<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 001-12799
INFOCURE CORPORATION
(Exact name of registrant as specified in Its charter)
DELAWARE 58-2271614
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1765 THE EXCHANGE
SUITE 450
ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 221-9990
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of outstanding shares of the issuer's class of capital stock as of
July 31, 1999, the latest practicable date, is as follows: 13,712,895 shares of
Common Stock, $.001 par value.
================================================================================
<PAGE>
INFOCURE CORPORATION
FORM 10-Q
FOR THE
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements Number
------
<S> <C>
Consolidated Balance Sheets (unaudited)............................... 1
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations (unaudited)..................... 2
Three months ended June 30, 1999 and June 30, 1998
Six months ended June 30, 1999 and June 30, 1998
Consolidated Statements of Cash Flows (unaudited)..................... 3
Six months ended June 30, 1999 and June 30, 1998
Notes to Consolidated Financial Statements............................ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 11
Item 2. Changes in Securities................................................. 11
Item 3. Defaults Upon Senior Securities....................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................... 11
Item 5. Other Information..................................................... 11
Item 6. Exhibits and Reports on Form 8-K...................................... 12
Signatures............................................................ 13
</TABLE>
-i-
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 21,431,071 $ 9,093,825
Accounts and notes receivable, net of allowances of $489,000
and $668,000.............................................................. 35,713,129 25,037,540
Inventory................................................................... 3,588,142 3,151,447
Deferred tax asset.......................................................... 254,021 675,000
Prepaid expense and other current assets.................................... 1,239,452 1,380,667
------------ ------------
Total current assets...................................................... 62,225,815 39,338,479
Property and equipment, net of depreciation of $4,708,081 and $3,589,707.... 11,810,722 9,994,497
Goodwill, net of amortization of $6,099,092 and $3,467,294.................. 82,988,217 72,203,000
Other intangible assets, net of amortization of $924,840 and $832,304....... 3,339,414 6,450,348
Deferred tax asset.......................................................... 2,755,415 5,024,936
Other assets................................................................ 796,936 852,100
------------ ------------
Total assets.............................................................. $163,916,519 $133,863,360
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 2,039,752 $ 3,813,660
Accrued expense............................................................. 8,531,574 7,554,434
Deferred revenue and customer deposits...................................... 8,707,129 10,883,586
Current portion of long-term debt........................................... 2,179,780 15,031,433
------------ ------------
Total current liabilities................................................. 21,458,235 37,283,113
Long-term debt, less current portion........................................ 24,362,317 70,732,972
------------ ------------
Total liabilities......................................................... 45,820,552 108,016,085
------------ ------------
Convertible redeemable preferred stock...................................... - 8,500,600
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized; 13,664,746
outstanding at June 30, 1999 and 15,000,000 shares authorized; 8,848,400
outstanding at December 31, 1998.......................................... 13,665 8,848
Common stock issuable....................................................... - 1,975,000
Additional paid-in capital.................................................. 134,908,360 37,559,288
Accumulated deficit......................................................... (16,313,058) (20,891,856)
Deferred compensation....................................................... (513,000) (1,083,000)
Treasury stock, at cost..................................................... - (221,605)
------------ ------------
Total stockholders' equity................................................ 118,095,967 17,346,675
------------ ------------
Total liabilities and stockholders' equity.................................. $163,916,519 $133,863,360
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
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INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Systems and software........................... $19,110,245 $11,296,149 $36,341,944 $20,368,640
Maintenance, support and services.............. 19,943,675 6,805,346 37,751,205 12,808,521
----------- ----------- ----------- -----------
Total revenue.................................... 39,053,920 18,101,495 74,093,149 33,177,161
----------- ----------- ----------- -----------
Operating expense:
Hardware and other items purchased for resale.. 10,067,476 4,541,948 17,792,019 7,579,841
Selling, general and administrative............ 19,126,980 9,247,646 37,269,586 18,429,218
Depreciation and amortization.................. 2,176,116 998,267 4,062,032 1,956,667
