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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 011-12799
INFOCURE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 58-2271614
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1765 THE EXCHANGE BUILDING
SUITE 500
ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (770) 221-9990
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to be
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 28, 2000 was approximately $559.5 million (based on
the last sale price of a share of Common Stock as of March 28, 2000
($18 13/16)), as reported by the Nasdaq National Market.
As of March 28, 2000, 33,134,445 shares of the registrant's Common Stock,
$0.001 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
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INFOCURE CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Item X. Executive Officers of the Registrant........................ 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 17
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 29
Item 8. Financial Statements and Supplementary Data................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 30
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 30
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 36
Item 13. Certain Relationships and Related Transactions.............. 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 37
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PART I
ITEM 1. BUSINESS
OVERVIEW
InfoCure is a leading national provider of healthcare practice management
software products and services to targeted healthcare practice specialties.
InfoCure's systems are used primarily by small to mid-size medical practices
within the following practice areas: anesthesiology, dental, dermatology and
plastic surgery, emergency medicine, general medical, oral and maxillofacial
surgery, ophthalmology, orthodontics, pathology, pediatrics, podiatry and
radiology. Our systems include software and related hardware, ongoing training
and support and electronic data interchange, or "EDI" services. These systems
are designed to increase the quality and reduce the cost of providing care by
allowing physicians to manage their practices more efficiently and reduce the
administrative burdens created by an increasingly complex healthcare
environment.
RECENT EVENTS
InfoCure is currently reorganizing its business to facilitate changes in
its pricing of practice management software products, its delivery of these
products to customers and the scope of its product offerings. During the fourth
quarter of 1999, InfoCure acquired five companies that provide dental practice
management solutions, increasing InfoCure's number of dental customers by
approximately 9,100 practices. These acquisitions, along with InfoCure's
determination that there is a natural segregation of InfoCure's business into
medical and dental specialties, have caused InfoCure to divide its business into
a medical division and a dental division. The medical division consists of
InfoCure's business for general medical practices and medical specialty
practices in the areas of anesthesiology, dermatology and plastic surgery,
emergency medicine, oncology, ophthalmology, pathology, pediatrics, podiatry and
radiology. The dental division consists of the portion of InfoCure's business
that serves dental, orthodontics and oral and maxillofacial surgery practices.
As part of the reorganization, InfoCure intends to transfer the assets of
its medical division to VitalWorks, Inc., a newly-formed subsidiary of InfoCure.
VitalWorks intends to develop new practice management software applications that
can be delivered through the application services provider, or "ASP," delivery
model. In the ASP delivery model, VitalWorks would remotely host applications
from an offsite central server which physicians would access over dedicated
lines, virtual private networks or the Internet. VitalWorks also intends to
offer its new practice management applications through installations directly in
physicians' offices as "practice-hosted" systems. VitalWorks intends to
primarily target physicians that practice in groups of 25 or less.
VitalWorks also intends to offer Internet solutions that will allow its
customers to utilize the Internet to enhance office workflow and conduct
business-to-business e-commerce. VitalWorks is continuing to develop its
Internet solutions and to establish strategic relationships to facilitate these
product offerings. Upon successful completion of these efforts, VitalWorks plans
to offer customers the following Internet solutions:
- Enhanced EDI Services. InfoCure currently offers EDI services that
enable customers to electronically submit claims to payors, receive
payments, check patient eligibility and process patient statements.
VitalWorks intends to enter into a strategic relationship to enable EDI
transactions to be processed over the Internet and to expand the number
of EDI services offered to customers.
- E-Commerce Services. VitalWorks plans to enable online purchasing of a
comprehensive selection of medical and office supplies, medical journals
and books, and other practice needs.
- The Physician Portal. VitalWorks plans to offer a web-based product that
provides physicians with access to patient and clinical data stored in
their practice management applications and access to other Internet
solutions from any personal computer with Internet access.
- Office Desktop. VitalWorks plans to offer an office desktop, or user
interface, that utilizes a web-framework to provide a central access
point for office staff to access VitalWorks' practice management
applications and Internet solutions.
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- Customized Physician Websites. VitalWorks plans to develop interactive
websites for physicians that will enable patients to register, schedule
appointments, pay bills and view medical records online.
As part of the reorganization, InfoCure intends to transfer the assets of
its dental division to PracticeWorks, Inc., which will be a new subsidiary of
InfoCure. InfoCure intends for PracticeWorks to focus on development of Internet
solutions and ASP-delivered practice management applications that are tailored
to the needs of the dental division's customers. In particular, due to
InfoCure's current penetration of the dental market and existing channels of
distribution, InfoCure expects PracticeWorks to generate a significant amount of
business-to-business e-commerce in the dental market. InfoCure expects
PracticeWorks to begin offering its new solutions by the end of 2000.
InfoCure intends for VitalWorks and PracticeWorks to seek new customers and
to offer existing users of InfoCure's classic and core products an opportunity
to upgrade to their new ASP-delivered products.
In connection with InfoCure's strategy to develop ASP-delivered products,
InfoCure plans to convert to subscription-based pricing for substantially all of
its products and services. Under this subscription pricing model, customers will
pay a fixed, monthly fee for use of InfoCure's practice management applications
and Internet solutions and the computer hardware necessary to utilize those
applications and solutions. This represents a change in InfoCure's historical
pricing model in which customers were charged an initial licensing fee for use
of practice management products and continuing maintenance, support and EDI
transaction fees. InfoCure intends to begin offering substantially all of its
products and services on the subscription pricing model in the second quarter of
2000. InfoCure will initially continue to derive substantially all of its
revenue from hardware and software maintenance and support fees and EDI
transaction fees that will be paid by its existing customers. As a result of the
transition to subscription pricing model, InfoCure expects to see a decline in
one-time revenue from software license fees and hardware sales, replaced over
time by monthly subscription fees. In addition, InfoCure expects revenue from
maintenance, support and EDI transaction fees from existing customers to decline
and be replaced by subscription fees as existing customers convert to the
subscription pricing model. InfoCure expects the percentage of revenue that is
recurring in nature to increase substantially as a result of the change to a
subscription pricing model.
This reorganization of InfoCure, the change in InfoCure's product strategy
to develop and offer ASP-delivered products and Internet solutions and the
transition to a subscription pricing model involves certain risks and
assumptions. There can be no assurance that InfoCure will successfully implement
these changes in its organization, product strategy or pricing model or that the
changes will not have a material adverse effect on InfoCure's business,
financial condition or results of operations. See "Disclosure Regarding Forward-
Looking Information" beginning on page 9.
Note 14 to InfoCure's Consolidated Financial Statements sets forth certain
financial information regarding InfoCure's medical and dental divisions.
In February 2000, InfoCure entered into an agreement with Healtheon/WebMD
whereby Healtheon/ WebMD would acquire up to $100.0 million of convertible
redeemable preferred stock of VitalWorks. In consideration of the investment,
the agreement provides for development and distribution agreements between the
parties to create an industry-standard physician practice management system to
be delivered through an ASP delivery model. Similarly, the parties entered into
a marketing agreement which, with respect to services conducted by VitalWorks,
provides for utilization, delivery and promotion of Healtheon/WebMD's clinical,
financial transaction and EDI services. InfoCure received $10.0 million in
exchange for shares of Series A preferred stock of VitalWorks, which will
automatically be converted into 1% of the outstanding common stock of VitalWorks
(on a diluted basis) upon completion of an initial public offering of
VitalWorks. The agreement contemplates the investment of an additional $90
million upon completion of an initial public offering of VitalWorks, subject to
regulatory approval and approval of both companies' board of directors. The
companies are currently negotiating definitive documentation and discussing the
terms of their relationship, including the amount and form of the contemplated
further investment by Healtheon/WebMD in VitalWorks.
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FORMATION AND ACQUISITIONS
InfoCure was incorporated in Delaware in November 1996. Prior to July 10,
1997, InfoCure conducted no significant operations and generated no revenue. On
July 10, 1997, InfoCure completed its initial public offering and the
acquisitions of four companies. During the remainder of 1997 and 1998, InfoCure
completed acquisitions of nine additional companies.
During 1999, InfoCure acquired the following businesses:
COMPANY CLOSING DATE BUSINESS
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Macon Systems February 12, 1999 Practice Management Software for
Management, LLC, the parent of Dermatologists
Medical Software Management,
Inc.
OMSystems, Inc. February 18, 1999 Practice Management Software for
Orthodontics
Strategicare, Inc. and its June 1, 1999 Practice Management Software for
wholly-owned subsidiary DISC General Medical Practices
Computer Systems, Inc.
Ardsley, M.I.S., Inc. d/b/a August 17, 1999 Practice Management Software for
Glentec Business Computers, Orthodontists
Inc.
Medfax Corporation August 30, 1999 Practice Management Software for
Radiologists and other Medical
Practices
Scientific Data Management, Inc. August 31, 1999 Practice Management Software for
General Medical Practices
Datamedic Holding Corp. November 9, 1999 Practice Management Software and
Clinical Systems for
Ophthalmologists, Oncologists
and Other Physicians
The dental business of National December 15, 1999 Practice Management Software for
Data Corporation ("NDC") Dentists
The dental practice management December 20, 1999 Practice Management Software for
software business of Zila, Dentists
Inc., known as PracticeWorks
Kevin Kozlowski, Inc. d/b/a December 20, 1999 Practice Management Software for
Human Touch Software Dentists
Unident Corporation December 21, 1999 Practice Management Software for
Dentists
InfoLogic, Inc. December 21, 1999 Practice Management Software for
Dentists
VitalWorks, Inc. December 21, 1999 ASP-Delivered Practice
Management Applications for
General Medical Practices
Prism Data Systems, Inc. December 29, 1999 Practice Management Software for
Ophthalmologists
CDL Healthcare Systems, Inc. December 30, 1999 Practice Management Software for
General Medical Practices
InfoCure also acquired substantially all of the assets of VitalWorks, Inc.
("Acquired VitalWorks"), including rights to the "VitalWorks" trademark, in
December 1999. Acquired VitalWorks developed ASP-
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delivered practice management software applications which it began offering to
customers during the third quarter of 1999. The Acquired VitalWorks practice
management software applications were developed to deliver practice management
applications through a browser-based interface over the Internet. InfoCure is
utilizing the Acquired VitalWorks practice management software applications in
the development of its own ASP-delivered practice management software
applications. The acquisition of Acquired VitalWorks added three physician
practice sites.
In addition, in 1999 InfoCure acquired technology assets in connection with
the acquisition of PhyNet EDI Solutions, L.L.C. and Crunchy Frog Software, Inc.
INDUSTRY OVERVIEW
Healthcare costs in the United States have risen dramatically over the past
two decades and, according to the Healthcare Financing Administration, amounted
to approximately $1.2 trillion in 2000 and are expected to grow to $2.2 trillion
in 2008. Federal and state governments, insurance carriers and other third-party
payors have moved aggressively to control these rising costs. As a result,
physicians are under increasing pressure to reduce costs and operate their
practices more efficiently. One of the ways in which third-party payors have
managed rising costs has been to employ alternative reimbursement models to
replace the fee-for-service reimbursement model which has been the traditional
basis for payment for healthcare services. Such alternative reimbursement models
include managed care, fixed-fee and capitated models of reimbursement. The
result of these generally more restrictive reimbursement practices has been a
dramatic increase in the complexity of accounting, billing and collecting
payment for healthcare services.
To address these challenges, healthcare providers are increasingly
utilizing information technology, including practice management systems. While
spending for information technology within the healthcare industry has
historically been below that of other industries, healthcare information
technology expenditures are expected to be $21.0 billion during 2000.
Practice management systems include a range of software products and
services for physicians and other healthcare providers. Most practice management
systems provide several common functions, including practice administration
functions, such as patient scheduling; financial functions, such as patient
billing and receivables management; and may include clinical functions, such as
patient charting and treatment planning.
The continued evolution of information and telecommunication technologies
has led to the development of electronic tools that can be integrated with
practice management systems. These tools can help to improve a healthcare
practice's cash flow by facilitating EDI, thereby enabling more accurate and
rapid submission of claims to third-party payors and more rapid receipt of
corresponding reimbursements. According to Faulkner & Gray, a leading market
research firm focused on the electronic commerce and EDI markets, only 62% of
the 4.4 billion claims submitted in 1998 were processed electronically. Of
these, only 1% were effected through the Internet. Paper claims require more
time and are significantly more expensive to prepare, file and process than
electronically-submitted claims. According to American Health Consultants, a
publisher of health care newsletters, the combined costs to payors and providers
of processing a manual claim total approximately 15% of the average claim
amount. EDI transactions, on the other hand, can be processed directly with
third-party payors or channeled through processing clearinghouses at
significantly lower costs to the provider and the payor. Because of these
significant cost savings, some payors are beginning to require practitioners to
submit reimbursement claims electronically.
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PRODUCTS AND SERVICES
Product Features. InfoCure offers a wide range of practice management
software products to healthcare providers in targeted specialty markets. These
products are designed to automate the administrative, financial and clinical
information management functions of office-based, hospital-based and
enterprise-wide healthcare practices. Customers are able to choose from a menu
of features and functions most essential to their practices, primarily in the
following areas:
- Administrative management -- appointment scheduling, patient
correspondence and referral analysis;
- Financial management -- payor billing, patient billing and accounts
receivable management; and
- Clinical information management -- complete documentation of patient
visits, patient medical history and treatment planning.
In addition to providing standard practice management features, many of
InfoCure's software products offer advanced features that serve the specific
needs of InfoCure's targeted healthcare practice specialties. For example,
anesthesiologists are required to bill their services on the basis of time
units; oral and maxillofacial surgeons must have the capability to process both
medical and dental claims; orthodontists must have the ability to offer their
patients contract billing alternatives; and radiologists require specialized
scheduling, film tracking and image delivery capabilities.
Specialty Markets. As of March 30, 2000, InfoCure had an installed base of
approximately 23,000 customer sites and had systems installed in all 50 states.
Approximately 35% of InfoCure's customer sites (representing 74% of InfoCure's
providers) are medical and approximately 65% of InfoCure's customer sites
(representing 26% of InfoCure's providers) are dental. InfoCure markets its
products to the following targeted specialties:
- Dental
- Dermatology and Plastic Surgery
- Hospital Based (Anesthesiology, Emergency Medicine, Pathology and
Radiology)
- General Medical (including pediatrics)
- Ophthalmology
- Oral and Maxillofacial Surgery
- Orthodontics
- Podiatry
In 1999, InfoCure derived approximately 75% of its revenue from medical
customers and approximately 25% from dental customers.
Principal Products. InfoCure classifies its principal practice management
software products as either "core" or "classic." Core products offer advanced
functionality and operate with the latest generation of operating systems and
hardware platforms. In addition, core products are the primary products offered
to InfoCure's targeted practice areas. Classic products, while continuing to
offer adequate functionality, typically lack advanced practice management
features and are not designed for the latest generation of operating systems. In
the second quarter of 2000, InfoCure expects its medical division to actively
market six core products and support 31 classic products and its dental division
to actively market five core products and support 25 classic products. InfoCure
believes there is a significant opportunity to provide system upgrades to those
customers utilizing classic and other non-core products by providing a migration
path to its core products. While InfoCure primarily markets its core products,
it will continue to provide customer support for its classic products until it
determines that it is no longer cost effective to do so. Additionally,
approximately 5% of InfoCure's customers currently are using products that were
written for operating systems or hardware platforms that are no longer supported
by their respective vendors. InfoCure is actively promoting the
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migration of customers utilizing these products to newer products and intends to
retire these products at the earliest possible opportunity.
InfoCure has designed its core software products to offer advanced
functionality and to operate with the latest generation of operating systems and
hardware platforms. InfoCure believes that PC-based practice management systems
are standardizing on the Windows family of operating systems. InfoCure's
PC-based core products use Microsoft Corporation's relational database software
(such as SQL Server), operating system software (such as Windows 95, Windows 98
and Windows NT) and networking software (such as Windows Terminal Server).
InfoCure has adopted 32-bit client/server technology for substantially all of
its PC-based core products, maximizing their scalability in local and wide area
network environments.
As part of InfoCure's reorganization, it intends to develop new products
that can be delivered through the ASP delivery model. InfoCure intends for
VitalWorks to develop ASP-delivered products for medical practices and for
PracticeWorks to develop ASP-delivered products for the dental division.
InfoCure intends for VitalWorks and PracticeWorks to develop these ASP-delivered
products to include features that are equal to or improve upon the practice-area
specific features included in InfoCure's classic and core products. VitalWorks
and PracticeWorks plan to begin offering these ASP-delivered products by
practice area as they are completed.
Decision Support Tools. InfoMine is a decision support tool designed to
supplement the analytical features of InfoCure's practice management software
products. InfoMine enables a physician to access, sort and display data
according to any data element selected by the user, including payor, referral
source, reimbursement rate, time interval or other variable. InfoMine offers
physicians a computerized solution for rapidly analyzing the performance of
their practices. InfoMine is currently available to analyze data for most of
InfoCure's target specialties and practice groups and we expect it to be
available for the remaining specialties later in 2000.
Wireless Access Software. InfoCure's InfoUnplugged software allows
physicians to utilize InfoCure's core products from a handheld computing device.
This package provides a physician with wireless access to InfoCure's practice
management system while seeing patients and performing other tasks within the
physician's office. Information input using InfoUnplugged automatically updates
information stored in the practice management system.
Remote Access Software. InfoCure's Info-To-Go software allows data stored
in InfoCure's practice management software products to be downloaded to any
handheld computing device that operates Palm OS software for access when the
physician is away from his or her office. For example, a physician using
Info-To-Go will have access to his or her schedule, referral information and
on-call information. Info-To-Go is currently available for use with InfoCure's
core products.
Electronic Data Interchange Services. InfoCure's core software products
enable transaction-based EDI functions, including patient billing and insurance
claims submission and remittance. The use of EDI can improve a healthcare
practice's cash flow by enabling more accurate and rapid submission of claims to
third-party payors and more rapid receipt of corresponding reimbursements. EDI
services currently include the following:
- Electronic Patient Billing -- electronically submits patient billing
information from practices by dial-up modem or via the Internet to
InfoCure's printing center or to independent national clearinghouses
which process, print and mail invoices and provide billing reports to the
practice.
- Electronic Claims Submission -- electronically submits insurance claims
from practices to payors, either directly or through independent national
clearinghouses.
- Electronic Claims Remittance -- electronically remits insurance payment
and automatically posts explanation of benefits into the practice
management system.
- Patient Insurance Verification -- electronically access insurance and
managed care plans to determine a patient's eligibility and benefits.
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InfoCure generates revenues by facilitating EDI transactions, currently
processing more than seven million EDI transactions each month.
SUPPORT SERVICES
InfoCure believes that customer satisfaction with ongoing support and
services is critical to its success. InfoCure assists customers with the initial
installation of systems and offers several alternatives for training and data
conversion services. InfoCure's customer service and support groups are
organized both by computer platform and practice specialty. In addition to
providing on-site training for certain of its product lines, InfoCure maintains
classroom-based training facilities in 15 locations throughout the United
States. InfoCure sponsors continuing education programs, periodic newsletters
and user group conferences, providing its customers with current information, as
well as an opportunity for InfoCure to demonstrate the features of new and
enhanced products.
InfoCure provides its customers with ongoing software support and services
under annual agreements that typically have automatically renewable one-year
terms. These agreements provide for general support through access to help
desks, error corrections to software, software upgrades within a product line
and remote diagnostics. Customer support and services are provided through a
wide area voice and data network which incorporates automated call distribution
to route customer calls from any location to the appropriate support person,
regardless of physical location. Additionally, InfoCure has acquired a
company-wide customer support software system. This system, which actively
manages approximately 50% of InfoCure's customers, operates within a
client/server environment and provides client-tracking information to assist
InfoCure support representatives. InfoCure's remaining customers are scheduled
to be supported on this system by June 2000. Hardware support is generally
provided directly by the manufacturer or its authorized reseller.
InfoCure has invested significant resources in the systems, facilities and
personnel required to provide outstanding service to its customers. As of
February 29, 2000, the customer support and services group consisted of 839
employees, representing approximately 57.3% of InfoCure's total employee base.
ACQUISITION INTEGRATION
InfoCure has developed significant infrastructure to support the
acquisition and integration of targeted businesses. This infrastructure consists
of management and technical personnel, sophisticated communications technology
and advanced financial and accounting software. An acquisition team, which
includes key members of InfoCure's management and technical staff, identifies
acquisition targets, performs due diligence investigations and negotiates the
terms of each acquisition. An integration team, which includes key operational
personnel, works with each acquired company to identify and complete the various
post-acquisition tasks of integration, including incorporation of desired
product features into InfoCure's products and consolidation of administrative
and financial functions.
InfoCure supports the integration of acquired businesses through
company-wide communications and software systems. Dedicated T-1
telecommunications lines connect each of InfoCure's remote facilities enabling
an integrated computer network and phone system. Each acquired business is
rapidly migrated to this communications system in order to facilitate seamless
integration with InfoCure's operations. InfoCure's accounting software is
capable of standardizing the accounting and financial reporting of newly
acquired companies rapidly, minimizing the time and expense associated with
financial integration. InfoCure believes its infrastructure effectively
positions it to continue to acquire new companies and facilitates the
integration of the operations of each acquired company.
RESEARCH AND DEVELOPMENT
InfoCure's research and development organization is comprised of 248 full
time employees as of February 29, 2000. InfoCure's research and development
efforts historically have principally involved the incorporation of the best
technologies from each acquired product into InfoCure's core practice management
systems. InfoCure's research and development staff facilitate the integration of
acquired products by conducting a technical review of acquired companies'
software products to determine the best available
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functions and features within such products. Based upon this evaluation,
InfoCure either incorporates the features of the acquired product into one or
more of InfoCure's core products, or continues to market and support the
acquired product without revision. InfoCure's research and development staff is
currently focused on developing ASP-delivered practice management software
products and Internet solutions. The development of the ASP-delivered products
involves preparing the products to be delivered through the ASP delivery method
and incorporating practice-area specific features into those products.
SALES AND MARKETING
InfoCure markets its products through a direct sales force, comprised of
148 marketing and sales personnel as of February 29, 2000. InfoCure organizes
its sales force by specialty practice area and computer platform. The sales
force is trained to understand the specialty-specific needs of its customers.
Within its existing customer base, InfoCure promotes and sells system
upgrades, maintenance services, and its EDI services. In addition, InfoCure
targets new customers principally through direct mail campaigns, telemarketing,
seminars, trade shows and advertisements in various publications. InfoCure has
an executive sales group which addresses the complex needs of larger potential
customers. In addition, senior personnel and members of management assist in
sales and marketing initiatives to larger and more technically-advanced
potential customers.
INTELLECTUAL PROPERTY
InfoCure regards its software as proprietary and protects its software
primarily through reliance on copyright law and trade secret protection.
InfoCure generally enters into written license agreements with customers which
contain software license and support terms customary in the industry. In limited
circumstances, InfoCure has distributed its less expensive products under a form
license agreement printed on or inside the software package. In most instances
InfoCure has provided its software products in a form that does not permit the
software code to be altered by the user, although in a limited number of unique
situations it has licensed products in a form that would allow such alterations.
COMPETITION
InfoCure's principal competitors include both national and regional
practice management systems vendors. Currently, the practice management systems
industry in the United States is characterized by a large number of relatively
small, regionally-focused companies, comprising a highly fragmented industry
with only a few national vendors. Smaller, regionally-focused companies
typically market their products to a single practice specialty. Until recently,
larger, national vendors have targeted primarily large healthcare providers.
InfoCure believes that the larger, national vendors may broaden their markets to
include both small and large healthcare providers. In addition, InfoCure
competes with national and regional providers of computerized billing, insurance
processing and record management services to healthcare practices. As the market
for InfoCure's products and services expands, additional competitors are likely
to enter this market. InfoCure believes that the primary competitive factors in
its markets are:
- product features and functionality;
- customer service, support and satisfaction;
- price;
- ongoing product enhancements; and
- the reputation and stability of the vendor.
