<PAGE>
As filed with the Securities and Exchange Commission on April 20, 1999
Registration No. 333-71109
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 5
to
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
INFOCURE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 7372 58-2271614
(State or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
----------------
1765 The Exchange, Suite 450
Atlanta, Georgia 30339
(770) 221-9990
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
Lance B. Cornell
Senior Vice President--Finance
Chief Financial Officer
1765 The Exchange, Suite 450
Atlanta, Georgia 30339
(770) 221-9990
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
Copies to:
Oby T. Brewer III, Esq. John J. Kelley III, Esq.
Richard L. Haury, Jr., Esq. KING & SPALDING
Lauren Z. Burnham, Esq. 191 Peachtree Street, N.E.
MORRIS, MANNING & MARTIN, L.L.P. Atlanta, Georgia 30303
1600 Atlanta Financial Center Telephone: (404) 572-4600
3343 Peachtree Road, N.E. Facsimile: (404) 572-5100
Atlanta, Georgia 30326
Telephone: (404) 233-7000
Facsimile: (404) 365-9532
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If the only securities being registered in this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [_]
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. [_]
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- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 20, 1999
3,770,000 Shares
[LOGO OF INFOCURE APPEARS HERE]
Common Stock
----------
InfoCure Corporation is offering 3,000,000 shares of its common stock and the
selling stockholders are offering an additional 770,000 shares. InfoCure's
common stock is traded on the Nasdaq Stock Market under the symbol "INCX."
----------
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------
<TABLE>
<CAPTION>
Per
Share Total
----- -------
<S> <C> <C>
Public offering price.......................................... $ $
Underwriting discount.......................................... $ $
Proceeds to InfoCure........................................... $ $
Proceeds to the selling stockholders........................... $ $
</TABLE>
InfoCure has granted the underwriters a 30-day option to purchase up to an
additional 565,500 shares of common stock to cover over-allotments.
The underwriters are offering the shares on a firm commitment basis subject
to their right to reject orders in whole or in part and subject to other
conditions. The underwriters expect to deliver the shares to purchasers on or
about , 1999.
----------
The Robinson-Humphrey Company
SG Cowen
William Blair & Company
Sanders Morris Mundy
, 1999
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
Rovak(R), Micro-Designs Software Corporation(R), WinMED(R), and WinOMS(R) are
registered trademarks of InfoCure. Micro*Star(TM), Ideal(TM), OPMS(TM),
Sentinel(TM) and InfoMine(TM) are service marks of InfoCure. This prospectus
also includes trademarks, service marks, trade names and references to
intellectual property owned by other companies.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in our common stock.
We are a leading national provider of healthcare practice management software
products and services in targeted specialty markets. Our wide range of practice
management software automates the administrative, financial and clinical
information management functions for doctors, dentists and other healthcare
practitioners. We also provide our customers with ongoing maintenance and
support, training and electronic data interchange services. These products and
services are designed to increase the quality and reduce the cost of providing
care by enabling physicians to manage their practices more efficiently. As of
March 26, 1999, 11,081 customer sites had installed InfoCure systems. These
sites represent approximately 65,600 healthcare providers, and we have systems
installed in all 50 states. Our goal is to become the leading provider of
practice management systems to targeted healthcare practice specialties,
including:
<TABLE>
<S> <C> <C>
. anesthesiology . oral and maxillofacial surgery . podiatry
. dermatology . orthodontics . radiology
. emergency medicine . pathology
</TABLE>
Our principal offices are located at 1765 The Exchange, Suite 450, Atlanta,
Georgia 30339, and our telephone number is (770) 221-9990.
The Offering
<TABLE>
<S> <C>
Common stock offered:
By InfoCure..................... 3,000,000 shares
By the selling stockholders..... 770,000 shares
Common stock to be outstanding
after the offering............... 12,942,150 shares.
Use of proceeds................... For repayment of indebtedness incurred to
finance prior acquisitions, working capital
and other general corporate purposes,
including possible future acquisitions.
Nasdaq Stock Market symbol........ INCX
</TABLE>
We plan to prepay approximately $65.2 million of the outstanding balance on
our credit facility with the proceeds from this offering. This will result in a
charge of approximately $5.1 million for the early extinguishment of this debt
in the second quarter of 1999.
Unless otherwise stated, all information in this prospectus reflects the
conversion of our Series A Preferred Stock into 1,000,070 shares of our common
stock and assumes that the underwriters will not exercise their over-allotment
option.
3
<PAGE>
Summary Historical Consolidated and Unaudited Pro Forma Financial Data
The following financial data is a summary of the more complete financial
information provided in InfoCure's Unaudited Pro Forma Combined Financial
Statements and Consolidated Financial Statements provided elsewhere in this
prospectus.
The unaudited pro forma combined statement of operations data for the year
ended December 31, 1998 give effect to the following as if they had occurred on
January 1, 1998:
. the acquisition of HSD, a division of The Reynolds and Reynolds Company;
. the borrowing of $40.0 million under our credit facility, which
borrowings were used to fund the payment of a portion of the purchase
price for the HSD acquisition;
. the issuance of notes payable to fund the balance of the purchase price
for the HSD acquisition; and
. the February 1999 merger with OMSystems, Inc. in exchange for 1,143,999
shares of our common stock.
The unaudited pro forma combined statement of operations data as adjusted for
the year ended December 31, 1998 give effect to the following as if each had
occurred on January 1, 1998:
. the reduction of interest expense resulting from the proceeds of this
offering used to repay our credit facility and other indebtedness
incurred in connection with the HSD acquisition;
. the number of shares of common stock issued and sold in this offering;
. the conversion of our Series A Preferred Stock; and
. the issuance of 99,255 shares of common stock which are issuable upon
conversion of a note payable and other convertible obligations.
The unaudited pro forma consolidated balance sheet data as of December 31,
1998 give effect to the HSD acquisition, including the related borrowings under
our credit facility and issuance of other notes payable, and the merger with
OMSystems as if completed as of December 31, 1998. Unaudited pro forma
consolidated balance sheet data, as adjusted, as of December 31, 1998 give
effect to the issuance and sale of the 3,000,000 shares of common stock offered
hereby at an assumed offering price of $24.00 per share and the application of
the estimated net proceeds, the issuance of 1,000,070 shares of common stock
upon conversion of our Series A Preferred Stock, the issuance of 99,255 shares
of common stock which are issuable upon conversion of a note payable and other
convertible obligations, as if each was completed as of December 31, 1998.
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------
Pro Forma
Consolidated Statement Actual Pro Forma As Adjusted
of Operations Data: ------------ ------------ --------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenue:
Systems and software............... $ 34,492 $ 63,372 $ 63,372
Maintenance, support and services
.................................. 29,231 53,518 53,518
------------ ------------ ------------
Total revenue....................... 63,723 116,890 116,890
Operating expense:
Hardware and other items purchased
for resale........................ 12,567 22,980 22,980
Selling, general and
administrative.................... 34,685 66,452 66,452
Depreciation and amortization...... 4,328 7,121 7,121
Purchased research and
development....................... 9,000 9,000 9,000
Compensatory stock awards.......... 57 6,447 6,447
Asset impairment, restructuring and
special charges................... 1,874 2,624 2,624
------------ ------------ ------------
Total operating expense............ 62,511 114,624 114,624
Operating income.................... 1,212 2,266 2,266
Other expense (income):
Interest, net...................... 3,488 8,453 3,040
Other, net......................... (81) (145) (145)
------------ ------------ ------------
Loss before income taxes............ (2,195) (6,042) (629)
Income taxes (benefit).............. (334) (1,796) 261
------------ ------------ ------------
Net (loss).......................... (1,861) (4,246) (890)
Accretive dividend.................. 800 800 800
------------ ------------ ------------
Net (loss) available to common
stockholders....................... $ (2,661) $ (5,046) $ (1,690)
============ ============ ============
Net (loss) per share:
Basic and diluted.................. $ (0.39) $ (0.58) $ (0.13)
Shares used in computing net (loss)
per share:
Basic and diluted.................. 6,780 8,726 12,756
Other data:
EBITDA.............................. $ 16,552 $ 27,603 $ 27,603
<CAPTION>
December 31, 1998
-------------------------------------------
Pro Forma
As
Actual Pro Forma Adjusted
------------ ------------ --------------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........... $ 8,552 $ 9,069 $ 10,000
Working capital..................... 481 1,543 5,624
Total assets........................ 127,784 132,121 128,545
Long-term debt, less current
portion............................ 68,358 69,553 6,728
Convertible, redeemable preferred
stock.............................. 8,500 8,500 --
Stockholders' equity................ 16,255 17,158 88,057
</TABLE>
EBITDA data represents earnings before interest expense, provision (benefit)
for income taxes, depreciation and amortization, purchased research and
development, compensatory stock awards and asset impairment, restructuring and
special charges. EBITDA is not a measurement in accordance with generally
accepted accounting principles and should not be considered an alternative to,
or more meaningful than, income from operations, net income or cash flows as
defined by GAAP or as a measure of our profitability or liquidity. All
companies do not calculate EBITDA in the same manner. Accordingly, our EBITDA
data may not be comparable with that of other companies. We have included
information concerning EBITDA because we believe EBITDA provides a useful
measure of our performance.
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to purchase shares of our common stock.
Failure to Successfully Integrate Acquisitions and Reduce their Operating
Expenses Could Adversely Affect our Future Financial Results.
The successful integration of the businesses we acquire is critical to our
future success. Integrating the management and operations of the businesses we
acquire is time consuming, and we cannot guarantee that we will achieve any of
the anticipated synergies and other benefits expected to be realized from the
acquisitions, including those reflected in our unaudited pro forma combined
financial data. We may face any one or more of the following difficulties:
. difficulty integrating the financial, operational and administrative
functions of acquired businesses;
. difficulty integrating the products of acquired businesses;
. delays in realizing the benefits of our strategies for an acquired
business;
. diversion of management's attention from our existing operations;
. difficulty operating in markets in which we have little prior experience;
. inability to retain key employees necessary to continue the operations of
the acquired businesses; or
. acquiring businesses with unknown liabilities, problems related to the
year 2000, software bugs or adverse litigation and claims.
Any failure to successfully integrate our acquisitions and reduce their
operating expenses could have a material adverse effect on our future financial
results and could negatively impact our ability to acquire other businesses or
otherwise execute our business strategy.
We May Face Claims Related to Year 2000 Problems With our Products Which May
Result in Significant Costs and Uncertainties.
Many installed computer systems and software products are designed to accept
and process year codes with only two digits in their date fields. These systems
and products may not operate properly when required to distinguish dates
occurring on or after January 1, 2000 from dates in the 1900's. If our software
products are not able to make this distinction, our customers may make claims
against us which may result in significant costs and uncertainty.
We believe we have identified most of our year 2000 readiness issues. We have
concluded tests for substantially all of our products that we will continue to
sell or support. We have determined that a majority of these products are ready
for the year 2000. With respect to the rest of the products that we will
continue to sell or support, we believe that we can modify these products so
that they will be ready for the year 2000 by July 1999, but we cannot guarantee
that they will be. We could experience delays or failures in developing or
implementing the required modifications. For older products that we no longer
sell or support, we have attempted to notify all known users of these products
that these products generally are not ready for the year 2000 and that we have
no plans to make them ready for the year 2000. We cannot guarantee that we will
be able to contact all such users.
As part of our effort to make our products ready for the year 2000 and to
help our customers make their systems that use our products ready for the year
2000, we have offered our customers various alternative forms of products and
assistance, including year 2000 information and diagnostic tools, software
patches, product upgrades and replacement products. We cannot guarantee that
these tools, patches, upgrades or replacement products will solve all material
year 2000 problems with our products or our customers' systems. In addition, we
cannot guarantee that claims will not be brought against us alleging that we
harmed customers by failing to provide all of the information, tools, patches,
upgrades or replacement products required to resolve all material
7
<PAGE>
year 2000 readiness problems. For a more detailed discussion of year 2000
readiness issues, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Costs Related to Year 2000 Readiness" on
page 27.
We May Have Difficulties Managing Our Growth and Hiring Qualified Employees
Our growth places a significant strain on our management and operations. Our
future growth will depend, in part, on our ability to implement and expand
financial control systems, train and manage our employee base, and provide
support and services to an increasing customer base. Key personnel have
recently joined InfoCure, and none of our officers has had significant
experience in managing a large, public company. Our success is dependent to a
significant degree on our ability to hire, retain and motivate sales, marketing
and technical employees. We believe that there is a shortage of, and
significant competition for, personnel with the advanced technological,
managerial and marketing skills necessary in our business. Our ability to
implement our growth strategy could be adversely affected by an inability to
hire and retain additional qualified personnel.
Our Growth May be Limited by Difficulties Implementing Our Acquisition Strategy
We intend to pursue acquisitions of businesses, product lines and
technologies that are complementary to our business. Our ability to grow
through acquisitions will be limited by:
. lack of suitable acquisition candidates at acceptable acquisition prices;
. lack of capital to complete acquisitions;
. a material decline in the market value of our common stock; or
. increased competition for acquisition candidates.
Any one of these risks could limit our growth and have a material adverse
effect on our business.
8
<PAGE>
Competition Could Reduce Revenue from Our Products and Services
Currently, the practice management systems industry in the United States is
characterized by a large number of relatively small, regionally-focused
companies and a few national vendors. It is anticipated that additional
competitors are likely to enter the practice management systems market as it
expands. Some of our national competitors have greater financial, development,
technical, marketing and sales resources than we have. As competition in the
practice management systems industry intensifies, we may be required to lower
the prices we charge for our products and services. This may have a material
adverse effect on future results.
9
<PAGE>
We Expect to Need Additional Capital for Acquisitions and We Cannot Guarantee
that this Capital Will Be Available to Us
We expect to finance future acquisitions, if any, through cash from
operations, our credit facility or other indebtedness, issuances of common
stock or other securities, or any combination of these sources. We cannot
guarantee that capital will be available on terms acceptable to us, or at all.
Our Success Depends on Our Key Executives and the Loss of Any of Our Executives
Could Adversely Affect Our Future Results
Our business depends on the continued efforts of our Chief Executive Officer,
Frederick L. Fine, and our Executive Vice President, James K. Price. If either
of these persons becomes unable or unwilling to continue his role with us, or
if we are unable to attract or retain other qualified employees, future results
could be adversely impacted. Although we have entered into employment
agreements with Messrs. Fine and Price and other key executives, we cannot
guarantee that any individual will continue in his present capacity with us for
any particular period of time.
The Consolidation of the Healthcare Industry Could Adversely Affect Our Future
Results
Many healthcare providers are consolidating into larger practice groups with
greater market presence. As a result, these providers have greater bargaining
power which may lead to declining prices for our products. This could have an
adverse effect on our future results. In addition, the consolidation of smaller
practice groups may require the resulting larger group to unify its practice
management systems. We believe that once a healthcare provider has chosen a
particular practice management systems vendor, it will rely on that vendor for
its future practice management systems requirements. Thus, the vendor with the
broadest market share will have a competitive advantage as consolidation
continues. An inability to make initial sales of practice management systems to
healthcare providers prior to consolidation or to maintain our existing
customer base subsequent to consolidation may have a material adverse effect on
future results.
10
<PAGE>
An Aggregate 4.0 Million Shares of Our Common Stock Will Become Eligible for
Sale within 90 days Following This Offering and any Sale of a Large Number of
These Shares, or the Possibility that Such a Sale May Occur, Could Cause Our
Stock Price to Fall
We have a resale registration statement on Form S-3 currently on file with
the SEC. Under this Registration Statement, an additional 4.0 million shares of
our common stock will become eligible for sale upon the expiration of 30-day
and 90-day lock-up agreements. As the date for the expiration of these lock-up
agreements approaches, the market price for our Common Stock could fall. The
market price for our common stock probably will fall dramatically if the
stockholders sell large amounts of our common stock in the public market after
the expiration of these lock-up agreements. These sales, or the possibility
that these sales may occur, could make it more difficult for us to sell equity
or equity-related securities in the future. For a discussion of the number of
shares that will become eligible for sale on these dates, see "Shares Eligible
for Future Sale" on page 50.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." They
include statements concerning:
. our growth and operating strategy;
. liquidity and capital expenditures;
. use of proceeds of the offering;
. our financing plans;
. trends in our industry and in healthcare generally;
. trends in government regulation; and
. payment of dividends.
You can identify these statements by forward-looking words such as "expect,"
"believe," "goal," "plan," "intend," "estimate," "may" and "will" or similar
words. You should be aware that those statements are subject to known and
unknown risks, uncertainties and other factors, including those discussed in
the section entitled "Risk Factors," that could cause the actual results to
differ materially from those suggested by the forward-looking statements.
11
<PAGE>
THE COMPANY
InfoCure was incorporated in Delaware in November 1996. Prior to July 10,
1997, InfoCure conducted no significant operations and generated no revenue. On
July 10, 1997, InfoCure completed the acquisitions of: American Medcare
Corporation, including its subsidiaries, International Computer Solutions,
Inc., Health Care Division, Inc. and Millard-Wayne, Inc.; DR Software, Inc.;
KComp Management Systems, Inc.; and Rovak, Inc. These companies are
collectively referred to herein as the "Founding Companies." On July 10, 1997,
InfoCure also completed its initial public offering of 1.4 million shares of
common stock at a price to the public of $5.50 per share, resulting in net
proceeds to InfoCure of approximately $6.0 million. On March 3, 1999,
InfoCure's stockholders approved an increase in the number of shares of common
stock authorized for issuance to 200,000,000 shares.
Acquisitions
Effective October 1, 1997, InfoCure acquired SoftEasy, Inc., the healthcare
business of Commercial Computers, Inc. and Professional On-Line Computers,
Inc., marketed under the name POLCI. SoftEasy provided practice management
systems for podiatrists. Commercial Computers provided UNIX- and Windows-based
practice management systems for mid-size and large medical practices and
clinics. POLCI provided AS/400-based practice management systems to hospital-
affiliated physician practices, large non-hospital physician clinics, radiology
practices and management service organizations.
Effective November 1, 1997, InfoCure acquired PACE Financial Corporation and
effective December 1, 1997, InfoCure acquired OPMS, the orthodontic business
unit of HALIS Services, Inc. PACE provided AS/400 practice management systems.
OPMS provided Windows-based software solutions for orthodontists.
Effective January 1, 1998, InfoCure acquired Micro-Software Designs, Inc. and
Medical Software Integrators, Inc., marketed under the name MSI. Micro-Designs
provided Windows-based client/server practice management software, with an
emphasis on oral and maxillofacial surgery practices. MSI provided practice
management systems to independent anesthesiology practices.
On October 23, 1998, InfoCure acquired substantially all of the assets and
assumed certain liabilities of the healthcare systems division of The Reynolds
and Reynolds Company, known as HSD. HSD provided healthcare practice management
systems principally to radiology, anesthesiology and enterprise-wide medical
practices. With the HSD acquisition, InfoCure entered the radiology market and
increased its presence in anesthesiology and among larger general medical
practices utilizing AS/400 systems. The installed customer base of HSD included
1,580 practice sites, representing 35,020 physicians.
On December 23, 1998, InfoCure completed a merger with Radiology Management
Systems, Inc., a provider of practice management systems for radiologists,
marketed under the name RADMAN. The merger with RADMAN added approximately
2,000 radiologists to InfoCure's customer base and strengthened its position as
the largest provider of healthcare information systems to radiology practices
in the United States.
The acquisitions of SoftEasy, Commercial Computers, POLCI, PACE, OPMS, Micro-
Designs, MSI, HSD and RADMAN are referred to herein as the "Subsequent
Acquisitions."
On February 12, 1999, InfoCure completed a merger with Macon Systems
Management, LLC, the parent of Medical Software Management, Inc., a provider of
practice management systems for dermatologists, marketed under the name MSM.
With the MSM merger, InfoCure entered the dermatology market. On February 16,
1999, InfoCure completed a merger with OMSystems, Inc., a provider of practice
management systems for orthodontists.
12
<PAGE>
Series A Preferred Stock Issuance
On February 9, 1998, InfoCure completed the private placement of 850,060
shares of its Convertible, Redeemable Preferred Stock, Series A. The private
placement resulted in gross proceeds to InfoCure of $8.5 million and net
proceeds of approximately $7.8 million after payment of selling commissions to
the placement agent for the offering and other expenses of the offering.
InfoCure granted to the placement agent a warrant to acquire 100,000 shares of
InfoCure's common stock at an exercise price of $9.00 per share. The
Consolidated Financial Statements of InfoCure reflect an accretive dividend
attributable to the preferred stockholders in the amount of $800,000
representing the issuance costs and the fair market value of the warrant
related to the Series A Preferred. The Series A Preferred will convert to
1,000,070 shares of common stock upon the completion of this offering.
The Institutional Placement
On September 28, 1998, InfoCure completed the sale of 203,338 shares of
common stock in a private placement to an institutional investor for $2.5
million. The investor committed to invest up to an additional $7.5 million upon
the exercise by InfoCure of put options through March 28, 2000. Generally, upon
exercise of a put option, the investor must tender the amount designated by
InfoCure. The number of shares to be issued upon exercise of a put option is
determined by dividing this investment amount by an amount, referred to as the
subscription date price, equal to 92.5% of the average of the lowest three
consecutive trading day closing sale prices of the common stock during the 22
trading days immediately preceding exercise of such put option. Generally, put
options may be exercised only once every 30 days and only if defined conditions
are met, including minimum average daily trading volumes for InfoCure's common
stock and a minimum Subscription Date Price of $10.00. Additionally, InfoCure
issued the investor a five-year warrant to purchase 100,000 shares of common
stock at an exercise price of $23.00 per share.
Since September 28, 1998, InfoCure has exercised two additional put options
for an aggregate 227,984 additional shares, for a total investment of $7.0
million. Of the 531,322 shares acquired by the investor to date and issuable
upon exercise of the investor's warrant, 180,000 shares are offered hereby and
369,983 shares are offered pursuant to the resale registration statement,
subject to the 90-day lock-up agreement described below.
InfoCure is required to file a registration statement to register for resale
by the investor any shares of common stock issuable upon exercise of subsequent
put options. Each subsequent registration statement must be declared effective
not later than 90 days from the corresponding put option closing. If a
registration statement is not declared effective within the applicable period,
InfoCure must pay a cash penalty until the registration statement is declared
effective. With respect to the 531,322 shares acquired by the investor in the
institutional placement, the investor has agreed not to sell 383,342 of such
shares for a period of 90 days from the date of this prospectus. The remaining
147,980 shares are not covered by the lock-up agreement and will be available
for resale upon completion of this offering solely for the purpose of covering
a short-sale position.
With respect to any put option, the investor is entitled to receive
additional shares of common stock if the amount referred to as the effective
date price, equal to 92.5% of the average of the lowest three consecutive
trading day closing sales prices of the common stock during the 22 trading days
immediately preceding the effective date of any registration statement relating
to the shares issued upon exercise of such put option, is lower than the
subscription date price. In such event, the investor will receive that number
of additional shares determined by subtracting (x) the investment amount
divided by the Subscription Date Price from (y) the investment amount divided
by the effective date price. InfoCure has the right to pay cash in lieu of the
issuance of additional shares if the closing sales price of the common stock on
the effective date is lower than $10.00.
To date, InfoCure has paid an aggregate of $237,500 to the investor for fees
relating to the exercised put options and is required to pay an additional cash
fee of 1.25% of the amount invested pursuant to any subsequent exercise of a
put option.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to InfoCure from the sale of the 3,000,000 shares of common
stock offered hereby are estimated to be approximately $66.8 million, assuming
an offering price of $24.00 per share, the last reported sales price of the
common stock on the Nasdaq Stock Market on March 26, 1999, and after deducting
estimated underwriting discounts and commissions and estimated expenses payable
by InfoCure in connection with this offering. InfoCure will not receive any
proceeds from the sale of common stock by the selling stockholders. Infocure
will use the proceeds from this offering as follows:
<TABLE>
<CAPTION>
Amount
------------
(estimated,
in millions)
<S> <C>
Payments on InfoCure's
credit facility................................................ $65.2
Working capital and other
general corporate purposes..................................... 1.6
-----
Total....................................................... $66.8
=====
</TABLE>
As of March 26, 1999, the aggregate outstanding balance under the credit
facility was $66.6 million, which was borrowed primarily to fund the cash
portion of the purchase price for several of the Subsequent Acquisitions,
including approximately $41.2 million to fund a portion of the purchase price
for HSD. The credit facility comprises three loans, a $40.0 million bridge
loan, a $20.0 million acquisition loan and a $10.0 million term loan. The
interest rates on the $10.0 million term loan and the $40.0 million bridge loan
are fixed at 9.50% per year. The interest rate on the $20.0 million acquisition
loan is the lender's base rate plus 1% and is currently 8.75% per year. The
credit facility must be paid in full not later than October 28, 2002.
Pending application of the net proceeds as described above, InfoCure intends
to invest the net proceeds of the offering in short-term, investment-grade,
interest-bearing securities.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
On January 29, 1999 InfoCure's common stock commenced trading on the Nasdaq
Stock Market under the symbol "INCX." From July 10, 1997 until January 29, 1999
the common stock was traded on the American Stock Exchange under the symbol
"INC." The following table sets forth the high and low sale prices per share of
the common stock for the periods indicated, as reported on the American Stock
Exchange or the Nasdaq Stock Market, as the case may be.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 High Low
---------------------------- ---- ----
<S> <C> <C>
Third Quarter (beginning July 10, 1997).................. $ 5 7/8 $ 3 15/16
Fourth Quarter........................................... 9 3/4 5
<CAPTION>
Year Ended December 31, 1998 High Low
---------------------------- ---- ----
<S> <C> <C>
First Quarter............................................ $17 9/16 $ 7 7/8
Second Quarter........................................... 16 5/8 10 1/2
Third Quarter............................................ 17 1/2 12 3/4
Fourth Quarter........................................... 32 7/8 11 3/8
Year Ended December 31, 1999 High Low
---------------------------- ---- ----
First Quarter (through March 26, 1999)................... $36 1/4 $21
</TABLE>
On March 26, 1999, the last reported sales price for the common stock was
$24.00 per share. As of March 26, 1999 there were approximately 338
stockholders of record of the common stock based on transfer agent reports.
DIVIDEND POLICY
InfoCure has neither declared nor paid any cash dividends on its common stock
or its preferred stock and does not anticipate paying any cash dividends in the
foreseeable future. InfoCure's credit facility generally prohibits InfoCure
from declaring or paying any dividends or other distributions with respect to
its capital stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the short-term debt
and capitalization of InfoCure. This table should be read in conjunction with
the Consolidated Financial Statements of InfoCure and Notes thereto appearing
elsewhere in this prospectus. The pro forma capitalization of InfoCure gives
effect to the OMSystems merger and the issuance of 80,000 shares of common
stock in the institutional placement.
The pro forma as adjusted capitalization of InfoCure represents the pro forma
capitalization adjusted to give effect to:
(a) the issuance and sale by InfoCure of the 3,000,000 shares of common stock
offered hereby at an assumed offering price of $24.00 per share (the last
reported sale price on March 26, 1999), after deducting underwriting
discounts and commissions and estimated offering expenses payable by
InfoCure;
(b) the application of the estimated net proceeds to InfoCure of this offering;
(c) the conversion of the Series A Preferred; and
(d) the issuance of an estimated 99,255 shares of common stock upon the
conversion of a note payable and other obligations.
The pro forma and pro forma as adjusted capitalization excludes:
(a) 83,232 shares issued in connection with the MSM merger;
(b) 3,344,882 shares issuable upon the exercise of stock options and warrants
outstanding as of December 31, 1998, at a weighted average exercise price
of $9.72 per share; and
(c) an additional 1,389 shares issuable upon conversion of a note payable and
other obligations assuming conversion on April 1, 1999.
