<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 June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 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 July 31, 2000, there were 28,034,729 shares of the Registrant's $0.01
par value common stock outstanding.
<PAGE>
ALLSCRIPTS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At December 31, 1999 and June 30, 2000 1
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 1999 and 2000 2
Condensed Consolidated Statements of Cash Flows
For the six months ended June 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 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</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, June 30,
1999 2000
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,561 $ 83,243
Marketable securities 15,049 30,917
Accounts receivable, net of allowances of $3,743 in 1999
and $3,735 in 2000 5,126 9,733
Interest receivable 340 1,136
Inventories 3,585 4,335
Prepaid expenses and other current assets 786 1,787
---------- ----------
Total current assets 65,447 131,151
Long-term marketable securities - 25,133
Fixed assets, net 4,940 8,898
Intangible assets, net 3,575 167,913
Other assets 52 1,047
---------- ----------
Total assets $ 74,014 $ 334,142
========== ==========
LIABILITIES
Current liabilities:
Accounts payable $ 4,352 $ 6,005
Accrued expenses 1,664 4,941
Deferred revenue 575 1,887
---------- ----------
Total current liabilities 6,591 12,833
Long-term debt 59 -
---------- ----------
Total liabilities 6,650 12,833
---------- ----------
STOCKHOLDERS' EQUITY
Preferred shares:
Undesignated, $0.01 par value, 1,000,000 shares authorized,
no shares issued and outstanding at December 31, 1999 and June 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, 27,931,081 shares issued, 27,896,616 shares outstanding at
June 30, 2000 242 280
1,439,691 shares to be issued pursuant to business combinations - 14
Unearned compensation (1,632) (1,350)
Additional paid-in capital 30,830 410,815
Treasury stock at cost; 34,465 common shares at December 31, 1999 and June
30, 2000 (68) (68)
Accumulated deficit (62,008) (88,382)
---------- ----------
Total stockholders' equity 67,364 321,309
---------- ----------
Total liabilities and stockholders' equity $ 74,014 $ 334,142
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
<PAGE>
ALLSCRIPTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
------------------------- -----------------------
1999 2000 1999 2000
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 6,392 $ 12,616 $ 12,420 $ 22,263
Cost of revenue 5,143 9,492 9,708 17,089
------- -------- -------- --------
Gross profit 1,249 3,124 2,712 5,174
Selling, general and administrative expenses 4,554 10,748 8,104 19,693
Amortization of intangibles 175 5,443 268 6,017
Write-off of acquired in-process research and development - 13,729 - 13,729
------- -------- -------- --------
Loss from operations (3,480) (26,796) (5,660) (34,265)
Interest income (expense), net (91) 2,272 (200) 3,455
------- -------- -------- --------
Loss from continuing operations (3,571) (24,524) (5,860) (30,810)
Income from discontinued operations - - 26 83
Gain from sale of discontinued operations - 193 3,547 4,353
------- -------- -------- --------
Net loss (3,571) (24,331) (2,287) (26,374)
Accretion of mandatory redemption value of
preferred shares and accrued dividends on preferred shares (699) - (1,398) -
------- -------- -------- --------
Net loss attributable to common stockholders $(4,270) $(24,331) $ (3,685) $(26,374)
======= ======== ======== ========
Per share data-basic and diluted:
Continuing operations (including accretion and accrued
dividends on preferred shares) $ (0.48) $ (0.88) $ (0.84) $ (1.17)
Discontinued operations - 0.01 0.41 0.17
------- -------- -------- --------
Net loss attributable to common stockholders $ (0.48) $ (0.87) $ (0.43) $ (1.00)
======= ======== ======== ========
Weighted average shares of common stock outstanding
used in computing per share data-basic and diluted 8,859 27,931 8,667 26,432
======= ======== ======== ========
</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>
Six Months Ended
June 30,
-------------------------
1999 2000
-------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,287) $ (26,374)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 747 7,210