Some national competitors have greater financial, development, technical,
marketing and sales resources than InfoCure. If competition in the practice
management systems industry intensifies, InfoCure may be required to lower the
prices of its products and services.
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GOVERNMENT REGULATION
The Health Insurance Portability and Accountability Act of 1996, known as
HIPAA, was enacted on August 21, 1996 and required the Secretary of Health and
Human Services to adopt national standards for the transmission of certain types
of patient medical information and the data elements used in such transmissions,
and to adopt standards to ensure the integrity and confidentiality of such
information.
On November 3, 1999, the Secretary of Health and Human Services promulgated
proposed regulations designed to protect the privacy of electronically
transmitted or maintained, individually identifiable health information. We do
not know if these regulations will be adopted in their present form, a different
form, or at all. We believe our practice management applications will enable
compliance with the proposed regulations, but cannot assure you that we will be
able to comply with those proposed regulations in a timely manner or at all. If
these regulations are adopted, authorization may be required before identifiable
patient information could be electronically transmitted to third parties for any
purpose other than treatment, payment or health care operations which include
such activities as quality assessment, verification of a healthcare providers
credentials, insurance rating, peer review, fraud and abuse compliance review
and document production for use in civil or criminal legal proceedings. These
regulations also would require that we enter into agreements with certain of our
customers governing the dissemination of such information and would require that
holders or users of such information implement specified security measures. We
continue to monitor HIPAA activity and are prepared to incorporate any changes
to our practice management applications or our operations that are necessary to
ensure compliance.
The confidentiality of patient records and the circumstances under which
records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the hospital, physician or other healthcare
provider, regulations governing patient confidentiality rights are evolving
rapidly. Additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of this information to implement security
measures. We continue to monitor regulation of patient records by state
governments and are prepared to incorporate any changes to our practice
management applications or our operations that are necessary to ensure
compliance.
The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug and
Cosmetic Act. Computer applications and software are considered medical devices
and subject to regulation by the FDA when they are indicated, labeled or
intended to be used in the diagnosis of disease or other conditions, or in the
cure, mitigation, treatment or prevention of disease, or are intended to affect
the structure or function of the body. We do not believe that any of our current
applications or services are subject to FDA regulation as medical devices;
however, we could expand our application and service offerings into areas that
may subject it to FDA regulation. We have no experience in complying with FDA
regulations. Our compliance with these FDA regulations could prove to be time
consuming, burdensome and expensive, which could have a material adverse effect
on our ability to introduce new applications or services in a timely manner.
EMPLOYEES
As of February 29, 2000, InfoCure employed 1,465 persons, including 148 in
marketing and sales, 839 in customer support and services, 248 in research and
development and 230 in administration, finance and management. None of
InfoCure's employees is subject to a collective bargaining arrangement. InfoCure
considers its relations with its employees to be satisfactory.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information
relating to InfoCure that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When used
in this report, the words "anticipate", "believe", "estimate", "expect",
"intend",
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"plan", or any similar expressions, as they relate to InfoCure or its
management, or the management of any of our businesses, are intended to identify
forward-looking statements. Such statements reflect the current view of InfoCure
with respect to future events and are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended or planned. InfoCure does not intend to update these
forward-looking statements.
The following are some of the factors that could cause InfoCure's actual
results to differ materially from the expected results described in InfoCure's
forward-looking statements:
Our subscription pricing model is unproven and our success depends on
acceptance of this model and our ability to set our subscription fees at
appropriate levels.
Potential customers may not accept our subscription pricing model. The
success of our subscription pricing model depends on our ability to set
subscription fees at rates that will allow us to achieve profitability. The
markets for practice management applications delivered through subscription
pricing are relatively new and evolving. There are relatively few similar
products whose subscription fees we can evaluate in setting our fees and
the providers of those products have also had to set their fees in the
context of an undeveloped market. As a result, we have limited information
from which to evaluate the appropriate level for our subscription fees and
we may fail to set our subscription fees at levels that enable us to become
profitable. In addition, we will enter into multi-year agreements with
subscribers pursuant to which subscription fees or increases in fees will
be locked-in typically for five years, limiting our ability to increase our
subscription fees for those subscribers. If we fail to appropriately price
our subscription fees, achieving profitability could take longer than
expected or we may never achieve profitability.
Our ASP product strategy is unproven and customers may not respond
favorably to our new products.
Providing software applications to physicians through the ASP delivery
model is a business that has only recently begun to develop, and this
concept may not achieve acceptance in the market. In order to successfully
sell our ASP-delivered products, we will need to convince new and existing
customers that the features of these products justify their cost, as well
as the time and administrative expense required to convert to these
products. If we are unsuccessful or if the market for our ASP-delivered
products does not grow or grows slowly, achieving profitability could take
longer than expected or we may never achieve profitability. Achieving
market acceptance for these products will require substantial sales and
marketing efforts and expenditure of significant funds to increase
awareness and demand by our target customers. In addition, our potential
customers may have made extensive investment in hardware, software and
training for existing systems. As a result, they may be unwilling to adopt
new systems. Further, our potential customers could perceive that our
ASP-delivered products will not adequately or cost-effectively address
their requirements.
The failure to successfully complete the development of our Internet
solutions and enter into strategic relationships could harm our business
and limit our potential growth.
Our ability to attract new customers may be dependent upon our ability
to complete the development of our Internet solutions. In addition, our
ability to offer some Internet solutions is contingent upon our entering
into strategic relationships. If we are unsuccessful in completing the
development of our Internet solutions or fail to enter into strategic
relationships, the offering of these products may be delayed or these
products may never become available.
Our ASP product strategy is dependent upon the continued development of the
Internet.
Our ability to offer ASP-delivered products that can be accessed over
the Internet and our Internet solutions on a widespread basis depends on
our potential customers having access to Internet connections with the
necessary speed, bandwidth and data capacity. The availability of this
Internet access will depend on others for the ongoing development of the
Internet infrastructure, including the necessary
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speed, bandwidth, data capacity and security, as well as timely development
of complementary products for providing reliable Internet access and
service. We cannot predict whether the Internet will evolve to the point
where our customers will be able to take full advantage of the services we
offer. If the Internet fails to develop into an efficient medium for these
transactions, our ASP product strategy will be unsuccessful.
Our systems may be vulnerable to security breaches and viruses.
The success of our strategy to offer ASP-delivered products and
Internet solutions depends on the confidence of our customers in our
ability to securely transmit confidential information. Any failure to
provide secure electronic communication services could harm our business
and reputation. Our ASP-delivered products and Internet solutions will rely
on encryption, authentication and other security technology licensed from
third parties to achieve secure transmission of confidential information.
We may not be able to stop unauthorized attempts to gain access to or
disrupt the transmission of communications by our customers. Anyone who is
able to circumvent our security measures could misappropriate confidential
user information or interrupt our, or our customers', operations. In
addition, our ASP-delivered products may be vulnerable to viruses, physical
or electronic break-ins, and similar disruptions.
We plan to expand rapidly and it may be difficult to manage our growth.
We intend to rapidly grow our business. However, we cannot be sure
that we will successfully manage our growth. In order to successfully
manage our growth, we must:
- expand and enhance our administrative infrastructure
- improve our management, financial and information systems and controls
- expand, train and manage our employees effectively
Continued growth could place a further strain on our management,
operations and financial resources. There will also be additional demands
on our sales, marketing and administrative resources as we increase our
product offerings and expand our target markets and customers. We cannot
assure you that our operating and financial control systems, administrative
infrastructure, facilities and personnel will be adequate to support our
future operations or to effectively adapt to future growth. If we cannot
manage our growth effectively, our business may be harmed.
Our growth could be limited if we are unable to attract and retain
qualified personnel.
We believe our success depends largely on our ability to attract and
retain highly skilled technical, managerial and marketing personnel to
develop our products and services. Individuals with the information
technology skills we need to further develop our products and services are
in short supply and competition for qualified personnel is particularly
intense. We may not be able to hire the necessary personnel to implement
our business strategy, or we may need to pay higher compensation for
employees than we currently expect. There can be no assurance we will
succeed in attracting and retaining the personnel we need to continue to
grow and to implement our business strategy. In addition, we depend on the
performance of our executive officers and other key employees. The loss of
any member of our senior management team could negatively impact our
ability to execute our new product strategy and subscription pricing model.
If we are unable to protect our intellectual property rights from third
party challenges, it may significantly impair our competitive position.
We rely on a combination of copyright, trademark and trade secret laws
and restrictions on disclosure to protect the intellectual property rights
related to our software applications. Our software technology is not
patented and existing copyright laws offer only limited practical
protection. In addition, we have not generally entered into confidentiality
agreements with our employees. We cannot guarantee that the legal
protections that we rely on will be adequate to prevent misappropriation of
our technology.
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Further, these protections do not prevent independent third-party
development of competitive products or services. Unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Monitoring use of our products is difficult, and we cannot assure you that
the steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States.
Intellectual property infringement claims against us could be costly to
defend and could divert management's attention away from our business.
As the number of software products in our target markets increases and
as the functionality of these products overlaps, we may become increasingly
subject to the threat of infringement claims. We cannot guarantee that
third parties will not assert infringement claims against us in the future.
Any infringement claims alleged against us, even if without merit, can be
time-consuming and expensive to defend. Any infringement claims may divert
management's attention and resources and could also cause delays in the
delivery of our applications to our customers. Settlement of any
infringement claims could require us to enter into costly royalty or
licensing agreements. If a claim of product infringement against us was
successful and we were unable to license the infringing or similar
technology, our business, financial condition and results of operations
could be harmed.
We may undertake acquisitions which can pose risks to our business.
We may undertake acquisitions if we identify companies with
complementary applications, services, businesses or technologies. We may be
unable to retain the acquired companies' personnel or integrate them into
our company. Our profitability may suffer because of acquisition-related
costs or amortization of acquired goodwill and other intangible assets.
Similarly, the time and expense associated with finding suitable and
compatible companies to enhance our product offering could disrupt our
ongoing business and divert our management's focus.
We may face difficulties integrating acquired businesses.
Our successful integration of the businesses we have acquired is
critical to our future success. Integrating the management and operations
of acquired businesses is time consuming, and we cannot guarantee that we
will achieve any of the anticipated synergies and other benefits expected
to be realized from these acquisitions.
Technology solutions may change faster than we are able to update our
technology.
The healthcare software application market in which we compete is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and the frequent introduction of new services,
software and other products. Our success depends partly on our ability to:
- develop new or enhance existing applications, software and services to
meet our customers' changing needs in a timely and cost-effective way;
- respond effectively to technological changes and new product offerings of
our competitors; and
- develop relationships with strategic partners necessary to offer our
Internet solutions and ASP-delivered products;
We cannot assure you that we will be able to accomplish any or all of
these goals. Many of our competitors may develop products or technologies
that are better or more attractive than ours or that may render our
technology or applications obsolete. If we do not succeed in adapting our
technology, our business could be harmed.
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We are subject to government regulation and legal uncertainties.
Legislation currently being considered at the federal level could
impact the manner in which we conduct our business. HIPAA mandates the
adoption of national standards for the transmission of certain types of
medical information and the data elements used in such transmissions and to
insure the integrity and confidentiality of such information. On November
3, 1999, the Secretary of Health and Human Services promulgated regulations
to protect the privacy of electronically transmitted or maintained,
individually identifiable health information. We believe our products will
enable compliance with the proposed regulations but cannot assure you that
we will be able to comply with those proposed regulations in a timely
manner or at all. Moreover, until the proposed regulations become final,
they could change, which could require us to expend additional resources to
comply with the revised standards and we may not be able to comply with the
revised standards in a timely manner or at all. If any of our products or
services are subject to those regulations, we may be required to incur
additional expenses in order to comply with these requirements, and we may
not be able to comply with them in a timely manner or at all. In addition,
the success of our compliance efforts may also be dependent on the success
of healthcare participants in dealing with the standards. If we are unable
to comply with regulations implementing HIPAA in a timely manner or at all,
the sale of our products and our business could be harmed.
The United States Food and Drug Administration is responsible for
assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer applications and software are
considered medical devices and are subject to regulation by the FDA when
they are indicated, labeled or intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or
prevention of disease, or are intended to affect the structure or function
of the body. We do not believe any of our current products or services are
subject to FDA regulation as medical devices; however, we plan to expand
our product and service offerings into areas that may be subject to FDA
regulation. We have no experience in complying with FDA regulations. Our
compliance with such FDA regulations could prove to be time consuming,
burdensome and expensive, which could adversely affect our ability to
introduce new applications or services in a timely manner.
In addition, we may become subject to additional government
regulations in connection with our changing product strategy. Laws and
regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. Laws and regulations may be adopted
with respect to the Internet or other online services covering issues such
as user privacy, pricing, content, copyrights, distribution and
characteristics, and quality of products and services. Because of the
increasing use of the Internet as a communication and commercial medium,
the government has adopted and may adopt additional laws and regulations
with respect to the Internet covering such areas as user privacy, pricing,
content, taxation, copyright protection, distribution and characteristics
and quality of production and services.
Changes in state and federal laws relating to confidentiality of patient
medical records could limit our customers' ability to use our services.
We cannot assure you that changes to state or federal laws will not
materially restrict the ability of healthcare providers to submit
information from patient records using our applications. Such restrictions
would decrease the value of our applications to our customers, which could
materially harm our business. The confidentiality of patient records and
the circumstances under which records may be released for inclusion in our
databases are subject to substantial regulation by state governments. These
state laws and regulations govern both the disclosure and the use of
confidential patient medical record information. Although compliance with
these laws and regulations is at present principally the responsibility of
the healthcare provider, regulations governing patient confidentiality
rights are evolving rapidly. Additional legislation governing the
dissemination of medical record information has been proposed at both the
state and federal level. This legislation may require holders of this
information to implement security measures. Such legislation might require
us to make substantial expenditures to implement such measures.
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Changes in the regulatory and economic environment in the healthcare
industry could adversely affect our business.
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could require us to
make unplanned enhancements of applications or services, or result in
delays or cancellations of orders or in the revocation of endorsement of
our services by our strategic partners and others. Federal and state
legislatures have periodically considered programs to reform or amend the
U.S. healthcare system at both the federal and state level. These programs
may contain proposals to increase governmental involvement in healthcare,
lower reimbursement rates or otherwise change the environment in which
healthcare industry participants operate. Healthcare industry participants
may respond by reducing their investments or postponing investment
decisions, including investments in our applications and services.
Our quarterly operating results may vary and in the past we have
experienced losses.
Our operating results may vary significantly from quarter to quarter.
In addition, we have experienced historical losses. Our operating results
will be influenced by such factors as:
- our success in appropriately pricing and transitioning to the
subscription pricing model;
- the rate at which our existing customers convert and new customers
subscribe to our subscription pricing model;
- our release of our ASP-delivered product and Internet solutions and the
rate of adoption of these products and services by new and existing
customers;
- the timing of and charges associated with completed acquisitions or other
events;
- changes in customer purchasing patterns;
- competition;
- the timing of and cost related to development our new products;
- the length of sales cycles; and
- the levels of advertising and promotional expenditures.
Competition could reduce revenue from our products and services.
Our principal competitors include both national and regional practice
management systems vendors. Currently, the practice management systems
industry in the United States is characterized by a large number of
relatively small, regionally-focused companies, comprising a highly
fragmented industry with only a few national vendors. Smaller,
regionally-focused companies typically market their products to a single
practice specialty. Until recently, larger, national vendors have targeted
primarily large healthcare providers. We believe that the larger, national
vendors may broaden their markets to include both small and large
healthcare providers. The healthcare information technology industry is
consolidating, which has resulted in large, well-capitalized companies that
have not historically been providers of practice management systems
entering into the practice management systems market. In addition, we
compete with national and regional providers of computerized billing,
insurance processing and record management services to healthcare
practices. As the market for our products and services expands, additional
competitors are likely to enter this market. InfoCure believes that the
primary competitive factors in its markets are:
- product features and functionality;
- customer service, support and satisfaction;
- price;
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- ongoing product enhancements; and
- the reputation and stability of the vendor.
Some national competitors have greater financial, development,
technical, marketing and sales resources than InfoCure. If competition in
the practice management systems industry intensifies, our results of
operations may suffer and we may be required to lower the prices of our
products and services.
Our new product strategy and subscription pricing model will require
additional financing which may not be available.
Our transition to the subscription pricing model will initially
adversely impact our cash flow until subscription fees replace the decline
in one-time revenue from license fees and hardware sales. In addition, we
expect to incur increased marketing and sales expense in connection with
the rollout of our ASP-delivered products and Internet solutions. Adequate
financing for these needs may not be available to us. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
ITEM 2. PROPERTIES
InfoCure currently leases 42 facilities and owns three facilities, having
an aggregate of approximately 416,000 square feet. These facilities are located
in: Atlanta and Macon, Georgia; Beaverton, Oregon; Birmingham, Alabama;
Bloomington, Lake Elmo and Rochester, Minnesota; Charlotte, North Carolina;
Cincinnati, Ohio; Daytona Beach and Miami, Florida; Los Angeles and San Diego,
California; Pittsburgh, Pennsylvania; Ridgefield, Connecticut; and Saginaw,
Michigan. Three of these facilities are subject to consolidation efforts as a
result of InfoCure's restructuring plan. (See Note 5 of the Consolidated
Financial Statements.)
InfoCure purchased 1765 The Exchange Building on August 11, 1999 and 1760
The Exchange Building in January 2000. Both buildings are located in Atlanta,
Georgia and 1765 The Exchange Building serves as InfoCure's principal executive
offices. Another building, in Macon, Georgia, was acquired through a 1999
acquisition. As discussed in Note 9 to the Consolidated Financial Statements,
substantially all of InfoCure's assets are collateralized under its credit
facility with FINOVA Capital Corporation.
ITEM 3. LEGAL PROCEEDINGS
From time to time, InfoCure is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. InfoCure is
not currently a party to any legal proceeding for which an adverse outcome would
be reasonably expected to have a material adverse effect on its business,
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K, the
following information regarding executive officers of InfoCure is included in
Part I of this Report. The executive officers of InfoCure as of March 30, 2000
are as follows:
NAME AGE POSITION
---- --- --------
Frederick L. Fine..................... 41 Chief Executive Officer, President and
Director
James K. Price........................ 42 Executive Vice President, Secretary
and Director
Richard E. Perlman.................... 53 Chairman, Treasurer and Director
James A. Cochran...................... 52 Senior Vice President -- Finance;
Chief Financial Officer
Frederick L. Fine is a founder of InfoCure and currently serves as its
President and Chief Executive Officer. He has served as a director of InfoCure
since its inception. Mr. Fine served as president of American Medcare from 1995
to 1997 and as president of International Computer Solutions, a subsidiary of
American Medcare, from 1994 to 1997. From 1993 to 1995, Mr. Fine served as
executive vice president of American Medcare, and from 1985 to 1994 served as
executive vice president of International Computer Solutions, which he
co-founded in 1985. From 1991 to 1993, Mr. Fine served as vice president of
Newport Capital, Inc., predecessor to American Medcare. From 1983 to 1985, Mr.
Fine was with Informatics General Corporation, a supplier of accounting
software, and from 1981 to 1983 was with Moore Business Systems, a division of
Moore Corporation Ltd., a provider of practice management systems.
James K. Price is a founder of InfoCure and currently serves as its
Executive Vice President and Secretary. He has served as a director of InfoCure
since its inception. Mr. Price served as executive vice president of American
Medcare from 1996 until 1997 and was vice president from 1993 to 1995. Mr. Price
co-founded International Computer Solutions and has served as its executive vice
president since 1994, as vice president from 1987 to 1994 and as president from
1985 to 1987. In addition, from 1991 to 1993, Mr. Price was a vice president of
Newport Capital. From 1983 to 1985, Mr. Price was healthcare sales manager of
Executive Business Systems, a practice management systems supplier, and from
1981 to 1983 was with Moore Business Systems.
Richard E. Perlman has served as InfoCure's Chairman and Treasurer since
December 1997 and as a director of InfoCure since March 1997. From December 1997
until October 1998, Mr. Perlman served as InfoCure's Chief Financial Officer.
Mr. Perlman is the founder of Compass Partners, L.L.C., a merchant banking and
financial advisory firm specializing in corporate restructuring and middle
market companies, and has served as its president since its inception in May
1995. From 1991 to 1995, Mr. Perlman was executive vice president of Matthew
Stuart & Co., Inc., an investment banking firm.
James A. Cochran has served as InfoCure's Chief Financial Officer since
August 1999. From 1992 until joining InfoCure, Mr. Cochran was a member of the
accounting firm of BDO Seidman, LLP, serving as a partner since 1995. Mr.
Cochran is a Certified Public Accountant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 29, 1999, InfoCure's common stock commenced trading on the
Nasdaq National Market under the symbol "INCX." From July 10, 1997 until January
29, 1999, the common stock was traded on the American Stock Exchange under the
symbol "INC." The following table sets forth the high and low sales price per
share of the common stock for the periods indicated, as reported on the American
Stock Exchange or the Nasdaq National Market, as the case may be.
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
- ---------------------------- -------- -------
First Quarter............................................... $ 8 25/32 $ 3 15/16
Second Quarter.............................................. 8 5/16 5 1/4
Third Quarter............................................... 8 3/4 6 3/8
Fourth Quarter.............................................. 16 7/16 5 11/16
YEAR ENDED DECEMBER 31, 1999 HIGH LOW
- ---------------------------- -------- -------
First Quarter............................................... $18 1/8 $10 1/2
Second Quarter.............................................. 26 5/8 11 5/8
Third Quarter............................................... 29 3/8 16 5/8
Fourth Quarter.............................................. 33 1/2 12 13/16
On March 28, 2000, the last reported sales price for the common stock was
$18 13/16 per share. As of March 28, 2000 there were approximately 420
stockholders of record of the common stock.
InfoCure has neither declared nor paid any cash dividends on its common
stock and does not anticipate paying any cash dividends in the foreseeable
future. InfoCure's commercial loan agreements generally prohibit InfoCure from
declaring or paying any dividends or making other distributions with respect to
its capital stock.
In June 1999, InfoCure granted 440,000 non-qualified stock options to
Frederick L. Fine, 440,000 non-qualified stock options to Richard E. Perlman and
440,000 non-qualified stock options to James K. Price. These grants were exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder.
In December 1999, InfoCure issued:
- 255,247 shares of common stock to the former shareholder of Kevin
Kozlowski, Inc. d/b/a/ Human Touch Software in connection with InfoCure's
merger with Human Touch;
- 357,796 shares of common stock to the former shareholders of Unident
Corporation in connection with InfoCure's merger with Unident;
- 102,096 shares of common stock to the former shareholders of InfoLogic,
Inc. in connection with InfoCure's merger with InfoLogic;
- 228,544 shares of common stock to the former shareholders of Prism Data
Systems, Inc. in connection with InfoCure's merger with Prism;
- 104,329 shares of common stock to the former shareholders of CDL
Healthcare Systems, Inc. in connection with InfoCure's merger with CDL;
- 107,701 shares of common stock to the former shareholders of Crunchy Frog
Software, Inc.; and
- 300,000 shares of common stock to the former shareholders of VitalWorks,
Inc.
These issuances were exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected financial data of InfoCure set forth below is qualified in its
entirety by, and should be read in conjunction with, the Consolidated Financial
Statements of InfoCure, including the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this annual report. The consolidated statements of
operations data for the years ended January 31, 1997 and 1996 and the
consolidated balance sheet data as of December 31, 1997, January 31, 1997 and
1996 are derived from the audited financial statements of InfoCure's
predecessor, American Medcare Corporation, which are not included in this annual
report. The consolidated statements of operations data for the years ended
December 31, 1999 and 1998 and the eleven months ended December 31, 1997, and
the consolidated balance sheet data as of December 31, 1999 and 1998 are derived
from, and are qualified by reference to, the consolidated financial statements
included elsewhere in this annual report. The financial statements for all
periods presented give retroactive effect to pooling of interests treatment for
11 acquisitions completed during 1999, one acquisition during 1998 and a 2-for-1
stock split in August 1999.
