-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UP9GcI9dFSjl1YW7/+DI1E13BlfyLli+CgR7MzPyUEILHWGjgmpVPYD8Cp3mDX0f qYDahyB4yqyU9xyxlRZclg== 0000931763-99-001023.txt : 19990402 0000931763-99-001023.hdr.sgml : 19990402 ACCESSION NUMBER: 0000931763-99-001023 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOCURE CORP CENTRAL INDEX KEY: 0001028584 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 256767842 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-71109 FILM NUMBER: 99583316 BUSINESS ADDRESS: STREET 1: 3120 CROSSING PARK CITY: NORCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 7709680900 MAIL ADDRESS: STREET 1: 3120 CROSSING PARK CITY: NORCROSS STATE: GA ZIP: 30071 S-3/A 1 INFOCURE CORP. FORM S-3/A As filed with the Securities and Exchange Commission on March 31, 1999 Registration No. 333-71109 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- AMENDMENT NO. 3 to FORM S-3 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 (Primary Standard Industrial (I.R.S. Employer Jurisdiction of Classification Code Number) Identification Number) Incorporation or Organization) ---------------- 1765 The Exchange, Suite 450 Atlanta, Georgia 30339 (770) 221-9990 (Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ---------------- Lance B. Cornell Senior Vice President--Finance Chief Financial Officer 1765 The Exchange, Suite 450 Atlanta, Georgia 30339 (770) 221-9990 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ---------------- Copies to: Oby T. Brewer III, Esq. John J. Kelley III, Esq. Richard L. Haury, Jr., Esq. KING & SPALDING Lauren Z. Burnham, Esq. 191 Peachtree Street, N.E. MORRIS, MANNING & MARTIN, L.L.P. Atlanta, Georgia 30303 1600 Atlanta Financial Center Telephone: (404) 572-4600 3343 Peachtree Road, N.E. Facsimile: (404) 572-5100 Atlanta, Georgia 30326 Telephone: (404) 233-7000 Facsimile: (404) 365-9532 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective. If the only securities being registered in this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED MARCH 31, 1999 3,770,000 Shares [LOGO OF INFOCURE APPEARS HERE] Common Stock ---------- InfoCure Corporation is offering 3,000,000 shares of its common stock and the selling stockholders are offering an additional 770,000 shares. InfoCure's common stock is traded on the Nasdaq Stock Market under the symbol "INCX." ---------- Investing in the common stock involves certain risks. See "Risk Factors" beginning on page 7. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------
Per Share Total ----- ------- Public offering price.......................................... $ $ Underwriting discount.......................................... $ $ Proceeds to InfoCure........................................... $ $ Proceeds to the selling stockholders........................... $ $
InfoCure has granted the underwriters a 30-day option to purchase up to an additional 565,500 shares of common stock to cover over-allotments. The underwriters are offering the shares on a firm commitment basis subject to their right to reject orders in whole or in part and subject to other conditions. The underwriters expect to deliver the shares to purchasers on or about , 1999. ---------- The Robinson-Humphrey Company SG Cowen William Blair & Company Sanders Morris Mundy , 1999 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ DESCRIPTION OF ARTWORK Inside front cover: The artwork on the inside front cover of the prospectus depicts an image of a computer. The name "InfoCure" in large letters appears along the left-hand margin. There is a caption in the top, right-hand corner of the page that reads "focus on patients. forget the paperwork." Imposed over the image of the computer are the words "making the practice of healthcare more profitable." InfoCure's logo appears in the bottom, right-hand corner of the page. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. It is not complete and may not contain all of the information that you should consider before investing in our common stock. We encourage you to read the entire prospectus carefully, including the section entitled "Risk Factors" and the financial statements and the notes to those financial statements. In this prospectus, "InfoCure," "we," "our" and "us" refer to InfoCure Corporation and its consolidated subsidiaries. Our Business We are a leading national provider of healthcare practice management software products and services. Our wide range of practice management software automates the administrative, financial and clinical information management functions for doctors, dentists and other healthcare practitioners. We also provide our customers with ongoing maintenance and support, training and electronic data interchange services. These products and services are designed to increase the quality and reduce the cost of providing care by enabling physicians to manage their practices more efficiently. Our goal is to become the leading provider of practice management systems to targeted healthcare practice specialties. These specialties include: . anesthesiology . oral and maxillofacial surgery . podiatry . dermatology . orthodontics . radiology . emergency medicine . pathology
We believe that our ability to offer state-of-the-art software products that serve the specific needs of these healthcare practice specialties and our ability to sell additional products and services to our existing customer base will help us achieve this goal. As of March 26, 1999, 11,081 customer sites had installed InfoCure systems. These sites represent approximately 65,600 healthcare providers, and we have systems installed in all 50 states. Our business model is designed to grow the sales of software systems and to increase recurring revenue from ongoing maintenance and support and electronic data interchange services. As a result of this model, approximately 50% of total revenue is currently recurring in nature. We focus on growing our installed customer base through new system sales and acquisitions. Since October 1997, we have acquired eleven practice management systems vendors, increasing our pro forma revenue to approximately $117.0 million for the year ended December 31, 1998. Our Industry is Growing Federal and state governments, insurance carriers and other third-party payors, such as managed care organizations, have moved aggressively to control rising healthcare costs. More restrictive reimbursement practices have increased the complexity of accounting, billing and collecting for healthcare services. To address these challenges, healthcare providers are increasingly using computers to make their practices more efficient and profitable. According to Sheldon I. Dorenfest & Associates Ltd., expenditures on healthcare information systems are projected to grow from $13.6 billion in 1997 to $21.0 billion in 2000. 3 Our Products and Services Our systems provide significant benefits that enable customers to manage their practices more efficiently. Our customers are able to choose from a menu of features and functions most essential to their practices, primarily in the following areas: . administrative management; . financial management; and . clinical information management. This approach of providing a menu of features and functions enables healthcare practitioners to configure products that serve their specific needs. In addition, we have significant opportunities to sell additional products and services to our installed customer base. We have recently commenced a program emphasizing and broadening the electronic data interchange service capabilities we provide to our customers. Electronic data interchange allows practitioners to verify insurance eligibility, receive appropriate referrals, submit claims and receive reimbursement electronically. We believe that greater utilization of electronic data interchange and the resulting increase in the number of "paperless" transactions will improve the efficiency of healthcare providers. We also believe that fees generated from these services will be a significant source of recurring revenue. In addition to electronic data interchange services, we have recently begun to offer InfoMine decision support software. Using InfoMine, practitioners can quickly analyze the performance of their practices, including information regarding the profitability of contractual relationships with third-party payors. Strategies Our objective is to become the leading provider of advanced, specialty- specific practice management systems within targeted healthcare specialties. Our principal strategies to achieve this objective include: . continue to take advantage of niche market opportunities; . cross-sell our services and pursue opportunities with existing customers; . expand the features of products and services offered; . establish a national marketing identity; and . take advantage of economies of scale. Our principal offices are located at 1765 The Exchange, Suite 450, Atlanta, Georgia 30339, and our telephone number is (770) 221-9990. The Offering Common stock offered: By InfoCure..................... 3,000,000 shares By the selling stockholders..... 770,000 shares Common stock to be outstanding after the offering............... 12,942,150 shares. See "Capitalization." Use of proceeds................... For repayment of indebtedness incurred to finance prior acquisitions, working capital and other general corporate purposes, including possible future acquisitions. See "Use of Proceeds." Nasdaq Stock Market symbol........ INCX
We plan to prepay approximately $65.2 million of the outstanding balance on our credit facility with the proceeds from this offering. This will result in a charge of approximately $5.1 million for the early extinguishment of this debt in the second quarter of 1999. Unless otherwise stated, all information in this prospectus reflects the conversion of our Series A Preferred Stock into 1,000,070 shares of our common stock and assumes that the underwriters will not exercise their over-allotment option. 4 Summary Historical Consolidated and Unaudited Pro Forma Financial Data The following financial data is a summary of the more complete financial information provided in InfoCure's Unaudited Pro Forma Combined Financial Statements and Consolidated Financial Statements provided elsewhere in this prospectus. The unaudited pro forma combined statement of operations data for the year ended December 31, 1998 give effect to the following as if they had occurred on January 1, 1998: . the acquisition of HSD, a division of The Reynolds and Reynolds Company; . the borrowing of $40.0 million under our credit facility, which borrowings were used to fund the payment of a portion of the purchase price for the HSD acquisition; . the issuance of notes payable to fund the balance of the purchase price for the HSD acquisition; and . the February 1999 merger with OMSystems, Inc. in exchange for 1,143,999 shares of our common stock. The unaudited pro forma combined statement of operations data as adjusted for the year ended December 31, 1998 give effect to the following as if each had occurred on January 1, 1998: . the reduction of interest expense resulting from the proceeds of this offering used to repay our credit facility and other indebtedness incurred in connection with the HSD acquisition; . the number of shares of common stock issued and sold in this offering; . the conversion of our Series A Preferred Stock; and . the issuance of 99,255 shares of common stock which are issuable upon conversion of a note payable and other convertible obligations. The unaudited pro forma consolidated balance sheet data as of December 31, 1998 give effect to the HSD acquisition, including the related borrowings under our credit facility and issuance of other notes payable, and the merger with OMSystems as if completed as of December 31, 1998. Unaudited pro forma consolidated balance sheet data, as adjusted, as of December 31, 1998 give effect to the issuance and sale of the 3,000,000 shares of common stock offered hereby at an assumed offering price of $24.00 per share and the application of the estimated net proceeds, the issuance of 1,000,070 shares of common stock upon conversion of our Series A Preferred Stock, the issuance of 99,255 shares of common stock which are issuable upon conversion of the note payable and other convertible obligations, as if each was completed as of December 31, 1998. See "The Company," "Use of Proceeds," "Capitalization" and Unaudited Pro Forma Combined Financial Statements of InfoCure. 5
Year Ended December 31, 1998 ------------------------------------------- Pro Forma Consolidated Statement Actual Pro Forma As Adjusted of Operations Data: ------------ ------------ -------------- (in thousands, except per share data) Revenue: Systems and software............... $ 34,492 $ 63,372 $ 63,372 Maintenance, support and services .................................. 29,231 53,518 53,518 ------------ ------------ ------------ Total revenue....................... 63,723 116,890 116,890 Operating expense: Hardware and other items purchased for resale........................ 12,567 22,980 22,980 Selling, general and administrative.................... 34,685 66,452 66,452 Depreciation and amortization...... 4,328 7,121 7,121 Purchased research and development....................... 9,000 9,000 9,000 Compensatory stock awards.......... 57 6,447 6,447 Asset impairment, restructuring and special charges................... 1,874 2,624 2,624 ------------ ------------ ------------ Total operating expense............ 62,511 114,624 114,624 Operating income.................... 1,212 2,266 2,266 Other expense (income): Interest, net...................... 3,488 8,453 3,040 Other, net......................... (81) (145) (145) ------------ ------------ ------------ Loss before income taxes............ (2,195) (6,042) (629) Income taxes (benefit).............. (334) (1,796) 261 ------------ ------------ ------------ Net (loss).......................... (1,861) (4,246) (890) Accretive dividend.................. 800 800 800 ------------ ------------ ------------ Net (loss) available to common stockholders....................... $ (2,661) $ (5,046) $ (1,690) ============ ============ ============ Net (loss) per share: Basic and diluted.................. $ (0.39) $ (0.58) $ (0.13) Shares used in computing net (loss) per share: Basic and diluted.................. 6,780 8,726 12,756 Other data: EBITDA.............................. $ 16,552 $ 27,603 $ 27,603 December 31, 1998 ------------------------------------------- Pro Forma As Actual Pro Forma Adjusted ------------ ------------ -------------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents........... $ 8,552 $ 9,069 $ 10,000 Working capital..................... 481 1,543 5,624 Total assets........................ 127,784 132,121 128,545 Long-term debt, less current portion............................ 68,358 69,553 6,728 Convertible, redeemable preferred stock.............................. 8,500 8,500 -- Stockholders' equity................ 16,255 17,158 88,057
EBITDA data represents earnings before interest expense, provision (benefit) for income taxes, depreciation and amortization, purchased research and development, compensatory stock awards and asset impairment, restructuring and special charges. EBITDA is not a measurement in accordance with generally accepted accounting principles and should not be considered an alternative to, or more meaningful than, income from operations, net income or cash flows as defined by GAAP or as a measure of our profitability or liquidity. All companies do not calculate EBITDA in the same manner. Accordingly, our EBITDA data may not be comparable with that of other companies. We have included information concerning EBITDA because we believe EBITDA provides a useful measure of our performance. 