1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
INFOCURE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 7372 58-2271614
(State or other jurisdiction (Primary SIC Code) (I.R.S. Employer
of incorporation or Identification No.)
organization)
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Address and telephone number of principal executive offices)
---------------------
FREDERICK L. FINE
CHIEF EXECUTIVE OFFICER
INFOCURE CORPORATION
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Name, address and telephone number of agent for service)
---------------------
Copy to:
UGO F. IPPOLITO, ESQ.
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP
1409 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
(404) 885-6705
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Acquisitions (as defined herein).
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following block: [ ]
---------------------
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value..... 3,862,385 $11.00 $42,486,235 $12,874.62
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(e) promulgated under the Securities Act of 1933.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
INFOCURE CORPORATION
PROSPECTUS
RELATING TO UP TO 3,862,385 SHARES OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
OF INFOCURE CORPORATION
TO BE ISSUED IN CONNECTION WITH THE PROPOSED MERGER OF AMERICAN MEDCARE
CORPORATION ("AMC") WITH AND INTO INFOCURE CORPORATION ("COMPANY" OR
"INFOCURE"), THE PROPOSED MERGER OF HEALTHCARE INFORMATION SYSTEMS, INC. ("HIS")
INTO INFOCURE SUB CORPORATION ("SUB"), A WHOLLY OWNED SUBSIDIARY OF INFOCURE,
AND THE EXCHANGE OF ALL OF THE OUTSTANDING SHARES OF ROVAK, INC. ("ROVAK"), AND
DR SOFTWARE, INC. ("DR SOFTWARE") FOR CASH AND COMMON STOCK OF INFOCURE.
---------------------
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING
ON PAGE 21.
---------------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERS OF
SECURITIES MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INFOCURE, AMC, HIS, ROVAK
OR DR SOFTWARE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SHARES TO WHICH IT RELATES OR AN OFFER OF ANY KIND TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
THE SECURITIES OF INFOCURE CORPORATION OFFERED IN CONNECTION WITH THE MERGERS
AND EXCHANGE OFFERS DESCRIBED IN THIS PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS 1997.
3
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 2
Acquisitions of Certain of the Founding Businesses.......... 8
Risk Factors................................................ 21
Dividend Policy............................................. 25
Capitalization.............................................. 26
Selected Pro Forma Combined Financial Data.................. 27
Management's Discussion and Analysis of Pro Forma Combined
Financial Condition and Pro Forma Results of Operations... 29
Selected Financial Data of AMC.............................. 31
Management's Discussion and Analysis of Financial Condition
and Results of Operations of AMC.......................... 32
Selected Financial Data of DR Software...................... 34
Management's Discussion and Analysis of Financial Condition
and Results of Operations of DR Software.................. 35
Selected Financial Data of HIS.............................. 37
Management's Discussion and Analysis of Financial Condition
and Results of Operations of HIS.......................... 38
Selected Financial Data of Rovak............................ 39
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Rovak........................ 40
Business.................................................... 42
Management.................................................. 49
Principal Stockholders...................................... 53
Certain Transactions........................................ 53
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 56
Legal Matters............................................... 56
Experts..................................................... 56
Available Information....................................... 57
Index to Financial Statements............................... F-1
4
PROSPECTUS SUMMARY
InfoCure Corporation will acquire (the "Acquisitions") seven practice
management systems businesses (the "Founding Businesses"). Unless otherwise
indicated, all references herein to "InfoCure" shall mean InfoCure Corporation
prior to the consummation of the Acquisitions, and references herein to the
"Company" shall mean InfoCure and the Founding Businesses. The following summary
is qualified in its entirety by, and should be read in conjunction with, the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share, per share
and financial information set forth herein assumes (i) the consummation of the
Acquisitions and (ii) a public offering price of $10.00 per share for the shares
of Common Stock of InfoCure (the "Offering") in an underwritten public offering
being made concurrently with the Acquisitions. "Equivalent Shares of Common
Stock" means the number of shares of Common Stock which are to be issued to the
holders of common stock of American Medcare Corporation ("AMC") upon the merger
of AMC into InfoCure.
This Prospectus includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks and uncertainties or other factors
which may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such differences include, but are not limited to, those discussed under
the heading "Risk Factors." In addition to statements which explicitly describe
such risks and uncertainties, investors are urged to consider statements labeled
with the terms "believes," "belief," "expects," "intends," "plans" or
"anticipates" to be uncertain and forward-looking.
THE COMPANY
The Company is a leading provider of practice management software products
and related services that address the growing needs of health care providers to
manage and communicate cost-effectively administrative, clinical and financial
data. The Company's practice management systems are used primarily by small to
mid-size medical practices, including multi-provider management services
organizations and independent physician alliances. Recently, the Company
developed and introduced an all-payor-based electronic data interchange ("EDI")
system to enable its customers to realize significant cost savings by replacing
paper-based transactions with electronic transaction processing. The Company has
an installed customer base of approximately 17,500 health care providers in a
broad range of specialties at over 6,000 client sites.
Health care costs totaled approximately $1.0 trillion in 1995, having risen
at a rate approximately twice that of inflation during the last decade. The
escalation of such expenditures has led to pressure to contain costs and
attempts to shift the financial risk of delivering health care from payors to
providers. Many providers now participate in complex reimbursement arrangements,
resulting in multiple transactions, information exchanges and other
communications with payors per patient visit. As a result of these trends,
health care providers increasingly need to reduce operating costs, improve cash
flow and manage their businesses more efficiently while responding to the
increased administrative burdens and informational demands placed upon them by
payors. The Company's practice management systems address the efficiencies and
cost savings demanded by health care providers.
The Company's existing customer base comprises primarily office-based
health care practices that range in size from single practitioners to up to
several hundred providers with an emphasis on small and mid-size (up to 25
providers) health care practices. Based on industry sources, 60% of the
physicians in the United States are organized into approximately 190,000
office-based health care practices. Nearly all of these practices are small to
midsize; there are fewer than 1,000 office-based medical practices in the United
States with more than 25 providers. Small and mid-size medical practices are
significantly under-penetrated with regard to practice management software and
EDI transaction processing. For example, while it is estimated that the majority
of hospitals submit their claims electronically, among small and mid-size
medical practices only approximately 35% submit claims electronically.
2
5
The Company markets a broad range of software products and services
designed to automate office-based practices of varying sizes; therefore, the
Company believes that it is well-positioned to take advantage of the increased
technology needs of the health care industry, particularly among practices with
fewer than 25 health care providers. As the supplier of the core practice
management system adopted by its customers, the Company has established its
technology at its customer sites, which, the Company believes, will yield
significant growth opportunities and competitive advantages. The Company's
primary growth strategies include (i) increasing its recurring transactional
revenue by expanding its customers' utilization of EDI services, (ii) acquiring
established practice management system companies and consolidating niche
specialities, (iii) leveraging its customer base by cross-selling its products
and services, (iv) expanding its national sales efforts, (v) continuing to
develop and provide sophisticated practice management systems and (vi)
capitalizing on synergistic opportunities resulting from the Acquisitions.
InfoCure was incorporated in Delaware in November 1996. InfoCure's
executive offices are located at 2970 Clairmont Road, Suite 950, Atlanta, GA
30329, and its telephone number is (404) 633-0046.
THE ACQUISITIONS
InfoCure has entered into agreements to acquire, concurrently with and as a
condition to the consummation of the Offering, the Founding Businesses. The
integration of these businesses will combine existing and proven products,
research and development, sales, marketing and support efforts. Following
consummation of the Acquisitions, the Founding Businesses will be consolidated
into three operating divisions according to technical platform, thereby allowing
the Company to market and service cost-effectively its practice management
systems to a wide range of health care providers. The three operating divisions
are the Desktop Division (DOS and Windows-based products), the Mid-Range
Division (UNIX and AIX-based products) and the Enterprise Division (IBM
AS/400-based products).
THE FOUNDING BUSINESSES
DR SOFTWARE, INC. ("DR SOFTWARE")
DR Software was founded in 1983 and is headquartered in Atlanta, Georgia.
DR Software markets DOS and Windows-based practice management systems to small
(one to two providers) medical practices. DR Software currently has
approximately 2,200 clients serving an estimated 3,150 health care providers,
including approximately 25% of all podiatry practices in the United States. Upon
the consummation of the Acquisitions, DR Software will be organized into the
Company's Desktop Division. Donald M. Rogers, the founder of DR Software, will
become President of the Desktop Division.
KCOMP MANAGEMENT SYSTEMS, INC. ("KCOMP")
KComp was founded in December 1995 to acquire certain assets of a software
developer and is headquartered in Los Angeles, California. KComp markets DOS and
Windows-based practice management systems to small to mid-size (three to 25
providers) dental and oral surgery practices. KComp currently has approximately
725 clients serving an estimated 1,600 health care providers. Upon the
consummation of the Acquisitions, KComp will be organized into the Company's
Desktop Division.
INTERNATIONAL COMPUTER SOLUTIONS, INC. ("ICS")
ICS, which was founded in 1985 and acquired in 1993 by AMC, is
headquartered in Atlanta, Georgia. ICS markets DOS, Windows and UNIX-based
practice management systems to small to mid-size health care providers. ICS
currently has approximately 600 desktop clients serving an estimated 750 health
care providers and approximately 500 mid-range clients serving an estimated
1,800 health care providers. Upon the consummation of the Acquisitions, ICS's
DOS and Windows-based operations will be organized into the Company's Desktop
Division and its UNIX operations will be organized into the Company's Mid-Range
Division.
3
6
HEALTHCARE INFORMATION SYSTEMS, INC. ("HIS")
HIS was founded in 1984 and is headquartered in Kansas City, Missouri. HIS
markets UNIX-based practice management systems to mid-size medical practices and
clinics. HIS currently has approximately 600 clients serving an estimated 1,400
health care providers. Upon the consummation of the Acquisitions, HIS will be
organized into the Company's Mid-Range Division. Gregory F. Vap, the founder of
HIS, will become President of the Mid-Range Division.
ROVAK, INC. ("ROVAK")
Rovak was founded in 1984 and is headquartered in St. Elmo, Minnesota.
Rovak markets UNIX and AIX-based practice management software to mid-size
medical practices and clinics. Rovak's software products are targeted
specifically to meet the practice management needs of oral surgeons and
orthodontists. Rovak currently has approximately 1,000 clients serving an
estimated 1,800 health care providers. Upon the consummation of the
Acquisitions, Rovak will be organized into the Company's Mid-Range Division.
MILLARD-WAYNE, INC. ("MILLARD-WAYNE")
Millard-Wayne, which was founded in 1977 and will be acquired by AMC
immediately prior to the consummation of the Offering, is headquartered in
Atlanta, Georgia. Millard-Wayne markets IBM AS/400-based enterprise-wide
practice management systems to mid-size to large (over 25 providers) medical
practices and clinics. Millard-Wayne currently has approximately 190 clients
serving an estimated 2,000 health care providers. Upon the consummation of the
Acquisitions, Millard-Wayne will be organized into the Company's Enterprise
Division. M. Wayne George, the founder of Millard-Wayne, will become President
of the Enterprise Division.
HEALTH CARE DIVISION, INC. ("HCD")
HCD, which was founded in 1996 by AMC to acquire the assets of Info
Systems, is headquartered in Charlotte, North Carolina. HCD markets IBM
AS/400-based practice management systems to mid-size to large medical practices
and clinics. HCD currently has approximately 200 clients serving an estimated
5,000 health care providers. Upon the consummation of the Acquisitions, HCD will
be organized into the Company's Enterprise Division.
ACQUISITION CONSIDERATION
Concurrently with, and as a condition to, the consummation of the Offering
(i) AMC, a holding company and the parent company of ICS and HCD, will acquire
Millard-Wayne and immediately thereafter merge with and into InfoCure, with
InfoCure as the surviving corporation ("AMC Merger"), (ii) InfoCure will acquire
all of the outstanding capital stock of each of DR Software, KComp and Rovak and
(iii) HIS will merge into Sub, a wholly-owned subsidiary of InfoCure ("HIS
Merger"). Upon the consummation of the Acquisitions, each of the Founding
Businesses will become a wholly-owned subsidiary of InfoCure. See "Certain
Transactions" and "Shares Eligible for Future Sale."
The aggregate consideration to be paid by InfoCure to acquire the Founding
Businesses consists of approximately $10.9 million in cash, $2.3 million in
assumed indebtedness and 3,668,510 shares of Common
4
7
Stock. The following table summarizes the consideration paid or payable upon the
consummation of the Acquisitions:
ACQUISITION CONSIDERATION
-------------------------------------------
INDEBTEDNESS SHARES OF
FOUNDING BUSINESS CASH ASSUMED (1) COMMON STOCK
----------------- ------------ ------------ ------------
AMC (2)(3)(4)............................... $ 2,757,500 $1,074,900 3,332,472
Rovak....................................... 2,805,000 1,039,055 64,007
KComp....................................... 2,000,000 49,785 --
DR Software................................. 1,875,000 99,389 80,009
HIS......................................... 1,500,000 -- 192,022
----------- ---------- ---------
Total............................. $10,937,500 $2,263,129 3,668,510
=========== ========== =========
- ---------------
(1) Assumed indebtedness is as of October 31, 1996, prior to application of the
proceeds of the Offering. Excludes the assumption of current liabilities
except the current portion of the indebtedness.
(2) Includes ICS, HCD and Millard-Wayne. AMC recently formed HCD to consummate
the HCD Acquisition and will acquire Millard-Wayne immediately prior to the
consummation of the Offering.
(3) Includes (i) the aggregate consideration for the HCD Acquisition, which
consists of $150,000 cash already paid and a promissory note for $1,550,000
less an estimated post-closing adjustment of $117,000, and (ii) $1,174,500,
representing the cash portion of the purchase price of Millard-Wayne.
(4) Includes 50,118 shares of Common Stock to be issued upon the consummation of
the AMC Merger to stockholders of Millard-Wayne in connection with AMC's
acquisition of Millard-Wayne. Excludes an aggregate of (i) 331,490
Equivalent Shares of Common Stock reserved for issuance upon exercise of
outstanding stock options and a warrant of AMC assumed by the Company and
(ii) 225,395 Equivalent Shares of Common Stock to be assigned and
transferred to AMC for cancellation not later than 20 days prior to the
consummation of the Offering, pursuant to a written agreement dated
November 19, 1996.
The consummation of the AMC Merger, the HIS Merger and the acquisition of
each of DR Software, KComp and Rovak are subject to certain conditions. These
conditions include without limitation (i) the accuracy of the representations
and warranties made by the stockholders of these companies, (ii) the performance
of each of their respective covenants included in the acquisition agreements and
(iii) no material adverse change in the results of financial conditions or
businesses of the company being acquired. Certain of the directors, executive
officers and principal stockholders of the Company are or were directors,
executive officers and/or principal stockholders of AMC and the Founding
Businesses. See "Management" and "Certain Transactions."
5
8
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
InfoCure will acquire the Founding Businesses concurrently with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, AMC, a holding company and parent of International
Computer Solutions, Inc. ("ICS") and Health Care Division, Inc. ("HCD"), has
been identified as the accounting acquiror. The following summary unaudited pro
forma combined financial data present certain data for the Company as adjusted
for (i) the effects of the acquisition by AMC of the capital stock of
Millard-Wayne, Inc. ("Millard-Wayne") prior to the consummation of the AMC
Merger (as defined herein) and the acquisition by HCD, a wholly-owned AMC
subsidiary founded in November 1996, of the assets of the Health Care Division
of Info Systems of North Carolina, Inc. ("Info Systems") on December 3, 1996
(the "HCD Acquisition"), using the purchase method of accounting at their
estimated fair values, (ii) the effects of the merger of AMC with and into
InfoCure (the "AMC Merger"), (iii) the effects of the acquisitions by InfoCure
of the capital stock of Healthcare Information Systems, Inc. ("HIS"), KComp
Management Systems, Inc. ("KComp"), DR Software, Inc. ("DR Software") and Rovak,
Inc. ("Rovak") using the purchase method of accounting at their estimated fair
values and (iv) the effects of certain pro forma adjustments to the combined
financial statements. KComp was founded in December 1995; accordingly, results
of KComp are included only for the nine months ended October 31, 1996. See "The
Company," "Management's Discussion and Analysis of Pro Forma Combined Financial
Condition and Pro Forma Combined Results of Operations" and the Unaudited Pro
Forma Combined Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
PRO FORMA
-------------------------------------
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, -----------------------
1996 1995 1996
----------- ---------- ----------
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software................................... $10,403 $ 7,280 $ 7,682
Maintenance and support................................ 7,433 5,809 7,545
Other.................................................. 1,168 841 957
------- ------- -------
Total revenues....................................... 19,004 13,930 16,184
Cost of revenues.......................................... 5,999 4,526 4,699
------- ------- -------
Gross profit.............................................. 13,005 9,404 11,485
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)....... 9,979 7,287 8,817
Depreciation and amortization (6)...................... 1,576 1,157 1,156
------- ------- -------
Operating income.......................................... 1,450 960 1,512
Other expense (income):
Interest expense (7)................................... 82 82 69
Other.................................................. (204) (110) (42)
------- ------- -------
Income before taxes....................................... 1,572 988 1,485
Income tax (8)............................................ 790 517 712
------- ------- -------
Net income................................................ $ 782 $ 471 $ 773
======= ======= =======
Pro forma net income per share............................ $ 0.15 $ 0.09 $ 0.14
Pro forma weighted average shares outstanding (9)......... 5,385 5,385 5,385
======= ======= =======
AS OF OCTOBER 31, 1996
-----------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED (10)
---------------- ----------------
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 1,060 $ 5,797
Working capital........................................... (1,013) 3,724
Total assets.............................................. 22,274 27,011
Short-term debt........................................... 407 407
Long-term debt, less current portion...................... 308 308
Total stockholders' equity................................ 16,200 20,973
- ---------------
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the pro forma statements of operations data, and as of
October 31, 1996, in the case of the unaudited selected
6
9
pro forma balance sheet data. The pro forma balance sheet data also give
effect to the issuance in November 1996 of 472,811 equivalent shares of
Common Stock by AMC for $750,000. The pro forma combined financial data are
based upon preliminary estimates, available information and certain
assumptions that management believes are appropriate. The unaudited
selected pro forma combined financial data presented herein are not
necessarily indicative of the results the Company would have obtained had
such events occurred at the beginning of the period or of the future
results of the Company. The unaudited selected pro forma combined financial
data should be read in conjunction with the other financial data and notes
thereto included elsewhere in this Prospectus.
(2) Includes pro forma adjustments to reflect (i) the elimination of
duplicative administrative functions at the Company of approximately
$1,803,000, $1,251,000 and $1,352,000 for the year ended January 31, 1996
and the nine months ended October 31, 1995 and 1996, respectively, and (ii)
the additional overhead expenses at the Founding Businesses of
approximately $452,000, $339,000 and $339,000 for the year ended January
31, 1996 and the nine months ended October 31, 1995 and 1996, respectively.
The Company considers that the elimination of approximately $1,130,000 of
these expenses, on an annualized basis, was effected upon the consummation
of the HCD Acquisition on December 3, 1996.
(3) Includes pro forma adjustments to reflect the elimination of allocations
from Info Systems for (i) overhead of approximately $477,000, $324,000 and
$264,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively, and (ii) expense related to HCD's
participation in Info System's employee stock ownership plan of
approximately $159,000, $147,000 and $61,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, respectively.
Upon the consummation of the HCD Acquisition on December 3, 1996, these
eliminations were effected.
(4) Includes pro forma adjustments to reflect the elimination of rent, phone
and travel expenses of approximately $351,000, $237,000 and $264,000, for
the year ended January 31, 1996 and the nine months ended October 31, 1995
and 1996, respectively. Upon the consummation of the HCD Acquisition on
December 3, 1996, the elimination of $117,000 of such expenses, on an
annualized basis, was effected.
(5) Includes pro forma adjustments to reflect the elimination of certain
commissions and royalties which are payable by Rovak under agreements that
will be terminated following the consummation of the Offering. Such
adjustments are approximately $125,000, $86,000 and $241,000 for the year
ended January 31, 1996 and the nine months ended October 31, 1995 and 1996,
respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$665,000, $498,000 and $498,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively.
(7) Includes pro forma adjustments to reflect a reduction in interest expense
related to debt reduction, in connection with the Acquisitions and the
Offering, of $241,000, $95,000 and $188,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, respectively.
(8) The pro forma provision for income taxes includes (i) the effects of the
non-deductible portion of goodwill for tax purposes and (ii) assumes that
the deferred tax asset represented by AMC's net operating loss
carryforwards of approximately $1,500,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 5,129,698
shares to be issued in connection with the Acquisitions and the Offering
and (ii) 255,653 Common Stock equivalents issuable upon outstanding stock
options and a warrant.
(10) The pro forma combined balance sheet is adjusted to give effect to the
receipt and application of the net proceeds of the Offering. See
"Capitalization."
7
10
ACQUISITIONS OF CERTAIN OF THE FOUNDING BUSINESSES
INTRODUCTION
This Prospectus is being furnished to the holders of the capital stock of
certain of the Founding Businesses by the Company, in connection with (i) the
merger of AMC into InfoCure, (ii) the merger of HIS into Sub and the related
exchange of all of the capital stock of HIS for cash and Common Stock of
InfoCure, (iii) the exchange of all of the capital stock of Rovak for cash and
Common Stock of InfoCure, and (iv) the exchange of all of the capital stock of
DR Software for cash and Common Stock of InfoCure.
Each of the above transactions is conditioned upon the consummation of the
Offering pursuant to which the net proceeds, after deducting the underwriting
discount, received by InfoCure will exceed $12 million. On December 27, 1996, a
registration statement on Form SB-2 (the "IPO Registration Statement") covering
2,000,000 shares of Common Stock to be publicly offered, was filed by InfoCure
with the Securities and Exchange Commission ("Commission"). There can be no
assurances that the Offering will be effected or that the net proceeds of the
Offering, after deducting the underwriting discount to the Company, will exceed
$12 million.
The shares of Common Stock which will be distributed to the stockholders of
AMC, HIS, Rovak and DR Software upon consummation of the mergers and exchanges
will have been registered under the Securities Act of 1933. The Company has
applied for quotation of the Common Stock on the Nasdaq National Market.
Thereafter the Common Stock to be issued may be sold at any time or from time to
time without restrictions, except that certain officers, directors and
stockholders of InfoCure and/or of the Founding Businesses who may be deemed to
be "affiliates" of InfoCure under the rules of the Commission may only resell
their shares of Common Stock within the limitations of Rules 144 and 145
promulgated by the Commission. In addition, certain stockholders of the Founding
Businesses have entered into lock up agreements with representatives of the
underwriters. See "Risk Factors -- Substantial Shares Eligible for Future Sale"
and "Shares Eligible for Future Sale."
REASONS FOR THE ACQUISITIONS
InfoCure and AMC are engaging in the mergers and exchanges described in
this Prospectus as part of their strategy to become a leading provider of
practice management software products and related services. The directors and
stockholders of DR Software, HIS and Rovak have considered, among other factors,
(i) the value and liquidity of the consideration to be received, (ii) the pro
forma financial condition, results of operations and business prospects of the
Founding Businesses, (iii) the competitive environment for practice management
software products and related services, (iv) the development expenses necessary
to be technologically competitive and (v) other pertinent information. No
relevant weights were assigned to any of the factors enumerated above. The
directors and stockholders of DR Software, HIS and Rovak have each concluded
that the terms of the transactions with their company and/or stockholders is
fair to the stockholders from a financial point of view and have each determined
that the applicable merger or exchange is in the best interest of the
stockholders.
ACCOUNTING TREATMENT OF THE ACQUISITIONS
For financial statement presentation purposes, AMC has been identified as
the accounting acquiror. The pro forma combined financial data contained in this
Prospectus presents certain data for the Company, as adjusted for (i) the
effects of the merger of AMC into InfoCure on a historical basis and (ii) the
effects of the acquisition by InfoCure of HIS, DR Software and Rovak using the
purchase method of accounting at their estimated fair values.
The following is a description of each proposed merger and exchange offer,
which description is qualified in its entirety by the terms of the applicable
merger agreement or stock purchase agreement which are incorporated herein by
reference.
8
11
MERGER OF AMC WITH AND INTO INFOCURE
This summary is qualified in its entirety by the terms of the definitive
merger agreement to be entered into by InfoCure and AMC ("AMC Merger
Agreement"), which is incorporated herein by reference.
The proposed merger agreement between InfoCure and AMC provides that AMC
shall merge into InfoCure, with InfoCure continuing as the surviving corporation
("AMC Merger"). The AMC Merger will occur at the time the IPO Registration
Statement becomes effective. Upon the consummation of the AMC Merger, the
holders of common stock of AMC will receive an estimated .0640072 of a share of
Common Stock for each share of common stock of AMC owned of record (the
equivalent of 1 share of Common Stock for approximately 15.62 shares of common
stock of AMC). This exchange ratio ("Exchange Ratio") is subject to adjustment
depending upon market conditions at the time of the Offering and the number of
shares of common stock of AMC outstanding at the time of the AMC Merger. The
final determination of the Exchange Ratio shall be made by the board of
directors of AMC and InfoCure. Outstanding stock options and warrants to
purchase common stock of AMC will not be terminated upon the AMC Merger and may
be exercised after the AMC Merger for a number of shares of Common Stock of
InfoCure equal to the product of the Exchange Ratio times the number of shares
of common stock of AMC such holder would have otherwise been entitled to
purchase. There can be no assurances that InfoCure will file a registration
statement covering such shares which may be issued after the AMC Merger upon the
exercise of the stock options or warrants.
InfoCure and AMC will make certain representations and warranties in the
merger agreement as to, among other matters, their respective financial
positions, corporate existence, business and capital structure. The consummation
of the AMC Merger is subject to the fulfillment of various conditions at or
prior to the effective date of the AMC Merger including, among others, the
correctness of the representations and warranties, the absence of any material
and adverse change in the business of AMC and the receipt by AMC of an opinion
from its tax counsel as described in "Federal Income Tax Consequences of the AMC
Merger."
InfoCure and AMC may, by written agreement, (i) extend the time for the
performance of any obligation or other act of the parties, (ii) waive any
inaccuracies in the representations or warranties contained in the AMC Merger
Agreement and (iii) waive compliance with or modify, amend or supplement any of
the covenants, agreements, representations or warranties contained in the merger
agreement or waive or modify performance of any of the obligations of any of the
parties to the Merger Agreement.
The proposed AMC Merger Agreement provides that it my be terminated or
abandoned prior to the effective date of the AMC Merger, notwithstanding
approval by written consent of the AMC Merger Agreement by the holders of a
majority of outstanding shares of InfoCure and AMC, (i) by the mutual consent of
InfoCure and AMC, or (ii) at any time after March 30, 1997 (or such later date
as the parties shall have agreed to in writing) by InfoCure if the conditions
precedent to its obligations have not been fulfilled or waived by it, or (iii)
at any time after March 30, 1997 (or such later date as the parties shall have
agreed to in writing) by AMC if the conditions precedent to its obligations have
not been fulfilled or waived by it. In the event of termination, each party will
pay its own expenses incurred in connection with the AMC Merger Agreement,
except that the cost of this registration statement of InfoCure will be borne by
InfoCure.
Federal Income Tax Consequences of the AMC Merger. As a condition
precedent to the obligations of InfoCure and AMC to consummate the AMC Merger,
AMC shall have received, prior to the effective date of the AMC Merger, an
opinion of tax counsel, to the effect that (i) no gain or loss will be
recognized by the stockholders of AMC upon the exchange of their common stock of
AMC for Common Stock of InfoCure, (ii) the basis of the shares of Common Stock
received by the AMC stockholders will be the same as the basis of the shares of
common stock of AMC surrendered in exchange therefor, (iii) the holding period
of the shares of the Common Stock received by the stockholders of AMC will
include the holding period of the shares of common stock of AMC surrendered in
exchange therefor, provided the common stock of AMC is a capital asset in the
hands of the AMC stockholders on the effective date of the AMC Merger and (iv)
where cash is received by a stockholder of AMC in lieu of the stockholder's
fractional share interest in the Common Stock, such cash payment will be treated
as being received by the stockholder as a distribution in redemption of a
fractional share interest and the AMC stockholders will recognize a gain or loss
with respect thereto
9
12
measured by the difference between their basis for such fractional interest and
the amount received in redemption thereof.
AMC stockholders who exercise dissenters' rights, and as a result of which
receive only cash, will be treated as having received such cash as a
distribution in redemption of their AMC common stock. Accordingly, each such
stockholder generally will recognize gain or loss equal to the difference
between the amount of cash received by such stockholder and such stockholder's
basis in his or her stock. See "Appraisal Rights of Dissenting Stockholders of
AMC."
The gain or loss recognized by any AMC stockholder attributable to the
receipt of cash either in lieu of fractional shares or as a result of such
stockholder's exercise of dissenters' rights will be capital gain or loss to any
such AMC stockholder for whom the AMC common stock is a capital asset. Such
capital gain or loss will be long-term capital gain or loss to an AMC
stockholder who has held the AMC common stock for more than one year on the
effective date of the AMC Merger and short-term capital gain or loss to an AMC
stockholder who has held the AMC common stock for not more than one year on the
effective date of the AMC Merger.
Stock Trading. Prior to the Offering, there will have been no public
trading of shares of Common Stock. Consequently, the initial public offering
price of the Common Stock will be determined by negotiations between InfoCure
and the representatives of the underwriters. Among the factors to be considered
in such negotiations will be the history of and prospects for InfoCure and the
industry in which it will operate, an assessment of InfoCure's management, past
and present earnings of the Founding Businesses, and the trend of such earnings,
the prospectus for future earnings of InfoCure, the present state of InfoCure's
development, the general condition of securities markets at the time of the
Offering and the market price of publicly traded stock of comparable companies
in recent periods.
The following table sets forth high and low closing bid quotations in the
over the counter market during the fiscal quarters noted of the common stock of
AMC:
FISCAL QUARTER ENDED LOW HIGH
-------------------- ---- ----
January 31, 1995......... $.19 $.56
April 30, 1995........... .12 .12
July 31, 1995............ .12 .12
October 31, 1995......... .06 .06
January 31, 1996......... .25 .25
FISCAL QUARTER ENDED LOW HIGH
-------------------- ---- ----
April 30, 1996........... $.06 $.31
July 31, 1996............ .06 .31
October 31, 1996......... .125 .45
January 31, 1997 (through
January 16, 1997)...... .125 .47
On January 16, 1997, the last reported closing quotations of a share of
common stock of AMC were bid $.44 and $.62 asked.
AMC Merger Approval. The AMC Merger has been approved by the boards of
directors of AMC and InfoCure. The membership of each board is identical. The
holders of a majority of the outstanding shares of common stock of AMC have
verbally agreed to approve the AMC Merger. Under the Delaware General
Corporation Law, the written consent to the AMC Merger by the holders of a
majority of the outstanding shares of common stock of AMC and of InfoCure is
sufficient to approve the merger. AMC intends to obtain the written consents of
the holders of a majority of the outstanding shares of common stock of AMC
approving the AMC Merger. The directors and executive officers of AMC and their
affiliates own 37.7% of the outstanding shares of common stock of AMC. All of
the stockholders of InfoCure have also verbally agreed to approve the AMC
Merger. All of the outstanding shares of InfoCure are owned by its directors and
officers.
On and after the effective date of the AMC Merger, each stock certificate
which evidenced shares of common stock of AMC immediately prior to the AMC
Merger will thereafter be deemed to evidence ownership of the number of whole
shares of Common Stock as to which the stockholder of AMC shall be entitled on
the basis of the Exchange Ratio discussed above. After the effective date of the
AMC Merger, the AMC stockholders, upon surrender of their AMC stock
certificates, will receive a certificate representing the number of whole shares
of Common Stock for which the shares of common stock of AMC were converted upon
the consummation of the AMC Merger.
10
13
No scrip or fractional shares of InfoCure will be issued. Stockholders of
AMC who would otherwise be entitled to receive a fractional share certificate
will be paid in cash the market value of their fractional interest upon
surrender of the AMC share certificates. The market value of the fractional
interest will be determined by multiplying the fraction of a share of Common
Stock which the AMC stockholders would otherwise be entitled to receive times
the public offering price of a share of Common Stock pursuant to the Offering.
STOCKHOLDERS OF AMC SHOULD NOT SEND THEIR STOCK CERTIFICATES OF AMC COMMON
STOCK UNTIL THEY RECEIVE TRANSMITTAL FORMS FROM INFOCURE.
STOCKHOLDERS OF AMC WHO DESIRE TO SELL ANY SHARES OF COMMON STOCK AFTER THE
EFFECTIVE DATE OF THE AMC MERGER BUT PRIOR TO RECEIPT OF THEIR INFOCURE STOCK
CERTIFICATE SHOULD CONSULT WITH THEIR BROKER TO DETERMINE IF THEIR BROKER WILL
ACCEPT SUCH SALE ORDERS.
Appraisal Rights of Dissenting Stockholders of AMC. Stockholders of AMC
have the appraisal rights with respect to the proposed AMC Merger as are
provided by Section 262 ("Section 262") of the Delaware General Corporation Law
("DGCL"). The following is not intended to be a complete summary of the
provisions of Section 262 and is qualified in its entirety by reference to that
Section of the DGCL which is reproduced in full as Appendix I hereto. Failure to
follow these procedures exactly could result in the loss of appraisal rights.
This Prospectus constitutes notices to holders of common stock of AMC concerning
the availability of Section 262 appraisal rights.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the conditions of Section 262. For mergers approved by written consent of the
stockholders, a written demand for appraisal of shares may be made within 20
days after receiving notice from the surviving corporation that the merger was
approved (which notice must be sent either before the effective date or within
10 days thereafter). Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
to demand appraisal of his or her shares. Voting against, abstaining from voting
or failing to vote on the AMC Merger will not constitute a demand for appraisal
within the meaning of Section 262. Stockholders electing to exercise their
appraisal rights under Section 262 must not vote for approval of the AMC Merger.
An AMC stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to InfoCure Corporation, 2970 Clairmont Road,
Suite 950, Atlanta, Georgia 30329 Attention: President.
Within 120 days after the effective time of the AMC Merger ("Effective
Time"), any stockholder who has satisfied the requirements of Section 262 may
deliver to InfoCure a written demand for a statement listing the aggregate
number of shares not voted in favor of the AMC Merger and with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares.
Within 120 days after the Effective Time (but not thereafter), either
InfoCure or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Chancery Court (the "Court")
demanding a determination of the fair value of the dissenting shares. InfoCure
has no present intention to file such a petition if demand for appraisal is
made.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy will be made upon InfoCure which will, within 20 days
after service, file in the office of the Register of Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by InfoCure. If
the petition is filed by InfoCure, the petition will be accompanied by the
verified list. The Register of Chancery, if so ordered by the Court, will give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to InfoCure and to the stockholders shown upon the
list at the addresses therein stated, and notice will also be given by
publishing a notice at least one week before the day of the hearing in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publications as the Court deems advisable. The forms of the notices by
mail and by publication must be approved by the Court.
11
14
If a petition for an appraisal is filed in a timely fashion, after a
hearing on the petition, the Court will determine which stockholders are
entitled to appraisal rights and will appraise the shares owned by such
stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the AMC
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value, the Court is
to take into account all relevant factors.
