<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1997
REGISTRATION NO. 333-18923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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.)
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2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Address and telephone number of principal executive offices)
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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)
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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 MARCH 3, 1997
2,000,000 SHARES
[INFOCURE LOGO]
INFOCURE CORPORATION
COMMON STOCK
All of the 2,000,000 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 $8.00 and $10.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial offering
price. The Company has applied for quotation on the Nasdaq Stock Market's
National Market under the symbol "ICUR."
Concurrently with the offering made pursuant to this Prospectus and as a
condition to the closing thereof, the Company will issue 3,642,773 shares of
Common Stock pursuant to a Registration Statement 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 13 AND "DILUTION" COMMENCING ON PAGE 21.
---------------------
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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=============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total (3)......................... $ $ $
=============================================================================================================
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(1) Excludes additional compensation payable to the Representatives of the
several Underwriters in the form of a financial advisory fee. 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 financial advisory fee payable 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 300,000
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 Rodman & Renshaw, Inc., New York, New
York, on or about , 1997.
---------------------
RODMAN & RENSHAW, INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1997
<PAGE> 3
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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 $9.00 per share and (iii) 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..... 2,000,000 shares
Common Stock to be Outstanding after the
Offering................................ 5,642,773 shares (1)(2)
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."
Proposed Nasdaq National Market
Symbol.................................. "ICUR"
- ---------------
(1) Excludes an aggregate of (i) 840,000 shares of Common Stock reserved for
future issuance under the Company's Stock Option Plan, (ii) 322,815
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) 34,412 Equivalent Shares of
Common Stock that AMC intends to sell to an unaffiliated third party for an
estimated $200,000 in a private placement prior to the Offering, (iv)
200,000 shares of Common Stock reserved for issuance pursuant to warrants
issuable to the Representatives of the Underwriters upon consummation of
the Offering, (v) 26,944 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 fiscal years
1998 and 1999, (vi) 71,111 Equivalent Shares of Common Stock reserved for
issuance to the stockholders of Rovak, Inc. upon it meeting certain
specified net operating profit levels for the 1998 fiscal year and (vii)
242,354 Equivalent Shares of Common Stock to be assigned and transferred to
AMC for cancellation not later than 20 days prior to the consummation of
the Offering, pursuant to a written agreement dated November 19, 1996. See
"Shares Eligible for Future Sale," "Management--Stock Options" and
"Underwriting."
(2) Includes 132,586 Equivalent Shares of Common Stock which AMC has the right
to purchase for $65,000. See "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 nine months ended
October 31, 1996. 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.
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PRO FORMA
-------------------------------------
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, -----------------------
1996 1995 1996
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SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software................................... $ 9,544 $ 6,656 $ 7,128
Maintenance and support................................ 6,236 4,948 6,327
Other.................................................. 762 562 665
------- ------- -------
Total revenues....................................... 16,542 12,166 14,120
Cost of revenues.......................................... 5,137 3,899 3,966
------- ------- -------
Gross profit.............................................. 11,405 8,267 10,154
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)....... 8,387 6,089 7,630
Depreciation and amortization (6)...................... 1,322 992 1,008
------- ------- -------
Operating income.......................................... 1,696 1,186 1,516
Other expense (income):
Interest expense (7)................................... 77 82 69
Other.................................................. (121) (99) (30)
------- ------- -------
Income before taxes....................................... 1,740 1,203 1,477
Income tax (8)............................................ 842 596 695
------- ------- -------
Net income................................................ $ 898 $ 607 782
======= ======= =======
Pro forma net income per share............................ $ 0.17 $ 0.11 $ 0.15
Pro forma weighted average shares outstanding (9)......... 5,322 5,322 5,322
======= ======= =======
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AS OF OCTOBER 31, 1996
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
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SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 840 $ 5,215
Working capital........................................... (2,180) 2,195
Total assets.............................................. 17,899 22,274
Short-term debt........................................... 657 657
Long-term debt, less current portion...................... 308 308
Total stockholders' equity................................ 11,897 16,307
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(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the pro forma statements of operations data, and as of
October 31, 1996, in the case of the unaudited selected pro forma balance
sheet data. The pro forma balance sheet data also give effect to the
issuance in
5
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November 1996 of 508,385 Equivalent Shares of Common Stock by AMC for
$750,000 but excludes 34,412 Equivalent Shares of Common Stock that AMC
intends to sell to an unaffiliated third party for an estimated $200,000 in
a private placement prior to the Offering. The pro forma combined financial
data are based upon preliminary estimates, available information and
certain assumptions that management believes are appropriate. The unaudited
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 unaudited 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, $1,231,000 and
$1,330,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively, and (ii) the additional overhead
expenses at the Founding Businesses of approximately $452,000, $339,000 and
$339,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively. The Company considers that the
elimination of approximately $1,130,000 of these expenses, on an annualized
basis, was effected concurrent with 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, $324,000 and
$264,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively, and (ii) expense related to HCD's
participation in Info System's employee stock ownership plan of
approximately $159,000, $147,000 and $61,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, 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, $237,000 and $264,000, for the year
ended January 31, 1996 and the nine months ended October 31, 1995 and 1996,
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, $86,000 and $241,000 for the year
ended January 31, 1996 and the nine months ended October 31, 1995 and 1996,
respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$768,000, $576,000 and $576,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively. Also includes
pro forma adjustment to depreciation and amortization expense, after
adopting appropriate useful lives for related assets, of $300,000, $200,000
and $190,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, 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, $95,000 and $188,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, 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 $1,500,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 5,080,351
shares to be issued in connection with the Acquisitions and the Offering
and (ii) 241,943 Common Stock equivalents 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
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<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 $9.3 million in cash, $2.5 million in
assumed indebtedness and 3,642,773 shares of Common
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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
----------------- ------------ ------------ ------------
<S> <C> <C> <C>
AMC (2)(3)(4)(5)............................ $2,683,000 $1,074,900 3,556,262
Rovak (6)(7)................................ 2,983,000 1,039,055 --
KComp (7)................................... 1,533,000 299,785 --
DR Software................................. 2,128,500 99,389 86,511
---------- ---------- ---------
Total............................. $9,327,500 $2,513,129 3,642,773
========== ========== =========
</TABLE>
- ---------------
(1) Assumed indebtedness is as of October 31, 1996, prior to application of the
proceeds of the Offering. Excludes the assumption of current liabilities
except the current portion of the indebtedness.
(2) Includes ICS, HCD and Millard-Wayne. AMC recently formed HCD to consummate
the HCD Acquisition and will acquire Millard-Wayne immediately prior to the
consummation of the Offering.
(3) Includes (i) the aggregate consideration for the HCD Acquisition, which
consists of $150,000 cash already paid and a promissory note for $1,550,000
less an estimated post-closing adjustment of $117,000 and (ii) $1,100,000,
representing the cash portion of the purchase price of Millard-Wayne.
(4) Includes (i) 26,944 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 and (ii) 132,586
Equivalent Shares of Common Stock which AMC has the right to purchase for
$65,000. See "AMC Financial Statements -- Note 3." Excludes an aggregate of
(i) 322,815 Equivalent Shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and a warrant of AMC assumed by the
Company, (ii) 26,944 Equivalent Shares reserved for issuance if
Millard-Wayne meets certain specified revenue or operating profits for the
fiscal years 1998 and 1999, (iii) 34,412 Equivalent Shares of Common Stock
that AMC intends to sell to an unaffiliated third party for an estimated
$200,000 in a private placement prior to the Offering, (iv) 71,111 shares
of Common Stock reserved for issuance if Rovak meets a certain specified
level of net income for fiscal 1998 and (v) 242,354 Equivalent Shares of
Common Stock to be assigned and transferred to AMC for cancellation not
later than 20 days prior to the consummation of the Offering, pursuant to a
written agreement dated November 19, 1996.
(5) Excludes contingent consideration reserved for issuance to the stockholders
of Millard-Wayne and Rovak upon meeting certain future performance criteria
based on revenues and/or operating profits.
(6) Includes reduction for an estimated post-closing adjustment of $7,000.
(7) Includes reduction for an estimated post-closing adjustment of $67,000.
InfoCure has filed a registration statement on Form S-4 for the concurrent
offering of 3,642,773 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 Acquisitions and is qualified in its
entirety by the terms of the definitive agreements with the Founding Businesses
or AMC, which are incorporated herein by reference.
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
3,556,262 shares of Common Stock of InfoCure, an estimated 0.06882 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 14.53 shares of common
stock of AMC). This exchange ratio ("Exchange Ratio") is subject to adjustment
depending upon the number of shares of common stock of AMC outstanding at the
time of the AMC Merger. 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
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<PAGE> 11
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 my 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 March 30, 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 March 30, 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 intends to obtain the written consents of
the holders of a majority of the outstanding shares of common stock of AMC
approving the AMC Merger. The directors and executive officers of AMC and
InfoCure and their affiliates and holders of 5% or more of the common stock of
AMC own 69.6% of the outstanding shares of common stock of AMC. All of such
stockholders of AMC have agreed to vote for the AMC Merger. All of the
outstanding shares of InfoCure are owned by its directors and officers and such
stockholders have also agreed to vote 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) 86,511 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. 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,
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
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<PAGE> 12
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, 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 effective date of the Offering (i) by mutual consent of
InfoCure and the stockholders of DR Software, (ii) at any time after March 30,
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 March 30, 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 stock purchase agreement entered into among all of
the stockholders of Rovak and InfoCure ("Rovak Stock Purchase Agreement")
provides that InfoCure will acquire all of the outstanding capital stock of
Rovak at the time of the Offering in consideration of $2,990,000. The Rovak
Stock Purchase Agreement provides 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. In addition, the purchase price is to be increased if
the net income before interest and taxes ("net income") of Rovak for the year
ending December 31, 1997 is more than $621,000. The maximum increase of $815,000
is applicable if such net income is $750,000 or more and is prorated if it is
less than $750,000 and more than $621,000. Cash consideration and shares of
Common Stock having an aggregate value of $815,000 are to be held in escrow or
withheld as a source of recovery of damages to InfoCure in the event of breach
of any warranty, representation or covenant of the stockholders of Rovak or to
be disbursed as 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 stock purchase agreement as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or Rovak. The consummation of the sale/purchase of the capital stock of
Rovak 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, 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 Stock Purchase Agreement, (ii) waive any
inaccuracies in the representations and warranties contained in the Rovak Stock
Purchase Agreement and (iii) waive compliance with or modify, amend or suspend
any of the covenants, agreements, representations or warranties contained in the
Rovak Stock Purchase Agreement or waive or modify performance of any of the
obligations of any of the parties to the Rovak Stock Purchase Agreement.
The Rovak Stock Purchase Agreement provides that it may be terminated or
abandoned prior to the effective date of the Offering (i) by mutual consent of
InfoCure and the stockholders of Rovak, (ii) at any time after March 30, 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 March 30, 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 event of
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<PAGE> 13
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.
KComp Acquisition. The stock purchase agreement entered into among all of
the stockholders of KComp and InfoCure ("KComp Stock Purchase Agreement")
provides that InfoCure will acquire all of the outstanding capital stock of
KComp ("KComp Acquisition") at the time the Offering becomes effective for
consideration consisting of $1,600,000 payable in cash upon the closing of the
Offering. The KComp Stock Purchase 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 $242,703. In addition the purchase price is to be
increased, if the operating income for the 1998 fiscal year of KComp exceeds
$400,000, by an amount equal to 5.5 times the operating profits in excess of
$400,000. In no event will the additional consideration exceed $150,000. 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. In addition, InfoCure has granted to the holders
of certain notes of KComp and recipients of deferred bonuses from KComp a right
to purchase an aggregate of $450,000 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.
InfoCure and the stockholders of KComp will make certain representations
and warranties in the KComp Stock Purchase 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 Stock Purchase
Agreement or waive or modify performance of any of the obligations of any of the
parties to the KComp Stock Purchase Agreement.
The KComp Stock Purchase Agreement provides that it may be terminated prior
to the effective date of the Offering (i) by mutual consent of InfoCure and the
stockholders of KComp, (ii) at any time after March 30, 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 March 30, 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 Stock Purchase 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 and a bonus. The bonus will be an amount equal to a
percentage of the operating profits of KComp in excess of $400,000, adjusted for
any acquisition or disposition of any business. In addition, Mr. Kloner will
receive a fee of five percent of the operating profits of any business acquired
by KComp in which he participated for the first 12 months following the KComp
Acquisition.
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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 $898,000, $782,000 and $607,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1996 and 1995, 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 $2,150,000, $1,623,000 and $1,405,000 for
the year ended January 31, 1996 and the nine months ended October 31, 1996 and
1995, respectively. Therefore, 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 net losses of $180,196 and $1,075,308 for the years ended January 31, 1996
and 1995, respectively, and net losses of approximately $325,476 and $23,945 for
the nine months ended October 31, 1996 and 1995, respectively. 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. 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."
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
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<PAGE> 15
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 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,
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<PAGE> 16
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 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
15
<PAGE> 17
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,
FDA officials expressed an intention to initiate agency rulemaking to 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 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.
16
<PAGE> 18
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 $9.2 million, representing approximately 58% of the net
proceeds of the Offering will be paid and 3,642,773 shares of Common Stock will
be issued, upon the consummation of the Acquisitions. Approximately $3.7 million
of such payments and 2,639,842 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 $6.7 million, representing 42% 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 24% 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 2,000,000 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
3,642,773 shares of Common Stock will be issued in connection with the AMC
Merger and the Acquisitions of which approximately 2,639,842 shares of Common
Stock will be issued to affiliates of the Company and 1,002,931 shares of Common
Stock to persons who are not affiliates. In addition 170,544 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
3,105,538 Equivalent Shares of Common Stock, have agreed not to offer or dispose
of, without the prior written consent of Rodman & Renshaw, Inc., any shares of
Common Stock for a period of 180 days (the "Lock-Up Period") following the date
the Commission declares effective the Registration Statement and, for a period
of 18 months following expiration of the Lock-Up Period, not to publicly offer
or sell except in accordance with the volume limitations of Rule 144(e), except
that 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."
17
<PAGE> 19
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 $8.43 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."
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered hereby are estimated to be approximately $15.9 million after
deducting underwriting discount and estimated expenses of the Offering payable
by the Company. If the Underwriters exercise the over-allotment option, the
Company will not realize any additional net proceeds, as those shares will be
sold by the Selling Stockholders. See "Principal Stockholders."
The Company intends to use approximately $9.2 million of the net proceeds
for payments due upon the consummation of the Acquisitions (excluding $150,000
paid for HCD), approximately $1.5 million for the repayment of certain
outstanding indebtedness, approximately $495,000 principally for expenses
related to the Acquisitions and approximately $265,000 for satisfaction of a
contractual obligation. Of the $1.5 million intended to discharge indebtedness,
$381,000 will be used to repay an AMC 11.25% note scheduled to mature in 2003
and $648,000 will be used to repay three Rovak variable rate notes (10.25% at
September 30, 1996) 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 $4.4 million, 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.
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 of up to $10.0 million to be
used for working capital and other general corporate purposes, including future
acquisitions. The Company intends to enter into a definitive line of credit
agreement to become effective upon 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."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of October 31, 1996 (i) on a pro forma basis to give effect to the November
1996 issuance of shares of AMC common stock for $750,000, the Acquisitions and
the repayment of certain outstanding indebtedness and (ii) on a pro forma
adjusted basis to give effect to the November 1996 issuance of shares of AMC
common stock for $750,000, the Acquisitions, the consummation of the Offering
and the applications 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 OCTOBER 31, 1996
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 657 $ 657
Long-term debt, excluding current portion................... 308 308
Stockholders' equity:
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized and no shares issued and outstanding........ -- --
Common Stock, $0.001 par value; 40,000,000 shares
authorized; 5,080,351 shares issued and outstanding pro
forma and 5,642,773 shares issued and outstanding pro
forma as adjusted (1)(2)............................... 5 6
Additional paid-in capital................................ 15,722 20,131
Accumulated deficit....................................... (3,830) (3,830)
------- -------
Total stockholders' equity............................. 11,897 16,307
------- -------
Total capitalization................................. $12,862 $17,272
======= =======
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) 322,815 Equivalent Shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options and a
stock warrant, (ii) 34,412 Equivalent Shares of Common Stock that AMC
intends to sell to an unaffiliated third party for an estimated $200,000 in
a private placement prior to the Offering and (iii) 242,354 Equivalent
Shares of Common Stock to be assigned and transferred to AMC for
cancellation not later than 20 days prior to the consummation of the
Offering, pursuant to a written agreement dated November 19, 1996.
(2) Includes 132,586 Equivalent Shares of Common Stock which AMC has the right
to purchase for $65,000. See "AMC Financial Statements -- Note 3."
20
<PAGE> 22
DILUTION
The pro forma net tangible book value (deficit) of the Company's Common
Stock as of October 31, 1996, after giving pro forma effect to the Acquisitions,
certain debt repayments and the November 1996 issuance of shares of AMC common
stock for $750,000, was approximately $(1.2) million, or $(0.23) 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
2,000,000 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
October 31, 1996 would have been approximately $5.3 million, or $0.57 per share,
representing an immediate increase in pro forma net tangible book value of $0.80
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $8.43 per share, or 93.7%, 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............. $9.00
Pro forma net tangible book value per share before the
Offering.................................................. $(0.23)
Increase in net tangible book value per share attributable
to new investors.......................................... 0.80
------
Adjusted pro forma net tangible book value per share after
the Offering.............................................. 0.57
-----
Dilution in net tangible book value per share to new
investors................................................. $8.43
=====
</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 October 31, 1996, after giving pro
forma effect to the Acquisitions, certain debt repayments and the November 1996
issuance of shares of AMC common stock for $750,000, 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)(2).... 3,642,773 64.6% $ 2,907,667 13.9% $0.80
New investors................... 2,000,000 35.4 18,000,000 86.1 9.00
--------- ----- ----------- -----
Total................. 5,642,773 100.0% $20,907,667 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) stock options and a warrant to purchase an
aggregate of 322,815 Equivalent Shares of Common Stock outstanding at a
weighted average per share exercise price of $2.25, (ii) 34,412 Equivalent
Shares of Common Stock that AMC intends to sell to an unaffiliated third
party for an estimated $200,000 in a private placement prior to the
Offering and (iii) 242,354 Equivalent Shares of Common Stock to be assigned
and transferred to AMC for cancellation not later than 20 days prior to the
consummation of the Offering.
(2) Includes 132,586 Equivalent Shares of Common Stock which AMC has the right
to purchase for $65,000. See "AMC Financial Statements -- Note 3."
21
<PAGE> 23
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 nine months ended October 31, 1996. 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
-------------------------------------
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, -----------------------
1996 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software................................... $ 9,544 $ 6,656 $ 7,128
Maintenance and support................................ 6,236 4,948 6,327
Other.................................................. 762 562 665
------- ------- -------
Total revenues....................................... 16,542 12,166 14,120
Cost of revenues.......................................... 5,137 3,899 3,966
------- ------- -------
Gross profit.............................................. 11,405 8,267 10,154
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)....... 8,387 6,089 7,630
Depreciation and amortization (6)...................... 1,322 992 1,008
------- ------- -------
Operating income.......................................... 1,696 1,186 1,516
Other expense (income):
Interest expense (7)................................... 77 82 69
Other.................................................. (121) (99) (30)
------- ------- -------
Income before taxes....................................... 1,740 1,203 1,477
Income tax (8)............................................ 842 596 695
------- ------- -------
Net income................................................ $ 898 $ 607 782
======= ======= =======
Pro forma net income per share............................ $ 0.17 $ 0.11 $ 0.15
Pro forma weighted average shares outstanding (9)......... 5,322 5,322 5,322
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1996
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
-------------- ----------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 840 $ 5,215
Working capital........................................... (2,180) 2,195
Total assets.............................................. 17,899 22,274
Short-term debt........................................... 657 657
Long-term debt, less current portion...................... 308 308
Total stockholders' equity................................ 11,897 16,307
</TABLE>
- ---------------
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the pro forma statements of operations data, and as of
October 31, 1996, in the case of the unaudited selected pro forma balance
sheet data. The pro forma balance sheet data also give effect to the
issuance in November 1996 of 508,385 Equivalent Shares of Common Stock by
AMC for $750,000 but excludes
22
<PAGE> 24
34,412 Equivalent Shares of Common Stock that AMC intends to sell to an
unaffiliated third party for an estimated $200,000 in a private placement
prior to the Offering. The pro forma combined financial data are based upon
preliminary estimates, available information and certain assumptions that
management believes are appropriate. The unaudited 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
unaudited 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, $1,231,000 and
$1,330,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively, and (ii) the additional overhead
expenses at the Founding Businesses of approximately $452,000, $339,000 and
$339,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, 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, $324,000 and
$264,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively, and (ii) expense related to HCD's
participation in Info System's employee stock ownership plan of
approximately $159,000, $147,000 and $61,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, 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, $237,000 and $264,000, for the year
ended January 31, 1996 and the nine months ended October 31, 1995 and 1996,
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, $86,000 and $241,000 for the year
ended January 31, 1996 and the nine months ended October 31, 1995 and 1996,
respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$768,000, $576,000 and $576,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively. Also includes
pro forma adjustment to depreciation and amortization expense, after
adopting appropriate useful lives for related assets, of $300,000, $200,000
and $190,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, 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, $95,000 and $188,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, 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 $1,500,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 5,080,351
shares to be issued in connection with the Acquisitions and the Offering
and (ii) 241,943 Common Stock equivalents 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."