6 RISK FACTORS You should carefully consider the following factors and other information in this prospectus before deciding to purchase shares of our common stock. Difficulties Integrating Acquired Businesses May Diminish Benefits Expected from Our Acquisition Strategy The successful integration of the businesses we acquire is critical to our future success. Integrating the management and operations of the businesses we acquire is time consuming, and we cannot guarantee that we will achieve any of the anticipated synergies and other benefits expected to be realized from the acquisitions, including those reflected in our unaudited pro forma combined financial data. We may face any one or more of the following difficulties: . difficulty integrating the financial, operational and administrative functions of acquired businesses; . difficulty integrating the products of acquired businesses; . delays in realizing the benefits of our strategies for an acquired business; . diversion of management's attention from our existing operations; . difficulty operating in markets in which we have little prior experience; . inability to retain key employees necessary to continue the operations of the acquired businesses; or . acquiring businesses with unknown liabilities, problems related to the year 2000, software bugs or adverse litigation and claims. The inability to successfully integrate our acquisitions and reduce our operating expenses could have a material adverse effect on future results and could negatively impact our ability to acquire other businesses or otherwise execute our business strategy. We May Face Claims Related to Year 2000 Problems Many installed computer systems and software products are designed to accept and process year codes with only two digits in their date fields. These systems and products may not operate properly when required to distinguish dates occurring on or after January 1, 2000 from dates in the 1900's. If our software products are not able to make this distinction, our customers may make claims against us which may result in significant costs and uncertainty. We believe we have identified most of our year 2000 readiness issues. We have concluded tests for substantially all of our products that we will continue to sell or support. We have determined that a majority of these products are ready for the year 2000. With respect to the rest of the products that we will continue to sell or support, we believe that we can modify these products so that they will be ready for the year 2000 by July 1999, but we cannot guarantee that they will be. We could experience delays or failures in developing or implementing the required modifications. For older products that we no longer sell or support, we have attempted to notify all known users of these products that these products generally are not ready for the year 2000 and that we have no plans to make them ready for the year 2000. We cannot guarantee that we will be able to contact all such users. As part of our effort to make our products ready for the year 2000 and to help our customers make their systems that use our products ready for the year 2000, we have offered our customers various alternative forms of products and assistance, including year 2000 information and diagnostic tools, software patches, product upgrades and replacement products. We cannot guarantee that these tools, patches, upgrades or replacement products will solve all material year 2000 problems with our products or our customers' systems. In addition, we cannot guarantee that claims will not be brought against us alleging that we harmed customers by failing to provide all of the information, tools, patches, upgrades or replacement products required to resolve all material 7 year 2000 readiness problems. For a more detailed discussion of year 2000 readiness issues, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Costs Related to Year 2000 Readiness." Our Financial Statements May Reflect Charges Associated with Acquisitions and Other Events Our financial statements reflect numerous special charges and expenses associated with acquisitions, corporate restructurings and compensation. Our financial statements for the year ended December 31, 1998 reflect a total of $17.3 million of such charges. Our future activities may cause us to incur additional similar charges which would have the effect of reducing our future earnings. Any such charges may also cause us to fail to meet analysts earnings expectations which would cause the trading price of our common stock to drop. Moreover, the Securities and Exchange Commission has recently required companies to reduce the amount of such charges and to restate previously issued financial statements. If the SEC were to require us to restate our financial statements, the announcement of such a restatement could have an adverse effect on the trading price of our common stock. We May Have Difficulties Managing Our Growth and Hiring Qualified Employees Our growth places a significant strain on our management and operations. Our future growth will depend, in part, on our ability to implement and expand financial control systems, train and manage our employee base, and provide support and services to an increasing customer base. Key personnel have recently joined InfoCure, and none of our officers has had significant experience in managing a large, public company. Our success is dependent to a significant degree on our ability to hire, retain and motivate sales, marketing and technical employees. We believe that there is a shortage of, and significant competition for, personnel with the advanced technological, managerial and marketing skills necessary in our business. Our ability to implement our growth strategy could be adversely affected by an inability to hire and retain additional qualified personnel. Our Growth May be Limited by Difficulties Implementing Our Acquisition Strategy We intend to pursue acquisitions of businesses, product lines and technologies that are complementary to our business. Our ability to grow through acquisitions will be limited by: . lack of suitable acquisition candidates at acceptable acquisition prices; . lack of capital to complete acquisitions; . a material decline in the market value of our common stock; or . increased competition for acquisition candidates. Any one of these risks could limit our growth and have a material adverse effect on our business. See "--Difficulties Integrating Acquired Businesses May Diminish Benefits Expected from Our Acquisition Strategy," "Business--Industry Overview" and "--Strategy." Operating Results May Vary and in the Past We Have Experienced Losses Our operating results may vary significantly from quarter to quarter. Thus, operating results for any particular quarter are not necessarily an indication of future results. In addition, we have experienced historical losses. Our operating results are influenced by such factors as: . the timing of and charges associated with completed acquisitions or other events; . changes in customer purchasing patterns; . competition; . the timing of sales; 8 . the timing of and cost related to new product introductions and upgrades; . the length of sales cycles; . the time required to install products; and . the levels of advertising and promotional expenditures. We operate without any significant backlog of product orders. A majority of the revenue realized in a quarter results from orders received or services rendered in that quarter. Therefore, it is difficult to forecast revenue from system sales. The sales and installation efforts for our AS/400 products are more expensive and require more time than for our Windows-based products. Moreover, sales of AS/400 products occur less frequently than sales of our Windows-based products, but typically result in greater revenue per sale. In addition, we recognize substantially lower margins on hardware sales relative to software sales. Fluctuations in sales of hardware relative to sales of software may negatively affect our operating margins in a particular quarter. Competition Could Reduce Revenue from Our Products and Services Currently, the practice management systems industry in the United States is characterized by a large number of relatively small, regionally-focused companies and a few national vendors. It is anticipated that additional competitors are likely to enter the practice management systems market as it expands. Some of our national competitors have greater financial, development, technical, marketing and sales resources than we have. As competition in the practice management systems industry intensifies, we may be required to lower the prices we charge for our products and services. This may have a material adverse effect on future results. We Must Protect Our Trade Secrets We rely on a combination of trade secrets, copyright and trademark laws, license agreements, nondisclosure and other contractual provisions and technical measures to protect our proprietary rights. Our software technology is not patented and existing copyright laws offer only limited practical protection. In addition, we generally have not entered into confidentiality agreements with our employees. We cannot guarantee that the legal protections that we rely on will be adequate to prevent misappropriation of our technology. Also, these protections do not prevent independent third-party development of competitive products or services. We believe that our products, trademarks and other proprietary rights do not infringe upon the proprietary rights of third parties. However, we cannot guarantee that third parties will not assert infringement claims against us in the future or that any such assertion will not require us to enter into a license agreement or royalty agreement with the party asserting a claim. Regardless of the outcome of any such legal proceedings, responding to and defending against any such infringement claim may require significant management resources and otherwise have a material adverse effect on future results. Our Products May Not Be Accepted By Customers Evolving healthcare industry standards, technological advances in software and hardware, and changes in customer demands require significant ongoing expenditures for the development and timely introduction of new products and enhancements. We cannot guarantee that we will successfully develop new products or enhancements of existing products that will satisfy the needs of customers. In addition, our InfoMine product may not be widely accepted by our customers. Our failure to gain market acceptance of new products and enhancements by both existing customers and new customers would adversely affect our revenue. We May Have Liability if Our Products are Defective While we test our products, they may contain defects or problems. These defects or problems could result in the failure of our customers' systems or the inability of those systems to perform properly. If our products fail to perform properly, we may incur liability or face other claims. We cannot guarantee that we will not be subject to such claims in the future or that contractual limitations on liability will be enforceable. While we 9 have general liability insurance that we believe is adequate, including coverage for errors and omissions, we may not be able to maintain this insurance on reasonable terms in the future. In addition, our insurance coverage may not be sufficient to cover large claims and our insurer could disclaim coverage on claims. If we are liable for an uninsured or underinsured claim or if our premiums increase significantly, our financial condition could be adversely affected. Even unsuccessful claims could result in substantial cost, divert management's attention from our operations and decrease or delay market acceptance of our products. Our Stock Price is Volatile The trading price of our common stock has been highly volatile at relatively low trading volumes since our initial public offering and we expect significant fluctuations to continue. These fluctuations are driven by factors including: . quarterly variations in operating results; . announcements of acquisitions, technological innovations or new product releases by us or our competitors; and . changes in prices of our products or of competitors' products. Statements made by industry analysts relating to our competitors have resulted in an immediate adverse effect on the market price of our common stock in the past and could have a similar result in the future. Statements by industry analysts regarding our business or markets could contribute to volatility in the market price of our common stock. In addition, the stock market has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for the securities of many healthcare information systems companies. These broad market fluctuations may adversely affect the market price of our common stock. We May Need Acquisition Financing in the Future We expect to finance future acquisitions, if any, through cash from operations, our credit facility or other indebtedness, issuances of common stock or other securities, or any combination of these sources. We cannot guarantee that capital will be available on terms acceptable to us, or at all. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Our Success Depends on Our Key Executives Our business depends on the continued efforts of our Chief Executive Officer, Frederick L. Fine, and our Executive Vice President, James K. Price. If either of these persons becomes unable or unwilling to continue his role with us, or if we are unable to attract or retain other qualified employees, future results could be adversely impacted. Although we have entered into employment agreements with Messrs. Fine and Price and other key executives, we cannot guarantee that any individual will continue in his present capacity with us for any particular period of time. The Consolidation of the Healthcare Industry Could Adversely Affect Our Results Many healthcare providers are consolidating into larger practice groups with greater market presence. As a result, these providers have greater bargaining power which may lead to declining prices for our products. This could have an adverse effect on our future results. In addition, the consolidation of smaller practice groups may require the resulting larger group to unify its practice management systems. We believe that once a healthcare provider has chosen a particular practice management systems vendor, it will rely on that vendor for its future practice management systems requirements. Thus, the vendor with the broadest market share will have a competitive advantage as consolidation continues. An inability to make initial sales of practice management systems to healthcare providers prior to consolidation or to maintain our existing customer base subsequent to consolidation may have a material adverse effect on future results. 10 We May be Subject to Changing Government Regulations The confidentiality of patient records and the circumstances under which such information may be used or released are subject to increasing state and federal regulation. Regulations governing the healthcare industry are evolving rapidly and are often unclear and difficult to apply. We cannot guarantee that such regulations will not materially restrict the ability of our customers to use our products which could adversely affect our business and future results. In addition, we have not determined the extent to which our practice management software products would be deemed to be subject to regulation by the U.S. Food and Drug Administration. Noncompliance with applicable FDA requirements can result in such things as fines, injunctions, suspension of production, revocation of approvals or clearances previously granted, and criminal prosecution. FDA policies, or other laws or regulations concerning the manufacture or marketing of healthcare information systems, may increase the cost and time required to deliver new or existing products and therefore may have a material adverse effect on future results. See "Business--Government Regulation." Future Sales Of Shares Could Affect Our Stock Price Of the 8.9 million shares of common stock outstanding as of March 26, 1999, only 5.6 million shares are freely tradable. However, upon completion of this offering and the effectiveness of a resale registration statement on Form S-3 currently on file with the SEC, there will be 12.9 million shares of common stock outstanding, substantially all of which will be freely tradable. The market price for our common stock could fall dramatically if our stockholders sell large amounts of our common stock in the public market. These sales, or the possibility that these sales may occur, could make it more difficult for us to sell equity or equity-related securities in the future. See "Shares Eligible for Future Sale." Our Certificate of Incorporation and Bylaws and Delaware Law May Inhibit a Takeover of InfoCure Certain provisions of Delaware law, our Certificate of Incorporation and Bylaws could, together or separately, have the effect of delaying, deferring or preventing an acquisition of InfoCure and limit the price that investors might be willing to pay in the future for our common stock. These provisions, among other things: (a) authorize our Board of Directors to issue, without further stockholder approval, preferred stock with rights and preferences senior to the rights associated with the common stock; (b) classify the Board of Directors into three classes of directors with each class serving staggered three year terms; and (c) limit stockholders' ability to call or make proposals at stockholder meetings. FORWARD-LOOKING STATEMENTS Some of the statements contained in this prospectus contain forward-looking information. These statements are found in the sections entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." They include statements concerning: . our growth and operating strategy; . liquidity and capital expenditures; . use of proceeds of the offering; . our financing plans; . trends in our industry and in healthcare generally; . trends in government regulation; and . payment of dividends. You can identify these statements by forward-looking words such as "expect," "believe," "goal," "plan," "intend," "estimate," "may" and "will" or similar words. You should be aware that those statements are subject to known and unknown risks, uncertainties and other factors, including those discussed in the section entitled "Risk Factors," that could cause the actual results to differ materially from those suggested by the forward-looking statements. 