Gain on sale of discontinued operations (3,547) (4,353)
Write-off of acquired in-process research and development - 13,729
Non-cash compensation expense-employees 271 282
Non-cash expense-non-employees - 742
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 6,034 (3,494)
Increase in interest receivable - (796)
Increase in inventories (692) (570)
Increase in prepaid expenses and other assets (249) (935)
(Decrease) increase in accounts payable (2,402) 1,203
(Decrease) increase in accrued and other current liabilities (483) 2,369
--------- ---------
Net cash used in operating activities
(2,608) (10,987)
--------- ---------
Cash flows from investing activities:
Capital expenditures (694) (4,238)
Purchases of marketable securities - (53,699)
Proceeds from sale of marketable securities - 12,924
Proceeds from sale of discontinued operations 7,473 4,353
Cash used for acquisitions, net of acquired cash 49 (12,674)
Purchase of investment - (1,000)
--------- ---------
Net cash provided by (used in) investing activities 6,828 (54,334)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of common stock options 109 570
Proceeds from public offering - 99,743
Cash received from sale of common stock - 10,000
Borrowings under line of credit 1,400 -
Payments under line of credit (1,500) (2,251)
Payments on long-term debt - (59)
--------- ---------
Net cash provided by financing activities 9 108,003
--------- ---------
Net increase in cash and cash equivalents 4,229 42,682
Cash and cash equivalents, beginning of period 718 40,561
--------- ---------
Cash and cash equivalents, end of period $ 4,947 $ 83,243
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidted
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. Allscripts does not
expect SAB 101 to have a material impact on Allscripts' 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 $692,000 of which was
applied to related offering expenses. The remaining net proceeds of
approximately $99,743,000 were invested in interest-bearing, investment-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 the software's
estimated useful life. Tradenames 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.
4
<PAGE>
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 $4,200,000. 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 charged against operations during the three months ended June 30, 2000.
Tradenames 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 six months ended June 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>
Six Months Ended
June 30,
------------------------------------------------
1999 2000
--------------------- -------------------
(In thousands, except per share amounts) (Unaudited)
<S> <C> <C>
Revenue $ 13,920 $ 23,983
Loss from continuing operations (including accretion and $ (25,763) $ (44,614)
accrued dividends on preferred shares)
Net loss attributable to common stockholders $ (22,190) $ (40,178)
Per share data - basic and diluted:
Loss from continuing operations (including accretion $ (2.30) $ (1.58)
and accrued dividends on preferred shares)
Net loss attributable to common stockholders $ (1.98) $ (1.42)
Weighted average shares of common stock outstanding
used in computing basic and diluted loss per share 11,221 28,283
</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
5
<PAGE>
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 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
were 10,245,131 and 2,417,646 shares at June 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:
6
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------------
1999 2000
------------------- ------------------
(In thousands)
(Unaudited)
<S> <C> <C>
Revenue $ 14,292 $ -
Cost of revenue 13,378 -
------------------- ------------------
Gross profit 914 -
Selling, general and administrative expenses 762 (83)
Amortization of intangibles 126 -
------------------- ------------------
Operating income 26 83
------------------- ------------------
Income from discontinued operations $ 26 $ 83
=================== ==================
</TABLE>
Included in revenue for the first six months of 1999 is $375,000 from
Anthem, Inc., a related party.
For the six months ended June 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 on 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 2000. The contingent consideration was received by
Allscripts in May of 2000.