23
<PAGE> 25
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 seven 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 17,500 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 nine months ended October 31, 1996 and 1995. KComp was
established in December 1995. The only results of KComp included in the pro
forma combined financial data are for the nine months ended October 31, 1996.
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.
Nine Months Ended October 31, 1996 Compared with Nine Months Ended October 31,
1995
Revenues increased by $1,954,000, or 16.1%, to $14,120,000 for the nine
months ended October 31, 1996 from $12,166,000 for the nine months ended October
31, 1995. Maintenance and support revenue increased $1,379,000, or 27.9%, to
$6,327,000 for the nine months ended October 31, 1996 from $4,948,000 for the
comparable period. The increase primarily was due to the formation of KComp,
which contributed maintenance and support revenues of $1,275,000, and additional
revenues from onsite training services.
24
<PAGE> 26
Systems and software sales increased $472,000, or 7.1%, to $7,128,000 for the
nine months ended October 31, 1996 from $6,656,000 for the nine months ended
October 31, 1995.
Cost of revenue increased by $67,000, or 1.7%, to $3,966,000 for the nine
months ended October 31, 1996 from $3,899,000 for the nine months ended October
31, 1995. As a percentage of revenue, cost of sales decreased to 28.1% for the
nine months ended October 31, 1996 from 32.0% for the nine months ended October
31, 1995. This decrease in cost of revenue as a percent of sales principally
reflects a change in product mix, whereby maintenance and support revenue
increased to 44.8% of total revenues for the nine months ended October 31, 1996
from 40.7% of total revenues for the nine months ended October 31, 1995. The
cost of revenue for KComp for the nine months ended October 31, 1996 was
$112,000.
Selling, general and administrative expense increased by $1,541,000, or
25.3%, to $7,630,000 for the nine months ended October 31, 1996 from $6,089,000
for the nine months ended October 31, 1995. This increase primarily is due to
the formation of KComp, which added $1,134,000 to selling, general and
administrative expense.
As a result of the foregoing factors, operating income increased by
$330,000, or 27.8%, to $1,516,000 for the nine months ended October 31, 1996
from $1,186,000 for the nine months ended October 31, 1995. This increase
reflects the operating income of $249,000 from the KComp operations for the nine
months ended October 31, 1996, which were not included in the prior year. As a
percentage of revenues, income from operations increased to 10.7% for the nine
months ended October 31, 1996 from 9.8% for the nine months ended October 31,
1995.
Interest expense decreased by $13,000, or 15.9%, for the nine months ended
October 31, 1995 to $69,000 from $82,000 for the nine months ended October 31,
1996, primarily due to repayment of the 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 October 31, 1996
totalling $120,000. Following consummation of the Acquisitions and the Offering,
the Company will have outstanding long-term debt of $773,000, including $465,000
which will be classified as the current portion of long-term debt. Additionally,
the Company has other notes payable of $72,000.
The Company has gross cash flow from operations (net income plus
depreciation and amortization) for the nine months ended October 31, 1996 and
for the year ended January 31, 1996 of $1,790,000 and $2,220,000, respectively.
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 of up to $10.0 million 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 intends to
enter into a definitive line of credit to become effective upon 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.
25
<PAGE> 27
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, 1995 and 1996 and the nine months ended October 31, 1995
and 1996. The selected financial data presented for AMC should be read in
conjunction with its audited financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
----------------- -----------------
1995 1996 1995 1996
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software and services................................ $ 2,866 $ 2,026 $ 1,618 $ 1,430
Hardware............................................. 620 387 297 230
------- ------- ------- -------
Total revenues..................................... 3,486 2,413 1,915 1,660
Cost of sales........................................... 1,116 516 434 299
------- ------- ------- -------
Gross profit............................................ 2,370 1,897 1,481 1,361
Operating expenses:
Salaries and operating expenses...................... 2,848 2,018 1,491 1,574
Depreciation and amortization........................ 564 112 82 55
------- ------- ------- -------
Loss from operations.................................... (1,042) (233) (92) (268)
Other income (expense):
Interest expense..................................... (54) (68) (47) (60)
Other................................................ 21 121 115 3
------- ------- ------- -------
Net loss................................................ $(1,075) $ (180) $ (24) $ (325)
======= ======= ======= =======
Net loss per share...................................... $ (0.03) $ (0.00) $ (0.00) $ (0.01)
Weighted average shares outstanding..................... 41,963 41,387 41,349 43,531
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF OCTOBER 31,
1996 1996
----------------- -----------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 250 $ 183
Working capital........................................... (1,201) (987)
Total assets.............................................. 567 664
Short-term debt........................................... 336 311
Long-term debt, less current portion...................... 545 539
Total stockholders' equity................................ (1,618) (1,273)
</TABLE>
26
<PAGE> 28
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. For the periods presented herein, AMC functioned with
operations exclusively through a single operating subsidiary, ICS. After October
31, 1996, HCD became, and 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
Nine Months Ended October 31, 1996 Compared with Nine Months Ended October 31,
1995
Total revenues decreased by $255,353, or 13.3%, to $1,659,671 for the nine
months ended October 31, 1996 from $1,915,024 for the nine months ended October
31, 1995. Software and services revenues decreased by $188,460, or 11.6%, to
$1,429,876 for the nine months ended October 31, 1996 from $1,618,336 for the
nine months ended October 31, 1995 due to a decrease in UNIX software sales of
$117,131 and a decrease in net EDI revenues of $32,333. The method by which EDI
revenues and costs are recorded was changed from a gross amount to a net amount
during the year ended January 31, 1996. As a result, EDI revenues are shown at a
net amount of $260,349 for the nine months ended October 31, 1996 compared to
$292,682 for the nine months ended October 31, 1995. The overall EDI transaction
volume increased by 136,339 transactions, or 19.8%, to 824,650 for the nine
months ended October 31, 1996 from 688,311 transactions for the nine months
ended October 31, 1995.
Cost of sales decreased by $135,024, or 31.1%, to $299,075 for the nine
months ended October 31, 1996 from $434,099 for the nine months ended October
31, 1995. As a percentage of revenue, cost of sales decreased to 18.0% for the
nine months ended October 31, 1996 from 22.7% for the comparable nine month
period ended October 31, 1995. This decrease in cost of sales as a percentage of
total revenues reflects a change in product mix whereby revenues associated with
UNIX hardware sales decreased to 8.5% for the nine months ended October 31, 1996
from 15.3% for the nine months ended October 31, 1995.
Salaries and operating expenses increased by $82,452, or 5.5%, to
$1,573,936 for the nine months ended October 31, 1996 from $1,491,483 for the
nine months ended October 31, 1995. This increase was due to an increase in
contract labor, as AMC identified specific tasks to be performed by outside
contractors for training and installation services, and additional overhead
associated with opening a second office for purposes of implementing its
acquisition strategy.
Depreciation and amortization expense decreased by $451,376, or 80.1%, to
$112,314 for the year ended January 31, 1996 from $563,690 for the year ended
January 31, 1995. This decrease was due to the accelerated write off in 1995 of
substantial development costs of UNIX software products. Also, a significant
amount of tangible and intangible assets became fully depreciated or amortized
during 1995.
As a result of the foregoing factors, AMC had a loss from operations of
$268,229 for the nine months ended October 31, 1996, as compared to a loss of
$92,211 for the nine months ended October 31, 1995. Year Ended January 31,
1996 Compared with Year Ended January 31, 1995
Total sales decreased by $1,072,825, or 30.8%, to $2,412,734 for the year
ended January 31, 1996 from $3,485,559 for the year ended January 31, 1995.
Software and services revenues decreased by $839,468, or 29.3%, to $2,026,114
for the year ended January 31, 1996 from $2,865,582 for the year ended January
31, 1995. Several factors contributed to this decrease. UNIX maintenance
decreased by $262,387, or 24.6%, to $805,321 for the year ended January 31, 1996
from $1,067,708 for the year ended January 31, 1995, due to the change in
billing methods associated with the outsourcing of hardware maintenance
services. Sales of DOS-based practice management software products and
maintenance decreased by $236,670, or 30.2%, to $546,134 for the year ended
January 31, 1996 from $782,804 for the year ended January 31, 1995. This
decrease was
27
<PAGE> 29
related to AMC's shift to direct marketing, rather than marketing through
third-party distributors. The method by which EDI revenues and costs are
recorded was changed from a gross amount to a net amount during the year ended
January 31, 1996. As a result, EDI revenues are shown at a net amount of
$372,516 for the year ended January 31, 1996, a decrease of $219,384, or 37.9%,
from $591,900 for the year ended January 31, 1995. Hardware sales decreased by
$233,357, or 37.6%, to $386,620 for the year ended January 31, 1996 from
$619,977 for the year ended January 31, 1995, primarily due to a decrease in
UNIX hardware sales.
Cost of sales decreased by $599,884, or 53.8%, to $515,842 for the year
ended January 31, 1996 from $1,115,726 for the year ended January 31, 1995. As a
percentage of sales, cost of sales decreased to 21.3% for the year ended January
31, 1996 from 32.0% for the year ended January 31, 1995. This decrease in cost
of sales as a percentage of sales reflects a reduction in cost of sales
resulting from the change in EDI billing and a change in product mix whereby
revenues associated with UNIX hardware sales decreased to 14.3% for the year
ended January 31, 1996 from 15.6% for the year ended January 31, 1995.
Salaries and operating expense decreased by $830,616, or 29.2%, to
$2,017,389 for the year ended January 31, 1996 from $2,848,005 for the year
ended January 31, 1995. This decrease was due to operational efficiencies,
including the outsourcing of hardware support, and EDI billing and collections.
The decrease was also due to salary and benefit reductions of $384,517
associated with the reduction in total personnel.
As a result of the foregoing factors, the operating loss decreased to
$232,811 for the year ended January 31, 1996 from $1,041,862 for the year ended
January 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended January 31, 1996, cash provided by operating activities
totalled $15,415, cash used for investing activities totalled $10,976 and cash
provided by financing activities totalled $240,575. Cash provided by financing
activities resulted from long-term debt and a note payable. Other than advances
available from certain officers and stockholders, AMC had no available line of
credit or financing source. For the nine months ended October 31, 1996, cash
used for operating activities totalled $637,655, cash used for investing
activities totalled $142,796 and cash provided by financing activities totalled
$713,765. Cash provided by financing activities resulted from issuance of common
stock.
As of January 31, 1996, AMC had an accumulated deficit of $3,504,880 and a
working capital deficiency of $1,200,963. As of October 31, 1996, AMC had an
accumulated deficit of $3,830,356 and a working capital deficit of $986,509.
28
<PAGE> 30
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 seven Founding Businesses. In connection
therewith, InfoCure has filed a registration statement on Form S-4 for the
offering of 3,642,773 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
29
<PAGE> 31
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
30
<PAGE> 32
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>
<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>
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<PAGE> 33
<TABLE>
<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.
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<PAGE> 34
Add-On Software Modules
Recently the Company has developed and introduced new 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 October 31, 1996, the Company had 47 employees responsible for
product development and technical services.
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<PAGE> 35
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
32 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 October 31, 1996,
the Company had 88 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 1995.
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.
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<PAGE> 36
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 compute 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,
FDA Officials expressed an intention to initiate agency rulemaking to 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 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
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<PAGE> 37
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 October 31, 1996, the Company employed 203 persons, including 32 in
marketing and sales, 88 in customer support services, 47 in product research and
development and 36 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.
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<PAGE> 38
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............................. 38 Executive Vice President and Director
Michael E. Warren.......................... 42 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 Schraut............................... 35 President, Mid-Range Division
James D. Elliot............................ 36 Director (1)(2)
Richard E. Perlman......................... 50 Director (1)(2)
</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.
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<PAGE> 39
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 executive vice president and general manager of
GE Integrated Technology Solutions ("GE") 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.
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 840,000 shares of Common Stock may be issued
under the Company's Plan.
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
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<PAGE> 40
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
149,690 shares of Common Stock were outstanding under the AMC Plan at an
equivalent weighted average exercise price of $3.63 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 34,412 shares of Common Stock for an aggregate consideration
of $500, was exercised in 1996. The other option, for the equivalent of 34,412
shares of Common Stock at an exercise price of $1.45 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. Upon consummation of the
AMC Merger, the Company shall assume the obligations of AMC under this
employment agreement. See "Business--Stock Options."
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<PAGE> 41
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
92,911 Equivalent Shares of Common Stock at an exercise price of $3.63 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
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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<PAGE> 42
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)....................... 629,364 17.3% 11.2%
Frederick L. Fine (3)(5)................................. 473,695 13.0 8.4
James K. Price (3)(6).................................... 473,695 13.0 8.4
Robert L. Fine (3)....................................... 362,498 10.0 6.4
William A. Baker (3)..................................... 246,809 6.8 4.4
W. K. Price (3)(7)....................................... 234,466 6.4 4.2
Michael E. Warren........................................ 84,348 2.3 1.5
James D. Elliott......................................... 22,941 * *
Richard E. Perlman (8)................................... 161,377 4.3 2.8
All directors and executive officers as a group (8
persons)............................................... 1,422,418 36.5% 24.1%
</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 300,000 shares of Common Stock from certain stockholders. See
"Underwriting." It is contemplated that if the over-allotment option is
exercised in full, Robert L. Fine will sell 136,615 shares, W.K. Price will
sell 88,390 shares and Norson's International, LLC ("Norson's") will sell
74,995 shares of Common Stock. The Company will not receive any proceeds
from the sale of Common Stock by these 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 32,987 shares of Common Stock and a warrant (which warrant is
exercisable on the date hereof) to acquire 128,390 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. Mr. Sauey is the
principal owner of Norson's.
(5) Includes 4,130 shares of Common Stock owned as custodian for his children
and 1,376 shares of Common Stock held in a charitable trust over which he
has sole voting and investment power.
(6) Includes 3,721 shares of Common Stock over which he has sole voting power.
(7) Includes 7,441 shares of Common Stock over which he has sole voting power.
(8) Includes 32,987 shares and a warrant (which warrant is exercisable on the
date hereof) to acquire 128,390 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.
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, 468,189
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<PAGE> 43
shares of Common Stock; James K. Price, 469,974 shares of Common Stock; Robert
L. Fine, 362,498 shares of Common Stock; William A. Baker, 246,089 shares of
Common Stock; W. K. Price, 227,025 shares of Common Stock; Michael E. Warren,
49,933 shares of Common Stock and an option to acquire 34,412 shares of Common
Stock; Norson's, 629,364 shares of Common Stock; Donald M. Rogers, 86,511 shares
of Common Stock and approximately $2.1 million in cash; M. Wayne George, 26,944
shares of Common Stock and approximately $1.1 million in cash; and Brad Schraut,
approximately $521,000 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 26,944 shares of Common Stock. If Rovak achieves certain financial
criteria after the Offering, Brad Schraut may receive up to 12,419 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. 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, Mssrs. George, Rogers and Schraut of the
Founding Businesses 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 February 28, 1997. As compensation for services, Compass received the
equivalent of 32,987 shares of Common Stock and a warrant exercisable within
five years to purchase the equivalent of 128,390 shares of Common Stock at an
exercise price equal to the AMC stock price as of the date of the agreement
($0.91 per equivalent share) subject to the consummation of the Acquisitions. In
addition, pursuant to the agreement, Compass will receive approximately $410,000
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 the equivalent of
120,978 shares of Common Stock for $50,000, and in November 1996, AMC sold
Norson's the equivalent of 508,385 shares of Common Stock for $750,000. Mr.
Sauey holds a 95% equity interest in Norson's.
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 Company intends to repay this loan in
from the proceeds of this Offering. See "Use of Proceeds."
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
$265,000. The Termination Agreement shall be null and void if the Offering is
not consummated on or before June 30, 1997.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of InfoCure consists of 50,000,000 shares of
capital stock, consisting of 40,000,000 shares of Common Stock, par value $.001
per share, and 10,000,000 shares of preferred stock, par value $.001 per share
(the "Preferred Stock"). As of December 2, 1996, 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 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
43
<PAGE> 45
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 5,642,773 shares of Common Stock outstanding. In addition, outstanding
stock options and a warrant to acquire 170,544 shares of Common Stock are
immediately exercisable as of the date of this Prospectus. The Company, its
executive officers and directors and certain stockholders who hold an aggregate
of 3,105,538 shares of Common Stock (including 162,801 of the immediately
exercisable stock options and warrants), have agreed with the Underwriters not
to sell or dispose of, directly or indirectly, without the prior written consent
of Rodman & Renshaw, Inc., any of the remaining Common Stock held by them for a
period of 180 days (the "Lock-Up Period") following the date the Commission
declares effective the Registration Statement and, for a period of 18 months
following expiration of the Lock-Up Period, not to publicly offer or sell except
in accordance with the volume limitations of Rule 144(e), except that the
Company may issue shares of Common Stock in connection with acquisitions or upon
the exercise of stock options. Rodman & Renshaw, Inc. has no current intention
to waiver 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 may be deemed "affiliates" (as defined in Rule 144)
of the Company, 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. A person who has not been an
"affiliate" of the Company for the 90 days preceding a sale will be entitled 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."
44
<PAGE> 46
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Rodman &
Renshaw, Inc. and Cruttenden Roth Incorporated (the "Representatives"), 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>
Rodman & Renshaw, Inc. .....................................
Cruttenden Roth Incorporated................................
---------
Total............................................. 2,000,000
=========
</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.
The Selling Stockholders 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 300,000 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
Representatives of the Underwriters a financial advisory fee equal to 1% of the
total public offering price and (ii) to issue and sell to the Representatives,
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 "Representatives' Warrants"). The Representatives' 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 three years after such date. The
Representatives' 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 Representatives. The exercise
price of the Representatives' Warrants and the number of shares of Common Stock
issuable upon exercise thereof are subject to adjustment under certain
circumstances. The Representatives' Warrants grant to the holders thereof
certain rights regarding the registration of the Common Stock issuable upon
exercise of the Representatives' Warrants.
The Underwriting Agreement provides that the Company and the Selling
Stockholders 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 stockholders have agreed
not to sell or dispose of, without the prior written consent of Rodman &
Renshaw, Inc., any shares of Common Stock for a period of 180 days (the "Lock-Up
Period") from the date on which the Registration Statement is declared effective
by the Commission and, for a period of 18 months following expiration of the
Lock-Up Period, not to publicly offer or
45
<PAGE> 47
sell or dispose of any shares of Common Stock except in accordance with the
volume limitations of Rule 144(e), 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
prospectus 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.
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 2,753 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.
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.
46
<PAGE> 48
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 October 31, 1996... F-4
Pro Forma Combined Statement of Operations for the nine
months ended October 31, 1996.......................... F-6
Pro Forma Combined Statement of Operations for the nine
months ended October 31, 1995.......................... 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 Stockholder's 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-29
Balance Sheets............................................ F-30
Statements of Operations.................................. F-31
Statements of Changes in Stockholders' Equity............. F-32
Statements of Cash Flows.................................. F-33
Notes to Financial Statements............................. F-34
MILLARD-WAYNE, INC.
Report of Independent Certified Public Accountants........ F-38
Balance Sheets............................................ F-39
Statements of Operations and Retained Earnings............ F-40
Statements of Cash Flows.................................. F-41
Notes to Financial Statements............................. F-42
HEALTH CARE DIVISION (A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA,
INC.)
Report of Independent Certified Public Accountants........ F-46
Balance Sheets............................................ F-47
Statements of Operations.................................. F-48
Statements of Cash Flows.................................. F-49
Notes to Financial Statements............................. F-50
ROVAK, INC.
Report of Independent Certified Public Accountants........ F-56
Balance Sheets............................................ F-57
Statements of Operations and Accumulated Deficit.......... F-58
Statements of Cash Flows.................................. F-59
Notes to Financial Statements............................. F-60
</TABLE>
F-1
<PAGE> 49
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DR SOFTWARE, INC.
Report of Independent Certified Public Accountants........ F-66
Balance Sheets............................................ F-67
Statements of Operations.................................. F-68
Statements of Stockholders' Equity........................ F-69
Statements of Cash Flows.................................. F-70
Notes to Financial Statements............................. F-71
</TABLE>
F-2
<PAGE> 50
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 reports on
a June 30 year, and KComp, which has a March 31 year-end. The Pro Forma Combined
Balance Sheet as of October 31, 1996 includes the balance sheet of AMC at that
date and the balance sheets of the Founding Businesses as of September 30, 1996.