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Short-term debt, including current portion of
long-term debt................................ $ 14,884 $ 14,998 $ 11,998
======== ======== ========
Long-term debt, excluding current portion...... $ 68,358 $ 69,553 $ 6,728
-------- -------- --------
Preferred Stock, $0.001 par value; 2,000,000
shares authorized; 850,060 shares of
Convertible, Redeemable Preferred Stock,
Series A, liquidation preference $10.00 per
share (subject to adjustment in certain
circumstances), issued and outstanding, actual
and pro forma; no shares outstanding pro forma
as adjusted................................... 8,500 8,500 --
-------- -------- --------
Stockholders' equity:
Common Stock, $0.001 par value; 15,000,000
shares authorized;
7,622,148 shares issued and 7,581,705 shares
outstanding, actual......................... 8
8,846,147 shares issued and 8,805,704 shares
outstanding, pro forma...................... 9
12,945,472 shares issued and 12,905,029
shares outstanding, pro forma as adjusted... 13
Common stock issuable........................ 1,975 -- --
Additional paid-in capital................... 31,358 39,723 115,725
Accumulated deficit.......................... (15,781) (21,269) (26,376)
Deferred compensation........................ (1,083) (1,083) (1,083)
Treasury stock, at cost...................... (222) (222) (222)
-------- -------- --------
Total stockholders' equity................. 16,255 17,158 88,057
-------- -------- --------
Total capitalization....................... $ 93,113 $ 95,211 $ 94,785
======== ======== ========
</TABLE>
16
<PAGE>
DILUTION
The tangible book value (deficit) of InfoCure at December 31, 1998 was
approximately $(63.3) million, or approximately $(8.34) per share of common
stock. Net tangible book value (deficit) per share represents the amount of
InfoCure's tangible assets less total liabilities, divided by the total number
of shares of common stock outstanding. After giving effect to the OMSystems
merger and the January 1999 issuance of shares relating to the put option
exercised by InfoCure in December 1998, the tangible book value (deficit) of
InfoCure on a pro forma basis at December 31, 1998 was approximately $(62.4)
million or approximately $(7.08) per share of common stock.
Dilution per share represents the difference between the amount per share
paid by investors in this offering and the net tangible book value (deficit)
per share at December 31, 1998 adjusted to give effect to this offering. The
net tangible book value of InfoCure on a pro forma as adjusted basis as of
December 31, 1998 would have been $13.1 million or $1.01 per share of common
stock after giving effect to:
. sale of the shares of common stock at an assumed offering price of
$24.00 per share (the last reported sales price of InfoCure's common
stock on the Nasdaq Stock Market on March 26, 1999);
. receipt and application of the estimated net proceeds of $66.8 million;
and
. deduction of underwriting discounts and commissions and estimated
offering expenses payable by InfoCure.
This represents an immediate increase in net tangible book value of $8.09 per
share to existing stockholders and an immediate dilution of $22.99 per share to
purchasers in this offering.
The following table illustrates the dilution per share as described above:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.................... $24.00
------
Net tangible book value (deficit) per share--historic ... $(8.34)
Increase in net tangible book value (deficit) per share
attributable to pro forma adjustments................... 1.26
------
Net tangible book value (deficit) per share--pro forma .. (7.08)
Increase in net tangible book value per share
attributable to offering adjustments.................... 8.09
------
Net tangible book value per share after the offering..... 1.01
------
Dilution per share to new investors........................ $22.99
======
</TABLE>
17
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of InfoCure set forth
below is qualified in its entirety by, and should be read in conjunction with,
the Consolidated Financial Statements of InfoCure, including the Notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended January 31, 1995 and 1996 and the
consolidated balance sheet data as of January 31, 1995, 1996 and 1997 are
derived from the audited financial statements of American Medcare which are not
included in this prospectus. The consolidated statements of operations data for
the year ended January 31, 1997, the eleven months ended December 31, 1997 and
the year ended December 31, 1998, and the consolidated balance sheet data as of
December 31, 1997 and December 31, 1998 are derived from, and are qualified by
reference to, the consolidated financial statements included elsewhere in this
prospectus. The financial statements for all periods presented give retroactive
effect to pooling of interests treatment for the merger with RADMAN completed
December 23, 1998.
The EBITDA data presented below represents earnings before interest expense,
provision (benefit) for income taxes, depreciation and amortization, purchased
research and development, compensatory stock awards and asset impairment,
restructuring and special charges. EBITDA is not a measurement in accordance
with generally accepted accounting principles and should not be considered an
alternative to, or more meaningful than, income from operations, net income or
cash flows as defined by GAAP or as a measure of InfoCure's profitability or
liquidity. All companies do not calculate EBITDA in the same manner.
Accordingly, InfoCure's EBITDA data may not be comparable with that of other
companies. InfoCure has included information concerning EBITDA because
management believes EBITDA provides a useful measure of InfoCure's performance.
<TABLE>
<CAPTION>
Eleven
Months
Year Ended January 31, Ended Year Ended
------------------------- December 31, December 31,
1995 1996 1997 1997 1998
------- ------- ------- ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenue:
Systems and software................. $ 3,595 $ 3,998 $ 3,857 $ 9,733 $34,492
Maintenance, support and services ... 2,789 2,074 2,494 8,541 29,231
------- ------- ------- ------- -------
Total revenue.......................... 6,384 6,072 6,351 18,274 63,723
Operating expense:
Hardware and other items purchased
for resale.......................... 1,558 1,240 1,192 4,327 12,567
Selling, general and administrative.. 5,268 5,368 5,427 11,653 34,685
Depreciation and amortization........ 188 238 237 1,092 4,328
Purchased research and development... -- -- -- -- 9,000
Compensatory stock awards............ -- -- -- -- 57
Asset impairment and restructuring
costs............................... -- -- -- 11,136 1,874
------- ------- ------- ------- -------
Total operating expense.............. 7,014 6,846 6,856 28,208 62,511
Operating income (loss)................ (630) (774) (505) (9,934) 1,212
Other expense (income):
Interest, net........................ 54 69 82 344 3,488
Other, net........................... (21) (122) (5) (223) (81)
------- ------- ------- ------- -------
(Loss) before income taxes............. (663) (721) (582) (10,055) (2,195)
Income tax benefit..................... (64) (227) (868) (1,324) (334)
------- ------- ------- ------- -------
Net income (loss)...................... (599) (494) 286 (8,731) (1,861)
Accretive dividend..................... -- -- -- -- 800
------- ------- ------- ------- -------
Net income (loss) available to common
stockholders.......................... $ (599) $ (494) $ 286 $(8,731) $(2,661)
======= ======= ======= ======= =======
Net (loss) per share:
Basic and diluted.................... $ (1.79) $ (0.39)
Shares used in computing net (loss) per
share:
Basic and diluted.................... 4,880 6,780
Other Data:
EBITDA................................. $ (421) $ (414) $ (263) $ 2,517 $16,552
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
January 31, December 31,
------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.... $ 9 $ 254 $ 216 $ 1,626 $ 8,552
Working capital.............. (1,847) (1,599) (1,841) (4,343) 481
Total assets................. 2,106 2,251 5,682 31,125 127,784
Long-term debt, less current
portion..................... 839 399 1,265 7,289 68,358
Convertible, redeemable
preferred stock............. -- -- -- -- 8,500
Stockholders' equity......... (2,076) (2,590) (768) 3,631 16,255
</TABLE>
- --------
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements of InfoCure and Notes thereto, and the
Consolidated Financial Statements of InfoCure and Notes thereto included
elsewhere in this prospectus.
Overview
InfoCure derives revenue primarily from licensing new software products and
software upgrades, reselling hardware components in connection with a portion
of its software sales and providing customer support and services. Customer
support and services typically are provided pursuant to renewable annual
contracts or on a fee basis. We derive additional revenue from customers and
third-party clearinghouses by providing electronic data interchange services
through contractual arrangements with such parties. Approximately 50% of our
total revenue is recurring in nature.
InfoCure bases its revenue recognition policies for sales of software on the
provisions of the American Institute of Certified Public Accountants' Statement
of Position 97-2 "Software Revenue Recognition." Revenue from software sales is
recognized upon shipment in instances where InfoCure has evidence of a
contract, the fee charged is fixed and determinable and collection is probable.
Hardware resales are recognized upon product shipment. Revenue from support and
maintenance contracts, which are typically one year in length, is recognized
ratably over the life of the contract. Revenue from other services is
recognized as the services are provided.
Depreciation and amortization expense results primarily from the amortization
of goodwill, which represents the excess of the consideration paid by InfoCure
over the fair value of the net assets acquired in acquisitions accounted for
under the purchase method of accounting. As of December 31, 1998, We had
goodwill, net of accumulated amortization, of $72.2 million. Goodwill is
amortized over its estimated useful life of 15 years. This estimated useful
life reflects the historical and estimated future life of customer
relationships, the longevity and continuing use of core products and the
relatively minor impact of technological obsolescence on these core products.
This goodwill results in an amortization expense estimated to total
approximately $5.0 million per year. Depreciation and amortization expense also
includes depreciation of property and equipment and amortization of software
development costs. Property and equipment are assigned lives ranging from three
to five years. Software development costs are expensed until technological
feasibility is achieved. Costs incurred after achievement of technological
feasibility and before general release are capitalized and generally amortized
over a four-year life. Costs incurred after general release are expensed as
incurred.
We completed nine acquisitions of practice management software vendors
between July 10, 1997 and December 31, 1998. These acquisitions were the
primary source of the substantial growth in our revenue and other components of
its operating results. Therefore, a year to year comparison of InfoCure's
results of operations for the prior two years is not necessarily indicative of
future results.
Restructuring Plan
Effective December 1, 1997, InfoCure adopted a plan to restructure its
operations by consolidating existing facilities and acquired operations. In
connection with the restructuring plan, which was completed in the second
quarter of 1998, we took restructuring charges totaling $13.0 million, of which
$11.1 million was recorded in the fourth quarter of 1997 and $1.9 million was
recorded in the first six months of 1998. As a result of the restructuring
plan, InfoCure wrote down approximately:
. $7.8 million representing an impairment of goodwill associated with prior
acquisitions and capitalized software for discontinued products of
approximately $6.3 million and $1.5 million, respectively;
. $3.3 million reflecting the recognition of contingent consideration
earned or deemed payable under the terms of certain acquisition agreements
for acquired companies affected by the restructuring plan;
20
<PAGE>
. $1.1 million representing severance and other termination benefits for
the termination of certain redundant staff positions;
. $461,000 reflecting the elimination of redundant facilities and
cancellation of leases and other contracts; and
. $296,000 representing other asset write downs and costs associated with
the restructuring plan.
For a more detailed discussion of these restructuring charges, see Note 4 to
the Consolidated Financial Statements of InfoCure.
Change in Fiscal Year
In the first quarter of 1998, InfoCure changed its fiscal year end from
January 31 to December 31. As a result, InfoCure's fiscal year beginning
February 1, 1997 ended on December 31, 1997 and reflected eleven months of
operations. The consolidated financial data provided herein reports InfoCure's
financial statements as of and for the fiscal year ended December 31, 1998 and
eleven months ended December 31, 1997.
In Process Research and Development Write-off
On October 23, 1998, InfoCure acquired the assets of HSD, a division of The
Reynolds and Reynolds Company. In connection with the HSD acquisition, we
retained an independent appraiser to complete a valuation of the assets of HSD,
including valuation of certain in process research and development. InfoCure
identified three projects for which technological feasibility had not been
achieved as of the acquisition date and for which there was no alternative
future use. The products include POWERRmanager, a next generation physician
practice management system, the year 2000 ready version of ProMed, a Unix-based
practice management system, and the year 2000 ready version of Kredo, a
practice management system running on the IBM AS/400 platform.
The value associated with these projects was determined using a discounted
cashflow model with a risk adjusted discount rate of 28%. This rate was derived
as a weighted average cost of capital and reflects a 33.4% cost of equity, a
5.4% cost of debt and a post-offering debt to equity ratio of .25:1. The model
reflects revenue to be generated beginning in the later part of 1999 and
continuing through 2003 for ProMed and Kredo and 2004 for POWERRmanager. The
valuation also incorporated a stage of completion methodology where the value
was adjusted based on the technology's percentage of completion.
As of the acquisition date, the majority of the core modules of POWERRmanager
had been coded. Product testing began in the fourth quarter of 1998, and
InfoCure estimated completion of testing and documentation in the first quarter
of 1999 and initial beta testing in the second quarter of 1999. The ProMed and
Kredo products are expected to be completed in the first quarter of 1999.
Upgrades for the existing customer base will occur in the second and third
quarter of 1999. InfoCure has determined that the Kredo and ProMed products
will not be sold going forward, resulting in no alternative future use for the
products. Development will be completed to enable existing customers to upgrade
under the provisions of their maintenance agreements. The schedule below
details the status of each product as of the acquisition date and its appraised
in process research and development ("IPRD") value (dollar amounts in
thousands).
<TABLE>
<CAPTION>
Post-acquisition
Estimated Pre-acquisition Costs to Percentage of
Project Completion Costs Complete Completion IPRD Value
------- ------------- --------------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
POWERRmanager 2nd Qtr. 1999 $9,001 $474 95% $4,900
ProMed 1st Qtr. 1999 76 47 62 3,200
Kredo 1st Qtr. 1999 848 357 70 1,300
------ ---- --- ------
Total $9,925 $878 92% $9,400
====== ==== === ======
</TABLE>
21
<PAGE>
InfoCure believes that although the POWERRmanager percentage of completion is
high, significant development work remained at the time of the acquisition to
bring the product to the point of technological feasibility under SFAS 86.
Certain features such as report writing, claims management and electronic data
interchange capabilities had not been completed. Given the significance of
these features to the functionality of POWERRmanager and the uncertainties
which remain with respect to this project, InfoCure believes that there is no
alternative future use for this product. In addition, the estimates of costs to
complete the product reflect greater efficiencies and cost control under our
management compared to HSD, resulting in a higher calculated percentage of
completion.
Based on the results of the appraisal, $9.0 million was attributed to the in
process research and development purchased in the HSD acquisition and expensed
in the fourth quarter of 1998 when the acquisition was completed.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of gross revenue for the periods indicated:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, 1997 December 31, 1997 December 31, 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue:
Systems and software..... 60.7 % 53.3 % 54.1 %
Maintenance, support and
services................ 39.3 46.7 45.9
----- ----- -----
Total revenue............. 100.0 100.0 100.0
Operating expense:
Hardware and other items
purchased for resale.... 18.8 23.7 19.7
Selling, general and
administrative.......... 85.5 63.8 54.5
Depreciation and
amortization............ 3.7 6.0 6.8
Purchased research and
development............. -- -- 14.1
Asset impairment and
restructuring costs..... -- 60.9 2.9
----- ----- -----
Total operating expense... 108.0 154.4 98.0
Operating income (loss)... (8.0) (54.4) 2.0
Other expense (income):
Interest, net............ 1.3 1.9 5.5
Other, net............... (0.1) (1.3) (0.1)
----- ----- -----
Loss before income taxes.. (9.2) (55.0) (3.4)
Income tax benefit........ (13.7) (7.2) (0.5)
----- ----- -----
Net income (loss)......... 4.5 % (47.8)% (2.9)%
===== ===== =====
</TABLE>
Year Ended December 31, 1998 Compared To Eleven Months Ended December 31, 1997
Total Revenue. Total revenue for the year ended December 31, 1998 was $63.7
million compared to total revenue of $18.3 million for the eleven months ended
December 31, 1997. The increase of $45.4 million in total revenue reflects
primarily the combined revenue of the Founding Companies for the entire twelve
month period in 1998 and revenue from the Subsequent Acquisitions as of their
respective effective dates, except for the RADMAN acquisition which was
accounted for as a pooling of interests and is reflected retroactively for all
periods presented. Revenue for periods prior to July 10, 1997 includes only
revenue of InfoCure's predecessor, American Medcare, its consolidated
subsidiaries and RADMAN. Systems and software revenue was $34.5 million for the
year ended December 31, 1998, or 54.1% of total revenue, compared to $9.7
million, or 53.3% of total revenue, for the eleven months ended December 31,
1997. The increase as a percentage of total revenue was primarily a result of a
higher percentage mix of systems and software revenue among acquired companies
and relatively strong demand for several of our software products in the year
ended December 31, 1998. Maintenance, support and services revenue was $29.2
million, or 45.9% of total revenue for the year ended December 31, 1998,
compared to $8.5 million, or 46.7% of total revenue, for the eleven
22
<PAGE>
months ended December 31, 1997. Management anticipates that maintenance,
support and services revenue will increase as a percentage of total revenue in
future periods.
Hardware and Other Items Purchased for Resale. Hardware and other items
purchased for resale consist of costs incurred to purchase hardware, and
include costs of forms and postage, outsourced hardware maintenance, third-
party software and other items for resale in connection with sales of new
systems and software. The costs required to install such systems and to perform
software maintenance and support services are reported in selling, general and
administrative expenses. For the year ended December 31, 1998, cost of hardware
and other items purchased for resale was $12.6 million, or 19.7% of revenue,
compared to $4.3 million, or 23.7% of revenue, for the eleven months ended
December 31, 1997. The increase in cost of hardware and other items purchased
for resale reflects primarily the increase resulting from InfoCure's
acquisitions. The decrease in cost of hardware and other items purchased for
resale as a percentage of revenue reflects a lower percentage of revenue from
sales of hardware.
Selling, General and Administrative. Selling, general and administrative
expense includes salaries and benefits, product development expense, product
maintenance and support expense, variable commissions and bonuses,
advertisement and promotional marketing materials, travel, communications,
facilities, insurance and other administrative expense. Selling, general and
administrative expense increased to $34.7 million, or 54.5% of revenue, for the
year ended December 31, 1998 compared to $11.7 million, or 63.8% of revenue,
for the eleven months ended December 31, 1997. This increase reflects primarily
an increase in the marketing and administrative personnel and other selling and
administrative costs necessary to support the consolidated businesses of the
acquired companies. The decrease in selling, general and administrative expense
as a percentage of revenue reflects InfoCure's ability to take advantage of
economies of scale resulting from the larger installed customer base and a
higher base of revenue realized from its acquisitions.
Depreciation and Amortization. Depreciation and amortization expense was $4.3
million, or 6.8% of revenue, for the year ended December 31, 1998 compared to
$1.1 million, or 6.0% of revenue, for the eleven months ended December 31,
1997. Increased depreciation and amortization expense represents primarily the
significant increase in goodwill arising from InfoCure's acquisitions.
Purchased Research and Development. Purchased research and development
expense was $9.0 million, or 14.1% of total revenue, for the year ended
December 31, 1998. This expense represents charges related to the write off of
certain in process research and development costs associated with the HSD
acquisition.
Asset Impairment and Restructuring Costs. Asset impairment and restructuring
costs were $1.9 million, or 2.9% of total revenue, for the year ended December
31, 1998 compared to $11.1 million, or 60.9% of total revenue, for the eleven
months ended December 31, 1997. This decrease represents the completion of the
restructuring plan in the second quarter of 1998.
Operating Income (Loss). Income from operations was $1.2 million, or 2.0% of
revenue, for the year ended December 31, 1998 compared to a loss of $9.9
million, or 54.4% of revenue, for the eleven months ended December 31, 1997.
This increase represents primarily the profitable results of operations of
InfoCure's acquisitions, as well as efficiencies realized by InfoCure from a
larger installed customer base and higher total revenue.
Interest, Net. Net interest expense increased to $3.5 million for the year
ended December 31, 1998 compared to $344,000 for the eleven months ended
December 31, 1997. This increase reflects primarily increases in interest
expense associated with indebtedness incurred to complete InfoCure's
acquisitions.
Other, Net. Net other income decreased to $81,000 for the year ended December
31, 1998 compared to $223,000 for the eleven months ended December 31, 1997.
This decrease relates primarily to one-time other income related to the RADMAN
merger.
23
<PAGE>
Income Tax Benefit. The benefit for income taxes was $334,000 for the year
ended December 31, 1998 compared to $1.3 million for the eleven months ended
December 31, 1997.
Eleven Months Ended December 31, 1997 Compared to Year Ended January 31, 1997
Total Revenue. Total revenue for the eleven months ended December 31, 1997
was $18.3 million compared to total revenue of $6.4 million for the year ended
January 31, 1997. This increase of $11.9 million in total revenue primarily
reflects the completion of the acquisition of the Founding Companies and
Subsequent Acquisitions completed in 1997 as of their respective effective
dates. Revenue for periods prior to July 10, 1997 included only revenue of
InfoCure's predecessor, American Medcare, and its consolidated subsidiaries.
Systems and software revenue was $9.7 million for the eleven months ended
December 31, 1997, or 53.3% of revenue, compared to $3.9 million, or 60.7% of
total revenue, for the year ended January 31, 1997. Maintenance, support and
services revenue was $8.5 million for the eleven months ended December 31,
1997, or 46.7% of total revenue, compared to $2.5 million, or 39.3% of total
revenue, for the year ended January 31, 1997.
Hardware and Other Items Purchased for Resale. For the eleven months ended
December 31, 1997, cost of hardware and other items purchased for resale was
$4.3 million, or 23.7% of total revenue, compared to $1.2 million, or 18.8% of
total revenue, for the year ended January 31, 1997. The increase in cost of
hardware and other items purchased for resale reflects primarily the increase
resulting from InfoCure's acquisitions. The increase in cost of hardware and
other items purchased for resale as a percentage of revenue reflects increased
revenue from sales of hardware as a percentage of total revenue.
Selling, General and Administrative. Selling, general and administrative
expense increased to $11.7 million, or 63.8% of revenue, for the eleven months
ended December 31, 1997, compared to $5.4 million, or 85.5% of revenue, for the
year ended January 31, 1997. This increase reflects primarily additional
marketing and administrative personnel and other selling and administrative
costs necessary to support the significantly expanded business associated with
InfoCure's acquisitions completed during the eleven months ended December 31,
1997. The decrease in selling, general and administrative expense as a
percentage of revenue reflects InfoCure's ability to take advantage of
economies of scale resulting from the larger installed customer base and a
higher base of revenue realized from its acquisitions.
Depreciation and Amortization. Depreciation and amortization expense was $1.1
million, or 6.0% of revenue, for the eleven months ended December 31, 1997,
compared to $237,000, or 3.7% of revenue, for the year ended January 31, 1997.
Increased depreciation and amortization expense represents primarily the
significant increase in goodwill resulting from InfoCure's acquisitions
completed during the eleven months ended December 31, 1997.
Asset Impairment and Restructuring Costs. In the eleven months ended December
31, 1997, InfoCure incurred a cost of $11.1 million associated with the
restructuring plan.
Operating Income (Loss). Loss from operations was $9.9 million, or 54.4% of
revenue, for the eleven months ended December 31, 1997, compared to the loss
from operations of $505,000, or 8.0% of revenue, for the year ended January 31,
1997. The loss from operations resulted primarily from the costs associated
with the restructuring plan.
Interest, Net. Net interest expense increased to $344,000 for the eleven
months ended December 31, 1997 compared to $82,000 for the year ended January
31, 1997. This increase reflects primarily increases in interest expense
associated with indebtedness incurred to complete InfoCure's acquisitions.
Other, Net. Net other income increased to $223,000 for the eleven months
ended December 31, 1997, compared to $5,000 for the year ended January 31,
1997. This increase relates primarily to one-time other income related to the
RADMAN merger.
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<PAGE>
Income Tax Benefit. InfoCure realized income tax benefits in the amounts of
$1.3 million and $868,000 for the eleven months ended December 31, 1997 and the
year ended January 31, 1997, respectively.
Liquidity and Capital Resources
Since its inception, we have financed our operations through a combination of
commercial borrowings, cash generated from operations and sales of equity. As
of December 31, 1998, InfoCure had cash and cash equivalents of $8.6 million
and working capital of $481,000. During the year ended December 31, 1998, we
generated $6.1 million of cash from operating activities, representing
principally a net loss of $1.9 million plus non-cash charges of $9.0 million
and $1.9 million for in process research and development and asset impairment,
respectively, and non-cash depreciation and amortization expenses of $4.3
million offset by an increase in accounts receivable of $7.5 million.
During the year ended December 31, 1998, cash used in investing activities
was $65.9 million, representing primarily cash used for acquisitions of $60.2
million and property and equipment purchases of $2.6 million. Of the cash
invested in acquisitions, $42.0 million, $12.8 million and $5.3 million were
used to acquire HSD, Micro-Designs and MSI, respectively. A substantial portion
of the property and equipment costs represented our investment in its
telecommunications infrastructure.
During the year ended December 31, 1998, InfoCure generated cash from
financing activities of $66.7 million, including $55.2 million net proceeds
from its credit facility, $7.8 million net proceeds from the issuance of the
Series A Preferred and $6.8 million net proceeds from the private placement to
an institutional investor. These net proceeds were principally used to fund our
acquisitions of PACE, Micro-Designs and MSI. In October 1998, InfoCure used
$41.2 million from the credit facility to fund a portion of the purchase price
for HSD.
InfoCure's credit facility with Finova Capital Corporation is comprised of
(a) a $10.0 million term loan; (b) a $20.0 million acquisition loan; and (c) a
$40.0 million convertible bridge loan. Outstanding principal amounts under the
term loan and acquisition loan are due in 16 equal quarterly installments
commencing January 1999 as follows: for the term loan, installments of $527,000
each and for the acquisition loan, installments of $1.2 million each.
Outstanding principal amounts under the convertible bridge loan are due
quarterly commencing April 1, 1999, and are payable as follows: four payments
of $1.0 million each; eight payments of $2.0 million each; two payments of $4.0
million each; and one payment in the amount of the balance outstanding. The
convertible bridge loan must be repaid to the extent of proceeds received by
InfoCure from any public offering of securities. Additionally, the lender has
the right to demand a $10.0 million prepayment of the convertible bridge loan
at any time before May 22, 1999 and is entitled to certain additional annual
prepayments based on InfoCure's excess cash flow. Prepayment premiums ranging
from 1% to 3% of principal outstanding apply to early payment of principal
amounts under the term loan and the acquisition loan. The interest rates on the
term loan and the convertible bridge loan are fixed at 9.50% per year. The
interest rate on the acquisition loan is the lender's base rate plus 1% through
March 31, 1999. After March 31, 1999, the rate is the lender's base rate plus a
percentage based on InfoCure's senior debt service coverage ratio. Interest on
all three loans is due quarterly, in arrears, on the same dates as the
principal payments. The credit facility must be paid in full not later than
October 28, 2002. The credit facility is secured by substantially all of
InfoCure's assets. InfoCure plans to prepay approximately $65.2 million of the
outstanding balance on the credit facility with the proceeds from this
offering, which will result in a charge of approximately $5.1 million for the
early extinguishment of this debt in the second quarter of 1999. InfoCure is
currently negotiating with various lenders to increase its credit facility to
$100.0 million. No assurance can be given, however, that InfoCure will be able
to secure an increase of its credit facility in this amount or at all.
On February 9, 1998, InfoCure completed the private placement of 850,060
shares of Series A Preferred, resulting in gross proceeds to us of $8.5 million
and net proceeds of approximately $7.8 million after payment of selling
commissions to the placement agent for the offering and other expenses of the
offering. We granted to the placement agent a warrant to acquire 100,000 shares
of InfoCure's common stock at an exercise price of $9.00 per share. The
Consolidated Financial Statements of InfoCure reflect an accretive
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<PAGE>
dividend attributable to the preferred stockholders in the amount of $800,000
with respect to the issuance costs and the fair market value of the warrant
related to the Series A Preferred. The Series A Preferred will convert to
1,000,070 shares of common stock upon the completion of this offering.
On September 28, 1998, InfoCure completed the sale of 203,338 shares of
common stock for $2.5 million in a private placement to an institutional
investor. The investor committed to invest an additional $7.5 million, which
must be invested from time to time at our request in our sole discretion and
subject to certain price and trading volume limitations, upon the exercise of
put options through March 28, 2000. Subsequently, InfoCure completed the sale
of 147,984 shares of common stock for $2.5 million in December 1998 and the
sale of 80,000 shares of common stock for $2.0 million in January 1999.
In connection with the HSD acquisition, InfoCure delivered to The Reynolds
and Reynolds Company a $10.0 million, five-year, convertible promissory note,
bearing interest per annum at rates commencing at 8.0% and increasing each year
to a maximum of 14.0%. The note is convertible at our option during the first
year of the term into common stock at a price based on the price of the common
stock in an underwritten public offering or the average market value of the
common stock over a period of time prior to the conversion date. In addition,
InfoCure delivered to The Reynolds and Reynolds Company a $2.0 million
subordinated promissory note payable within 120 days of the closing of the HSD
acquisition. See Note 14 to the Consolidated Financial Statements of InfoCure.
