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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 24, 1999
INFOCURE CORPORATION
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(exact name of registrant as specified in charter)
Delaware 001-12799 58-2271614
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(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1765 The Exchange, Suite 500, Atlanta, GA 30339
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(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: 770-221-9990
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Not Applicable
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(Former name or former address, if changed since last report)
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Contents
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Page
Item 5: Other Events............................................. 1
Item 7: Supplemental Consolidated Financial Statements........... F-1
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ITEM 5. OTHER EVENTS.
During the period January 1, 1999 through August 31, 1999, InfoCure
Corporation ("InfoCure" or the "Company") consummated mergers (the "1999
Mergers") with the following companies (the "1999 Pooled Companies") in
transactions which provided for the exchange of all the outstanding equity
interests of each entity for a total of 3,640,054 shares of InfoCure common
stock (after giving effect to a 2-for-1 stock split in the form of a stock
dividend paid on August 19, 1999). Each of the 1999 Mergers have been accounted
for as poolings of interests.
<TABLE>
<CAPTION>
Effective Medical
Entity Date of Merger Specialty Location
- --------------------------------------------- ------------------ --------------- --------------------------
<S> <C> <C> <C>
Macon Systems Management, LLC, the parent of
Medical Software Management, Inc. ("MSM")... February 12, 1999 Dermatology Macon, Georgia
OMSystems, Inc. ("OMSystems")................ February 18, 1999 Orthodontics Norcross, Georgia
Ardsley, M.I.S., Inc.; d/b/a GlenTec
Business Computers, Inc. ("Orthoware")...... August 17, 1999 Orthodontics Philadelphia, Pennsylvania
Medfax Corporation ("Medfax")................ August 30, 1999 Radiology Charlotte, North Carolina
Scientific Data Management, Inc. ("SDM")..... August 31, 1999 General Medical Detroit, Michigan
</TABLE>
Additionally, on July 22, 1999 the Company completed a 2-for-1 stock split
in the form of a stock dividend paid on August 19, 1999 to stockholders of
record as of August 5, 1999.
The Company's consolidated financial statements have been retroactively
restated as of June 30, 1999 and December 31, 1998 and 1997 and for the six
months ended June 30, 1999 and 1998 and for the year ended December 31, 1998,
the eleven months ended December 31, 1997 and the year ended January 31, 1997 to
reflect the consummation of the 1999 Mergers and to give effect to the stock
split. The supplemental consolidated financial statements included herein give
retroactive effect to the 1999 Mergers, which have been accounted for using the
pooling of interests method and, as a result, the financial position, results of
operations and cash flows are presented as if the 1999 Mergers had been
consolidated for all periods presented. As required by generally accepted
accounting principles, the supplemental consolidated financial statements will
become the historical financial statements of the Company upon issuance of the
financial statements for the period that includes the 1999 Mergers consummated
in August. The supplemental consolidated statements of stockholders' equity
reflect the accounts of InfoCure as if the common stock issued in connection
with the 1999 Mergers had been issued for all periods presented and as if the
stock split had been in effect for all periods presented.
The supplemental consolidated financial statements, including the notes
thereto, should be read in conjunction with the Company's historical
consolidated financial statements included in its Annual Report on Form 10-KSB
for the year ended December 31, 1998 and its current reports on Form 10-Q for
the quarterly periods ended March 31, 1999 and June 30, 1999, respectively.
Management's Discussion and Analysis of Financial Condition and Results of
Operations which follows reflects the supplemental consolidated financial
statements referred to above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain information included in this report constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including without limitation the following statements: (a) our belief that our
operating cash flow, combined with availability of funds under our commercial
credit facility and from a private placement agreement with an institutional
investor will be sufficient to fund our working capital requirements through at
least the next twelve months; and (b) our intended sources of financing to fund
future acquisitions, if any. We note that a variety of risk factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in our forward-looking statements.
Reference is made in particular to the discussion set forth below in this report
and set forth in InfoCure's Report on Form 10-KSB for the period ended December
31, 1998 which was filed with the Securities and Exchange Commission on February
26, 1999 and our registration statement on Form S-3 declared effective with the
Commission on April 21, 1999.
Overview
A substantial part of our growth has been achieved through acquisitions.
For the period July 10, 1997 through August 31, 1999, we completed sixteen
acquisitions including acquisitions of six companies accounted for as pooling of
interest transactions. The table below summarizes the acquisitions of five
companies (the "1999 Pooled Companies") completed in 1999 which have been
accounted for as poolings of interests (the "1999 Mergers"). An aggregate of
approximately 3.6 million shares of InfoCure common stock was exchanged in the
1999 Mergers.
<TABLE>
<CAPTION>
Date of Medical
Entity Merger Specialty Location
- ---------------------------------------------- ----------------- -------------- --------------------------
<S> <C> <C> <C>
Macon Systems Management, LLC, the parent of
Medical Software Management, Inc............. February 12, 1999 Dermatology Macon, Georgia
OMSystems, Inc................................ February 18, 1999 Orthodontics Norcross, Georgia
Ardsley, M.I.S., Inc. d/b/a GlenTec Business
Computers, Inc............................... August 17, 1999 Orthodontics Philadelphia, Pennsylvania
Medfax Corporation............................ August 30, 1999 Radiology Charlotte, North Carolina
Scientific Data Management,
Inc........................................... August 31, 1999 General Medical Detroit, Michigan
</TABLE>
Accordingly, the consolidated financial statements contained in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 are being
retroactively restated to reflect the 1999 Mergers and, as a result, the
financial position, results of operations and cash flows are presented as if the
1999 Mergers had been consolidated for all periods presented.
In addition to the 1999 Mergers, during the period between July 10, 1997
and June 30, 1999, we completed ten acquisitions which were accounted for using
the purchase method of accounting, including one 1999 acquisition of
Strategicare, Inc. and its wholly-owned subsidiary DISC Computer Systems, Inc.
Given the significant number of acquisitions in each of the periods presented,
the results of operations from period to period may not necessarily be
comparable.
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
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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 June 30, 1999, our
balance sheet included goodwill, net of accumulated amortization, of $83.0
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 $5.9 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 forty 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 amortized, generally
over a four-year life. Costs incurred after general release are expensed as
incurred.
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 substantially 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.
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 and ended on December 31, 1997 reflects eleven months of
operations.
In-Process Research and Development Write-off
On October 23, 1998, InfoCure acquired the assets of the HealthCare Systems
Division ("HSD") 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.
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.
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HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth certain supplemental statement of operations
data as a percentage of gross revenue for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended Eleven Months Year Ended June 30,
January 31, December 31, December 31, ----------------
1997 1997 1998 1998 1999
----------- ------------ ------------ ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue:
Systems and software................... 46.0 % 55.8 % 57.3 % 51.3% 49.0%
Maintenance, support and services...... 54.0 44.2 42.7 48.7 51.0
----- ----- ----- ----- -----
Total revenue............................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating expense:
Hardware and other items purchased
for resale........................... 29.1 23.6 23.6 24.7 24.4
Selling, general and administrative.... 63.5 66.4 55.1 55.1 49.7
Depreciation and
amortization......................... 2.2 4.0 5.3 5.1 5.2
Compensatory stock awards.............. -- -- 6.9 -- 0.7
Purchased research and
development.......................... -- -- 9.6 -- --
Asset impairment and
restructuring costs.................. -- 24.2 2.0 4.8 --
Merger costs........................... -- -- 0.1 -- 0.5
----- ----- ----- ----- -----
Total operating expense.................. 94.8 118.2 102.6 89.7 80.5
----- ----- ----- ----- -----
Operating income (loss).................. 5.2 (18.2) (2.6) 10.3 19.5
Other expense (income):
Interest, net.......................... 0.7 1.0 4.0 2.7 3.0
Other, net............................. (0.1) (0.7) (0.2) 0.0 0.0
----- ----- ----- ----- -----
Income before income taxes............... 4.6 (18.5) (6.4) 7.6 16.5
Income tax expense(benefit).............. (2.4) (2.5) (0.4) 1.8 6.4
----- ----- ----- ----- -----
Net income (loss) before
extraordinary item..................... 7.0 % (16.0)% (6.0)% 5.8% 10.1%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Total Revenue. Total revenue for the six months ended June 30, 1999 was
$81.4 million, compared to total revenue of $39.5 million for the six months
ended June 30, 1998. This increase in total revenue primarily reflects the
completion of the HSD acquisition effective October 1998 and overall growth in
the business. The OMSystems, MSM, Orthoware, Medfax and SDM acquisitions, which
are accounted for as poolings of interests, are reflected retroactively for all
periods presented. Systems and software revenue was $39.9 million for the six
months ended June 30, 1999, or 49.0% of total revenue, while maintenance,
support, and service revenue was $41.5 million, or 51.0% of total revenue for
the same period.