The Pro Forma Combined Statement of Operations for the nine months ended October
31, 1996 and 1995 and the year ended January 31, 1996 include the statements of
operations for AMC for the respective periods and the statements of operations
for the Founding Businesses as of nine month periods ended September 30, 1996
and 1995 and the year ended December 31, 1995. These statements are based on
historical financial statements of the Founding Businesses updated as of and for
periods ending through December 31, 1996 and 1995, 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.
Additionally, there are no significant events, transactions or trends in the
period September 30 to December 31 which, in the opinion of management, would
make the proforma financial statements significantly different.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Acquisitions and the Offering as if they had occurred on October 31, 1996. 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> 51
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1)
AS OF OCTOBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP HCD ROVAK WAYNE
------- -------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................. $ 183 $ 27 $ 28 $ -- $ -- $ 2
Accounts receivable, net.................. 198 275 449 529 571 287
Inventory................................. -- 100 -- 35 286 --
Deferred tax assets....................... -- -- -- 48 -- 72
Prepaid expenses and other................ 31 73 6 26 52 3
------- ------ ------ ------ ------ ----
Total current assets.............. 412 475 483 638 909 364
Property and equipment, net................. 45 165 86 67 371 127
Capitalized software costs, net............. 36 592 111 130 -- 361
Goodwill, net............................... -- -- 425 -- -- --
Deferred tax assets......................... -- -- -- -- 189 --
Other....................................... 171 -- -- -- 117 18
------- ------ ------ ------ ------ ----
Total assets...................... $ 664 $1,232 $1,105 $ 835 $1,586 $870
======= ====== ====== ====== ====== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank..................... $ -- $ 70 $ 50 $ -- $ 186 $ 76
Other notes payable....................... -- -- -- -- -- 72
Current portion of long-term debt......... 310 8 437 147 226 59
Accounts payable.......................... 302 155 213 500 397 113
Accrued expenses.......................... 379 137 134 52 78 58
Deferred revenue and customer deposits.... 406 877 123 546 240 313
------- ------ ------ ------ ------ ----
Total current liabilities......... 1,397 1,247 957 1,245 1,127 691
Deferred income tax liabilities............. -- -- -- 44 -- --
Long term debt, less current portion........ 540 21 28 195 627 18
------- ------ ------ ------ ------ ----
Total liabilities................. 1,937 1,268 985 1,484 1,754 709
------- ------ ------ ------ ------ ----
Stockholders' equity (deficit):
Common stock.............................. 47 50 -- -- 158 1
Stock purchase warrant.................... 500 -- -- -- -- --
Additional paid-in capital................ 2,110 -- 4 -- -- 42
Divisional equity (deficit)............... -- -- -- (649) -- --
(Deficit) retained earnings............... (3,830) (86) 116 -- (326) 118
Treasury stock (100) -- -- -- -- --
------- ------ ------ ------ ------ ----
Total stockholders' equity
(deficit)....................... (1,273) (36) 120 (649) (168) 161
------- ------ ------ ------ ------ ----
Total liabilities and
stockholders' equity
(deficit)....................... $ 664 $1,232 $1,105 $ 835 $1,586 $870
======= ====== ====== ====== ====== ====
</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> 52
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1) -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
----------------------------------- PRO FORMA
SUBTOTAL A B D E ADJUSTMENTS TOTAL
-------- -------- ---- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.............. $ 240 $ (9,327) $750 $(2,308) $15,860 $ 4,975 $ 5,215
Accounts receivable, net............... 2,309 (326) -- -- -- (326) 1,983
Inventory.............................. 421 -- -- -- -- -- 421
Deferred tax assets.................... 120 (48) -- -- -- (48) 72
Prepaid expenses and other............. 191 (28) -- -- -- (28) 163
------- -------- ---- ------- ------- ------- -------
Total current assets............ 3,281 (9,729) 750 (2,308) 15,860 4,573 7,854
Property and equipment, net.............. 861 -- -- -- -- -- 861
Capitalized software costs, net.......... 1,230 -- -- -- -- -- 1,230
Goodwill, net............................ 425 10,999 -- 410 -- 11,409 11,834
Deferred tax assets...................... 189 -- -- -- -- -- 189
Other.................................... 306 -- -- -- -- -- 306
------- -------- ---- ------- ------- ------- -------
Total assets.................... $ 6,292 $ 1,270 $750 $(1,898) $15,860 $15,982 $22,274
======= ======== ==== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank.................. $ 382 $ -- $ -- $ (262) $ -- $ (262) $ 120
Other notes payable.................... 72 -- -- -- -- -- 72
Current portion of long-term debt...... 1,187 (334) -- (388) -- (722) 465
Accounts payable....................... 1,680 (41) -- -- -- (41) 1,639
Accrued expenses....................... 838 320 -- (35) -- 285 1,123
Deferred revenue and customer
deposits............................. 2,505 -- -- (265) -- (265) 2,240
------- -------- ---- ------- ------- ------- -------
Total current liabilities....... 6,664 (55) -- (950) -- (1,005) 5,659
Deferred income tax liabilities.......... 44 (44) -- -- -- (44) --
Long-term debt, less current portion..... 1,429 (223) -- (898) -- (1,121) 308
------- -------- ---- ------- ------- ------- -------
Total liabilities............... 8,137 (322) -- (1,848) -- (2,170) 5,967
------- -------- ---- ------- ------- ------- -------
Stockholders' equity (deficit):
Common stock........................... 256 (253) 1 -- 2 (250) 6
Stock purchase warrant................. 500 -- -- (500) -- (500) --
Additional paid-in capital............. 2,156 918 749 450 15,858 17,975 20,131
Divisional equity (deficit)............ (649) 649 -- -- -- 649 --
(Deficit) retained earnings............ (4,008) 178 -- -- -- 178 (3,830)
Treasury stock......................... (100) 100 -- -- -- 100 --
------- -------- ---- ------- ------- ------- -------
Total stockholders' equity
(deficit)..................... (1,845) 1,592 750 (50) 15,860 18,152 16,307
------- -------- ---- ------- ------- ------- -------
Total liabilities and
stockholders' equity
(deficit)..................... $ 6,292 $ 1,270 $750 $(1,898) $15,860 $15,982 $22,274
======= ======== ==== ======= ======= ======= =======
</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> 53
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
NINE MONTHS ENDED OCTOBER 31, 1996
(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................................ $ 592 $1,448 $ 284 $1,681 $2,462 $ 661
Maintenance and support................................... 1,068 1,050 1,275 1,296 654 984
Other..................................................... -- -- -- 62 548 55
------ ------ ------ ------ ------ ------
Total revenues...................................... 1,660 2,498 1,559 3,039 3,664 1,700
Cost of revenues............................................ 299 584 112 917 1,726 328
------ ------ ------ ------ ------ ------
Gross profit................................................ 1,361 1,914 1,447 2,122 1,938 1,372
------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 1,574 1,731 1,134 2,055 1,682 1,275
Depreciation.............................................. 20 43 15 3 53 34
Amortization.............................................. 35 193 49 85 -- 92
------ ------ ------ ------ ------ ------
Total operating expenses............................ 1,629 1,967 1,198 2,143 1,735 1,401
------ ------ ------ ------ ------ ------
Gross operating income (loss)............................... (268) (53) 249 (21) 203 (29)
------ ------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 60 9 33 27 109 19
Other..................................................... (3) (19) 2 -- (10) --
------ ------ ------ ------ ------ ------
Total other expense (income)........................ 57 (10) 35 27 99 19
------ ------ ------ ------ ------ ------
Income (loss) before taxes.................................. (325) (43) 214 (48) 104 (48)
Taxes (benefit)............................................. -- -- 46 (19) 46 (20)
------ ------ ------ ------ ------ ------
Net income (loss)................................... $ (325) $ (43) $ 168 $ (29) $ 58 $ (28)
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL C F G H ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales........................... $7,128 $ -- $ -- $ -- $ -- $ -- $ 7,128
Maintenance and support.............................. 6,327 -- -- -- -- 6,327
Other................................................ 665 -- -- -- -- -- 665
------ ----- ----- ----- ------- ------- -------
Total revenues................................. 14,120 -- -- -- -- -- 14,120
Cost of revenues....................................... 3,966 -- -- -- -- -- 3,966
------ ----- ----- ----- ------- ------- -------
Gross profit........................................... 10,154 -- -- -- -- -- 10,154
------ ----- ----- ----- ------- ------- -------
Operating expenses:
Selling, general and administrative.................. 9,451 -- -- -- (1,821) (1,821) 7,630
Depreciation......................................... 168 -- -- -- -- -- 168
Amortization......................................... 454 -- 386 -- -- 386 840
------ ----- ----- ----- ------- ------- -------
Total operating expenses....................... 10,073 -- 386 -- (1,821) (1,435) 8,638
------ ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... 81 -- (386) -- 1,821 1,435 1,516
------ ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... $ 257 $ -- $ -- $(161) $ (27) $ (188) $ 69
Other................................................ (30) -- -- -- -- -- (30)
------ ----- ----- ----- ------- ------- -------
Total other expense (income)................... 227 -- -- (161) (27) (188) 39
------ ----- ----- ----- ------- ------- -------
Income (loss) before taxes............................. (146) -- (386) 161 1,848 1,623 1,477
Taxes (benefit)........................................ 53 (113) (29) 63 721 642 695
------ ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ (199) $ 113 $(357) $ 98 $ 1,127 $ 981 $ 782
====== ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.15
=======
Shares used in computing pro forma income per share
(I).................................................. 5,322
=======
</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> 54
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
NINE MONTHS ENDED OCTOBER 31, 1995
(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................................ $ 734 $1,633 $1,928 $1,818 $ 543
Maintenance and support................................... 1,181 871 1,607 421 868
Other..................................................... -- -- 64 439 59
------ ------ ------ ------ ------
Total revenues...................................... 1,915 2,504 3,599 2,678 1,470
Cost of revenues............................................ 434 793 1,234 1,244 194
------ ------ ------ ------ ------
Gross profit................................................ 1,481 1,711 2,365 1,434 1,276
------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 1,491 1,499 2,325 1,473 987
Depreciation.............................................. 25 37 8 26 49
Amortization.............................................. 57 182 103 -- 129
------ ------ ------ ------ ------
Total operating expenses............................ 1,573 1,718 2,436 1,499 1,165
------ ------ ------ ------ ------
Gross operating income (loss)............................... (92) (7) (71) (65) 111
------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 47 8 3 100 19
Other..................................................... (115) (1) -- -- 17
------ ------ ------ ------ ------
Total other expense (income)........................ (68) 7 3 100 36
------ ------ ------ ------ ------
Income (loss) before taxes.................................. (24) (14) (74) (165) 75
Taxes (benefit)............................................. -- -- (29) (65) 31
------ ------ ------ ------ ------
Net income (loss)................................... $ (24) $ (14) $ (45) $ (100) $ 44
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------ PRO FORMA
SUBTOTAL C F G H ADJUSTMENTS TOTAL
-------- ----- ----- ---- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales............................. $ 6,656 $ -- $ -- $ -- $ -- $ -- $ 6,656
Maintenance and support................................ 4,948 -- -- -- -- -- 4,948
Other.................................................. 562 -- -- -- -- -- 562
------- ----- ----- ---- ------- ------- -------
Total revenues................................... 12,166 -- -- -- -- -- 12,166
Cost of revenues......................................... 3,899 -- -- -- -- -- 3,899
------- ----- ----- ---- ------- ------- -------
Gross profit............................................. 8,267 -- -- -- -- -- 8,267
Operating expenses:
Selling, general and administrative.................... 7,775 -- -- -- (1,686) (1,686) 6,089
Depreciation........................................... 145 -- 20 -- -- 20 165
Amortization........................................... 471 -- 356 -- -- 356 827
------- ----- ----- ---- ------- ------- -------
Total operating expenses......................... 8,391 -- 376 -- (1,686) (1,310) 7,081
------- ----- ----- ---- ------- ------- -------
Gross operating income (loss)............................ (124) -- (376) -- 1,686 1,310 1,186
------- ----- ----- ---- ------- ------- -------
Other expense (income):
Interest expense....................................... 177 -- -- (92) (3) (95) 82
Other.................................................. (99) -- -- -- -- -- (99)
------- ----- ----- ---- ------- ------- -------
Total expense (income)........................... 78 -- -- (92) (3) (95) (17)
------- ----- ----- ---- ------- ------- -------
Income (loss) before taxes............................... (202) -- (376) 92 1,689 1,405 1,203
Taxes (benefit).......................................... (63) (17) (19) 36 659 659 596
------- ----- ----- ---- ------- ------- -------
Net income (loss)................................ (139) $ 17 $(357) $ 56 $ 1,030 $ 746 $ 607
======= ===== ===== ==== ======= ======= =======
Pro forma income per share............................... $ 0.11
=======
Shares used in computing pro forma income per share
(I).................................................... 5,322
=======
</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> 55
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................................ $ 900 $2,192 $2,957 $2,695 $ 800
Maintenance and support................................... 1,513 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....................... 2,017 2,050 3,167 2,065 1,521
Depreciation.............................................. 32 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 C F G H ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales........................... $ 9,544 $ -- $ -- $ -- $ -- $ -- $ 9,544
Maintenance and support.............................. 6,236 -- -- -- -- -- 6,236
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................... 10,820 -- -- -- (2,433) (2,433) 8,387
Depreciation......................................... 217 -- -- -- -- -- 217
Amortization......................................... 637 -- 468 -- -- 468 1,105
------- ----- ----- ----- ------- ------- -------
Total operating expenses....................... 11,674 -- 468 -- (2,433) (1,965) 9,709
------- ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... (269) -- (468) -- 2,433 1,965 1,696
------- ----- ----- ----- ------- ------- -------
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) -- (468) 159 2,459 2,150 1,740
Taxes (benefit)........................................ (95) (73) (11) 62 959 937 842
------- ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ (315) $ 73 $(457) $ 97 $ 1,500 $ 1,213 $ 898
======= ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.17
=======
Shares used in computing pro forma income per
share(I)............................................. 5,322
=======
</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> 56
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 3,556,262 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 86,511 $ 779
KCOMP................................................. 1,533 -- --
HCD................................................... 1,583 -- --
Rovak................................................. 2,983 -- --
Millard-Wayne......................................... 1,100 26,944 242
------- -------- -------
Total....................................... $ 9,327 113,455 $ 1,021
======= ======== =======
Total consideration for these companies(2)................................ $10,348
Net book value (deficit) of these companies' assets....................... (651)
-------
Consideration allocated to goodwill....................................... $10,999
=======
</TABLE>
- ---------------
(1) Estimated at $9.00 per share, the assumed initial public offering price.
(2) Excludes contingent consideration payable or issuable to the selling
stockholders of Millard-Wayne and Rovak.
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> 57
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 as part of
the acquisition agreements.
(B) Records the cash proceeds of issuance by AMC in November 1996 of the
equivalent of 508,385 shares of Common Stock for $750,000.
(D) Records the repayment of certain debt obligations and other pro forma
adjustments. Of the anticipated debt repayment: $475,715 reduces AMC's
obligations under terms of a 11.25% note payable to the Small Business
Administration ("SBA") ($381,215) and a 12% note payable to a stockholder
($94,500), $135,440 reduces Millard-Wayne's obligations under 10.25% bank
notes payable and $936,972 reduces Rovak's obligations under a prime plus
.5% bank note payable ($186,032), prime plus 2% notes payable to the SBA
($647,885), and other miscellaneous notes payable to stockholders
($103,055). Additionally, payments totalling $350,000 are anticipated to
eliminate AMC's obligations under the terms of a claims processing
agreement ($265,000), a stock purchase warrant ($50,000) and certain
accrued expenses ($35,000). Further, approximately $410,000 in additional
acquisition-related expenses are to be paid from proceeds of the Offering.
(E) Records the proceeds from the issuance of 2,000,000 shares of InfoCure
common stock, net of estimated offering costs of $2,140,000 (based on an
assumed initial public offering price of $9 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.
The holders of 3,105,538 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 a period of 180 days after the Offering and for 18 months
thereafter, not to publicly offer or sell except in accordance with the volume
limitations of Rule 144(e).
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(C) Records the adjustment to the provision for federal and state income taxes
relating to the tax effect of filing a consolidated return.
(F) Records pro forma change to adjust amortization of capitalized software
development costs to a useful life of four years. Also, records the
amortization on a straight-line basis over 15 years of goodwill associated
with the acquisition of the Founding Businesses. Management believes that a
15 year useful life is a conservative estimate of the useful life of
goodwill measured against the estimated discounted future cash flows of the
Founding Businesses after the acquisitions. The related tax benefit is
based on the deductible portion of goodwill.
(G) Records the pro forma change in interest expense for pro forma adjustments
to debt.
F-10
<PAGE> 58
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(H) 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>
NINE MONTHS ENDED YEAR
OCTOBER 31, ENDED
------------------------- JANUARY 31,
(IN THOUSANDS) 1996 1995 1996
-------------- ----------- ----------- -----------
<S> <C> <C> <C>
Reduction of compensation and related expenses........ $1,330 $1,231 $1,773
Reduction in rental and certain operating expenses.... 505 323 477
Reduction in corporate allocations to HCD:
Corporate overhead.................................. 264 324 476
ESOP expenses....................................... 61 147 159
Interest............................................ 27 3 26
Increase in the Company's overhead expenses to
integrate the acquisitions.......................... (339) (339) (452)
------ ------ ------
$1,848 $1,689 $2,459
====== ====== ======
</TABLE>
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, $86,000 and $241,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively.
Finally, of the remaining pro forma expense reductions for the year ended
January 31, 1996, 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. The
effects of the pro forma adjustments have been applied to the nine month
periods ended October 31, 1996 and 1995 on bases designed to be consistent
with the annual period presented.
F-11
<PAGE> 59
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(I) The weighted average number of shares used to calculate pro forma earnings
per share included the following:
<TABLE>
<S> <C>
Issued to acquire Founding Businesses....................... 3,642,773
Issued to pay cash portion of Acquisitions.................. 1,157,251
Issued to pay certain indebtedness.......................... 228,625
Issued to pay certain costs................................. 51,702
Shares assumed issued from exercise of options and a
warrant................................................... 322,815
Shares assumed repurchased from proceeds from shares assumed
issued from exercise of options........................... (80,872)
---------
Shares estimated to be outstanding.......................... 5,322,294
---------
</TABLE>
F-12
<PAGE> 60
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 November 27, 1996. 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.; Health Care
Division of Info Systems of North Carolina; 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 November
27, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
February 18, 1997
Atlanta, Georgia
F-13
<PAGE> 61
INFOCURE CORPORATION
BALANCE SHEET
AS OF NOVEMBER 27, 1996
<TABLE>
<S> <C>
ASSETS:
Subscription receivable..................................... $ 1
----
$ 1
====
LIABILITIES AND STOCKHOLDERS' EQUITY:
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, none issued and outstanding................ $ --
Common Stock, $0.001 par value, 40,000,000 shares
authorized, 100 shares issued and outstanding.......... 1
----
Total stockholders' equity........................ $ 1
====
</TABLE>
See accompanying notes to balance sheet.
F-14
<PAGE> 62
INFOCURE CORPORATION
NOTES TO BALANCE SHEET
NOVEMBER 27, 1996
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> 63
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, 1995 and 1996, 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.
As described in Note 3, effective October 29, 1993, the Company acquired
all of the outstanding capital stock of Integrated Computer Systems, Inc. and
Electronic Transmitting Solutions, Inc. On July 22, 1994, Integrated Computer
Systems, Inc. and Electronic Transmitting Solutions, Inc. filed voluntary
petitions for Chapter 7 bankruptcy with the United States Bankruptcy
Court -- Northern District of Georgia. Accordingly, the subsidiaries are not
consolidated.