The EBITDA data presented below represents earnings before interest,
provision (benefit) for income taxes, depreciation and amortization, purchased
research and development, compensatory stock awards and restructuring and merger
costs. EBITDA is not a measurement in accordance with generally accepted
accounting principles and should not be considered an alternative to, or more
meaningful than, income from operations, net income or cash flows as defined by
GAAP or as a measure of InfoCure's profitability or liquidity. All companies do
not calculate EBITDA in the same manner. Accordingly, InfoCure's EBITDA data may
not be comparable with that of other companies. InfoCure has included
information concerning EBITDA because management believes EBITDA provides a
useful measure of InfoCure's performance.
ELEVEN
MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31,
----------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA: 1999 1998(1) 1997 1997 1996
- ------------------------------------------ -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Systems and software...................... $ 96,241 $ 67,608 $ 37,002 $ 21,087 $ 24,239
Maintenance, support and services......... 107,393 62,237 38,227 32,557 29,517
-------- -------- -------- -------- --------
Total revenue..................... 203,634 129,845 75,229 53,644 53,756
-------- -------- -------- -------- --------
Operating expense:
Hardware and other items purchased for
resale................................. 49,613 28,981 19,255 14,408 12,931
Selling, general and administrative
(excluding compensatory stock
awards)................................ 104,770 63,647 49,864 36,693 34,928
Research and development.................. 15,655 17,398 13,919 7,516 7,154
Depreciation and amortization............. 14,490 6,382 4,401 2,603 3,030
Compensatory stock awards................. 1,431 6,447 78 -- --
Purchased research and development........ -- 9,000 -- -- --
Restructuring and other charges........... 10,681 1,874 13,052 -- --
Merger costs.............................. 3,764 123 -- -- --
-------- -------- -------- -------- --------
Total operating expense........... 200,404 133,852 100,569 61,220 58,043
-------- -------- -------- -------- --------
Operating income (loss)..................... 3,230 (4,007) (25,340) (7,576) (4,287)
Other expense (income):
Interest, net............................. 3,513 4,029 897 812 739
Other, net -- (200) (324) (31) --
-------- -------- -------- -------- --------
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ELEVEN
MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED
------------------- JANUARY 31,
------------------------------
-------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (CONTINUED) 1999 1998(1) 1997 1997 1996
- ------------------------------------------------------ -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Loss before income taxes and extraordinary item... (283) (7,836) (25,913) (8,357) (5,026)
-------- -------- -------- -------- --------
Income tax expense (benefit)..................... 576 (1,037) (7,204) (2,411) (340)
-------- -------- -------- -------- --------
Net loss before extraordinary item............... (859) (6,799) (18,709) (5,946) (4,686)
-------- -------- -------- -------- --------
Extraordinary item............................... 2,935 -- -- -- --
-------- -------- -------- -------- --------
Net loss......................................... (3,794) (6,799) (18,709) (5,946) (4,686)
-------- -------- -------- -------- --------
Accretive dividend............................... -- 800 -- -- --
-------- -------- -------- -------- --------
Net loss available to common stockholders........ $ (3,794) $ (7,599) $(18,709) $ (5,946) $ (4,686)
======== ======== ======== ======== ========
Net loss per share(2):
Basic and diluted.............................. $ (0.14) $ (0.39) $ (1.21)
======== ======== ========
Shares used in computing net loss per share:
Basic and diluted.............................. 27,994 19,312 15,523
======== ======== ========
OTHER DATA:
- ---------------
EBITDA........................................... $ 33,596 $ 19,819 $ (7,809) $ (4,973) $ (1,257)
======== ======== ======== ======== ========
AS OF AS OF
DECEMBER 31, JANUARY 31,
----------------------------- -----------------
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1997 1996
- -------------------------------- -------- -------- ------- ------- -------
Cash and cash equivalents...................... $ 16,836 $ 10,302 $ 6,795 $ 3,822 $ 1,280
Working capital................................ 26,601 (3,598) (6,736) (5,233) (5,000)
Total assets................................... 220,504 160,132 65,794 33,013 24,434
Long-term debt, less current portion........... 41,178 72,896 12,394 5,962 5,883
Convertible, redeemable preferred stock........ -- 8,501 -- -- --
Stockholders' equity (capital deficit)......... 135,339 22,772 11,615 5,051 (1,138)
- ---------------
(1) During 1998, InfoCure acquired the net assets of the Healthcare Systems
Division of The Reynolds and Reynolds Company in a transaction accounted for
as a purchase. (See Note 3 to the consolidated financial statements.)
(2) Loss per share for the years ended January 31, 1997 and 1996 has not been
presented as it is not considered meaningful due to the acquisition of the
Founding Companies and the Company's initial public offering in conjunction
with the formation of the Company in the period ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
A substantial part of our growth has been achieved through acquisitions.
From July 10, 1997 through December 31, 1999, we completed 24 acquisitions,
including acquisitions of 12 companies accounted for as pooling of interest
transactions. Given the significant number of acquisitions in each of the
periods presented, the results of operations from period to period may not
necessarily be comparable.
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During the year ended December 31, 1999, we completed mergers (the "1999
Mergers") with the 11 companies listed below (the "1999 Pooled Companies") in
transactions accounted for as poolings of interest. These mergers provided for
exchange of substantially all the outstanding equity interests of such companies
for shares of our common stock.
SHARES
OF INFOCURE
COMPANY ISSUED
- ------- -----------
Macon Systems Management, LLC,
the parent of Medical Software
Management, Inc. ......................................... 166,464
OMSystems, Inc. ............................................ 2,287,998
Ardsley, M.I.S., Inc. ...................................... 209,016
Medfax Corporation.......................................... 696,333
Scientific Data Management, Inc. ........................... 280,243
Datamedic Holding Corp. .................................... 1,088,674
Kevin Kozlowski, Inc.
d/b/a Human Touch Software................................ 255,247
Unident Corporation......................................... 357,796
InfoLogic, Inc. ............................................ 102,096
Prism Data Systems, Inc. ................................... 208,544
CDL Healthcare Systems, Inc. ............................... 109,658
Because the 1999 Mergers were accounted for as poolings of interests, the
consolidated financial statements included in this Annual Report have been
retroactively restated to reflect them. The consolidated financial statements
included in this Annual Report have also been retroactively restated to reflect
the 1998 acquisition of Radiology Management Systems, Inc. ("RADMAN") in a
transaction that was accounted for as a pooling of interests. As a result, the
financial position, results of operations and cash flows are presented as if
RADMAN and the 1999 Pooled Companies had been consolidated for all periods
presented (see Notes to Consolidated Financial Statements).
InfoCure has historically derived revenue primarily from licensing new
software products and software upgrades, reselling hardware components in
connection with a portion of its software sales and providing customer support
and services. Customer support and services typically have been provided
pursuant to renewable annual contracts or on a fee basis. We have derived
additional revenue from customers and third-party clearinghouses by providing
electronic data interchange services through contractual arrangements with such
parties. Approximately 50% of our total 1999 revenue is recurring in nature.
InfoCure bases its revenue recognition policies for sales of software on
the provisions of the American Institute of Certified Public Accountants'
Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition." Revenue
from software sales is recognized upon shipment in instances where InfoCure has
evidence of a contract, the fee charged is fixed and determinable and collection
is probable. Revenue from hardware sales is recognized upon product shipment.
Revenue from support and maintenance contracts, which are typically one year in
length, is recognized ratably over the life of the contract. Revenue from other
services is recognized as the services are provided.
Depreciation and amortization expense results primarily from the
amortization of goodwill, which represents the excess of the consideration paid
by InfoCure over the fair value of the net assets acquired in acquisitions
accounted for under the purchase method of accounting. As of December 31, 1999,
our balance sheet included goodwill, net of accumulated amortization, of $102.7
million. Goodwill is amortized over its estimated useful life, which had
previously been 15 years. In the fourth quarter of 1999, management determined
that the estimated useful life of goodwill should be shortened substantially to
be more reflective of the current rate of technological change and competitive
conditions within the marketplace. Accordingly, management changed the estimated
useful life of goodwill from 15 years to three years. This change in accounting
estimate is applied prospectively from the fourth quarter of 1999 and increased
1999 amortization
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expense by approximately $3.5 million. Future amortization expense is estimated
to total approximately $35.7 million per year.
Depreciation and amortization expense also includes depreciation of
property and equipment and amortization of software development costs. Property
and equipment are assigned depreciable lives ranging from three to 40 years.
Software development costs are expensed until technological feasibility is
achieved. Costs incurred after achievement of technological feasibility and
before general release are capitalized and amortized, generally over a four-year
life. Costs incurred after general release are expensed as incurred. As
discussed below, during the fourth quarter of 1999 InfoCure adopted a new
product strategy to begin development of ASP-delivered products and, as a
result, recorded a charge of approximately $5.6 million in the fourth quarter of
1999 representing the write-off of the carrying value of software development
costs for certain medical specialty products.
CHANGE IN PRODUCT STRATEGY AND BUSINESS MODEL
InfoCure is currently reorganizing its business to facilitate changes in
its pricing of practice management software products, its delivery of these
products and the scope of its product offerings. During the fourth quarter of
1999, InfoCure acquired five companies that provide dental practice management
solutions, increasing InfoCure's number of dental customers by approximately
9,100 practices. These acquisitions, along with InfoCure's determination that
there is a natural segregation of InfoCure's business into medical and dental
specialties, have caused InfoCure to divide its business into a medical division
and a dental division. The medical division consists of InfoCure's business for
general medical practices and medical specialty practices in the areas of
anesthesiology, dermatology and plastic surgery, emergency medicine, oncology,
ophthalmology, pathology, pediatrics, podiatry and radiology. The dental
division consists of the portion of InfoCure's business that serves dental,
orthodontic and oral and maxillofacial surgery practices.
As part of the reorganization, InfoCure intends to transfer the assets of
its medical division to VitalWorks, Inc., a newly-formed subsidiary of InfoCure.
VitalWorks intends to develop new practice management software applications that
can be delivered through the application services provider, or "ASP," delivery
model. In the ASP delivery model, VitalWorks would remotely host applications
from an offsite central server which physicians would access over dedicated
lines, virtual private networks or the Internet. VitalWorks also intends to
offer its new practice management applications through installations directly in
physicians' offices as "practice-hosted" systems. Additionally, VitalWorks
intends to offer Internet solutions that will allow its customers to utilize the
Internet to enhance office workflow and conduct business-to-business e-commerce.
VitalWorks is continuing to develop its Internet solutions and to establish
strategic relationships to facilitate these product offerings.
As part the reorganization, InfoCure intends to transfer the assets of its
dental division to PracticeWorks, Inc., which will be a new subsidiary of
InfoCure. InfoCure intends for PracticeWorks to focus on development of Internet
solutions and ASP-delivered practice management applications that are tailored
to the needs of the dental division's customers. In particular, due to
InfoCure's current penetration of the dental market and existing channels of
distribution, InfoCure expects PracticeWorks to generate a significant amount of
business-to-business e-commerce in the dental market. InfoCure expects
PracticeWorks to begin offering its new solutions by the end of 2000.
In connection with InfoCure's strategy to develop ASP-delivered products,
InfoCure plans to convert to subscription-based pricing for substantially all of
its products and services. Under this subscription pricing model, customers will
pay a fixed, monthly fee for use of InfoCure's practice management applications
and Internet solutions and the computer hardware necessary to utilize those
applications and solutions. This represents a change in InfoCure's historical
pricing model in which customers were charged an initial licensing fee for use
of practice management products and continuing maintenance, support and EDI
transaction fees. InfoCure intends to begin offering substantially all of its
products and services on the subscription pricing model in the second quarter of
2000. As a result of the transition to subscription pricing model, we expect to
see a decline in one-time revenue from software license fees and hardware sales,
replaced over time by monthly subscription fees. In addition, as we convert
existing customers to our new subscription contracts, the
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recurring support and EDI revenue from our installed customer base will
gradually decline and will be replaced by increasing monthly subscription fee
revenue. We expect the percentage of our revenue that is recurring in nature to
increase substantially as a result of this change. In addition, we expect to
eventually derive revenue from e-commerce relationships with key suppliers of
products and services in our markets. This revenue will typically be in the form
of a commission or royalty based on the value of products and services provided
by our partners to our customers and will be recognized as it is earned.
Because of our reorganization, our historical financial results are not
expected to be representative of future results.
RESTRUCTURING CHARGES
The 1999 Plan. In the fourth quarter of 1999, InfoCure decided to
restructure its business into a medical and a dental division, changed its
product strategy to begin development of ASP-delivered products and Internet
solutions, decided to transition to a subscription pricing model in connection
with its change in product strategy, and completed eight acquisitions, including
five acquisitions which substantially increased its presence in the dental
market. Concurrently, management committed to a plan of restructuring and
reorganization, expected to be completed in the second quarter of 2000, to
consolidate facilities, eliminate staffing redundancies and position InfoCure to
capitalize on its change of business model. In the fourth quarter of 1999,
InfoCure recorded $10.7 million in restructuring and other charges in connection
with this plan. The components of these charges are:
- $5.6 million representing carrying value of software development costs
for medical specialty products, the estimated useful life of which is now
considered minimal based on our change to an product strategy focused on
development of ASP-delivered products;
- $1.8 million representing facility closure and consolidation costs,
including cancellation of leases and other contracts;
- $1.5 million reflecting severance and other termination benefits for
approximately 80 employees representing certain redundant staff
positions;
- $700,000 reflecting contingent consideration deemed payable to former
stockholders of entities affected by the restructuring;
- $681,000 representing incremental costs associated with completion of
discontinued customer contracts; and
- $416,000 representing other asset write-downs and costs.
Additional charges will be recorded in the first quarter of 2000 primarily
to provide for costs associated with staffing reductions for our new dental
division. These personnel changes were finalized and communicated in the first
quarter of 2000. Accordingly, compensation costs, including severance and other
termination benefits, aggregating approximately $1.0 million will be recorded in
the first quarter of 2000.
The 1997 Plans. In 1997, InfoCure adopted a plan to restructure its
operations by consolidating existing facilities and acquired operations. In
connection with the restructuring plan, which was substantially completed in the
second quarter of 1998, we recorded restructuring charges totaling $13.0
million, of which $11.1 million was recorded in the fourth quarter of 1997 and
$1.9 million was recorded in the first six months of 1998. Additionally,
Datamedic, one of the 1999 Pooled Companies, incurred $1.9 million in
restructuring costs in 1997 representing severance and other costs associated
with staff reductions resulting from a plan of reorganization adopted in 1997
and completed in 1998.
CHANGE IN FISCAL YEAR
In the first quarter of 1998, InfoCure changed its fiscal year end from
January 31 to December 31. As a result, InfoCure's fiscal year beginning
February 1, 1997 and ending on December 31, 1997 reflects eleven months of
operations.
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IN-PROCESS RESEARCH AND DEVELOPMENT
On October 23, 1998, InfoCure acquired the assets of the HealthCare Systems
Division ("HSD") of The Reynolds and Reynolds Company. In connection with the
HSD acquisition, InfoCure retained an independent appraiser to complete a
valuation of the assets of HSD, including valuation of certain in-process
research and development. InfoCure identified three projects for which
technological feasibility had not been achieved as of the acquisition date and
for which there was no alternative future use. The products included
POWERRmanager, a next generation physician practice management system, the year
2000 ready version of ProMed, a Unix-based practice management system, and the
year 2000 ready version of Kredo, a practice management system running on the
IBM AS/400 platform. Based on the results of the appraisal, $9.0 million was
attributed to the in-process research and development purchased in the HSD
acquisition and was expensed in the fourth quarter of 1998.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of total revenue for the periods indicated:
ELEVEN
YEAR ENDED MONTHS
DECEMBER 31, ENDED
------------- DECEMBER 31,
1999 1998 1997
----- ----- ------------
Revenue:
Systems and software..................................... 47.3% 52.1% 49.2%
Maintenance, support and services........................ 52.7 47.9 50.8
----- ----- -----
Total revenue.................................... 100.0 100.0 100.0
----- ----- -----
Operating expense:
Hardware and other items purchased for resale............ 24.4 22.3 25.6
Selling, general and administrative (excluding
compensatory stock awards)............................ 51.5 49.0 66.3
Research and development................................. 7.7 13.4 18.5
Depreciation and amortization............................ 7.1 4.9 5.9
Compensatory stock awards................................ 0.7 5.0 0.1
Purchased research and development....................... -- 6.9 --
Restructuring and other charges.......................... 5.2 1.4 17.3
Merger costs............................................. 1.8 0.2 --
----- ----- -----
Total operating expense.......................... 98.4 103.1 133.7
----- ----- -----
Operating income (loss).................................... 1.6 (3.1) (33.7)
Other expense (income):
Interest, net............................................ 1.7 3.1 1.1
Other, net............................................... -- (0.2) (0.4)
----- ----- -----
Loss before income taxes and extraordinary item............ (0.1) (6.0) (34.4)
Income tax expense(benefit)................................ 0.3 (0.8) (9.5)
----- ----- -----
Loss before extraordinary item................... (0.4)% (5.2)% (24.9)%
===== ===== =====
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenue. Total revenue for the year ended December 31, 1999 was $203.6
million, compared to total revenue of $129.8 million for the year ended December
31, 1998. The increase of $73.8 million, or 56.8%, primarily reflects the
completion of the HSD acquisition effective October 1998 and overall growth in
the business. The 1999 Mergers, which are accounted for as poolings of
interests, are reflected retroactively for all periods presented. Systems and
software revenue was $96.2 million for the year ended December 31, 1999, or
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47.3% of total revenue, while maintenance, support, and service revenue was
$107.4 million, or 52.7% of total revenue for the same period.
Hardware and Other Items Purchased for Resale. Hardware and other items
purchased for resale consist of costs incurred to purchase hardware, and include
costs of forms and postage, outsourced hardware maintenance, third-party
software and other items for resale in connection with sales of new systems and
software. The costs required to install such systems and to perform software
maintenance and support services are reported in selling, general and
administrative expenses. Hardware and other items purchased for resale increased
$20.6 million, or 71.2%, to $49.6 million for the year ended December 31, 1999
from $29.0 for the year ended December 31, 1998. This increase was due primarily
to the HSD acquisition completed in October 1998. For the year ended December
31, 1999, gross margin, which represents total revenue less hardware and other
items purchased for resale, was 75.6% of total revenue, compared to 77.7% of
total revenue, for the year ended December 31, 1998. This decline in gross
margin is attributable primarily to a change in the mix of revenues resulting
from the growth in hardware maintenance revenues and statement processing
revenues, which generally carry lower margins.
Selling, General and Administrative. Selling, general and administrative
expense includes salaries and benefits, product development, product maintenance
and support, variable commissions and bonuses, marketing, travel,
communications, facilities, insurance and other administrative expense. Selling,
general and administrative expense increased $41.1 million, or 64.6%, to $104.8
million for the year ended December 31, 1999 compared to $63.6 million for the
year ended December 31, 1998. This increase reflects primarily additional
marketing and administrative personnel and other selling and administrative
costs necessary to support the consolidated businesses of the acquired
companies. As a percentage of revenue, selling, general and administrative
expenses increased to 51.5% for the year ended December 31, 1999 from 49.0% for
the year ended December 31, 1998 primarily to the fact that seven of the eight
companies acquired in the fourth quarter of 1999 had selling, general and
administrative expenses that were substantially higher in relation to their
revenues than ours. Five of these companies were pooling transactions;
therefore, their results of operations are included as if they had been
consolidated for all periods. As all of these companies were acquired in
December 1999, cost savings measures resulting from their integration have not
yet been reflected. Additionally, management deferred certain planned staff
reductions in connection with the reorganization of the business into the
medical and dental divisions and its change in product strategy. Further, during
the fourth quarter of 1999, the allowance for doubtful accounts increased by
$3.0 million to more closely align the allowance with collection experience and
to provide additional coverage as part of the announced change to a subscription
pricing model.
Research and Development. Research and development expenses consists
primarily of salaries and benefits, supplies, facilities and other
administrative expense associated with making enhancements to existing products
and the development of new products. Research and development expense decreased
$1.7 million, or 10.0%, to $15.7 million for the year ended December 31, 1999
from $17.4 million for the year ended December 31, 1998 due primarily to a
higher proportion of software development costs qualifying for capitalization in
1999. As a percentage of total revenue, research and development expense
decreased to 7.7% of total revenue for the year ended December 31, 1999 from
13.4% of total revenue for the year ended December 31, 1998. We capitalize
development costs incurred from the time a new product reaches technological
feasibility until it is available for general release. Capitalized software
development costs were $3.6 million for 1999 and $1.5 million for 1998. The
higher level of capitalized costs in 1999 is reflective of the state of
development of a variety of projects, including new e-commerce applications. In
conjunction with the change in product strategy, development efforts will be
concentrated on development of ASP-delivered products and Internet solutions and
no additional costs will be capitalized for other medical specialty products.
Depreciation and Amortization. Depreciation and amortization expense
increased $8.1 million, or 127.0%, to $14.5 million for the year ended December
31, 1999 from $6.4 million for the year ended December 31, 1998. This increase
was primarily due to our increased investment in property and equipment,
including approximately $8.0 million for the acquisition of a building in August
1999. Increased expense for amortization of goodwill results from a full year of
amortization related to approximately $34.0 million of goodwill from the October
1998 acquisition of HSD, the addition of approximately $22.0 million of goodwill
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related to the 1999 acquisitions and a change in accounting estimate, which was
effected in the fourth quarter of 1999, to reduce the estimated useful life of
goodwill from 15 years to three years. This change in accounting estimate
resulted in additional goodwill amortization of approximately $3.5 million for
1999 (see Notes 2 and 3 to the Consolidated Financial Statements). As a
percentage of total revenue, depreciation and amortization expense increased to
7.1% for the year ended December 31, 1999 from 4.9% for the year ended December
31, 1998.
Compensatory Stock Awards. Compensatory stock awards expense decreased
$5.0 million, or 77.8%, to $1.4 million for December 31, 1999 from $6.4 million
for the year ended December 31, 1998. The 1999 amount included approximately
$1.1 million in non-cash charges related to the accelerated vesting of a
restricted stock award for 190,000 shares granted to three executives in 1998.
The $6.4 million in 1998 related to contingently exercisable stock options of
OMSystems, a 1999 Pooled Company. Under the terms of OMSystems' stock option
agreement, the value of the options became determinable in the fourth quarter of
1998, resulting in recognition of compensation expense. As a percentage of total
revenue, compensatory stock awards expense decreased to 0.7% for the year ended
December 31, 1999 from 5.0% for the year ended December 31, 1998.
Purchased Research and Development. Purchased research and development
expense was $9.0 million, or 6.9% of total revenue, for the year ended December
31, 1998. This expense represents charges related to the write-off of certain
in-process research and development costs associated with the HSD acquisition.
Restructuring and Other Charges. In the year ended December 31, 1999, we
incurred costs of $10.7 million, or 5.2% of total revenue associated with a
restructuring plan announced in the fourth quarter of 1999. (See Note 5 to
Consolidated Financial Statements). In the year ended December 31, 1998 we
incurred $2.0 million, or 1.4% of total revenue associated with a restructuring
plan completed in 1998.
Merger costs. In the year ended December 31, 1999, we incurred
merger-related costs associated with the 1999 Mergers of $3.8 million, or 1.8%
of total revenue, relating primarily to professional fees and transaction costs.
We incurred $123,000, or 0.1% of total revenue, of merger-related costs in the
year ended December 31, 1998.
Interest, Net. Net interest expense decreased $516,000, or 12.8%, to $3.5
million for the year ended December 31, 1999 from $4.0 million for the year
ended December 31, 1998. The decrease relates primarily to the repayment of the
commercial credit facility from the proceeds of the April 1999 public offering.
As a percentage of total revenue, interest, net decreased to 1.7% for the year
ended December 31, 1999 from 3.1% for the year ended December 31, 1998.
Other, Net. In the year ended December 31, 1998 net other income was
$200,000, or 0.2% of total revenue, due primarily to income related to the
RADMAN merger.
