<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 SEPTEMBER 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 500
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
October 31, 1999, the latest practicable date, is as follows: 29,132,900 shares
of Common Stock, $.001 par value.
<PAGE>
INFOCURE CORPORATION
FORM 10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements Number
------
<S> <C>
Consolidated Balance Sheets..................................... 1
September 30, 1999 (unaudited) and December 31, 1998
Consolidated Statements of Operations (unaudited)............... 2
Three months ended September 30, 1999 and 1998
Nine months ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows (unaudited)............... 3
Nine months ended September 30, 1999 and 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................................ 11
Signatures...................................................... 12
</TABLE>
-i-
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS September 30, 1999 December 31, 1998
------------------- ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 23,647 $ 9,288
Accounts receivable - trade, net of allowances of $1,144 and $1,278.. 40,293 25,994
Inventory, net....................................................... 4,002 3,533
Deferred tax asset................................................... 534 675
Prepaid expense and other current assets............................. 2,437 2,676
-------- --------
Total current assets............................................... 70,913 42,166
Property and equipment, net of depreciation of $7,913 and $5,668..... 21,312 10,795
Goodwill, net of amortization of $7,595 and $3,467................... 83,353 72,203
Other intangible assets, net of amortization of $1,238 and $768...... 6,121 7,391
Deferred tax asset................................................... 755 4,966
-------- --------
Total assets....................................................... $182,454 $137,521
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................................ $ - $ 2,074
Accounts payable and accrued expenses................................ 15,233 12,786
Deferred revenue and customer deposits............................... 7,892 13,203
Current portion of long-term debt.................................... 3,465 13,370
-------- --------
Total current liabilities.......................................... 26,590 41,433
Long-term debt, less current portion................................. 30,171 70,733
-------- --------
Total liabilities.................................................. 56,761 112,166
-------- --------
Convertible redeemable preferred stock............................... - 8,501
-------- --------
Stockholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized;
29,062,000 outstanding at September 30, 1999 and 30,000,000 shares
authorized; 18,884,000 issued at December 31, 1998................. 29 19
Common stock issuable................................................ - 1,975
Additional paid-in capital........................................... 138,641 38,267
Accumulated deficit.................................................. (12,977) (22,102)
Deferred compensation................................................ - (1,083)
Treasury stock, at cost.............................................. - (222)
-------- --------
Total stockholders' equity......................................... 125,693 16,854
-------- --------
Total liabilities and stockholders' equity........................... $182,454 $137,521
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Systems and software................................................ $ 22,876 $ 11,313 $ 63,213 $ 31,553
Maintenance, support and services................................... 22,775 10,268 63,862 29,492
---------- ----------- ----------- -----------
Total revenue......................................................... 45,651 21,581 127,075 61,045
---------- ----------- ----------- -----------
Operating expense:
Hardware and other items purchased for resale....................... 11,930 4,646 31,830 14,412
Selling, general and administrative................................. 21,206 12,343 61,711 34,075
Depreciation and amortization....................................... 2,716 1,188 6,942 3,213
Nonrecurring charges................................................ 1,083 - 2,038 1,874
---------- ----------- ----------- -----------
Total operating expense............................................... 36,935 18,177 102,521 53,574
---------- ----------- ----------- -----------
Operating income...................................................... 8,716 3,404 24,554 7,471
Interest and other expense, net....................................... 365 694 2,789 1,759
---------- ----------- ----------- -----------
Income before income taxes............................................ 8,351 2,710 21,765 5,712
Provision for income taxes............................................ 3,227 928 8,422 1,639
---------- ----------- ----------- -----------
Net income before extraordinary item.................................. 5,124 1,782 13,343 4,073
Extraordinary item - early retirement of debt......................... - - 2,935 -
---------- ----------- ----------- -----------
Net income............................................................ 5,124 1,782 10,408 4,073
---------- ----------- ----------- -----------
Accretive dividend.................................................... - - - 800
---------- ----------- ----------- -----------