Nonrecurring charges........................... - 750,000 - 1,874,032
----------- ----------- ----------- -----------
Total operating expense.......................... 31,370,572 15,537,861 59,123,637 29,839,758
----------- ----------- ----------- -----------
Operating income................................. 7,683,348 2,563,634 14,969,512 3,337,403
Interest and other expense, net.................. 530,464 723,114 2,355,656 1,109,080
----------- ----------- ----------- -----------
Income before income taxes....................... 7,152,884 1,840,520 12,613,856 2,228,323
Provision for income taxes....................... 2,860,815 428,700 5,099,490 520,183
----------- ----------- ----------- -----------
Net income before extraordinary item............. 4,292,069 1,411,820 7,514,366 1,708,140
Extraordinary item - early retirement of debt.... 2,935,568 - 2,935,568 -
----------- ----------- ----------- -----------
Net income....................................... 1,356,501 1,411,820 4,578,798 1,708,140
Accretive dividend............................... - - - 800,000
----------- ----------- ----------- -----------
Net income available to common stockholders...... $ 1,356,501 $ 1,411,820 $ 4,578,798 $ 908,140
=========== =========== =========== ===========
Earnings per share:
Basic............................................ $.11 $.18 $.44 $.12
=========== =========== =========== ===========
Diluted.......................................... $.09 $.14 $.35 $.09
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic............................................ 12,454,745 7,818,349 10,358,282 7,722,517
=========== =========== =========== ===========
Diluted.......................................... 14,779,035 10,100,927 13,260,780 9,970,778
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 1999 June 30, 1998
-------------- --------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income......................................................... $ 4,578,798 $ 1,708,140
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Extraordinary item - early retirement of debt................. 2,935,568 -
Depreciation and amortization................................. 4,062,032 1,956,667
Stock-based compensation...................................... 570,000 -
Deferred income tax........................................... 4,663,545 (111,855)
Changes in current assets and liabilities:
Accounts receivable....................................... (9,543,748) (1,095,223)
Inventory, prepaid expense and other current assets....... (765,300) (657,472)
Accounts payable and accrued expense...................... (3,762,292) 417,678
Deferred revenue.......................................... (2,449,282) (815,902)
------------ ------------
Net cash provided by operating activities............................ 289,321 1,402,033
------------ ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Property and equipment expenditures............................. (852,198) (1,654,150)
Net cash paid for acquisitions and other intangibles............ (12,713,870) (18,737,624)
Capitalized software development................................ (1,346,329) (791,149)
------------ ------------
Net cash used in investing activities................................ (14,912,397) (21,182,923)
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of common stock...................... 86,215,607 -
Proceeds from issuance of convertible preferred stock........... - 7,819,952
Proceeds from exercise of options and warrants.................. 239,197 -
Purchase of treasury stock...................................... - (105,701)
Borrowings on long-term debt.................................... 12,000,000 15,595,036
Payments on short-term note payable............................. (2,000,000) -
Payments on long-term debt...................................... (69,141,482) (848,537)
Payment of loan costs........................................... (353,000) -
------------ ------------
Net cash provided by financing activities............................ 26,960,322 22,460,750
------------ ------------
Net increase in cash and cash equivalents............................ 12,337,246 2,679,860
Cash and cash equivalents, beginning of period....................... 9,093,825 2,131,714
------------ ------------
Cash and cash equivalents, end of period............................. $ 21,431,071 $ 4,811,574
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest........................................................ $ 4,230,218 $ 928,654
Income taxes.................................................... $ 430,860 $ 204,636
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
The information presented at June 30, 1999 and 1998, and for the periods
then ended is unaudited, but includes all adjustments, consisting only of normal
recurring adjustments, which the management of InfoCure Corporation ("InfoCure,"
and together with InfoCure's subsidiaries, the "Company") believes to be
necessary for a fair presentation of the financial condition, results of
operations and cash flows for the periods presented. Historical results may not
be indicative of the results to be expected in the future. Certain information
in footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). The consolidated financial statements,
notes thereto and other information should be read in conjunction with the
historical and pro forma consolidated financial statements and related notes
thereto contained in the Company's Form 10-KSB filed with the Commission on
February 26, 1999.