Income Taxes (Benefit). The provision for income taxes was $576,000 for
the year ended December 31, 1999, compared to a benefit of $1.0 million for the
year ended December 31, 1998. The effective income tax rate for the year ended
December 31, 1999, is higher than statutory rates due to state income taxes and
permanent differences resulting primarily from the amortization of nondeductible
goodwill. In addition, the effective tax rate for 1998 differs from the
statutory tax rate due to the more significant impact of poolings with certain
S-corporation entities that incurred no federal income taxes prior to their
acquisition by us.
Extraordinary Item. During the year ended December 31, 1999, we
extinguished our outstanding debt under our credit facility with FINOVA Capital
Corporation and incurred debt extinguishment costs of $4.9 million, or $2.9
million net of taxes, representing 1.4% of total revenue.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO ELEVEN MONTHS ENDED DECEMBER 31, 1997
Total Revenue. Total revenue for the year ended December 31, 1998 was
$129.8 million compared to total revenue of $75.2 million for the eleven months
ended December 31, 1997. The increase of $54.6 million in total revenue reflects
primarily the combined revenue of the founding companies for the entire twelve
month period in 1998 and revenue from the subsequent acquisitions as of their
respective effective dates,
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except for the RADMAN, and the 1999 Pooled Companies, which acquisitions which
were accounted for as poolings of interests and are reflected retroactively for
all periods presented. Systems and software revenue was $67.6 million for the
year ended December 31, 1998, or 52.1% of total revenue, compared to $37.0
million, or 49.2% of total revenue, for the eleven months ended December 31,
1997. The increase as a percentage of total revenue was primarily a result of a
higher percentage mix of systems and software revenue among acquired companies
and relatively strong demand for several of our software products in the year
ended December 31, 1998. Maintenance, support and services revenue was $62.2
million, or 47.9% of total revenue for the year ended December 31, 1998,
compared to $38.2 million, or 50.8% of total revenue, for the eleven months
ended December 31, 1997.
Hardware and Other Items Purchased for Resale. For the year ended December
31, 1998, cost of hardware and other items purchased for resale was $29.0
million, or 22.3% of revenue, compared to $19.3 million, or 25.6% of revenue,
for the eleven months ended December 31, 1997. The variance in cost of hardware
and other items purchased for resale reflects primarily the increase resulting
from InfoCure's acquisitions, including the acquisition of HSD in October 1998.
Selling, General and Administrative. Selling, general and administrative
expense increased to $63.6 million, or 49.0% of revenue, for the year ended
December 31, 1998 compared to $49.9 million, or 66.3% of revenue, for the eleven
months ended December 31, 1997. This increase reflects primarily an increase in
the marketing and administrative personnel and other selling and administrative
costs necessary to support the consolidated businesses of the acquired
companies. The decrease in selling, general and administrative expenses as a
percent of revenue reflects InfoCure's ability to leverage economies of scale
resulting from the larger installed customer base and higher base of revenue
realized from acquisitions.
Research and Development. Research and development expense was $17.4
million, or 13.4% or total revenue for the year ended December 31, 1998,
compared to $13.9 million, or 18.5% of total revenue for the year ended December
31, 1997. In 1998, we capitalized approximately $1.5 million in software
development costs related to various projects for new products and enhancements
to existing products. The overall increase in research and development expense
is largely attributable to the additional development staff added from
acquisitions and expenditures to integrate the acquired product sets.
Depreciation and Amortization. Depreciation and amortization expense was
$6.4 million, or 4.9% of revenue, for the year ended December 31, 1998 compared
to $4.4 million, or 5.9% of revenue, for the eleven months ended December 31,
1997. Increased depreciation and amortization expense represents primarily the
significant increase in goodwill arising from InfoCure's acquisitions.
Compensatory Stock Awards. In the year ended December 31, 1998, we
recorded a non-cash charge of $6.4 million, or 5.0% of total revenue.
Purchased Research and Development. Purchased research and development
expense was $9.0 million, or 6.9% of total revenue, for the year ended December
31, 1998. This expense represents charges related to the write-off of certain
in-process research and development costs associated with the HSD acquisition.
Restructuring and Other Charges. Restructuring and other charges were $1.9
million, or 1.4% of total revenue, for the year ended December 31, 1998 compared
to $13.1 million, or 17.3% of total revenue, for the eleven months ended
December 31, 1997. This decrease represents the completion of the restructuring
plan in the second quarter of 1998.
Merger Costs. Merger costs were $123,000, or 0.1% of revenue, for the year
ended December 31, 1998 and related to professional fees associated with the
RADMAN merger.
Interest, Net. Net interest expense increased to $4.0 million, or 3.1% of
total revenue, for the year ended December 31, 1998 compared to $897,000, or
1.2% of total revenue for the eleven months ended December 31, 1997. This
increase reflects primarily increases in interest expense associated with
indebtedness incurred to complete InfoCure's acquisitions.
Other, Net. Net other income decreased to $200,000, or 0.2% of total
revenue, for the year ended December 31, 1998 compared to $324,000, or 0.4% of
total revenue for the eleven months ended
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December 31, 1997. This decrease relates primarily to one-time other income
related to the RADMAN merger.
Income Taxes Benefit. The benefit for income taxes was $1.0 million for
the year ended December 31, 1998 compared to $7.2 million for the eleven months
ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund:
- acquisitions
- working capital
- capital expenditures for buildings, furniture, fixtures and equipment and
- capitalized software development costs.
We have met our liquidity needs over the last three years through funds provided
by operating activities, equity offerings and long-term borrowings.
On February 9, 1998, InfoCure completed the private placement of 850,060
shares of Series A preferred stock, resulting in gross proceeds to us of $8.5
million and net proceeds of approximately $7.8 million after payment of selling
commissions to the placement agent for the offering and other expenses of the
offering. We granted to the placement agent a warrant to acquire 200,000 shares
of our common stock at an exercise price of $4.50 per share. Our consolidated
financial statements reflect an accretive dividend attributable to the preferred
stockholders in the amount of $800,000 with respect to the issuance costs and
the fair market value of the warrant related to the Series A preferred stock.
The Series A preferred stock automatically converted into 2,000,140 shares of
common stock upon the completion of our public offering in April 1999.
On September 28, 1998, InfoCure completed the sale of 406,676 shares of
common stock for $2.5 million in a private placement to an institutional
investor. The investor committed to invest an additional $7.5 million, which
must be invested from time to time at our request in our sole discretion and
subject to certain price and trading volume limitations, upon the exercise of
put options through March 28, 2000. Subsequently, InfoCure completed the sale of
295,968 shares of common stock for $2.5 million in December 1998 and the sale of
160,000 shares of common stock for $2.0 million in January 1999.
On October 18, 1998, in connection with the HSD acquisition, InfoCure
delivered to The Reynolds and Reynolds Company a $10.0 million, five-year,
convertible promissory note, bearing interest per annum at rates commencing at
8.0% and increasing each year to a maximum of 14.0%. The note was convertible at
our option during the first year of the term into common stock at a price based
on the price of the common stock in an underwritten public offering or the
average market value of the common stock over a period of time prior to the
conversion date. In addition, InfoCure delivered to The Reynolds and Reynolds
Company a $2.0 million subordinated promissory note payable within 120 days of
the closing of the HSD acquisition. In October 1999, we finalized certain
negotiations related to the HSD acquisition and exercised our conversion option
related to the convertible promissory note by issuing approximately 373,000
shares to convert approximately $7.5 million of this note. (See Note 9 to
Consolidated Financial Statements).
In connection with the conversion, we incurred an obligation to pay
approximately $1.7 million because the conversion shares were sold at a price
below the conversion price. We have the option to settle this obligation by
issuing additional shares of our common stock.
On April 27, 1999, InfoCure completed a public offering of 6.0 million
shares of common stock at $13.00 per share, which generated net proceeds of
$73.4 million. InfoCure applied $69.2 million of the proceeds of this offering
to retire the principal outstanding on its credit facility. The balance of the
proceeds was applied toward working capital and for general corporate purposes.
On May 6, 1999, InfoCure issued approximately 1.1 million shares of common stock
at $13.00 per share for net proceeds of $13.8 million relating to the exercise
of the underwriters' over-allotment option in connection with the public
offering. The proceeds from the over-allotment were applied toward working
capital and for general corporate purposes.
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Our deferred revenue and customer deposits decreased approximately $6.8
million to $13.0 million at December 31, 1999 from $18.6 million at December 31,
1998 (net of a $1.2 million increase from acquisitions). A significant portion
of this decrease is attributable to changes in billing cycles for maintenance
agreements. Maintenance agreements are billed to customers annually, quarterly
and monthly. As we have integrated our various acquisitions, we have
systematically moved customers to monthly billing cycles. This change results in
less deferred revenue and improved cash flow potential but no overall change in
maintenance revenue.
During the year ended December 31, 1999, we generated $9.2 million of cash
from operating activities primarily relating to non-cash charges for
depreciation and amortization and extinguishment of debt costs and non-operating
restructuring and other charges, which are offset by the impact of increased
investment in working capital, primarily an increase in accounts receivable and
a decrease in deferred revenue and customer deposits.
During 1999, cash used in investing activities was $40.2 million,
consisting primarily of cash used for acquisitions of $20.0 million, capital
expenditures of $5.6 million and intangible asset costs of $13.5 million. The
principal intangible asset expenditures included cash paid for contingent
consideration for previous acquisitions, capitalized software development costs
and purchased technology.
During the year ended December 31, 1999, we generated net cash from
financing activities of $37.5 million, including $86.2 million net proceeds from
issuance of common stock and $29.9 million proceeds from the line of credit and
other long-term debt. These proceeds were principally used to retire outstanding
debt of $69.2 million, fund the acquisition of the 1999 Purchased Companies (see
Notes 1 and 3 to Consolidated Financial Statements) and to fund capital
purchases, primarily a building.
Our commercial credit facility, with an aggregate availability of $70.0
million, was repaid in full with proceeds of our April 1999 public offering. The
early retirement of debt resulted in a write-off of previously paid deferred
loan costs in the amount of approximately $4.4 million and prepayment penalties
of approximately $500,000. In August 1999, we obtained a new five-year credit
facility in the amount of $100 million. The credit facility provides for an $8.7
million term loan and a $91.3 million revolving loan that converts to a term
loan in October 2001. The credit facility bears interest at rates ranging from
prime plus 0.50% to 1.25%, or LIBOR plus 2.00% to 2.75%, depending on our
achieving certain debt service ratios, and is collateralized by substantially
all of InfoCure's assets.
At December 31, 1999, we had total cash and cash equivalents of $16.8
million, working capital of $26.6 million and $36.8 million outstanding under
our line of credit. We expect the transition to a subscription pricing model
will adversely impact our cash flow until revenue from subscription fees
replaces revenue from software license fees and hardware sales. We also expect
to incur increased marketing and sales expenses in connection with offering our
ASP-delivered products and Internet solutions. We expect to finance this
restructuring and future acquisitions, if any, through one or more of the
following sources: our credit facility, other indebtedness and the issuance of
debt or equity securities by us or one of our subsidiaries. The sale of equity
securities, including investments convertible into equity securities, may result
in further dilution to existing stockholders. There can be no assurance that
additional sources of capital will be available on terms acceptable to us or at
all. We believe that our existing cash and anticipated future operating cash
flow, combined with availability of funds under the credit facility and other
sources of financing, will be sufficient to fund our working capital
requirements through at least the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 was effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use, including the requirement to capitalize specified costs and
amortization of such costs. Adoption of this standard did not have a material
effect on our capitalization policy.
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Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities",
as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of this new standard on January 1, 2001, to affect its
financial statements.
COSTS RELATED TO YEAR 2000 COMPLIANCE
InfoCure recognized the material nature of the business issues surrounding
computer processing of dates into and beyond the Year 2000 and took corrective
action prior to December 31, 1999. In order to make its products Year 2000
compliant and to help its customers to make their systems that use our products
Year 2000 compliant, InfoCure offered its customers various alternative forms of
products and assistance, including generally available Year 2000 information and
diagnostic tools, software patches, product upgrades or replacement products.
Prior to the Year 2000, InfoCure discontinued the sale and support of products
that it did not believe would be Year 2000 compliant and attempted to notify all
known users of these products of its belief that those products were not Year
2000 compliant. InfoCure also believes that it completed all of the activities
within its control to ensure that its internal software and hardware systems
were Year 2000 compliant during the fiscal year 1999, and InfoCure has
experienced no material interruptions to operations due to the start of the Year
2000.
InfoCure's total Year 2000 compliance costs were approximately $1.4
million, of which approximately $500,000 were incurred in 1999. InfoCure does
not currently expect to apply additional material funds to address Year 2000
issues.
As of March 30, 2000, InfoCure is not aware of any material disruption in
the operation of its products by its customers as a result of Year 2000 issues.
In addition, as of March 30, 2000, InfoCure has not experienced any material
disruptions of its internal computer systems or software applications, and has
not experienced any material problems with the computer systems or software
applications of the third parties with whom it regularly does business as a
result of Year 2000 issues.
Although InfoCure's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000-related risks.
InfoCure's management believes that appropriate action has been taken to address
these remaining Year 2000 issues and contingency plans are in place to minimize
the financial impact to InfoCure. In addition, InfoCure will continue to monitor
the third parties with whom it regularly does business to determine if they will
take appropriate action to address the remaining Year 2000 issues. InfoCure,
however, cannot be certain that Year 2000 issues will not have a material
adverse effect on its business, since the evaluation process is not yet complete
and it is early in the Year 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks include fluctuations in interest rates and
variability in interest rate spread relationships (i.e. prime to LIBOR spreads).
Approximately $36.8 million of our outstanding debt at December 31, 1999 relates
to a five-year financing agreement with FINOVA Capital Corporation. Interest on
the outstanding balance is charged based on a variable rate related to prime
rate or, at our option, the LIBOR rate. Both rate bases are incremented for
margins specified in the agreement. Thus, our interest rate is subject to market
risk in the form of fluctuations in interest rates. The effect of a hypothetical
one percentage point increase across all maturities of variable rate debt would
result in a decrease of approximately $368,000 in pre-tax net income assuming no
further changes in the amount of borrowings subject to variable rate interest
from amounts outstanding at December 31, 1999. We do not trade in derivative
financial instruments.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed on page F-1 of this report are filed as
part of this report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
See Item X in Part I of this report for information regarding the executive
officers of InfoCure.
DIRECTORS
Information regarding the directors of InfoCure is set forth below.
James D. Elliott
Mr. Elliott, age 40, has served as a director of InfoCure since March 1997.
Since 1991, Mr. Elliott has been the president of Cablepro, Inc., a
computer/telephone cable systems integration company. He was president of GE
Network Services from August 1996 until August 1997. Mr. Elliott co-founded
Universal Data Consultants, Inc., a systems integrator, in 1983 and served as
its president from 1983 until it was purchased by GE Capital Services Company in
July 1996. Mr. Elliott has also served as a director of Abdata Systems, Inc.
since February 1998. Mr. Elliott holds a B.S. in Economics from the University
of Georgia.
Frederick L. Fine
Mr. Fine, age 41, is a founder of InfoCure and currently serves as its
President and Chief Executive Officer. He has served as a director of InfoCure
since its inception. Mr. Fine served as president of American Medcare from 1995
to 1997 and as president of International Computer Solutions, a subsidiary of
American Medcare, from 1994 to 1997. From 1993 to 1995, Mr. Fine served as
executive vice president of American Medcare, and from 1985 to 1994 served as
executive vice president of International Computer Solutions, which he
co-founded in 1985. From 1991 to 1993, Mr. Fine served as vice president of
Newport Capital, Inc., predecessor to American Medcare. Mr. Fine has served as a
director of InfoCure as well as American Medcare, International Computer
Solutions and Newport Capital throughout the terms of his employment by each
company. From 1983 to 1985, Mr. Fine was with Informatics General Corporation, a
supplier of accounting software, and from 1981 to 1983 was with Moore Business
Systems, a division of Moore Corporation Ltd., a provider of practice management
systems. Mr. Fine holds a B.S. in Economics from the University of Georgia.
Richard E. Perlman
Mr. Perlman, age 53, has served as InfoCure's Chairman and Treasurer since
December 1997 and as a director since March 1997. From December 1997 until
October 1998, Mr. Perlman served as InfoCure's Chief Financial Officer. Mr.
Perlman is the founder of Compass Partners, L.L.C., a merchant banking and
financial advisory firm specializing in corporate restructuring and middle
market companies, and has served as its president since its inception in May
1995. From 1991 to 1995, Mr. Perlman was executive vice president of Matthew
Stuart & Co., Inc., an investment banking firm. Mr. Perlman received a B.S. in
Economics from the Wharton School of the University of Pennsylvania and a
Masters in Business Administration from the Columbia University Graduate School
of Business.
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James K. Price
Mr. Price, age 42, is a founder of InfoCure and currently serves as its
Executive Vice President and Secretary. He has served as a director of InfoCure
since its inception. Mr. Price served as executive vice president of American
Medcare from 1996 until 1997 and was vice president from 1993 to 1995. Mr. Price
co-founded International Computer Solutions and has served as its executive vice
president since 1994, as vice president from 1987 to 1994 and as president from
1985 to 1987. In addition, from 1991 to 1993, Mr. Price was a vice president of
Newport Capital. Mr. Price has served as a director of InfoCure as well as
American Medcare, International Computer Solutions and Newport Capital
throughout the terms of his employment by each company. From 1983 to 1985, Mr.
Price was healthcare sales manager of Executive Business Systems, a practice
management systems supplier, and from 1981 to 1983 was with Moore Business
Systems. Mr. Price holds a B.A. in Marketing from the University of Georgia.
Raymond H. Welsh
Mr. Welsh, age 68, has served as a director of InfoCure since March 1998.
He has served as senior vice president of PaineWebber Incorporated since January
1995. From August 1955 to January 1995, Mr. Welsh served as an investment
broker, director, senior vice president and partner of Kidder Peabody & Co.
Incorporated. Mr. Welsh is a trustee of the University of Pennsylvania, a
trustee and member of the executive committee of the University of Pennsylvania
Health System, and chairman of the Health System Capital Campaign, "Creating the
Future of Medicine." Mr. Welsh received a B.S. in Economics from the Wharton
School of the University of Pennsylvania.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers and persons who beneficially own more than 10%
of a registered class of InfoCure's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership. Such persons are required by SEC regulations to furnish
InfoCure with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms furnished to us and
written representations from the executive officers and directors of InfoCure,
we believe that all Section 16(a) requirements were met during 1999 except that
each of Ernest Chastain and Kurt Lawrence belatedly filed a Form 4 in October
1999 for a September sale. Due to a recent restructuring, these individuals are
no longer considered to be executive officers of InfoCure.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
We compensate our independent directors through the InfoCure Corporation
Directors Stock Option Plan, adopted by our directors and approved by our
stockholders in June 1998. The directors' stock option plan provides for the
grant of non-qualified stock options to directors who are not employees of
InfoCure or its subsidiaries. The directors' stock option plan provides to each
non-employee director who is first appointed or elected to the board of
directors an option to purchase 10,000 shares of common stock. On each
anniversary of such director's service on the board, each non-employee director
receives annual grants of options to purchase 2,500 shares of common stock. The
directors' stock option plan also allows the compensation committee of the board
of directors to make additional grants of options to non-employee directors. All
options granted under the directors' stock option plan vest at a rate of 50%
upon completion of one year of service as a director after the date of grant and
50% upon completion of the second year of service as a director after the date
of grant. Generally, no option is transferable by the optionee other than by
will or the laws of descent and distribution, and each option is exercisable
only by the optionee during his or her lifetime. The exercise price of all
options will be the fair market value of the shares of common stock on the date
of grant, and the term of each option may not exceed ten years. Unless
terminated sooner by the board of directors, the directors' stock option plan
will continue in effect for a period of ten years or until all options
outstanding thereunder have expired or been
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exercised. There are 200,000 shares of common stock reserved for issuance under
the directors' stock option plan. As of April 17, 2000, options to acquire
70,000 shares of common stock have been granted pursuant to the directors' stock
option plan at a weighted average exercise price of $8.94 per share.
In October 1998, the board of directors granted a non-qualified stock
option to acquire 5,000 shares of common stock to each of Mr. Elliott and Mr.
Welsh at an exercise price of $6.75 per share, subject to vesting of 50% upon
the optionee's completion of each year of service on the board of directors.
These options were not granted pursuant to the directors' stock option plan.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid by InfoCure for
services rendered by our Chief Executive Officer during the fiscal years ended
December 31, 1999, 1998 and 1997 as well as our other executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ANNUAL -----------------------
COMPENSATION RESTRICTED SECURITIES
------------------ STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION(1)
--------------------------- ---- -------- ------- ---------- ---------- ---------------
Frederick L. Fine.................. 1999 $125,000 $19,500 -- 440,200 $15,843
President and Chief 1998 125,000 33,333 70,000 350,200 16,911
Executive Officer 1997 127,778 -- -- 260,400 --
James K. Price..................... 1999 125,000 19,500 -- 440,200 19,452
Executive Vice President 1998 125,000 33,333 60,000 320,200 19,270
and Secretary 1997 126,036 -- -- 252,400 --
Richard E. Perlman................. 1999 120,000 23,500 -- 440,100 17,380
Chairman and Treasurer 1998 120,000 33,333 60,000 320,000 11,927
1997 -- -- -- 240,000 --
James A. Cochran(2)................ 1999 52,083 -- -- 300,000 7,660
Senior Vice President -- Finance 1998 -- -- -- -- --
and Chief Financial Officer 1997 -- -- -- -- --
- ---------------
(1) In accordance with the rules of the SEC, the compensation set forth in the
table does not include compensation in the form of perquisites or other
personal benefits because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonus for the Named Executive Officer for such year.
(2) Joined InfoCure in August 1999.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options
during the year ended December 31, 1999, to each of the Named Executive
Officers:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ---------------- ----------- ---------- ----------- ------------
Frederick L. Fine.......... 200 * $16.38 1/1/09 $ 2,060 $ 5,221
440,000 14.1% 17.50 6/9/09 4,842,489 12,271,817
James K. Price............. 200 * 16.38 1/1/09 2,060 5,221
440,000 14.1 17.50 6/9/09 4,842,489 12,271,817
Richard E. Perlman......... 100 * 16.38 1/1/09 1,030 2611
440,000 14.1 17.50 6/9/09 4,842,489 12,271,817
James A. Cochran........... 300,000 9.6 16.75 8/20/09 3,160,196 8,008,556
- ---------------
* Less than one percent
(1) All options were granted with exercise prices equal to or in excess of the
fair market value of the common stock on the date of grant as determined by
the board of directors.
(2) The potential realizable value is calculated based on the 10-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually over the term of the option. These numbers are
calculated based upon rules promulgated by the SEC and do not represent our
estimate or projection of the future value of the common stock. The actual
realizable value of the options based on the price to public in the offering
will exceed the potential realizable value shown in the table.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the total number of unexercised options held
by the Named Executive Officers as of December 31, 1999. During 1999, none of
the Named Executive Officers exercised any options.
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Frederick L. Fine.............................. 232,772 818,028 $6,379,205 $15,830,803
James K. Price................................. 225,272 787,528 6,194,370 15,043,354
Richard E. Perlman............................. 223,152 776,948 6,132,640 14,737,241
James A. Cochran............................... -- 300,000 -- 4,331,400
- ---------------
(1) The closing price for our common stock as reported by The Nasdaq Stock
Market on December 31, 1999 was $31.19. The value is calculated on the basis
of the difference between the option exercise price and $31.19, multiplied
by the shares of common stock underlying the option.
EMPLOYMENT AGREEMENTS
InfoCure entered into four-year employment agreements with Frederick L.
Fine and James K. Price in July 1998, and amended these agreements in June 1999.