AMC stockholders considering seeking appraisals of their shares of common
stock of AMC should note that the fair value of their shares determined under
Section 262 could be more, the same or less than the consideration they would
receive pursuant to the AMC Merger Agreement if they did not seek appraisal of
their shares. The costs of the appraisal proceeding may be determined by the
Court and taxed against the parties as the Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares entitled to appraisal. In the absence of a determination or
assessment, each party bears his or her own expenses.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the AMC Merger Agreement. After this period, the stockholder
may withdraw his or her demand for appraisal and receive payment for his or her
shares as provided in the AMC Merger Agreement only with the consent of
InfoCure. If no petition for appraisal is filed with the Court within 120 days
after the Effective Time, stockholder's rights to appraisal will cease and AMC
stockholders will be entitled to receive shares of Common Stock of InfoCure as
provided in the AMC Merger Agreement. Inasmuch as InfoCure has no obligation to
file such a petition, any stockholder who desires a petition to be filed is
advised to file on a timely basis. No petition timely filed in the Court
demanding appraisal may be dismissed as to any stockholder without the approval
of the Court, as this approval may be conditioned upon such terms as the Court
deems just.
Management of InfoCure. Certain of the directors and officers of AMC are
or will become directors and/or officers of InfoCure. Also, employment
agreements have or will be entered into between AMC or InfoCure and certain of
its officers. See "Management."
Related Transactions. For a description of transactions between AMC and
any director, executive officer and any holder of more than 5% of the common
stock of AMC and their affiliates, see "Certain Transactions."
STOCK PURCHASE AGREEMENT WITH THE STOCKHOLDERS OF DR SOFTWARE
This summary is qualified in its entirety by the terms of the definitive
stock purchase agreement to be entered into among all of the stockholders of DR
Software and InfoCure ("DR Stock Purchase Agreement"), which is incorporated
herein by reference.
The proposed DR Stock Purchase Agreement provides that InfoCure will
acquire all of the outstanding capital stock of DR Software in consideration of
(i) $1,875,000 payable in cash upon the closing of the Offering and (ii) shares
of Common Stock of InfoCure equal to 1,250,000 times the Exchange Ratio. In
addition, the DR Stock Purchase Agreement will provide for a reduction to the
purchase price in the event the net worth of DR Software at the time of the
acquisition is less than an amount to be hereafter agreed upon. Shares of Common
Stock and/or cash having a value equivalent to 10% of the aggregate
consideration payable will be held in escrow as a source of recovery of damages
to InfoCure in the event of breach of any warranty, representation or covenant
of the stockholders of DR Software or adjustment to the purchase price.
12
15
Donald M. Rogers, a stockholder of DR Software, has also agreed not to compete
with the business of DR Software for a period of 4 years after the closing.
The proposed DR Stock Purchase Agreement provides that the sale of the
capital stock of DR Software will occur at the time the IPD Registration
Statement becomes effective.
InfoCure and the stockholders of DR Software will make certain
representations and warranties in the DR Stock Purchase Agreement as to, among
other matters, the financial position, corporate existence, business and capital
structure of InfoCure or DR Software. The consummation of the sale/purchase of
the capital stock of DR Software by its stockholders and InfoCure is subject to
the fulfillment of various conditions at or prior to the effective date of the
Offering including, among others, the correctness of the representations and
warranties and the absence of any material, adverse change in the business of DR
Software.
InfoCure and the stockholders of DR Software may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the stock purchase agreement, (ii) waive any inaccuracies in
the representations and warranties contained in the stock purchase agreement and
(iii) waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the stock purchase
agreement or waive or modify performance of any of the obligations of any of the
parties to the stock purchase agreement.
The DR Stock Purchase Agreement provides that it may be terminated or
abandoned prior to the effective date of the Offering (i) by mutual consent of
InfoCure and the stockholders of DR Software or (ii) at any time after March 30,
1997 (or such later date as the parties shall have agreed to in writing) by
InfoCure if the conditions precedent to its obligations have not been fulfilled
or waived by it or (iii) at any time after March 30, 1997 (or such later date as
the parties shall have agreed to in writing) by the stockholders of DR Software
if the conditions precedent to their obligations have not been fulfilled or
waived by them. In event of termination, each party shall pay its own expenses
incurred in connection with the DR Stock Purchase Agreement except that the cost
of this registration statement of InfoCure will be borne by InfoCure.
Management. Donald M. Rogers, a director, officer and principal
stockholder of DR Software will become an officer of InfoCure. In addition, he
will enter into an employment agreement with InfoCure upon the consummation of
the acquisition. See "Management."
The stockholders of DR Software are not entitled to appraisal or
dissenters' rights under applicable laws for the reason that the transaction
contemplated by DR Stock Purchase Agreement constitutes an exchange of stock for
which appraisal or dissenters' rights are not provided under applicable law.
Federal Income Tax Consequences to Stockholders of DR Software. The sale
to InfoCure of the capital stock of DR Software by the stockholders of DR
Software will be a taxable sale of stock in which each stockholder of DR
Software will recognize a gain or loss measured by the difference between: (a)
the sum of the cash received and the fair market value on the closing date of
the Common Stock of InfoCure received and (b) their basis for their capital
stock of DR Software. The gain or loss recognized by any stockholder of DR
Software will be capital gain or loss to any such stockholder for whom the DR
Software capital stock is a capital asset. Such capital gain or loss will be
long-term capital gain or loss to a stockholder of DR Software who has held the
DR Software capital stock for more than one year on the closing date and
short-term capital gain or loss to a stockholder of DR Software who has held the
DR Software capital stock for not more than one year on the closing date.
The stockholders of DR Software, who will receive consideration out of
escrow after the close of their taxable year in which the closing occurs, may be
entitled to report their sale of DR Software capital stock under the installment
method. Under the installment method, each payment of purchase price will be
treated as part nontaxable recovery of basis and part taxable realization of
gain. In addition, because interest will not be payable on the Common Stock
escrowed, a portion of the payments made out of escrow would be characterized as
interest rather than purchase price.
DR Software stockholders may elect not to report their gain under the
installment method. Those stockholders electing out of installment sale
treatment would recognize the maximum contract price in the
13
16
taxable year in which the closing occurs and report gain or loss in such taxable
year. To the extent that any amount of the escrowed consideration is returned to
InfoCure in a subsequent taxable year, such stockholders would recognize a loss
for such subsequent taxable year. Any gain or loss attributable to shares of
Common Stock of InfoCure held in escrow which are required to be returned to
InfoCure would be taken into account in determining those stockholders' losses
in such subsequent taxable year.
The tax consequences to the DR Software stockholders of the sale of DR
Software stock is complex and may vary among stockholders depending on their
particular circumstances. Each DR Software stockholder should consult his or her
personal tax advisor regarding the appropriate tax treatment.
Comparison of the Common Stock of DR Software and InfoCure. The following
is a description of the material differences between the rights of the holders
of common stock of DR Software and the holders of Common Stock of InfoCure. This
description is qualified in its entirety by reference to the articles of
incorporation and bylaws of DR Software and InfoCure, the DGCL and the Georgia
Business Corporation Code ("GBCC").
The rights of the stockholders of DR Software are governed by its articles
of incorporation and bylaws and the GBCC. The rights of the stockholders of
InfoCure are governed by its articles of incorporation and bylaws and the DGCL.
After the exchange of the common stock of DR Software for the Common Stock of
InfoCure and certain cash payments, the rights of the stockholders of DR
Software who become stockholders of InfoCure will be governed by the articles of
incorporation and bylaws of InfoCure and the DGCL.
InfoCure's articles of incorporation authorize the Board of Directors to
issue preferred stock without any action of the stockholders. The rights of the
holders of Common Stock generally will be subject to the prior rights of the
holders of preferred stock. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock."
In addition, under Section 203 of the DGCL a publicly held Delaware
corporation is prohibited from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date the
stockholder becomes an "interested stockholder" except under certain
circumstances. See "Description of Capital Stock -- Delaware Anti-Takeover Law."
The stockholders of DR Software are not subject to any similar provision.
Under the DGCL, actions to be taken by stockholders of InfoCure may be
taken without a meeting, if a written consent is executed by the holders of
shares of Common Stock having the requisite number of votes that would be
necessary to authorize such actions at a meeting of the stockholders. Consent
action by the stockholders of DR Software without a meeting can only be taken by
unanimous written consent.
The DGCL and GBCC provide appraisal rights to stockholders in the event of
a merger or consolidation. The laws of Georgia provide appraisal rights upon
certain additional actions, including upon the following actions: (i) sale of
all or substantially all of the assets of the company and (ii) amendments to the
articles of incorporation that materially and adversely affect the rights or
preferences of the shares of the dissenting stockholder.
STOCK PURCHASE AGREEMENT WITH THE STOCKHOLDERS OF ROVAK
This summary is qualified in its entirety by the terms of the definitive
stock purchase agreement to be entered into among all of the stockholders of
Rovak and InfoCure ("Rovak Stock Purchase Agreement"), which is incorporated
herein by reference.
The proposed Rovak Stock Purchase Agreement provides that InfoCure will
acquire all of the outstanding capital stock of Rovak in consideration of (i)
$2,805,000 payable in cash upon the closing of the Offering and (ii) such number
of shares of Common Stock of InfoCure equal to the quotient of (a) 1,000,000
divided by (b) the price to the public of a share of Common Stock pursuant to
the Offering. The Rovak Stock Purchase Agreement provides for a reduction to the
consideration in the event the net worth of Rovak at the time of the acquisition
is less than a negative $161,000. In addition, the purchase price is to be
reduced if the
14
17
net income before interest and taxes ("net income") of Rovak for the year ending
December 31, 1997 is less than $750,000. The maximum adjustment of $815,000 is
applicable if such net income is less than $621,000 and is prorated if it is
less than $750,000 and more than $612,000. Cash consideration and shares of
Common Stock having an aggregate value of $815,000 are to be held in escrow as a
source of recovery of damages to InfoCure in the event of breach of any
warranty, representation or covenant of the stockholders of Rovak or an
adjustment to the purchase price. Certain stockholders of Rovak have also agreed
not to compete with the business of Rovak for a period of 3 years after the
closing.
The proposed Rovak Stock Purchase Agreement provides that the sale of the
capital stock of Rovak will occur at the time the IPO Registration Statement
becomes effective.
InfoCure and the stockholders of Rovak will make certain representations
and warranties in the stock purchase agreement as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or Rovak. The consummation of the sale/purchase of the capital stock of
Rovak by its stockholders and InfoCure is subject to the fulfillment of various
conditions at or prior to the effective date of the Offering including, among
others, and the correctness of the representations and warranties and the
absence of any material and adverse change in the business of Rovak.
InfoCure and the stockholders of Rovak may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the stock purchase agreement, (ii) waive any inaccuracies in
the representations and warranties contained in the stock purchase agreement and
(iii) waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the stock purchase
agreement or waive or modify performance of any of the obligations of any of the
parties to the stock purchase agreement.
The proposed Rovak Stock Purchase agreement provides that it may be
terminated or abandoned prior to the effective date of the Offering (i) by
mutual consent of InfoCure and the stockholders of Rovak or (ii) at any time
after March 30, 1997 (or such later date as the parties shall have agreed to in
writing) by InfoCure if the conditions precedent to its obligations have not
been fulfilled or waived by it or (iii) at any time after March 30, 1997 (or
such later date as the parties shall have agreed to in writing) by the
stockholders of Rovak if the conditions precedent to their obligations have not
been fulfilled or waived by them. In event of termination, each party shall pay
its own expenses incurred in connection with the stock purchase agreement.
A two year employment agreement is to be entered into by the Company and
Brad Schraut, a director, officer and principal stockholder of Rovak. The
employment agreement will provide for an annual based salary of $100,000 and a
seven year incentive stock option with an exercise price at the fair market
value of the Common Stock at the time the stock option is granted. Also, Mr.
Schraut will be eligible for a bonus based upon his performance. There is no
formal bonus plan. The number of shares of Common Stock to be subject to the
stock option and the terms of the bonus have not been determined as of this
date.
The stockholders of Rovak are not entitled to appraisal or dissenters'
rights under applicable laws for the reason that the transaction contemplated by
the Rovak Stock Purchase Agreement constitutes an exchange of stock for which
appraisal or dissenters' rights are not provided under applicable law.
Federal Income Tax Consequences to Stockholders of Rovak. The sale to
InfoCure of the capital stock of Rovak stock by the stockholders of Rovak will
be a taxable sale of stock in which each stockholder of Rovak will recognize a
gain or loss measured by the difference between: (a) the sum of the cash
received and the fair market value on the closing date of the Common Stock of
InfoCure received and (b) their basis for their capital stock of Rovak. The gain
or loss recognized by any stockholder of Rovak will be capital gain or loss to
any such stockholder for whom the Rovak capital stock is a capital asset. Such
capital gain or loss will be long-term capital gain or loss to a stockholder of
Rovak who has held the Rovak capital stock for more than one year on the closing
date and short-term capital gain or loss to a stockholder of Rovak who has held
the Rovak capital stock for not more than one year on the closing date.
The stockholders of Rovak who will receive consideration out of escrow
after the close of their taxable year in which the closing occurs should be
entitled to report their sale of Rovak stock under the installment method. Under
the installment method, each payment will be treated as part nontaxable recovery
of basis and
15
18
part taxable realization of gain. Because interest will not be payable on the
escrowed consideration, a portion of the payments made out of escrow would be
characterized as interest rather than purchase price.
Rovak stockholders may elect not to report their gain under the installment
method. Those stockholders electing out of installment sale treatment would
recognize the maximum contract price in their taxable year in which the closing
occurs and report gain or loss in such taxable year. To the extent that any
amount of the escrowed consideration is returned to InfoCure in a subsequent
taxable year, such stockholders would recognize a loss for such subsequent
taxable year. Any gain or loss attributable to InfoCure shares held in escrow
which are required to be returned to InfoCure would be taken into account in
determining those stockholders' losses in such subsequent taxable year.
The tax consequences to the Rovak stockholders of the sale of Rovak stock
may vary among stockholders depending on their particular circumstances. Each
Rovak stockholder should consult his or her personal tax advisor regarding the
appropriate tax treatment.
Comparison of the Common Stock of Rovak and InfoCure. The following is a
description of the material differences between the rights of the holders of
common stock of Rovak and the holders of Common Stock of InfoCure. This
description is qualified in its entirety by reference to the articles of
incorporation and bylaws of Rovak and InfoCure, the DGCL and the Minnesota
Business Corporation Act ("MBCA").
The rights of the stockholders of Rovak are governed by its articles of
incorporation and bylaws and the MBCA. The rights of the stockholders of
InfoCure are governed by its articles of incorporation and bylaws and the DGCL.
After the exchange of the common stock of Rovak for the Common Stock of InfoCure
and certain cash payments, the rights of the stockholders of Rovak who become
stockholders of InfoCure will be governed by the articles of incorporation and
bylaws of InfoCure and the DGCL.
InfoCure's articles of incorporation authorize the Board of Directors to
issue preferred stock without any action of the stockholders. The rights of the
holders of Common Stock generally will be subject to the prior rights of the
holders of preferred stock. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of InfoCure. The stockholders of Rovak are not subject to a similar
provision. See "Description of Capital Stock -- Preferred Stock."
Under Section 203 of the DGCL a publicly held Delaware corporation is
prohibited from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date the stockholder becomes
an "interested stockholder" except under certain circumstances. See "Description
of Capital Stock -- Delaware Anti-Takeover Law."
Under Section 301A.673 of the MBCA ("Section 301A.672") an interested
stockholder (a stockholder owning 10% of the voting stock of a Minnesota public
corporation) may not enter into a "business combination" with the Minnesota
public corporation for a period of four years after the date of the transaction
in which the person became an interested stockholder unless the business
combination or the acquisition of the shares that resulted in the stockholder
becoming an interested stockholder is approved by an independent committee of
the board of directors prior to the stockholder becoming an interested person. A
corporation may elect not to be subject to the provisions of Section 301A.673.
Under the laws of the DGCL, actions to be taken by stockholders of InfoCure
may be taken without a meeting, if a written consent is executed by the holders
of shares of Common Stock having the requisite number of votes that would be
necessary to authorize such actions at a meeting of the stockholders. Consent
action by the stockholders of Rovak without a meeting must be by unanimous
written consent.
The DGCL and MBCA provide appraisal rights to stockholders in the event of
a merger or consolidation. The laws of Minnesota provide appraisal rights upon
certain additional actions, including upon the following actions (i) sale of all
or substantially all of the assets of the company not in the ordinary course of
its business and (ii) amendments to the articles of incorporation that
materially and adversely affect the rights or preferences of the shares of the
dissenting stockholders.
Under the articles of incorporation of Rovak and the MBCA, the directors
are elected by cumulative voting. The holders of Common Stock of InfoCure do not
have similar rights. In addition, the stockholders of
16
19
Rovak have preemptive rights to subscribe to additional issuances of shares of
common stock of Rovak. Stockholders of InfoCure do not have preemptive rights.
In addition, the MBCA prohibits anyone who acquires 20% or more of the
stock of a Minnesota "issuing public corporation" from voting such shares unless
the acquisition was approved by a majority of the shares, excluding the shares
owned by such acquiring person. A Minnesota issuing public corporation is a
corporation which has at least 50 stockholders and is incorporated under the
laws of Minnesota.
Related Transactions. For a description of transactions between Rovak and
any director, executive officer and any holder of more than 5% of the common
stock of Rovak and their affiliates, see "Notes to Financial
Statements -- Related Party Transactions."
MERGER OF HIS INTO SUB
This summary is qualified in its entirety by the terms of the definitive
merger agreement among InfoCure, Sub, a wholly-owned subsidiary of InfoCure, HIS
and the stockholders of HIS ("HIS Merger Agreement") which is incorporated
herein by reference.
The proposed HIS Merger Agreement between Sub and HIS will provide that HIS
shall merge into Sub with Sub continuing as the surviving corporation of the
merger ("HIS Merger"). Sub will be a newly formed subsidiary of InfoCure which
will be formed solely for the purpose of effecting the HIS Merger. The HIS
Merger will occur at the time the IPO Registration Statement becomes effective.
Upon the consummation of the HIS Merger, the holders of common stock of HIS will
receive (i) an aggregate of $1,500,000 and (ii) such number of shares of Common
Stock equal to the product of (a) the Exchange Ratio times (b) 3,000,000. In
addition, the HIS Merger Agreement will provide for a reduction to the purchase
price in the event the net worth of HIS at the time of the acquisition is less
than an amount to be hereafter agreed upon. Shares of Common Stock and/or cash
having a value equivalent to 15% of the aggregate consideration payable will be
held in escrow as a source of recovery of damages to InfoCure in the event of
breach of any warranty, representation or covenant of the stockholders of HIS or
adjustment to the purchase price. The stockholders of HIS have also agreed not
to compete with the business of HIS for a period of 3 years after the closing.
InfoCure, Sub and the stockholders of HIS will make certain representations
and warranties in the HIS Merger Agreement as to, among other matters, the
respective financial positions, corporate existence, business and capital
structure of InfoCure or HIS. The consummation of the HIS Merger pursuant to the
HIS Merger Agreement is subject to the fulfillment of various conditions at or
prior to the effective date of the HIS Merger including, among others, the
correctness of the representations and warranties, the absence of any material
and adverse change in the business of HIS and the receipt by HIS of an opinion
from tax counsel as described in "Federal Income Tax Consequences of the HIS
Merger."
InfoCure and the stockholders of HIS may, by written agreement, (i) extend
the time for the performance of any obligation or other act of the parties, (ii)
waive any inaccuracies in the representations or warranties contained in the
merger agreement and (iii) waive compliance with or modify, amend or supplement
any of the covenants, agreements, representations or warranties contained in the
merger agreement or waive or modify performance of any of the obligations of any
of the parties to the merger agreement.
The HIS Merger Agreement provides that it may be terminated or abandoned
prior to the effective date of the HIS Merger, notwithstanding approval by
written consent of the HIS Merger Agreement by the holders of all of outstanding
shares of Sub and HIS, (i) by the mutual consent of InfoCure and HIS, (ii) at
any time after March 30, 1997 (or such later date as the parties shall have
agreed to in writing) by InfoCure if the conditions precedent to its obligations
have not been fulfilled or waived by it or (iii) at any time after March 30,
1997 (or such later date as the parties shall have agreed to in writing) by the
stockholders of HIS if the conditions precedent to their obligations have not
been fulfilled or waived by them. In the event of termination, each party will
pay its own expenses incurred in connection with the merger agreement, except
that the cost of this registration statement of InfoCure will be borne by
InfoCure.
17
20
Management. Gregory F. Vap, a director, officer and principal stockholder
of HIS, will become an officer of InfoCure. In addition, he will enter into an
employment agreement with InfoCure upon the consummation of the acquisition. See
"Management."
Federal Income Tax Consequences of the HIS Merger. As a condition
precedent to the obligations of InfoCure, Sub and HIS to consummate the HIS
Merger, HIS stockholders shall have received prior to the effective date of the
HIS Merger, an opinion of tax counsel, to the effect that (i) no gain or loss
will be recognized to the stockholders of HIS upon the exchange of their common
stock of HIS for Common Stock of InfoCure, (ii) the basis of the shares of
Common Stock received by the HIS stockholders will be the same as the basis of
the shares of common stock of HIS surrendered in exchange therefor, (iii) the
holding period of the shares of the Common Stock received by the stockholders of
HIS will include the holding period of the shares of common stock of HIS
surrendered in exchange therefor, provided the common stock of HIS is a capital
asset in the hands of the HIS stockholders on the effective date of the HIS
Merger and (iv) where cash is received by stockholders of HIS for their shares
of Common Stock of HIS, the stockholders of HIS will recognize gain or loss with
respect thereto measured by the difference between their basis for such shares
of common stock of HIS and the amount received in consideration thereof.
HIS stockholders who exercise dissenters' rights, and as a result of which
receive only cash, will be treated as having received such cash as a
distribution in redemption of their HIS common stock. Accordingly, each such
stockholder generally will recognize gain or loss equal to the difference
between the amount of cash received by such stockholder and such stockholder's
basis in his or her stock.
The gain or loss recognized by any HIS stockholder attributable to the
receipt of cash either in lieu of fractional shares or as a result of such
stockholder's exercise of dissenters' rights will be capital gain or loss to any
such HIS stockholder for whom the HIS common stock is a capital asset. Such
capital gain or loss will be long-term capital gain or loss to an HIS
stockholder who has held the HIS common stock for more than one year on the
effective date of the HIS Merger and short-term capital gain or loss to an HIS
stockholder who has held the HIS common stock for not more than one year on the
effective date of the HIS Merger.
HIS Merger Approval. The HIS Merger is to be approved by the boards of
directors of HIS and Sub and a majority of the holders of the outstanding shares
of common stock of Sub and two-thirds of the holders of the outstanding shares
of HIS upon the execution of the HIS Merger Agreement. The directors and
executive officers of HIS and their affiliates own 99% of the outstanding shares
of common stock of HIS. All of the outstanding shares of Common Stock are owned
by its directors and officers.
On and after the effective date of the HIS Merger, each stock certificate
which evidenced shares of common stock of HIS immediately prior to the HIS
Merger will thereafter be deemed to evidence ownership of the number of whole
shares of Common Stock as to which the stockholder of HIS shall be entitled on
the basis of the Exchange Ratio and the right to receive cash as set forth in
the merger agreement. After the effective date of the HIS Merger, the
stockholders, upon surrender of their HIS stock certificates, will receive a
certificate representing the number of whole shares of Common Stock into which
the shares of common stock of HIS were converted upon the HIS Merger and their
pro rata share of the cash consideration payable.
No scrip or fractional shares of InfoCure will be issued. Stockholders of
HIS who would otherwise be entitled to receive a fractional share certificate
will be paid in cash the market value of their fractional interest upon
surrender of the HIS share certificates. The market value of the fractional
interest will be determined by multiplying the fraction of a share of Common
Stock which the HIS stockholders would otherwise be entitled to receive times
the public offering price of a share of Common Stock pursuant to the Offering.
Appraisal Rights of Dissenting Stockholders of HIS. Stockholders of HIS
have appraisal rights with respect to the proposed HIS Merger as are provided by
Section 351.455 of the Missouri General and Business Corporation Law ("Section
351.455"). The following is not intended to be a complete summary of the
provisions of Section 351.455 and is qualified in its entirety by reference to
that Section 351.455, which is reproduced in full as Appendix II hereto. In
order to meet the statutory requirements, a dissenting stockholder of HIS must:
(i) have provided HIS with a written objection to the HIS Merger prior to the
meeting of stockholders at which the Merger Agreement is submitted to a vote;
(ii) have not voted any shares of common
18
21
stock of HIS in favor of adoption of the HIS Merger or consented to the HIS
Merger in writing; and (iii) make a written demand after the HIS Merger for a
cash payment for the fair value of the common stock of HIS owned by such
stockholder within 20 days after the HIS Merger.
The dissenting stockholders who have complied with the statutory procedure
for appraisal must file not earlier than 30 days nor later than 90 days after
the effective date of the HIS Merger a petition in any court of competent
jurisdiction ("Court") within the county in which the registered office of Sub
is situated requesting a determination of the fair value of such shares. Only by
following the statutory procedures stated in Section 351.455 may a dissenting
stockholder of HIS perfect the stockholder's right of appraisal.
A vote against the HIS Merger does not constitute the written objection
required to be filed by a dissenting stockholder. Failure to vote against the
HIS Merger, however, does not constitute a waiver of rights under Section
351.455.
Comparison of the Common Stock of HIS and InfoCure. The following is a
description of the material differences between the rights of the holders of
common stock of HIS and the holders of Common Stock of InfoCure. This
description is qualified in its entirety by reference to the articles of
incorporation and bylaws of HIS and InfoCure, the DGCL and the Missouri General
and Business Corporation Law ("MG&B Law").
The rights of the stockholders of HIS are governed by its articles of
incorporation and bylaws and the MG&B Law. The rights of the stockholders of
InfoCure are governed by its articles of incorporation and bylaws and the DGCL.
After the exchange of the common stock of HIS for the Common Stock of InfoCure
and certain cash payments, the rights of the stockholders of HIS who become
stockholders of InfoCure will be governed by the articles of incorporation and
bylaws of InfoCure and the DGCL.
InfoCure's articles of incorporation authorize the Board of Directors to
issue preferred stock without any action of the stockholders. The rights of the
holders of Common Stock generally will be subject to the prior rights of the
holders of preferred stock. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock."
The stockholders of HIS are not subject to similar provisions.
Under Section 203 of the DGCL a publicly held Delaware corporation is
prohibited from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date the stockholder becomes
an "interested stockholder" except under certain circumstances. See "Description
of Capital Stock -- Delaware Anti-Takeover Law." Under Section 351.459 of the
MG&B Law a person who proposes to make or has made an acquisition of 20% of the
voting stock of a Missouri public corporation may not enter into a business
combination with the Missouri "resident domestic corporation" for a period of 5
years unless (i) the business combination is approved by the board of directors
prior to the interested stockholder's stock acquisition date, (ii) the business
combination is approved by a majority of the stockholders of the Missouri
corporation excluding the shares owned by the interested stockholder or (iii)
the aggregate consideration to be received by the stockholders in the business
combination meets certain specified statutory minimum amounts (e.g., highest per
share price paid by the interested stockholder).
Under the laws of the DGCL, actions to be taken by stockholders of InfoCure
may be taken without a meeting, if a written consent is executed by the holders
of shares of Common Stock having the requisite number of votes that would be
necessary to authorize such actions at a meeting of the stockholders. Consent
action by the stockholders of HIS without a meeting must be by unanimous written
consent.
The laws of the DGCL and the MG&B Law provide appraisal rights to
stockholders in the event of a merger or consolidation. The MG&B Law provides
appraisal rights upon certain additional actions, including upon the following
actions (i) sale of all or substantially all of the assets of the company and
(ii) amendments to the articles of incorporation that materially and adversely
affect the rights of a holder of a security. Under the laws of the DGCL a
merger, sale of all, or substantially all, of the assets or the liquidation of a
corporation can be effected by an affirmative vote of a majority of the
outstanding shares. Under the laws of Missouri, a two-thirds affirmative vote is
required.
19
22
Under the articles of incorporation of HIS and the MG&B Law, the directors
shall be elected by cumulative voting. The holders of Common Stock of InfoCure
do not have similar rights. In addition, the stockholders of HIS have preemptive
rights to subscribe to additional issuances of shares of common stock of HIS.
Stockholders of InfoCure do not have preemptive rights.
In addition, the MG&B Law prohibits anyone who acquires 20% or more of a
Missouri "issuing public corporation" from voting such shares unless the
acquisition is approved by a majority of the shares excluding the shares held by
the interested stockholder. A Missouri "issuing public corporation" means a
corporation (i) which is incorporated under the laws of Missouri, (ii) which has
at least 100 stockholders, (iii) which has its principal office or substantial
assets within Missouri and (iv) which has at least 10% of its stockholders or
holders of at least 10% of its common stock who are Missouri residents or has at
least 10,000 stockholders who reside in Missouri.
20
23
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the other
information contained in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; OPERATING LOSSES
InfoCure was incorporated in November 1996 and to date has conducted no
operations and generated no revenue. InfoCure has entered into agreements to
acquire the Founding Businesses concurrently with the consummation of the
Offering. The Founding Businesses have been operating as separate independent
entities, and there can be no assurance that the Company will be able to
successfully integrate the operations of these businesses or institute the
necessary company-wide systems and procedures to successfully manage the
combined enterprise on a profitable basis. Although the unaudited pro forma
combined financial statements indicate that the Company had pro forma net income
of $782,000, $773,000 and $471,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1996 and 1995, respectively, the pro forma
combined financial results of the Company cover periods when the Founding
Businesses were not under common control or management and include adjustments
to compensation expense and certain other operating expenses to levels the
Company intends to implement following the Acquisitions. These adjustments total
$2,489,000, $1,870,000 and $1,709,000 for the year ended January 31, 1996 and
the nine months ended October 31, 1996 and 1995, respectively. Therefore, such
pro forma financial results may not be indicative of the Company's future
financial condition or operating results. AMC, which is considered the
predecessor to the Company for accounting purposes, had net losses of $180,196
and $1,075,308 for the years ended January 31, 1996 and 1995, respectively, and
net losses of approximately $325,476 and $23,945 for the nine months ended
October 31, 1996 and 1995, respectively. In addition, each of DR Software,
Rovak, HIS and Millard-Wayne recorded a net loss for certain of the periods
reflected in their respective financial statements and notes thereto included
elsewhere in this Prospectus. The inability of the Company to successfully
integrate the Founding Businesses and reduce operating expenses in the manner
described in the Notes to the Unaudited Pro Forma Combined Financial Statements,
or otherwise improve results of operations, could have a material adverse effect
on the Company's results of operations, financial condition or business and
could negatively impact the Company's ability to acquire other companies or
otherwise execute its business strategy. See "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations," "Business--Business Strategy," "Management" and
Unaudited Pro Forma Combined Financial Statements and the Notes thereto.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to acquire additional
companies providing health care practice management systems and complementary
products and technologies. Increased competition for acquisition candidates may
develop, in which event there may be fewer acquisition opportunities available
to the Company as well as higher acquisition prices. There can be no assurance
that the Company will be able to identify, acquire or profitably integrate and
manage additional companies or complementary products or technologies, if any,
into the Company without substantial costs, delays or other operational or
financial problems. Further, acquisitions involve a number of special risks,
including possible adverse effects on the Company's operating results, diversion
of management's attention, failure to retain key personnel of the acquired
companies, amortization of acquired intangible assets and risks associated with
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's results of operations, financial condition or
business. Customer dissatisfaction or performance problems at a single acquired
company could have an adverse effect on the reputation of the Company. In
addition, there can be no assurance that the Founding Businesses or other
companies or complementary products or technologies acquired in the future will
achieve anticipated revenue and earnings. See "Business--Business Strategy" and
Unaudited Pro Forma Combined Financial Statements and the Notes thereto.
21
24
POSSIBLE NEED FOR FUTURE ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using the
remaining net proceeds of the Offering and/or issuing shares of its Common Stock
for all or a substantial portion of the consideration to be paid. In the event
that its Common Stock does not maintain a sufficient market value or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. There can be no assurance that the
Company will be able to obtain the financing it will need on terms it deems
acceptable, or at all. See "Management's Discussion and Analysis of Pro Forma
Combined Financial Condition and Pro Forma Combined Results of
Operations--Liquidity and Capital Resources."
DEPENDENCE ON EDI
The Company's business strategy is largely based upon increasing the
percentage of its customers who utilize EDI for establishing patient eligibility
with insurers, precertification and eligibility of insurance claims, insurance
claims submission, claim status, remittance advice and patient statements.
Failure to increase the use of EDI services by health care providers in general,
and by the Company's customers in particular, could have a material adverse
effect on the Company's results of operations, financial condition or business.
A decrease or limited growth in the net fees realized by the Company for EDI
services could have a material adverse effect on the Company's future results of
operations, financial condition or business. See "Business--Business Strategy."
DEPENDENCE ON PROPRIETARY SOFTWARE; RISK OF INFRINGEMENT
The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company relies on a combination of trade secret, copyright and trademark
laws, license agreements, nondisclosure and other contractual provisions and
technical measures to establish and protect its proprietary rights in its
products. The Company's software technology is not patented and existing
copyright laws offer only limited practical protection. There can be no
assurance that the legal protections afforded to the Company or the steps taken
by the Company will be adequate to prevent misappropriation of the Company's
technology. In addition, these protections do not prevent independent
third-party development of competitive products or services. The Company
believes that its products, trademarks and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the company in the future or that any such assertion will not require
the Company to enter into a license agreement or royalty arrangement with the
party asserting such a claim. As competing health care information systems
increase in complexity and overall capabilities and the functionality of these
systems further overlap, providers of such systems may become increasingly
subject to infringement claims. Responding to and defending any such claims may
require significant management resources and otherwise have a material adverse
effect on the Company's results of operations, financial condition or business.
See "Business--Product Protection."
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by
technological advances and rapid changes requiring ongoing expenditures for
research and development and the timely introduction of new products and
enhancements of existing products. The Company's future success will depend in
part upon its ability to (i) enhance its current products, (ii) respond
effectively to market requirements and technological changes, (iii) sell
additional products to its existing customer base and (iv) introduce new
products and technologies that address the increasingly sophisticated needs of
its customers and the health care industry. The Company will be required to
devote significant resources to the development of enhancements to its existing
products and the migration of existing products to new software platforms. There
can be no assurance that the Company will successfully complete the development
of new products or the migration of existing products to new platforms or that
the Company's current or future products will satisfy the needs of the
22
25
market for practice management systems. Further, there can be no assurance that
products or technologies developed by others will not adversely affect the
Company's competitive position or render its products or technologies
noncompetitive or obsolete. See "Business--Product Research and Development."
