<PAGE> 1
INFOCURE CORPORATION
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, 2000
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 200
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, 2000 is as follows: 34,258,730 shares of
----------
Common Stock, $.001 par value.
<PAGE> 2
FORM 10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................................................ 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................... 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................... 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................ 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFOCURE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 13,790 $ 16,836
Accounts receivable-trade, net of allowance of $3,075 and $4,296 19,038 39,331
Other receivables 1,542 819
Inventory, net 1,381 4,428
Refundable income taxes 256 3,256
Deferred tax assets 9,286 2,843
Prepaid expenses and other current assets 1,158 1,376
---------- ----------
Total current assets 46,451 68,889
Property and equipment, net of accumulated depreciation of $11,126
and $9,708 24,572 24,064
Intangible assets, net of accumulated amortization of $43,279 and
$16,013 (Note 3) 100,114 111,860
Deferred tax assets 33,163 12,963
Other assets 2,552 2,728
---------- ----------
$ 206,852 $ 220,504
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,222 $ 1,222
Accounts payable 3,407 10,161
Accrued expenses 16,181 15,306
Accrued restructuring costs (Note 5) 15,325 2,534
Deferred revenue and customer deposits (Note 6) 15,435 12,979
Current portion of long-term debt (Note 7) 409 694
---------- ----------
Total current liabilities 51,979 42,896
Long-term debt, less current portion (Note 7) 54,930 41,178
Deferred gain on sale of assets 5,584 --
Other liabilities 351 1,091
---------- ----------
Total liabilities 112,844 85,165
Commitments and contingencies
Convertible, redeemable subsidiary preferred stock issuable 10,000 --
---------- ----------
Stockholders' equity (Notes 8 and 9):
Common stock $0.001 par value, 200,000,000 authorized,
34,183,480 and 32,327,099 outstanding 34 32
Additional paid-in capital 202,608 189,837
Notes receivable-stockholders (12,398) --
Accumulated deficit (106,236) (54,530)
---------- ----------
Total stockholders' equity 84,008 135,339
---------- ----------
$ 206,852 $ 220,504
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue (Note 2):
Systems and software $ 7,643 $ 26,562 $ 25,126 $ 76,341
Maintenance, support and services 27,624 27,471 79,732 79,285
--------- --------- --------- ---------
Total revenue 35,267 54,033 104,858 155,626
--------- --------- --------- ---------
Operating expense:
Hardware and other items purchased for resale 8,917 13,621 25,813 37,990
Selling, general and administrative 26,936 25,176 83,422 74,272
Research and development 4,338 3,610 13,647 11,644
Depreciation and amortization (Note 3) 11,501 2,967 33,243 7,997
Restructuring (Note 5) 15,142 -- 16,758 --
Impairment and other non-recurring charges (Note 5) 6,634 1,204 6,634 2,039
Gain on disposal of fixed assets (Note 6) (238) -- (773) --
--------- --------- --------- ---------
Total operating expense 73,230 46,578 178,744 133,942
--------- --------- --------- ---------
Operating (loss) income (37,963) 7,455 (73,886) 21,684
Interest expense and other, net 1,312 477 3,843 3,051
--------- --------- --------- ---------
(Loss) income before income taxes (39,275) 6,978 (77,729) 18,633
(Benefit) provision for income taxes (13,166) 2,947 (26,022) 7,767
--------- --------- --------- ---------
Net (loss) income before extraordinary item (26,109) 4,031 (51,707) 10,866
Extraordinary item - debt extinguishment cost, net
of income taxes -- -- -- 2,935
--------- --------- --------- ---------
Net (loss) income $ (26,109) $ 4,031 $ (51,707) $ 7,931
========= ========= ========= =========
Net (loss) income per share before extraordinary item:
Basic $ (0.76) $ 0.13 $ (1.55) $ 0.40
========= ========= ========= =========
Diluted $ (0.76) $ 0.11 $ (1.55) $ 0.30
========= ========= ========= =========
Net (loss) income per share:
Basic $ (0.76) $ 0.13 $ (1.55) $ 0.29
========= ========= ========= =========
Diluted $ (0.76) $ 0.11 $ (1.55) $ 0.22
========= ========= ========= =========
Weighted average shares outstanding (Note 8):
Basic 34,174 31,021 33,317 27,160
========= ========= ========= =========
Diluted 34,174 36,421 33,317 35,639
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income $ (51,707) $ 7,931
Adjustments to reconcile net (loss) income to cash (used in)
provided by operating activities:
Extraordinary item - debt extinguishment cost -- 4,892
Restructuring and other non-recurring charges (Note 5) 23,392 2,039
Depreciation and amortization 33,243 7,997
Allowance for doubtful accounts 1,573 334
Tax benefit from the exercise of stock options 228 1,083
Recognition of deferred gain on sale of assets (Note 6) (242) --
Gain on release of pension liability (550) --
Gain on disposal of fixed assets (531) --
Deferred taxes (26,661) 1,707
Changes in current assets and liabilities, net of acquisitions
Trade and other receivables 18,705 (11,596)
Refundable income taxes 3,000 --
Inventory, prepaid expenses and other current assets 1,694 (339)
Accounts payable and accrued expenses (9,649) (2,676)
Deferred revenue and deposits (137) (6,243)
---------- ----------
Cash (used in) provided by operating activities (7,641) 5,129
---------- ----------
CASH USED IN INVESTING ACTIVITIES:
Cash paid for acquisitions (Note 4) (13,422) (13,768)
Property and equipment expenditures (8,061) (12,497)
Cash paid for other intangible assets (3,114) (4,052)
Proceeds from sale of assets (Note 6) 8,972 --
Other (725) 566
---------- ----------
Cash used in investing activities (16,350) (29,751)
---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,722 4,688
Proceeds from issuance of common stock -- 86,224
Proceeds from issuable stock of subsidiary (Note 8) 10,000 --
Issuance of notes to stockholders (Note 8) (5,238) --
Borrowings of long-term debt 20,552 19,168
Principal payments on short-term note payable -- (2,000)
Payment of loan costs -- (685)
Principal payments on long-term debt (6,091) (69,201)
---------- ----------
Cash provided by financing activities 20,945 38,194
---------- ----------
Net (decrease) increase in cash and cash equivalents (3,046) 13,572
Cash and cash equivalents, beginning of period 16,836 10,302
---------- ----------
Cash and cash equivalents, end of period $ 13,790 $ 23,874
========== ==========
NONCASH TRANSACTIONS:
Stock issued for acquisitions (Note 4) $ 2,386 $ --
Stock issued to settle obligations 1,500 --
Disposal of building under capital lease obligation (1,109) --
Stock issued to stockholders for notes receivable (Note 8) (6,937) --
ADDITIONAL CASH FLOW INFORMATION:
Interest paid $ 560 $ 4,750
Income taxes (refunded) paid (2,499) 438
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
The information presented at September 30, 2000, and for the periods
ended September 30, 2000 and 1999 is unaudited, however, in the opinion of
management, includes all normal recurring adjustments necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows of InfoCure Corporation ("InfoCure" and together with InfoCure's
subsidiaries, the "Company") 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 consolidated financial statements, notes
thereto and other information should be read in conjunction with the historical
consolidated financial statements and related notes thereto contained in
InfoCure's Annual Report on Form 10-K for the year ended December 31, 1999, as
amended (the "Form 10-K").
