<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[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
Commission File No. 000-26537
ALLSCRIPTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3444974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2401 Commerce Drive
Libertyville, Illinois 60048
(Address of principal executive offices)
----------------
(847) 680-3515
(Registrant's telephone number, including area code)
----------------
Indicate by check ( X ) 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
As of October 31, 2000, there were 28,776,804 shares of the Registrant's
$0.01 par value common stock outstanding.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
ALLSCRIPTS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999 and Septem-
ber 30, 2000.......................................................... 1
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 and 2000.............................. 2
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 2000..................................... 3
Notes to Condensed Consolidated Financial Statements................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 15
SIGNATURES................................................................. 16
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 40,561 $ 77,657
Marketable securities............................. 15,049 23,391
Accounts receivable, net of allowances of $3,743
in 1999 and $4,266 in 2000....................... 5,126 12,734
Interest receivable............................... 340 1,165
Inventories....................................... 3,585 5,315
Prepaid expenses and other current assets......... 786 2,753
-------- ---------
Total current assets............................ 65,447 123,015
Long-term marketable securities..................... -- 26,232
Fixed assets, net................................... 4,940 10,832
Intangible assets, net.............................. 3,575 159,214
Other assets........................................ 52 1,348
-------- ---------
Total assets.................................... $ 74,014 $ 320,641
======== =========
LIABILITIES
Current liabilities:
Accounts payable.................................. $ 4,352 $ 8,082
Accrued expenses.................................. 1,664 3,551
Deferred revenue.................................. 575 3,168
-------- ---------
Total current liabilities....................... 6,591 14,801
Long-term debt...................................... 59 --
-------- ---------
Total liabilities............................... 6,650 14,801
-------- ---------
STOCKHOLDERS' EQUITY
Preferred shares:
Undesignated, $0.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding at
December 31, 1999 and September 30, 2000......... -- --
Common shares:
$0.01 par value, 75,000,000 shares authorized,
24,221,537 shares issued, 24,187,072 shares
outstanding at December 31, 1999; 150,000,000
shares authorized, 28,808,816 shares issued,
28,774,351 shares outstanding at September 30,
2000............................................. 242 288
575,356 shares to be issued pursuant to business
combinations as of September 30, 2000............ -- 6
Unearned compensation............................... (1,632) (1,220)
Additional paid-in capital.......................... 130,830 410,930
Treasury stock at cost; 34,465 common shares at
December 31, 1999 and September 30, 2000........... (68) (68)
Accumulated deficit................................. (62,008) (104,096)
-------- ---------
Total stockholders' equity...................... 67,364 305,840
-------- ---------
Total liabilities and stockholders' equity...... $ 74,014 $ 320,641
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ALLSCRIPTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1999 2000 1999 2000
------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue................................ $ 6,975 $ 14,838 $ 19,395 $ 36,601
Cost of revenue........................ 5,686 11,654 15,394 28,743
------- -------- -------- --------
Gross profit....................... 1,289 3,184 4,001 7,858
Selling, general and administrative
expenses.............................. 5,698 11,624 13,802 31,317
Amortization of intangibles............ 477 9,020 745 15,037
Write-off of acquired in-process
research and development.............. -- -- -- 13,729
Other operating expenses............... 319 -- 319 --
------- -------- -------- --------
Loss from operations............... (5,205) (17,460) (10,865) (52,225)
Interest income, net................... 603 2,247 403 5,702
------- -------- -------- --------
Loss from continuing operations........ (4,602) (15,213) (10,462) (46,523)
Income from discontinued operations.... 616 -- 642 83
Gain from sale of discontinued
operations............................ -- -- 3,547 4,353
------- -------- -------- --------
Net loss............................... (3,986) (15,213) (6,273) (42,087)
Accretion of mandatory redemption value
of preferred shares and accrued
dividends on preferred shares......... (800) -- (2,198) --
------- -------- -------- --------
Net loss attributable to common
stockholders.......................... $(4,786) $(15,213) $ (8,471) $(42,087)
======= ======== ======== ========
Per share data-basic and diluted:
Continuing operations (including
accretion and accrued dividends on
preferred shares)................... $ (0.31) $ (0.52) $ (1.09) $ (1.70)
Discontinued operations.............. 0.03 -- 0.36 0.16
------- -------- -------- --------
Net loss attributable to common
stockholders........................ $ (0.28) $ (0.52) $ (0.73) $ (1.54)
======= ======== ======== ========
Weighted average shares of common stock
outstanding
used in computing per share data-basic
and diluted........................... 17,311 29,342 11,580 27,409
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (6,273) $(42,087)
Adjustments to reconcile net loss to net cash used in op-