9. Subsequent Event
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. This acquisition, which will be accounted for as a purchase, is
expected to close in the fourth quarter of 2000. Consumation of the acquisition
is subject to regulatory approval and the approval of Allscripts' stockholders.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. We currently derive our revenue from the sale of
prepackaged medications, software licenses, computer hardware 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>
(Unaudited)
Quarter Ended
-------------------------------------------------------------------------------
1999 2000
-------------------------------------------------- -----------------------
--------- --------- ---------- --------- --------- ---------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
--------- --------- ---------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Traditional revenue...... $5,235 $4,537 $4,035 $4,085 $4,443 $ 4,993
E-commerce revenue....... 793 1,855 2,940 4,106 5,204 7,623
------- ---------- ----------- --------- --------- ---------
Total revenue........... $6,028 $6,392 $6,975 $8,191 $9,647 $12,616
======= ========== =========== ========= ========= =========
</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 primarily 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, computer hardware sales
and leases, transaction fees, e-detailing and related services. For the three
months ended June 30, 2000, sales of prepackaged medications represented 58.0%
of e-commerce revenue. For the three months ended June 30, 2000, 21.4% 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 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 $1,350,000 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
8
<PAGE>
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. See Note 9 of Notes to
Condensed Consolidated Financial Statements. In connection with the
ChannelHealth acquisition, which is expected to close in the fourth quarter of
2000, 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.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Total revenue for the three months ended June 30, 2000 increased by 97.4%
or $6,224,000 from $6,392,000 in 1999 to $12,616,000 in 2000. E-commerce
revenue increased by 310.9% or $5,768,000 from $1,855,000 in the second quarter
of 1999 to $7,623,000 in the second quarter of 2000. Traditional revenue for the
three months ended June 30, 2000 increased by 10.1% or $456,000 from $4,537,000
in 1999 to $4,993,000 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 ordering products over the Internet, an increase in the
dispensing percentage of brand drugs, which have a higher average selling price
than their generic counterparts, revenue generated from the MasterChart and
Medifor acquisitions, which closed in May, 2000, revenue generated from our e-
detailing product and revenue generated by other information-related services.
The increase in traditional revenue reflects an increase in new customers
obtained through internal business generation and acquisition, general price
inflation of brand medications, an increase in the dispensing percentage of
brand drugs, which have a considerably higher average selling price than their
generic counterparts, and traditional revenue generated by MedSmart, which was
acquired in May 1999.
Cost of revenue for the three months ended June 30, 2000 increased by 84.6%
or $4,349,000 from $5,143,000 in 1999 to $9,492,000 in 2000 due to increased
revenue, a greater percentage of revenue coming from higher cost brand
medications, increased operating costs at sites where we manage the dispensary
on behalf of the physician and increased depreciation expense due to increased
volume of TouchScript system installations. For the three months ended June 30,
2000, cost of revenue as a percentage of total revenue decreased to 75.2% from
80.5% in the prior year period principally due to higher relative margin
contributions from information related services, software licensing fees, our e-
detailing product and our Medifor and Masterchart acquisitions. This percentage
decrease was partially offset by a greater percentage of revenue coming from
lower margin brand medications, increased operating costs at sites where we
manage the dispensary on behalf of the physician and increased depreciation
expense.
Selling, general and administrative expenses for the three months ended
June 30, 2000 increased by 136.0% or $6,194,000 from $4,554,000 in 1999 to
$10,748,000 in 2000 due primarily to additional spending for sales support
personnel and related expenses needed to sell, implement and support TouchScript
installations, other corporate expenses, general and administrative expenses
related to MedSmart, MasterChart and Medifor operations that were acquired
during May 1999 and May 2000, and additional spending for TouchScript and
Internet product development personnel and related support expenses. As a
result, selling, general and administrative expenses as a percentage of total
revenue increased to 85.2% for the three months ended June 30, 2000 from 71.2%
of total revenue in the prior year period.
Amortization of intangibles for the three months ended June 30, 2000
increased by 3,010.3% or $5,268,000 from $175,000 in 1999 to $5,443,000 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, 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 three months ended June 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.
9
<PAGE>
Net interest income for the three months ended June 30, 2000 was $2,272,000
as compared to net interest expense of $91,000 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 June 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 recorded during the first six months of 2000 represents final payment of
contingent consideration related to the sale based upon certain pre-defined
metrics, which were achieved in 2000. Allscripts received the contingent
consideration in May 2000.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Total revenue for the six months ended June 30, 2000 increased by 79.3% or
$9,843,000 from $12,420,000 in 1999 to $22,263,000 in 2000. E-commerce revenue
increased by 384.4% or $10,179,000 from $2,648,000 for the six months ended June
30, 1999 to $12,827,000 for the same period of 2000. Traditional revenue for the
six months ended June 30, 2000 decreased by 3.4% or $336,000 from $9,772,000 in
1999 to $9,436,000 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 ordering products over the Internet, an increase in the
dispensing percentage of brand drugs, which have a higher average selling price
than their generic counterparts, revenue generated from our e-detailing product,
revenue generated by our Medifor and Masterchart acquisitions and other
information related services. The decrease in traditional revenue reflects a
conversion of traditional revenue to e-commerce, as outlined above, offset
partially by general price inflation of brand 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.
