<PAGE>
- --------------------------------------------------------------------------------
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 MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File Number: 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 30339
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
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 May 13, 1998,
the latest practicable date, is as follows: 6,132,414 shares of Common Stock,
$.001 par value.
- --------------------------------------------------------------------------------
<PAGE>
INFOCURE CORPORATION
FORM 10-QSB
FOR THE
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements Number
------
<S> <C> <C>
Consolidated Balance Sheets.............................................. 1
March 31, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Operations (unaudited).........................2
Three months ended March 31, 1998 and April 30, 1997
Consolidated Statements of Cash Flows (unaudited).........................3
Three months ended March 31, 1998 and April 30, 1997
Notes to Consolidated Financial Statements................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................9
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..............................................................14
</TABLE>
-i-
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
INFOCURE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1998 DECEMBER 31, 1997
---------------------- -------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash....................................................................... $ 5,129,635 $ 1,406,193
Accounts and notes receivable, net of allowance of $71,000 and $51,000..... 4,889,475 5,168,850
Inventory.................................................................. 720,980 437,371
Deferred tax assets........................................................ 675,000 556,000
Prepaid expenses and other current assets.................................. 778,513 511,110
--------------------- ------------------
Total current assets........................................................ 12,193,603 8,079,524
Property and equipment, net of depreciation of $686,310 and $708,884....... 2,510,697 1,327,796
Goodwill, net of amortization of $1,069,002 and $404,888................... 39,465,286 17,013,526
Capitalized acquisition costs and other intangibles, net of amortization
of $79,650 and $34,510.................................................... 1,025,721 1,027,249
Deferred tax assets........................................................ 2,273,885 1,906,000
Other assets............................................................... 549,803 196,993
--------------------- -------------------
Total assets................................................................ $ 58,018,995 $ 29,551,088
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 744,822 $ 1,693,624
Accrued restructuring costs................................................ 1,565,390 3,172,066
Accrued expenses........................................................... 2,244,374 1,084,070
Deferred revenue and customer deposits..................................... 4,742,991 3,388,284
Current portion of long-term debt.......................................... 991,858 2,001,393
--------------------- ------------------
Total current liabilities................................................... 10,289,435 11,339,437
Long-term debt, less current portion........................................ 28,956,167 6,960,200
Other liabilities........................................................... - 6,518,968
--------------------- -------------------
Total liabilities........................................................... 39,245,602 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; 6,132,414 and
5,760,647 issued and outstanding at March 31, 1998 and December 31, 1997,
respectively.............................................................. 6,132 5,761
Additional paid-in capital................................................. 20,805,038 16,662,910
Accumulated deficit........................................................ (11,937,826) (11,820,284)
Treasury stock at cost................................................... (174,951) (115,904)
--------------------- -------------------
Total stockholders' equity.................................................. 8,698,393 4,732,483
--------------------- -------------------
Total liabilities and stockholders' equity.................................. $ 58,018,995 $ 29,551,088
===================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-1-
<PAGE>
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31, 1998 APRIL 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Systems and software revenues............................................ $ 6,043,313 $ 809,429
Maintenance, support, and other.......................................... 4,521,507 680,528
------------------ ------------------
Total revenues........................................................ 10,564,820 1,489,957
Operating expenses:
Cost of revenues........................................................ 1,898,735 673,274
Salaries and operating expenses......................................... 6,451,968 804,499
Depreciation and amortization........................................... 867,366 61,022
Restructuring costs..................................................... 1,124,032 -
------------------ ------------------
Total operating expenses.............................................. 10,342,101 1,538,795
Income (loss) from operations.............................................. 222,719 (48,838)
Other income (expense), net................................................ (330,263) (57,458)
------------------ ------------------
Loss before income taxes................................................... (107,544) (106,296)
Provision (benefit) for income taxes....................................... 10,000 (32,000)
------------------ ------------------
Net loss................................................................... $ (117,544) $ (74,296)
================== ==================
Loss per share-basic....................................................... $(.02)
==================
Loss per share-diluted..................................................... $(.02)
==================
Weighted average number of shares.......................................... 5,898,439
==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-2-
<PAGE>
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
March 31, 1998 April 30, 1997
------------------- ------------------
<S> <C> <C>
Cash provided by (used for) operating activities:
Net loss................................................................ $ (117,544) $ (74,296)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization......................................... 867,366 61,022
Compensatory stock options......................................... - 7,500
Deferred income taxes (benefits)................................... 10,000 (32,000)
Changes in current assets and liabilities, net of effects of
acquisitions:
Accounts and notes receivable......................................... 1,147,614 24,986
Inventory............................................................. (77,535) -
Prepaid expenses and other assets..................................... (500,785) (20,718)
Accounts payable and accrued expenses................................. (56,881) (113,777)
Deferred revenue...................................................... (852,015) (11,692)
------------------- ------------------
Total cash provided by (used for) operating activities.............. 420,220 (158,975)
------------------- ------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Property and equipment expenditures, net.............................. (282,124) -
Cash paid for capitalized acquisition costs and other intangible
assets............................................................... (552,886) (64,554)
Expenditures for software development costs........................... - (9,007)
Cash paid for acquisitions............................................ (18,032,494) -
------------------- ------------------
Total cash provided by (used for) investing activities.............. (18,867,504) (73,561)
------------------- ------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................ - 280,000
Proceeds from issuance of convertible, preferred stock................ 7,819,952 -
Net proceeds (repayment) of long-term debt............................ 14,409,821 (13,838)
Purchase of treasury stock............................................ (59,047) -
------------------- ------------------
Total cash provided by (used for) financing activities.............. 22,170,726 266,162
------------------- ------------------
Net increase in cash and cash equivalents................................ 3,723,442 33,626
Beginning cash and cash equivalents...................................... 1,406,193 198,735
------------------- ------------------
Ending cash and cash equivalents......................................... $ 5,129,635 $ 232,361
=================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
The information presented at March 31, 1998 and April 30, 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 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,
1997.