Hardware and Other Items Purchased for Resale. For the six months ended
June 30, 1999, hardware and other items purchased for resale was $19.9 million,
or 24.4% of total revenue, compared to $9.8 million, or 24.7% of total revenue,
for the six months ended June 30, 1998. For the six months ended June 30, 1999,
gross margin, which represents total revenue less hardware and other items
purchased for resale, was 75.6% of the total revenue, compared to 75.3% of total
revenue, for the six months ended June 30, 1998.
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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, marketing
expense, travel, communications, facilities, insurance and other administrative
expense. Selling, general and administrative expense increased to $40.5 million,
or 49.7% of total revenue for the six months ended June 30, 1999, compared to
$21.7 million, or 55.1% of total revenue for the six months ended June 30, 1998.
This increase reflects primarily additional 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 expenses as a percent of revenue reflects InfoCure's
ability to take advantage of economies of scale resulting from the larger
installed customer base and higher base of revenue realized from acquisitions as
well as the benefits realized from the Company's investment in its technological
infrastructure.
Depreciation and Amortization. Depreciation and amortization expense was
$4.2 million, or 5.2% of total revenue, for the six months ended June 30, 1999,
compared to $2.0 million, or 5.1% of total revenue, for the six months ended
June 30, 1998. Increased depreciation and amortization expense primarily is the
result of the significant increase in goodwill arising primarily from the HSD
acquisition in October 1998.
Compensatory Stock Awards. In the six months ended June 30, 1999, the
Company incurred costs of $570,000, or 0.7% of total revenue, associated with
the issuance of compensatory stock awards.
Asset impairment and restructuring costs. In the six months ended June 30,
1998, the Company incurred costs of $1.9 million, or 4.8% of total revenue
associated with a restructuring plan completed in 1998.
Merger costs. In the six months ended June 30, 1999, the Company incurred
merger-related costs associated with the 1999 Mergers of $385,000, or 0.5% of
revenue, relating primarily to legal and accounting fees. The Company did not
incur merger-related costs in the six months ended June 30, 1998.
Interest, Net. Net interest expense increased to $2.5 million, or 3.0 % of
total revenue, for the six months ended June 30, 1999, compared to $1.1 million,
or 2.7% of total revenue, for the six months ended June 30, 1998. The increase
relates primarily to the indebtedness incurred to complete the HSD acquisition.
Other, Net. Net other income increased to $38,000 for the six months ended
June 30, 1999 compared to $19,000 for the six months ended June 30, 1998.
Income Taxes. The provision for income taxes was $5.2 million for the six
months ended June 30, 1999, compared to $711,000 for the six months ended
June 30, 1998. The effective income tax rate of 38.7% for the six months ended
June 30, 1999, is higher than statutory rates due to state income taxes and
permanent differences resulting from the amortization of nondeductible goodwill.
The effective tax rate of 23.7% for the comparable 1998 period is less than the
statutory tax rate due to the impact of poolings with certain S-corporation
entities that incurred no federal income taxes prior to merger with the Company.
Extraordinary Item. During the six months ended June 30, 1999, the Company
extinguished its outstanding debt under its credit facility with FINOVA Capital
Corporation and incurred debt extinguishment costs of $4.9 million, or $2.9
million net of taxes, representing 3.6% of total revenue.
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 $93.8
million compared to total revenue of $46.0 million for the eleven months ended
December 31, 1997. The increase of $47.8 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, MSM, OMSystems, Orthoware,
Medfax and SDM acquisitions which were accounted for as poolings of interests
and are reflected retroactively for all periods presented. Revenue for periods
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prior to July 10, 1997 includes only revenue of InfoCure's predecessor, American
Medcare, its consolidated subsidiaries and RADMAN, MSM, OMSystems, Orthoware,
Medfax and SDM. Systems and software revenue was $53.7 million for the year
ended December 31, 1998, or 57.3% of total revenue, compared to $25.7 million,
or 55.8% 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 $40.1 million,
or 42.7% of total revenue for the year ended December 31, 1998, compared to
$20.3 million, or 44.2% of total revenue, for the eleven months ended December
31, 1997.
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 $22.1 million, or 23.6% of revenue,
compared to $10.9 million, or 23.6% 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.
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 $51.7 million, or 55.1% of revenue, for the year ended
December 31, 1998 compared to $30.5 million, or 66.4% 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 expenses as a
percent of revenue reflects InfoCure's ability to leverage economies of scale
resulting from the larger installed customer base and higher base of revenue
realized from acquisitions.
Compensatory Stock Awards. In the year ended December 31, 1998, the Company
incurred costs of $6.4 million, or 6.9% of total revenue, related to
contingently exercisable stock options of OMSystems. Under the terms of
OMSystems' stock option agreement, the value of the options became determinable
in the fourth quarter of 1998, resulting in recognition as compensation expense.
Depreciation and Amortization. Depreciation and amortization expense was
$5.0 million, or 5.3% of revenue, for the year ended December 31, 1998 compared
to $1.8 million, or 4.0% 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 9.6% 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 2.0% of total revenue, for the year
ended December 31, 1998 compared to $11.1 million, or 24.2% 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.
Merger Costs. Merger costs were $123,000, or 0.1% of revenue, for the year
ended December 31, 1998 and related to legal and accounting fees associated with
the RADMAN merger.
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Interest, Net. Net interest expense increased to $3.7 million, or 4.0% of
revenue, for the year ended December 31, 1998 compared to $482,000, or 1.0% of
revenue 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 $194,000, or 0.2% of revenue, for
the year ended December 31, 1998 compared to $334,000, or 0.7% of revenue for
the eleven months ended December 31, 1997. This decrease relates primarily to
one-time other income related to the RADMAN merger.
Income Taxes Benefit. The benefit for income taxes was $317,000 for the
year ended December 31, 1998 compared to $1.1 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 $46.0 million compared to total revenue of $26.9 million for the year ended
January 31, 1997. This increase of $19.1 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, its consolidated subsidiaries and
RADMAN, MSM, OMSystems, Orthoware, Medfax and SDM. Systems and software revenue
was $25.7 million for the eleven months ended December 31, 1997, or 55.8% of
revenue, compared to $12.4 million, or 46.0% of total revenue, for the year
ended January 31, 1997. Maintenance, support and services revenue was $20.3
million for the eleven months ended December 31, 1997, or 44.2% of total
revenue, compared to $14.5 million, or 54.0% 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
$10.9 million, or 23.6% of total revenue, compared to $7.8 million, or 29.1% 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 decrease in cost of hardware and
other items purchased for resale as a percentage of revenue reflects decreased
revenue from sales of hardware as a percentage of total revenue.
Selling, General and Administrative. Selling, general and administrative
expense increased to $30.5 million, or 66.4% of revenue, for the eleven months
ended December 31, 1997, compared to $17.1 million, or 63.5% 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.
Depreciation and Amortization. Depreciation and amortization expense was
$1.8 million, or 4.0% of revenue, for the eleven months ended December 31, 1997,
compared to $587,000, or 2.2% 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, or 24.2% of
revenue, associated with the restructuring plan.
Interest, Net. Net interest expense increased to $482,000, or 1.0% of
revenue for the eleven months ended December 31, 1997 compared to $191,000, or
0.7% of revenue 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 $334,000, or 0.7% of revenue, for
the eleven months ended December 31, 1997, compared to $31,000, or 0.1% of
revenue, for
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the year ended January 31, 1997. This increase relates primarily to one-time
other income related to the RADMAN merger.
Income Tax Benefit. InfoCure realized income tax benefits in the amounts of
$1.1 million and $657,000 for the eleven months ended December 31, 1997 and the
year ended January 31, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions, (ii)
working capital, (iii) capitalized software development costs and (iv) capital
expenditures for furniture, fixtures and equipment. We have met our liquidity
needs over the last three years through funds provided by operating activities,
equity offerings in 1997, 1998 and 1999, and long-term borrowings.