Net income available to common stockholders........................... $ 5,124 $ 1,782 $ 10,408 $ 3,273
========== =========== =========== ===========
Earnings per share before extraordinary item and accretive dividend:
Basic............................................................... $ 0.18 $ 0.10 $ 0.54 $ 0.24
========== =========== =========== ===========
Diluted............................................................. $ 0.15 $ 0.08 $ 0.46 $ 0.20
========== =========== =========== ===========
Earnings per share after extraordinary item and accretive dividend:
Basic............................................................... $ 0.18 $ 0.10 $ 0.42 $ 0.20
========== =========== =========== ===========
Diluted............................................................. $ 0.15 $ 0.08 $ 0.36 $ 0.16
========== =========== =========== ===========
Weighted average shares outstanding:
Basic............................................................... 28,932 17,121 24,629 16,765
========== =========== =========== ===========
Diluted............................................................. 34,332 21,365 29,259 20,442
========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
INFOCURE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999 September 30, 1998
-------------------- ------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income............................................................ $ 10,408 $ 4,073
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Extraordinary item - early retirement of debt.................... 2,935 -
Asset impairment and restructuring costs......................... - 1,874
Depreciation and amortization.................................... 6,942 3,213
Stock-based compensation......................................... 1,083 -
Deferred income tax.............................................. 6,611 548
Changes in current assets and liabilities, net of acquisitions:
Accounts receivable.......................................... (12,797) (4,346)
Inventory, prepaid expense and other current assets.......... (1,109) (752)
Accounts payable and accrued expenses........................ 314 (1,044)
Deferred revenue............................................. (5,582) (944)
-------- --------
Net cash provided by operating activities............................... 8,805 2,622
-------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Property and equipment expenditures................................ (10,741) (2,756)
Net cash paid for acquisitions..................................... (13,227) (19,483)
Cash paid for other intangibles.................................... (2,580) (1,079)
-------- --------
Net cash used in investing activities................................... (26,548) (23,318)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of common stock......................... 86,166 1,706
Proceeds from issuance of convertible preferred stock.............. - 7,820
Proceeds from exercise of options and warrants..................... 716 -
Distributions paid by pooled companies............................. (1,282) (127)
Purchase of treasury stock......................................... - (106)
Borrowings on long-term debt....................................... 18,926 15,785
Payments on notes payable and long-term debt....................... (71,386) (1,692)
Payment of loan costs.............................................. (1,038) -
-------- --------
Net cash provided by financing activities............................... 32,102 23,386
-------- --------
Net increase in cash and cash equivalents............................... 14,359 2,690
Cash and cash equivalents, beginning of period.......................... 9,288 2,380
-------- --------
Cash and cash equivalents, end of period................................ $ 23,647 $ 5,070
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest........................................................... $ 4,750 $ 1,619
Income taxes....................................................... $ 863 $ 913
</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 September 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 and its supplemental consolidated financial statements
included in the Company's Current Report on Form 8-K dated September 24, 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 these 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 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. ("POLCI"); Commercial Computers, Inc.
("CCI"); SoftEasy Software, Inc. ("SoftEasy"); PACE Financial Corporation
("PACE"); and the orthodontic business unit of HALIS Services, Inc. ("OPMS").
POLCI, CCI and SoftEasy were acquired with effect from October 1, 1997; PACE was
acquired with effect from November 1, 1997; and OPMS was acquired with effect
from December 1, 1997. Aggregate consideration for these acquisitions completed
in the eleven months ended December 31, 1997 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 the Healthcare Systems Division ("HSD") of The
Reynolds and Reynolds Company and acquired the outstanding equity securities of
Medical Software Integrators, Inc, ("MSI"). These acquisitions were effective
from January 1, 1998 with respect to MDI and MSI and October 23, 1998 for HSD.
Aggregate consideration for these acquisitions completed in 1998 was
approximately 746,000 shares of common stock and $73.0 million cash and debt for
an aggregate value of $77.1 million.
All of the foregoing acquisitions 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").