InfoCure believes that the proceeds of this offering, together with its
operating cash flow, available funds under the credit facility and proceeds
from the private placement to the institutional investor, will be sufficient to
fund our working capital requirements through at least the next twelve months.
We currently intend to use proceeds from this offering principally to repay
indebtedness under the credit facility. InfoCure expects to finance future
acquisitions, if any, through one or more of the following sources: cash from
operations, the credit facility or other indebtedness, and issuances of common
stock or other securities. No assurance can be given that we will generate cash
from operations or that external capital will be available on terms acceptable
to InfoCure, or at all.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. SFAS
No. 130 requires companies to display, with the same prominence as other
financial statements, the components of other comprehensive income. SFAS No.
130 requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 was
adopted in 1998 but does not have any impact on InfoCure's consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 was adopted in 1998 but had no effect on InfoCure's
financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to
recognize all derivative contracts as either assets or liabilities on the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be
26
<PAGE>
specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (a) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (b) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Historically, InfoCure has not entered into
derivative contracts either to hedge existing risks or for speculative
purposes. Accordingly, InfoCure does not expect adoption of the new standard on
January 1, 2000 to affect its financial statements.
Statement of Position 97-2, Software Revenue Recognition, issued in October
1997, superseded SOP 91-1 and was effective for InfoCure for transactions
entered into after December 31, 1997. This statement provides guidance on
applying GAAP in recognizing revenue on software transactions and establishes
certain criteria for revenue recognition. InfoCure adopted SOP 97-2 in the
first quarter of 1998. The adoption of this statement did not have a
significant impact on InfoCure's consolidated financial statements and is not
expected to have a significant impact in the future.
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use, issued in April 1998, provides guidance on accounting for the
costs of computer software developed or obtained for internal use and
determining whether computer software is for internal use. This statement is
effective for fiscal years beginning after December 15, 1998. Adoption of this
statement is not expected to have a significant impact on InfoCure's financial
statements.
Costs Related to Year 2000 Readiness
We have implemented a plan in which we modify and test our products to
determine whether they are able to properly distinguish dates beginning on
January 1, 2000. We are now taking the following steps to determine the year
2000 readiness of our products:
. review products that we will continue to market and support to determine
how they process dates;
. design and complete modifications to fix any date processing issues that
we identify for these products;
. test products to determine that they can process dates on or after
January 1, 2000; and
. deliver these modifications to our customers for installation and use.
As a result of these assessments, modifications and tests, InfoCure believes
that a majority of its products will properly make this distinction. With
respect to the rest of the products that it intends to support, we have
implemented a program for developing and installing modifications that address
date processing issues. In general, these modifications represent relatively
short segments of software code. Customers that are on current maintenance
contracts qualify to receive these modifications. InfoCure believes that it
will complete its year 2000 readiness program by July 1999, but we cannot be
certain that we will do so. We could experience delays or failures developing
or implementing year 2000 readiness modifications. We also may be required to
hire additional technical personnel to address year 2000 readiness issues, and
there can be no guarantee that such additional personnel will be available. In
addition, customers may not install software solutions in a proper or timely
manner, and we may not be able to locate affected customers that are not
currently a party to a maintenance contract. Further, because a customer's
products are often interfaced with the customer's existing third-party
applications, its products, and potentially InfoCure's products, may not
operate properly due to year 2000 problems in such third-party applications. We
estimate that the remaining costs to complete our year 2000 readiness program
are approximately $400,000. These estimates are based on assumptions that
InfoCure believes to be reasonable at this time; however, no assurance can be
given that these assumptions will remain accurate. While we do not expect that
the failure of any of its products to be year 2000 ready will have a material
adverse effect on its business or results of operations, we cannot guarantee
that any such failure would not have such an effect.
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<PAGE>
Multiple lawsuits relating to year 2000 issues have been filed against
certain of our competitors. The plaintiffs in these lawsuits have sought
compensatory damages and equitable and injunctive relief. InfoCure has taken
measures to avoid these types of lawsuits. However, one of our customers has
initiated an arbitration claim asserting that software it purchased from
InfoCure does not properly distinguish dates beginning on January 1, 2000. We
are no longer selling or supporting this software and are attempting to resolve
this dispute. InfoCure believes that this arbitration, regardless of its
outcome, will not result in a material adverse effect on InfoCure. As we
develop and implement our year 2000 readiness plan, we cannot guarantee that
additional year 2000 related claims will not be brought against us in the
future, that the assertion of such claims will not result in litigation or that
we would prevail in such litigation. Litigation, regardless of its outcome,
could result in substantial costs, divert management's attention from its
operations and impact customer purchasing decisions. Any such litigation could
have a material adverse effect on future results.
The year 2000 problem also creates a risk of unforeseen problems in the
computer systems we use in our business and in the systems of third parties
with whom we conduct business. We have substantially completed our assessment
of our software and hardware systems and we believe that the substantial
majority of our internal systems will properly distinguish dates beginning on
January 1, 2000. We also have contacted parties with whom we conduct a material
amount of business to assess the year 2000 readiness of the software and
systems in their businesses. We intend to complete our determination of year
2000 readiness by these third parties by June 1999 and to develop strategies to
assure that no material business disruptions result from third-party problems.
These strategies may include demanding assurance that current business partners
achieve timely year 2000 readiness or, in the absence of such assurance,
contracting with alternate third parties or developing solutions to work around
any such third-party issues. Because we have not yet determined the expense and
related potential effect of year 2000 readiness by our third-party business
partners, we cannot guarantee that non-readiness by these third parties will
not have a material adverse effect on our future results.
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BUSINESS
Industry Overview
Healthcare costs in the United States have risen dramatically over the past
two decades and, according to the Healthcare Financing Administration, now
represent approximately $1.0 trillion or 14% of the annual gross domestic
product. Federal and state governments, insurance carriers and other third-
party payors have moved aggressively to control these rising costs. One of the
ways in which these entities have managed rising costs has been to employ
alternative reimbursement models to replace the fee-for-service reimbursement
model which has been the traditional basis for payment for healthcare services.
Such alternative reimbursement models include managed care, fixed-fee and
capitated models of reimbursement. The result of these generally more
restrictive reimbursement practices has been a dramatic increase in the
complexity of accounting, billing and collecting payment for healthcare
services.
To address these challenges, healthcare providers are increasingly utilizing
information technology, including practice management systems. While spending
for information technology within the healthcare industry has historically been
below that of other industries, healthcare information technology expenditures
are, according to Sheldon I. Dorenfest & Associates, Ltd., expected to grow
from $13.6 billion in 1997 to $21.0 billion by the year 2000. Infocure believes
that expenditures within the practice management segment of the healthcare
information technology industry will grow at a similar pace.
Practice management systems include a range of software products and services
for physicians and other healthcare providers. Most practice management systems
provide several common functions, including practice administration functions,
such as patient scheduling; financial functions, such as patient billing and
receivables management; and may include clinical functions, such as
preventative care notification. Beyond these common functions, the continued
evolution of information and telecommunication technologies has led to the
development of electronic commerce tools for integration with practice
management systems. These tools can help to improve a healthcare practice's
cash flow by facilitating electronic data interchange, thereby enabling more
accurate and rapid submission of claims to third-party payors and more rapid
receipt of corresponding reimbursements.
According to American Health Consultants, nearly half of the total health
claims submitted in the United States annually are processed manually. Paper
claims require more time and are significantly more expensive to prepare, file
and process than electronically-submitted claims. American Health Consultants'
data suggest that the combined costs to payors and providers of processing a
manual claim total approximately 15% of the average claim amount. Electronic
data interchange transactions, on the other hand, can be processed directly
with third-party payors or channeled through processing clearinghouses at
significantly lower costs to the provider and the payor. Because of these
significant cost savings, some payors are beginning to require practitioners to
submit reimbursement claims electronically.
Providers have also recognized a growing need for decision support tools that
access and analyze the increasing volume of financial and clinical information
generated by their practices. As the continued evolution of managed care
requires physicians to be "at risk" for the costs associated with providing
healthcare services, individual physicians will need advanced information
technology to aggregate and evaluate financial and clinical information in an
effort to manage their practices more efficiently and profitably.
The practice management systems industry in the United States is highly
fragmented, with a large number of relatively small, regionally focused
companies and few national vendors. Most of these smaller competitors lack the
financial and technical resources to develop, effectively market and support
the advanced software products demanded by the marketplace. Many of these
vendors are increasingly willing to combine with larger practice management
systems vendors that have substantially greater financial, technical and
managerial resources.
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Strategy
InfoCure's objective is to become the leading provider of advanced,
specialty-specific practice management systems within targeted healthcare
specialties. Our principal strategies to achieve this objective include:
Continue to take advantage of niche market opportunities. InfoCure has
developed significant market share within targeted niche healthcare
specialties. These specialties are attractive to InfoCure because they have
specific needs requiring related practice expertise. In addition, these
segments are highly fragmented with several significant, but typically not
dominant, players. We plan to continue to enhance our leadership position
within the markets we currently serve while broadening our presence in new
market niches through both internal marketing initiatives and additional
strategic acquisitions.
Cross-sell services and pursue opportunities with existing customers. With
over 11,081 customer sites, InfoCure has the ability to generate significant
growth by cross-selling additional products and services to its installed base.
InfoCure intends to focus attention on cross-selling its advanced, value-added
products, such as electronic data interchange services and InfoMine, to these
existing customers. We believes that our strong relationship with customers
positions us to be the vendor of choice within our client base.
Expand the features of products and services offered. Through both internal
development and acquisitions, InfoCure intends to continue to provide
increasingly advanced technology solutions and additional customized services.
InfoCure believes this will allow us not only to capture new customers but also
to offer additional products and services to our existing customer base.
Establish a national marketing identity. InfoCure has implemented efforts to
create a strong brand identity within the physician practice management
software industry. We have done so by tying all of its products together with
common marketing materials under one corporate name. In addition, we have
commenced InfoTour, a seminar program which enables InfoCure to meet face-to-
face with customers to strengthen our relationship with them while apprising
them of the new products and features available within InfoCure's core suite of
products. InfoCure believes these continuing efforts will increase awareness of
our latest technologies within its targeted market niches.
Take advantage of economies of scale. InfoCure has made significant
investments in its employees and the facilities and equipment necessary to
support them. We recently implemented a company-wide rollout of advanced
communications, accounting and client tracking systems. As a result, we have
built an infrastructure that it believes can support a level of business
significantly larger than currently exists. InfoCure intends to continue to
leverage this investment in infrastructure through both internal growth and
strategic acquisitions.
Products and Information Services
InfoCure offers a wide range of practice management software products to
healthcare providers in targeted specialty markets. These products are designed
to automate the administrative, financial and clinical information management
functions of office-based, hospital-based and enterprise-wide healthcare
practices. In addition to providing standard practice management features, many
of our software products offer advanced features that serve the specific needs
of our targeted healthcare practice specialties. For example, anesthesiologists
are required to bill their services on the basis of time units; oral and
maxillofacial surgeons must have the capability to process both medical and
dental claims; orthodontists must have the ability to offer their patients
contract billing alternatives; and radiologists require specialized scheduling,
film tracking and image delivery capabilities. We also offer decision support
software, add-on software modules and electronic data interchange services.
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Specialty Markets
As of March 26, 1999, InfoCure had an installed base of 11,081 customer sites
representing an estimated 65,600 healthcare providers and had systems installed
in 50 states. The number of customer sites and the estimated number of
providers in InfoCure's targeted specialties are set forth in the table below.
InfoCure has focused its product development and marketing efforts on these
practice specialties.
<TABLE>
<CAPTION>
Number of Estimated Number
Practice Specialty Customer Sites of Providers
------------------ -------------- ----------------
<S> <C> <C>
Anesthesiology........................... 171 6,500
Dental................................... 744 1,500
Dermatology.............................. 200 500
Emergency Medicine....................... 32 1,300
General Medical.......................... 1,263 3,600
Larger Medical Practices Utilizing AS/400
Technologies............................ 606 16,400
Oral and Maxillofacial Surgery........... 1,601 4,100
Orthodontics............................. 2,424 3,300
Pathology................................ 32 1,300
Podiatry................................. 3,296 4,700
Radiology................................ 712 22,400
------ ------
Total................................ 11,081 65,600
====== ======
</TABLE>
Principal Products
InfoCure classifies its principal practice management software products as
either "core" or "classic." Core products offer advanced functionality and
operate with the latest generation of operating systems and hardware platforms.
In addition, core products are the primary products currently offered to our
targeted practice specialties and are the focus of our ongoing product
development and marketing efforts. Classic products, while continuing to offer
adequate functionality, typically lack the most advanced practice management
features and are not designed for the latest generation of operating systems.
Currently, we actively market twelve core products and supports 19 classic
products. Approximately 15% of InfoCure's practice sites use core products,
while approximately 80% use classic products. InfoCure believes there is a
significant opportunity to provide system upgrades to those customers utilizing
classic and other non-core products by providing a migration path to our core
products. While we no longer actively market our classic products, we will
continue to provide customer support for our classic products until we
determine that it is no longer cost effective to do so. Additionally,
approximately 5% of InfoCure's customers currently are using products that were
written for operating systems or hardware platforms that are generally no
longer supported by their respective vendors. We are actively promoting the
migration of customers utilizing these products to newer products and intend to
retire these products at the earliest possible opportunity.
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The following chart describes how InfoCure's principal products serve
targeted specialties and practice areas:
<TABLE>
<CAPTION>
Specialties and Practice
Areas Served Principal Products Practice Specific Features
<S> <C> <C>
Anesthesiology Micro*Star . Time and unit billing
. Single entry physician/Certified
Registered Nurse Anesthetist
charge creation
. Integrated procedure and
diagnostic coding
. Automated concurrency calculation
. Billing for treatment of acute or
chronic pain
. Quality outcomes measurements
- ----------------------------------------------------------------------------------------
Dermatology Kiron . Open item patient and insurance
processing
Wisdom . Encounter form scanning
. Cross-coding integration
. Automatic modifier generation
. Multi-resource scheduling
- ----------------------------------------------------------------------------------------
General Medical WinMED CS . Open item patient and insurance
processing
Wisdom . Patient charting via progress
notes, billing, narrative history
and correspondence history
. Multi-facility management, billing
and reporting
. Prescription tracking and
processing
. Customizable insurance and
statement form templates
- ----------------------------------------------------------------------------------------
Larger Medical Practices Ideal . Multi-clinic capabilities/roll-up
reporting
Utilizing AS/400 . Global patient records across
clinics
Technologies . Preventative care and outcomes
analysis
. Occupational medicine capabilities
. Laboratory requisition
. Chart tracking with bar code
capability
. Integrated medical records
- ----------------------------------------------------------------------------------------
Oral and Maxillofacial WinOMS CS . Medical and dental claim
Surgery processing and cross-coding
. Surgery narrative reporting
. Surgery stage tracking
. Implant tracking
. Pretreatment estimating and
treatment planning
. Image integration into patient
records
- ----------------------------------------------------------------------------------------
Orthodontics OPMS/32 . Contract billing via payment
coupons
Orthotrac . Time scheduling by units of doctor
and assistant time per procedure
. Treatment charting
. Diagnostic and treatment planning
. Automatic patient treatment
milestone tracking
. Imaging
- ----------------------------------------------------------------------------------------
Podiatry Wisdom . Open item patient and insurance
processing
. Medicare-specific podiatry
requirements
. Progress notes, histories and
physician operating reports and
correspondence
. Integrated speech recognition
. Customizable insurance and
statement form templates
- ----------------------------------------------------------------------------------------
Hospital-based Sentinel . Automatic calculation of weekly
Providers: treatments
Emergency Medicine . Capability to upload transcription
Pathology from outside sources
Radiology . Bar code payment posting
. Integrated managed care features
to monitor contracts and verify
eligibility
</TABLE>
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InfoCure has designed its core software products to offer advanced
functionality and to operate with the latest generation of operating systems
and hardware platforms. InfoCure believes that PC-based practice management
systems are standardizing on the Windows family of operating systems. Our PC-
based core products use Microsoft Corporation's relational database software,
operating system software and networking software. We have adopted 32-bit
client/server technology in our PC-based core products, maximizing their
scalability in local and wide area network environments.
Many larger healthcare practices, including clinics, hospital-based practices
and other enterprise-wide providers, utilize mid-range computer platforms.
There are several mid-range computer platforms that are used by these larger
healthcare practices. InfoCure believes that AS/400-based systems will continue
to represent a significant portion of installed mid-range computer platforms.
Our mid-range core product, Ideal, is written for the AS/400 platform.
InfoCure's systems provide customers with significant benefits that enable
them to manage their practices more efficiently. Our customers are able to
choose from a menu of features and functions most essential to their practices,
primarily in the following areas:
. Administrative management--appointment scheduling, patient correspondence
and referral analysis;
. Financial management--payor billing, patient billing and accounts
receivable management; and
. Clinical information management--patient medical history, treatment
planning and hospital interface.
In addition to the standard and specialty-specific features of its core
products, InfoCure has recently introduced InfoMine, a decision support tool
designed to be compatible with all of our core products and to further
supplement their analytical features. InfoMine enables a provider to access,
sort and display data according to any data element selected by the user,
including payor, referral source, reimbursement rate, time interval or other
variable. InfoMine provides the customer with the ability to consolidate
reporting in a flexible format, to analyze the relationship between variables
and to view such reports in real time. InfoMine offers practitioners a
computerized solution for rapidly analyzing the performance of their practices,
including the ability to analyze the profitability of various contractual
relationships with payors. Currently, InfoMine is only available as part of our
anesthesiology product. InfoCure expects to offer InfoMine as part of its
products for other practice specialties during 1999.
InfoCure also develops add-on software modules providing enhanced
functionality. Current add-on software modules include:
. a scanning system that uses optical scanning technology to automate
routine data entry tasks;
. a voice-activated medical records application that translates dictation
directly into InfoCure's software thereby permitting the on-site creation
of accurate patient clinical reports;
. a digital record keeping application that allows a practice to store and
merge radiographic and photographic images with correspondence and
clinical medical records; and
. an interface that enables hospital-based physician practices to download
patient data from hospital systems into InfoCure's practice management
system.
Information Services
InfoCure's core software products enable electronic data interchange
functions, including patient billing and insurance claims submission and
remittance. The use of these electronic transactions can improve a healthcare
practice's cash flow by enabling more accurate and rapid submission of claims
to third-party payors and more rapid receipt of corresponding reimbursements.
Electronic data interchange services currently include the following:
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<PAGE>
. Electronic Patient Billing--electronically submits patient billing
information from practices by dial-up modem or via the Internet to
InfoCure's printing center or to independent national clearinghouses which
process, print and mail invoices and provide billing reports to the
practice.
. Electronic Claims Submission--electronically submits insurance claims
from practices to payors, either directly or through independent national
clearinghouses.
. Electronic Claims Remittance--electronically remits insurance payment and
automatically posts explanation of benefits into the practice management
system.
We generate revenues by facilitating electronic transactions, currently
processing more than 2.0 million electronic transactions each month through
clearinghouse arrangements. InfoCure believes that clearinghouse arrangements
serve customers better than electronic transactions directly with third-party
payors because of a clearinghouse's ability to administer the creation and
submission of claims, properly format data and facilitate reimbursements from
multiple payors. Accordingly, we actively encourage our customers to enter into
clearinghouse arrangements for their electronic transactions. InfoCure intends
to offer additional electronic data interchange services, such as eligibility
verification, referral authorization, precertification and claims status
services.
Support Services
InfoCure believes that customer satisfaction with ongoing support and
services is critical to its success. We assist customers with the initial
installation of systems and offers several alternatives for training and data
conversion services. Our customer service and support groups are organized both
by computer platform and practice specialty. In addition to providing on-site
training for certain of its product lines, we maintain classroom-based training
facilities in twelve locations throughout the United States. We also sponsor
continuing education programs, periodic newsletters and user group conferences,
providing the user with current information, as well as an opportunity for
InfoCure to demonstrate the features of new and enhanced products.
InfoCure provides its customers with ongoing software support and services
under annual agreements that typically have automatically renewable one year
terms. These agreements provide for general support through access to help
desks, error corrections to software, software upgrades within a product line
and remote diagnostics. Customer support and services are provided through a
wide area voice and data network which incorporates automated call distribution
to route customer calls from any location to the appropriate support person,
regardless of physical location. Additionally, we have acquired a company-wide
customer support software system. This system, which is currently utilized to
support approximately 44% of InfoCure's customers, operates within a
client/server environment and provides client-tracking information to assist
our InfoCure support representatives. Our remaining customers are scheduled to
be supported on this system by June 1999. Hardware support is generally
provided directly by the manufacturer or its authorized reseller.
InfoCure has invested significant resources in the systems, facilities and
personnel required to provide outstanding service to its customers. As of March
26, 1999, the customer support and services group consisted of 436 employees,
representing approximately 52% of our total employee base.
Acquisition Integration
InfoCure has developed a significant infrastructure to support the
acquisition and integration of targeted businesses. This infrastructure
consists of management and technical personnel, sophisticated communications
technology and advanced financial and accounting software. An acquisition team,
which includes key members of our management and technical staff, identifies
acquisition targets, performs due diligence investigations and negotiates the
terms of each acquisition. An integration team, which includes key operational
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personnel, works with each acquired company to identify and complete the
various post-acquisition tasks of integration, including incorporation of
desired product features into our products and consolidation of administrative
and financial functions.
InfoCure supports the integration of acquired businesses through company-wide
communications and software systems. Dedicated T-1 telecommunications lines
connect each of our remote facilities enabling an integrated computer network
and phone system. Each acquired business is rapidly migrated to this
communications system in order to facilitate seamless integration with
InfoCure's operations. Our accounting software is capable of standardizing the
accounting and financial reporting of newly acquired companies rapidly,
minimizing the time and expense associated with financial integration. InfoCure
believes its infrastructure effectively positions it to continue to acquire new
companies and facilitates the integration of the operations of each acquired
company.
Product Development
InfoCure's research and development organization, comprised of 188 full time
employees as of March 26, 1999, is organized into product development,
conversion and quality assurance groups. Our research and development efforts
principally involve the incorporation of the best technologies from each
acquired product into our core practice management systems. Our research and
development staff facilitates the integration of acquired products by
conducting a technical review of acquired companies' software products to
determine the best available functions and features within such products. Based
upon this evaluation, InfoCure generally pursues one of the following
alternatives for each acquired product:
. incorporate the features of the product into one or more of InfoCure's
core products; or
. continue to market and support the product without revision.
From time to time, we will choose to retire obsolete software products and
actively migrate users to its core products. We continually refine our core
products and rapidly deploys new features and advanced technologies into such
products. Moreover, our product development staff develops additional advanced
practice management functionality for its core products and add-on software
modules designed to be compatible with these core products. We are also seeking
to expand our electronic data interchange services to include additional
capabilities such as electronic eligibility verification, referral
authorization, precertification and claims status.
Sales and Marketing
InfoCure markets its products through a direct sales force, comprised of 93
marketing and sales personnel in 20 locations as of March 26, 1999. We organize
our sales force by specialty practice area and computer platform. The sales
force is trained to understand the specialty-specific needs of its customers.
Within its existing customer base, InfoCure promotes and sells system
upgrades, maintenance services, add-on software modules and information
services. In addition, we target new customers principally through seminars,
trade shows, telemarketing, direct mail campaigns and advertisements in various
publications. To address the complex needs of larger potential customers, we
recently formed an executive sales group. In addition, senior personnel and
members of management assist in sales and marketing initiatives to larger and
more technically-advanced potential customers. Through third-party sources, we
offer our customers who purchase systems non-recourse financing with a rapid
approval process.
Intellectual Property
InfoCure regards its software as proprietary and protects its software
primarily through reliance on copyright law and trade secret protection. We
generally enter into written license agreements with customers which contain
software license and support terms customary in the industry. In limited
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circumstances, we distribute our less expensive products under a form license
agreement printed on or inside the package for the software. In most instances
we provide our software products in a form that does not permit the software
code to be altered by the user, although in a limited number of unique
situations we have licensed products in a form that would allow such
alterations.
Competition
InfoCure's principal competitors include both national and regional practice
management systems vendors. Currently, the practice management systems industry
in the United States is characterized by a large number of relatively small,
regionally-focused companies, comprising a highly fragmented industry with only
a few national vendors. Smaller, regionally-focused companies typically market
their products to a single practice specialty. Until recently, larger, national
vendors have targeted primarily large healthcare providers. InfoCure believes
that the larger, national vendors may broaden their markets to include both
small and large healthcare providers. In addition, we compete with national and
regional providers of computerized billing, insurance processing and record
management services to healthcare practices. As the market for our products and
services expands, additional competitors are likely to enter this market.
InfoCure believes that the primary competitive factors in its markets are:
. product features and functionality;
. customer service, support and satisfaction;
. price;
. ongoing product enhancements; and
. the reputation and stability of the vendor.
Some national competitors have greater financial, development, technical,
marketing and sales resources than we have. If competition in the practice
management systems industry intensifies, we may be required to lower the prices
of our products and services.
Government Regulation
The confidentiality of patient records and the circumstances under which such
information may be used or released are subject to substantial regulation by
state and federal laws and regulations. Regulations governing electronic health
data transmissions are evolving rapidly and are often unclear and difficult to
apply. The Health Insurance Portability and Accountability Act of 1996 signed
into legislation on August 22, 1996, requires the Secretary of Health and Human
Services to adopt national standards for certain types of electronic healthcare
information transactions and the data elements used in such transactions, and
to adopt standards to ensure the integrity and confidentiality of such
information. In August 1998, the Secretary issued proposed standards specifying
electronic transactional code sets, data security and electronic signature
standards and certain provider and employer identifiers (standards governing
identifiers for health plans have not yet been proposed). Final standards are
expected following a public comment period for each proposal and are expected
to become mandatory within 24 to 36 months thereafter. InfoCure believes that
the proposed standards would not materially affect InfoCure's business if
adopted as proposed. There can be no assurance, however, that such standards
will be adopted as proposed or that the standards yet to be proposed,
particularly those related to data security, will not have a material adverse
effect on InfoCure's business, financial condition and results of operations.
The Secretary of Health and Human Resources also has submitted
recommendations to Congress for legislation to protect privacy and
confidentiality of personal health information in September 1997. If Congress
does not enact legislation by August 1999, the Secretary is required to
promulgate regulations concerning such protections. Legislation governing the
dissemination of medical record information is frequently proposed
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and debated at both the federal and state levels. Such legislation, if enacted,
could require patient consent before even coded or anonymous patient
information may be shared with third parties and could also require that
holders or users of such information implement specified security measures. Any
material restriction on the ability of healthcare providers to obtain or
disseminate patient information could adversely affect InfoCure's business,
financial condition and results of operations.
The FDA has jurisdiction under the 1976 Medical Device Amendments to the
Federal Food, Drug, and Cosmetic 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. We have not
determined to what extent InfoCure's practice management software products
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 comply with requirements applicable to
medical devices. Recently, the FDA has initiated agency rulemaking which may
exempt certain close-up 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
InfoCure's products. Non-compliance with applicable requirements can result in,
among other things, fines, injunctions, civil penalties, total or partial
suspension of production, refusal by the government to approve products,
revocation of approvals or clearances previously granted and criminal
prosecution. There can be no assurance that any final FDA policy governing
computer products, once issued, or future laws or regulations concerning the
manufacture or marketing of medical devices or healthcare information systems
will not increase the cost and time to market of new or existing products.
