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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 001-12799
INFOCURE CORPORATION
(Exact name of registrant as specified in Its charter)
DELAWARE 58-2271614
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1765 THE EXCHANGE
SUITE 450
ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 221-9990
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of shares of the issuer's class of capital stock as of August 3,
1998, the latest practicable date, is as follows: 6,093,751 shares of Common
Stock, $.001 par value.
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INFOCURE CORPORATION
FORM 10-QSB
FOR THE
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Consolidated Balance Sheets...................................... 1
June 30, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Operations (unaudited)................ 2
Three months ended June 30, 1998 and July 31, 1997
Six months ended June 30, 1998 and July 31, 1997
Consolidated Statements of Cash Flows (unaudited)................ 3
Six months ended June 30, 1998 and July 31, 1997
Notes to Consolidated Financial Statements....................... 4
Item 2. Management's Discussion and Analysis of Financial Condition...... 9
and Results of Operations
PART II. OTHER INFORMATION
Item 2. Change in Securities............................................. 12
Item 5. Other Information................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................. 12
Signatures....................................................... 13
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 DECEMBER 31, 1997
--------------------- ----------------------
Current assets: (unaudited)
<S> <C> <C>
Cash....................................................................... $ 4,105,194 $ 1,406,193
Accounts and notes receivable, net of allowances of $258,000 and $51,000... 6,669,143 5,168,850
Inventory.................................................................. 490,157 437,371
Deferred tax asset......................................................... 675,000 556,000
Prepaid expenses and other current assets.................................. 903,858 511,110
------------ ------------
Total current assets........................................................ 12,843,352 8,079,524
Property and equipment, net of depreciation of $706,281 and $708,884........ 3,455,469 1,327,796
Goodwill, net of amortization of $1,751,240 and $404,888.................... 38,627,093 17,013,526
Other intangibles, net of amortization of $49,165 and $34,510............... 1,724,656 1,027,249
Deferred tax asset.......................................................... 2,059,855 1,906,000
Other assets................................................................ 352,809 196,993
------------ ------------
Total assets................................................................ $ 59,063,234 $ 29,551,088
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 1,099,412 $ 1,693,624
Accrued restructuring costs................................................ 2,136,272 3,172,066
Accrued expenses........................................................... 2,158,701 1,084,070
Deferred revenue and customer deposits..................................... 4,437,204 3,388,284
Current portion of long-term debt.......................................... 2,587,009 2,001,393
------------ ------------
Total current liabilities................................................... 12,418,598 11,339,437
Long-term debt, less current portion........................................ 27,663,969 6,960,200
Other liabilities........................................................... - 6,518,968
------------ ------------
Total liabilities........................................................... 40,082,567 24,818,605
------------ ------------
Common stock issuable for earnout commitment................................ 1,575,000 -
------------
Convertible preferred stock................................................. 8,500,000 -
------------
Stockholders' equity:
Common stock, $.001 par value, 15,000,000 shares authorized; 6,093,751 and
5,760,647 issued and outstanding at June 30, 1998 and December 31, 1997,
respectively.............................................................. 6,094 5,761
Additional paid-in capital................................................. 20,822,226 16,662,910
Accumulated deficit........................................................ (11,701,048) (11,820,284)
Treasury stock at cost..................................................... (221,605) (115,904)
------------ ------------
Total stockholders' equity.................................................. 8,905,667 4,732,483
------------ ------------
Total liabilities and stockholders' equity.................................. $ 59,063,234 $ 29,551,088
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JULY 31, 1997 JUNE 30, 1998 JULY 31, 1997
----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Systems and software revenues..................... $ 7,314,408 $ 948,406 $13,357,721 $1,757,836
Maintenance support and other..................... 4,927,596 1,316,854 9,449,103 1,997,380