4
<PAGE>
<TABLE>
<CAPTION>
Entity Date of Merger Medical 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, Inc. ("SDM") August 31, 1999 General Medical Detroit, Michigan
</TABLE>
The consolidated financial statements of the Company previously reflected
the retroactive effect of the RADMAN Merger. The consolidated financial
statements of the Company included herein give retroactive effect to the 1999
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 stockholders' equity reflects the
accounts of InfoCure as if the additional common stock issued in connection with
the mergers had been issued for all periods presented. Additionally, all share
and per share amounts have been adjusted retroactively for the effect of a
2-for-1 stock split, in the form of a dividend, effective August 19, 1999. All
significant intercompany balances and transactions have been eliminated in
consolidation. Results of operations for the interim periods may not be
indicative of annual results.
NOTE 2. BUSINESS COMBINATIONS
As described in Note 1, the Company acquired HSD on October 23, 1998 and
DISC as of June 1, 1999 in transactions accounted for as purchases. The
following unaudited pro forma information presents the consolidated results of
operations of the Company as if the HSD and DISC 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 9 Months 9 Months
Ended Ended Ended
Pro Forma Amounts (in thousands, except per share data) September 30, 1998 September 30, 1999 September 30, 1998
- -------------------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue................................................. $37,960 $132,952 $101,812
Net income available to common stockholders............. 2,184 10,567 4,108
Earnings per share-basic................................ 0.13 0.43 0.25
Earnings per share-diluted.............................. 0.10 0.36 0.20
</TABLE>
NOTE 3. STOCKHOLDERS' EQUITY
Common Stock
The weighted average number of shares outstanding used in computing basic
earnings per share ("EPS") for the three months ended September 30, 1999 and
1998 were 28,931,876 and 17,120,788, respectively. The weighted average number
of shares outstanding used in computing diluted EPS for the three months ended
September 30, 1999 and 1998 were 34,331,755 and 21,364,899, including
potentially dilutive common stock of 5,399,879 and 4,244,111 shares assuming
exercise of the Company's options and warrants.
5
<PAGE>
In April and May 1999, the Company completed a secondary public offering of
7.2 million shares of its common stock resulting in net proceeds to the Company
of $86.2 million. The Company used $69.1 million of the proceeds to repay the
outstanding balance on its credit facility with FINOVA Capital Corporation
("Finova"). The balance of the net proceeds were applied toward working capital
and other general corporate purposes.
NOTE 4. NOTES PAYABLE AND LONG TERM DEBT
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 October 1999, the Company finalized negotiations with The Reynolds and
Reynolds Company regarding its purchase of HSD and gave notice of its intent to
convert approximately $7.5 million of a note given in connection with the
purchase in exchange for approximately 373,000 shares of common stock. Under the
terms of the conversion feature, additional shares could be issuable depending
on the market price of the stock.
NOTE 5. EXTRAORDINARY ITEM - EARLY RETIREMENT OF DEBT
In connection with repayment of the outstanding balance on its credit
facility with FINOVA, the Company incurred debt extinguishment costs of
approximately $4.9 million representing principally noncash write-off of
deferred loan costs. The early retirement of debt charge was $2.9 million, net
of taxes, or approximately $.10 per diluted share.
NOTE 6. SUBSEQUENT EVENTS
In November 1999, the Company completed its previously announced
acquisition of Datamedic Holding Corp. ("Datamedic") by acquiring all the
outstanding equity interests of Datamedic in exchange for approximately 1.2
million shares of InfoCure common stock. The transaction will be accounted for
as a pooling of interests.
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 our
operating cash flow, combined with availability of funds under our commercial
credit facility 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 our 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 September 30, 1999, we completed sixteen
acquisitions including acquisitions of six companies accounted for as pooling of
interest transactions. The remaining ten acquisitions which were accounted for
using the purchase method of accounting, including one 1999 acquisition of 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.
