cost of sales and gross profit attributable to this transaction
were approximately $1.2 million, $900,000 and $300,000, respectively. The
customer in this transaction is a continuing customer for service and support in
fiscal 1996; however, hardware sales to this and other customers returned to
levels more typically experienced.
2. PROPERTY AND EQUIPMENT
Property and equipment consists entirely of computer equipment. The Company
does not identify other property and equipment by division and no allocation of
these assets are made for disclosure purposes. Depreciation of non-allocated
assets is included as part of the allocation of corporate expenses.
3. LINES-OF-CREDIT
The Company has a $1,500,000 line-of-credit with a bank that is
collateralized by equipment and various assets and is intended to be used for
general working capital purposes. Interest is payable monthly at either the
bank's prime rate or LIBOR plus 2.25 percent, at the Company's option. The
line-of-credit expires November 30, 1996. The outstanding balance at June 30,
1996, was $1,541,462. There was no outstanding balance at June 30, 1995.
The Company has a $600,000 line-of-credit with IBM for equipment financing
under its remarketing agreement that is due on demand and secured by certain
accounts receivable. IBM may approve borrowings above the $600,000 limit.
Interest is not accrued for the first 30 days; the rate varies from 1.75 percent
to 3.25 percent thereafter. The outstanding balances at June 30, 1995 and 1996,
were $1,664,834 and $641,730, respectively.
The Company's line-of-credit has been allocated to HCD based upon HCD's pro
rata share of total Company revenues.
4. LONG-TERM DEBT
Long-term debt consists of five notes payable to banks and one note payable
to stockholders due in various monthly installments ranging from $1,143 to
$35,000. These notes bear interest at various rates ranging from 7.45% to 9%,
including certain notes which bear interest at variable rates based on the prime
rate or LIBOR. The bank notes are secured by receivables, equipment and vehicles
and mature at various dates through June 1999. One of the bank notes payable and
the note payable to shareholders relate to the
F-54
<PAGE> 106
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's ESOP plan (Note 6). The long-term debt allocation to HCD is based on
its pro rata share of the total revenues and consists of:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Notes payable to banks and shareholders..................... $ 423,041 $ 398,880
Less current portion........................................ (152,295) (171,518)
--------- ---------
$ 270,746 $ 227,362
========= =========
</TABLE>
Scheduled principal repayments on long-term debt at June 30, 1996, are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
- --------
<S> <C>
1997........................................................ $171,518
1998........................................................ 178,616
1999........................................................ 41,362
2000........................................................ 7,384
--------
Total............................................. $398,880
========
</TABLE>
Under the terms of certain of the notes payable, and the line-of-credit the
Company is required to comply with certain covenants, the most restrictive of
which require maintenance of certain financial and operating ratios and a
minimum level of tangible net worth; limit capital expenditures and prohibit the
Company from incurring additional indebtedness. The Company is either in
compliance with all covenants at June 30, 1996, or has obtained appropriate
waivers from the bank.
5. INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Current:
Federal................................................ $ 10,000 $ 9,000
State.................................................. 5,000 5,000
-------- --------
15,000 14,000
-------- --------
Deferred:
Federal................................................ (25,000) (11,000)
State.................................................. (7,000) (3,000)
-------- --------
(32,000) (14,000)
-------- --------
Total........................................... $(17,000) $ --
======== ========
</TABLE>
F-55
<PAGE> 107
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Expected tax expense (benefit)............................ $(18,039) $ 1,048
Increase (decrease) in income taxes resulting from:
State income taxes..................................... (4,112) 1,124
Nondeductible expenses................................. 2,886 3,909
Effect of graduated rates.............................. 2,265 (2,754)
Other.................................................. -- (3,327)
-------- -------
$(17,000) $ --
======== =======
</TABLE>
Deferred income tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1995 1996
------- -------
<S> <C> <C>
Deferred income tax liability
Book over tax basis in capitalized software............... $92,000 $52,000
======= =======
Deferred income tax assets
Accounts receivable....................................... $ 9,000 $ 7,000
Accrued vacation.......................................... 17,000 16,000
Customer deposits......................................... 24,000 1,000
------- -------
$50,000 $24,000
======= =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
HCD's employees are covered under benefit plans established by the Company,
including a 401(k) profit sharing plan and an Employee Stock Ownership Plan
(ESOP). Eligibility for participation is based on age and length of service.
In connection with the ESOP's purchase of the Company's common stock, the
Company entered into certain notes payable, made a cash contribution to the ESOP
and obligated itself to make contributions to the ESOP sufficient to enable the
ESOP to service its debt. HCD's allocation of long-term debt includes an
allocation of ESOP debt.