----------- ---------- ----------- ----------
Total revenues.................................. 12,242,004 2,265,260 22,806,824 3,755,216
Operating expenses:
Cost of revenues.................................. 3,024,798 482,499 4,923,531 1,155,771
Salaries and operating expenses................... 6,436,774 1,495,472 12,888,744 2,299,971
Depreciation and amortization..................... 903,850 137,320 1,771,216 198,342
Restructuring costs............................... 750,000 1,874,032
----------- ---------- ----------- ----------
Total operating expenses........................ 11,115,422 2,115,291 21,457,523 3,654,084
Income from operations.............................. 1,126,582 149,969 1,349,301 101,132
Other income (expense), net...................... (653,802) (60,474) (984,065) (117,933)
----------- ---------- ----------- ----------
Income (loss) before income taxes................... 472,780 89,495 365,236 (16,801)
Provision (benefit) for income taxes............. 236,000 26,000 246,000 (6,000)
----------- ---------- ----------- ----------
Net Income (loss)................................... $ 236,780 $ 63,495 $ 119,236 $ (10,801)
=========== ========== =========== ==========
Income (loss) per share-basic....................... $ .04 $ .02 $ .02
=========== ========== ===========
Income (loss) per share-diluted..................... $ $.03 $ .02 $ .02
=========== ========== ===========
Weighted average number of shares - basic.......... 6,093,751 3,581,183 5,996,095
=========== ========== ===========
Weighted average number of shares - diluted......... 8,038,791 3,636,313 7,647,244
=========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
June 30, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss).............................................................. $ 119,236 $ (10,801)
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization................................................ 1,771,216 198,342
Deferred income tax (benefits)............................................... 246,000 (6,000)
Changes in current assets and liabilities, net of effects of
acquisitions:
Accounts and notes receivable................................................ (284,994) 28,108
Inventory.................................................................... 153,288 57,269
Prepaid expenses and other assets............................................ (653,425) (107,386)
Accounts payable and accrued expenses........................................ 658,335 84,570
Deferred revenue............................................................. (938,536) (117,979)
------------ -----------
Total cash provided by (used for) operating activities..................... 1,071,120 126,123
------------ -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Property and equipment expenditures.......................................... (1,499,015) (6,801)
Cash paid for capitalized acquisition costs and other intangible............. (629,617) (660,499)
assets
Expenditures for software development costs.................................. (620,149) (51,429)
Cash paid for acquisitions................................................... (18,108,007) (2,751,824)
------------ -----------
Total cash provided by (used for) investing activities..................... (20,856,788) (3,470,553)
------------ -----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common stock....................................... - 6,433,607
Proceeds from issuance of convertible preferred stock........................ 7,819,952 -
Net proceeds (repayment) of long-term debt................................... 14,770,418 (1,465,209)
Purchase of treasury stock................................................... (105,701) -
------------ -----------
Total cash provided by (used for) financing activities..................... 22,484,669 4,968,398
------------ -----------
Net increase in cash............................................................ 2,699,001 1,623,968
Beginning cash and cash equivalents............................................. 1,406,193 198,735
------------ -----------
Ending cash and cash equivalents................................................ $ 4,105,194 $ 1,822,703
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
The information presented at June 30, 1998 and July 31, 1997 and for the
periods then ended is unaudited, but includes all adjustments, consisting only
of normal recurring adjustments, which the management of InfoCure Corporation
("InfoCure," and together with InfoCure's subsidiaries, the "Company") believes
to be necessary for a fair presentation of the financial condition, results of
operations and cash flows for the periods presented. Historical results may not
be indicative of the results to be expected in the future. Certain information
in footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). The consolidated financial statements,
notes thereto and other information should be read in conjunction with the
historical and pro forma consolidated financial statements and related notes
thereto contained in the Company's Transition Report on Form 10-KSB filed with
the Commission on April 1, 1998.