On February 9, 1998, InfoCure completed the private placement of 850,060
shares of Series A Preferred Stock, 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 200,000 shares
of InfoCure's common stock at an exercise price of $4.50 per share. The
consolidated financial statements of InfoCure reflect an accretive 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 converted to 2,000,140 shares
of common stock upon the completion of the secondary offering.
On September 28, 1998, InfoCure completed the sale of 427,172 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
295,968 shares of common stock for $2.5 million in December 1998 and the sale of
160,000 shares of common stock for $2.0 million in January 1999.
On October 18, 1998, 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.
On April 27, 1999, InfoCure completed a public offering of 6.0 million
shares of common stock at $13.00 per share, which generated net proceeds of
$73.3 million. InfoCure applied $69.2 million of the proceeds of this offering
to retire the principal outstanding on its credit facility. The balance of the
proceeds was applied toward working capital and for general corporate purposes.
On May 6, 1999, InfoCure issued 1,127,700 shares of common stock at $13.00 per
share for net proceeds of $13.8 million relating to the exercise of the
underwriters' over-allotment option in connection with the public offering. The
proceeds from the over-allotment were applied toward working capital and for
general corporate purposes.
At June 30, 1999, InfoCure had total cash and cash equivalents of $21.7
million and working capital of $40.1 million. InfoCure's current ratio increased
to 2.54 at June 30, 1999, from 1.02 at December 31, 1998. During the six months
ended June 30, 1999, InfoCure generated $2.1 million of cash from operating
activities primarily relating to net income of $5.3 million plus $4.6 million in
deferred income tax, depreciation and amortization of $4.2 million and an
extraordinary item of $2.9 million less the increased accounts receivable of
$10.1 million. During this period, cash used in investing activities was $15.5
million, consisting primarily of cash used for acquisitions of $12.7 million,
capital expenditures of $1.4 million and intangible asset costs of $1.3 million
primarily representing capitalized software development costs.
8
<PAGE>
During the six months ended June 30, 1999, InfoCure generated net cash from
financing activities of $25.8 million, including $86.2 million net proceeds from
issuance of common stock and $12.0 million proceeds from the line of credit.
These proceeds were principally used to retire outstanding debt of $69.2 million
and fund the acquisition of Strategicare, Inc. and its wholly-owned subsidiary
DISC Computer Systems, Inc.
InfoCure's commercial credit facility, with an aggregate availability of
$70.0 million used primarily for acquisition purposes and working capital, was
repaid in full by proceeds of the Company's secondary offering. The early
retirement of debt resulted in a write-off of previously paid deferred loan
costs in the amount of $4.9 million. In August 1999, InfoCure obtained a new
credit facility in the amount of $100 million that has a five-year term. The
credit facility provides for an $8.7 million term loan and a $91.3 million
revolving loan that converts to a term loan in October 2001. The credit
facility bears interest at rates ranging from base (prime) rate plus 0.50% to
1.25%, or LIBOR plus 2.00% to 2.75%, depending on the Company achieving certain
debt service ratios, and is collateralized by substantially all of InfoCure's
assets.
We believe that our existing cash and anticipated future operating cash
flow, combined with availability of funds under the credit facility, will be
sufficient to fund our working capital requirements through at least the next
twelve months. We expect 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. The sale
of equity securities, including investments convertible into equity securities,
may result in further dilution to existing stockholders. No assurance can be
given that additional sources of capital will be available on terms acceptable
to us or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use, including the requirement to capitalize specified costs and
amortization of such costs. Adoption of this standard did not have a material
effect on our capitalization policy.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activitites. 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 this new standard on
January 1, 2001, to affect its financial statements.
YEAR 2000 ISSUE
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
9
<PAGE>
. 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 we intend 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 the end of September 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
and 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.
Our most reasonably likely worst case scenario with respect to the year
2000 issue is that certain of our products which we believe to be currently year
2000 ready or for which we have developed modifications to make them year 2000
ready will in fact fail to function properly on or after January 1, 2000. In
light of InfoCure's belief that its products will be year 2000 ready based upon
testing it has performed in the course of its year 2000 readiness program,
InfoCure has not developed a contingency plan to be used in the event certain of
its products fail to function properly on or after January 1, 2000. InfoCure
plans to address any such failures on an as needed basis. We estimate that the
remaining costs to complete our year 2000 readiness program are approximately
$75,000. 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 our products to be year 2000 ready will have a material adverse effect on our
business or results of operations, we cannot guarantee that any such failure
would not have such an effect.
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 September 30, 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
10
<PAGE>
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.
11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following are the supplemental consolidated financial statements of
InfoCure Corporation which are filed as part of this report.
INFOCURE CORPORATION
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants................................F-2
Balance sheets as of December 31, 1997 and 1998, and June 30, 1999 (Unaudited)....F-3
Statements of operations for the year ended January 31, 1997, the eleven months
ended December 31, 1997, the year ended December 31, 1998, and the six months
ended June 30, 1998 and 1999 (unaudited)........................................F-4
Statements of changes in stockholders' equity for the year ended January 31,
1997, the eleven months ended December 31, 1997, the year ended December 31,
1998, and the six months ended June 30, 1999 (unaudited)........................F-5
Statements of cash flows for the year ended January 31, 1997, the eleven months
ended December 31, 1997, the year ended December 31, 1998, and the six months
ended June 30, 1998 and 1999 (unaudited)........................................F-6
Notes to supplemental consolidated financial statements...........................F-7
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
InfoCure Corporation
Atlanta, Georgia
We have audited the accompanying supplemental consolidated balance sheets
of InfoCure Corporation and its subsidiaries as of December 31, 1998 and 1997,
and the related supplemental 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. The
supplemental consolidated financial statements give retroactive effect to the
mergers of InfoCure Corporation with Macon Systems Management, LLC on
February 12, 1999, OMSystems, Inc. on February 18, 1999, Ardsley M.I.S., Inc. on
August 17, 1999, Medfax Corporation on August 30, 1999 and Scientific Data
Management, Inc. on August 31, 1999, which have been accounted for as poolings
of interests as described in Notes 1 and 3 to the supplemental consolidated
financial statements. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
InfoCure Corporation and its subsidiaries at December 31, 1998 and 1997, and the
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, after giving retroactive effect to the mergers referred to above, in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
September 20, 1999
F-2
<PAGE>
InfoCure Corporation
Supplemental Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS (Note 9):
Current
Cash and cash equivalents........................ $ 2,380 $ 9,288 $ 21,717
Accounts receivable--trade, net of allowance of
$461, $1,278 and $1,249......................... 8,673 25,994 38,189
Other receivables................................ 369 1,254 79
Inventory........................................ 1,775 3,533 4,345
Deferred tax assets (Note 13).................... 1,245 675 534
Prepaid expense and other current assets......... 883 1,422 1,280
-------- -------- --------
Total current assets........................... 15,325 42,166 66,144
Property and equipment, net of accumulated
depreciation (Note 6)............................ 4,433 10,795 12,874
Goodwill, net of accumulated amortization of
$404, $3,467 and $6,099 (Notes 3 and 5).......... 17,014 72,203 82,988
Other intangible assets (Note 7).................. 1,344 7,391 4,338
Deferred tax assets (Note 13)..................... 1,905 4,966 2,755
-------- -------- --------
$ 40,021 $137,521 $169,099