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 and simultaneously acquired six companies. The aggregate
consideration paid for the founding companies was approximately $3.7 million in
cash and 907,000 shares of common stock for an aggregate value of $8.7 million,
including fees and other acquisition related costs.
Subsequent to the consummation of the initial public offering and the
acquisition of the founding companies, InfoCure acquired substantially all the
assets or all the outstanding equity securities of the following companies:
Professional On-Line Computer, Inc., marketed under the name POLCI; Commercial
Computers, Inc.; SoftEasy Software, Inc; PACE Financial Corporation; and the
orthodontic business unit of HALIS Services, Inc., known as OPMS. POLCI,
Commercial Computers and SoftEasy were acquired with effect from October 1,
1997; PACE was acquired with effect from November 1, 1997; and OPMS was acquired
with effect from December 1, 1997. Aggregate consideration for these
acquisitions completed in the eleven months ended December 31, 1997 was
approximately 77,000 shares of common stock and $11.7 million cash and debt, for
an aggregate value of $12.4 million.
In the year ended December 31, 1998, InfoCure acquired substantially all
the assets, subject to the assumption of certain liabilities, of Micro-Software
Designs, Inc. and the healthcare systems division of The Reynolds and Reynolds
Company, (HSD) and acquired the outstanding equity securities of Medical
Software Integrators, Inc, marketed under the name MSI. These acquisitions were
effective from January 1, 1998 with respect to Micro-Software Designs and MSI
and October 23, 1998 for HSD. Aggregate consideration for these acquisitions
completed in 1998 was approximately 373,000 shares of common stock and $73.0
million cash and debt for an aggregate value of $77.1 million. Additionally, in
December 1998, InfoCure completed a merger with Radiology Management Systems,
Inc., marketed under the name RADMAN. The Company exchanged approximately
497,000 shares of InfoCure common stock in the transaction, which was accounted
for as a pooling of interests.
In two separate transactions in February 1999, the Company merged with
OMSystems, Inc. and Macon System Management, LLC, marketed under the name MSM,
in business combinations accounted for as poolings of interests. The Company
exchanged approximately 1,144,000 shares of common stock in the OMSystems
transaction and 83,000 shares of common stock in the MSM transaction. OMSystems
and MSM provide practice management software for orthodontists and
dermatologists, respectively. The accompanying consolidated financial statements
have been restated to include the financial position, results of operations and
cash flows of RADMAN, OMSystems and MSM for all periods presented.
In April and May, 1999, InfoCure completed a secondary public offering of
3.5 million shares of its common stock, resulting in net proceeds to the Company
of $91.2 million.
In the quarter ended June 30, 1999, InfoCure acquired 100% of the
outstanding common stock of Strategicare, Inc., which in turn, owned 100% of the
common stock of DISC Computer Systems, Inc. in a business combination accounted
for as a purchase. DISC Computer Systems was acquired with effect from June 1,
1999, and delivers its practice management software products and services to
physicians in the Midwest. Aggregate consideration paid was approximately $11.7
million cash.