InfoCure was founded in November 1996 to develop, market and service
practice management systems for use by healthcare providers throughout the
United States. The Company is currently developing new practice management
software applications tailored to the needs of medical and dental customers that
can be delivered through an application service provider, or "ASP", delivery
model. The Company is also developing Internet and wireless solutions that will
allow its customers to utilize new technology to enhance office workflow and
conduct business-to-business e-commerce. Through December 31, 1999, the Company
completed 24 acquisitions, as further described in InfoCure's Form 10-K. During
the six months ended June 30, 2000, the Company completed six acquisitions (the
"2000 Acquisitions"), all six of which were accounted for as purchases. The
Company did not complete any acquisitions during the three months ended
September 30, 2000.
The consolidated financial statements of the Company included herein
give retroactive effect to all of its historical acquisitions that were
accounted for as poolings of interest. 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. 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. Certain amounts in the 1999 quarterly
financial statements have been reclassified to conform to the current period
presentation.
NOTE 2. REVENUE RECOGNITION
In June 2000, the Company began offering its customers subscription
pricing for substantially all of its products. Contracts are generally for a
period of three to five years with revenue being recognized ratably over the
contract period commencing, generally, when the product has been installed and
training has been completed.
NOTE 3. GOODWILL AMORTIZATION
As previously reported in InfoCure's Form 10-K, management changed its
estimate of the useful life of its remaining goodwill from 15 years to three
years during the fourth quarter of 1999. The effect of this change was to
increase the Company's net loss on a pre-tax basis by approximately $8.1
million, or $0.24 per share, for the three months ended September 30, 2000 and
$23.7 million, or $0.71 per share, for the nine months ended September 30, 2000.
<PAGE> 7
NOTE 4. BUSINESS COMBINATIONS
As reported in InfoCure's Form 10-K, the Company completed five
acquisitions during 1999 that were accounted for as purchases (the "1999
Purchase Acquisitions"). In addition, the Company completed the 2000
Acquisitions for which the total consideration paid was approximately $13.4
million in cash and $2.4 million in InfoCure common stock. 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 each
of the periods presented. The pro forma information is not necessarily
indicative of what would have occurred had the 1999 Purchase Acquisitions and
the 2000 Purchase 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>
UNAUDITED PRO FORMA AMOUNTS (IN THOUSANDS, THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ ---------------------------- -----------------------------
EXCEPT PER SHARE AMOUNTS) SEPTEMBER SEPTEMBER 30, SEPTEMBER SEPTEMBER 30,
------------------------- ----------- ------------- ------------ -------------
30, 2000 1999 30, 2000 1999
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue $ 35,267 $ 58,607 $ 106,979 $ 178,199
Net (loss) income (26,109) 3,851 (52,531) 5,777
(Loss) earnings per share-after extraordinary item:
Basic (0.76) 0.12 (1.58) 0.31
Diluted (0.76) 0.11 (1.58) 0.23
</TABLE>
NOTE 5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
Restructuring
THE 2000 PLAN. On August 1, 2000, the Company announced its plans to
restructure each of its medical and dental operating divisions, VitalWorks and
PracticeWorks, respectively, through a plan of employee reductions and
consolidation of existing facilities. Over the next six months, the Company
plans to close or consolidate 25 facilities and terminate approximately 400
employees. The Company recorded approximately $15.1 million in restructuring
costs in the third quarter of 2000 consisting of compensation costs, including
severance and other termination benefits, and other costs related to the closing
of facilities.
THE 1999 PLAN. In the fourth quarter of 1999, the Company decided to
restructure its business into medical and dental divisions, changed its product
strategy to begin development of ASP applications and Internet solutions,
decided to transition to a subscription-pricing model and completed six
acquisitions. Concurrently, management committed to a plan of restructuring and
reorganization related to acquisitions completed during 1999, which was
completed in the second quarter of 2000, to consolidate certain facilities and
eliminate staffing redundancies involving approximately 80 employees.
<PAGE> 8
The following table sets forth changes in the restructuring reserves as
a result of actions taken to implement the Company's restructuring and
reorganization plans during the three and nine months ended September 30, 2000:
<TABLE>
<CAPTION>
RESERVE COSTS RESERVE
BALANCE APPLIED BALANCE
DECEMBER 31, ADDITIONS AGAINST JUNE ADDITIONS
1999 TO RESERVE RESERVE ADJUSTMENTS 30, 2000 TO RESERVE
------------ ---------- -------- ----------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Facility closure and consolidation $ 1,434 $ 14 $ (303) $ -- $ 1,145 $ 8,404
Compensation costs for severance
and other termination benefits 515 1,428 (1,177) -- 766 6,280
Incremental costs associated with
completion of discontinued
customer contracts 235 -- (176) -- 59 --
Contingent consideration payable
to former stockholders of acquired
companies whose products
were discontinued 350 -- (350) -- -- --
Other costs -- 174 (174) -- -- 458
-------- -------- -------- -------- -------- --------
$ 2,534 $ 1,616 $ (2,180) $ -- $ 1,970 $ 15,142
-------- -------- -------- -------- -------- --------
<CAPTION>
COSTS RESERVE
APPLIED BALANCE
AGAINST SEPTEMBER
RESERVE ADJUSTMENTS 30, 2000
-------- ----------- ---------
(in thousands)
<S> <C> <C> <C>
Facility closure and consolidation $ (85) $ (141) $ 9,323
Compensation costs for severance
and other termination benefits (1,044) -- 6,002
Incremental costs associated with
completion of discontinued
customer contracts (59) -- --
Contingent consideration payable
to former stockholders -- -- --
Other costs (458) -- --
-------- --------- ---------
$ (1,646) $ (141) $ 15,325
-------- --------- ---------
</TABLE>
Impairment and other Non-Recurring Charges
Concurrent with the 2000 plan of restructuring, the Company recorded an
impairment charge of $4.0 million relating to assets that will be abandoned due
to the closing of facilities. The Company also recorded a non-recurring charge
of $2.6 million to write-down inventory as a result of the Company's decision to
discontinue selling hardware and hardware support in certain of its business
lines in connection with its new hardware partnership agreement with Dell
Computer Corporation. This agreement provides that Dell will be the exclusive
supplier of computer hardware and related products to the Company's customers.