COMPETITION
The market for practice management systems, such as those marketed by the
Company, is highly competitive. The Company's competitors vary in size and in
the scope and breadth of the products and services they offer. The Company
competes with different companies in each of its target markets. Among the
Company's principal competitors are providers of health care information systems
such as IDX Systems Corporation, Medic Computer Systems, Inc., Medical Manager
Corporation, Physician Computer Network, Inc. and Quality Systems, Inc. Many of
the Company's competitors have greater financial, research and development,
technical, marketing and sales resources than the Company. In addition, other
entities not currently offering products and services similar to those offered
by the Company, including claims processing organizations, third-party
administrators, insurers and others, may enter certain markets in which the
Company competes. There can be no assurance that future competition and industry
pressures for cost reduction and containment will not have a material adverse
effect on the Company's results of operations, financial condition or business.
See "Business--Competition."
PRODUCT RELATED CLAIMS; PRODUCT ACCEPTANCE CONCERNS
Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information
could result in product liability or breach of contract litigation against the
Company by its clients, their patients or others. In addition, because the
Company's products facilitate electronic claims submissions, any resulting loss
of financial data could result in claims against the Company. The Company
intends to maintain insurance to protect against claims associated with the use
of its products, but there can be no assurance that such insurance coverage will
be available or, if available, will adequately cover any claim asserted against
the Company. A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's results
of operations, financial condition or business. Even unsuccessful claims could
result in the expenditure of funds in litigation, as well as diversion of
management time and resources. Additionally, such failures or errors may result
in the loss of, or delay in, market acceptance of the Company's products.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers. Furthermore, the Company will likely be dependent on the
senior management of any businesses acquired in the future. If any of these
persons becomes unable or unwilling to continue in his or her role with the
Company, or if the Company is unable to attract and retain other qualified
employees, the Company's business or prospects could be adversely affected.
Although the Company will have entered into an employment agreement upon the
consummation of the Offering with each of the Company's executive officers,
which will include confidentiality and non-compete provisions, there can be no
assurance that any individual will continue in his or her present capacity with
the Company for any particular period of time. The success of the Company is
also dependent to a significant degree on its ability to attract, motivate and
retain highly skilled sales, marketing and technical personnel, including
software programmers and systems architects skilled in the computer language
with which the Company's products operate. Competition for such personnel in the
software and information services industries is intense. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on the Company's results of operations, financial
condition or business. Although the Company has been successful to date in
attracting and retaining skilled personnel, there can be no assurance that the
Company will continue to be successful in attracting and retaining the personnel
it requires to successfully develop new and enhanced products and to continue to
grow and operate profitably. See "Business--Employees" and "Management."
23
26
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT REGULATION
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. Governmental
organizations account for a substantial portion of revenues paid to health care
providers in the United States and impose significant regulatory burdens. From
time to time, certain proposals to reform the health care system have been
considered by Congress and further proposals may be considered in the future.
These reforms may increase government involvement in health care, lower
reimbursement rates and otherwise adversely affect the operating environment for
the Company's clients. Health care organizations may react to these reforms by
curtailing or deferring investments, including those for the Company's products
and services. The Company cannot predict with any certainty what impact, if any,
such health care reforms might have on its results of operations, financial
condition or business. See "Business--Government Regulation."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES; INTERESTS OF CERTAIN
PERSONS
Approximately $10.8 million, representing approximately 60% of the net
proceeds of the Offering, will be for payments due upon consummation of the
Acquisitions. Approximately $3.9 million of such payments will be paid directly
or indirectly to stockholders of the Founding Businesses who will become
directors or executive officers of the Company or holders of more than 5% of the
outstanding Common Stock. In addition upon the consummation of the Acquisitions
and the Offering, certain former executive officers of the Founding Businesses
will become executive officers of the Company. Proceeds available for repayment
of indebtedness, working capital and other uses by the Company will be
approximately $7.1 million, representing 40% of the net proceeds of the
Offering. See "The Acquisitions -- Acquisition Consideration," "Management" and
"Certain Transactions."
SUBSTANTIAL SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following the Offering. The 2,000,000 shares of Common Stock being
sold in the Offering will be freely tradable unless acquired by affiliates of
the Company. Concurrently with the consummation of the Offering, 3,668,510
shares of Common Stock will be issued in connection with the AMC Merger and the
Acquisitions. Such shares will be registered under the Securities Act and
therefore also will be freely tradable unless acquired by affiliates of the
Company. The future sales of such shares may have a depressive effect on the
market price of the Common Stock.
The Company, its directors, executive officers and certain of its
stockholders, holding an aggregate of 2,761,111 equivalent shares of Common
Stock, have agreed not to offer or dispose of, without the prior written consent
of the Representatives of the Underwriters, any shares of Common Stock for a
period of 180 days (the "Lock-Up Period") following the date the Commission
declares effective the IPO Registration Statement and, for a period of 18 months
(or such shorter period as the Securities and Exchange Commission (the
"Commission") may prescribe as the holding period for restricted securities
under Rule 144(e) under the Securities Act) following expiration of the Lock-Up
Period, not to publicly offer or sell except in accordance with the volume
limitations of Rule 144(e), except that the Company may issue Common Stock in
connection with future acquisitions and upon the exercise of stock options and
warrants. See "Shares Eligible for Future Sale."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained upon consummation of the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price for the Common Stock will be determined by
negotiation among the Company and the Representatives of the Underwriters and
may not be indicative of the prices that will prevail in the public market. The
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including variations in the annual or quarterly
financial results of the Company or its
24
27
competitors, changes by financial research analysts in their estimates of the
earnings of the Company, conditions in the economy in general or in the health
care or technology sectors in particular, announcements of technological
innovations or new products or services by the Company or its competitors,
proprietary rights development, unfavorable publicity or changes in applicable
laws and regulations (or judicial or administrative interpretations thereof)
affecting the Company or the health care or technology sectors. Moreover, from
time to time, the stock market experiences significant price and volume
volatility that may affect the market price of the Common Stock for reasons
unrelated to the Company's performance.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter, in part because of changes in customer purchasing patterns,
competition, the timing of the recognition of licensing revenues and the timing
of, and costs related to, any new product introductions. The Company operates
without any backlog of product orders and a majority of the revenues realized in
a quarter result from orders received or services rendered in that quarter. The
Company's operating results for any particular quarter are not necessarily
indicative of any future results. The uncertainties associated with the
introduction of any new products and with general market trends may limit
management's ability to forecast short-term results of operations accurately.
The Company is subject to slight seasonal increases in its systems and software
sales in the fourth quarter of its fiscal year. Additionally, a high percentage
of the Company's expenses are relatively fixed, including costs of personnel,
and are not susceptible to rapid reduction. See "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $9.19 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock pursuant to the Offering may experience
further dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND EMPLOYMENT AGREEMENT PROVISIONS AND
DELAWARE LAW
Certain provisions of Delaware law, the Company's Certificate of
Incorporation and certain of its executive employment agreements could, together
or separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company and limit the price that certain investors
might be willing to pay in the future for the Company's Common Stock. These
provisions include the right of the Company's Board of Directors to issue,
without further stockholder approval, one or more series of preferred stock with
rights and preferences senior to the rights associated with the Common Stock.
The Company is also subject to Section 203 of the Delaware General Corporation
Law, which may inhibit or discourage a change in control of the Company. In
addition, the provisions of certain executive employment agreements and stock
option agreements may result in economic benefits to the holders thereof upon
the occurrence of a change in control. See "Management--Stock Options,"
"--Employment Agreements," "Description of Capital Stock--Preferred Stock" and
"--Delaware Anti-Takeover Law."
DIVIDEND POLICY
The Company intends to retain its earnings to finance the development and
continued expansion of its business and for general corporate purposes and
therefore does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. Any future payment of dividends will be at the
discretion of the Board of Directors and will depend upon the Company's
financial condition, results of operations and such other factors as the Board
of Directors deems relevant. There can be no assurance that dividends will ever
be paid by the Company.
25
28
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of October 31, 1996 (i) on a pro forma basis to give effect to the November
1996 issuance of shares of AMC common stock for $750,000, the Acquisitions and
the repayment of certain outstanding indebtedness and (ii) on a pro forma
adjusted basis to give effect to the November 1996 issuance of shares of AMC
common stock for $750,000, the Acquisitions, the consummation of the Offering
and the applications of the estimated net proceeds of the Offering. This table
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
AS OF OCTOBER 31, 1996
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
Short-term debt, including current portion of long-term
debt...................................................... $ 407 $ 407
Long-term debt, excluding current portion................... 308 308
Stockholders' equity:
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized and no shares issued and outstanding........ -- --
Common Stock, $0.001 par value; 40,000,000 shares
authorized; 5,129,698 shares issued and outstanding pro
forma and 5,668,510 shares issued and outstanding pro
forma as adjusted (1).................................. 5 6
Additional paid-in capital................................ 20,240 25,012
Accumulated deficit....................................... (4,045) (4,045)
------- -------
Total stockholders' equity............................. 16,200 20,973
------- -------
Total capitalization................................. $16,915 $21,688
======= =======
- ---------------
(1) Excludes an aggregate of (i) 331,490 shares of Common Stock reserved for
issuance upon the exercise of outstanding stock options and a stock warrant
and (ii) 225,395 equivalent shares of Common Stock to be assigned and
transferred to AMC for cancellation not later than 20 days prior to the
consummation of the Offering, pursuant to a written agreement dated
November 19, 1996.
26
29
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
InfoCure will acquire the Founding Businesses concurrently with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, AMC has been identified as the accounting acquiror. The
following summary unaudited pro forma combined financial data present certain
data for the Company, as adjusted for (i) the effects of the AMC Merger on an
historical basis, (ii) the effects of the HCD Acquisition, the acquisition by
AMC of Millard-Wayne and the acquisitions by InfoCure of HIS, KComp, DR Software
and Rovak using the purchase method of accounting at their estimated fair values
and (iii) the effects of certain pro forma adjustments to the combined financial
statements. KComp was founded in December 1995; accordingly, results of KComp
are included only for the nine months ended October 31, 1996. See "Management's
Discussion and Analysis of Pro Forma Combined Financial Condition and Pro Forma
Combined Results of Operations" and the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
PRO FORMA
---------------------------------------
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, ------------------------
1996 1995 1996
----------- ---------- ----------
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software sales.......................... $10,403 $ 7,280 $ 7,682
Maintenance and support............................. 7,433 5,809 7,545
Other............................................... 1,168 841 957
------- ------- -------
Total revenues.................................... 19,004 13,930 16,184
Cost of revenues....................................... 5,999 4,526 4,699
------- ------- -------
Gross profit........................................... 13,005 9,404 11,485
Operating expenses:
Selling, general and administrative (2)(3)(4)(5).... 9,979 7,287 8,817
Depreciation and amortization (6)................... 1,576 1,157 1,156
------- ------- -------
Operating income....................................... 1,450 960 1,512
Other expense (income):
Interest expense (7)................................ 82 82 69
Other............................................... (204) (110) (42)
------- ------- -------
Income before taxes.................................... 1,572 988 1,485
Income tax (8)......................................... 790 517 712
------- ------- -------
Net income............................................. $ 782 $ 471 $ 773
======= ======= =======
Pro forma net income per share......................... $ 0.15 $ 0.09 $ 0.14
Pro forma weighted average shares outstanding (9)...... 5,385 5,385 5,385
======= ======= =======
AS OF OCTOBER 31, 1996
-----------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED (10)
---------------- ----------------
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 1,060 $ 5,797
Working capital........................................... (1,013) 3,724
Total assets.............................................. 22,274 27,011
Short-term debt........................................... 407 407
Long-term debt, less current portion...................... 308 308
Total stockholders' equity................................ 16,200 20,973
- ---------------
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the pro forma statements of operations data, and as of
October 31, 1996, in the case of the unaudited selected
27
30
pro forma balance sheet data. The pro forma balance sheet data also give
effect to the issuance in November 1996 of 472,811 equivalent shares of
Common Stock by AMC for $750,000. The pro forma combined financial data are
based upon preliminary estimates, available information and certain
assumptions that management believes are appropriate. The unaudited
selected pro forma combined financial data presented herein are not
necessarily indicative of the results the Company would have obtained had
such events occurred at the beginning of the period or of the future
results of the Company. The unaudited selected pro forma combined financial
data should be read in conjunction with the other financial data and notes
thereto included elsewhere in this Prospectus.
(2) Includes pro forma adjustments to reflect (i) the elimination of
duplicative administrative functions at the Company of approximately
$1,803,000, $1,251,000 and $1,352,000 for the year ended January 31, 1996
and the nine months ended October 31, 1995 and 1996, respectively, and (ii)
the additional overhead expenses at the Founding Business of approximately
$452,000, $339,000 and $339,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively. The Company
considers that the elimination of approximately $1,130,000 of these
expenses, on an annualized basis, was effected upon the consummation of the
HCD Acquisition on December 3, 1996.
(3) Includes pro forma adjustments to reflect the elimination of allocations
from Info Systems for (i) overhead of approximately $477,000, $324,000 and
$264,000 for the year ended January 31, 1996 and the nine months ended
October 31, 1995 and 1996, respectively, and (ii) expense related to HCD's
participation in Info System's employee stock ownership plan of
approximately $159,000, $147,000 and $61,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, respectively.
Upon the consummation of the HCD Acquisition on December 3, 1996, these
eliminations were effected.
(4) Includes pro forma adjustments to reflect the elimination of rent, phone
and travel expenses of approximately $351,000, $237,000 and $264,000, for
the year ended January 31, 1996 and the nine months ended October 31, 1995
and 1996, respectively. Upon the consummation of the HCD Acquisition on
December 3, 1996, the elimination of $117,000 of such expenses, on an
annualized basis, was effected.
(5) Includes pro forma adjustments to reflect the elimination of certain
commissions and royalties which are payable by Rovak under agreements that
will be terminated following the consummation of the Offering. Such
adjustments are approximately $125,000, $86,000 and $241,000 for the year
ended January 31, 1996 and the nine months ended October 31, 1995 and 1996,
respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$665,000, $498,000 and $498,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively.
(7) Includes pro forma adjustments to reflect a reduction in interest expense
related to debt reduction, in connection with the Acquisitions and the
Offering, of $241,000, $95,000 and $188,000 for the year ended January 31,
1996 and the nine months ended October 31, 1995 and 1996, respectively.
(8) The pro forma provision for income taxes includes (i) the effects of the
non-deductible portion of goodwill for tax purposes and (ii) assumes that
the deferred tax asset represented by AMC's net operating loss
carryforwards of approximately $1,500,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 5,129,698
shares to be issued in connection with the Acquisitions and the Offering
and (ii) 255,653 Common Stock equivalents issuable upon outstanding stock
options and a warrant.
(10) The pro forma combined balance sheet is adjusted to give effect to the
receipt and application of the net proceeds of the Offering. See
"Capitalization."
28
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
InfoCure was incorporated in November 1996 to develop, market and service
practice management systems for use by health care providers throughout the
United States.
Concurrently with and as a condition to the consummation of the Offering,
InfoCure will acquire the seven Founding Businesses, which will be consolidated
into three operating divisions: the Desktop Division, the Mid-Range Division and
the Enterprise Division. The Desktop Division markets DOS and Windows-based
practice management systems and other software products primarily to small to
mid-size medical practices, including podiatric, dental, oral and maxillofacial
providers. The Mid-Range Division offers AIX and UNIX-based practice management
systems to mid-size medical practices, including oral surgeons and
orthodontists. The Enterprise Division markets IBM AS/400-based practice
management systems to mid-size to large medical practices and clinics.
The Company's total revenues are derived primarily from the delivery of
systems and software sales and maintenance and support services. Systems and
software sales include revenue from new systems, hardware, training and other
services provided during a customer installation as well as upgrades to existing
customers. Maintenance and support services revenues are generated by providing
customers with training, updates, enhancements and telephone support.
The Company recognizes systems revenue in accordance with the provisions of
AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
performed ratably over the contract period, which typically is one quarter or a
full year. Revenue from other services is recognized as the services are
provided.
Selling, general and administrative expense consists primarily of
marketing, advertising, administrative, research, software development and other
overhead costs. The Company's pro forma combined financial results cover periods
when the Founding Businesses were not under common control or management and
include adjustments to compensation expense and certain other operating expenses
to levels the Company intends to or has implemented in connection with the
Acquisitions. See "Risk Factors -- Absence of Combined Operating History;
Operating Losses" and Unaudited and Pro Forma Combined Financial Statements and
the Notes thereto.
The Company's acquisition strategy is to take advantage of the
consolidation opportunities existing in the practice management systems sector.
This strategy involves acquiring a significant customer base of software
installations and expanding customer and electronic services. The Company has an
installed customer base of approximately 17,500 health care providers in a broad
range of specialties at over 6,000 client sites.
RESULTS OF OPERATIONS
The following pro forma combined financial data contain the results of
operations for the nine months ended October 31, 1996 and 1995. KComp was
established in December 1995. The only results of KComp included in the pro
forma combined financial data are for the nine months ended October 31, 1996.
The following discussions should be read in conjunction with the Selected
Pro Forma Combined Financial Data, the Selected Financial Data of AMC and the
other financial statements and notes thereto appearing elsewhere in this
Prospectus.
Nine Months Ended October 31, 1996 Compared with Nine Months Ended October 31,
1995
Revenues increased by $2,254,000, or 16.2%, to $16,184,000 for the nine
months ended October 31, 1996 from $13,930,000 for the nine months ended October
31, 1995. Maintenance and support revenue increased $1,736,000, or 29.9%, to
$7,545,000 for the nine months ended October 31, 1996 from $5,809,000 for the
comparable period. The increase primarily was due to the formation of KComp,
which contributed maintenance and support revenues of $1,275,000, and additional
revenues from onsite training services.
29
32
Systems and software sales increased $402,000, or 5.5%, to $7,682,000 for the
nine months ended October 31, 1996 from $7,280,000 for the nine months ended
October 31, 1995.
Cost of revenue increased by $173,000, or 3.8%, to $4,699,000 for the nine
months ended October 31, 1996 from $4,526,000 for the nine months ended October
31, 1995. As a percentage of revenue, cost of sales decreased to 29.0% for the
nine months ended October 31, 1996 from 32.5% for the nine months ended October
31, 1995. This decrease in cost of revenue as a percent of sales principally
reflects a change in product mix, whereby maintenance and service revenue
increased to 46.6% of total revenues for the nine months ended October 31, 1996
from 41.7% of total revenues for the nine months ended October 31, 1995. The
cost of revenue for KComp for the nine months ended October 31, 1996 was
$112,000.
Selling, general and administrative expense increased by $1,530,000, or
21.0%, to $8,817,000 for the nine months ended October 31, 1996 from $7,287,000
for the nine months ended October 31, 1995. This increase primarily is due to
the formation of KComp, which added $1,134,000 to selling, general and
administrative expense.
As a result of the foregoing factors, operating income increased by
$552,000, or 57.5%, to $1,512,000 for the nine months ended October 31, 1996
from $960,000 for the nine months ended October 31, 1995. This increase reflects
the operating income of $249,000 from the KComp operations for the nine months
ended October 31, 1996, which were not included in the prior year. As a
percentage of revenues, income from operations increased to 9.3% for the nine
months ended October 31, 1996 from 6.9% for the nine months ended October 31,
1995.
Interest expense decreased by $13,000, or 15.9%, for the nine months ended
October 31, 1995 to $69,000 from $82,000 for the nine months ended October 31,
1996, primarily due to repayment of the notes payable and long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
The Founding Businesses have lines of credit providing for combined
advances of up to $175,000, with borrowings outstanding at October 31, 1996
totalling $120,000. Following consummation of the Acquisitions and the Offering,
the Company will have outstanding long-term debt of $523,000, including $215,000
which will be classified as the current portion of long-term debt.
The Company has gross cash flow from operations (net income plus
depreciation and amortization) for the nine months ended October 31, 1996 and
for the year ended January 31, 1996 of $1,929,000 and $2,358,000, respectively.
The Company believes that funds generated from operations, together with the net
proceeds of the Offering, will be sufficient to finance its current operations,
potential obligations relating to the Acquisitions and planned capital
expenditure requirements at least through the next 18 months. In the longer
term, the Company may require additional sources of capital to fund future
growth and acquisitions. Such sources of capital may include additional equity
or debt financings.
SEASONALITY AND FLUCTUATIONS
The Company is subject to slight seasonal increases in its systems and
software sales in the fourth quarter of its fiscal year.
30
33
SELECTED FINANCIAL DATA OF AMC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data present certain data for AMC for the
years ended January 31, 1995 and 1996 and the nine months ended October 31, 1995
and 1996. The selected financial data presented for AMC should be read in
conjunction with its audited financial statements and notes thereto included
elsewhere in this Prospectus.
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
----------------- -----------------
1995 1996 1995 1996
------- ------- ------- -------
(UNAUDITED)
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software and services................................ $ 2,866 $ 2,026 $ 1,618 $ 1,430
Hardware............................................. 620 387 297 230
------- ------- ------- -------
Total revenues..................................... 3,486 2,413 1,915 1,660
Cost of sales........................................... 1,116 516 434 299
------- ------- ------- -------
Gross profit............................................ 2,370 1,897 1,481 1,361
Operating expenses:
Salaries and operating expenses...................... 2,848 2,018 1,491 1,574
Depreciation and amortization........................ 564 112 82 55
------- ------- ------- -------
Loss from operations.................................... (1,042) (233) (92) (268)
Other income (expense):
Interest expense..................................... (54) (68) (47) (60)
Other................................................ 21 121 115 3
------- ------- ------- -------
Net loss................................................ $(1,075) $ (180) $ (24) $ (325)
======= ======= ======= =======
Net loss per share...................................... $ (0.03) $ (0.00) $ (0.00) $ (0.01)
Weighted average shares outstanding..................... 41,963 41,387 41,349 43,531
======= ======= ======= =======
AS OF JANUARY 31, AS OF OCTOBER 31,
1996 1996
----------------- -----------------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 250 $ 183
Working capital........................................... (1,201) (987)
Total assets.............................................. 567 664
Short-term debt........................................... 336 311
Long-term debt, less current portion...................... 545 539
Total stockholders' equity................................ (1,618) (1,273)
31
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMC
GENERAL
For financial statement purposes, AMC has been presented herein as the
acquiring company. For the periods presented herein, AMC functioned with
operations exclusively through a single operating subsidiary, ICS. After October
31, 1996, HCD became, and Millard-Wayne will become, subsidiaries of AMC in
transactions accounted for as purchases. The following discussion and analysis
should be read in conjunction with the audited financial statements and notes
thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Nine Months Ended October 31, 1996 Compared with Nine Months Ended October 31,
1995
Total revenues decreased by $255,353, or 13.3%, to $1,659,671 for the nine
months ended October 31, 1996 from $1,915,024 for the nine months ended October
31, 1995. Software and services revenues decreased by $188,460, or 11.6%, to
$1,429,876 for the nine months ended October 31, 1996 from $1,618,336 for the
nine months ended October 31, 1995 due to a decrease in UNIX software sales of
$117,131 and a decrease in net EDI revenues of $32,333. The method by which EDI
revenues and costs are recorded was changed from a gross amount to a net amount
during the year ended January 31, 1996. As a result, EDI revenues are shown at a
net amount of $260,349 for the nine months ended October 31, 1996 compared to
$292,682 for the nine months ended October 31, 1995. The overall EDI transaction
volume increased by 136,339 transactions, or 19.8%, to 824,650 for the nine
months ended October 31, 1996 from 688,311 transactions for the nine months
ended October 31, 1995.
Cost of sales decreased by $135,024, or 31.1%, to $299,075 for the nine
months ended October 31, 1996 from $434,099 for the nine months ended October
31, 1995. As a percentage of revenue, cost of sales decreased to 18.0% for the
nine months ended October 31, 1996 from 22.7% for the comparable nine month
period ended October 31, 1995. This decrease in cost of sales as a percentage of
total revenues reflects a change in product mix whereby revenues associated with
UNIX hardware sales decreased to 8.5% for the nine months ended October 31, 1996
from 15.3% for the nine months ended October 31, 1995.
Salaries and operating expenses increased by $82,452, or 5.5%, to
$1,573,936 for the nine months ended October 31, 1996 from $1,491,483 for the
nine months ended October 31, 1995. This increase was due to an increase in
contract labor, as AMC identified specific tasks to be performed by outside
contractors for training and installation services, and additional overhead
associated with opening a second office for purposes of implementing its
acquisition strategy.
As a result of the foregoing factors, AMC had a loss from operations of
$268,229 for the nine months ended October 31, 1996, as compared to a loss of
$92,211 for the nine months ended October 31, 1995. Year Ended January 31,
1996 Compared with Year Ended January 31, 1995
Total sales decreased by $1,072,825, or 30.8%, to $2,412,734 for the year
ended January 31, 1996 from $3,485,559 for the year ended January 31, 1995.
Software and services revenues decreased by $839,468, or 29.3%, to $2,026,114
for the year ended January 31, 1996 from $2,865,582 for the year ended January
31, 1995. Several factors contributed to this decrease. UNIX maintenance
decreased by $262,387, or 24.6%, to $805,321 for the year ended January 31, 1996
from $1,067,708 for the year ended January 31, 1995, due to the change in
billing methods associated with the outsourcing of hardware maintenance
services. Sales of DOS-based practice management software products and
maintenance decreased by $236,670, or 30.2%, to $546,134 for the year ended
January 31, 1996 from $782,804 for the year ended January 31, 1995. This
decrease was related to AMC's shift to direct marketing, rather than marketing
through third-party distributors. The method by which EDI revenues and costs are
recorded was changed from a gross amount to a net amount during the year ended
January 31, 1996. As a result, EDI revenues are shown at a net amount of
$372,516 for the year ended January 31, 1996, a decrease of $219,384, or 37.9%,
from $591,900 for the year ended
32
35
January 31, 1995. Hardware sales decreased by $233,357, or 37.6%, to $386,620
for the year ended January 31, 1996 from $619,977 for the year ended January 31,
1995, primarily due to a decrease in UNIX hardware sales.
Cost of sales decreased by $599,884, or 53.8%, to $515,842 for the year
ended January 31, 1996 from $1,115,726 for the year ended January 31, 1995. As a
percentage of sales, cost of sales decreased to 21.3% for the year ended January
31, 1996 from 32.0% for the year ended January 31, 1995. This decrease in cost
of sales as a percentage of sales reflects a reduction in cost of sales
resulting from the change in EDI billing and a change in product mix whereby
revenues associated with UNIX hardware sales decreased to 14.3% for the year
ended January 31, 1996 from 15.6% for the year ended January 31, 1995.
Salaries and operating expense decreased by $830,616, or 29.2%, to
$2,017,389 for the year ended January 31, 1996 from $2,848,005 for the year
ended January 31, 1995. This decrease was due to operational efficiencies,
including the outsourcing of hardware support, and EDI billing and collections.
The decrease was also due to salary and benefit reductions of $384,517
associated with the reduction in total personnel.
As a result of the foregoing factors, the operating loss decreased to
$232,811 for the year ended January 31, 1996 from $1,041,862 for the year ended
January 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended January 31, 1996, cash provided by operating activities
totalled $15,415, cash used for investing activities totalled $10,976 and cash
provided by financing activities totalled $240,575. Cash provided by financing
activities resulted from long-term debt and a note payable. Other than advances
available from certain officers and stockholders, AMC had no available line of
credit or financing source. For the nine months ended October 31, 1996, cash
used for operating activities totalled $637,655, cash used for investing
activities totalled $142,796 and cash provided by financing activities totalled
$713,765. Cash provided by financing activities resulted from issuance of common
stock.
As of January 31, 1996, AMC had an accumulated deficit of $3,504,880 and a
working capital deficiency of $1,200,963. As of October 31, 1996, AMC had an
accumulated deficit of $3,830,356 and a working capital deficit of $986,509.
33
36
SELECTED FINANCIAL DATA OF DR SOFTWARE
The following selected financial data present certain data for DR Software
for the year ended December 31, 1995 and the nine months ended September 30,
1996 and 1995. The selected financial data presented for DR Software should be
read in conjunction with its audited financial statements and notes thereto
included elsewhere in this document.
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues:
System sales........................................ $2,192,378 $1,448,071 $1,633,672
Support and services................................ 1,211,916 1,049,526 870,869
---------- ---------- ----------
Total revenues................................. 3,404,294 2,497,597 2,504,541
---------- ---------- ----------
Operating expenses:
Salaries and wages.................................. 1,419,195 1,058,526 1,048,322
Hardware purchase for resale........................ 1,073,920 584,264 792,980
Depreciation and amortization....................... 292,641 235,968 218,917
Rent................................................ 231,041 237,240 168,248
Travel and entertainment............................ 187,223 155,124 113,540
Telephone........................................... 120,290 97,693 91,496
Advertising......................................... 82,813 92,273 71,531
Other............................................... 10,056 91,169 6,238
---------- ---------- ----------
Total operating expenses....................... 3,417,179 2,552,257 2,511,272
---------- ---------- ----------
Operating income (loss)................................ (12,885) (54,660) (6,731)
Interest expense....................................... (11,139) (9,144) (8,176)
Miscellaneous income................................... 11,747 20,545 619
---------- ---------- ----------
Net (loss) income...................................... $ (12,277) $ (43,239) $ (14,288)
========== ========== ==========
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 169,834 $ 26,925
Working capital........................................... (607,260) (772,648)
Total assets.............................................. 1,249,415 1,232,049
Short-term debt........................................... 4,913 8,525
Long-term debt, less current portion...................... 15,227 20,864
Total stockholders' equity................................ 22,094 (36,165)
34
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF DR SOFTWARE
GENERAL
DR Software was founded in 1983 and is headquartered in Atlanta, Georgia.
DR Software develops, markets and services practice management systems for use
by health care providers in the podiatry market. DR Software's total revenues
are derived primarily from the delivery of systems and software sales and
maintenance and support services. Systems and software sales include revenue
from new systems, hardware, training and other services provided during a
customer installation as well as upgrades to existing customers. Maintenance and
support service revenues are generated by providing customers with training,
updates, enhancements and telephone support.
DR Software recognizes systems revenue in accordance with the provisions of
the AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
provided ratably over the contract period, which is typically billed monthly,
quarterly or annually. Revenue from other services is recognized as the services
are provided.
Selling, general and administrative expense consists primarily of
marketing, advertising, administrative, research, software development and other
overhead costs.
DR Software has approximately 2,200 clients serving an estimated 3,150
health care providers.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Total revenues decreased by $6,944, or 0.28%, to $2,497,597 for the nine
months ended September 30, 1996 from $2,504,541 for the nine months ended
September 30, 1995. System sales decreased by $185,601, or 11.36%, to $1,448,071
for the nine months ended September 30, 1996 from $1,633,672 for the nine months
ended September 30, 1995. This decrease was due to fewer system installations
and hardware sales. Support and services sales increased by $178,657, or 20.51%,
to $1,049,526 for the nine months ended September 30, 1996 from $870,869 for the
nine months ended September 30, 1995. This increase was due to increased support
contracts, and support contract pricing.
Hardware purchased for resale decreased by $208,716, or 26.32%, to $584,264
for the nine months ended September 30, 1996 from $792,980 for the nine months
ended September 30, 1995. This decrease was due to a reduction in hardware sales
and installations.
Rent expense increased by $68,992, or 41.01%, to $237,240 for the nine
months ended September 30, 1996 from $168,248 for the nine months ended
September 30, 1995. This increase was due to increased lease rates at DR
Software's relocated offices.
Travel and entertainment expenses increased by $41,584, or 36.62%, to
$155,124 for the nine months ended September 30, 1996 from $113,540 for the nine
months ended September 30, 1995. This increase was due to increased attendance
at trade shows and other presentations.
Advertising expenses increased by $20,742, or 29.00%, to $92,273 for the
nine months ended September 30, 1996 from $71,531 for the nine months ended
September 30, 1995. This increase was due to a growth in product advertising and
marketing costs to new and existing customers.
As a result of the foregoing factors, DR Software had a loss from
operations of $54,640 for the nine months ended September 30, 1996, as compared
to a loss of $6,731 for the nine months ended September 30, 1995.
35
38
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, cash provided by operating
activities totaled $141,576, cash used for investing activities totaled $334,336
and cash provided by financing activities totaled $49,851. DR Software invested
$271,289 in capitalized software development costs. DR Software obtained $70,000
from a bank line of credit.
As of September 30, 1996, DR Software had an accumulated deficit of $86,165
and a working capital deficiency of $772,648.
36
39
SELECTED FINANCIAL DATA OF HEALTHCARE INFORMATION SYSTEMS
The following selected financial data present certain data for HIS for the
year ended December 31, 1995 and the nine months ended September 30, 1996 and
1995. The selected financial data presented for HIS should be read in
conjunction with its audited financial statements and notes thereto included
elsewhere in this document.
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------------
1995 1996 1995
------------ ------------ ------------
(UNAUDITED)
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and software sales................................ $1,097,925 $ 925,091 $ 793,307
Maintenance and support services.......................... 956,353 847,743 693,391
Other..................................................... 407,189 290,744 277,887
---------- ---------- ----------
Total revenues.................................. 2,461,467 2,063,578 1,764,585
Cost of sales............................................. 861,659 732,968 627,189
---------- ---------- ----------
Gross profit.............................................. 1,599,808 1,330,610 1,137,396
Operating expenses:
Selling, general and administrative expenses.............. 1,679,558 1,245,054 1,261,572
---------- ---------- ----------
Total operating expenses........................ 1,679,558 1,245,054 1,261,572
---------- ---------- ----------
Operating income (loss)................................... (79,750) 85,556 (124,176)
Other income.............................................. 21,907 12,467 10,684
---------- ---------- ----------
Income (loss) before taxes................................ (57,843) 98,023 (113,492)
Income taxes (benefit).................................... (16,500) 42,000 (44,000)
---------- ---------- ----------
Net (loss) income......................................... $ (41,343) $ 56,023 $ (69,492)
========== ========== ==========
AS OF DECEMBER 31, 1995 AS OF SEPTEMBER 30, 1996
----------------------- ------------------------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................ 53,568 219,980
Working capital...................................... 129,404 222,735
Total assets......................................... 632,843 681,658
Short-term debt...................................... -- --
Long-term debt, less current portion................. -- --
Total stockholders' equity........................... 211,527 275,550
37
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HEALTHCARE INFORMATION SYSTEMS
GENERAL
Healthcare Information Systems ("HIS") was founded in 1984 and is
headquartered in Kansas City, Missouri. HIS develops, markets and services
practice management systems for use by health care providers. HIS's total
revenues are derived primarily from the delivery of systems and software sales
and maintenance and support services. Systems and software sales include revenue
from new systems, hardware, training and other services provided during a
customer installation as well as upgrades to existing customers. Maintenance and
support service revenues are generated by providing customers with training,
updates, enhancements and telephone support.
HIS recognizes systems revenue in accordance with the provisions of the
AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
provided ratably over the contract period, which is typically billed monthly,
quarterly or annually. Revenue from other services is recognized as the services
are provided.
Selling, general and administrative expense consists primarily of
marketing, advertising, administrative, research, software development and other
overhead costs.
HIS has an installed customer base of approximately 600 clients serving an
estimated 1,400 health care providers.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Total revenues increased by $298,993, or 16.94%, to $2,063,578 for the nine
months ended September 30, 1996 from $1,764,585 for the nine months ended
September 30, 1995. This increase was due to an increase in system sales and
installations, as well as continued growth in customer support revenues, and
electronic transaction services.
