<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-18923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INFOCURE CORPORATION
(Name of small business issuer in its charter)
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<S> <C> <C>
DELAWARE 7372 58-2271614
(State or other jurisdiction of (Primary SIC Code) (I.R.S. Employer
incorporation or organization) Identification No.)
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2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Address and telephone number of principal executive offices)
---------------------
FREDERICK L. FINE
CHIEF EXECUTIVE OFFICER
INFOCURE CORPORATION
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Name, address and telephone number of agent for service)
---------------------
Copies to:
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<S> <C>
UGO F. IPPOLITO, ESQ. STEPHEN H. KAY, ESQ.
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
1409 PEACHTREE STREET, N.E. 551 FIFTH AVENUE
ATLANTA, GEORGIA 30309 NEW YORK, NEW YORK 10176
(404) 885-6705 (212) 661-6500
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 14, 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 been approved for listing on the American Stock Exchange
under the symbol "INC."
Concurrently with the offering made pursuant to this Prospectus and as a
condition to the closing thereof, the Company will issue 3,678,844 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
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS, PENALTY BIDS AND SHORT SALES. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
This Prospectus includes tradenames, trademarks and registered trademarks
of companies other than the Company.
<PAGE> 4
PROSPECTUS SUMMARY
Prior to and as a condition to the consummation of the offering made by
this Prospectus (the "Offering"), InfoCure Corporation will acquire (the
"Acquisitions") six practice management systems businesses (the "Founding
Businesses"). Unless otherwise indicated, all references herein to "InfoCure"
shall mean InfoCure Corporation prior to the consummation of the Acquisitions,
and references herein to the "Company" shall mean InfoCure and the Founding
Businesses. The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information set forth herein
assumes (i) the consummation of the Acquisitions, (ii) an initial public
offering price of $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................................ 5,678,844 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."
American Stock Exchange Symbol.......... "INC"
- ---------------
(1) Excludes an aggregate of (i) 800,000 shares of Common Stock reserved for
future issuance under the Company's Stock Option Plan, (ii) 321,156
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) 200,000 shares of Common Stock
reserved for issuance pursuant to warrants issuable to the Representatives
of the Underwriters upon consummation of the Offering, (iv) 26,806
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, (v)
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 (vi) 241,109 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)......... 5,357 5,357 5,357
======= ======= =======
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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................................. $ 1,120 $ 5,495
Working capital........................................... (1,190) 2,475
Total assets.............................................. 18,174 22,549
Short-term debt........................................... 657 657
Long-term debt, less current portion...................... 308 308
Total stockholders' equity................................ 12,172 16,582
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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
<PAGE> 7
November 1996 of 505,774 Equivalent Shares of Common Stock by AMC for
$750,000 and the issuance in March 1997 of 54,776 Equivalent Shares of
Common Stock by AMC for $280,000 to unaffiliated third parties. 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) 5,116,422
shares to be issued in connection with the Acquisitions and the Offering
and (ii) 240,285 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
7
<PAGE> 9
Company's Desktop Division and its UNIX operations will be organized into the
Company's Mid-Range Division. Key technologies of ICS include The Provider
Information Manager(TM), a Windows-based product which was created for use by
the professional business manager or managing physician to provide a "top down"
view of the practice, identifying financial, payor, patient, clinical, system
and EDI utilization, practice demographic and practice profitability trends.
Rovak, Inc. ("Rovak")
Rovak was founded in 1984 and is headquartered in Lake Elmo, Minnesota.
Rovak markets UNIX and AIX-based practice management software to mid-size
medical practices and clinics. Rovak's software products are targeted
specifically to meet the practice management needs of oral surgeons and
orthodontists. Rovak currently has approximately 1,000 clients serving an
estimated 1,800 health care providers. Upon the consummation of the
Acquisitions, Rovak will be organized into the Company's Mid-Range Division.
Brad Schraut, the President of Rovak, will become President of the Mid-Range
Division. Key technologies developed by Rovak include the Optical Mark
System(R), which uses optical scanning technologies to automate daily tasks and
eliminate data entry. Additionally, Rovak has developed its Digital Record
Keeping System(TM) which operates with third party products to enable a practice
to store and merge radiographic and photographic images with correspondence and
clinical medical records.
Millard-Wayne, Inc. ("Millard-Wayne")
Millard-Wayne, which was founded in 1977 and will be acquired by AMC
immediately prior to the consummation of the Offering, is headquartered in
Atlanta, Georgia. Millard-Wayne markets IBM AS/400-based enterprise-wide
practice management systems to mid-size to large (over 25 providers) medical
practices and clinics. Millard-Wayne currently has approximately 190 clients
serving an estimated 2,000 health care providers. Upon the consummation of the
Acquisitions, Millard-Wayne will be organized into the Company's Enterprise
Division. M. Wayne George, the founder of Millard-Wayne, will become President
of the Enterprise Division. Key technologies developed by Millard-Wayne include
a Graphical User Interface ("GUI") technology to work in conjunction with its
practice management system, which operates on the IBM AS/400.
Health Care Division, Inc. ("HCD")
HCD, which was founded in 1996 by AMC to acquire certain assets of Info
Systems, is headquartered in Charlotte, North Carolina. HCD markets IBM
AS/400-based practice management systems to mid-size to large medical practices
and clinics. HCD currently has approximately 200 clients serving an estimated
5,000 health care providers. Upon the consummation of the Acquisitions, HCD will
be organized into the Company's Enterprise Division. Key technologies developed
by HCD include a comprehensive managed care module designed for use in
conjunction with its practice management products which run on the IBM AS/400.
THE ACQUISITIONS
Prior to and as a condition to the consummation of the Offering (i) AMC, a
holding company and the parent company of ICS and HCD, will acquire
Millard-Wayne and immediately thereafter merge with and into InfoCure, with
InfoCure as the surviving corporation, and (ii) InfoCure will acquire all of the
outstanding capital stock of each of DR Software, KComp and Rovak. Upon the
consummation of the Acquisitions, each of the Founding Businesses will become a
wholly-owned subsidiary of InfoCure. See "Certain Transactions" and "Shares
Eligible for Future Sale."
The aggregate consideration to be paid by InfoCure to acquire the Founding
Businesses consists of approximately $9.3 million in cash, $2.5 million in
assumed indebtedness and 3,678,844 shares of Common
8
<PAGE> 10
Stock. The following table summarizes the consideration paid or payable upon the
consummation of the Acquisitions:
<TABLE>
<CAPTION>
ACQUISITION CONSIDERATION
-------------------------------------------
INDEBTEDNESS SHARES OF
FOUNDING BUSINESS CASH ASSUMED (1) COMMON STOCK
----------------- ------------ ------------ ------------
<S> <C> <C> <C>
AMC (2)(3)(4)(5)............................ $2,683,000 $1,074,900 3,592,773
Rovak (5)(6)................................ 2,983,000 1,039,055 --
KComp (7)................................... 1,533,000 299,785 --
DR Software................................. 2,128,500 99,389 86,071
---------- ---------- ---------
Total............................. $9,327,500 $2,513,129 3,678,844
========== ========== =========
</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) 26,806 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) 131,905
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) 321,156 Equivalent Shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and a warrant of AMC assumed by the
Company, (ii) 26,806 Equivalent Shares reserved for issuance if
Millard-Wayne meets certain specified revenue or operating profits for the
fiscal years 1998 and 1999, (iii) 71,111 shares of Common Stock reserved
for issuance if Rovak meets a certain specified level of net income for
fiscal 1998 and (iv) 241,109 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 3,678,844 shares of Common Stock to be issued to the stockholders of
certain of the Founding Businesses upon the consummation of the Acquisitions.
The following is a summary of the material terms of the Acquisitions.
AMC Acquisition. The merger agreement ("AMC Merger Agreement") between
InfoCure and AMC provides that AMC shall merge with and into InfoCure, with
InfoCure continuing as the surviving corporation ("AMC Merger"). The AMC Merger
will occur at the time the Offering becomes effective. Upon the consummation of
the AMC Merger, the holders of common stock of AMC will receive an aggregate of
3,592,773 shares of Common Stock of InfoCure, an estimated 0.06847 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 14.60 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 to purchase. At the time of the AMC Merger,
ICS, HCD and Millard-Wayne will be wholly-owned subsidiaries of AMC.
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<PAGE> 11
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 April 15, 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 April 15, 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) 86,071 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 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.
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<PAGE> 12
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 April 15,
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 April 15, 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
("Earn Out") if the net income before interest and taxes ("net income") of Rovak
for the year ending January 31, 1998 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, which comprise the
Earn Out, will be 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 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 April 15, 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 April 15, 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 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
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<PAGE> 13
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 negative $242,703 and an increase to the consideration
in the event the net worth exceeds such amount. In addition the purchase price
is to be increased, 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 April 15, 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 April 15, 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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<PAGE> 14
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. The management believes that these adjustments reflect
appropriate provisions of the several acquisition agreements which provide for
reductions in the combined workforce of the Founding Businesses of approximately
14%. With this reduction in the workforce, there can be no assurance that the
Company will be able to effectively integrate the Founding Businesses or perform
all of the current functions and maintain historic sales levels. Such pro forma
financial results may not be indicative of the Company's future financial
condition or operating results. AMC, which is considered the predecessor to the
Company for accounting purposes, had net losses of $180,196 and $1,075,308 for
the years ended January 31, 1996 and 1995, respectively, and net losses of
$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
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<PAGE> 15
acquisition candidates may develop, in which event there may be fewer
acquisition opportunities available to the Company as well as higher acquisition
prices. There can be no assurance that the Company will be able to identify,
acquire or profitably integrate and manage additional companies or complementary
products or technologies, if any, into the Company without substantial costs,
delays or other operational or financial problems. Further, acquisitions involve
a number of special risks, including possible adverse effects on the Company's
operating results, diversion of management's attention, failure to retain key
personnel of the acquired companies, amortization of acquired intangible assets
and risks associated with unanticipated events or liabilities, some or all of
which could have a material adverse effect on the Company's results of
operations, financial condition or business. Customer dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on the reputation of the Company. In addition, there can be no assurance that
the Founding Businesses or other companies or complementary products or
technologies acquired in the future will achieve anticipated revenue and
earnings. See "The Company -- The Acquisitions", "Business--Business Strategy",
"Principal Stockholders", "Certain Transactions" and Unaudited Pro Forma
Combined Financial Statements and the Notes thereto.
POSSIBLE NEED FOR FUTURE ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using the
remaining net proceeds of the Offering and/or issuing shares of its Common Stock
for all or a substantial portion of the consideration to be paid. In the event
that its Common Stock does not maintain a sufficient market value or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. There can be no assurance that the
Company will be able to obtain the financing it will need on terms it deems
acceptable, or at all. See "Use of Proceeds" and "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON EDI
The Company's business strategy is largely based upon increasing the
percentage of its customers who utilize EDI for establishing patient eligibility
with insurers, precertification and eligibility of insurance claims, insurance
claims submission, claim status, remittance advice and patient statements.
Failure to increase the use of EDI services by health care providers in general,
and by the Company's customers in particular, could have a material adverse
effect on the Company's results of operations, financial condition or business.
A decrease or limited growth in the net fees realized by the Company for EDI
services could have a material adverse effect on the Company's future results of
operations, financial condition or business. See "Business--Business Strategy."
DIFFICULTIES IN MANAGING GROWTH
The continued growth of the Company may place a significant strain on the
Company's management and operations. Certain of the Company's key personnel have
recently joined the Company, and none of the Company's officers has had
experience in managing a large, public health care information services company.