CONSOLIDATED RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared to three months ended September
30, 1998 and nine months ended September 30, 1999 compared to nine months ended
September 30, 1998
Total Revenue. Total revenue for the three months ended September 30, 1999
was $45.7 million, compared to total revenue of $21.6 million for the three
months ended September 30, 1998. Total revenue for the nine months ended
September 30, 1999 was $127.1 million, compared to total revenue of $61.0
million for the nine months ended September 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 MSM, OMSystems, Orthoware,
SDM and Medfax acquisitions, which are accounted for as poolings of interests,
are reflected retroactively for all periods presented. Systems and software
revenue was $22.9 million for the three months ended September 30, 1999, or
50.1% of total revenue, while maintenance, support and service revenue was $22.8
million, or 49.9% of total revenue for the same period. Systems and software
revenue were $63.2 million for the nine months ended September 30, 1999, or
49.7% of total revenue, while maintenance, support, and service revenue was
$63.9 million, or 50.3% of total revenue for the same period.
Hardware and other items purchased for resale. For the three months ended
September 30, 1999, hardware and other items purchased for resale was $11.9
million, or 26.1% of total revenue, compared to $4.6 million, or 21.5% of total
revenue, for the three months ended September 30, 1998. For the nine months
ended September 30, 1999, hardware and other items purchased for resale was
$31.8 million, or 25.0% of total revenue, compared to $14.4 million, or 23.6% of
total revenue, for the nine months ended September 30, 1998. For the three
months ended September 30, 1999, gross margin, which represents total revenue
less hardware and other items purchased for resale, was 73.9% of the total
revenue, compared to 78.5% of total revenue, for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, gross margin
was 75.0% of the total revenue, compared to 76.4% of total revenue, for the nine
months ended September 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 $21.2 million,
or 46.5% of total revenue for the three months ended September 30, 1999,
compared to $12.3 million, or 57.2% of total revenue for the three months ended
September 30, 1998. Selling, general and administrative expense increased to
$61.7 million, or 48.6% of total revenue for the nine months ended September 30,
1999, compared to $34.1 million, or 55.8% of total revenue, for the nine months
ended September 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.
7
<PAGE>
Depreciation and Amortization. Depreciation and amortization expense was
$2.7 million, or 5.9% of total revenue, for the three months ended September 30,
1999, compared to $1.2 million, or 5.5% of total revenue, for the three months
ended September 30, 1998. Depreciation and amortization expense was $6.9
million, or 5.5% of total revenue, for the nine months ended September 30, 1999,
compared to $3.2 million, or 5.3% of total revenue, for the nine months ended
September 30, 1998. Increased depreciation and amortization expense is the
result of the significant increase in goodwill arising primarily from the HSD
acquisition in October 1998.
Nonrecurring Charges. In the three and nine months ended September 30,
1999, the Company incurred costs of $1.1 million, or 2.4% of total revenue and
$2.0 million, or 1.6% of total revenue, respectively, associated with
compensatory stock awards and merger related costs, primarily legal and
accounting fees. In the nine months ended September 30, 1998, the Company also
incurred costs of $1.9 million, or 3.1% of total revenue, associated with the
1998 restructuring plan.
Interest and Other Expense, Net. Interest and other expense, net decreased
to $365,000, or 0.8% of total revenue, for the three months ended September 30,
1999, compared to $694,000, or 3.2% of total revenue, for the three months ended
September 30, 1998. Interest and other expense, net increased to $2.8 million,
or 2.2% of total revenue, for the nine months ended September 30, 1999, compared
to $1.8 million, or 2.9% of total revenue, for the nine months ended September
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 $3.2 million
for the three months ended September 30, 1999, compared to $928,000 for the
three months ended September 30, 1998. The provision for income taxes was $8.4
million for the nine months ended September 30, 1999, compared to $1.6 million
for the nine months ended September 30, 1998. The effective income tax rate of
38.6% for the three and nine months ended September 30, 1999, is higher than
statutory rates due primarily to the effect of state income taxes and 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 incurred no
federal income taxes prior to merger with the Company.
Extraordinary Item. During the nine months ended September 30, 1999, the
Company extinguished its debt outstanding under its credit facility with FINOVA
and incurred debt extinguishment costs of $4.9 million, or $2.9 million net of
taxes, representing 2.3% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, InfoCure had total cash and cash equivalents of
$23.6 million and working capital of $44.3 million. InfoCure's current ratio
increased to 2.67:1 at September 30, 1999, from 1.02:1 at December 31, 1998.