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, 1995 and 1996, 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
April 12, 1996
(except for Notes 11 and 13,
as to which
the date is December 20, 1996
and Notes 3 and 15, as to
which the date is
February 18, 1997)
Atlanta, Georgia
F-16
<PAGE> 64
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................. $ 4,684 $ 249,698 $ 183,012
Accounts and notes receivable, net.................... 283,888 156,936 196,547
Prepaid expenses and other current assets............. 27,195 32,620 30,888
----------- ----------- -----------
Total current assets.......................... 315,767 439,254 410,447
Property and equipment, net............................. 72,789 54,372 45,282
Miscellaneous........................................... 156,934 73,315 207,852
----------- ----------- -----------
$ 545,490 $ 566,941 $ 663,581
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT):
Current liabilities:
Accounts payable...................................... $ 462,227 $ 374,824 $ 300,879
Accrued expenses...................................... 408,459 448,627 379,269
Deferred revenue...................................... 502,916 481,224 405,677
Note payable.......................................... 73,027 -- --
Current portion of long-term debt..................... 47,565 335,542 311,131
----------- ----------- -----------
Total current liabilities..................... 1,494,194 1,640,217 1,396,956
Long-term debt, less current portion.................... 419,154 544,780 539,314
----------- ----------- -----------
Total liabilities............................. 1,913,348 2,184,997 1,936,270
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock.......................................... 41,577 41,577 47,470
Stock purchase warrant................................ 500,000 500,000 500,000
Additional paid-in capital............................ 1,415,249 1,445,247 2,110,197
Deficit............................................... (3,324,684) (3,504,880) (3,830,356)
Treasury stock, 228,489 shares at cost................ -- (100,000) (100,000)
----------- ----------- -----------
Total stockholders' equity (capital
deficit).................................... (1,367,858) (1,618,056) (1,272,689)
----------- ----------- -----------
$ 545,490 $ 566,941 $ 663,581
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 65
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, NINE MONTHS ENDED OCTOBER 31,
-------------------------- ------------------------------
1995 1996 1995 1996
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software and services............... $ 2,865,582 $ 2,026,114 $ 1,618,336 $ 1,429,876
Hardware............................ 619,977 386,620 296,688 229,795
----------- ----------- ----------- -----------
Total revenues...................... 3,485,559 2,412,734 1,915,024 1,659,671
Cost of revenues...................... 1,115,726 515,842 434,099 299,075
----------- ----------- ----------- -----------
Gross margin.......................... 2,369,833 1,896,892 1,480,925 1,360,596
----------- ----------- ----------- -----------
Operating expenses:
Salaries and operating expenses..... 2,848,005 2,017,389 1,491,483 1,573,935
Depreciation and amortization....... 563,690 112,314 81,653 54,890
----------- ----------- ----------- -----------
Total operating expenses............ 3,411,695 2,129,703 1,573,136 1,628,825
----------- ----------- ----------- -----------
Loss from operations.................. (1,041,862) (232,811) (92,211) (268,229)
Other income (expense):
Interest expense.................... (54,116) (68,609) (46,909) (60,680)
Other income, net................... 20,670 121,224 115,175 3,433
----------- ----------- ----------- -----------
Net loss.............................. $(1,075,308) $ (180,196) $ (23,945) $ (325,476)
=========== =========== =========== ===========
Net loss per common share............. $ (0.03) $ (0.00) $ (0.00) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares
outstanding......................... 41,963,205 41,387,381 41,349,299 43,531,234
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 66
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLAR VALUE
--------------------- ------------------- STOCK ADDITIONAL
COMMON TREASURY COMMON TREASURY PURCHASE PAID-IN
STOCK STOCK STOCK STOCK WARRANT CAPITAL DEFICIT TOTAL
---------- -------- ------- --------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at January 31,
1994.................... 40,652,788 -- $40,652 $ -- $500,000 $1,274,175 $(2,249,376) $ (434,549)
Issuance of 925,000
shares................ 925,000 -- 925 -- 128,575 -- 129,500
Issuance of stock
options............... -- -- -- -- -- 12,499 12,499
Net loss.................. -- -- -- -- -- -- (1,075,308) (1,075,308)
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at January 31,
1995.................... 41,577,788 -- 41,577 -- 500,000 1,415,249 (3,324,684) $(1,367,858)
Acquisition of treasury
stock................. -- (228,489) -- (100,000) -- -- -- (100,000)
Issuance of stock
options............... -- -- -- -- -- 29,998 -- 29,998
Net loss.................. -- -- -- -- -- -- (180,196) (180,196)
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at January 31,
1996.................... 41,577,788 (228,489) 41,577 (100,000) 500,000 1,445,247 (3,504,880) (1,618,056)
Issuance of common stock
(unaudited)........... 5,892,286 -- 5,893 -- -- 642,450 -- 648,343
Issuance of stock
options (unaudited)... -- -- -- -- -- 22,500 -- 22,500
Net loss (unaudited).... -- -- -- -- -- -- (325,476) (325,476)
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at October 31,
1996 (unaudited)........ 47,470,074 (228,489) $47,470 $(100,000) $500,000 $2,110,197 $(3,830,356) $(1,272,689)
========== ======== ======= ========= ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 67
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- ---------------------
1995 1996 1995 1996
----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used for) operating
activities:
Net loss...................................... $(1,075,308) $(180,196) $ (23,945) $(325,476)
Adjustments to reconcile net loss to cash used
for operating activities:
Depreciation and amortization.............. 581,650 114,056 55,947 27,767
Allowance for doubtful accounts............ (41,705) 18,368 -- --
Compensatory stock options................. 12,499 29,998 22,500 22,500
Gain on sale of fixed assets............... (22,646) -- -- --
Other noncash charges...................... 30,000 -- -- --
Changes in current assets and liabilities:
Accounts and notes receivable............ 192,405 107,540 72,448 (38,354)
Inventory................................ 17,885 -- -- --
Prepaid expenses and other current
assets................................ 60,462 (5,424) 3,510 (7,331)
Accounts payable and accrued expenses.... (73,900) (47,235) 35,277 (249,464)
Deferred revenue......................... (20,921) (21,692) (52,585) (67,297)
----------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................. (339,579) 15,415 113,152 (637,655)
----------- --------- --------- ---------
Cash (used for) provided by investing
activities:
Property and equipment expenditures........... (6,199) (15,189) (15,972) (10,419)
Purchases of intangible assets................ -- 34,194 (107,903)
Proceeds from sale of fixed assets............ 80,000 -- -- --
Expenditures for software development costs... (22,445) -- (725) (24,474)
Proceeds from collection of notes and other
receivables................................ 113,888 4,213 -- --
----------- --------- --------- ---------
Net cash provided by (used in) investing
activities................................. 165,244 (10,976) 17,497 (142,796)
----------- --------- --------- ---------
Cash provided by (used for) financing
activities:
Proceeds from issuance of common stock........ -- -- -- 648,343
Proceeds from note payable to stockholder..... 85,000 94,500 -- --
Repayment of note payable to stockholder...... -- (73,027) (73,028) --
Proceeds from issuance of long-term debt...... -- 366,665 94,500 --
Principal payments on long-term debt.......... (53,780) (47,563) (25,508) 65,422
Repurchase of common stock.................... -- (100,000) (100,000) --
----------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................. 31,220 240,575 (104,036) 713,765
----------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (143,115) 245,014 26,613 (66,686)
Cash and cash equivalents, beginning............ 147,799 4,684 4,684 249,698
----------- --------- --------- ---------
Cash and cash equivalents, ending............... $ 4,684 $ 249,698 $ 31,297 $ 183,012
=========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 68
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"). ICS 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.
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, 1995, the Company capitalized $22,445 of software development
costs. Amortization of capitalized software development costs for the years
ended January 31, 1995, and 1996, was $279,284 and $42,925, 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.
F-21
<PAGE> 69
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $1,068,000 and $805,000 for 1995 and
1996, respectively. Revenue from claims processing services totaled about
$554,000 and $338,000 for 1995 and 1996, 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.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net 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 future consolidated 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 results of operations and
cash flows for the nine months ended October 31, 1995 and 1996. The results of
operations and cash flows for the nine months ended October 31, 1995 and 1996
are not necessarily indicative of the results to be expected for the full year.
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
F-22
<PAGE> 70
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Company's financial instruments consist principally of accounts
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 the long-term loan, bear interest at
rates which vary with current market conditions, accordingly, carrying values
are deemed to approximate fair value. Notes receivable and payable with
shareholders bear interest at fixed rates ranging between 10% and 12% which,
based on their terms and their current interest rates in the market, are deemed
to approximate fair value.
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.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. FINANCIAL CONDITION AND FISCAL 1997 OUTLOOK
During the year ended January 31, 1996, the Company incurred a loss from
operations of approximately $233,000. This loss is in addition to the prior
year's operating loss of approximately $1,042,000. As of January 31, 1996, the
Company had a capital deficit of approximately $1,618,000 and a working capital
deficiency of approximately $1,201,000. In addition, other than resources
obtainable from certain of its officers and principal shareholders, the Company
has no available line of credit or other access to immediate short term
financing.
The Company has devised certain plans and strategies which, in management's
opinion, will allow the Company to reduce costs and operate more profitably.
During the second quarter of fiscal 1995, the Company decreased its workforce by
approximately 40%, which resulted in significant reductions in salaries,
benefits and other personnel related expenses. In addition, the Company moved
its headquarters to smaller leased offices and negotiated a three-month free
rent period and escalating payments during subsequent months. This reduction in
rental payments, along with certain other operational changes such as billing
maintenance in advance quarterly rather than monthly, have provided some amount
of currently available cash.
In addition to operational changes, the Company believes that its decision
to place Integrated Computer Systems, Inc. and Electronic Transmitting
Solutions, Inc. into bankruptcy and the rescission of the Capital Enterprises,
Inc. acquisition eliminated a significant portion of the Company's unprofitable
operations and allows management to focus on the Company's primary business (see
Note 3). Management believes that the expenses and resultant losses associated
with the above failed acquisitions are one time occurrences, which were
recognized in fiscal 1994. No such similar costs were included in the 1995 or
1996 financial statements.
There is no assurance that management's plans will be successful, but
management believes it has the resources to insure survivability of the Company.
F-23
<PAGE> 71
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LOSS ASSOCIATED WITH 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
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 Company has accrued a liability for estimated costs associated with the
liquidation of Integrated and Electronic. As of January 31, 1995 and 1996,
approximately $183,000 and $120,000, respectively, was included in accrued
expenses for such estimated costs.
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 trustee in
bankruptcy granting the Company the right to purchase these 1,926,470 shares
(132,586 Equivalent Shares of Common Stock) for $65,000. The purchase is
contingent upon the execution of definitive settlement agreements between the
sellers and the trustee and the approval of the settlements by the bankruptcy
court.
On January 31, 1994, the Company acquired all of the outstanding capital
stock of Capital Enterprises, Inc. ("CEI"), whose principal asset was an office
building. As a result of the Company's inability to maintain certain financial
ratios between the Company and the seller of CEI, the parties entered into a
rescission and release agreement on May 31, 1994. This agreement rescinded the
acquisition effective as of January 31, 1994.
4. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Accounts receivable -- trade................................ $336,696 $229,155
Notes receivable (0-10% interest)........................... 23,547 18,169
-------- --------
360,243 247,324
Less allowance for doubtful accounts........................ 76,355 90,388
-------- --------
$283,888 $156,936
======== ========
</TABLE>
5. PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1995 1996
------------ -------- --------
<S> <C> <C> <C>
Computer equipment.................................... 3-5 $316,247 $331,436
Furniture and fixtures................................ 5-7 293,381 293,381
--- -------- --------
609,628 624,817
Less accumulated depreciation......................... 536,839 570,445
-------- --------
$ 72,789 $ 54,372
======== ========
</TABLE>
Depreciation was $70,052 and $34,389 for the years ended January 31, 1995
and 1996, respectively.
F-24
<PAGE> 72
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. MISCELLANEOUS ASSETS
Miscellaneous assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Deferred rent asset......................................... $ 90,072 $52,547
Capitalized software development costs, net................. 62,436 19,511
Long-term notes receivable.................................. 4,426 1,257
-------- -------
$156,934 $73,315
======== =======
</TABLE>
Capitalized software development costs are stated net of accumulated
amortization of $660,803 and $656,505, at January 31, 1995 and 1996,
respectively.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Expenses related to loss on failed acquisition.............. $182,849 $119,590
Compensation................................................ 140,925 151,537
Taxes other than income..................................... 48,623 57,995
Professional fees........................................... 25,000 50,000
Customer costs.............................................. 6,455 28,606
Other accruals.............................................. 4,607 40,899
-------- --------
$408,459 $448,627
======== ========
</TABLE>
8. NOTE PAYABLE AND LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Notes payable to banks...................................... $430,555 $396,042
Other....................................................... 36,164 484,280
-------- --------
466,719 880,322
Less current portion........................................ 47,565 335,542
-------- --------
$419,154 $544,780
======== ========
</TABLE>
During fiscal 1994, the Company 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 the Company and certain other real estate
owned by two stockholders. In addition, the loan is personally guaranteed by
five of the Company's stockholders.
In June 1994, the Company borrowed $85,000 in exchange for a promissory
note which bore a 15% annual interest rate and was payable in monthly
installments of $4,000 until April 1995 when a balloon payment of approximately
$68,000 was tendered in satisfaction of the remaining obligation under the note.
In April 1995, the Company borrowed $94,500 from the majority 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 1997.
F-25
<PAGE> 73
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1996, no 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 $36,164 and
$19,612 at January 31, 1995 and 1996, respectively. Also included are notes
payable to stockholders in the amount of $3,500 and $98,000 at January 31, 1995
and 1996, respectively.
As of January 31, 1996, future maturities of these obligations are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1997........................................................ $335,542
1998........................................................ 243,051
1999........................................................ 66,611
2000........................................................ 63,823
2001........................................................ 63,823
Thereafter.................................................. 107,472
--------
$880,322
========
</TABLE>
9. OPERATING LEASES
The Company leases certain office equipment under noncancellable operating
leases with initial or remaining terms of one year or more. At January 31, 1996,
the remaining amounts due under these leases totaled approximately $29,000 in
the aggregate.
In August 1994, the Company entered into a new office space lease which
contained a free rent period through November 1994. Total future minimum annual
rental payments under this lease are approximately $82,000, $91,100 and $56,000
for 1997, 1998 and 1999, respectively.
Rent expense for 1995 and 1996, which included lease payments for office
space, was approximately $110,000 and $101,000, respectively.
10. COMMON STOCK
The Company had 50,000,000 shares of common stock, par value .001 per
share, authorized at January 31, 1995 and 1996, respectively. Shares of common
stock outstanding totaled 41,577,778 and 41,349,299 at January 31, 1995 and
1996, respectively.
At January 31, 1996, 925,000 shares of common stock issued during fiscal
1995 were subject to certain restrictions limiting their sale during the two
years subsequent to their issuance.
During the nine months ended October 31, 1996 the Company issued
approximately 5,900,000 shares of common stock in private placements to several
individuals, primarily for cash.
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
F-26
<PAGE> 74
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 enable the holders to purchase up to
4,000,000 shares of common stock at prices ranging from $0.01 to $1.00 per
share. The options may be exercised at various times through September 1999.
No options had been exercised as of January 31, 1996.
12. INCOME TAXES
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>
1995 1996
--------- ---------
<S> <C> <C>
Basis difference of capitalized software costs and purchased
customer lists............................................ $ (76,000) $ (61,000)
Differences in basis of property and equipment.............. (5,000) (14,000)
Allowance for doubtful accounts............................. 29,000 34,000
Other basis differences..................................... 6,000 8,000
Net operating loss carryforwards............................ 657,000 704,000
--------- ---------
Gross deferred tax assets................................... 611,000 671,000
Deferred tax asset valuation allowance...................... (611,000) (671,000)
--------- ---------
Net deferred tax asset (liability)................ $ -- $ --
========= =========
</TABLE>
As of January 31, 1996, the Company and its subsidiaries have net operating
loss carryforwards for federal income tax purposes of approximately $1,759,000
which expire beginning in 2004. Due to the Company's net operating loss
carryforwards, there is no provision for income taxes at January 31, 1995 and
1996.
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
$284,000 at January 31, 1996. The service center became functional in September
of 1993 and processed approximately 349,000 and 431,000 claims from ICS
customers in fiscal 1995 and 1996, respectively. As of January 31, 1995 and
1996, approximately $305,000 and $284,000, respectively, was included in
deferred revenue related to this agreement.
F-27
<PAGE> 75
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In November 1996, the Company entered into an agreement to terminate this
agreement in consideration of $265,000 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 $66,028 and $55,338 for the years
ended January 31, 1995 and 1996, respectively.
15. SUBSEQUENT EVENTS
(a) The Company entered into negotiations with Health Care Division (the
"Division") (a division of Info Systems of North Carolina, Inc.), whereby the
Company would acquire certain assets and liabilities of the Division in exchange
for an estimated $1,750,000. The Company has also entered into negotiations with
Millard-Wayne, Inc. (Millard-Wayne) whereby the Company would acquire all of the
common stock of Millard-Wayne in exchange for an estimated $1,100,000 cash and
391,500 shares of common stock. An additional 391,500 shares of stock are
contingently issuable in the Millard-Wayne transaction based on earnings
subsequent to the acquisition. The Division acquisition was consummated in
December 1996. The Millard-Wayne acquisition is expected to be consummated in
the first quarter of 1997. The Company has also signed non-binding letters of
intent to acquire three additional practice management software companies for
aggregate consideration of approximately $7,500,000 in cash and common stock.
(b) In November 1996, the Company, through a private placement, issued
approximately 7,387,000 shares of the Company's common stock for an aggregate
consideration of $750,000.
F-28
<PAGE> 76
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
KComp Management Systems, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of KComp Management Systems,
Inc. as of March 31, 1996, 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. 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KComp Management Systems,
Inc. at March 31, 1996, and the results of its operations and its cash flows for
the period from inception (December 15, 1995) to March 31, 1996, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 15, 1996
F-29
<PAGE> 77
KCOMP MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash...................................................... $ 33,427 $ 496
Accounts receivable -- trade.............................. 27,453 57,137
Accounts receivable -- other.............................. 172,914 364,219
Other..................................................... -- 9,069
-------- ----------
Total current assets.............................. 233,794 430,921
-------- ----------
Property and equipment:
Computer equipment........................................ 62,051 62,051
Phone equipment........................................... 29,409 37,183
Other..................................................... 3,171 3,171
-------- ----------
Total property and equipment...................... 94,631 102,405
Less accumulated depreciation............................. 6,153 21,111
-------- ----------
Net property and equipment........................ 88,478 81,294
-------- ----------
Other assets:
Capitalized software development costs, less accumulated
amortization of $11,706 and $47,352.................... 128,765 200,384
Goodwill less accumulated amortization of $9,995 and
$32,483................................................ 439,759 417,272
-------- ----------
Total assets...................................... $890,796 $1,129,871
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Lines of credit........................................... $ 24,134 $ 49,919
Accounts payable.......................................... 235,550 217,556
Accrued expenses.......................................... 72,686 40,857
Income taxes payable...................................... -- 122,000
Deferred revenue.......................................... 79,248 75,052
Current portion of notes payable.......................... 448,435 436,501
-------- ----------
Total current liabilities......................... 860,053 941,885
Notes payable............................................... 27,761 27,761
-------- ----------
Total liabilities........................................... 887,814 969,646
-------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, $0.01 stated value, 500,000
shares authorized; 30,000 shares issued and
outstanding............................................ 300 300
Additional paid-in capital................................ 3,682 3,682
Retained earnings (accumulated deficit)................... (1,000) 156,243
-------- ----------
Total stockholders' equity........................ 2,982 160,225
-------- ----------
Total liabilities and stockholders' equity........ $890,796 $1,129,871
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 78
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15, NINE MONTHS
1995) TO ENDED
MARCH 31, DECEMBER 31,
1996 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Systems and hardware sales................................ $172,781 $ 221,519
Maintenance and support................................... 486,764 1,271,786
-------- ----------
Total revenues.................................... 659,545 1,493,305
-------- ----------
Cost and expenses:
Salaries and wages........................................ 467,390 729,104
Telephone................................................. 73,904 158,638
Depreciation and amortization............................. 27,854 73,092
Rent...................................................... 27,280 65,060
Insurance................................................. 10,045 9,078
Other..................................................... 40,328 145,846
-------- ----------
Total cost and expenses........................... 646,801 1,180,818
-------- ----------
Income from operations...................................... 12,744 312,487
Other income (expense):
Other income (expense).................................... (665) --
Interest expense.......................................... (13,079) (33,244)
-------- ----------
Income (loss) before taxes.................................. (1,000) 279,243
Income tax provision........................................ -- 122,000
-------- ----------
Net income (loss)........................................... $ (1,000) $ 157,243
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 79
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
Net income for the nine months ending December
31, 1996 (unaudited)........................ -- -- -- 157,243 157,243
------ ---- ------ -------- --------
Balance, December 31, 1996 (unaudited)........... 30,000 $300 $3,682 $156,243 $160,225
====== ==== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 80
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15, NINE MONTHS
1995) TO ENDED
MARCH 31, DECEMBER 31,
1996 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash provided by (used in) operating activities:
Net (loss) income......................................... $ (1,000) $ 157,243
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 27,854 73,092
Increase (decrease) from change in:
Accounts receivable.................................. (200,367) (220,989)
Accounts payable and accrued expenses................ 154,793 (49,823)
Income taxes payable................................. -- 122,000
Deferred revenue..................................... 54,131 (4,196)
Other................................................ -- (9,069)
--------- ---------
Net cash provided by operating activities................. 35,411 68,258
--------- ---------
Cash provided by (used in) investing activities:
Purchase of equipment..................................... (5,191) (7,774)
Increase in software development costs.................... -- (107,266)
--------- ---------
Net cash used in investing activities..................... (5,191) (115,040)
--------- ---------
Cash provided by (used in) financing activities:
Proceeds from line of credit.............................. 24,134 25,785
Increase in notes payable................................. 77,425 161,276
Payments on notes payable................................. (102,334) (173,210)
Issuance of common stock.................................. 3,982 --
--------- ---------
Net cash provided by financing activities................. 3,207 13,851
--------- ---------
Net increase (decrease) in cash............................. 33,427 (32,931)
Cash, beginning............................................. -- 33,427
--------- ---------
Cash, ending................................................ $ 33,427 $ 496
========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 81
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 $10,000 for the period from inception (December 15,
1995) to March 31, 1996 and $32,500 (unaudited) for the nine months ended
December 31, 1996.