NOTE 6. SALE OF MEDICAL CLAIMS ASSETS
In the third quarter of 2000, the Company sold its medical statement
processing assets ("Medprint") to National Data Corporation ("NDC") for
approximately $9.0 million in cash. Simultaneously, the Company entered into a
statement and claims processing agreement with NDC for a period of five years
which provides, among other things, for attainment of certain transaction
processing volume levels over the term of the agreement. The gain on the sale
totaled approximately $7.2 million and will be recognized ratably over the
five-year term of the statement and claims processing agreement. The current
portion of the gain is included in deferred revenues and the long-term portion
of the gain is included in the deferred gain from sale of assets in the
accompanying consolidated financial statements. As of September 30, 2000, the
Company had recognized approximately $242,000, which is included in gain on
disposal of fixed assets in the accompanying consolidated statements of
operations.
NOTE 7. NOTES PAYABLE AND LONG TERM DEBT
As of September 30, 2000, the amount outstanding under the Company's
credit facility was approximately $51.0 million. In August 2000, the Company
amended its credit facility. The amendment eliminated certain financial
covenants and established covenants related to net worth, working capital,
liquidity, and capital expenditures. As of September 30, 2000, the Company was
in compliance with all financial covenants contained in the credit facility.
NOTE 8. STOCKHOLDERS' EQUITY
Common Stock
The weighted average number of shares outstanding used in computing
basic net (loss) income for the three months ended September 30, 2000 and 1999
were 34,173,796 and 31,020,685, respectively. The weighted average number of
shares outstanding used in computing basic net (loss) income for the nine months
ended September 30, 2000 and 1999 were 33,317,173 and 27,160,413, respectively.
The weighted average number of shares outstanding used in computing diluted net
income for the three months ended September 30, 1999 was 36,420,563, including
5,399,878 shares of potentially dilutive common stock assuming exercise of the
Company's potentially dilutive options and warrants. The weighted average number
of shares outstanding used in computing diluted net income for the nine months
ended September 30, 1999 was 35,639,114, including 8,478,701 shares of
potentially dilutive common stock assuming exercise of the Company's potentially
dilutive options and warrants. Potentially dilutive shares were 53,444 and
1,314,578 for the three months and nine months ended September 30, 2000,
respectively, and have not been included in the calculation of diluted net loss
per share because such inclusion is antidilutive.
<PAGE> 9
Subsidiary Preferred Stock
In February 2000, InfoCure entered into an agreement with
Healtheon/WebMD Corporation ("Healtheon/WebMD") whereby Healtheon/WebMD would
acquire up to $100.0 million of convertible redeemable preferred stock of
VitalWorks, Inc. ("VitalWorks"), a subsidiary of the Company. In consideration
of the investment, the agreement provides for development and distribution
agreements between the parties to create an industry-standard physician practice
management system to be delivered through an ASP delivery model. Similarly, the
parties entered into a marketing agreement which, with respect to services
conducted by VitalWorks, provides for utilization, delivery and promotion of
Healtheon/WebMD's clinical financial transaction and electronic data
interchange, or EDI, services. InfoCure received $10.0 million in exchange for
shares issuable of Series A preferred stock of VitalWorks, which will
automatically convert into 1% of the outstanding common stock of VitalWorks (on
a fully-diluted basis) upon completion of an initial public offering of
VitalWorks. The agreement also contemplated the investment of an additional
$90.0 million upon completion of an initial public offering of VitalWorks,
subject to regulatory approval and approval of both companies' board of
directors. On May 4, 2000, InfoCure announced that, in light of market
conditions, it had suspended its previously announced plans to conduct an
initial public offering of the common stock of VitalWorks. The terms of
InfoCure's agreement with Healtheon/WebMD provide that because the initial
public offering of VitalWorks was not completed by November 11, 2000: (i) the
initial $10.0 million in VitalWorks Series A preferred stock is exchangeable, at
Healtheon/WebMD's option, into InfoCure's common stock at a per share conversion
price equal to the average closing price of InfoCure's common stock for the
twenty trading days immediately prior to the nine month anniversary of the
agreement and (ii) Healtheon/WebMD is no longer obligated to make the additional
$90.0 million investment contemplated by the agreement.
Notes Receivable - Stockholders
During the second quarter of 2000, the Company made advances to
certain executive officers of the Company in an aggregate amount of
approximately $9.7 million. At September 30, 2000, the principal balance totaled
approximately $5.2 million and accrued interest totaled approximately $100,000.
The Company made these advances to prevent these officers from being forced to
sell shares of InfoCure's common stock in the market, which the Company believed
might further depress InfoCure's stock price. The officers issued promissory
notes to the Company to evidence the portion of the advances outstanding as of
June 30, 2000. The notes bear interest at a rate of prime plus 0.5% (10.0% at
September 30, 2000) per annum and are due December 31, 2000. The notes and the
accrued interest are included as contra-equity balances in the accompanying
consolidated balance sheet as of September 30, 2000.
During the second quarter of 2000, the Company received notes
receivable from certain executive officers of the Company in an aggregate amount
of approximately $6.9 million, in conjunction with the exercise of vested stock
options. The notes bear interest at a rate of prime plus 0.5% (10.0% at
September 30, 2000) per annum and are due April 18, 2002. At September 30, 2000,
the accrued interest related to the notes totaled approximately $200,000. The
notes and the accrued interest are recorded as contra-equity balances in the
accompanying consolidated balance sheets.