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Notes payable (Note 9)........................... $ 303 $ 2,074 $ 328
Accounts payable................................. 2,633 4,170 2,448
Accrued expense (Note 8)......................... 2,216 7,666 10,092
Accrued restructuring costs (Note 5)............. 3,172 283 --
Income taxes payable............................. 17 667 104
Deferred revenue and customer deposits........... 8,669 13,203 10,858
Current portion of long-term debt (Note 9)....... 2,729 13,370 2,220
-------- -------- --------
Total current liabilities...................... 19,739 41,433 26,050
Long-term debt, less current portion (Note 9)..... 9,600 70,733 24,560
Other liabilities (Note 10)....................... 6,586 -- --
-------- -------- --------
Total liabilities.............................. 35,925 112,166 50,610
-------- -------- --------
Commitments (Note 11)
Convertible, redeemable preferred stock
(Note 12)........................................ -- 8,501 --
-------- -------- --------
Stockholders' equity (Note 12)
Common stock..................................... 8 9 14
Common stock issuable............................ -- 1,975 --
Additional paid-in capital....................... 17,587 38,277 137,087
Accumulated deficit.............................. (13,383) (22,102) (18,099)
Deferred compensation............................ -- (1,083) (513)
Treasury stock, at cost.......................... (116) (222) --
-------- -------- --------
Total stockholders' equity..................... 4,096 16,854 118,489
-------- -------- --------
$ 40,021 $137,521 $169,099
======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-3
<PAGE>
InfoCure Corporation
Supplemental Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Year Eleven Year
Ended Months Ended
January Ended December Six Months Ended
31, December 31, 31, June 30,
1997 1997 1998 1998 1999
------- ------------ ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Systems and software.................................... $12,378 $25,659 $53,698 $20,241 $39,901
Maintenance, support and services....................... 14,511 20,340 40,082 19,224 41,524
------- ------- ------- ------- -------
Total revenue............................................ 26,889 45,999 93,780 39,465 81,425
------- ------- ------- ------- -------
Operating expense:
Hardware and other items purchased for resale........... 7,838 10,860 22,103 9,767 19,900
Selling, general and administrative..................... 17,070 30,522 51,691 21,732 40,506
Depreciation and amortization........................... 587 1,840 4,959 2,025 4,226
Compensatory stock awards............................... -- -- 6,447 -- 570
Purchased research and development (Note 4)............. -- -- 9,000 -- --
Asset impairment and restructuring costs (Note 5)....... -- 11,136 1,874 1,874 --
Merger costs............................................ -- -- 123 -- 385
------- ------- ------- ------- -------
Total operating expense.................................. 25,495 54,358 96,197 35,398 65,587
------- ------- ------- ------- -------
Operating income(loss)................................... 1,394 (8,359) (2,417) 4,067 15,838
Other expense (income):
Interest, net........................................... 191 482 3,740 1,084 2,462
Other, net.............................................. (31) (334) (194) (19) (38)
------- ------- ------- ------- -------
Income (loss) before income taxes........................ 1,234 (8,507) (5,963) 3,002 13,414
Income taxes (benefit) (Note 13)......................... (657) (1,132) (317) 711 5,194
------- ------- ------- ------- -------
Income (loss) before extraordinary item.................. 1,891 (7,375) (5,646) 2,291 8,220
Extraordinary item - early retirement of debt,
net of taxes........................................... -- -- -- -- 2,935
------- ------- ------- ------- -------
Net income (loss) ....................................... 1,891 (7,375) (5,646) 2,291 5,285
Accretive dividend (Note 12)............................. -- -- 800 800 --
------- ------- ------- ------- -------
Net income (loss) available to common stockholders....... $ 1,891 $(7,375) $(6,446) $ 1,491 $ 5,285
======= ======= ======= ======= =======
Net income (loss) available to common stockholders
per share (Note 2):
Before extraordinary item:
Basic................................................ $ (0.55) $ (0.37) $ 0.09 $ 0.38
Diluted.............................................. (0.55) (0.37) 0.07 0.30
After extraordinary item:
Basic................................................ (0.55) (0.37) 0.09 0.24
Diluted.............................................. (0.55) (0.37) 0.07 0.19
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-4
<PAGE>
InfoCure Corporation
Supplemental Consolidated Statements of Changes in Stockholders' Equity
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Shares
-------------------- Common Accrued Stock
Common Treasury Common Treasury Stock Stock Purchase
Stock Stock Stock Stock Issuable Repurchase Warrant
------ -------- ------ -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at
February 1, 1996.................... 166,626,688 (456,978) $ 83 $(100) $ -- $ -- $ 500
Issuance of common stock........... 26,774,880 -- 14 -- -- -- --
Cancellation of warrant............. -- -- -- -- -- -- (500)
Issuance of warrant................. -- -- -- -- -- -- 80
Issuance of stock options........... -- -- -- -- -- -- --
Capital contribution................ -- -- -- -- -- -- --
Pending repurchase of
common stock...................... -- -- -- -- -- (65) --
Equity issuance of
pooled company.................... 53,487 -- -- -- -- -- --
Net income.......................... -- -- -- -- -- -- --
Distributions by Pooled
Companies......................... -- -- -- -- -- -- --
------------ -------- ---- ----- ------- ---- -----
Balance, at
January 31, 1997.................... 193,455,055 (456,978) 97 (100) -- (65) 80
Issuance of common stock............ 1,600,000 -- 1 -- -- -- --
Stock repurchase.................... (229,866) -- -- -- -- 65 --
Conversion of common stock
upon formation of Company
(Note 1).......................... (184,213,795) 456,978 (92) 100 -- -- --
Issuance of common stock,
net of related expense for:
Initial public offering......... 2,800,000 -- 1 -- -- -- --
Acquisition of Founding
Companies..................... 1,815,170 -- 1 -- -- -- --
Payment of debt and
other obligations............. 553,432 -- -- -- -- -- --
Exercise of warrants............ 222,592 -- -- -- -- -- (80)
1997 Acquisitions............... 153,496 -- -- -- -- -- --
Issuance of stock options
and warrants...................... -- -- -- -- -- -- --
Purchase of treasury stock.......... -- (42,146) -- (116) -- -- --
Net loss............................ -- -- -- -- -- -- --
Distributions by Pooled
Companies......................... -- -- -- -- -- -- --
------------ -------- ---- ----- ------- ---- -----
Balance, at
December 31, 1997................... 16,156,084 (42,146) 8 (116) -- -- --
Issuance of common stock, net
of related expense for:
1998 Purchased Companies.......... 747,094 -- -- -- -- -- --
Private placements................ 702,644 -- -- -- -- -- --
Exercise of stock
options and warrants............ 292,282 -- -- -- -- -- --
Earnout commitments............... 796,246 -- 1 -- -- -- --
Restricted stock award............ 190,000 -- -- -- -- -- --
Compensatory stock awards........... -- -- -- -- -- -- --
Common stock issuable in
private placement................. -- -- -- -- 1,975 -- --
Issuance of stock options
and warrants...................... -- -- -- -- -- -- --
Accretive dividend.................. -- -- -- -- -- -- --
Purchase of
treasury stock.................... -- (38,740) -- (106) -- -- --
Amortization of deferred
compensation...................... -- -- -- -- -- -- --
Net loss............................ -- -- -- -- -- -- --
Distributions by Pooled
Companies.......................... -- -- -- -- -- -- --
------------ -------- ---- ----- ------- ---- -----
Balance, at
December 31, 1998................... 18,884,350 (80,886) 9 (222) 1,975 -- --
Activity for period ended
June 30, 1999 (Unaudited):
Issuance of common stock, net
of related expense for:
Secondary offering.............. 7,127,700 -- 4 -- -- -- --
Convertible preferred stock..... 2,000,140 -- 1 -- -- -- --
Convertible notes............... 202,118 -- -- -- -- -- --
Private placement............... 160,000 -- -- -- (1,975) -- --
Exercise of stock options
and warrants.................. 134,272 -- -- -- -- -- --
Matching contribution to
401(k) plan................... 47,390 -- -- -- -- -- --
Acquisition of assets........... 40,000 -- -- -- -- -- --
Tax benefit from the exercise
of options........................ -- -- -- -- -- -- --
Amortization of
deferred compensation............. -- -- -- -- -- -- --
Treasury shares retired............. (80,886) 80,886 -- 222 -- -- --
Net income.......................... -- -- -- -- -- -- --
Distributions by Pooled
Companies......................... -- -- -- -- -- -- --
============ ======== ==== ===== ======= ==== =====
Balance, at
June 30, 1999 (Unaudited)........... 28,515,084 -- $ 14 $ -- $ -- $ -- $ --
============ ======== ==== ===== ======= ==== =====
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<TABLE>
<CAPTION>
Additional
Deferred Paid-in
Compensation Capital Deficit
------------ ---------- -------
<S> <C> <C> <C>
Balance, at
February 1, 1996.................... $ -- $ 1,123 $ (3,742)
Issuance of common stock........... -- 1,425 --
Cancellation of warrant............. -- 450 --
Issuance of warrant................. -- -- --