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-34
<PAGE> 82
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 nine months ended
December 31, 1996, the Company capitalized approximately $107,000 (unaudited) 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 nine months ended December 31, 1996,
approximately $36,000 (unaudited).
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.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement is not expected to 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 as of
December 31, 1996 and the results of operations and cash flows for the nine
months ended
F-35
<PAGE> 83
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996. The results of operations for the nine months ended December
31, 1996 are not necessarily indicative of the results to be expected for the
full year.
2. NOTES PAYABLE
The Company maintains two lines of credit with a bank which provide for an
aggregate of $75,000 in borrowings. The lines bear interest of 9.75% and are due
March 1997. At March 31, 1996, $24,134 was outstanding on the lines. At December
31, 1996, borrowings under the lines of credit amounted to $49,919 (unaudited).
These lines of credit are collateralized by certain certificates of deposit
pledged by the Company's president.
The Company maintains several term notes payable to certain officers,
directors and affiliates. The notes bear interest at rates from 7%-12%. Future
maturities under these term notes are as follows:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
--------- --------
<S> <C>
1997........................................................ $448,435
1998........................................................ 27,761
--------
$476,196
========
</TABLE>
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 for the period from inception (December 31, 1995) to March 31, 1996 and
approximately $65,000 (unaudited) for the nine months ended December 31, 1996.
Future minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
--------- --------
<S> <C>
1997........................................................ $338,635
1998........................................................ 172,772
1999........................................................ 45,000
--------
$556,407
========
</TABLE>
4. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS
(DECEMBER 31, 1995) ENDED
TO MARCH 31, 1996 DECEMBER 31, 1996
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
Current
Federal.......................................... $ -- $ 97,000
State............................................ -- 25,000
-------- --------
Total current............................ -- 122,000
-------- --------
Deferred........................................... -- --
-------- --------
Net tax expense.......................... $ -- $122,000
-------- --------
</TABLE>
F-36
<PAGE> 84
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. Exercise of the warrant
is anticipated to result in the reduction of an account payable to Mr. Kloner of
approximately $41,000.
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>
Cash paid for interest for the period from inception (December 31, 1995) to
March 31, 1996 was approximately $13,000 and $33,000 (unaudited) for the nine
months ended December 31, 1996.
7. SUBSEQUENT EVENT
Subsequent to March 31, 1996, 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 first quarter of 1997.
F-37
<PAGE> 85
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-38
<PAGE> 86
MILLARD-WAYNE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash...................................................... $ 8,257 $ 29,257
Accounts receivable net of $8,100 allowance............... 366,741 450,278
Deferred tax asset........................................ 47,000 62,000
Other current assets...................................... 2,256 414
-------- ----------
Total current assets.............................. 424,254 541,949
Property and equipment, net of accumulated depreciation..... 132,372 115,984
Capitalized software development costs, net of accumulated
amortization of $1,339,800 and $1,481,512................. 249,487 248,634
Purchased software rights, net of accumulated amortization
of $8,561 and $13,637..................................... 54,539 89,082
Other assets................................................ 23,625 18,137
-------- ----------
$884,277 $1,013,786
======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable.......................................... $ 90,882 $ 252,710
Accrued expenses.......................................... 59,119 94,283
Deferred revenue.......................................... 377,927 311,756
Current portion of notes payable.......................... 136,672 127,868
10 1/2% demand note payable to officer.................... -- 73,495
-------- ----------
Total current liabilities......................... 664,600 860,112
-------- ----------
Notes payable............................................... 30,482 18,514
-------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par, 500 shares authorized, issued and
outstanding............................................ 500 500
Additional paid-in-capital................................ 42,549 42,549
Retained earnings......................................... 146,146 92,111
-------- ----------
Total stockholder's equity........................ 189,195 135,160
-------- ----------
Total liabilities and stockholder's equity........ $884,277 $1,013,786
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 87
MILLARD-WAYNE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenues:
Systems sales............................................. $ 800,434 $ 975,413
Support and services...................................... 1,243,558 1,319,944
Other..................................................... 73,492 60,411
---------- ----------
Total revenues.................................... 2,117,484 2,355,768
---------- ----------
Operating costs and expenses:
Salaries and wages........................................ 938,408 1,040,846
Hardware purchases for resale............................. 290,857 497,899
Commissions and support................................... 115,580 165,104
Depreciation and amortization............................. 236,034 193,753
Rent...................................................... 131,442 132,505
Travel and entertainment.................................. 65,894 73,266
Telephone................................................. 66,884 73,268
Insurance................................................. 59,229 63,873
Other..................................................... 143,572 155,616
---------- ----------
Total operating costs and expenses................ 2,047,900 2,396,130
---------- ----------
Income (loss) from operations............................... 69,584 (40,362)
---------- ----------
Other expenses:
Interest expense.......................................... 22,972 24,673
Loss on sale of assets.................................... 17,186 --
---------- ----------
Total other expenses.............................. 40,158 24,673
---------- ----------
Income (loss) before taxes.................................. 29,426 (65,035)
Income taxes (benefit)...................................... (5,528) (11,000)
---------- ----------
Net income (loss)........................................... 34,954 (54,035)
Retained earnings, beginning................................ 111,192 146,146
---------- ----------
Retained earnings, ending................................... $ 146,146 $ 92,111
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 88
MILLARD-WAYNE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Cash provided by operating activities:
Net income (loss)......................................... $ 34,954 $ (54,035)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization.......................... 236,034 193,754
Loss on sale of property, plant and equipment.......... 17,186 --
Decrease (increase) in:
Accounts receivable.................................. 27,266 (83,537)
Other assets......................................... (2,819) 6,330
Net deferred income taxes............................ (528) (15,000)
Accrued expenses..................................... (14,168) 35,164
Accounts payable..................................... (79,248) 161,828
Deferred revenue..................................... -- (66,171)
--------- ---------
Net cash provided by operating activities................. 218,677 178,333
--------- ---------
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)
Increase in software development costs.................... (163,439) (140,859)
Increase in purchased software rights..................... (28,100) (39,619)
--------- ---------
Net cash used in investing activities..................... (233,079) (210,056)
--------- ---------
Cash provided by (used in) financing activities:
New borrowings............................................ 258,589 125,814
(Decrease) increase in loans from shareholder............. (6,339) 73,495
Payments on notes payable................................. (262,349) (146,586)
--------- ---------
Net cash provided by (used in) financing activities....... (10,099) 52,723
--------- ---------
Net decrease in cash........................................ (24,501) 21,000
Cash, beginning............................................. 32,758 8,257
--------- ---------
Cash, ending................................................ $ 8,257 29,257
========= =========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE> 89
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 other 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-42
<PAGE> 90
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.
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-43
<PAGE> 91
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-44
<PAGE> 92
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 first quarter of 1997.
F-45
<PAGE> 93
REPORT OF INDEPENDENT CERTIFIED INDEPENDENT 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-46
<PAGE> 94
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-47
<PAGE> 95
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-48
<PAGE> 96
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-49
<PAGE> 97
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-50
<PAGE> 98
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-51
<PAGE> 99
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-52
<PAGE> 100
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-53
<PAGE> 101
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-54
<PAGE> 102
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-55
<PAGE> 103
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-56
<PAGE> 104
ROVAK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $10,000.................................... $ 207,196 $ 159,233
Inventory................................................. 428,990 180,325
Notes receivable -- stockholders.......................... 105,862 288,090
Other current assets...................................... 33,794 96,963
---------- ----------
Total current assets.............................. 775,842 724,611
Deferred income taxes....................................... 235,000 185,000
Property and equipment, net................................. 188,080 382,465
Prepaid royalties........................................... 116,993 221,218
---------- ----------
Total assets...................................... $1,315,915 $1,513,294
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Checks written in excess of available funds............... $ 3,949 $ 17,283
Note payable -- bank...................................... 56,000 233,500
Accounts payable.......................................... 239,179 242,842
Accrued compensation and payroll taxes.................... 82,735 122,390
Other accrued liabilities................................. 1,557 4,518
Customer deposits......................................... 154,275 152,210
Deferred revenue.......................................... -- 58,226
Long-term debt -- current portion......................... 187,473 197,404
Obligations under capital leases -- current portion....... 25,926 49,479
---------- ----------
Total current liabilities......................... 751,094 1,077,852
Notes payable -- stockholders............................... 124,842 92,971
Long-term debt.............................................. 593,598 407,044
Obligations under capital leases............................ 72,976 100,913
---------- ----------
Total liabilities................................. 1,542,510 1,678,780
---------- ----------
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
Accumulated deficit....................................... (384,514) (323,405)
---------- ----------
Total stockholders' equity (deficit).............. (226,595) (165,486)
---------- ----------
Total liabilities and stockholders' equity
(deficit)....................................... $1,315,915 $1,513,294
========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-57
<PAGE> 105
ROVAK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996
---------- ------------
<S> <C> <C>
Revenues:
Systems and software sales................................ $2,694,785 $3,246,036
Maintenance and support services.......................... 503,353 864,604
Other..................................................... 603,734 743,590
---------- ----------
Total revenues.................................... 3,801,872 4,854,230
Cost of sales............................................... 1,811,047 2,310,587
---------- ----------
Gross margin................................................ 1,990,825 2,543,643
---------- ----------
Operating expenses:
Personnel costs........................................... 940,919 1,195,684
Other selling, general and administrative................. 825,964 801,075
Research and development.................................. 297,834 237,989
Depreciation.............................................. 68,341 72,531
---------- ----------
Total operating expenses.......................... 2,133,058 2,307,279
---------- ----------
Operating income (loss)..................................... (142,233) 236,364
Interest expense, net....................................... 127,853 125,255
---------- ----------
Income (loss) before taxes.................................. (270,086) 111,109
Income taxes (benefit)...................................... (99,000) 50,000
---------- ----------
Net (loss) income........................................... (171,086) 61,109
Accumulated deficit, beginning.............................. (213,428) (384,514)
---------- ----------
Accumulated deficit, ending................................. $ (384,514) $ (323,405)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 106
ROVAK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Cash provided by (used in) operating activities:
Net (loss) income......................................... $(171,086) $ 61,109
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation........................................... 68,341 72,531
(Increase) decrease in assets:
Accounts receivable.................................. 76,130 47,963
Inventory............................................ (65,255) 248,665
Prepaid royalties.................................... -- (104,225)
Other current assets................................. (2,705) (63,169)
Deferred income taxes................................ (99,000) 50,000
Increase (decrease) in liabilities:
Accounts payable..................................... 11,746 3,663
Accrued expenses..................................... 53,786 42,616
Customer deposits.................................... 60,394 (2,065)
Deferred revenue..................................... -- 58,226
Net (increase) decrease in notes
receivable -- stockholders.......................... (27,791) (182,228)
--------- ---------
Net cash provided by (used in) operating activities....... (95,440) 233,086
--------- ---------
Cash provided by (used in) investing activity:
Purchase of property and equipment........................ (25,482) (184,676)
--------- ---------
Cash provided by (used in) financing activities:
Checks written in excess of available funds............... 3,949 13,334
Increase in credit line................................... 594,038 1,002,859
Decreases in credit line.................................. (638,038) (825,359)
Repayment of note payable -- stockholders................. (31,529) (31,871)
Issuance of long-term debt................................ 330,350 --
Repayment of long-term debt............................... (117,883) (176,623)
Repayment of capital lease obligations.................... (24,240) (30,750)
--------- ---------
Net cash provided by (used in) financing activities....... 116,647 (48,410)
--------- ---------
Net (decrease) increase in cash............................. (4,275) --
Cash, beginning............................................. 4,275 --
--------- ---------
Cash ending................................................. $ -- $ --
========= =========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 107
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-60
<PAGE> 108
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.
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 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.
F-61
<PAGE> 109
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-62
<PAGE> 110
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-63
<PAGE> 111
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-64
<PAGE> 112
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 $3,165,000 is payable in cash and the balance by
issuance of common stock. The sale is anticipated to occur in the first quarter
of 1997.
F-65
<PAGE> 113
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-66
<PAGE> 114
DR SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash...................................................... $ 169,834 $ 155,048
Accounts receivable, net of allowance of $14,000.......... 262,385 369,715
Inventory................................................. 135,587 63,256
Other assets.............................................. 37,028 71,560
---------- ----------
Total current assets.............................. 604,834 659,579
---------- ----------
Property and equipment:
Office and computer equipment............................. 340,561 399,030
Furniture and fixtures.................................... 32,771 58,157
---------- ----------
Total property and equipment...................... 373,332 457,187
Less accumulated depreciation..................... (243,165) (301,888)
---------- ----------
Net property and equipment........................ 130,167 155,299
---------- ----------
Capitalized software development costs, net of accumulated
amortization of $1,070,143 and $1,296,324................. 514,414 683,515
---------- ----------
Total assets...................................... $1,249,415 $1,498,393
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable to bank...................................... $ -- $ 70,000
Accounts payable.......................................... 187,377 156,010
Accrued expenses.......................................... 138,050 137,937
Deferred revenue from software maintenance agreements..... 881,754 1,045,776
Current portion of capital lease obligations.............. 4,913 8,833
---------- ----------
Total current liabilities......................... 1,212,094 1,418,556
---------- ----------
Capital lease obligations, less current portion............. 15,227 19,249
---------- ----------
Commitments
Stockholders' equity:
Common stock, $1.00 par value; 100,000 shares authorized;
50,000 shares issued and outstanding................... 50,000 50,000
Retained earnings (deficit)............................... (27,906) 10,588
---------- ----------
Total stockholders' equity........................ 22,094 60,588
---------- ----------
Total liabilities and stockholders' equity........ $1,249,415 $1,498,393
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 115
DR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenues:
System sales.............................................. $2,192,378 $1,908,845
Support and services...................................... 1,211,916 1,450,606
---------- ----------
Total revenues.................................... 3,404,294 3,359,451
---------- ----------
Operating expenses:
Salaries and wages........................................ 1,461,901 1,585,559
Hardware purchases for resale............................. 1,073,920 785,173
Depreciation and amortization............................. 292,641 284,904
Rent...................................................... 48,191 81,123
Travel and entertainment.................................. 207,508 184,262
Telephone................................................. 120,290 126,196
Advertising............................................... 76,790 102,060
Other..................................................... 135,938 181,025
---------- ----------
Total operating expenses.......................... 3,417,179 3,330,302
---------- ----------
Income (loss) from operations............................... (12,885) 29,149
Other income (expense):
Interest expense.......................................... (11,139) (12,447)
Miscellaneous income...................................... 11,747 36,792
---------- ----------
Net income (loss)........................................... $ (12,277) $ 53,494
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 116
DR SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON EARNINGS STOCKHOLDERS'
STOCK (DEFICIT) EQUITY
------- --------- -------------
<S> <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
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 117
DR SOFTWARE INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
--------- --------
<S> <C> <C>
Cash provided by (used) in operating activities:
Net income (loss)......................................... $ (12,277) $ 53,494
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 292,641 284,904
Changes in:
Accounts receivable.................................. (52,822) (107,330)
Inventory............................................ (35,874) 72,331
Other assets......................................... (7,054) (34,532)
Accounts payable and accrued expenses................ 89,370 (31,480)
Deferred revenue..................................... 132,692 164,022
--------- --------
Net cash provided by operating activities................. 406,676 401,409
--------- --------
Cash provided by (used) in investing activities:
Purchase of property and equipment........................ (41,314) (69,455)
Increase in capitalized software development costs........ (254,530) (395,282)
--------- --------
Net cash used in investing activities..................... (295,844) (464,737)
--------- --------
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)
Distributions paid........................................ (5,000) (15,000)
--------- --------
Net cash provided by (used in) financing activities....... (19,241) 48,542
--------- --------
Net increase (decrease) in cash............................. 91,591 (14,786)
Cash, beginning............................................. 78,243 169,834
--------- --------
Cash, ending................................................ $ 169,834 $155,048
========= ========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 118
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-71
<PAGE> 119
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.
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.
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.
F-72
<PAGE> 120
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
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 first quarter of 1997.
F-73
<PAGE> 121
======================================================
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.......................... 13
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Pro Forma Combined Financial
Data................................ 22
Management's Discussion and Analysis
of Pro Forma Combined Financial
Condition and Pro Forma Combined
Results of Operations............... 24
Selected Financial Data of AMC........ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of AMC................ 27
Business.............................. 29
Management............................ 37
Principal Stockholders................ 41
Certain Transactions.................. 41
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Available Information................. 46
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
[INFOCURE LOGO]
INFOCURE CORPORATION
2,000,000 SHARES
COMMON STOCK
--------------------
PROSPECTUS
--------------------
RODMAN & RENSHAW, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1997
======================================================
<PAGE> 122
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
Nasdaq National Market Listing Fees......................... 33,343
NASD filing fee............................................. 3,294
Accounting fees and expenses................................ 275,000
Legal fees and expenses..................................... 200,000
Blue Sky fees and expenses.................................. 25,000
Printing and engraving...................................... 125,000
Transfer Agent's and Registrar's fees....................... 5,000
Miscellaneous expenses...................................... 24,896
-----------
Total............................................. $ 700,000
===========
</TABLE>
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
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.
II-1
<PAGE> 123
ITEM 27. EXHIBITS.
<TABLE>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
2.1 -- Plan and Agreement of Merger dated February , 1997 between
InfoCure Corporation and American Medcare Corporation*
4.1 -- Specimen Certificate for shares of Common Stock*
5.1 -- Opinion of Glass, McCullough, Sherrill & Harrold, LLP,
counsel to the Company*
10.14 -- Employment Agreement between the Company and R. Ernest
Chastain dated December , 1996*
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP (to be
included in Exhibit 5.1)*
23.4 -- Consent of BDO Seidman, LLP
</TABLE>
- ---------------
* To be filed by amendment.
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.
II-2
<PAGE> 124
(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 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> 125
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 Amendment to the
Registration Statement to be signed on its behalf by the undersigned, in the
City of Atlanta, State of Georgia, on the 3rd day of March, 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 Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated and on March 3, 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> 126
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement..............................
2.1 -- Plan and Agreement of Merger dated February , 1997 between
InfoCure Corporation and American Medcare Corporation*......
4.1 -- Specimen Certificate for shares of Common Stock*............
5.1 -- Opinion of Glass, McCullough, Sherrill & Harrold, LLP,
counsel to the Company*.....................................
10.14 -- Employment Agreement between the Company and R. Ernest
Chastain dated December , 1996*...........................
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP (to be
included in Exhibit 5.1)*...................................
23.4 -- Consent of BDO Seidman, LLP.................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
2,000,000 SHARES
INFOCURE CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
_____________, 1997
Rodman & Renshaw, Inc.
Cruttenden Roth Incorporated
c/o Rodman & Renshaw, Inc.
225 Liberty Street
2 World Financial Center
30th Floor
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
InfoCure Corporation, a Delaware corporation (the "Company"), proposes
to sell to you and the other underwriters named in Schedule I attached hereto
(the "Underwriters"), for whom you are acting as the representatives (the
"Representatives"), an aggregate of 2,000,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), all of
which are to be issued and sold by the Company. In addition, those certain
stockholders of the Company set forth on Schedule II attached hereto (the
"Selling Stockholders"), propose to grant to the Underwriters an option to
purchase up to an additional 300,000 shares of Common Stock (the "Option
Shares") solely for the purpose of covering over-allotments in connection with
the sale of the Firm Shares. The obligation of each Selling Stockholder to
sell Option Shares to the Underwriters under this Agreement shall be as set
forth opposite his name
<PAGE> 2
on Schedule II attached hereto. The Firm Shares and the Option Shares are
together called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to issue and sell the Firm Shares
to the several Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase at the purchase price per share
of Common Stock of $_____ (the "Initial Price"), the aggregate number
of Firm Shares set forth opposite such Underwriter's name on Schedule
I attached hereto. The Underwriters agree to offer the Firm Shares to
the public as set forth in the Prospectus (as hereinafter defined).
(b) The Selling Stockholders grant to the several
Underwriters an option to purchase, severally and not jointly, all or
any part of the number of the Option Shares at the Initial Price. The
number of Option Shares to be purchased by each Underwriter shall be
the same percentage (adjusted by the Representatives to eliminate
fractions) of the total number of Option Shares to be purchased by the
Underwriters as such Underwriter is purchasing of the Firm Shares.