4
<PAGE>
The accompanying financial statements have been presented on a consolidated
basis for the six months ended June 30, 1999 and 1998 including InfoCure and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
NOTE 2. BUSINESS COMBINATIONS
As described in Note 1, the Company acquired HSD on October 23, 1998 and
DISC Computer Systems as of June 1, 1999. The following unaudited pro forma
information presents the consolidated results of operations of the Company as if
the HSD and DISC Computer Systems acquisitions had occurred as of January 1,
1998. 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>
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
Pro Forma Amounts June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
- ----------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $40,730,388 $30,224,697 $79,969,532 $57,549,797
Net income available to common stockholders 1,705,000 2,134,722 5,386,048 2,255,629
Earnings per share-basic .14 .27 .52 .29
Earnings per share-diluted .12 .21 .41 .23
</TABLE>
NOTE 3. STOCKHOLDERS' EQUITY
Common Stock
The weighted average number of shares outstanding used in computing basic
EPS for the three months ended June 30, 1999 and 1998 were 12,454,745 and
7,818,349, respectively. The weighted average number of shares outstanding used
in computing diluted EPS for the three months ended June 30, 1999 and 1998 were
14,779,035 and 10,100,927 including potentially dilutive common stock of
2,324,290 and 2,282,578 shares assuming exercise of the Company's options and
warrants and the effect of 1,000,070 shares of the Company's Convertible
Redeemable Preferred Stock which were converted into common stock in April 1999.
In April and May 1999, the Company completed a secondary public offering of
3.6 million shares of its common stock resulting in net proceeds to the Company
of $91.2 million. The Company used $69.1 million of the proceeds to repay the
outstanding balance on its credit facility with FINOVA Capital Corporation. The
balance of the net proceeds were applied toward working capital and other
general corporate purposes.
Institutional Investor
Under the terms of a private placement agreement with an institutional
investor, the Company can exercise put options with the investor. Generally,
upon exercise of a put option, the investor must tender the purchase price for
the number of shares of common stock designated by the Company. The number of
shares to be issued by the Company upon exercise of a put option is based on a
nominal discount of the stock's average closing price.
The investor has committed to invest up to $10 million. The Company has
exercised put options resulting in the investor investing $7 million in three
installments from September 28 through December 31, 1998. The most recent
installment, for $2 million, was initiated in December 1998, closed in January
1999, and is reflected as common stock issuable in the accompanying financial
statements. A total of 351,322 shares were issued in the first two installments
and 90,248 shares were issued in the third installment.
5
<PAGE>
NOTE 4. CONVERTIBLE REDEEMABLE PREFERRED STOCK
In February 1998, the Company completed the sale of approximately 850,000
shares of Convertible Redeemable Preferred Stock in a private placement for
approximately $8.5 million which netted the Company approximately $7.8 million.
In connection therewith, the Company also granted the placement agent a ten-year
warrant to acquire 100,000 shares of the Company's common stock at $9.00 per
share.
Shares of the Convertible Redeemable Preferred Stock were automatically
converted into 1,000,012 shares of common stock on April 27, 1999 at a
conversion price of $8.50, which was the market value of the common stock at the
date of the private placement. In connection with the immediate conversion
feature, the Company recognized $800,000 at March 31, 1998 as an accretive
dividend attributable to the Preferred Stock issuance including commissions and
the estimated value of warrants granted to the placement agent.
NOTE 5. EXTRAORDINARY ITEM-EARLY RETIREMENT OF DEBT
During the three months ended June 30, 1999, the Company extinguished its
outstanding debt on its credit facility with FINOVA Capital Corporation and
incurred debt extinguishment costs of $4.9 million representing write-off of
deferred loan costs. The early retirement of debt charge net of taxes was $2.9
million.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain information included in this report constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including without limitation the following statements: (a) our belief that its
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.
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
Three months ended June 30, 1999 compared to three months ended June 30, 1998
and six months ended June 30, 1999 compared to six months ended June 30, 1998
Total Revenue. Total revenue for the three months ended June 30, 1999 was
$39.1 million, compared to total revenue of $18.1 million for the three months
ended June 30, 1998. Total revenue for the six months ended June 30, 1999 was
$74.1 million, compared to total revenue of $33.2 million for the six months
ended June 30, 1998. These increases in total revenue primarily reflect the
completion of the HSD acquisition effective October 1998 and overall growth in
the business. The RADMAN, OMSystems and MSM acquisitions, which are accounted
for as poolings of interests, are reflected retroactively for all periods
presented. Systems and software revenue was $19.1 million for the three months
ended June 30, 1999, or 49.0% of total revenue, while maintenance, support and
service revenue was $19.9 million, or 51.0% of total revenue for the same
period. Systems and software revenue were $36.3 million for the six months ended
June 30, 1999, or 49.0% of total revenue, while maintenance, support, and
service revenue was $37.8 million, or 51.0% of total revenue for the same
period.