Issuance of stock options........... -- 30 --
Capital contribution................ -- 110 --
Pending repurchase of
common stock...................... -- -- --
Equity issuance of
pooled company.................... -- 1,231 --
Net income.......................... -- -- 1,891
Distributions by Pooled
Companies......................... -- -- (1,272)
------- -------- --------
Balance, at
January 31, 1997.................... -- 4,369 (3,123)
Issuance of common stock............ -- 279 --
Stock repurchase.................... -- (65) --
Conversion of common stock
upon formation of Company
(Note 1).......................... -- (42) --
Issuance of common stock,
net of related expense for:
Initial public offering......... -- 5,727 --
Acquisition of Founding
Companies..................... -- 4,991 --
Payment of debt and
other obligations............. -- 1,522 --
Exercise of warrants............ -- 201 --
1997 Acquisitions............... -- 577 --
Issuance of stock options
and warrants...................... -- 28 --
Purchase of treasury stock.......... -- -- --
Net loss............................ -- -- (7,375)
Distributions by Pooled
Companies......................... -- -- (2,885)
------- -------- --------
Balance, at
December 31, 1997................... -- 17,587 (13,383)
Issuance of common stock, net
of related expense for:
1998 Purchased Companies.......... -- 4,159 --
Private placements................ -- 4,777 --
Exercise of stock
options and warrants............ -- 315 --
Earnout commitments............... -- 2,329 --
Restricted stock award............ (1,140) 1,140 --
Compensatory stock awards........... -- 6,192 --
Common stock issuable in
private placement................. -- -- --
Issuance of stock options
and warrants...................... -- 1,778 --
Accretive dividend.................. -- -- (800)
Purchase of
treasury stock.................... -- -- --
Amortization of deferred
compensation...................... 57 -- --
Net loss............................ -- -- (5,646)
Distributions by Pooled
Companies......................... -- -- (2,273)
------- -------- --------
Balance, at
December 31, 1998................... (1,083) 38,277 (22,102)
Activity for period ended
June 30, 1999 (Unaudited):
Issuance of common stock, net
of related expense for:
Secondary offering.............. -- 86,212 --
Convertible preferred stock..... -- 8,490 --
Convertible notes............... -- 676 --
Private placement............... -- 1,975 --
Exercise of stock options
and warrants.................. -- 239 --
Matching contribution to
401(k) plan................... -- 660 --
Acquisition of assets........... -- 500 --
Tax benefit from the exercise
of options........................ -- 280 --
Amortization of
deferred compensation............. 570 -- --
Treasury shares retired............. -- (222) --
Net income.......................... -- -- 5,285
Distributions by Pooled
Companies......................... -- -- (1,282)
======= ======== ========
Balance, at
June 30, 1999 (Unaudited)........... $ (513) $137,087 $(18,099)
======= ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-5
<PAGE>
InfoCure Corporation
Supplemental Consolidated Statements of Cash Flow
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended Six Months Ended
January 31, December 31, December 31, June 30,
1997 1997 1998 1998 1999
----------- ------------ ------------ -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)................................... $ 1,891 $ (7,375) $ (5,646) $ 2,291 $ 5,285
Adjustments to reconcile net income(loss) to
cash provided by (used in) operating activities:
Extraordinary item early retirement
of debt, net of taxes........................... -- -- -- -- 2,935
Purchase of in-process research
and development................................. -- -- 9,000 -- --
Asset impairment and restructuring costs......... -- 11,136 1,874 1,874 --
Depreciation and amortization.................... 587 1,840 4,959 2,025 4,226
Allowance for doubtful accounts.................. (55) 116 817 107 (29)
Stock-based compensation......................... 30 28 6,326 -- 570
Option cancellation expense...................... 110 -- -- -- --
Deferred income taxes............................ (869) (1,178) (1,633) (104) 4,611
Changes in current assets and liabilities
-net of effects of acquisitions:
Accounts receivable............................ (265) (1,892) (7,567) (1,783) (10,058)
Inventory, prepaid expense and
other current assets.......................... (79) 418 (1,237) (906) (941)
Accounts payable and accrued expense........... 495 (1,880) 2,715 (702) (1,927)
Deferred revenue............................... 445 1,324 (407) (1,019) (2,616)
------- -------- -------- -------- --------
Net cash provided by
operating activities............................... 2,290 2,537 9,201 1,783 2,056
------- -------- -------- -------- --------
Cash used in investing activities:
Net cash paid for acquisition of
Founding Companies............................... (150) (3,745) -- -- --
Net cash paid for acquisitions.................... -- (4,795) (60,161) (18,738) (12,714)
Property and equipment expenditures............... (1,390) (2,408) (2,978) (1,818) (1,396)
Cash paid for other intangible assets............. (237) (76) (3,568) (993) (1,348)
Other............................................. -- 132 319 -- --
------- -------- -------- -------- --------
Net cash used in investing activities.............. (1,777) (10,892) (66,388) (21,549) (15,458)
------- -------- -------- -------- --------
Cash provided by (used in) financing
activities:
Proceeds from issuance of common stock............ 1,320 6,008 6,753 -- 86,216
Proceeds from issuance of
convertible preferred stock...................... -- -- 7,820 7,820 --
Proceeds from exercise of options
and warrants..................................... -- 121 314 -- 239
Distributions paid by pooled companies............ (1,272) (2,885) (2,273) (127) (1,282)
Purchase of treasury stock........................ -- (116) (106) (106) --
Repurchase of common stock warrant................ (50) -- -- -- --
Borrowings under acquisition
credit facility and other long-term debt........ 296 8,983 55,201 15,785 12,000
Payment of loan costs............................. -- (300) (2,519) -- (353)
Principal payments on long-term debt.............. (1,025) (2,262) (722) (1,187) (69,234)
Net proceeds (repayment) of other
notes payable................................... 358 429 (373) 179 (1,755)
------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities............................. (373) 9,978 64,095 22,364 25,831
------- -------- -------- -------- --------
Net change in cash and cash equivalents............ 140 1,623 6,908 2,598 12,429
Cash and cash equivalents,
beginning of period.............................. 617 757 2,380 2,380 9,288
------- -------- -------- -------- --------
Cash and cash equivalents,
end of period.................................... $ 757 $ 2,380 $ 9,288 $ 4,978 $ 21,717
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-6
<PAGE>
InfoCure Corporation
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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 completed an initial
public offering of its common stock, par value $.001 per share, (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 July Offering became effective and is considered the
predecessor company to InfoCure and the accounting acquirer of all the
companies. All outstanding shares of AMC were converted into approximately 6.0
million shares of InfoCure common stock concurrently with the consummation of
the July Offering. The aggregate consideration paid for the Founding Companies
was approximately $3.7 million in cash and 1.8 million 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 July Offering and the acquisition of
the Founding Companies, InfoCure acquired substantially all of the assets or all
of 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 (collectively the "1997 Acquisitions").
Aggregate consideration for the 1997 Acquisitions was approximately 154,000
shares of common stock and $11.7 million cash and debt, for an aggregate value
of $12.4 million.
In the year ended December 31, 1998, InfoCure acquired substantially all of
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 (the "1998
Purchased Companies")was approximately 746,000 shares of common stock and $73.0
million cash and debt for an aggregate value of $77.1 million.
The acquisitions of the Founding Companies, the 1997 Acquisitions and the
1998 Purchased Companies have been accounted for using the purchase method of
accounting.
In December 1998, InfoCure completed a merger with Radiology Management
Systems, Inc. ("RADMAN") in a transaction involving exchange of all of RADMAN's
outstanding equity interests for approximately 994,000 shares of InfoCure common
stock which was accounted for as a pooling of interests (the "RADMAN Merger").
In June 1999, InfoCure acquired the assets of Strategicare,Inc and its wholly-
owned subsidiary, DISC Computer Systems, Inc. ("DISC") in exchange for cash of
approximately $11.7 million in a transaction accounted for using the purchase
method of accounting. Additionally, in 1999, InfoCure completed the acquisitions
as set forth in the table below (the "1999 Pooled Companies"). Each of these
acquisitions provided for the exchange of all of the outstanding equity
interests of each entity for shares of InfoCure's common stock and all have been
accounted for as poolings of interests (the "1999 Mergers"), including three
such acquisitions which occurred in August 1999 (the "August Mergers").