InfoCure was founded in November 1996 to develop, market and service
practice management systems for use by health care providers throughout the
United States. On July 10, 1997, InfoCure completed an initial public offering
of its common stock (the "Offering") and simultaneously acquired the following
six operating companies: International Computer Solutions, Inc. ("ICS"), Health
Care Division, Inc. ("HCD"), Millard-Wayne, Inc. ("Millard Wayne"), KComp
Management Systems, Inc. ("KComp"), DR Software, Inc. ("DR Software") and Rovak,
Inc. ("Rovak") (collectively the "Founding Companies"). American Medcare
Corporation ("AMC"), a holding company and parent of ICS, HCD, and Millard-
Wayne, originally incorporated on January 11, 1983, was merged with and into
InfoCure at the time the offering became effective and is considered a
predecessor company to InfoCure and the accounting acquirer of all the Founding
Companies. All outstanding shares of AMC were converted into approximately 3.0
million shares of InfoCure Common Stock concurrently with the consummation of
the Offering. The aggregate consideration paid for the Founding Companies was
approximately $3.7 million in cash and 907,000 shares of Common Stock for an
aggregate value of $8.7 million, including fees and other acquisition related
costs.
Subsequent to the consummation of the Offering and the acquisition of the
Founding Companies, InfoCure acquired substantially all the assets or all the
outstanding equity securities of the following companies: Professional On-Line
Computer, Inc. ("POLCI"); Commercial Computers, Inc. ("CCI"); SoftEasy Software,
Inc. ("SoftEasy"); Pace Financial Corporation ("PACE"); and the orthodontic
business unit of HALIS Services, Inc. ("OPMS"). POLCI, CCI and SoftEasy were
acquired with effect from October 1, 1997; PACE was acquired with effect from
November 1, 1997; and OPMS was acquired with effect from December 1, 1997.
Effective January 1, 1998, InfoCure also acquired Micro-Software Designs, Inc.
("Micro-Designs") and Medical Software Integrators, Inc. ("MSI"). Aggregate
consideration for all of these acquisitions was approximately $33.1 million cash
and debt, and 448,767 shares of Common Stock, for an aggregate value of $44.6
million.
All acquisitions which have occurred subsequent to the consummation of the
Offering and the acquisitions of the Founding Companies are collectively
referred to herein as the "Recent Acquisitions". The acquisitions of the
Founding Companies and the Recent Acquisitions have been accounted for using the
purchase method of accounting. Effective January 15, 1998, the Company changed
its fiscal reporting period to December 31 and on April 1, 1998, the Company
filed its Transition Report on Form 10-KSB covering the eleven months ended
December 31, 1998.
The accompanying financial statements have been presented on a consolidated
basis for the six months ended June 30, 1998 including InfoCure, and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated. The accompanying consolidated Statements of Operations include
AMC (InfoCure's predecessor) and its subsidiaries ICS and HCD for the period
from February 1, 1997, the Founding Companies for the period from July 11, 1997
and the Recent Acquisitions from their respective effective acquisition dates.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from software licenses are recognized when the system has been
installed and when the related client training has been completed. Amounts
billed in advance of installation and pending completion of remaining
significant obligations are deferred. Revenues from support and maintenance
contracts are recognized as the services are performed ratably over the contract
period, which typically does not exceed one year. Revenues from other services
are recognized as they are provided.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity dates of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company's credit concentrations are limited due to the wide variety of
customers in the health care industry and the geographic areas into which the
Company's systems and services are sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts of the Company's financial instruments included in the
accompanying consolidated balance sheets are not materially different from their
fair values as of June 30, 1998 and December 31, 1997.
INVENTORIES
Inventory consists primarily of peripheral computer equipment and computer
forms and supplies. Inventory is accounted for on the first-in, first-out basis
and reported at the lower of cost or market.
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 primarily accelerated methods
for income tax purposes. Substantial betterments to property and equipment are
capitalized and repairs and maintenance are expensed as incurred.
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GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the
excess of cost over the fair value of assets acquired in business acquisitions
accounted for under the purchase method. All goodwill is amortized on a
straight-line basis over an estimated useful life of 15 years. Capitalized
acquisition costs include fees and other expenses incurred in connection with
the Company's acquisition program. As acquisitions are completed, such costs
are included in the Company's total investment to be allocated appropriately.
