<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 MARCH 31, 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 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
April 30, 2000, the latest practicable date, is as follows: 33,134,445 shares of
Common Stock, $.001 par value.
<PAGE> 2
FORM 10-Q
FOR THE
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................................ 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 8
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......... 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 14
ITEM 5. OTHER INFORMATION................................................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFOCURE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current:
Cash and cash equivalents $ 18,109 $ 16,836
Accounts receivable-trade, net of allowance of $3,465 and $4,296 30,720 39,331
Other receivables 1,651 819
Inventory, net 4,726 4,428
Refundable income taxes 3,256 3,256
Deferred tax assets 2,843 2,843
Prepaid expenses and other current assets 2,443 1,376
--------- ---------
Total current assets 63,748 68,889
Property and equipment, net of accumulated depreciation of $8,904 25,655 24,064
and $9,708
Intangible assets, net of accumulated amortization of $23,051 and 111,793 111,860
$16,013
Deferred tax assets 18,567 12,963
Other assets 3,305 2,728
--------- ---------
$ 223,068 $ 220,504
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,222 $ 1,222
Accounts payable 3,401 10,161
Accrued expenses 13,732 15,306
Accrued restructuring costs 2,264 2,534
Deferred revenue and customer deposits 11,331 12,979
Current portion of long-term debt 555 694
--------- ---------
Total current liabilities 32,505 42,896
Long-term debt, less current portion 51,859 41,178
Other liabilities 1,091 1,091
--------- ---------
Total liabilities 85,455 85,165
Commitments
Convertible, redeemable subsidiary preferred stock issuable 10,000 --
--------- ---------
Stockholders' equity:
Common stock $0.001 par value, 200,000,000 authorized, 33 32
33,145,155 and 32,327,099 outstanding
Additional paid-in capital 193,291 189,837
Accumulated deficit (65,711) (54,530)
--------- ---------
Total stockholders' equity 127,613 135,339
--------- ---------
$ 223,068 $ 220,504
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
-------- -------
<S> <C> <C>
Revenue:
Systems and software $ 10,184 $23,886
Maintenance, support and services 25,535 25,107
-------- -------
Total revenue 35,719 48,993
-------- -------
Operating expense:
Hardware and other items purchased for resale 7,923 10,954
Selling, general and administrative (excluding
compensatory stock) 27,611 24,243
Research and development 4,909 4,259
Depreciation and amortization 10,050 2,438
Restructuring and other charges 1,204 618
Gain on disposal of fixed assets (598) --
-------- -------
Total operating expense 51,099 42,512
-------- -------
Operating income (loss) (15,380) 6,481
Interest expense and other, net 1,226 1,941
-------- -------
Income (loss) before income taxes (16,606) 4,540
Provision (benefit) for income taxes (5,425) 2,061
-------- -------
Net income (loss) $(11,181) $ 2,479
======== =======
Net income (loss) per share:
Basic $ (0.34) $ 0.12
======== =======
Diluted $ (0.34) $ 0.09
======== =======
Weighted average shares outstanding:
Basic 32,773 21,059
======== =======
Diluted 32,773 27,499
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $(11,181) $ 2,479
Restructuring and other charges 1,204 77
Depreciation and amortization 10,050 2,438
Allowance for doubtful accounts 215 334
Stock-based compensation -- 541
Tax benefit from the exercise of options 186 --
Gain on disposal of fixed assets (598) --
Deferred taxes (5,604) 1,831
Changes in current assets and liabilities, net of acquisitions
Accounts receivable 7,780 (7,533)
Inventory, prepaid expenses and other assets (1,330) (561)
Accounts payable and accrued expenses (10,094) 1,867
Deferred revenue and deposits (2,034) (1,460)
-------- --------
Total cash provided by (used in) operating activities (11,406) 13
-------- --------
CASH USED IN INVESTING ACTIVITIES:
Cash paid for acquisitions (6,080) (837)
Property and equipment expenditures (2,897) (1,451)
Cash paid for other intangible assets (307) (2,728)
Other (540) 955
-------- --------
Total cash used in investing activities (9,824) (4,061)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from exercise of options 883 1,819
Proceeds from issuable stock of subsidiary 10,000 --
Borrowings of long-term debt 11,971 --
Principal payments on short-term note payable -- (2,000)
Principal payments on long-term debt (351) (2,443)
-------- --------
Total cash provided by (used in) financing activities 22,503 (2,624)