Cost of revenue for the six months ended June 30, 2000 increased by 76.0%
or $7,381,000 from $9,708,000 in 1999 to $17,089,000 in 2000 due to increased
revenue, a greater percentage of revenue coming from higher cost brand
medications, increased operating costs at sites where we manage the dispensary
on behalf of the physician and increased depreciation expense due to increased
volume of technology sites, increased costs of technical support. For the six
months ended June 30, 2000, cost of revenue as a percentage of total revenue
decreased from 78.2% in the prior year period to 76.8% principally due to higher
relative margin contributions from software license fees, our e-detailing
product, other information related service revenues and from our Medifor and
Masterchart acquisitions. This percentage decrease was partially offset by a
greater percentage of revenue coming from lower margin brand meditations,
increased operating costs at sites where we manage the dispensary on behalf of
the physician, increased depreciation expense and increased costs of technical
support.
Selling, general and administrative expenses for the six months ended June
30, 2000 increased by 143.0% or $11,589,000 from $8,104,000 in 1999 to
$19,693,000 in 2000 due primarily to additional spending for sales support
personnel and related expenses needed to sell, implement and support TouchScript
installations, expenses related to MedSmart, MasterChart and Medifor operations
that were acquired during May 1999 and May 2000, other corporate
10
<PAGE>
expenses, additional spending for product development personnel and related
support 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 88.5% for the six months ended June 30,
2000 from 65.2% of total revenue in the prior year period.
Amortization of intangibles for the six months ended June 30, 2000
increased by 2,145.1% or $5,749,000 from $268,000 in 1999 to $6,017,000 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 six months ended June 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.
Net interest income for the six months ended June 30, 2000 was $3,455,000
as compared to net interest expense of $200,000 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 six
months ended June 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 six months ended June 30, 2000 represents final payment of
contingent consideration related to the sale based upon certain pre-defined
metrics, which were achieved in March 2000. Allscripts received the contingent
consideration in May 2000.
Liquidity and Capital Resources
At June 30, 2000, our principal sources of liquidity consisted of
$83,243,000 of cash and cash equivalents and $56,050,000 of marketable
securities.
Net cash used in operating activities increased by $8,379,000 to
$10,987,000 for the six months ended June 30, 2000, compared to $2,608,000 for
the six months ended June 30, 1999, primarily due to an increase in operating
losses. Depreciation and amortization increased by $6,463,000 to $7,210,000 for
the six months ended June 30, 2000 compared to $747,000 for the six months
ended June 30, 1999 due primarily to amortization expenses related to recent
acquisitions. Accounts receivable, net of allowances, increased $3,494,000 in
the six months ended June 30, 2000 versus a decrease of $6,034,000 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 $796,000 in the six months ended June 30, 2000 from zero in the same
period last year due to interest receivable on cash equivalents and marketable
securities. Accounts payable increased $1,203,000 in the six months ended June
30, 2000 versus a decrease of $2,402,000 in the same period last year, primarily
due to the sale of the pharmacy benefit management business in March 1999.
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 warrants 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 $54,334,000 in the six
months ended June 30, 2000 from net cash generated from investing activities of
$6,828,000 in the first six months of 1999, primarily as a result of the net
purchases of marketable securities of $40,775,000 in the first six months of
2000. In addition, net cash used for acquisitions increased to $12,674,000 in
the first six months of 2000 from zero in the prior year period. Capital
expenditures were $4,238,000 for the six months ended June 30, 2000 compared to
$694,000 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.
11
<PAGE>
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 $108,003,000 for the
six months ended June 30, 2000 compared to $9,000 for the six months ended June
30, 1999, primarily due to the receipt of net proceeds of $99,743,000 from the
public offering of our common stock and $10,000,000 related to a private
placement of common stock. Both occurred in March 2000.