Other intangible assets consist primarily of deferred loan costs which are being
amortized over the life of the respective loans at rates which approximate the
interest method.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes certain software development costs in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed. Software development costs are expensed as incurred prior to
establishing the technological feasibility of a product. Costs incurred between
the establishment of technological feasibility and the time a product is
available for general release are capitalized. Capitalized software costs are
amortized using the straight-line method over the estimated lives of the related
products (generally 48 months).
ASSET IMPAIRMENT
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, effective for years beginning after December 15, 1995, requires that long-
lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. The Company periodically assesses whether there has
been a permanent impairment of its long-lived assets, in accordance with SFAS
No. 121.
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.
RESTRUCTURING COSTS
The Company records the cost of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees, in accordance with Emerging Issues Task Force ("EITF")
Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring).
EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, Earnings Per Share,
which is effective for fiscal years ending after December 15, 1997. Basic
earnings per share for the six months ended June 30, 1998 is calculated based
upon the weighted average number of common shares outstanding during the period.
Diluted earnings per share includes the dilutive effect of common stock
equivalents. Earnings per share for the period ended July 31, 1997 has not been
presented as it is not considered meaningful due to the acquisitions of the
Founding Businesses and the Company's initial public offering in conjunction
with the formation of the Company during the period ended December 31, 1997.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
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NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, Reporting Comprehensive Income, effective for fiscal years
beginning after December 15, 1997, establishes standards for reporting and
display of comprehensive income and its components in a full set of general-
purposes financial statements. This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company has addressed
the requirements of SFAS No. 130 and no material impact on the financial
statements is expected.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The adoption of SFAS No.131 has
no material impact on the financial statements.
SOP 97-2, Software Revenue Recognition, effective for fiscal years
beginning after December 15, 1997, provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and establishes certain criteria for revenue recognition. The adoption of SOP
97-2 has no material impact on the financial statements.
NOTE 3. BUSINESS ACQUISITIONS
The following unaudited pro forma information presents the net revenues,
net income and earnings per share of the Company as if the acquisitions of the
Founding Companies and the Recent Acquisitions had occurred as of February 1,
1997. The pro forma information is not necessarily indicative of actual results
if such acquisitions occurred as of February 1, 1997, nor is it indicative of
results of operations which may be realized in future periods. The pro forma
amounts give effect to appropriate adjustments for the fair value of the net
assets acquired, operating expenses not assumed as part of the acquisitions,
amortization of goodwill, interest expense, and income taxes.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED JULY SIX MONTHS ENDED
31, 1997 JULY 31, 1997
---------------------------------------------------------
<S> <C> <C>
Net revenue...................................... $11,063,000 $22,126,000
Net income....................................... $ 600,000 $ 1,157,000
Earnings per share-basic......................... $ .10 $ .19
Earnings per share-diluted....................... $ .08 $ .16
</TABLE>
NOTE 4. COMMON STOCK ISSUABLE FOR EARNOUT COMMITMENT
Effective December 1, 1997, the Company adopted a plan to restructure its
operations by reevaluating and consolidating existing facilities and acquired
operations. As a result, during the year ended December 31, 1997, the Company
recognized $11.1 million of charges related to the impairment of goodwill,
capitalized software, and contingent consideration associated with prior
acquisitions, referred to as "earnout commitments." A portion of these earnout
commitments are payable in the form of common stock. As of June 30, 1998,
$1,575,000 of such earnout commitments was to be settled by issuance of
approximately 286,000 shares of common stock.
NOTE 5. COMMON STOCK AND EARNINGS PER SHARE
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Common stock issued and outstanding reflects shares issued in the Company's
initial public offering completed effective July 10, 1997, and shares issued to
effect the acquisitions of the Founding Businesses and the Recent Acquisitions.
The weighted average outstanding share computations used in the pro forma
earnings per share computation for the respective periods reflect the respective
time periods for which the shares issued were outstanding. Shares authorized,
issued and outstanding and earnings per share for periods prior to July 10, 1997
(the effective date of the acquisition of the Founding Businesses), are not
considered meaningful and have not been presented.