Costs incurred by the Company under these benefit plans have been allocated
to HCD pro rata based on the number of employees.
7. COMMITMENTS AND CONTINGENCIES
HCD markets, licenses, and supports software packages under license and
distributorship agreements. These agreements require HCD to pay agreed-upon
royalties on each sale of a software package as well as certain minimum
royalties over various terms of the agreements. Royalty expense amounted to
approximately $55,000 and $21,000 in fiscal 1995 and 1996, respectively.
The Company has several operating leases for office space and equipment,
including that used by HCD, under one to seven year leases that are accounted
for as operating leases. In conjunction with the acquisition of HCD (Note 8),
operations of HCD will be moved to another location. HCD will not be responsible
for
F-56
<PAGE> 108
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
obligations under the existing leases after the relocation. Rent expense
allocated to HCD totalled $117,446 and $133,334 in fiscal 1995 and 1996,
respectively.
The Company is involved in various lawsuits arising in the normal course of
business. Management believes that such matters will not have a material effect
on the financial condition of HCD, its liquidity or operating results.
8. DIVISIONAL EQUITY (DEFICIT)
Divisional equity (deficit) reflects the historical activity between HCD
and the Company, including the effect of allocations of the Company's lines of
credit and long-term debt. An analysis of the change in divisional equity
(deficit) follows:
<TABLE>
<CAPTION>
1995 1996
----------- ---------
<S> <C> <C>
Balance, July 1............................................. $(1,033,002) $(679,276)
Net income (loss)......................................... (36,056) 3,083
Net cash (to) from Company................................ 389,782 (291,832)
----------- ---------
Balance, June 30............................................ $ (679,276) $(968,025)
=========== =========
</TABLE>
F-57
<PAGE> 109
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rovak, Inc.
Lake Elmo, Minnesota
We have audited the accompanying balance sheets of Rovak, Inc., as of
December 31, 1995 and 1996, and the related statements of operations and
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of Rovak, Inc. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 17, 1997
F-58
<PAGE> 110
ROVAK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $10,000................................... $ 207,196 $ 159,233 $ 244,867
Inventory................................................ 428,990 180,325 191,233
Notes receivable -- stockholders......................... 105,862 288,090 537,815
Other current assets..................................... 33,794 96,963 107,539
---------- ----------- ----------
Total current assets............................. 775,842 724,611 1,081,454
Deferred income taxes...................................... 235,000 185,000 140,000
Property and equipment, net................................ 188,080 382,465 358,424
Prepaid royalties.......................................... 116,993 221,218 221,218
---------- ----------- ----------
Total assets..................................... $1,315,915 $ 1,513,294 $1,801,096
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Checks written in excess of available funds.............. $ 3,949 $ 17,283 $ 26,094
Note payable -- bank..................................... 56,000 233,500 437,500
Accounts payable......................................... 239,179 242,842 338,870
Accrued compensation and payroll taxes................... 82,735 122,390 81,823
Other accrued liabilities................................ 1,557 4,518 1,918
Customer deposits........................................ 154,275 152,210 62,106
Deferred revenue......................................... -- 58,226 170,576
Long-term debt -- current portion........................ 187,473 197,404 190,397
Obligations under capital leases -- current portion...... 25,926 49,479 50,614
---------- ----------- ----------
Total current liabilities........................ 751,094 1,077,852 1,359,898
Notes payable -- stockholders.............................. 124,842 92,971 84,003
Long-term debt............................................. 593,598 407,044 369,982
Obligations under capital leases........................... 72,976 100,913 87,825
---------- ----------- ----------
Total liabilities................................ 1,542,510 1,678,780 1,901,708
---------- ----------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, no par value; 10,000 shares authorized;
8,217 shares issued and outstanding................... 157,919 157,919 157,919
Accumulated deficit...................................... (384,514) (323,405) (258,531)
---------- ----------- ----------
Total stockholders' equity (deficit)............. (226,595) (165,486) (100,612)
---------- ----------- ----------
Total liabilities and stockholders' equity
(deficit)...................................... $1,315,915 $ 1,513,294 $1,801,096
========== =========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-59
<PAGE> 111
ROVAK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Systems and software sales.................... $2,694,785 $3,246,036 $ 773,044 $ 834,912
Maintenance and support services.............. 503,353 864,604 191,331 170,390
Other......................................... 603,734 743,590 176,522 174,763
---------- ---------- ---------- ----------
Total revenues........................ 3,801,872 4,854,230 1,140,897 1,180,065
Cost of revenues................................ 1,811,047 2,310,587 510,315 463,572
---------- ---------- ---------- ----------
Gross margin.................................... 1,990,825 2,543,643 630,582 716,493
---------- ---------- ---------- ----------
Operating expenses:
Personnel costs............................... 940,919 1,195,684 332,004 323,697
Other selling, general and administrative..... 825,964 801,075 178,494 194,997