F-7
<PAGE>
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
<TABLE>
<CAPTION>
Medical
Entity Date of Merger Specialty Location
------ -------------- --------- --------
<S> <C> <C> <C>
Macon Systems Management, LLC, the
parent of Medical Software
Management, Inc. ("MSM")............ February 12, 1999 Dermatology Macon, Georgia
OMSystems, Inc. ("OMS").............. February 18, 1999 Orthodontics Norcross, Georgia
Ardsley, M.I.S., Inc. ("Orthoware").. August 17, 1999 Orthodontics Philadelphia,
Pennsylvania
Medfax Corporation ("Medfax")........ August 30, 1999 Radiology Charlotte, North
Carolina
Scientific Data Management, General
Inc.("SDM")........................ August 31, 1999 Medical Detroit, Michigan
</TABLE>
The consolidated financial statements of the company previously reflected
the retroactive effect of the RADMAN Merger. The supplemental consolidated
financial statements of the company, included herein, have been prepared to give
retroactive effect to the 1999 Mergers, inclusive of the August Mergers. As a
result, the financial position, results of operations and cash flows are
presented as if the combining companies had been consolidated for all periods
presented and the consolidated statements of stockholders' equity reflect the
accounts of InfoCure as if the additional common stock issued in connection with
the 1999 Mergers had been issued for all periods presented. As required by
generally accepted accounting principles, these supplemental consolidated
financial statements will become the historical financial statements of the
company upon issuance of the financial statements for the period that includes
the 1999 Mergers. Additionally, all share and per share amounts have been
adjusted retroactively for the effect of a 2-for-1 stock split effective August
19, 1999.
The supplemental consolidated financial statements include the accounts of
InfoCure and all of its wholly-owned subsidiaries (collectively the "Company").
All significant intercompany balances and transactions have been eliminated in
consolidation. The Company changed its fiscal reporting period to December 31
effective February 1, 1997. The accompanying supplemental consolidated financial
statements include AMC (InfoCure's predecessor) and its subsidiaries, the 1999
Pooled Companies, RADMAN, ICS and HCD for the period from February 1, 1997; the
Founding Companies for the period from July 11, 1997, and the 1997 Acquisitions
from their respective dates of acquisition.
For the year ended January 31, 1997, the accompanying supplemental
consolidated financial statements present the consolidated financial position,
results of operation and cash flows of AMC and its wholly-owned subsidiaries,
the 1999 Pooled Companies, RADMAN, ICS and, with effect from December 3, 1996,
HCD, which was acquired as of that date.
2. Summary of Significant Accounting Policies
Management 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.
F-8
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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 in 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 $349, $960 and $1,097 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, $143 and $280 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.
Property and Equipment
Property and equipment are stated at the lower of the fair value or 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).
F-9
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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 lives 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.
Long-lived Assets
Long-lived assets, such as goodwill, and property and equipment are
periodically evaluated for impairment when events or changes circumstances
indicate that the carrying amount of the assets may not be recoverable through
the estimated undiscounted future cash flows resulting from the use of the
assets. When any such impairment exists, the related assets will be written down
to fair value. A write-down of assets due to impairment was required for the
eleven months ended December 31, 1997, in the amount of $7.8 million (Note 5).
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 Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which is effective for fiscal
years ending after December 15, 1997. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share reflect, in periods in which they have a dilutive
effect, the effect of common shares issuable upon exercise of stock options,
warrants and similar convertible dilutive instruments. As required by SFAS No.
128, all periods presented have been restated to reflect shares issuable for the
1999 Mergers and the effect of the 2-for-1 stock split effective August 19,
1999.
Earnings per share for the year ended January 31, 1997 has not been
presented as it is not considered meaningful due to the acquisition 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.
F-10
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
Weighted average number of shares outstanding used in computing basic EPS
for the eleven months ended December 31, 1997, was 13,400,964. Weighted average
number of shares outstanding used in computing basic EPS for the year ended
December 31, 1998, was 17,200,928. 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 and basic EPS for these
periods are the same. The impact of the assumed exercise of these instruments
may have a dilutive effect in the future.
Weighted average number of shares outstanding used in computing basic EPS
for the six months ended June 30, 1999 and 1998 were 21,902,156 and 16,630,626,
respectively. Diluted EPS for those interim periods was based on 27,707,152 and
21,127,148 shares for June 30, 1999 and 1998, respectively, giving effect to the
assumed exercise of options, warrants and convertible preferred stock.
Interim Financial Statements
In the opinion of management, the accompanying interim financial statements
contain all adjustments (consisting of normal recurring accruals) necessary to
present fairly the Company's financial position at June 30, 1999 and its results
of operations and its cash flows for the six months ended June 30, 1998 and
1999. The results of operations and cash flows for the interim periods are not
necessarily indicative of the results to be expected for the full year.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement 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.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Adoption of this statement did not have a significant impact on the Company'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 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. 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, 2001, to
affect its financial statements.
3. Business Combinations
Acquisitions Accounted for Using the Purchase Method of Accounting
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 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. Also, as described in Note
1, the Company subsequently completed the 1997 Acquisitions and the 1998
Purchased Companies and, in June 1999, completed the acquisition of
Strategicare, Inc. and its wholly-owned subsidiary DISC Computer Systems, Inc.
F-11
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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 Six Months
January Ended December Ended
31, December 31, 31, June 30,
1997 1997 1998 1999
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Accounts receivable..................................... $ 154 $ 3,218 $10,642 $ 1,949
Inventory............................................... -- -- 1,426 127
Prepaid expenses........................................ -- -- 347 73
Property and equipment.................................. 60 1,217 4,832 799
Goodwill................................................ 1,928 21,644 56,149 11,194
Capitalized software.................................... -- 1,718 420 73
Other assets............................................ 7 1,321 707 118
Deferred revenue........................................ (432) (2,690) (4,942) (297)
Accounts payable and accrued expenses................... (14) (933) (693) (2,175)
Notes payable........................................... -- (1,650) -- (6)
Other liabilities....................................... (3) (2,744) (742) (102)
------- ------- ------- -------
Net assets acquired..................................... 1,700 21,101 68,146 11,753
Purchased research and development...................... -- -- 9,000 --
------- ------- ------- -------
Total acquisition....................................... $ 1,700 $21,101 $77,146 $11,753
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
These acquisitions were funded as follows:
Year Ended Eleven Months Year Ended Six Months
January Ended December Ended
31, December 31, 31, June 30,
1997 1997 1998 1999
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock............................................ $ -- $ 5,568 $ 4,159 $ --
Notes payable and other payables........................ 1,550 6,991 12,826 11,753
Cash.................................................... 150 8,542 60,161 --
------ ------- ------- -------
Total acquisition....................................... $1,700 $21,101 $77,146 $11,753
====== ======= ======= =======
</TABLE>
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 $2.6 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 of purchase
consideration which is included in its restructuring costs for the year ended
December 31, 1998.
F-12
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
Maximum contingent consideration payable with respect to the purchase
acquisitions completed in 1998 aggregated $12.4 million. In 1998 contingent
consideration of approximately $1.1 million was earned and was 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.
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 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 Six Months Ended
Year Ended Ended Year Ended June June
January 31, December 31, December 31, 30, 30,
Pro Forma Amounts 1997 1997 1998 1998 1999
----------------- ----------- ----------- ------------ ---- ----
<S> <C> <C> <C> <C> <C>
Revenue...................................... $69,126 $116,781 $142,995 $63,852 $87,301
Net income (loss) available to
common stockholders........................ 3,104 (16,818) (6,740) 1,924 5,304
Net income (loss) available to common
stockholders per share:
Basic.................................... $ (1.26) $ (0.39) $ 0.12 $ 0.24
Diluted.................................. (1.26) (0.39) 0.09 0.19
</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 5. Pro forma earnings per share for
the year ended January 31, 1997 are not considered meaningful and have not been
presented.
Acquisitions Accounted for Using the Pooling of Interests Method of Accounting
Also as described in Note 1, the Company merged with RADMAN in December
1998 in an acquisition accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements have previously been restated to
include the financial position, results of operations and cash flows of RADMAN
for all periods.