The accompanying financial statements have been presented on a consolidated
basis for the three months ended March 31, 1998 including InfoCure and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. The accompanying consolidated Statements of
Operation 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.
-4-
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals 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 March 31, 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.
CAPITALIZED SOFTWARE COSTS
Software development costs are expensed as incurred prior to establishing
the technological feasibility of a product. Cost 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).
-5-
<PAGE>
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.
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 (LOSS) 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 (loss) per share for the three months ended March 31, 1998 is
calculated based upon the weighted average number of common shares outstanding
during the period. Loss per share for the period ended April 30, 1997 has not
been presented as it is not considered meaningful due to the acquisitions of the
Founding Companies and the Company's initial public offering in conjunction with
the formation of the Company during the period ended December 31, 1997. Weighted
average number of shares outstanding used in computing EPS for the three months
ended March 31, 1998 were 5,898,439. Diluted earnings per share, which would
include the effect of the Company's common stock equivalents, have not been
presented because the impact of the assumed exercise of the Company's stock
options and warrants would have been anti-dilutive. The assumed exercise of the
Company's options and warrants may have a dilutive effect in the future.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
-6-
<PAGE>
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
During the quarter ended March 31, 1998, InfoCure acquired certain net
assets and liabilities of Micro-Designs and MSI. In accordance with Accounting
Principles Board Statement No. 16 ("APB 16"), Business Combinations, these
acquisitions were accounted for as purchases. The total amount of the net
assets acquired and liabilities assumed were as follows:
Cash..............................................$ 496,777
Accounts receivable............................... 1,198,744
Other receivables................................. 16,557
Inventory......................................... 206,074
Deferred tax assets............................... 129,000
Prepaid expenses and other assets................. 276,344
Property and equipment............................ 919,251
Other intangibles................................. 420,082
Goodwill.......................................... 21,357,686
----------
Total assets.................................... 25,020,515
----------
Deferred revenue.................................. 1,987,456
Accrued expenses.................................. 199,394
Accounts payable.................................. 92,928
Income taxes payable.............................. 68,967
----------
Total liabilities............................... 2,348,745
----------
Net assets....................................$22,671,770
==========
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. Pro forma
information is not presented for the period ended March 31, 1998. In accordance
with APB 16, these companies were acquired as of or prior to January 1, 1998 and
their operations from that date are already included in the consolidated
operations for the quarter ended March 31, 1998.
-7-
<PAGE>
Pro Forma
Three Months Ended
April 30, 1997
------------------------------
Net revenue..................... 11,063
Net income...................... 557
Earnings per share-basic........ .09
Earnings per share-diluted...... .07
The weighted average outstanding share computations used in the pro forma
earnings per share computations reflect the respective time periods for which
the shares issued were outstanding.
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 March 31, 1998, the
Company was obligated to settle $1,575,000 of these earnout commitments in
exchange for 286,383 shares of common stock which was in the process of being
issued.
NOTE 5. COMMON STOCK AND EARNINGS PER SHARE
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 Companies and the Recent Acquisitions.
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
Companies), are not considered meaningful and have not been presented.
NOTE 6. CASH FLOW STATEMENT
The financial statements for the quarter ended March 31, 1998 reflect
approximately $4,140,000 in common stock issued in connection with the Recent
Acquisitions of Micro-Designs and MSI.
-8-
<PAGE>
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 Commission on March 31, 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 first
quarter in 1998 covers the three months ended March 31, 1998, as compared to the
Company's first fiscal quarter in 1997, which covers the three months ended
April 30, 1997.