erating activities:
Depreciation and amortization.......................... 1,509 17,710
Gain on sale of discontinued operations................ (3,547) (4,353)
Write-down of acquired in-process research and develop-
ment.................................................. -- 13,729
Non-cash expense from issuance of contingent shares.... 319 --
Non-cash compensation expense-employees................ 412 412
Non-cash expense-non-employees......................... -- 742
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net...... 4,850 (6,497)
Increase in interest receivable...................... -- (825)
Increase in inventories.............................. (1,489) (1,550)
Increase in prepaid expenses and other assets........ (411) (2,207)
(Decrease) increase in accounts payable.............. (3,239) 3,279
Increase in deferred revenue......................... 437 2,593
(Decrease) increase in accrued and other current lia-
bilities............................................ (507) (118)
-------- --------
Net cash used in operating activities.............. (7,939) (19,172)
-------- --------
Cash flows from investing activities:
Capital expenditures..................................... (1,634) (7,074)
Purchases of marketable securities....................... (36,000) (59,278)
Proceeds from sale of marketable securities.............. -- 24,930
Proceeds from sale of discontinued operations............ 7,473 4,353
Cash provided by (used for) acquisitions, net of acquired
cash.................................................... 49 (13,568)
Purchase of investment................................... -- (1,000)
-------- --------
Net cash used in investing activities.............. (30,112) (51,637)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of common stock options........... 378 690
Proceeds from public offering............................ 103,026 99,738
Payments for preferred stock redemptions................. (34,745) --
Proceeds from exercise of common stock warrants.......... 413 --
Cash received from sale of common stock.................. -- 10,000
Borrowings under line of credit.......................... 1,400 --
Payments under line of credit............................ (5,400) (2,464)
Payments on other debt................................... (650) (59)
-------- --------
Net cash provided by financing activities.......... 64,422 107,905
-------- --------
Net increase in cash and cash equivalents.................. 26,371 37,096
Cash and cash equivalents, beginning of period............. 718 40,561
-------- --------
Cash and cash equivalents, end of period................... $ 27,089 $ 77,657
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The quarterly financial information presented herein should be read in
conjunction with Allscripts' audited financial statements and the accompanying
notes included in our Annual Report on Form 10-K. The unaudited interim
condensed financial statements have been prepared on a basis consistent with
those financial statements and reflect all adjustments (all of which are of a
normal recurring nature, except those related to discontinued operations and
business combinations) that are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods. The consolidated
financial statements include the accounts of Allscripts, Inc. and its wholly
owned subsidiaries (collectively referred to as "Allscripts"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The results for the interim periods are not necessarily indicative of the
results to be expected for the year.
2. Recently Issued Accounting Standards
In December 1999, the U.S. Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides the SEC's views in applying generally
accepted principles to selected revenue recognition issues. Adoption of SAB
101 is required in the fourth quarter of fiscal year 2000. The Company does
not expect SAB 101 to have a material impact on the Company's consolidated
results of operations or financial position.
3. Sale of Common Stock
On March 10, 2000, Allscripts completed a public offering of 1,452,000
shares of its common stock, at an offering price of $73 per share. The public
offering resulted in gross proceeds of $105,996,000, $5,561,000 of which was
applied to the underwriting discount and approximately $697,000 of which was
applied to related offering expenses. The remaining net proceeds of
approximately $99,738,000 were invested in interest bearing, interest grade
securities.
During February, 2000, Allscripts sold IMS Health Incorporated 214,794
shares of Allscripts common stock for a purchase price of $10,000,000.
4. Business Combinations
On May 9, 2000, Allscripts acquired MasterChart, Inc., a software developer
providing dictation, integration and patient record technology. In exchange
for all of the outstanding common shares of MasterChart, Allscripts issued
1,617,873 shares of its common stock with a value of approximately
$127,400,000 and paid cash of approximately $5,000,000. The business
combination was accounted for using the purchase method of accounting and
MasterChart's results of operations have been included in the consolidated
financial statements subsequent to the date of acquisition. Approximately
$5,000,000 of the purchase price was allocated to the value of acquired in-
process research and development that had no alternative future use and was
charged against operations during the three months ended June 30, 2000. In
addition, approximately $4,600,000 of the purchase price was allocated to
acquired software and is being amortized on a straight-line basis over two
years, the software's estimated useful life. Trade names and goodwill,
totaling approximately $125,000,000, are being amortized on a straight-line
basis over five years. Goodwill represents the excess of the purchase price
over the fair market value of the net assets acquired.