Cost of sales increased by $105,779, or 16.87%, to $732,968 for the nine
months ended September 30, 1996 from $627,189 for the nine months ended
September 30, 1995. As a percentage of revenue, cost of sales remained steady at
35.51% for the nine months ended September 30, 1996, down slightly from 35.54%
for the comparable nine month period ended September 30, 1995. This steady
percentage reflects the stable and consistent business operations and product
margins.
Selling, general and administrative expenses decreased by $16,518, or
1.31%, to $1,245,054 for the nine months ended September 30, 1996 from
$1,261,572 for the nine months ended September 30, 1995.
As a result of the foregoing factors, HIS had income from operations of
$85,556 for the nine months ended September 30, 1996, as compared to a loss of
$124,176 for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, cash provided by operating
activities totaled $165,104, cash used for investing activities totaled $6,692
and cash provided by financing activities totaled $8,000.
As of September 30, 1996, HIS had retained earnings of $259,893 and working
capital of $222,735.
38
41
SELECTED FINANCIAL DATA OF ROVAK
The following selected financial data present certain data for Rovak for
the year ended December 31, 1995 and the nine months ended September 30, 1996
and 1995. The selected financial data presented for Rovak should be read in
conjunction with its audited financial statements and notes thereto included
elsewhere in this document.
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1995 1996 1995
------------ --------- -----------
(UNAUDITED)
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and software sales.............................. 2,455,398 2,091,719 1,649,320
Maintenance and support services........................ 742,740 1,024,046 589,173
Other................................................... 603,734 547,864 439,334
--------- --------- ---------
Total revenues.......................................... 3,801,872 3,663,629 2,677,827
Cost of sales........................................... 1,811,047 1,725,422 1,243,628
--------- --------- ---------
Gross profit............................................ 1,990,825 1,938,207 1,434,199
--------- --------- ---------
Operating expenses:
Personnel costs......................................... 1,257,191 994,000 766,710
Selling, general and administrative expenses............ 509,612 515,492 574,757
Research and development................................ 297,834 172,876 131,764
Depreciation and amortization........................... 68,341 52,508 26,228
--------- --------- ---------
Total operating expenses................................ 2,132,978 1,734,876 1,499,459
--------- --------- ---------
Operating income (loss)................................. (142,153) 203,331 (65,260)
Interest expense........................................ 127,933 98,814 99,700
--------- --------- ---------
Income (loss) before taxes.............................. (270,086) 104,517 (164,960)
Income taxes (benefit).................................. (99,000) 46,000 (65,000)
--------- --------- ---------
Net (loss) income....................................... (171,086) 58,517 (99,960)
========= ========= =========
AS OF DECEMBER 31, 1995 AS OF SEPTEMBER 30, 1996
----------------------- ------------------------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents.......................... -- --
Working capital.................................... 24,748 (218,230)
Total assets....................................... 1,315,915 1,585,701
Short-term debt.................................... 213,399 226,013
Long-term debt, less current portion............... 666,574 523,954
Total stockholders' equity......................... (226,595) (168,078)
39
42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ROVAK
GENERAL
Rovak was founded in 1984 and is headquartered in St. Elmo, Minnesota.
Rovak develops, markets and services practice management systems for use by
health care providers in the oral surgery and orthodontist market. Rovak's total
revenues are derived primarily from the delivery of systems and software sales
and maintenance and support services. Systems and software sales include revenue
from new systems, hardware, training and other services provided during a
customer installation as well as upgrades to existing customers. Maintenance and
support service revenues are generated by providing customers with training,
updates, enhancements and telephone support.
Rovak recognizes systems revenue in accordance with the provisions of the
AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
provided ratably over the contract period, which is typically billed monthly,
quarterly or annually. Revenue from other services is recognized as the services
are provided.
Selling, general and administrative expense consists primarily of
marketing, advertising, administrative, research, software development and other
overhead costs.
Rovak has approximately 1,000 clients serving an estimated 1,800 health
care providers.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Total revenues increased by $985,802, or 36.81%, to $3,663,629 for the nine
months ended September 30, 1996 from $2,677,827 for the nine months ended
September 30, 1995. This increase was due to increased sales of products in the
local market. Systems and software sales revenue increased by $442,399, or
26.82%, to $2,091,719 for the nine months ended September 30, 1996 from
$1,649,320 for the nine months ended September 30, 1995. This increase was due
to the introduction of a new product line. Maintenance and support services
increased by $434,873, or 73.81%, to $1,024,046 for the nine months ended
September 30, 1996 from $589,173 for the nine months ended September 30, 1995.
This increase was due to increased service options provided to customers and to
enhance the service billing system. Other revenue increased $108,530, or 24.70%,
to $547,864 for the nine months ended September 30, 1996 from $439,334 for the
nine months ended September 30, 1995. This increase was due to increased sales
of forms and forms-related products and services.
Cost of sales increased by $481,794, or 38.74%, to $1,725,422 for the nine
months ended September 30, 1996 from $1,243,628 for the nine months ended
September 30, 1995. As a percentage of revenue, cost of sales increased to
47.09% for the nine months ended September 30, 1996 from 46.44% for the
comparable nine month period ended September 30, 1995. This increase in cost of
sales as a percentage of total revenues reflects the increased cost of hardware
sales, which represent a slightly lower profit margin.
Personnel costs increased by $227,290, or 29.64%, to $994,000 for the nine
months ended September 30, 1996 from $766,710 for the nine months ended
September 30, 1995. This increase was due to increased personnel in customer
support and the sales force.
Other selling, general and administrative expenses decreased by $59,265, or
10.31%, to $515,492 for the nine months ended September 30, 1996 from $574,757
for the nine months ended September 30, 1995. This decrease was due to an
increased focus on controlling expenses.
Research and development expenses increased by $41,112, or 31.20%, to
$172,876 for the nine months ended September 30, 1996 from $131,764 for the nine
months ended September 30, 1995. This increase was due to increased development
of new products for the market place.
40
43
Depreciation and amortization expenses increased by $26,280, or 100.20%, to
$52,508 for the nine months ended September 30, 1996 from $26,228 for the nine
months ended September 30, 1995. This increase/decrease was due to a change in
information technology tools used within Rovak.
As a result of the foregoing factors, Rovak had income from operations of
$203,331 for the nine months ended September 30, 1996, as compared to a loss of
$65,260 for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, cash provided by operating
activities totaled $69,003, cash used for investing activities totaled $78,155
and cash provided by financing activities totaled $9,152.
As of September 30, 1996, Rovak had an accumulated deficit of $325,997 and
a working capital deficiency of $218,230.
41
44
BUSINESS
The Company is a leading provider of practice management software products
and related services that address the growing needs of health care providers to
manage and communicate cost-effectively administrative, clinical and financial
data. The Company's practice management systems are used primarily by small to
mid-size medical practices, including multi-provider management services
organizations and independent physician alliances. Recently, the Company
developed and introduced an all-payor-based electronic data interchange ("EDI")
system to enable its customers to realize significant cost savings by replacing
paper-based transactions with electronic transaction processing. The Company has
an installed customer base of approximately 17,500 health care providers in a
broad range of specialties at over 6,000 client sites.
InfoCure has entered into agreements to acquire, concurrently with the
consummation of the Offering, the seven Founding Businesses. The integration of
these businesses will combine existing and proven products, research and
development, sales, marketing and support efforts. Following consummation of the
Acquisitions, the Founding Businesses will be consolidated into three operating
divisions, according to technical platform, thereby allowing the Company to
market and service cost-effectively its practice management systems to a wide
range of health care providers.
The Company's existing customer base comprises primarily office-based
health care practices that range in size from single practitioners to up to
several hundred providers with an emphasis on small and mid-size (up to 25
providers) health care practices. Based on industry sources, 60% of the
physicians in the United States are organized into approximately 190,000
office-based medical practices. Nearly all of these practices are small to
mid-size; there are fewer than 1,000 office-based medical practices in the
United States with more than 25 providers. Small and mid-size health care
practices are significantly under-penetrated with regard to practice management
software and EDI transaction processing. For example, while it is estimated that
the majority of hospitals submit their claims electronically, among small and
mid-size medical practices only approximately 35% submit claims electronically.
INDUSTRY BACKGROUND
Health care costs totalled approximately $1.0 trillion in 1995, having
risen at a rate approximately twice that of inflation during the last decade.
The escalation of such expenditures has led to pressure to contain costs and
attempts to shift the financial risk of delivering health care from payors to
providers. Many providers now participate in complex reimbursement arrangements,
resulting in multiple transactions, information exchanges and other
communications with payors per patient visit. As a result of these trends,
health care providers increasingly need to reduce operating costs, improve cash
flow and manage their businesses more efficiently while responding to the
increased administrative burdens and informational demands placed upon them by
payors. The Company's practice management systems address the efficiencies and
cost savings demanded by health care providers.
The Company believes that increased utilization of information
technologies, including EDI, can provide cost savings to providers and payors,
and to the health care system as a whole. Both payors and providers benefit from
reduced overhead as a result of the administrative simplification provided by
the direct electronic interchange of data traditionally handled manually (i.e.,
eligibility verification and claim status inquiries). In addition, payors are
able to detect fraud more easily and screen for unusual utilization trends. By
processing claims electronically, all providers, but especially office-based
providers, can reduce staff time and help meet the challenges of health care
cost containment initiatives. Providers also benefit from improved accounts
receivable turnover as a result of EDI.
The Company believes that the foregoing trends in the health care industry
will encourage greater consolidation within the practice management software
business, as many of the smaller practice management software companies find it
difficult to address the needs of providers in this rapidly changing
environment. Historically, sellers of health care information systems to
office-based health care providers have been focused either regionally or by
specialty. Due to the fragmented nature of practice management systems
suppliers, the Company believes that opportunities exist to increase its market
share of installed customers through acquisitions of complementary businesses,
products and services.
42
45
BUSINESS STRATEGY
The Company believes that it is well-positioned to take advantage of the
increased technology needs of the health care industry particularly among
smaller health care providers. As the supplier of the core practice management
system adopted by its customers, the Company has established its technology in
many customer sites, which, it believes, will yield significant growth
opportunities and competitive advantages.
The Company's primary growth strategies are to:
- Accelerate the Integration of EDI Services. The Company believes that
EDI services address the needs of patients, physicians and third-party
payors to increase efficiency and reduce overall costs while providing
the Company with a potential recurring revenue source. The Company
intends to introduce new EDI services in 1997 which will include
electronic eligibility and referral authorization, precertification,
claims status, encounter and payment approval. The Company intends to
promote the use of EDI services, primarily among the smaller practices
that constitute the core of the Company's existing customer base.
- Expand Through Strategic Acquisitions. The Company intends to acquire
companies that (i) have an established base of customers using practice
management software, (ii) own either key technologies or distribution
networks that complement existing products or (iii) provide the Company
with the opportunity for market leadership within specialty niches.
- Leverage its Customer Base. The Company's wide range of products and
services provides its sales force with opportunities to cross-sell
among its operating divisions. The Company intends to generate revenues
from existing customers by providing (i) system maintenance and
services, (ii) system upgrades, (iii) additional software applications
and (iv) EDI services. To generate new sales opportunities, the Company
will continue to devote significant resources to developing and
maintaining relationships with its existing customers and practice
management consultants. The Company also will continue to transition
its customers gradually to newer technologies in order to protect their
system investments and minimize operational disruption.
- Expand its National Sales Efforts. The Company intends to expand its
direct sales efforts to market its products and services to a greater
number of health care providers. The Company believes that it can
increase its sales effectiveness and can better address the needs of
small, mid-size and large practices as a result of its organization
into three operating divisions. See "-- Sales and Marketing."
- Continue to Develop and Provide Sophisticated Practice Management
Software Products. In order to serve its customers' needs, the Company
will continue to make available innovative products and develop and
enhance its core practice management applications. In addition, where
appropriate, the Company will integrate software products developed by
third parties into its practice management systems.
- Capitalize on the Combination of Founding Businesses. The Company
believes that the combination of the Founding Businesses provides
unique opportunities for (i) the coordination of product research and
development, sales and marketing, (ii) the reduction of redundant
expenses and operations and (iii) the maximization of the experience of
the assembled management team.
PRODUCTS AND SERVICES
EDI Services
The Company has developed software allowing it to offer transaction-based
EDI services, including patient billing and insurance claims submission. The
Company believes that these services address the needs of patients, physicians
and third-party payors to increase efficiencies and reduce overall costs and
that EDI services present the Company with a new recurring revenue source. The
Company provides EDI services on a transaction-based or fixed fee basis. The
Company estimates that over 240 million potential annual recurring
43
46
transactions are now being generated via non-electronic methods by its base of
installed customers. The Company's current EDI services include:
Electronic Claims Submission.................... Submits insurance claims electronically
from practices to an independent national
clearinghouse which forwards, either
electronically or on paper, to the
appropriate payors for payment.
Electronic Patient Billing...................... Submits patient billing information
electronically from practices to an
independent national clearinghouse which
processes, prints and mails bills and
provides billing reports to the practice.
Electronic Claims Remittance.................... Remits insurance payment from payor via
electronic payment which automatically
posts explanation of benefits into the
practice management system.
The Company intends to introduce a suite of additional EDI services in
1997. These additional EDI services will include electronic eligibility and
referral authorization, precertification, claims status, encounter and payment
approval.
In January 1996, the Company entered into a marketing and sales agreement
with Envoy Corporation for the electronic processing of health care insurance
claims. The Company believes that an alliance with a major clearinghouse is
central to its EDI strategy.
Core Software Products
All of the practice management software products offered by the Company
provide physicians and other professionals with comprehensive office management
software designed to automate the administrative, financial, practice management
and clinical requirements of a professional's office practice. These systems
range in capacity from one to hundreds of users, allowing the company to address
the needs of both small and large customers. The Company believes that its
practice management products meet the information requirements of the vast
majority of all medical specialties and office-based practices in the United
States by providing the following applications:
FINANCIAL APPLICATIONS
Patient Billing................................. Prepares patient statements. Accommodates
family billing or individual patient
billing and open item billing.
Patient Records................................. Maintains patient demographic, insurance,
financial, referral, diagnosis and other
user defined records.
Insurance Processing............................ Processes and prints claims. Coordinates
benefits when multiple insurance carriers
are involved. Tracks aging and payments of
all claims.
Refund Processing............................... Prints refund checks for all credit
balances and posts adjusting entries to
patient accounts.
Collection...................................... Enhances the effectiveness of collection
procedures. Standardizes in-house
collection process, tracks collection
results and integrates a series of
delinquency correspondence.
44
47
ADMINISTRATIVE APPLICATIONS
Patient Communication........................... Integrates word processor with database to
allow user to create form letters and other
types of repetitive correspondence.
Appointment Scheduling.......................... Automates appointment scheduling. Provides
on line patient appointment inquiry,
cancellation history, balance inquiry,
credit alerts and patient notes.
Referral Analysis............................... Tracks and analyzes all referral sources,
both statistically and financially.
Categorizes referrals by specialty and
volume.
PRACTICE MANAGEMENT APPLICATIONS
Management Reporting............................ Generates reports including aged accounts
receivable, insurance claims analysis and
aging, physician financial analysis, audit
report, receipts analysis, service
analysis, financial and procedure analysis
and revenue categories.
Report Generator................................ Creates custom reports from practice
management database with ability to store
report formats in a library format.
Graphic Analysis................................ Produces graphs displaying practice
management information and allows formats
to be stored in a library format.
Managed Care Analysis........................... Tracks managed care plans and analyzes them
for profitability to help the practice
manage plan participation.
CLINICAL APPLICATIONS
Patient Medical History......................... Stores and allows retrieval of patient
medical history such as allergies, current
and past diagnoses, procedures with
analysis by gender and age categories.
Patient Treatment Planning...................... Allows automated treatment planning and
tracking.
Hospital Link................................... Permits user's computer to emulate a
terminal connected to hospital system in
order to extract hospital data.
The Company's core product offerings and services include software,
hardware, installation and training. The prices of the Company's products depend
upon a number of factors, including number of providers, number of system users
and technical platform, and range from $1,500 to over $500,000. Each customer
typically contracts with the Company for maintenance services, with annual fees
ranging from $360 to $40,000. Maintenance contracts are renewable annually.
45
48
Add-On Software Modules
Recently the Company has developed and introduced new information modules
to address certain specific needs of health care practices. These modules can be
integrated with the Company's practice management software products to enhance
their capabilities, which include:
Voice Automated Medical Records................. Designed to give physicians the power to
dictate directly to the computer and to
create accurate medical reports in seconds.
Digital Record Keeping(TM)...................... Enables a practice to store and merge
radiographic and photographic images with
correspondence and clinical medical
records.
Optical Mark System(R).......................... Uses optical scanner technology to automate
daily tasks and eliminate data entry.
Laboratory Interface............................ Interfaces with outside medical
laboratories to automate independent
laboratory test requisition and results
reporting processes.
Distributive Processing......................... Developed for multi-site health care
facilities that seek to operate the "back
office" from a centralized facility.
Advanced Analytical Software Products........... Created for use by the professional
business manager or managing physician to
provide a "top down" view of the practice,
identifying financial, payor, patient,
clinical, system and EDI utilization,
practice demographic and practice
profitability trends.
PRODUCT RESEARCH AND DEVELOPMENT
The Company believes that the health care information system industry is in
a technological transition from older, more structured data base system designs
to products designed to take advantage of (i) newer programming techniques, (ii)
greater processing capability, (iii) increases in data storage, compression and
retrieval capacity, (iv) faster communications, (v) graphical interfaces, (vi)
optical input and digital output and (vii) broad based client server
architecture. The Company is developing a new core practice management product
scheduled for release in 1997 that utilizes the client server architecture
programmed in a rapid development language applying relational data base and
object oriented technology. The product will incorporate a comprehensive suite
of EDI services that are fully integrated with the core practice management
system, as well as complying with open data base connectivity (ODBC) standards.
The Company intends to continue to invest in product development and to
emphasize Windows-based products, software improvements and enhancements to its
EDI programs. Also, the Company intends to expand its voice activation and other
technologies, such as imaging and scanning. See "Risk Factors--Product
Development."
As of October 31, 1996, the Company had 52 employees responsible for
product development and technical services.
46
49
SALES AND MARKETING
The Company markets its products to its existing customers via a dedicated
sales force who promote and sell system upgrades, maintenance services,
peripherals, add-on software products and EDI services. The Company believes
that the decision making process of providers to purchase practice management
systems is often influenced by the recommendations of other providers, practice
management consultants and payors. Therefore, the Company intends to target
consultants and payors for sales opportunities. In addition, the Company targets
markets through industry seminars, trade shows, direct telephone and mail
campaigns and advertisements in various publications. The Company markets its
products nationally to new customers through a direct sales force consisting of
34 sales representatives located in: Atlanta, Georgia; Kansas City, Missouri;
St. Elmo, Minnesota and Los Angeles, California.
The Company believes that the nature, scope and structure of the purchasers
of health care information systems technology are changing. To address the
complex needs of larger potential customers, the Company is forming an executive
sales group, which will be directed by the Vice President of Sales. Senior
divisional and corporate management also will assist in the sales and marketing
to larger and more technically advanced potential customers.
The Company believes that its fundamental strength lies in its diverse base
of installed customers, which will require more of the Company's products and
services as a result of the impact of managed care on health care providers. It
is a primary focus of the Company to direct a substantial portion of its sales
and marketing efforts to cross-selling its existing customer base for the
introduction of new software products, maintenance and support services and EDI
services.
CUSTOMER SUPPORT AND SERVICES
The Company offers software maintenance and support, enhancements, training
and, to a limited extent, custom development services to its customers. The
Company generally provides a limited warranty of 90 days or less with its
software products. Thereafter, maintenance and support services are available
for an additional charge. Maintenance and support services include telephone
support, maintenance updates, new releases which operate on new operating
systems and/or contain additional features and functions.
The Company believes that support is critical to the successful
installation and on-going operation of its practice management systems, and it
has dedicated substantial resources to customer support. As of October 31, 1996,
the Company had 102 full-time employees engaged in customer services. The
Company offers several toll free support lines staffed by experienced personnel
who answer general questions about the systems and solve operational
difficulties. Technical and research development staff provide additional
technical expertise to solve more complex issues and questions.
The Company operates eight regional customer training, support, and service
facilities in: Atlanta, Georgia (three facilities); Kansas City, Missouri; St.
Elmo, Minnesota; Los Angeles, California; Charlotte, North Carolina and
Pittsburgh, Pennsylvania. Annual customer meetings are held at various times
during the year, and newsletters are distributed to the Company's customers on a
periodic basis.
CUSTOMERS
The Company has installed more than 6,000 practice management systems,
serving approximately 17,500 health care providers that range in practice size
from one to more than 200 providers in all 50 states. The Company has customers
in all major specialties and subspecialties. No single customer accounted for
more than 3% of revenue during 1995.
COMPETITION
The practice management systems industry is highly competitive. There are
numerous competitors, both regional and national, that market in this fragmented
industry. The Company believes that the primary competitive factors in this
market are service, support and customer satisfaction combined with price,
functionality, user friendliness, ongoing product enhancements and the
reputation and stability of the seller.
47
50
The Company believes that its principal competitive advantages are its
commitment to providing the highest level of service and support, its offerings
of feature-rich products customized to meet its customer's needs and size and
its substantial installed customer base. The Company's principal competitors
include other practice management system companies and local software resellers.
In addition, the Company competes with certain national and regional companies
which provide health care information systems and data processing which provide
computerized billing, insurance processing and record management services to
practices. Among the Company's principal competitors are IDX Systems
Corporation, Medic Computer Systems, Inc., Medical Manager Corporation,
Physician Computer Network, Inc. and Quality Systems, Inc. Certain of the
Company's competitors have greater financial, development, technical, marketing
and sales resources than the Company, although the Company believes that none of
its competitors dominates the overall practice management systems market.
Additionally, as the markets for the Company's products and services develop,
additional competitors may enter those markets and competition may intensify.
See "Risk Factors -- Competition."
PRODUCT PROTECTION
The Company regards its software as proprietary. The Company enters into
written license agreements with its customers which limit the use and copying of
its software. "Shrink wrap" licenses are used in connection with certain end
users sales. The Company relies principally on copyright law and trade secret
protection to protect its proprietary software. The software usually is
furnished in object code only, although source code licenses are granted in a
limited number of situations. The Company has not applied for any patents for
its software and does not believe that patent laws will be a source of
protection of the Company's products. Employees and technical consultants of the
Company are required to execute agreements providing for the confidentiality of
information and the assignment to the Company of proprietary property. See "Risk
Factors--Product Protection."
GOVERNMENT REGULATION
Many aspects of the health care industry presently are subject to extensive
federal and state government regulation. Certain of these laws and regulations
are applicable to the record keeping and reporting requirements. The Company
will continue to modify its products to assist health care providers to comply
with all applicable laws. See "Risk Factors--Uncertainty in Health Care
Industry; Government Regulation."
EMPLOYEES
As of October 31, 1996, the Company employed 230 persons, including 34 in
marketing and sales, 102 in customer support services, 52 in product research
and development and 42 in administration, finance and management. None of the
employees of the Company is represented by a labor union.
FACILITIES
The Company leases nine facilities, having an aggregate of 60,487 square
feet and located in: Atlanta, Georgia (four facilities); Kansas City, Missouri;
St. Elmo, Minnesota; Los Angeles, California; Charlotte, North Carolina and
Pittsburgh, Pennsylvania. Sales, product development and administrative
functions are conducted at each facility. The leases have remaining terms
ranging between one and five years. The Company believes that its facilities are
adequate for its current needs, that suitable additional space will be available
as required and that opportunities exist for the Company to consolidate
operations in a manner that may reduce the Company's facilities requirements and
rental costs.
LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that would have a
material adverse effect on its business, results of operations or financial
condition.
48
51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
NAME AGE POSITION
---- --- --------
Frederick L. Fine.......................... 38 Chairman of the Board, President and Chief
Executive Officer (1)
James K. Price............................. 38 Executive Vice President and Director
Michael E. Warren.......................... 42 Chief Financial Officer and Director
R. Ernest Chastain......................... 47 Vice President -- Sales and Marketing
Donald M. Rogers........................... 38 President, Desktop Division
M. Wayne George............................ 56 President, Enterprise Division
Gregory F. Vap............................. 44 President, Mid-Range Division
James D. Elliot............................ 36 Director (1)(2)
Richard E. Perlman......................... 50 Director (1)(2)
- ---------------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
The directors are elected annually by the stockholders and hold office
until the next annual meeting of stockholders or until their respective
successors are duly elected and qualified or until their earlier resignation or
removal.
The business experience, principal occupation and employment, as well as
the periods of service of each of the directors and executive officers of the
Company during at least the last five years are set forth below:
Frederick L. Fine is a founder of the Company. Mr. Fine has served as
president of AMC since 1995 and as president of ICS since 1994. From 1993 to
1995, Mr. Fine served as executive vice president of AMC, and from 1985 to 1994
served as executive vice president of ICS, which he co-founded in 1985. From
1991 to 1993, Mr. Fine served as vice president of Newport Capital, Inc.
("Newport"), predecessor to AMC. Mr. Fine has served as a director of AMC, ICS
and Newport throughout the terms of his employment by each company. From 1983 to
1985, Mr. Fine was a regional manager with Informatics General Corporation, a
supplier of accounting software and from 1981 to 1983 was a sales representative
with Moore Business Systems, a provider of practice management systems. Mr. Fine
holds an B.S. in Economics from the University of Georgia.
James K. Price is a founder of the Company. Mr. Price has served as
executive vice president of AMC since 1995 and was vice president from 1993 to
1995. Mr. Price co-founded ICS 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.
Mr. Price has served as a director of AMC, ICS and Newport throughout the terms
of his employment by each company. From 1983 to 1985, Mr. Price was health care
sales manager of Executive Business Systems, a practice management systems
supplier, and from 1981 to 1983 was a sales representative with Moore Business
Systems. Mr. Price holds a B.A. in Marketing from the University of Georgia.
Michael E. Warren, since joining AMC in August 1994, has served as its vice
president of operations and as chief financial officer. From 1992 to 1994, Mr.
Warren was director of provider systems at Millennium Healthcare, a supplier of
electronic health care services. From 1986 to 1992, Mr. Warren was director of
the Computer Risk Management Practice in the Southeast of Arthur Andersen, LLP.
From 1983 to 1986, Mr. Warren worked as Manager of Systems Auditing for
NationsBank, and from 1980 to 1983 was an accountant with Coopers & Lybrand,
LLP. Mr. Warren holds a Masters in Business Information Systems from Georgia
State University and a B.A. in Accounting from the University of Georgia. Mr.
Warren is a CPA, a member of the AICPA and a member of the Georgia Society of
CPAs.
49
52
R. Ernest Chastain joined AMC in November 1996. From 1994 until his
employment by AMC he served as vice president of sales of Quality Systems, Inc.,
a health care practice management company, and from 1993 to 1994, Mr. Chastain
served as vice president of sales for ELCOMP, Inc., a health care practice
management company, and from 1983 to 1986, Mr. Chastain served as regional vice
president for Contel Business Systems, Inc., a supplier of practice management
systems, which was acquired in 1986 by Versyss, Inc., another practice
management system supplier. From 1986 to 1992, Mr. Chastain served as vice
president of sales management for Versyss, Inc. Mr. Chastain holds a B.A. in
Marketing from the University of Georgia.
Donald M. Rogers is a founder of DR Software and has served as its
president since its formation in 1984. From 1983 to 1984, Mr. Rogers was an
account manager at HBO & Company, health care software company, and from 1980 to
1983 was a systems analyst at NCR Corporation, a computer hardware manufacturer.
Mr. Rogers holds a B.S. in Management from the State University of New York at
Buffalo.
M. Wayne George is the founder of Millard-Wayne and has served as its
president and chief executive officer since its formation in 1977. From 1975 to
1977, Mr. George was a principal of Dynamic Control Corp, a hospital information
systems developer. From 1971 to 1975, Mr. George served in sales and marketing
capacities for General Systems Division of IBM. Mr. George holds a B.S. in
Industrial Management from the Georgia Institute of Technology.
Gregory F. Vap is the founder of HIS and has served as its president and
chief executive officer since its formation in 1984. From 1983 to 1984, Mr. Vap
served as Kansas City branch manager for Moore Business Systems. From 1982 to
1983, Mr. Vap served as regional manager for Shasta General Systems, a provider
of vertical market software and turnkey computer systems. Mr. Vap holds a B.S.
degree in electronic engineering technology from the Missouri Institute of
Technology.
James D. Elliott has been executive vice president and general manager of
GE Integrated Technology Solutions ("GE") since August 1996. Prior to his
current employment, 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 an affiliate of GE in July 1996. Mr. Elliott holds a B.S. in
Economics from the University of Georgia.
Richard E. 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.
EXECUTIVE COMPENSATION
InfoCure was incorporated in November 1996 and has not conducted any
operations prior to the Offering; however, the Company anticipates that during
fiscal 1998 annualized base salaries of the chief executive officer and the five
other most highly compensated officers will be as follows: Mr. Fine at $125,000,
Mr. Price at $125,000, Mr. Chastain at $125,000, Mr. Vap at $100,000, Mr. Rogers
at $100,000 and Mr. George at $100,000. No compensation is payable to directors
for services rendered in such capacity.
STOCK OPTIONS
In October 1996, AMC adopted and issued stock options under AMC's 1996
Stock Option Plan (the "AMC Plan"). All stock options outstanding under the AMC
Plan at the time of the consummation of the Offering will be assumed by the
Company; however, no additional stock options under the AMC Plan will be granted
thereafter. In addition, InfoCure's Board of Directors has adopted the InfoCure
Corporation 1996 Stock Option Plan (the "Company's Plan"), subject to
stockholder approval, and intends to grant stock options to certain key
employees thereunder. A maximum of 840,000 shares of Common Stock may be issued
under the Company's Plan.
The Company's Plan and the AMC Plan (collectively, the "Stock Option
Plans") each provide for the granting to key employees of incentive stock
options within the meaning of Section 422 of the Internal
50
53
Revenue Code and for the granting of nonstatutory 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 grant, exercise
price, number of shares subject to the option, the vesting schedule and the form
of consideration payable upon its exercise.
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
option is exercisable during the lifetime of the optionee only by the optionee.
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 the 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 common stock of
the issuer, the exercise price of any incentive stock option granted must equal
at least 110% of the fair market value on the grant date and the maximum term of
the option must not exceed five years. The term of all options granted under the
Stock Option Plans may not exceed ten years. Stock options may be granted within
ten years of the adoption of the Stock Option Plan by the board of directors.
All stock options under the Stock Option Plans granted in 1996 and to be
granted to executive officers upon the consummation of the Acquisitions shall
expire seven years after the date of grant and vest 25% on each anniversary date
of an option grant, thus becoming fully exercisable on the fourth anniversary of
its grant. The board of directors determines the fair market value of the common
stock on the date of grant. If the executive officer's employment is terminated
for any reason, except a change in control, prior to the vesting of the option,
that portion of the option which has not vested shall be terminated. Upon a
change in control of the Company, all options become fully vested.
As of the date of this Prospectus, options to purchase the equivalent of
139,216 shares of Common Stock were outstanding under the AMC Plan at an
equivalent weighted average exercise price of $3.91 per share. No stock options
granted to date to key employees under the AMC Plan will vest before October 1,
1997. It is contemplated that no additional stock options will be granted under
the AMC Plan. To date, no stock options have been granted under the Company's
Plan.
Michael E. Warren, chief financial officer, was granted two non-qualified
stock options upon his employment with AMC in September 1994. One option, for
the equivalent of 32,004 shares of Common Stock for an aggregate consideration
of $500, was exercised in 1996. The other option, for the equivalent of 32,004
shares of Common Stock at an exercise price of $1.56 per share, is exercisable
at any time prior to September 25, 2000. The stock options granted to Mr.
Warren, to the extent not exercised prior to the consummation of the Offering,
will be assumed by the Company. These stock options were not granted under a
stock option plan under which other persons were granted stock options.
The Company intends to file a registration statement covering the shares of
Common Stock which may be acquired under the Stock Option Plans and the option
granted to Michael E. Warren within 180 days from the date of consummation of
the Offering.
EMPLOYMENT AGREEMENTS
The Company will either enter into employment agreements or assume
employment agreements entered into by AMC with all persons who will become
executive officers of the Company upon the consummation of the Offering.
The Company will enter into five-year employment agreements with Frederick
L. Fine and James K. Price. Each agreement will provide for an annual base
salary of $125,000 and a severance payment equal to the then-current annual base
salary rate upon the termination of employment by the Company without cause and
a voluntary termination in the event of a change in control of the Company
following the consummation of the Offering.
Michael E. Warren entered into a three-year employment agreement with AMC
on September 23, 1994. His current annual base salary is $95,000. In addition,
he was granted the two stock options described above. Upon consummation of the
AMC Merger, the Company shall assume the obligations of AMC under this
employment agreement. See "Business -- Stock Options."
51
54
R. Ernest Chastain, upon his employment with AMC in November 1996, entered
into a two-year employment agreement at an annual base salary of $125,000. At
that time he was granted an incentive stock option to acquire the equivalent of
86,410 shares of Common Stock at an exercise price of $3.91 per share. Upon
consummation of the AMC Merger, the Company shall assume the obligations of AMC
under this employment agreement.
The Company will enter into two-year employment agreements with M. Wayne
George, Donald M. Rogers and Gregory F. Vap upon the consummation of the
Acquisitions, each of which will provide an annual base salary of $100,000. In
addition, each agreement will grant the employee a seven-year incentive stock
option with an exercise price equal to the fair market value of the Common Stock
at the time the stock option is granted. The number of shares for which such
stock options will be exercised has not been determined at this time.
Each of the foregoing employment agreements has, or will have, a covenant
that the executive may not compete with the Company for a period of one year
following termination of employment. In addition, certain executive officers,
who are stockholders of a Founding Business, may not compete with such Founding
Business for a period of four years following the consummation of the
Acquisition.
The Company has not adopted a formal bonus plan. However, all executive
officers of the Company are eligible for a bonus depending upon their individual
performance and the performance of the Company to be awarded at the sole
discretion of the Board of Directors.
52
55
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock, after giving effect to the
Acquisitions, by (i) each person who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each named executive officer of the
Company (iii) each director and person who is or will become a director upon the
consummation of the Offering and (iv) all directors and executive officers as a
group. Except as otherwise indicated, each named beneficial owner has sole
voting and investment power with respect to the shares listed.
PERCENTAGE OF OUTSTANDING
AMOUNT AND COMMON STOCK OWNED
NATURE OF ---------------------------
BENEFICIAL BEFORE AFTER
NAME OWNERSHIP(1) OFFERING OFFERING(2)
---- ------------ ------------ ------------
Norson's International, LLC (3)(4)....................... 585,324 16.0% 10.3%
Frederick L. Fine (3)(5)................................. 440,548 12.0 7.8
James K. Price (3)(6).................................... 440,548 12.0 7.8
Robert L. Fine (3)....................................... 337,132 9.2 5.9
William A. Baker (3)..................................... 229,539 6.3 4.0
W. K. Price (3)(7)....................................... 218,059 5.9 3.8
Michael E. Warren........................................ 78,442 2.1 1.4
James D. Elliott......................................... 21,336 * *
Richard E. Perlman (8)................................... 181,348 4.7 3.1
All directors and executive officers as a group (9
persons)............................................... 1,484,966 37.7% 25.0%
- ---------------
* Indicates less than 1%.