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
Revenues. Total revenues for the three months ended March 31, 1998 were
$10.6 million compared to total revenues of $1.5 million for the three months
ended April 30, 1997. This increase in total revenues primarily reflects 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 $6.0 million for the three months ended March 31, 1998, or 56.6%
of total revenues, while maintenance, support, and other revenues were $4.6
million, or 43.4% 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 March 31, 1998, cost of
revenues were $1.9 million, or 18.0% of total revenues, compared to $673,000,
or 45.2% of total revenues, for the three months ended April 30, 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
$6.5 million, or 61.1% of total revenues for the three months ended March 31,
1998 compared to $804,000, or 54.0% of total revenues, for the three months
ended April 30, 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. The increase as a percentage of total
-9-
<PAGE>
revenues reflects the increased expenditures associated with expansion of the
Company's business base. Product development expenses consist of personnel
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
$867,000, or 8.2% of total revenues, for the three months ended March 31, 1998
compared to $61,000, or 4.1% of total revenues, for the three months ended April
30, 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 is anticipated to be completed
during the second quarter of 1998, also included termination of certain
redundant staff positions. Details of this element of the restructuring plan
were finalized and communicated in the first quarter of 1998. Accordingly,
compensation costs, including severance and other termination benefits, and
other costs of $1.1 million, or 10.6% of total revenues, were recognized in the
first quarter of 1998. The Company anticipates one additional restructuring
charge during the second quarter of 1998 which relates to contingent
consideration for an acquisition potentially payable to former shareholders of
one of the Founding Companies affected by the restructuring plan.
Income from Operations. Income from operations was $223,000 or 2.1% of
total revenues for the three months March 31, 1998 as compared to the loss from
operations of $49,000 or 3.3% of total revenues for the three months ended April
30, 1997. The significant increase in income from operations in the most recent
quarter represents 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 $330,000 for the three months
ended March 31, 1998, as compared to $57,000 for the three months ended April
30, 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
$10,000 for the three months ended March 31, 1998 and a benefit of $32,000 for
the three months ended April 30, 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
At March 31, 1998, the Company had total cash and cash equivalents of $5.1
million and working capital of $1.9 million. During the three months ended March
31, 1998, the Company generated $420,000 of cash from operating activities,
resulting principally from non-cash depreciation and amortization expense of
$867,000 and reductions of accounts receivable of $1.1 million and accrued
expenses, slightly offset by a net loss of $118,000, and increases in pre-paid
expenses and other assets of $500,000 and deferred revenues of $852,000. During
this period, cash used for investing activities was $18.8 million, representing
primarily cash used for acquisitions of $18.0 million and deferred acquisition
costs of $553,000. During the three months ended March 31, 1998, the Company
generated cash from financing activities of $22.1 million including $7.8 million
net proceeds from the issuance of convertible, preferred stock and $14.4 million
net proceeds from long-term debt.
-10-
<PAGE>
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 upon whether the Company achieves certain debt service ratios. At May
14, 1998, the interest rate was 9.5% per annum. In February 1998, the available
credit under this facility was increased to $30.0 million. At May 14, 1998, the
Company had $1.8 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 1998. 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.
-11-
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGE IN SECURITIES.
During the quarter ended March 31, 1998, the Company completed the sale
of 850,000 shares of its Convertible, Redeemable Preferred Stock, Series A in a
private placement for $8.5 million with net proceeds to the Company of $7.8
million after the payment of placement agent commissions and other offering
expenses. These net proceeds will be used primarily for funding future
acquisitions and related expenses.
Shares of the Convertible, Redeemable Preferred Stock, Series A are
convertible into shares of Common Stock. Until February 9, 1999, the shares can
be converted into that number of Common Stock shares determined by dividing the
initial price of $10.00 per share by a conversion price of $8.50. On February
9, 1999, the conversion price will reset for the lesser of $8.50 per share or
the trailing 30-day average closing price of the Common Stock, subject to a
minimum price of $6.75 per share.
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
January 15, 1998, and amended on March 16, 1998, in connection
with the acquisition by the Company of OPMS.
(ii) A current report on Form 8-K was filed with the Commission on
February 23, 1998, in connection with the acquisition by the
Company of Pace Financial Corporation.
(iii) A current report on Form 8-K was filed with the Commission
on February 24, 1998, in connection with the private placement of
Convertible, Redeemable Preferred Stock, Series A.
-12-
<PAGE>
(iv) A current report on Form 8-K was filed with the Commission on
March 12, 1998, in connection with the acquisition by the Company
of Micro-Software Designs, Inc. and Medical Software Integrators,
Inc.
-13-
<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: May 15, 1998 /S/ Frederick L. Fine
------------ -----------------------
Frederick L. Fine
President; Chief Executive Officer
(Principal Executive Officer); Director
Date: May 15, 1998 /S/ Richard E. Perlman
------------ ----------------------
Richard E. Perlman
Chairman of the Board;
Chief Financial Officer
(Principal Financial Treasurer;
Principal Accounting Officer); Director
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,129,635
<SECURITIES> 0
<RECEIVABLES> 4,889,475
<ALLOWANCES> 71,000
<INVENTORY> 720,980
<CURRENT-ASSETS> 12,193,603
<PP&E> 3,197,007
<DEPRECIATION> 686,310
<TOTAL-ASSETS> 58,018,995
<CURRENT-LIABILITIES> 10,289,435
<BONDS> 0
8,500,000
0
<COMMON> 6,132
<OTHER-SE> 8,692,261
<TOTAL-LIABILITY-AND-EQUITY> 58,018,995
<SALES> 10,564,820
<TOTAL-REVENUES> 10,564,820
<CGS> 1,898,735
<TOTAL-COSTS> 10,342,101
<OTHER-EXPENSES> 330,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (107,544)
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,544)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