Human Resources
As of March 26, 1999, InfoCure employed 842 persons, including 93 in
marketing and sales, 436 in customer support and services, 188 in product
development and 125 in administration, finance and management. None of our
employees is subject to a collective bargaining arrangement. We consider our
relations with our employees to be good.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of InfoCure and their ages as of the
date of this prospectus are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Frederick L. Fine.............. 40 Chief Executive Officer, President,
Director and member of the Executive
Committee
James K. Price................. 40 Executive Vice President, Secretary,
Director and member of the Executive
Committee
Richard E. Perlman............. 52 Chairman, Treasurer, Director and member of
the Executive Committee
Lance B. Cornell............... 33 Senior Vice President--Finance; Chief
Financial Officer
Michael E. Warren.............. 44 Vice President--Human Resources and
Director
R. Ernest Chastain............. 49 Vice President--Sales and Marketing
Donald M. Rogers............... 40 Chief Information Officer
Kurt I. Lawrence............... 47 Vice President--Research and Development
Gary W. Plumer................. 41 Vice President--Finance, Assistant
Secretary and Assistant Treasurer
James D. Elliott............... 38 Director, member of the Audit and
Compensation Committees
Raymond H. Welsh............... 67 Director, member of the Audit and
Compensation Committees
</TABLE>
Frederick L. Fine is a founder of InfoCure and currently serves as its
President and Chief Executive Officer. He has served as a director of InfoCure
since its inception. Mr. Fine served as president of American Medcare from 1995
to 1997 and as president of International Computer Solutions, a subsidiary of
American Medcare, from 1994 to 1997. From 1993 to 1995, Mr. Fine served as
executive vice president of American Medcare, and from 1985 to 1994 served as
executive vice president of International Computer Solutions, which he co-
founded in 1985. From 1991 to 1993, Mr. Fine served as vice president of
Newport Capital, Inc., predecessor to American Medcare. Mr. Fine has served as
a director of InfoCure as well as American Medcare, International Computer
Solutions and Newport Capital throughout the terms of his employment by each
company. From 1983 to 1985, Mr. Fine was with Informatics General Corporation,
a supplier of accounting software, and from 1981 to 1983 was with Moore
Business Systems, a division of Moore Corporation Ltd., 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 InfoCure and currently serves as its Executive
Vice President and Secretary. He has served as a director of InfoCure since its
inception. Mr. Price served as executive vice president of American Medcare
from 1996 until 1997 and was vice president from 1993 to 1995. Mr. Price co-
founded International Computer Solutions 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 Capital. Mr. Price has served as a director of InfoCure as well as
American Medcare, International Computer Solutions and Newport Capital
throughout the terms of his employment by each company. From 1983 to 1985, Mr.
Price was healthcare sales manager of Executive Business Systems, a practice
management systems supplier, and from 1981 to 1983 was with Moore Business
Systems. Mr. Price holds a B.A. in Marketing from the University of Georgia.
Richard E. Perlman has served as InfoCure's Chairman and Treasurer since
December 1997 and as a director since March 1997. From December 1997 until
October 1998, Mr. Perlman served as InfoCure's Chief Financial Officer. Mr.
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
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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.
Lance B. Cornell has served as InfoCure's Senior Vice President of Finance
and Chief Financial Officer since October 1998. Prior to joining InfoCure, Mr.
Cornell served as vice president--controller and in other financial management
roles at HBO & Company, a healthcare information systems company, from March
1992 through June 1998. Mr. Cornell holds a B.S. in Finance from the University
of Colorado and is a Certified Public Accountant.
Michael E. Warren has served as Vice President of InfoCure since December
1997, most recently as Vice President--Human Resources since August 1998. Prior
to that time he served as InfoCure's Chief Financial Officer from December 1996
until December 1997. He has served as a director of InfoCure since March 1997.
Mr. Warren served as vice president of operations and as chief financial
officer of American Medcare from 1994 to 1996. From 1992 to 1994, Mr. Warren
was director of provider systems at Millennium Healthcare, a supplier of
electronic healthcare services. From 1986 to 1992, Mr. Warren was director of
the Southeast Computer Risk Management Practice 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 member
of the AICPA and a member of the Georgia Society of CPAs.
R. Ernest Chastain has served as Vice President--Sales and Marketing of
InfoCure since December 1997. Prior to joining InfoCure in December 1997, Mr.
Chastain served as vice president--sales and marketing of AMC from November
1996. From 1994 until 1996 he served as vice president of sales of Quality
Systems, Inc., a healthcare practice management company; and from 1993 to 1994,
Mr. Chastain served as vice president of sales for ELCOMP, Inc., a healthcare
practice management company. 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 has served as InfoCure's Chief Information Officer since
July 1998. Mr. Rogers served as a Vice President of InfoCure from April 1998
until July 1998 and as President of InfoCure's medical systems division from
April 1997 until April 1998. He was the founder of DR Software and served as
its president since its formation in 1983. From 1983 to 1984, Mr. Rogers was an
account manager at HBO & Company, a healthcare information systems 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.
Kurt I. Lawrence has served as InfoCure's Vice President--Research and
Development since August 1998. Mr. Lawrence has led InfoCure's research and
development efforts since joining InfoCure in March 1998. He founded MSI in
June 1989 and served as its president and chief executive officer until MSI was
acquired by InfoCure. Mr. Lawrence was founder, president and chief executive
officer of Lawrence Data Systems, Inc. from 1983 until 1989 and from 1976 until
1982 he served as the director of the University of Rochester Medical Center's
computing department.
Gary W. Plumer has served as Vice President--Finance, Assistant Secretary and
Assistant Treasurer of InfoCure since December 1997. He served as Controller
for the Company from November 1996 until December 1997. Prior to joining the
Company, Mr. Plumer served as divisional controller for Turner Broadcasting
System, Inc., a worldwide broadcasting company, from April 1988 until November
1996. Mr. Plumer is a Certified Public Accountant and holds a B.B.A. in Finance
from the University of Georgia.
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James D. Elliott has served as a director of InfoCure since March 1997. Mr.
Elliott is the president of Cablepro, Inc., a computer/telephone cable systems
integration company and has served in that position since 1991. He was
president of GE Network Services from August 1996 until August 1997. 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 GE Capital
Services Company in July 1996. Mr. Elliott has also served as a director of
Abdata Systems, Inc. since February 1998. Mr. Elliott holds a B.S. in Economics
from the University of Georgia.
Raymond H. Welsh has served as a director of InfoCure since March 1998. He
has served as senior vice president of PaineWebber Incorporated since January
1995. From August 1955 to January 1995, Mr. Welsh served as an investment
broker, director, senior vice president and partner of Kidder Peabody & Co.
Incorporated. Mr. Welsh is a trustee of the University of Pennsylvania, a
trustee and member of the executive committee of the University of Pennsylvania
Health System, and chairman of the Health System Capital Campaign, "Creating
the Future of Medicine." Mr. Welsh received a B.S. in Economics from the
Wharton School of the University of Pennsylvania.
There are no family relationships between any of the directors or executive
officers of InfoCure.
Terms of Directors
The Board of Directors consists of seven directors. Currently, there are six
directors serving on the Board of Directors and one vacancy. InfoCure's Bylaws
permit the Board of Directors to fill vacancies. In addition, InfoCure's Bylaws
divide the Board of Directors into three classes and each class serves for a
staggered three-year term or until successors of such class have been elected
and qualified. Messrs. Perlman and Warren are Class I directors and serve until
the annual meeting of stockholders to be held in 1999. Messrs. Price and Welsh
are Class II directors and serve until the annual meeting of stockholders to be
held in 2000. Messrs. Fine, Elliott and any director appointed to fill the
existing vacancy are Class III directors and will serve until the annual
meeting of stockholders to be held in 2001. At each annual meeting of
stockholders, a class of directors is elected for a three-year term to succeed
the directors of the same class whose terms are then expiring. To the extent
there is an increase in the number of directors, the Board of Directors will
distribute the additional directorships among the three classes so that, as
nearly as possible, each class will consist of an equal number of directors.
Non-employee Directors Stock Option Plan
InfoCure's Board of Directors has adopted the InfoCure Corporation Directors'
Stock Option Plan which provides for the grant of non-qualified stock options
to directors who are not officers or employees of InfoCure or its subsidiaries.
The directors' option plan was approved by InfoCure's stockholders in June
1998. Effective January 1998, each non-employee director who is first appointed
or elected to the Board of Directors will be granted an option to purchase
10,000 shares of InfoCure's common stock. On each anniversary thereafter, non-
employee directors will be eligible for annual grants of options to purchase
2,500 shares of common stock. The directors' option plan also allows the
Compensation Committee of the Board of Directors to make extraordinary grants
of options to non-employee directors. All options granted under the directors'
option plan vest at a rate of 50% upon completion of each year of service by
the non-employee director on the Board of Directors. Generally, no option is
transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable only by the optionee during his or
her lifetime. The exercise price of all options will be the fair market value
of the shares of common stock on the date of grant, and the term of each option
may not exceed ten years. Unless terminated sooner by the Board of Directors,
the directors' option plan will continue in effect for a period of ten years or
until all options outstanding thereunder have expired or been exercised. There
are 100,000 shares of common stock reserved for issuance under the directors'
option plan. As of March 26, 1999, options to acquire 27,500 shares of common
stock have been granted pursuant to the directors' option plan at a weighted
average exercise price of $7.22 per share.
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Effective October 23, 1998, the Board of Directors granted a non-qualified
stock option to acquire 2,500 shares of common stock to each of Mr. Elliott and
Mr. Welsh at an exercise price of $13.50 per share, subject to vesting of 50%
upon the optionee's completion of each year of service on the Board of
Directors. These options were not granted pursuant to the directors' option
plan.
Employee Benefit Plans
In October 1996, American Medcare adopted and issued stock options under its
1996 Stock Option Plan. In addition, in December 1996, InfoCure's Board of
Directors and stockholders adopted the InfoCure Corporation 1996 Stock Option
Plan. In June 1998, InfoCure's stockholders approved an amendment to InfoCure's
option plan to allow 1,125,000 shares of common stock to be issued thereunder.
Effective October 23, 1998, the Board of Directors approved an amendment to
InfoCure's option plan, subject to stockholder approval, to reserve 3,000,000
shares of common stock to be issued thereunder.
InfoCure's option plan and American Medcare's option plan each provide for
the granting to officers, key employees and employee directors of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the granting of non-statutory stock options to
employees and consultants. The stock option plans are administered by the Board
of Directors, or a committee thereof, which determines the term of the option
granted, the exercise price, when and to whom options are granted, shares
subject to the option, the vesting schedule and the form of consideration
payable at the exercise of the option.
Incentive stock 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 incentive stock option is exercisable only by the
optionee during his or her lifetime. 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 InfoCure's 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 stock of InfoCure, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market
value of InfoCure's common stock on the grant date and the maximum term of such
option must not exceed five years. The term of all options granted under the
stock option plans may not exceed ten years. All options expire one year after
termination of an optionee's employment or engagement, unless such termination
was for death or disability in which case such options expire two years after
termination. Unless terminated sooner by the Board of Directors, stock options
may be granted within ten years of the adoption of the respective stock option
plan.
Generally, stock options granted under the stock option plans to executive
officers expire ten years from the date of grant and vest 25% per year on the
anniversary of the date of grant, thus becoming fully exercisable on the fourth
anniversary. Certain options granted under InfoCure's option plan become fully
vested in the event that the common stock reaches a target average closing
price for a specified number of consecutive trading days. Certain options
granted to Messrs. Fine, Perlman and Price in September 1997 have longer
vesting schedules. If the executive officer's employment is terminated for any
reason, except upon a change of control, prior to the vesting of the option,
that portion of the option which has not vested shall be terminated. Upon
certain events resulting in a change of control of InfoCure, all options become
fully vested.
As of March 26, 1999, options to purchase 128,642 shares of common stock were
outstanding under American Medcare's option plan at an equivalent weighted
average exercise price of $4.19 per share and options to purchase 2,209,036
shares of common stock were outstanding under InfoCure's option plan at
weighted average exercise price of $9.58 per share. No additional stock options
will be granted under American Medcare's option plan.
Employee Stock Purchase Plan
In June 1998, InfoCure's stockholders approved the InfoCure Corporation
Employee Stock Purchase Plan which is intended to qualify under Section 423 of
the Internal Revenue Code. InfoCure implemented the stock purchase plan during
the first quarter of 1998. The stock purchase plan allows employees to purchase
common
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stock through payroll deductions for 85% of the fair market value of the common
stock. Participation in the stock purchase plan is voluntary. Employees may
become participants in the stock purchase plan by authorizing payroll
deductions of one to fifteen percent of their base pay or a set dollar amount
for each payroll period. At the end of each three-month purchase period, each
participant in the stock purchase plan will receive an amount of InfoCure's
common stock equal to the sum of that participant's payroll deductions during
the calendar quarter multiplied by 85% of the lower of the fair market value of
InfoCure's common stock at the beginning of the calendar quarter, or the fair
market value of InfoCure's common stock at the end of the quarter. Common stock
which is purchased pursuant to the stock purchase plan is subject to a one-year
holding period, and thus employees who purchase common stock under the stock
purchase plan will not receive stock certificates for their shares until the
one-year holding period has terminated. This holding period lapses upon certain
events resulting in a change of control. No employee may participate in the
stock purchase plan to the extent that such employee owns or would own 5% or
more of the voting power of all classes of InfoCure's stock. There are
currently 100,000 shares of common stock reserved for issuance under the stock
purchase plan. InfoCure is permitted under the stock purchase plan to purchase
shares of common stock on the open market for the purpose of reselling the
shares to participants in the stock purchase plan. As of March 26, 1999, 5,534
shares have been purchased on the open market and re-sold by InfoCure to
participants in the stock purchase plan. Effective October 23, 1998, the Board
of Directors approved an amendment to the stock purchase plan, subject to
stockholder approval within one year, increasing the number of shares of common
stock reserved for issuance thereunder to 150,000, and deleting payment by
personal check as an alternate method of payment for common stock purchased
under the stock purchase plan.
Length-of-Service Stock Option Plan
In June 1998, InfoCure's stockholders approved InfoCure's Length-of-Service
Nonqualified Stock Option Plan which provides for the grant of nonqualified
stock options to employees. Employees are eligible for the grant of options
under the length-of-service plan based on the number of years of service which
they have completed with InfoCure or a business which has been acquired by
InfoCure. Upon completion of each of their first five years of service,
employees are eligible to receive an option to purchase 50 shares of InfoCure's
common stock. Upon completion of their sixth year of service, employees are
eligible to receive an option to purchase 350 shares of common stock. Upon
completion of each year of service after the sixth year of service, employees
are eligible to receive an option to purchase 100 shares of common stock.
Options granted under the length-of-service plan will be granted at an exercise
price equal to the fair market value of the underlying common stock on the date
of grant and, generally, will fully vest on the fourth anniversary thereof. The
term of options granted under the length-of-service plan may not exceed ten
years. Employees lose all non-vested options upon leaving the employment of
InfoCure. Employees who leave InfoCure may exercise their options, to the
extent vested, within 30 days after leaving the employment of InfoCure, except
in the case of a termination for cause, in which case the employees lose all
vested options upon termination. Options are exercisable only by optionees
during their lifetime and, except by will or the laws of descent or
distribution, are non-transferrable. Upon certain events resulting in a change
of control, all outstanding options under the length-of-service plan fully vest
and become immediately exercisable. The length-of-service plan will continue in
effect for a period of ten years or until all options outstanding thereunder
have expired or been exercised. Effective October 23, 1998, the Board of
Directors approved an amendment to the length-of-service plan which, subject to
stockholder approval, increases the number of shares of common stock reserved
for issuance under the length-of-service plan to 500,000 from 150,000. As of
March 26, 1999, options to acquire 216,650 shares have been granted at a
weighted average exercise price of $9.39 per share.
Employment Agreements
In July 1998, InfoCure entered into four-year employment agreements with
Frederick L. Fine and James K. Price. Each agreement provides for an initial
annual base salary of $125,000 and a severance payment equal to three times the
then current annual base salary rate upon the termination of employment by
InfoCure without cause or a voluntary termination in the event of a change of
control of InfoCure. In addition, each agreement provides for incentive
compensation pursuant to a program established by the Board of Directors, a
cash bonus
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payment in the event that InfoCure meets certain earnings thresholds and a
restricted stock grant payable in ten years or earlier if InfoCure's common
stock attains certain market price thresholds. A market price threshold was
achieved in January 1999 resulting in an acceleration of vesting in the amount
of 50% of the stock covered by this restricted stock award. Both executives are
entitled to participate in InfoCure's employee benefit programs.
Richard E. Perlman entered into a four-year employment agreement with
InfoCure in January 1998 which provides for an annual base salary of $120,000
and a severance payment equal to three times the then current annual base
salary rate upon termination of employment by InfoCure without cause or a
voluntary termination in the event of a change of control of InfoCure. Under
the agreement, Mr. Perlman is eligible to receive incentive compensation
pursuant to a program established by the Board of Directors, a cash bonus
payment in the event InfoCure meets certain earnings thresholds and a
restricted stock grant payable in ten years or earlier if InfoCure's common
stock attains certain market price thresholds. A market price threshold was
achieved in January 1999 resulting in an acceleration of vesting in the amount
of 50% of the stock covered by this restricted stock award. In addition, Mr.
Perlman may participate in InfoCure's employee benefit program.
As of July 10, 1997, InfoCure entered into a two-year employment agreement
with Donald M. Rogers which provides for an annual base salary of $110,000. In
February 1998, InfoCure entered into a two-year employment agreement with Kurt
I. Lawrence which provides for an annual base salary of $110,000. Each of the
foregoing employment agreements has a covenant that the executive may not
compete with InfoCure for a period of one year following termination of
employment. InfoCure has not adopted a formal bonus plan. However, all
executive officers of InfoCure are eligible for a bonus, to be awarded at the
sole discretion of the Board of Directors, which is dependent upon each
executive officer's individual performance and the performance of InfoCure.
Restricted Stock Awards
In June 1998, the Board of Directors approved restricted stock awards for
35,000 shares to Mr. Fine, 30,000 shares to Mr. Price and 30,000 shares to Mr.
Perlman. The total value of these restricted stock awards was approximately
$1.1 million on the date of grant. The restricted stock awards vest ratably
over a ten-year term but vesting can be accelerated upon the occurrence of
certain events. One-half of the shares subject to the restricted stock awards
vested in the first quarter of 1999 when the average closing price of
InfoCure's common stock was $25.00 or more for 20 consecutive trading days.
InfoCure will incur an estimated compensation charge of $500,000 in the first
quarter of 1999 related to the restricted stock awards to reflect this
accelerated vesting. The remaining shares will vest immediately at the time the
average closing price of InfoCure's common stock is $40.00 or more for 20
consecutive trading days. It is possible that InfoCure will incur an additional
charge of up to $580,000 if this second accelerated vesting occurs. InfoCure
does not expect to grant additional restricted stock awards in the future and
therefore does not expect to incur compensation charges relating to restricted
stock awards in the future.
Limitation of Liability and Indemnification of Officers and Directors
Pursuant to InfoCure's Certificate of Incorporation and Bylaws, officers and
directors shall be indemnified by InfoCure 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 InfoCure, 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. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of InfoCure pursuant to the foregoing
provisions or otherwise, InfoCure has been advised that in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act and, therefore, may be unenforceable.
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of InfoCure capital stock as of the date of this prospectus, and as
adjusted to reflect the sale by InfoCure of the common stock being offered
hereby, by: (a) each director; (b) each stockholder known by InfoCure to be
beneficial owners of more than 5% of the outstanding shares of common stock;
(c) the selling stockholders; and (d) all executive officers and directors of
InfoCure as a group.
Information with respect to "beneficial ownership" shown in the table below is
based on information supplied by the respective beneficial owner or by other
stockholders as well as filings made with the SEC or furnished to InfoCure.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities. For
purposes of calculating the percentage beneficially owned after the offering,
the shares of common stock deemed outstanding include:
. 8,888,936 shares outstanding as of March 26, 1999;
. 1,000,070 shares issuable upon the conversion of the 850,060 shares of
Series A Preferred concurrently with the effectiveness of the offering;
. 100,644 shares issuable upon conversion of a note payable and other
obligations concurrently with the effectiveness of the offering; and
. shares issuable by InfoCure pursuant to warrants and options held by the
respective person or group which may be exercised within 60 days following
the date of this prospectus ("Presently Exercisable Options").
The shares outstanding exclude 47,500 shares that are issuable upon attainment
of vesting goals applicable to restricted stock awards. For each person who
beneficially owns shares of Series A Preferred, common stock ownership reflects
the conversion of such Series A Preferred shares into shares of common stock at
a conversion price of $8.50 per share. No shares of preferred stock will be
outstanding after the offering.
Presently Exercisable Options are deemed to be outstanding and to be
beneficially owned by the person or group holding such options for the purpose
of computing the percentage ownership of such person or group but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person or group. Shares of common stock beneficially owned by certain
selling stockholders after this offering are registered pursuant the resale
registration statement and will be immediately eligible to be sold in the
public market either immediately or upon expiration of 30 or 90 day lock-up
agreements executed by such selling stockholders. Unless otherwise specified,
the mailing address of each beneficial owner is c/o InfoCure Corporation, 1765
The Exchange, Suite 450, Atlanta, Georgia 30339.
44
<PAGE>
<TABLE>
<CAPTION>
Common
Common Stock Stock to
Beneficially Owned be Sold Common Stock
Prior to the in the Beneficially Owned
Offering Offering After the Offering
-------------------- -------- --------------------
Name and Address of
Beneficial Owner Shares Percentage Shares Shares Percentage
- ------------------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Directors, Officers and 5%
Stockholders:
Frederick L. Fine(1)...... 527,718 5.9% -- 527,718 4.1%
James K. Price(2)......... 525,300 5.9 -- 525,300 4.1
Richard E. Perlman(3)..... 352,055 3.9 -- 352,055 2.7
Michael E. Warren(4)...... 84,192 * -- 84,192 *
James D. Elliott(5)....... 28,886 * -- 28,886 *
Raymond H. Welsh(5)....... 23,000 * -- 23,000 *
All directors and
executive officers as a
group (11 persons)(6).... 1,802,328 19.4 10,177 1,792,151 13.8
Crescent International
Limited(7)............... 549,983 6.1 180,000 369,983 2.3
William Herbert Hunt Trust
Estate(8)................ 548,932 6.0 -- 548,932 4.2
Reid W. Simmons(9)........ 466,036 5.2 -- 466,036 3.6
James D. Davis(9)......... 465,036 5.2 -- 465,036 3.6
Selling Stockholders(10):
Bailey, Joe M............. 6,220 * 1,866 4,354 *
Ball, George L............ 6,220 * 1,866 4,354 *
Ball, Susan Huffard....... 6,220 * 1,866 4,354 *
Barbour, Carol C.......... 3,109 * 933 2,176 *
Brewster, John C. and Mar-
ianna.................... 3,109 * 933 2,176 *
Chadwick, Michael S....... 3,109 * 933 2,176 *
Cockspur, Inc............. 6,220 * 1,866 4,354 *
Cohn Holstead, Anne Lind-
say...................... 6,220 * 1,866 4,354 *
Cohn, Bobby Smith......... 6,220 * 1,866 4,354 *
Cohn, Kirby............... 6,220 * 1,866 4,354 *
Cohn, Morton A............ 43,543 * 13,063 30,480 *
Colville, G. Christopher.. 3,109 * 933 2,176 *
Cummings, Alan G.......... 6,220 * 1,866 4,354 *
Custer, Thomas W.......... 6,220 * 1,866 4,354 *
Davis, Charles L.(11)..... 1,555 * 466 1,089 *
DeArman, William M........ 6,220 * 1,866 4,354 *
DelHomme, Louis........... 6,220 * 1,866 4,354 *
Dillard, Max M............ 6,220 * 1,866 4,354 *
Drury, John E............. 12,441 * 3,732 8,709 *
Duddlesten, Wayne B....... 12,441 * 3,732 8,709 *
Elkins Jr., J.A. and Mar-
garet W.................. 6,220 * 1,866 4,354 *
Ellis, Leigh and Mimi G... 3,109 * 933 2,176 *
Ener Corporation.......... 1,555 * 466 1,089 *
Fitch, Don................ 6,220 * 1,866 4,354 *
Flom, Joseph.............. 6,220 * 1,866 4,354 *
Fordham, Scott............ 3,109 * 933 2,176 *
Frost Family I, Ltd....... 6,220 * 1,866 4,354 *
Gunther, Don J. and Rose-
mary T................... 3,109 * 933 2,176 *
Hagans, Fred.............. 6,220 * 1,866 4,354 *
Hamblen III, Tolar........ 3,109 * 933 2,176 *
Harter, Steve............. 6,220 * 1,866 4,354 *
Hebert, L. Carl and Edith
C........................ 6,220 * 1,866 4,354 *
Herbold, William K. and
Norma Rae................ 3,109 * 933 2,176 *
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Common
Common Stock Stock to Common Stock
Beneficially be Sold Beneficially
Owned Prior to in the Owned After the
the Offering Offering Offering
----------------- -------- -----------------
Name and Address of
Beneficial Owner Shares Percentage Shares Shares Percentage
- ------------------- ------ ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C>
Higdon Compton Insur-
ance.................. 3,109 * 933 2,176 *
Hopson, Courtney Lyle
Cohn.................. 6,220 * 1,866 4,354 *
Hutson, Miles A........ 3,109 * 933 2,176 *
J-All Partnership...... 18,661 * 5,598 13,063 *
James Ventures, L.P.... 74,646 * 22,394 52,252 *
Johnson, Walter........ 3,109 * 933 2,176 *
Jones, Austin and Mar-
garet................. 6,220 * 1,866 4,354 *
Jones, Samuel A........ 3,109 * 933 2,176 *
Keenan, Ltd............ 6,220 * 1,866 4,354 *
Keller, Susan K........ 3,109 * 933 2,176 *
Kinder, Nancy G........ 6,220 * 1,866 4,354 *
Kinder, Richard D...... 6,220 * 1,866 4,354 *
Kinney, Robert Larry... 6,220 * 1,866 4,354 *
Lary, Robert W......... 6,220 * 1,866 4,354 *
Lawlor, Michael P. and
Helen C............... 6,220 * 1,866 4,354 *
Lay, Kenneth L. and
Linda P............... 12,441 * 3,732 8,709 *
Lindsey Spicer #1
Trust................. 6,220 * 1,866 4,354 *
Lindstedt, Roger P..... 24,882 * 7,465 17,417 *
Malanga, John H. and
Jodi F................ 1,555 * 400 1,155 *
McAninch, Ed........... 6,220 * 1,866 4,354 *
McClanahan, Randy J.
and Jennifer G........ 6,220 * 1,866 4,354 *
McConnell, Michael H... 1,555 * 466 1,089 *
McMaken, Bruce......... 1,555 * 466 1,089 *
Mitchell, Michael...... 3,109 * 933 2,176 *
MJ & DJ Management Com-
pany, Ltd............. 6,220 * 6,220 -- --
Moorehead Jr., Donald
F..................... 18,661 * 5,598 13,063 *
Moorehead, George...... 3,109 * 933 2,176 *
Moorehead, Shelley B... 18,661 * 5,598 13,063 *
Morris, Ben T.(12)..... 6,220 * 1,866 4,354 *
Mundy, John I.(12)..... 3,109 * 933 2,176 *
O'Neill, Katherine Hal-
liday................. 3,109 * 933 2,176 *
O'Quinn, John M........ 24,882 * 7,465 17,417 *
Platinum Business In-
vestment Company,
Ltd................... 31,102 * 9,331 21,771 *
Poarch, Donald L....... 3,109 * 933 2,176 *
Quigley, Leroy E....... 3,109 * 933 2,176 *
Rauch, Leonard......... 6,220 * 1,866 4,354 *
Reamer, R.E. Individual
Retirement Account.... 3,109 * 933 2,176 *
Rimmer, Roy T., Jr..... 6,220 * 1,866 4,354 *
Rogers, Franelle....... 3,109 * 933 2,176 *
Rome, Mark A........... 1,555 * 466 1,089 *
Ross, Rex C. and Adrian
T..................... 6,220 * 1,866 4,354 *
Ryan, Nolan............ 6,220 * 1,866 4,354 *
Sanders, Brad D........ 3,109 * 933 2,176 *
Sanders, Bret D........ 3,109 * 933 2,176 *
Sanders, Christine M... 3,109 * 933 2,176 *
Sanders, Don A.(12).... 46,653 * 13,996 32,657 *
Sanders, Katherine U... 31,102 * 9,331 21,771 *
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Common
Common Stock Stock to
Beneficially Owned be Sold Common Stock
Prior to the in the Beneficially Owned
Offering Offering After the Offering
------------------ -------- ------------------
Name and Address of
Beneficial Owner Shares Percentage Shares Shares Percentage
- ------------------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Sanders, Laura K...... 3,109 * 933 2,176 *
Scott, Stephen D...... 31,102 * 9,331 21,771 *
Slovin, Bruce......... 12,441 * 3,732 8,709 *
Spicer, Sherri........ 6,220 * 1,866 4,354 *
Tanglewood Family Lim-
ited Part............ 3,109 * 933 2,176 *
Tate, Paul and Lara
M.................... 3,109 * 933 2,176 *
Tompkins, Jack I...... 6,220 * 1,866 4,354 *
Towery, David......... 3,109 * 933 2,176 *
Weir, Don and Julie
Ellen................ 3,109 * 933 2,176 *
Weir, Eric G.......... 3,109 * 933 2,176 *
Weir, Lisa Dawn....... 3,109 * 933 2,176 *
Wolf Canyon, Ltd. .... 6,220 * 1,866 4,354 *
Humphrey, Todd
J.(13)............... 22,725 * 2,000 20,725 *
Micro-Software De-
signs, Inc.(14)...... 270,000 3.0 135,000 135,000 1.0
Lawrence, Karen
A.(15)............... 99,456 1.1 7,673 89,279 *
Stockholders who
acquired shares in
the Rovak
acquisition:
Schraut, Sherry J..... 59,080 * 10,652 48,428 *
Vagle, Erik E......... 1,540 * 600 940 *
Vagle, Melvin C....... 65,057 * 10,000 38,607 *
Vagle, Ronald M....... 242,590 2.7 51,433 194,289 1.5
Winkelman, Joe........ 911 * 911 -- --
Stockholders who
acquired shares in
the Millard-Wayne
acquisition:
George, M. Wayne...... 33,365 * 23,365 10,000 --
Stockholders who
acquired shares in
the KComp
acquisition:
Caputo, Donald E...... 1,411 * 600 811 *
Gorman, Ruth.......... 1,424 * 1,424 -- --
Johnson, Dick......... 7,998 * 998 7,000 *
Loukatos, Marsha...... 6,060 * 6,060 -- --
Teese, Charles F...... 4,186 * 2,093 2,093 *
Stockholders who
acquired shares in
the RADMAN
acquisition:
Quiat, Barry.......... 18,227 * 6,000 12,227 *
The Richard P. Koffler
and Cheryl Bartlett
Koffler Trust UTD
August 24, 1995...... 23,562 * 12,500 11,062 *
Stockholders who
acquired shares in
the OMSystems
acquisition:
Baker, Steve.......... 13,728 * 4,000 9,728 *
Bolton, Harold D...... 18,304 * 9,152 9,152 *
Case, Stephen
Anthony.............. 13,728 * 5,000 8,728 *
Gwaltney, Thomas M.,
Jr................... 23,795 * 21,416 2,379 *
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Common
Common Stock Stock to Common Stock
Beneficially be Sold Beneficially
Owned Prior to in the Owned After the
the Offering Offering Offering
----------------- -------- -----------------
Name and Address of
Beneficial Owner Shares Percentage Shares Shares Percentage
- ------------------- ------ ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C>
Haddad, Michael J..... 3,775 * 775 3,000 *
Hofstetter, Joseph M.,
Jr................... 45,760 * 11,000 34,760 *
Hornick, Keith........ 3,775 * 1,887 1,888 *
Horton, Cyrus
William.............. 11,440 * 4,440 7,000 *
Sentell, Jane
Elizabeth............ 1,144 * 144 1,000 *
Sentell, Craig
Martin............... 19,448 * 8,448 11,000 *
Sexton, Jacob Paul.... 5,720 * 2,720 3,000 *
Stuff, James Robert... 11,440 * 5,720 5,720 *
-------
Total................ 770,000
=======
</TABLE>
- --------
* Less than one percent.