NOTE 6. CASH FLOW STATEMENT
The financial statements for the six months ended June 30, 1998 reflect
approximately $4,140,000 in Common Stock issued in connection with the Recent
Acquisitions of Micro-Designs and MSI.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain information included in this report constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including without limitation the following statements: (i) the Company's
anticipation that maintenance, support and other revenues will generally
increase as a percentage of total revenues over the long-term; (ii) the
Company's intention to increase its sales and marketing expenditures in future
periods; (iii) the Company's anticipation of increased expenditures on product
development; (iv) the Company's expectation of additional capital investments
during 1998; (v) the Company's belief that its operating cash flow, combined
with availability of funds under its line of credit facility, will be sufficient
to fund the Company's working capital requirements through at least 1998; and
(vi) the Company's intention to seek additional sources of financing. The
Company notes that a variety of risk factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements.
Reference is made in particular to the discussion set forth below in this report
and set forth in the Company's Transition Report on Form 10-KSB for the period
ended December 31, 1997 which was filed with the Securities and Exchange
Commission (the "Commission") on April 1, 1998.
Change in Fiscal Year. The Company historically has reported its financial
statements on a fiscal year ending January 31. In January 1998, the Company
determined to change its fiscal year end from January 31 to December 31, giving
retroactive effect to the change such that the Company's fiscal year beginning
February 1, 1997 ended on December 31, 1997. As a result, the Company's second
quarter in 1998 covers the three months ended June 30, 1998, as compared to the
Company's second quarter in 1997, which covers the three months ended July 31,
1997.
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
Revenues. Total revenues for the three months ended June 30, 1998 were
$12.2 million, as compared to total revenues of $2.3 million for the three
months ended July 31, 1997. Total revenues for the six months ended June 30,
1998 were $22.8 million, as compared to total revenues of $3.8 million for the
six months ended July 31, 1997. These increases in total revenues primarily
reflect the completion of the acquisition of the Founding Companies effective
July 10, 1997, and the Recent Acquisitions as of their respective effective
dates. Revenues for periods prior to July 10, 1997 include only revenues of the
Company's predecessor, AMC, and its consolidated subsidiaries. Systems and
software revenues were $7.3 million for the three months ended June 30, 1998, or
59.7% of total revenues, while maintenance, support, and other revenues were
$4.9 million, or 40.3% of total revenues for the same period. Systems and
software revenues were $13.4 million for the six months ended June 30, 1998, or
58.6% of total revenues, while maintenance, support, and other revenues were
$9.4 million, or 41.4% of total revenues for the same period. The Company
anticipates that maintenance, support, and other revenues will generally
increase as a percentage of total revenues over the long-term if the Company is
able to continue to expand and retain its installed customer base.
Cost of Revenues. For the three months ended June 30, 1998, cost of
revenues were $3.0 million, or 24.7% of total revenues, as compared to $482,000,
or 21.3% of total revenues, for the three months ended July 31, 1997. For the
six months ended June 30, 1998, cost of revenues were $4.9 million, or 21.6% of
total revenues, as compared to $1.2 million, or 30.8% of total revenues, for the
six months ended July 31, 1997. The dollar volume increase in cost of revenues
reflects primarily the increase in total costs resulting from the acquisition of
the Founding Companies and the Recent Acquisitions. The decrease in cost of
revenues as a percentage of total revenues reflects primarily changes in gross
margin associated with the different businesses included in these acquisitions
and a reduced focus on hardware sales.