Research and development...................... 297,834 237,989 59,733 30,512
Depreciation.................................. 68,341 72,531 18,855 24,041
---------- ---------- ---------- ----------
Total operating expenses.............. 2,133,058 2,307,279 589,086 573,247
---------- ---------- ---------- ----------
Operating income (loss)......................... (142,233) 236,364 41,496 143,246
Interest expense, net........................... 127,853 125,255 37,204 33,372
---------- ---------- ---------- ----------
Income (loss) before taxes...................... (270,086) 111,109 4,292 109,874
Income taxes (benefit).......................... (99,000) 50,000 1,700 45,000
---------- ---------- ---------- ----------
Net (loss) income............................... (171,086) 61,109 2,592 64,874
Accumulated deficit, beginning.................. (213,428) (384,514) (384,514) (323,405)
---------- ---------- ---------- ----------
Accumulated deficit, ending..................... $ (384,514) $ (323,405) $ (381,922) $ (258,531)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 112
ROVAK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -----------------------
1995 1996 1996 1997
---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating
activities:
Net (loss) income........................... $(171,086) $ 61,109 $ 2,592 $ 64,874
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation............................. 68,341 72,531 18,855 24,041
(Increase) decrease in assets:
Accounts receivable.................... 76,130 47,963 (159,424) (85,634)
Inventory.............................. (65,255) 248,665 (28,878) (10,908)
Prepaid royalties...................... -- (104,225) -- --
Other current assets................... (2,705) (63,169) (1,507) (10,576)
Deferred income taxes.................. (99,000) 50,000 1,700 45,000
Increase (decrease) in liabilities:
Accounts payable....................... 11,746 3,663 (12,215) 96,028
Accrued expenses....................... 53,786 42,616 (17,597) (43,167)
Customer deposits...................... 60,394 (2,065) 52,499 (90,104)
Deferred revenue....................... -- 58,226 110,326 112,350
Net (increase) decrease in notes
receivable -- stockholders.......... (27,791) (182,228) -- (249,725)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................... (95,440) 233,086 (33,649) (147,821)
--------- --------- --------- ---------
Cash (used in) investing activity:
Purchase of property and equipment.......... (25,482) (184,676) (1,814) --
--------- --------- --------- ---------
Cash provided by (used in) financing
activities:
Checks written in excess of available
funds.................................... 3,949 13,334 6,656 8,811
Increase in credit line..................... 594,038 1,002,859 228,000 321,947
Decreases in credit line.................... (638,038) (825,359) (150,000) (117,947)
Repayment of note payable -- stockholders... (31,529) (31,871) (6,818) (8,968)
Issuance of long-term debt.................. 330,350 -- -- --
Repayment of long-term debt................. (117,883) (176,623) (42,375) (44,069)
Repayment of capital lease obligations...... (24,240) (30,750) -- (11,953)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................... 116,647 (48,410) 35,463 147,821
--------- --------- --------- ---------
Net (decrease) in cash........................ (4,275) -- -- --
Cash, beginning............................... 4,275 -- -- --
--------- --------- --------- ---------
Cash ending................................... $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE> 113
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ORGANIZATION
Rovak, Inc., (the "Company") is a Minnesota corporation engaged in the
design, development, marketing, installation and servicing of its proprietary
healthcare practice management software systems and related computer equipment
to clinics located throughout the United States.
REVENUE RECOGNITION
Revenue on computer system sales and software license fees is recognized
when the system is shipped. Revenue for maintenance and support is deferred and
recognized ratably over the period to which it relates.
INVENTORIES
Inventories are stated at cost and represent computer systems and
replacement parts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method and is charged to expense based on the estimated useful
lives of the assets.
Expenditures for additions and improvements are capitalized, while repairs
and maintenance are expensed as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Accounts receivable
arise from sale of practice management systems to the Company's customer base
located throughout the United States. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral from its customers. The Company's credit losses are subject to
general economic conditions of the health care industry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumption about the future outcome of current transactions which may affect the
reporting and disclosure of these transactions. Accordingly, actual results
could differ from those estimates used in the preparation of these financial
statements.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes,
if any. Deferred taxes represent the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
receivable, notes receivable, accounts payable, notes payable, and long term
debt. Accounts receivable and accounts payable are short term in nature,
accordingly, carrying value is deemed to approximate fair value. The notes
payable to bank, including both the short-term line of credit and long-term
loans, bear interest at rates which vary with current
F-62
<PAGE> 114
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
market conditions, accordingly, carrying values are deemed to approximate fair
value. Notes receivable and payable with stockholders bear interest at fixed
rates ranging between 8% and 10% which, based on their terms and their current
interest rates in the market, are deemed to approximate fair value.