(1) Includes 3,579 shares held by Mr. Fine for the benefit of his children and
1,193 shares held by a charitable trust over which he has sole voting and
investment control. Also includes 17,500 shares held in a deferred
compensation trust on behalf of Mr. Fine and 48,424 shares issuable upon
the exercise of Presently Exercisable Options.
(2) Includes 3,225 shares held by Mr. Price's brother as to which Mr. Price
maintains voting control. Also includes 15,000 shares held in a deferred
compensation trust on behalf of Mr. Price and 48,424 shares issuable upon
the exercise of Presently Exercisable Options.
(3) Includes (a) 195,691 shares held by Compass Partners, of which Mr. Perlman
holds a majority interest; (b) 110,000 shares issuable to Compass Partners
upon exercise of an outstanding warrant at an exercise price of $5.50 per
share; (c) 15,000 shares held in a deferred compensation trust on behalf
of Mr. Perlman; and (d) 47,364 shares issuable upon the exercise of
Presently Exercisable Options.
(4) Includes 34,330 shares issuable upon the exercise of Presently Exercisable
Options.
(5) Includes 5,000 shares issuable upon the exercise of Presently Exercisable
Options.
(6) Includes (a) 10,177 shares held by Karen A. Lawrence, the spouse of Kurt
I. Lawrence, which are being sold in this offering and (b) an aggregate of
277,137 additional shares issuable upon the exercise of Presently
Exercisable Options.
(7) According to a Schedule 13D, as amended, filed by Crescent International
Limited dated December 21, 1998, Crescent has sole voting and dispositive
power as to the shares of common stock. The common stock total includes
100,000 shares issuable upon exercise of a warrant at an exercise price
of $23.00 per share. Crescent's mailing address is c/o Greenlight
(Switzerland) SA, 84, Av Louis-Casai, P.O. Box 42, 1216, Geneva,
Cointrin, Switzerland.
(8) According to a Schedule 13D filed by The William Herbert Hunt Trust Estate
dated February 19, 1998, the Hunt Trust has sole voting and dispositive
power as to the shares of common stock. The mailing address of the Hunt
Trust is 3900 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
(9) Mr. Simmons and Mr. James Davis were the principals of OMSystems, which
merged with InfoCure in February 1999.
(10) The number of shares beneficially owned by the selling stockholders after
the offering reflects shares owned before any sale of shares that are
being registered pursuant to the resale registration statement.
(11) Mr. Charles Davis is a vice president of Sanders Morris Mundy Inc., which
is an underwriter in this offering. Mr. Davis was personally involved with
the private placement of the Series A Preferred, for which Sanders Morris
Mundy Inc. acted as placement agent, and Mr. Davis has been personally
involved with the preparation of this offering.
(12) Shares beneficially owned by these persons exclude 100,000 shares issuable
upon the exercise of a warrant beneficially owned by Sanders Morris Mundy,
Inc., over which they share the voting and dispositive powers. These
persons are principals of Sanders Morris Mundy Inc., which is an
underwriter
48
<PAGE>
in this offering and which served as placement agent for the private
placement of the Series A Preferred in February 1998.
(13) Includes 22,000 shares issuable upon the exercise of a warrant at an
exercise price of $9.13 per share. Mr. Humphrey was a principal of PACE,
which was acquired by InfoCure in November 1997.
(14) Micro-Designs was acquired by InfoCure in January 1998.
(15) Includes 79,279 shares beneficially owned and 10,000 shares subject to
Presently Exercisable Options held by Ms. Lawrence's spouse.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, there will be 12,942,150 shares of common
stock outstanding. Of these shares, 12,813,315 shares, which include the
3,770,000 shares sold in this offering, will be freely tradable upon completion
of this offering, subject to the lock-up agreements and Rule 144 restrictions
relating to affiliates discussed below. Of these shares, 4,224,476 are
registered in the resale registration statement. The remaining 128,835 shares
of common stock outstanding are "restricted securities" under Rule 144 and are
not freely tradable.
InfoCure's shares will become eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
Date Shares Become Eligible for Resale in the Public
Number of Shares: Market:
----------------- ----------------------------------------------------
<C> <S>
8,072,504............ These shares will be freely tradable without
restriction immediately as of the date of this
prospectus.
124,342.............. These shares are subject to 30-day lock-up agreements
and will be freely tradable without restriction
commencing 31 days after the date of this prospectus.
None of the holders of these shares are affiliates of
InfoCure as defined in Rule 144 and none of these
shares will be subject to Rule 144 restrictions.
4,616,469............ These shares are subject to 90-day lock-up agreements
and will be freely tradable without restriction
commencing 91 days after the date of this prospectus,
provided that 1,195,014 of such shares are held by
affiliates and are subject to the provisions of
Rule 144 that limit the amount of securities that may
be sold in any three month period.
128,835.............. These shares are restricted. However, of these
shares, 38,192 are eligible to be sold as of the date
of this prospectus, pursuant to Rule 144 and the
remainder will become eligible for sale at various
dates thereafter.
</TABLE>
The lock-up agreements provide that the holders of the shares may not sell or
otherwise dispose of their shares for a period of 30 or 90 days after the date
of this prospectus without the prior written consent of The Robinson-Humphrey
Company, LLC. In addition, InfoCure has agreed not to sell any additional
shares of common stock for 90 days after the date of this prospectus without
the prior written consent of The Robinson-Humphrey Company, LLC. The Robinson-
Humphrey Company, LLC may release InfoCure or the stockholders from these
restrictions, in whole or in part, at any time in its sole discretion.
In general, under Rule 144, beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, a stockholder,
including an affiliate, who has beneficially owned restricted securities for at
least one year is entitled to sell, within any three month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
common stock or the average weekly trading volume in the common stock during a
four calendar week period, provided certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. In addition, under Rule 144(k), if a period of at least two years
has elapsed between the later of the date restricted securities were acquired
from InfoCure, or the date they were acquired from an affiliate of InfoCure, a
stockholder who is not an affiliate of InfoCure at the time of sale and has not
been an affiliate for at least three months prior to the sale is entitled to
sell the shares immediately without compliance with the foregoing requirements
under Rule 144.
InfoCure has filed registration statements on Form S-8 under the Securities
Act to register a total of 1,785,432 shares of common stock issuable under the
American Medcare option plan, InfoCure's option plan, the length-of-service
plan, the employee stock purchase plan, the directors' option plan and options
granted
50
<PAGE>
pursuant to certain individual option agreements. Shares issued upon the
exercise of stock options or other rights thereunder after the effective date
of the Form S-8 registration statements will be eligible for resale in the
public market without restriction, subject to Rule 144 limitations applicable
to affiliates of InfoCure and to the lock-up agreements noted above. InfoCure
intends to file a registration statement on Form S-8 covering the remaining
shares of common stock reserved for issuance under its stock option plans and
certain other individual option agreements. This registration statement will be
filed after InfoCure receives stockholder approval of such share reservations.
No prediction 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 of the common stock. Nevertheless, sales of a large number of
shares of common stock in the public market could adversely affect the market
price of the common stock and could impair InfoCure's future ability to raise
capital through an offering of its equity securities.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
among InfoCure, the selling stockholders named herein and the underwriters
named below, for whom The Robinson-Humphrey Company, LLC, SG Cowen Securities
Corporation, William Blair & Company, L.L.C. and Sanders Morris Mundy Inc. are
acting as representatives, InfoCure and the selling stockholders have agreed to
sell, and the underwriters have severally agreed to purchase, the number of
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
The Robinson-Humphrey Company, LLC.................................
SG Cowen Securities Corporation....................................
William Blair & Company, L.L.C.....................................
Sanders Morris Mundy Inc...........................................
---------
Total.......................................................... 3,770,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.
The underwriters propose to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share in sales to certain other dealers. After the
offering, the public offering price and other selling terms may be changed.
InfoCure has granted to the underwriters a 30-day option to purchase up to an
additional 565,500 shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
If the underwriters exercise their over-allotment option, each underwriter will
be obligated, subject to certain conditions, to purchase a number of additional
shares of common stock approximately proportionate to such underwriter's
initial purchase commitment.
InfoCure, its executive officers and directors and the selling stockholders
have agreed that, for a period of 90 days from the date of this prospectus,
they will not, without the prior written consent of The Robinson-Humphrey
Company, LLC, offer, sell, contract to sell, or otherwise dispose of, any
shares of common stock of
51
<PAGE>
InfoCure or any securities convertible into, or exercisable or exchangeable
for, common stock of InfoCure. The Robinson-Humphrey Company, LLC, in its sole
discretion, may release any of the securities subject to these lock-up
agreements at any time without notice.
The common stock is listed on the Nasdaq Stock Market under the symbol
"INCX."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by InfoCure and the selling stockholders in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriter's option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
Paid by Selling
Paid by InfoCure Stockholders
----------------- -----------------
No Full No Full
Exercise Exercise Exercise Exercise
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per share................................
Total....................................
</TABLE>
InfoCure expects to incur expenses of approximately $ in connection
with this offering.
In connection with the offering, The Robinson-Humphrey Company, LLC, on
behalf of the underwriters, may over-allot, or engage in syndicate covering
transactions, stabilizing transactions and penalty bids. Over-allotment
involves syndicate sales of common stock in excess of the number of shares to
be purchased by the underwriters in the offering, which creates a syndicate
short position. Syndicate covering transactions involve purchases of common
stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Stabilizing transactions consist of certain
bids or purchases of common stock made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when The Robinson-Humphrey Company, LLC, in
covering syndicate short positions or making stabilizing purchases, repurchases
shares originally sold by that syndicate member. These activities may cause the
price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. These
transactions may be effected on the Nasdaq Stock Market or in the over-the-
counter market or otherwise and, if commenced, may be discontinued at any time.
InfoCure and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required
to make in respect of any of those liabilities.
SG Cowen Securities Corporation acted as financial adviser to InfoCure in
connection with the HSD acquisition completed on October 23, 1998, and received
a customary fee for its services in connection therewith. Sanders Morris Mundy
Inc. acted as placement agent in connection with the private placement of the
Series A Preferred completed in February 1998, and received as part of its
compensation a warrant to acquire 100,000 shares of common stock, at an
exercise price of $9.00 per share, in exchange for such services.
The underwriters have reserved for sale at the public offering price up to
188,500 shares of common stock for employees, executive officers, directors and
certain other persons who have a business relationship with InfoCure who have
expressed an interest in purchasing such shares of common stock in this
offering. The number of shares available for sale to the general public in this
offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares
offered hereby. The underwriters are aware of the "Free-Riding and Withholding"
Conduct Rules of the National Association of Securities Dealers in connection
with the sale of certain issuer-directed securities and will comply with those
rules.
52
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the common stock offered hereby
will be passed upon for InfoCure and the selling stockholders by Morris,
Manning & Martin, L.L.P., Atlanta, Georgia. Employees of Morris, Manning &
Martin, L.L.P. own an aggregate 57,760 shares of InfoCure's common stock.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements of InfoCure as of December 31, 1997 and
1998 and for the year ended January 31, 1997, the eleven months ended December
31, 1997 and the year ended December 31, 1998, incorporated herein by reference
and included herein and the Financial Statements of Radiology Management
Systems, Inc. and OMSystems, Inc. incorporated herein by reference have been
audited by BDO Seidman, LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and incorporated herein by
reference, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The Financial Statements of The Healthcare Systems Division of The Reynolds
and Reynolds Company as of September 30, 1998 and September 30, 1997, and for
the years ended September 30, 1998, 1997 and 1996, appearing in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus is part of a registration statement on Form S-3 that InfoCure
filed with the SEC. This prospectus does not contain all the information in
that registration statement. For further information with respect to InfoCure
and the securities offered by this prospectus, you should review the
registration statement. You can obtain the registration statement from the SEC
and the Nasdaq Stock Market at the public reference facilities we refer to
below.
The SEC allows InfoCure to "incorporate by reference" information into this
prospectus. This means that InfoCure may refer you to important information
about InfoCure provided in other documents on file with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, unless that information has been updated in this prospectus. In
addition, InfoCure may, from time to time, update information contained in this
prospectus or in another document that is incorporated by reference. Whenever
InfoCure files a document with the SEC that updates information in this
prospectus or in any other document incorporated by reference, the new
information will be considered to replace the old information. Any statement in
this document that is subsequently updated will no longer be considered a part
of this prospectus.
The following documents are incorporated by reference into this prospectus:
<TABLE>
<CAPTION>
Filing Period
------ ------
<S> <C>
Annual Report on Form 10-KSB...................... Year Ended December 31, 1998
Current Report on Form 8-K (relating to the RADMAN
acquisition)..................................... Dated January 6, 1999
Registration Statement on Form 8-A (with respect
to the description of the common stock contained
therein)......................................... Filed on January 28, 1999
Current Report on Form 8-K (relating to the
OMSystems merger)................................ Dated February 9, 1999
</TABLE>
All documents filed by InfoCure pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of the registration
statement containing this prospectus are also incorporated by reference into
this prospectus as of the date such documents are filed with the SEC.
53
<PAGE>
On request, InfoCure will provide, at no cost to each person who receives a
copy of this prospectus, a copy of any or all of the documents incorporated by
reference into this prospectus. InfoCure will not provide exhibits to any of
such documents, however, unless such exhibits are specifically incorporated by
reference into this prospectus. Written or telephonic requests for such copies
should be addressed to InfoCure's principal executive offices, attention: Lance
B. Cornell, Senior Vice President--Finance and Chief Financial Officer, 1765
The Exchange, Suite 450, Atlanta, Georgia 30339, telephone number (770) 221-
9990.
WHERE YOU CAN FIND MORE INFORMATION
InfoCure files reports, proxy statements and other information with the SEC.
InfoCure has filed with the SEC a registration statement on Form S-3 under the
Securities Act to register the offering of the shares of common stock offered
hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement. Prospective investors may read and copy the
registration statement and its exhibits and schedules without charge at the
Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Prospective investors may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, InfoCure is required to file electronic versions of these documents
with the SEC through the SEC's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC.
54
<PAGE>
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
InfoCure Corporation Unaudited Pro Forma Combined Financial Statements
Basis of Presentation................................................... F-2
Pro Forma Combined Balance Sheet........................................ F-3
Pro Forma Combined Statement of Operations.............................. F-4
Notes to Pro Forma Combined Financial Statements........................ F-5
InfoCure Corporation Consolidated Financial Statements
Report of Independent Certified Public Accountants...................... F-9
Consolidated Balance Sheets............................................. F-10
Consolidated Statements of Operations................................... F-11
Consolidated Statements of Changes in Stockholders' Equity.............. F-12
Consolidated Statements of Cash Flows................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
The Healthcare Systems Division of The Reynolds and Reynolds Company
Independent Auditors' Report............................................ F-32
Balance Sheets.......................................................... F-33
Statements of Operations and Deficit in Divisional Net Assets........... F-34
Statements of Cash Flows................................................ F-35
Notes to Financial Statements........................................... F-36
</TABLE>
F-1
<PAGE>
INFOCURE CORPORATION
PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The unaudited pro forma combined financial statements present the balance
sheet and income statement data from the consolidated financial statements of
InfoCure Corporation ("InfoCure" or the "Company") and give effect to the
acquisition by InfoCure (completed in October 1998) of substantially all the
net assets of the Healthcare Systems Division ("HSD") of The Reynolds and
Reynolds Company (the "HSD Acquisition"), the merger in February 1999 with
OMSystems, Inc. ("OMSystems"), the offering, and certain other transactions.
The unaudited pro forma combined statements of operations have been prepared
for the year ended December 31, 1998. These statements give effect to the HSD
Acquisition and the OMSystems merger as if such transactions had occurred on
January 1, 1998. The unaudited pro forma combined balance sheet gives effect to
the OMSystems merger, the offering, and certain other transactions as if such
events had occurred on December 31, 1998. Additionally, the effects of the
offering and other related transactions are also presented on an "as adjusted
basis" as if they had occurred January 1, 1998.
The unaudited pro forma combined financial statements are based on the
historical financial statements of InfoCure and HSD 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. The unaudited pro
forma combined financial statements also reflect the merger with OMSystems
completed in February 1999. This business combination is to be accounted for as
a pooling of interests and, although not significant for inclusion of separate
financial statements, is presented to provide additional informative
disclosure.
The unaudited pro forma combined statements of operations for the year ended
December 31, 1998 include InfoCure's results of operations for the year ended
December 31, 1998 (which include the results of operations of HSD from October
23, 1998) with appropriate adjustments to reflect the HSD Acquisition for the
period January 1 to October 23, 1998 and the effects of the OMSystems pooling.
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 the results that InfoCure would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
applicable periods presented, as assumed, or to project the future results of
InfoCure. 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 the "Risk Factors" included elsewhere
in this prospectus.
F-2
<PAGE>
INFOCURE CORPORATION
PRO FORMA COMBINED BALANCE SHEET
December 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
InfoCure
Historical Offering Pro Forma
Consolidated OMSystems Subtotal Adjustments Ref Pro Forma Adjustments Ref As Adjusted
------------ --------- -------- ----------- --- --------- ----------- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash
equivalents $ 8,552 $ 517 $ 9,069 $ -- $ 9,069 $ 66,752 (B) $ 10,000
(65,821) (D)
Accounts receivable,
net................... 22,648 1,631 24,279 -- 24,279 -- 24,279
Inventory.............. 2,043 1,006 3,049 -- 3,049 -- 3,049
Deferred tax asset..... 675 -- 675 -- 675 -- 675
Prepaid expense and
other................. 1,233 148 1,381 -- 1,381 -- 1,381
-------- ------- -------- ------- -------- -------- --------
Total current assets.. 35,151 3,302 38,453 -- 38,453 931 39,384
Property and equipment,
net of depreciation.... 8,103 1,035 9,138 -- 9,138 -- 9,138
Goodwill, net of
accumulated
amortization........... 72,203 -- 72,203 -- 72,203 -- 72,203
Other intangibles, net
of accumulated
amortization........... 7,308 -- 7,308 -- 7,308 (4,507) (D) 2,801
Deferred tax asset...... 5,019 -- 5,019 -- 5,019 -- 5,019
-------- ------- -------- ------- -------- -------- --------
Total assets.......... $127,784 $ 4,337 $132,121 $ -- $132,121 $ (3,576) $128,545
======== ======= ======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable........... $ 2,000 $ -- $ 2,000 $ -- $ 2,000 $ -- $ 2,000
Accounts payable....... 3,723 75 3,798 -- 3,798 -- 3,798
Accrued restructuring
costs................. 283 -- 283 -- 283 (105) (C) 178
Accrued expense........ 5,951 456 6,407 -- 6,407 (45) (C) 6,362
Income taxes payable... 645 -- 645 -- 645 -- 645
Deferred revenue....... 9,185 1,594 10,779 -- 10,779 -- 10,779
Current portion of
long-term debt........ 12,884 114 12,998 -- 12,998 (3,000) (D) 9,998
-------- ------- -------- ------- -------- -------- --------
Total current
liabilities.......... 34,671 2,239 36,910 -- 36,910 (3,150) 33,760
Long-term debt, less
current portion........ 68,358 1,195 69,553 -- 69,553 (604) (C) 6,728
(62,221) (D)
-------- ------- -------- ------- -------- -------- --------
Total liabilities..... 103,029 3,434 106,463 -- 106,463 (65,795) 40,488
-------- ------- -------- ------- -------- -------- --------
Convertible, redeemable
preferred stock........ 8,500 -- 8,500 -- 8,500 (8,500) (C) --
-------- ------- -------- ------- -------- -------- --------
Stockholders' equity:
Common stock, $.001
par................... 8 1 9 -- 9 3 (B) 13
1 (C)
Common stock issuable.. 1,975 -- 1,975 (1,975) (A) -- --
Additional paid-in
capital............... 31,358 6,390 37,748 1,975 (A) 39,723 66,749 (B) 115,725
9,253 (C)
Accumulated deficit.... (15,781) (5,488) (21,269) -- (21,269) (5,107) (D) (26,376)
Deferred compensation.. (1,083) -- (1,083) -- (1,083) (1,083)
Treasury stock......... (222) -- (222) -- (222) -- (222)
-------- ------- -------- ------- -------- -------- --------
Total stockholders'
equity................. 16,255 903 17,158 -- 17,158 70,899 88,057
-------- ------- -------- ------- -------- -------- --------
Total liabilities and
stockholder's equity... $127,784 $ 4,337 $132,121 $ -- $132,121 $ (3,576) $128,545
======== ======= ======== ======= ======== ======== ========
</TABLE>
See notes to pro forma combined financial statements.
F-3
<PAGE>
INFOCURE CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(In thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma InfoCure,
InfoCure Effects Subtotal HSD and
Historical of HSD InfoCure OMSystems Acquisition Offering
Consolidated Acquisition(1) and HSD OMSystems(2) Combined Adjustments Ref Pro Forma Adjustments Ref
------------ -------------- -------- ------------ --------- ----------- --- --------- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Systems and
software....... $34,492 $ 18,440 $ 52,932 $10,440 $ 63,372 $ -- $ 63,372 $ --
Maintenance,
support and
services....... 29,231 19,775 49,006 4,512 53,518 -- 53,518 --
------- -------- -------- ------- -------- -------- -------- -------
Total revenue.... 63,723 38,215 101,938 14,952 116,890 -- 116,890 --
Operating
expense:
Hardware and
other items
purchased for
resale......... 12,567 6,511 19,078 3,902 22,980 -- 22,980 --
Selling, general
and
administrative.. 34,685 39,382 74,067 7,746 81,813 (15,361) (E) 66,452 --
Depreciation and
amortization... 4,328 5,045 9,373 136 9,509 (2,388) (F) 7,121 --
Purchased
research and
development.... 9,000 -- 9,000 -- 9,000 -- 9,000 --
Compensatory
stock awards... 57 -- 57 6,390 6,447 -- 6,447 --
Asset
Impairment,
restructuring
and special
charges........ 1,874 750 2,624 -- 2,624 -- 2,624 --
------- -------- -------- ------- -------- -------- -------- -------
Total operating
expense......... 62,511 51,688 114,199 18,174 132,373 (17,749) 114,624 --
Operating income
(loss).......... 1,212 (13,473) (12,261) (3,222) (15,483) 17,749 2,266 --
Other expense
(income):
Interest, net... 3,488 (33) 3,455 137 3,592 4,861 (G) 8,453 (5,705) (I)
Other, net...... (81) (1) (82) (63) (145) -- (145) --
------- -------- -------- ------- -------- -------- -------- -------
Income (loss)
before income
taxes........... (2,195) (13,439) (15,634) (3,296) (18,930) 12,888 (6,042) 5,705
Income taxes
(benefit)....... (334) (5,107) (5,441) -- (5,441) 3,645 (H) (1,796) 2,168 (J)
------- -------- -------- ------- -------- -------- -------- -------
Net income
(loss).......... (1,861) (8,332) (10,193) (3,296) (13,489) 9,243 (4,246) 3,537
Accretive
dividend........ 800 -- 800 -- 800 -- 800 --
------- -------- -------- ------- -------- -------- -------- -------
Net income (loss)
available to
common
stockholders.... $(2,661) $ (8,332) $(10,993) $(3,296) $(14,289) $ 9,243 $ (5,046) $ 3,537
======= ======== ======== ======= ======== ======== ======== =======
Net (loss) per
share:
Basic and
diluted........ $ (0.58)
========
Shares used in
computing net
(loss)
per share (K):
Basic and
diluted........ 8,726
========
<CAPTION>
Pro Forma
As Adjusted
-----------
<S> <C>
Revenue:
Systems and
software....... $ 63,372
Maintenance,
support and
services....... 53,518
-----------
Total revenue.... 116,890
Operating
expense:
Hardware and
other items
purchased for
resale......... 22,980
Selling, general
and
administrative.. 66,452
Depreciation and
amortization... 7,121
Purchased
research and
development.... 9,000
Compensatory
stock awards... 6,447
Asset
Impairment,
restructuring
and special
charges........ 2,624
-----------
Total operating
expense......... 114,624
Operating income
(loss).......... 2,266
Other expense
(income):
Interest, net... 3,040
Other, net...... (145)
-----------
Income (loss)
before income
taxes........... (629)
Income taxes
(benefit)....... 261
-----------
Net income
(loss).......... (890)
Accretive
dividend........ 800
-----------
Net income (loss)
available to
common
stockholders.... $ (1,690)
===========
Net (loss) per
share:
Basic and
diluted........ $ (0.13)
===========
Shares used in
computing net
(loss)
per share (K):
Basic and
diluted........ 12,756
===========
</TABLE>
- -------
(1) Includes pro forma effect of HSD acquisition from January 1 to October 23,
1998. The audited historical financial statements of this acquisition are
included elsewhere in this prospectus.