Each agreement, as amended, provides for an initial annual base salary of
$125,000 and a severance payment equal to three times the then current annual
base salary rate upon the termination of employment by InfoCure without cause or
a voluntary termination in the event of a change of control of InfoCure. In
addition, each agreement, as amended, provides for incentive compensation
pursuant to a program established by the board of directors, a cash bonus
payment in the event that InfoCure meets certain earnings thresholds and a
non-qualified option to purchase shares of InfoCure's common stock at fair
market value, vesting over four years. Each agreement, as amended, provides for
100% vesting of all outstanding stock options upon a change of control of
InfoCure. The agreements, as amended,
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provide for an additional gross-up payment to be made to the executives in the
event that, upon a change in the ownership or effective control of InfoCure or
in the ownership of a substantial portion of the assets of InfoCure, any
payments to the executives are subject to an excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended. Both executives are entitled to
participate in InfoCure's employee benefit programs.
InfoCure entered into a four-year employment agreement with Richard E.
Perlman in January 1998, and amended this agreement in June 1999. The agreement,
as amended, provides for an annual base salary of $120,000 and a severance
payment equal to three times the then current annual base salary rate upon
termination of employment by InfoCure without cause or a voluntary termination
in the event of a change of control of InfoCure. Under the agreement, as
amended, Mr. Perlman is eligible to receive incentive compensation pursuant to a
program established by the board of directors, a cash bonus payment in the event
InfoCure meets certain earnings thresholds and a non-qualified option to
purchase shares of InfoCure's common stock at fair market value, vesting over
four years. The agreement, as amended, provides for 100% vesting of all
outstanding stock options upon a change in control of InfoCure. The agreements,
as amended, provide for an additional gross-up payment to be made to Mr. Perlman
in the event that, upon a change in the ownership or effective control of
InfoCure or in the ownership of a substantial portion of the assets of InfoCure,
any payments to Mr. Perlman are subject to an excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended. In addition, Mr. Perlman may
participate in InfoCure's employee benefit programs.
In August 1999, InfoCure entered into a three-year employment agreement
with James A. Cochran that provides for an annual base salary of $125,000 and a
severance payment equal to three times the then current annual base salary rate
upon termination of employment by InfoCure without cause or a voluntary
termination in the event of a change of control of InfoCure. Under the
agreement, Mr. Cochran is eligible to receive incentive compensation pursuant to
a program established by the board of directors and a non-qualified option to
purchase shares of InfoCure's common stock at fair market value, vesting over
four years. In addition, Mr. Cochran may participate in InfoCure's employee
benefit programs.
RESTRICTED STOCK AWARDS AND DEFERRED COMPENSATION AGREEMENT
In June 1998, the board of directors approved, and in June 1999 the
stockholders of InfoCure approved, restricted stock awards of 70,000 shares to
Mr. Fine, 60,000 shares to Mr. Price and 60,000 shares to Mr. Perlman. The total
value of these restricted stock awards was approximately $1.1 million on the
date of grant. The restricted stock awards were to vest ratably over a ten-year
term but vesting would accelerate upon the occurrence of certain events.
One-half of the shares subject to the restricted stock awards vested in the
first quarter of 1999 when the average closing price of InfoCure's common stock
was $25.00 or more for 20 consecutive trading days. InfoCure incurred a
compensation charge of approximately $500,000 in the first quarter of 1999
related to the restricted stock awards to reflect this accelerated vesting. The
remaining shares vested in the third quarter of 1999 when the average closing
price of InfoCure's common stock was $40.00 or more for 20 consecutive trading
days. InfoCure incurred an additional compensation charge of approximately
$580,000 in the third quarter of 1999 related to the restricted stock awards to
reflect this second tranche of accelerated vesting. InfoCure does not expect to
grant additional restricted stock awards in the future and therefore does not
expect to incur additional compensation charges relating to restricted stock
awards.
In January 1999, InfoCure entered into deferred compensation agreements
with each of Messrs. Fine, Price and Perlman. Each agreement provides that upon
vesting of the restricted stock awards, the benefit would be credited under a
deferred compensation arrangement. The benefit is to be paid in shares of
InfoCure common stock and is to be paid only upon 30 days following the
termination of the employee's employment.
STOCK OPTION PLAN
In December 1996, InfoCure's board of directors and stockholders adopted
the InfoCure Corporation 1996 Stock Option Plan and, in June 1998 and June 1999,
approved amendments to the plan. In addition, InfoCure's predecessor, American
Medcare, adopted and issued stock options under its 1996 Stock Option
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Plan in October 1996. The options granted under the American Medcare stock
option plan were assumed by InfoCure and converted into options to acquire
InfoCure common stock in connection with the formation of InfoCure in July 1997.
Each of InfoCure's and American Medcare's option plans provide for the
granting to officers, key employees and employee directors of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and for the granting of non-statutory stock options to employees and
consultants. The stock option plans are administered by the board of directors,
or a committee thereof, which determines the term of the option granted, the
exercise price, when and to whom options are granted, shares subject to the
option, the vesting schedule and the form of consideration payable at the
exercise of the option.
Incentive stock options granted under the stock option plans are not
transferable by the optionee other than by will or the laws of descent and
distribution, and each incentive stock option is exercisable only by the
optionee during his or her lifetime. Upon certain mergers, consolidations or
other reorganizations, all outstanding options under InfoCure's option plan
fully vest and become immediately exercisable. The exercise price of all
incentive stock options granted under the stock option plans must be at least
equal to the fair market value of InfoCure's common stock on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of the outstanding stock of InfoCure, the exercise
price of any incentive stock option granted must equal at least 110% of the fair
market value of InfoCure's common stock on the grant date and the maximum term
of such option must not exceed five years. The term of all options granted under
the stock option plans may not exceed ten years. All options expire no later
than one year after termination of an optionee's employment or engagement,
unless such termination was for death or disability in which case such options
expire two years after termination. Unless terminated sooner by the board of
directors, stock options may be granted within ten years of the adoption of the
respective stock option plan.
Generally, stock options granted under the stock option plans to executive
officers expire ten years from the date of grant and vest 25% per year on the
anniversary of the date of grant, thus becoming fully exercisable on the fourth
anniversary. Certain options granted to Messrs. Fine, Perlman and Price in
September 1997 have longer vesting schedules. If the executive officer's
employment is terminated for any reason prior to the vesting of the option,
other than upon a change of control, that portion of the option which has not
vested will terminate. Upon certain events resulting in a change of control of
InfoCure, all options granted to Messrs. Fine, Perlman and Price become fully
vested.
There are currently 6,000,000 shares of common stock reserved for issuance
under the InfoCure option plan. As of April 17, 2000, options to purchase
200,527 shares of common stock were outstanding under American Medcare's option
plan at an equivalent weighted average exercise price of $2.06 per share and
options to purchase 3,839,808 shares of common stock were outstanding under
InfoCure's option plan at weighted average exercise price of $9.12 per share. No
additional stock options will be granted under American Medcare's option plan.
EMPLOYEE STOCK PURCHASE PLAN
InfoCure's stockholders approved the InfoCure Corporation Employee Stock
Purchase Plan in June 1998 and amended the plan in June 1999. The InfoCure
Corporation Employee Stock Purchase Plan is intended to qualify under Section
423 of the Internal Revenue Code of 1986, as amended. The stock purchase plan
allows employees to purchase common stock through payroll deductions at a
purchase price of 85% of the fair market value of the common stock.
Participation in the stock purchase plan is voluntary. Employees may become
participants in the stock purchase plan by authorizing payroll deductions of one
to fifteen percent of their base pay or a set dollar amount for each payroll
period. At the end of each three-month purchase period, each participant in the
stock purchase plan will receive a number of shares of InfoCure's common stock
determined by dividing the participant's payroll deductions during the calendar
quarter by 85% of the lower of the fair market value of InfoCure's common stock
at the beginning of the calendar quarter, or the fair market value of InfoCure's
common stock at the end of the quarter. No participant, however, generally can
purchase more than $6,250 worth of common stock in a quarter under the plan.
Common stock which is purchased pursuant
35
38
to the stock purchase plan is subject to a one-year holding period, and
employees who purchase common stock under the stock purchase plan will not
receive stock certificates for their shares until the one-year holding period
has terminated. This holding period lapses in the event that InfoCure merges
with another corporation and InfoCure is not the surviving entity, or in the
event that all or substantially all of the stock or assets of InfoCure are
acquired by another company or in the event of certain other similar
transactions. No employee may participate in the stock purchase plan to the
extent that such employee owns or would own 5% or more of the voting power of
all classes of InfoCure's stock. There are currently 300,000 shares of common
stock reserved for issuance under the stock purchase plan. InfoCure is permitted
under the stock purchase plan to purchase shares of common stock on the open
market for the purpose of reselling the shares to participants in the stock
purchase plan. As of April 17, 2000, 66,144 shares have been purchased on the
open market and re-sold by InfoCure and 8,586 new shares were issued to
participants in the stock purchase plan.
LENGTH-OF-SERVICE STOCK OPTION PLAN
In June 1998, InfoCure's stockholders approved InfoCure's Length-of-Service
Nonqualified Stock Option Plan and amended the plan in June 1999. The
length-of-service plan provides for the grant of nonqualified stock options to
employees. Employees are eligible for the grant of options under the length-of-
service plan based on the number of years of service which they have completed
with InfoCure or a business which has been acquired by InfoCure. Upon completion
of each of their first five years of service, employees are eligible to receive
an option to purchase 100 shares of InfoCure's common stock. Upon completion of
their sixth year of service, employees are eligible to receive an option to
purchase 700 shares of common stock. Upon completion of each year of service
after the sixth year of service, employees are eligible to receive an option to
purchase 200 shares of common stock. Options granted under the length-of-service
plan will be granted at an exercise price equal to the fair market value of the
underlying common stock on the date of grant and, generally, will fully vest on
the fourth anniversary thereof. The term of options granted under the length-
of-service plan may not exceed ten years. Employees lose all non-vested options
upon leaving the employment of InfoCure. Employees who leave InfoCure may
exercise their options, to the extent vested, within 30 days after leaving the
employment of InfoCure, provided, however, that upon a termination for cause the
employees lose all vested options upon termination. Options are exercisable only
by optionees during their lifetime and, except by will or the laws of descent or
distribution, are non-transferable. If InfoCure agrees to sell substantially all
of its assets or agrees to any merger, consolidation, reorganization, division,
or other transaction in which common stock is converted into another security or
into the right to receive securities or property and such agreement does not
provide for the assumption or substitution of the options granted under the
plan, all outstanding options under the length-of-service plan fully vest and
become immediately exercisable. The length-of-service plan will continue in
effect for a period of ten years or until all options outstanding thereunder
have expired or been exercised. There are currently 1,000,000 shares of common
stock reserved for issuance under the length-of-service plan. As of April 20,
2000, options to acquire 1,053,700 shares have been granted at a weighted
average exercise price of $13.43 per share, subject to stockholder approval of
an increase in the number of shares of common stock reserved for issuance under
the length-of-service plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 28, 2000, the beneficial
ownership of InfoCure's outstanding common stock for: (a) each director; (b) the
Chief Executive Officer and the other executive officers of InfoCure in 1999;
and (c) all executive officers and directors as a group. There are no other
stockholders known by InfoCure to be the beneficial owner of more than 5% of
InfoCure's outstanding common stock as of March 28, 2000.
36
39
Information with respect to "beneficial ownership" shown in the table below
is based on information supplied by the respective beneficial owner or by other
stockholders as well as filings made with the Securities and Exchange Commission
or furnished to InfoCure. Beneficial ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power with
respect to securities. For purposes of calculating the percentage beneficially
owned, the shares of common stock deemed outstanding include:
- 33,134,445 shares outstanding as of March 28, 2000;
- 133,695 shares issuable in connection with a note payable; and
- shares issuable by InfoCure pursuant to warrants and options held by the
respective person or group which may be exercised within 60 days of March
28, 2000 ("Presently Exercisable Options").
Presently Exercisable Options are deemed to be outstanding and to be
beneficially owned by the person or group holding such options for the purpose
of computing the percentage ownership of such person or group but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person or group. Unless otherwise specified, the mailing address of
each beneficial owner is c/o InfoCure Corporation, 1765 The Exchange, Suite 500,
Atlanta, Georgia 30339.
NUMBER OF PRESENTLY TOTAL SHARES
NAME AND ADDRESS OF SHARES OF EXERCISABLE BENEFICIALLY PERCENTAGE
BENEFICIAL OWNERS COMMON STOCK OPTIONS OWNED OF CLASS
- ------------------- ------------ ----------- ------------ ----------
EXECUTIVE OFFICERS AND DIRECTORS:
Frederick L. Fine(1)........................... 1,113,794 136,154 1,249,948 3.7%
James K. Price(2).............................. 1,103,958 128,654 1,232,612 3.7
Richard E. Perlman(3).......................... 738,452 126,534 864,986 2.6
Michael E. Warren(4)........................... 184,055 21,056 201,111 *
James D. Elliott............................... -- 2,500 2,500 *
Raymond H. Welsh............................... 105,000 2,500 107,500 *
James A. Cochran............................... -- -- -- --
All executive officers and directors as a group
(7 persons)................................. 3,245,259 417,398 3,662,657 10.9
- ---------------
* Less than one percent.
(1) Includes (a) 7,148 shares held by Mr. Fine for the benefit of his children,
(b) 2,386 shares held by a charitable trust over which he has sole voting
and investment control, and (c) 70,000 shares held in a deferred
compensation trust on behalf of Mr. Fine.
(2) Includes (a) 6,450 shares held by Mr. Price's brother as to which Mr. Price
maintains voting control and (b) 60,000 shares held in a deferred
compensation trust on behalf of Mr. Price.
(3) Includes (a) 466,610 shares held by Compass Partners, L.L.C., of which Mr.
Perlman holds a majority interest, (b) 111,636 shares held by Compass
Partners II, L.L.C., of which Compass Partners, L.L.C. is a general partner
and (c) 60,000 shares held in a deferred compensation trust on behalf of Mr.
Perlman.
(4) Resigned from the board of directors effective May 1, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1999 to which InfoCure was a party, in
which the amount involved exceeded $60,000 and in which any director or
executive officer of InfoCure, any 5% stockholder, or any member of the
immediate family of any of those persons were involved.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The financial statements listed on page F-1
of this report are filed as part of this report on the pages indicated.
37
40
(a)(2) Financial Statement Schedules. The applicable financial statement
schedules required under Regulation S-X have been included beginning on page S-1
of this report, as follows:
Report of Independent Certified Public Accountants on
Financial Statement Schedule.............................. S-1
Schedule II - Valuation and Qualifying Accounts............. S-2
(a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K are
listed below.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1* -- Agreement and Plan of Merger by and among OMSystems, Inc,
the Shareholders of OMSystems, Inc., InfoCure Systems, Inc.
and InfoCure Corporation dated February 8, 1999.
2.2 -- Agreement and Plan of Merger by and among Datamedic Holding
Corp., Certain Principal Shareholders of Datamedic Holding
Corp., InfoCure Corporation and InfoCure Systems, Inc. dated
September 3, 1999 (incorporated herein by reference to
Appendix A to InfoCure's Registration Statement on Form S-4
(Registration No. 333-87867) filed on September 27, 1999).
2.3 -- Agreement and Plan of Merger and Reorganization among
InfoCure Corporation, Medical Dynamics, Inc. and CADI
Acquisition Corporation dated December 21, 1999
(incorporated by reference to Exhibit 99.2 filed with
InfoCure's Current Report on Form 8-K on December 22, 1999).
3.1* -- Certificate of Incorporation of InfoCure Corporation with
all amendments.
3.2* -- Second Amended and Restated Bylaws of InfoCure.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation, as amended, and Bylaws of InfoCure
defining rights of the holders of common stock of InfoCure.
4.2 -- Specimen Certificate for shares of common stock
(incorporated by reference to Exhibit 4.2 to InfoCure's
Registration Statement on Form SB-2) (Registration No.
333-18923).
10.1 -- Employment Agreement between InfoCure and Frederick L. Fine
dated July 1998 (incorporated by reference to Exhibit 10.1
filed with InfoCure's Annual Report on Form 10-KSB on
February 26, 1999).
10.2* -- Amendment to Employment Agreement, dated June 9, 1999
between InfoCure and Frederick L. Fine.
10.3 -- Employment Agreement between InfoCure and James K. Price
dated July 1998 (incorporated by reference to Exhibit 10.2
filed with InfoCure's Annual Report on Form 10-KSB on
February 26, 1999).
10.4* -- Amendment to Employment Agreement, dated June 9, 1999
between InfoCure and James K. Price.
10.5 -- Employment Agreement between InfoCure and Richard E. Perlman
dated January 1998 (incorporated by reference to Exhibit
10.3 filed with InfoCure's Annual Report on Form 10-KSB on
February 26, 1999).
10.6* -- Amendment to Employment Agreement, dated June 9, 1999
between InfoCure and Richard E. Perlman.
10.7* -- Employment Agreement between InfoCure and James A. Cochran
dated August 2, 1999.
10.8* -- Loan Agreement among InfoCure Corporation, InfoCure Systems,
Inc., Thoroughbred Acquisition, Inc. and FINOVA Capital
Corporation dated August 11, 1999.
10.9 -- InfoCure Corporation 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.1 filed with InfoCure's Registration
Statement on Form SB-2) (Registration No. 333-18923).
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41
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.10 -- Form of Incentive Stock Option Agreement of InfoCure
Corporation (incorporated by reference to Exhibit 10.2 filed
with InfoCure's Registration Statement on Form SB-2)
(Registration No. 333-18923).
10.11 -- American Medcare Corporation 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.19 filed with
InfoCure's Registration Statement on Form SB-2)
(Registration No. 333-18923).
10.12 -- Form of Incentive Stock Option Agreement of American Medcare
Corporation (incorporated by reference to Exhibit 10.20
filed with InfoCure's Registration Statement on Form SB-2)
(Registration No. 333-18923).
10.13 -- InfoCure Corporation 1997 Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.48 filed with
InfoCure's Annual Report on Form 10-KSB on April 1, 1998).
10.14 -- InfoCure Corporation Length-of-Service Nonqualified Stock
Option Plan (incorporated by reference to Exhibit 10.49
filed with InfoCure's Annual Report on Form 10-KSB on April
1, 1998).
10.15* -- Amendment to InfoCure Corporation 1996 Stock Option Plan.
10.16* -- Amendment to InfoCure Corporation Length-of-Service
Nonqualified Stock Option Plan.
10.17* -- Amendment to InfoCure Corporation Employee Stock Purchase
Plan.
10.18 -- InfoCure Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.50 filed with
InfoCure's Annual Report on Form 10-KSB on April 1, 1998).
10.19* -- Deferred Compensation Agreement between InfoCure and
Frederick L. Fine.
10.20* -- Deferred Compensation Agreement between InfoCure and James
K. Price.
10.21* -- Deferred Compensation Agreement between InfoCure and Richard
E. Perlman.
10.22* -- Form of Stock Option Grant Certificate and schedule of
recipients of such options.
10.23* -- Form of Stock Option Grant Certificate and schedule of
recipients of such options.
10.24* -- Stock Option Grant Certificate for Stock Option Grant to
Michael Warren.
10.25* -- American Medcare Corporation 1994 Stock Option Plan.
21.1* -- List of Subsidiaries.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of KPMG LLP.
24.1* -- Powers of Attorney (included on signature page).
27.1* -- Financial Data Schedule (for SEC use only).
- ---------------
* Previously filed.
(b) Reports on Form 8-K. InfoCure filed the following reports on Form 8-K
during the quarter ended December 31, 1999:
(i) Report on Form 8-K with respect to third quarter financial results
and the Medical Dynamics, Inc. and Zila, Inc. acquisitions, filed
November 4, 1999.
(ii) Report on Form 8-K with respect to the acquisitions of the dental
practice management systems business of National Data
Corporation, PracticeWorks from Zila, Inc., Unident Corporation,
InfoLogic, Inc. and Human Touch, and the merger with Medical
Dynamics, Inc., filed December 22, 1999.
(iii) Report on Form 8-K with respect to the VitalWorks acquisition,
filed December 23, 1999.
39
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized on this 28th day of
April, 2000.
INFOCURE CORPORATION
By: /s/ FREDERICK L. FINE
------------------------------------
Frederick L. Fine
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities on April 28, 2000.
SIGNATURE TITLE
--------- -----
/s/ FREDERICK L. FINE President; Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Frederick L. Fine
* Executive Vice President, Secretary and
- ----------------------------------------------------- Director
James K. Price
* Chairman, Treasurer and Director
- -----------------------------------------------------
Richard E. Perlman
* Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer and Principal
James A. Cochran Accounting Officer)
* Vice President and Director
- -----------------------------------------------------
Michael E. Warren
Director
- -----------------------------------------------------
James D. Elliott
* Director
- -----------------------------------------------------
Raymond H. Welsh
*By: /s/ FREDERICK L. FINE
-----------------------------------------------
Frederick L. Fine
Attorney-in-Fact
40
43
INFOCURE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Reports of Independent Certified Public Accountants......... F-2
Consolidated balance sheets as of December 31, 1999 and
1998...................................................... F-4
Consolidated statements of operations for the years ended
December 31, 1999 and 1998 and the eleven months ended
December 31, 1997......................................... F-5
Consolidated statements of changes in stockholders' equity
for the years ended December 31, 1999 and 1998 and the
eleven months ended December 31, 1997..................... F-6
Consolidated statements of cash flows for the years ended
December 31, 1999 and 1998 and the eleven months ended
December 31, 1997......................................... F-7
Notes to consolidated financial statements.................. F-8
FINANCIAL STATEMENT SCHEDULE
Report of Independent Certified Public Accountants on
Financial Statement Schedule.............................. S-1
Schedule II - Valuation and Qualifying Accounts............. S-2
F-1
44
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
InfoCure Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of InfoCure
Corporation and its subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended December 31, 1999 and 1998 and the eleven
months ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of InfoCure
Corporation and Datamedic Holding Corp., which has been accounted for as a
pooling of interests as described in the notes to the consolidated financial
statements. We did not audit the financial statements of Datamedic Holding Corp.
and subsidiaries as of March 31, 1999 and for each of the years in the two-year
period ended March 31, 1999 which were combined with the Company's financial
statements as of December 31, 1998 and for the year ended December 31, 1998 and
the eleven months ended December 31, 1997, which financial statements reflect
total assets of approximately $9.4 million as of March 31, 1999, total revenues
of approximately $20.8 million and $19.2 million and a net loss of approximately
$1.8 million and $17.3 million for each of the years in the two-year period
ended March 31, 1999, respectively. Those financial statements were audited by
another auditor whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Datamedic Holding Corp. and
subsidiaries for the applicable years, is based solely on the report of the
other auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of InfoCure Corporation and its
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
and the eleven months ended December 31, 1997, in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
February 21, 2000
F-2
45
INDEPENDENT AUDITORS' REPORT
Board of Directors
Datamedic Holding Corp.
and subsidiaries:
We have audited the consolidated balance sheets of Datamedic Holding Corp. and
subsidiaries as of March 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
each of the years in the three-year period ended March 31, 1999. These
consolidated financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Datamedic Holding
Corp. and subsidiaries as of March 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG, LLP
Melville, New York
May 25, 1999
F-3
46
INFOCURE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
ASSETS (NOTES 1 AND 9)
Current:
Cash and cash equivalents................................. $ 16,836 $ 10,302
Accounts receivable-trade, net of allowance of $4,296 and
$1,526................................................. 39,331 31,412
Other receivables......................................... 819 1,499
Inventory................................................. 4,428 4,864
Refundable income taxes................................... 3,256 --
Deferred tax assets (Note 12)............................. 2,843 1,510
Prepaid expenses and other current assets................. 1,376 1,687
-------- --------
Total current assets.............................. 68,889 51,274
Property and equipment, net of accumulated depreciation
(Note 6).................................................. 24,064 12,886
Goodwill, net of accumulated amortization of $13,462 and
$3,957 (Notes 3 and 5).................................... 102,678 74,264
Other intangible assets (Note 7)............................ 9,182 8,242
Deferred tax assets (Note 12)............................... 12,963 11,818
Other assets................................................ 2,728 1,648
-------- --------
$220,504 $160,132
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 9).................................... $ 1,222 $ 2,074
Accounts payable.......................................... 10,161 9,849
Accrued expenses (Note 8)................................. 15,306 8,594
Accrued restructuring costs (Note 5)...................... 2,534 283
Income taxes payable...................................... -- 670
Deferred revenue and customer deposits.................... 12,979 18,593
Current portion of long-term debt (Note 9)................ 694 14,809
-------- --------
Total current liabilities......................... 42,896 54,872
Long-term debt, less current portion (Note 9)............... 41,178 72,896
Other liabilities........................................... 1,091 1,091
-------- --------
Total liabilities................................. 85,165 128,859
-------- --------
Commitments (Notes 9 and 10)
Convertible, redeemable preferred stock $0.001 par value;
2,000,000 shares authorized, 0 and 850,060 shares with
redemption value of $10.00 outstanding (Note 11).......... -- 8,501
-------- --------
Stockholders' equity (Note 11):
Common stock $0.001 par value, 200,000,000 and 30,000,000
authorized, 32,327,099 and 19,987,768 outstanding...... 32 20
Common stock issuable..................................... -- 1,975
Additional paid-in capital................................ 189,837 72,070
Accumulated deficit....................................... (54,530) (49,988)
Deferred compensation..................................... -- (1,083)
Treasury stock, at cost................................... -- (222)
-------- --------
Total stockholders' equity........................ 135,339 22,772
-------- --------
$220,504 $160,132
======== ========
See accompanying notes to consolidated financial statements.