Stock Compensation Plans and Stock Option Grant
As reported in InfoCure's Form 10-K, the Company has stock option plans
that provide for the grant 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.
During the third quarter of 2000, the Company adopted a new stock
option plan, the InfoCure Corporation 2000 Broad Based Stock Plan. Under this
plan, 10.0 million shares of common stock of the Company have been reserved for
option grants, stock appreciation right grants, or stock grants to directors and
employees. The option price for each share of stock subject to an option or
stock appreciation right grant may not be less than the fair market value of a
share of stock on the date the option or right is granted. These option or right
grants will expire ten years from the date of grant.
On August 21, 2000 the board of directors approved a grant of options
to purchase, in the aggregate, approximately 8,915,000 shares of InfoCure common
stock ("Option Grant") to management and employees of the Company pursuant to
the new InfoCure Corporation 2000 Broad Based Stock Plan. If the previously
announced tax-free spin-off (Note 11) of the Company's wholly owned subsidiary,
PracticeWorks, is not completed prior to March 31, 2001, approximately
3,300,000 of the options will be
<PAGE> 10
canceled. If the spin-off is completed, the option grants will vest ratably over
the four-year period beginning on the grant date and expire ten years after the
grant date. Compensation expense, if any, related to the contingently issued
shares will be calculated based on the difference between the fair market value
of the underlying common stock at the effective date of the spin-off and the
grant price multiplied by the number of options outstanding. The calculated
expense will then be amortized over the remaining vesting period of the options.
NOTE 9. EQUITY FINANCING AGREEMENT
As of August 1, 2000, the Company entered into an agreement whereby it
has the right to make periodic sales to an institutional investor of up to an
aggregate of $60.0 million of its common stock through November 30, 2002. The
sale of common stock under the terms of the agreement is at the Company's sole
discretion, although the Company is required to pay a fee and grant warrants to
the investor to purchase shares of the Company's common stock if the Company has
not sold to the investor a stated minimum amount of its common stock pursuant to
the agreement on or before September 30, 2001. The number of shares that can be
sold at any one time will be determined in accordance with the terms of the
agreement based on the current stock price at the time of the sale. The purchase
price of the shares of stock will represent a discount from the current stock
price at the time of the sale. Although the purchaser may resell the stock
purchased pursuant to an effective registration statement which the Company
filed with the Securities and Exchange Commission, the agreement also requires
the purchaser to limit certain selling activities.
NOTE 10. SEGMENT REPORTING
Effective in the fourth quarter of 1999, in connection with its change
in product strategy to focus on development of ASP applications and Internet
solutions, the Company announced its plans for a reorganization of its business
centered around medical and dental strategic business units. For purposes of
reporting this segment information, the Company allocated previously reported
corporate expenses to the respective divisions based on the relative use of the
corporate resource.
The following table sets forth business segment information (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Medical $ 25,431 $ 39,270 $ 75,006 $ 114,262
Dental 9,836 14,763 29,852 41,364
---------- ---------- ---------- ----------
$ 35,267 $ 54,033 $ 104,858 $ 155,626
========== ========== ========== ==========
Operating (loss) profit (1):
Medical $ (8,959) $ 4,610 $ (32,692) $ 14,884
Dental (7,466) 4,049 (18,574) 8,841
---------- ---------- ---------- ----------
$ (16,425) $ 8,659 $ (51,266) $ 23,725
---------- ---------- ---------- ----------
Depreciation and amortization:
Medical $ 7,006 $ 2,348 $ 20,851 $ 6,145
Dental 4,495 619 12,392 1,852
---------- ---------- ---------- ----------
$ 11,501 $ 2,967 $ 33,243 $ 7,997
---------- ---------- ---------- ----------
EBITDA (2)
Medical $ (1,953) $ 6,958 $ (11,841) $ 21,027
Dental (2,971) 4,668 (6,182) 10,693
---------- ---------- ---------- ----------
$ (4,924) $ 11,626 $ (18,023) $ 31,720
========== ========== ========== ==========
Interest expense and other, net $ 1,312 $ 477 $ 3,843 $ 3,051
========== ========== ========== ==========
Non-recurring charges (including
restructuring and other non-recurring
charges and loss (gain) on disposal
of fixed assets):
Medical $ 16,591 $ 430 $ 17,488 $ 706
Dental 4,947 774 5,131 1,333
---------- ---------- ---------- ----------
$ 21,538 $ 1,204 $ 22,619 $ 2,039
========== ========== ========== ==========
(Loss) income before income taxes $ (39,275) $ 6,978 $ (77,728) $ 18,635
========== ========== ========== ==========
</TABLE>
(1) Excludes restructuring and other non-recurring charges and gain on
disposal of fixed assets.
<PAGE> 11
(2) EBITDA represents earnings before interest, (benefit) provision for
income taxes, depreciation, amortization, restructuring and other
non-recurring charges. Other non-recurring charges include merger
costs, compensatory stock awards, impairments of long-lived assets and
inventory and gain on disposal of fixed assets. We have excluded
restructuring and other non-recurring charges from EBITDA because we do
not believe those costs are representative of the normal recurring
nature of our operations. EBITDA is provided because it is a measure
commonly used by analysts and investors to determine a company's
ability to incur and service debt. EBITDA is not a measurement in
accordance with generally accepted accounting principles and should not
be considered as an alternative to, or more meaningful than, net (loss)
income as a measure of our profitability or cash flows as a measure of
our liquidity. All companies do not calculate EBITDA in the same
manner. Accordingly, our EBITDA may not be comparable with that of
other companies. We have included information concerning EBITDA because
management believes EBITDA provides a useful measure of our
performance. You should note, however, that the items excluded from
EBITDA are significant components in understanding and assessing our
performance.
NOTE 11. SPIN-OFF OF SUBSIDIARY
On August 22, 2000, the Company announced that PracticeWorks, a wholly
owned subsidiary of the Company, had filed a registration statement with the
Securities and Exchange Commission in connection with the Company's proposed
spin-off of its PracticeWorks subsidiary to its shareholders. PracticeWorks
provides information management technology and services to approximately 38,000
dentists, orthodontists, and oral and maxillofacial surgeons. After the
spin-off, InfoCure will change its name to VitalWorks, and will concentrate its
operations on management information technology and e-health services
exclusively for medical practices.