The Company's future growth will depend in part of the ability of its officers
and other key employees to implement and expand financial control systems and to
expand, train and manage its employee base and provide support to an expanded
customer base. The Company's inability to manage growth effectively could have a
material adverse affect on the Company's results of operations, financial
condition or business.
DEPENDENCE ON PROPRIETARY SOFTWARE; RISK OF INFRINGEMENT
The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company relies on a combination of trade secret, copyright 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
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<PAGE> 16
not patented and existing copyright laws offer only limited practical
protection. There can be no assurance that the legal protections afforded to the
Company or the steps taken by the Company will be adequate to prevent
misappropriation of the Company's technology. In addition, these protections do
not prevent independent third-party development of competitive products or
services. The Company believes that its products, trademarks and other
proprietary rights do not infringe upon the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against the company in the future or that any such assertion
will not require the Company to enter into a license agreement or royalty
arrangement with the party asserting such a claim. As competing health care
information systems increase in complexity and overall capabilities and the
functionality of these systems further overlap, providers of such systems may
become increasingly subject to infringement claims. Responding to and defending
any such claims may require significant management resources and otherwise have
a material adverse effect on the Company's results of operations, financial
condition or business. See "Business--Product Protection."
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by
technological advances and rapid changes requiring ongoing expenditures for
research and development and the timely introduction of new products and
enhancements of existing products. The Company's future success will depend in
part upon its ability to (i) enhance its current products, (ii) respond
effectively to market requirements and technological changes, (iii) sell
additional products to its existing customer base and (iv) introduce new
products and technologies that address the increasingly sophisticated needs of
its customers and the health care industry. The Company will be required to
devote significant resources to the development of enhancements to its existing
products and the migration of existing products to new software platforms. There
can be no assurance that the Company will successfully complete the development
of new products or the migration of existing products to new platforms or that
the Company's current or future products will satisfy the needs of the market
for practice management systems. Further, there can be no assurance that
products or technologies developed by others will not adversely affect the
Company's competitive position or render its products or technologies
noncompetitive or obsolete. See "Business--Product Research and Development."
COMPETITION
The market for practice management systems, such as those marketed by the
Company, is highly competitive. The Company's competitors vary in size and in
the scope and breadth of the products and services they offer. The Company's
principal competitors are providers of health care information systems such as
Medic Computer Systems, Inc., IDX Systems Corporation, Physician Computer
Network, Inc., Medical Manager Corporation, Quality Systems, Inc., Reynolds and
Reynolds, Inc. (HealthCare Division) and National Data Corporation (Dental
Division). Many of the Company's competitors have greater financial, research
and development, technical, marketing and sales resources than the Company,
including the competitors named herein. In addition, other entities not
currently offering products and services similar to those offered by the
Company, including claims processing organizations, third-party administrators,
insurers and others, may enter certain markets in which the Company competes.
There can be no assurance that future competition and industry pressures for
cost reduction and containment will not have a material adverse effect on the
Company's results of operations, financial condition or business. See
"Business--Competition."
PRODUCT RELATED CLAIMS; PRODUCT ACCEPTANCE CONCERNS
Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information
could result in product liability or breach of contract litigation against the
Company by its clients, their patients or others. In addition, because the
Company's products facilitate electronic claims submissions, any resulting loss
of financial data could result in claims against the Company. The Company
currently does not maintain product liability insurance but intends to obtain
insurance to protect against claims associated with the use of its products;
however, there can be no assurance that such insurance coverage will be
available or, if available, at a reasonable cost or will adequately cover any
claim asserted
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<PAGE> 17
against the Company. A successful claim brought against the Company in excess of
its insurance coverage could have a material adverse effect on the Company's
results of operations, financial condition or business. Even unsuccessful claims
could result in the expenditure of funds in litigation, as well as diversion of
management time and resources. Additionally, such failures or errors may result
in the loss of, or delay in, market acceptance of the Company's products.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers. Furthermore, the Company will likely be dependent on the
senior management of any businesses acquired in the future. If any of these
persons becomes unable or unwilling to continue in his or her role with the
Company, or if the Company is unable to attract and retain other qualified
employees, the Company's business or prospects could be adversely affected.
Although the Company will have entered into an employment agreement upon the
consummation of the Offering with each of the Company's executive officers,
which will include confidentiality and non-compete provisions, there can be no
assurance that any individual will continue in his or her present capacity with
the Company for any particular period of time or that the non-compete provisions
will be enforceable or free from certain limitations under the laws of all
jurisdictions. The success of the Company is also dependent to a significant
degree on its ability to attract, motivate and retain highly skilled sales,
marketing and technical personnel, including software programmers and systems
architects skilled in the computer language with which the Company's products
operate. Competition for such personnel in the software and information services
industries is intense. The loss of key personnel or the inability to hire or
retain qualified personnel could have a material adverse effect on the Company's
results of operations, financial condition or business. The Company does not
intend to maintain key man insurance on its executive officers or key employees.
Although the Company has been successful to date in attracting and retaining
skilled personnel, there can be no assurance that the Company will continue to
be successful in attracting and retaining the personnel it requires to
successfully develop new and enhanced products and to continue to grow and
operate profitably. See "Business--Employees" and "Management."
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT REGULATION
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. Governmental
organizations account for a substantial portion of revenues paid to health care
providers in the United States and impose significant regulatory burdens. From
time to time, certain proposals to reform the health care system have been
considered by Congress and further proposals may be considered in the future.
These reforms may increase government involvement in health care, lower
reimbursement rates and otherwise adversely affect the operating environment for
the Company's clients. Health care organizations may react to these reforms by
curtailing or deferring investments, including those for the Company's products
and services. The Company cannot predict with any certainty what impact, if any,
such health care reforms might have on its results of operations, financial
condition or business.
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. It is unclear to what extent the Company's
Digital Record Keeping System, when marketed with the Company's practice
management applications, would be deemed to be a medical device subject to FDA
regulation. The FDA has issued a draft policy statement under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications and otherwise comply
with the requirements of the FDC Act applicable to medical devices. Recently,
the FDA has initiated agency rulemaking which may exempt certain medical image
management devices from premarket notification procedures, but there can be no
assurance that such an exemption actually will be adopted and, if so, that the
rulemaking will apply to the Company's product.
Enforcement action may consist of warning letters, refusal to approve or
clear products, revocation of approvals or clearances previously granted, civil
penalties, product seizures, injunctions, recalls, operating
16
<PAGE> 18
restrictions and criminal prosecutions. Any enforcement action by the FDA could
have a material adverse effect on the Company's ability to market its Digital
Record Keeping System.
The Health Insurance Portability and Accounting Act of 1996, signed into
law by the President on August 21, 1996 requires that the Department of Health
and Human Services ("HHS") study security provisions relating to electronic data
transmission and make recommendations to Congress by August 21, 1997, regarding
the development of standards to protect the privacy of individually identifiable
health information. If Congress does not enact legislation by August 21, 1999,
adopting standards for the privacy of health information, HHS must do so by
regulation no later than February 21, 2000. The law also provides penalties for
knowingly obtaining or disclosing individually identifiable health information.
The Company cannot predict what impact, if any, such security provisions might
have on its results of operations, financial condition or business. See
"Business--Government Regulation."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES; INTERESTS OF CERTAIN
PERSONS
Approximately $9.2 million, representing approximately 58% of the net
proceeds of the Offering will be paid and 3,678,844 shares of Common Stock will
be issued, upon the consummation of the Acquisitions. Approximately $3.7 million
of such payments and 2,626,416 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
3,678,844 shares of Common Stock will be issued in connection with the AMC
Merger and the Acquisitions of which approximately 2,626,416 shares of Common
Stock will be issued to affiliates of the Company and 1,052,428 shares of Common
Stock to persons who are not affiliates. In addition 169,668 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
3,075,967 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
17
<PAGE> 19
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."
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 $8.38 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 March 1997
issuance of shares of AMC common stock for $280,000, 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 shares of AMC
common stock for $750,000, the March 1997 issuance of shares of AMC common stock
for $280,000, the Acquisitions, the consummation of the Offering and the
application of the estimated net proceeds of the Offering. This table should be
read in conjunction with the Unaudited Pro Forma Combined Financial Statements
and the Notes thereto included elsewhere in this Prospectus. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF 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; 5,000,000 shares
authorized and no shares issued and outstanding........ -- --
Common Stock, $0.001 par value; 25,000,000 shares
authorized; 5,116,423 shares issued and outstanding pro
forma and 5,678,844 shares issued and outstanding pro
forma as adjusted (1)(2)............................... 5 6
Additional paid-in capital................................ 15,997 20,406
Accumulated deficit....................................... (3,830) (3,830)
------- -------
Total stockholders' equity............................. 12,172 16,582
------- -------
Total capitalization................................. $13,137 $17,547
======= =======
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) 321,156 Equivalent Shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options and a
stock warrant and (ii) 241,109 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 131,905 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, the November 1996 issuance of shares of AMC common
stock for $750,000 and the March 1997 issuance of shares of AMC common stock for
$280,000, was approximately $(887,000), or $(0.17) 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 $3.5 million, or $0.62 per share, representing an immediate
increase in pro forma net tangible book value of $0.79 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$8.38 per share, or 93.1%, 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.................................................. $(0.17)
Increase in net tangible book value per share attributable
to new investors.......................................... 0.79
------
Adjusted pro forma net tangible book value per share after
the Offering.............................................. 0.62
-----
Dilution in net tangible book value per share to new
investors................................................. $8.38
=====
</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).... 3,678,844 64.8% $ 3,187,667 15.0% $0.87
New investors................... 2,000,000 35.2 18,000,000 85.0 9.00
--------- ----- ----------- -----
Total................. 5,678,844 100.0% $21,187,667 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) stock options and a warrant to purchase an
aggregate of 321,156 Equivalent Shares of Common Stock outstanding at a
weighted average per share exercise price of $2.27 and (ii) 241,109
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 131,905 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)......... 5,357 5,357 5,357
======= ======= =======
</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................................. $ 1,120 $ 5,495
Working capital........................................... (1,190) 2,475
Total assets.............................................. 18,174 22,549
Short-term debt........................................... 657 657
Long-term debt, less current portion...................... 308 308
Total stockholders' equity................................ 12,172 16,582
</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 505,774 Equivalent Shares of Common Stock by
AMC for $750,000 and the
22
<PAGE> 24
issuance in March 1997 of 54,776 Equivalent Shares of Common Stock by AMC
for $280,000 to unaffiliated third parties. 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) 5,116,422
shares to be issued in connection with the Acquisitions and the Offering
and (ii) 240,285 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 17,000 health care providers in a broad
range of specialties at over 6,000 client sites.
RESULTS OF OPERATIONS
The following pro forma combined financial data contain the results of
operations for the 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 six Founding Businesses. In connection
therewith, InfoCure has filed a registration statement on Form S-4 for the
offering of 3,678,844 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 computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. It is unclear to what extent the Company's
Digital Record Keeping System, when marketed with the Company's practice
management applications, would be deemed to be a medical device subject to FDA
regulation. The FDA has issued a draft policy statement under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications and otherwise comply
with the requirements of the FDC Act applicable to medical devices. Recently,
the FDA has initiated agency rulemaking which may exempt certain medical image
management devices from premarket notification procedures, but there can be no
assurance that such an exemption actually will be adopted and, if so, that the
rulemaking will apply to the Company's products.
Enforcement action can consist of warning letters, refusal to approve or
clear products, revocation of approvals or clearances previously granted, civil
penalties, product seizures, injunctions, recalls, operating restrictions and
criminal prosecutions. Any enforcement action by the FDA could have a material
adverse effect on the Company's ability to market its Digital Record Keeping
System.