NEW ACCOUNTING PRONOUNCEMENTS
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" is effective for years beginning after December 15, 1995.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at March
31, 1997 and its results of operations and its cash flows for the three months
ended March 31, 1996 and 1997. The results of operations and its cash flows for
the interim periods are not necessarily indicative of the results to be expected
for the full year.
2. NOTES RECEIVABLE -- STOCKHOLDERS
Notes receivable -- stockholders aggregated $105,862 and $288,090 at
December 31, 1995 and 1996, respectively. The notes bear interest at 8%, are due
upon demand and are unsecured.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE -------------------
IN YEARS 1995 1996
----------- -------- --------
<S> <C> <C> <C>
Furniture and fixtures................................. 5-7 $ 35,490 $ 45,415
Computer equipment..................................... 5 151,162 297,738
Office equipment....................................... 7 115,008 115,567
Equipment under capital lease.......................... 5-7 135,456 217,696
Leasehold improvements................................. 5-7 32,272 59,888
-------- --------
469,388 736,304
Less accumulated depreciation.......................... 281,308 353,839
-------- --------
Property and equipment, net............................ $188,080 $382,465
======== ========
</TABLE>
Depreciation expense, including that on equipment under capital lease, was
$68,341 and $72,531 in 1995 and 1996, respectively. Accumulated depreciation on
the equipment under capital leases was $38,379 and $70,923 at December 31, 1995
and 1996, respectively.
4. NOTE PAYABLE -- BANK
At December 31, 1995 and 1996, the Company had outstanding short-term
borrowings of $56,000 and $233,500, respectively, under a bank line of credit
totalling $200,000 and $500,000, respectively. The unused portion of the line of
credit was $144,000 at December 31, 1995 and was $266,500 at December 31, 1996.
The
F-63
<PAGE> 115
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
line of credit accrues interest monthly at a variable rate (8.75% at December
31, 1996) and is collateralized by a first security interest of substantially
all corporate assets.
5. NOTES PAYABLE -- STOCKHOLDERS
Notes payable -- stockholders aggregated $124,842 and $92,971 at December
31, 1995 and 1996, respectively. The notes bear interest at 10%, are due in 1999
and are collateralized by substantially all assets subordinated to the note
payable -- bank and long-term debt.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Notes payable -- bank bearing interest at a variable rate
(10.25% at September 30, 1996) and due in monthly
installments at various dates through November 2000. The
notes are collateralized by a first security interest in
substantially all corporate assets........................ $ 781,071 $ 604,448
Less current portion...................................... (187,473) (197,404)
--------- ---------
Long-term debt.............................................. $ 593,598 $ 407,044
========= =========
YEAR ENDING DECEMBER 31:
1997...................................................... $ 197,404
1998...................................................... 201,350
1999...................................................... 132,425
2000...................................................... 73,269
---------
$ 604,448
=========
</TABLE>
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain office equipment under capital leases expiring
at various dates through May 2001. Future minimum lease payments as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1997...................................................... $ 61,550
1998...................................................... 61,550
1999...................................................... 41,688
2000...................................................... 5,976
Thereafter................................................ 2,490
--------
Total minimum lease payments...................... 173,254
Less amount representing interest........................... (22,862)
--------
Present value of net minimum lease payments................. 150,392
Less current portion........................................ (49,479)
--------
Long-term portion........................................... $100,913
========
</TABLE>
F-64
<PAGE> 116
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its corporate offices and operating facilities under an
operating lease with a corporation related through common control.
The aggregate future minimum lease payments as of December 31, 1996 are as
follows for:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1997...................................................... $ 90,000
1998...................................................... 90,000
1999...................................................... 90,000
2000...................................................... 45,000
--------
$315,000
========
</TABLE>
Rent expense was $44,807 and $75,000 in 1995 and 1996, respectively.
401(K) PROFIT-SHARING PLAN
In 1996, the Company established a 401(k) plan available to all employees
meeting certain service requirements. Eligible employees may contribute up to
15% of their annual salary to the plan, subject to certain limitations. The
Company may make matching contributions and also may provide profit-sharing
contributions at the discretion of its board of directors. Employees become
fully vested in the Company contributions after seven years of service. In 1996,
the Company contribution was $17,462.