11 THE COMPANY InfoCure was incorporated in Delaware in November 1996. Prior to July 10, 1997, InfoCure conducted no significant operations and generated no revenue. On July 10, 1997, InfoCure completed the acquisitions of: American Medcare Corporation, including its subsidiaries, International Computer Solutions, Inc., Health Care Division, Inc. and Millard-Wayne, Inc.; DR Software, Inc.; KComp Management Systems, Inc.; and Rovak, Inc. These companies are collectively referred to herein as the "Founding Companies." On July 10, 1997, InfoCure also completed its initial public offering of 1.4 million shares of common stock at a price to the public of $5.50 per share, resulting in net proceeds to InfoCure of approximately $6.0 million. On March 3, 1999, InfoCure's stockholders approved an increase in the number of shares of common stock authorized for issuance to 200,000,000 shares. Acquisitions Effective October 1, 1997, InfoCure acquired SoftEasy, Inc., the healthcare business of Commercial Computers, Inc. and Professional On-Line Computers, Inc., marketed under the name POLCI. SoftEasy provided practice management systems for podiatrists. Commercial Computers provided UNIX- and Windows-based practice management systems for mid-size and large medical practices and clinics. POLCI provided AS/400-based practice management systems to hospital- affiliated physician practices, large non-hospital physician clinics, radiology practices and management service organizations. Effective November 1, 1997, InfoCure acquired PACE Financial Corporation and effective December 1, 1997, InfoCure acquired OPMS, the orthodontic business unit of HALIS Services, Inc. PACE provided AS/400 practice management systems. OPMS provided Windows-based software solutions for orthodontists. Effective January 1, 1998, InfoCure acquired Micro-Software Designs, Inc. and Medical Software Integrators, Inc., marketed under the name MSI. Micro-Designs provided Windows-based client/server practice management software, with an emphasis on oral and maxillofacial surgery practices. MSI provided practice management systems to independent anesthesiology practices. On October 23, 1998, InfoCure acquired substantially all of the assets and assumed certain liabilities of the healthcare systems division of The Reynolds and Reynolds Company, known as HSD. HSD provided healthcare practice management systems principally to radiology, anesthesiology and enterprise-wide medical practices. With the HSD acquisition, InfoCure entered the radiology market and increased its presence in anesthesiology and among larger general medical practices utilizing AS/400 systems. The installed customer base of HSD included 1,580 practice sites, representing 35,020 physicians. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Shares Eligible for Future Sale" and Unaudited Pro Forma Combined Financial Statements of InfoCure. On December 23, 1998, InfoCure completed a merger with Radiology Management Systems, Inc., a provider of practice management systems for radiologists, marketed under the name RADMAN. The merger with RADMAN added approximately 2,000 radiologists to InfoCure's customer base and strengthened its position as the largest provider of healthcare information systems to radiology practices in the United States. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Shares Eligible for Future Sale" and Unaudited Pro Forma Combined Financial Statements of InfoCure. The acquisitions of SoftEasy, Commercial Computers, POLCI, PACE, OPMS, Micro- Designs, MSI, HSD and RADMAN are referred to herein as the "Subsequent Acquisitions." On February 12, 1999, InfoCure completed a merger with Macon Systems Management, LLC, the parent of Medical Software Management, Inc., a provider of practice management systems for dermatologists, marketed under the name MSM. With the MSM merger, InfoCure entered the dermatology market. On February 16, 1999, InfoCure completed a merger with OMSystems, Inc., a provider of practice management systems for orthodontists. See "Management's Discussion and Analysis of Financial Condition and Results of 12 Operations," "Shares Eligible for Future Sale" and the Unaudited Pro Forma Combined Financial Statements of InfoCure. Series A Preferred Stock Issuance On February 9, 1998, InfoCure completed the private placement of 850,060 shares of its Convertible, Redeemable Preferred Stock, Series A. The private placement resulted in gross proceeds to InfoCure of $8.5 million and net proceeds of approximately $7.8 million after payment of selling commissions to the placement agent for the offering and other expenses of the offering. InfoCure granted to the placement agent a warrant to acquire 100,000 shares of InfoCure's common stock at an exercise price of $9.00 per share. The Consolidated Financial Statements of InfoCure reflect an accretive dividend attributable to the preferred stockholders in the amount of $800,000 representing the issuance costs and the fair market value of the warrant related to the Series A Preferred. The Series A Preferred will convert to 1,000,070 shares of common stock upon the completion of this offering. The Institutional Placement On September 28, 1998, InfoCure completed the sale of 203,338 shares of common stock in a private placement to an institutional investor for $2.5 million. The investor committed to invest up to an additional $7.5 million upon the exercise by InfoCure of put options through March 28, 2000. Generally, upon exercise of a put option, the investor must tender the amount designated by InfoCure. The number of shares to be issued upon exercise of a put option is determined by dividing this investment amount by an amount (the "Subscription Date Price") equal to 92.5% of the average of the lowest three consecutive trading day closing sale prices of the common stock during the 22 trading days immediately preceding exercise of such put option. Generally, put options may be exercised only once every 30 days and only if defined conditions are met, including minimum average daily trading volumes for InfoCure's common stock and a minimum Subscription Date Price of $10.00. Additionally, InfoCure issued the investor a five-year warrant to purchase 100,000 shares of common stock at an exercise price of $23.00 per share. Since September 28, 1998, InfoCure has exercised two additional put options and has issued to the investor an aggregate 431,322 shares for a total investment of $7.0 million. Of the 531,322 shares acquired by the investor to date and issuable upon exercise of the investor's warrant, 180,000 shares are offered hereby and 369,983 shares are offered pursuant to the resale registration statement, subject to the 90-day lock-up agreement described below. InfoCure is required to file a registration statement to register for resale by the investor any shares of common stock issuable upon exercise of subsequent put options. Each subsequent registration statement must be declared effective not later than 90 days from the corresponding put option closing. If a registration statement is not declared effective within the applicable period, InfoCure must pay a cash penalty until the registration statement is declared effective. With respect to the 531,322 shares acquired by the investor in the institutional placement, the investor has agreed not to sell 383,342 of such shares for a period of 90 days from the date of this prospectus. The remaining 147,980 shares are not covered by the lock-up agreement and will be available for resale upon completion of this offering solely for the purpose of covering a short-sale position. See "Shares Eligible for Future Sale." With respect to any put option, the investor is entitled to receive additional shares of common stock if the amount determined as 92.5% of the average of the lowest three consecutive trading day closing sales prices of the common stock during the 22 trading days immediately preceding the effective date of any registration statement relating to the shares issued upon exercise of such put option (the "Effective Date Price") is lower than the Subscription Date Price. In such event, the investor will receive that number of additional shares determined by subtracting (x) the investment amount divided by the Subscription Date Price from (y) the investment amount divided by the Effective Date Price. InfoCure has the right to pay cash in lieu of the issuance of additional shares if the closing sales price of the common stock on the effective date is lower than $10.00. To date, InfoCure has paid an aggregate of $237,500 to the investor for fees relating to the exercised put options and is required to pay an additional cash fee of 1.25% of the amount invested pursuant to any subsequent exercise of a put option. 13 USE OF PROCEEDS The net proceeds to InfoCure from the sale of the 3,000,000 shares of common stock offered hereby are estimated to be approximately $66.8 million, assuming an offering price of $24.00 per share, the last reported sales price of the common stock on the Nasdaq Stock Market on March 26, 1999, and after deducting estimated underwriting discounts and commissions and estimated expenses payable by InfoCure in connection with this offering. InfoCure will not receive any proceeds from the sale of common stock by the selling stockholders. Infocure will use the proceeds from this offering as follows:
Amount ------------ (estimated, in millions) Payments on InfoCure's credit facility................................................ $65.2 Working capital and other general corporate purposes..................................... 1.6 ----- Total....................................................... $66.8 =====
As of March 26, 1999, the aggregate outstanding balance under the credit facility was $66.6 million, which was borrowed primarily to fund the cash portion of the purchase price for several of the Subsequent Acquisitions, including approximately $41.2 million to fund a portion of the purchase price for HSD. The credit facility comprises three loans, a $40.0 million bridge loan, a $20.0 million acquisition loan and a $10.0 million term loan. The interest rates on the $10.0 million term loan and the $40.0 million bridge loan are fixed at 9.50% per year. The interest rate on the $20.0 million acquisition loan is the lender's base rate plus 1% and is currently 8.75% per year. The credit facility must be paid in full not later than October 28, 2002. Pending application of the net proceeds as described above, InfoCure intends to invest the net proceeds of the offering in short-term, investment-grade, interest-bearing securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 14 PRICE RANGE OF COMMON STOCK On January 29, 1999 InfoCure's common stock commenced trading on the Nasdaq Stock Market under the symbol "INCX." From July 10, 1997 until January 29, 1999 the common stock was traded on the American Stock Exchange under the symbol "INC." The following table sets forth the high and low closing sale prices per share of the common stock for the periods indicated, as reported on the American Stock Exchange or the Nasdaq Stock Market, as the case may be.
Year Ended December 31, 1997 High Low ---------------------------- ---- ----- Third Quarter (beginning July 10, 1997)................ $ 5 5/8 $ 3 15/16 Fourth Quarter......................................... 9 1/2 5 3/4 Year Ended December 31, 1998 High Low ---------------------------- ---- ----- First Quarter.......................................... $17 1/16 $ 8 1/4 Second Quarter......................................... 16 3/16 10 15/16 Third Quarter.......................................... 16 15/16 12 3/4 Fourth Quarter......................................... 32 3/4 11 5/8 Year Ended December 31, 1999 High Low ---------------------------- ---- ----- First Quarter (through March 26, 1999)................. $36 $ 21 1/8
On March 26, 1999, the last reported sales price for the common stock was $24.00 per share. As of March 26, 1999 there were approximately 338 stockholders of record of the common stock based on transfer agent reports. DIVIDEND POLICY InfoCure has neither declared nor paid any cash dividends on its common stock or its preferred stock and does not anticipate paying any cash dividends in the foreseeable future. InfoCure's credit facility generally prohibits InfoCure from declaring or paying any dividends or other distributions with respect to its capital stock. 15 CAPITALIZATION The following table sets forth, as of December 31, 1998, the short-term debt and capitalization of InfoCure. This table should be read in conjunction with the Consolidated Financial Statements of InfoCure and Notes thereto appearing elsewhere in this prospectus. The pro forma capitalization of InfoCure gives effect to the OMSystems merger and the issuance of 80,000 shares of common stock in the institutional placement. The pro forma as adjusted capitalization of InfoCure represents the pro forma capitalization adjusted to give effect to: (a) the issuance and sale by InfoCure of the 3,000,000 shares of common stock offered hereby at an assumed offering price of $24.00 per share (the last reported sale price on March 26, 1999), after deducting underwriting discounts and commissions and estimated offering expenses payable by InfoCure; (b) the application of the estimated net proceeds to InfoCure of this offering; (c) the conversion of the Series A Preferred; and (d) the issuance of an estimated 99,255 shares of common stock upon the conversion of a note payable and other obligations. The pro forma and pro forma as adjusted capitalization excludes: (a) 83,232 shares issued in connection with the MSM merger; (b) 3,344,882 shares issuable upon the exercise of stock options and warrants outstanding as of December 31, 1998, at a weighted average exercise price of $9.72 per share; and (c) an additional 1,389 shares issuable upon conversion of a note payable and other obligations assuming conversion on April 1, 1999. See "Use of Proceeds" and "Management--Employee Benefit Plans."
December 31, 1998 -------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (in thousands) Short-term debt, including current portion of long-term debt................................ $ 14,884 $ 14,998 $ 11,998 ======== ======== ======== Long-term debt, excluding current portion...... $ 68,358 $ 69,553 $ 6,728 -------- -------- -------- Preferred Stock, $0.001 par value; 2,000,000 shares authorized; 850,060 shares of Convertible, Redeemable Preferred Stock, Series A, liquidation preference $10.00 per share (subject to adjustment in certain circumstances), issued and outstanding, actual and pro forma; no shares outstanding pro forma as adjusted................................... 8,500 8,500 -- -------- -------- -------- Stockholders' equity: Common Stock, $0.001 par value; 15,000,000 shares authorized; 7,622,148 shares issued and 7,581,705 shares outstanding, actual......................... 8 8,846,147 shares issued and 8,805,704 shares outstanding, pro forma...................... 9 12,945,472 shares issued and 12,905,029 shares outstanding, pro forma as adjusted... 13 Common stock issuable........................ 1,975 -- -- Additional paid-in capital................... 31,358 39,723 115,725 Accumulated deficit.......................... (15,781) (21,269) (26,376) Deferred compensation........................ (1,083) (1,083) (1,083) Treasury stock, at cost...................... (222) (222) (222) -------- -------- -------- Total stockholders' equity................. 16,255 17,158 88,057 -------- -------- -------- Total capitalization....................... $ 93,113 $ 95,211 $ 94,785 ======== ======== ========
16 DILUTION The tangible book value (deficit) of InfoCure at December 31, 1998 was approximately $(63.3) million, or approximately $(8.34) per share of common stock. Net tangible book value (deficit) per share represents the amount of InfoCure's tangible assets less total liabilities, divided by the total number of shares of common stock outstanding. After giving effect to the OMSystems merger and the January 1999 issuance of shares relating to the put option exercised by InfoCure in December 1998, the tangible book value (deficit) of InfoCure on a pro forma basis at December 31, 1998 was approximately $(62.4) million or approximately $(7.08) per share of common stock. Dilution per share represents the difference between the amount per share paid by investors in this offering and the net tangible book value (deficit) per share at December 31, 1998 adjusted to give effect to this offering. The net tangible book value of InfoCure on a pro forma as adjusted basis as of December 31, 1998 would have been $13.1 million or $1.01 per share of common stock after giving effect to: . sale of the shares of common stock at an assumed offering price of $24.00 per share (the last reported sales price of InfoCure's common stock on the Nasdaq Stock Market on March 26, 1999); . receipt and application of the estimated net proceeds of $66.8 million; and . deduction of underwriting discounts and commissions and estimated offering expenses payable by InfoCure. This represents an immediate increase in net tangible book value of $8.09 per share to existing stockholders and an immediate dilution of $22.99 per share to purchasers in this offering. The following table illustrates the dilution per share as described above: Assumed public offering price per share.................... $24.00 ------ Net tangible book value (deficit) per share--historic ... $(8.34) Increase in net tangible book value (deficit) per share attributable to pro forma adjustments................... 1.26 ------ Net tangible book value (deficit) per share--pro forma .. (7.08) Increase in net tangible book value per share attributable to offering adjustments.................... 8.09 ------ Net tangible book value per share after the offering..... 1.01 ------ Dilution per share to new investors........................ $22.99 ======
17 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The selected historical consolidated financial data of InfoCure set forth below is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements of InfoCure, including the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The consolidated statements of operations data for the years ended January 31, 1995 and 1996 and the consolidated balance sheet data as of January 31, 1995, 1996 and 1997 are derived from the audited financial statements of American Medcare which are not included in this prospectus. The consolidated statements of operations data for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998, and the consolidated balance sheet data as of December 31, 1997 and December 31, 1998 are derived from, and are qualified by reference to, the consolidated financial statements included elsewhere in this prospectus. The financial statements for all periods presented give retroactive effect to pooling of interests treatment for the merger with RADMAN completed December 23, 1998. See the Consolidated Financial Statements of InfoCure.