-------- --------
Net change in cash 1,273 (6,672)
Cash, beginning of period 16,836 10,302
-------- --------
Cash, end of period $ 18,109 $ 3,630
======== ========
SIGNIFICANT NONCASH TRANSACTIONS:
Stock consideration for acquisitions $ 2,386 $ --
Disposal of building under capital lease obligation (1,109) --
======== ========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid $ 407 $ 1,678
Income taxes paid 501 430
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
The information presented at March 31, 2000, and for the periods ended
March 31, 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 "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, (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. Through December 31, 1999 the Company completed 24 acquisitions,
as further described in InfoCure's Form 10-K. During the three months ended
March 31, 2000, the Company completed three acquisitions (the "First Quarter
Acquisitions"), all of which were accounted for as purchases.
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.
NOTE 2. 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 for the
quarter ended March 31, 2000 was to increase the net loss on a pre-tax basis by
approximately $5.0 million or $0.15 per share. These estimates more accurately
reflect the Company's revised business model as described in Item 2 below.
NOTE 3. 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 First Quarter
Acquisitions in the three months ended March 31, 2000 in transactions accounted
for as purchases and for which the total consideration paid was approximately
$6.1 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 First Quarter 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.
5
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PRO FORMA AMOUNTS MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(In thousands, except per share amount)
<S> <C> <C>
Revenue..................................... $ 36,350 $ 54,823
Net income (loss)........................... (11,564) 1,727
Earnings (loss) per share-basic............. (0.35) 0.08
Earnings (loss) per share-diluted........... (0.35) 0.06
</TABLE>
NOTE 4. RESTRUCTURING AND OTHER CHARGES
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-delivered products 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, expected to be completed in the second quarter of 2000, to
consolidate facilities and eliminate staffing redundancies involving
approximately 80 employees. 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 months ended March 31,
2000:
<TABLE>
<CAPTION>
COSTS
BALANCE APPLIED BALANCE
DECEMBER AGAINST MARCH
31, 1999 ADJUSTMENTS RESERVES 31, 2000
------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Facility closure and consolidation $1,434 $ -- $ (203) $1,231
Compensation costs for severance and other
termination benefits 515 1,030 (903) 642
Incremental costs associated with completion
of discontinued customer contracts 235 -- -- 235
Contingent consideration earned or deemed
payable to former stockholders 350 -- (350) --
Other asset write-downs and costs -- 174 (18) 156
------------------------------------------------
$2,534 $ 1,204 $(1,474) $2,264
------------------------------------------------
</TABLE>
NOTE 5. NOTES PAYABLE AND LONG TERM DEBT
In March 2000, The Company borrowed approximately $12.0 million under
its $100.0 million credit facility to finance the First Quarter Acquisitions,
the acquisition of a building and working capital. As of March 31, 2000, the
principal balance of the credit facility was $48.6 million. The credit facility
includes financial covenants, which among other things, require the Company not
to exceed certain limits on capital expenditures in any twelve month period and
to maintain certain ratios of (i) debt to EBITDA and (ii) EBITDA to debt service
payments. EBITDA is defined by the credit facility as earnings before interest,
taxes, depreciation, amortization and non-recurring items. EBITDA is not a
measure of financial performance under generally accepted accounting principles
and should not be considered an alternative to operating income or net income as
an indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of the Company's liquidity. As a result of the
change in the Company's business model, at March 31, 2000 it was not in
compliance with the required debt to EBITDA and EBITDA to debt service payments
ratios or the limitation on capital expenditures provided in the credit
facility. The Company has received a waiver with respect to such noncompliance
through July 15, 2000 and is currently negotiating a modification of the
financial covenants to reflect its revised business model.