The Health Insurance Portability and Accountability Act of 1996, signed
into law by the President on August 21, 1996 requires that the Department of
Health and Human Services ("HHS") study security provisions relating to
electronic data transmission and make recommendations to Congress by August 21,
1997, regarding the development of standards to protect the privacy of
individually identifiable health information. If Congress does not enact
legislation by August 21, 1999, adopting standards for the privacy of
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<PAGE> 37
health information, HHS must do so by regulation no later than February 21,
2000. The law also provides penalties for knowingly obtaining or disclosing
individually identifiable health information. The Company cannot predict what
impact, if any, such security provisions might have on its results of
operations, financial condition, or business. See "Risk Factors--Uncertainty in
Health Care Industry; Government Regulation."
EMPLOYEES
As of 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 E. 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 800,000 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
148,922 shares of Common Stock were outstanding under the AMC Plan at an
equivalent weighted average exercise price of $3.65 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 34,235 shares of Common Stock for an aggregate consideration
of $500, was exercised in 1996. The other option, for the equivalent of 34,235
shares of Common Stock at an exercise price of $1.46 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
92,435 Equivalent Shares of Common Stock at an exercise price of $3.65 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)....................... 626,131 17.3% 11.2%
Frederick L. Fine (3)(5)................................. 471,262 13.0 8.4
James K. Price (3)(6).................................... 471,262 13.0 8.4
Robert L. Fine (3)....................................... 360,636 10.0 6.4
William A. Baker (3)..................................... 245,541 6.8 4.4
W. K. Price (3)(7)....................................... 233,330 6.4 4.2
Michael E. Warren........................................ 83,919 2.3 1.5
James D. Elliott......................................... 22,823 * *
Richard E. Perlman (8)................................... 160,548 4.3 2.8
All directors and executive officers as a group (9
persons)............................................... 1,415,184 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 32,818 shares of Common Stock and a warrant (which warrant is
exercisable on the date hereof) to acquire 127,730 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 4,109 shares of Common Stock owned as custodian for his children
and 1,369 shares of Common Stock held in a charitable trust over which he
has sole voting and investment power.
(6) Includes 3,702 shares of Common Stock over which he has sole voting power.
(7) Includes 7,403 shares of Common Stock over which he has sole voting power.
(8) Includes 32,818 shares and a warrant (which warrant is exercisable on the
date hereof) to acquire 127,730 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, 465,784
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<PAGE> 43
shares of Common Stock; James K. Price, 467,560 shares of Common Stock; Robert
L. Fine, 360,636 shares of Common Stock; William A. Baker, 245,541 shares of
Common Stock; W. K. Price, 225,927 shares of Common Stock; Michael E. Warren,
49,684 shares of Common Stock and an option to acquire 34,235 shares of Common
Stock; Norson's, 626,131 shares of Common Stock; Donald M. Rogers, 82,628 shares
of Common Stock and approximately $2.1 million in cash; M. Wayne George, 26,806
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 26,806 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, Messrs. 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 March 31, 1997. As compensation for services, Compass received the
equivalent of 32,818 shares of Common Stock and a warrant exercisable within
five years to purchase the equivalent of 127,730 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 120,357
Equivalent Shares of Common Stock for $50,000, and in November 1996, AMC sold
Norson's 505,774 Equivalent Shares of Common Stock for $750,000. These sales of
the common stock of AMC to Norson's were made by AMC pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act. Norson's
entered into an agreement whereby it represented that it was acquiring the
securities for its own account and not with a view to the distribution of such
securities. Norson's is a personal investment company and is considered to be a
sophisticated investor.
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
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<PAGE> 44
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.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of InfoCure consists of 30,000,000 shares of
capital stock, consisting of 25,000,000 shares of Common Stock, par value $.001
per share, and 5,000,000 shares of preferred stock, par value $.001 per share
(the "Preferred Stock"). As of March 13, 1997, there were 100 shares of Common
Stock of InfoCure outstanding, 50 shares held of record by each of Frederick L.
Fine and James K. Price. The outstanding shares of Common Stock are, and the
shares to be issued pursuant to the Offering will be, fully paid and
nonassessable. No shares of Preferred Stock are outstanding or are to be issued
in connection with the Acquisitions.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share held of record
on each matter submitted to a vote of stockholders. The holders of Common Stock
have no cumulative voting rights, no pre-emptive rights and no rights to convert
their shares of Common Stock into any other securities. Because holders of
Common Stock do not have cumulative voting rights, the holders of the majority
of the shares of Common Stock represented at the annual meeting of stockholders
can elect all the directors. Under Delaware law, the affirmative vote of a
majority of the outstanding shares of Common Stock is necessary for certain
corporate actions, including merger or consolidation with another corporation,
sale or other disposition of all or substantially all of the Company's property
and assets and voluntary dissolution of the Company. Delaware law allows the
Company to establish a higher percentage of stockholder approval necessary to
take such corporate action.
Holders of Common Stock are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends. The Company
does not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
Upon dissolution, liquidation or sale of all or substantially all of the
assets of the Company, and after payment in full of all amounts required to be
paid to creditors and liquidation preferences, if any, the holders of the Common
Stock will be entitled to receive pro rata the net assets of the Company
available for distribution.
PREFERRED STOCK
The Board of Directors is authorized by the Company's Certificate of
Incorporation, without any action of the stockholders, to issue one or more
classes and series of Preferred Stock with respect to which the Board of
Directors may determine voting, conversion, redemption and other rights which
could adversely affect the 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
43
<PAGE> 45
interested stockholder owns at least 85% of the outstanding voting stock or
(iii) on or after such date, the business combination is approved by the board
of directors and by the affirmative vote of at least 66 2/3 of the outstanding
voting stock that is not owned by the interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person,
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is American Stock
Transfer & Trust, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Acquisitions and the Offering, the Company
will have 5,678,844 shares of Common Stock outstanding. In addition, outstanding
stock options and a warrant to acquire 169,668 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 3,075,967 shares of Common Stock (including 161,965 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.
During and after the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company and the
Selling Stockholders by Glass, McCullough, Sherrill & Harrold, LLP, 1409
Peachtree Street, N.E., Atlanta, Georgia 30309. Ugo F. Ippolito, a partner of
the firm, owns 2,739 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
46
<PAGE> 48
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.
47
<PAGE> 49
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> 50
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> 51
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> 52
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> 53
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) $1,030 $(2,308) $15,860 $ 5,255 $ 5,495
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) 1,030 (2,308) 15,860 4,853 8,134
Property and equipment, net............ 861 -- -- -- -- -- 861
Capitalized software costs, net........ 1,230 -- -- -- -- -- 1,230
Goodwill, net.......................... 425 10,994 -- 410 -- 11,404 11,829
Deferred tax assets.................... 189 -- -- -- -- -- 189
Other.................................. 306 -- -- -- -- -- 306
------- -------- ------ ------- ------- ------- -------
Total assets.................. $ 6,292 $ 1,265 $1,030 $(1,898) $15,860 $16,257 $22,549
======= ======== ====== ======= ======= ======= =======
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........... 2,156 913 1,029 450 15,858 18,250 20,406
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) 1,587 1,030 (50) 15,860 18,427 16,582
------- -------- ------ ------- ------- ------- -------
Total liabilities and
stockholders' equity
(deficit)................... $ 6,292 $ 1,265 $1,030 $(1,898) $15,860 $16,257 $22,549
======= ======== ====== ======= ======= ======= =======
</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> 54
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).................................................. 5,357
=======
</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> 55
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).................................................... 5,357
=======
</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> 56
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)............................................. 5,357
=======
</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> 57
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 3,592,773 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 86,071 $ 775
KCOMP................................................. 1,533 -- --
HCD................................................... 1,583 -- --
Rovak................................................. 2,983 -- --
Millard-Wayne......................................... 1,100 26,806 241
------- -------- -------
Total....................................... $ 9,327 112,877 $ 1,016
======= ======== =======
Total consideration for these companies(2)................................ $10,343
Net book value (deficit) of these companies' assets....................... (651)
-------
Consideration allocated to goodwill....................................... $10,994
=======
</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> 58
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 505,774 shares of Common Stock for $750,000 and issuance by
AMC in March 1997 of the equivalent of 54,776 shares of Common Stock for
$280,000.
(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 adjustment to depreciation and amortization expense as
follows:
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
OCTOBER 31, JANUARY 31,
------------- -----------
1996 1995 1996
----- ----- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) due to:
Amortization of goodwill over life of 15 years on a
straight-line basis.................................... $ 576 $ 576 $ 768
Adjustment to amortization of capitalized software to
uniform application of a four-year life................ (190) (220) (300)
Adjustment to depreciation of property and equipment to
uniform lives of three to five years................... -- 20 --
----- ----- -----
$ 386 $ 376 $ 468
===== ===== =====
</TABLE>
F-10
<PAGE> 59
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The 15-year estimated useful life of goodwill is derived from management's
analysis of (i) the historical lives and the future estimated useful life
of customer relationships which are the core of its business, (ii) the
longevity and continuing use of the Founding Businesses' base practice
management system products and (iii) the relatively minor impact of
technological obsolescence on the business applications provided to the
office-based physician by the Founding Businesses' products and services.
The Founding Businesses provide practice management software systems and
related services to small and mid-size, office-based medical practices.
These products and services provide the customer an infrastructure to
manage their business on a long-term basis. The functions provided are
those of basic accounting, record-keeping and business management which are
essentially constant and generally not impacted by technological changes
which may affect diagnostic and treatment.
Consequently, the base products, while enhanced and updated periodically,
remain in service for extended periods fundamentally unchanged. These
factors, coupled with a natural resistance to change of a core component of
the business, give a relatively long life to both the product and the
customer relationship. The experience of the Founding Businesses indicates
that products introduced 15 to 20 years ago are, with appropriate
enhancements, in service today to many of the same customers.
Management believes these factors support a 15-year life for the goodwill
arising from the acquisition of the Founding Businesses.
(G) Records the pro forma change in interest expense for pro forma adjustments
to debt.
(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>
F-11
<PAGE> 60
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma adjustment to compensation and related expenses is derived
from position reductions at several of the Founding Businesses specifically
provided for in the acquisition and related agreements and are summarized
by division in the following table:
<TABLE>
<CAPTION>
NUMBER OF AS A PERCENTAGE
POSITIONS OF TOTAL
OPERATION DIVISION ELIMINATED PERSONNEL
------------------ ---------- ---------------
<S> <C> <C>
Enterprise.................................................. 26 27%
Mid-Range................................................... 3 6
Desktop..................................................... 3 4
-- --
Total............................................. 32 14%
</TABLE>
The foregoing position eliminations are duplicative in nature and
attributable in large part to administrative activities and redundancies in
sales and support. As such, it is management's opinion that the reductions
will not materially adversely affect the ability of the Company to continue
service levels, sales efforts and other functions required to maintain
sales levels consistent with those historically achieved and, assuming no
unforeseen changes in economic or other factors, that these levels could be
maintained for at least 12 months or through the period required to achieve
integration of the business units. Additionally, as reflected in the table
summarizing the pro forma adjustments, management has provided for an
addition to the Company's overhead, including an increase in appropriate
corporate management and administrative personnel, to facilitate
integration of the acquisitions.
Assuming constant sales levels, management believes that no additional
change in personnel is required, called for or anticipated. Any increase in
personnel requirements would be based on growth or the introduction of new
products and services. The specifically negotiated reductions in the
workforce give recognition to the economies of scale and synergies to be
attained as a result of integration of the Founding Businesses.