Hardware and other items purchased for resale. For the three months ended
June 30, 1999, hardware and other items purchased for resale was $10.1 million,
or 25.8% of total revenue, compared to $4.5 million, or 25.1% of total revenue,
for the three months ended June 30, 1998. For the six months ended June 30,
1999, hardware and other items purchased for resale was $17.8 million, or 24.0%
of total revenue, compared to $7.6 million, or 22.8% of total revenue, for the
six months ended June 30, 1998. For the three months ended June 30, 1999, gross
margin, which represents total revenue less hardware and other items purchased
for resale, was 74.2% of the total revenue, compared to 74.9% of total revenue,
for the three months ended June 30, 1998. For the six months ended June 30,
1999, gross margin was 76.0% of the total revenue, compared to 77.2% of total
revenue, for the six months ended June 30, 1998. The decrease in the gross
margin as a percentage of total revenue reflects the impact of lower gross
margins associated with HSD's statement processing and hardware maintenance
businesses and a shift in the revenue mix due to lower margin hardware sales.
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 $19.1 million,
or 49.0% of total revenue for the three months ended June 30, 1999, compared to
$9.2 million, or 51.1% of total revenue for the three months ended June 30,
1998. Selling, general and administrative expense increased to $37.3 million, or
50.3% of total revenue for the six months ended June 30, 1999, compared to $18.4
million, or 55.5% of total revenue, for the six months ended June 30, 1998. 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.
7
<PAGE>
Depreciation and Amortization. Depreciation and amortization expense was
$2.2 million, or 5.6% of total revenue, for the three months ended June 30,
1999, compared to $998,000, or 5.5% of total revenue, for the three months ended
June 30, 1998. Depreciation and amortization expense was $4.1 million, or 5.5%
of total revenue, for the six months ended June 30, 1999, compared to $2.0
million, or 5.9% of total revenue, for the six months ended June 30, 1998.
Increased depreciation and amortization expense primarily represents the
significant increase in goodwill arising from InfoCure's acquisitions.
Nonrecurring Charge. In the three and six months ended June 30, 1998, the
Company incurred costs of $750,000, or 4.1% of total revenue and $1.9 million,
or 5.6% of total revenue, associated with a restructuring plan completed in
1998.
Interest and Other Expense, Net. Interest and other expense, net, decreased
to $531,000, or 1.4% of total revenue, for the three months ended June 30, 1999,
compared to $723,000, or 4.0% of total revenue, for the three months ended June
30, 1998. Interest and other expense, net, increased to $2.4 million, or 3.2 %
of total revenue, for the six months ended June 30, 1999, compared to $1.1
million, or 3.3% of total revenue, for the six months ended June 30, 1998. The
decrease in the quarter relates primarily to the repayment of certain
indebtedness following InfoCure's April 1999 public offering of common stock.
Provision For Income Taxes. The provision for income taxes was $2.9 million
for the three months ended June 30, 1999, compared to $429,000 for the three
months ended June 30, 1998. The provision for income taxes was $5.1 million for
the six months ended June 30, 1999, compared to $520,000 for the six months
ended June 30, 1998. The effective income tax rate of 40.0% for the three and
six months ended June 30, 1999, is higher than statutory rates due to permanent
differences resulting from the amortization of nondeductible goodwill. The
effective rates for the comparable 1998 periods is less than the statutory rate
due to the impact of poolings with S-corporation entities that pay no federal
income taxes.