6
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NOTE 6. STOCKHOLDERS' EQUITY
Common Stock
The weighted average number of shares outstanding used in computing
basic net income (loss) for the three months ended March 31, 2000 and 1999 were
32,773,000 and 21,059,108, respectively. The weighted average number of shares
outstanding used in computing diluted net income for the three months ended
March 31, 1999 was 27,499,394, including potentially dilutive common stock of
6,440,286 shares assuming exercise of the Company's potentially dilutive options
and warrants. Potentially dilutive shares were 4,713,551 for the three months
ended March 31, 2000, and have not been included in the calculation of diluted
net loss per share because it is antidilutive.
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"), InfoCure's newly formed subsidiary. 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 application
service provider, or "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 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 contemplates 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. The
companies are currently negotiating definitive agreements and discussing the
terms of their relationship, including the amount and form of any further
investment contemplated by Healtheon/WebMD in VitalWorks. On May 4, 2000, the
Company 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 Company's agreement with Healtheon/WebMD provides that
if the initial public offering of VitalWorks is not completed within nine months
of the date of the agreement: (i) the initial $10.0 million in VitalWorks Series
A preferred stock will be exchangeable, at Healtheon/WebMD's option, into the
Company's common stock at a per share conversion price equal to the average
closing price of the Company's common stock for the twenty trading days
immediately prior to the nine month anniversary of the agreement and (ii)
Healtheon/WebMD will no longer be obligated to make the additional $90.0 million
investment contemplated by the agreement.
NOTE 7. SEGMENT REPORTING
Effective in the fourth quarter of 1999, in connection with its change
in product strategy to focus on development of ASP-delivered products 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.
7
<PAGE> 9
The following table sets forth business segment information (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
----------------------
<S> <C> <C>
Revenue:
Medical $ 25,732 $36,873
Dental 9,820 12,120
Corporate 167 --
----------------------
$ 35,719 $48,993
======================
Operating profit (loss) (1):
Medical $(10,944) $ 5,508
Dental (3,349) 1,591
Corporate 117 --
----------------------
(14,176) 7,099
----------------------
Depreciation and amortization:
Medical 6,708 1,785
Dental 3,292 653
Corporate 50 --
----------------------
10,050 2,438
----------------------
EBITDA (2)
Medical (4,237) 7,293
Dental (56) 2,244
Corporate 167 --
----------------------
$ (4,126) $ 9,537
======================
Interest expense and
other, net $ 1,226 $ 1,941
======================
Non-recurring charges (including restructuring and
other charges, merger costs and compensatory
stock awards):
Medical $ 427 $ 221
Dental 777 397
----------------------
$ 1,204 $ 618
======================
Income (loss) before income taxes $(16,606) $ 4,540
======================
</TABLE>
(1) Excludes non-recurring charges of restructuring and other charges, merger
costs and compensatory stock awards.
(2) Earnings before interest, income taxes, depreciation, amortization and
non-recurring charges.
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
8
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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,
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.
OVERVIEW
We are a leading 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 our 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.