On May 17, 2000, Allscripts acquired Medifor, Inc., a provider of Internet
delivered patient education. In exchange for all of the outstanding common and
preferred A and B shares of Medifor, Allscripts issued 935,858 shares of its
common stock with a fair value of approximately $34,400,000. In addition,
Allscripts issued 142,786 common stock options in replacement of Medifor
common stock options with a fair value of approximately
4
<PAGE>
$4,200,000. The fair value of the replacement common stock options was
estimated using the Black-Scholes model. The business combination was
accounted for using the purchase method of accounting and Medifor's results of
operations have been included in the consolidated financial statements
subsequent to the date of acquisition. Approximately $8,700,000 of the
purchase price was allocated to the value of acquired in-process research and
development that had no alternative future use and was charged against
operations during the three months ended June 30, 2000. Trade names and
goodwill, totaling $30,300,000, are being amortized on a straight-line basis
over five years. Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired.
Pursuant to the terms of the purchase agreements, certain shares of
Allscripts' common stock were not delivered at the acquisition dates. It is
anticipated that all undelivered shares will be delivered by December 31,
2000.
The following unaudited pro forma consolidated statements of operations for
the nine months ended September 30, 1999 and 2000 assume the MasterChart and
Medifor acquisitions had occurred on January 1 of each year after giving
effect to purchase accounting adjustments. These pro forma financial
statements have been prepared for comparative purposes only and do not purport
to be indicative of what Allscripts' operating results would have been had the
acquisitions actually taken place at the beginning of each of the periods
presented, nor are they necessarily indicative of future consolidated
operating results. The pro forma information below excludes the impact of non-
recurring charges related to an immediate expensing of acquired in-process
research and development, as well as the impact of charges from stock-based
compensation recognized by MasterChart in connection with the acquisition. The
pro forma weighted average shares include 1,617,873 shares issued as
consideration for the MasterChart acquisition and 935,858 shares issued as
consideration for the Medifor acquisition as if they had been issued as of
January 1 of each period presented.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1999 2000
-------- --------
(Unaudited)
(In thousands,
except
per share
amounts)
<S> <C> <C>
Revenue.............................................. $ 22,344 $ 38,321
Loss from continuing operations (including accretion
and accrued dividends on preferred shares).......... $(31,575) $(60,327)
Net loss attributable to common stockholders......... $(27,386) $(55,891)
Per share data--basic and diluted:
Loss from continuing operations (including
accretion and accrued dividends on preferred
shares)........................................... $ (2.23) $ (2.11)
Net loss attributable to common stockholders....... $ (1.94) $ (1.95)
Weighted average shares of common stock outstanding
used in computing basic and diluted loss per share.. 14,134 28,639
</TABLE>
5. Net Income (Loss) Per Share
Allscripts accounts for net income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share." SFAS No. 128 requires the presentation of
"basic" earnings per share and "diluted" earnings per share. Basic earnings
per share is computed by dividing the net income (loss) attributable to common
stockholders by the weighted average shares of outstanding common stock
(including shares to be issued pursuant to business combinations). For
purposes of calculating diluted earnings per share, the denominator includes
both the weighted average shares of common stock outstanding (including shares
to be issued pursuant to business combinations) and dilutive potential common
stock.
In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded the impact of all
outstanding warrants and options to purchase shares of common stock, all
outstanding convertible preferred shares on an if converted basis and
contingent share payment obligations from the calculation of diluted
5
<PAGE>
loss per share because all such securities are antidilutive for all periods
presented. Antidilutive potential common stock excluded from the diluted
earnings per share computation was 2,588,000 and 3,439,000 shares at September
30, 1999 and 2000, respectively.
6. Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalent balances consist of cash and highly liquid
corporate debt securities with maturities at the time of purchase of less than
90 days. Marketable securities include corporate debt instruments with
maturities of greater than 90 days at the time of purchase.
Current marketable securities include those with maturities of less than
one year at the balance sheet date. Long-term marketable securities have
maturities of greater than one year at the balance sheet date.
7. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the
Food and Drug Administration as if Allscripts were a manufacturer. Allscripts
is also subject to regulation by the Drug Enforcement Agency in connection
with the packaging and distribution of controlled substances.
Allscripts is a defendant in numerous multi-defendant lawsuits involving
the manufacture and sale of dexfenfluramine, fenfluramine and phentermine. The
plaintiffs in these cases claim injury as a result of ingesting a combination
of these weight-loss drugs. These suits have been filed in various
jurisdictions throughout the United States, and in each of these suits,
Allscripts is one of many defendants, including manufacturers and other
distributors of these drugs. Allscripts does not believe it has any
significant liability incident to the distribution or repackaging of these
drugs, and it has tendered defense of these lawsuits to its insurance carrier
for handling. The lawsuits are in various stages of litigation, and it is too
early to determine what, if any, liability Allscripts will have with respect
to the claims made in these lawsuits. If Allscripts' insurance coverage in the
amount of $16,000,000 per occurrence and $17,000,000 per year in the aggregate
is inadequate to satisfy any resulting liability, Allscripts will have to
defend these lawsuits and be responsible for the damages, if any, that
Allscripts suffers as a result of these lawsuits. Allscripts does not believe
that the outcome of these lawsuits will have a material adverse effect on its
financial condition, results of operations or cash flows.