Such option may be exercised only to cover over-allotments in the
sales of the Firm Shares by the Underwriters and may be exercised in
whole or in part at any time on or before 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date (as
defined below), and from time to time thereafter within 30 days after
the date of this Agreement, upon written, telecopy or telegraphic
notice, or verbal or telephonic notice confirmed by written, telecopy
or telegraphic notice, by the Representatives to the Company no later
than 12:00 noon, New York City time, on the business day before the
Firm Shares Closing Date or at least two business days before any
Option Shares Closing Date (as defined below), as the case may be,
setting forth the number of Option Shares to be purchased and the time
and date (if other than the Firm Shares Closing Date) of such
purchase.
(c) On the Firm Shares Closing Date (as defined below),
the Company shall issue and sell to Rodman & Renshaw, Inc. ("Rodman")
and Cruttenden Roth Incorporated ("Cruttenden"), individually and not
as Representatives of the Underwriters, for an aggregate purchase
price of $.001 per warrant, warrants representing the right of the
Representatives to purchase an aggregate number of Shares of Common
Stock (the "Warrant Shares") equal to 10% of the Firm Shares (which
warrants shall be evidenced in the form set forth as an exhibit to the
Registration Statement) (the "Representatives' Warrants"). The
Representatives' Warrants shall be allocated among each of the
Representatives as the Company shall be advised in writing by Rodman.
-2-
<PAGE> 3
2. Delivery and Payment. Delivery by the Company of the Firm
Shares to the Representatives for the respective accounts of the Underwriters,
and payment of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next day) funds or same-day wire transfer
to the Company, shall take place at the offices of Squadron, Ellenoff, Plesent
& Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176, at 10:00 a.m.,
New York City time, on the third business day following the date on which the
public offering of the Shares commences (unless such date is postponed in
accordance with the provisions of Section 10(b) hereof), or at such time and
place on such other date, not later than ten business days after the date of
this Agreement, as shall be agreed upon by the Company and the Representatives
(such time and date of delivery and payment are called the "Firm Shares Closing
Date"). The public offering of the Shares shall be deemed to have commenced at
the time, which is the earlier of (a) the time, after the Registration
Statement (as defined in Section 4 below) becomes effective, of the release by
you for publication of the first newspaper advertisement which is subsequently
published relating to the Shares or (b) the time, after the Registration
Statement becomes effective, when the Shares are first released by you for
offering by the Underwriters or dealers by letter, telecopy or telegram.
In the event the option with respect to the Option Shares is
exercised, delivery by the Selling Stockholders of the Option Shares to the
Representatives for the respective accounts of the Underwriters and payment of
the purchase price by certified or official bank check or checks payable in New
York Clearing House (next day) funds or same-day wire transfer to the Selling
Stockholders shall take place at the offices of Rodman, at the address
specified above, or such other place as the parties may mutually agree upon,
at the time and on the date (which may be the same date as, but in no event
shall be earlier than, the Firm Shares Closing Date) specified in the notice
referred to in Section 1(b) (such time and date of delivery and payment is
called the "Option Shares Closing Date(s)"). The Firm Shares Closing Date and
the Option Shares Closing Date(s) are called, individually, a "Closing Date"
and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at
least two full business days before the Firm Shares Closing Date or the Option
Shares Closing Date(s), as the case may be, and shall be made available to the
Representatives for checking and packaging, at such place as is designated by
the Representatives, on the full business day before the Firm Shares Closing
Date or the Option Shares Closing Date(s), as the case may be.
3. Public Offering. The Company and the Selling Stockholders
understand that the Underwriters propose to make a public offering of the
Shares, as set forth in and pursuant to the Prospectus (as defined in Section 4
below), as soon after the effective date of the Registration Statement and the
date of this Agreement as the Representatives deem advisable. The Company and
the Selling Stockholders hereby confirm that the Underwriters and dealers have
been authorized
-3-
<PAGE> 4
to distribute or cause to be distributed each preliminary prospectus and are
authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).
4. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees
with, the several Underwriters that:
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
statement, and may have filed one or more amendments thereto,
on Form SB-2 (Registration No. 333-_____), including in such
registration statement, and each such amendment, a related
preliminary prospectus (a "Preliminary Prospectus"), for the
registration of the Firm Shares and the Option Shares, in
conformity with the requirements of the Securities Act of
1933, as amended (the "Act"). The Company may also file a
related registration statement with the Commission pursuant to
Rule 462(b) under the Act for the purpose of registering
certain additional Shares, which registration shall be
effective upon filing with the Commission. As used in this
Agreement, the term "Original Registration Statement" means
such registration statement, as amended, on file with the
Commission at the time such registration statement becomes
effective (including the prospectus, financial statements,
exhibits, and all other documents filed as a part thereof or
incorporated by reference directly or indirectly therein),
provided that such registration statement, at the time it
becomes effective, may omit such information as is permitted
to be omitted from a registration statement when it becomes
effective pursuant to Rule 430A of the General Rules and
Regulations promulgated under the Act (the "Regulations"),
which information ("Rule 430 Information") shall be deemed to
be included in such registration statement when a final
prospectus is filed with the Commission in accordance with
Rules 430A and 424(b)(1) or (4) of the Regulations; the term
"Rule 462(b) Registration Statement" means any registration
statement filed with the Commission pursuant to Rule 462(b)
under the Act (including the Original Registration Statement
and any Preliminary Prospectus or Prospectus incorporated
therein at the time the Original Registration Statement
becomes effective); the term "Registration Statement" includes
both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus"
means each prospectus included in the Registration Statement,
or any amendments thereto, before it becomes effective under
the Act, the form of prospectus omitting Rule 430A Information
included in the Registration Statement when it becomes
effective, if applicable (the "Rule 430A Prospectus"), and any
prospectus filed by the Company with your consent pursuant to
Rule 424(a) of the Regulations; and the term "Prospectus"
means the final prospectus included as part of the
-4-
<PAGE> 5
Registration Statement, except that if the prospectus relating
to the securities covered by the Registration Statement in the
form first filed on behalf of the Company with the Commission
pursuant to Rule 424(b) of the Regulations shall differ from
such final prospectus, the term "Prospectus" shall mean the
prospectus as filed pursuant to Rule 424(b) from and after the
date on which it shall have first been used.
(ii) When the Registration Statement becomes
effective, and at all times subsequent thereto to and
including the Closing Dates, and during such longer period as
the Prospectus may be required to be delivered in connection
with sales by the Underwriters or a dealer, and during such
longer period until any post-effective amendment thereto shall
become effective, the Registration Statement (and any post-
effective amendment thereto) and the Prospectus (as amended or
as supplemented if the Company shall have filed with the
Commission any amendment or supplement to the Registration
Statement or the Prospectus) will contain all statements which
are required to be stated therein in accordance with the Act
and the Regulations, will comply with the Act and the
Regulations, and will not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and no event will have occurred which should
have been set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not then
been set forth in such an amendment or supplement; if a Rule
430A Prospectus is included in the Registration Statement at
the time it becomes effective, the Prospectus filed pursuant
to Rules 430A and 424(b)(1) or (4) will contain all Rule 430A
Information; and each Preliminary Prospectus, as of the date
filed with the Commission, did not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; except that no
representation or warranty is made in this Section 4(a)(ii)
with respect to statement or omissions made in reliance upon
and in conformity with written information furnished to the
Company as stated in Section 7(c) with respect to any
Underwriter by or on behalf of such Underwriter through the
Representatives expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or
any amendment or supplement thereto.
(iii) If the Company has elected to rely on Rule
462(b) and the Rule 462(b) Registration Statement has not been
declared effective, then (i) the Company has filed a Rule
462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given
irrevocable instructions for transmission of the applicable
filing fee in connection with the filing of the Rule 462(b)
Registration
-5-
<PAGE> 6
Statement, in compliance with Rule 111 promulgated under the
Act or the Commission has received payment of such filing fee.
(iv) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction have issued an order
(a "Stop Order") suspending the effectiveness of the
Registration Statement, preventing or suspending the use of
any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Firm
Shares or the Option Shares nor has any of such authorities
instituted or threatened to institute any proceedings with
respect to a Stop Order.
(v) Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration
Statement.
(vi) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority,
and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to carry on its business as now being conducted and
in the manner described in the Prospectus. The Company does
not own, lease or license any property or conduct any business
outside the United States of America. The Company has no
subsidiary or subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture,
association or other business organization, except for those
listed on Schedule III attached hereto, those permitted to be
excluded pursuant to Item 601, Exhibit 21 of Regulation S-B
and, on or after the Firm Shares Closing Date, the Founding
Companies (as hereinafter defined) (each such corporation a
"Subsidiary" and collectively, the "Subsidiaries"). Each of
the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, as listed on Schedule III
attached hereto or, with respect to the Founding Companies on
or after the Firm Shares Closing Date, as listed on Schedule
IV hereto. Each of the Company and the Subsidiaries is duly
qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its or
any of their properties (owned, leased or licensed) or the
nature of its or any of their
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<PAGE> 7
businesses makes such qualification necessary except for such
jurisdictions where the failure to so qualify would not,
either singly or in the aggregate, have a material adverse
effect on the assets or properties, business, financial
condition or results of operations of the Company or any of
the Subsidiaries.
(vii) The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, of which
100 shares are outstanding, and 10,000,000 shares
of preferred stock, par value $.001 per share (the "Preferred
Stock"), none of which shares are outstanding. Each
outstanding share of Common Stock and each outstanding share
of capital stock of each Subsidiary has been duly and validly
authorized and issued, fully paid, and non-assessable, without
any personal liability attaching to the ownership thereof and
has not been issued and is not owned or held in violation of
any preemptive rights of stockholders. There is no
commitment, plan, preemptive right or arrangement to issue,
and no outstanding option, warrant, or other right calling for
the issuance of, shares of capital stock of the Company or of
any Subsidiary or any security or other instrument which by
its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company or of any
Subsidiary, except as may be properly described in the
Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into or
exchangeable for capital stock of the Company or of any
Subsidiary, except as may be properly described in the
Prospectus.
(viii) The financial statements of the Company and
each of the Founding Companies included in the Registration
Statement and the Prospectus fairly present, with respect to
the Company and each of the Founding Companies, the financial
position, the results of operations, and the other information
purported to be shown therein at the respective dates and for
the respective periods to which they apply. Such financial
statements have been prepared in accordance with generally
accepted accounting principles (except to the extent that
certain footnote disclosures regarding any stub period may
have been omitted in accordance with the applicable rules of
the Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) consistently applied throughout
the periods involved, are correct and complete, and are in
accordance with the books and records of the Company and the
Founding Companies, as applicable. The accountants whose
reports on the audited financial statements of the Company and
the Founding Companies are filed with the Commission as a part
of the Registration Statement are, and during the periods
covered by their report(s) included in the Registration
Statement and the Prospectus were, independent certified
public accountants with respect to the Company and each of the
Founding Companies within the meaning of the Act and the
Regulations. No other financial statements are required by
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<PAGE> 8
Form SB-2 or otherwise to be included in the Registration
Statement or the Prospectus. There has at no time been a
material adverse change in the financial condition, results of
operations, business, properties, assets, liabilities, or
future prospects of the Company or any of the Founding
Companies from the latest information set forth in the
Registration Statement or the Prospectus, except as may be
properly described in the Prospectus.
(ix) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or before any public body or
board pending, threatened, or in prospect (or any basis
therefor) with respect to the Company or any Subsidiary, or
any of its respective operations, business, properties, or
assets, except as may be properly described in the Prospectus
or such as individually or in the aggregate do not now have
and will not in the future have a material adverse effect upon
the operations, business, properties, assets or financial
condition of the Company or any Subsidiary. Neither the
Company nor any Subsidiary is involved in any labor dispute,
nor is such dispute threatened, which dispute would have a
material adverse effect upon the operations, business,
properties, assets or financial condition of the Company or
any of the Subsidiaries. Neither the Company nor any
Subsidiary is in violation of, or in default with respect to,
any law, rule, regulation, order, judgment, or decree; nor is
the Company or any Subsidiary required to take any action in
order to avoid any such violation or default.
(x) Each of the Company and the Subsidiaries has good
and marketable title in fee simple absolute to all real
properties and good title to all other properties and assets
which the Prospectus indicates are owned by it, and has valid
and enforceable leasehold interests in each of such items,
free and clear of all liens, security interests, pledges,
charges, encumbrances, and mortgages (except as may be
properly described in the Prospectus). No real property
owned, leased, licensed or used by the Company or any
Subsidiary lies in an area which is, or to the knowledge of
the Company will be, subject to zoning, use or building code
restrictions which would prohibit, and no state of facts
relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing or use of
any real or personal property exists or will exist which would
prevent, the continued effective ownership, leasing, licensing
or use of such real property in the business of the Company
and each Subsidiary as presently conducted or as the
Prospectus indicates it contemplates conducting (except as may
be properly described in the Prospectus).
(xi) Each of the Company and the Subsidiaries, and to
the best knowledge of the Company, any other party, is not now
or reasonably expected by the
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<PAGE> 9
Company to be in violation or breach of, or in default with
respect to, complying with any term, obligation or provision
of any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding which is material to the Company or any
Subsidiary or by which any of its respective properties or
business may be bound or affected, and no event has occurred
which with notice or lapse of time or both would constitute
such a default, and each such contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding is in full force and is the
legal, valid and binding obligation of the parties thereto and
is enforceable as to them in accordance with its terms. Each
of the Company and the Subsidiaries enjoys peaceful and
undisturbed possession under all leases and licenses under
which it is operating. Neither the Company nor any Subsidiary
is a party to or bound by any contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding, or subject to any charter or
other restriction, which has had or may in the future have a
material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities or
future prospects of the Company or any Subsidiary. Neither
the Company nor any Subsidiary is in violation or breach of,
or in default with respect to, any term of their respective
certificates of incorporation (or other charter document) or
by-laws or of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation.
(xii)The Company and each of the Subsidiaries have
filed all federal, state, local and foreign tax returns which
are required to be filed through the date hereof, or has
received extensions thereof, and have paid all taxes shown on
such returns and all assessments received by them to the
extent that the same are material and have become due.
(xiii) All patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, copyright applications, franchises, and other
intangible properties and assets (all of the foregoing being
collectively herein called "Intangibles") that each of the
Company and the Subsidiaries owns, possesses or has pending,
or under which it is licensed, are in good standing and
uncontested. There is no right under any Intangible necessary
to the business of the Company or any Subsidiary as presently
conducted or as the Prospectus indicates the Company and the
Subsidiaries have that the Company and the Subsidiaries do not
have (except as may be so described in the Prospectus).
Neither the Company nor any Subsidiary has infringed, is
infringing, or has received any notice of infringement with
respect to asserted Intangibles of others. To the best
knowledge of the
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<PAGE> 10
Company, there is no infringement by others of Intangibles of
the Company or any Subsidiary. To the best knowledge of the
Company, there is no Intangible of others which is expected to
have a material adverse effect on the financial condition,
results of operations, business, properties, assets,
liabilities or future prospects of the Company or any of the
Subsidiaries.
(xiv) Neither the Company nor any Subsidiary or any
director, officer, agent, employee or other person associated
with or acting on behalf of the Company or any Subsidiary has,
directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or
among the Company, any Subsidiary, and any of their respective
officers or directors or any affiliates or affiliates of any
such officer or director, except as described in the
Prospectus.
(xv) The Company has all requisite power and
authority to execute, deliver and perform this Agreement and
the Representatives' Warrants (collectively, the "Company
Documents"). All necessary corporate proceedings of the
Company have been duly taken to authorize the execution,
delivery and performance of the Company Documents. This
Agreement has been duly authorized, executed, and delivered by
the Company, is the legal, valid and binding obligation of the
Company, and is enforceable as to the Company in accordance
with its terms. No consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or
filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required by the
Company or any Subsidiary for the execution, delivery or
performance by the Company of this Agreement (except filings
under the Act which have been or will be made before the
applicable Closing Date and such consents consisting only of
consents under "blue sky" or securities laws which have been
obtained at or prior to the date of this Agreement). No
consent of any party to any contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding to which the Company or any
Subsidiary is a party, or to which any of their respective
properties or assets are subject, is required for the
execution, delivery or performance of this Agreement, and the
execution, delivery and performance of this Agreement, will
not violate, result in a breach of, conflict with, accelerate
the due date of any payments under, or (with or without the
giving of notice or the passage of time or both) entitle any
party to terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement, or understanding, or violate
or result
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<PAGE> 11
in a breach of any term of the certificate of incorporation
(or other charter document) or by-laws of the Company or any
Subsidiary, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment or decree
binding on the Company or any Subsidiary or to which any of
its respective operations, business, properties or assets are
subject.
(xvi) The Firm Shares and the Option Shares are duly
and validly authorized. The Firm Shares and the Option
Shares, when delivered in accordance with this Agreement, will
be duly and validly issued, fully paid, and non-assessable,
without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive
rights of stockholders, optionholders, warrantholders and any
other persons, and the Underwriters will receive good title to
the Firm Shares purchased by them, respectively, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
(xvii) The Representatives' Warrants are duly and
validly authorized and when delivered in accordance with this
Agreement, will be duly and validly issued, without any
personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders, optionholders, warrantholders and any other
persons. The Warrant Shares are validly authorized and
reserved for issuance and, when issued and delivered upon
exercise of the Representatives' Warrants, will be validly
issued, fully paid and non-assessable, without any personal
liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive rights of stockholders,
optionholders, warrantholders and any other persons. The
holders of the Representatives' Warrants will receive good
title to the securities purchased by them, respectively, free
and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
(xviii) The Firm Shares, the Option Shares, the
Representatives Warrants, the Preferred Stock, and the Common
Stock conform to all statements relating thereto contained in
the Registration Statement or the Prospectus.
(xix) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as may otherwise be properly described
therein, there has not been any material adverse change in the
assets or properties, business or results of operations or
financial condition of the Company or any Subsidiary, whether
or not arising from transactions in the ordinary course of
business; neither the Company nor any Subsidiary has sustained
any material loss or interference with its business or
properties from fire,
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<PAGE> 12
explosion, earthquake, flood or other calamity, whether or not
covered by insurance; since the date of the latest balance
sheet included in the Registration Statement and the
Prospectus, except as reflected therein, neither the Company
nor any Subsidiary has undertaken any liability or obligation,
direct or contingent, except for liabilities or obligations
undertaken in the ordinary course of business; and neither the
Company nor any Subsidiary has (A) issued any securities or
incurred any liability or obligation, primary or contingent,
for borrowed money, (B) entered into any transaction not in
the ordinary course of business, or (C) declared or paid any
dividend or made any distribution on any of its capital stock
or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its
capital stock.
(xx) Neither the Company nor any Subsidiary or any
of their respective officers, directors or affiliates (as
defined in the Regulations) or any of the Selling
Stockholders, has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Firm Shares or the Option Shares.
(xxi) The Company has obtained from its executive
officers, directors and principal stockholders, his
enforceable written agreement, in form and substance
satisfactory to counsel for the Underwriters, that for a
period of 180 days from the date on which the public offering
of the Shares commences he will not, without the prior written
consent of Rodman, on behalf of the Underwriters, offer,
pledge, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or other securities of the Company (or
any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares
of Common Stock or other securities of the Company, including,
without limitation, any shares of Common Stock issuable under
any employee stock options), beneficially owned by him.
(xxii) Neither the Company nor any Subsidiary is, or
intends to conduct its business in a manner in which it would
be, an "investment company" as defined in Section 3(a) of the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xxiii) All offers and sales of the Company's
capital stock prior to the date hereof, other than offers and
sales made pursuant to the Acquisitions (as hereinafter
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<PAGE> 13
defined), were at all relevant times exempt from the
registration requirements of the Act and were the subject of
an available exemption from the registration requirements of
all applicable state securities or blue sky laws. The offers
and sales of the Company's capital stock made pursuant to the
Acquisitions were made in compliance with Rule 145(a) under
the Act.
(xxiv) No person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement.
(xxv) Except as may be set forth in the Prospectus,
neither the Company nor any Subsidiary has incurred any
liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement.
(xxvi) No transaction has occurred between or among
the Company, any Subsidiary, and any of their respective
officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(xxvii) The Common Stock, including the Shares, are
authorized for quotation on the NASDAQ National Market upon
official notice of issuance.