Eleven Months Year Ended January 31, Ended Year Ended ------------------------- December 31, December 31, 1995 1996 1997 1997 1998 ------- ------- ------- ------------ ------------ (in thousands, except per share data) Consolidated Statement of Operations Data (1): Revenue: Systems and software................. $ 3,595 $ 3,998 $ 3,857 $ 9,733 $34,492 Maintenance, support and services ... 2,789 2,074 2,494 8,541 29,231 ------- ------- ------- ------- ------- Total revenue.......................... 6,384 6,072 6,351 18,274 63,723 Operating expense: Hardware and other items purchased for resale.......................... 1,558 1,240 1,192 4,327 12,567 Selling, general and administrative.. 5,268 5,368 5,427 11,653 34,685 Depreciation and amortization........ 188 238 237 1,092 4,328 Purchased research and development... -- -- -- -- 9,000 Compensatory stock awards............ -- -- -- -- 57 Asset impairment and restructuring costs............................... -- -- -- 11,136 1,874 ------- ------- ------- ------- ------- Total operating expense.............. 7,014 6,846 6,856 28,208 62,511 Operating income (loss)................ (630) (774) (505) (9,934) 1,212 Other expense (income): Interest, net........................ 54 69 82 344 3,488 Other, net........................... (21) (122) (5) (223) (81) ------- ------- ------- ------- ------- (Loss) before income taxes............. (663) (721) (582) (10,055) (2,195) Income tax benefit..................... (64) (227) (868) (1,324) (334) ------- ------- ------- ------- ------- Net income (loss)...................... (599) (494) 286 (8,731) (1,861) Accretive dividend..................... -- -- -- -- 800 ------- ------- ------- ------- ------- Net income (loss) available to common stockholders.......................... $ (599) $ (494) $ 286 $(8,731) $(2,661) ======= ======= ======= ======= ======= Net (loss) per share: Basic and diluted.................... $ (1.79) $ (0.39) Shares used in computing net (loss) per share: Basic and diluted.................... 4,880 6,780 Other Data: EBITDA(2).............................. $ (421) $ (414) $ (263) $ 2,517 $16,552
18
January 31, December 31, ------------------------- ----------------- 1995 1996 1997 1997 1998 ------- ------- ------- ------- -------- Consolidated Balance Sheet Data: Cash and cash equivalents.... $ 9 $ 254 $ 216 $ 1,626 $ 8,552 Working capital.............. (1,847) (1,599) (1,841) (4,343) 481 Total assets................. 2,106 2,251 5,682 31,125 127,784 Long-term debt, less current portion..................... 839 399 1,265 7,289 68,358 Convertible, redeemable preferred stock............. -- -- -- -- 8,500 Stockholders' equity......... (2,076) (2,590) (768) 3,631 16,255
- -------- (1) On July 10, 1997, InfoCure completed the contemporaneous acquisition of the Founding Companies. For accounting purposes, American Medcare is the predecessor to InfoCure and the "accounting acquirer" of the Founding Companies. For periods prior to July 10, 1997, the historical consolidated financial statement of operations data reflect the operations of American Medcare. For periods subsequent to July 10, 1997, the historical consolidated financial statement of operations data reflect the operations of InfoCure and each of InfoCure's acquisitions from the effective date of each such acquisition, except for the RADMAN acquisition which was accounted for as a pooling of interests and is reflected retroactively for all periods presented. See "The Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and Notes 1 and 3 to the Consolidated Financial Statements of InfoCure. (2) Represents earnings before interest expense, provision (benefit) for income taxes, depreciation and amortization, purchased research and development, compensatory stock awards and asset impairment, restructuring and special charges. EBITDA is not a measurement in accordance with generally accepted accounting principles and should not be considered an alternative to, or more meaningful than, income from operations, net income or cash flows as defined by GAAP or as a measure of InfoCure's profitability or liquidity. All companies do not calculate EBITDA in the same manner. Accordingly, InfoCure's EBITDA data may not be comparable with that of other companies. InfoCure has included information concerning EBITDA because management believes EBITDA provides a useful measure of InfoCure's performance. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements of InfoCure and Notes thereto, and the Consolidated Financial Statements of InfoCure and Notes thereto included elsewhere in this prospectus. Overview InfoCure derives revenue primarily from licensing new software products and software upgrades, reselling hardware components in connection with a portion of its software sales and providing customer support and services. Customer support and services typically are provided pursuant to renewable annual contracts or on a fee basis. InfoCure derives additional revenue from customers and third-party clearinghouses by providing electronic data interchange services through contractual arrangements with such parties. Approximately 50% of InfoCure's total revenue is recurring in nature. InfoCure bases its revenue recognition policies for sales of software on the provisions of the American Institute of Certified Public Accountants' Statement of Position 97-2 "Software Revenue Recognition." Revenue from software sales is recognized upon shipment in instances where InfoCure has evidence of a contract, the fee charged is fixed and determinable and collection is probable. Hardware resales are recognized upon product shipment. Revenue from support and maintenance contracts, which are typically one year in length, is recognized ratably over the life of the contract. Revenue from other services is recognized as the services are provided. Depreciation and amortization expense results primarily from the amortization of goodwill, which represents the excess of the consideration paid by InfoCure over the fair value of the net assets acquired in acquisitions accounted for under the purchase method of accounting. As of December 31, 1998, InfoCure had goodwill, net of accumulated amortization, of $72.2 million. Goodwill is amortized over its estimated useful life of 15 years. This estimated useful life reflects the historical and estimated future life of customer relationships, the longevity and continuing use of core products and the relatively minor impact of technological obsolescence on these core products. This goodwill results in an amortization expense estimated to total approximately $5.0 million per year. Depreciation and amortization expense also includes depreciation of property and equipment and amortization of software development costs. Property and equipment are assigned lives ranging from three to five years. Software development costs are expensed until technological feasibility is achieved. Costs incurred after achievement of technological feasibility and before general release are capitalized and generally amortized over a four-year life. Costs incurred after general release are expensed as incurred. InfoCure completed nine acquisitions of practice management software vendors between July 10, 1997 and December 31, 1998. These acquisitions were the primary source of the substantial growth in InfoCure's revenue and other components of its operating results. Therefore, a year to year comparison of InfoCure's results of operations for the prior two years is not necessarily indicative of future results. Restructuring Plan Effective December 1, 1997, InfoCure adopted a plan to restructure its operations by consolidating existing facilities and acquired operations. In connection with the restructuring plan, which was completed in the second quarter of 1998, InfoCure took restructuring charges totaling $13.0 million, of which $11.1 million was recorded in the fourth quarter of 1997 and $1.9 million was recorded in the first six months of 1998. As a result of the restructuring plan, InfoCure wrote down approximately: . $7.8 million representing an impairment of goodwill associated with prior acquisitions and capitalized software for discontinued products of approximately $6.3 million and $1.5 million, respectively; . $3.3 million reflecting the recognition of contingent consideration earned or deemed payable under the terms of certain acquisition agreements for acquired companies affected by the restructuring plan; 20 . $1.1 million representing severance and other termination benefits for the termination of certain redundant staff positions; . $461,000 reflecting the elimination of redundant facilities and cancellation of leases and other contracts; and . $296,000 representing other asset write downs and costs associated with the restructuring plan. For a more detailed discussion of these restructuring charges, see Note 4 to the Consolidated Financial Statements of InfoCure. Change in Fiscal Year In the first quarter of 1998, InfoCure changed its fiscal year end from January 31 to December 31. As a result, InfoCure's fiscal year beginning February 1, 1997 ended on December 31, 1997 and reflected eleven months of operations. The consolidated financial data provided herein reports InfoCure's financial statements as of and for the fiscal year ended December 31, 1998 and eleven months ended December 31, 1997. In Process Research and Development Write-off On October 23, 1998, InfoCure acquired the assets of HSD, a division of The Reynolds and Reynolds Company. In connection with the HSD acquisition, InfoCure retained an independent appraiser to complete a valuation of the assets of HSD, including valuation of certain in process research and development. InfoCure identified three projects for which technological feasibility had not been achieved as of the acquisition date and for which there was no alternative future use. The products include POWERRmanager, a next generation physician practice management system, the year 2000 ready version of ProMed, a Unix-based practice management system, and the year 2000 ready version of Kredo, a practice management system running on the IBM AS/400 platform. The value associated with these projects was determined using a discounted cashflow model with a risk adjusted discount rate of 28%. This rate was derived as a weighted average cost of capital and reflects a 33.4% cost of equity, a 5.4% cost of debt and a post-offering debt to equity ratio of .25:1. The model reflects revenue to be generated beginning in the later part of 1999 and continuing through 2003 for ProMed and Kredo and 2004 for POWERRmanager. The valuation also incorporated a stage of completion methodology where the value was adjusted based on the technology's percentage of completion. As of the acquisition date, the majority of the core modules of POWERRmanager had been coded. Product testing began in the fourth quarter of 1998, and InfoCure estimated completion of testing and documentation in the first quarter of 1999 and initial beta testing in the second quarter of 1999. The ProMed and Kredo products are expected to be completed in the first quarter of 1999. Upgrades for the existing customer base will occur in the second and third quarter of 1999. InfoCure has determined that the Kredo and ProMed products will not be sold going forward, resulting in no alternative future use for the products. Development will be completed to enable existing customers to upgrade under the provisions of their maintenance agreements. The schedule below details the status of each product as of the acquisition date and its appraised in process research and development ("IPRD") value (dollar amounts in thousands).