Salaries and Operating Expenses. Salaries and operating expenses include
sales and marketing expenses, administrative expenses and product development
expenses. Sales and marketing expenses includes salaries, variable commissions
and bonuses for the sales force, advertisement and promotional marketing
materials, travel and telephone charges. Administrative expenses include
salaries for administrative personnel, rents, telephone charges, insurance, and
other administrative expenses. Salaries and operating expenses increased to $6.4
million, or 52.6% of total revenues for the three months ended June 30, 1998,
as compared to $1.5 million, or 66.0% of total revenues, for the three months
ended July 31, 1997. Salaries and operating expenses increased to $12.9 million,
or 56.5% of total
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revenues for the six months ended June 30, 1998, as compared to $2.3 million, or
61.2% of total revenues, for the six months ended July 31, 1997. The dollar
volume increase in salaries and operating expenses reflects primarily the
increases in expenditures for marketing, and administrative personnel and other
selling and administrative costs which support the significantly expanded
business associated with the Company's recent acquisitions. The Company intends
to increase its sales and marketing expenditures in future periods in order to
continue to promote the Company's broad range of product offerings. Product
development expenses consist of personnel and related costs incurred to conduct
the Company's product development effort. Management believes that significant
continuing investments in product development are required to compete
effectively in the Company's industry.
Depreciation and Amortization. Depreciation and amortization expenses were
$904,000, or 7.4% of total revenues, for the three months ended June 30, 1998,
as compared to $137,000, or 6.0% of total revenues, for the three months ended
July 31, 1997. Depreciation and amortization expenses were $1.8 million, or 7.8%
of total revenues, for the six months ended June 30, 1998, as compared to
$198,000, or 5.3% of total revenues, for the six months ended July 31, 1997.
Increased depreciation and amortization expense represents primarily the
significant increase in goodwill due to the acquisition of the Founding
Companies and Recent Acquisitions. The Company expects additional capital
investments during 1998 as it continues to develop the infrastructure needed to
support increased levels of operations.
Restructuring Charge. Effective December 1, 1997, the Company adopted a
plan to restructure its operations by consolidating existing facilities and
acquired operations. In connection with this plan, management also reevaluated
the Company's investment in goodwill and capitalized software in light of the
Company's proposed consolidations of product lines, current market conditions
and the restructuring plan. During the year ended December 31, 1997, the
Company recognized $11.1 million of charges related to the impairment of
goodwill, capitalized software and contingent consideration associated with
prior acquisitions. The restructuring plan, which included terminations of
certain redundant staff positions, was completed during the second quarter of
1998. Details of this restructuring plan were finalized and communicated in the
first quarter of 1998. In connection with the restructuring plan, the Company
recognized a charge of $750,000, or 6.1% of total revenues, related to
contingent consideration for an acquisition payable to former shareholders of
one of the Founding Companies in the second quarter of 1998.
Income from Operations. Income from operations was $1.1 million, or 9.2% of
total revenues, for the three months ended June 30, 1998, as compared to the
income from operations of $150,000, or 6.6% of total revenues, for the three
months ended July 31, 1997. Income from operations was $1.3 million, or 5.9% of
total revenues, for the six months ended June 30, 1998, as compared to income
from operations of $101,000 or 0.03% of total revenues for the six months ended
July 31, 1997. The significant increase in income from operations for each of
these periods represent primarily the profitable results of operations of
businesses included in the Company's Recent Acquisitions, as well as
efficiencies realized by the Company from a larger installed customer base and
higher total revenues.
Other Expenses. Other expenses increased to $654,000 for the three months
ended June 30, 1998, as compared to $60,000 for the three months ended July 31,
1997. Other expenses increased to $984,000 for the six months ended June 30,
1998, as compared to $118,000 for the six months ended July 31, 1997. The
increase relates primarily to increases in interest expense related to
indebtedness incurred to complete the Company's Recent Acquisitions.
Provision (Benefit) for Income Taxes. The provision for income taxes was
$236,000 for the three months ended June 30, 1998, as compared to $26,000 for
the three months ended July 31, 1997. The provision for income taxes was
$246,000 for the six months ended June 30, 1998 and the benefit for income taxes
was $6,000 for the six months ended July 31, 1997. The variation in effective
income tax rates is largely due to permanent differences resulting from the
amortization of nondeductible goodwill.