(1) Includes shares subject to outstanding options, which options are
exercisable on the date hereof, and includes all shares of Common Stock
beneficially owned by Compass Partners, L.L.C. ("Compass").
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 300,000 shares of Common Stock from certain stockholders. See
"Underwriting." It is contemplated that if the over-allotment option is
exercised in full, Robert L. Fine will sell 136,615 shares, W.K. Price will
sell 88,390 shares and Norson's International, LLC ("Norson's") will sell
74,995 shares of Common Stock. The Company will not receive any proceeds
from the sale of Common Stock by these stockholders.
(3) Frederick L. Fine's and James K. Price's address is 2970 Clairmont Road,
Suite 950, Atlanta, Georgia 30329; Norson's address is 1411 Rouse Lane,
Suite 201, Roswell, Georgia 30076; Robert L. Fine's address is 7675 Fox
Court, Duluth, Georgia 30155; William A. Baker's address is 781 Brentwood
Trail, Atlanta, Georgia 30201 and W. K. Price's address is 3987 Land O'
Lakes Drive, Atlanta, Georgia 30342.
(4) Excludes 30,679 shares of Common Stock and a warrant (which warrant is
exercisable on the date hereof) to acquire 150,669 Equivalent Shares of
Common Stock owned by Compass, of which Norson's has shared dispositive
powers with Richard E. Perlman, a director of the Company. Mr. Sauey is the
principal owner of Norson's.
(5) Includes 3,841 shares of Common Stock owned as custodian for his children
and 1,280 shares of Common Stock held in a charitable trust over which he
has sole voting and investment power.
(6) Includes 3,460 shares of Common Stock over which he has sole voting power.
(7) Includes 6,920 shares of Common Stock over which he has sole voting power.
(8) Includes 30,679 shares and a warrant (which warrant is exercisable on the
date hereof) to acquire 150,669 Equivalent Shares of Common Stock owned by
Compass, in which Mr. Perlman has a majority interest and Mr. Perlman and
Norson's have shared dispositive powers.
CERTAIN TRANSACTIONS
THE ACQUISITIONS
In connection with the Acquisitions, and as consideration for their
ownership interests in the Founding Businesses, certain persons who are, or are
to become, executive officers of the Company upon the consummation of the
Acquisitions or the holders of more than 5% of the outstanding shares of Common
Stock of the Company will receive shares of Common Stock and cash as follows:
Frederick L. Fine, 435,427 shares
53
56
of Common Stock; James K. Price, 437,088 shares of Common Stock; Robert L. Fine,
337,132 shares of Common Stock; William A. Baker, 229,539 shares of Common
Stock; W. K. Price, 218,123 shares of Common Stock; Michael E. Warren, 46,438
shares of Common Stock and an option to acquire 32,004 shares of Common Stock;
Norson's, 585,324 shares of Common Stock; Donald M. Rogers, 80,009 shares of
Common Stock and approximately $1.9 million in cash; M. Wayne George, 50,118
shares of Common Stock and approximately $1.2 million in cash; and Gregory F.
Vap, 106,207 shares of Common Stock and approximately $830,000 in cash. Robert
L. Fine is the father of Frederick L. Fine. W. K. Price is the father of James
K. Price. Pursuant to certain agreements to be entered into in connection with
the Acquisitions, Mssrs. George, Rogers and Vap of the Founding Businesses have
agreed not to compete with the Company for five years, commencing on the date of
consummation of the Offering. See "The Company -- The Acquisitions."
COMPASS
In June 1996, pursuant to a written agreement, AMC engaged Compass to
render financial advisory services in connection with AMC's acquisition program.
Compass received an initial retainer of $15,000 and a monthly retainer of $5,000
per month commencing July 1, 1996, and $10,000 per month from October 1, 1996
through January 31, 1997. As compensation for services, Compass received the
equivalent of 30,679 shares of Common Stock and a warrant exercisable within
five years to purchase the equivalent of 150,669 shares of Common Stock at an
exercise price equal to the AMC stock price as of the date of the agreement
($.98 per equivalent share) subject to the consummation of the Acquisitions. In
addition, pursuant to the agreement, Compass will receive approximately $477,000
upon the consummation of the Acquisitions. Mr. Perlman, a director of the
Company, is the president and founder of Compass and holds a majority equity
interest in Compass.
NORSON'S
In July 1996, AMC sold to Norson's in a private placement the equivalent of
112,513 shares of Common Stock for $50,000, and in November 1996, AMC sold
Norson's the equivalent of 472,811 shares of Common Stock for $750,000. Mr.
Sauey, a director of the Company, holds a 95% equity interest in Norson's.
LOAN BY ROBERT L. FINE
In April 1995, Robert L. Fine loaned AMC $94,500 in exchange for a
promissory note bearing interest at 12% and payable in a balloon payment of
principal and interest in April 1997. The Company intends to repay this loan in
from the proceeds of the Offering.
RELEASE OF STOCKHOLDERS' GUARANTY
In November 1996, AMC, ICS, Robert L. Fine, Frederick L. Fine, W.K. Price,
James K. Price and William A. Baker entered into a termination agreement (the
"Termination Agreement") with MDP Corporation ("MDP") and Jonathan J. Oscher,
pursuant to which, upon consummation of the Offering, Robert L. Fine, Frederick
L. Fine, W.K. Price, James K. Price and William A. Baker will be released from
their obligation to pay a termination fee to MDP if the agreement whereby MDP
agreed to act as an electronic claims processing clearinghouse for ICS is
terminated for certain events. In addition, Robert L. Fine and W.K. Price had
secured such obligation with certain real estate parcels with an approximate
value of $300,000, and the Termination Agreement will release these parcels from
such security upon consummation of the Offering. As of the date of this
Prospectus, the termination fee, if triggered, would total approximately
$265,000. The Termination Agreement shall be null and void if the Offering is
not consummated on or before June 30, 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of InfoCure consists of 50,000,000 shares of
capital stock, consisting of 40,000,000 shares of Common Stock, par value $.001
per share, and 10,000,000 shares of preferred stock, par value $.001 per share
(the "Preferred Stock"). As of December 2, 1996, there were ten shares of Common
Stock of InfoCure outstanding, five shares held of record by each of Frederick
L. Fine and James K. Price. The outstanding shares of Common Stock are, and the
shares to be issued pursuant to the Offering will be,
54
57
fully paid and nonassessable. No shares of Preferred Stock are outstanding or
are to be issued in connection with the Acquisitions.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share held of record
on each matter submitted to a vote of stockholders. The holders of Common Stock
have no cumulative voting rights, no pre-emptive rights and no rights to convert
their shares of Common Stock into any other securities. Because holders of
Common Stock do not have cumulative voting rights, the holders of the majority
of the shares of Common Stock represented at the annual meeting of stockholders
can elect all the directors. Under Delaware law, the affirmative vote of a
majority of the outstanding shares of Common Stock is necessary for certain
corporate actions, including merger or consolidation with another corporation,
sale or other disposition of all or substantially all of the Company's property
and assets and voluntary dissolution of the Company. Delaware law allows the
Company to establish a higher percentage of stockholder approval necessary to
take such corporate action.
Holders of Common Stock are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends. The Company
does not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
Upon dissolution, liquidation or sale of all or substantially all of the
assets of the Company, and after payment in full of all amounts required to be
paid to creditors and liquidation preferences, if any, the holders of the Common
Stock will be entitled to receive pro rata the net assets of the Company
available for distribution.
PREFERRED STOCK
The Board of Directors is authorized by the Company's Certificate of
Incorporation, without any action of the stockholders, to issue one or more
classes and series of Preferred Stock with respect to which the Board of
Directors may determine voting, conversion, redemption and other rights which
could adversely affect the rights of holders of Common Stock. The rights of the
holders of the Common Stock would generally be subject to the prior rights of
the Preferred Stock with respect to dividends, liquidation preferences and other
matters. Among other things, Preferred Stock could be issued by the Company to
raise capital or to finance acquisitions. The issuance of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
of control of the Company. There are no agreements or understandings for the
issuance of Preferred Stock, and the Company has no present plans to issue any
shares of Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3 of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is American Stock
Transfer & Trust, New York, New York.
55
58
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Acquisitions and the Offering, the Company
will have 5,668,510 shares of Common Stock outstanding. In addition, outstanding
stock options and a warrant to acquire 189,874 shares of Common Stock are
immediately exercisable as of the date of this Prospectus. The Company, its
executive officers and directors and certain stockholders who hold an aggregate
of 2,943,784 shares of Common Stock (including 182,673 of the immediately
exercisable stock options and warrants), have agreed with the Underwriters not
to sell or dispose of, directly or indirectly, without the prior written consent
of the Representatives of the Underwriters, any of the remaining Common Stock
held by them for a period of 180 days (the "Lock-Up Period") following the date
the Commission declares effective the IPO Registration Statement and, for a
period of 18 months (or such shorter period as the Commission may prescribe as
the holding period for restricted securities under Rule 144(e) under the
Securities Act (described below)) following expiration of the Lock-Up Period,
not to publicly offer or sell except in accordance with the volume limitations
of Rule 144(e), except that the Company may issue shares of Common Stock in
connection with acquisitions or upon the exercise of stock options. See "Risk
Factors -- Substantial Shares Eligible for Future Sale."
In general, under Rules 144 and 145, a person (or group of persons whose
shares are aggregated) who may be deemed "affiliates" (as defined in Rule 144)
of the Company, will be entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of the Common Stock or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the forwarding of
the notice of proposed sale to the Commission. The sales are also subject to
certain manner of sale limitations, notice requirements and the availability of
current public information about the Company. A person who has not been an
"affiliate" of the Company for the 90 days preceding a sale will be entitled to
sell such shares in the public market without restriction. Securities properly
sold in reliance upon Rules 144 and 145 are thereafter freely tradeable without
restrictions or registration under the Securities Act, unless thereafter held by
an "affiliate" of the Company.
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's Common Stock in the public market could
adversely affect market prices. See "Risk Factors -- Substantial Shares Eligible
for Future Sale."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company and the
Selling Stockholders by Glass, McCullough, Sherrill & Harrold, LLP, 1409
Peachtree Street, N.E., Atlanta, Georgia 30309. Ugo F. Ippolito, a partner of
the firm, owns 2,560 shares of Common Stock.
EXPERTS
The historical financial statements as indicated on pages F-1 and F-2 of
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in its reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
56
59
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act, with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Certain items were omitted in accordance with the rules and regulations of the
Commission. Any interested party may inspect the Registration Statement without
charge at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and may obtain copies of all or any part of it
from the Commission upon payment of the fees prescribed by the Commission.
Statements contained herein which refer to a document as filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to the
copy of such document filed with the Commission.
Following the effectiveness of the Registration Statement, the Company will
be subject to the information requirements of the Securities Exchange Act of
1934, (the "Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy statements and other information regarding the Company at
http://www.sec.gov. AMC has filed reports and other information with the
Commission pursuant to the Exchange Act.
57
60
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INFOCURE CORPORATION AND FOUNDING BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation..................................... F-3
Pro Forma Combined Balance Sheet as of October 31, 1996... F-4
Pro Forma Combined Statement of Operations for the nine
months ended October 31, 1996.......................... F-6
Pro Forma Combined Statement of Operations for the nine
months ended October 31, 1995.......................... F-7
Pro Forma Combined Statement of Operations for the year
ended January 31, 1996................................. F-8
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-9
INFOCURE CORPORATION
Report of Independent Certified Public Accountants........ F-12
Balance Sheet............................................. F-13
Notes to Balance Sheet.................................... F-14
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants........ F-15
Consolidated Balance Sheets............................... F-16
Consolidated Statements of Operations..................... F-17
Consolidated Statements of Stockholder's Equity (Capital
Deficit)............................................... F-18
Consolidated Statements of Cash Flows..................... F-19
Notes to Consolidated Financial Statements................ F-20
KCOMP MANAGEMENT SYSTEMS, INC.
Report of Independent Certified Public Accountants........ F-28
Balance Sheets............................................ F-29
Statements of Operations.................................. F-30
Statements of Stockholders' Equity........................ F-31
Statements of Cash Flows.................................. F-32
Notes to Financial Statements............................. F-33
HEALTHCARE INFORMATION SYSTEMS, INC.
Report of Independent Certified Public Accountants........ F-37
Balance Sheets............................................ F-38
Statements of Operations.................................. F-39
Statements of Stockholders' Equity........................ F-40
Statements of Cash Flows.................................. F-41
Notes to Financial Statements............................. F-42
MILLARD-WAYNE, INC.
Report of Independent Certified Public Accountants........ F-45
Balance Sheets............................................ F-46
Statements of Operations and Retained Earnings............ F-47
Statements of Cash Flows.................................. F-48
Notes to Financial Statements............................. F-49
HEALTH CARE DIVISION (A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA,
INC.)
Report of Independent Certified Public Accountants........ F-53
Balance Sheets............................................ F-54
Statements of Operations.................................. F-55
Statements of Cash Flows.................................. F-56
Notes to Financial Statements............................. F-57
F-1
61
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
PAGE
----
ROVAK, INC.
Report of Independent Certified Public Accountants........ F-63
Balance Sheets............................................ F-64
Statements of Operations and Accumulated Deficit.......... F-65
Statements of Cash Flows.................................. F-66
Notes to Financial Statements............................. F-67
DR SOFTWARE, INC.
Report of Independent Certified Public Accountants........ F-73
Balance Sheets............................................ F-74
Statements of Operations.................................. F-75
Statements of Stockholders' Equity (Deficit).............. F-76
Statements of Cash Flows.................................. F-77
Notes to Financial Statements............................. F-78
F-2
62
INFOCURE CORPORATION AND FOUNDING BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following pro forma combined financial statements give effect to the
acquisition by InfoCure Corporation of seven businesses (the "Founding
Businesses", collectively, the "Company"). The Founding Businesses are (i)
International Computer Solutions, Inc. ("ICS"), a subsidiary of AMC, (ii) Health
Care Division, Inc. ("HCD"), a subsidiary of AMC founded in November 1996 to
acquire the assets of Health Care Division of Info Systems of North Carolina,
Inc., (iii) Millard-Wayne, Inc. ("Millard-Wayne"), (iv) Healthcare Information
Systems, Inc. ("HIS"), (v) DR Software, Inc. ("DR Software"), (vi) KComp
Management Systems, Inc. ("KComp") and (vii) Rovak, Inc. ("Rovak"). The merger
of AMC with and into InfoCure Corporation will occur contemporaneously with the
closing of the Company's initial public offering (the "Offering"). Prior to the
AMC Merger, AMC will have acquired HCD and Millard-Wayne. AMC is considered the
predecessor to the Company and this transaction will be accounted for as a
combination at historical cost for accounting purposes. The remaining
acquisitions will also be treated as occurring simultaneously with the closing
and will be accounted for as purchases at estimated fair value for accounting
purposes.
Inasmuch as AMC is the predecessor to the Company, the Unaudited Pro Forma
Combined Financial Statements are presented on AMC's reporting period. The
Founding Businesses report on a calendar year, except for HCD, which reports on
a June 30 year, and KCOMP, which has a March 31 year-end. The Pro Forma Combined
Balance Sheet as of October 31, 1996 includes the balance sheet of AMC at that
date and the balance sheets of the Founding Businesses as of September 30, 1996.
The Pro Forma Combined Statement of Operations for the nine months ended October
31, 1996 and 1995 and the year ended January 31, 1996 include the statements of
operations for AMC for the respective periods and the statements of operations
for the Founding Businesses as of nine month periods ended September 30, 1996
and 1995 and the year ended December 31, 1995. These statements are based on
historical financial statements of the Founding Businesses included elsewhere in
this Prospectus and the estimates and assumptions set forth below and in the
notes to the Unaudited Pro Forma Combined Financial Statements of the Company.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Acquisitions and the Offering as if they had occurred on October 31, 1996. The
Unaudited Pro Forma Combined Statements of Operations give effect to these
transactions as if they had occurred at the beginning of each period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein do not purport to
represent what the Company's financial position or results of operations would
have actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Company. The
Unaudited Pro Forma Combined Financial Statements should be read in conjunction
with the other financial statements and notes thereto included elsewhere in this
Prospectus. Also see "Risk Factors" included elsewhere in this Prospectus.
F-3
63
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1)
AS OF OCTOBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
DR MILLARD-
AMC SOFTWARE KCOMP HCD ROVAK HIS WAYNE
------- -------- ------ ------ ------ ---- --------
ASSETS:
Current assets:
Cash and cash equivalents........... $ 183 $ 27 $ 28 $ -- $ -- $220 $ 2
Accounts receivable, net............ 198 275 449 529 571 261 287
Inventory........................... -- 100 -- 35 286 124 --
Deferred tax assets................. -- -- -- 48 -- 15 132
Prepaid expenses and other.......... 31 73 6 26 52 9 3
------- ------ ------ ------ ------ ---- ----
Total current assets........ 412 475 483 638 909 629 424
Property and equipment, net........... 45 165 86 67 371 47 127
Capitalized software costs, net....... 36 592 111 130 -- 6 361
Goodwill, net......................... -- -- 425 -- -- -- --
Deferred tax assets................... -- -- -- -- 189 -- --
Other................................. 171 -- -- -- 117 -- 18
------- ------ ------ ------ ------ ---- ----
Total assets................ $ 664 $1,232 $1,105 $ 835 $1,586 $682 $930
======= ====== ====== ====== ====== ==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank............... $ $ 70 $ 50 $ -- $ 186 $ -- $ 76
Other notes payable................. -- -- -- -- -- -- 72
Current portion of long-term debt... 310 8 437 147 226 -- 59
Accounts payable.................... 302 155 213 500 397 115 113
Accrued expenses.................... 379 137 134 52 78 -- 58
Deferred revenue and customer
deposits......................... 406 877 123 546 240 291 313
------- ------ ------ ------ ------ ---- ----
Total current liabilities... 1,397 1,247 957 1,245 1,127 406 691
Deferred income tax liabilities....... -- -- -- 44 -- -- 60
Long term debt, less current
portion............................. 540 21 28 195 627 -- 18
------- ------ ------ ------ ------ ---- ----
Total liabilities........... 1,937 1,268 985 1,484 1,754 406 769
------- ------ ------ ------ ------ ---- ----
Stockholders' equity (deficit):
Common stock........................ 47 50 -- -- 158 1 1
Stock purchase warrant.............. 500 -- -- -- -- -- --
Additional paid-in capital.......... 2,110 -- 4 -- -- 27 42
Divisional equity (deficit)......... -- -- -- (649) -- -- --
(Deficit) retained earnings......... (3,830) (86) 116 -- (326) 260 118
Treasury stock (100) -- -- -- -- (12) --
------- ------ ------ ------ ------ ---- ----
Total stockholders' equity
(deficit)................. (1,273) (36) 120 (649) (168) 276 161
------- ------ ------ ------ ------ ---- ----
Total liabilities and
stockholders' equity
(deficit)................. $ 664 $1,232 $1,105 $ 835 $1,586 $682 $930
======= ====== ====== ====== ====== ==== ====
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-4
64
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1) -- (CONTINUED)
PRO FORMA ADJUSTMENTS TOTAL
------------------------------------------- PRO FORMA
SUBTOTAL A B C D E ADJUSTMENTS TOTAL
-------- -------- ---- ----- ------- ------- ----------- -------
ASSETS:
Current assets:
Cash and cash equivalents....... $ 460 $(10,938) $750 $ -- $(2,375) $17,900 $ 5,337 $ 5,797
Accounts receivable, net........ 2,570 -- -- -- -- -- -- 2,570
Inventory....................... 545 -- -- -- -- -- -- 545
Deferred tax assets............. 195 (48) -- -- -- -- (48) 147
Prepaid expenses and other...... 200 (25) -- -- -- -- (25) 175
------- -------- ---- ----- ------- ------- ------- -------
Total current assets..... 3,970 (11,011) 750 -- (2,375) 17,900 5,264 9,234
Property and equipment, net....... 908 -- -- -- -- -- -- 908
Capitalized software costs, net... 1,236 -- -- -- -- -- -- 1,236
Goodwill, net..................... 425 14,236 -- -- 477 -- 14,713 15,138
Deferred tax assets............... 189 -- -- -- -- -- -- 189
Other............................. 306 -- -- -- -- -- -- 306
------- -------- ---- ----- ------- ------- ------- -------
Total assets............. $ 7,034 $ 3,225 $750 $ -- $(1,898) $17,900 $19,977 $27,011
======= ======== ==== ===== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank........... $ 382 $ -- $ -- $ -- $ (262) $ -- $ (262) $ 120
Other notes payable............. 72 -- -- -- -- -- -- 72
Current portion of long-term
debt.......................... 1,187 (584) -- -- (388) -- (972) 215
Accounts payable................ 1,795 (41) -- -- -- -- (41) 1,754
Accrued expenses................ 838 (40) -- 55 (35) -- (20) 818
Deferred revenue and customer
deposits...................... 2,796 -- -- -- (265) -- (265) 2,531
------- -------- ---- ----- ------- ------- ------- -------
Total current
liabilities............ 7,070 (665) -- 55 (950) -- (1,560) 5,510
Deferred income tax liabilities... 104 (44) -- 160 -- -- 116 220
Long-term debt, less current
portion......................... 1,429 (223) -- -- (898) -- (1,121) 308
------- -------- ---- ----- ------- ------- ------- -------
Total liabilities........ 8,603 (932) -- 215 (1,848) -- (2,565) 6,038
------- -------- ---- ----- ------- ------- ------- -------
Stockholders' equity (deficit):
Common stock.................... 257 (254) 1 -- -- 2 (251) 6
Stock purchase warrant.......... 500 -- -- -- (500) -- (500) --
Additional paid-in capital...... 2,183 3,732 749 -- 450 17,898 22,829 25,012
Divisional equity (deficit)..... (649) 649 -- -- -- -- 649 --
(Deficit) retained earnings..... (3,748) (82) -- (215) -- -- (297) (4,045)
Treasury stock.................. (112) 112 -- -- -- -- 112 --
------- -------- ---- ----- ------- ------- ------- -------
Total stockholders'
equity (deficit)....... (1,569) 4,157 750 (215) (50) 17,900 22,542 20,973
------- -------- ---- ----- ------- ------- ------- -------
Total liabilities and
stockholders' equity
(deficit).............. $ 7,034 $ 3,225 $750 $ -- $(1,898) $17,900 $19,977 $27,011
======= ======== ==== ===== ======= ======= ======= =======
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
65
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
DR MILLARD-
AMC SOFTWARE KCOMP HCD ROVAK HIS WAYNE
------ -------- ------ ------ ------ ------ --------
Revenues:
Systems and software sales............................ $ 592 $1,448 $ 284 $1,681 $2,091 $ 925 $ 661
Maintenance and support............................... 1,068 1,050 1,275 1,296 1,024 848 984
Other................................................. -- -- -- 62 549 291 55
------ ------ ------ ------ ------ ------ ------
Total revenues.................................. 1,660 2,498 1,559 3,039 3,664 2,064 1,700
Cost of revenues........................................ 299 584 112 917 1,726 733 328
------ ------ ------ ------ ------ ------ ------
Gross profit............................................ 1,361 1,914 1,447 2,122 1,938 1,331 1,372
------ ------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative................... 1,574 1,731 1,134 2,055 1,682 1,209 1,275
Depreciation.......................................... 20 43 15 3 53 19 34
Amortization.......................................... 35 193 49 85 -- 17 92
------ ------ ------ ------ ------ ------ ------
Total operating expenses........................ 1,629 1,967 1,198 2,143 1,735 1,245 1,401
------ ------ ------ ------ ------ ------ ------
Gross operating income (loss)........................... (268) (53) 249 (21) 203 86 (29)
------ ------ ------ ------ ------ ------ ------
Other expense (income):
Interest expense...................................... 60 9 33 27 109 -- 19
Other................................................. (3) (19) 2 -- (10) (12) --
------ ------ ------ ------ ------ ------ ------
Total other expense (income).................... 57 (10) 35 27 99 (12) 19
------ ------ ------ ------ ------ ------ ------
Income before taxes..................................... (325) (43) 214 (48) 104 98 (48)
Taxes (benefit)......................................... -- -- 46 (19) 46 42 (20)
------ ------ ------ ------ ------ ------ ------
Net income...................................... $ (325) $ (43) $ 168 $ (29) $ 58 $ 56 $ (28)
====== ====== ====== ====== ====== ====== ======
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL C F G H ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
Revenues:
Systems and software sales........................... $7,682 $ -- $ -- $ -- $ -- $ -- $ 7,682
Maintenance and support.............................. 7,545 -- -- -- -- 7,545
Other................................................ 957 -- -- -- -- -- 957
------ ----- ----- ----- ------- ------- -------
Total revenues................................. 16,184 -- -- -- -- -- 16,184
Cost of revenues....................................... 4,699 -- -- -- -- -- 4,699
------ ----- ----- ----- ------- ------- -------
Gross profit........................................... 11,485 -- -- -- -- -- 11,485
------ ----- ----- ----- ------- ------- -------
Operating expenses:
Selling, general and administrative.................. 10,660 -- -- -- (1,843) (1,843) 8,817
Depreciation......................................... 187 -- -- -- -- -- 187
Amortization......................................... 471 -- 498 -- -- 498 969
------ ----- ----- ----- ------- ------- -------
Total operating expenses....................... 11,318 -- 498 -- (1,843) (1,345) 9,973
------ ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... 167 -- (498) -- 1,843 1,345 1,512
------ ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... $ 257 $ -- $ -- $(161) $ (27) $ (188) $ 69
Other................................................ (42) -- -- -- -- -- (42)
------ ----- ----- ----- ------- ------- -------
Total other expense (income)................... 215 -- -- (161) (27) (188) 27
------ ----- ----- ----- ------- ------- -------
Income before taxes.................................... (48) -- (498) 161 1,870 1,533 1,485
Taxes (benefit)........................................ 95 (113) (62) 63 729 617 712
------ ----- ----- ----- ------- ------- -------
Net income..................................... $ (143) $ 113 $(436) $ 98 $ 1,141 $ 916 $ 773
====== ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.14
=======
Shares used in computing pro forma income per share
(I).................................................. 5,385
=======
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
66
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
NINE MONTHS ENDED OCTOBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
DR MILLARD-
AMC SOFTWARE HCD ROVAK HIS WAYNE
------ -------- ------ ------ ------ --------
Revenues:
Systems and software sales................................ $ 734 $1,633 $1,928 $1,649 $ 793 $ 543
Maintenance and support................................... 1,181 871 1,607 589 693 868
Other..................................................... -- -- 64 440 278 59
------ ------ ------ ------ ------ ------
Total revenues...................................... 1,915 2,504 3,599 2,678 1,764 1,470
Cost of revenues............................................ 434 793 1,234 1,244 627 194
------ ------ ------ ------ ------ ------
Gross profit................................................ 1,481 1,711 2,365 1,434 1,137 1,276
------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 1,491 1,499 2,325 1,473 1,218 987
Depreciation.............................................. 25 37 8 26 26 49
Amortization.............................................. 57 182 103 -- 17 129
------ ------ ------ ------ ------ ------
Total operating expenses............................ 1,573 1,718 2,436 1,499 1,261 1,165
------ ------ ------ ------ ------ ------
Gross operating income (loss)............................... (92) (7) (71) (65) (124) 111
------ ------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 47 8 3 100 -- 19
Other..................................................... (115) (1) -- -- (11) 17
------ ------ ------ ------ ------ ------
Total other expense (income)........................ (68) 7 3 100 (11) 36
------ ------ ------ ------ ------ ------
Income before taxes......................................... (24) (14) (74) (165) (113) 75
Taxes (benefit)............................................. -- -- (29) (65) (44) 31
------ ------ ------ ------ ------ ------
Net income.......................................... $ (24) $ (14) $ (45) $ (100) $ (69) $ 44
====== ====== ====== ====== ====== ======
PRO FORMA ADJUSTMENTS TOTAL
------------------------------ PRO FORMA
SUBTOTAL B F G H ADJUSTMENTS TOTAL
-------- ----- ----- ---- ------- ----------- -------
Revenues:
Systems and software sales............................ $ 7,280 $ -- $ -- $ -- $ -- $ -- $ 7,280
Maintenance and support............................... 5,809 -- -- -- -- -- 5,809
Other................................................. 841 -- -- -- -- -- 841
------- ----- ----- ---- ------- ------- -------
Total revenues.................................. 13,930 -- -- -- -- -- 13,930
Cost of revenues........................................ 4,526 -- -- -- -- -- 4,526
------- ----- ----- ---- ------- ------- -------
Gross profit............................................ 9,404 -- -- -- -- -- 9,404
Operating expenses:
Selling, general and administrative................... 8,993 -- -- -- (1,706) (1,706) 7,287
Depreciation.......................................... 171 -- -- -- -- -- 171
Amortization.......................................... 488 -- 498 -- -- 498 986
------- ----- ----- ---- ------- ------- -------
Total operating expenses........................ 9,652 -- 498 -- (1,706) (1,208) 8,444
------- ----- ----- ---- ------- ------- -------
Gross operating income (loss)........................... (248) -- (498) -- 1,706 1,208 960
------- ----- ----- ---- ------- ------- -------
Other expense (income):
Interest expense...................................... 177 -- -- (92) (3) (95) 82
Other................................................. (110) -- -- -- -- -- (110)
------- ----- ----- ---- ------- ------- -------
Total expense (income).......................... 67 -- -- (92) (3) (95) (28)
------- ----- ----- ---- ------- ------- -------
Income before taxes..................................... (315) -- (498) 92 1,709 1,303 988
Taxes (benefit)......................................... (107) (17) (62) 36 667 624 517
------- ----- ----- ---- ------- ------- -------
Net income...................................... $ (208) $ 17 $(436) $ 56 $ 1,042 $ 679 $ 471
======= ===== ===== ==== ======= ======= =======
Pro forma income per share.............................. $ 0.09
=======
Shares used in computing pro forma income per share
(I)................................................... 5,385
=======
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-7
67
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)
YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
DR MILLARD-
AMC SOFTWARE HCD ROVAK HIS WAYNE
------ -------- ------ ------ ------ --------
Revenues:
Systems and software sales................................ $ 900 $2,192 $2,957 $2,456 $1,098 $ 800
Maintenance and support................................... 1,513 1,212 1,764 743 957 1,244
Other..................................................... -- -- 85 603 407 73
------ ------ ------ ------ ------ ------
Total revenues...................................... 2,413 3,404 4,806 3,802 2,462 2,117
Cost of revenues............................................ 516 1,074 1,445 1,811 862 291
------ ------ ------ ------ ------ ------
Gross margin................................................ 1,897 2,330 3,361 1,991 1,600 1,826
------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 2,017 2,050 3,167 2,065 1,622 1,521
Depreciation.............................................. 32 49 4 68 34 64
Amortization.............................................. 80 244 141 -- 23 172
------ ------ ------ ------ ------ ------
Total operating expenses............................ 2,129 2,343 3,312 2,133 1,679 1,757
------ ------ ------ ------ ------ ------
Gross operating income (loss)............................... (232) (13) 49 (142) (79) 69
------ ------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 69 11 26 194 -- 23
Other..................................................... (121) (12) -- (66) (22) 17
------ ------ ------ ------ ------ ------
Total other expense (income)........................ (52) (1) 26 128 (22) 40
------ ------ ------ ------ ------ ------
Income (loss) before taxes.................................. (180) (12) 23 (270) (57) 29
Taxes (benefit)............................................. -- -- 9 (99) (16) (5)
------ ------ ------ ------ ------ ------
Net income (loss)................................... $ (180) $ (12) $ 14 $ (171) $ (41) $ 34
====== ====== ====== ====== ====== ======
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL B F G H ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
Revenues:
Systems and software sales........................... $10,403 $ -- $ -- $ -- $ -- $ -- $10,403
Maintenance and support.............................. 7,433 -- -- -- -- -- 7,433
Other................................................ 1,168 -- -- -- -- -- 1,168
------- ----- ----- ----- ------- ------- -------
Total revenues................................. 19,004 -- -- -- -- -- 19,004
Cost of revenues....................................... 5,999 -- -- -- -- -- 5,999
------- ----- ----- ----- ------- ------- -------
Gross margin........................................... 13,005 -- -- -- -- -- 13,005
------- ----- ----- ----- ------- ------- -------
Operating expenses:
Selling general and administrative................... 12,442 -- -- -- (2,463) (2,463) 9,979
Depreciation......................................... 251 -- -- -- -- -- 251
Amortization......................................... 660 -- 665 -- -- 665 1,325
------- ----- ----- ----- ------- ------- -------
Total operating expenses....................... 13,353 -- 665 -- (2,463) (1,798) 11,555
------- ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... (348) -- (665) -- 2,463 1,798 1,450
------- ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... 323 -- -- (215) (26) (241) 82
Other................................................ (204) -- -- -- -- -- (204)
------- ----- ----- ----- ------- ------- -------
Total other expense (income)................... 119 -- -- (215) (26) (241) (122)
------- ----- ----- ----- ------- ------- -------
Income (loss) before taxes............................. (467) -- (665) 215 2,489 2,039 1,572
Taxes (benefit)........................................ (111) (73) (81) 84 971 901 790
------- ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ (356) $ 73 $(584) $ 131 $ 1,518 $ 1,138 $ 782
======= ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.15
=======
Shares used in computing pro forma income per
share(I)............................................. 5,385
=======
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-8
68
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. INFOCURE CORPORATION BACKGROUND
InfoCure Corporation ("InfoCure") was formed to bring together in one
entity the research, development, service and support and sales and marketing
efforts for a comprehensive array of practice management systems. InfoCure has
conducted no operations to date and will acquire the Founding Businesses
contemporaneously with the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of all the Founding Businesses and were derived from the
respective financial statements where indicated. The audited historical
financial statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
3. ACQUISITION OF FOUNDING COMPANIES
Contemporaneously with the consummation of the Offering, InfoCure will
acquire substantially all of the net assets of the Founding Businesses. The AMC
merger (for 3,332,472 shares) will be accounted for as a combination at
historical cost and the acquisition of the Founding Businesses will be recorded
at fair value.
The following table sets forth for the Founding Businesses the
consideration to be paid to its common stockholders in cash and in shares of
common stock of InfoCure:
COMMON STOCK
-------------------------
FAIR VALUE OF
CASH SHARES SHARES(1)
------- -------- --------------
(IN THOUSANDS, EXCEPT SHARES)
DR Software........................................... $ 1,875 80,009 $ 800
KCOMP................................................. 2,000 -- --
HCD................................................... 1,583 -- --
Rovak................................................. 2,805 64,007 640
HIS................................................... 1,500 192,022 1,920
Millard-Wayne......................................... 1,175 50,118 501
------- -------- -------
Total....................................... $10,938 386,156 $ 3,861
======= ======== =======
Total consideration for these companies................................... $14,799
Net book value (deficit) of these companies' assets....................... 563
-------
Consideration allocated to goodwill....................................... $14,236
=======
- ---------------
(1) Estimated at $10.00 per share, the assumed initial public offering price.