A substantial part of our growth has been achieved through
acquisitions. For the period July 10, 1997 through March 31, 2000, we completed
eleven acquisitions that were accounted for as poolings of interest
transactions. The results of operations discussed below are presented as if
these acquired companies had been consolidated for all periods presented. We
also have completed sixteen 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 necessarily 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-delivered products and Internet solutions and transition to a
subscription pricing model in connection with our change in product strategy and
we completed six acquisitions. The implementation of these changes commenced
during the three months ended March 31, 2000. During the three months ended
March 31, 2000, we formalized our sales approach and business divisions and
developed new marketing collateral. We also initiated company-wide training and
education related to our business model, subscription pricing and ASP-delivered
products for our sales and support staffs. We anticipate completing our training
initiatives during the second quarter of 2000. Because our training initiatives
were ongoing throughout the three months ended March 31, 2000, we had a reduced
sales effort from that of comparable periods. As a result of our announcement to
deliver an ASP-delivered product, which we expect to be released during 2000, we
believe that many of our customers who may have been contemplating a product
purchase delayed that purchase until the testing and release of the
ASP-delivered product. These changes, as well as an overall reduction in sales
due to the expected post Year 2000 slowdown, impacted our results for the three
months ended March 31, 2000, as compared to the corresponding period 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 dental,
orthodontic, oral and maxillofacial surgery practices.
9
<PAGE> 11
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Total Revenue. Total revenue for the three months ended March 31, 2000
decreased $13.3 million, or 27%, to $35.7 million, from total revenue of $49.0
million for the three months ended March 31, 1999. This decrease is primarily a
result of the effects of our transition to subscription pricing, change in
product strategy and reorganization initiatives.
Revenue - Medical Division. Total revenue of our medical division for
the three months ended March 31, 2000 decreased 30% to $25.7 million from $36.9
million for the three months ended March 31, 1999. For the three months ended
March 31, 2000, systems and software revenue decreased 59% to $6.4 million from
$15.5 million in the three months ended March 31, 1999. This decrease is
principally due to the pending 2000 release of our new ASP software package and
our pending change to a subscription pricing model. In addition, system sales
declined as a result of Year 2000 purchases being made during 1999. Maintenance,
support and service revenue for the three months ended March 31, 2000, declined
10% to $19.3 million from $21.4 million for the three months ended March 31,
1999. This decrease is due to a decrease in service revenue of $2.0 million and
hardware and software maintenance and other revenue of $1.5 million due to a
reduced selling initiative, which resulted in a decrease in the number of
installed systems from the three months ended March 31, 1999. This was offset by
an increase in electronic data interchange ("EDI") revenue of $1.5 million, or
43%, resulting from an increase in the number of practices using this service.
Revenue - Dental Division. Total revenue of our dental division for the
three months ended March 31, 2000 decreased 19% to $9.8 million from $12.1
million for the three months ended March 31, 1999. For the three months ended
March 31, 2000, systems and software revenue decreased 55% to $3.8 million from
$8.4 million in the three months ended March 31, 1999. The decrease is due to
lower unit sales in the current period as many customers prepared for the Year
2000. Maintenance, support and service revenue for the three months ended March
31, 2000, increased 62% to $6.0 million from $3.7 million for the three months
ended March 31, 1999, primarily due to (1) maintenance and service contracts of
approximately $900,000 acquired in the fourth quarter of 1999, (2) an increase
in EDI revenue of approximately $700,000 due to an increase associated with
practices utilizing this service and (3) $600,000 related to hardware
maintenance revenue in the orthodontic practice group which was first offered in
the second quarter of 1999.
Hardware and Other Items Purchased for Resale. For the three months
ended March 31, 2000, hardware and other items purchased for resale decreased
$3.1 million, or 28%, to $7.9 million from $11.0 million, resulting in a gross
margin in both periods of 78%.
Hardware and Other Items Purchased for Resale - Medical. For the three
months ended March 31, 2000, hardware and other items purchased for resale was
$6.6 million, or 26% of total revenue, resulting in a gross margin of 74%,
compared to $8.8 million, or 24% of total revenue and a gross margin of 76%, for
the three months ended March 31, 1999. The decrease in the gross margin as a
percentage of total revenue 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. This decrease in gross margin
was partially offset by an increase in higher margin EDI transactions.