Extraordinary Item. During the three months ended June 30, 1999, the
Company extinguished its debt outstanding under its credit facility with FINOVA
Capital Corporation and incurred debt extinguishment costs of $4.9 million, or
$2.9 million net of taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, InfoCure had total cash and cash equivalents of $21.4
million and working capital of $40.8 million. InfoCure's current ratio increased
to 2.89 at June 30, 1999, from 1.06 at December 31, 1998. During the six months
ended June 30, 1999, InfoCure generated $289,000 of cash from operating
activities primarily relating to net income of $4.6 million plus $4.7 million in
deferred income tax, depreciation and amortization of $4.1 million and
extraordinary item of $2.9 million less the increased accounts receivable.
During this period, cash used in investing activities was $14.9 million,
representing primarily cash used for acquisitions and related expenditures of
$12.7 million, capitalized software development costs of $1.3 million and
capital expenditures of $852,000.
During the six months ended June 30, 1999, InfoCure generated net cash from
financing activities of $27.0 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 $71.1 million
and fund the DISC Computer Systems acquisition.
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 secured a new
credit facility in the amount of $100 million that has a five-year term, bears
interest at an annual rate of approximately 8.5% depending on the Company
achieving certain debt service ratios, and is secured by substantially all of
InfoCure's assets.
On April 27, 1999, InfoCure completed a public offering of 3,000,000 shares
of common stock at $26.00 per share, which generated net proceeds of $73.4
million. InfoCure applied $69.1 million of the proceeds of this offering to
retire the principal outstanding on its credit facility. The balance of the
proceeds were applied toward working capital and for general corporate purposes.
On May 6, 1999, InfoCure issued 563,850 shares of common stock at
8
<PAGE>
$26.00 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.
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.
COSTS RELATED TO YEAR 2000 READINESS
We have implemented a plan in which we modify and test our products to
determine whether they are able to properly distinguish dates beginning on
January 1, 2000. We are now taking the following steps to determine the year
2000 readiness of our products:
. review products that we will continue to market and support to
determine how they process dates;
. design and complete modifications to fix any date processing issues
that we identify for these products;
. test products to determine that they can process dates on or after
January 1, 2000; and
. deliver these modifications to our customers for installation and use.
As a result of these assessments, modifications and tests, InfoCure
believes that a majority of its products will properly make this distinction.
With respect to the rest of the products that it intended 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 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.
9
<PAGE>
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 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.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
InfoCure is not a party to any pending material litigation.
ITEM 2. CHANGE IN SECURITIES.
In April 1999, InfoCure issued to the 96 former holders of its Series
A Preferred Stock an aggregate of 1,000,012 shares of common stock
upon the conversion of 850,060 shares of its Series A Preferred Stock.
The conversion occurred automatically upon InfoCure's consummation of
its public offering on April 27, 1999. The conversion price was $8.50
per share. The issuance of the shares of common stock to the former
holders of its Series A Preferred Stock was exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof and Regulation D promulgated thereunder.
In April 1999, InfoCure issued 101,059 shares of common stock to the
two former shareholders of Commercial Computers, Inc., as joint
tenants with right of survivorship, upon their conversion of a note
payable by InfoCure. The conversion price was $7.59 per share. The
issuance of the shares of common stock to the former shareholders of
Commercial Computers was exempt from registration under the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereof and
Regulation D promulgated thereunder.
In April 1999, InfoCure issued an aggregate of 16,000 shares of common
stock to the two former shareholders of PACE Financial Corporation
upon the exercise of warrants to acquire such shares. The warrants
were exercised at $9.13 per share. The issuance of the shares of
common stock to the former shareholders of PACE was exempt from
registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder.