The acquisition of HCD was consummated on December 3, 1996. As a result,
certain personnel and costs which were not part of the acquisition have
been eliminated. Consequently, the Company considers that, on an annualized
basis, such costs savings have been effected as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) AMOUNT
-------------- ------
<S> <C>
Compensation, primarily duplicative administrative
functions................................................. $1,130
Allocations from the division's former parent company:
Overhead.................................................. 476
ESOP expenses............................................. 159
Rent...................................................... 117
Interest.................................................. 26
------
$1,908
======
</TABLE>
Additionally, pro forma reductions in rental and other operating expenses
include the elimination of certain commissions and royalties which are
payable by Rovak under agreements that will be terminated following
consummation of the Acquisitions. Such adjustments are approximately
$125,000, $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
F-12
<PAGE> 61
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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....................... 3,678,844
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................................................... 321,157
Shares assumed repurchased from proceeds from shares assumed
issued from exercise of options........................... (80,872)
---------
Shares estimated to be outstanding.......................... 5,365,707
---------
</TABLE>
F-13
<PAGE> 62
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
March 13, 1997
Atlanta, Georgia
F-14
<PAGE> 63
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, 5,000,000 shares
authorized, none issued and outstanding................ $ --
Common Stock, $0.001 par value, 25,000,000 shares
authorized, 100 shares issued and outstanding.......... 1
----
Total stockholders' equity........................ $ 1
====
</TABLE>
See accompanying notes to balance sheet.
F-15
<PAGE> 64
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-16
<PAGE> 65
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
March 13, 1997)
Atlanta, Georgia
F-17
<PAGE> 66
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-18
<PAGE> 67
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-19
<PAGE> 68
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-20
<PAGE> 69
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-21
<PAGE> 70
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-22
<PAGE> 71
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-23
<PAGE> 72
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-24
<PAGE> 73
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-25
<PAGE> 74
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 a stockholder of the
Company in exchange for a promissory note bearing interest at 12% payable in a
balloon payment of principal and interest in April 1997.
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
F-26
<PAGE> 75
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-27
<PAGE> 76
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-28
<PAGE> 77
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. In March 1997, the Company issued, through private
placements, 800,000 shares of the Company's common stock for an aggregate
consideration of $280,000.
F-29
<PAGE> 78
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-30
<PAGE> 79
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-31
<PAGE> 80
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-32
<PAGE> 81
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-33
<PAGE> 82
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-34
<PAGE> 83
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-35
<PAGE> 84
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-36
<PAGE> 85
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 15, 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 15, 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-37
<PAGE> 86
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 15, 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-38
<PAGE> 87
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-39
<PAGE> 88
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-40
<PAGE> 89
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-41
<PAGE> 90
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-42
<PAGE> 91
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-43
<PAGE> 92
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-44
<PAGE> 93
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-45
<PAGE> 94
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-46
<PAGE> 95
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-47
<PAGE> 96
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-48
<PAGE> 97
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-49
<PAGE> 98
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-50
<PAGE> 99
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-51
<PAGE> 100
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-52
<PAGE> 101
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-53
<PAGE> 102
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-54
<PAGE> 103
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-55
<PAGE> 104
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-56
<PAGE> 105
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-57
<PAGE> 106
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-58
<PAGE> 107
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-59
<PAGE> 108
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-60
<PAGE> 109
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-61
<PAGE> 110
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-62
<PAGE> 111
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-63
<PAGE> 112
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-64
<PAGE> 113
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-65
<PAGE> 114
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-66
<PAGE> 115
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-67
<PAGE> 116
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-68
<PAGE> 117
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-69
<PAGE> 118
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-70
<PAGE> 119
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-71
<PAGE> 120
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-72
<PAGE> 121
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-73
<PAGE> 122
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-74
<PAGE> 123
======================================================
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>
======================================================
======================================================
LOGO
INFOCURE CORPORATION
2,000,000 SHARES
COMMON STOCK
--------------------
PROSPECTUS
--------------------
RODMAN & RENSHAW, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1997
======================================================
<PAGE> 124
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> 125
ITEM 27. EXHIBITS.
<TABLE>
<S> <C> <C>
2.1 -- Plan and Agreement of Merger dated March , 1997 between
InfoCure Corporation and American Medcare Corporation
3.3 -- Amended Certificate of Incorporation of the Company
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 November 1996
10.24 -- Letter Amendment dated March 3, 1997 between the Company and
Rovak
10.25 -- Letter of Intent between FINOVA and the Company.
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP
(included in Exhibit 5.1)
23.4 -- Consent of BDO Seidman, LLP
99.1 -- Description of Graphic and Audio Material
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering. The undersigned Registrant will file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, an increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers. The
undersigned Registrant will provide to the underwriter at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(c) Indemnification. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the provisions referred to in Item 24 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-2
<PAGE> 126
(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> 127
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 13th 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 13, 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> 128
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C> <C>
2.1 -- Plan and Agreement of Merger dated March , 1997 between
InfoCure Corporation and American Medcare Corporation.......
3.3 -- Amended Certificate of Incorporation of the Company.........
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 November 1996................................
10.24 -- Letter of Agreement dated March 3, 1997 between the Company
and Rovak
10.25 -- Letter of Interest between FINOVA and the Company.
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP (to be
included in Exhibit 5.1)....................................
23.4 -- Consent of BDO Seidman, LLP.................................
99.1 -- Description of Graphic and Audio Material
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF MERGER
OF
AMERICAN MEDCARE CORPORATION
(A DELAWARE CORPORATION)
AND
INFOCURE CORPORATION
(A DELAWARE CORPORATION)
AGREEMENT OF MERGER approved on March , 1997 by a majority of the
shareholders of AMERICAN MEDCARE CORPORATION, a Delaware corporation, and by
resolution adopted by its Board of Directors on December 27, 1996, and approved
on December 27, 1996 by the shareholders of INFOCURE CORPORATION, a Delaware
corporation, and by resolution adopted by its Board of Directors on said date.
WHEREAS, AMERICAN MEDCARE CORPORATION is a Delaware corporation with
its registered office therein located at 1013 Centre Road, City of Wilmington,
County of New Castle; and
WHEREAS, the total number of shares of stock which AMERICAN MEDCARE
CORPORATION has authority to issue is 75,000,000 shares of common stock, all of
which are of one class and of a par value of $.001 each; and
WHEREAS, INFOCURE CORPORATION is a Delaware corporation with its
registered office therein located at 1013 Centre Road, City of Wilmington,
County of New Castle; and
WHEREAS, the total number of shares of stock which INFOCURE CORPORATION
has authority to issue is 30,000,000 shares, 5,000,000 shares of which are
preferred stock
<PAGE> 2
with a par value of $.001 and 25,000,000 shares of which are common
stock with a par value of $.001; and
WHEREAS, the shareholders of AMERICAN MEDCARE CORPORATION and INFOCURE
CORPORATION and the respective Boards of Directors thereof each deemed it
advisable and in the best interest of said corporations and their respective
stockholders to merge AMERICAN MEDCARE CORPORATION with and into INFOCURE
CORPORATION pursuant to the provisions of the General Corporation Law of the
State of Delaware upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, the parties hereto agree as follows:
SECTION I
MERGER AND CONVERSION OF SHARES
1.1 Merger. AMERICAN MEDCARE CORPORATION and INFOCURE CORPORATION
shall, pursuant to the provisions of the General Corporation Law of the State
of Delaware, be merged ("Merger") with and into a single corporation, to wit,
INFOCURE CORPORATION, which shall be the surviving corporation from and after
the effective time of the merger ("Effective Time"), and which is sometimes
hereinafter referred to as the "Surviving Corporation," and which shall
continue to exist as the Surviving Corporation under its present name pursuant
to the provisions of the General Corporation Law of the State of Delaware. The
separate existence of AMERICAN MEDCARE CORPORATION, which is hereinafter
sometimes referred to as the "Terminating Corporation", shall cease at the
Effective Time in accordance with the provisions of said General Corporation
Law of the State of Delaware.
1.2 Certificate of Incorporation. The Certificate of Incorporation of
the Surviving Corporation, as now in force and effect, shall continue to be the
Certificate of Incorporation of
2
<PAGE> 3
the Surviving Corporation and said Certificate of Incorporation shall continue
in full force and effect until amended in the manner prescribed by the
provisions of the General Corporation Law of the State of Delaware.
1.3 Bylaws. The present by-laws of the Surviving Corporation will be
the by-laws of the Surviving Corporation and shall continue in full force and
effect until amended as therein provided and in the manner prescribed by the
provisions of the General Corporation Law of the State of Delaware.
1.4 Directors. The directors and officers of the Surviving Corporation
at the Effective Time shall be the members of the Board of Directors and the
officers of the Surviving Corporation, all of whom shall hold their
directorships and offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the by-laws of the Surviving Corporation and the General
Corporation Law of the State of Delaware.
1.5 Exchange of Shares. Each issued share of common stock, par value
$.001 ("AMC Common Stock"), of the Terminating Corporation outstanding shall,
at the Effective Time be converted into such fraction of a share of common
stock, par value $.001 ("InfoCure Common Stock") of the Surviving Corporation
determined by dividing (i) 4,000,000 by (ii) the sum of (x) the number of the
outstanding shares of AMC Common Stock immediately prior to the Effective Time,
(y) the number of shares of AMC Common Stock subject to outstanding stock
options and a warrant at the Effective Time and (z) 1,257,000. The issued
shares of InfoCure Common Stock shall not be converted or exchanged in any
manner, but each said share which is issued as of the Effective Time shall
continue to represent one issued share of InfoCure Common Stock.
1.6 No Fractional Shares. No scrip or fractional share certificate for
the InfoCure Common Stock shall be issued, but in lieu thereof each holder of
shares of AMC Common Stock otherwise entitled to a fractional share certificate
for InfoCure Common Stock at the
3
<PAGE> 4
Effective Time shall receive an amount in cash equal to the product of the fair
market value (as hereinafter defined) of one (1) share of InfoCure Common Stock
multiplied by such fraction of a share of InfoCure Common Stock to which the
holder would be otherwise entitled. No such holders shall be entitled to
dividends or other rights in respect to any such fractional interest in the
InfoCure Common Stock. Payment for such fractional interest shall be made
without interest promptly after surrender of such shares of AMC Common Stock.
For the purposes of this paragraph, the fair market value of a share of
InfoCure Common Stock shall be deemed to be the public offering price of a
share of InfoCure Common Stock pursuant to the registration statement of the
Surviving Corporation filed with the Securities and Exchange Commission,
Registration Statement No. 333-18923, which becomes effective on or prior to
the Effective Time.
1.7 Surrender of Certificates. After the Effective Time and until the
surrender of each outstanding share certificate representing any AMC Common
Stock, each such outstanding certificate which prior to the Effective Time
represented shares of AMC Common Stock shall be deemed, for all corporate
purposes, to evidence the ownership of the full shares of InfoCure Common Stock
for and into which such shares have been converted; provided, however, that,
unless and until any such certificate of AMC Common Stock shall be so
surrendered, dividends and other distributions of any kind payable to holders
of record of shares of InfoCure Common Stock shall not be paid by the Surviving
Corporation in respect to shares of InfoCure Common Stock for which share
certificates have not been issued in exchange for the outstanding shares of AMC
Common Stock. Upon the subsequent surrender and exchange of such certificates,
said holder of the AMC Common Stock shall be paid the amount of any dividend or
other distribution, without interest, which became payable to holders of record
of shares of InfoCure Common Stock on or after the Effective Time and prior to
surrender and exchange of such certificates if the payment date was prior to
the surrender and exchange and if the payment date was subsequent to the
surrender and exchange, payment shall be made on such payment date.