(xxviii) The Company has filed with Commission a
registration statement, and may have filed one or more
amendments thereto, on Form S-4 (Registration No. 333-_______)
(the "Merger Registration Statement"), for the registration of
_________ shares of Common Stock, in conformity with the
requirements of the Act. When the Merger Registration
Statement becomes effective, and during such longer period
until any post-effective amendment thereto shall become
effective, the Merger Registration Statement (and any
post-effective amendment thereto) and the prospectus included
as part thereof (the "Merger Prospectus") (as amended or as
supplemented if the Company shall have filed with the
Commission any amendment or supplement to the Merger
Registration Statement or the Merger Prospectus) will contain
all statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the Merger Registration Statement or the Merger
Prospectus which has not then been set forth in such an
amendment or supplement. Neither the Commission nor the "blue
sky" or
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<PAGE> 14
securities authority of any jurisdiction have issued a Stop
Order suspending the use of any preliminary prospectus, the
Merger Prospectus, the Merger Registration Statement, or any
amendment or supplement thereto, refusing to permit the
effectiveness of the Merger Registration Statement, or
suspending the registration or qualification of the shares of
Common Stock registered thereunder nor has any of such
authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(xxix) American Medcare Corporation ("AMC") is the
record holder and sole beneficial owner of all of the issued
and outstanding stock of each of International Computer
Solutions, Inc. ("ICS"), Millard-Wayne, Inc. ("Millard-Wayne")
and Health Care Division, Inc. ("HCD"), which owns
substantially all of the assets used in connection with the
business of the former Healthcare Division of Info Systems of
North Carolina, Inc. The Company has entered into the
agreements listed on Schedule IV hereto (the "Acquisition
Agreements") with respect to the acquisitions (the
"Acquisitions") of AMC, DR Software, Inc. ("DR Software"),
KComp Management Systems, Inc. ("KComp"), HealthCare
Information Systems, Inc. ("HIS") and Rovak, Inc. ("Rovak")
(AMC, ICS, Millard-Wayne, HCD, DR Software, KComp, HIS and
Rovak are collectively referred to herein as the "Founding
Companies"). The Company has all requisite power and
authority to execute, deliver and perform each of the
Acquisition Agreements. All necessary corporate proceedings
of the Company have been duly taken to authorize the
execution, delivery and performance of the Acquisition
Agreements. Each of the Acquisition Agreements has been duly
authorized, executed and delivered by the Company, is the
legal valid and binding obligation of the Company, and is
enforceable as to the Company in accordance with its terms.
(xxx) Neither the Company nor any Subsidiary or any
of their respective affiliates is presently doing business
with the government of Cuba or with any person or affiliate
located in Cuba. If, at any time after the date that the
Registration Statement is declared effective with the
Commission or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever date is later,
and prior to the end of the period referred to in the first
clause of Section 4(a)(ii) hereof, the Company commences
engaging in business with the government of Cuba or with any
person or affiliate located in Cuba, the Company will so
inform the Florida Department within ninety days after such
commencement of business in Cuba, and during the period
referred to in Section 4(a)(ii) hereof will inform the Florida
Department within ninety days after any change occurs with
respect to previously reported information.
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<PAGE> 15
(b) Each of the Selling Stockholders severally represents
and warrants to, and agrees with, the several Underwriters that:
(i) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or beneficiary, public body or
board pending, threatened, or in prospect (or any basis
therefor known to such Selling Stockholder) with respect to
such Selling Stockholder or any of such Selling Stockholder's
business, properties or assets. Such Selling Stockholder is
not in violation of, or in default with respect to, any law,
rule, regulation, order, judgment, or decree; nor is such
Selling Stockholder required to take any action in order to
avoid such violation or default.
(ii) Such Selling Stockholder has all requisite
power and authority to execute, deliver, and perform this
Agreement. This Agreement has been duly executed and
delivered by or on behalf of such Selling Stockholder, is the
legal, valid and binding obligation of such Selling
Stockholder, and is enforceable as to such Selling Stockholder
in accordance with its terms. No consent, authorization,
approval, order, license, certificate, or permit of or from,
or declaration or filing with, any federal, state, local or
other governmental authority or any court or other tribunal is
required by such Selling Stockholder for the execution,
delivery or performance of this Agreement (except filings
under the Act which have been made before the applicable
Closing Date and such consents consisting only of consents
under "blue sky" or securities laws which have been obtained
at or prior to the date of this Agreement) by such Selling
Stockholder. No consent of any party to any contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding to which
such Selling Stockholder is a party, or to which any of such
Selling Stockholder's properties or assets are subject, is
required for the execution, delivery or performance of this
Agreement; and the execution, delivery and performance of this
Agreement will not violate, result in a breach of, conflict
with, or (with or without the giving of notice or the passage
of time or both) entitle any party to terminate or call a
default under any such contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment or
decree binding on such Selling Stockholder or to which any of
such Selling Stockholder's operations, business, properties,
or assets are subject.
(iii) Such Selling Stockholder has good title to the
Option Shares to be sold by such Selling Stockholder pursuant
to this Agreement, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts, and when such Option Shares are
delivered in accordance with this
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<PAGE> 16
Agreement, the Underwriters will receive good title to such
Option Shares from such Selling Stockholder, free and clear of
all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts.
(iv) Neither such Selling Stockholder nor any of
such Selling Stockholder's affiliates (as defined in the
Regulations) has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Option Shares.
(v) All information furnished or to be furnished to
the Company by or on behalf of such Selling Stockholder for
use in connection with the preparation of the Registration
Statement and the Prospectus is true in all respects and does
not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(vi) Except as may be set forth in the Prospectus,
such Selling Stockholder has not incurred any liability for a
fee, commission or other compensation on account of the
employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(vii) Such Selling Stockholder has no knowledge that,
and does not believe that, any representation or warranty of
the Company contained in Section 4(a) of this Agreement is
incorrect.
(viii) Such Selling Stockholder has not, directly or
indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(ix) No transaction has occurred between or among
such Selling Stockholder and the Company, any Subsidiary or
any other Selling Stockholder that is required to be described
in the Registration Statement or the Prospectus and is not so
properly described.
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<PAGE> 17
5. Conditions of the Underwriters' Obligations. The obligations
of the Underwriters under this Agreement are several and not joint. The
respective obligations of the Underwriters to purchase the Shares are subject,
in the Representatives' sole discretion, to each of the following terms and
conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a)(i) of this Agreement; if
the Original Registration Statement or any amendment thereto filed
prior to the Firm Closing Date has not been declared effective as of
the time of execution hereof, the Original Registration Statement or
such amendment and, if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have been
declared effective not later than the earlier of (i) 11:00 a.m. New
York time, on the date on which the amendment to the registration
statement originally filed with respect to the Shares or to the
Registration Statement, as the case may be, containing information
regarding the public offering price of the Shares has been filed with
the Commission, and (ii) the time confirmations are sent or given as
specified by Rule 462(b)(2) or, with respect to the Original
Registration Statement, such later time and date as shall have been
consented to by the Representatives.
(b) No order preventing or suspending the use of any
preliminary prospectus, the Prospectus or the Merger Prospectus shall
have been or shall be in effect and no order suspending the
effectiveness of the Registration Statement or the Merger Registration
Statement shall be in effect and no proceedings for such purpose shall
be pending before or threatened by the Commission, and any requests
for additional information on the part of the Commission (to be
included in the Registration Statement, the Merger Registration
Statement, the Prospectus or the Merger Prospectus or otherwise) shall
have been complied with to the satisfaction of the Representatives.
(c) The representations and warranties of the Company and
the Selling Stockholders contained in this Agreement and in the
certificates delivered pursuant to Section 5(d) shall be true and
correct when made and on and as of each Closing Date as if made on
such date, and the Company and the Selling Stockholders shall have
performed all covenants and agreements and satisfied all the
conditions contained in this Agreement required to be performed or
satisfied by them at or before such Closing Date.
(d) The Representatives shall have received on each
Closing Date (i) a certificate, addressed to the Representatives and
dated such Closing Date, of the chief executive or chief operating
officer and the chief financial officer of the Company to the effect
that the persons executing such certificate have carefully examined
the Registration Statement, the Prospectus and this Agreement and that
the representations and warranties of the Company contained in this
Agreement are true and correct on and as of such Closing Date with the
same effect as if made on such Closing Date and the Company has
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<PAGE> 18
performed all covenants and agreements and satisfied all conditions
contained in this Agreement required to be performed or satisfied by
it at or prior to such Closing Date and (ii) a certificate, addressed
to the Representatives and dated such Closing Date, of each of the
Selling Stockholders to the effect that the representations and
warranties of such Selling Stockholder are true and correct on and as
of such Closing Date and such Selling Stockholder has performed all
covenants and agreements and satisfied all conditions contained in
this Agreement required to be performed or satisfied by such Selling
Stockholder at or prior to such Closing Date.
(e) The Representatives shall have received at the time
this Agreement is executed and on each Closing Date a signed letter
from BDO Seidman, LLP addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date,
in form and scope reasonably satisfactory to the Representatives, with
reproduced copies or signed counterparts thereof for each of the
Underwriters confirming that they are independent accountants within
the meaning of the Act and the Regulations, that the response to Item
10 of the Registration Statement is correct in so far as it relates to
them and stating in effect that:
(i) in its opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by it comply as to form in all material respects
with the applicable accounting requirements of the Act, the
Exchange Act and the related published rules and regulations
thereunder;
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the heading "Selected Financial Information" which would
not necessarily reveal matters of significance with respect to
the comments set forth in such letter, a reading of the
minutes of the meetings of the stockholders and directors of
the Company and each Subsidiary, and inquiries of certain
officials of the Company who have responsibility for financial
and accounting matters of the Company and each Subsidiary as
to transactions and events subsequent to the date of the
latest audited financial statements, except as disclosed in
the Registration Statement and the Prospectus, nothing came to
its attention which caused it to believe that:
(A) the amounts in "Selected Financial
Information," and included in the Registration
Statement and the Prospectus do not agree with the
corresponding amounts in the audited financial
statements from which such amounts were derived; or
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<PAGE> 19
(B) with respect to the Company and each
Subsidiary, there were, at a specified date not more
than five business days prior to the date of the
letter, any decreases in net sales, income before
income taxes and net income or any increases in
long-term debt of the Company or any decreases in the
capital stock, working capital or the stockholders'
equity in the Company and each Subsidiary, as
compared with the amounts shown on the Company's
audited Balance Sheet for the fiscal year ended
____________, 19__ included in the Registration
Statement or the audited Statement of Operations, for
such year; and
(iii) it has performed certain other procedures as a
result of which it determined that information of an
accounting, financial or statistical nature (which is limited
to accounting, financial or statistical information derived
from the general accounting records of the Company and each
Subsidiary) set forth in the Registration Statement and the
Prospectus and reasonably specified by the Representatives
agrees with the accounting records of the Company.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented
at the date of such letter.
(f) The Representatives shall have received on each
Closing Date from Glass, McCullough, Sherrill & Harrold, LLP, counsel
for the Company, an opinion, addressed to the Representatives and
dated such Closing Date, and in form and scope satisfactory to counsel
for the Underwriters, with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority to
own, lease, license and use its properties and assets and to
conduct its business in the manner described in the
Prospectus. To the knowledge of such counsel, the Company has
all necessary consents, authorizations, approvals, orders,
certificates and permits of and from, and declarations and
filings with, all federal, state, local and other governmental
authorities and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its
business in the manner described in the Prospectus. The
Company does not own, lease or license any property or conduct
any business outside the United States of America. The
Company has no subsidiary or subsidiaries and does not
control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization,
except for those listed on Schedule III attached hereto, those
permitted to be excluded pursuant to Item 601, Exhibit 21 of
Regulation S-B and, on or after the Firm Shares Closing Date,
the Founding Companies. Each of
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<PAGE> 20
the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, as listed on Schedule III
attached hereto or, with respect to the Founding Companies on
or after the Firm Shares Closing Date, as listed on Schedule
IV hereto. Each of the Company and the Subsidiaries is duly
qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its or
any of their properties (owned, leased or licensed) or the
nature of its or any of their businesses makes such
qualification necessary except for such jurisdictions where
the failure to so qualify would not, either singly or in the
aggregate, have a material adverse effect on the assets or
properties, business, financial condition or results of
operations of the Company or any of the Subsidiaries.
(ii) The Company has authorized, issued and
outstanding capital stock as set forth in the "actual" column
of the capitalization table under the caption "Capitalization"
in the Prospectus. The certificates evidencing the Shares are
in due and proper legal form. Each outstanding share of
Common Stock and each outstanding share of capital stock of
each Subsidiary has been duly and validly authorized and
issued, fully paid, and is non-assessable, without any
personal liability attaching to the ownership thereof, and has
not been issued and is not owned or held in violation of any
preemptive right of stockholders. To the knowledge of such
counsel, there is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of apital stock of the
Company or of any Subsidiary or any security or other
instrument which by its terms is convertible into, exercisable
for, or exchangeable for capital stock of the Company or of
any Subsidiary, except as may be properly described in the
Prospectus. To the knowledge of such counsel, there is
outstanding no security or other instrument which by its terms
is convertible into, exercisable for or exchangeable for
capital stock of the Company, except as may be properly
described in the Prospectus.
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any
court or before any public body or board pending, threatened,
or in prospect (or any basis therefor) with respect to the
Company, any Subsidiary, or any of their respective
operations, businesses, properties, assets, or financial
condition except as may be properly described in the
Prospectus or such as individually or in the aggregate do not
now have and will not in the future have a material adverse
effect upon the operations, business, properties, assets, or
financial condition of the Company or any of the
Subsidiaries. To the knowledge of such counsel, neither the
Company nor any Subsidiary is involved in any labor dispute,
nor is such dispute threatened, which dispute would have a
material
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<PAGE> 21
adverse effect upon the operations, business, properties,
assets or financial condition of the Company or any
Subsidiary. Neither the Company nor any Subsidiary is in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be
properly described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business,
properties, assets, or financial condition of the Company or
any of the Subsidiaries; nor is the Company or any Subsidiary
required to take any action in order to avoid any such
violation or default.
(iv) To the knowledge of such counsel, neither the
Company nor any Subsidiary or any other party is now or is
expected by the Company or any Subsidiary to be in violation
or breach of, or in default with respect to, complying with
any term, obligation or provision of any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding which is material to
the Company or any Subsidiary or by which any of their
respective properties or businesses may be bound or affected
and no event has occurred which with notice or lapse of time
or both would constitute such a default.
(v) Neither the Company nor any Subsidiary is in
violation or breach of, or in default with respect to, any
term of their certificates of incorporation (or other charter
documents) or by-laws.
(vi) The Company has all requisite power and
authority to execute, deliver and perform this Agreement and
each of the Acquisition Agreements, to issue and sell the
Shares and to issue and sell the Representatives' Warrants.
All necessary corporate proceedings of the Company have been
taken to authorize the execution, delivery and performance by
the Company of the Company Documents and the Acquisition
Agreements. Each of the Company Documents and each of the
Acquisition Agreements has been duly authorized, executed and
delivered by the Company, and is the legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws now or hereafter in effect relating to
or affecting creditors' rights generally and court decisions
with respect thereto. No consent, authorization, approval,
order, license, certificate or permit of or from, or
declaration or filing with, any federal state, local or other
governmental authority or any court or other tribunal is
required by the Company or any Subsidiary, for the execution,
delivery or performance by the Company of the Company
Documents and the Acquisition Agreements (except filings under
the Act
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<PAGE> 22
which have been made prior to the Closing Date and filings or
consents under "blue sky" or securities laws, as to which such
counsel need express no opinion). To the knowledge of such
counsel, no consent of any party to any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding to which the Company
or any Subsidiary is a party, or to which any of their
respective properties or assets are subject, is required for
the execution, delivery or performance of this Agreement; and
the execution, delivery and performance of this Agreement will
not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding, in each case known to such counsel, or violate
or result in a breach of any term of the certificate of
incorporation (or other charter document) or bylaws of the
Company or any Subsidiary, or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment,
or decree binding on the Company or any Subsidiary or to which
any of their respective operations, businesses, properties or
assets are subject.
(vii) The Representatives' Warrants have been duly
and validly authorized for issuance. Such opinion delivered
at the Firm Shares Closing Date shall state that the
Representatives' Warrants to be delivered on that date have
been duly and validly issued, fully paid, and non-assessable,
with no personal liability attaching to the ownership thereof,
and will not have been issued in violation of any preemptive
rights of stockholders, optionholders, warrantholders and any
other persons. The Warrant Shares are validly authorized and
reserved for issuance and, upon issuance, delivery and payment
therefor, as described in the Representatives' Warrants, will
be validly issued, fully paid and non-assessable, without any
personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders, optionholders, warrantholders and any other
persons. The holders of the Representatives' Warrants will
receive good title to the securities purchased by them,
respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and
voting trusts. The Warrant Shares and the Representatives'
Warrants conform substantially and in all material respects to
the description thereof contained in the Registration
Statement or the Prospectus.
(viii) The Firm Shares and the Option Shares are
duly and validly authorized. Such opinion delivered at each
Closing Date shall state that each such Share to be delivered
on that date is duly and validly issued, fully paid, and
non-assessable, with no personal liability attaching to the
ownership thereof, and is not issued in violation of any
preemptive rights of stockholders, optionholders,
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<PAGE> 23
warrantholders and any other persons. Such opinion delivered
at the Firm Shares Closing Date shall state that the
Underwriters have received good title to the Shares purchased
by them from the Company, for the consideration contemplated
herein and in good faith and without notice of any adverse
claim within the meaning of the Uniform Commercial Code, free
and clear of any liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, voting trusts and
other claims. The Common Stock, the Preferred Stock, the Firm
Shares and the Option Shares conform to all statements
relating thereto contained in the Registration Statement or
the Prospectus.
(ix) To the knowledge of such counsel, any contract,
agreement, instrument, lease or license required to be
described in the Registration Statement or the Prospectus has
been properly described therein. To the knowledge of such
counsel, any contract, agreement, instrument, lease or license
required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to
or has been incorporated as an exhibit by reference into the
Registration Statement.
(x) Insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases or licenses, such
statements have been prepared or reviewed by such counsel and
to the knowledge of such counsel, accurately reflect the
status of such litigation and provisions purported to be
summarized and are correct in all material respects.
(xi) Neither the Company nor any Subsidiary is an
"investment company" as defined in Section 3(a) of the
Investment Company Act and, if each of the Company and the
Subsidiaries conducts its business as set forth in the
Prospectus, will not become an "investment company" and will
not be required to be registered under the Investment Company
Act.
(xii) To the knowledge of such counsel, no person or
entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement except
such persons or entities from whom written waivers of such
rights have been received prior to the Closing Date.
(xiii) The Registration Statement has become
effective under the Act. No Stop Order has been issued and no
proceedings for that purpose has been instituted or are
threatened, pending, or to such counsel's knowledge,
contemplated.
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<PAGE> 24
(xiv) The Registration Statement, any Rule 430A
Prospectus, and the Prospectus, and any amendment or
supplement thereto (other than financial statements and other
financial data and schedules which are or should be contained
in any thereof, as to which such counsel need express no
opinion), comply as to form in all material respects with the
requirements of the Act and the Regulations. The conditions
for the use of Form SB-2 have been satisfied with respect to
the Registration Statement.
(xv) To the knowledge of such counsel, since the
effective date of the Registration Statement, no event has
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not been set forth in such an amendment or
supplement.
(xvi) The agreement of each officer, director,
principal stockholder of the Company and each Subsidiary,
stating that for a period of 180 days from the date on which
the public offering of the Shares commences, such officer,
director and principal stockholder will not, without the prior
written consent of Rodman, on behalf of the Underwriters,
offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly,
any shares of Common Stock (or any other securities of the
Company or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for
shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock
issuable under any employee stock options), beneficially owned
by such individual, has been duly and validly authorized,
executed and delivered by such individual and constitutes the
legal, valid and binding obligation of such individual
enforceable against such individual in accordance with its
terms.
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto (other
than financial statements and other financial data and schedules which are or
should be contained in any thereof, as to which such counsel need express no
opinion) and in conferences with officers and other representatives of the
Company, each Subsidiary and each Selling Stockholder, representatives of the
Representatives and representatives of the independent accountants of the
Company, at which conferences the contents of the Registration Statement, any
Rule 430A Prospectus, the Prospectus and related matters were discussed and,
although such counsel has not independently verified and is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement, the
Prospectus, any Rule 430A Prospectus, or any amendment or supplement thereto
(except as specified in the foregoing opinion), on the basis of the foregoing
and relying as to materiality upon the representations of executive officers of
the
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<PAGE> 25
Company and each Subsidiary and each Selling Stockholder after conferring with
such executive officers and Selling Stockholders, no facts have come to the
attention of such counsel which lead such counsel to believe that the
Registration Statement at the time it became effective contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, except for the financial statements and other financial
and statistical data included therein as to which counsel need express no
opinion, as amended or supplemented on the date thereof contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering its opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by the Company as to laws of any jurisdiction other than the Federal laws of
the United States, the General Corporate Law of the state of Delaware and the
laws of the state of Georgia, provided that (1) each such local counsel is
reasonably acceptable to the Representatives and (2) such reliance is expressly
authorized by each opinion so relied upon and a copy of each such opinion is
addressed to the Representatives and is in form and substance reasonably
satisfactory to them and their counsel. In addition, such counsel may rely, as
to matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and the Subsidiaries, provided that
executed copies of such certificates are provided to the Representatives.