(2) Represents the year ended December 31, 1998. OMSystems was not deemed
significant at the date of acquisition and therefore inclusion of audited
statements is unnecessary.
F-4
<PAGE>
INFOCURE CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. General
InfoCure Corporation ("InfoCure" and, together with its subsidiaries, the
"Company") was founded in 1996 to become a leading national provider of
practice management software and services to targeted healthcare specialty
practices. On July 10, 1997, InfoCure completed the initial public offering
("IPO") of its common stock (the "Common Stock") and simultaneously acquired
in separate transactions six businesses (collectively the "Founding
Companies"). Contemporaneously with the acquisition of the Founding Companies
and the IPO, InfoCure merged with American Medcare Corporation ("AMC"). AMC is
considered the predecessor to InfoCure and the accounting acquiror of the
Founding Companies. Subsequent to the IPO and through September 30, 1998, the
Company acquired seven practice management companies, all of which were
accounted for as purchases. In October 1998, the Company completed the
acquisition of substantially all of the net assets of the Healthcare Systems
Division ("HSD") of The Reynolds and Reynolds Company (the "HSD Acquisition")
in a transaction accounted for as a purchase. In December 1998, the Company
completed a merger with Radiology Management Systems, Inc. ("RADMAN") in a
transaction accounted for as a pooling of interests. Accordingly, the
Company's historical financial statements have been restated for the effects
of this pooling. In February 1999, the Company completed a merger with
OMSystems, Inc. ("OMSystems") in a transaction accounted for as a pooling of
interests.
2. Unaudited Pro Forma Combined Balance Sheet Adjustments
Private placement
(A) Records the January issuance of 80,000 shares of Common Stock under the
terms of a private placement to an institutional investor (the "Institutional
Placement"). Net proceeds of $1,975,000 had been received by the Company in
December and recorded as common stock issuable.
Offering adjustments
(B) Records the proceeds from the issuance of 3,000,000 shares of Common
Stock, net of estimated offering costs. Offering costs consist primarily of
discounts and commissions, legal fees, accounting fees and printing expenses.
(C) Records (i) the conversion of 850,060 shares of Series A Convertible,
Redeemable Preferred Stock into 1,000,070 shares of Common Stock at the
applicable conversion price, (ii) the conversion of a $603,566 note payable
and applicable accrued interest into 85,487 shares of Common Stock at the
applicable conversion price and (iii) the issuance of 13,768 shares of Common
Stock in satisfaction of earnout commitments related to previous acquisitions.
These transactions are provided for by the terms of the original applicable
agreements.
(D) Records estimated repayment of indebtedness in connection with the HSD
and other acquisitions under the FINOVA Credit facility.
F-5
<PAGE>
INFOCURE CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
3. Unaudited Pro Forma Combined Statements of Operation Adjustments
Acquisition adjustments
(E) Records pro forma adjustments to compensation and certain other operating
expenses pursuant to applicable provisions of the HSD acquisition agreement. In
accordance with specific terms of the agreement certain operating units and
certain specifically identified personnel and costs related thereto which were
not part of the acquisition have been eliminated. These adjustments are
summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
Description of adjustment 1998
------------------------- --------------
(in thousands)
<S> <C>
Reduction in compensation and related expenses.................. $ 2,678
Net reductions in costs and expenses of operating
activities/centers not acquired................................ 953
Elimination of HSD's corporate services overhead, including
compensation of approximately $6.7 million, and related
allocations not acquired....................................... 13,584
Increase in the Company's overhead expenses to integrate the HSD
acquisition.................................................... (1,854)
-------
$15,361
=======
</TABLE>
The pro forma adjustment to compensation and related expenses is derived from
position reductions at the four HSD operating centers. These reductions, which
are specifically provided for in the acquisition and related agreements,
aggregate 55 positions or approximately 20% of the total headcount prior to the
acquisition. The position eliminations are duplicative in nature and
attributable to administrative activities and redundancies in sales, support
and research and development.
The pro forma adjustment to eliminate net results of operating
activities/centers not acquired is based on the exclusion, pursuant to specific
terms of the acquisition agreement, of HSD's clinical product development
center and its forms management operation. These activities generated minimal
contribution, are not important to integration of the other operating centers
and do not fit within the Company's overall strategy.
The elimination of the corporate services overhead and related allocations
reflects the rational adjustment to eliminate the excessive infrastructure
costs. The expenditure of $15.0 million in overhead for an enterprise with
revenue of $50.0 million clearly indicates that HSD's parent had made a
significant investment in infrastructure intended to support a significantly
larger organization. These reductions, which are specifically provided for in
the acquisition and related agreements, aggregate 106 positions that are either
duplicative in nature or unnecessary to support operations at current levels.
In addition certain corporate overhead services allocated by The Reynolds and
Reynolds Company were not continued by InfoCure under the terms of the
acquisition and related agreements.
It is management's opinion that the reductions will not materially adversely
affect the Company's ability to continue service levels, sales efforts and
other functions required to maintain sales levels comparable with those
historically achieved and, assuming no unforeseen change in economic or other
factors, that these levels could be maintained through the period required to
achieve integration of the HSD Acquisition. Further, as indicated in the table
summarizing pro forma adjustments, management has provided for an addition to
the Company's overhead, including increases in appropriate corporate support
and administrative personnel to facilitate integration of the HSD Acquisition.
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 related to increased activity from 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 HSD Acquisition.
F-6
<PAGE>
INFOCURE CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
(F) Records adjustment to depreciation and amortization expense as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
Decrease due to: 1998
- ---------------- --------------
(in thousands)
<S> <C>
Elimination of amortization for other intangibles not acquired.. $1,880
Adjustment to depreciation and amortization for increase in
basis and application of uniform lives of three to seven
years.......................................................... 508
------
$2,388
======
</TABLE>
Goodwill acquired totalled approximately $36.0 million and represents the
excess of purchase price over identifiable tangible and intangible assets of
HSD as reflected in the independent appraisal. The appraisal results indicated
that the bulk of the value of these intangibles is pure goodwill including the
significant value attributable to the relatively long life of the customer
relationships. These findings are consistent with management's analysis of
identifiable intangibles in previous acquisitions. Essentially, the value of
intangibles, including developed technology, customers lists, software rights,
trademarks, etc. are in the nature of goodwill.
Goodwill is to be amortized over its estimated useful life of 15 years
consistent with the Company's established policy and, with respect to the HSD
Acquisition, is supported by the findings in the appraisal. The 15-year
estimated useful life of goodwill is derived from management's analysis of:
. the historical lives and future estimated lives of customer
relationships which are the core of the Company's business;
. the longevity and continuing use of the base practice management systems
which comprise the Company's core products; and
. the relatively minor impact of technological obsolescence on the
Company's core products and services.
(G) Records adjustment of interest expense related to debt incurred to effect
the purchase of the HSD Acquisition.
(H) Adjusts the provision for income taxes based on other pro forma
adjustments.
Offering adjustments
(I) Records adjustment to interest expense based on (i) debt repaid from the
proceeds of the Offering and (ii) conversion of debt concurrent with the
Offering.
(J) Adjusts the provision for income taxes based on offering adjustments.
4. Debt Extinguishment Costs
As described in Adjustment D, the Company will repay certain indebtedness
with a portion of the proceeds of the Offering. In connection therewith, the
Company anticipates that by the end of the first quarter 1999, it will incur
debt extinguishment costs of as much as $5.1 million including write-off of
deferred loan costs, the estimated value of warrants granted to FINOVA and
prepayment fees.
F-7
<PAGE>
INFOCURE CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued)
5. Pro forma earnings per share
(K) The weighted average number of shares used to calculate earnings per
share (EPS) for pro forma and pro forma--as adjusted purposes included the
following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
--------------------
Pro Forma
As
Pro Forma Adjusted
--------- ----------
<S> <C> <C>
Shares issued in conjunction with the Company's IPO...... 1,400,000 1,400,000
Shares issued to acquire the Founding Companies.......... 3,895,887 3,895,887
Shares issued in connection with Recent Acquisitions,
including RADMAN and OMSystems.......................... 2,091,662 2,091,662
Shares issued in satisfaction of earnout commitments..... 398,123 398,123
Shares issued in payment of debt and other obligations,
net..................................................... 236,273 236,273
Shares issued in connection with private placements...... 351,322 351,322
Shares issued in connection with exercise of options and
warrants................................................ 257,437 257,437
Shares issued for restricted stock awards................ 95,000 95,000
Shares assumed issued from the Offering to repay debt and
other obligations....................................... -- 2,931,193
Shares assumed issued to convert 850,060 shares of
preferred stock......................................... -- 1,000,070
Shares issuable or assumed issued in satisfaction of
earnout commitments..................................... -- 13,768
Shares assumed issued to convert note payable and accrued
interest................................................ -- 85,487
--------- ----------
Estimated shares outstanding--basic and diluted.......... 8,725,704 12,756,222
========= ==========
</TABLE>
The impact of the assumed exercise of the Company's stock options and
warrants would be anti-dilutive for the year ended December 31, 1998 and have
not been presented.
F-8
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders of
InfoCure Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of InfoCure
Corporation and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 1998, the eleven months ended
December 31, 1997 and the year ended January 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of InfoCure Corporation and its subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1998, the eleven months ended December 31, 1997 and the year
ended January 31, 1997 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Atlanta, Georgia
February 19, 1999
F-9
<PAGE>
InfoCure Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS (Note 8):
Current
Cash and cash equivalents....................... $ 1,625,757 $ 8,552,217
Accounts receivable--trade, net of allowance of
$51,000 and $633,000........................... 4,885,460 22,244,180
Other receivables............................... 233,082 403,756
Inventory....................................... 587,336 2,043,268
Deferred tax assets (Note 12)................... 1,160,000 675,000
Prepaid expense and other current assets........ 784,396 1,233,059
------------ ------------
Total current assets.......................... 9,276,031 35,151,480
Property and equipment, net of accumulated
depreciation (Note 5)............................ 1,529,317 8,102,495
Goodwill, net of accumulated amortization of
$404,888 and $3,467,000 (Notes 3 and 4).......... 17,013,526 72,202,999
Other intangible assets (Note 6).................. 1,322,768 7,308,382
Deferred tax assets (Note 12)..................... 1,983,000 5,019,000
------------ ------------
$ 31,124,642 $127,784,356
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Note payable (Note 8)........................... $ -- $ 2,000,000
Accounts payable................................ 1,889,922 3,723,248
Accrued expense (Note 7)........................ 1,214,186 5,950,996
Accrued restructuring costs (Note 4)............ 3,172,066 282,916
Income taxes payable............................ -- 644,956
Deferred revenue and customer deposits.......... 5,281,832 9,184,940
Current portion of long-term debt (Note 8)...... 2,061,393 12,883,684
------------ ------------
Total current liabilities..................... 13,619,399 34,670,740
Long-term debt, less current portion (Note 8)..... 7,288,745 68,357,932
Other liabilities (Note 9)........................ 6,585,526 --
------------ ------------
Total liabilities............................. 27,493,670 103,028,672
------------ ------------
Commitments (Note 10)
Convertible, redeemable preferred stock (Note
11).............................................. -- 8,500,600
------------ ------------
Stockholders' equity (Note 11)
Common stock.................................... 6,258 7,622
Common stock issuable........................... -- 1,975,000
Additional paid-in capital...................... 16,860,489 31,358,016
Accumulated deficit............................. (13,119,871) (15,780,949)
Deferred compensation........................... -- (1,083,000)
Treasury stock, at cost......................... (115,904) (221,605)
------------ ------------
Total stockholders' equity.................... 3,630,972 16,255,084
------------ ------------
$ 31,124,642 $127,784,356
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
InfoCure Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended Eleven Months Year Ended
January Ended December
31, December 31, 31,
1997 1997 1998
---------- ------------- -----------
<S> <C> <C> <C>
Revenue:
Systems and software.................. $3,857,142 $ 9,733,619 $34,491,904
Maintenance, support and services..... 2,494,151 8,540,814 29,231,668
---------- ------------ -----------
Total revenue........................... 6,351,293 18,274,433 63,723,572
---------- ------------ -----------
Operating expense:
Hardware and other items purchased for
resale............................... 1,192,338 4,327,396 12,566,865
Selling, general and administrative... 5,427,284 11,653,369 34,741,989
Depreciation and amortization......... 236,528 1,091,848 4,328,423
Purchased research and development
(Note 3)............................. -- -- 9,000,000
Asset impairment and restructuring
costs (Note 4)....................... -- 11,136,027 1,874,032
---------- ------------ -----------
Total operating expense................. 6,856,150 28,208,640 62,511,309
---------- ------------ -----------
Operating (loss) income................. (504,857) (9,934,207) 1,212,263
Other expense (income):
Interest, net......................... 82,900 344,146 3,488,225
Other, net............................ (5,805) (223,123) (80,884)
---------- ------------ -----------
Loss before income taxes................ (581,952) (10,055,230) (2,195,078)
Income tax benefit (Note 12)............ (868,000) (1,324,142) (334,000)
---------- ------------ -----------
Net income (loss)....................... 286,048 (8,731,088) (1,861,078)
Accretive dividend (Note 11)............ -- -- 800,000
---------- ------------ -----------
Net income (loss) available to common
stockholders........................... $ 286,048 $ (8,731,088) $(2,661,078)
========== ============ ===========
Net loss per share--basic and diluted
(Note 2)............................... $ (1.79) $ (0.39)
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-11
<PAGE>
InfoCure Corporation
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Shares
--------------------- Common Accrued Stock Additional
Common Treasury Common Treasury Stock Stock Purchase Deferred Paid-in
Stock Stock Stock Stock Issuable Repurchase Warrant Compensation Capital
----------- -------- -------- --------- ---------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at
February 1, 1996.. 49,914,496 (228,489) $ 49,914 $(100,000) $ -- $ -- $ 500,000 $ -- $ 1,627,612
Issuance of
common stock..... 13,387,440 -- 13,388 -- -- -- -- -- 1,424,580
Cancellation of
warrant.......... -- -- -- -- -- -- (500,000) -- 450,000
Issuance of
warrant.......... -- -- -- -- -- -- 80,000 -- --
Issuance of stock
options.......... -- -- -- -- -- -- -- -- 30,000
Capital
contribution..... -- -- -- -- -- -- -- -- 110,000
Pending
repurchase of
common stock..... -- -- -- -- -- (65,000) -- -- --
Net income........ -- -- -- -- -- -- -- -- --
----------- -------- -------- --------- ---------- -------- --------- ----------- -----------
Balance, at January
31, 1997.......... 63,301,936 (228,489) 63,302 (100,000) -- (65,000) 80,000 -- 3,642,192
Issuance of
common stock..... 800,000 -- 800 -- -- -- -- -- 279,200
Stock
repurchase....... (114,933) -- (115) -- -- 65,000 -- -- (64,885)
Conversion of
common stock
upon formation
of Company
(Note 1)......... (60,501,333) 228,489 (60,501) 100,000 -- -- -- -- (41,670)
Issuance of
common stock,
net of related
expense for:
Initial public
offering....... 1,400,000 -- 1,400 -- -- -- -- -- 5,727,064
Acquisition of
Founding
Companies...... 907,585 -- 908 -- -- -- -- -- 4,990,811
Payment of debt
and other
obligations.... 276,716 -- 277 -- -- -- -- -- 1,521,662
Exercise of
warrants....... 111,296 -- 111 -- -- -- (80,000) -- 201,159
Recent
Acquisitions... 76,748 -- 76 -- -- -- -- -- 577,315
Issuance of stock
options and
warrants......... -- -- -- -- -- -- -- -- 27,641
Purchase of
treasury stock... -- (21,073) -- (115,904) -- -- -- -- --
Net loss.......... -- -- -- -- -- -- -- -- --
----------- -------- -------- --------- ---------- -------- --------- ----------- -----------
Balance, at
December 31,
1997.............. 6,258,015 (21,073) 6,258 (115,904) -- -- -- -- 16,860,489
Issuance of
common stock,
net of related
expense for:
Recent
Acquisitions... 373,547 -- 374 -- -- -- -- -- 4,158,903
Private
Placements..... 351,322 -- 351 -- -- -- -- -- 4,777,149
Exercise of
stock options
and warrants... 146,141 -- 146 -- -- -- -- -- 314,024
Earnout
commitments.... 398,123 -- 398 -- -- -- -- -- 2,329,178
Restricted stock
award.......... 95,000 -- 95 -- -- -- -- (1,140,000) 1,139,905
Common stock
issuable in
private
placement ....... -- -- -- -- 1,975,000 -- -- -- --
Issuance of stock
options and
warrants......... -- -- -- -- -- -- -- -- 1,778,368
Accretive
dividend......... -- -- -- -- -- -- -- -- --
Purchase of
treasury stock... -- (19,370) -- (105,701) -- -- -- -- --
Amortization of
deferred
compensation..... -- -- -- -- -- -- -- 57,000 --
Net loss.......... -- -- -- -- -- -- -- -- --
----------- -------- -------- --------- ---------- -------- --------- ----------- -----------
Balance, at
December 31,
1998.............. 7,622,148 (40,443) $ 7,622 $(221,605) $1,975,000 $ -- $ -- $(1,083,000) $31,358,016
=========== ======== ======== ========= ========== ======== ========= =========== ===========
<CAPTION>
Deficit
-------------
<S> <C>
Balance, at
February 1, 1996.. $ (4,674,831)
Issuance of
common stock..... --
Cancellation of
warrant.......... --
Issuance of
warrant.......... --
Issuance of stock
options.......... --
Capital
contribution..... --
Pending
repurchase of
common stock..... --
Net income........ 286,048
-------------
Balance, at January
31, 1997.......... (4,388,783)
Issuance of
common stock..... --
Stock
repurchase....... --
Conversion of
common stock
upon formation
of Company
(Note 1)......... --
Issuance of
common stock,
net of related
expense for:
Initial public
offering....... --
Acquisition of
Founding
Companies...... --
Payment of debt
and other
obligations.... --
Exercise of
warrants....... --
Recent
Acquisitions... --
Issuance of stock
options and
warrants......... --
Purchase of
treasury stock... --
Net loss.......... (8,731,088)
-------------
Balance, at
December 31,
1997.............. (13,119,871)
Issuance of
common stock,
net of related
expense for:
Recent
Acquisitions... --
Private
Placements..... --
Exercise of
stock options
and warrants... --
Earnout
commitments.... --
Restricted stock
award.......... --
Common stock
issuable in
private
placement ....... --
Issuance of stock
options and
warrants......... --
Accretive
dividend......... (800,000)
Purchase of
treasury stock... --
Amortization of
deferred
compensation..... --
Net loss.......... (1,861,078)
-------------
Balance, at
December 31,
1998.............. $(15,780,949)
=============
</TABLE>
See accompanying notes to consolidated financial statements
F-12
<PAGE>
InfoCure Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
<S> <C> <C> <C>
Cash provided by (used in) operating
activities:
Net income (loss).................. $ 286,048 $(8,731,088) $ (1,861,078)
Adjustments to reconcile net income
(loss) to cash provided by (used
in) operating activities:
Purchase of in-process research
and development.................. -- -- 9,000,000
Asset impairment and restructuring
costs............................ -- 11,136,027 1,874,032
Depreciation and amortization..... 236,528 1,091,848 4,328,423
Allowance for doubtful accounts... (55,086) 16,000 582,000
Net gain on sale of property and
equipment........................ -- -- (9,160)
Stock-based compensation.......... 30,000 27,500 86,155
Option cancellation expense....... 110,000 -- --
Deferred income taxes............. (868,816) (1,369,991) (1,633,000)
Changes in current assets and
liabilities--net of effects of
acquisitions:
Accounts receivable............. (37,192) (1,077,338) (7,469,327)
Inventory, prepaid expense and
other current assets........... 130,301 (493,087) (131,035)
Accounts payable and accrued
expense........................ (442,901) (2,107,821) 2,380,458
Deferred revenue................ (511,122) 817,046 (1,039,001)
----------- ----------- ------------
Net cash provided by (used in)
operating activities........... (1,122,240) (690,904) 6,108,467
----------- ----------- ------------
Cash used in investing activities:
Net cash paid for acquisition of
Founding Companies................ (150,000) (3,745,113) --
Net cash paid for acquisition of
Recent Acquisitions............... -- (4,795,408) (60,161,254)
Property and equipment
expenditures...................... (48,966) (297,472) (2,557,791)
Net proceeds from disposal of
property and equipment............ -- -- 327,679
Cash paid for other intangible
assets............................ (237,377) (76,093) (3,505,628)
Proceeds from collection of notes
and other receivables............. -- 375,201 --
----------- ----------- ------------
Net cash used in investing
activities.......................... (436,343) (8,538,885) (65,896,994)
----------- ----------- ------------
Cash provided by financing
activities:
Proceeds from issuance of common
stock............................. 1,320,402 6,008,464 6,752,500
Proceeds from exercise of options
and warrants...................... -- 121,270 314,170
Net borrowings under acquisition
credit facility................... -- 7,188,095 55,200,788
Proceeds from issuance of long-term
debt.............................. 296,066 -- --
Payment of loan costs.............. -- (299,879) (2,519,308)
Proceeds from issuance of
convertible preferred stock....... -- -- 7,819,952
Repayment of notes payable to
stockholders...................... -- -- (143,848)
Principal payments on long-term
debt.............................. (155,282) (2,262,115) (603,566)
Proceeds from note payable to
stockholder....................... 108,545 -- --
Repurchase of common stock
warrant........................... (50,000) -- --
Purchase of treasury stock......... -- (115,904) (105,701)
----------- ----------- ------------
Net cash provided by financing
activities.......................... 1,519,731 10,639,931 66,714,987
----------- ----------- ------------
Net change in cash and cash
equivalents......................... (38,852) 1,410,142 6,926,460
Cash and cash equivalents, beginning
of period........................... 254,467 215,615 1,625,757
----------- ----------- ------------
Cash and cash equivalents, end of
period.............................. $ 215,615 $ 1,625,757 $ 8,552,217
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
InfoCure Corporation ("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 closed an initial
public offering of its common stock, par value $.001 per share, (the "Common
Stock") (the "July Offering") and simultaneously acquired the following six
operating companies: (i) International Computer Solutions, Inc. ("ICS"), (ii)
Health Care Division, Inc. ("HCD"), (iii) Millard-Wayne, Inc. ("Millard-
Wayne"), (iv) KComp Management Systems, Inc. ("KComp"), (v) DR Software, Inc.
("DR Software") and (vi) 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 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
Businesses 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: (i) Professional On-
Line Computer, Inc. ("POLCI"); (ii) Commercial Computers, Inc. ("CCI"); (iii)
SoftEasy Software, Inc. ("SoftEasy"); (iv) Pace Financial Corporation ("PACE");
and (v) 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. Aggregate consideration for these acquisitions completed
in the eleven months ended December 31, 1997 was approximately 77,000 shares of
Common Stock and $11.7 million cash and debt, for an aggregate value of $12.4
million.
Additionally, in the year ended December 31, 1998, InfoCure acquired
substantially all the assets, subject to the assumption of certain liabilities,
of Micro-Software Designs, Inc. ("MDI") and Healthcare Systems Division ("HSD")
of The Reynolds and Reynolds Company and acquired the outstanding equity
securities of Medical Software Integrators, Inc. ("MSI"). These acquisitions
were effective from January 1, 1998 with respect to MDI and MSI and October 23,
1998 for HSD. Aggregate consideration for these acquisitions completed in 1998
was approximately 373,000 shares of Common Stock and $73.0 million cash and
debt for an aggregate value of $77.1 million. These acquisitions, together with
the acquisitions described in the preceding paragraph, are collectively
referred to as the "Recent Acquisitions."
In December 1998, InfoCure completed a merger with Radiology Management
Systems, Inc. ("RADMAN"). The Company exchanged approximately 497,000 shares of
InfoCure in the transaction. This acquisition was accounted for as a pooling of
interests. Accordingly, the accompanying consolidated financial statements
include the financial position, results of operations and cash flows of RADMAN
for all periods.
With the exception of the RADMAN transaction, the acquisitions of the
Founding Companies as well as the Recent Acquisitions, have been accounted for
using the purchase method of accounting.
InfoCure, the Founding Companies, the Recent Acquisitions and RADMAN are
referred to collectively as the Company. The Company changed its fiscal
reporting period to December 31 effective February 1, 1997.
The accompanying financial statements have been presented on a consolidated
basis for the eleven months ended December 31, 1997, and the year ended
December 31, 1998, including InfoCure, and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated. The
accompanying consolidated financial statements include AMC (InfoCure's
predecessor) and its subsidiaries, RADMAN, ICS
F-14
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
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
dates of acquisition.
For the year ended January 31, 1997, the accompanying financial statements
present the consolidated financial position, results of operation and cash
flows of AMC and its wholly owned subsidiaries, RADMAN, ICS and, with effect
from December 3, 1996, HCD, which was acquired as of that date.
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
Revenue from software sales is recognized upon shipment in instances where
the Company has evidence of a contract, the fee charged is fixed and
determinable and collection is probable. Hardware resales are recognized upon
product shipment. Revenue from support and maintenance contracts, which are
typically one year in length, is recognized ratably over the life of the
contract. Revenue from other services is recognized as the services 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. The Company performs periodic credit
evaluations of its customers and generally does not require collateral. Bad
debt expense was approximately $142,000, $159,000 and $862,000 for the year
ended January 31, 1997, the eleven months ended December 31, 1997 and the year
ended December 31, 1998, respectively. Corresponding write-offs of
uncollectible accounts receivable were approximately $197,000, $143,000 and
$280,000 for the year ended January 31, 1997, the eleven months ended December
31, 1997 and the year ended December 31, 1998, respectively.
At certain times during the year, the Company maintains cash and cash
equivalents in bank accounts in amounts above the federally insured limits.
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. Management
estimates that the carrying amounts of the Company's financial instruments
included in the accompanying consolidated balance sheets are not materially
different from their fair values.
Inventories
Inventory consists primarily of peripheral computer equipment and related
supplies. Inventory is accounted for on the first-in, first-out basis and
reported at the lower of cost or market.
F-15
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
Property and Equipment
Property and equipment are 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. For the period between the
establishment of technological feasibility and the time a product is available
for general release, such costs are capitalized. Capitalized software costs are
amortized using the straight-line method over the estimated lives of the
related products (generally 48 months).
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 combinations
accounted for under the purchase method. All goodwill is amortized on a
straight-line basis over an estimated useful life of 15 years. The 15-year
estimated useful life reflects management's analysis that goodwill is derived
principally from the true value of the historical and estimated future life of
its customer relationships, the longevity and continuing use of its core
products and the relatively minor impact of technological obsolescence on these
core products. 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. A write-down of assets due to impairment was required for the eleven
months ended December 31, 1997, in the amount of approximately $7.8 million
(Note 4).
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 costs 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 eleven months ended
F-16
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
December 31, 1997 is calculated based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share include
the dilutive effect of Common Stock equivalents. Earnings per share (EPS) for
the year ended January 31, 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 basic EPS for
the eleven months ended December 31, 1997, were 4,880,455. Weighted average
number of shares outstanding used in computing basic EPS for the year ended
December 31, 1998, were 6,780,437. The impact of the assumed exercise of the
Company's stock options and warrants and convertible preferred stock would have
been antidilutive for the eleven months ended December 31, 1997, and the year
ended December 31, 1998, and, therefore, diluted EPS data have not been
presented. The impact of the assumed exercise of these instruments may have a
dilutive effect in the future.
Reclassification
Certain prior year amounts have been reclassified to conform with the current
year presentation.
New Accounting Pronouncements
SFAS No. 130, Reporting Comprehensive Income, became effective in 1998. This
statement 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 addressed the requirements of SFAS No.
130 and there was no impact on the financial statements as a result.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, became effective in 1998. It 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 Company has determined that this standard did not impact its current
practice of reporting operating information.
Statement of Position ("SOP") 97-2, Software Revenue Recognition, issued by
the American Institute of Certified Public Accountants, became effective in
1998. This Statement provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions and
establishes certain criteria for revenue recognition. The revenue recognition
criteria stated in the pronouncement had no material impact on the Company's
financial statements.