4
<PAGE> 5
1.8 Exercise of Dissenters' Rights. Shareholders of AMC Common Stock
who shall have filed a written objection to the merger and have complied with
the requirements for perfecting appraisal rights as set forth in the Delaware
Corporation Law shall not be entitled to receive any shares of InfoCure Common
Stock under this Agreement. Such shares of AMC Common Stock shall be deemed to
be automatically canceled for all purposes as of the Effective Time.
1.9 Treasury Shares. On the Effective Time all shares of the AMC
Common Stock that shall then be held in its treasury, if any, shall
automatically cease to exist and all certificates representing such shares
shall be canceled.
1.10 Options and Warrants. On the Effective Time each holder of a
warrant, stock option or other right (collectively "Options") to acquire AMC
Common Stock granted by the Terminating Corporation prior thereto which are
then outstanding shall be entitled to purchase from the Surviving Corporation
(which shall assume such obligations under the Options without modification)
the number of full shares of InfoCure Common Stock upon the exercise of the
Option in accordance with the terms of and in the manner provided pursuant to
the applicable Option, in lieu of the AMC Common Stock, to which the holder of
the Option would have been entitled to receive pursuant to the terms of the
merger if, at the time of the merger, such holder of the Option had been the
holder of record of the number of shares of AMC Common Stock that the holder is
purchasing pursuant to the Option. Fractional shares of InfoCure Common Stock
will not be issued upon the exercise of an Option. In lieu of issuing a
fractional share certificate, the Surviving Corporation shall pay an amount
determined as set forth in paragraph 5 hereof; provided, however, that the fair
market value of one share of InfoCure Common Stock shall be the average of the
highest and lowest quoted selling price on the NASDAQ market on the first
trading day immediately preceding the exercise of the Option.
5
<PAGE> 6
1.11 Exchange Agent. The Surviving Corporation may employ an exchange
agent to assist with the exchange of certificates of AMC Common Stock
surrendered as provided in this Agreement.
1.12 Filing of Documents. The said corporations agree that they will
cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Delaware, and that they will cause to be
performed all necessary acts within the State of Delaware and elsewhere to
effectuate the merger as herein provided.
1.13 Authorization of Officers. The officers of the Terminating
Corporation and of the Surviving Corporation are hereby authorized, empowered,
and directed to do any and all acts and things, and to make, execute, deliver,
file, and record any and all instruments, papers, and documents which shall be
or become necessary, proper, or convenient to carry out or put into effect any
of the provisions of this Agreement of Merger or of the merger herein provided
for.
1.14 Effective Time. The Effective Time of the Agreement of Merger,
and the time when the merger herein agreed upon shall become effective, shall
be upon filing of the Agreement of Merger or Certificate of Merger with the
Secretary of State of the State of Delaware.
SECTION II
REPRESENTATIONS OF INFOCURE CORPORATION
InfoCure Corporation represents and warrants to American Medcare
Corporation as follows:
2.1 Organization and Standing. InfoCure Corporation is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware; has full corporate power and authority to conduct the
business of developing, distributing and marketing software,
6
<PAGE> 7
and related services and has full right, power and authority to issue the
shares of InfoCure Common Stock contemplated by this Agreement of Merger.
2.2 Authorization. (a) The execution, delivery and performance of this
Agreement of Merger has been duly authorized by all requisite corporate action
on the part of InfoCure Corporation. This Agreement of Merger has been duly
executed and delivered by InfoCure Corporation and constitutes the legal, valid
and binding obligation of InfoCure Corporation enforceable against InfoCure
Corporation in accordance with its terms.
(b) The execution and delivery of this Agreement of Merger, and
the consummation by InfoCure Corporation of the Merger at the Effective Time as
contemplated herein, will not (with or without the giving of notice, lapse of
time or both) violate, conflict with, or result in a default under, any of the
provisions of the certificate of incorporation or by-laws of InfoCure
Corporation, any mortgage, indenture, contract, agreement, license, permit,
instrument, judgment, decree, order, statute, regulation or ruling of any
court or governmental authority to which InfoCure Corporation or any subsidiary
is a party or by which it is bound.
2.3 Capital Stock. The authorized capital stock of InfoCure
Corporation consists of 25,000,000 shares of Common Stock, $.001 par value and
5,000,000 shares of Preferred Stock, $.001 par value, none of which shares have
any pre-emptive rights and on the date hereof 100 shares of InfoCure Common
Stock are outstanding and validly issued, fully paid and non-assessable.
2.4 Shares to be Issued. The shares of InfoCure Common Stock to be
delivered pursuant to this Agreement of Merger will, upon issuance, be duly and
validly authorized and issued and fully paid and non-assessable voting shares
of InfoCure Corporation.
2.5 Financials. InfoCure corporation has not commenced conducting
business and has assumed no liabilities. Copies of its financial statements as
of October 31, 1996 are set forth in
7
<PAGE> 8
the Registration Statement 333-18923, as amended, as filed with the Securities
and Exchange Commission ("Commission"). Since October 31, 1996 there has not
been, and to the Effective Time there will not be, any material change in the
financial condition, assets or liabilities of InfoCure Corporation, except that
InfoCure Corporation continues to incur substantial expenses in connection with
the transactions contemplated by this Agreement of Merger.
2.6 No Untrue Statements. No statements (including representations) by
InfoCure Corporation contained in this Agreement of Merger , and no written
statements furnished by InfoCure Corporation to American Medcare Corporation
pursuant to this Agreement of Merger, contain any untrue statement of a
material fact, or omit to state a material fact necessary in order to make the
statements therein contained not misleading.
SECTION III
REPRESENTATIONS OF AMERICAN MEDCARE CORPORATION
American Medcare Corporation represents and warrants to InfoCure
Corporation as follows:
3.1 Organization and Standing. American Medcare Corporation is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; has full corporate power and authority to
conduct the business of developing, distributing and marketing software and
other related services.
3.2 Authorization. (a) The execution, delivery and performance of this
Agreement of Merger has been duly authorized by all requisite corporate action
on the part of American Medcare Corporation. This Agreement of Merger has been
duly executed and delivered by American Medcare Corporation and constitutes the
legal, valid and binding obligations of
8
<PAGE> 9
American Medcare Corporation enforceable against American Medcare Corporation
in accordance with its terms.
(b) Except as heretofore disclosed to InfoCure Corporation, the
execution and delivery of this Agreement of Merger and the consummation by
American Medcare Corporation of the Merger at the Effective Time as
contemplated herein will not (with or without the giving of notice, lapse of
time or both) violate, conflict with, or result in a default under, any of the
provisions of the certificate of incorporation or bylaws of American Medcare
Corporation, any mortgage, indenture, contract, agreement, license, permit,
instrument, judgment, decree, order, statute, regulation, or ruling of any
court or governmental authority to which American Medcare Corporation or any
subsidiary is a party or by which it is bound.
3.3 Capital Stock. The authorized capital stock of American Medcare
Corporation consists of 75,000,000 shares of common stock, $.001 par value,
none of which shares have any pre-emptive rights. On the date hereof _________
shares of American Medcare Corporation Common Stock are validly issued and
outstanding, fully paid and non-assessable; ___________ shares of American
Medcare Corporation Common Stock are reserved for issuance pursuant to
outstanding stock options and a warrant and for the acquisition of the capital
stock of Millard-Wayne, Inc.
3.4 Financials. (a) The consolidated balance sheet of American Medcare
Corporation and its subsidiaries as of October 31, 1996 and the consolidated
statements of operations for the nine-months ended October 31, 1996 contained
in the Registration Statement 333-18923, as amended, present fairly, in all
material respects, the consolidated financial position of American Medcare
Corporation as of October 31, 1996 and the results of operations for the
nine-month period then ended in conformity with generally accepted accounting
principals.
9
<PAGE> 10
(b) Since October 31, 1996 there has not been, and to the
Effective Time there will not be, any material change in the financial
condition, assets, liabilities or business of American Medcare Corporation
except that American Medcare Corporation continues to incur substantial
expenses in connection with the transactions contemplated by this Agreement of
Merger.
3.5 No Untrue Statement. No statement (including representations) by
American Medcare Corporation contained in this Agreement of Merger and no
written statements furnished by American Medcare Corporation pursuant to this
Agreement of Merger, contains any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein
contained not misleading.
SECTION IV
CONDITIONS TO THE MERGER
The Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions, which conditions may be waived in writing by
the parties hereto:
4.1 Representations and Warranties. The representations and warranties
made by a party hereto to the other party shall be true and correct in all
material respects with the same effect as though made at the Effective Time.
4.2 Public Offering. The Registration Statement 333-18923 shall have
become effective and the Representatives of the Underwriters as set forth
therein and InfoCure Corporation have entered into the underwriting agreement
and the Underwriters have agreed to purchase the InfoCure Common Stock as set
forth in the Registration Statement, as amended.
4.3 S-4 Registration Statement. The Registration Statement on Form
S-4, 333- 20571, registering shares of InfoCure Corporation Common Stock to be
issued pursuant to this Agreement of Merger and a certain other acquisition has
become effective.
10
<PAGE> 11
SECTION V
TERMINATION AND ABANDONMENT
5.1 Termination and Abandonment.
(a) This Agreement of Merger may be terminated at any time
and the Merger as herein contemplated abandoned at any time prior to the
Effective Time without liability of any party to any other party, except for
breaches of warranties, representations and covenants set forth in this
Agreement of Merger which are within the control of the defaulting or
non-performing party, under the following circumstances:
(i) The mutual written agreement of InfoCure
Corporation and American Medcare
Corporation; or
(ii) By either party if the Effective Time has not
occurred before April 15, 1997.
(b) Any party may terminate this Agreement of Merger by
written notice to the other if any action or proceeding shall have been
instituted before any court or other governmental body or, to the knowledge of
the party giving such notice, shall have been threatened formally in writing by
any public authority with requisite jurisdiction, to restrain or prohibit the
transactions contemplated by this Agreement of Merger or to subject one or more
of the parties or their directors or their officers to liability on the grounds
that it or they have breached any law or regulation or otherwise acted
improperly in connection with such proposed transactions and such action or
proceeding shall not have been dismissed or such written threat shall not have
been withdrawn or rescinded before April 15, 1997.
11
<PAGE> 12
SECTION VI
MISCELLANEOUS PROVISIONS
6.1 Entire Agreement. This Agreement of Merger embodies the entire
understanding between the parties hereto regarding the Merger of InfoCure
Corporation and American Medcare Corporation and related matters as set forth
in this Agreement of Merger. No representations or agreements, whether written
or oral, other than those contained or referenced herein, shall be binding on
the parties. This Agreement of Merger may not be amended or modified except in
a writing signed by all of the parties hereto.
6.2 Partial Invalidity. If any term or provision of this Agreement of
Merger, not essential to the basic purposes of the transactions contemplated
herein, shall be held to be illegal, invalid or unenforceable by a court or
arbitrator of competent jurisdiction, it is the intention of the parties hereto
that (i) the remaining terms hereof shall constitute the agreement with respect
to the subject matter hereof, (ii) all such remaining terms shall remain in
full force and effect and shall be deemed to constitute the entirety of this
Agreement of Merger as though such illegal, invalid or unenforceable provision
had never been part hereof and (iii) such illegal, invalid, or unenforceable
provision shall be construed as closely as possible to the parties' original
intent in order to render such provision legal, valid, or enforceable, as
applicable.