In April 1999, InfoCure issued an aggregate of 20,000 shares of common
stock at $25.00 per share to the former shareholders of Phynet in
connection with InfoCure's merger with Phynet. These issuances were
exempt from registration under the Securities Act of 1933 as amended,
pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 9, 1999, the annual meeting of the stockholders of InfoCure
was held for the purpose of re-electing Richard E. Perlman and Michael
E. Warren as directors and voting on proposals by InfoCure's Board of
Directors to: (a) ratify and approve the amendment of the InfoCure
Corporation 1996 Stock Option Plan to increase the number of shares of
common stock reserved for issuance under such plan; (b) ratify and
approve the amendment of the InfoCure Corporation Employee Stock
Purchase Plan to increase the number of shares of common stock
reserved for issuance under such plan; (c) ratify and approve the
amendment of InfoCure's Length-of-Service Nonqualified Stock Option
Plan to increase the number of shares of common stock reserved for
issuance under such plan; (d) ratify and approve restricted stock
awards to Frederick L. Fine, James K. Price and Richard E. Perlman;
and (e) ratify and approve the selection of BDO Seidman, LLP as
InfoCure's independent auditors for the year ending December 31, 1999.
Holders of 7,806,666 shares were represented at the meeting. Holders
of a majority of the shares voted in favor of each of the proposals as
follows:
<TABLE>
<CAPTION>
Proposal For Against Abstain
-------- --- ------- -------
<S> <C> <C> <C>
Elect Richard E. Perlman as Director 7,788,547 18,119 0
Elect Michael E. Warren as Director 7,788,547 18,119 0
Amend 1996 Stock Option Plan 5,335,346 461,917 7,803
Amend Stock Purchase Plan 5,778,583 20,109 6,374
Amend Length-of-Service Plan 5,674,838 121,995 8,233
Approve Restricted Stock Awards 5,735,474 107,768 8,489
Approve BDO Seidman, LLP as Auditors 7,798,618 4,486 3,562
</TABLE>
ITEM 5. OTHER INFORMATION.
InfoCure's Board of Directors appointed James A. Cochran, 51, as
Senior Vice President Finance and Chief Financial Officer effective
August 2, 1999. Prior to joining InfoCure, Mr. Cochran served five
years as a partner with the accounting firm BDO Seidman, LLP. Mr.
Cochran is a certified public accountant.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule (solely for use by the Commission)
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFOCURE CORPORATION
Date: August 16, 1999 /s/ Frederick L. Fine
--------------- ---------------------
Frederick L. Fine
President; Chief Executive Officer
(Principal Executive Officer); Director
Date: August 16, 1999 /s/ James A. Cochran
--------------- --------------------
James A. Cochran
Senior Vice President-Finance;
Chief Financial Officer
(Principal Financial Officer)
Date: August 16, 1999 /s/ Gary W. Plumer
--------------- ------------------
Gary W. Plumer
Vice President-Finance;
Assistant Secretary;
Assistant Treasurer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 21,431,071
<SECURITIES> 0
<RECEIVABLES> 36,202,129
<ALLOWANCES> (489,000)
<INVENTORY> 3,588,142
<CURRENT-ASSETS> 62,225,815
<PP&E> 16,518,803
<DEPRECIATION> (4,708,081)
<TOTAL-ASSETS> 163,916,519
<CURRENT-LIABILITIES> 21,458,235
<BONDS> 0
0
0
<COMMON> 13,665
<OTHER-SE> 118,082,302
<TOTAL-LIABILITY-AND-EQUITY> 163,916,519
<SALES> 36,341,944
<TOTAL-REVENUES> 74,093,149
<CGS> 17,792,019
<TOTAL-COSTS> 59,123,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,355,656
<INCOME-PRETAX> 12,613,856
<INCOME-TAX> 5,099,490
<INCOME-CONTINUING> 7,514,366
<DISCONTINUED> 0
<EXTRAORDINARY> 2,935,568
<CHANGES> 0
<NET-INCOME> 4,578,798
<EPS-BASIC> .44
<EPS-DILUTED> .35
</TABLE>