LICENSE AGREEMENTS
In February 1996, the Company entered into a license agreement with Centaur
Systems, Inc. ("CSI") whereby CSI granted Rovak the exclusive right to license
certain programs owned by CSI, in exchange for future royalty payments on
revenue received by the Company related to maintenance services provided to
CSI's customer base. The royalty is calculated on an annual declining scale
starting at 60% of related revenue for 1996 and ending at 20% of revenue for the
year 2000. During 1996, the Company paid $53,025 of royalties to CSI, of which
$37,881 was prepaid.
In September 1994, the Company entered a license agreement with PCM
Systems, Inc. ("PCM") whereby PCM granted Rovak the exclusive right to license
certain programs owned by PCM, in exchange for future royalty payments equal to
5% of revenue received by the Company related to PCM's line of business,
including any related maintenance fees earned. In addition, the agreement
required a royalty prepayment of $80,000 and minimum monthly royalties of
$3,333, with guaranteed minimum aggregate royalty payments of $280,000 through
August 31, 2001, after which royalties no longer accrue. As of December 31,
1996, $291,171 of royalties have been paid, including $183,337 of prepaid
royalties.
Also in connection with the PCM license agreement, the Company entered into
an employment agreement with an officer/shareholder of PCM, whereby that
individual became employed by Rovak in exchange for base compensation plus a 5%
commission on all revenue earned by Rovak related to PCM's line of business.
This agreement runs through 2001 and may be canceled by either party.
9. RELATED PARTY TRANSACTIONS
During 1995 and 1996, the Company purchased computer forms and supplies
from a corporation owned by a family member of a Company stockholder aggregating
$214,886 and $291,882, respectively. These costs
F-65
<PAGE> 117
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are included in cost of sales in the Company's statement of operations. At
December 31, 1995 and 1996, accounts payable to this related party totalled
$30,020 and $28,682, respectively.
Additionally, the Company leases its operating facility and offices from a
related party (Note 8).
10. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- -------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... -- --
-------- -------
Total current..................................... -- --
-------- -------
Deferred
Federal................................................... (77,000) 45,000
State..................................................... (22,000) 5,000
-------- -------
Total deferred.................................... (99,000) 50,000
-------- -------
$(99,000) $50,000
======== =======
</TABLE>
Deferred tax assets at December 31, 1995 and 1996 of $235,000 and $185,000
relate principally to the anticipated benefit from the Company's $396,000 net
operating loss carryforward which expires in 2011. Other temporary differences
are immaterial.
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- -------
<S> <C> <C>
Expected tax (benefit) expense.............................. $(91,830) $37,800
Increase (decrease) in income taxes resulting from:
State income taxes........................................ (16,494) 6,600
Other, net.................................................. 9,324 5,600
-------- -------
Net income tax (benefit) expense............................ $(99,000) $50,000
======== =======
</TABLE>
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
-------- --------
<S> <C> <C>
Cash paid for interest during the years.................... $133,933 $139,780
======== ========
</TABLE>
During 1996, the Company incurred obligations under capital leases
totalling $82,240 in exchange for equipment. In addition, the Company
transferred $133,972 of inventory to equipment.
F-66
<PAGE> 118
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medicare
Corporation ("AMC"), whereby AMC would acquire all of the common stock of the
Company in exchange for an estimated $3,000,000 plus contingent consideration of
$815,000 based on earnings subsequent to the transaction. Of the total
consideration, approximately $1,495,000 is payable in cash and the balance by
issuance of common stock. The sale is anticipated to occur in the second quarter
of 1997.