F-4
47
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ---------------
Revenue (Note 1):
Systems and software................................. $96,241 $67,608 $ 37,002
Maintenance, support and services.................... 107,393 62,237 38,227
------- ------- --------
Total revenue................................ 203,634 129,845 75,229
------- ------- --------
Operating expense:
Hardware and other items purchased for resale........ 49,613 28,981 19,255
Selling, general and administrative (excluding
compensatory stock awards)........................ 104,770 63,647 49,864
Research and development............................. 15,655 17,398 13,919
Depreciation and amortization........................ 14,490 6,382 4,401
Compensatory stock awards............................ 1,431 6,447 78
Purchased research and development (Note 4).......... -- 9,000 --
Restructuring and other charges (Note 5)............. 10,681 1,874 13,052
Merger costs (Note 3)................................ 3,764 123 --
------- ------- --------
Total operating expense...................... 200,404 133,852 100,569
------- ------- --------
Operating income(loss)................................. 3,230 (4,007) (25,340)
Other expense (income):
Interest, net........................................ 3,513 4,029 897
Other, net........................................... -- (200) (324)
------- ------- --------
Loss before income taxes and extraordinary item........ (283) (7,836) (25,913)
Income taxes (benefit) (Note 12)....................... 576 (1,037) (7,204)
------- ------- --------
Loss before extraordinary item......................... (859) (6,799) (18,709)
Extraordinary item -- debt extinguishment cost, net of
income taxes (Note 9)................................ 2,935 -- --
------- ------- --------
Net loss............................................... (3,794) (6,799) (18,709)
Pro forma tax adjustments.............................. (137) (1,436) 779
------- ------- --------
Pro forma net loss..................................... (3,657) (5,363) (19,488)
Accretive dividend (Note 11)........................... -- 800 --
------- ------- --------
Pro forma net loss available to common stockholders.... $(3,657) $(6,163) $(19,488)
======= ======= ========
Net loss available to common stockholders per share:
Basic and diluted.................................... $ (0.14) $ (0.39) $ (1.21)
Pro forma net loss available to common stockholders per
share (Note 2):
Pro forma basic loss before extraordinary item....... $ (0.03) $ (0.32) $ (1.26)
Extraordinary item, net of tax....................... (0.10) -- --
------- ------- --------
Pro forma basic net loss available to common
stockholders...................................... $ (0.13) $ (0.32) $ (1.26)
======= ======= ========
Weighted average shares outstanding.................... 27,994 19,312 15,523
======= ======= ========
See accompanying notes to consolidated financial statements.
F-5
48
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SHARES
----------------------- COMMON ACCRUED STOCK
COMMON TREASURY COMMON TREASURY STOCK STOCK PURCHASE DEFERRED
STOCK STOCK STOCK STOCK ISSUABLE REPURCHASE WARRANT COMPENSATION
------------ -------- ------ -------- -------- ---------- -------- ------------
Balance, at January 31, 1997 (Note
1)................................ 201,391,439 (456,978) $201 $(100) $ -- $(65) $80 $ (64)
Issuance of common stock.......... 1,600,000 -- 2 -- -- -- -- --
Stock repurchase.................. (229,866) -- -- -- -- 65 -- --
Conversion of common stock upon
formation of Company (Note 1)... (191,790,826) 456,978 (192) 100 -- -- -- --
Issuance of common stock, net of
related expense for:
Initial public offering......... 2,800,000 -- 3 -- -- -- -- --
Acquisition of Founding
Companies...................... 1,815,170 -- 2 -- -- -- -- --
Payment of debt and other
obligations.................... 583,432 -- -- -- -- -- -- --
Exercise of warrants............ 222,592 -- -- -- -- -- (80) --
1997 Acquisitions............... 153,496 -- -- -- -- -- -- --
Issuance of stock options and
warrants........................ -- -- -- -- -- -- -- --
Purchase of treasury stock........ -- (42,146) -- (116) -- -- -- --
Amortize deferred compensation.... -- -- -- -- -- -- -- 50
Net loss.......................... -- -- -- -- -- -- -- --
Equity issuances by Pooled
Companies....................... 795,187 -- 1 -- -- -- -- --
Distributions by Pooled
Companies....................... -- -- -- -- -- -- -- --
------------ -------- ---- ----- ------- ---- --- -------
Balance, at December 31, 1997...... 17,340,624 (42,146) 17 (116) -- -- -- (14)
Issuance of common stock, net of
related expense for:
1998 Acquisitions............... 747,094 -- 1 -- -- -- -- --
Private placements.............. 702,644 -- 1 -- -- -- -- --
Exercise of stock options and
warrants....................... 292,282 -- -- -- -- -- -- --
Earnout commitments............. 796,246 -- 1 -- -- -- -- --
Restricted stock award.......... 190,000 -- -- -- -- -- -- (1,140)
Compensatory stock awards......... -- -- -- -- -- -- -- --
Common stock issuable in private
placement....................... -- -- -- -- 1,975 -- -- --
Issuance of stock options and
warrants........................ -- -- -- -- -- -- -- --
Accretive dividend................ -- -- -- -- -- -- -- --
Purchase of treasury stock........ -- (38,740) -- (106) -- -- -- --
Amortize deferred compensation.... -- -- -- -- -- -- -- 71
Net loss.......................... -- -- -- -- -- -- -- --
Distributions and retirements by
Pooled Companies................ (236) -- -- -- -- -- -- --
------------ -------- ---- ----- ------- ---- --- -------
Balance, at December 31, 1998...... 20,068,654 (80,886) 20 (222) 1,975 -- -- (1,083)
Issuance of common stock, net of
related expense for:
Public offering................. 7,127,700 -- 7 -- -- -- -- --
Convertible preferred stock..... 2,000,140 -- 2 -- -- -- -- --
Convertible notes (Note 9)...... 574,892 -- 1 -- -- -- -- --
Private placement............... 160,000 -- -- -- (1,975) -- -- --
Payment of contingent
consideration.................. 123,540 -- -- -- -- -- -- --
Acquisition of assets........... 447,701 -- -- -- -- -- -- --
Exercise of stock options and
warrants....................... 1,423,355 -- 1 -- -- -- -- --
Matching contribution to 401(k)
plan........................... 47,390 -- -- -- -- -- -- --
Tax benefit from the exercise of
options......................... -- -- -- -- -- -- -- --
Amortize deferred compensation.... -- -- -- -- -- -- -- 1,083
Compensatory stock awards......... -- -- -- -- -- -- -- --
Treasury shares retired........... (80,886) 80,886 -- 222 -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
Pooled Companies' losses included
in both 1999 and 1998........... -- -- -- -- -- -- -- --
Option exercises and other equity
issuances of Pooled Companies... 487,966 -- 1 -- -- -- -- --
Purchase and cancellation of
shares of Pooled Companies...... (53,353) -- -- -- -- -- -- --
Distributions by Pooled
Companies....................... -- -- -- -- -- -- -- --
------------ -------- ---- ----- ------- ---- --- -------
32,327,099 -- $ 32 $ -- $ -- $ -- $-- $ --
============ ======== ==== ===== ======= ==== === =======
ADDITIONAL ACCUMU-
PAID-IN LATED
CAPITAL DEFICIT TOTAL
---------- -------- --------
Balance, at January 31, 1997 (Note
1)................................ $ 23,173 $(18,522) $ 4,703
Issuance of common stock.......... 278 -- 280
Stock repurchase.................. (65) -- --
Conversion of common stock upon
formation of Company (Note 1)... 58 -- (34)
Issuance of common stock, net of
related expense for:
Initial public offering......... 5,725 -- 5,728
Acquisition of Founding
Companies...................... 4,990 -- 4,992
Payment of debt and other
obligations.................... 1,522 -- 1,522
Exercise of warrants............ 201 -- 121
1997 Acquisitions............... 577 -- 577
Issuance of stock options and
warrants........................ 28 -- 28
Purchase of treasury stock........ -- -- (116)
Amortize deferred compensation.... -- -- 50
Net loss.......................... -- (18,709) (18,709)
Equity issuances by Pooled
Companies....................... 15,008 -- 15,009
Distributions by Pooled
Companies....................... -- (2,885) (2,885)
-------- -------- --------
Balance, at December 31, 1997...... 51,495 (40,116) 11,266
Issuance of common stock, net of
related expense for:
1998 Acquisitions............... 4,158 -- 4,159
Private placements.............. 4,776 -- 4,777
Exercise of stock options and
warrants....................... 315 -- 315
Earnout commitments............. 2,329 -- 2,330
Restricted stock award.......... 1,140 -- --
Compensatory stock awards......... 6,192 -- 6,192
Common stock issuable in private
placement....................... -- -- 1,975
Issuance of stock options and
warrants........................ 1,778 -- 1,778
Accretive dividend................ -- (800) (800)
Purchase of treasury stock........ -- -- (106)
Amortize deferred compensation.... -- -- 71
Net loss.......................... -- (6,799) (6,799)
Distributions and retirements by
Pooled Companies................ (113) (2,273) (2,386)
-------- -------- --------
Balance, at December 31, 1998...... 72,070 (49,988) 22,772
Issuance of common stock, net of
related expense for:
Public offering................. 86,158 -- 86,165
Convertible preferred stock..... 8,489 -- 8,491
Convertible notes (Note 9)...... 8,175 -- 8,176
Private placement............... 1,975 -- --
Payment of contingent
consideration.................. 1,850 -- 1,850
Acquisition of assets........... 7,000 -- 7,000
Exercise of stock options and
warrants....................... 1,878 -- 1,879
Matching contribution to 401(k)
plan........................... 660 -- 660
Tax benefit from the exercise of
options......................... 1,765 -- 1,765
Amortize deferred compensation.... -- -- 1,083
Compensatory stock awards......... 348 -- 348
Treasury shares retired........... (222) -- --
Net loss.......................... -- (3,794) (3,794)
Pooled Companies' losses included
in both 1999 and 1998........... -- 534 534
Option exercises and other equity
issuances of Pooled Companies... 643 -- 644
Purchase and cancellation of
shares of Pooled Companies...... (952) -- (952)
Distributions by Pooled
Companies....................... -- (1,282) (1,282)
-------- -------- --------
$189,837 $(54,530) $135,339
======== ======== ========
See accompanying notes to consolidated financial statements.
F-6
49
INFOCURE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
Operating activities (Note 1):
Net loss................................................ $(3,794) $(6,799) $(18,709)
Adjustments to reconcile net loss to cash flows from
operating activities:
Extraordinary item -- non-cash portion of early
retirement of debt.................................. 4,892 -- --
Purchase of in-process research and development....... -- 9,000 --
Restructuring and other charges....................... 10,681 1,874 13,052
Depreciation and amortization......................... 14,490 6,382 4,401
Allowance for doubtful accounts....................... 3,746 1,630 1,664
Stock-based compensation.............................. 1,431 6,263 78
Tax benefit from the exercise of options.............. 1,765 -- --
Contribution to 401(k) plan made with common stock.... 660 -- --
Reduction (increase) in cash value of life
insurance........................................... 114 (142) 529
Loss on disposal of property and equipment............ -- -- 418
Deferred income taxes................................. (1,381) (2,370) (7,279)
Pooled companies' losses included in both 1999 and
1998................................................ 534 -- --
Changes in current assets and liabilities -- net of
effects of acquisitions:
Accounts receivable................................... (12,900) (8,432) (4,461)
Refundable income taxes............................... (3,256) -- --
Inventory, prepaid expenses and other current
assets.............................................. 386 (935) (503)
Accounts payable and accrued expenses................. (1,322) 2,234 (1,404)
Deferred revenue and customer deposits................ (6,811) (1,346) 3,760
------- ------- --------
Net cash flows from operating activities......... 9,235 7,359 (8,454)
------- ------- --------
Investing activities:
Net cash paid for Founding Companies.................... -- -- (3,745)
Net cash paid for other acquisitions.................... (20,007) (60,161) (6,297)
Property and equipment expenditures..................... (5,641) (4,007) (2,618)
Cash paid for other intangible assets................... (13,534) (3,709) (76)
Other................................................... (1,053) 319 132
------- ------- --------
Net cash flows used in investing activities...... (40,235) (67,558) (12,604)
------- ------- --------
Financing activities:
Proceeds from issuance of common stock.................. 86,165 6,752 6,008
Proceeds from issuance of convertible preferred stock... -- 7,820 --
Proceeds from exercise of options and warrants.......... 1,879 315 121
Purchase of treasury stock.............................. -- (106) (116)
Distributions paid by pooled companies.................. (1,282) (2,386) (2,885)
Option exercises and other equity issuances of pooled
companies............................................. 644 -- 15,009
Purchase and cancellation of shares of pooled
companies............................................. (952) -- --
Borrowings under credit facility and other long-term
debt.................................................. 29,937 55,364 13,913
Payment of loan costs................................... (1,038) (2,519) (325)
Principal payments on long-term debt.................... (75,745) (1,325) (8,189)
Net (repayment) proceeds of other notes payable......... (2,074) (209) 495
------- ------- --------
Net cash flows from financing activities......... 37,534 63,706 24,031
------- ------- --------
Net increase in cash and cash equivalents................. 6,534 3,507 2,973
Cash and cash equivalents, beginning of period............ 10,302 6,795 3,822
------- ------- --------
Cash and cash equivalents, end of period.................. $16,836 $10,302 $ 6,795
======= ======= ========
See accompanying notes to consolidated financial statements.
F-7
50
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
InfoCure Corporation ("InfoCure") was founded in November 1996 to develop,
market and service practice management systems for use by health care providers
throughout the United States. On July 10, 1997, InfoCure completed an initial
public offering of its common stock (the "Initial Public Offering") and
simultaneously acquired the following six operating companies: (i) International
Computer Solutions, Inc. ("ICS"); (ii) Health Care Division, Inc. ("HCD"); (iii)
Millard-Wayne, Inc. ("Millard-Wayne"); (iv) KComp Management Systems, Inc.
("KComp"); (v) DR Software, Inc. ("DR Software") and (vi) Rovak, Inc. ("Rovak")
(collectively, the "Founding Companies"). American Medcare Corporation ("AMC"),
a holding company and parent of ICS, HCD, and Millard-Wayne, originally
incorporated on January 11, 1983, was merged with and into InfoCure upon
consummation of the Initial Public Offering and is considered the predecessor
company to InfoCure and the accounting acquirer of all the Founding Companies.
All outstanding shares of AMC were converted into approximately 6.0 million
shares of InfoCure common stock concurrently with the consummation of the
Initial Public Offering. The aggregate consideration paid for the Founding
Companies was approximately $3.7 million in cash and 1.8 million shares of
common stock for an aggregate value of $8.7 million, including fees and other
acquisition related costs.
In 1997, subsequent to the consummation of the Initial Public Offering and
the acquisition of the Founding Companies, InfoCure acquired substantially all
of the assets or all of the outstanding equity securities of the following
companies: (i) Professional On-Line Computer, Inc. ("POLCI"); (ii) Commercial
Computers, Inc. ("CCI"); (iii) SoftEasy Software, Inc. ("SoftEasy"); (iv) Pace
Financial Corporation ("PACE");(v) HCC Communications, Inc. ("HCC") (which
acquisition had been made by an acquired company -- see "1999 Mergers" below)
and (vi) the orthodontic business unit of HALIS Services, Inc. ("OPMS"). POLCI,
CCI and SoftEasy were acquired with effect from October 1, 1997; PACE was
acquired with effect from November 1, 1997; OPMS was acquired with effect from
December 1, 1997 and HCC was acquired December 11, 1997 (collectively, the "1997
Acquisitions"). Aggregate consideration for the 1997 Acquisitions was
approximately 153,000 shares of common stock and $13.3 million cash and debt,
for an aggregate value of $13.9 million.
In 1998, InfoCure acquired substantially all of the assets, subject to the
assumption of certain liabilities, of Micro-Software Designs, Inc. ("MDI") and
the Healthcare Systems Division ("HSD") of The Reynolds and Reynolds Company and
acquired the outstanding equity securities of Medical Software Integrators, Inc.
("MSI"). These acquisitions were effective from January 1, 1998 with respect to
MDI and MSI and October 23, 1998 for HSD. Aggregate consideration for these
acquisitions completed in 1998 (collectively, the "1998 Acquisitions")was
approximately 747,000 shares of common stock and $73.0 million cash and debt,
for an aggregate value of $77.1 million.
The acquisitions of the Founding Companies, the 1997 Acquisitions and the
1998 Acquisitions were accounted for using the purchase method of accounting.
In December 1998, InfoCure completed a merger with Radiology Management
Systems, Inc. ("RADMAN"). This transaction involved exchange of all of RADMAN's
outstanding equity interests for approximately 994,000 shares of InfoCure common
stock and was accounted for as a pooling of interests (the "RADMAN Merger").
In 1999, InfoCure acquired substantially all of the assets, subject to the
assumption of certain liabilities, of Cobb Dental Systems, Inc. ("Cobb");
Strategicare, Inc. and its wholly-owned subsidiary, DISC Computer Systems, Inc.
("DISC"); the dental practice management systems business of National Data
Corporation ("NDC Dental") and the PracticeWorks division of Zila, Inc.
("PracticeWorks") (collectively, the "1999 Purchase Acquisitions"). In
conjunction with the PracticeWorks acquisition, InfoCure also purchased the
rights to its electronic claims business which had been previously held by
another entity. These acquisitions were effective from January 1, 1999 with
respect to Cobb, June 1, 1999 with respect to DISC and
F-8
51
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 1, 1999 for NDC Dental and PracticeWorks. Aggregate consideration for
these acquisitions was approximately 108,000 shares of common stock and $20.0
million in cash, for an aggregate value of $22.0 million. The Cobb acquisition
was made by an acquired company -- see "1999 Mergers" below. All of these
transactions were accounted for using the purchase method of accounting.
For the period February 12, 1999 to December 31, 1999, InfoCure completed
pooling of interests mergers (the "1999 Mergers") with eleven businesses (the
"1999 Pooled Companies") as indicated in the table below:
SHARES OF
INFOCURE
COMPANY ISSUED CLOSING DATE
- ------- --------- ------------
Macon Systems Management, LLC, the parent of Medical
Software Management, Inc. ("MSM")................. 166,464 February 12, 1999
OMSystems, Inc.("OMS").............................. 2,287,998 February 18, 1999
Ardsley, M.I.S., Inc.("Orthoware").................. 209,016 August 17, 1999
Medfax Corporation ("Medfax")....................... 696,333 August 30, 1999
Scientific Data Management, Inc. ("SDM")............ 280,243 August 31, 1999
Datamedic Holding Corp. ("Datamedic")............... 1,088,674 November 9, 1999
Kevin Kozlowski, Inc. d/b/a Human Touch Software
("Human Touch")................................... 255,247 December 20, 1999
Unident Corporation ("Unident")..................... 357,796 December 21, 1999
InfoLogic, Inc. ("InfoLogic")....................... 102,096 December 21, 1999
Prism Data Systems, Inc. ("Prism").................. 208,544 December 29, 1999
CDL Healthcare Systems, Inc. ("CDL")................ 109,658 December 30, 1999
The accompanying consolidated financial statements give retroactive effect
to the RADMAN Merger completed in 1998 and the 1999 Mergers because such mergers
have been accounted for as poolings of interests. Accordingly, the statements of
financial position, results of operations and cash flows included herein are
presented as if the combining companies had been consolidated for all periods
presented and the consolidated statements of stockholders' equity reflect the
accounts of InfoCure as if the additional common stock issued in connection with
the RADMAN Merger and the 1999 Mergers had been issued for all periods
presented. Additionally, all share and per share amounts have been adjusted
retroactively for the effect of a 2-for-1 stock split effective August 19, 1999.
Certain of the 1999 Pooled Companies had fiscal years that differed from
InfoCure's. Therefore the consolidated balance sheets as of December 31, 1998
and 1997 reflect the combination of InfoCure's balance sheets as of these dates
with the balance sheets of the 1999 Pooled Companies as of dates which most
closely correspond thereto. The consolidated statements of operations results
for the year ended December 31, 1998 and the eleven months ended December 31,
1997 reflect the combination of InfoCure's results for these periods with the
results of each of the 1999 Pooled Companies for the most closely comparable
periods. As of and for the year ended December 31, 1999, all of the 1999 Pooled
Companies' balance sheets and operations have been restated to coincide with
InfoCure's year end (Note 3).
The consolidated financial statements include the accounts of InfoCure and
all of its wholly-owned subsidiaries (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. The Company changed its fiscal reporting period to December 31
effective February 1, 1997. For the eleven month period ended December 31, 1997,
the accompanying consolidated financial statements include AMC (InfoCure's
predecessor) and its subsidiaries, RADMAN, ICS and HCD and the 1999 Pooled
Companies, for the period from February 1, 1997; the Founding Companies for the
period from July 11, 1997, and the 1997 Acquisitions from their respective dates
of acquisition.
F-9
52
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
InfoCure develops and markets practice management software products and
services to targeted healthcare practice specialties throughout the United
States. The Company generally does not require collateral for credit extended to
its customers but historically has not experienced any significant losses
related to individual customers, classes of customers or groups of customers in
any geographical area. In the fourth quarter of 1999, InfoCure decided to
restructure its business into a medical and a dental division, changed its
product strategy to begin development of ASP-delivered products and Internet
solutions, decided to transition to a subscription pricing model in connection
with its change in product strategy, and completed six acquisitions. These
changes in organization, product strategy and the pricing model have impacted
certain of the Company's accounting policies as described herein and have caused
the Company to evaluate the carrying value of certain assets and a restructuring
of its operations to position the Company to maximize its new business model
(Notes 3 and 5).
Revenue Recognition
Revenue from software sales is recognized when all shipment obligations
have been met, fees are fixed and determinable, collection of the sale proceeds
is deemed probable and persuasive evidence that an agreement exists. Revenue
from hardware sales is recognized upon product shipment. Revenue from support
and maintenance contracts, which are typically one year in length, is recognized
ratably over the life of the contract. Revenue from other services is recognized
as the services are provided.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
initial maturity dates of no more than three months.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying consolidated balance sheets are not
materially different from their fair values.
Inventories
Inventory consists primarily of peripheral computer equipment and related
supplies. Inventory is accounted for on the first-in, first-out basis and
reported at the lower of cost or market.
Property and Equipment
Property and equipment, including equipment under capital leases, are
stated at the lower of the fair value or cost. Depreciation is computed over the
estimated useful lives of the related assets using both straight-line and
accelerated methods for financial reporting and primarily accelerated methods
for income tax purposes. Substantial betterments to property and equipment are
capitalized and repairs and maintenance are expensed as incurred.