During 1999, the Company completed the following acquisitions which
provided for exchange of all of the outstanding equity interest of each entity
for shares of InfoCure common stock and are accounted for as poolings of
interests (See Note 1):
<TABLE>
<CAPTION>
Entity Date of Merger Medical Specialty
<S> <C> <C>
MSM................................................... February 12, 1999 Orthodontics
OMS................................................... February 18, 1999 Dermatology
Orthoware............................................. August 17, 1999 Orthodontics
Medfax................................................ August 30, 1999 Radiology
SDM................................................... August 31, 1999 General Medical
</TABLE>
F-13
<PAGE>
InfoCure Corporation
Notes to Supplemental Consolidated Financial Statements - (Continued)
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
Revenue, net income (loss) available to common shareholders and net income
(loss) per share of the combining companies for the year ended January 31, 1997,
the eleven months ended December 31, 1997 and the year ended December 31, 1998
and the applicable interim periods are as follows:
<TABLE>
<CAPTION>
Year Ended Eleven Months Year Ended Six Months Ended
January Ended December ------------------
31, December 31, 31, June 30, June 30,
1997 1997 1998 1998 1999
------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue
InfoCure, as previously reported(1) $ 6,351 $18,274 $63,724 $33,177 $74,093
OMS 9,652 12,325 14,993 -- --
MSM 1,908 4,096 3,120 -- --
Orthoware 1,170 1,301 1,800 773 1,028
Medfax 3,920 5,451 5,517 3,230 3,492
SDM 3,888 4,552 4,626 2,285 2,812
------- ------- ------- ------- -------
InfoCure, as restated $26,889 $45,999 $93,780 $39,465 $81,425
======= ======= ======= ======= =======
Net income (loss) available
to common stockholders
InfoCure, as previously reported(1) $ 286 $(8,731) $(2,661) $ 908 $ 4,912
OMS 1,342 1,703 (3,296) -- --
MSM 97 49 266 -- --
Orthoware (11) (2) (73) 16 (39)
Medfax 202 (560) (729) 206 (193)
SDM (25) 166 47 361 605
------- ------- ------- ------- -------
InfoCure, as restated $ 1,891 $(7,375) $(6,446) $ 1,491 $ 5,285
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Net income (loss) available to
common stockholders per common share:
<S> <C> <C> <C> <C>
As previously reported(1)
Basic $ (0.90) $ (0.20) $ 0.06 $ 0.22
Diluted (0.90) (0.20) 0.05 0.18
As restated
Basic (0.55) (0.37) 0.09 0.24
Diluted (0.55) (0.37) 0.07 0.19
</TABLE>
- ---------------
(1) Financial data for the year ended January 31, 1997, the eleven months ended
December 31, 1997 and the year ended December 31, 1998 was previously
reported in a Registration Statement on Form S-3 dated April 21, 1999.
Financial data for the six months ended June 30, 1998 and 1999 was
previously reported in a Quarterly Report on Form 10-Q dated August 16,
1999.
4. 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 cash flow 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 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.
F-14
<PAGE>
InfoCure Corporation
Notes to Supplemental Consolidated Financial Statements - (Continued)
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
5. 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 leverage effectively 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 was 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 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 are as follows:
Eleven Months
Ended Year Ended
December 31, December 31,
Cost related to 1997 1998
--------------- ------------- ------------
Write-off of goodwill.............................. $ 6,360 $ --
Write-off of capitalized software development
costs............................................. 1,461 --
Facility closure and consolidation................. 461 --
Compensation costs for severance and other
termination benefits.............................. -- 1,124
"Earn-out" compensation for contingent
consideration earned or deemed payable to former
stockholders of entities affected by the
consolidation and restructuring................... 2,558 750
Other asset write-downs and costs.................. 296 --
------- ------
Total asset impairment and restructuring costs..... $11,136 $1,874
======= ======
As of December 31, 1998, approximately 50 employee terminations were
related to restructuring actions. Accrued restructuring at December 31, 1998
totaled approximately $283, which is considered adequate to cover the facilities
related costs which remain as a result of the 1997 restructuring plan.
F-15
<PAGE>
InfoCure Corporation
Notes to Supplemental Consolidated Financial Statements - (Continued)
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
6. Property and Equipment
Major classes of property and equipment consisted of the following:
Estimated
Useful
Lives December 31, December 31,
(Years) 1997 1998
--------- ------------ ------------
Buildings................................. 40 $2,671 $ 2,671
Office and computer equipment............. 3-5 4,199 9,251
Furniture and fixtures.................... 5-7 1,295 2,494
Equipment under capital lease
obligations............................. 3-5 162 1,234
Leasehold improvements.................... 3-5 77 333
Other..................................... 3-5 457 480
------ -------
8,861 16,463
Less accumulated depreciation............. 4,428 5,668
------ -------
$4,433 $10,795
====== =======
Depreciation expense was approximately $429, $979 and $1,281 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 5, the Company disposed of property and equipment, primarily
office and computer equipment, with a net book value of approximately $155.
7. Other Intangible Assets
Other intangible assets consisted of the following:
December 31, December 31,
1997 1998
------------ -----------
Loan costs................................ $ 300 $4,656
Capitalized software development costs.... 860 2,602
Capitalized costs of future acquisitions.. 612 402
Other..................................... 218 500
------ ------
1,990 8,160
Less accumulated amortization............. 646 769
------ ------
$1,344 $7,391
====== ======
As described in Note 5, 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 $101, $331 and
$112 for the year ended January 31, 1997, the eleven months ended December 31,
1997, and the year ended December 31, 1998, respectively. As discussed in Note 9
the balance of unamortized loan costs were written off in conjunction with the
April 1999 prepayment of the Company's acquisition credit facility.
F-16
<PAGE>
InfoCure Corporation
Notes to Supplemental Consolidated Financial Statements - (Continued)
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
8. Accrued Expense
Accrued expense consisted of the following:
December 31, December 31,
1997 1998
------------ -----------
Interest................................. $ 99 $1,691
Compensation............................. 971 1,844
Additional purchase price consideration.. -- 1,100
Taxes, other than income................. 378 819
Professional fees........................ 169 147
Other.................................... 599 2,065
------ ------
$2,216 $7,666
====== ======
9. Notes Payable and Long-Term Debt
As of December 31, 1998, the Company had a $2 million short-term note
payable with interest at 12% given in connection with an acquisition. This note
was paid in 1999.
Long-term debt consisted of the following:
December 31, December 31,
1997 1998
------------ -----------
Notes payable, FINOVA Capital
Corporation ("FINOVA") (1).............. $ 7,188 $68,351
Subordinated notes payable, remainder
of purchase price for acquisitions (2).. 1,207 10,604
Subordinated notes payable to
stockholders; interest varies between
7% and 10%; maturing at various dates
through 2001............................ 618 180
Other..................................... 3,316 4,968
------- -------
12,329 84,103
Less current portion...................... 2,729 13,370
------- -------
$ 9,600 $70,733
======= =======
(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 was collateralized by substantially all of the Company's assets
and the accounts receivable, cash flows and assets of any companies
acquired in the future. This facility had a five-year term and accrued
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
F-17
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
and fixed at 9.5% on the $40 million and $10 million loans. Principal was
due on all the loans in quarterly installments, beginning at $2.8 million
and increasing ratably to $6.8 million, before the final installment of
$13.8 million 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 490,000
shares of common stock. The estimated value of these warrants, $1.5
million, was included as loan costs in other intangible assets and
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. In April 1999, all of this debt was
repaid. In connection with this early retirement of debt the Company
recognized an extraordinary item for the unamortized portion of the loan
costs and prepayment costs which aggregated approximately $4.9 million and,
net of estimated tax effect, approximately $2.9 million. See Note 15,
Subsequent Events.
(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 8 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 $604 note bears interest at
six percent per annum and is due October 1, 2000. In April 1999, this note
was converted into approximately 200,000 shares of common stock in
accordance with its original terms.
As of December 31, 1998, future maturities of these obligations are as
follows:
Year Amount
---- -----------
1999......................................................... $13,370
2000......................................................... 14,457
2001......................................................... 13,832
2002......................................................... 39,449
2003......................................................... 2,315
Thereafter................................................... 680
-------
Total...................................................... $84,103
=======
As noted above, the balance outstanding under the FINOVA credit facility
was paid in 1999. See Note 15, Subsequent Events.
10. 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.
11. Commitments
Operating Leases
The Company leases its office facilities and certain equipment under
operating leases having terms ranging from one to seven years. 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:
F-18
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
Year Amount
---- ----------
1999.......................................................... $ 3,289
2000.......................................................... 2,819
2001.......................................................... 2,416
2002.......................................................... 2,111
2003.......................................................... 824
Thereafter.................................................... 203
-------
Total....................................................... $11,662
=======
Rent expense was approximately $383, $754 and $1,698 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 1997 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 $38, $76 and $512, respectively. The
contribution for the year ended December 31, 1998 was in common stock.
12. 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 104 million
outstanding shares of AMC common stock were converted into approximately 6.0
million shares of InfoCure common stock. The Company had 200.0 million shares of
$.001 par value common stock and 2.0 million shares of $.001 par value preferred
stock authorized at December 31, 1998. Shares of common stock issued and
outstanding were 16,113,938 and 18,803,464, 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 and closed in January 1999. A total of 702,644 shares were issued in the
first two installments and 160,000 shares were issued in the third installment.