6.3 Governing Law. This Agreement of Merger shall be governed by the
laws of the State of Delaware (regardless of the laws that might be applicable
under principles of conflicts of law) as to all matters, including, but not
limited to, matters of validity, construction, effect and performance.
12
<PAGE> 13
IN WITNESS WHEREOF, this Agreement of Merger is hereby executed this
_____ day of March, 1997 upon behalf of each of the constituent corporations
hereto.
AMERICAN MEDCARE CORPORATION
By:
-------------------------------------
Its: President
INFOCURE CORPORATION
By:
-------------------------------------
Its: President
13
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INFOCURE CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is
INFOCURE CORPORATION
2. The certificate of incorporation is hereby amended as follows:
(a) By deleting Article FOURTH in its entirety and by
substituting in lieu thereof the following:
"FOURTH: The aggregate number of shares of all classes of the
capital stock which the corporation shall have authority to
issue is thirty million (30,000,000) shares which are divided
into five million (5,000,000) of preferred stock with a par
value of $.001 each, and twenty-five million (25,000,000)
shares of common stock with a par value of $.001 each."
Subject to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the board of
directors of the corporation is authorized to determine,
without shareholder action, the powers, designations,
preferences, limitations, voting power and relative,
participating, optional and other special rights and
qualifications, limitations and restrictions of the preferred
stock, including without limitation, the relative rights of
any class of shares of preferred stock, each series within a
class, the number of shares within each class and series and
the dividend rights, conversion rights and terms of redemption
(including sinking fund provisions and liquidation
preferences), all to the fullest extent now or hereafter
permitted by the General Corporation Law of the State of
Delaware.
Each holder of shares of common stock shall be entitled to one
vote for each share of common stock held of record on all
matters on which the holders of common stock are entitled to
vote.
<PAGE> 2
3. The amendment of the certificate of incorporation
herein certified have been duly adopted by the written consent of the
directors and shareholders in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on March 12, 1997.
/s/ Frederick L. Fine
----------------------------
Frederick L. Fine, President
Attest:
/s/ James K. Price
- ------------------
Secretary
<PAGE> 1
NUMBER SHARES
INFOCURE CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK
CUSIP 45665A 10 8
THIS IS TO CERTIFY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE EACH,
OF
INFOCURE CORPORATION
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all of the provisions of the Ceritifcate of
Incorporation of the Corporation, By-Laws and all Amendments thereto, to all
of which the holder, by acceptance hereof, assents.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ James K. Price
----------------------------- /s/
James K. Price ------------------------
Secretary PRESIDENT
[INFOCURE CORPORATION SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY MAR 12, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 049473fc
(562)989-2333
(FAX) (562)426-7450 308-19X Proof_____NEW
<PAGE> 2
INFOCURE CORPORATION
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK AND MORE
THAN ONE SERIES OF ANY CLASS OF STOCK. THE CORPORATION WILL FURNISH WITHOUT
CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF
EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............Custodian...........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act.............................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer
-----------------------
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------------
------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
-------------------------------------------------------
THE SIGNATURES SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKHOLDERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-16.
AMERICAN BANK NOTE COMPANY MAR 12, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 049473bk
(662)989-2333
(FAX) (562)426-7450 Proof____ NEW
<PAGE> 1
EXHIBIT 5
March 13, 1997
InfoCure Corporation
2970 Clairmont Road, Suite 950
Atlanta, Georgia 30329
Gentlemen:
We have acted as counsel to InfoCure Corporation, a Delaware
corporation (the "Company") in connection with the preparation of the
Registration Statement No. 333-18923 on form SB-2 ("Registration Statement")
filed by you with the Securities and Exchange Commission. Capitalized terms
used in this opinion letter and not otherwise defined herein shall have the
meanings assigned to such terms in the Registration Statement.
In the capacity described above, we have considered such matters of
law and of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Company, certificates of officers and representatives of the Company,
certificates of public officials and such other documents as we have deemed
appropriate as a basis for the opinions hereinafter set forth.
The opinions set forth herein are limited to the laws of the State of
Delaware and applicable federal laws.
Based upon the foregoing, it is our opinion that the shares of Common
Stock of the Company, when issued and sold on the terms described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the prospectus under the
caption "Legal Matters."
Yours truly,
GLASS, McCULLOUGH, SHERRILL &
HARROLD, LLP
By: /s/ Ugo F. Ippolito
----------------------------------
<PAGE> 1
EXHIBIT 10.14
AMERICAN MEDCARE CORPORATION
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the
_____ day of November ____, 1996, between AMERICAN MEDCARE CORPORATION, a
Delaware corporation ("AMC") and R. ERNEST CHASTAIN ("Executive").
WHEREAS, AMC has developed and is marketing computer software programs
and related services in the health care industry and continues to develop and
market such software programs and related services;
WHEREAS, AMC agrees to employ Executive as an executive to provide the
services set forth herein; and;
WHEREAS, Executive agrees to provide such services in accordance with
the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein made
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT/DUTIES. (a) AMC shall employ Executive as an executive
for Sales and Marketing during the term of his employment as set forth in this
Agreement and Executive hereby accepts such employment. Executive's initial
position shall be Vice President - Sales and Marketing.
<PAGE> 2
(b) Executive shall have such powers and duties as assigned to him by
the President of AMC from time to time.
(c) Executive shall report to the President of AMC. Executive shall
keep the President timely advised of all significant developments and
opportunities and shall timely consult with the President on all significant
policies and contracts. Executive's powers and duties are subject to the
supervision and instructions of the Board of Directors, Chairman and President.
(d) Executive agrees that he will at all times faithfully and to the
best of his ability and experience faithfully perform all of the duties that
may be required of him pursuant to the terms of this Agreement. Executive shall
devote his full business time to the performance of his obligations hereunder.
2. COMPENSATION.
(a) BASE SALARY. During the term of his employment, including any
extension thereof, AMC will pay to Executive a base salary ("Base Salary") of
$125,000 per year and a $25,000 annual draw against the incentive compensation
plan described in Section 2(a), payable in arrears and in equal semi-monthly
payments. The base salary shall be subject to annual review by the Board of
Directors of AMC who shall consider annually an increase in the base salary.
Any increase in the base salary shall be at the sole discretion of the Board of
Directors. In the event of a disability, to the extent payments are received
under an employer-sponsored disability program, the payments hereunder are to
be reduced by the amount equal to such disability payments.
(b) INCENTIVE COMPENSATION. During the term of Executive's employment,
including any extension thereof, in addition to the Base Salary as provided in
paragraph 2(a), AMC will pay Executive annual incentive compensation provided
that the objectives of the
2
<PAGE> 3
program are met. The incentive compensation shall be pursuant to a program
based upon the achieving certain revenue and/or profit goals of AMC and/or of
the department in which Executive has responsibilities. Upon agreement as to
the program, it shall be signed by the parties hereto and attached hereto as
Exhibit A and shall constitute a part of this Agreement.
(c) STOCK OPTIONS. American Medcare Corporation ("AMC") shall grant to
Executive on the first (1st) day hereafter on which the Board of Directors of
AMC meets the following stock options:
A stock option to purchase an aggregate of 1,350,000 shares of Common
Stock of AMC ("Common Stock"), at $0.01 par value at $.25 per share which shall
vest (first be exercisable) and expire as follows:
<TABLE>
<CAPTION>
Number of Shares Vest Expires
--------------------------------------------------------------------------------------
<S> <C> <C>
337,500 November 15, 1997 November 15, 2004
337,500 November 15, 1998 November 15, 2004
337,500 November 15, 1999 November 15, 2004
337,500 November 15, 2000 November 15, 2004
</TABLE>
Such stock options shall be subject to earlier termination upon termination of
employment for any reason and to the other terms and conditions as provided in
Exhibit B attached hereto and incorporated herein. Such stock options shall be
non-qualified stock options.
(d) EMPLOYEE BENEFIT PROGRAM. Executive shall be eligible to
participate in all employee benefit programs, including medical hospitalization
programs, now or hereafter made available by AMC to its employees or Executive
employees, subject to terms and conditions of such programs, including
eligibility. It is understood that AMC reserves the right to modify and
3
<PAGE> 4
rescind any program or adopt new programs in its sole discretion. AMC may, in
its sole discretion, maintain key man life insurance on the life of Executive
and designate AMC as the beneficiary. Executive agrees to execute any documents
necessary to effect such policy.
(e) EXPENSES. Executive shall be reimbursed for expenses reasonably
incurred in the performance of his duties hereunder in accordance with the
policies of AMC then in effect.
(f) VACATION. Executive shall be entitled to two (2) weeks of vacation
for each full year of service. Vacation shall be taken at such times as not to
materially interfere with the business of AMC. The vacation time must be taken
within the time program or as otherwise mutually agreed in writing; otherwise
it expires to the extent not used.
3. TERM.
The term of the employment of Executive under this Agreement shall be
for a period of two (2) years ("Initial Term") commencing on the date hereof
and ending on the second (2nd ) anniversary thereof, subject to earlier
termination as provided in paragraph 4. The term of employment shall continue
after the Initial Term under this Agreement, subject to earlier termination as
provided in paragraph 4, for additional one-year terms until the second
anniversary of the last day of the Initial Term unless it is terminated at the
end of the Initial Term or as of the first (1st) anniversary of the Initial
Term, as the case may be, by either party upon sixty (60) days prior written
notice. If the employment of Executive continues thereafter, absent a written
agreement, the employment shall be at will and the provisions of this Agreement
shall be of no force and effect with respect to such subsequent period, except
for the provisions of paragraphs 5, 6 and 7. If the term of employment
hereunder is intended to be extended beyond the Initial Term, within ninety
(90) days prior to the extension, the parties hereto shall negotiate in good
faith any
4
<PAGE> 5
modification to the provisions of subparagraphs (a), (b) and/or (c) of
paragraph 2. If no agreement is reached, this Agreement will terminate on the
last day of the Initial Term or on the first (lst) anniversary of the last day
of the Initial Term, as the case may be.
4. EARLY TERMINATION.
(a) FOR CAUSE.
(1) Notwithstanding the foregoing AMC may terminate the employment
of Executive "for cause" (as hereinafter defined) at any time upon the ten (10)
business days prior written notice. The term "for cause" shall mean (i) the
continued failure by Executive substantially to perform his duties with AMC in
a reasonably professional manner other than due to total disability or death
for a period of thirty (30) days after a written demand for substantial
performance is delivered to Executive by the Board of Directors or Chairman or
President of AMC, which demand identifies the manner in which the Board or
Chairman or President believes Executive has not substantially performed his
duties, (ii) the unauthorized dissemination of material trade secrets or other
material proprietary property of AMC or its parent or subsidiaries of its
parent, (iii) the commission of a felony or any other crime involving moral
turpitude or the pleading of nolo contendere to any such act, (iv) the
commission of any act or acts of dishonesty when such acts are intended to
result or result, directly or indirectly, in gain or personal enrichment of
Executive or any related person or affiliated company or are intended to cause
harm or damage to AMC or its parents or subsidiaries of its parent, (v) the
illegal use of controlled substances, (vi) the use of alcohol so as to have a
material adverse effect on the performance of his duties, (viii) the making of
disparaging remarks regarding AMC or its parents or subsidiaries of its parent
or the products or services of any such person to suppliers and/or
5
<PAGE> 6
customers of AMC, its parent or subsidiaries of its parent, or (ix) the breach
of any other material term of provision of this Agreement to be performed by
Executive which have not been cured within thirty (30) days of receipt of
written notice of such breach.