8. Discontinued Operations
In March 1999, Allscripts sold substantially all of the assets, excluding
cash and accounts receivable, of its pharmacy benefit management business. The
operating results of the pharmacy benefit management business have been
segregated from continuing operations and reported as a separate line item on
the Condensed Consolidated Statements of Operations under the caption "Income
from discontinued operations."
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
Nine Month Ended
September 30,
------------------
1999 2000
--------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Revenue................................................. $ 14,292 $ --
Cost of revenue......................................... 13,378 --
--------- ------
Gross profit........................................ 914 --
Selling, general and administrative expenses............ 146 (83)
Amortization of intangibles............................. 126 --
--------- ------
Operating income........................................ 642 83
--------- ------
Income from discontinued operations..................... $ 642 $ 83
========= ======
</TABLE>
6
<PAGE>
Included in revenue for the nine months ended September 30, 1999 is
$375,000 from Anthem, Inc., a related party.
For the nine months ended September 30, 1999 and 2000, Allscripts
recognized a gain on the sale of this business of $3,547,000 and $4,353,000,
respectively, which has been reported as a separate line item on the Condensed
Consolidated Statements of Operations under the caption "Gain from sale of
discontinued operations." The gain in 2000 represents final payment of
contingent consideration related to the sale based upon certain pre-defined
metrics which were achieved in March 2000. The contingent consideration was
received by Allscripts in May of 2000.
9. ChannelHealth Acquisition
On July 13, 2000, Allscripts entered into a definitive agreement to acquire
ChannelHealth Inc., a majority owned subsidiary of IDX Systems Corporation and
a provider of Internet and point-of-care clinical applications. In
consideration of the acquisition, Allscripts will issue approximately
8,600,000 shares of common stock and approximately 612,000 common stock
options in replacement of ChannelHealth common stock options. This acquisition
will be accounted for as a purchase. Consummation of the acquisition is
subject to the approval of Allscripts' stockholders.
10. Subsequent Events
On October 26, 2000, Allscripts announced that its previously reported
unaudited revenues for the second quarter of 2000 were being revised from
$12,616,000 to $12,116,000 and that its net loss for the same period was being
revised from $24,331,000 to $24,831,000. Two complaints, styled as shareholder
class action complaints, have been filed in the United States District Court
for the Northern District of Illinois against Allscripts and its President and
Chief Financial Officer, David B. Mullen, alleging violations of federal
securities laws. The complaints in these actions purport to be brought on
behalf of individuals that purchased common stock of Allscripts during the
period of July 27, 2000 through and including October 26, 2000. Plaintiffs
seek unspecified damages. According to reports on the Internet, at least one
additional similar complaint has been filed against Allscripts. At this time,
management is unable to determine the likely outcome of these matters or to
reasonably estimate the amount of loss with respect to these matters.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
We provide point-of-care medication management and physician productivity
solutions which focus on addressing the needs of physicians and managed care
payers and plans.
We currently derive our revenue from the sale of prepackaged medications,
software licenses, computer hardware, pharmaceutical education programs and
related services.
Our shift in focus to physicians who require technology-based services to
operate successfully in a managed care environment and away from physicians
with a high percentage of fee-for-service patients is reflected in the
composition of our revenue, as depicted in the following table:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
1999 2000
------------------------------------- ----------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
--------- -------- --------- -------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Traditional revenue..... $5,235 $4,537 $4,035 $4,085 $4,443 $ 4,993 $ 5,134
E-commerce revenue...... 793 1,855 2,940 4,106 5,204 7,123 9,704
------ ------ ------ ------ ------ ------- -------
Total revenue....... $6,028 $6,392 $6,975 $8,191 $9,647 $12,116 $14,838
====== ====== ====== ====== ====== ======= =======
</TABLE>
Traditional revenue includes all non-e-commerce revenue and is derived from
the sale, through non-Internet channels, of prescription medications and other
medical products to physicians who do not use our software. We expect
traditional revenue to represent a decreasing percentage of total revenue in
the future. E-commerce revenue is derived from the sale of prescription
medications over the Internet to physicians who use our software or who order
products from us primarily over the Internet. E-commerce revenue also includes
technology related revenue for software subscriptions, licenses and related
professional services, computer hardware sales and leases, transaction fees,
e-detailing and related services. For the three months ended September 30,
2000, sales of prepackaged medications represented 62.5% of e-commerce
revenue. For the three months ended September 30, 2000, 29.6% of e-commerce
revenue represented medication sales over the Internet without the use of
TouchScript ordering. While we expect a portion of future e-commerce revenue
to continue to represent a shifting of traditional revenue, we anticipate that
most of the future growth in e-commerce revenue will be generated by physician
practice groups that are not currently our customers. Factors that we expect
will attract future customers include an interest in physician dispensing, a
desire to minimize financial risk imposed by managed care payers with respect
to medications that they prescribe and concern about the potential liability
associated with medication errors.