The allocation to goodwill of the consideration in excess of net book value
for these acquisitions is reflective of the value ascribed to the ongoing
businesses and the revenue potential for existing and future products and
services, particularly electronic transactions processing, which the Company
feels can be derived from the installed customer base being acquired.
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(A) Records the cash portion to be paid and the shares of stock to be issued to
the stockholders of the Founding Businesses in connection with the
acquisitions and elimination of subsidiary equity accounts for the combined
pro forma balance sheet. Additionally, reflects adjustments for certain
assets and liabilities not acquired and/or converted to equity as part of
the acquisition agreements.
F-9
69
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(B) Records the cash proceeds of issuance by AMC in November 1996 of the
equivalent of 472,811 shares of Common Stock for $750,000.
(C) Records the adjustment to the provision for federal and state deferred
income taxes relating to S-corporation income, and, with respect to results
of operations, the tax effect of filing a consolidated return.
(D) Records the repayment of certain debt obligations and other pro forma
adjustments. Of the anticipated debt repayment: $475,715 reduces AMC's
obligations under terms of a note payable to the Small Business
Administration ("SBA") ($381,215) and a note payable to a stockholder
($94,500), $135,440 reduces Millard-Wayne's obligations under bank notes
payable and $936,972 reduces Rovak's obligations under bank notes payable
($186,032) and notes payable to the SBA ($750,940). Additionally, payments
totalling $350,000 are anticipated to eliminate AMC's obligations under the
terms of a claims processing agreement ($265,000), a stock purchase warrant
($50,000) and certain accrued expenses ($35,000). Further, approximately
$477,000 in additional acquisition-related expenses are to be paid from
proceeds of the Offering.
(E) Records the proceeds from the issuance of 2,000,000 shares of InfoCure
common stock, net of estimated offering costs of $2,100,000 (based on an
assumed initial public offering price of $10 per share, the midpoint of the
estimated price range); offering costs consist primarily of underwriting
discounts and commissions, legal fees, accounting fees and printing
expenses.
The holders of 2,761,111 shares of Common Stock issued in partial payment
of the acquisitions have agreed not to offer, sell or otherwise dispose of any
of those shares for a period of 180 days after the Offering and for 18 months
thereafter (or for such shorter period as the SEC may prescribe as the holding
period for restricted securities under Rule 144(e)).
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(F) Records the amortization on a straight-line basis over 22 years of goodwill
associated with the acquisition of the Founding Businesses. The related tax
benefit is based on the deductible portion of goodwill.
(G) Records the pro forma change in interest expense for pro forma adjustments
to debt.
(H) Records pro forma adjustments to compensation expense and certain other
operating expenses to the levels management will implement subsequent to
the Acquisitions, including elimination of corporate overhead and interest
expense allocation related to HCD. These adjustments are summarized as
follows:
NINE MONTHS ENDED YEAR
OCTOBER 31, ENDED
------------------------- JANUARY 31,
(IN THOUSANDS) 1996 1995 1996
-------------- ----------- ----------- -----------
Reduction of compensation and related expenses........ $1,352 $1,251 $1,803
Reduction in rental and certain operating expenses.... 505 323 477
Reduction in corporate allocations to HCD:
Corporate overhead.................................. 264 324 476
ESOP expenses....................................... 61 147 159
Interest............................................ 27 3 26
Increase in the Company's overhead expenses to
integrate the acquisitions.......................... (339) (339) (452)
------ ------ ------
$1,870 $1,709 $2,489
====== ====== ======
F-10
70
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of HCD was consummated on December 3, 1996. As a result,
certain personnel and costs which were not part of the acquisition have
been eliminated. Consequently, the Company considers that, on an annualized
basis, such costs savings have been effected as follows:
(IN THOUSANDS) AMOUNT
- -------------- ------
Compensation, primarily duplicative administrative
functions................................................. $1,130
Allocations from the division's former parent company:
Overhead.................................................. 476
ESOP expenses............................................. 159
Rent...................................................... 117
Interest.................................................. 26
------
$1,908
======
Additionally, pro forma reductions in rental and other operating expenses
include the elimination of certain commissions and royalties which are
payable by Rovak under agreements that will be terminated following
consummation of the Acquisitions. Such adjustments are approximately
$125,000, $86,000 and $241,000 for the year ended January 31, 1996 and the
nine months ended October 31, 1995 and 1996, respectively.
Finally, of the remaining pro forma expense reductions for the year ended
January 31, 1996, approximately $100,000 relate to adjustments in
compensation of certain key executives as part of employment agreements to
be effective upon consummation of the Acquisitions. The balance relates to
costs associated with specifically identified duplicative functions to be
eliminated, net of increases in certain administrative costs deemed
appropriate to effect integration of the Acquisitions. The effects of the
pro forma adjustments have been applied to the nine month periods ended
October 31, 1996 and 1995 on bases designed to be consistent with the
annual period presented.
(I) The weighted average number of shares used to calculate pro forma earnings
per share included the following:
Issued to acquire Founding Businesses....................... 3,668,510
Issued to pay cash portion of Acquisitions.................. 1,205,322
Issued to pay certain indebtedness.......................... 202,570
Issued to pay certain costs................................. 53,296
Shares assumed issued from exercise of options and a
warrant................................................... 331,490
Shares assumed repurchased from proceeds from shares assumed
issued from exercise of options........................... (75,837)
---------
Shares estimated to be outstanding.......................... 5,385,351
---------
F-11
71
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
InfoCure Corporation
Atlanta, Georgia
We have audited the accompanying balance sheet of InfoCure Corporation as
of November 27, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the balance sheet, the Company was formed in
November 1996 and has entered into definitive agreements for the acquisition of
seven healthcare information systems businesses ("the Founding Businesses")
through transactions involving American Medcare Corporation, Inc.; Health Care
Division of Info Systems of North Carolina; Inc., Millard-Wayne, Inc.;
Healthcare Information Systems, Inc.; DR Software, Inc.; KComp Management
Systems, Inc. and Rovak, Inc. concurrently with an initial public offering of
its common stock.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of InfoCure Corporation as of November
27, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
November 29, 1996
Atlanta, Georgia
F-12
72
INFOCURE CORPORATION
BALANCE SHEET
AS OF NOVEMBER 27, 1996
ASSETS:
Subscription receivable..................................... $100
----
$100
====
LIABILITIES AND STOCKHOLDERS' EQUITY:
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, none issued and outstanding................ $ --
Common Stock, $0.001 par value, 40,000,000 shares
authorized, 10 shares issued and outstanding........... 1
Additional paid in capital................................ 99
----
Total stockholders' equity........................ $100
====
See accompanying notes to balance sheet.
F-13
73
INFOCURE CORPORATION
NOTES TO BALANCE SHEET
NOVEMBER 27, 1996
NOTE 1 -- ORGANIZATION AND GENERAL
InfoCure Corporation ("InfoCure") was formed in November 1996 to develop,
market and service healthcare information systems for use by healthcare
providers throughout the United States. InfoCure has conducted no operations to
date and will acquire the Founding Businesses concurrently with the consummation
of an initial public offering of its common stock.
F-14
74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of
American Medcare Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of American
Medcare Corporation and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity (capital
deficit) and cash flows for the years then ended. These consolidated financial
statements 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in Note 3, effective October 29, 1993, the Company acquired
all of the outstanding capital stock of Integrated Computer Systems, Inc. and
Electronic Transmitting Solutions, Inc. On July 22, 1994, Integrated Computer
Systems, Inc. and Electronic Transmitting Solutions, Inc. filed voluntary
petitions for Chapter 7 bankruptcy with the United States Bankruptcy
Court -- Northern District of Georgia. Accordingly, the subsidiaries are not
consolidated.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Medcare Corporation and subsidiaries at January 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
April 12, 1996
(except for Notes 11, 13
and 15, as to which
the date is December 20, 1996)
Atlanta, Georgia
F-15
75
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEAR ENDED JANUARY 31,
------------------------- OCTOBER 31,
1996 1995 1996
----------- ----------- -----------
(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents............................. $ 249,698 $ 4,684 $ 183,012
Accounts and notes receivable, net.................... 156,936 283,888 196,547
Prepaid expenses and other current assets............. 32,620 27,195 30,888
----------- ----------- -----------
Total current assets.......................... 439,254 315,767 410,447
Property and equipment, net............................. 54,372 72,789 45,282
Miscellaneous........................................... 73,315 156,934 207,852
----------- ----------- -----------
$ 566,941 $ 545,490 $ 663,581
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT):
Current liabilities:
Accounts payable...................................... $ 374,824 $ 462,227 $ 300,879
Accrued expenses...................................... 448,627 408,459 379,269
Deferred revenue...................................... 481,224 502,916 405,677
Note payable.......................................... -- 73,027 --
Current portion of long-term debt..................... 335,542 47,565 311,131
----------- ----------- -----------
Total current liabilities..................... 1,640,217 1,494,194 1,396,956
Long-term debt, less current portion.................... 544,780 419,154 539,314
----------- ----------- -----------
Total liabilities............................. 2,184,997 1,913,348 1,936,270
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock.......................................... 41,577 41,577 47,470
Stock purchase warrant................................ 500,000 500,000 500,000
Additional paid-in capital............................ 1,445,247 1,415,249 2,110,197
Deficit............................................... (3,504,880) (3,324,684) (3,830,356)
Treasury stock, 228,489 shares at cost................ (100,000) -- (100,000)
----------- ----------- -----------
Total stockholders' equity (capital
deficit).................................... (1,618,056) (1,367,858) (1,272,689)
----------- ----------- -----------
$ 566,941 $ 545,490 $ 663,581
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-16
76
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31, NINE MONTHS ENDED OCTOBER 31,
-------------------------- ------------------------------
1996 1995 1996 1995
----------- ----------- ------------- -------------
(UNAUDITED)
Revenues:
Software and services............... $ 2,026,114 $ 2,865,582 $ 1,429,876 $ 1,618,336
Hardware............................ 386,620 619,977 229,795 296,688
----------- ----------- ----------- -----------
Total revenues...................... 2,412,734 3,485,559 1,659,671 1,915,024
Cost of revenues...................... 515,842 1,115,726 299,075 434,099
----------- ----------- ----------- -----------
Gross margin.......................... 1,896,892 2,369,833 1,360,596 1,480,925
----------- ----------- ----------- -----------
Operating expenses:
Salaries and operating expenses..... 2,017,389 2,848,005 1,573,935 1,491,483
Depreciation and amortization....... 112,314 563,690 54,890 81,653
----------- ----------- ----------- -----------
Total operating expenses............ 2,129,703 3,411,695 1,628,825 1,573,136
----------- ----------- ----------- -----------
Loss from operations.................. (232,811) (1,041,862) (268,229) (92,211)
Other income (expense):
Interest expense.................... (68,609) (54,116) (60,680) (46,909)
Other income, net................... 121,224 20,670 3,433 115,175
----------- ----------- ----------- -----------
Net loss.............................. $ (180,196) $(1,075,308) $ (325,476) $ (23,945)
=========== =========== =========== ===========
Net loss per common share............. $ (0.00) $ (0.03) $ (0.01) $ (0.00)
=========== =========== =========== ===========
Weighted average common shares
outstanding......................... 41,387,381 41,963,205 43,531,234 41,349,299
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-17
77
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
NUMBER OF SHARES DOLLAR VALUE
--------------------- ------------------- STOCK ADDITIONAL
COMMON TREASURY COMMON TREASURY PURCHASE PAID-IN
STOCK STOCK STOCK STOCK WARRANT CAPITAL DEFICIT TOTAL
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at January 31,
1994.................... 40,652,788 -- $40,652 $ -- $500,000 $1,274,175 $(2,249,376) $ (434,549)
Issuance of 925,000
shares................ 925,000 -- 925 -- 128,575 -- 129,500
Issuance of stock
options............... -- -- -- -- -- 12,499 12,499
Net loss.................. -- -- -- -- -- -- (1,075,308) (1,075,308)
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at January 31,
1995.................... 41,577,788 -- 41,577 -- 500,000 1,415,249 (3,324,684) $(1,367,858)
Acquisition of treasury
stock................. -- (228,489) -- (100,000) -- -- -- (100,000)
Issuance of stock
options............... -- -- -- -- -- 29,998 -- 29,998
Net loss.................. -- -- -- -- -- -- (180,196) (180,196)
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at January 31,
1996.................... 41,577,788 (228,489) 41,577 (100,000) 500,000 1,445,247 (3,504,880) (1,618,056)
Issuance of common stock
(unaudited)........... 5,892,286 -- 5,893 -- -- 642,450 -- 648,343
Issuance of stock
options (unaudited)... -- -- -- -- -- 22,500 -- 22,500
Net loss (unaudited).... -- -- -- -- -- -- (325,476) (325,476)
---------- -------- ------- --------- -------- ---------- ----------- -----------
Balance, at October 31,
1996 (unaudited)........ 47,470,074 (228,489) $47,470 $(100,000) $500,000 $2,110,197 $(3,830,356) $(1,272,689)
========== ======== ======= ========= ======== ========== =========== ===========
See accompanying notes to consolidated financial statements.
F-18
78
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- ---------------------
1996 1995 1996 1995
--------- ----------- --------- ---------
(UNAUDITED)
Cash provided by (used for) operating
activities:
Net loss...................................... $(180,196) $(1,075,308) $(325,476) $ (23,945)
Adjustments to reconcile net loss to cash used
for operating activities:
Depreciation and amortization.............. 114,056 581,650 27,767 55,947
Allowance for doubtful accounts............ 18,368 (41,705) -- --
Compensatory stock options................. 29,998 12,499 22,500 22,500
Gain on sale of fixed assets............... -- (22,646) -- --
Other noncash charges...................... -- 30,000 -- --
Changes in current assets and liabilities:
Accounts and notes receivable............ 107,540 192,405 (38,354) 72,448
Inventory................................ -- 17,885 -- --
Prepaid expenses and other current
assets................................ (5,424) 60,462 (7,331) 3,510
Accounts payable and accrued expenses.... (47,235) (73,900) (249,464) 35,277
Deferred revenue......................... (21,692) (20,921) (67,297) (52,585)
--------- ----------- --------- ---------
Net cash provided by (used in) operating
activities................................. 15,415 (339,579) (637,655) 113,152
--------- ----------- --------- ---------
Cash (used for) provided by investing
activities:
Property and equipment expenditures........... (15,189) (6,199) (10,419) (15,972)
Purchases of intangible assets................ -- (107,903) 34,194
Proceeds from sale of fixed assets............ -- 80,000 -- --
Expenditures for software development costs... -- (22,445) (24,474) (725)
Proceeds from collection of notes and other
receivables................................ 4,213 113,888 -- --
--------- ----------- --------- ---------
Net cash provided by (used in) investing
activities................................. (10,976) 165,244 (142,796) 17,497
--------- ----------- --------- ---------
Cash provided by (used for) financing
activities:
Proceeds from issuance of common stock........ -- -- 648,343 --
Proceeds from note payable to stockholder..... 94,500 85,000 -- --
Repayment of note payable to stockholder...... (73,027) -- -- (73,028)
Proceeds from issuance of long-term debt...... 366,665 -- -- 94,500
Principal payments on long-term debt.......... (47,563) (53,780) 65,422 (25,508)
Repurchase of common stock.................... (100,000) -- -- (100,000)
--------- ----------- --------- ---------
Net cash provided by (used in) financing
activities................................. 240,575 31,220 713,765 (104,036)
--------- ----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 245,014 (143,115) (66,686) 26,613
Cash and cash equivalents, beginning............ 4,684 147,799 249,698 4,684
--------- ----------- --------- ---------
Cash and cash equivalents, ending............... $ 249,698 $ 4,684 $ 183,012 $ 31,297
========= =========== ========= =========
See accompanying notes to consolidated financial statements.
F-19
79
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND NATURE OF BUSINESS
American Medcare Corporation (the "Company" or "AMC") was incorporated on
January 11, 1983, and was originally formed to provide management services to
professional corporations practicing family and emergency medicine.
In May 1993, the Company merged with Newport Capital, Inc. ("Newport"),
whose principal asset was its wholly-owned subsidiary, International Computer
Solutions, Inc. ("ICS"). ICS develops, markets and supports health care data
processing and claims transmission systems, including hardware and software
packages, primarily for physician and dentist practice offices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 3 for accounting
for failed acquisitions.
USE OF 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from these estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets using both straight line and
accelerated methods for financial reporting and accelerated methods for income
tax purposes. Substantial betterments to property and equipment are capitalized
and repairs and maintenance are expensed as incurred.
SOFTWARE COSTS
Software development costs are capitalized subsequent to establishing the
technological feasibility of a product. Capitalized software costs are amortized
using the straight-line method over the estimated lives of the related products
(generally 24 to 36 months).
REVENUE RECOGNITION
Revenue is recognized, net of allowances for estimated returns, from the
sale of computer hardware and computer software when the product is shipped and
when training services, where applicable, are provided. Revenue from hardware
maintenance and customer support contracts and claims processing services are
recognized in the period in which the services are provided; amounts not yet
earned are recorded as deferred revenue. Revenue from contract services for
maintenance and support were approximately $805,000 and $1,068,000 for 1996 and
1995, respectively. Revenue from claims processing services totaled about
$338,000 and $554,000 for 1996 and 1995, respectively.
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
F-20
80
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during each year.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995 and was adopted by
the Company as of February 1, 1996.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
SFAS No. 123, "Accounting for Stock Based Compensation" is effective for
years beginning after December 15, 1995 and was adopted by the Company as of
February 1, 1996. This statement establishes financial accounting and reporting
standards for stock based employee compensation plans. SFAS No. 123 permits, but
does not require, a fair-value based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. As permitted by SFAS No. 123, the Company will provide pro
forma disclosure of net income and earnings per share, as applicable in the
notes to future consolidated financial statements.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's results of operations and
cash flows for the nine months ended October 31, 1996 and 1995. The results of
operations and cash flows for the nine months ended October 31, 1996 and 1995
are not necessarily indicative of the results to be expected for the full year.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Accounts receivable
arise from sale of healthcare practice management systems to the Company's
customer base located throughout the United States. The Company performs ongoing
credit evaluations of its customers' financial condition, and generally requires
no collateral from its customers. The Company's credit losses are subject to
general economic conditions of the healthcare industry.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
receivable, accounts payable, notes payable and long-term debt. Accounts
receivable and accounts payable are short term in nature, accordingly, carrying
value is deemed to approximate fair value. The notes payable to bank, including
both the short-term line of credit and the long-term loan, bear interest at
rates which vary with current market conditions, accordingly, carrying values
are deemed to approximate fair value. Notes receivable and payable with
shareholders bear interest at fixed rates ranging between 10% and 12% which,
based on their terms and their current interest rates in the market, are deemed
to approximate fair value.
F-21
81
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. FINANCIAL CONDITION AND FISCAL 1997 OUTLOOK
During the year ended January 31, 1996, the Company incurred a loss from
operations of approximately $233,000. This loss is in addition to the prior
year's operating loss of approximately $1,042,000. As of January 31, 1996, the
Company had a capital deficit of approximately $1,618,000 and a working capital
deficiency of approximately $1,201,000. In addition, other than resources
obtainable from certain of its officers and principal shareholders, the Company
has no available line of credit or other access to immediate short term
financing.
The Company has devised certain plans and strategies which, in management's
opinion, will allow the Company to reduce costs and operate more profitably.
During the second quarter of fiscal 1995, the Company decreased its workforce by
approximately 40%, which resulted in significant reductions in salaries,
benefits and other personnel related expenses. In addition, the Company moved
its headquarters to smaller leased offices and negotiated a three-month free
rent period and escalating payments during subsequent months. This reduction in
rental payments, along with certain other operational changes such as billing
maintenance in advance quarterly rather than monthly, have provided some amount
of currently available cash.
In addition to operational changes, the Company believes that its decision
to place Integrated Computer Systems, Inc. and Electronic Transmitting
Solutions, Inc. into bankruptcy and the rescission of the Capital Enterprises,
Inc. acquisition eliminated a significant portion of the Company's unprofitable
operations and allows management to focus on the Company's primary business (see
Note 3). Management believes that the expenses and resultant losses associated
with the above failed acquisitions are one time occurrences, which were
recognized in fiscal 1994. No such similar costs were included in the 1996 or
1995 financial statements.
There is no assurance that management's plans will be successful, but
management believes it has the resources to insure survivability of the Company.
3. LOSS ASSOCIATED WITH FAILED ACQUISITIONS
On July 22, 1994, Integrated Computer Systems, Inc. ("Integrated") and
Electronic Transmitting Solutions, Inc. ("Electronic"), two wholly-owned
subsidiaries of the Company, filed voluntary petitions for Chapter 7 bankruptcy
with the United States Bankruptcy Count -- Northern District of Georgia. The
Company also filed suit against the sellers of Integrated and Electronic on July
19, 1994 in the United States District Court -- Northern District of Georgia.
The suit called for rescission of the October 29, 1993 acquisitions along with
the return of the stock issued to the sellers. In addition, the suit asks for
damages for monetary amounts incurred by the Company as a result of problems
related to the acquisitions.
The Company has accrued a liability for estimated costs associated with the
liquidation of Integrated and Electronic. As of January 31, 1996 and 1995,
approximately $120,000 and $183,000, respectively, was included in accrued
expenses for such estimated costs.
The shares of stock issued in connection with the acquisition of Integrated
and Electronic are reflected as being outstanding in the accompanying
consolidated balance sheets and statements of shareholders' equity (capital
deficit). These shares will, however, be canceled in the event that the Company
is granted a rescission of the acquisitions by the United States Bankruptcy
District Court.
F-22
82
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 31, 1994, the Company acquired all of the outstanding capital
stock of Capital Enterprises, Inc. ("CEI"), whose principal asset was an office
building. As a result of the Company's inability to maintain certain financial
ratios between the Company and the seller of CEI, the parties entered into a
rescission and release agreement on May 31, 1994. This agreement rescinded the
acquisition effective as of January 31, 1994.
4. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable are summarized as follows:
1996 1995
-------- --------
Accounts receivable -- trade................................ $229,155 $336,696
Notes receivable (0-10% interest)........................... 18,169 23,547
-------- --------
247,324 360,243
Less allowance for doubtful accounts........................ 90,388 76,355
-------- --------
$156,936 $283,888
======== ========
5. PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consisted of the following:
ESTIMATED
USEFUL LIVES
(YEARS) 1996 1995
------------ -------- --------
Computer equipment.................................... 3-5 $331,436 $316,247
Furniture and fixtures................................ 5-7 293,381 293,381
--- -------- --------
624,817 609,628
Less accumulated depreciation......................... 570,445 536,839
-------- --------
$ 54,372 $ 72,789
======== ========
Depreciation was $34,389 and $70,052 for the years ended January 31, 1996
and 1995, respectively.
6. MISCELLANEOUS ASSETS
Miscellaneous assets consist of the following:
1996 1995
------- --------
Deferred rent asset......................................... $52,547 $ 90,072
Capitalized software development costs, net................. 19,511 62,436
Long-term notes receivable.................................. 1,257 4,426
------- --------
$73,315 $156,934
======= ========
Capitalized software development costs are stated net of accumulated
amortization of $656,505 and $660,803, at January 31, 1996 and 1995,
respectively.
F-23
83
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
1996 1995
-------- --------
Expenses related to loss on failed acquisition.............. $119,590 $182,849
Compensation................................................ 151,537 140,925
Taxes other than income..................................... 57,995 48,623
Professional fees........................................... 50,000 25,000
Customer costs.............................................. 28,606 6,455
Other accruals.............................................. 40,899 4,607
-------- --------
$448,627 $408,459
======== ========
8. NOTE PAYABLE AND LONG-TERM DEBT
Long-term debt consisted of the following:
1996 1995
-------- --------
Notes payable to banks...................................... $396,042 $430,555
Other....................................................... 484,280 36,164
-------- --------
880,322 466,719
Less current portion........................................ 335,542 47,565
-------- --------
$544,780 $419,154
======== ========
During fiscal 1994, the Company refinanced its existing bank loans with a
new note payable to a bank which is guaranteed by the Small Business
Administration ("SBA"). This loan bears interest at a rate of 8.75% and is
payable in monthly installments through May 2003. The loan is secured by
substantially all of the assets of the Company and certain other real estate
owned by two stockholders. In addition, the loan is personally guaranteed by
five of the Company's stockholders.
In June 1994, the Company borrowed $85,000 in exchange for a promissory
note which bore a 15% annual interest rate and was payable in monthly
installments of $4,000 until April 1995 when a balloon payment of approximately
$68,000 was tendered in satisfaction of the remaining obligation under the note.
In April 1995, the Company borrowed $94,500 from the majority stockholder
of the Company in exchange for a promissory note bearing interest at 12% payable
in a balloon payment of principal and interest in April 1997.
In January 1996, the Company entered into an agreement with a third party
to exclusively promote its products as a component of the Company's products, in
exchange for a promissory note in the principal amount of $366,666 and bearing
interest at a rate of 9.95%. The note is to be repaid based on fees charged by
the third party for claims submitted by the Company for processing. As of
January 31, 1996 no claims had been submitted. The note is payable together with
unpaid principal all accrued and unpaid interest at December 31, 1998 and is
included in other long-term debt.
Also included in other long-term debt are capital leases of $19,612 and
$36,164 at January 31, 1996 and 1995, respectively. Also included are notes
payable to stockholders in the amount of $98,000 and $3,500 at January 31, 1996
and 1995, respectively.
F-24
84
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of January 31, 1996, future maturities of these obligations are as
follows:
YEAR AMOUNT
---- --------
1997........................................................ $335,542
1998........................................................ 243,051
1999........................................................ 66,611
2000........................................................ 63,823
2001........................................................ 63,823
Thereafter.................................................. 107,472
--------
$880,322
========
9. OPERATING LEASES
The Company leases certain office equipment under noncancellable operating
leases with initial or remaining terms of one year or more. At January 31, 1996,
the remaining amounts due under these leases totaled approximately $29,000 in
the aggregate.
In August 1994, the Company entered into a new office space lease which
contained a free rent period through November 1994. Total future minimum annual
rental payments under this lease are approximately $82,000, $91,100 and $56,000
for 1997, 1998 and 1999, respectively.
Rent expense for 1996 and 1995, which included lease payments for office
space, was approximately $101,000 and $110,000, respectively.
10. COMMON STOCK
The Company had 50,000,000 shares of common stock, par value .001 per
share, authorized at January 31, 1996 and 1995, respectively. Shares of common
stock outstanding totaled 41,349,299 and 41,577,778 at January 31, 1996 and
1995, respectively.
At January 31, 1996, 925,000 shares of common stock issued during fiscal
1995 were subject to certain restrictions limiting their sale during the two
years subsequent to their issuance.
During the nine months ended October 31, 1996 the Company issued
approximately 5,900,000 shares of common stock in private placements to several
individuals, primarily for cash.
11. STOCK PURCHASE WARRANT AND OPTIONS
On January 4, 1991, the Company issued to Moore Business Forms, Inc.
("Moore") a stock purchase warrant, exercisable through December 31, 2000, for
20% of ICS common stock, in full satisfaction of approximately $445,000 of
amounts owed to Moore. In addition, Moore transferred ownership of the Medical
Practice Manager, Dental Practice Manager and Oral Surgeon Practice Manager
software and source code to ICS. The warrant was assigned a value of $500,000
and the Company recorded approximately $55,000 as the value of the software and
source code.
Pursuant to terms of an agreement dated December 20, 1996, the Company
repurchased the warrant for $50,000 and terminated all related obligations and
liabilities.
During fiscal 1995, the Company granted options to a director and an
officer of the Company. The options enable the holders to purchase up to
4,000,000 shares of common stock at prices ranging from $0.01 to $1.00 per
share. The options may be exercised at various times through September 1999.
No options had been exercised as of January 31, 1996.
F-25
85
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
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:
1996 1995
--------- ---------
Basis difference of capitalized software costs and purchased
customer lists............................................ $ (61,000) $ (76,000)
Differences in basis of property and equipment.............. (14,000) (5,000)
Allowance for doubtful accounts............................. 34,000 29,000
Other basis differences..................................... 8,000 6,000
Net operating loss carryforwards............................ 704,000 657,000
--------- ---------
Gross deferred tax assets................................... 671,000 611,000
Deferred tax asset valuation allowance...................... (671,000) (611,000)
--------- ---------
Net deferred tax asset (liability)................ $ -- $ --
========= =========
As of January 31, 1996, the Company and its subsidiaries have net operating
loss carryforwards for federal income tax purposes of approximately $1,759,000
which expire beginning in 2004. Due to the Company's net operating loss
carryforwards, there is no provision for income taxes at January 31, 1996 and
1995.
13. CLAIM PROCESSING AGREEMENT
ICS has an agreement with another company whereby ICS assisted in the
establishment of an electronic claims processing clearinghouse and in the
subsequent marketing of the clearinghouse by submitting electronic claims of ICS
customers for processing through the clearinghouse. The other company is owned
by a minority stockholder of the Company. ICS received a fee which included the
cancellation of a $324,000 note payable to this minority stockholder, plus
additional periodic payments totaling $100,000.
As part of the agreement, ICS agreed to submit all its eligible electronic
claims exclusively to the other company for processing and will pay $0.25 per
claim processed. The agreement commenced September 1, 1992 and will terminate
upon the processing of 11,800,000 claims, or certain other events (principally
related to the transfer of ownership of ICS) or discontinuance of electronic
claim-related business activities. If the agreement is terminated due to the
other events, five shareholders of the Company shall pay a termination fee of
$324,000 less the number of claims processed to date times $0.05 per claim, plus
an annual interest surcharge of prime plus 3%. ICS has guaranteed the
shareholders' obligation for the termination fee which totaled approximately
$284,000 at January 31, 1996. The service center became functional in September
of 1993 and processed approximately 431,000 and 349,000 claims from ICS
customers in fiscal 1996 and 1995, respectively. As of January 31, 1996 and
1995, approximately $284,000 and $305,000, respectively, was included in
deferred revenue related to this agreement.
In November 1996, the Company entered into an agreement to terminate this
agreement in consideration of $265,000 to be paid upon the successful completion
of a public offering of the Company or its successor.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest amounted to $55,338 and $66,028 for the years
ended January 31, 1996 and 1995, respectively.
F-26
86
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS
(a) The Company entered into negotiations with Health Care Division (the
"Division") (a division of Info Systems of North Carolina, Inc.), whereby the
Company would acquire certain assets and liabilities of the Division in exchange
for an estimated $1,750,000. Additionally, the Company has also entered into
negotiations with Millard Wayne, whereby the Company would acquire all of the
common stock of Millard-Wayne in exchange for an estimated $1,175,000 cash and
783,000 shares of common stock. The Division acquisition was consummated in
December 1996. The Millard-Wayne acquisition is expected to be consummated in
the first quarter of 1997. The Company has also signed non-binding letters of
intent to acquire four additional practice management software companies for
aggregate consideration of approximately $11,500,000 in cash and common stock.
(b) In November 1996, the Company, through a private placement, issued
approximately 7,387,000 shares of the Company's common stock for an aggregate
consideration of $750,000.
F-27
87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
KComp Management Systems, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of KComp Management Systems,
Inc. as of March 31, 1996, and the related statements of operations, changes in
stockholders' equity and cash flows for the period from inception (December 15,
1995) to March 31, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KComp Management Systems,
Inc. at March 31, 1996, and the results of its operations and its cash flows for
the period from inception (December 15, 1995) to March 31, 1996, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 15, 1996
F-28
88
KCOMP MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
1996 1996
--------- -------------
(UNAUDITED)
ASSETS:
Current assets:
Cash...................................................... $ 33,427 $ 27,872
Accounts receivable....................................... 200,367 448,407
Other..................................................... -- 6,367
-------- ----------
Total current assets.............................. 233,794 482,646
-------- ----------
Property and equipment:
Computer equipment........................................ 62,051 62,051
Phone equipment........................................... 29,409 37,183
Other..................................................... 3,171 3,171
-------- ----------
Total property and equipment...................... 94,631 102,405
Less accumulated depreciation............................. 6,153 16,017
-------- ----------
Net property and equipment........................ 88,478 86,388
Other assets:
Capitalized software costs, less accumulated amortization
of $11,706 and $29,265................................. 128,765 111,206
Goodwill less accumulated amortization of $9,995 and
$24,986................................................ 439,759 424,768
-------- ----------
Total assets...................................... $890,796 $1,105,008
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Lines of credit........................................... $ 24,134 $ 49,785
Accounts payable.......................................... 235,550 212,740
Accrued expenses.......................................... 72,686 134,046
Deferred revenue.......................................... 79,248 122,903
Current portion of notes payable.......................... 448,435 437,364
-------- ----------
Total current liabilities......................... 860,053 956,838
Notes payable............................................... 27,761 27,761
-------- ----------
Total liabilities........................................... 887,814 984,599
-------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, $0.01 stated value, 500,000
shares authorized; 30,000 shares issued and
outstanding............................................ 300 300
Additional paid-in capital................................ 3,682 3,682
Retained earnings (accumulated deficit)................... (1,000) 116,427
-------- ----------
Total stockholders' equity........................ 2,982 120,409
-------- ----------
Total liabilities and stockholders' equity........ $890,796 $1,105,008
======== ==========
See accompanying notes to financial statements.
F-29
89
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
INCEPTION
(DECEMBER 15, SIX MONTHS
1995) TO ENDED
MARCH 31, SEPTEMBER 30,
1996 1996
------------- -------------
(UNAUDITED)
Revenues:
Systems and hardware sales................................ $172,781 $140,474
Maintenance and support................................... 486,764 842,396
-------- --------
Total revenues.................................... 659,545 982,870
-------- --------
Cost and expenses:
Salaries and wages........................................ 467,390 544,081
Telephone................................................. 73,904 94,286
Depreciation and amortization............................. 27,854 42,415
Rent...................................................... 27,280 40,920
Insurance................................................. 10,045 11,243
Other..................................................... 40,328 66,949
-------- --------
Total cost and expenses........................... 646,801 799,894
-------- --------
Income from operations...................................... 12,744 182,976
Other income (expense):
Other income (expense).................................... (665) (18,026)
Interest expense.......................................... (13,079) (1,523)
-------- --------
Income (loss) before taxes.................................. (1,000) 163,427
Income tax provision........................................ -- 46,000
-------- --------
Net income (loss)........................................... $ (1,000) $117,427
======== ========
See accompanying notes to financial statements.
F-30
90
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- --------- --------
Issuance of common stock......................... 30,000 $300 $3,682 $ -- $ 3,982
Net loss for the period.......................... -- -- -- (1,000) (1,000)
------ ---- ------ -------- --------
Balance, March 31, 1996.......................... 30,000 300 3,682 (1,000) 2,982
Net income for the six months ending September
30, 1996 (unaudited)........................ -- -- -- 117,427 117,427
------ ---- ------ -------- --------
Balance, September 30, 1996 (unaudited).......... 30,000 $300 $3,682 $116,427 $120,409
====== ==== ====== ======== ========
See accompanying notes to financial statements.