Post-acquisition Estimated Pre-acquisition Costs to Percentage of Project Completion Costs Complete Completion IPRD Value ------- ------------- --------------- ---------------- ------------- ---------- POWERRmanager 2nd Qtr. 1999 $9,001 $474 95% $4,900 ProMed 1st Qtr. 1999 76 47 62 3,200 Kredo 1st Qtr. 1999 848 357 70 1,300 ------ ---- --- ------ Total $9,925 $878 92% $9,400 ====== ==== === ======
21 InfoCure believes that although the POWERRmanager percentage of completion is high, significant development work remained at the time of the acquisition to bring the product to the point of technological feasibility under SFAS 86. Certain features such as report writing, claims management and electronic data interchange capabilities had not been completed. Given the significance of these features to the functionality of POWERRmanager and the uncertainties which remain with respect to this project, InfoCure believes that there is no alternative future use for this product. In addition, the estimates of costs to complete the product reflect greater efficiencies and cost control under InfoCure management compared to HSD, resulting in a higher calculated percentage of completion. Based on the results of the appraisal, $9.0 million was attributed to the in process research and development purchased in the HSD acquisition and expensed in the fourth quarter of 1998 when the acquisition was completed. Results of Operations The following table sets forth certain statement of operations data as a percentage of gross revenue for the periods indicated:
Eleven Months Year Ended Ended Year Ended January 31, 1997 December 31, 1997 December 31, 1998 ---------------- ----------------- ----------------- Consolidated Statement of Operations Data: Revenue: Systems and software..... 60.7 % 53.3 % 54.1 % Maintenance, support and services................ 39.3 46.7 45.9 ----- ----- ----- Total revenue............. 100.0 100.0 100.0 Operating expense: Hardware and other items purchased for resale.... 18.8 23.7 19.7 Selling, general and administrative.......... 85.5 63.8 54.5 Depreciation and amortization............ 3.7 6.0 6.8 Purchased research and development............. -- -- 14.1 Asset impairment and restructuring costs..... -- 60.9 2.9 ----- ----- ----- Total operating expense... 108.0 154.4 98.0 Operating income (loss)... (8.0) (54.4) 2.0 Other expense (income): Interest, net............ 1.3 1.9 5.5 Other, net............... (0.1) (1.3) (0.1) ----- ----- ----- Loss before income taxes.. (9.2) (55.0) (3.4) Income tax benefit........ (13.7) (7.2) (0.5) ----- ----- ----- Net income (loss)......... 4.5 % (47.8)% (2.9)% ===== ===== =====
Year Ended December 31, 1998 Compared To Eleven Months Ended December 31, 1997 Total Revenue. Total revenue for the year ended December 31, 1998 was $63.7 million compared to total revenue of $18.3 million for the eleven months ended December 31, 1997. The increase of $45.4 million in total revenue reflects primarily the combined revenue of the Founding Companies for the entire twelve month period in 1998 and revenue from the Subsequent Acquisitions as of their respective effective dates, except for the RADMAN acquisition which was accounted for as a pooling of interests and is reflected retroactively for all periods presented. Revenue for periods prior to July 10, 1997 includes only revenue of InfoCure's predecessor, American Medcare, its consolidated subsidiaries and RADMAN. Systems and software revenue was $34.5 million for the year ended December 31, 1998, or 54.1% of total revenue, compared to $9.7 million, or 53.3% of total revenue, for the eleven months ended December 31, 1997. The increase as a percentage of total revenue was primarily a result of a higher percentage mix of systems and software revenue among acquired companies and relatively strong demand for several of InfoCure's software products in the year ended December 31, 1998. Maintenance, support and services revenue was $29.2 million, or 45.9% of total revenue for the year ended December 31, 1998, compared to $8.5 million, or 46.7% of total revenue, for the eleven 22 months ended December 31, 1997. Management anticipates that maintenance, support and services revenue will increase as a percentage of total revenue in future periods. Hardware and Other Items Purchased for Resale. Hardware and other items purchased for resale consist of costs incurred to purchase hardware, and include costs of forms and postage, outsourced hardware maintenance, third- party software and other items for resale in connection with sales of new systems and software. The costs required to install such systems and to perform software maintenance and support services are reported in selling, general and administrative expenses. For the year ended December 31, 1998, cost of hardware and other items purchased for resale was $12.6 million, or 19.7% of revenue, compared to $4.3 million, or 23.7% of revenue, for the eleven months ended December 31, 1997. The increase in cost of hardware and other items purchased for resale reflects primarily the increase resulting from InfoCure's acquisitions. The decrease in cost of hardware and other items purchased for resale as a percentage of revenue reflects a lower percentage of revenue from sales of hardware. Selling, General and Administrative. Selling, general and administrative expense includes salaries and benefits, product development expense, product maintenance and support expense, variable commissions and bonuses, advertisement and promotional marketing materials, travel, communications, facilities, insurance and other administrative expense. Selling, general and administrative expense increased to $34.7 million, or 54.5% of revenue, for the year ended December 31, 1998 compared to $11.7 million, or 63.8% of revenue, for the eleven months ended December 31, 1997. This increase reflects primarily an increase in the marketing and administrative personnel and other selling and administrative costs necessary to support the consolidated businesses of the acquired companies. The decrease in selling, general and administrative expense as a percentage of revenue reflects InfoCure's ability to take advantage of economies of scale resulting from the larger installed customer base and a higher base of revenue realized from its acquisitions. Depreciation and Amortization. Depreciation and amortization expense was $4.3 million, or 6.8% of revenue, for the year ended December 31, 1998 compared to $1.1 million, or 6.0% of revenue, for the eleven months ended December 31, 1997. Increased depreciation and amortization expense represents primarily the significant increase in goodwill arising from InfoCure's acquisitions. Purchased Research and Development. Purchased research and development expense was $9.0 million, or 14.1% of total revenue, for the year ended December 31, 1998. This expense represents charges related to the write off of certain in process research and development costs associated with the HSD acquisition. Asset Impairment and Restructuring Costs. Asset impairment and restructuring costs were $1.9 million, or 2.9% of total revenue, for the year ended December 31, 1998 compared to $11.1 million, or 60.9% of total revenue, for the eleven months ended December 31, 1997. This decrease represents the completion of the restructuring plan in the second quarter of 1998. Operating Income (Loss). Income from operations was $1.2 million, or 2.0% of revenue, for the year ended December 31, 1998 compared to a loss of $9.9 million, or 54.4% of revenue, for the eleven months ended December 31, 1997. This increase represents primarily the profitable results of operations of InfoCure's acquisitions, as well as efficiencies realized by InfoCure from a larger installed customer base and higher total revenue. Interest, Net. Net interest expense increased to $3.5 million for the year ended December 31, 1998 compared to $344,000 for the eleven months ended December 31, 1997. This increase reflects primarily increases in interest expense associated with indebtedness incurred to complete InfoCure's acquisitions. Other, Net. Net other income decreased to $81,000 for the year ended December 31, 1998 compared to $223,000 for the eleven months ended December 31, 1997. This decrease relates primarily to one-time other income related to the RADMAN merger. 23 Income Tax Benefit. The benefit for income taxes was $334,000 for the year ended December 31, 1998 compared to $1.3 million for the eleven months ended December 31, 1997. Eleven Months Ended December 31, 1997 Compared to Year Ended January 31, 1997 Total Revenue. Total revenue for the eleven months ended December 31, 1997 was $18.3 million compared to total revenue of $6.4 million for the year ended January 31, 1997. This increase of $11.9 million in total revenue primarily reflects the completion of the acquisition of the Founding Companies and Subsequent Acquisitions completed in 1997 as of their respective effective dates. Revenue for periods prior to July 10, 1997 included only revenue of InfoCure's predecessor, American Medcare, and its consolidated subsidiaries. Systems and software revenue was $9.7 million for the eleven months ended December 31, 1997, or 53.3% of revenue, compared to $3.9 million, or 60.7% of total revenue, for the year ended January 31, 1997. Maintenance, support and services revenue was $8.5 million for the eleven months ended December 31, 1997, or 46.7% of total revenue, compared to $2.5 million, or 39.3% of total revenue, for the year ended January 31, 1997. Hardware and Other Items Purchased for Resale. For the eleven months ended December 31, 1997, cost of hardware and other items purchased for resale was $4.3 million, or 23.7% of total revenue, compared to $1.2 million, or 18.8% of total revenue, for the year ended January 31, 1997. The increase in cost of hardware and other items purchased for resale reflects primarily the increase resulting from InfoCure's acquisitions. The increase in cost of hardware and other items purchased for resale as a percentage of revenue reflects increased revenue from sales of hardware as a percentage of total revenue. Selling, General and Administrative. Selling, general and administrative expense increased to $11.7 million, or 63.8% of revenue, for the eleven months ended December 31, 1997, compared to $5.4 million, or 85.5% of revenue, for the year ended January 31, 1997. This increase reflects primarily additional marketing and administrative personnel and other selling and administrative costs necessary to support the significantly expanded business associated with InfoCure's acquisitions completed during the eleven months ended December 31, 1997. The decrease in selling, general and administrative expense as a percentage of revenue reflects InfoCure's ability to take advantage of economies of scale resulting from the larger installed customer base and a higher base of revenue realized from its acquisitions. Depreciation and Amortization. Depreciation and amortization expense was $1.1 million, or 6.0% of revenue, for the eleven months ended December 31, 1997, compared to $237,000, or 3.7% of revenue, for the year ended January 31, 1997. Increased depreciation and amortization expense represents primarily the significant increase in goodwill resulting from InfoCure's acquisitions completed during the eleven months ended December 31, 1997. Asset Impairment and Restructuring Costs. In the eleven months ended December 31, 1997, InfoCure incurred a cost of $11.1 million associated with the restructuring plan. Operating Income (Loss). Loss from operations was $9.9 million, or 54.4% of revenue, for the eleven months ended December 31, 1997, compared to the loss from operations of $505,000, or 8.0% of revenue, for the year ended January 31, 1997. The loss from operations resulted primarily from the costs associated with the restructuring plan. Interest, Net. Net interest expense increased to $344,000 for the eleven months ended December 31, 1997 compared to $82,000 for the year ended January 31, 1997. This increase reflects primarily increases in interest expense associated with indebtedness incurred to complete InfoCure's acquisitions. Other, Net. Net other income increased to $223,000 for the eleven months ended December 31, 1997, compared to $5,000 for the year ended January 31, 1997. This increase relates primarily to one-time other income related to the RADMAN merger. 24 Income Tax Benefit. InfoCure realized income tax benefits in the amounts of $1.3 million and $868,000 for the eleven months ended December 31, 1997 and the year ended January 31, 1997, respectively. Liquidity and Capital Resources Since its inception, InfoCure has financed its operations through a combination of commercial borrowings, cash generated from operations and sales of equity. As of December 31, 1998, InfoCure had cash and cash equivalents of $8.6 million and working capital of $481,000. During the year ended December 31, 1998, InfoCure generated $6.1 million of cash from operating activities, representing principally a net loss of $1.9 million plus non-cash charges of $9.0 million and $1.9 million for in process research and development and asset impairment, respectively, and non-cash depreciation and amortization expenses of $4.3 million offset by an increase in accounts receivable of $7.5 million. During the year ended December 31, 1998, cash used in investing activities was $65.9 million, representing primarily cash used for acquisitions of $60.2 million and property and equipment purchases of $2.6 million. Of the cash invested in acquisitions, $42.0 million, $12.8 million and $5.3 million were used to acquire HSD, Micro-Designs and MSI, respectively. A substantial portion of the property and equipment costs represented InfoCure's investment in its telecommunications infrastructure. During the year ended December 31, 1998, InfoCure generated cash from financing activities of $66.7 million, including $55.2 million net proceeds from its credit facility, $7.8 million net proceeds from the issuance of the Series A Preferred and $6.8 million net proceeds from the private placement to an institutional investor. These net proceeds were principally used to fund InfoCure's acquisitions of PACE, Micro-Designs and MSI. In October 1998, InfoCure used $41.2 million from the credit facility to fund a portion of the purchase price for HSD. InfoCure's credit facility with Finova Capital Corporation is comprised of (a) a $10.0 million term loan; (b) a $20.0 million acquisition loan; and (c) a $40.0 million convertible bridge loan. Outstanding principal amounts under the term loan and acquisition loan are due in 16 equal quarterly installments commencing January 1999 as follows: for the term loan, installments of $527,000 each and for the acquisition loan, installments of $1.2 million each. Outstanding principal amounts under the convertible bridge loan are due quarterly commencing April 1, 1999, and are payable as follows: four payments of $1.0 million each; eight payments of $2.0 million each; two payments of $4.0 million each; and one payment in the amount of the balance outstanding. The convertible bridge loan must be repaid to the extent of proceeds received by InfoCure from any public offering of securities. Additionally, the lender has the right to demand a $10.0 million prepayment of the convertible bridge loan at any time before May 22, 1999 and is entitled to certain additional annual prepayments based on InfoCure's excess cash flow. Prepayment premiums ranging from 1% to 3% of principal outstanding apply to early payment of principal amounts under the term loan and the acquisition loan. The interest rates on the term loan and the convertible bridge loan are fixed at 9.50% per year. The interest rate on the acquisition loan is the lender's base rate plus 1% through March 31, 1999. After March 31, 1999, the rate is the lender's base rate plus a percentage based on InfoCure's senior debt service coverage ratio. Interest on all three loans is due quarterly, in arrears, on the same dates as the principal payments. The credit facility must be paid in full not later than October 28, 2002. The credit facility is secured by substantially all of InfoCure's assets. InfoCure plans to prepay approximately $65.2 million of the outstanding balance on the credit facility with the proceeds from this offering, which will result in a charge of approximately $5.1 million for the early extinguishment of this debt in the second quarter of 1999. InfoCure is currently negotiating with various lenders to increase its credit facility to $100.0 million. No assurance can be given, however, that InfoCure will be able to secure an increase of its credit facility in this amount or at all. See "Risk Factors--Our Financial Statements May Reflect Charges Associated with Acquisitions and Other Events." On February 9, 1998, InfoCure completed the private placement of 850,060 shares of Series A Preferred, resulting in gross proceeds to InfoCure of $8.5 million and net proceeds of approximately $7.8 million after payment of selling commissions to the placement agent for the offering and other expenses of the offering. InfoCure granted to the placement agent a warrant to acquire 100,000 shares of InfoCure's common stock at an exercise price of $9.00 per share. The Consolidated Financial Statements of InfoCure reflect an accretive 25 dividend attributable to the preferred stockholders in the amount of $800,000 with respect to the issuance costs and the fair market value of the warrant related to the Series A Preferred. The Series A Preferred will convert to 1,000,070 shares of common stock upon the completion of this offering. On September 28, 1998, InfoCure completed the sale of 203,338 shares of common stock for $2.5 million in a private placement to an institutional investor. The investor committed to invest an additional $7.5 million, which must be invested from time to