We believe that managed care prescription programs will continue to cover
an increasing percentage of patients in the foreseeable future. This trend
will have the effect of reducing the dispensing opportunities of our
traditional dispensing customers because of their inability to submit claims
electronically for reimbursement by managed care payers. This reduction in
dispensing opportunities will reduce the revenue that we have historically
recognized from these customers. Additionally, managed care programs impose
reduced reimbursement rates for the medications dispensed to their plan
participants, thus providing us with a dollar margin per prescription
dispensed that is lower than we have historically experienced. Because
TouchScript enables physicians to submit claims electronically for
reimbursement by managed care payers, a large portion of the medications
dispensed by our TouchScript customers is dispensed to managed care patients.
Accordingly, we expect that the fastest growing portion of our business will
provide margins with respect to the sale of prepackaged medications that are
lower than we have historically experienced. In addition, we expect that
seasonal variances in demand for our products and services will continue.
Historically, all other factors aside, our sales of prepackaged medications
have been highest in the fall and winter months.
To maintain our position in a rapidly changing and increasingly competitive
marketplace, we expect to continue to increase the number of our sales, sales
support, product development and customer service personnel
8
<PAGE>
significantly, and, accordingly, we expect our operating expenses to continue
to increase at an accelerated pace. In addition, we expect to amortize
unearned compensation expense of approximately $1,220,000 through December 31,
2003.
In addition to medication management, we believe that there are other
aspects of the physician's daily work flow that can be effectively addressed
through technology-focused solutions. We have enhanced, and we intend to
continue to enhance, our current offerings by integrating new products and
services that address these needs. In furtherance of this strategy, in May
2000 we acquired MasterChart, Inc., a software developer providing dictation,
integration and patient record technology, and Medifor, Inc., a provider of
Internet-delivered patient education. See Note 4 of Notes to Condensed
Consolidated Financial Statements. In connection with these acquisitions, we
recorded goodwill and other intangible assets of approximately $159,900,000,
$4,600,000 of which will be amortized to expense over two years, and the
balance of which will be amortized to expense over five years. In addition, on
July 13, 2000, we entered into a definitive agreement to acquire
ChannelHealth, Inc. in exchange for approximately 8,600,000 shares of our
common stock and approximately 612,000 common stock options in replacement of
ChannelHealth common stock options. See Note 9 of Notes to Condensed
Consolidated Financial Statements. This acquisition will be accounted for as a
purchase and we expect to record goodwill and other intangible assets equal to
a substantial portion of the purchase price. These intangible assets will be
amortized to expense over their estimated economic life. We anticipate that
there will be additional cash required to fund the operations of
ChannelHealth. Consummation of the acquisition is subject to the approval of
Allscripts' stockholders.
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Total revenue for the three months ended September 30, 2000 increased by
112.7% or $7,863,000 from $6,975,000 in 1999 to $14,838,000 in 2000. E-
commerce revenue increased by 230.1% or $6,764,000 from $2,940,000 in the
third quarter of 1999 to $9,704,000 in the third quarter of 2000. Traditional
revenue for the three months ended September 30, 2000 increased by 27.2% or
$1,099,000 from $4,035,000 in 1999 to $5,134,000 in 2000.
The increase in e-commerce revenue reflects a conversion of traditional
revenue as a result of traditional customers adopting TouchScript and ordering
products over the Internet, growth in revenues from our e-detailing product,
revenue generated from our MasterChart and Medifor acquisitions which closed
in May 2000, increased installations and utilization of TouchScript, an
increase in the dispensing percentage of brand drugs, which have a higher
average selling price than their generic counterparts and general price
inflation of brand and generic medications. The increase in traditional
revenue reflects a general price inflation of brand and generic medications
and an increase in sales of pre-packaged medications to our traditional sites
and to new customers obtained through internal business generation and
acquisition.
Cost of revenue for the three months ended September 30, 2000 increased by
105.0% or $5,968,000 from $5,686,000 in 1999 to $11,654,000 in 2000 due to
increased revenue, increased operating costs at sites where we manage the
dispensary on behalf of the physician, increased software amortization of
acquired software, increased depreciation expense due to increased volume of
TouchScript system installations, a greater percentage of revenue coming from
higher cost brand products and general price inflation of both brand and
generic products. For the three months ended September 30, 2000, cost of
revenue as a percentage of total revenue decreased to 78.5% from 81.5% in the
prior year period principally due to higher relative margin contributions from
our e-detailing product, software licensing fees, and our Medifor acquisition.