During the nine months ended September 30, 1999, InfoCure generated $8.8 million
of cash from operating activities primarily relating to net income of $10.4
million plus $6.9 million in depreciation and amortization, $6.6 million in
deferred income tax and extraordinary item of $2.9 million less the increased
accounts receivable. During this period, cash used in investing activities was
$26.5 million, representing primarily cash used for acquisitions and related
expenditures of $13.2 million, capital expenditures of $10.7 million and cash
paid for intangibles of $2.6 million.
During the nine months ended September 30, 1999, InfoCure generated net
cash from financing activities of $32.1 million, including $86.2 million net
proceeds from issuance of common stock and $18.9 million proceeds from the line
of credit, less $71.4 million related to repayments on long term debt. These
proceeds were principally used to retire outstanding debt of $71.4 million, fund
the DISC acquisition and purchase the building that accommodates InfoCure's
corporate offices.
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
the Company's assets.
8
<PAGE>
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
$72.9 million. InfoCure applied $69.1 million of the proceeds of this offering
to retire the principal outstanding on its FINOVA credit facility. The balance
of the proceeds was applied toward working capital and for general corporate
purposes. On May 6, 1999, InfoCure issued an additional 1.1 million shares of
common stock at $13.00 per share for net proceeds of $13.3 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 its
year 2000 readiness program, comprising the four elements outlined above, is
substantially complete, but we cannot offer assurance in this regard. We could
still experience delays or failures in 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. Software modifications have been
provided to all current customers and our follow-up indicates that more than 95%
of such customers have either installed the modification or upgraded to a year
2000 ready product. However, remaining 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
$50,000 and that our estimated total costs year to date have approximated
$500,000. 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.
9
<PAGE>
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 believe we have substantially completed our determination of year
2000 readiness by third parties and have developed appropriate 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 August 1999, InfoCure issued 209,016 shares of common stock at $24.435
per share to the former shareholder of Ardsley M.I.S., Inc., d/b/a/ Glentec
Business Computers, Inc. in connection with InfoCure's merger with Glentec,
696,333 shares of common stock at $21.00 per share to the three former
shareholders of Medfax Corporation in connection with InfoCure's merger with
Medfax, and 280,243 shares of common stock at $21.41 per share to the former
shareholder of Scientific Data Management, Inc. in connection with InfoCure's
merger with Scientific Data. 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.
Not Applicable.
ITEM 5. OTHER INFORMATION.
On November 9, 1999, InfoCure acquired Datamedic Holding Corp. InfoCure
issued 1,161,000 shares of common stock to the former shareholders of Datamedic.
Such shares were registered with the Securities and Exchange Commission on
Form S-4.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Agreement and Plan of Merger by and among Datamedic Holding
Corp., Certain Principal Shareholders of Datamedic Holding Corp.,
InfoCure Corporation and InfoCure Systems, Inc. dated September
3, 1999 (incorporated herein by reference to Appendix A to the
Company's Registration Statement on Form S-4 (No. 333-87867)
filed on September 27, 1999).
27.1 Financial Data Schedule (solely for use by the Commission)
(b) Reports on Form 8-K
(i) A current report on Form 8-K was filed with the commission
on September 24, 1999, in connection with InfoCure's mergers with
Macon Systems Management, LLC, OMSystems, Inc., Ardsley, M.I.S.,
Inc., Medfax Corporation and Scientific Data Management, Inc.
11
<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: November 15, 1999 /s/ Frederick L. Fine
----------------- ---------------------
Frederick L. Fine
President; Chief Executive Officer
(Principal Executive Officer); Director
Date: November 15, 1999 /s/ James A. Cochran
----------------- --------------------
James A. Cochran
Senior Vice President-Finance;
Chief Financial Officer
(Principal Financial Officer)
Date: November 15, 1999 /s/ Gary W. Plumer
----------------- ------------------
Gary W. Plumer
Vice President-Finance;
Assistant Secretary;
Assistant Treasurer
(Principal Accounting Officer)
12
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