The spin-off is anticipated to be effective January 1, 2001. InfoCure
will receive an opinion of counsel that the distribution should be tax-free for
U.S. federal income tax purposes to InfoCure and its shareholders. At the time
of the distribution, each holder of InfoCure common stock will receive a pro
rata dividend of PracticeWorks common stock in a ratio to be determined prior to
the spin-off.
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. When used in this report, the words "anticipate", "believe",
"estimate", "expect", "intend", "plan", or any similar expressions, as they
relate to the Company or its management, or the management of any of our
businesses, are intended to identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, intended or planned. Reference is
made in particular to the discussion set forth below in this report and set
forth in our Annual Report on Form 10-K for the year ended December 31, 1999, as
amended, for a discussion of some of the risks, uncertainties and assumptions
that could cause actual results to differ materially from those described in our
forward looking statements. Those risks, uncertainties and assumptions include:
- We have recently incurred losses and expect to continue to
incur losses for the foreseeable future.
- Our quarterly operating results may fluctuate and could cause
our stock price to fluctuate.
- Our subscription pricing model is unproven and our success
depends on acceptance of this model and our ability to set our
subscription fees at appropriate levels.
- Our application service provider, or ASP, product strategy is
unproven and customers may not respond favorably to our new
products.
- The failure to successfully complete the development of our
Internet solutions and enter into strategic relationships
could harm our business and limit our potential growth.
- Our ASP product strategy is dependent upon the continued
development of the Internet.
- Our new product strategy and subscription pricing model will
require additional financing which may not be available.
- We are subject to government regulation and legal
uncertainties.
- If we do not become profitable when we anticipate, we may be
unable to realize the tax benefits of net operating loss carry
forwards.
- InfoCure and PracticeWorks might experience difficulties in
operating as independent companies following the distribution
of PracticeWorks stock.
- The distribution of PracticeWorks stock may cause fluctuations
in trading prices in InfoCure common stock.
- If the distribution of PracticeWorks stock is taxable,
InfoCure's stockholders could be required to pay tax on their
shares of PracticeWorks stock and InfoCure could incur a
corporate tax liability.
OVERVIEW
We are a national provider of healthcare practice management software
products and services to healthcare providers in targeted specialties. Our
systems are designed to increase the quality and reduce the cost of providing
care by allowing physicians to manage their practices more efficiently and
reduce the administrative burdens created by an increasingly complex healthcare
environment. We are currently developing new practice management software
applications tailored to the needs of medical and dental customers that can be
delivered through an application service provider, or "ASP", delivery model. We
are also developing Internet and wireless solutions that will allow our
customers to utilize new technology to enhance office workflow and conduct
business-to-business e-commerce.
<PAGE> 13
A substantial part of our growth has been achieved through
acquisitions. For the period July 10, 1997 through September 30, 2000, we
completed 12 acquisitions that were accounted for as poolings of interest. The
results of operations discussed below are presented as if these acquired
companies had been consolidated for all periods presented. We also have
completed 18 acquisitions that were accounted for using the purchase method of
accounting and their results of operations have been included from the
applicable purchase date. Given the significant number of acquisitions in each
of the periods presented, the results of operations from period to period may
not be comparable.
In the fourth quarter of 1999, we decided to restructure our business
into medical and dental divisions, change our product strategy to begin
development of ASP applications and Internet solutions and transition to a
subscription-pricing model and we completed six acquisitions. The implementation
of these changes commenced during the three months ended March 31, 2000 with the
formalization of our sales approach and business divisions and development of
new marketing materials. We also initiated company-wide training and education
related to our business model, subscription pricing and ASP applications for our
sales and support staffs. We substantially completed our training initiatives
during the second quarter of 2000. Because our training initiatives were ongoing
throughout the six months ended June 30, 2000, we had a reduced sales effort
from that of comparable periods. As a result of our announcement to deliver ASP
applications, we believe that some of our customers that may have been
contemplating a product purchase delayed that purchase until the testing and
release of the ASP applications. These changes, as well as an overall reduction
in sales due to purchases customers made in 1999 to prepare for Year 2000
computer issues, impacted our results for the three and nine months ended
September 30, 2000, compared to the corresponding periods in 1999.
SEGMENT AND MARKET INFORMATION
We report our results in two industry segments: medical and dental.
Our medical segment consists of our business for general medical practices and
medical specialty practices in the areas of anesthesiology, dermatology and
plastic surgery, emergency medicine, oncology, ophthalmology, pathology,
pediatrics, podiatry and radiology. The dental segment consists of our business
for dental, orthodontic, and oral and maxillofacial surgery practices.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Total Revenue. Total revenue for the three months ended September 30,
2000 decreased $18.7 million, or 35%, to $35.3 million from total revenue of
$54.0 million for the three months ended September 30, 1999. Total revenue for
the nine months ended September 30, 2000 decreased $50.7 million, or 33%, to
$104.9 million from total revenue of $155.6 million for the nine months ended
September 30, 1999. These decreases are primarily a result of the effects of our
transition to subscription pricing, change in product strategy and
reorganization initiatives discussed above.
Revenue - Medical Division. Total revenue of our medical division for
the three months ended September 30, 2000 decreased $13.8 million, or 35%, to
$25.5 million from $39.3 million for the three months ended September 30, 1999.