F-31
91
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
INCEPTION
(DECEMBER 15, SIX MONTHS
1995 TO ENDED
MARCH 31, SEPTEMBER 30,
1996 1996
------------- -------------
(UNAUDITED)
Cash provided by (used in) operating activities:
Net (loss) income......................................... $ (1,000) $117,427
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 27,854 42,415
Increase (decrease) from change in:
Accounts receivable.................................. (200,367) (248,040)
Accounts payable and accrued expenses................ 154,793 38,549
Deferred revenue..................................... 54,131 43,655
Other................................................ -- (6,367)
--------- --------
Net cash provided by (used in) operating activities....... 35,411 (12,361)
--------- --------
Cash provided by (used in) investing activities:
Purchase of equipment..................................... (5,191) (7,774)
--------- --------
Cash provided by (used in) financing activities:
Proceeds from line of credit.............................. 24,134 25,651
Increase in notes payable................................. 77,425 --
Payments on notes payable................................. (102,334) (11,071)
Issuance of common stock.................................. 3,982 --
--------- --------
Net cash provided by financing activities................. 3,207 14,580
--------- --------
Net increase (decrease) in cash............................. 33,427 (5,555)
Cash, beginning............................................. -- 33,427
--------- --------
Cash, ending................................................ $ 33,427 $ 27,872
========= ========
See accompanying notes to financial statements.
F-32
92
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
KComp Management Systems, Inc. (the "Company") was formed in March 1995 and
began operations in December 1995, following the acquisition of certain assets
and assumption of certain liabilities of Songbird Data Systems, Inc.
("Songbird") in December 1995. The Company provides support and training
services for computer software for the dental industry. The Company also updates
and sells the current version of its computer software and other related
auxiliary products.
REVENUE RECOGNITION
Revenue from maintenance and support contracts is recognized ratably over
the contract period. Revenue from software sales is recorded when the product is
delivered.
USE OF 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
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term securities
purchased with a maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the respective assets on the straight-line basis
ranging from five to seven years.
Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of purchase price over fair value of net assets acquired arises
in connection with business combinations accounted for as purchases and is
amortized on a straight-line basis over fifteen years. Accumulated amortization
amounted to approximately $29,000 (unaudited) and $12,000, for the six months
ended September 30, 1996, and the period from inception (December 15, 1995) to
March 31, 1996, respectively.
The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other that temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if undiscounted estimated future operating cash flows
of the acquired business are determined to be less than the carrying amount of
goodwill. If the Company determines that goodwill has been impaired, the
measurement of the impairment will be equal to the excess of the carrying amount
of goodwill over the amount of the undiscounted estimated operating cash flows.
If an impairment of goodwill were to occur, the Company would reflect the
impairment through a reduction in the carrying value of goodwill.
F-33
93
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CAPITALIZED SOFTWARE COSTS
Capitalized software costs of purchased computer software to be sold,
leased or otherwise marketed, are capitalized and amortized on a straight-line
basis over a period of four years. Amortization of capitalized software for the
period from inception (December 31, 1995) to March 31, 1996 was $11,706, and for
the six months ended September 30, 1996 was $17,559 (unaudited).
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this approach, deferred income taxes are provided for the temporary differences
between the book and tax basis of assets and liabilities using currently enacted
tax rates. Changes in tax laws or rates are recognized in the deferred tax
balances when enacted.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include receivables, accounts and notes
payables, accrued liabilities. Such instruments are reported at values which the
Company believes are not materially different from their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement is not expected to have a material effect on the
Company's financial statements.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position as of
September 30, 1996 and the results of operations and cash flows for the six
months ended September 30, 1996. The results of operations for the six months
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
2. NOTES PAYABLE
The Company maintains two lines of credit with a bank which provide for an
aggregate of $75,000 in borrowings. The lines bear interest of 9.75% and are due
March 1997. At March 31, 1996, $24,134 was
F-34
94
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
outstanding on the lines. At September 30, 1996, borrowing under the lines of
credit amounted to $49,785 (unaudited). These lines of credit are collateralized
by certain certificates of deposit pledged by the Company's president.
The Company maintains several term notes payable to certain officers,
directors and affiliates. The notes bear interest at rates from 7%-12%. Future
maturities under these term notes are as follows:
MARCH 31, AMOUNT
- --------- --------
1997........................................................ $448,435
1998........................................................ 27,761
--------
$476,196
========
3. COMMITMENTS
The Company is obligated under terms of operating leases for its office
facilities and certain equipment and utilities. Rental expense was approximately
$30,000 for the period from inception (December 31, 1995) to March 31, 1996.
Future minimum payments under these leases are as follows:
MARCH 31, AMOUNT
- --------- --------
1997........................................................ $338,635
1998........................................................ 172,772
1999........................................................ 45,000
--------
$556,407
========
4. INCOME TAXES
The components of income tax expense are as follows:
PERIOD FROM
INCEPTION SIX MONTHS ENDED
(DECEMBER 31, 1995) SEPTEMBER 30, 1996
TO MARCH 31, 1996 (UNAUDITED)
------------------- ------------------
Current
Federal.......................................... $ -- $39,000
State............................................ -- 7,000
------- -------
Total current............................ $ -- $46,000
------- -------
Deferred........................................... -- --
------- -------
Net tax expense.......................... $ -- $46,000
------- -------
5. STOCK WARRANT
In May 1996, the Company issued Marc Kloner a stock purchase warrant to
purchase 327,240 shares of common stock of the Company. Exercise of the warrant
is anticipated to result in the reduction of an account payable to Mr. Kloner of
approximately $41,000.
F-35
95
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. SUPPLEMENTAL CASH FLOW INFORMATION
As discussed in Note 1 the Company acquired certain assets and assumed
certain liabilities of Songbird. The assets and liabilities were as follows:
Fixed assets................................................ $ 89,440
Capitalized software........................................ 140,471
Accounts payable and accrued expenses....................... (153,443)
Deferred revenue............................................ (25,117)
Notes payable............................................... (501,105)
---------
Net liabilities assumed........................... $(449,754)
=========
Cash paid for interest for the period from inception (December 31, 1995) to
March 31, 1996 was approximately $13,000.
7. SUBSEQUENT EVENT
Subsequent to March 31, 1996, the Company signed a letter of intent to be
acquired by American Medcare Corporation ("AMC"), whereby AMC would acquire all
of the common stock of the Company in exchange for an estimated $2,000,000. The
sale is anticipated to occur in the first quarter of 1997.
F-36
96
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Healthcare Information Systems, Inc.
Kansas City, Missouri
We have audited the accompanying balance sheets of Healthcare Information
Systems, Inc. at September 30, 1996 and December 31, 1995, and the related
statements of operations, stockholders' equity and cash flows for the nine month
period ended September 30, 1996 and for the year ended December 31, 1995. 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.
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 financial statements referred to above present fairly,
in all material respects, the financial position of Healthcare Information
Systems, Inc. at September 30, 1996 and December 31, 1995, and the results of
its operations its cash flows for the nine month period ended September 30, 1996
and for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
St. Louis, Missouri
October 31, 1996
F-37
97
HEALTHCARE INFORMATION SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
ASSETS:
Current assets:
Cash...................................................... $ 53,568 $ 219,980
Accounts receivable -- trade.............................. 310,011 261,439
Inventories, net.......................................... 126,068 123,776
Deferred income taxes..................................... 56,500 14,500
Other..................................................... 4,573 9,148
-------- ---------
Total current assets.............................. 550,720 628,843
-------- ---------
Property and equipment:
Equipment and office furniture............................ 323,798 330,490
Less accumulated depreciation............................. (264,665) (283,421)
-------- ---------
Net property and equipment........................ 59,133 47,069
-------- ---------
Software costs less accumulated amortization of $234,254 and
$217,010.................................................. 22,990 5,746
-------- ---------
Total Assets...................................... $632,843 $ 681,658
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses..................... $106,541 $ 115,191
Deferred revenue.......................................... 314,775 290,917
-------- ---------
Total current liabilities......................... 421,316 406,108
-------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par, 500 shares authorized, issued and
outstanding............................................ 500 500
Additional paid-in capital................................ 20,367 27,122
Retained earnings......................................... 203,870 259,893
Less: treasury stock...................................... (13,210) (11,965)
-------- ---------
Total stockholders' equity........................ 211,527 275,550
-------- ---------
Total liabilities and stockholders' equity........ $632,843 $ 681,658
======== =========
See accompanying notes to financial statements.
F-38
98
HEALTHCARE INFORMATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
Revenues:
Systems and software sales and licenses................ $1,097,925 $ 925,091 $ 793,307
Maintenance and support................................ 956,353 847,743 693,391
Other.................................................. 407,189 290,744 277,887
---------- ---------- ----------
Total revenues................................. 2,461,467 2,063,578 1,764,585
Cost of sales............................................ 861,659 732,968 627,189
---------- ---------- ----------
Gross profit............................................. 1,599,808 1,330,610 1,137,396
Selling, general and administrative expenses............. 1,679,558 1,245,054 1,261,572
---------- ---------- ----------
Operating income (loss).................................. (79,750) 85,556 (124,176)
Other income:
Miscellaneous.......................................... 21,907 12,467 10,684
---------- ---------- ----------
Income (loss) before taxes............................... (57,843) 98,023 (113,492)
Income tax (benefit) expense............................. (16,500) 42,000 (44,000)
---------- ---------- ----------
Net income (loss)........................................ $ (41,343) $ 56,023 $ (69,492)
========== ========== ==========
See accompanying notes to financial statements.
F-39
99
HEALTHCARE INFORMATION SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- PAID RETAINED -----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- -------- ------ -------- --------
Balance, January 1, 1995......... 500 $500 $20,367 $245,213 (53) $(13,210) $252,870
Net loss....................... -- -- (41,343) -- -- (41,343)
--- ---- ------- -------- ---- -------- --------
Balance, December 31, 1995....... 500 500 20,367 203,870 (53) (13,210) 211,527
Reissuance of treasury stock... -- 6,755 -- 5 1,245 8,000
Net income..................... -- -- 56,023 -- -- 56,023
--- ---- ------- -------- ---- -------- --------
Balance, September 30, 1996...... 500 $500 $27,122 $259,893 (48) $(11,965) $275,550
=== ==== ======= ======== ==== ======== ========
See accompanying notes to financial statements.
F-40
100
HEALTHCARE INFORMATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
Cash provided by (used in) operating activities:
Net income (loss)...................................... $ (41,343) $ 56,023 $(69,492)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 57,461 36,000 43,096
Deferred income taxes............................... (16,500) 42,000 --
Changes in assets and liabilities:
Accounts receivable............................... (96,507) 48,572 (24,393)
Inventories....................................... 26,503 2,292 (772)
Other receivables................................. 2,561 2,250 1,976
Prepaid expenses.................................. -- (6,825) 13,582
Accounts payable.................................. (2,992) 5,002 (47,463)
Accrued expenses.................................. (4,301) 3,648 13,105
Deferred revenue.................................. (8,798) (23,858) 75,648
--------- -------- --------
Net cash provided by (used in) operating activities.... (83,916) 165,104 5,287
--------- -------- --------
Cash provided by (used in) investing activity:
Purchases of property and equipment.................... (52,301) (6,692) (68,908)
--------- -------- --------
Cash provided by (used in) financing activities:
Repayment of note payable.............................. -- -- (13,885)
Reissuance of treasury stock........................... -- 8,000 --
--------- -------- --------
Net cash provided by (used in) financing activities.... -- 8,000 (13,885)
--------- -------- --------
Net (decrease) increase in cash.......................... (136,217) 166,412 (77,506)
Cash, beginning.......................................... 189,785 53,568 189,785
--------- -------- --------
Cash, ending............................................. $ 53,568 $219,980 $112,279
========= ======== ========
See accompanying notes to financial statements.
F-41
101
HEALTHCARE INFORMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Healthcare Information Systems, Inc. (the "Company") offers a complete
package of software, hardware, training, support and service for hospitals. The
Company is headquartered in Kansas City, Missouri. The Company's customers are
predominately located in the midwestern states of Missouri, Kansas and Arkansas.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method. Inventories consist of computers, computer parts and
supplies and forms.
EQUIPMENT AND OFFICE FURNITURE
Equipment and office furniture are stated at cost less accumulated
depreciation. Depreciation is computed over the estimated useful lives of the
assets using accelerated methods for financial reporting purposes.
INCOME TAXES
Deferred income taxes arise from temporary differences between financial
and income tax reporting and relate principally to inventory reserves and
deferred revenues.
ACCOUNTING ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable and certain accrued expenses. The carrying amounts of financial
instruments approximate their fair values.
REVENUE RECOGNITION POLICIES
Deferred Maintenance Revenue
Revenues primarily from hardware and software maintenance arrangements on
the Company's various products have been deferred and will be recognized in
income on a pro rata basis over the agreement periods which are typically from
three months to one year.
System Revenue
Revenues from Company sales of equipment, hardware and software are
recognized at the time of delivery of the product(s).
SOFTWARE COSTS
Software costs are amortized over a sixty-month period on a straight-line
basis. The Company capitalizes those costs incurred subsequent to establishing
technological feasibility of the product.
F-42
102
HEALTHCARE INFORMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's results of operations and
cash flows for the nine months ended September 30, 1995. The results of
operations and cash flows for the nine months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. COMMITMENTS
OPERATING LEASE
The Company leases its office facilities under a noncancellable operating
lease expiring on December 31, 1996. Future minimum rental payments required
under this noncancellable operating lease total $17,347 from the period
beginning October 1, 1996 through December 31, 1996.
Total rental expense for the operating lease was $53,504 and $72,213 for
the period ended September 30, 1996 and for the year ended December 31, 1995,
respectively.
3. EMPLOYEE BENEFIT PLAN
The Company implemented a 401(k) savings plan covering substantially all
United States employees. Employee contributions are based upon an approved
percentage of wages and employer contributions are made at the discretion of the
Company's managing members. Company contributions were $2,577 and $2,378 for the
period ended September 30, 1996 and for the year ended December 31, 1995,
respectively.
4. INCOME TAXES
The components of income tax expense are as follows:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- ------------
Current................................................. $ -- $ --
Deferred
Federal............................................... 35,000 (14,000)
State................................................. 7,000 (2,500)
------- --------
Total deferred................................ 42,000 (16,500)
------- --------
Net tax expense (benefit)............................... $42,000 $(16,500)
======= ========
F-43
103
HEALTHCARE INFORMATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets consist of:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Inventory -- tax over book.................................. $14,500 $16,500
Deferred revenue............................................ -- 36,200
Other....................................................... -- 3,800
------- -------
$14,500 $56,500
======= =======
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- ------------
Expected tax expense (benefit).......................... $33,328 $(19,667)
Increase (decrease) in income taxes resulting from:
State income taxes.................................... 6,126 (2,750)
Permanent differences................................. 3,900 5,401
Effect of graduated rates and other................... (1,354) 516
------- --------
$42,000 $(16,500)
======= ========
5. SUBSEQUENT EVENT
The Company has entered into negotiations to be acquired by American
Medcare Corporation ("AMC"), whereby AMC would acquire all of the common stock
of the Company in exchange for an estimated $3,400,000. Of the total
consideration, $1,500,000 is payable in cash and the balance by issuance of
common stock. The sale is anticipated to occur in the first quarter of 1997.
F-44
104
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Millard-Wayne, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of Millard-Wayne, Inc. as
of September 30, 1996 and December 31, 1995, and the related statements of
operations and retained earnings, and cash flows for the nine months ended
September 30, 1996 and the year ended December 31, 1995. 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.
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 financial statements referred to above present fairly,
in all material respects, the financial position of Millard-Wayne, Inc. at
September 30, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the nine months ended September 30, 1996 and the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
October 28, 1996
F-45
105
MILLARD-WAYNE, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
ASSETS:
Current assets:
Cash...................................................... $ 8,257 $ 1,402
Accounts receivable net of $8,100 allowance............... 366,741 287,477
Deferred tax asset........................................ 129,000 132,000
Other current assets...................................... 2,256 3,241
-------- --------
Total current assets.............................. 506,254 424,120
Property and equipment at cost, net of accumulated
depreciation.............................................. 132,372 127,351
Software development costs, net of accumulated amortization
of $1,339,800 and $1,423,409.............................. 249,487 274,356
Purchased software rights, net of accumulated amortization
of $8,561 and $16,194..................................... 54,539 86,525
Other assets................................................ 18,625 17,375
-------- --------
$961,277 $929,727
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable.......................................... $ 90,882 $112,703
Accrued expenses.......................................... 59,119 58,512
Deferred revenue.......................................... 377,927 312,978
Current portion of notes payable.......................... 136,672 135,440
10 1/2% demand note payable to officer.................... -- 71,500
-------- --------
Total current liabilities......................... 664,600 691,133
-------- --------
Notes payable............................................... 30,482 17,515
-------- --------
Deferred income taxes, non-current portion.................. 77,000 60,000
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par, 500 shares authorized, issued and
outstanding............................................ 500 500
Additional paid-in-capital................................ 42,549 42,549
Retained earnings......................................... 146,146 118,030
-------- --------
Total stockholder's equity........................ 189,195 161,079
-------- --------
Total liabilities and stockholder's equity........ $961,277 $929,727
======== ========
See accompanying notes to financial statements.
F-46
106
MILLARD-WAYNE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
Revenues:
Systems sales.......................................... $ 800,434 $ 660,828 $ 543,825
Support and services................................... 1,243,558 984,486 868,198
Other.................................................. 73,492 54,652 57,782
---------- ---------- ----------
Total revenues................................. 2,117,484 1,699,966 1,469,805
---------- ---------- ----------
Operating costs and expenses:
Salaries and wages..................................... 938,408 760,421 651,934
Hardware purchases for resale.......................... 290,857 328,336 193,544
Commissions and support................................ 115,580 140,792 59,051
Depreciation and amortization.......................... 236,034 126,274 177,992
Rent................................................... 131,442 98,604 96,193
Travel and entertainment............................... 65,894 53,786 48,004
Telephone.............................................. 66,884 53,230 47,269
Insurance.............................................. 59,229 44,812 44,720
Other.................................................. 143,572 123,470 39,213
---------- ---------- ----------
Total operating costs and expenses............. 2,047,900 1,729,725 1,357,920
---------- ---------- ----------
Income (loss) from operations............................ 69,584 (29,759) 111,885
---------- ---------- ----------
Other expenses:
Interest expense....................................... 22,972 18,357 19,255
Loss on sale of assets................................. 17,186 -- 17,186
---------- ---------- ----------
Total other expenses........................... 40,158 18,357 36,441
---------- ---------- ----------
Income (loss) before taxes............................... 29,426 (48,116) 75,444
Income taxes (benefit)................................... (5,528) (20,000) 31,000
---------- ---------- ----------
Net income (loss)........................................ 34,954 (28,116) 44,444
Retained earnings, beginning............................. 111,192 146,146 111,192
---------- ---------- ----------
Retained earnings, ending................................ $ 146,146 $ 118,030 $ 155,636
========== ========== ==========
See accompanying notes to financial statements.
F-47
107
MILLARD-WAYNE, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1995 1996 1995
------------ --------- ---------
(UNAUDITED)
Cash provided by (used in) operating activities:
Net income (loss)...................................... $ 34,954 $ (28,116) $ 44,444
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization....................... 236,034 126,274 177,042
Loss on sale of property, plant and equipment....... 17,186 -- --
Decrease (increase) in:
Accounts receivable............................... 27,266 79,264 (9,643)
Other assets...................................... 2,181 (482) (6,146)
Net deferred income taxes......................... (5,528) (20,000) --
Accrued expenses.................................. (14,168) (607) 20,328
Accounts payable.................................. (79,248) 21,821 23,622
Inventory......................................... -- -- 5,003
Deferred revenue.................................. -- (64,949) (63,652)
--------- --------- ---------
Net cash provided by operating activities.............. 218,677 113,205 190,998
--------- --------- ---------
Cash provided by (used in) investing activities:
Proceeds from sale of property, plant and equipment.... 22,745 -- --
Purchase of property, plant and equipment.............. (64,285) (29,264) (53,538)
Increase in software development costs................. (163,439) (108,478) (121,922)
Increase in purchased software rights.................. (28,100) (39,619) (35,696)
--------- --------- ---------
Net cash used in investing activities.................. (233,079) (177,361) (211,156)
--------- --------- ---------
Cash provided by (used in) financing activities:
New borrowings......................................... 258,589 125,814 113,233
(Decrease) increase in loans from shareholder.......... (6,339) 71,500 (6,339)
Payments on notes payable.............................. (262,349) (140,013) (117,841)
--------- --------- ---------
Net cash provided by (used in) financing activities.... (10,099) 57,301 (10,947)
--------- --------- ---------
Net decrease in cash..................................... (24,501) (6,855) (31,105)
Cash, beginning.......................................... 32,758 8,257 32,758
--------- --------- ---------
Cash, ending............................................. $ 8,257 $ 1,402 $ 1,653
========= ========= =========
See accompanying notes to financial statements.
F-48
108
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company develops, sells, installs and services computer software for
the medical industry. The Company also sells computer hardware and supplies.
Costs of sales are included in other costs and expenses.
REVENUE RECOGNITION
Revenue from sales of hardware and software is recognized when products are
delivered. Revenue from maintenance and support service contracts is recognized
ratably over the contract period. Revenue from other services is recorded when
the service is performed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at costs. Depreciation is computed over
the estimated useful life of the assets using straight-line methods. Gains and
losses arising from disposal of property and equipment are included in income.
SOFTWARE DEVELOPMENT COSTS
Development and production costs of computer software to be sold, leased or
otherwise marketed, are capitalized and amortized on a straight-line basis over
a period of four years. Purchased software rights are amortized on a
straight-line basis over the life of the right (fifteen years). During the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively, the Company capitalized $109,000 and $163,000 of such costs.
Amortization of capitalized software during these periods was $91,990 and
$172,026, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this approach, deferred income taxes are provided for the temporary differences
between the book and tax basis of assets and liabilities using currently enacted
tax rates. Changes in tax laws or rates are recognized in the deferred tax
balances when enacted.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
F-49
109
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. Such instruments are reported
at values which the Company believes are not materially different from their
fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's results of operations and
cash flows for the nine months ended September 30, 1995. The results of
operations and cash flows for the nine months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. INCOME TAXES
Deferred income taxes relate to temporary differences between financial and
income tax reporting and relate primarily to the Company reporting on a cash
basis for income tax purposes. General business tax credits are accounted for as
a reduction of income tax expense in the year in which they are utilized.
The components of income tax expense (benefit) are as follows:
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Current
Federal................................................... $ -- $ --
State..................................................... -- --
--------- ---------
Total current..................................... -- --
--------- ---------
Deferred
Federal................................................... (16,000) (4,423)
State..................................................... (4,000) (1,105)
--------- ---------
Total deferred.................................... (20,000) (5,528)
--------- ---------
$ (20,000) $ (5,528)
========= =========
F-50
110
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax liabilities and assets are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Deferred income tax liability
Book over tax basis in capitalized software............... $ 60,000 $ 77,000
======== ========
Deferred income tax assets
Net operating loss........................................ 15,000 --
Book over tax basis in receivables, net of deferred
revenues, payables and accrued expenses................ $117,000 $129,000
-------- --------
$132,000 $129,000
======== ========
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
Expected tax expense (benefit)............................. $(16,359) $ 10,005
Increase (decrease) in income taxes resulting from:
State income taxes....................................... (2,887) 1,765
Effect of graduated rates................................ 9,142 (11,119)
Other, net............................................... (9,896) (6,179)
-------- --------
Net income taxes (benefit)................................. $(20,000) $ (5,528)
======== ========
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
Furniture and equipment.................................... $560,486 $531,222
Transportation equipment................................... 40,587 40,587
-------- --------
601,073 571,809
Less accumulated depreciation.............................. 473,722 439,437
-------- --------
$127,351 $132,372
======== ========
4. NOTES PAYABLE
Notes payable consist of a $76,000 outstanding balance on a credit line of
$100,000, plus various installment notes. The credit line matures May 1997,
bears interest at prime plus 2.00% and is secured by
F-51
111
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
certain property and equipment and guarantee of the Company's stockholder.
Interest on the installment notes is at normal market rates for these types of
obligations.
Principal maturities on the note obligations are as follows:
YEAR AMOUNT
- ------------------------------------------------------------ --------
1997........................................................ $135,440
1998........................................................ 10,881
1999........................................................ 6,634
--------
$152,955
========
5. LEASES
The Company is obligated under terms of operating leases for its office
facilities and certain equipment.
Future minimum payments under these operating leases, which expire in 1997,
totalled $121,000 at September 30, 1996.
Rental expense was approximately $99,000 and $131,000 for the nine months
ended September 30, 1996 and the year ended December 31, 1995, respectively.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan for its eligible employees. In addition
to the amount deferred by each employee, the company matches 25% of employee
contributions, up to a maximum amount of 4% of salary on a pay period by pay
period basis. Expense related to this plan was $6,881 and $4,631 for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively.
7. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire all of the common stock of the Company in
exchange for an estimated $1,175,000 cash and approximately 783,000 shares of
common stock of AMC. The sale is expected to occur in the first quarter of 1997.
F-52
112
REPORT OF INDEPENDENT CERTIFIED INDEPENDENT PUBLIC ACCOUNTANTS
The Management of
Health Care Division (a division of Info Systems of North Carolina, Inc.)
Charlotte, North Carolina
We have audited the accompanying balance sheets of Health Care Division (a
division of Info Systems of North Carolina, Inc.) as of June 30, 1996 and 1995,
and the related statements of operations and cash flows for the years then
ended. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of Health Care Division (a
division of Info Systems of North Carolina, Inc.) as of June 30, 1996 and 1995,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 8, 1996
F-53
113
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
BALANCE SHEETS
JUNE 30,
----------------------- SEPTEMBER 30,
1995 1996 1996
---------- ---------- -------------
(UNAUDITED)
ASSETS:
Current assets:
Accounts receivable, less reserves for uncollectible
accounts of $25,000, $20,000 and $19,000,
respectively......................................... $1,348,602 $ 325,121 $ 529,470
Work-in-progress........................................ 68,545 18,914 35,197
Prepaid expenses........................................ 40,745 27,438 27,779
Deferred income tax assets.............................. 50,000 24,000 48,000
---------- ---------- ----------
Total current assets............................ 1,507,892 395,473 640,446
---------- ---------- ----------
Property and equipment:
Property and equipment, at cost......................... 197,277 183,675 193,967
Accumulated depreciation and amortization............... (153,394) (127,689) (127,227)
---------- ---------- ----------
Total property and equipment.................... 43,883 55,986 66,740
---------- ---------- ----------
Capitalized software development costs, net of accumulated
amortization of $161,823, $302,572 and $323,445,
respectively............................................ 269,929 148,679 127,806
---------- ---------- ----------
Total assets.................................... $1,821,704 $ 600,138 $ 834,992
========== ========== ==========
LIABILITIES AND DIVISIONAL EQUITY (DEFICIT):
Current liabilities:
Lines-of-credit......................................... $ 405,808 $ 491,380 $ --
Current portion of long-term debt....................... 152,295 171,518 147,356
Accounts payable and accrued expenses................... 1,051,580 71,927 551,399
Deferred maintenance and service fees................... 443,190 535,641 340,294
Income taxes payable.................................... 15,000 14,000 10,000
Customer deposits....................................... 70,361 4,335 195,828
---------- ---------- ----------
Total current liabilities....................... 2,138,234 1,288,801 1,244,877
Long-term debt, less current portion...................... 270,746 227,362 195,333
Deferred income tax liabilities........................... 92,000 52,000 44,000
---------- ---------- ----------
Total liabilities............................... 2,500,980 1,568,163 1,484,210
---------- ---------- ----------
Commitments and contingencies
Divisional equity (deficit)............................... (679,276) (968,025) (649,218)
---------- ---------- ----------
Total liabilities and divisional equity
(deficit)..................................... $1,821,704 $ 600,138 $ 834,992
========== ========== ==========
See accompanying notes to financial statements.
F-54
114
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------- ----------------------
1995 1996 1995 1996
---------- ---------- ---------- --------
(UNAUDITED)
Revenues:
Systems and software sales................... $4,675,581 $1,833,211 $ 407,572 $751,792
Maintenance and support...................... 2,106,571 2,099,720 498,029 439,242
Other........................................ 96,691 104,146 40,596 13,914
---------- ---------- ---------- --------
Total revenues....................... 6,878,843 4,037,077 946,197 1,204,948
---------- ---------- ---------- --------
Operating costs and expenses:
Cost of hardware and certain software
sales..................................... 3,345,509 750,242 203,187 593,862
Personnel costs.............................. 2,107,663 2,167,934 501,056 354,568
Other selling, general and administrative
expenses.................................. 534,846 452,984 109,014 80,934
Allocated corporate selling, general and
administrative............................ 595,089 405,455 78,700 72,456
Employee benefit contribution expense........ 170,860 80,044 29,280 25,484
Depreciation and amortization................ 142,495 147,448 57,000 45,839
---------- ---------- ---------- --------
Total operating costs and expenses... 6,896,462 4,004,107 978,237 1,173,143
---------- ---------- ---------- --------
Operating income (loss)........................ (17,619) 32,970 (32,040) 31,805
Other expenses:
Interest expense, net........................ 35,437 29,887 226 5,773
---------- ---------- ---------- --------
Income (loss) before taxes..................... (53,056) 3,083 (32,266) 26,032
Income tax expense (benefit)................... (17,000) -- (12,000) 10,000
---------- ---------- ---------- --------
Net income (loss).............................. $ (36,056) $ 3,083 $ (20,266) $ 16,032
========== ========== ========== ========
See accompanying notes to financial statements.
F-55
115
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------- ---------------------
1995 1996 1995 1996
--------- ---------- --------- ---------
(UNAUDITED)
Cash provided by (used in) operating activities:
Net income (loss).............................. $ (36,056) $ 3,083 $ (20,266) $ 16,032
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization............... 142,495 147,448 48,090 43,902
Deferred taxes.............................. (32,000) (14,000) (8,500) (32,000)
Decrease (increase) in:
Accounts receivable....................... (535,411) 1,023,481 263,879 (204,349)
Work in progress.......................... (35,254) 49,631 17,164 (16,283)
Prepaid expenses.......................... (27,060) 13,307 5,616 1,659
Increase (decrease) in:
Accounts payable and accrued expenses..... (6,630) (979,653) (401,902) 600,512
Deferred maintenance and service fees and
customer deposits...................... 74,249 26,425 70,015 (97,894)
Income taxes payable...................... 15,000 (1,000) -- --
--------- ---------- --------- ---------
Net cash provided by (used in) operating
activities.................................. (440,667) 268,722 (25,904) 311,579
--------- ---------- --------- ---------
Cash provided by (used in) investing activities:
Purchase of property and equipment, net........ (35,144) (18,803) (17,220) (31,338)
Capitalized software development costs......... (57,552) (19,498) -- (4,875)
--------- ---------- --------- ---------
Net cash used in investing activities.......... (92,696) (38,301) (17,220) (36,213)
--------- ---------- --------- ---------
Cash provided by (used in) financing activities:
Proceeds from lines (reduction of) of credit,
net......................................... 405,808 85,572 (233,826) (387,389)
Proceeds from long-term debt................... 42,172 118,158 124,325 93,925
Repayment of long-term debt.................... (304,399) (142,319) (76,100) (35,580)
--------- ---------- --------- ---------
Net cash provided by (used in) financing
activities.................................. 143,581 61,411 (185,601) (329,044)
--------- ---------- --------- ---------
Net cash retained (disbursed) by Company......... $(389,782) $ 291,832 $(228,725) $ (53,678)
========= ========== ========= =========
See accompanying notes to financial statements.
F-56
116
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Health Care Division ("HCD"), a division of Info Systems of North Carolina,
Inc., (the "Company") is engaged in designing, programming, licensing,
installing, and supporting hardware and software systems to the medical industry
throughout the United States. HCD has long-term marketing rights to and
ownership of licensed software in various industry segments.
BASIS OF PRESENTATION
The accompanying financial statements present the financial position,
results of operations and cash flows of HCD. The balance sheets present the
assets and liabilities which are specifically identifiable to HCD and a pro rata
allocation of the Company's long-term debt. The statements of operations include
an allocation of Company general and administrative expenses incurred on behalf
of HCD. Expenses allocated to HCD are allocated based on factors such as ratios
of sales or manpower in HCD to total sales or manpower in consolidated entities.
Company management believes the allocations are reasonable, however, these
allocated expenses are not necessarily indicative of expenses that would have
been incurred by HCD on a stand-alone basis.
REVENUE RECOGNITION
Professional services revenue represents fees for designing, programming,
consulting and other installation services and is recognized as revenue as the
related services are performed, or under the percentage of completion method for
fixed price contracts. Maintenance fees are recognized ratably over the term of
the related contract. Deferred revenues include the unearned portion of all
maintenance and service agreements.
Software licensing fees represent revenues under licensing agreements that
provide customers with the right to use HCD's software products. Certain
agreements also provide for professional services such as installation of the
software and customer training. Software licensing fees are recognized as
revenue when the related software is delivered.
COSTS OF HARDWARE AND CERTAIN SOFTWARE SALES
Costs of hardware and certain software sales include those costs incurred
related to software licensing fees (primarily royalty and referral expenses) and
amounts paid for the purchase of hardware from IBM and other vendors under HCD's
remarketing arrangements.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software acquired directly and through business
acquisitions, which is to be licensed, are capitalized and are amortized on a
straight-line basis over the expected useful life of the individual software
products (generally four years). All other internal software research and
development costs are expensed in the period in which they are incurred.
Amortization of capitalized software costs for the years ended June 30,
1995 and 1996, was $131,383 and $142,548, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period
F-57
117
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accelerated. The Company will recognize an impairment if undiscounted estimated
future cash flows of the capitalized software is determined to be less than the
carrying amount of capitalized software.
CUSTOMER DEPOSITS
Customer deposits represent deposits received on licensing agreements and
hardware sales agreements (prior to delivery of the software and hardware) and
the portion of licensing fee revenue relating to installations and customer
training that have not been completed as of year-end.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes.
INCOME TAXES
The Company uses the asset and liability approach where deferred income
taxes are provided for temporary differences between the book and tax bases of
assets and liabilities using the tax rates, under existing legislation, expected
to be in effect at the date temporary differences are expected to reverse. The
effects of changes in tax laws or rates are recognized in deferred tax balances
when enacted.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
HCD sells its systems and services to a wide variety of customers in
several geographic areas. This diversity limits the concentration of credit risk
which may arise from the resultant accounts receivable. The Division had two
customers in 1996 which accounted for approximately $478,000 and $464,000,
respectively, of its revenue and three customers in 1995 which accounted for
approximately $1,915,000, $1,071,000, and $711,000, respectively, of total
revenue.
FAIR VALUE OF FINANCIAL INSTRUMENTS
HCD's financial instruments include accounts receivables, accounts payable,
accrued liabilities and long-term debt. Such instruments are reported at values
which HCD believes are not materially different from their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by HCD be reviewed for potential impairment. This new
pronouncement did not have a material effect on HCD's financial statements when
adopted.
F-58
118
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly HCD's financial position at September 30,
1996 and its results of operations and its cash flows for the three months ended
September 30, 1996 and 1995. The results of operations and its cash flows for
the three months ended September 30, 1996 and 1995 are not necessarily
indicative of the results to be expected for the full year.
2. PROPERTY AND EQUIPMENT
Property and equipment consists entirely of computer equipment. The Company
does not identify other property and equipment by division and no allocation of
these assets are made for disclosure purposes. Depreciation of non-allocated
assets is included as part of the allocation of corporate expenses.