This percentage decrease was partially offset by increased operating costs at
sites where we manage the dispensary on behalf of the physician and a greater
percentage of revenue coming from lower margin brand medications.
Selling, general and administrative expenses for the three months ended
September 30, 2000 increased by 104.0% or $5,926,000 from $5,698,000 in 1999
to $11,624,000 in 2000 due primarily to additional spending for sales and
sales support personnel and related expenses needed to sell, implement and
support TouchScript installations and our e-detailing product, expenses
related to MasterChart and Medifor operations that were
9
<PAGE>
acquired during May 2000 and MedSmart operations, other general and
administrative expenses and additional spending for TouchScript and Internet
product development personnel and related support expenses. Selling, general
and administrative expenses as a percentage of total revenue decreased to
78.3% for the three months ended September 30, 2000 from 81.7% of total
revenue in the prior year period.
Amortization of intangibles for the three months ended September 30, 2000
increased by $8,543,000 from $477,000 in 1999 to $9,020,000 in 2000. The
increase in amortization relates primarily to the amortization of goodwill and
other intangibles recorded in the MasterChart and Medifor acquisitions, which
were completed in May 2000.
Other operating expenses for the three months ended September 30, 1999 of
$319,000 reflect a non-cash, non-recurring charge related to the issuance of
common stock upon the closing of the initial public offering in accordance
with a contingent payment obligation related to an acquisition we made in
1995.
Net interest income for the three months ended September 30, 2000 was
$2,247,000 as compared to $603,000 for the prior year period. The change
relates to interest earned on the investment of net proceeds from our initial
public offering in July 1999 and our public offering in March 2000, as well as
the repayment of borrowings under our revolving credit facility with our
commercial bank in July 1999.
We have recorded no provision or benefit for income taxes during the three
months ended September 30, 2000 because we currently anticipate that the
annual effective income tax rate will be minimal or zero, and we have fully
reserved all of our deferred tax assets.
The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and
reported as a separate line item on the Condensed Consolidated Statements of
Operations under the caption "Income from discontinued operations."
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999
Total revenue for the nine months ended September 30, 2000 increased by
88.7% or $17,206,000 from $19,395,000 in 1999 to $36,601,000 in 2000. E-
commerce revenue increased by 294.3% or $16,443,000 from $5,588,000 for the
nine months ended September 30, 1999 to $22,031,000 for the same period of
2000. Traditional revenue for the nine months ended September 30, 2000
increased by 5.5% or $763,000 from $13,807,000 in 1999 to $14,570,000 in 2000.
The increase in e-commerce revenue reflects increased installations and
utilization of TouchScript, a conversion of traditional revenue as a result of
traditional customers adopting TouchScript and ordering products over the
Internet, revenue generated from our e-detailing product, revenue generated by
our Medifor and MasterChart acquisitions, an increase in the dispensing
percentage of brand drugs, which have a higher average selling price than
their generic counterparts and general price inflation of brand and generic
medications. The increase in traditional revenue reflects general price
inflation of brand and generic medications, an increase in the dispensing
percentage of brand drugs, which have a considerably higher average selling
price than their generic counterparts, increased sales of pre-packaged
medications to new customers and traditional revenue generated by MedSmart,
which was acquired in May 1999, offset partially by a conversion of
traditional revenue to e-commerce, as outlined above.
Cost of revenue for the nine months ended September 30, 2000 increased by
86.7% or $13,349,000 from $15,394,000 in 1999 to $28,743,000 in 2000 due to
increased revenue, increased operating costs at sites where we manage the
dispensary on behalf of the physician, a greater percentage of revenue coming
from higher cost brand medications, increased software amortization of
acquired software, increased depreciation expense due to increased volume of
technology sites, a greater percentage of revenue coming from higher cost
brand products and general price inflation of both brand and generic products.
For the nine months ended September 30, 2000, cost of revenue as a percentage
of total revenue decreased from 79.4% in the prior year period to 78.5%
principally due to higher relative margin contributions from our Medifor and
e-detailing products and software
10
<PAGE>
license fees. This percentage decrease was partially offset by increased
operating costs at sites where we manage the dispensary on behalf of the
physician and a greater percentage of revenue coming from lower margin brand
medications.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 increased by 126.9% or $17,515,000 from $13,802,000 in 1999
to $31,317,000 in 2000 due primarily to additional spending for sales and
sales support personnel and related expenses needed to sell, implement and
support TouchScript installations and our e-detailing product, expenses
related to MasterChart and Medifor operations that were acquired during May
2000 and MedSmart operations that were acquired during May 1999, additional
spending for TouchScript and Internet product development personnel and
related support expenses, other general and administrative expenses and a non-
cash charge related to stock options issued to non-employees. As a result,
selling, general and administrative expenses as a percentage of total revenue
increased to 85.6% for the nine months ended September 30, 2000 from 71.2% of
total revenue in the prior year period.