(2) Upon termination for cause AMC shall have no further
obligation to pay any compensation to Executive for periods after the effective
date of the termination for cause, except for base salary which accrued as of
the termination date. In addition, the right to exercise any vested stock
option shall terminate on the effect date of the termination of employment for
cause pursuant to subparagraphs (a)(ii) through (viii).
(b) TERMINATION BY EXECUTIVE. Executive may terminate his employment
at any time upon at last ten (10) business days prior written notice to AMC.
Upon such termination of employment Executive's right to compensation after the
effective date of termination shall cease except for base salary which accrued
as of the termination date. In addition, the right to exercise any vested stock
option shall terminate on the effective date of termination of employment.
(c) TERMINATION UPON DEATH OR DISABILITY.
(1) The employment of Executive shall terminate upon his death, or
ten (10) business days after written notice by AMC of termination, upon or
during the continuance of the total disability (as hereinafter defined) of
Executive.
(2) Upon termination, upon death or during total disability, AMC
shall have no further obligation to pay any compensation for periods after the
effective date of such termination, except for base salary and incentive
compensation which accrued as of the termination date. To the extent stock
options have vested as of such termination date, they shall
6
<PAGE> 7
continue to be exercisable for a period of six (6) months thereafter as set
forth in the stock option agreements not to exceed the stated expiration date
of the stock option.
(3) The term "total disability" means the inability of Executive
to substantially perform his duties hereunder for a continuous period of thirty
(30) days unless extended in writing by AMC. Total disability of Executive
shall be deemed to commence upon the expiration of such continuous thirty (30)
day period. In the event of any dispute as to the "total disability" of the
Executive, the matter shall be resolved by the decision of a single physician,
serving as an arbitrator, mutually selected or appointed in accordance with the
rules of the American Arbitration Association, Atlanta, Georgia. The decision
of the arbitrator shall be binding on all parties hereto. Executive agrees to
submit medical records requested and to submit such examination and testing
requested by such physician.
(d) TERMINATION BY AMC WITHOUT CAUSE.
(1) AMC may terminate this Agreement without cause upon thirty
(30) days prior written notice to Executive.
(2) If the employment of Executive is terminated by AMC under this
subparagraph (d) prior to the expiration of the first six (6) months of his
employment, AMC shall pay Executive the amounts accrued to the date of
termination, plus an amount equal to the product of three (3) times the monthly
minimum compensation of Executive. In addition, the right to exercise any
vested stock option shall terminate on the effective date of termination of
employment, subject to the conditions outlined in Exhibit B.
(3) If the employment of Executive is terminated by AMC under this
subparagraph (d) on or after the expiration of the first six (6) months of his
employment, AMC
7
<PAGE> 8
shall pay Executive the amounts accrued to the date of termination, plus an
amount equal to the product of four (4) times the monthly minimum compensation
of the Executive. In addition, the right to exercise any vested stock option
shall terminate on the effective date of termination of employment.
5. COVENANT NOT TO COMPETE.
(a) Executive agrees that for the period commencing on the
date hereof and ending one (1) year after the expiration of the term of his
employment under this Agreement (and if employment is continued thereafter "at
will," then after termination of his employment with AMC or parent or
subsidiaries of its parent for any reason), Executive will not, alone or with
others, directly or indirectly, own, manage, operate, join, control,
participate in the ownership of, management, operation, or control of, be
employed by, consult with, advise or be connected in any other manner with any
business which develops, distributes or markets software programs, and/or
services which compete with the software programs and services of the kind
currently marketed by AMC for use in the United States ("Territory") other than
with AMC and its parent and subsidiaries of its parent. This covenant not to
compte shall not prohibit (i) ownership by Executive of not more than one
percent (1%) of the equity securities of companies listed on any United States
stock exchanges or traded over the counter or (ii) engagements which do not
involve, directly or indirectly, the development, distribution or marketing of
competitive products or services by entities engaged in such competitive
businesses.
(b) Each city and county of each state and each state in the
Territory and each month of time covered by this covenant not to compete shall
be deemed a servable unit and should any court determine that the inclusion of
all states, cities and counties or months would
8
<PAGE> 9
render any such undertaking unreasonable or enforceable for any reason, those
units which are necessary in the judgment of the court to be deleted AMC order
to render such an undertaking, but such undertaking shall remain in full force
and effect as to every other unit of territory and time.
6. DISCOVERIES, PATENTS, INVENTIONS AND COPYRIGHTS. Executive
shall execute simultaneously with the execution of this Agreement the standard
employee agreement of AMC regarding discoveries, patents, inventions and
copyrights, a copy of which is attached hereto as Exhibit D.
7. SPECIFIC PERFORMANCE. Because of his knowledge and experience,
Executive agrees that AMC shall be entitled to specific performance or an
injunction or other similar relief in addition to all other rights and remedies
it might have for any violation of the undertakings set forth in paragraphs 5
and 6 of this Agreement.
8. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given upon receipt when delivered by hand or by express
mail, overnight courier or other similar method or by facsimile transmission
(provided a copy is also sent by registered or certified mail), or five (5)
days after deposit of this notice in the U.S. mail, if mailed by certified or
registered mail, with postage prepaid addressed to the respective party as set
forth below, which address may be changed by written notice to the other party:
(a) If to AMC:
American Medcare Corporation
4470 Chamblee-Dunwoody Road, Suite 500
Atlanta, GA 30338-6226
Attn: President
9
<PAGE> 10
(b) If to Executive:
R. Ernest Chastain
24 Planters Drive
Lilburn, GA 30247
9. BINDING EFFECT. This Agreement shall inure to the benefit of
and be binding upon and enforceable by Executive and his estate, personal
representatives and heirs, and by AMC and its successors and assigns. This
Agreement and the payments hereunder may not be assigned, pledged or otherwise
hypothecated by Executive. This agreement shall be binding on the successors
and assigns of AMC.
10. ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto to constitute the entire understanding of the parties with respect to
the employment of Executive by AMC and supersedes all prior agreements and
understandings oral or written.
11. BINDING ARBITRATION/ATTORNEY FEES. Except as otherwise
specifically provided, all disputes arising under this Agreement shall be
submitted to and settled by arbitration. Arbitration shall be by one (1)
arbitrator selected in accordance wit the rules of the American Arbitration
Association, Atlanta, Georgia ("AAA") by the AAA. The hearings before the
arbitrator shall be held in Atlanta, Georgia, and shall be conducted in
accordance with the rules existing and the date thereof of the AAA to the
extent not inconsistent with this Agreement. All costs and expenses incurred in
connection with any such arbitration proceedings and those incurred in any
civil action to enforce the same shall be borne by the party against which the
decision is rendered.
12. AMENDMENTS. This Agreement may not be amended or modified
except in writing signed by both parties.
13. WAIVERS. The failure of either party to insist upon a strict
performance of any provision hereof shall not constitute a waiver of such
provision. All waivers must be in writing.
14. GOVERNING LAW. This Agreement shall be deemed to be made in
and in all respects shall be interpreted, construed and governed by and in
accordance with the laws of the State of Georgia.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMERICAN MEDCARE CORPORATION
By: /s/ Frederick L. Fine
---------------------------------------
Name:
-------------------------------------
Title: President
------------------------------------
EXECUTIVE
/s/ R. Ernest Chastain
------------------------------------------
R. Ernest Chastain
11
<PAGE> 12
EXHIBIT A
INCENTIVE COMPENSATION
[To be agreed upon]
12
<PAGE> 1
EXHIBIT 10.24
InfoCure Corporation
2970 Clairmont Road, Suite 950
Atlanta, Georgia 30329
March 3, 1997
Mr. Brad Schraut,
Shareholders' Representative
Rovak, Inc.
3549 Lake Elmo Avenue North
P.O. Box 858
Lake Elmo, MN 55042
Dear Brad:
This letter is to confirm our understanding regarding certain matters
set forth in the Stock Purchase Agreement among InfoCure Corporation
("InfoCure") and the Shareholders of Rovak, Inc. ("Agreement").
1. The parties agree that at the Closing the Buyer will pay and the
Shareholders shall receive $2,805,000.00 in cash and $185,000.00 in cash or
stock as elected by the Buyer as provided in paragraph 2.2 of the Agreement.
This amount is subject to adjustment as set forth in paragraph 2.5. No shares
or cash will be placed in escrow at the time of the Closing. $815,000.00 in
cash and/or stock is subject to the earn out set forth in paragraph 2.8. Since
the Company's fiscal year ends January 31, the twelve month period for
measuring the earn out will be the twelve month period ending January 31, 1998.
To effect the foregoing, the amendments set forth in the following paragraphs
are hereby adopted.
2. Paragraph 2.7 of the Agreement is modified to provide that on or
before the payment of the post-closing adjustment set forth in paragraph 2.8,
the parties shall enter into an escrow agreement in substantially the form
attached as Exhibit 2.7 establishing an escrow comprised of cash or stock of
Buyer equal to 10% of the Purchase Price. A share of common stock of Buyer
shall be valued for this purpose only at the per share price to the public of
the common stock of Buyer in the Public Offering.
3. Paragraph 2.8(a) shall be deleted in its entirety and the following
substituted in lieu thereof. "An amount equal to $815,000.00, comprising the
Purchase Price, shall be subject to being earned out based upon the net
operating profits (net income before interest and taxes) of the Company (Rovak,
Inc.) or its successor for the fiscal year ended January 31, 1998 as follows:
<PAGE> 2
Mr. Brad Schraut
March 3, 1997
Page 2
<TABLE>
<S> <C>
Actual net operating profits: Reduction in Purchase Price/Earn-Out:
- ---------------------------- ------------------------------------
$621,000.00 or less Entire earn out of $815,000.00
Between $621,000.00 and $750,000.00 The product of $815,000.00 times the
quotient of (i) $750,000.00 minus actual net
operating profit, divided by (ii) $129,000.00
$750,000.00 or more No adjustments (i.e. Buyer shall pay the
Shareholders the balance of the Purchase
Price of $815,000.00 in stock and, at
Buyer's election, in part cash as permitted
pursuant to paragraph 2.2)."
</TABLE>
4. Paragraph 2.8(b) is amended by substituting January 31, 1998
for December 31, 1997 as appears therein.
5. Paragraph 11.1 is amended by substituting April 15, 1997 for
March 30, 1997 as appears therein.
6. Except as specifically set forth herein the parties reaffirm
the Agreement as herein amended.
If the following sets forth our entire understanding, please
execute and return the enclosed copy of this letter to the undersigned.
Very truly yours,
INFOCURE CORPORATION
By:/s/ Frederick L. Fine
----------------------------------
President
<PAGE> 3
Mr. Brad Schraut
March 3, 1997
Page 3
Agreed and accepted this as of the 3rd day of March, 1997:
By:/s/ Brad Schraut
-------------------------------------------
Brad Schraut, Shareholder Representative
<PAGE> 1
EXHIBIT 10.25
February 14, 1997
Mr. Richard Perlman,
President
Compass Partners, LLC
30 Rockefeller Plaza, Suite 1933
New York, New York 10112
Re: $10,000,000 Credit Facility Proposal
Dear Mr. Perlman:
FINOVA Capital Corporation ("FINOVA") is pleased to submit the following
proposal to provide InfoCure Corporation ("Borrower") with a Credit Facility
totaling ($10,000,000).
PURPOSE:
The Credit Facility will enable Borrower to pursue additional acquisitions.
ACQUISITION LINE:
FINOVA proposes a line of credit to Borrower up to $10,000,000 secured by
Accounts Receivable (Accounts Receivable defined under Security section of this
proposal). FINOVA will advance up to 80 percent (80%) of Expected Net Accounts
Receivable for qualified third party Accounts Receivable which, on any date of
determination, have not aged beyond 90 days from date of invoice due date. In
addition, for future acquisitions, cash flows and new target assets will be
used (in addition to receivables) to determine availability.