Total revenue of our medical division for the nine months ended September 30,
2000 decreased $39.2 million, or 34%, to $75.0 million from $114.2 million for
the nine months ended September 30, 1999. For the three months ended September
30, 2000, systems and software revenue decreased $12.6 million, or 72%, to $4.8
million from $17.4 million in the three months ended September 30, 1999. For the
nine months ended September 30, 2000, systems and software revenue decreased
$33.5 million, or 68%, to $15.8 million from $49.3 million in the nine months
ended September 30, 1999. These decreases are principally due to the pending
release of our new ASP applications and our change to a subscription pricing
model. In addition, system sales declined in 2000 as a result of purchases being
made during 1999 to prepare for any Year 2000 computer issues. Maintenance,
support and service revenue for the three months ended September 30, 2000
declined $1.3 million, or 6%, to $20.6 million from $21.9 million for the three
months ended September 30, 1999. Maintenance, support and service revenue for
the nine months ended September 30, 2000 declined $5.8 million, or 9%, to $59.2
million from $65.0 million for the nine months ended September 30, 1999. These
decreases are due to a reduced selling initiative, which resulted in a decrease
in the overall number of newly installed systems during the three and nine
months ended September 30, 1999 and, as a result, less service and maintenance
revenue. These decreases were offset by an increase in revenue of $1.7 million
associated with new marketing and e-commerce agreements entered into during the
nine months ended September 30, 2000, and to a lesser extent, an increase of
approximately $800,000 in electronic data interchange ("EDI") revenue resulting
from an increase in the number of practices using this service.
<PAGE> 14
Revenue - Dental Division. Total revenue of our dental division for
the three months ended September 30, 2000 decreased $4.9 million, or 33%, to
$9.8 million from $14.7 million for the three months ended September 30, 1999.
Total revenue of our dental division for the nine months ended September 30,
2000 decreased $11.5 million, or 28%, to $29.9 million from $41.4 million for
the nine months ended September 30, 1999. For the three months ended September
30, 2000, systems and software revenue decreased $6.4 million, or 70%, to $2.8
million from $9.2 million in the three months ended September 30, 1999. For the
nine months ended September 30, 2000, systems and software revenue decreased
$17.6 million, or 65%, to $9.4 million from $27.0 million in the nine months
ended September 30, 1999. These decreases are the result of lower unit sales in
the current period due to our transition to a subscription pricing model, the
pending release of ASP applications and the result of some customers preparing
during 1999 for any Year 2000 computer issues. Maintenance, support and service
revenue for the three months ended September 30, 2000 increased $1.5 million, or
27%, to $7.0 million from $5.5 million for the three months ended September 30,
1999. This increase is primarily due to an increase in EDI revenue of $1.1
million resulting from an increase in the number of practices using the service,
revenue from acquisitions of $492,000, and, to a lesser extent, revenue related
to new subscription contracts. Maintenance, support and service revenue for the
nine months ended September 30, 2000 increased $6.2 million, or 43%, to $20.5
million from $14.3 million for the nine months ended September 30, 1999. This
increase is primarily due to the overall growth of the business of $1.8 million
and additional revenue of $832,000 generated by acquisitions made in December
1999 and March and April 2000. The increase also includes an increase in EDI
revenue of $2.9 million for the nine months ended September 30, 2000, resulting
from an increase in the number of practices using this service, and to a lesser
extent, revenue related to new subscription contracts.
Hardware and Other Items Purchased for Resale. Hardware and other
items purchased for resale consists of costs incurred to purchase hardware and
includes costs of forms and postage, outsourced hardware maintenance,
third-party software and other items for resale in connection with the sales of
new systems and software. For the three months ended September 30, 2000,
hardware and other items purchased for resale decreased $4.7 million, or 35%, to
$8.9 million from $13.6 million. For the nine months ended September 30, 2000,
hardware and other items purchased for resale decreased $12.2 million, or 32%,
to $25.8 million from $38.0 million.
Hardware and Other Items Purchased for Resale - Medical. For the three
months ended September 30, 2000, hardware and other items purchased for resale
in the medical division was $7.4 million, or 29% of total revenue, compared to
$11.0 million, or 28% of total revenue, for the three months ended September 30,
1999. For the nine months ended September 30, 2000, hardware and other items
purchased for resale in the medical division was $21.4 million, or 29% of total
revenue, compared to $30.5 million, or 27% of total revenue, for the nine months
ended September 30, 1999. The decrease in the expense is due to the reduction in
systems and software sales. The increases in the expense as a percentage of
sales is due primarily to a change in product mix resulting from fewer sales of
higher margin enterprise and radiology systems as compared to lower margin
general medical systems, which were partially offset by a small increase in
higher margin EDI transactions.
Hardware and Other Items Purchased for Resale - Dental. For the three
months ended September 30, 2000, hardware and other items purchased for resale
in the dental division was $1.5 million, or 15% of total revenue, compared to
$2.6 million, or 18% of total revenue, for the three months ended September 30,
1999. For the nine months ended September 30, 2000, hardware and other items
purchased for resale in the dental division was $4.4 million, or 15% of total
revenue compared to $7.5 million, or 18% of total revenue, for the nine months
ended September 30, 1999. The decrease in the expense is related to the
reduction in systems and software sales. These decreases as a percentage of
sales also reflect the increase in higher margin subscription revenues, EDI
transactions and software maintenance contracts and a decrease in lower margin
hardware sales.
Selling, General and Administrative, or SG&A. SG&A expense includes
salaries and benefits, product maintenance and support, variable commissions and
bonuses, marketing, travel, communications, facilities, insurance and other
administrative expenses. SG&A expense increased $1.7 million, or 7%, to $26.9
million for the three months ended September 30, 2000, from $25.2 million for
the three months ended September 30, 1999. Of this amount $1.0 million related
to the net SG&A costs of the acquisitions made in December 1999 and the 2000
Acquisitions. The Company also wrote off $615,000 of previously capitalized
costs related to the cancellation of the initial public offering ("IPO") of its
subsidiary, VitalWorks, and increased the allowance for doubtful accounts
$800,000 during the three months ended September 30, 2000, to provide primarily
for possible losses which may arise from the impact on collection efforts of the
recently completed restructuring. These increases were offset by $550,000
related to the settlement of a pension liability.
SG&A expense increased $9.1 million, or 12%, to $83.4 million for the
nine months ended September 30, 2000, from $74.3 million for the nine months
ended September 30, 1999. Of this amount $7.0 million related to the net SG&A
costs of the acquisitions made in December 1999 and the 2000 Acquisitions. The
Company also incurred marketing expenses related to the new subscription pricing
model of approximately $750,000 and increased legal and professional fees of
approximately $760,000 due to costs related to
<PAGE> 15
potential acquisitions and other transactions that were not completed. During
this period the Company also increased the allowance for doubtful accounts
$800,000, wrote off capitalized IPO costs of $615,000 and recorded benefit of
settling a deferred compensation liability of $550,000.