(g) The Representatives shall have received on each
Option Shares Closing Date from the respective counsel for each of the Selling
Stockholders, an opinion, addressed to the Representatives, and dated such
Closing Date, to the effect that:
(i) Such Selling Stockholder has all requisite
power and authority to execute, deliver and perform this
Agreement and to sell his Option Shares. Such Selling
Stockholder has the power and authority to execute, deliver
and perform this Agreement and to sell such Option Shares.
This Agreement has been duly authorized, executed and
delivered by such Selling Stockholder, and is the legal, valid
and binding obligation of such Selling Stockholders
enforceable as to such Selling Stockholder in accordance with
its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and court decisions with
respect thereto. No consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or
filing with, any federal state, local or other governmental
authority or any court or other tribunal is required by such
Selling Stockholder, for the execution, delivery or
performance by such Selling Stockholder of this Agreement
(except filings under the Act which have been made prior to
the Closing Date and filings or consents under "blue sky"
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<PAGE> 26
or securities laws, as to which such counsel need express no
opinion). To the knowledge of such counsel, no consent of any
party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding to which such Selling Stockholder is a party, or
to which his property or assets are subject, is required for
the execution, delivery or performance of this Agreement; and
the execution, delivery and performance of this Agreement will
not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding, in each case known to such counsel.
(ii) Such opinion delivered at each of the Option
Shares Closing Dates shall state that such Selling Stockholder
has, pursuant to this Agreement, transferred to each of the
several Underwriters who has purchased such Option Shares in
good faith and without actual notice of any lien, encumbrance,
equity or adverse claim within the meaning of the Uniform
Commercial Code, good and valid title to such Selling
Stockholder Shares free and clear of all liens, encumbrances,
equities or claims.
In rendering its opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of local counsel retained
by such Selling Stockholder, provided that (1) each such local counsel is
reasonably acceptable to the Representatives and (2) such reliance is expressly
authorized by each opinion so relied upon and a copy of each such opinion is
addressed to the Representatives and is in form and substance reasonably
satisfactory to them and their counsel. In addition, such counsel may rely, as
to matters of fact, to the extent such counsel deems proper, on a certificates
of such Selling Stockholder, provided that executed copies of such certificates
are provided to the Representatives.
(h) All proceedings taken in connection with the sale of
the Firm Shares and the Option Shares as herein contemplated shall be
satisfactory in form and substance to the Representatives and its counsel, and
the Underwriters shall have received from Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, a favorable opinion, addressed to the Representatives and dated
such Closing Date, with respect to the Shares, the Registration Statement and
the Prospectus, and such other related matters, as the Representatives may
reasonably request, and the Company and the Selling Stockholders shall have
furnished to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(i) On the Firm Shares Closing Date, the Company shall have
issued to the Representatives the Representatives' Warrants equal to 10% of the
Firm Shares.
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<PAGE> 27
(j) On the Firm Shares Closing Date, each of the Acquisitions
shall have been consummated in accordance with the terms and conditions of the
respective Acquisition Agreements.
6. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause
the Registration Statement to become effective as promptly as
possible. If the Registration Statement has become or becomes
effective with a form of prospectus omitting Rule 430A
information, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to
you of such timely filing. The Company shall notify you
immediately, and confirm such notice in writing, (A) when the
Registration Statement and any post-effective amendment
thereto become effective, (B) of the receipt of any comments
from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any
amendment or supplement thereto, and (C) of the receipt of any
notification with respect to a Stop Order. The Company shall
not file any amendment of the Registration Statement or
supplement to the Prospectus unless the Company has furnished
the Representatives a copy for their review prior to filing
and shall not file any such proposed amendment or supplement
to which the Representatives reasonably object. The Company
shall use its best efforts to prevent the issuance of any Stop
Order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) During the time when a Prospectus relating to
the Shares is required to be delivered hereunder or under the
Act or the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and
as hereafter amended, and by the Regulations, as from time to
time in force, so far as necessary to permit the continuance
of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus. If, at any time when a
prospectus relating to the Shares is required to be delivered
under the Act and the Regulations, any event as a result of
which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Act or the
Regulations, the Company promptly shall prepare and file with
the Commission,
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<PAGE> 28
subject to the third sentence of paragraph (i) of this Section
6(a), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such
compliance.
(iii) The Company shall make generally available to
its security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date (or 90 days if
such 12-month period coincides with the Company's fiscal
year), an earnings statement (which need not be audited) of
the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Act or Rule 158
of the Regulations.
(iv) The Company shall furnish to the
Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement (including
all exhibits and amendments thereto) and to each other
Underwriter a copy of the Registration Statement (without
exhibits thereto) and all amendments thereof and, so long as
delivery of a prospectus by an Underwriter or dealer may be
required by the Act or the Regulations, as many copies of any
preliminary prospectus and the Prospectus and any amendments
thereof and supplements thereto as the Representatives may
reasonably request.
(v) The Company shall cooperate with the
Representatives and its counsel in endeavoring to qualify the
Shares for offer and sale under the laws of such jurisdictions
as the Representatives may designate and shall maintain such
qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the
Company shall not be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to
execute a general consent to service of process in any
jurisdiction or subject itself to taxation as doing business
in any jurisdiction.
(vi) For a period of five years after the date of
this Agreement, the Company shall supply to the
Representatives, and to each other Underwriter who may so
request in writing, copies of such financial statements and
other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class
of its capital stock and to furnish to the Representatives a
copy of each annual or other report it shall be required to
file with the Commission.
(vii) Without the prior written consent of Rodman,
on behalf of the Underwriters, for a period of 180 days from
the date on which a public offering of the Shares commences,
the Company shall not issue, sell or register with the
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<PAGE> 29
Commission or otherwise dispose of, directly or indirectly,
any securities of the Company (or any securities convertible
into or exercisable or exchangeable for securities of the
Company), except for the issuance of the Shares pursuant to
the Registration Statement and the issuance of shares of
Common Stock pursuant to the Merger Registration Statement.
(viii) If the Company elects to rely on Rule 462(b),
the Company shall both file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b)
and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 p.m.
eastern time on the date of this Agreement and (ii) the time
confirmations are sent or given, as specified by Rule
462(b)(2).
(ix) The Company shall make all filings required to
be made under applicable securities laws and by the NASDAQ
National Market on or before the last Closing Date.
(x) Prior to each Closing Date and for a period of
25 days thereafter, the Representatives shall be given
reasonable written prior notice of any press release or other
direct or indirect communication and of any press conference
with respect to the Company, the financial conditions, results
of operations, business, properties, assets, liabilities of
the Company, or this offering.
(xi) Until expiration of the Representative's
Warrants, the Company shall keep reserved sufficient shares of
Common Stock for issuance upon exercise thereof.
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<PAGE> 30
(xii) The Company shall make all filings required
to be made under the Exchange Act and such filings shall
comply in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder.
(xiii) The Company shall participate in conference
calls designated and arranged by the Representatives on a
quarterly basis in connection with the release of its
quarterly earnings for a period of three years from the Firm
Shares Closing Date.
(b) The Company agrees to pay, or reimburse if paid by
the Representatives, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated, all
costs and expenses relating to the registration and public
offering of the Shares including those relating to: (i) the
preparation, printing, filing and distribution of the Registration
Statement including all exhibits thereto, each preliminary prospectus,
the Prospectus, all amendments and supplements to the Registration
Statement and the Prospectus, and any documents required to be
delivered with any Preliminary Prospectus or the Prospectus, and the
printing, filing and distribution of the Agreement Among Underwriters,
this Agreement and related documents; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the various jurisdictions referred
to in Section 6(a)(v), including the fees and disbursements of counsel
for the Underwriters in connection with such registration and
qualification and the preparation, printing, distribution and shipment
of preliminary and supplementary Blue Sky memoranda; (iv) the
furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the
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<PAGE> 31
Prospectus, and of the several documents required by this Section to
be so furnished, as may be reasonably requested for use in connection
with the offering and sale of the Shares by the Underwriters or by
dealers to whom Shares may be sold; (v) the filing fees of the
National Association of Securities Dealers, Inc. in connection with
its review of the terms of the public offering; (vi) the furnishing
(including costs of shipping and mailing) to the Representatives and
to the Underwriters of copies of all reports and information required
by Section 6(a)(vi); (vii) inclusion of the Shares for quotation on
the NASDAQ National Market System; and (viii) all transfer taxes, if
any, with respect to the sale and delivery of the Shares by the
Company and the Selling Stockholders to the Underwriters. Except as
otherwise contemplated by Section 9 hereof, the Underwriters will pay
their own counsel fees and expenses to the extent not otherwise
covered by clause (iii) above, and their own travel and travel-related
expenses in connection with the distribution of the Shares. Without
limiting the obligations of the Company and the Selling Stockholder
set forth above, the Company and each Selling Stockholder agree to pay
all of their other costs and expenses incident to the performance of
their respective obligations under this Agreement and the sale of the
Shares by them hereunder.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus
or any amendment thereof or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein such fact
required to be stated therein or necessary to make such statements
therein not misleading. In no event shall the indemnification
agreement contained in this Section 7(a) inure to the benefit of any
Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any losses, claims, damages, liabilities or
actions arising from the sale of the Shares upon the public offering
to any person by such Underwriter if such losses, claims, damages,
liabilities or actions arise out of, or are based upon, a statement or
omission or alleged omission in a preliminary prospectus and if, in
respect to such statement, omission or alleged omission, the
Prospectus differs in a material respect from such preliminary
prospectus such that the Prospectus does not contain such statement or
omission, and a copy of the Prospectus has not been sent or given to
such person at or prior to the confirmation of such sale to such
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person. The indemnity agreement contained in this Section 7(a) will be
in addition to any liability which the Company may otherwise have.
(b) The Selling Stockholders agree, severally and not
jointly, to indemnify each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding
or any claim asserted), to which they, or any of them, may become
subject under the Act, the Exchange Act or other Federal or state law
or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact with
respect to such Selling Stockholders contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto (which amendments or
supplements are furnished to such Selling Stockholders), or which
arise out of or are based upon any omission or alleged omission to
state therein such fact required to be stated therein or necessary to
make such statements therein not misleading, but only with reference
to information relating to such Selling Stockholders furnished in
writing to the Company by or on behalf of such Selling Stockholders
expressly for use in connection with the preparation of the
Registration Statement and Prospectus or any amendment thereof or
supplement thereto. In no event shall the indemnification agreement
contained in this Section 7(b) inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on
account of any losses, claims, damages, liabilities or actions arising
from the sale of the Shares upon the public offering to any person by
such Underwriter if such losses, claims, damages, liabilities or
actions arise out of, or are based upon, a statement or omission or
alleged omission in a preliminary prospectus and if, in respect to
such statement, omission or alleged omission, the Prospectus differs
in a material respect from such preliminary prospectus such that the
Prospectus does not contain such statement or omission, and a copy of
the Prospectus has not been sent or given to such person at or prior
to the confirmation of such sale to such person. The obligations of
each of the Selling Stockholders, pursuant to this Section 7(b) and
Section 8, shall be limited to an amount not exceeding the product of
the Per Share Price to Public of the Shares as set forth on the cover
page of the Prospectus and the number of Shares being sold by each of
them. The indemnity agreement contained in this Section 7(b) will be
in addition to any liability which the Selling Stockholders may
otherwise have.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each director of the Company, and each
officer of the Company who signs the Registration Statement and each
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Selling Stockholder, to the same extent as the foregoing indemnity
from the Company and the Selling Stockholders to each Underwriter, but
only insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which were made in reliance
upon and in conformity with information furnished in writing to the
Company by the Representatives on behalf of any Underwriter for
specific use therein; provided, however, that the obligation of each
Underwriter to indemnify the Company (including any controlling
person, director or officer thereof) and the Selling Stockholders
shall be limited to the underwriting discounts and commissions
applicable to Shares purchased by such Underwriter hereunder. For all
purposes of this Agreement, the amounts of the selling concession and
reallowance set forth in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter
expressly for inclusion in any Preliminary Prospectus, any Rule 430A
Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto.
(d) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party
in respect of which a claim is to be made against an indemnifying
party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided
for in Section 7(a), 7(b) or 7(c) shall be available to any party who
shall fail to give notice as provided in this Section 7(d) if the
party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure
to give such notice but the omission so to notify such indemnifying
party of any such action, suit or proceeding shall not relieve it from
any liability that it may have to any indemnified party otherwise than
under this Section. In case any such action, suit or proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses, except as provided below. The
indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the
indemnifying party, (ii) the indemnified party shall have been advised
by counsel reasonably satisfactory to the indemnified party that there
may be one or more legal defenses available to it which are
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<PAGE> 34
different from or additional to those available to the indemnifying
party (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified
party), or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the
reasonable fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for
any settlement of any action, suit, proceeding or claim effected
without its written consent.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Sections 7(a), (b) and (c) is due in accordance with its terms but for any
reason (other than by reason of the failure of the party asserting the right
to be indemnified to give notice as provided in Section 7(d)) is held to be
unavailable from the Company, the Selling Stockholders or the Underwriters, the
Company, the Selling Stockholders and the Underwriters shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received by the Company from persons other
than the Underwriters, such as the Selling Stockholders, persons who control
the Company within the meaning of the Act, officers of the Company who signed
the Registration Statement and directors of the Company, who may also be liable
for contribution) to which the Company and the Selling Stockholders and one or
more of the Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares or, if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion as (x) the total proceeds from the Offering (net of underwriting
discounts but before deducting expenses) received by the Company or the Selling
Stockholders from the sale of the Shares, as set forth in the table on the
cover page of the Prospectus (but not taking into account the use of the
proceeds of such sale of Shares by the Company), bear to (y) the underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the Selling
Stockholders and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
related to information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contribution
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<PAGE> 35
pursuant to this Section 8 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) in no case shall any Underwriter (except as may be provided in
the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter hereunder, (ii) in no case shall any of the
Selling Stockholders be liable or responsible for any amount in excess of the
product of the Per Share Price to Public of the Shares as set forth on the
cover page of the Prospectus and the number of Shares being sold by each of
them subject to the limitation expressed in Section 7(a), and (iii) the Company
shall be liable and responsible for any amount in excess of the underwriting
discounts and commissions and the amount referred to in clause (ii); provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each person, if
any, who controls the Company within the meaning of the Section 15 of the Act
or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
clauses (i), (ii) and (iii) in the immediately preceding sentence of this
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties under this Section 8, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve the party or parties
from whom contribution may be sought from any other obligation it or they may
have hereunder or otherwise than under this Section. No party shall be liable
for contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriters' obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to
the Shares to be purchased on any Closing Date by the Representatives by
notifying the Company and the Selling Stockholders at any time prior to the
purchase of the Shares:
(a) in the absolute discretion of the Representatives at
or before any Closing Date: (i) if on or prior to such date, any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Representatives will in the future
materially disrupt, the securities markets; (ii) if there has occurred
any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the
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<PAGE> 36
Representatives, inadvisable to proceed with the Offering; (iii) if
there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international
conditions on the financial markets in the United States such as to
make it, in the judgment of the Representatives, inadvisable or
impracticable to market the Shares; (iv) if trading in the Shares has
been suspended by the Commission or trading generally on the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. or the NASDAQ
National Market System has been suspended or limited, or minimum or
maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association of
Securities Dealers, Inc., or any other governmental or regulatory
authority; or (v) if a banking moratorium has been declared by any
state or federal authority; or
(b) at or before any Closing Date, if any of the
conditions specified in Section 5 shall not have been fulfilled when
and as required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Stockholders shall be under any liability
to any Underwriter, and no Underwriter shall be under any liability to the
Company or the Selling Stockholders, except that (I) if this Agreement is
terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company or the Selling Stockholders to
comply with the terms or to fulfill any of the conditions of this Agreement,
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including the fees and disbursements of their counsel) incurred by them in
connection with the proposed purchase and sale of the Shares or in
contemplation of performing their obligations hereunder; and (ii) no
Underwriter who shall have failed or refused to purchase the Shares agreed to
be purchased by it under this Agreement, without some reason sufficient
hereunder to justify cancellation or termination of its obligations under this
Agreement, shall be relieved of liability to the Company and the Selling
Stockholders or to the other Underwriters for damages occasioned by its failure
or refusal.
10. Substitution of Underwriters. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 9) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more
substitute underwriters to purchase such Shares or make such other arrangements
as the Representatives may deem advisable or one or more of the remaining
Underwriters may agree to purchase such Shares in such proportions as may be
approved by the Representatives, in each case upon the terms set forth in this
Agreement. If no such arrangements have been made by the close of business on
the business day following such Closing Date:
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<PAGE> 37
(a) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date does not exceed 10% of
the Shares that all the Underwriters are obligated to purchase on such
Closing Date, then each of the nondefaulting Underwriters shall be
obligated to purchase such Shares on the terms herein set forth in
proportion to their respective obligations hereunder; provided, that
in no event shall the maximum number of Shares that any Underwriter
has agreed to purchase pursuant to Section 1 be increased pursuant to
this Section 10 by more than one-ninth of such number of Shares
without the written consent of such Underwriter; or
(b) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall exceed 10% of the
Shares that all the Underwriters are obligated to purchase on such
Closing Date, then the Company and the Selling Stockholders shall be
entitled to an additional business day within which they may, but are
not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the
terms set forth in this Agreement.
In any such case, either the Representatives or the Company and the
Selling Stockholders shall have the right to postpone the applicable Closing
Date for a period of not more than five business days in order that necessary
changes and arrangements (including any necessary amendments or supplements to
the Registration Statement or Prospectus) may be effected by the
Representatives, the Company and the Selling Stockholders. If the number of
Shares to be purchased on such Closing Date by such defaulting Underwriter or
Underwriters shall exceed 10% of the Shares that all the Underwriters are
obligated to purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Company shall make arrangements pursuant to this Section
within the period stated for the purchase of the Shares that the defaulting
Underwriters agreed to purchase, this Agreement shall terminate with respect to
the Shares to be purchased on such Closing Date without liability on the part
of any nondefaulting Underwriter to the Company and the Selling Stockholders
and without liability on the part of the Company and the Selling Stockholders,
except in both cases as provided in Sections 6(b), 7, 8, 9 and 10. The
provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company or the Selling Stockholders or the
nondefaulting Underwriters arising out of such default. A substitute
underwriter hereunder shall become an Underwriter for all purposes of this
Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, of
the Selling Stockholders and of the Underwriters set forth in or made pursuant
to this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or the
Selling Stockholders or any of the officers, directors or controlling persons
referred to in Sections 7 and 8 hereof, and shall survive delivery of and
payment for the Shares. The provisions of Sections 6(b), 7, 8, 9 and 10 shall
survive the termination or cancellation of this Agreement.
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<PAGE> 38
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
heirs, executors, administrators, personal representatives, successors and
assigns and, to the extent expressed herein, for the benefit of persons
controlling any of the Underwriters, the Selling Stockholders or the Company,
and directors and officers of the Company, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser of Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered, or by telefax or telegraph if subsequently confirmed by
letter, (a) if to the Representatives, to Rodman & Renshaw, Inc., 225 Liberty
Street, 2 World Financial Center, New York, New York 10281, Attention: John J.
Borer, III, Managing Director, telecopy: (212) 416-7439, with a copy to
Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100, Irvine, California
92715, Attention: ____________________, telecopy: (714) 852-9603; (b) if to the
Company, to the Company's agent for service as such agent's address appears on
the cover page of the Registration Statement; and (c) if to any Selling
Stockholder, to such Selling Stockholder's address and telecopy number as set
forth on Schedule II hereto.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, or neuter, singular or plural, as the identity of the
person or persons or entity or entities require.
All section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or inference shall be
derived therefrom.
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<PAGE> 39
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
INFOCURE CORPORATION
By: ______________________________
Name:
Title:
[SELLING STOCKHOLDERS]
__________________________________
__________________________________
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<PAGE> 40
Confirmed on behalf of itself
and as the Representatives of the several Underwriters
named in Schedule I annexed hereto:
RODMAN & RENSHAW, INC.
By:______________________________
Name: John J. Borer, III
Title: Managing Director
CRUTTENDEN ROTH INCORPORATED
By:_______________________________
Name:
Title:
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<PAGE> 41
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
- ------------------- ---------------
<S> <C>
Rodman & Renshaw, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cruttenden Roth Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 2,000,000
=========
</TABLE>
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<PAGE> 42
SCHEDULE II
NAME, ADDRESS AND TELECOPY NUMBER OF NUMBER OF SHARES TO BE SOLD
SELLING STOCKHOLDER
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<PAGE> 43
SCHEDULE III
SUBSIDIARY JURISDICTION OF INCORPORATION
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<PAGE> 44
SCHEDULE IV
ACQUISITION AGREEMENTS
[TO FOLLOW]
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<PAGE> 1
EXHIBIT 23.4
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 February 18, 1997
American Medcare Corporation dated April 12, 1996 (except for Notes 11
and 13, as to which the date is December 20, 1996 and Notes 3 and 15,
as to which the date is February 18, 1997)
KComp Management Systems Inc. dated November 15, 1996
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
February 28, 1997