Use of the acquisitions line is based on the sole discretion of FINOVA.
Approval of acquisitions will be based on an analysis of the financial
condition of the company to be acquired. Key ratios include a post closing
cash flow sufficient to support a debt service coverage if 1.5.
SECURITY:
As collateral security for the Credit Facility, FINOVA shall receive a senior,
valid perfected security interest in all of Borrower's present and future
tangible and intangible assets, whether now owned or hereafter acquired and
wherever located. This will include, but not be limited to, marketable
securities, accounts (including, without limitation, license rights, chattel
paper, insurance proceeds, royalties, contract rights, tax refunds, documents,
notes, etc.), inventory, leases, trade names, trademarks, franchises, general
intangibles, machinery and equipment, real
<PAGE> 2
February 14, 1997
Page 2
property, and all products and proceeds of any of these assets (collectively,
the "Collateral"). Accounts Receivable will be required to be collected by use
of a lockbox arrangement satisfactory to FINOVA. The Collateral shall secure
all of the obligations of Borrower to FINOVA under the Credit Facility without
regard to the classification or category of such collateral.
TERM OF LOAN CONTRACT:
The initial term ("Initial Term" of the loan contract between FINOVA and
Borrower shall be three years, with annual renewals thereafter at the
discretion of FINOVA. Unless renewed with the consent of FINOVA, the entire
amount of the Credit Facility will be due and payable at the end of the initial
term.
INTEREST RATE:
ACQUISITION LINE: Borrower will pay to FINOVA monthly interest on the
aggregate daily loan balance at a floating rate equal to the Prime Rate plus
2.0 percent. The term "Prime Rate" is herein defined as the reference (or
equivalent) rate as announced from time-to-time by Citibank, N.A., New York,
New York. Interest is charged monthly on the first day of each month and is
charged predicted on a year consisting of 360 days. The minimum monthly
interest fee will be $3,000 per month. Borrower shall receive credit on the
proceeds of Accounts Receivable three (3) business days after the date of
FINOVA's receipt of good funds (for the purpose of interest calculation).
FEES:
Borrower will pay to FINOVA an on-going field examination and collateral
monitoring fee of Six Hundred Dollars ($600) per day for each day of auditing
incurred by FINOVA. Such examinations shall be performed no less frequently
than on a quarterly basis.
Borrower shall pay to FINOVA a Facility Fee of $125,000 (1.25% of the
Acquisition Line). One half of the Loan Fee shall be due and payable at the
time of commitment with any remaining fee due and payable on the Closing Date
(the date of the initial disbursement of the Loan). The Loan Fee shall be
deemed fully earned upon the issuance of a commitment letter by FINOVA.
Thereafter, Borrower will pay FINOVA an annual renewal fee of .50 percent
(.50%) of the total Credit Facility which will be due on each subsequent
anniversary.
<PAGE> 3
February 14, 1997
Page 3
Borrower will pay FINOVA an Unused Line Fee of .50% of the unused portion of
the Revolving Line of Credit Facility, which fee will be paid on a monthly
basis effective the first month after the Closing Date.
EARLY TERMINATION: PREPAYMENT
ACQUISITION LINE: In the event the Acquisition Line is for any reason
whatsoever terminated prior to the expiration of the Initial Term, in order to
compensate FINOVA for its expenses and its loss of anticipated profits,
Borrower will pay FINOVA an early termination fee of 3% of the average daily
loan outstanding during the 180 days preceding the effective date of
termination (the "Average Daily Outstanding") during the first year of the
Initial Term, 2% of the Average Daily Outstanding during the second year of the
Initial Term, and 1% of the Average Daily Outstanding during the third year of
the Initial Term, the entire balance owing under the Loan will also be due and
payable at that time.
FINANCIAL REPORTING:
Borrower will provide certain reporting to FINOVA on an ongoing basis. This
will include, but not be limited to, an internally prepared monthly Income
Statement, Balance Sheet, Aged Accounts Receivable Trial Balance, Accounts
Payable, and copies of Bank Statements. Annually Borrower will provide FINOVA
with an audited financial statement prepared by an acceptable certified public
accounting firm, as well as annual operating profit, cash flow projects, and
annual and quarterly cost reports.
GENERAL TERMS AND CONDITIONS:
1. The Loan Agreement will contain customary events of default
and remedies, including affirmative and restrictive covenants regarding
the financial and operational performance of Borrower. The Credit Facility
shall be subject to cross-default with all other loans and capital lease
agreements of Borrower.
2. Borrower will make representations and warranties customary
for transactions of this type as FINOVA deems reasonable and necessary.
3. All expenses and appraisal fees will be borne by Borrower.
4. Borrower will reimburse FINOVA at closing for its legal
expenses and all out-of-pocket expenses in connection with the
documentation and closing of this transaction.
<PAGE> 4
February 14, 1997
Page 4
5. Appropriate Borrower Board of Directors approval and opinions
of counsel acceptable to FINOVA shall be obtained, at FINOVA's
discretion.
6. Intercreditor and Subordination Agreements in form and
substance acceptable to FINOVA shall be obtained, if applicable.
7. Upon closing of this financing arrangement, Borrower will have
a minimum excess borrowing availability of $500,000, after bringing all
suppliers to within 30 days of written terms.
8. Validity and Support Agreements, in a form acceptable to
FINOVA, to be executed by appropriate executive officers or principals.
9. Borrower represents and warrants to FINOVA that with respect
to the financing transactions contemplated in this proposal letter, no
person is entitled to any brokerage fee or other commission and to the
extent any brokerage fee or other commission is due, such fee and
commission will be paid exclusively by Borrower.
10. Arizona law shall govern the proposed transaction and Borrower
shall consent to the jurisdiction of the Federal and State courts
located in Maricopa County, Arizona, and shall waive trial by jury.
11. Borrower to submit cash flow projection and pro forma balance
sheet with adjusting entries (i) showing that the proposed financing
will provide sufficient funds for the Borrower's projected working capital
needs, and (ii) showing:
(a) that the Borrower will have a tangible net worth in a
minimum amount to be considered solvent immediately
following initial funding,
(b) that the Borrower will have reasonably sufficient capital
for the conduct of its business following initial funding, and
(c) that the Borrower will not incur debts beyond its ability
to pay such debts as they mature.
<PAGE> 5
February 14, 1997
Page 5
12. Borrower, at its expense, will carry property and casualty
insurance for the appraised value of all Borrower's fixed assets on
which FINOVA will be granted a first lien security interest. FINOVA will
be named as an additional insured party and loss payee.
This is not a loan commitment, but a loan proposal subject to our due diligence
and credit approval process. There shall be no material adverse change to
Borrower's financial condition or prospects, in FINOVA's sole discretion
between now and any potential commitment and funding dates.
Lender shall have no liability in the event a commitment is not issued or the
loan is not closed for any reason.
Lender is also hereby authorized to obtain and verify any information from
whatever source it deems appropriate in order to evaluate the proposed Credit
Facility.
APPLICATION FEE:
Certain out-of-pocket costs and expenses incurred by Lender in connection with
Lender's review and due diligence, such as reasonable legal, audit expenses,
together with an allocated charge of Six Hundred Dollars ($600) per day per
auditor, shall be paid by Borrower whether or not the financing arrangement
herein contemplated is consummated.
Prior to the commencement of the field audit examination, FINOVA will require
an applicable fee in the amount of Fifty Thousand Dollars ($50,000) ($17,500
immediately, and $32,500 payable upon execution of the Initial Public
Offering). The application fee will be:
1. returned to Borrower, less FINOVA's out-of-pocket costs if,
for one of the reasons outlined above, FINOVA is unable to obtain final
Credit Committee approval or otherwise unable to consummate this financing
arrangement; or
2. retained by FINOVA as liquidated damages if final Credit
Committee approval is obtained and Borrower elects not to consummate
the financing within 30 days of the approval date; or
3. retained by FINOVA, and credited against the legal fees and
other out-of-pocket expenses and costs referenced previously (that are
payable by Borrower), if the financing arrangement is consummated. Any
remaining part of the application fee that is not applied to the above,
will be returned to Borrower or credited against the loan balance.
<PAGE> 6
February 14, 1997
Page 6
If this proposal and the terms and conditions stated herein meet with your
approval, please return an executed copy of this letter along with the
application fee. Upon receipt, FINOVA will commence the due diligence process
which will include but may not be limited to an audit of the Accounts
Receivable, review of accounting practices and systems, collection results, and
financial analysis for the Borrower.
This proposal supersedes any and all other prior written or oral proposals; it
shall be deemed null and void if not signed and returned to FINOVA, along with
the application fee, by February 20, 1997.
We look forward to discussing any questions you may have concerning this
proposal, as well as working with you on this transaction.
Sincerely,
FINOVA CAPITAL CORPORATION
By: ___________________________
Bruce A. Nelson
Vice President
Acknowledged and Agreed to this_________
day of _________________, 1997.
INFOCURE CORPORATION
By: ____________________________________
Frederick L. Fine, President
cc: R. Sutton
R. Abrahams
<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 March 13, 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 March 13, 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
March 13, 1997
<PAGE> 1
EXHIBIT 99.1
INFOCURE CORPORATION
DESCRIPTION OF GRAPHIC IMAGE AND AUDIO MATERIAL
This description of graphic image and audio material is filed pursuant
to Rule 304 of Regulation S-T.
The inside front cover of the Prospectus contains a map of the United
States which is color coded to indicate a numerical range of client sites
within each state. The color codes represent the following ranges:
<TABLE>
<CAPTION>
Number of Client Sites Number of States
---------------------- ----------------
<S> <C>
1-24 10
25-100 20
101-300 13
Over 300 7
</TABLE>
The map also depicts the location of the corporate headquarters of each of the
Founding Businesses comprising InfoCure Corporation. Above the map is a
photograph of a physician and the following heading: Existing Client Sites
Total Over 6,000.
Below the map is the following caption:
Current Client Site Totals 6,000+
Serving an Estimated 17,000 Health Care Providers Nationwide
The inside front cover folds out to reveal two pages which are the
reverse of the cover and inside front cover pages. The foldout contains eight
photographs and associated text as follows:
Description of Photographs Associated Text
-------------------------- ---------------
<TABLE>
<S> <C> <C>
1. Physician Clinical Applications
- Patient Medical History
- Patient Treatment Planning
- Hospital Link
2. Medical Bill Financial Applications
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
- Patient Billing
- Patient Records
- Insurance Processing
- Refund Processing
- Collection
3. Medical Files Administrative Applications
- Patient Communication
- Appointment Scheduling
- Referral Analysis
4. Person Working at Computer Practice Management Applications
- Management Reporting
- Report Generator
- Graphic Analysis
- Managed Care Analysis
5. Computer Keyboard Electronic Data Interchange (EDI)
- Claims Submission
- Patient Billing
- Claims Remittance
- Eligibility & Referral Authorization
- Precertification
- Claims Status
- Encounter & Payment Approval
6. Compact Disk Drive Add-On Software Modules
- Voice Automated Medical Records
- Digital Record Keeping(TM)
- Optical Mark System(R)
- Laboratory Interface
- Distributive Processing
- Advanced Analytical Software Products
7. Conference Room Meeting Customer Support & Services
- Software Maintenance
- Toll-Free Support Line
- Product Enhancements
- Training
- Custom Development Services
8. Telephone Operators [No associated text]
</TABLE>