Research and Development. Research and development expense increased
$728,000, or 20%, to $4.3 million for the three months ended September 30, 2000,
from $3.6 million for the three months ended September 30, 1999. Research and
development expense increased $2.0 million, or 17%, to $13.6 million for the
nine months ended September 30, 2000, from $11.6 million for the nine months
ended September 30, 1999. These increases are primarily due to a decrease in
software development costs eligible for capitalization and also due to an
increase in the number of products we offered, primarily from our acquisitions.
Depreciation and Amortization. Depreciation and amortization expense
increased $8.5 million to $11.5 million for the three months ended September 30,
2000, from $3.0 million for the three months ended September 30, 1999.
Depreciation and amortization expense increased $25.2 million to $33.2 million
for the nine months ended September 30, 2000, from $8.0 million for the nine
months ended September 30, 1999. These increases in depreciation and
amortization expense are primarily due to the change in the estimated useful
life of goodwill from 15 years to three years during the fourth quarter of 1999.
Restructuring. In the three and nine months ended September 30, 2000,
the Company incurred costs of $15.2 million and $16.8 million, respectively,
primarily associated with employee severance and other termination costs and
facility closure costs, that were part of our 2000 restructuring plan.
Impairment and other Non-Recurring Charges. Concurrent with the 2000
plan of restructuring in the three months ended September 30, 2000, the Company
recorded an impairment of $4.0 million relating to assets that will be abandoned
due to the closing of facilities. The Company also recorded a non-recurring
charge of $2.6 million to write-down inventory as a result of the Company's
decision to discontinue selling hardware and hardware support in certain of its
business lines in connection with its new hardware partnership agreement. In the
three and nine months ended September 30, 1999, the Company incurred costs of
$1.2 million and $2.0 million, respectively, primarily related to compensatory
stock awards and merger costs.
Interest Expense and Other, Net. Interest expense and other, net
increased $823,000, or 173%, to $1.3 million for the three months ended
September 30, 2000, from $477,000 for the three months ended September 30, 1999.
Interest expense and other, net increased $700,000, or 23%, to $3.8 million for
the nine months ended September 30, 2000, from $3.1 million for the three months
ended September 30, 1999. These increases relate to the increase in the amount
of the outstanding balance under our credit facility and debt agreements during
the comparable periods.
(Benefit) Provision for Income Taxes. The provision for income taxes
was a net benefit of $13.2 million for the three months ended September 30,
2000, compared to a net expense of $2.9 million for the three months ended
September 30, 1999. The provision for income taxes was a net benefit of $26.0
million for the nine months ended September 30, 2000, compared to a net expense
of $7.8 million for the nine months ended September 30, 1999. The change from
net income tax expense to net income tax benefit is due to our generation of net
operating losses in the three and nine months ended September 30, 2000, compared
to net operating income in the three and nine months ended September 30, 1999.
The effective tax rate decreased to 34% for the three months ended September 30,
2000, from 42% for the three months ended September 30, 1999. The effective tax
rate decreased to 33% for the nine months ended September 30, 2000, from 42% for
the nine months ended September 30, 1999. These decreases are primarily a result
of our generation of net operating losses and the effect of non-deductible
goodwill amortization expense.
At December 31, 1999, the Company had $24.0 million of net operating
loss carryforwards that expire, if unused, beginning in year 2008. Additionally,
results of operations through September 30, 2000 generated additional net
operating losses of approximately $38.5 million that would begin expiring in
2020. The Company has assessed its past financial and taxable earnings history,
when adjusted for non-recurring items such as restructuring charges, and its
sales backlog, budgeted sales, and expiration dates of carryforwards and
believes that it is more likely than not that it will generate taxable income
more than sufficient to realize the tax benefits associated with future
deductible temporary differences and net operating loss carryforwards prior to
their expiration. In addition, the Company believes that it has available tax
planning strategies that could be implemented to avoid the potential expiration
of net operating loss carryforwards. The Company will need to generate future
taxable income of approximately $62.5 million in future years prior to the
expiration of the net operating losses. If the Company is unable to generate
sufficient taxable income in the future through operating results, a valuation
allowance may be required through a charge to income.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE> 16
At September 30, 2000, we had total cash and cash equivalents of $13.8
million. During the nine months ended September 30, 2000, we used $7.6 million
of cash in operating activities primarily relating to a net loss of $51.7
million offset by (1) non-cash charges of $33.2 million in depreciation and
amortization and (2) payments of accounts payable and accrued liabilities of
approximately $9.6 million, offset by a reduction of approximately $18.7
million in accounts receivable. The reduction in cash flow from operations
during the nine months ended September 30, 2000 as compared to cash provided by
operating activities of approximately $5.1 million for the nine months ended
September 30, 1999 is due primarily to the impact of our ongoing change in
business model, including the transition to subscription-based pricing and the
anticipated future release of our ASP applications and some customers making
purchases in 1999 to prepare for Year 2000 issues. During this period, cash used
in investing activities was $16.3 million, representing primarily cash used for
acquisitions and related expenditures of $13.4 million and capital expenditures
of $11.1 million, offset by proceeds from the sale of the Company's patient
statement processing assets of $9.0 million, approximately $5.0 million of which
were used to repay outstanding debt to FINOVA in accordance with the loan
agreement. We generated approximately $20.9 million of cash from financing
activities consisting primarily of borrowings of $20.6 million under our
long-term credit facility and $10.0 million for the future issuance of preferred
stock of a subsidiary, offset by long-term debt payments of $6.1 million and
issuance of notes to stockholders of $5.2 million.
We maintain a credit facility in the amount of $100.0 million that has
a five-year term, bears interest at a floating rate (9.5% at September 30,
2000), plus an applicable margin (1.25% at September 30, 2000) depending on the
Company achieving certain debt service ratios, and is secured by substantially
all of our assets.
As of August 1, 2000, the Company entered into an agreement (the
"Common Stock Purchase Agreement") whereby it has the right to make periodic
sales of up to $60.0 million of its common stock through November 30, 2002. The
sale of common stock under the terms of the agreement is at our sole discretion,
although the we are required to pay a fee and grant to the investor warrants to
purchase shares of the our common stock if the we have not sold to the investor
a stated minimum amount of our common stock, pursuant to the agreement, on or
before September 30, 2001. The number of shares that can be sold at any one time
will be determined, in accordance with the terms of the agreement, based on the
current stock price at the time of the sale. The purchase price of the shares of
stock will represent a discount from the current stock price at the time of the
sale. Although the purchaser may resell the stock purchased pursuant to an
effective registration statement filed with the Securities and Exchange
Commission, the agreement also requires the purchaser to limit certain selling
activities.