F-67
<PAGE> 119
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
DR Software, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of DR Software, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of DR Software, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 17, 1997
F-68
<PAGE> 120
DR SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................... $ 169,834 $ 155,048 $ 198,247
Accounts receivable, net of allowance of $14,000,
$14,000 and $5,900.................................. 262,385 369,715 274,899
Inventory.............................................. 135,587 63,256 84,699
Receivable from stockholder............................ 32,130 46,530 50,130
Other assets........................................... 4,898 25,030 30,561
---------- ---------- ----------
Total current assets........................... 604,834 659,579 638,536
---------- ---------- ----------
Property and equipment:
Office and computer equipment.......................... 340,561 399,030 409,093
Furniture and fixtures................................. 32,771 58,157 58,824
---------- ---------- ----------
Total property and equipment................... 373,332 457,187 467,917
Less accumulated depreciation.................. (243,165) (301,888) (316,357)
---------- ---------- ----------
Net property and equipment..................... 130,167 155,299 151,560
---------- ---------- ----------
Capitalized software development costs, net of
accumulated amortization of $1,070,143, $1,296,324 and
$1,338,994............................................. 514,414 683,515 743,815
---------- ---------- ----------
Total assets................................... $1,249,415 $1,498,393 $1,533,911
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable to bank................................... $ -- $ 70,000 $ 70,000
Accounts payable....................................... 187,377 109,532 68,762
Accrued expenses....................................... 138,050 137,937 151,906
Deferred revenue from software maintenance
agreements.......................................... 881,754 1,045,776 935,723
Customer deposits...................................... -- 46,478 267,659
Current portion of capital lease obligations........... 4,913 8,833 8,855
---------- ---------- ----------
Total current liabilities...................... 1,212,094 1,418,556 1,502,905
---------- ---------- ----------
Capital lease obligations, less current portion.......... 15,227 19,249 17,030
---------- ---------- ----------
Commitments
Stockholders' equity:
Common stock, $1.00 par value; 100,000 shares
authorized; issued and outstanding 50,000 shares in
1995 and 1996 and 51,882 shares in 1997............. 50,000 50,000 51,882
Subscription receivable................................ -- -- (100)
Retained earnings (deficit)............................ (27,906) 10,588 (37,806)
---------- ---------- ----------
Total stockholders' equity..................... 22,094 60,588 13,976
---------- ---------- ----------
Total liabilities and stockholders' equity..... $1,249,415 $1,498,393 $1,533,911
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 121
DR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ --------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
System sales................................. $2,192,378 $1,908,845 $470,569 $403,600
Support and services......................... 1,211,916 1,450,606 366,769 369,894
---------- ---------- -------- --------
Total revenues....................... 3,404,294 3,359,451 837,338 773,494
---------- ---------- -------- --------
Operating expenses:
Salaries and wages........................... 1,461,901 1,585,559 412,049 424,684
Hardware purchases for resale................ 1,073,920 785,173 219,875 174,392
Depreciation and amortization................ 292,641 284,904 79,296 57,138
Rent......................................... 48,191 81,123 12,666 25,202
Travel and entertainment..................... 207,508 184,262 54,891 32,008
Telephone.................................... 120,290 126,196 32,722 28,013
Advertising.................................. 76,790 102,060 13,609 26,115
Other........................................ 135,938 181,025 61,705 25,870
---------- ---------- -------- --------
Total operating expenses............. 3,417,179 3,330,302 886,813 793,422
---------- ---------- -------- --------
Income (loss) from operations.................. (12,885) 29,149 (49,475) (19,928)
Other income (expense):
Interest expense............................. (11,139) (12,447) (2,635) (1,897)
Miscellaneous................................ 11,747 36,792 7,043 (24,787)
---------- ---------- -------- --------
Net income (loss).............................. $ (12,277) $ 53,494 $(45,067) $(46,612)
========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 122
DR SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCK RETAINED TOTAL
COMMON SUBSCRIPTION EARNINGS STOCKHOLDERS'
STOCK RECEIVABLE (DEFICIT) EQUITY
------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Balance, at December 31, 1994....................... $50,000 $ -- $(10,629) $ 39,371
Net loss.......................................... -- -- (12,277) (12,277)
Distributions..................................... -- -- (5,000) (5,000)
------- ------- -------- --------
Balance, at December 31, 1995....................... 50,000 -- (27,906) 22,094
Net income........................................ -- -- 53,494 53,494
Distributions..................................... -- -- (15,000) (15,000)
------- ------- -------- --------
Balance, at December 31, 1996....................... 50,000 -- 10,588 60,588
Stock subscription -- 1,882 shares for $100....... 1,882 (100) (1,782) --
Net loss.......................................... -- -- (46,612) (46,612)
------- ------- -------- --------
Balance, at March 31, 1997.......................... $51,882 $ (100) $(36,024) $ 13,976
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 123
DR SOFTWARE INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ----------------------
1995 1996 1996 1997
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating
activities:
Net income (loss).......................... $ (12,277) $ 53,494 $(45,067) $(46,612)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization........... 292,641 284,904 79,296 57,138
Changes in:
Accounts receivable................... (52,822) (107,330) 15,851 94,816
Inventory............................. (35,874) 72,331 32,229 (21,443)
Other assets.......................... 7,346 (20,132) (24,415) (5,531)
Accounts payable and accrued
expenses........................... 89,370 (77,958) (65,333) (26,801)
Deferred revenue...................... 132,692 164,022 2,286 (110,053)
Customer Deposits..................... -- 46,478 -- 221,181
--------- -------- -------- --------