Amortization of intangibles for the nine months ended September 30, 2000
increased by $14,292,000 from $745,000 in 1999 to $15,037,000 in 2000. The
increase in amortization relates to the amortization of goodwill and other
intangibles recorded in the MasterChart and Medifor acquisitions, which were
completed in May 2000, as well as the amortization of goodwill and other
intangibles recorded in the MedSmart acquisition, which was completed in May
1999, and the Shopping@Home acquisition, which was completed in June 1999. For
the nine months ended September 30, 2000, we recorded an expense for the
immediate write-off of acquired in-process research and development related to
the Medifor and MasterChart acquisitions in the amount of $13,729,000.
Other operating expenses for the nine months ended September 30, 1999 of
$319,000 reflect a non-cash, non-recurring charge related to the issuance of
common stock upon the closing of the initial public offering in accordance
with a contingent payment obligation related to an acquisition we made in
1995.
Net interest income for the nine months ended September 30, 2000 was
$5,702,000 as compared to net interest expense of $403,000 for the prior year
period. The change relates to interest earned on the investment of net
proceeds from our initial public offering in July 1999 and our public offering
in March 2000, as well as the repayment of borrowings under our revolving
credit facility with our commercial bank in July 1999.
We have recorded no provision or benefit for income taxes during the nine
months ended September 30, 2000 because we currently anticipate that the
annual effective income tax rate will be minimal or zero, and we have fully
reserved all of our deferred tax assets.
The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and
reported as a separate line item on the Condensed Consolidated Statements of
Operations under the caption "Income from discontinued operations."
Additionally, the gain we recognized from the sale of this business has been
reported as a separate line item under the caption "Gain from sale of
discontinued operations." The gain for the nine months ended September 30,
2000 represents final payment of contingent consideration related to the sale
based upon certain pre-defined metrics, which were achieved in March 2000. We
received the contingent consideration in May 2000.
Liquidity and Capital Resources
At September 30, 2000, our principal sources of liquidity consisted of
$77,657,000 of cash and cash equivalents and $49,623,000 of marketable
securities.
Net cash used in operating activities increased by $11,233,000 to
$19,172,000 for the nine months ended September 30, 2000, compared to
$7,939,000 for the nine months ended September 30, 1999, of which $6,267,000
relates to an increase in operating losses and $4,966,000 reflects cash used
for net working capital. Depreciation and amortization increased by
$16,201,000 to $17,710,000 for the nine months ended September 30, 2000
compared to $1,509,000 for the nine months ended September 30, 1999, primarily
due to amortization expenses related to recent acquisitions. Accounts
receivable, net of allowances, increased
11
<PAGE>
$6,497,000 in the nine months ended September 30, 2000 versus a decrease of
$4,850,000 in the same period last year, primarily due to increased sales
volume in 2000 and the sale of the pharmacy benefit management business in
March 1999. Interest receivable increased $825,000 in the nine months ended
September 30, 2000 from $0 in the same period last year due to interest
receivable on cash equivalents and marketable securities. Prepaid expenses and
other assets increased from $411,000 to $2,207,000 primarily due to increased
prepaid commissions, insurance, licenses and e-detailing program costs.
Accounts payable increased $3,279,000 in the nine months ended September 30,
2000 versus a decrease of $3,239,000 in the same period last year, primarily
due to increased sales volume and the sale of the pharmacy benefit management
business in March 1999. Deferred revenue increased $2,593,000 in the nine
months ended September 30, 2000 from an increase of $437,000 in the same
period last year primarily due to an increase in deferred revenue from e-
detailing and our Medifor and Masterchart products. Allscripts also incurred
non-cash charges of $742,000 and $13,729,000 in the first and second quarter
of 2000, respectively. The first quarter charge relates to stock options
issued to non-employees and the second quarter charge relates to the write-off
of in-process research and development costs.
Net cash used in investing activities increased to $51,637,000 in the nine
months ended September 30, 2000 from $30,112,000 in the first nine months of
1999, primarily as a result of net cash used for acquisitions of $13,568,000
compared to $49,000 of net cash provided by acquistions for the same period in
1999. In addition, capital expenditures increased to $7,074,000 for the nine
months ended September 30, 2000 compared to $1,634,000 for the same period in
1999. The increased level of expenditures in 2000 relates to facility
expansion and improvements, TouchScript computer systems and increases in
capital outlays to accommodate new employees. Currently, we have no material
commitments for capital expenditures, although we anticipate ongoing capital
expenditures in the ordinary course of business.