3. LINES-OF-CREDIT
The Company has a $1,500,000 line-of-credit with a bank that is
collateralized by equipment and various assets and is intended to be used for
general working capital purposes. Interest is payable monthly at either the
bank's prime rate or LIBOR plus 2.25 percent, at the Company's option. The
line-of-credit expires November 30, 1996. The outstanding balance at June 30,
1996, was $1,541,462. There was no outstanding balance at June 30, 1995.
The Company has a $600,000 line-of-credit with IBM for equipment financing
under its remarketing agreement that is due on demand and secured by certain
accounts receivable. IBM may approve borrowings above the $600,000 limit.
Interest is not accrued for the first 30 days; the rate varies from 1.75 percent
to 3.25 percent thereafter. The outstanding balances at June 30, 1996 and 1995,
were $641,730 and $1,664,834, respectively.
The Company's line-of-credit has been allocated to HCD based upon HCD's pro
rata share of total Company revenues.
4. LONG-TERM DEBT
Long-term debt consists of five notes payable to banks and one note payable
to stockholders due in various monthly installments ranging from $1,143 to
$35,000. These notes bear interest at various rates ranging from 7.45% to 9%,
including certain notes which bear interest at variable rates based on the prime
rate or LIBOR. The bank notes are secured by receivables, equipment and vehicles
and mature at various dates through June 1999. One of the bank notes payable and
the note payable to shareholders relate to the Company's ESOP plan (Note 6). The
long-term debt allocation to HCD is based on its pro rata share of the total
revenues and consists of:
JUNE 30, JUNE 30,
1995 1996
--------- ---------
Notes payable to banks and shareholders..................... $ 423,041 $ 398,880
Less current portion........................................ (152,295) (171,518)
--------- ---------
$ 270,746 $ 227,362
========= =========
F-59
119
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal repayments on long-term debt at June 30, 1996, are as
follows:
JUNE 30,
--------
1997........................................................ $171,518
1998........................................................ 178,616
1999........................................................ 41,362
2000........................................................ 7,384
--------
Total............................................. $398,880
========
Under the terms of certain of the notes payable, and the line-of-credit the
Company is required to comply with certain covenants, the most restrictive of
which require maintenance of certain financial and operating ratios and a
minimum level of tangible net worth; limit capital expenditures and prohibit the
Company from incurring additional indebtedness. The Company is either in
compliance with all covenants at June 30, 1996, or has obtained appropriate
waivers from the bank.
5. INCOME TAXES
Components of income tax expense (benefit) are as follows:
YEAR ENDED JUNE 30,
-------------------
1995 1996
-------- --------
Current:
Federal................................................ $ 10,000 $ 9,000
State.................................................. 5,000 5,000
-------- --------
15,000 14,000
-------- --------
Deferred:
Federal................................................ (25,000) (11,000)
State.................................................. (7,000) (3,000)
-------- --------
(32,000) (14,000)
-------- --------
Total........................................... $(17,000) $ --
======== ========
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pre-tax income as a result of the following:
YEAR ENDED JUNE 30,
--------------------
1995 1996
--------- --------
Expected tax expense (benefit)............................ $(18,039) $ 1,048
Increase (decrease) in income taxes resulting from:
State income taxes..................................... (4,112) 1,124
Nondeductible expenses................................. 2,886 3,909
Effect of graduated rates.............................. 2,265 (2,754)
Other.................................................. -- (3,327)
-------- -------
$(17,000) $ --
======== =======
F-60
120
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities are comprised of the following:
JUNE 30,
-----------------
1995 1996
------- -------
Deferred income tax liability
Book over tax basis in capitalized software............... $92,000 $52,000
======= =======
Deferred income tax assets
Accounts receivable....................................... $ 9,000 $ 7,000
Accrued vacation.......................................... 17,000 16,000
Customer deposits......................................... 24,000 1,000
------- -------
$50,000 $24,000
======= =======
6. EMPLOYEE BENEFIT PLANS
HCD's employees are covered under benefit plans established by the Company,
including a 401(k) profit sharing plan and an Employee Stock Ownership Plan
(ESOP). Eligibility for participation is based on age and length of service.
In connection with the ESOP's purchase of the Company's common stock, the
Company entered into certain notes payable, made a cash contribution to the ESOP
and obligated itself to make contributions to the ESOP sufficient to enable the
ESOP to service its debt. HCD's allocation of long-term debt includes an
allocation of ESOP debt.
Costs incurred by the Company under these benefit plans have been allocated
to HCD pro rata based on the number of employees.
7. COMMITMENTS AND CONTINGENCIES
HCD markets, licenses, and supports software packages under license and
distributorship agreements. These agreements require HCD to pay agreed-upon
royalties on each sale of a software package as well as certain minimum
royalties over various terms of the agreements. Royalty expense amounted to
approximately $21,000 and $55,000 in fiscal 1996 and 1995, respectively.
The Company has several operating leases for office space and equipment,
including that used by HCD, under one to seven year leases that are accounted
for as operating leases. In conjunction with the acquisition of HCD (Note 8),
operations of HCD will be moved to another location. HCD will not be responsible
for obligations under the existing leases after the relocation. Rent expense
allocated to HCD totalled $133,334 and $117,446 in fiscal 1996 and 1995,
respectively.
HCD is involved in various lawsuits arising in the normal course of
business. Management believes that such matters will not have a material effect
on the financial condition of HCD.
F-61
121
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. DIVISIONAL EQUITY (DEFICIT)
Divisional equity (deficit) reflects the historical activity between HCD
and the Company, including the effect of allocations of the Company's lines of
credit and long-term debt. An analysis of the change in divisional equity
(deficit) follows:
1995 1996
----------- ---------
Balance, July 1............................................. $(1,033,002) $(679,276)
Net income (loss)......................................... (36,056) 3,083
Net cash (to) from Company................................ (389,782) (291,832)
----------- ---------
Balance, June 30............................................ $ (679,276) $(968,025)
=========== =========
9. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire certain assets and liabilities of HCD in
exchange for an estimated $1,600,000 cash. The sale is anticipated to occur in
the first quarter of 1997.
F-62
122
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rovak, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Rovak, Inc., as of
September 30, 1996 and December 31, 1995, and the related statements of
operations and accumulated deficit and cash flows for the nine months ended
September 30, 1996 and year ended December 31, 1995. 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.
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 financial statements referred to above present fairly,
in all material respects, the financial position of Rovak, Inc. as of September
30, 1996 and December 31, 1995, and the results of its operations and its cash
flows for the nine months ended September 30, 1996 and year ended December 31,
1995 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 16, 1996
F-63
123
ROVAK, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
ASSETS:
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $10,000.................................... $ 207,196 $ 351,688
Inventory................................................. 428,990 285,842
Notes receivable -- stockholders.......................... 105,862 219,462
Other current assets...................................... 33,794 51,547
---------- ----------
Total current assets.............................. 775,842 908,539
Deferred income taxes....................................... 235,000 189,000
Property and equipment, net................................. 188,080 371,169
Prepaid royalties........................................... 116,993 116,993
---------- ----------
Total assets...................................... $1,315,915 $1,585,701
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Checks written in excess of available funds............... $ 3,949 $ 58,331
Note payable -- bank...................................... 56,000 186,032
Accounts payable.......................................... 239,179 338,493
Accrued compensation and payroll taxes.................... 82,735 68,482
Other accrued liabilities................................. 1,557 9,081
Customer deposits......................................... 154,275 111,337
Deferred revenue.......................................... -- 129,000
Long-term debt -- current portion......................... 187,473 186,559
Obligations under capital leases -- current portion....... 25,926 39,454
---------- ----------
Total current liabilities......................... 751,094 1,126,769
Notes payable -- stockholders............................... 124,842 103,056
Long-term debt.............................................. 593,598 461,326
Obligations under capital leases............................ 72,976 62,628
---------- ----------
Total liabilities................................. 1,542,510 1,753,779
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, no par value; 10,000 shares authorized;
8,217 shares issued and outstanding.................... 157,919 157,919
Accumulated deficit....................................... (384,514) (325,997)
---------- ----------
Total stockholders' equity (deficit).............. (226,595) (168,078)
---------- ----------
Total liabilities and stockholders' equity
(deficit)....................................... $1,315,915 $1,585,701
========== ==========
See accompanying notes to the financial statements.
F-64
124
ROVAK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
Revenues:
Systems and software sales............................. $2,455,398 $2,091,719 $1,649,320
Maintenance and support services....................... 742,740 1,024,046 589,173
Other.................................................. 603,734 547,864 439,334
---------- ---------- ----------
Total revenues................................. 3,801,872 3,663,629 2,677,827
Cost of sales............................................ 1,811,047 1,725,422 1,243,628
---------- ---------- ----------
Gross margin............................................. 1,990,825 1,938,207 1,434,199
---------- ---------- ----------
Operating expenses:
Personnel costs........................................ 1,257,191 994,000 766,710
Other selling, general and administrative.............. 509,612 515,492 574,757
Research and development............................... 297,834 172,876 131,764
Depreciation........................................... 68,341 52,508 26,228
---------- ---------- ----------
Total operating expenses....................... 2,132,978 1,734,876 1,499,459
---------- ---------- ----------
Operating income (loss).................................. (142,153) 203,331 (65,260)
Interest expense, net.................................... 127,933 98,814 99,700
---------- ---------- ----------
Income (loss) before taxes............................... (270,086) 104,517 (164,960)
Income taxes (benefit)................................... (99,000) 46,000 (65,000)
---------- ---------- ----------
Net (loss) income........................................ (171,086) 58,517 (99,960)
Accumulated deficit, beginning........................... (213,428) (384,514) (213,428)
---------- ---------- ----------
Accumulated deficit, ending.............................. $ (384,514) $ (325,997) $ (313,388)
========== ========== ==========
See accompanying notes to financial statements.
F-65
125
ROVAK, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------------
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
Cash provided by (used in) operating activities:
Net (loss) income.................................. $(171,086) $ 58,517 $ (99,960)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation.................................... 68,341 52,508 26,228
(Increase) decrease in assets:
Accounts receivable........................... 76,130 (144,492) (39,245)
Inventory..................................... (65,255) 9,176 (22,948)
Prepaid royalties............................. -- -- (140,960)
Other current assets.......................... (2,705) (17,753) --
Deferred income taxes......................... (99,000) 46,000 --
Increase (decrease) in liabilities:
Accounts payable.............................. 11,746 99,314 37,245
Accrued expenses.............................. 53,786 (6,729) 17,938
Customer deposits............................. 60,394 (42,938) 100,750
Deferred revenue.............................. -- 129,000 55,999
Net (increase) decrease in notes receivable --
stockholders............................... (27,791) (113,600) 78,071
--------- --------- -----------
Net cash provided by (used in) operating
activities...................................... (95,440) 69,003 13,118
--------- --------- -----------
Cash provided by (used in) investing activity:
Purchase of property and equipment................. (25,482) (78,155) (7,867)
--------- --------- -----------
Cash provided by (used in) financing activities:
Checks written in excess of available funds........ 3,949 54,382 --
Increase in credit line............................ 594,038 779,359 1,044,341
Decreases in credit line........................... (638,038) (649,327) (870,341)
Repayment of note payable -- stockholders.......... (31,529) (21,786) (76,038)
Issuance of long-term debt......................... 330,350 -- --
Repayment of long-term debt........................ (117,883) (133,186) (77,924)
Repayment of capital lease obligations............. (24,240) (20,290) (18,261)
--------- --------- -----------
Net cash provided by financing activities.......... 116,647 9,152 1,777
--------- --------- -----------
Net (decrease) increase in cash...................... (4,275) -- 7,028
Cash, beginning...................................... 4,275 -- 4,275
--------- --------- -----------
Cash ending.......................................... $ -- $ -- $ 11,303
========= ========= ===========
See accompanying notes to financial statements.
F-66
126
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ORGANIZATION
Rovak, Inc., (the "Company") is a Minnesota corporation engaged in the
design, development, marketing, installation and servicing of its proprietary
healthcare practice management software systems and related computer equipment
to clinics located throughout the United States.
REVENUE RECOGNITION
Revenue on computer system sales and software license fees is recognized
when the system is shipped. Revenue for maintenance and support is deferred and
recognized ratably over the period to which it relates.
INVENTORIES
Inventories are stated at cost and represent computer systems and
replacement parts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method and is charged to expense based on the estimated useful
lives of the assets.
Expenditures for additions and improvements are capitalized, while repairs
and maintenance are expensed as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Accounts receivable
arise from sale of practice management systems to the Company's customer base
located throughout the United States. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral from its customers. The Company's credit losses are subject to
general economic conditions of the health care industry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumption about the future outcome of current transactions which may affect the
reporting and disclosure of these transactions. Accordingly, actual results
could differ from those estimates used in the preparation of these financial
statements.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes,
if any. Deferred taxes represent the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
receivable, accounts payable, notes payable, and long term debt. Accounts
receivable and accounts payable are short term in nature, accordingly, carrying
value is deemed to approximate fair value. The notes payable to bank, including
both the short-term line of credit and the long-term loan, bear interest at
rates which vary with current market conditions,
F-67
127
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accordingly, carrying values are deemed to approximate fair value. Notes
receivable and payable with stockholders bear interest at fixed rates ranging
between 8% and 10% which, based on their terms and their current interest rates
in the market, are deemed to approximate fair value.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's results of operations and
cash flows for the nine months ended September 30, 1995. The results of
operations and cash flows for the nine months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. NOTES RECEIVABLE -- STOCKHOLDERS
Notes receivable -- stockholders aggregated $219,462 and $105,862 at
September 30, 1996 and December 31, 1995, respectively. The notes bear interest
at 8%, are due upon demand and are unsecured.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
ESTIMATED
USEFUL LIFE DECEMBER 31, SEPTEMBER 30,
IN YEARS 1995 1996
----------- ------------ -------------
Furniture and fixtures............................. 5 $ 35,490 $ 45,415
Computer equipment................................. 5 151,162 325,833
Office equipment................................... 7 115,008 115,567
Equipment under capital lease...................... 5 135,456 158,926
Leasehold improvements............................. 5-7 32,272 59,244
-------- --------
469,388 704,985
Less accumulated depreciation...................... 281,308 333,816
-------- --------
Property and equipment, net........................ $188,080 $371,169
======== ========
Depreciation expense, including that on equipment under capital lease, was
$52,508 and $68,341 in 1996 and 1995, respectively. Accumulated depreciation on
the equipment under capital leases was $61,044 and $38,379 at September 30, 1996
and December 31, 1995, respectively.
4. NOTE PAYABLE -- BANK
At September 30, 1996 and December 31, 1995, the Company had outstanding
short-term borrowings of $186,032 and $56,000, respectively, under a bank line
of credit totalling $500,000 and $200,000, respectively. The unused portion of
the line of credit was $313,968 at September 30, 1996 and was $144,000 at
F-68
128
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995. The line of credit accrues interest monthly at a variable
rate (8.75% at September 30, 1996) and is collateralized by a first security
interest of substantially all corporate assets.
5. NOTES PAYABLE -- STOCKHOLDERS
Notes payable -- stockholders aggregated $103,056 and $124,842 at September
30, 1996 and December 31, 1995, respectively. The notes bear interest at 10%,
are due in 1999 and are collateralized by substantially all assets subordinated
to the note payable -- bank and long-term debt.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
Notes payable -- bank bearing interest at a variable rate
(10.25% at September 30, 1996) and due in monthly
installments at various dates through November 2000. The
notes are collateralized by a first security interest in
substantially all corporate assets........................ $ 781,071 $ 647,885
Less current portion...................................... (187,473) (186,559)
--------- ---------
Long-term debt.............................................. $ 593,598 $ 461,326
========= =========
Future maturities are as follows:
Three months ending December 31, 1996..................... $ 54,287
YEAR ENDING DECEMBER 31:
1997...................................................... 186,559
1998...................................................... 201,346
1999...................................................... 132,424
2000...................................................... 73,269
---------
$ 647,885
=========
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain office equipment under capital leases expiring
at various dates through May 2001. Future minimum lease payments as of September
30, 1996 are as follows:
Three months ending December 31, 1996....................... $ 9,444
YEAR ENDING DECEMBER 31:
1997...................................................... 37,776
1998...................................................... 37,776
1999...................................................... 21,876
2000...................................................... 5,976
Thereafter................................................ 2,490
Total minimum lease payments...................... 115,338
Less amount representing interest........................... (13,256)
--------
Present value of net minimum lease payments................. 102,082
Less current portion........................................ (39,454)
--------
Long-term portion........................................... $ 62,628
========
F-69
129
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its corporate offices and operating facilities under an
operating lease with a corporation related through common control.
The aggregate future minimum lease payments as of September 30, 1996 are as
follows for:
Three months ending December 31, 1996....................... $ 22,500
YEAR ENDING DECEMBER 31:
1997...................................................... 90,000
1998...................................................... 90,000
1999...................................................... 90,000
2000...................................................... 45,000
--------
$337,500
========
Rent expense was $52,500 and $44,807 in 1996 and 1995, respectively.
401(K) PROFIT-SHARING PLAN
In 1996, the Company established a 401(k) plan available to all employees
meeting certain service 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 also may provide profit-sharing
contributions at the discretion of its board of directors. Employees become
fully vested in the Company contributions after seven years of service. In 1996,
the Company contribution was $12,718.
LICENSE AGREEMENTS
In February 1996, the Company entered into a license agreement with Centaur
Systems, Inc. ("CSI") whereby CSI granted Rovak the exclusive right to license
certain programs owned by CSI, in exchange for future royalty payments on
revenue received by the Company related to maintenance services provided to
CSI's customer base. The royalty is calculated on an annual declining scale
starting at 60% of related revenue for 1996 and ending at 20% of revenue for the
year 2000. During 1996, the Company paid $31,389 of royalties to CSI pursuant to
this agreement.
In September 1994, the Company entered a license agreement with PCM
Systems, Inc. ("PCM") whereby PCM granted Rovak the exclusive right to license
certain programs owned by PCM, in exchange for future royalty payments equal to
5% of revenue received by the Company related to PCM's line of business,
including any related maintenance fees earned. In addition, the agreement
required a royalty prepayment of $80,000 and minimum monthly royalties of
$3,333, with guaranteed minimum aggregate royalty payments of $280,000 through
August 31, 2001, after which royalties no longer accrue. As of September 30,
1996, $116,993 of royalties have been prepaid. In addition, the Company remitted
earned royalties to PCM aggregating $30,000 and $40,000 in 1996 and 1995,
respectively. Through September 30, 1996, the Company has paid an aggregate of
$186,993 to PCM including royalties earned and prepaid.
Also in connection with the PCM license agreement, the Company entered into
an employment agreement with an officer/shareholder of PCM, whereby that
individual became employed by Rovak in exchange for base compensation plus a 5%
commission on all revenue earned by Rovak related to PCM's line of business.
This agreement runs through 2001 and may be canceled by either party.
F-70
130
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS
During 1996 and 1995, the Company purchased computer forms and supplies
from a corporation owned by a family member of a Company stockholder aggregating
$257,863 and $214,886, respectively. These costs are included in cost of sales
in the Company's statement of operations. At September 30, 1996 and December 31,
1995, accounts payable to this related party totalled $26,764 and $30,020,
respectively.
Additionally, the Company leases its operating facility and offices from a
related party (Note 8).
10. INCOME TAXES
The components of income tax expense (benefit) are as follows:
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
Current
Federal................................................... $ -- $ --
State..................................................... -- --
-------- -------
Total current..................................... -- --
-------- -------
Deferred
Federal................................................... (77,000) 36,000
State..................................................... (22,000) 10,000
-------- -------
Total deferred.................................... (99,000) 46,000
-------- -------
$(99,000) $46,000
======== =======
Deferred tax assets at September 30, 1996 and December 31, 1995 of $189,000
and $235,000 relate principally to the anticipated benefit from the Company's
$343,000 net operating loss carryforward which expires in 2010. Other temporary
differences are immaterial.
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
Expected tax (benefit) expense.............................. $(91,830) $35,535
Increase (decrease) in income taxes resulting from:
State income taxes........................................ (16,494) 5,873
Other, net.................................................. 9,324 4,592
-------- -------
Net income tax (benefit) expense............................ $(99,000) $46,000
======== =======
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
----------------- -------------
Cash paid for interest during the periods............... $133,933 $108,814
======== ========
During 1996, the Company incurred obligations under capital leases
totalling $23,470 in exchange for equipment. In addition, the Company
transferred $133,972 of inventory to equipment.
F-71
131
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medicare
Corporation ("AMC"), whereby AMC would acquire all of the common stock of the
Company in exchange for an estimated $3,400,000. Of the total consideration,
approximately $2,800,000 is payable in cash and the balance by issuance of
common stock. The sale is anticipated to occur in the first quarter of 1997.
F-72
132
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
DR Software, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of DR Software, Inc. as of
September 30, 1996 and December 31, 1995, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the nine months
ended September 30, 1996 and the year ended December 31, 1995. 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.
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 financial statements referred to above present fairly,
in all material respects, the financial position of DR Software, Inc. at
September 30, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the nine months ended September 30, 1996 and the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 23, 1996
F-73
133
DR SOFTWARE, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
ASSETS:
Current assets:
Cash...................................................... $ 169,834 $ 26,925
Accounts receivable, net of allowance of $8,100........... 262,385 275,314
Inventory................................................. 135,587 99,667
Other assets.............................................. 37,028 72,796
---------- ----------
Total current assets.............................. 604,834 474,702
---------- ----------
Property and equipment at cost
Office and computer equipment............................. 340,561 392,725
Furniture and fixtures.................................... 32,771 58,052
---------- ----------
Total property and equipment at cost.............. 373,332 450,777
Less: accumulated depreciation.................... (243,165) (285,953)
---------- ----------
Net property and equipment........................ 130,167 164,824
---------- ----------
Capitalized software development costs, net of accumulated
amortization of $1,070,143 and $1,263,321................. 514,414 592,523
---------- ----------
Total assets...................................... $1,249,415 $1,232,049
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Note payable to bank...................................... $ -- $ 70,000
Accounts payable.......................................... 187,377 154,742
Accrued expenses.......................................... 138,050 137,469
Deferred revenue from software maintenance agreements..... 881,754 876,614
Current portion of capital lease obligation............... 4,913 8,525
---------- ----------
Total current liabilities......................... 1,212,094 1,247,350
---------- ----------
Capital lease obligations, less current portion............. 15,227 20,864
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $1.00 par value; 100,000 shares authorized;
50,000 shares issued and outstanding................... 50,000 50,000
Deficit................................................... (27,906) (86,165)
---------- ----------
Total stockholders' equity (deficit).............. 22,094 (36,165)
---------- ----------
Total liabilities and stockholders'
equity/(deficit)................................ $1,249,415 $1,232,049
========== ==========
See accompanying notes to financial statements.
F-74
134
DR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1995 1996 1995
------------ ---------- -----------
(UNAUDITED)
Revenues:
System sales............................................ $2,192,378 $1,448,071 $1,633,672
Support and services.................................... 1,211,916 1,049,526 870,869
---------- ---------- ----------
Total revenues.................................. 3,404,294 2,497,597 2,504,541
---------- ---------- ----------
Operating expenses:
Salaries and wages...................................... 1,419,195 1,058,526 1,048,322
Hardware purchase for resale............................ 1,073,920 584,264 792,980
Depreciation and amortization........................... 292,641 235,968 218,917
Rent.................................................... 231,041 237,240 168,248
Travel and entertainment................................ 187,223 155,124 113,540
Telephone............................................... 120,290 97,693 91,496
Advertising............................................. 82,813 92,273 71,531
Other................................................... 10,056 91,169 6,238
---------- ---------- ----------
Total operating expenses........................ 3,417,179 2,552,257 2,511,272
---------- ---------- ----------
Loss from operations...................................... (12,885) (54,660) (6,731)
Other income (expense):
Interest expense........................................ (11,139) (9,144) (8,176)
Miscellaneous income.................................... 11,747 20,545 619
---------- ---------- ----------
Net loss.................................................. $ (12,277) $ (43,259) $ (14,288)
========== ========== ==========
See accompanying notes to financial statements.
F-75
135
DR SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TOTAL
STOCKHOLDERS'
COMMON EQUITY
STOCK (DEFICIT) (DEFICIT)
------- --------- -------------
Balance, at December 31, 1994............................... $50,000 $(10,629) $ 39,371
Net loss.................................................. -- (12,277) (12,277)
Distributions............................................. -- (5,000) (5,000)
------- -------- --------
Balance, at December 31, 1995............................... 50,000 (27,906) 22,094
Net loss.................................................. -- (43,259) (43,259)
Distributions............................................. -- (15,000) (15,000)
------- -------- --------
Balance, at September 30, 1996.............................. $50,000 $(86,165) $(36,165)
======= ======== ========
See accompanying notes to financial statements.
F-76
136
DR SOFTWARE INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------- -------------
(UNAUDITED)
Cash provided by (used) in operating activities:
Net loss............................................... $(12,277) $(43,259) $(14,288)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization....................... 292,641 235,968 218,917
Changes in:
Accounts receivable............................... (52,822) (12,929) (60,086)
Inventory......................................... (35,874) 35,920 (23,195)
Other assets...................................... (7,054) (35,768) (26,641)
Accounts payable and accrued expenses............. 89,370 (33,216) 40,884
Deferred revenue.................................. 132,692 (5,140) 117,605
-------- -------- --------
Net cash provided by operating activities.............. 406,676 141,576 253,196
-------- -------- --------
Cash provided by (used) in investing activities:
Purchase of property and equipment..................... (41,314) (63,047) (28,151)
Increase in capitalized software development costs..... (254,530) (271,289) (190,250)
-------- -------- --------
Net cash used in investing activities.................. (295,844) (334,336) (218,401)
-------- -------- --------
Cash provided by (used) in financing activities:
Net borrowings under line of credit.................... -- 70,000 --
Decrease in loans from stockholders.................... (10,000) -- (10,000)
Payments on capital lease obligations.................. (4,241) (5,149) (3,117)
Distributions paid..................................... (5,000) (15,000) --
-------- -------- --------
Net cash provided by (used in) financing activities.... (19,241) 49,851 (13,117)
-------- -------- --------
Net increase (decrease) in cash.......................... 91,591 (142,909) 21,678
Cash, beginning.......................................... 78,243 169,834 78,243
-------- -------- --------
Cash, ending............................................. $169,834 $ 26,925 $ 99,921
======== ======== ========
See accompanying notes to financial statements.
F-77
137
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
DR Software, Inc. (the "Company"), a Georgia corporation, was incorporated
on February 24, 1983. The Company provides turnkey computer hardware and
software systems to physicians. The Company's offices are located in Marietta,
Georgia.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term debt
securities purchased with an initial maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are valued at the lower of cost, which is determined using the
specific identification method, or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements that significantly add to productive capacity or extend the useful
life of an asset are capitalized. Expenditures for maintenance and repairs are
charged to expense accounts currently. When depreciable properties are retired
or otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the resultant gain or loss is reflected in the
Company's statement of income during the applicable period.
For financial statement purposes, depreciation of property and equipment is
computed using the straight-line method of depreciation over the estimated
useful lives of the assets, which range from 5-7 years.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes computer software costs incurred subsequent to
establishing technological feasibility of the product. The Company capitalizes
the labor costs and a pro rata share of general and administrative costs in
connection with these products. During the nine months ended September 30, 1996
and the year ended December 31, 1995, the Company capitalized $271,289 and
$254,530, respectively, of computer software costs.
Computer software is amortized on a straight-line basis over the four year
estimated useful life of the software. Amortization expense related to total
capitalized computer software costs amounted to $193,178 and $243,752 and for
the nine months ended September 30, 1996 and for the year ended December 31,
1995, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
REVENUE RECOGNITION
Revenue on computer system sales and software license fees is recognized
when the system is shipped. Revenue for maintenance and support is deferred and
recognized ratably over the period to which it relates.
USE OF 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
F-78
138
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. Such instruments are reported
at values which the Company believes are not materially different from their
fair values.
VALUE OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Division be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's results of operations and
cash flows for the nine months ended September 30, 1995. The results of
operations and cash flows for the nine months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. NOTE PAYABLE
The Company has arranged for a line of credit with a bank in the maximum
amount of $100,000, with interest at the bank's prime rate plus 1.75%. The line
of credit is collateralized by accounts receivable, fixed assets, and a general
assignment of inventory behind IBM Credit Corporation. The line of credit must
remain clear for at least 30 consecutive days during the year, and is personally
guaranteed by certain of the Company's stockholders. The balance under this line
of credit at September 30, 1996 was $70,000.
F-79
139
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. CAPITAL LEASE OBLIGATION
The Company leases certain equipment under noncancelable lease agreements,
with monthly payments totalling $965 through July 2000. The following is a
schedule, by years, of the future required payments:
YEAR AMOUNT
- ---- -------
1997........................................................ $11,578
1998........................................................ 11,578
1999........................................................ 9,824
2000........................................................ 2,661
-------
Total future payments............................. 35,641
Less amount representing interest........................... (6,252)
-------
Present value of minimum lease payments..................... $29,389
=======
4. COMMITMENTS
The Company leases its premises as well as certain office equipment and a
vehicle under noncancellable operating leases which expire at various dates
through 2001.
The remaining obligations under these leases at September 30, 1996 are as
follows:
YEAR AMOUNT
- ---- --------
1997........................................................ $113,853
1998........................................................ 120,366
1999........................................................ 124,224
2000........................................................ 132,042
2001........................................................ 67,976
--------
$558,461
========
Rent expense for the nine months ended September 30, 1996 and for the year ended
December 31, 1995, was $237,240 and $231,041, respectively
5. INCOME TAXES
The Company has elected to be taxed as an "S" Corporation under the
provisions of Subchapter S of the Internal Revenue Code. As such, the profits of
the Company are taxed on the individual income tax returns of the stockholders.
Accordingly, no provision for income taxes has been made in the accompanying
financial statements.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Equipment acquired through capital leases totalled $14,400 and $0 in 1996
and 1995, respectively. Cash paid for interest during 1996 and 1995 was $9,144
and $11,139, respectively.
7. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire all of the common stock of the Company in
exchange for an estimated $2,700,000. Of the total consideration approximately
$1,875,000 is payable in cash and the balance by issuance of common stock. The
sale is anticipated to occur in the first quarter of 1997.
F-80
140
APPENDIX I
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, sec. 252, sec. 254, sec. 257, sec. 258, sec. 263
or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
(a) Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
(b) Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
(c) Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
1
141
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) and (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
of 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown
2
142
on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, wither such surviving or
resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
3
143
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4
144
APPENDIX II
MISSOURI GENERAL AND BUSINESS CORPORATION LAW
SECTION 351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES,
WHEN
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder and the surviving
or new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporations of the certificate or
certificates representing said shares. Upon the payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares, or in
the surviving or new corporation. Such shares may be held and disposed of by the
surviving or new corporation as it may see fit. Unless the dissenting
shareholder shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be conclusively presumed to
have approved and ratified the merger or consolidation, and shall be bound by
the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise. The
Company's By-laws provide that the Company will indemnify its directors,
executive officers, other officers, employees and agents to the fullest extent
permitted by Delaware law.
Article Eight of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
ITEM 22. UNDERTAKINGS
(a) Rule 415 Offering. The undersigned Registrant will file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, an increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering.
File a post-effective amendment to remove from registration any of the
securities at that remain unsold a the end of the Offering.
II-1
146
(b) Equity Offerings of Nonreporting Small Business Issuers. The
undersigned Registrant will provide to the underwriter at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(c) Indemnification. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the provisions referred to in Item 24 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) Rule 430A. The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of this
Registration Statement as of the time the Commission declared it effective;
2. For any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that the offering of the securities at that time as the
initial bona fide offering of those securities.
ITEM 27. EXHIBITS.
2.1 -- Plan and Agreement of Merger dated
between the Company and American Medcare Corporation*
3.1 -- Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of the Company's registration
statement on Form SB-2 Registration No. 333-18923)
3.2 -- By-Laws of InfoCure (incorporated herein by reference to
Exhibit 3.2 of the Company's registration statement on Form
SB-2 Registration No. 333-18923)
4.1 -- Specimen Certificate for shares of Common Stock*
5.1 -- Opinion of Glass, McCullough, Sherrill & Harrold, LLP,
counsel to the Company*
10.1 -- Stock Purchase Agreement among Company and the Shareholders
of Rovak, Inc. dated January , 1996*
10.2 -- Plan and Agreement of Merger among the Company, InfoCure Sub
Corporation, Healthcare Information Systems, Inc. and the
Shareholders of Healthcare Information Systems, Inc. dated
January , 1996*
10.3 -- Stock Purchase Agreement among the Company and the
Shareholders of DR Software dated January , 1996*
10.4 -- Form of Employment Agreement to be entered into between the
Company and Donald M. Rogers upon the consummation of the
Acquisitions*
10.5 -- Form of Employment Agreement to be entered into between the
Company and Gregory F. Vap upon the consummation of the
Acquisitions*
II-2
147
10.6 -- Form of Employment Agreement to be entered into between the
Company and Brad Schrant upon the consummation of the
Acquisitions*
10.7 -- Employment Agreement between the Company and Frederick L.
Fine dated December 1, 1996*
10.8 -- Employment Agreement between the Company and James K. Price
dated December 1, 1996*
10.9 -- Employment Agreement between the Company and R. Ernest
Chastain dated December , 1996*
10.10 -- Employment Agreement between the Company and Michael E.
Warren dated September 23, 1994 (incorporated by reference
to Exhibit 10.15 of the Company's Registration Statement on
Form SB-2 Registration No. 333-18923)
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP (to be
included in Exhibit 5.1)*
23.2 -- Consent of BDO Seidman, LLP
24.1 -- Powers of Attorney
27.1 -- Financial Data Schedule (for SEC use only, see Infocure
Corporation SB-2).
- ---------------
* to be filed by Amendment
II-3
148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Atlanta, State of
Georgia, on the 28th day of January, 1997.
INFOCURE CORPORATION
By: /s/ FREDERICK L. FINE
------------------------------------
Frederick L. Fine,
Chairman of the Board of Directors,
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on January 28, 1997. Each person whose signature to
this Registration Statement appears below hereby constitutes and appoints
Frederick L. Fine and James K. Price, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in consideration with this Registration Statement
or any amendments, including any post-effective amendments, thereto, and each of
the undersigned does hereby ratify and confirm that said attorney-in-fact and
agent, or his substitute, or his substitute, shall do or cause to be done by
virtue hereof.
SIGNATURE TITLE
--------- -----
/s/ FREDERICK L. FINE Chairman of the Board of Directors, President
- ----------------------------------------------------- and Chief Executive Officer
Frederick L. Fine
/s/ JAMES K. PRICE Director and Executive Vice President
- -----------------------------------------------------
James K. Price
/s/ MICHAEL WARREN Director and Chief Financial Officer
- -----------------------------------------------------
Michael Warren
JAMES D. ELLIOTT* Director
- -----------------------------------------------------
James D. Elliott
RICHARD E. PERLMAN* Director
- -----------------------------------------------------
Richard E. Perlman
/s/ FREDERICK L. FINE
- -----------------------------------------------------
Frederick L. Fine
Attorney-in-Fact
- ---------------
* By Power of Attorney
II-4