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use, issued in April 1998, provides guidance on accounting for the
costs of computer software developed or obtained for internal use and
determining whether computer software is for internal use. This statement is
effective for fiscal years beginning after December 15, 1998. Adoption of this
statement is not expected to have a significant impact on infoCure's financial
statements.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. SFAS No. 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in
F-17
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. Historically, the Company has not
entered into derivatives contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Company does not expect adoption of the
new standard on January 1, 2000, to affect its financial statements.
3. Business Combinations
In December 1996, AMC, the predecessor to the Company, through its wholly-
owned subsidiary HCD, acquired certain assets and assumed certain liabilities
of a division of InfoSystems of North Carolina, Inc. ("ISI"). Aggregate
consideration was $1.7 million comprised of $150,000 cash and a $1.55 million
note payable to ISI.
As described in Note 1, the Company, in conjunction with the July Offering,
acquired the six Founding Companies. The Recent Acquisitions, also described in
Note 1, included POLCI, CCI and SoftEasy, acquired with effect from October 1,
1997; PACE, acquired with effect from November 1, 1997; and OPMS, acquired with
effect from December 1, 1997. Additionally, the Recent Acquisitions described
in Note 1 also included the fiscal 1998 acquisitions of MSI and MDI, acquired
with effect from January 1, 1998, and HSD, acquired October 23, 1998.
Also as described in Note 1, the Company merged with RADMAN in December 1998.
This acquisition was accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements include the financial position,
results of operations and cash flows of RADMAN for all periods.
All of the companies acquired have long-term marketing rights to and/or
ownership of licensed software in various segments of the healthcare industry.
Except for the RADMAN acquisition, all of the acquisitions of the Company and
its predecessor have been accounted for under the purchase method of accounting
and the acquired companies' results of operations from the respective
acquisition dates are included in the accompanying consolidated financial
statements.
The separate results of operations of InfoCure and RADMAN for the periods
presented follow. The amounts for the year ended January 31, 1997 are for AMC
(InfoCure's predecessor).
<TABLE>
<CAPTION>
Year Ended Eleven Months Year Ended
January Ended December
31, December 31, 31,
1997 1997 1998
---------- ------------- -----------
<S> <C> <C> <C>
Revenue
InfoCure............................. $2,494,563 $15,755,072 $59,235,474
RADMAN............................... 3,856,730 2,519,361 4,488,098
---------- ----------- -----------
$6,351,293 $18,274,433 $63,723,572
========== =========== ===========
Net income (loss)
InfoCure............................. $ 254,094 $(8,569,498) $(2,881,712)
RADMAN............................... 31,954 (161,590) 1,020,634
---------- ----------- -----------
$ 286,048 $(8,731,088) $(1,861,078)
========== =========== ===========
</TABLE>
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if the acquisitions had occurred as of
the beginning of the immediately preceding period. The
F-18
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
pro forma information is not necessarily indicative of what would have occurred
had the acquisitions been made as of such periods, nor is it indicative of
future results of operations. The pro forma amounts give effect to appropriate
adjustments for the fair value of the assets acquired, reductions in personnel
costs and other operating expenses not assumed as part of the acquisitions,
amortization of intangibles, interest expense and income taxes.
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
Pro Forma Amounts 1997 1997 1998
----------------- ----------- ------------- ------------
(In Thousands Except Share Data)
<S> <C> <C> <C>
Revenue............................. $48,589 $ 89,056 $101,938
Net income (loss) available to
common stockholders ............... 1,499 (18,174) (3,002)
Loss per share--basic and diluted... (2.52) (0.34)
</TABLE>
The pro forma amounts for net income and earnings per share for the eleven
months ended December 31, 1997 include the impact of asset impairment and
restructuring charges as described in Note 4. Pro forma earnings per share for
the year ended January 31, 1997 are not considered meaningful and have not been
presented.
The following tables summarize the fair values of the assets acquired,
liabilities assumed and consideration given in connection with the foregoing
acquisitions accounted for as purchases:
<TABLE>
<CAPTION>
Year Ended Eleven Months Year Ended
January Ended December
31, December 31, 31,
1997 1997 1998
---------- ------------- -----------
<S> <C> <C> <C>
Accounts receivable.................. $ 154,358 $ 3,218,513 $10,642,067
Inventory............................ -- -- 1,426,186
Prepaid expenses..................... -- -- 347,374
Property and equipment............... 60,000 1,216,574 4,831,662
Goodwill............................. 1,926,717 21,644,540 56,148,495
Capitalized software................. -- 1,717,956 420,082
Other assets......................... 8,902 1,321,316 707,381
Deferred revenue..................... (432,324) (2,690,051) (4,942,109)
Accounts payable..................... (14,305) (933,630) (692,577)
Notes payable........................ -- (1,650,173) --
Other liabilities.................... (3,348) (2,744,090) (742,118)
---------- ----------- -----------
Net assets acquired.................. 1,700,000 21,100,955 68,146,443
Purchased research and development... -- -- 9,000,000
---------- ----------- -----------
Total acquisition.................... $1,700,000 $21,100,955 $77,146,443
========== =========== ===========
</TABLE>
These acquisitions were funded as follows:
<TABLE>
<CAPTION>
Year Ended Eleven Months Year Ended
January Ended December
31, December 31, 31,
1997 1997 1998
---------- ------------- -----------
<S> <C> <C> <C>
Common stock........................... $ -- $ 5,569,110 $ 4,159,277
Note payable and other payables........ 1,550,000 6,991,324 12,825,912
Cash................................... 150,000 8,540,521 60,161,254
---------- ----------- -----------
Total consideration.................... $1,700,000 $21,100,955 $77,146,443
========== =========== ===========
</TABLE>
F-19
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
In addition to the foregoing consideration, certain of the purchase
acquisition agreements provided for additional purchase consideration based on
attaining certain revenue or operating income goals. The additional
consideration will be accounted for as additional purchase price or
compensation expense if and when earned. Maximum contingent consideration
payable with respect to the Founding Companies originally aggregated
$4.7 million. As more fully described in Note 4, the Company's restructuring
plans affected certain of the acquired companies such that portions of the
contingent consideration related thereto was deemed earned and payable as of
December 31, 1997. Accordingly, approximately $2.5 million of such
consideration was included as part of the Company's restructuring costs for the
eleven months ended December 31, 1997, in settlement of estimated contingent
consideration obligations related to the affected companies. In the year ended
December 31, 1998, the Company finalized negotiations with respect to
contingent consideration for one affected company. As a result the Company
agreed to an additional $750,000 of purchase consideration which is included in
its restructuring costs for the year ended December 31, 1998.
Maximum contingent consideration payable with respect to the Recent
Acquisitions completed in 1998 aggregates $12.4 million. In 1998 contingent
consideration of approximately $1.1 million was earned and has been recorded as
additional purchase price pursuant to the terms of the original purchase
agreement, as amended. Total remaining contingent consideration outstanding at
December 31, 1998 is approximately $10.9 million.
Purchased Research and Development
Through its acquisition of HSD, the Company acquired three in-process
physician practice management system research and development projects. The
Company assigned an aggregate value of $9.0 million to the projects, based on
the results of an independent appraisal. The appraisal value was determined
using a discounted cashflow model with a risk adjusted discount rate of 28%.
The valuation also incorporated a stage of completion methodology where the
value was adjusted based on the technology's percentage of completion. Based on
the appraisal results, the three projects had an aggregate pre-acquisition cost
of $9.9 million, an estimate of $900,000 cost to complete and were
approximately 90% complete at the acquisition date. As of the acquisition date,
technological feasibility had not been established and there were no
alternative future uses for the projects. Therefore, the Company expensed the
$9.0 million related to these in process research and development projects.
4. Impairment of Assets and Restructuring Costs
Effective December 1, 1997, the Company determined to restructure through a
plan to consolidate existing facilities and acquired operations. This
restructuring plan enabled the Company to more effectively leverage its present
and planned acquisitions, streamline its offering of products and services and
respond more effectively to changing market conditions. In connection
therewith, management also reevaluated the Company's investment in goodwill and
capitalized software in light of current market conditions and the
restructuring plan. Management determined that, based on current market
conditions and an analysis of projected undiscounted future cash flows
calculated in accordance with the provisions of SFAS No. 121, the carrying
amount of certain long-lived assets, principally of Rovak and DR Software, may
not be recoverable. The resultant impairment of long-lived assets, due
principally to the impact of the Company's new acquisitions (Note 3),
necessitated a write-down of approximately $7.8 million as follows: (i) $3.5
million and $2.8 million of goodwill representing the excess of cost over net
assets of the acquisition of Rovak and DR Software, respectively, acquired in
July 1997 and (ii) $1.5 million of capitalized software related to products
whose future utility is diminished based on market conditions. The estimated
fair values of these long-lived assets were determined by calculating the
present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved.
In connection with effecting the consolidation and restructuring, the Company
has also recorded costs and accrued liabilities to close redundant facilities,
cancel leases and other executory contracts and recognize
F-20
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
contingent consideration earned or deemed as payable under terms of certain
acquisition agreements for acquired companies affected by the consolidation and
restructuring.
The restructuring plan, which was completed in 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 future costs related to the restructuring
aggregating $1.1 million, were recognized in the first quarter of 1998 in
accordance with EITF No. 94-3.
Asset impairment and restructuring costs for the eleven months ended December
31, 1997 and the year ended December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Eleven Months
Ended Year Ended
December 31, December 31,
Cost related to 1997 1998
--------------- ------------- ------------
<S> <C> <C>
Write-off of goodwill............................ $ 6,360,063 $ --
Write-off of capitalized software development
costs........................................... 1,460,943 --
Facility closure and consolidation............... 460,808 --
Compensation costs for severance and other
termination benefits............................ -- 1,124,032
"Earn-out" compensation for contingent
consideration earned or deemed payable to former
stockholders of entities affected by the
consolidation and restructuring................. 2,558,169 750,000
Other asset write-downs and costs................ 296,044 --
----------- ----------
Total asset impairment and restructuring costs... $11,136,027 $1,874,032
=========== ==========
</TABLE>
As of December 31, 1998, approximately 50 employee terminations were related
to restructuring actions. Accrued restructuring at December 31, 1998 totaled
approximately $283,000, which is considered adequate to cover the facilities
related costs which remain as a result of the 1997 restructuring plan.
5. Property and Equipment
Major classes of property and equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31, December 31,
(Years) 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Office and computer equipment....... 3-5 $2,017,013 $ 6,765,489
Furniture and fixtures.............. 5-7 492,414 1,684,816
Equipment under capital lease
obligations........................ 3-5 161,732 1,233,876
Leasehold improvements.............. 3-5 76,029 333,320
---------- -----------
2,747,188 10,017,501
Less accumulated depreciation....... 1,217,871 1,915,006
---------- -----------
$1,529,317 $ 8,102,495
========== ===========
</TABLE>
Depreciation expense was approximately $78,000, $231,000 and $651,000 for the
year ended January 31, 1997, the eleven months ended December 31, 1997 and the
year ended December 31, 1998, respectively. In connection with the
restructuring plan described in Note 4, the Company disposed of property and
equipment, primarily office and computer equipment, with a net book value of
approximately $155,000.
F-21
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
6. Other Intangible Assets
Other intangible assets consisted of:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Unamortized loan costs............................. $ 299,879 $4,655,739
Capitalized software development costs............. 859,877 2,602,027
Capitalized costs of future acquisitions........... 611,880 401,746
Other.............................................. 196,992 417,425
---------- ----------
1,968,629 8,076,937
Less accumulated amortization...................... 645,861 768,555
---------- ----------
$1,322,768 $7,308,382
========== ==========
</TABLE>
As described in Note 4, approximately $1.5 million of capitalized software
was written-off during the eleven month period ended December 31, 1997.
Amortization of capitalized software charged to operations was approximately
$101,000, $331,000 and $112,000 for the year ended January 31, 1997, the eleven
months ended December 31, 1997, and the year ended December 31, 1998,
respectively.
7. Accrued Expense
Accrued expense consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Interest........................................... $ 85,174 $1,677,195
Compensation....................................... 645,549 1,420,875
Additional purchase price consideration............ -- 1,100,000
Taxes, other than income........................... 55,979 484,249
Professional fees.................................. 169,000 146,849
Other.............................................. 258,484 1,121,828
---------- ----------
$1,214,186 $5,950,996
========== ==========
</TABLE>
8. Notes Payable and Long-Term Debt
The Company has a $2 million short-term note payable given in connection with
an acquisition. The note bears interest at 12% per annum. The first installment
of $1 million was due in January 1999 and the second installment is due and
payable in February 1999.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December
December 31, 31,
1997 1998
------------ -----------
<S> <C> <C>
Notes payable, FINOVA Capital Corporation
("FINOVA") (1).................................... $7,188,095 $68,350,807
Subordinated notes payable, remainder of purchase
price for acquisitions (2)........................ 1,207,132 10,603,566
Subordinated notes payable to stockholders;
interest varies between 7% and 10%; maturing at
various dates through 2001........................ 618,328 180,058
Other.............................................. 336,583 2,107,185
---------- -----------
9,350,138 81,241,616
Less current portion............................... 2,061,393 12,883,684
---------- -----------
$7,288,745 $68,357,932
========== ===========
</TABLE>
F-22
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
(1) At December 31, 1997, the Company had a $10 million credit facility with
FINOVA for the purpose of funding its acquisition program. The credit
facility is collateralized by substantially all of the Company's assets and
the accounts receivable, cash flows and assets of future acquisition
companies. This facility has a five-year term and accrues interest at an
annual rate of prime plus 1.25% to 2%, depending on the Company achieving
certain debt service ratios. This facility also included a contingent
obligation payment, due in 2001 or upon full prepayment, based on the
Company achieving certain operating cash flows in excess of a base
operating cash flow, as defined. At December 31, 1997, the interest rate
was 10.5% per annum and the contingent obligation payment was
indeterminable.
In February 1998, an amendment to the credit facility and a new loan
increased the available credit under this facility to $30 million and, in
October 1998, another amendment and new loan increased the available credit
under this facility to $70 million. In connection with the amendments and
increases, the interest rates were prime plus 0.5% to 1% (8.75% at December
31, 1998) on the $20 million loan and fixed at 9.5% on the $40 million and
$10 million loans. Principal is due on all the loans in quarterly
installments, beginning at $2,777,000, increasing ratably to $6,777,000,
before the final installment of $13,777,000 in October 2002. In addition,
with the October 1998 amendment and increase, the Company agreed to pay
fees and costs of approximately $2.5 million and issued warrants to the
lender to acquire up to 245,000 shares of Common Stock. The estimated value
of these warrants is $1.5 million, which is included in other intangible
assets and is being amortized as interest expense over the remaining term
of the loan. A portion of these fees and costs were in substitution of the
contingent obligation payment described above.
(2) The notes payable for the remainder of purchase price for acquisitions
consist of two notes at December 31, 1998. One note, for $10 million, is
due in equal installments of principal over five years. The initial
interest rate is eight percent per annum and increases each year to a
maximum of 14 percent per annum. The note is convertible, at the Company's
option during the first year of the term, into shares of Common Stock at a
rate based on the price per share of an underwritten public offering or the
market value of the Common Stock. The remaining $603,566 note bears
interest at six percent per annum and is due October 1, 2000. This note is
convertible into shares of Common Stock upon the closing of a public
offering of the Common Stock (Note 14). The conversion price is $7.59 or
$8.25 per share if the conversion occurs in 1999 or 2000, respectively.
As of December 31, 1998, future maturities of these obligations are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- -----------
<S> <C>
1999......................................................... $12,883,684
2000......................................................... 14,217,296
2001......................................................... 13,592,420
2002......................................................... 38,473,429
2003......................................................... 2,074,787
-----------
Total...................................................... $81,241,616
===========
</TABLE>
9. Other Liabilities
At December 31, 1997, other liabilities consisted primarily of approximately
$6.3 million representing the balance payable in connection with the
acquisition of PACE effective November 1, 1997. This amount was paid in the
first quarter of 1998 from proceeds of long-term debt.
10. Commitments
Operating Leases
The Company leases its office facilities and certain equipment under
operating leases having terms ranging from one to seven years.
F-23
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
Approximate future minimum rentals, by year and in the aggregate, under
noncancellable operating leases with remaining terms of more than one year are
as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1999.......................................................... $2,838,000
2000.......................................................... 2,393,000
2001.......................................................... 2,002,000
2002.......................................................... 1,847,000
2003.......................................................... 560,000
Thereafter.................................................... 203,000
----------
Total....................................................... $9,843,000
==========
</TABLE>
Rent expense was approximately $140,000, $468,000 and $1,338,000 for the year
ended January 31, 1997, the eleven months ended December 31, 1997, and the year
ended December 31, 1998, respectively.
Employee Benefit Plan
In January 1998, the Company implemented a qualified 401(k) savings plan
("the Plan") covering all employees meeting certain age and years of service
eligibility 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 may also provide profit-sharing contributions at its
sole discretion. Employees become fully vested in any employer contributions
after five years of service.
During the eleven months ended December 31, 1997, the companies comprising
the Founding Companies and the Recent Acquisitions had separate benefit plans
for employee retirement. As of January 31, 1998, all previous plans were rolled
into the newly adopted plan. Contributions to employee benefit plans for the
year
ended January 31, 1997, the eleven months ended December 31, 1997, and the year
ended December 31, 1998, were approximately $0, $34,000, and $435,000,
respectively. The contribution for the year ended December 31, 1998 will be in
Common Stock.
11. Stockholders' Equity
Common Stock
In connection with the formation of the Company and concurrent with
completion of its initial public offering, all of the approximately 52 million
outstanding shares of AMC common stock were converted into approximately 3.0
million shares of Common Stock. The Company had 15,000,000 shares of $.001 par
value Common Stock and 2,000,000 shares of $.001 par value Preferred Stock
authorized at December 31, 1998. Shares of Common Stock issued and outstanding
were 6,236,942 and 7,581,705, respectively, at December 31, 1997 and December
31, 1998.
Institutional Investor
Under the terms of a private placement agreement with an institutional
investor (the "Investor"), the Company can exercise options ("Put Options")
with the Investor. Generally, upon exercise of a Put Option, the Investor must
tender the amount designated by the Company (the "Investment Amount"). The
number of shares to be issued upon exercise of a Put Option is based on a
nominal discount of the stock's average closing price, as defined.
The Investor has committed to invest up to $10 million. The Company has
exercised $7 million in three installments from September 28 through December
31, 1998. The most recent installment, for $2 million, was initiated in
December 1998, closed in January 1999, and is reflected as common stock
issuable in the accompanying financial statements. A total of 351,322 shares
were issued in the first two installments and 80,000 shares were issued in the
third installment.
F-24
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
The Company also granted the Investor warrants to acquire 100,000 shares of
common stock (see below).
Convertible Redeemable Preferred Stock
In February 1998, the Company completed the sale of 850,060 shares of its
Convertible Redeemable Preferred Stock in a private placement for approximately
$8.5 million which netted the Company $7.8 million after commissions and
offering expenses. These proceeds were used primarily for funding future
acquisitions and related expenses.
The Preferred Stock is not currently entitled to any set level of dividends;
however, in the event the Company should pay any dividend or make any other
distribution in respect of its Common Stock, a dividend in a like amount must
be paid in respect to the Preferred Stock based on the number of shares of
Common Stock into which the Preferred Stock could then be converted.
Shares of the Redeemable Preferred Stock are immediately convertible into
shares of Common Stock. Until February 6, 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 6, 1999,
the conversion price will be 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
of $6.75 per share. All unconverted shares of Preferred Stock will be redeemed
by the Company for $10 per share plus accumulated and unpaid dividends in
February 2003.
The holders of Preferred Stock are entitled to vote together as a single
class with the holders of Common Stock on all matters submitted to a vote of
stockholders, except to the extent a separate class vote is required. The
holders of Preferred Stock have one vote for each share of Common Stock that
could then be acquired on conversion of their Preferred Stock.
Upon any dissolution, liquidation or winding-up of the Company, before any
payments are made to any holders of Common Stock or any other class or series
the Company's capital stock then outstanding, the holders of Preferred Stock
are entitled to receive an amount equal to $10.00 per share of Preferred Stock
or, in the event the holders of Common Stock would be entitled to a greater
payment, the holders of Preferred Stock are entitled to participate equally
with the holders of Common Stock, on an as-converted basis, in such liquidating
distribution.
The Preferred Stock is not entitled to cumulative voting and has no
preemptive rights. There is no sinking fund in respect of the Preferred Stock.
In connection with the immediate conversion feature the Company recognized
$800,000 as an accretive dividend attributable to the Preferred Stock issuance
including commissions and the estimated value of warrants granted to the
placement agent (see below).
Stock Compensation Plans
The Company has stock option plans that provide for the granting of incentive
and non-qualified options to purchase the Company's Common Stock to selected
officers, other key employees, directors, and consultants. These plans include
the InfoCure Corporation 1996 Stock Option Plan, the InfoCure Corporation
Length-of-Service Nonqualified Stock Option Plan, and the InfoCure Corporation
Directors Stock Option Plan. The Company also assumed the stock options of AMC,
its predecessor, which were outstanding at July 10, 1997. Such options were
converted at the same rate used in connection with the conversion of AMC's
common stock.
Under the InfoCure Corporation 1996 Stock Option Plan 3,000,000 shares of
Common Stock of the Company have been reserved for option grants to directors,
officers, other key employees, and consultants. Employees of the Company may be
granted Incentive Stock Options (ISOs) within the dollar limitations under
F-25
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
Section 422(d) of the Internal Revenue Code. The exercise price of all ISOs
shall not be less than the fair market value of the Common Stock as of the
option grant date (110% of such value for 10% shareholders). Options granted to
directors and consultants must be nonqualified stock options. Options vest
ratably over the four year period beginning on the grant date.
Under the InfoCure Corporation Length-of-Service Nonqualified Stock Option
Plan, 500,000 shares of Common Stock of the Company have been reserved for
issuance to employees of the Company. Employees are granted nonqualified stock
options based on years of service with the Company and are fully vested four
years from the grant date. The exercise price of options issued pursuant to
this plan shall be no less than the fair market value of the Common Stock as of
the grant date.
Under the InfoCure Corporation Directors Stock Option Plan, 100,000 shares of
Common Stock of the Company have been reserved for issuance as nonqualified
stock options to Directors of the Company who are not employees of the Company.
Upon appointment to the Board of Directors, a director receives an option grant
of 10,000 shares and may receive an additional option grant of 2,500 shares on
each anniversary date. One-half of the options granted pursuant to this plan
vests after one year of service following the grant date and the other one-half
vests after two years of service following the grant date.
In 1998, the Company implemented the InfoCure Employee Stock Purchase Plan.
This plan allows employees of the Company to purchase Common Stock through
payroll deductions for 85% of fair market value. As of December 31, 1998, there
are 150,000 shares of Common Stock reserved for issuance under this plan.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, Accounting for Stock-Based Compensation, effective for InfoCure
beginning February 1, 1996. SFAS No. 123 defines a "fair value method" of
accounting for employee stock options. It also allows accounting for such
options under the "intrinsic value method" in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations. If a company elects to use the intrinsic
value method, then pro forma disclosures of earnings and earnings per share are
required as if the fair value method of accounting was applied. The effects of
applying SFAS No. 123 in the pro forma disclosures are not necessarily
indicative of future amounts because the pro forma disclosures do not take into
account the amortization of the fair value of awards prior to 1995.
Additionally, InfoCure is expected to grant additional awards in future years.
The Company has elected to account for its stock options under the intrinsic
value method as outlined in APB No. 25. The fair value method requires use of
option valuation models, such as the Black-Scholes option valuation model, to
value employee stock options, upon which a compensation expense is based. The
Black-Scholes option valuation model was not developed for use in valuing
employee stock options. Instead, this model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because InfoCure's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, it is management's
opinion that the existing models do not necessarily provide a reliable measure
of the fair value of its employee stock options. Under the intrinsic value
method, compensation expense is only recognized if the exercise price of the
employee stock option is less than the market price of the underlying stock on
the date of grant.
In accordance with SFAS No. 123, the fair value for the Company's employee
stock options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted
F-26
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
average assumptions for the year ended January 31, 1997, the eleven months
ended December 31, 1997 and the year ended December 31, 1998.
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
<S> <C> <C> <C>
Risk-free interest rate............. 7.5% 5.7-6.2% 6%
Dividend yield...................... 0.0% 0.0% 0.0%
Volatility factor................... 0.0% 19.7% 58%
Weighted average expected life (in
years)............................. 5-10 5 4
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information, excluding earnings per share for year ended January 31,
1997 which are not considered meaningful, follows:
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
(In Thousands Except Share Data)
<S> <C> <C> <C>
Net income (loss) available to
common stockholders
As reported....................... $286 $ (8,731) $(2,661)
Pro forma......................... 46 (8,835) (3,803)
Basic and diluted loss per share
As reported....................... $ (1.79) $ (0.39)
Pro forma......................... (1.81) (0.56)
</TABLE>
A summary of stock option activity, and related information for the year
ended January 31, 1997, the eleven months ended December 31, 1997, and the year
ended December 31, 1998 follows:
<TABLE>
<CAPTION>
Weighted-
Average
exercise
Options price
--------- ---------
<S> <C> <C>
Outstanding at February 1, 1996......................... 238,640 $12.78
Granted............................................... 138,710 4.05
Exercised............................................. (29,830) 0.02
Forfeited or canceled................................. (178,980) 16.76
---------
Outstanding at January 31, 1997......................... 168,540 3.63
Granted............................................... 985,471 4.23
Exercised............................................. -- --
Forfeited or canceled................................. (2,983) 1.67
---------
Outstanding at December 31, 1997........................ 1,151,028 4.15
Granted............................................... 1,697,475 12.64
Exercised............................................. (50,887) 1.22
Forfeited or canceled................................. (251,829) 8.26
---------
Outstanding at December 31, 1998........................ 2,545,787 9.74
Options exercisable at January 31, 1997................. 36,542 1.74
Options exercisable at December 31, 1997................ 68,236 2.91
Options exercisable at December 31, 1998................ 361,232 4.22
</TABLE>
F-27
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
The weighted average fair value of options granted for the year ended January
31, 1997, the eleven months ended December 31, 1997, and the year ended
December 31, 1998, were $0.11, $1.34 and $6.81, respectively.
The following table summarizes information about the Company's outstanding
stock options at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1998 Life (Years) Price 1998 Price
-------- -------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.68- 4.13 708,696 2.6 $ 4.01 266,211 $3.81
4.19- 9.81 454,742 2.7 7.55 95,021 5.31
10.00-13.50 1,320,549 3.8 13.29 -- --
13.63-26.44 61,800 3.6 15.77 -- --
------------ --------- --- ------ ------- -----
$ 1.68-26.44 2,545,787 3.2 $ 9.74 361,232 $4.22
============ ========= === ====== ======= =====
</TABLE>
Restricted Stock Award
In 1998, the Board approved a restricted stock award aggregating 95,000
shares as part of an incentive compensation package to three executives. The
fair value of this award at the grant date, approximately $1.1 million, is
deferred compensation amortizable over its ten year vesting period; however,
the vesting can be accelerated upon the occurrence of certain events. Under the
terms of the agreement, 50% of shares not vested will automatically vest upon
the Company's stock having an average closing price of $25 per share over a
20-day period. The remainder of shares not vested will automatically vest upon
the Company's stock having an average closing price of $40 per share over a 20-
day period. Based on these criteria, approximately $500,000 vested in the first
quarter of 1999 and it is possible that the remaining portion will also vest
during the first quarter 1999.
Warrants
In 1997, the Company issued to an investment advisory firm a warrant to
acquire 110,000 shares of Common Stock at $5.50 per share. This warrant was in
lieu of approximately $330,000 payable to the investment advisory firm
principally for services in connection with the Company's acquisition program.
An executive/director is associated with this investment advisory firm.
In connection with the acquisition of PACE, the Company issued to the former
owners of PACE warrants to acquire 186,000 shares of Common Stock at an
exercise price of $9.13 per share. These warrants have a ten-year term.
In connection with the Redeemable Preferred Stock private placement in
February 1998, the Company granted to the placement agent a ten-year warrant to
acquire 100,000 shares of Common Stock at an exercise price of $9.00 per share.