Net cash provided by (used in) operating
activities.............................. 421,076 415,809 (5,153) 162,695
--------- -------- -------- --------
Cash provided by (used in) investing
activities:
Receivable from stockholder................ (14,400) (14,400) (3,600) (3,600)
Purchase of property and equipment......... (41,314) (69,455) (35,023) (10,730)
Increase in capitalized software
development costs....................... (254,530) (395,282) (35,387) (102,969)
--------- -------- -------- --------
Net cash used in investing activities...... (310,244) (479,137) (74,010) (117,299)
--------- -------- -------- --------
Cash provided by (used in) financing
activities:
Net borrowings under line of credit........ -- 70,000 -- --
Decrease in loans from stockholders........ (10,000) -- -- --
Payments on capital lease obligations...... (4,241) (6,458) (1,165) (2,197)
Distributions paid......................... (5,000) (15,000) -- --
--------- -------- -------- --------
Net cash provided by (used in) financing
activities.............................. (19,241) 48,542 (1,165) (2,197)
--------- -------- -------- --------
Net increase (decrease) in cash.............. 91,591 (14,786) (80,328) 43,199
Cash, beginning.............................. 78,243 169,834 169,834 155,048
--------- -------- -------- --------
Cash, ending................................. $ 169,834 $155,048 $ 89,506 $198,247
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE> 124
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
DR Software, Inc. (the "Company"), a Georgia corporation, was incorporated
on February 24, 1983. The Company provides turnkey computer hardware and
software systems to physicians. The Company's offices are located in Marietta,
Georgia.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term debt
securities purchased with an initial maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are valued at the lower of cost, which is determined using the
specific identification method, or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements that significantly add to productive capacity or extend the useful
life of an asset are capitalized. Expenditures for maintenance and repairs are
charged to expense accounts currently. When depreciable properties are retired
or otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the resultant gain or loss is reflected in the
Company's statement of income during the applicable period.
For financial statement purposes, depreciation of property and equipment is
computed using the straight-line method of depreciation over the estimated
useful lives of the assets, which range from 5-7 years.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the years ended December
31, 1995, and 1996, the Company capitalized $254,530 and $395,282, respectively,
of software development costs. Amortization of capitalized software development
costs for the years ended December 31, 1995, and 1996, was $243,752 and
$226,181, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
REVENUE RECOGNITION
Revenue on computer system sales and software license fees is recognized
when the system is shipped. Revenue for maintenance and support is deferred and
recognized ratably over the period to which it relates.
USE OF 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 and the
F-73
<PAGE> 125
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. Such instruments are reported
at values which the Company believes are not materially different from their
fair values.
VALUE OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Division be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at March
31, 1997 and its results of its operations and its cash flows for the three
months ended March 31, 1997 and 1996. The results of operations and its cash
flows for the three months ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
2. NOTE PAYABLE
The Company has arranged for a line of credit with a bank in the maximum
amount of $100,000, with interest at the bank's prime rate plus 1.75%. The line
of credit is collateralized by accounts receivable, property and equipment, and
a general assignment of inventory behind IBM Credit Corporation. The line of
credit must remain clear for at least 30 consecutive days during the year, and
is personally guaranteed by certain of the Company's stockholders. The balance
under this line of credit at December 31, 1996, was $70,000.
F-74
<PAGE> 126
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITAL LEASE OBLIGATION
The Company leases certain equipment under noncancelable lease agreements,
with monthly payments totalling $965 through July 2000. The following is a
schedule, by years, of the future required payments:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1997........................................................ $11,578
1998........................................................ 11,578
1999........................................................ 8,655
2000........................................................ 1,140
-------
Total future payments............................. 32,951
Less amount representing interest........................... (4,869)
-------
Present value of minimum lease payments..................... $28,082
=======
</TABLE>
4. COMMITMENTS
The Company leases its premises as well as certain office equipment and a
vehicle under noncancellable operating leases which expire at various dates
through 2001.
The remaining obligations under these leases at December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1997........................................................ $114,862
1998........................................................ 121,240
1999........................................................ 126,178
2000........................................................ 133,997
2001........................................................ 33,988
--------
$530,265
========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996, was $48,191 and
$81,123, respectively
The Company has a 401(k) plan eligible to substantially all employees of
the Company. Company contributions to the plan are discretionary. No
contributions have been made for the years ended December 31, 1995 or 1996.
5. INCOME TAXES
The Company has elected to be taxed as an "S" Corporation under the
provisions of Subchapter S of the Internal Revenue Code. As such, the profits of
the Company are taxed on the individual income tax returns of the stockholders.
Accordingly, no provision for income taxes has been made in the accompanying
financial statements.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Equipment acquired through capital leases totalled $0 and $14,400 in 1995
and 1996, respectively. Cash paid for interest during 1995 and 1996 was $11,139
and $12,447, respectively.
7. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire all of the common stock of the Company in
exchange for an estimated $3,000,000. Of the total consideration approximately
$2,100,000 is payable in cash and the balance by issuance of common stock. The
sale is anticipated to occur in the second quarter of 1997.
F-75
<PAGE> 127
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 14
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Pro Forma Combined Financial
Data................................ 23
Management's Discussion and Analysis
of Pro Forma Combined Financial
Condition and Pro Forma Combined
Results of Operations............... 25
Selected Financial Data of AMC........ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of AMC................ 28
Business.............................. 31
Management............................ 39
Principal Stockholders................ 43
Certain Transactions.................. 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Available Information................. 50
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
[INFOCURE LOGO]
INFOCURE CORPORATION
1,600,000 SHARES
COMMON STOCK
--------------------
PROSPECTUS
--------------------
JOSEPHTHAL LYON & ROSS
INCORPORATED
, 1997
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise. The
Company's By-laws provide that the Company will indemnify its directors,
executive officers, other officers, employees and agents to the fullest extent
permitted by Delaware law.
Article Eight of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are as follows:
<TABLE>
<S> <C>
SEC filing fee.............................................. $ 8,467
AMEX Listing Fees........................................... 30,000
NASD filing fee............................................. 3,294
Accounting fees and expenses................................ 375,000
Legal fees and expenses..................................... 275,000
Blue Sky fees and expenses.................................. 35,000
Printing and engraving...................................... 375,000
Transfer Agent's and Registrar's fees....................... 5,000
Miscellaneous expenses...................................... 8,239
-----------
Total............................................. $ 1,115,000
===========
</TABLE>
Approximately $215,000 has been paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended (the "Securities Act"): On December 3, 1996, Frederick
L. Fine and James K. Price, President and Executive Vice President of the
II-1
<PAGE> 129
Company respectively, each purchased fifty shares of Common Stock at $.01 per
share. The sale was exempt from registration under Section 4(2) of the
Securities Act of 1933.
ITEM 27. EXHIBITS.
<TABLE>
<S> <C> <C>
10.34 -- Form of Amendment between Rovak and InfoCure
23.7 -- Consent of BDO Seidman, LLP
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering. The undersigned Registrant will file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, an increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers. The
undersigned Registrant will provide to the underwriter at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(c) Indemnification. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the provisions referred to in Item 24 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) Request for Acceleration of Effective Date. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the
II-2
<PAGE> 130
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
(e) Rule 430A. The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective;
2. For any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that the offering of the securities at that time as the
initial bona fide offering of those securities.
II-3
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and authorized this Post Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Atlanta, State of Georgia, on the 7th day of July,
1997.
INFOCURE CORPORATION
By: /s/ FREDERICK L. FINE
------------------------------------
Frederick L. Fine,
Chairman of the Board of Directors,
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated and on July 7, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ FREDERICK L. FINE Chairman of the Board of
- ----------------------------------------------------- Directors, President and
Frederick L. Fine Chief Executive Officer
/s/ JAMES K. PRICE Director and Executive Vice
- ----------------------------------------------------- President
James K. Price
/s/ MICHAEL WARREN Director and Chief Financial
- ----------------------------------------------------- Officer
Michael Warren
JAMES D. ELLIOT* Director
- -----------------------------------------------------
James D. Elliot
RICHARD E. PERLMAN* Director
- -----------------------------------------------------
Richard E. Perlman
/s/ FREDERICK L. FINE
- -----------------------------------------------------
Frederick L. Fine,
Attorney-in-Fact
</TABLE>
- ---------------
* By Power of Attorney
II-4
<PAGE> 132
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C> <C>
23.7 -- Consent of BDO Seidman, LLP.................................
</TABLE>
<PAGE> 1
EXHIBIT 23.7
ACCOUNTANTS' CONSENT
INFOCURE CORPORATION
We consent to the use of the reports of BDO Seidman, LLP included herein
regarding the following corporations:
InfoCure Corporation dated April 15, 1997
American Medcare Corporation dated April 15, 1997
KComp Management Systems Inc. dated April 25, 1997
Millard-Wayne, Inc. dated February 15, 1997
Health Care Division (a division of Info Systems of North Carolina,
Inc.) dated November 8, 1996
Rovak, Inc. dated February 17, 1997
DR Software, Inc. dated February 17, 1997.
We also consent to the reference to our firm under the heading "Experts" in
the Prospectus.
BDO Seidman, LLP
Atlanta, Georgia
July 3, 1997