Net cash provided by financing activities increased to $107,905,000 for the
nine months ended September 30, 2000 compared to $64,422,000 for the nine
months ended September 30, 1999, primarily due to a mandatory redemption of
preferred stock of $34,745,000 which occurred in 1999 and $10,000,000 related
to a private placement of common stock in March, 2000.
On March 10, 2000, we completed a public offering of 1,452,000 shares of
our common stock, at an offering price of $73 per share. The public offering
resulted in gross proceeds of $105,996,000, $5,561,000 of which was applied to
the underwriting discount and approximately $697,000 of which was applied to
related offering expenses. The remaining net proceeds of approximately
$99,738,000 were invested in interest-bearing, investment-grade securities.
We believe that our existing cash, cash equivalents and marketable
securities will be sufficient to meet the anticipated cash needs of our
current business for the next twelve months. However, any projections of
future cash needs and cash flows are subject to substantial uncertainty. We
will, from time to time, consider the acquisition of, or investment in,
complementary businesses, products, services and technologies, which might
impact our liquidity requirements or cause us to issue additional equity or
debt securities. There can be no assurance that financing will be available in
the amounts or on terms acceptable to us, if at all.
Recently Issued Accounting Pronouncements
In December 1999, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which provides the SEC's views in applying generally accepted
principles to selected revenue recognition issues. Adoption of SAB 101 is
required in the fourth quarter of fiscal year 2000. We do not expect SAB 101
to have a material impact on our consolidated results of operations or
financial position.
Safe Harbor For Forward-Looking Statements
This report and statements we or our representatives make contain forward-
looking statements that involve risks and uncertainties. We develop forward-
looking statements by combining currently available information
12
<PAGE>
with our beliefs and assumptions. These statements often contain words like
believe, expect, anticipate, intend, contemplate, seek, plan, estimate or
similar expressions. Forward-looking statements do not guarantee future
performance. Recognize these statements for what they are and do not rely upon
them as facts.
Forward-looking statements involve risks, uncertainties and assumptions,
including, but not limited to, those discussed in this report. We make these
statements under the protection afforded them by Section 21E of the Securities
Exchange Act of 1934. Because we cannot predict all of the risks and
uncertainties that may affect us, or control the ones we do predict, our
actual results may be materially different from the results we express in our
forward-looking statements.
For a more complete discussion of the risks, uncertainties and assumptions
that may affect us, see our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 and our Registration Statement on Form S-4 (File No.
333-49568).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2000, we did not own any derivative financial
instruments but we were exposed to market risks, primarily changes in U.S.
interest rates. We maintain a significant portion of our cash, cash
equivalents and marketable securities in financial instruments with maturities
ranging from less than one month to approximately 12 years, with the majority
being less than one year. These financial instruments are subject to interest
rate risk and will decline in value if interest rates increase. Nevertheless,
because these financial instruments have relatively short durations, on
average, an increase in interest rates would not have a significant effect on
our financial condition or results of operations.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits--See Index to Exhibits.
(b) Reports on Form 8-K.
A report on Form 8-K dated July 27, 2000 was filed by Allscripts in
connection with the announcement of the acquisition of ChannelHealth
Incorporated.
A report on Form 8-K/A dated July 24, 2000, (which amends the report on
Form 8-K dated May 24, 2000) was filed by Allscripts to provide pro forma
financial information in connection with the merger with MasterChart, Inc.
A report on Form 8-K/A dated July 25, 2000, (which amends the report on
Form 8-K dated July 24, 2000) was filed by Allscripts to amend certain pro
forma financial information in connection with the merger with MasterChart,
Inc.
A report on Form 8-K/A dated July 25, 2000, (which amends the report on
Form 8-K dated May 31, 2000) was filed by Allscripts to provide pro forma
financial information in connection with the merger with Medifor, Inc.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Allscripts, Inc.
(Registrant)
/s/ David B. Mullen
By: _________________________________
David B. Mullen
President and Chief Financial
Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 14, 2000
15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
2.1* Agreement and Plan of Merger, dated as of July 13, 2000, by
and among Allscripts Holding, Inc., Allscripts Inc., Bursar
Acquisition, Inc., Bursar Acquisition No. 2, Inc., IDX Systems
Corporation and ChannelHealth Incorporated.
27.1 Financial Data Schedule
</TABLE>
--------
*Incorporated herein by reference from the Registrant's Current Report on Form
8-K dated July 27, 2000.
16