time at the request of InfoCure in its sole discretion and subject to certain price and trading volume limitations, upon the exercise of put options through March 28, 2000. Subsequently, InfoCure completed the sale of 147,984 shares of common stock for $2.5 million in December 1998 and the sale of 80,000 shares of common stock for $2.0 million in January 1999. See "The Company" and Note 11 to the Consolidated Financial Statements of InfoCure. In connection with the HSD acquisition, InfoCure delivered to The Reynolds and Reynolds Company a $10.0 million, five-year, convertible promissory note, bearing interest per annum at rates commencing at 8.0% and increasing each year to a maximum of 14.0%. The note is convertible at the option of InfoCure during the first year of the term into common stock at a price based on the price of the common stock in an underwritten public offering or the average market value of the common stock over a period of time prior to the conversion date. In addition, InfoCure delivered to The Reynolds and Reynolds Company a $2.0 million subordinated promissory note payable within 120 days of the closing of the HSD acquisition. See Note 14 to the Consolidated Financial Statements of InfoCure. InfoCure believes that the proceeds of this offering, together with its operating cash flow, available funds under the credit facility and proceeds from the private placement to the institutional investor, will be sufficient to fund InfoCure's working capital requirements through at least the next twelve months. InfoCure currently intends to use proceeds from this offering principally to repay indebtedness under the credit facility. InfoCure expects to finance future acquisitions, if any, through one or more of the following sources: cash from operations, the credit facility or other indebtedness, and issuances of common stock or other securities. No assurance can be given that InfoCure will generate cash from operations or that external capital will be available on terms acceptable to InfoCure, or at all. See "Use of Proceeds." New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. SFAS No. 130 requires companies to display, with the same prominence as other financial statements, the components of other comprehensive income. SFAS No. 130 requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. SFAS No. 130 was adopted in 1998 but does not have any impact on InfoCure's consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS No. 131 was adopted in 1998 but had no effect on InfoCure's financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities on the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be 26 specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (a) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, or (b) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Historically, InfoCure has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, InfoCure does not expect adoption of the new standard on January 1, 2000 to affect its financial statements. Statement of Position 97-2, Software Revenue Recognition, issued in October 1997, superseded SOP 91-1 and was effective for InfoCure for transactions entered into after December 31, 1997. This statement provides guidance on applying GAAP in recognizing revenue on software transactions and establishes certain criteria for revenue recognition. InfoCure adopted SOP 97-2 in the first quarter of 1998. The adoption of this statement did not have a significant impact on InfoCure's consolidated financial statements and is not expected to have a significant impact in the future. SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, issued in April 1998, provides guidance on accounting for the costs of computer software developed or obtained for internal use and determining whether computer software is for internal use. This statement is effective for fiscal years beginning after December 15, 1998. Adoption of this statement is not expected to have a significant impact on InfoCure's financial statements. Costs Related to Year 2000 Readiness InfoCure has implemented a plan in which it assesses, modifies and tests its products to determine whether they are able to properly distinguish dates beginning on January 1, 2000. InfoCure is taking the following steps to determine the year 2000 readiness of its products: . review products that it will continue to market and support to determine how they process dates; . design and complete modifications to fix any date processing issues that it identifies for these products; . test products to determine that they can process dates on or after January 1, 2000; and . deliver these modifications to InfoCure's customers for installation and use. As a result of these assessments, modifications and tests, InfoCure believes that a majority of its products will properly make this distinction. With respect to the rest of the products that it intends to support, InfoCure has implemented a program for developing and installing modifications that address date processing issues. In general, these modifications represent relatively short segments of software code. Customers that are on current maintenance contracts qualify to receive these modifications. InfoCure believes that it will complete its year 2000 readiness program by July 1999, but InfoCure cannot be certain that it will do so. InfoCure could experience delays or failures developing or implementing year 2000 readiness modifications. InfoCure also may be required to hire additional technical personnel to address year 2000 readiness issues, and there can be no guarantee that such additional personnel will be available. In addition, customers may not install software solutions in a proper or timely manner, and InfoCure may not be able to locate affected customers that are not currently a party to a maintenance contract. Further, because a customer's products are often interfaced with the customer's existing third-party applications, its products, and potentially InfoCure's products, may not operate properly due to year 2000 problems in such third-party applications. InfoCure estimates that the remaining costs to complete its year 2000 readiness program are approximately $400,000. These estimates are based on assumptions that InfoCure believes to be reasonable at this time; however, no assurance can be given that these assumptions will remain accurate. While InfoCure does not expect that the failure of any of its products to be year 2000 ready will have a material adverse effect on its business or results of operations, InfoCure cannot guarantee that any such failure would not have such an effect. 27 Multiple lawsuits relating to year 2000 issues have been filed against certain of InfoCure's competitors. The plaintiffs in these lawsuits have sought compensatory damages and equitable and injunctive relief. InfoCure has taken measures to avoid these types of lawsuits. However, one of InfoCure's customers has initiated an arbitration claim asserting that software it purchased from InfoCure does not properly distinguish dates beginning on January 1, 2000. InfoCure is no longer selling or supporting this software and is attempting to resolve this dispute. InfoCure believes that this arbitration, regardless of its outcome, will not result in a material adverse effect on InfoCure. As InfoCure develops and implements its year 2000 readiness plan, InfoCure cannot guarantee that additional year 2000 related claims will not be brought against it in the future, that the assertion of such claims will not result in litigation or that InfoCure would prevail in such litigation. Litigation, regardless of its outcome, could result in substantial costs, divert management's attention from its operations and impact customer purchasing decisions. Any such litigation could have a material adverse effect on future results. The year 2000 problem also creates a risk of unforeseen problems in the computer systems InfoCure uses in its business and in the systems of third parties with whom InfoCure conducts business. InfoCure has substantially completed its assessment of its software and hardware systems and InfoCure believes that the substantial majority of its internal systems will properly distinguish dates beginning on January 1, 2000. InfoCure also has contacted parties with whom InfoCure conducts a material amount of business to assess the year 2000 readiness of the software and systems in their businesses. InfoCure intends to complete its determination of year 2000 readiness by these third parties by June 1999 and to develop strategies to assure that no material business disruptions result from third-party problems. These strategies may include demanding assurance that current business partners achieve timely year 2000 readiness or, in the absence of such assurance, contracting with alternate third parties or developing solutions to work around any such third-party issues. Because InfoCure has not yet determined the expense and related potential effect of year 2000 readiness by its third-party business partners, InfoCure cannot guarantee that non-readiness by these third parties will not have a material adverse effect on future results. 28 BUSINESS Industry Overview Healthcare costs in the United States have risen dramatically over the past two decades and, according to the Healthcare Financing Administration, now represent approximately $1.0 trillion or 14% of the annual gross domestic product. Federal and state governments, insurance carriers and other third- party payors have moved aggressively to control these rising costs. One of the ways in which these entities have managed rising costs has been to employ alternative reimbursement models to replace the fee-for-service reimbursement model which has been the traditional basis for payment for healthcare services. Such alternative reimbursement models include managed care, fixed-fee and capitated models of reimbursement. The result of these generally more restrictive reimbursement practices has been a dramatic increase in the complexity of accounting, billing and collecting payment for healthcare services. To address these challenges, healthcare providers are increasingly utilizing information technology, including practice management systems. While spending for information technology within the healthcare industry has historically been below that of other industries, healthcare information technology expenditures are, according to Sheldon I. Dorenfest & Associates, Ltd., expected to grow from $13.6 billion in 1997 to $21.0 billion by the year 2000. Infocure believes that expenditures within the practice management segment of the healthcare information technology industry will grow at a similar pace. Practice management systems include a range of software products and services for physicians and other healthcare providers. Most practice management systems provide several common functions, including practice administration functions, such as patient scheduling; financial functions, such as patient billing and receivables management; and may include clinical functions, such as preventative care notification. Beyond these common functions, the continued evolution of information and telecommunication technologies has led to the development of electronic commerce tools for integration with practice management systems. These tools can help to improve a healthcare practice's cash flow by facilitating electronic data interchange, thereby enabling more accurate and rapid submission of claims to third-party payors and more rapid receipt of corresponding reimbursements. According to American Health Consultants, nearly half of the total health claims submitted in the United States annually are processed manually. Paper claims require more time and are significantly more expensive to prepare, file and process than electronically-submitted claims. American Health Consultants' data suggest that the combined costs to payors and providers of processing a manual claim total approximately 15% of the average claim amount. Electronic data interchange transactions, on the other hand, can be processed directly with third-party payors or channeled through processing clearinghouses at significantly lower costs to the provider and the payor. Because of these significant cost savings, some payors are beginning to require practitioners to submit reimbursement claims electronically. Providers have also recognized a growing need for decision support tools that access and analyze the increasing volume of financial and clinical information generated by their practices. As the continued evolution of managed care requires physicians to be "at risk" for the costs associated with providing healthcare services, individual physicians will need advanced information technology to aggregate and evaluate financial and clinical information in an effort to manage their practices more efficiently and profitably. The practice management systems industry in the United States is highly fragmented, with a large number of relatively small, regionally focused companies and few national vendors. Most of these smaller competitors lack the financial and technical resources to develop, effectively market and support the advanced software products demanded by the marketplace. Many of these vendors are increasingly willing to combine with larger practice management systems vendors that have substantially greater financial, technical and managerial resources. 29 Strategy InfoCure's objective is to become the leading provider of advanced, specialty-specific practice management systems within targeted healthcare specialties. InfoCure's principal strategies to achieve this objective include: Continue to take advantage of niche market opportunities. InfoCure has developed significant market share within targeted niche healthcare specialties. These specialties are attractive to InfoCure because they have specific needs requiring related practice expertise. In addition, these segments are highly fragmented with several significant, but typically not dominant, players. InfoCure plans to continue to enhance its leadership position within the markets it currently serves while broadening its presence in new market niches through both internal marketing initiatives and additional strategic acquisitions. Cross-sell services and pursue opportunities with existing customers. With over 11,081 customer sites, InfoCure has the ability to generate significant growth by cross-selling additional products and services to its installed base. InfoCure intends to focus attention on cross-selling its advanced, value-added products, such as electronic data interchange services and InfoMine, to these existing customers. InfoCure believes that its strong relationship with customers positions InfoCure to be the vendor of choice within its client base. Expand the features of products and services offered. Through both internal development and acquisitions, InfoCure intends to continue to provide increasingly advanced technology solutions and additional customized services. InfoCure believes this will allow it not only to capture new customers but also to offer additional products and services to InfoCure's existing customer base. Establish a national marketing identity. InfoCure has implemented efforts to create a strong brand identity within the physician practice management software industry. InfoCure has done so by tying all of its products together with common marketing materials under one corporate name. In addition, InfoCure has commenced InfoTour, a seminar program which enables InfoCure to meet face- to-face with customers to strengthen its relationship with them while apprising them of the new products and features available within InfoCure's core suite of products. InfoCure believes these continuing efforts will increase awareness of its latest technologies within its targeted market niches. Take advantage of economies of scale. InfoCure has made significant investments in its employees and the facilities and equipment necessary to support them. InfoCure recently implemented a company-wide rollout of advanced communications, accounting and client tracking systems. As a result, InfoCure has built an infrastructure that it believes can support a level of business significantly larger than currently exists. InfoCure intends to continue to leverage this investment in infrastructure through both internal growth and strategic acquisitions. Products and Information Services InfoCure offers a wide range of practice management software products to healthcare providers in targeted specialty markets. These products are designed to automate the administrative, financial and clinical information management functions of office-based, hospital-based and enterprise-wide healthcare practices. In addition to providing standard practice management features, many of InfoCure's software products offer advanced features that serve the specific needs of InfoCure's targeted healthcare practice specialties. For example, anesthesiologists are required to bill their services on the basis of time units; oral and maxillofacial surgeons must have the capability to process both medical and dental claims; orthodontists must have the ability to offer their patients contract billing alternatives; and radiologists require specialized scheduling, film tracking and image delivery capabilities. InfoCure also offers decision support software, add-on software modules and electronic data interchange services. 30 Specialty Markets As of March 26, 1999, InfoCure had an installed base of 11,081 customer sites representing an estimated 65,600 healthcare providers and had systems installed in 50 states. The number of customer sites and the estimated number of providers in InfoCure's targeted specialties are set forth in the table below. InfoCure has focused its product development and marketing efforts on these practice specialties.