The $219,000 estimated value of this warrant was recorded as part of the
accretive dividend attributed to the preferred stockholders.
In connection with a private placement arrangement with the Investor, the
Company granted a warrant to acquire 100,000 shares of Common Stock at $23.00
per share. This warrant has a five-year term and is immediately exercisable.
F-28
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
In connection with the October 1998 loan which increased the Company's credit
facility, the lender was granted the right to acquire up to 245,000 shares of
Common Stock at $12 per share. At December 31, 1998, an immediately exercisable
warrant for 225,000 shares had been issued with a ten-year term. The $1.5
million estimated value of this warrant has been recorded as deferred loan
costs.
None of the foregoing warrants have been exercised.
12. Income Taxes
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January December 31, December 31,
31, 1997 1997 1998
---------- ------------- ------------
<S> <C> <C> <C>
Current:
Federal........................... $ 696 $ 38,849 $ 1,064,000
State............................. 120 7,000 235,000
--------- ----------- -----------
Total current....................... 816 45,849 1,299,000
--------- ----------- -----------
Deferred:
Federal........................... (168,146) (1,406,741) (1,104,000)
State............................. (29,670) (248,250) (244,000)
--------- ----------- -----------
Total deferred...................... (197,816) (1,654,991) (1,348,000)
--------- ----------- -----------
Change in deferred tax asset
valuation allowance................ (671,000) 285,000 (285,000)
--------- ----------- -----------
Net income tax benefit.............. $(868,000) $(1,324,142) $ (334,000)
========= =========== ===========
</TABLE>
Deferred taxes result from temporary differences between the bases of assets
and liabilities for financial reporting purposes and such amounts as measured
by tax laws and regulations. The sources of the temporary differences and their
effect on deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Current:
Deferred tax assets
Allowance for doubtful accounts............... $ 20,000 $ 247,000
Deferred revenue and customer deposits........ 617,000 235,000
Accrued restructuring costs................... 309,000 72,000
Credit carryforwards.......................... 60,000 --
Accrued expense............................... 154,000 76,000
Other......................................... -- 45,000
---------- ----------
1,160,000 675,000
---------- ----------
Noncurrent:
Deferred tax assets
Basis difference of goodwill, capitalized
software costs, property and equipment and
other assets................................. 1,620,000 4,760,000
Net operating loss carryforwards.............. 648,000 259,000
---------- ----------
2,268,000 5,019,000
---------- ----------
Subtotal.......................................... 3,428,000 5,694,000
Valuation allowance............................... (285,000) --
---------- ----------
$3,143,000 $5,694,000
========== ==========
</TABLE>
F-29
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
The Company's effective income tax rate varied from the U.S. federal
statutory rate as follows:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January December 31, December 31,
31, 1997 1997 1998
---------- ------------- ------------
<S> <C> <C> <C>
Expected tax benefit................ $(198,000) $(3,419,000) $(746,000)
Increase (decrease) in income taxes
resulting from:
State income benefit.............. (35,000) (603,000) (154,000)
Nondeductible goodwill............ (14,000) 2,306,000 724,000
Other, net........................ 50,000 106,858 127,000
Change in deferred tax asset
valuation allowance.............. (671,000) 285,000 (285,000)
--------- ----------- ---------
Net income tax benefit.............. $(868,000) $(1,324,142) $(334,000)
========= =========== =========
</TABLE>
As of December 31, 1998, the Company and its subsidiaries have net operating
loss carryforwards for federal income tax purposes of approximately $761,000
which expire at various dates to 2013.
13. Supplemental Cash Flow Information
Cash payments for interest amounted to approximately $99,000, $309,000 and
$1,906,000 for the year ended January 31, 1997, the eleven months ended
December 31, 1997, and the year ended December 31, 1998, respectively. The
Company made cash payments for income taxes of approximately $0, $5,000 and
$1,200,000 for the year ended January 31, 1997, the eleven months ended
December 31, 1997 and the year ended December 31, 1998, respectively.
During the year ended January 31, 1997, the Company acquired certain assets
and assumed certain liabilities of HCD for consideration of a note in the
amount of $1,550,000 and cash of $150,000. During the eleven months ended
December 31, 1997, the Company issued Common Stock with an aggregate fair value
of approximately $5.6 million and incurred notes payable and other liabilities
of approximately $7.0 million in connection with acquisition of the Founding
Companies and the Recent Acquisitions. During the year ended December 31, 1998,
the Company issued Common Stock with an aggregate fair value of approximately
$4.2 million and incurred notes payable and other liabilities of approximately
$12,800,000 in connection with acquisitions completed during the period.
During the year ended January 31, 1997, and year ended December 31, 1998, the
Company issued stock warrants with an aggregate value of approximately $190,000
and $1.7 million, respectively, for services rendered to the Company.
14. Subsequent Events
In January 1999, the Company filed a registration statement to offer to the
public 3 million shares of its Common Stock. The Company intends to use the
proceeds to repay amounts outstanding on the FINOVA credit facility and notes
payable to The Reynolds and Reynolds Company from the purchase of HSD. The
balance of the proceeds will be used for working capital and other general
corporate purposes. In connection with planned extinguishment of outstanding
debt, the Company will incur debt extinguishment costs of as much as $5.1
million, representing write-off of deferred loan costs, including costs paid
after December 31, 1998.
In two separate transactions in February 1999, the Company merged with
OMSystems, Inc. ("OMS") and Macon Systems Management, LLC ("MSM") in business
combinations to be accounted for as pooling of interests. The Company exchanged
approximately 1,144,000 shares of Common Stock in the OMS transaction
F-30
<PAGE>
InfoCure Corporation
Notes to Consolidated Financial Statements--(Continued)
and 83,000 shares of Common Stock in the MSM transaction. OMS and MSM provide
practice management software for orthodontists and dermatologists,
respectively.
Pro forma unaudited results of operations assuming the OMS merger occurred on
February 1, 1996 are as follows:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
(In Thousands Except Share Data)
<S> <C> <C> <C>
Net revenue............................ $16,037 $29,617 $78,676
Net income (loss) available to common
stockholders.......................... 1,628 (7,124) (5,957)
Net loss per share--basic and diluted.. (1.18) (0.75)
</TABLE>
Earnings per share for the year ended January 31, 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, 1998.
The pro forma information presented does not include the results of
operations of MSM as this merger was not considered significant.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Reynolds and Reynolds Company:
We have audited the accompanying balance sheets of the Healthcare Systems
Division ("HSD") of The Reynolds and Reynolds Company ("R&R") as of September
30, 1998 and 1997, and the related statements of operations and deficit in
divisional net assets, and cash flows for each of the three years in the period
ended September 30, 1998. These financial statements are the responsibility of
R&R and HSD'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, such financial statements present fairly, in all material
respects, the financial position of HSD at September 30, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Dayton, Ohio
January 15, 1999
F-32
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997 (In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 4 $ 74
Accounts receivable (less allowance for doubtful accounts
of $958--1998 and $974--1997)........................... 11,946 11,423
Inventories--finished goods.............................. 1,607 1,836
Prepaid expenses and other assets........................ 566 649
-------- --------
Total current assets................................... 14,123 13,982
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements................................... 700 572
Computer and other equipment............................. 5,977 4,871
Furniture and other...................................... 1,881 1,645
Construction in progress................................. 1 90
-------- --------
Total property, plant and equipment.................... 8,559 7,178
Less accumulated depreciation............................ 4,987 3,671
-------- --------
Net property, plant and equipment...................... 3,572 3,507
-------- --------
INTANGIBLE ASSETS:
Goodwill, net............................................ 8,824 9,852
Software licensed to customers, net...................... 5,071 5,997
Other, net............................................... 1,447 3,374
-------- --------
Total intangible assets................................ 15,342 19,223
-------- --------
OTHER ASSETS............................................... 921 2,133
-------- --------
TOTAL ASSETS............................................... $ 33,958 $ 38,845
======== ========
CURRENT LIABILITIES:
Accounts payable:
Trade................................................... $ 2,122 $ 2,340
Other................................................... 1,024 1,727
Accrued liabilities:
Compensation and related items.......................... 2,466 3,033
Other................................................... 1,335 1,543
Deferred revenues........................................ 210 867
-------- --------
Total current liabilities.............................. 7,157 9,510
-------- --------
Other liabilities:
Postretirement medical.................................. 402 222
Pensions................................................ 1,655 1,143
Other................................................... 41 797
-------- --------
Total other liabilities................................ 2,098 2,162
-------- --------
ADVANCES FROM PARENT, NET.................................. 35,789 47,907
-------- --------
DEFICIT IN DIVISIONAL NET ASSETS........................... (11,086) (20,734)
-------- --------
TOTAL LIABILITIES AND DEFICIT IN DIVISIONAL NET ASSETS..... $ 33,958 $ 38,845
======== ========
</TABLE>
See notes to financial statements.
F-33
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
STATEMENTS OF OPERATIONS AND DEFICIT IN DIVISIONAL NET ASSETS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
NET SALES AND REVENUES:
Products......................................... $ 23,194 $ 22,651 $24,259
Services......................................... 24,874 17,796 16,412
-------- -------- -------
Total net sales and revenues................. 48,068 40,447 40,671
-------- -------- -------
COSTS AND EXPENSES
Cost of sales:
Products....................................... 18,541 18,935 16,701
Services....................................... 14,639 8,917 7,986
-------- -------- -------
Total cost of sales.......................... 33,180 27,852 24,687
-------- -------- -------
Selling, general and administrative expenses..... 32,650 42,815 24,339
Restructuring charge............................. -- 1,427 --
-------- -------- -------
Total costs and expenses..................... 65,830 72,094 49,026
-------- -------- -------
OPERATING LOSS..................................... (17,762) (31,647) (8,355)
-------- -------- -------
OTHER CHARGES (INCOME):
Interest expense................................. 1 3 1
Interest income.................................. (51) (49) (16)
Other............................................ (23) (20) 7
-------- -------- -------
Total other income........................... (73) (66) (8)
-------- -------- -------
LOSS BEFORE INCOME TAX BENEFIT..................... (17,689) (31,581) (8,347)
INCOME TAX BENEFIT................................. (6,603) (10,847) (2,900)
-------- -------- -------
NET LOSS........................................... (11,086) (20,734) (5,447)
DEFICIT IN DIVISIONAL NET ASSETS:
Beginning of period.............................. (20,734) (5,447) (2,458)
Advance from parent.............................. 20,734 5,447 2,458
-------- -------- -------
End of period.................................... $(11,086) $(20,734) $(5,447)
======== ======== =======
</TABLE>
See notes to financial statements.
F-34
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net loss......................................... $(11,086) $(20,734) $(5,447)
Adjustments to reconcile net loss to net cash
used in operating activities:
Purchased in-process research and development
costs.......................................... 11,000
Depreciation and amortization................... 7,095 5,587 3,387
Loss on sales of assets......................... 138 4
Changes in operating assets and liabilities, net
of assets acquired:
Accounts receivable............................. (523) 686 (2,998)
Inventories..................................... 229 (526) 247
Prepaid expenses, intangible and other assets... 1,340 379 (258)
Accounts payable................................ (921) 194 1,485
Accrued and other liabilities................... (1,917) (1,083) 675
-------- -------- -------
Net cash used in operating activities.......... (5,783) (4,359) (2,905)
-------- -------- -------
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Business combinations, net of cash acquired...... (494) (17,524)
Capital expenditures............................. (1,425) (1,244) (2,478)
Net proceeds from sales of assets................ 34 19 622
Capitalization of software licensed to
customers....................................... (1,018) (1,065) (888)
-------- -------- -------
Net cash used in investing activities.......... (2,903) (19,814) (2,744)
-------- -------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Advances from parent, net........................ 8,616 26,015 5,349
Principal payment on debt........................ (1,769) (10)
-------- -------- -------
Net cash provided by financing activities...... 8,616 24,246 5,339
-------- -------- -------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS....... (70) 73 (310)
CASH AND EQUIVALENTS--Beginning of year........... 74 1 311
-------- -------- -------
CASH AND EQUIVALENTS--End of year................. $ 4 $ 74 $ 1
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION -
Advance from parent.............................. $ 20,734 $ 5,447 $ 2,458
======== ======== =======
</TABLE>
See notes to financial statements.
F-35
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(In thousands)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--The financial statements include the accounts of the
Healthcare Systems Division ("HSD" or the "Division") of The Reynolds and
Reynolds Company ("R&R"). HSD sells computer systems including both hardware
and software to a wide range of entities that operate in the healthcare
industry. HSD also receives service revenue from hardware and software
maintenance as well as training and installation services.
Because HSD is operated as a segment of R&R, these financial statements may
not necessarily be representative of results that would have been attained if
HSD had operated as a separate entity.
Use of Estimates--The financial statements are prepared in conformity with
generally accepted accounting principles and include amounts based on
management's best estimates and judgments. The use of estimates and judgments
may affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Cash and Cash Equivalents--For purposes of reporting cash flows, cash and
cash equivalents includes cash on hand, cash deposits and investments with
maturities of three months or less at the time of purchase. The carrying amount
of these short-term investments approximates fair value.
Concentrations of Credit Risk--The Company is a leading provider of
information management systems to entities in the healthcare industry. A
significant portion of accounts receivable are due from such entities.
Inventories--Inventories, which consist primarily of computer equipment, are
stated at the lower of cost or market. Cost is determined by specific
identification. Market is based on net realizable value.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Depreciation and amortization are provided over the estimated useful
service lives of the assets or asset groups, principally on the straight-line
method for financial reporting purposes. Estimated asset lives are:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Lease improvements.................................................... 3 - 5
Computer and other equipment.......................................... 3 - 5
Furniture and other................................................... 3 - 15
</TABLE>
Intangible Assets--The excess of cost over the fair value of net assets of
companies acquired is recorded as goodwill and is amortized on a straight-line
basis over primarily seven years. Amortization expense was $2,261, $1,878 and
$1,803 for the years ended September 30, 1998, 1997 and 1996, respectively. At
September 30, 1998 and 1997, accumulated amortization was $7,328 and $5,067,
respectively.
The Company capitalizes certain costs of developing its software products.
Upon completion of a software product, amortization is determined based on the
larger of the amounts computed using (a) the ratio that current gross revenues
for each product bears to the total of current and anticipated future gross
revenues for that product or (b) the straight-line method over the remaining
estimated economic life of the product, primarily five years. Amortization
expense for software licensed to customers was $1,943, $1,103 and $116 for the
years ended September 30, 1998, 1997 and 1996, respectively. Amortization
expense, which is included in cost of goods sold, for the year ended September
30, 1998 includes a $750 write-off of capitalized software, which
F-36
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
was determined to be impaired based on management's analysis of undiscounted
future cash flows. In addition, amortization expense for the year ended
September 30, 1997 included $648 from special charges (see Note B). At
September 30, 1998 and 1997 accumulated amortization was $13,742 and $11,799,
respectively.
Other intangible assets are amortized over periods ranging from two to
fifteen years. Amortization expense was $1,564, $1,473 and $534 for the years
ended September 30, 1998, 1997 and 1996, respectively. At September 30, 1998
and 1997 accumulated amortization was $6,846 and $5,282, respectively.
The carrying values of goodwill and other intangible assets are reviewed if
the facts and circumstances indicate potential impairment of their carrying
value. Any impairment in the carrying value of such intangibles is recorded
when identified in accordance with APB Opinion No. 17, "Intangible Assets" and
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Revenue Recognition--Revenues consist of both product sales and service
revenues. Products sales, including computer hardware and software licenses,
are recorded upon shipment to customers. Service revenues, which include
computer hardware maintenance, software support and training are recorded
ratably over the contract period or as services are performed.
Lease Obligations--The Division, along with other divisions at R&R, leases
premises and equipment under various capital and operating lease agreements.
However, the Division has not entered into significant leasing arrangements
separate from other R&R divisions; therefore, future minimum rental commitments
are not significant. Rental expenses allocated to the Division were $2,383,
$2,001 and $1,397 for the years ended September 30, 1998, 1997 and 1996,
respectively.
Research and Development Costs--The Company expenses research and development
costs as incurred. These costs were $4,092, $14,676 and $3,240 for the years
ended September 30, 1998, 1997 and 1996, respectively. These costs are included
in selling, general and administrative expenses in the accompanying statements
of operations. Included in the year ended September 30, 1997 are $11,000 of
purchased in-process research and development costs. In-process research and
development acquired in business combinations represented software development
costs for which technological feasibility was not established and for which
there was no alternative future use.
Income Taxes--The results of operations of HSD are included in a consolidated
federal income tax return with R&R. Federal income tax benefits allocable to
the operations of HSD are calculated as if it had filed separate income tax
returns, state income taxes are allocated based on R&R's overall effective
state tax rate. Income tax benefits are charged against advances from parent,
net. No deferred tax assets or liabilities are allocated by R&R to the
Division.
Reclassifications--Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
B. RESTRUCTURING AND SPECIAL CHARGES
During the year ended September 30, 1997, the Division recorded a pretax
charge of $13,075 consisting of a $1,427 restructuring charge and $11,648 of
other special charges. After income tax benefits, the charges
F-37
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
increased net loss by $9,530. The income tax rate on the combined charges
represented a 27.1% effective tax rate because not all of the charges were tax
deductible. Major components of the charges are listed on the following table:
<TABLE>
<CAPTION>
Restructuring Special Total
Charge Charges Charges
------------- ------- -------
<S> <C> <C> <C>
Employee termination benefits.................... $1,427 $ $ 1,427
In-process research and development.............. 11,000 11,000
Discontinued products............................ 648 648
------ ------- -------
Totals......................................... $1,427 $11,648 $13,075
====== ======= =======
</TABLE>
Restructuring Charge--Employee termination benefits consisted of involuntary
severance benefits and voluntary retirement benefits for 23 employees. Through
September 30, 1998, all involuntary termination benefits had been paid. See
Note E to the financial statements for a discussion of voluntary retirement
benefits.
Special Charges--In-process research and development expenses resulted from
two recent computer services business combinations and represented software
development costs for which technological feasibility was not established and
for which there were no alternative future use. The balance of special charges
represented primarily the write-off of discontinued software licensed to
customers. Special charges increased cost of sales $648 and selling, general
and administrative expenses $11,000.
C. BUSINESS COMBINATIONS
In fiscal year 1997, the Division purchased two healthcare computer services
businesses for $17,524, paid from R&R's available cash. One of the businesses,
acquired June 30, 1997, provided information systems to physician practices
with primary emphasis on practice management systems for hospital-based
physicians. The other business, acquired February 28, 1997, has capabilities in
electronic medical records and clinical management. These businesses had annual
sales of about $10,000. Based on management's analysis of cash flows and an
appraisal, $11,000 of the purchase price was allocated to in-process research
and development, representing software development costs for which
technological feasibility was not established and for which there was no
alternative future use. Through September 30, 1998, no amounts have been
capitalized for software development relating to these projects.
Recorded liabilities of acquired companies included the costs to exit
duplicate facilities. Key elements of the costs accrued for exiting duplicate
facilities were involuntary termination benefits of $398 and lease costs of
$219. Involuntary termination benefits represent severance payments and
outplacement services for 54 employees. Through September 30, 1998, all
severance benefits were paid and the Division bought out its remaining lease
obligation. Costs paid approximated those reserved.
All business combinations were accounted for as purchases and the accounts of
the acquired businesses were included in the Division's financial statements
since the dates of acquisition. In connection with the business combinations,
the Division recorded goodwill of $2,889 in 1997. This goodwill is being
amortized on a straight-line basis over seven years.
Pro Forma Information (Unaudited)--On a pro forma basis, assuming that the
1997 business combinations were made as of October 1, 1995, the revenues of HSD
would have increased by $9,700 and $13,500 for the years ended September 30,
1997 and 1996, respectively. Net loss would have decreased by $7,700 for the
year-ended September 30, 1997 and increased by $2,300 for the year-ended
September 30, 1996. The in-process research and development charge was excluded
from both 1997 and 1996. These pro forma results of operations include pre-
acquisition results of the businesses acquired and may not be indicative of the
results of operations that actually would have been obtained if the business
combination had been in effect or that may be obtained in the future.
F-38
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
D.INCOME TAX BENEFIT
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Provision for Income Tax Benefit
Federal................................................ $5,288 $ 8,618 $2,301
State and local........................................ 1,315 2,229 599
------ ------- ------
Income tax benefit....................................... $6,603 $10,847 $2,900
====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of Income Tax
Rates
Statutory federal income
taxes...................... $6,191 35.0 % $11,053 35.0 % $2,921 35.0 %
State and local taxes less
federal income tax effect.. 855 4.8 1,449 4.6 390 4.7
Goodwill amortization and
write-off.................. (371) (2.1) (323) (1.0) (313) (3.7)
In-process research and
development................ (1,401) (4.4)
Other....................... (72) (0.4) 69 0.1 (98) (1.3)
------ ---- ------- ---- ------ ----
Income tax benefit............ $6,603 37.3 % $10,847 34.3 % $2,900 34.7 %
====== ==== ======= ==== ====== ====
</TABLE>
E.POSTRETIREMENT BENEFITS
Pension benefits for the majority of the Division's employees are provided
through plans that are maintained by R&R. Pension benefits are based primarily
on years of service and compensation. R&R's funding policy is to make annual
contributions to the pension plan sufficient to meet or exceed the minimum
statutory requirements.
The Division also participates in the R&R sponsored defined benefit medical
plan for employees who retired before October 1, 1993. Future retirees may
purchase postretirement medical insurance from R&R. Discounts from the market
price of postretirement medical insurance will be provided to certain retirees
based on age and length of remaining service as of October 1, 1993. R&R also
sponsors a defined benefit life insurance plan in which substantially all of
the Division's employees participate. Medical and life insurance benefits are
funded on a pay as you go basis.
The Division was allocated $1,128, $1,691, and $656, respectively of pension
expense and $59, $171, and $25, respectively, of postretirement medical and
life insurance benefits expense for the years ended September 30, 1998, 1997
and 1996. During the year ended September 30, 1997, the Division expensed $769
of special termination benefits in connection with a voluntary retirement
program.
F. RELATED PARTY TRANSACTIONS
All of HSD's financing requirements are provided by R&R. These financial
statements do not include any long-term debt or interest expense because the
Division has not guaranteed the debt nor pledged any of its assets against the
debt. Such amounts are included in advances from parent, and will be increased
or decreased based on cash flows of the Division. R&R has allocated to the
Division costs related to employee benefits, data processing and other
corporate overhead of $2,077, $1,475 and $1,115 for the years ended September
30, 1998, 1997 and 1996, respectively, which are included in selling, general
and administrative expenses. Management believes that the amounts allocated are
reasonable; however, the amounts that would have been or will be incurred on a
separate company basis could differ from the estimated amounts due to economies
of scale realized by R&R and differences in management techniques and
organization.
F-39
<PAGE>
THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
G. ACCOUNTING STANDARDS
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides guidance
on applying generally accepted accounting principles in recognizing revenue on
software transactions. The new SOP will be effective for transactions entered
into in fiscal years beginning after December 15, 1997. Management believes the
adoption of this pronouncement will reduce revenues in the period of adoption.
The effect on net sales and revenue has not yet been determined. The adoption
will not effect the Division's future cash flows.
H. SUBSEQUENT EVENT
On October 23, 1998, R&R sold substantially all the assets of the Division,
net of certain liabilities to be assumed, to InfoCure Corporation for
approximately $50.0 million.
* * * * * *
F-40
<PAGE>
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- -------------------------------------------------------------------------------
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 12
Use of Proceeds.......................................................... 14
Price Range of Common Stock.............................................. 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Historical Consolidated Financial Data.......................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 29
Management............................................................... 38
Principal and Selling Stockholders....................................... 44
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Incorporation of Certain Documents by Reference.......................... 53
Where You Can Find More Information...................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
--------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,770,000 Shares
[LOGO OF INFOCURE APPEARS HERE]
Common Stock
-------------
PROSPECTUS
-------------
The Robinson-Humphrey
Company
SG Cowen
William Blair & Company
Sanders Morris Mundy
--------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 41,721
National Association of Securities Dealers, Inc. fee................ $ 15,508
Nasdaq Stock Market listing fee..................................... $ 17,500
Accountants' fees and expenses...................................... $ 250,000
Legal fees and expenses............................................. $ 650,000
Transfer Agent's fees and expenses.................................. $ 7,500
Printing and engraving expenses..................................... $ 150,000
Miscellaneous....................................................... $ 67,771
----------
Total Expenses...................................................... $1,200,000
</TABLE>
All fees other than the SEC registration fee, the NASD fee and the Nasdaq
Stock Market listing fee are estimated. None of the expenses of the issuance
and distribution of the common stock being offered will be borne by the selling
stockholders.
Item 15. Indemnification of Directors and Officers
InfoCure's Bylaws effectively provide that InfoCure shall, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 145"), indemnify all persons
whom it may indemnify pursuant thereto. In addition, InfoCure's Certificate of
Incorporation eliminates personal liability of its directors to the full extent
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit, or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they 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 reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interest of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant officers or directors are reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
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) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derived an improper benefit. No such provision shall eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
Section 8 of the Underwriting Agreement (filed as Exhibit 1.1 to this
registration statement) provides that the underwriters severally and not
jointly will indemnify and hold harmless InfoCure, the selling stockholders and
each director, officer and controlling person of InfoCure from and against any
liability caused by any statement or omission in the registration statement, in
the prospectus, in any preliminary prospectus or in any amendment or supplement
thereto, in each case to the extent that the statement or omission was made in
reliance upon and in conformity with written information furnished to InfoCure
by the underwriters expressly for use therein.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1 Amended Certificate of Incorporation of InfoCure (incorporated by
reference to Exhibit 4.1 filed with InfoCure's Registration Statement
on Form S-8) (Registration No. 333-74773).
3.2+ Amended and Restated Bylaws of InfoCure.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended Certificate of
Incorporation and Bylaws of InfoCure defining rights of the holders of
common stock of InfoCure.
4.2 Specimen Certificate for shares of common stock (incorporated by
reference to Exhibit of the same number filed with InfoCure's
Registration Statement on Form SB-2) (Registration No. 333-18923).
5.1+ Opinion of Morris, Manning & Martin, L.L.P., counsel to InfoCure, as
to legality of the shares being registered.
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Deloitte & Touche, LLP
23.3 Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
27.1+ Financial Data Schedule
</TABLE>
- --------
+Previously filed
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the SEC, 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.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained
II-2
<PAGE>
in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia on the 20th day of April, 1999.
INFOCURE CORPORATION
/s/ Frederick L. Fine
By: _________________________________
Frederick L. Fine
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Frederick L. Fine President, Chief Executive April 20, 1999
______________________________________ Officer and Director
Frederick L. Fine (Principal Executive
Officer)
* Executive Vice President, April 20, 1999
______________________________________ Secretary and Director
James K. Price
* Chairman, Treasurer and April 20, 1999
______________________________________ Director
Richard E. Perlman
* Senior Vice President-- April 20, 1999
______________________________________ Finance and Chief
Lance B. Cornell Financial Officer
(Principal Financial
Officer)
* Vice President and April 20, 1999
______________________________________ Director
Michael E. Warren
* Vice President--Finance, April 20, 1999
______________________________________ Assistant Secretary and
Gary W. Plumer Assistant Treasurer
(Principal Accounting
Officer)
* Director April 20, 1999
______________________________________
James D. Elliot
* Director April 20, 1999
______________________________________
Raymond H. Welsh
</TABLE>
/s/ Frederick L. Fine
* By: __________________________
Frederick L. Fine
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
InfoCure Corporation
Atlanta, Georgia
We hereby consent to the use of our reports included herein and
incorporated by reference in this registration statement number 333-71109; the
incorporation by reference in the prospectus constituting a part of the
registration statement number 333-48829 on Form S-8; and in this prospectus
constituting the registration statement number 333-73097 on Form S-3.
We also consent to the reference to us under the caption "Experts" in the
prospectus.
BDO Seidman, LLP
Atlanta, Georgia
April 20, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 5 to Registration Statement
(No. 333-71109) of InfoCure Corporation of our report dated January 15, 1999,
(relating to the Healthcare Systems Division of the Reynolds and Reynolds
Company) appearing in the Prospectus, which is a part of such Registration
Statement and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Dayton, Ohio
April 20, 1999