Hardware and Other Items Purchased for Resale - Dental. For the three
months ended March 31, 2000, hardware and other items purchased for resale was
$1.3 million, or 13% of total revenue, resulting in a gross margin of 87%,
compared to $2.2 million, or 18% of total revenue and a gross margin of 82%, for
the three months ended March 31, 1999. The increase in the gross margin
percentage reflects the increase in higher margin EDI transactions and software
maintenance contracts, offset by a decrease in lower margin hardware sales.
Selling, General and Administrative. Selling, general and
administrative expense includes salaries and benefits, product development,
product maintenance and support, variable commissions and bonuses, marketing,
travel, communications, facilities, insurance and other administrative expense.
Selling, general and administrative expense increased $3.4 million, or 14%, to
$27.6 million for the three months ended March 31, 2000, from $24.2
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<PAGE> 12
million for the three months ended March 31, 1999. This increase is due
primarily to the addition of the required infrastructure of approximately $1.0
million to support the newly formed dental division. Increases were also
incurred in the orthodontic practice related to additional client service, sales
and marketing personnel, totaling approximately $700,000. Legal and professional
fees increased approximately $400,000 in the three months ended March 31, 2000,
related to the formation of two new subsidiaries and costs related to potential
acquisitions and other transactions which were not completed.
Research and Development. Research and development expense increased
$650,000, or 15%, to $4.9 million for the three months ended March 31, 2000,
from $4.3 million for the three months ended March 31, 1999. This increase is
primarily due to an increase in the number of products we offer, primarily from
our acquisitions.
Depreciation and Amortization. Depreciation and amortization expense
increased $7.7 million, or 312%, to $10.1 million for the three months ended
March 31, 2000, from $2.4 million for the three months ended March 31, 1999. The
increase in depreciation and amortization expense is 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 and Other Charges. In the three months ended March 31,
2000, the Company incurred costs of $1.2 million primarily associated with
employee severance and other termination costs and facility closure costs which
were part of our 1999 restructuring plan. In the three months ended March 31,
1999, the Company incurred costs of $618,000 primarily related to compensatory
stock awards and merger costs.
Interest Expense and Other, Net. Interest expense and other, net
decreased $715,000, or 37%, to $1.2 million for the three months ended March 31,
2000, from $1.9 million for the three months ended March 31, 1999. The decrease
in the three months ended March 31, 2000 directly relates to the reduction of
the outstanding balance under our credit facility and debt agreements over the
applicable periods.
Provision (Benefit) For Income Taxes. The provision for income taxes
was a net benefit of $5.4 million for the three months ended March 31, 2000,
compared to a net expense of $2.1 million for the three months ended March 31,
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 months ended March 31, 2000,
compared to net operating income in the three months ended March 31, 1999. The
effective tax rate decreased to 32.7% for the three months ended March 31, 2000,
from 45.4% for the three months ended March 31, 1999 primarily as a result of
our generation of net operating losses and the effect of non-deductible goodwill
amortization expense. As of March 31, 2000, our long-term deferred tax assets
related primarily to net operating loss carryforwards, which expire at various
dates to 2020. Utilization of such carryforwards is subject to limitations based
on the applicable provisions in the federal tax code. Management has assessed
the realizability of its deferred tax assets in light of the Company's change in
business model and has concluded that it is more likely than not that such
deferred tax assets will be fully utilized.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 we had total cash and cash equivalents of $18.1
million and working capital of $31.2 million. During the three months ended
March 31, 2000, we used $11.4 million of cash in operating activities primarily
relating to a net loss of $11.2 million offset by non-cash charges of $10.0
million in depreciation and amortization and payments of accounts payable and
accrued liabilities of approximately $10.1 million, offset by a reduction of
approximately $7.8 million in accounts receivable. The reduction in cash flow
from operations is compared to cash provided by operating activities of $13,000
for the three months ended March 31, 1999 and is due primarily to the impact of
our pending change in business model to subscription-based pricing and the
pending release of our ASP product. During this period, cash used in investing
activities was $9.8 million, primarily representing cash used for acquisitions
and related expenditures of $6.1 million and capital expenditures of $2.9
million. We generated $22.5 million of cash from financing activities consisting
primarily of borrowings of $12.0 million under our long-term credit facility and
$10.0 million for the future issuance of preferred stock of a subsidiary (see
Note 6 of the unaudited financial statements).