The Company also granted the Investor warrants to acquire 200,000 shares of
common stock (see below).
F-19
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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. In conjunction with the Company's April 1999
stock offering, the Preferred Stock was automatically converted into shares of
common stock in accordance with its original terms.
The Preferred Stock was immediately convertible at the date of original
issuance. In connection with this immediate conversion feature the Company
recognized $800 as an accretive dividend attributable to the Preferred Stock
issuance including commissions and the estimated value of warrants granted to
the placement agent.
Stock Compensation Plans
The Company has stock option plans that provide for the granting of
incentive and nonqualified 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 6.0 million 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
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, 1.0 million 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, 200,000 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 20,000 shares and may receive an additional option grant of 5,000 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 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 300,000 shares of common stock reserved for issuance under this plan.
SFAS No. 123, "Accounting for Stock-Based Compensation," 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.
F-20
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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 average assumptions for the year ended
January 31, 1997, the eleven months ended December 31, 1997 and the year ended
December 31, 1998.
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
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:
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
Net income (loss) available to
common stockholders
As reported.......................... $1,891 $(7,375) $(6,446)
Pro forma............................ 1,651 (7,479) (7,788)
Basic and diluted income (loss)
per share
As reported.......................... $ (0.55) $ (0.37)
Pro forma............................ (0.56) (0.45)
F-21
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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:
Weighted-
Average
exercise
Options price
---------- ---------
Outstanding at February 1, 1996.............. 847,478 $3.60
Granted..................................... 277,420 2.03
Exercised................................... (59,660) 0.01
Forfeited or canceled....................... (357,960) 8.38
---------
Outstanding at January 31, 1997.............. 707,278 0.87
Granted..................................... 1,970,942 2.12
Exercised................................... -- --
Forfeited or canceled....................... (5,966) 0.84
---------
Outstanding at December 31, 1997............. 2,672,254 1.79
Granted..................................... 3,452,608 6.21
Exercised................................... (101,774) 0.61
Forfeited or canceled....................... (503,658) 4.13
---------
Outstanding at December 31, 1998............. 5,519,430 4.49
=========
Options exercisable at January 31, 1997...... 443,282 0.14
Options exercisable at December 31, 1997..... 506,670 0.39
Options exercisable at December 31, 1998..... 1,150,320 1.33
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 $0.06, $0.67 and $3.33, respectively.
The following table summarizes information about the Company's outstanding
stock options at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
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
------------ -------------- ------------ --------- -------------- ---------
$ 0.0001 427,856 3.2 $ 0.00 427,856 $0.00
0.84- 2.07 1,417,392 2.6 2.01 532,422 1.91
2.10- 4.91 909,484 2.7 3.78 190,042 2.66
5.00- 6.75 2,641,098 3.8 6.45 -- --
6.82-13.22 123,600 3.6 7.89 -- --
------------ --------- --- ------ --------- -----
$ 0.00-13.22 5,519,430 3.2 $ 4.40 1,150,320 $1.34
============ ========= === ====== ========= =====
</TABLE>
F-22
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
Restricted Stock Award
In 1998, the Board approved a restricted stock award aggregating 19,000
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 $12.50 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 $20 per share over a 20-
day period. Based on these criteria, approximately $500 vested in the first
quarter of 1999 and the remaining portion will vest during the third quarter
1999.
Warrants
In 1997, the Company issued to an investment advisory firm a warrant to
acquire 220,000 shares of common stock at $2.75 per share. This warrant was in
lieu of approximately $330 payable to the investment advisory firm principally
for services in connection with the Company's acquisition program. An executive
officer and director is a principal with this investment advisory firm.
In connection with the acquisition of PACE, the Company issued to the
former owners of PACE warrants to acquire 372,000 shares of common stock at an
exercise price of $4.57 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 200,000 shares of common stock at an exercise price of $4.50 per share.
The $219 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 200,000 shares of common stock at $11.50
per share. This warrant has a five-year term and is immediately exercisable.
In connection with the October 1998 loan which increased the Company's
credit facility, the lender was granted the right to acquire up to 490,000
shares of common stock at $6 per share. At December 31, 1998, an immediately
exercisable warrant for 450,000 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.
Through June 30, 1999, approximately 280,000 shares have been issued in
connection with the exercise of the foregoing warrants.
F-23
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
13. Income Taxes
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
January 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
<S> <C> <C> <C>
Current:
Federal................................... $ 186 $ 39 $ 1,081
State..................................... 26 7 235
----- ------- -------
Total current expense....................... 212 46 1,316
----- ------- -------
Deferred:
Federal................................... (168) (1,215) (1,104)
State..................................... (30) (248) (244)
----- ------- -------
Total deferred benefit...................... (198) (1,463) (1,348)
----- ------- -------
Change in deferred tax asset
valuation allowance........................ (671) 285 (285)
----- ------- -------
Net income tax benefit...................... $(657) $(1,132) $ (317)
===== ======= =======
</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:
December 31, December 31,
1997 1998
------------- -----------
Current:
Deferred tax assets:
Allowance for doubtful accounts.............. $ 20 $ 247
Deferred revenue and customer deposits....... 617 235
Accrued restructuring costs.................. 309 72
Accrued expense.............................. 154 76
Credit carryforward.......................... 60 --
Other........................................ 85 45
------ ------
Total current deferred tax assets.............. 1,245 675
------ ------
Noncurrent:
Deferred tax assets
Basis difference of goodwill, capitalized
software costs, property and equipment and
other assets................................ 1,542 4,707
Net operating loss carry forwards............ 648 259
------ ------
Total noncurrent deferred tax assets........... 2,190 4,966
------ ------
Subtotal....................................... 3,435 5,641
Valuation allowance............................ (285) --
------ ------
$3,150 $5,641
====== ======
F-24
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
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 31, December 31, December 31,
1997 1997 1998
----------- ------------- ------------
<S> <C> <C> <C>
Expected tax expense (benefit)................ $ 420 $(2,892) $(2,027)
Increase (decrease) in income taxes
resulting from:
State income taxes.......................... 74 (510) (358)
Nondeductible goodwill...................... (14) 2,306 724
Other, net earnings of...................... -- 106 127
Effect of earnings of pooled
companies which were
pass-through entities...................... (466) (427) 1,502
Change in deferred tax asset
valuation allowance........................ (671) 285 (285)
----- ------- -------
Net income tax benefit........................ $(657) $(1,132) $ (317)
===== ======= =======
</TABLE>
As discussed in Notes 1 and 3, the Company completed acquisitions of five
companies accounted for as pooling of interests. Three of these five companies
were pass-through entities in which the then-owners agreed to report their share
of income or loss in their respective individual income tax returns. Upon their
acquisition by the Company, the pass-through tax status terminated.
As of December 31, 1998, the Company and its subsidiaries have net
operating loss carryforwards for federal income tax purposes of approximately
$761 which expire at various dates to 2013.
14. Supplemental Cash Flow Information
Cash payments for interest amounted to approximately $213, $447 and $2,158
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 $210, $197 and $1,217 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 and cash of $150. 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
1997 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 $12.8 million 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
and $1.7 million, respectively, for services rendered to the Company.
F-25
<PAGE>
Notes to Supplemental Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
(Financial information as of June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
15. Subsequent Events
In August 1999, InfoCure entered into a new credit facility with FINOVA in
the amount of $100 million that has a five-year term. The credit facility
provides for an $8.7 million term loan and a $91.3 million revolving loan that
converts to a term loan in October 2001. The credit facility bears interest at
rates ranging from base (prime) rate plus 0.50% to 1.25%, or LIBOR plus 2.00% to
2.75%, depending on the Company achieving certain debt service ratios, and is
collateralized by substantially all of the Company's assets.
In September 1999, the Company and Datamedic Holding Corp. ("Datamedic")
announced that they have entered into an agreement whereby the Company will
acquire all the outstanding equity interests of Datamedic in exchange for
approximately 1.2 million shares of InfoCure common stock. The transaction is
expected to close in the fourth quarter of 1999 and be accounted for as a
pooling of interests.
F-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 24, 1999 INFOCURE CORPORATION
By: /s/ James A. Cochran
-----------------------------
James A. Cochran
Senior Vice President-Finance
and Chief Financial Officer