On August 1, 2000 we announced our plans to restructure both our
medical and dental operating divisions, VitalWorks and PracticeWorks,
respectively, through a plan of employee reductions and consolidation of
existing facilities. Over the next six months we plan to close or consolidate 25
facilities and terminate approximately 400 employees. We anticipate that, once
fully implemented, the restructuring will reduce operating expenses by
approximately $25.0 million on an annualized basis.
PracticeWorks, Inc., a wholly owned subsidiary of InfoCure, has filed a
registration statement with the SEC in connection with a proposed spin-off of
our PracticeWorks operating division to our shareholders. In accordance with the
proposed spin-off, PracticeWorks will be an independent public company and has
applied for listing on the Nasdaq National Market. After the proposed spin-off,
we plan to change our name to VitalWorks, and will concentrate our operations on
management information technology and e-health services exclusively for medical
practices, including the delivery of our previously announced ASP products. The
spin-off is anticipated to be effective January 1, 2001. We will receive an
opinion of counsel that the distribution should be tax-free for U.S. federal
income tax purposes to us and our shareholders. At the time of the distribution,
each holder of InfoCure common stock will receive a pro rata dividend of
PracticeWorks common stock in a ratio to be determined prior to the spin-off.
We expect the transition to a subscription pricing model to continue
to adversely impact our cash flow until revenue from subscription fees replaces
revenue from software license fees and hardware sales. We also expect to incur
increased marketing and sales expenses in connection with offering our ASP
applications and Internet solutions. We expect to fund our current working
capital requirements and to finance our restructuring and future acquisitions,
if any, through one or more of the following sources: our credit facility, other
indebtedness and the issuance of debt or equity securities by us or our
subsidiaries, including sales of securities pursuant to the Common Stock
Purchase Agreement, and to strategic partners with whom we enter into agreements
relating to the rollout of our ASP applications and Internet solutions. The sale
of equity securities, including investments convertible into equity securities,
may result in further dilution to existing stockholders. We believe that our
existing cash, combined with availability of funds under the credit facility and
other sources of financing will be sufficient to fund our working capital
requirements through at least the next 12 months. There can be no assurance that
additional sources of capital will be available on terms acceptable to us or at
all.
RECENT ACCOUNTING PRONOUNCEMENTS
<PAGE> 17
The Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" which is effective July
1, 2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation is not expected to have a significant impact on our financial
statements.
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No. 138, is effective for InfoCure as of January 1, 2001. SFAS No. 133
requires that all derivatives be recorded on the balance sheet as assets or
liabilities at their fair values. Depending on the purpose of a derivative, the
accounting for changes in its fair value will be recognized in either the
results of operations or the balance sheet. Management does not believe the
impact of adopting SFAS No. 133 will be material to its results of operations or
financial condition because we do not trade in derivative financial instruments.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements". SAB No. 101 clarifies
existing accounting principles related to revenue recognition in financial
statements. The Company is required to comply with the provisions of SAB No. 101
by the fourth quarter of 2000. Management does not believe that the
implementation of SAB No. 101 will have a material impact on the Company's
results of operations.
COSTS RELATED TO YEAR 2000 READINESS
We recognized the material nature of the business issues surrounding
computer processing of dates into and beyond the Year 2000 and took corrective
action prior to December 31, 1999. Our total Year 2000 compliance costs were
approximately $1.4 million all of which was incurred prior to December 31, 1999.
We do not currently expect to apply additional material funds to address Year
2000 issues. As of November 14, 2000, we are not aware of any material
disruption in the operation of our products by our customers as a result of Year
2000 issues. In addition, as of November 14, 2000, we have not experienced any
material disruptions of our internal computer systems or software applications,
and have not experienced any material problems with the computer systems or
software applications of the third parties with whom we regularly do business as
a result of Year 2000 issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks include fluctuations in interest rates and
variability in interest rate spread relationships (i.e. prime or LIBOR spreads).
Approximately $51.0 million of our outstanding debt at September 30, 2000
relates to our credit facility with FINOVA Capital Corporation. Interest on the
outstanding balance is charged based on a variable rate related to prime rate
or, at our option, the LIBOR rate. Both rate bases are incremented for margins
specified in the agreement. Thus, our interest rate is subject to market risk in
the form of fluctuations in interest rates. The effect of a hypothetical one
percentage point increase across all maturities of variable rate debt would
result in an increase of approximately $510,000 in pre-tax net loss assuming no
further changes in the amount of borrowings subject to variable rate interest
from amounts outstanding at September 30, 2000. We do not trade in derivative
financial instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In its Form 10-Q for the quarterly period ended June 30, 2000, the
Company previously reported two lawsuits in which the plaintiffs allege claims
against the Company arising out of registration rights agreement whereby the
Company was required, prior to a specified date, to file the registration for
resale with the Securities and Exchange Commission of shares of the Company's
common stock which the plaintiffs owned. Management believes that the ultimate
resolution of this matter will not have a material adverse effect on the
financial condition of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<PAGE> 18
10.1 InfoCure Corporation 2000 Broad Based Stock Plan.
27.1 Financial Data Schedule (solely for use by the Commission).
(b) Reports on Form 8-K
InfoCure Corporation filed a current report on Form 8-K with the
Securities and Exchange Commission on September 6, 2000 for the
purposes of reporting pro forma financial information with respect to
the previously announced proposed spin-off of InfoCure's dental
division.
On November 13, 2000, InfoCure Corporation filed a current report on
Form 8-K with the Commission, which current report included the
Registration Statement on Form 10, as filed on November 13, 2000 by
PracticeWorks, Inc., an indirect, wholly-owned subsidiary of InfoCure
Corporation.
<PAGE> 19
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 14, 2000 /s/ Frederick L. Fine
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Frederick L. Fine
President; Chief Executive Officer
(Principal Executive Officer);
Director
Date: November 14, 2000 /s/ James A. Cochran
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James A. Cochran
Senior Vice President-Finance;
Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