11
<PAGE> 13
We maintain a credit facility in the amount of $100.0 million that has
a five-year term, bears interest at an annual rate of approximately 9.5%
depending on the Company achieving certain debt service ratios, and is secured
by substantially all of our assets. The credit facility includes financial
covenants, which among other things require us not to exceed certain limits on
capital expenditures in any twelve month period and to maintain certain ratios
of (1) debt to EBITDA and (2) EBITDA to debt service payments. EBITDA is defined
by our credit facility as earnings before interest, taxes, depreciation,
amortization and non-recurring items. EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not be
considered an alternative to operating income or net income as an indicator of
our operating performance or to net cash provided by operating activities as a
measure of our liquidity. As a result of the change in our business model, at
March 31, 2000 we were not in compliance with the required debt to EBITDA and
EBITDA to debt service payments ratios or the limitation on capital expenditures
included in the credit facility. We have received a waiver with respect to such
noncompliance through July 15, 2000 and are currently negotiating a modification
of the financial covenants to reflect our revised business model.
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
products and Internet solutions. For the three months ended March 31, 2000, our
net loss was $11.2 million and EBITDA was negative $4.1 million. As a result of
the transition to a subscription pricing model and the change in our product
strategy, and based upon our current estimates, we expect to continue to incur
negative EBITDA until becoming EBITDA positive during the fourth quarter of 2001
or the first quarter of 2002. We expect negative EBITDA will be approximately
$9.0 million for the three months ended June 30, 2000, $12.0 million for the
three months ended September 30, 2000, and $12.0 million for the three months
ended December 31, 2000. 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 to strategic partners with whom we
enter into agreements relating to the rollout of our ASP-delivered products 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 until we have positive cash
flow from our operations. There can be no assurance that additional sources of
capital will be available on terms acceptable to us or at all.
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 May 15, 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 May 15, 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.
Although our Year 2000 rollover did not present any material business
disruption, there are some remaining Year 2000-related risks. Our management
believes that appropriate action has been taken to address these remaining Year
2000 issues and contingency plans are in place to minimize the financial impact
to us. In addition, we will continue to monitor the third parties with whom we
regularly do business to determine if they will take appropriate action to
address the remaining Year 2000 issues. We, however, cannot be certain that Year
2000 issues will not have a material adverse effect on our business.
12
<PAGE> 14
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 to LIBOR
spreads). Approximately $48.6 million of our outstanding debt at March 31, 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 $486,000 in pre-tax net loss assuming no
further changes in the amount of borrowings subject to variable rate interest
from amounts outstanding at March 31, 2000. We do not trade in derivative
financial instruments.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
In February 2000, the registrant received $10.0 million from
Healtheon/WebMD in exchange for shares issuable of Series A preferred stock of
VitalWorks, a subsidiary of the registrant. These securities were sold pursuant
to the exemption from the registration requirements of the Securities Act of
1933, as amended, contained in Section 4(2) of such act.
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
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule (solely for use by the Commission)
14
<PAGE> 16
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: May 15, 2000 /s/ Frederick L. Fine
------------ ---------------------
Frederick L. Fine
President; Chief Executive Officer
(Principal Executive Officer); Director
Date: May 15, 2000 /s/ James A. Cochran
------------ ---------------------
James A. Cochran
Senior Vice President-Finance;
Chief Financial Officer
(Principal Financial and Accounting
Officer)
15
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INFOCURE CORPORATION FOR THE 3 MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<CURRENT-ASSETS> 63,748
<PP&E> 34,559
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<COMMON> 33
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<TOTAL-LIABILITY-AND-EQUITY> 223,068
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