LIQUIDITY AND CAPITAL RESOURCES
-10-
<PAGE>
At June 30, 1998, the Company had total cash and cash equivalents of $4.1
million and working capital of $400,000. During the six months ended June 30,
1998, the Company generated $1.1 million of cash from operating activities,
representing primarily a net income of $119,000 and non-cash depreciation and
amortization expenses of $1.8 million offset by reductions in deferred revenue
of $900,000. During this period, cash used for investing activities was $20.9
million, representing primarily cash used for acquisitions of $18.1 million and
property and equipment costs of $1.5 million. During the six months ended June
30, 1998, the Company generated cash from financing activities of $22.5 million
including $7.8 million net proceeds from the issuance of convertible, preferred
stock and $14.8 million net proceeds from long-term debt.
In November 1997, the Company closed a secured line of credit, with an
aggregate availability of $10.0 million with FINOVA Capital to be used primarily
for acquisition purposes and working capital. The line of credit has a five-year
term and bears interest at an annual rate of prime plus 1.25% to 2.00%,
depending on whether the Company achieves certain debt service ratios. In
February 1998, the available credit under this facility was increased to $30.0
million. At August 13, 1998 the interest rate was 9.5% per annum and the Company
had $1.9 million available for borrowing under this line of credit.
The Company believes that its operating cash flow, combined with
availability of funds under its line of credit facility, will be sufficient to
fund the Company's working capital requirements through at least the next twelve
months. The Company's ability to consummate future acquisitions will be
determined by the Company's ability to attain additional sources of capital.
Consequently, the Company will seek additional sources of financing, including
borrowings and the sale of equity and/or debt securities. The sale of equity
securities, including securities convertible into equity securities, may result
in further dilution to existing stockholders. No assurance can be given that
additional sources of capital will be available on terms acceptable to the
Company or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
must accept four digit entries to distinguish twenty-first century dates from
twentieth century dates. As a result, over the next two years, computer systems
and/or software used by many companies must be upgraded to be Year 2000
compliant. Significant uncertainty exists in the software industry concerning
the potential consequences that may result from the failure of software as a
result of Year 2000 non-compliance. The Company believes that the latest
versions of its products are Year 2000 compliant. The Company is in the process
of determining the extent to which its earlier software products and new
products recently acquired by the Company as implemented in the Company's
installed customer base are Year 2000 compliant, as well as the impact of any
non-compliance on the Company and its customer. The Company does not currently
believe that the effects of any Year 2000 non-compliance in the Company's
installed customer base will result in a material adverse impact on the Company.
However, the Company's investigation has been conducted through sampling of its
older products and new products recently acquired by the Company and no
assurance can be given that such products are Year 2000 compliant, or can be
made to be Year 2000 compliant. Consequently, no assurance can be given that the
Company will not be exposed to potential claims as a result of Year 2000 non-
compliance.
-11-
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGE IN SECURITIES.
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
The Company continues to consider acquisitions and is in various stages
of discussions with potential acquisition candidates in the health care practice
management systems industry.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule (solely for use by the Commission)
(b) Reports on Form 8-K
(i) A current report on Form 8-K was filed with the Commission on
April 8, 1998 in connection with the Company's change of fiscal
year end.
(ii) An amended report on Form 8-K/A was filed with the Commission
on May 11, 1998, in connection with the acquisition by the
Company of Micro-Software Designs, Inc. and Medical Software
Integrators, Inc.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFOCURE CORPORATION
Date: August 14, 1998 /s/ Frederick L. Fine
-------------------- ---------------------------------------
Frederick L. Fine
President; Chief Executive Officer
(Principal Executive Officer); Director
Date: August 14, 1998 /s/ Richard E. Perlman
-------------------- ---------------------------------------
Richard E. Perlman
Chairman of the Board;
Chief Financial Officer
Principal Financial Treasurer;
Director
Date: August 14, 1998 /s/ Gary W. Plumer
-------------------- ---------------------------------------
Gary W. Plumer
Vice President-Finance;
Assistant Secretary;
Assistant Treasurer
(Principal Accounting Officer)
-13-
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