On March 10, 2000, Allscripts completed a public offering of 1,452,000
shares of its common stock, at an initial public 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
$692,000 of which was applied to related offering expenses. The remaining net
proceeds of approximately $99,743,000 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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of June 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
12
<PAGE>
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.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On May 9, 2000 Allscripts issued an aggregate of 1,617,873 shares of its
common stock in exchange for all of the outstanding common shares of
MasterChart, Inc. Exemption from registration is claimed pursuant to Section
4(2) of the Securities Act of 1933, no public sale having been involved.
On May 17, 2000, Allscripts issued an aggregate of 935,858 shares of its
common stock and issued 142,786 replacement common stock options in exchange for
all of the outstanding common and preferred A and B shares of Medifor, Inc.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act of 1933, no public sale having been involved.
Item 4. Submission of Matters to a Vote of Security Holders.
At Allscripts' Annual Meeting of Stockholders held on May 10, 2000, the
stockholders (1) elected Philip D. Green, L. Ben Lytle and Edward M. Philip as
directors of Allscripts to hold office until the 2003 annual meeting of
stockholders (subject to the election and qualification of their successors or
their earlier death, resignation or removal); (2) approved the amendment of our
Certificate of Incorporation to increase the number of authorized shares of
common stock from 75,000,000 to 150,000,000; and (3) approved the amendment of
our Amended and Restated 1993 Stock Incentive Plan to increase the number of
shares that may be issued under the Plan by 3,000,000. The votes were as
follows:
<TABLE>
<CAPTION>
Votes for Votes against Withheld/Abstain
<S> <C> <C> <C>
(1) Election of directors:
Philip D. Green 19,204,815 - 76,447
L. Ben Lytle 19,204,815 - 76,447
Edward M. Philip 19,277,215 - 4,047
(2) Approval of amendment of
Certificate of Incorporation 18,811,465 469,247 550
(3) Approval of amendment of the
Amended and Restated 1993 Stock 12,375,503 6,903,874 1,885
Incentive Plan
</TABLE>
13
<PAGE>
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 May 24, 2000 was filed by Allscripts
in connection with the announcement of the merger with
MasterChart, Inc.
A report on Form 8-K dated May 31, 2000 was filed by Allscripts
in connection with the announcement of the merger with Medifor,
Inc.
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/A 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.
Date: August 11, 2000 ALLSCRIPTS, INC.
(Registrant)
By: /s/ David B. Mullen
--------------------------------
David B. Mullen
President and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
15
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
------- -----------
2.1* Agreement and Plan of Merger, dated as of March 13, 2000, among the
Registrant, MC Acquisition Corp., MasterChart, Inc. and certain
shareholders of MasterChart, Inc., together with a list of exhibits
and schedules thereto. Such exhibits and schedules are not filed, but
the Registrant undertakes to furnish a copy of any such exhibit or
schedule to the Securities and Exchange Commission upon request.
2.2* Amendment No. 1 to Agreement and Plan of Merger, dated as of May 9,
2000, by and among the Registrant, MC Acquisition Corp., MasterChart,
Inc. and certain shareholders of MasterChart, Inc.
2.3** Agreement and Plan of Merger, dated as of April 12, 2000, among the
Registrant, WebDoc Acquisition Corp., Medifor, Inc. and certain
shareholders of Medifor, Inc., together with a list of exhibits and
schedules thereto. Such exhibits and schedules are not filed, but the
Registrant undertakes to furnish a copy of any such exhibit or
schedule to the Securities and Exchange Commission upon request.
3.1 Amended and Restated Certificate of Incorporation, as amended May 18,
2000.
10.1 Amended and Restated 1993 Stock Incentive Plan, as amended May 10,
2000.
10.2* Registration Rights Agreement dated as of May 9, 2000 by and among the
Registrant and certain shareholders of MasterChart, Inc.
10.3** Registration Rights Agreement dated as of May 17, 2000 by and among
the Registrant and certain shareholders of Medifor, Inc.
10.4 Employment Agreement dated as of April 5, 2000 by and between the
Registrant and Lee A. Shapiro.
27.1 Financial Data Schedule.
________________
* Incorporated herein by reference from the Registrant's Current Report on
Form 8-K dated May 24, 2000.
** Incorporated hereby by reference from the Registrant's Current Report on
Form 8-K dated May 31, 2000.
16