Capitalized Software Development Costs
Software development costs are expensed as incurred prior to establishing
the technological feasibility of a product. For the period between the
establishment of technological feasibility and the time a product is
F-10
53
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available for general release, such costs are capitalized. Capitalized software
costs are amortized using the straight-line method over the estimated lives of
the related products (generally 48 months). As a result of the Company's change
in product strategy to focus on development of ASP-delivered products, the
Company recorded a write-down of its investment in capitalized software in the
amount of $5.6 million in 1999. A write-down of capitalized software in the
amount of $1.5 million was also recorded in 1997 (Note 5).
Goodwill and Other Intangible Assets
Intangible assets consist primarily of goodwill, which represents the
excess of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. All goodwill is amortized on a
straight-line basis over its estimated useful life. Prior to the fourth quarter
of 1999, goodwill was amortized over a 15-year estimated useful life, which was
reflective of management's analysis that goodwill is derived from the historical
and estimated future lives of its customer relationships, the longevity and
continuing use of its core products and the relatively minor impact of
technological obsolescence on these core products. As a result of the Company's
change in product strategy to focus on development of ASP-delivered products and
Internet solutions, its related change to a subscription pricing model and
business model and the current rate of change within the industry, management
now estimates that the useful life of its remaining goodwill will be three
years.
Other intangible assets also include (1) purchased technology, to be
amortized over four years, (2) customer lists, amortized over three years and
(3) deferred loan costs, amortized over the life of the respective loans at
rates which approximate the interest method.
Long-lived Assets
Long-lived assets, such as goodwill and property and equipment are
periodically evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
the estimated undiscounted future cash flows resulting from the use of the
assets. When any such impairment exists, the related assets will be written down
to fair value. A write-down of assets due to impairment in the amount of $6.4
million was required for the eleven months ended December 31, 1997 (Note 5).
Change in Accounting Estimates
In view of recent competitive developments, the rapid pace of change
engendered by the encroachment of Internet companies into the marketplace and
the Company's change in product strategy to focus on development of
ASP-delivered products and Internet solutions and the related change to a
subscription pricing model, management has reassessed the useful life of
goodwill. While in management's opinion, there is currently no impairment in the
carrying value of this long-lived intangible asset (based on an analysis of
undiscounted future cash flows), management has determined that the useful life
of goodwill should be shortened substantially to be more reflective of the
current rate of technological change and competitive conditions. Accordingly,
management changed the estimated useful life of goodwill from an original life
of 15 years to a remaining life of three years, which change has been applied
prospectively from the fourth quarter of 1999. This change in accounting
estimate increased amortization expense by approximately $3.5 million (or $0.08
per share net of estimated income taxes) in 1999.
Additionally, based on the Company's analysis of current business and
market conditions, its cash collection experience and, in light of the change to
a subscription pricing model announced in the fourth quarter of 1999, management
also increased the allowance for doubtful accounts. This change of accounting
estimate, recorded in the fourth quarter of 1999, increased selling, general and
administrative expenses by $3.0 million (or $0.06 per share net of estimated
income taxes) in 1999.
F-11
54
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-based Compensation Plans
The Company accounts for its stock-based compensation plans under the
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." In Note 11, the Company presents the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-based Compensation." SFAS No. 123 requires that companies
which elect not to account for stock-based compensation as prescribed by that
statement shall disclose, among other things, the pro forma effects on net loss
and basic net loss per share as if SFAS No. 123 had been adopted.
Income Taxes
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than possible enactments of changes in the tax laws or rates.
Restructuring Costs
The Company records the costs of consolidating acquired operations into
existing Company facilities, including the external costs and liabilities to
close redundant Company facilities and severance and relocation costs related to
the Company's employees in accordance with Emerging Issues Task Force Issue
("EITF") No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in Restructuring)."
Pro Forma Basic Net Loss Available to Common Stockholders Per Share
Pro forma basic net loss available to common stockholders per share is
presented in accordance with SFAS No. 128, "Earnings Per Share." Pro forma basic
net loss available to common stockholders per share is based on the weighted
average number of shares of common stock outstanding during the period. Pro
forma tax adjustments have been recorded to reflect the impact of income taxes
which would have been applicable to earnings of certain Pooled Companies which
were previously pass-through entities for tax purposes (Note 12). The 1999
actual net loss available to common stockholders before extraordinary item
amounted to $0.04 per share, the loss attributable to the extraordinary item
amounted to $0.10 per share; and the net loss available to common stockholders
after extraordinary item amounted to $0.14 per share on a basic and diluted
basis. Pro forma diluted net loss available to common stockholders per share is
not presented because it is antidilutive. In periods in which they have a
dilutive effect, the common shares issuable upon exercise of stock options,
warrants and similar convertible dilutive instruments will be included in the
pro forma diluted earnings per share calculation. Potentially dilutive shares
totaled approximately 4.1 million, 3.6 million and 284,000 shares for the years
ended December 31, 1999 and 1998 and the eleven months ended December 31, 1997.
All periods presented have been restated to reflect shares issued in the
1999 Mergers and the effect of the Company's 2-for-1 stock split, effective
August 19, 1999.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
F-12
55
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and determining whether computer software is for
internal use. SOP No. 98-1 was effective in 1999. Adoption of this statement did
not have a significant impact on the Company's financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard on January
1, 2001, to affect its financial statements.
3. BUSINESS COMBINATIONS
Acquisitions Accounted for Using the Purchase Method of Accounting
As described in Note 1, the Company acquired the six Founding Companies
upon consummation of the Initial Public Offering, and subsequently completed the
1997 Acquisitions, 1998 Acquisitions and the 1999 Acquisitions.
F-13
56
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the fair values of the assets acquired,
liabilities assumed and consideration given in connection with the foregoing
acquisitions accounted for as purchases:
1999
PURCHASE 1998 1997
ACQUISITIONS ACQUISITIONS ACQUISITIONS
------------ ------------ ------------
(IN THOUSANDS)
Accounts receivable................................. $ 2,504 $10,642 $ 3,218
Inventory........................................... 170 1,426 488
Prepaid expenses.................................... 112 347 231
Property and equipment.............................. 1,059 4,832 1,227
Goodwill............................................ 21,720 56,149 23,215
Capitalized software................................ 189 420 2,118
Other assets........................................ 318 707 602
Deferred revenue.................................... (1,222) (4,942) (3,171)
Accounts payable and accrued expenses............... (2,735) (693) (933)
Notes payable....................................... (6) -- (1,650)
Other liabilities................................... (102) (742) (2,744)
------- ------- -------
Net assets acquired....................... $22,007 $68,146 $22,601
Purchased research and development.................. -- 9,000 --
------- ------- -------
$22,007 $77,146 $22,601
======= ======= =======
These acquisitions were funded as follows:
Common stock........................................ $ 2,000 $ 4,159 $ 5,569
Notes payable and other payables.................... -- 12,826 6,990
Cash................................................ 20,007 60,161 10,042
------- ------- -------
$22,007 $77,146 $22,601
======= ======= =======
Certain of the purchase acquisition agreements provided for additional
consideration based on the acquired company attaining specified revenue or
operating income goals. Maximum contingent consideration payable with respect to
the Founding Companies originally aggregated $4.7 million. Maximum determinable
contingent consideration aggregated $2.0 million for the 1999 Purchase
Acquisitions and $12.4 million for the 1998 Acquisitions. As more fully
described in Note 5, portions of the contingent consideration related to the
Founding Companies and the 1998 Acquisitions were deemed earned and payable in
connection with the Company's restructuring plans. Accordingly, restructuring
costs for the years ended December 31, 1999 and 1998 and the eleven months ended
December 31, 1997 included approximately $700,000, $750,000 and $2.6 million,
respectively, in settlement of estimated contingent consideration obligations
related to the affected companies.
In 1999 and 1998, contingent consideration of approximately $10.9 and $1.1
million, respectively, was earned and recorded as additional purchase price
pursuant to the terms of the original purchase agreements. Of this amount,
approximately $6.5 million was paid in 1999 and $5.5 million is included in
accrued expenses at December 31, 1999. As of December 31, 1999, maximum
contingent consideration payable based on future performance is $2.0 million.
In September 1999, InfoCure exercised its option to convert $7.5 million of
the indebtedness given to the seller in connection with the HSD acquisition
(Note 9) into shares of common stock of InfoCure and in the fourth quarter of
1999 finalized certain asserted claims and other outstanding issues regarding
the acquisition. In connection therewith, the seller agreed to reduce the
remaining indebtedness owed to it by approximately $1.3 million. The Company
recorded certain adjustments to the goodwill arising from this purchase
acquisition to reflect settlement of these claims and the related purchase price
adjustment.
F-14
57
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if each of the acquisitions had occurred
as of the beginning of the immediately preceding period. The pro forma
information is not necessarily indicative of what would have occurred had the
acquisitions been made as of such periods, nor is it indicative of future
results of operations. The pro forma amounts give effect to appropriate
adjustments for the fair value of the assets acquired, reductions in personnel
costs and other operating expenses not assumed as part of the acquisitions,
amortization of intangibles, interest expense and income taxes.
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
PRO FORMA AMOUNTS 1999 1998 1997
- ----------------- ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue.................................................. $216,552 $187,637 $146,011
Pro forma net loss available to common stockholders...... (4,271) (5,409) (28,931)
Pro forma net loss available to common stockholders
per share -- after extraordinary item:
Basic and diluted................................. $ (0.15) $ (0.28) $ (1.86)
Acquisitions Accounted for Using the Pooling of Interests Method of Accounting
As described in Note 1, the Company merged with RADMAN in December 1998 in
an acquisition accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements have previously been restated to
include the financial position, results of operations and cash flows of RADMAN
for all periods presented.
During 1999, the Company completed the 1999 Mergers, which provided for the
exchange of substantially all of the outstanding equity interest of each entity
for shares of InfoCure common stock and are accounted for as poolings of
interests (Note 1). Accordingly, the accompanying consolidated financial
statements have been restated for all periods presented to include the financial
results of the combined companies.
F-15
58
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a reconciliation of revenue, loss before
extraordinary item and pro forma net loss available to common stockholders
previously reported by the Company to those presented in the accompanying
consolidated financial statements.
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
(IN THOUSANDS)
Revenue:
InfoCure.......................................... $130,150 $ 63,724 $ 18,274
OMS............................................... 18,651 14,993 12,325
MSM............................................... 3,734 3,120 4,096
Orthoware......................................... 2,330 1,800 1,301
Medfax............................................ 7,676 5,517 5,451
SDM............................................... 4,955 4,626 4,552
Datamedic......................................... 17,022 20,832 19,191
Human Touch....................................... 2,288 1,007 798
Unident........................................... 6,518 4,510 353
InfoLogic......................................... 2,566 2,362 1,809
Prism............................................. 3,499 4,355 4,295
CDL............................................... 4,245 2,999 2,784
-------- -------- --------
$203,634 $129,845 $ 75,229
======== ======== ========
Income (loss) before extraordinary item:
InfoCure.......................................... $ 3,805 $ (1,861) $ (8,731)
OMS............................................... 1,623 (3,296) 1,703
MSM............................................... (106) 266 49
Orthoware......................................... 260 (73) (2)
Medfax............................................ 643 (729) (560)
SDM............................................... 314 47 166
Datamedic......................................... (4,599) (1,069) (11,237)
Human Touch....................................... 34 (1) (17)
Unident........................................... (1,545) (163) (27)
InfoLogic......................................... (1,231) 16 11
Prism............................................. (636) 32 32
CDL............................................... 579 32 (96)
-------- -------- --------
$ (859) $ (6,799) $(18,709)
======== ======== ========
F-16
59
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
(IN THOUSANDS)
Pro forma net income (loss) available to common
stockholders -- after extraordinary item:
InfoCure.......................................... $ 870 $ (2,661) $ (8,731)
OMS............................................... 1,623 (3,296) 1,703
MSM............................................... (106) 266 49
Orthoware......................................... 260 (73) (2)
Medfax............................................ 643 (729) (560)
SDM............................................... 314 47 166
Datamedic......................................... (4,599) (1,069) (11,237)
Human Touch....................................... 34 (1) (17)
Unident........................................... (1,545) (163) (27)
InfoLogic......................................... (1,231) 16 11
Prism............................................. (636) 32 32
CDL............................................... 579 32 (96)
Pro forma tax adjustments......................... 137 1,436 (779)
-------- -------- --------
$ (3,657) $ (6,163) $(19,488)
======== ======== ========
Certain of the 1999 Pooled Companies had fiscal years that differed from
that of InfoCure. Therefore, the consolidated balance sheet as of December 31,
1998 reflects the combination of InfoCure's balance sheet as of this date with
the balance sheets of the 1999 Pooled Companies as of dates which most closely
correspond thereto. The consolidated statements of operations for the year ended
December 31, 1998 and the eleven months ended December 31, 1997 reflect the
combination of InfoCure's results for these periods with the results of each of
the 1999 Pooled Companies for the most closely comparable periods. As of and for
the year ended December 31, 1999, the 1999 Pooled Companies' balance sheets and
statements of operations have been restated to coincide with InfoCure's year
end. As a result, certain of the 1999 Pooled Companies' operations are included
in both 1999 and 1998. The net revenue and net loss for such duplicated periods
was approximately $5.4 million and $534,000, respectively.
The Company incurred costs of approximately $3.8 million in completing the
1999 Mergers. Such costs consisted principally of professional fees and related
transaction costs.
4. PURCHASED RESEARCH AND DEVELOPMENT
Through its 1998 acquisition of HSD, the Company acquired three in-process
physician practice management system research and development projects. The
Company assigned an aggregate value of $9.0 million to the projects, based on
the results of an independent appraisal. The appraisal value was determined
using a discounted cash flow model with a risk-adjusted discount rate of 28%.
The valuation also incorporated a stage of completion methodology where the
value was adjusted based on the technology's percentage of completion. Based on
the appraisal results, the three projects had an aggregate pre-acquisition cost
of $9.9 million, an estimate of $900,000 cost to complete and were approximately
90% complete as of the acquisition date. As of the acquisition date,
technological feasibility had not been established and there were no alternative
future uses for the projects. Therefore, the Company expensed the $9.0 million
related to these in-process research and development projects.
F-17
60
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RESTRUCTURING AND OTHER CHARGES
Components of restructuring and other charges are as follows:
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
COST RELATED TO 1999 1998 1997
- --------------- ------------ ------------ -------------
(IN THOUSANDS)
Write-off of goodwill............................ $ -- $ -- $ 6,360
Write-off of capitalized software development
costs.......................................... 5,617 -- 1,461
Facility closure and consolidation............... 1,800 -- 461
Compensation costs for severance and other
termination benefits........................... 1,467 1,124 1,916
Incremental costs associated with completion of
discontinued customer contracts................ 681 -- --
Contingent consideration earned or deemed payable
to former stockholders of entities affected by
the consolidation and restructuring............ 700 750 2,558
Other asset write-downs and costs................ 416 -- 296
------- ------ -------
Total restructuring and other
charges.............................. $10,681 $1,874 $13,052
======= ====== =======
The 1999 Plan. In the fourth quarter of 1999, the Company decided to
restructure its business into medical and dental divisions, changed its product
strategy to begin development of ASP-delivered products and Internet solutions,
decided to transition to a subscription pricing model in connection with its
change in product strategy, and completed six acquisitions. Concurrently,
management committed to a plan of restructuring and reorganization, expected to
be completed in the second quarter of 2000, to consolidate facilities and
eliminate staffing redundancies involving approximately 80 employees.
In connection with the change in product strategy to focus on development
of ASP-delivered products and in connection with the restructuring plan,
management also re-evaluated the carrying value of its investment in capitalized
software. As a result, the Company recorded as a part of restructuring and other
charges for 1999, a $5.6 million write-off of capitalized software.
Staffing reductions were finalized for the new dental division and
communicated in the first quarter of 2000. Accordingly, compensation costs,
including severance and other termination benefits aggregating approximately
$1.0 million are expected to be recorded in the first quarter of 2000 in
accordance with the provisions of EITF No. 94-3.
The 1997 Plans. Effective December 1, 1997, the Company determined to
restructure through a plan to consolidate existing facilities and acquired
operations. This restructuring plan enabled the Company to leverage more
effectively present and planned acquisitions, streamline its offering of
products and services and respond more effectively to changing market
conditions. In connection therewith, management also re-evaluated the Company's
investment in goodwill and capitalized software in light of current market
conditions and the restructuring plan. Management determined that, based on
current market conditions and an analysis of projected undiscounted future cash
flows calculated in accordance with the provisions of SFAS No. 121, the carrying
amount of certain long-lived assets, principally of Rovak and DR Software, may
not be recoverable. The resultant impairment of long-lived assets, due
principally to the impact of pending new acquisitions (Notes 1 and 3),
necessitated a write-down of approximately $7.8 million as follows: (1) $3.5
million and $2.8 million of goodwill representing the excess of cost over net
assets of the acquisition of Rovak and DR Software, respectively, acquired in
July 1997 and (2) $1.5 million of capitalized software related to products whose
future utility was diminished based on market conditions. The estimated fair
values of these
F-18
61
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
long-lived assets were determined by calculating the present value of estimated
expected future cash flows using a discount rate commensurate with the risks
involved.
The Company also recorded costs and accrued liabilities to close redundant
facilities, cancel leases and other executory contracts and recognize contingent
consideration earned or deemed payable under terms of certain acquisition
agreements for acquired companies affected by the consolidation and
restructuring.
The 1997 restructuring plan, which was completed in the second quarter of
1998, also included termination of certain redundant staff positions. Details of
this element of the restructuring plan were finalized and communicated in the
first quarter of 1998. Accordingly, compensation costs, including severance and
other termination benefits for approximately 50 employees, and other future
costs related to the restructuring aggregating $1.1 million, were recognized in
the first quarter of 1998 in accordance with EITF No. 94-3.
Datamedic, one of the 1999 Pooled Companies, underwent a plan of
reorganization in 1997. Under provisions of this plan staff reductions and
realignment were effected to reduce costs and improve profitability.
Restructuring costs of approximately $1.9 million were recorded to provide for
severance and other costs associated with the staff reductions.
A description of the type and amount of restructuring costs and other
charges recorded at the commitment date and subsequently incurred for all of the
restructurings discussed above are as follows:
RESERVES
ESTABLISHED
ELEVEN MONTHS COSTS RESERVE COSTS RESERVE
ENDED APPLIED BALANCE APPLIED BALANCE
DECEMBER 31, AGAINST DECEMBER 31, RESERVE AGAINST DECEMBER 31, RESERVE
DESCRIPTION 1997 RESERVES 1997 ADJUSTMENTS RESERVES 1998 ADJUSTMENTS
- ----------- ------------- -------- ------------ ----------- -------- ------------ -----------
(IN THOUSANDS)
Write-off of goodwill.... $ 6,360 $(6,360) $ -- $ -- $ -- $ -- $ --
Write-off of capitalized
software development
costs................... 1,461 (1,461) -- -- -- -- 5,617
Facility closure,
consolidation and lease
termination costs....... 461 -- 461 -- (178) 283 1,800
Contingent consideration
earned or deemed payable
to former stockholders
of entities affected by
the consolidation and
restructuring........... 2,558 -- 2,558 750 (3,308) -- 700
Compensation costs for
severance and other
termination benefits.... 1,916 (316) 1,600 1,124 (2,724) -- 1,467
Incremental costs
associated with
completion of
discontinued customer
contracts............... -- -- -- -- -- -- 681
Other asset write-downs
and costs............... 296 (143) 153 -- (153) -- 416
------- ------- ------ ------ ------- ---- -------
$13,052 $(8,280) $4,772 $1,874 $(6,363) $283 $10,681
======= ======= ====== ====== ======= ==== =======
COSTS RESERVE
APPLIED BALANCE
AGAINST DECEMBER 31,
DESCRIPTION RESERVES 1999
- ----------- -------- ------------
(IN THOUSANDS)
Write-off of goodwill.... $ -- $ --
Write-off of capitalized
software development
costs................... (5,617) --
Facility closure,
consolidation and lease
termination costs....... (649) 1,434
Contingent consideration
earned or deemed payable
to former stockholders
of entities affected by
the consolidation and
restructuring........... (350) 350
Compensation costs for
severance and other
termination benefits.... (952) 515
Incremental costs
associated with
completion of
discontinued customer
contracts............... (446) 235
Other asset write-downs
and costs............... (416) --
------- ------
$(8,430) $2,534
======= ======
The terminated leases have various expiration dates through 2002 and the
other costs will be paid in the first half of 2000.
F-19
62
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment consisted of the following:
ESTIMATED
USEFUL
LIVES DECEMBER 31, DECEMBER 31,
(YEARS) 1999 1998
--------- ------------ ------------
(IN THOUSANDS)
Land................................................ -- $ 1,300 $ --
Buildings........................................... 40 8,885 2,671
Office and computer equipment....................... 3-5 15,337 11,612
Furniture and fixtures.............................. 5-7 3,014 2,875
Equipment under capital lease obligations........... 3-5 2,831 2,167
Leasehold improvements and other.................... 3-5 2,405 1,439
------- -------
33,772 20,764
Less accumulated depreciation....................... 9,708 7,878
------- -------
$24,064 $12,886
======= =======
Depreciation expense was approximately $4.0, $2.5 and $1.7 million for the
years ended December 31, 1999 and 1998 and the eleven months ended December 31,
1997, respectively. In connection with the restructuring plans described in Note
5, the Company disposed of property and equipment, primarily office and computer
equipment, with a net book value of approximately $188,000 and $155,000 in 1999
and 1997, respectively.
7. OTHER INTANGIBLE ASSETS
Other intangible assets consisted of the following:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Purchased technology........................................ $6,530 $ --
Customer lists.............................................. 1,915 1,915
Loan costs.................................................. 1,055 4,656
Capitalized software development costs...................... 1,118 3,671
Capitalized costs of future acquisitions.................... 300 402
Other....................................................... 815 915
------ -------
11,733 11,559
Less accumulated amortization............................... 2,551 3,317
------ -------
$9,182 $ 8,242
====== =======
In the fourth quarter of 1999, the Company acquired technology for
deliverying practice management applications in an ASP delivery model in
exchange for cash and common stock aggregating approximately $6.5 million. This
technology will be utilized by the Company's research and development staff in
the development of its own ASP-delivered products. Costs to complete this
technology will be capitalized until products are ready for general release and
then will be amortized over the estimated useful life of the related products.
As described in Note 5, approximately $5.6 million of capitalized software was
written off in 1999 as a result of this change in product strategy. The
remaining capitalized software development costs relate to products not being
replaced, primarily those related to various e-commerce applications.
F-20
63
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of capitalized software charged to operations was
approximately $777,000, $285,000 and $1.2 million for the years ended December
31, 1999 and 1998 and the eleven months ended December 31, 1997, respectively.
As discussed in Note 9, approximately $4.9 million of unamortized loan costs
were written off in conjunction with the April 1999 prepayment of the Company's
acquisition credit facility.
8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Additional purchase price consideration..................... $ 5,500 $1,100
Compensation................................................ 4,923 3,437
Interest.................................................... 1,114 1,730
Professional fees........................................... 799 169
Taxes, other than income.................................... 531 1,101
Other....................................................... 2,439 1,057
------- ------
$15,306 $8,594
======= ======
9. NOTES PAYABLE AND LONG-TERM DEBT
Notes Payable
As of December 31, 1999, the Company had a $1.2 million note payable due
December 31, 2000 together with interest at 5% per annum. This amount represents
the remaining balance due the seller in connection with the HSD acquisition
following conversion of a portion of the total indebtedness and a reduction in
the total obligation negotiated by the parties in settlement of the purchase
price (see below).
As of December 31, 1998, the Company had a $2.0 million short-term note
payable with interest at 12% per annum given in connection with an acquisition.
This note was repaid in 1999.
Long-Term Debt
Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Notes payable, FINOVA Capital Corporation ("FINOVA") (a).... $36,785 $68,351
Subordinated notes payable, remainder of purchase price for
acquisitions (b).......................................... -- 10,604
Subordinated notes payable to stockholders; interest rates
between 7% and 10% per annum; paid in 1999................ -- 180
Other....................................................... 5,087 8,570
------- -------
41,872 87,705
Less current portion........................................ 694 14,809
------- -------
$41,178 $72,896
======= =======
(a) Under provisions of an agreement dated August 11, 1999, the Company has a
$100 million credit facility with FINOVA including a revolving loan for the
funding of the acquisition program and working capital needs and a term loan
for certain real estate purchases. The credit facility has a five-year term
and is collateralized by substantially all of the Company's assets and the
accounts receivable, cash flows and
F-21
64
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets of any companies acquired in the future. Interest accrues at an
annual rate based, at the Company's option, on prime plus 0.5% to 1.25% or
LIBOR plus 2.0% to 2.75%, depending on the achievement of certain debt
service ratios. At December 31, 1999, the rate was 9.0%. The agreement
provides for mandatory prepayments based upon achieving certain defined
levels of cash flows and contains certain restrictive covenants.
The Company's previous credit facility was repaid in April 1999 with
proceeds from the sale of common stock. In connection with this early
retirement of debt the Company recognized an extraordinary item for the
unamortized portion of the loan costs and prepayment costs which aggregated
approximately $4.9 million and, net of estimated tax effect, approximately
$2.9 million or $0.10 per share.
(b) The subordinated notes payable for the remainder of purchase price for
acquisitions consisted of two notes at December 31, 1998.
One note, for $10.0 million given in connection with the purchase of HSD,
was convertible, at the Company's option during the first year of the term,
into shares of common stock at a rate based on the market value of the
common stock. In September 1999, the Company gave notice of its intent to
convert $7.5 million of this note and issued approximately 373,000 shares in
connection therewith. Terms of the conversion option provided that, in the
event the conversion shares are subsequently sold at a price below the
conversion price, the Company is obligated to pay the difference either in
cash or by the issuance of additional shares. The shares were in fact sold
at a lower price and, at December 31, 1999, the Company's obligation under
the price protection feature was approximately $1.7 million. The form of
settlement of this amount has not yet been determined. Of the remaining
balance due under the original note, approximately $1.2 million was
exchanged for a 5% note payable due December 2000 and the balance forgiven
by the holder in settlement of certain asserted claims and other issues
associated with the purchase.
The remaining $604,000 note payable was converted into approximately 202,000
shares of common stock in accordance with its original terms.
As of December 31, 1999, future maturities of long-term debt are as follows:
YEAR AMOUNT
- ---- ------
(IN THOUSANDS)
2000........................................................ $ 694
2001........................................................ 3,006
2002........................................................ 7,025
2003........................................................ 7,283
2004........................................................ 22,973
Thereafter.................................................. 891
-------
Total............................................. $41,872
=======
F-22
65
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
Operating Leases
The Company leases office facilities and certain equipment under operating
leases having original terms ranging from one to seven years. Approximate future
minimum rentals, by year and in the aggregate, under noncancellable operating
leases with remaining terms of more than one year are as follows:
YEAR AMOUNT
---- ------
(IN THOUSANDS)
2000........................................................ $ 4,394
2001........................................................ 3,804
2002........................................................ 3,402
2003........................................................ 1,529
2004........................................................ 386
-------
Total............................................. $13,515
=======
Rent expense was approximately $3.9, $3.0 and $2.0 million for the years
ended December 31, 1999 and 1998 and the eleven months ended December 31, 1997,
respectively.
Employee Benefit Plan
In January 1998, the Company implemented a qualified 401(k) savings plan
(the "Plan") covering all employees meeting certain age and years of service
eligibility requirements. Eligible employees may contribute up to 15% of their
annual salary to the Plan, subject to certain limitations. The Company may make
matching contributions and may also provide profit-sharing contributions at its
sole discretion. Employees become fully vested in any employer contributions
after five years of service.
During the eleven months ended December 31, 1997, the companies comprising
the Founding Companies and the 1997 Acquisitions had separate benefit plans for
employee retirement. As of January 31, 1998, all previous plans were rolled into
the newly adopted plan. Contributions to employee benefit plans for the years
ended December 31, 1999 and 1998 and the eleven months ended December 31, 1997
were approximately $1.7 million, $512,000 and $100,000, respectively. The
contribution for the year ended December 31, 1998 was made in common stock
during 1999.
11. STOCKHOLDERS' EQUITY
Institutional Investor
Under the terms of a private placement agreement with an institutional
investor (the "Investor"), the Company can require that the Investor purchase
shares of the Company's common stock (the "Put Options"). Generally, upon
exercise of a Put Option, the Investor must tender the amount designated by the
Company (the "Investment Amount"). The number of shares to be issued upon
exercise of a Put Option is based on a nominal discount of the stock's average
closing price, as defined in the agreement.
The Investor has committed to invest up to $10.0 million. The Company has
exercised $7.0 million in three installments from September 28 through December
31, 1998. The most recent installment, for $2.0 million, was initiated in
December 1998 and closed in January 1999. A total of 862,644 shares have been
issued pursuant to the Put Options.
The Company also granted the Investor warrants to acquire 200,000 shares of
common stock (see below).
F-23
66
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Redeemable Preferred Stock
In February 1998, the Company completed the sale of 850,060 shares of its
convertible redeemable preferred stock in a private placement for approximately
$8.5 million, which netted the Company $7.8 million after commissions and
offering expenses. These proceeds were used primarily for funding future
acquisitions and related expenses. Upon completion of the Company's April 1999
stock offering, the preferred stock was automatically converted into shares of
common stock.
The preferred stock was immediately convertible at the date of original
issuance. In connection with this immediate conversion feature the Company
recognized $800,000 as an accretive dividend attributable to the preferred stock
issuance including commissions and the estimated value of warrants granted to
the placement agent.
Stock Compensation Plans
The Company has stock option plans that provide for the grant of incentive
and nonqualified options to purchase the Company's common stock to selected
officers, other key employees, directors, and consultants. These plans include
the InfoCure Corporation 1996 Stock Option Plan, the InfoCure Corporation
Length-of-Service Nonqualified Stock Option Plan, and the InfoCure Corporation
Directors Stock Option Plan. The Company has also assumed the stock options of
AMC, its predecessor, which were outstanding at July 10, 1997 and the
outstanding options of RADMAN and the 1999 Pooled Companies. Such options were
converted at the applicable rate used to issue the Company's common stock in the
mergers.
Under the InfoCure Corporation 1996 Stock Option Plan, 6.0 million shares
of common stock of the Company have been reserved for option grants to
directors, officers, other key employees, and consultants. Employees of the
Company may be granted Incentive Stock Options ("ISOs") within the dollar
limitations under Section 422(d) of the Internal Revenue Code. The exercise
price of all ISOs shall not be less than the fair market value of the common
stock as of the option grant date (110% of such value for 10% stockholders).
Options granted to directors and consultants must be nonqualified stock options.
Options vest ratably over the four-year period beginning on the grant date.
Under the InfoCure Corporation Length-of-Service Nonqualified Stock Option
Plan, 1.0 million shares of common stock of the Company have been reserved for
issuance to employees of the Company. Employees are granted nonqualified stock
options based on years of service with the Company and are fully vested four
years from the grant date. The exercise price of options issued pursuant to this
plan shall be no less than the fair market value of the common stock as of the
grant date.
Under the InfoCure Corporation Directors Stock Option Plan, 200,000 shares
of common stock of the Company have been reserved for issuance as nonqualified
stock options to non-employee directors of the Company. Upon appointment to the
Board of Directors, a director receives an option grant of 20,000 shares and may
receive an additional option grant of 5,000 shares on each anniversary date. One
half of the options granted pursuant to this plan vest after one year of service
following the grant date and the other half vests after two years of service
following the grant date.
In 1998, the Company implemented the InfoCure Employee Stock Purchase Plan.
This plan allows employees of the Company to purchase common stock through
payroll deductions for 85% of fair market value. As of December 31, 1999, there
are 300,000 shares of common stock reserved for issuance under this plan.
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a "fair
value method" of accounting for employee stock options. It also allows
accounting for such options under the "intrinsic value method" in accordance
with APB No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. If a company elects to use the intrinsic value method, then pro
forma disclosures of earnings
F-24
67
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and earnings per share are required as if the fair value method of accounting
was applied. The effects of applying SFAS No. 123 in the pro forma disclosures
are not necessarily indicative of future amounts because the pro forma
disclosures do not take into account the amortization of the fair value of
awards prior to 1995. Additionally, the Company expects to grant additional
awards in future years.
The Company has elected to account for its stock options under the
intrinsic value method as outlined in APB No. 25. The fair value method requires
use of option valuation models, such as the Black-Scholes option valuation
model, to value employee stock options, upon which a compensation expense is
based. The Black-Scholes option valuation model was not developed for use in
valuing employee stock options. Instead, this model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, it
is management's opinion that the existing models do not necessarily provide a
reliable measure of the fair value of its employee stock options. Under the
intrinsic value method, compensation expense is only recognized if the exercise
price of the employee stock option is less than the market price of the
underlying stock on the date of grant.
The fair value for the Company's employee stock options was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for the years ended December 31, 1999 and
1998 and the eleven months ended December 31, 1997.
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
Risk-free interest rate............................. 6.2% 6.0% 5.7 - 6.2%
Dividend yield...................................... 0.0% 0.0% 0.0%
Volatility factor................................... 119.0% 58.0% 19.7%
Weighted average expected life (in years)........... 4 4 5
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro forma net loss available to common stockholders:
As reported....................................... $ (3,794) $(7,599) $(18,709)
Pro forma......................................... (11,752) (8,941) (18,813)
Pro forma basic loss available to common
stockholders per share:
As reported....................................... $ (0.14) $ (0.39) $ (1.21)
Pro forma......................................... (0.42) (0.46) (1.21)
F-25
68
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity, and related information for the years
ended December 31, 1999 and 1998 and the eleven months ended December 31, 1997,
as follows:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
Outstanding at January 31, 1997............................ 744,877 $ 3.76
Granted.................................................. 1,970,942 2.12
Exercised................................................ -- --
Forfeited or canceled.................................... (6,281) 3.98
---------
Outstanding at December 31, 1997........................... 2,709,538 2.00
Granted.................................................. 3,602,361 6.58
Exercised................................................ (101,774) 0.61
Forfeited or canceled.................................... (514,852) 4.43
---------
Outstanding at December 31, 1998........................... 5,695,273 4.83
Granted.................................................. 3,125,900 19.81
Exercised................................................ (830,839) 3.95
Forfeited or canceled.................................... (1,543) 5.00
---------
Outstanding at December 31, 1999........................... 7,988,791 10.78
=========
Options exercisable at December 31, 1997................... 506,670 0.39
Options exercisable at December 31, 1998................... 1,150,320 1.33
Options exercisable at December 31, 1999................... 2,254,812 4.33
The weighted average fair value of options granted for the years ended
December 31, 1999 and 1998 and the eleven months ended December 31, 1997, were
$15.53, $3.33 and $0.67, respectively.
The following table summarizes information about the Company's outstanding
stock options at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1999 LIFE (YEARS) PRICE 1999 PRICE
-------- -------------- ------------ --------- -------------- ---------
$ 0.67 - 2.07 1,609,479 1.6 $ 2.01 867,555 $1.91
2.10 - 4.91 548,660 1.7 3.78 211,245 2.66
5.00 - 6.75 1,080,176 2.8 6.45 1,018,691 6.00
6.82 - 13.22 1,736,869 2.6 7.89 157,321 7.50
13.75 - 31.00 3,013,607 3.5 17.78 -- --
--------- ---------
0.67 - 31.00 7,988,791 2.7 10.78 2,254,812 4.33
========= =========
Restricted Stock Award
In 1998, Infocure's board of directors approved a restricted stock award
aggregating 190,000 shares of common stock as part of an incentive compensation
package to three executives. The fair value of this award at the grant date of
approximately $1.1 million was recorded as deferred compensation amortizable
over its ten year vesting period; however, the vesting could be accelerated upon
the occurrence of certain events. Under the terms of the agreement, 50% of the
unvested shares will automatically vest upon the Company's stock having an
average closing price of $12.50 per share over a 20-day period. The remainder of
the unvested shares will automatically vest upon the Company's stock having an
average closing price of $20 per share over a 20-day period. The award fully
vested in 1999.
F-26
69
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
In connection with the 1997 acquisition of PACE, the Company issued to the
former owners of PACE ten-year warrants to acquire 372,000 shares of common
stock at an exercise price of $4.57 per share. As of December 31, 1999, 32,000
of these warrants had been exercised.
In connection with the private placement of redeemable preferred stock in
February 1998, the Company granted to the placement agent a ten-year warrant to
acquire 200,000 shares of common stock at an exercise price of $4.50 per share.
The $219,000 estimated value of this warrant was recorded as part of the
accretive dividend attributed to the preferred stockholders. As of December 31,
1999, 179,593 of these warrants had been exercised.
In connection with the 1998 private placement arrangement with the
Investor, the Company granted a warrant to acquire 200,000 shares of common
stock at $11.50 per share. This warrant has a five-year term and is immediately
exercisable. As of December 31, 1999, 12,169 of these warrants had been
exercised.
In connection with the October 1998 loan which increased the availability
under the Company's credit facility, the lender was granted the right to acquire
up to 490,000 shares of common stock at $6 per share. This warrant is
immediately exercisable and has a ten-year term. The estimated fair value of
approximately $1.5 million has been recorded as deferred loan costs. At December
31, 1999, 100,000 of these warrants had been exercised.
In connection with a certain acquisitions, the Company assumed
approximately 55,000 outstanding warrants with exercise prices ranging from
$0.79 to $134.78, which expire at various dates through 2007. Additionally,
approximately 45,000 warrants remain from an original grant of 280,000 made to
the underwriter in connection with the Initial Public Offering. These warrants
have an exercise price of $3.30 and expire in 2002.
12. INCOME TAXES
The components of income tax expense (benefit) are as follows:
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
(IN THOUSANDS)
Current:
Federal................................... $ -- $ 1,098 $ 69
State..................................... -- 235 6
------- ------- -------
Total current expense............. -- 1,333 75
------- ------- -------
Deferred:
Federal................................... (1,300) (3,098) (5,971)
State..................................... (177) (423) (814)
------- ------- -------
Total deferred benefit............ (1,477) (3,521) (6,785)
------- ------- -------
Change in deferred tax asset valuation
allowance................................. -- (285) 285
------- ------- -------
Total income tax benefit.......... (1,477) (2,473) (6,425)
Income tax benefit on extraordinary item.... 1,916 -- --
Pro forma tax adjustments................... 137 1,436 (779)
------- ------- -------
Income tax expense (benefit)................ $ 576 $(1,037) $(7,204)
======= ======= =======
As discussed in Notes 1 and 3, the Company completed acquisitions of eleven
companies accounted for as pooling of interests. Four of these eleven companies
were pass-through entities for tax purposes in which the
F-27
70
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
then-owners agreed to report their share of income or loss in their respective
individual income tax returns. Upon their acquisition by the Company, the
pass-through tax status terminated. Pro forma net loss available to common
stockholders and pro forma net loss available to common stockholders per share
are presented in the consolidated operations as if each of these entities had
been a taxable corporation during the periods presented.
Deferred taxes result from temporary differences between the bases of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The sources of the temporary differences
and their effect on deferred tax assets and liabilities are as follows:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Current:
Deferred tax assets:
Allowance for doubtful accounts........................ $ 1,321 $ 288
Deferred revenue and customer deposits................. 246 782
Accrued restructuring costs............................ 1,213 72
Accrued expenses....................................... 37 323
Credit carryforward.................................... -- --
Other.................................................. 26 45
------- -------
Total current deferred tax assets................. 2,843 1,510
------- -------
Noncurrent:
Deferred tax assets:
Basis difference of goodwill, capitalized software
costs, property and equipment and other assets....... 1,846 4,634
Business credit carry forwards......................... 1,997 1,026
Net operating loss carry forwards...................... 9,120 6,158
------- -------
Total noncurrent deferred tax assets.............. 12,963 11,818
------- -------
$15,806 $13,328
======= =======
The Company's effective income tax rate varied from the U.S. federal
statutory rate as follows:
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------------
(IN THOUSANDS)
Expected tax expense (benefit).............. $ (96) $(2,664) $(8,810)
Increase (decrease) in income taxes
resulting from:
State income taxes........................ (20) (549) (1,814)
Nondeductible goodwill amortization....... 1,011 724 2,306
Other, net................................ (456) 301 1,608
Effect of operations of pooled companies
which were pass-through entities....... 137 1,436 (779)
Change in deferred tax asset valuation
allowance.............................. -- (285) 285
------ ------- -------
Net income tax expense
(benefit)....................... $ 576 $(1,037) $(7,204)
====== ======= =======
As of December 31, 1999, the Company and its subsidiaries have net
operating loss carryforwards for federal income tax purposes of approximately
$24.0 million, which expire at various dates to 2014.
F-28
71
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximately $19.0 million of such loss carryforwards is attributable to
preacquisition tax attributes of subsidiaries. Utilization of such carryforwards
is subject to substantial limitations resulting from the change in ownership of
these subsidiaries based on applicable provisions in the federal tax code.
Management has assessed the realizability of its deferred tax assets and has
concluded that it is more likely than not that such deferred tax assets will be
fully utilized.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest amounted to approximately $4.9 million, $2.3
million and $549,000 for the years ended December 31, 1999 and 1998 and the
eleven months ended December 31, 1997, respectively. The Company made cash
payments for income taxes of approximately $3.3 million, $1.2 million and
$203,000 for the years ended December 31, 1999 and 1998 the eleven months ended
December 31, 1997, respectively.
During the year ended December 31, 1999, the Company acquired certain
property and equipment with an aggregate value of approximately $8.6 million in
exchange for indebtedness including a mortgage and capital lease obligations.
Additionally, common stock with an aggregate value of approximately $17.0
million was issued for (1) acquisition of assets -- $7.0 million; (2) conversion
of notes payable -- $8.2 million; (3) payment of contingent consideration
obligations -- $1.8 million.
During the year ended year ended December 31, 1998, the Company issued
stock warrants with an aggregate value of approximately $1.7 million for
services rendered to the Company.
During the eleven months ended December 31, 1997, the Company issued common
stock with an aggregate fair value of approximately $5.6 million and incurred
notes payable and other liabilities of approximately $7.0 million in connection
with acquisition of the Founding Companies and the 1997 Acquisitions. During the
year ended December 31, 1998, the Company issued common stock with an aggregate
fair value of approximately $4.2 million and incurred notes payable and other
liabilities of approximately $12.8 million in connection with acquisitions
completed during the period.
14. SEGMENT REPORTING
The Company has historically evaluated its business based on the hardware
platform (i.e. desktop computer, AS400, etc.) provided or utilized by its
clients and/or the medical specialty (i.e. radiology, orthodontia, etc.) of
groups of clients. The Company's acquisition program has generated growth that
has continually changed and reshaped these bases for evaluation making
comparisons between the current and prior periods impracticable. Effective in
the fourth quarter of 1999, in connection with its change in product strategy to
focus on development of ASP-delivered products and Internet solutions, the
Company announced its plans for a reorganization of its business centered around
medical and dental strategic business units.
The Company's products and services are similar; however, management
believes that the delineation of medical and dental business units provides
definition for reportable segments and is consistent with its newly adopted
business model. Additionally, the corporate segment consists of corporate
services including executive office, marketing, personnel, finance and
administration together with rental activities. All activities of prior periods
have been recast on this basis.
F-29
72
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management evaluates performance primarily on the basis of operating profit
or loss and EBITDA (earnings before interest, income taxes, depreciation,
amortization and non-recurring charges) contribution. Management does not make
use of identifiable assets information in its evaluation of performance and
there are no significant intersegment activities. The following tables provide
information concerning operations in these reportable segments.
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------
(IN THOUSANDS)
Revenue:
Medical.............................................. $153,426 $ 86,358 $ 53,745
Dental............................................... 49,566 43,487 21,484
Corporate............................................ 642 -- --
-------- -------- --------
$203,634 $129,845 $ 75,229
======== ======== ========
Operating profit (loss) (a):
Medical.............................................. $ 19,114 $ 9,685 $(13,405)
Dental............................................... 10,815 7,969 2,484
Corporate............................................ (10,823) (4,217) (1,289)
-------- -------- --------
19,106 13,437 (12,210)
-------- -------- --------
Depreciation and amortization:
Medical.............................................. 10,082 3,833 3,832
Dental............................................... 2,841 2,117 545
Corporate............................................ 1,567 432 24
-------- -------- --------
14,490 6,382 4,401
-------- -------- --------
EBITDA:
Medical.............................................. 29,196 13,518 (9,573)
Dental............................................... 13,656 10,086 3,029
Corporate............................................ (9,256) (3,785) (1,265)
-------- -------- --------
$ 33,596 $ 19,819 $ (7,809)
======== ======== ========
Interest expense and other, net........................ $ 3,513 $ 3,829 $ 573
======== ======== ========
Non-recurring charges (including restructuring and
other charges, merger costs, compensatory stock
awards and purchased research and development):
Medical.............................................. $ 5,305 $ 9,000 $ 6,589
Dental............................................... 2,903 750 6,463
Corporate............................................ 7,668 7,694 78
-------- -------- --------
$ 15,876 $ 17,444 $ 13,130
======== ======== ========
Loss before income taxes and extraordinary item........ $ (283) $ (7,836) $(25,913)
======== ======== ========
- ---------------
(a) Excludes non-recurring charges -- restructuring and other charges, merger
costs, compensatory stock awards, and purchased research and development
F-30
73
INFOCURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS
During 1999, the Company entered into a definitive agreement to acquire all
the outstanding equity interests of Medical Dynamics, Inc. ("MEDY") in exchange
for approximately 900,000 shares of InfoCure common stock. The transaction is
expected to close in the second quarter of 2000. In connection with this
proposed transaction, the Company has also committed to advance MEDY up to $1.0
million under terms of a loan agreement dated October 1999. As of December 31,
1999, $500,000 had been advanced, which is reflected in other non-current assets
on the accompanying consolidated balance sheet.
In February 2000, InfoCure entered into an agreement with Healtheon/WebMD
whereby Healtheon/WebMD would acquire up to $100.0 million of convertible
redeemable preferred stock of VitalWorks, InfoCure's newly-formed subsidiary. In
consideration of the investment, the agreement provides for development and
distribution agreements between the parties to create an industry-standard
physician practice management system to be delivered through an ASP delivery
model. Similarly, the parties entered into a marketing agreement which, with
respect to services conducted by VitalWorks, provides for utilization, delivery
and promotion of Healtheon/WebMD's clinical financial transaction and EDI
services. InfoCure received $10.0 million in exchange for shares of Series A
preferred stock of VitalWorks, which will automatically be converted into 1% of
the outstanding common stock of VitalWorks (on a diluted basis) upon completion
of an initial public offering of VitalWorks. The agreement contemplates the
investment of an additional $90 million upon completion of an initial public
offering of VitalWorks, subject to regulatory approval and approval of both
companies' board of directors. The companies are currently negotiating
definitive documentation and discussing the terms of their relationship,
including the amount and form of the contemplated further investment by
Healtheon/WebMD in VitalWorks.
F-31
74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
InfoCure Corporation
The audits referred to in our report to InfoCure Corporation and
subsidiaries, dated February 21, 2000 which is contained in Item 8 of this Form
10-K, included the audit of the schedule listed under Item 14(a)(2). This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 21, 2000
S-1
75
SCHEDULE II
INFOCURE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ----------- ---------- ---------- ----------- ------------- -------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1999....... $1,526 $3,746 $-- $ (976)(A) $4,296
Year ended December 31, 1998....... 1,231 1,630 -- (1,335) 1,526
Eleven Months ended December 31,
1997............................ 1,175 1,664 -- (1,608) 1,231
ALLOWANCE FOR DEFERRED TAXES
Year ended December 31, 1999....... -- -- -- -- --
Year ended December 31, 1998....... 285 -- -- (285)(B) --
Eleven Months ended December 31,
1997............................ -- 285 -- -- 285
- ---------------
(A) Uncollected receivables written off.
(B) Recovery of valuation reserve.
S-2