Number of Estimated Number Practice Specialty Customer Sites of Providers ------------------ -------------- ---------------- Anesthesiology........................... 171 6,500 Dental................................... 744 1,500 Dermatology.............................. 200 500 Emergency Medicine....................... 32 1,300 General Medical.......................... 1,263 3,600 Larger Medical Practices Utilizing AS/400 Technologies............................ 606 16,400 Oral and Maxillofacial Surgery........... 1,601 4,100 Orthodontics............................. 2,424 3,300 Pathology................................ 32 1,300 Podiatry................................. 3,296 4,700 Radiology................................ 712 22,400 ------ ------ Total................................ 11,081 65,600 ====== ======
Principal Products InfoCure classifies its principal practice management software products as either "core" or "classic." Core products offer advanced functionality and operate with the latest generation of operating systems and hardware platforms. In addition, core products are the primary products currently offered to InfoCure's targeted practice specialties and are the focus of InfoCure's ongoing product development and marketing efforts. Classic products, while continuing to offer adequate functionality, typically lack the most advanced practice management features and are not designed for the latest generation of operating systems. Currently, InfoCure actively markets twelve core products and supports 19 classic products. Approximately 15% of InfoCure's practice sites use core products, while approximately 80% use classic products. InfoCure believes there is a significant opportunity to provide system upgrades to those customers utilizing classic and other non-core products by providing a migration path to its core products. While InfoCure no longer actively markets its classic products, it will continue to provide customer support for its classic products until it determines that it is no longer cost effective to do so. Additionally, approximately 5% of InfoCure's customers currently are using products that were written for operating systems or hardware platforms that are generally no longer supported by their respective vendors. InfoCure is actively promoting the migration of customers utilizing these products to newer products and intends to retire these products at the earliest possible opportunity. 31 The following chart describes how InfoCure's principal products serve targeted specialties and practice areas:
Specialties and Practice Areas Served Principal Products Practice Specific Features Anesthesiology Micro*Star . Time and unit billing . Single entry physician/Certified Registered Nurse Anesthetist charge creation . Integrated procedure and diagnostic coding . Automated concurrency calculation . Billing for treatment of acute or chronic pain . Quality outcomes measurements - ---------------------------------------------------------------------------------------- Dermatology Kiron . Open item patient and insurance processing Wisdom . Encounter form scanning . Cross-coding integration . Automatic modifier generation . Multi-resource scheduling - ---------------------------------------------------------------------------------------- General Medical WinMED CS . Open item patient and insurance processing Wisdom . Patient charting via progress notes, billing, narrative history and correspondence history . Multi-facility management, billing and reporting . Prescription tracking and processing . Customizable insurance and statement form templates - ---------------------------------------------------------------------------------------- Larger Medical Practices Ideal . Multi-clinic capabilities/roll-up reporting Utilizing AS/400 . Global patient records across clinics Technologies . Preventative care and outcomes analysis . Occupational medicine capabilities . Laboratory requisition . Chart tracking with bar code capability . Integrated medical records - ---------------------------------------------------------------------------------------- Oral and Maxillofacial WinOMS CS . Medical and dental claim Surgery processing and cross-coding . Surgery narrative reporting . Surgery stage tracking . Implant tracking . Pretreatment estimating and treatment planning . Image integration into patient records - ---------------------------------------------------------------------------------------- Orthodontics OPMS/32 . Contract billing via payment coupons Orthotrac . Time scheduling by units of doctor and assistant time per procedure . Treatment charting . Diagnostic and treatment planning . Automatic patient treatment milestone tracking . Imaging - ---------------------------------------------------------------------------------------- Podiatry Wisdom . Open item patient and insurance processing . Medicare-specific podiatry requirements . Progress notes, histories and physician operating reports and correspondence . Integrated speech recognition . Customizable insurance and statement form templates - ---------------------------------------------------------------------------------------- Hospital-based Sentinel . Automatic calculation of weekly Providers: treatments Emergency Medicine . Capability to upload transcription Pathology from outside sources Radiology . Bar code payment posting . Integrated managed care features to monitor contracts and verify eligibility
32 InfoCure has designed its core software products to offer advanced functionality and to operate with the latest generation of operating systems and hardware platforms. InfoCure believes that PC-based practice management systems are standardizing on the Windows family of operating systems. InfoCure's PC-based core products use Microsoft Corporation's relational database software, operating system software and networking software. InfoCure has adopted 32-bit client/server technology in its PC-based core products, maximizing their scalability in local and wide area network environments. Many larger healthcare practices, including clinics, hospital-based practices and other enterprise-wide providers, utilize mid-range computer platforms. There are several mid-range computer platforms that are used by these larger healthcare practices. InfoCure believes that AS/400-based systems will continue to represent a significant portion of installed mid-range computer platforms. InfoCure's mid-range core product, Ideal, is written for the AS/400 platform. InfoCure's systems provide customers with significant benefits that enable them to manage their practices more efficiently. Its customers are able to choose from a menu of features and functions most essential to their practices, primarily in the following areas: . Administrative management--appointment scheduling, patient correspondence and referral analysis; . Financial management--payor billing, patient billing and accounts receivable management; and . Clinical information management--patient medical history, treatment planning and hospital interface. In addition to the standard and specialty-specific features of its core products, InfoCure has recently introduced InfoMine, a decision support tool designed to be compatible with all of InfoCure's core products and to further supplement their analytical features. InfoMine enables a provider to access, sort and display data according to any data element selected by the user, including payor, referral source, reimbursement rate, time interval or other variable. InfoMine provides the customer with the ability to consolidate reporting in a flexible format, to analyze the relationship between variables and to view such reports in real time. InfoMine offers practitioners a computerized solution for rapidly analyzing the performance of their practices, including the ability to analyze the profitability of various contractual relationships with payors. Currently, InfoMine is only available as part of InfoCure's anesthesiology product. InfoCure expects to offer InfoMine as part of its products for other practice specialties during 1999. InfoCure also develops add-on software modules providing enhanced functionality. Current add-on software modules include: . a scanning system that uses optical scanning technology to automate routine data entry tasks; . a voice-activated medical records application that translates dictation directly into InfoCure's software thereby permitting the on-site creation of accurate patient clinical reports; . a digital record keeping application that allows a practice to store and merge radiographic and photographic images with correspondence and clinical medical records; and . an interface that enables hospital-based physician practices to download patient data from hospital systems into InfoCure's practice management system. Information Services InfoCure's core software products enable electronic data interchange functions, including patient billing and insurance claims submission and remittance. The use of these electronic transactions can improve a healthcare practice's cash flow by enabling more accurate and rapid submission of claims to third-party payors and more rapid receipt of corresponding reimbursements. Electronic data interchange services currently include the following: 33 . Electronic Patient Billing--electronically submits patient billing information from practices by dial-up modem or via the Internet to InfoCure's printing center or to independent national clearinghouses which process, print and mail invoices and provide billing reports to the practice. . Electronic Claims Submission--electronically submits insurance claims from practices to payors, either directly or through independent national clearinghouses. . Electronic Claims Remittance--electronically remits insurance payment and automatically posts explanation of benefits into the practice management system. InfoCure generates revenues by facilitating electronic transactions, currently processing more than 2.0 million electronic transactions each month through clearinghouse arrangements. InfoCure believes that clearinghouse arrangements serve customers better than electronic transactions directly with third-party payors because of a clearinghouse's ability to administer the creation and submission of claims, properly format data and facilitate reimbursements from multiple payors. Accordingly, InfoCure actively encourages its customers to enter into clearinghouse arrangements for their electronic transactions. InfoCure intends to offer additional electronic data interchange services, such as eligibility verification, referral authorization, precertification and claims status services. Support Services InfoCure believes that customer satisfaction with ongoing support and services is critical to its success. InfoCure assists customers with the initial installation of systems and offers several alternatives for training and data conversion services. InfoCure's customer service and support groups are organized both by computer platform and practice specialty. In addition to providing on-site training for certain of its product lines, InfoCure maintains classroom-based training facilities in twelve locations throughout the United States. InfoCure sponsors continuing education programs, periodic newsletters and user group conferences, providing the user with current information, as well as an opportunity for InfoCure to demonstrate the features of new and enhanced products. InfoCure provides its customers with ongoing software support and services under annual agreements that typically have automatically renewable one year terms. These agreements provide for general support through access to help desks, error corrections to software, software upgrades within a product line and remote diagnostics. Customer support and services are provided through a wide area voice and data network which incorporates automated call distribution to route customer calls from any location to the appropriate support person, regardless of physical location. Additionally, InfoCure has acquired a company- wide customer support software system. This system, which is currently utilized to support approximately 44% of InfoCure's customers, operates within a client/server environment and provides client-tracking information to assist InfoCure support representatives. InfoCure's remaining customers are scheduled to be supported on this system by June 1999. Hardware support is generally provided directly by the manufacturer or its authorized reseller. InfoCure has invested significant resources in the systems, facilities and personnel required to provide outstanding service to its customers. As of March 26, 1999, the customer support and services group consisted of 436 employees, representing approximately 52% of InfoCure's total employee base. Acquisition Integration InfoCure has developed a significant infrastructure to support the acquisition and integration of targeted businesses. This infrastructure consists of management and technical personnel, sophisticated communications technology and advanced financial and accounting software. An acquisition team, which includes key members of InfoCure's management and technical staff, identifies acquisition targets, performs due diligence investigations and negotiates the terms of each acquisition. An integration team, which includes key operational 34 personnel, works with each acquired company to identify and complete the various post-acquisition tasks of integration, including incorporation of desired product features into InfoCure's products and consolidation of administrative and financial functions. InfoCure supports the integration of acquired businesses through company-wide communications and software systems. Dedicated T-1 telecommunications lines connect each of InfoCure's remote facilities enabling an integrated computer network and phone system. Each acquired business is rapidly migrated to this communications system in order to facilitate seamless integration with InfoCure's operations. InfoCure's accounting software is capable of standardizing the accounting and financial reporting of newly acquired companies rapidly, minimizing the time and expense associated with financial integration. InfoCure believes its infrastructure effectively positions it to continue to acquire new companies and facilitates the integration of the operations of each acquired company. Product Development InfoCure's research and development organization, comprised of 188 full time employees as of March 26, 1999, is organized into product development, conversion and quality assurance groups. InfoCure's research and development efforts principally involve the incorporation of the best technologies from each acquired product into InfoCure's core practice management systems. InfoCure's research and development staff facilitates the integration of acquired products by conducting a technical review of acquired companies' software products to determine the best available functions and features within such products. Based upon this evaluation, InfoCure generally pursues one of the following alternatives for each acquired product: . incorporate the features of the product into one or more of InfoCure's core products; or . continue to market and support the product without revision. From time to time, InfoCure will choose to retire obsolete software products and actively migrate users to its core products. InfoCure continually refines its core products and rapidly deploys new features and advanced technologies into such products. Moreover, InfoCure's product development staff develops additional advanced practice management functionality for its core products and add-on software modules designed to be compatible with these core products. InfoCure is also seeking to expand its electronic data interchange services to include additional capabilities such as electronic eligibility verification, referral authorization, precertification and claims status. Sales and Marketing InfoCure markets its products through a direct sales force, comprised of 93 marketing and sales personnel in 20 locations as of March 26, 1999. InfoCure organizes its sales force by specialty practice area and computer platform. The sales force is trained to understand the specialty-specific needs of its customers. Within its existing customer base, InfoCure promotes and sells system upgrades, maintenance services, add-on software modules and information services. In addition, InfoCure targets new customers principally through seminars, trade shows, telemarketing, direct mail campaigns and advertisements in various publications. To address the complex needs of larger potential customers, InfoCure recently formed an executive sales group. In addition, senior personnel and members of management assist in sales and marketing initiatives to larger and more technically-advanced potential customers. Through third-party sources, InfoCure offers its customers who purchase systems non-recourse financing with a rapid approval process. Intellectual Property InfoCure regards its software as proprietary and protects its software primarily through reliance on copyright law and trade secret protection. InfoCure generally enters into written license agreements with customers which contain software license and support terms customary in the industry. In limited 35 circumstances, InfoCure distributes its less expensive products under a form license agreement printed on or inside the package for the software. In most instances InfoCure provides its software products in a form that does not permit the software code to be altered by the user, although in a limited number of unique situations InfoCure has licensed products in a form that would allow such alterations. See "Risk Factors--We Must Protect Our Trade Secrets." Competition InfoCure's principal competitors include both national and regional practice management systems vendors. Currently, the practice management systems industry in the United States is characterized by a large number of relatively small, regionally-focused companies, comprising a highly fragmented industry with only a few national vendors. Smaller, regionally-focused companies typically market their products to a single practice specialty. Until recently, larger, national vendors have targeted primarily large healthcare providers. InfoCure believes that the larger, national vendors may broaden their markets to include both small and large healthcare providers. In addition, InfoCure competes with national and regional providers of computerized billing, insurance processing and record management services to healthcare practices. As the market for InfoCure's products and services expands, additional competitors are likely to enter this market. InfoCure believes that the primary competitive factors in its markets are: . product features and functionality; . customer service, support and satisfaction; . price; . ongoing product enhancements; and . the reputation and stability of the vendor. Some national competitors have greater financial, development, technical, marketing and sales resources than InfoCure. If competition in the practice management systems industry intensifies, InfoCure may be required to lower the prices of its products and services. See "Risk Factors--Competition Could Reduce Revenue From Our Products and Services." Government Regulation The confidentiality of patient records and the circumstances under which such information may be used or released are subject to substantial regulation by state and federal laws and regulations. Regulations governing electronic health data transmissions are evolving rapidly and are often unclear and difficult to apply. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), signed into legislation on August 22, 1996, requires the Secretary of Health and Human Services to adopt national standards for certain types of electronic healthcare information transactions and the data elements used in such transactions, and to adopt standards to ensure the integrity and confidentiality of such information. In August 1998, the Secretary issued proposed standards specifying electronic transactional code sets, data security and electronic signature standards and certain provider and employer identifiers (standards governing identifiers for health plans have not yet been proposed). Final standards are expected following a public comment period for each proposal and are expected to become mandatory within 24 to 36 months thereafter. InfoCure believes that the proposed standards would not materially affect InfoCure's business if adopted as proposed. There can be no assurance, however, that such standards will be adopted as proposed or that the standards yet to be proposed, particularly those related to data security, will not have a material adverse effect on InfoCure's business, financial condition and results of operations. As required by the HIPAA legislation, the Secretary submitted recommendations to Congress for legislation to protect privacy and confidentiality of personal health information in September 1997. If Congress does not enact legislation by August 1999, HIPAA requires the Secretary to promulgate regulations concerning such protections. Legislation governing the dissemination of medical record information is frequently proposed 36 and debated at both the federal and state levels. Such legislation, if enacted, could require patient consent before even coded or anonymous patient information may be shared with third parties and could also require that holders or users of such information implement specified security measures. Any material restriction on the ability of healthcare providers to obtain or disseminate patient information could adversely affect InfoCure's business, financial condition and results of operations. The FDA has jurisdiction under the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act (the "FDC Act") to regulate computer products and software as medical devices if they are intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease in humans. We have not determined to what extent InfoCure's practice management software products would be deemed to be a medical device subject to FDA regulation. The FDA has issued a draft policy statement under which manufacturers of medical image storage devices and related software are required to submit to the FDA premarket notification applications and otherwise comply with the requirements of the FDC Act applicable to medical devices. Recently, the FDA has initiated agency rulemaking which may exempt certain close-up medical image management devices from premarket notification procedures, but there can be no assurance that such an exemption actually will be adopted and, if so, that the rulemaking will apply to InfoCure's products. Non-compliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, total or partial suspension of production, refusal by the government to approve products, revocation of approvals or clearances previously granted and criminal prosecution. There can be no assurance that any final FDA policy governing computer products, once issued, or future laws or regulations concerning the manufacture or marketing of medical devices or healthcare information systems will not increase the cost and time to market of new or existing products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors--We May Be Subject to Changing Government Regulations." Human Resources As of March 26, 1999, InfoCure employed 842 persons, including 93 in marketing and sales, 436 in customer support and services, 188 in product development and 125 in administration, finance and management. None of InfoCure's employees is subject to a collective bargaining arrangement. InfoCure considers its relations with its employees to be good. 37 MANAGEMENT Directors and Executive Officers The directors and executive officers of InfoCure and their ages as of the date of this prospectus are as follows:
Name Age Position ---- --- -------- Frederick L. Fine.............. 40 Chief Executive Officer, President, Director and member of the Executive Committee James K. Price................. 40 Executive Vice President, Secretary, Director and member of the Executive Committee Richard E. Perlman............. 52 Chairman, Treasurer, Director and member of the Executive Committee Lance B. Cornell............... 33 Senior Vice President--Finance; Chief Financial Officer Michael E. Warren.............. 44 Vice President--Human Resources and Director R. Ernest Chastain............. 49 Vice President--Sales and Marketing Donald M. Rogers............... 40 Chief Information Officer Kurt I. Lawrence............... 47 Vice President--Research and Development Gary W. Plumer................. 41 Vice President--Finance, Assistant Secretary and Assistant Treasurer James D. Elliott............... 38 Director, member of the Audit and Compensation Committees Raymond H. Welsh............... 67 Director, member of the Audit and Compensation Committees
Frederick L. Fine is a founder of InfoCure and currently serves as its President and Chief Executive Officer. He has served as a director of InfoCure since its inception. Mr. Fine served as president of American Medcare from 1995 to 1997 and as president of International Computer Solutions, a subsidiary of American Medcare, from 1994 to 1997. From 1993 to 1995, Mr. Fine served as executive vice president of American Medcare, and from 1985 to 1994 served as executive vice president of International Computer Solutions, which he co- founded in 1985. From 1991 to 1993, Mr. Fine served as vice president of Newport Capital, Inc., predecessor to American Medcare. Mr. Fine has served as a director of InfoCure as well as American Medcare, International Computer Solutions and Newport Capital throughout the terms of his employment by each company. From 1983 to 1985, Mr. Fine was with Informatics General Corporation, a supplier of accounting software, and from 1981 to 1983 was with Moore Business Systems, a division of Moore Corporation Ltd., a provider of practice management systems. Mr. Fine holds a B.S. in Economics from the University of Georgia. James K. Price is a founder of InfoCure and currently serves as its Executive Vice President and Secretary. He has served as a director of InfoCure since its inception. Mr. Price served as executive vice president of American Medcare from 1996 until 1997 and was vice president from 1993 to 1995. Mr. Price co- founded International Computer Solutions and has served as its executive vice president since 1994, as vice president from 1987 to 1994 and as president from 1985 to 1987. In addition, from 1991 to 1993, Mr. Price was a vice president of Newport Capital. Mr. Price has served as a director of InfoCure as well as American Medcare, International Computer Solutions and Newport Capital throughout the terms of his employment by each company. From 1983 to 1985, Mr. Price was healthcare sales manager of Executive Business Systems, a practice management systems supplier, and from 1981 to 1983 was with Moore Business Systems. Mr. Price holds a B.A. in Marketing from the University of Georgia. Richard E. Perlman has served as InfoCure's Chairman and Treasurer since December 1997 and as a director since March 1997. From December 1997 until October 1998, Mr. Perlman served as InfoCure's Chief Financial Officer. Mr. Perlman is the founder of Compass Partners, L.L.C., a merchant banking and financial advisory firm specializing in corporate restructuring and middle market companies, and has served as its 38 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. Lance B. Cornell has served as InfoCure's Senior Vice President of Finance and Chief Financial Officer since October 1998. Prior to joining InfoCure, Mr. Cornell served as vice president--controller and in other financial management roles at HBO & Company, a healthcare information systems company, from March 1992 through June 1998. Mr. Cornell holds a B.S. in Finance from the University of Colorado and is a Certified Public Accountant. Michael E. Warren has served as Vice President of InfoCure since December 1997, most recently as Vice President--Human Resources since August 1998. Prior to that time he served as InfoCure's Chief Financial Officer from December 1996 until December 1997. He has served as a director of InfoCure since March 1997. Mr. Warren served as vice president of operations and as chief financial officer of American Medcare from 1994 to 1996. From 1992 to 1994, Mr. Warren was director of provider systems at Millennium Healthcare, a supplier of electronic healthcare services. From 1986 to 1992, Mr. Warren was director of the Southeast Computer Risk Management Practice 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 member of the AICPA and a member of the Georgia Society of CPAs. R. Ernest Chastain has served as Vice President--Sales and Marketing of InfoCure since December 1997. Prior to joining InfoCure in December 1997, Mr. Chastain served as vice president--sales and marketing of AMC from November 1996. From 1994 until 1996 he served as vice president of sales of Quality Systems, Inc., a healthcare practice management company; and from 1993 to 1994, Mr. Chastain served as vice president of sales for ELCOMP, Inc., a healthcare practice management company. 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 has served as InfoCure's Chief Information Officer since July 1998. Mr. Rogers served as a Vice President of InfoCure from April 1998 until July 1998 and as President of InfoCure's medical systems division from April 1997 until April 1998. He was the founder of DR Software and served as its president since its formation in 1983. From 1983 to 1984, Mr. Rogers was an account manager at HBO & Company, a healthcare information systems 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. Kurt I. Lawrence has served as InfoCure's Vice President--Research and Development since August 1998. Mr. Lawrence has led InfoCure's research and development efforts since joining InfoCure in March 1998. He founded MSI in June 1989 and served as its president and chief executive officer until MSI was acquired by InfoCure. Mr. Lawrence was founder, president and chief executive officer of Lawrence Data Systems, Inc. from 1983 until 1989 and from 1976 until 1982 he served as the director of the University of Rochester Medical Center's computing department. Gary W. Plumer has served as Vice President--Finance, Assistant Secretary and Assistant Treasurer of InfoCure since December 1997. He served as Controller for the Company from November 1996 until December 1997. Prior to joining the Company, Mr. Plumer served as divisional controller for Turner Broadcasting System, Inc., a worldwide broadcasting company, from April 1988 until November 1996. Mr. Plumer is a Certified Public Accountant and holds a B.B.A. in Finance from the University of Georgia. 39 James D. Elliott has served as a director of InfoCure since March 1997. Mr. Elliott is the president of Cablepro, Inc., a computer/telephone cable systems integration company and has served in that position since 1991. He was president of GE Network Services from August 1996 until August 1997. Mr. Elliott co-founded Universal Data Consultants, Inc., a systems integrator, in 1983 and served as its president from 1983 until it was purchased by GE Capital Services Company in July 1996. Mr. Elliott has also served as a director of Abdata Systems, Inc. since February 1998. Mr. Elliott holds a B.S. in Economics from the University of Georgia. Raymond H. Welsh has served as a director of InfoCure since March 1998. He has served as senior vice president of PaineWebber Incorporated since January 1995. From August 1955 to January 1995, Mr. Welsh served as an investment broker, director, senior vice president and partner of Kidder Peabody & Co. Incorporated. Mr. Welsh is a trustee of the University of Pennsylvania, a trustee and member of the executive committee of the University of Pennsylvania Health System, and chairman of the Health System Capital Campaign, "Creating the Future of Medicine." Mr. Welsh received a B.S. in Economics from the Wharton School of the University of Pennsylvania. There are no family relationships between any of the directors or executive officers of InfoCure. Terms of Directors The Board of Directors consists of seven directors each serving a one-year term. Currently, there are six directors serving on the Board of Directors and one vacancy. InfoCure's Bylaws permit the Board of Directors to fill vacancies. In addition, InfoCure's Bylaws divide the Board of Directors into three classes and each class serves for a staggered three-year term or until successors of such class have been elected and qualified. Messrs. Perlman and Warren are Class I directors and serve until the annual meeting of shareholders to be held in 1999. Messrs. Price and Welsh are Class II directors and serve until the annual meeting of shareholders to be held in 2000. Messrs. Fine, Elliott and any director appointed to fill the existing vacancy are Class III directors and will serve until the annual meeting of shareholders to be held in 2001. At each annual meeting of shareholders, a class of directors is elected for a three- year term to succeed the directors of the same class whose terms are then expiring. To the extent there is an increase in the number of directors, the Board of Directors will distribute the additional directorships among the three classes so that, as nearly as possible, each class will consist of an equal number of directors. Non-employee Directors Stock Option Plan InfoCure's Board of Directors has adopted the InfoCure Corporation Directors' Stock Option Plan which provides for the grant of non-qualified stock options to directors who are not officers or employees of InfoCure or its subsidiaries. The directors' option plan was approved by InfoCure's stockholders in June 1998. Effective January 1998, each non-employee director who is first appointed or elected to the Board of Directors will be granted an option to purchase 10,000 shares of InfoCure's common stock. On each anniversary thereafter, non- employee directors will be eligible for annual grants of options to purchase 2,500 shares of common stock. The directors' option plan also allows the Compensation Committee of the Board of Directors to make extraordinary grants of options to non-employee directors. All options granted under the directors' option plan vest at a rate of 50% upon completion of each year of service by the non-employee director on the Board of Directors. Generally, no option is transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable only by the optionee during his or her lifetime. The exercise price of all options will be the fair market value of the shares of common stock on the date of grant, and the term of each option may not exceed ten years. Unless terminated sooner by the Board of Directors, the directors' option plan will continue in effect for a period of ten years or until all options outstanding thereunder have expired or been exercised. There are 100,000 shares of common stock reserved for issuance under the directors' option plan. As of March 26, 1999, options to acquire 27,500 shares of common stock have been granted pursuant to the directors' option plan at a weighted average exercise price of $7.22 per share. 40 Effective October 23, 1998, the Board of Directors granted a non-qualified stock option to acquire 2,500 shares of common stock to each of Mr. Elliott and Mr. Welsh at an exercise price of $13.50 per share, subject to vesting of 50% upon the optionee's completion of each year of service on the Board of Directors. These options were not granted pursuant to the directors' option plan. Employee Benefit Plans In October 1996, American Medcare adopted and issued stock options under its 1996 Stock Option Plan. In addition, in December 1996, InfoCure's Board of Directors and stockholders adopted the InfoCure Corporation 1996 Stock Option Plan. In June 1998, InfoCure's stockholders approved an amendment to InfoCure's option plan to allow 1,125,000 shares of common stock to be issued thereunder. Effective October 23, 1998, the Board of Directors approved an amendment to InfoCure's option plan, subject to stockholder approval, to reserve 3,000,000 shares of common stock to be issued thereunder. InfoCure's option plan and American Medcare's option plan each provide for the granting to officers, key employees and employee directors of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting of non-statutory stock options to employees and consultants. The stock option plans are administered by the Board of Directors, or a committee thereof, which determines the term of the option granted, the exercise price, when and to whom options are granted, shares subject to the option, the vesting schedule and the form of consideration payable at the exercise of the option. Incentive stock options granted under the stock option plans are not transferable by the optionee other than by will or the laws of descent and distribution, and each incentive stock option is exercisable only by the optionee during his or her lifetime. The exercise price of all incentive stock options granted under the stock option plans must be at least equal to the fair market value of InfoCure's common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the outstanding stock of InfoCure, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value of InfoCure's common stock on the grant date and the maximum term of such option must not exceed five years. The term of all options granted under the stock option plans may not exceed ten years. All options expire one year after termination of an optionee's employment or engagement, unless such termination was for death or disability in which case such options expire two years after termination. Unless terminated sooner by the Board of Directors, stock options may be granted within ten years of the adoption of the respective stock option plan. Generally, stock options granted under the stock option plans to executive officers expire ten years from the date of grant and vest 25% per year on the anniversary of the date of grant, thus becoming fully exercisable on the fourth anniversary. Certain options granted under InfoCure's option plan become fully vested in the event that the common stock reaches a target average closing price for a specified number of consecutive trading days. Certain options granted to Messrs. Fine, Perlman and Price in September 1997 have longer vesting schedules. If the executive officer's employment is terminated for any reason, except upon a change of control, prior to the vesting of the option, that portion of the option which has not vested shall be terminated. Upon certain events resulting in a change of control of InfoCure, all options become fully vested. As of March 26, 1999, options to purchase 128,642 shares of common stock were outstanding under American Medcare's option plan at an equivalent weighted average exercise price of $4.19 per share and options to purchase 2,209,036 shares of common stock were outstanding under InfoCure's option plan at weighted average exercise price of $9.58 per share. No additional stock options will be granted under American Medcare's option plan. Employee Stock Purchase Plan In June 1998, InfoCure's stockholders approved the InfoCure Corporation Employee Stock Purchase Plan which is intended to qualify under Section 423 of the Internal Revenue Code. InfoCure implemented the stock purchase plan during the first quarter of 1998. The stock purchase plan allows employees to purchase common 41 stock through payroll deductions for 85% of the fair market value of the common stock. Participation in the stock purchase plan is voluntary. Employees may become participants in the stock purchase plan by authorizing payroll deductions of one to fifteen percent of their base pay or a set dollar amount for each payroll period. At the end of each three-month purchase period, each participant in the stock purchase plan will receive an amount of InfoCure's common stock equal to the sum of that participant's payroll deductions during the calendar quarter multiplied by 85% of the lower of the fair market value of InfoCure's common stock at the beginning of the calendar quarter, or the fair market value of InfoCure's common stock at the end of the quarter. Common stock which is purchased pursuant to the stock purchase plan is subject to a one-year holding period, and thus employees who purchase common stock under the stock purchase plan will not receive stock certificates for their shares until the one-year holding period has terminated. This holding period lapses upon certain events resulting in a change of control. No employee may participate in the stock purchase plan to the extent that such employee owns or would own 5% or more of the voting power of all classes of InfoCure's stock. There are currently 100,000 shares of common stock reserved for issuance under the stock purchase plan. InfoCure is permitted under the stock purchase plan to purchase shares of common stock on the open market for the purpose of reselling the shares to participants in the stock purchase plan. As of March 26, 1999, 5,534 shares have been purchased on the open market and re-sold by InfoCure to participants in the stock purchase plan. Effective October 23, 1998, the Board of Directors approved an amendment to the stock purchase plan, subject to stockholder approval within one year, increasing the number of shares of common stock reserved for issuance thereunder to 150,000, and deleting payment by personal check as an alternate method of payment for common stock purchased under the stock purchase plan. Length-of-Service Stock Option Plan In June 1998, InfoCure's stockholders approved InfoCure's Length-of-Service Nonqualified Stock Option Plan which provides for the grant of nonqualified stock options to employees. Employees are eligible for the grant of options under the length-of-service plan based on the number of years of service which they have completed with InfoCure or a business which has been acquired by InfoCure. Upon completion of each of their first five years of service, employees are eligible to receive an option to purchase 50 shares of InfoCure's common stock. Upon completion of their sixth year of service, employees are eligible to receive an option to purchase 350 shares of common stock. Upon completion of each year of service after the sixth year of service, employees are eligible to receive an option to purchase 100 shares of common stock. Options granted under the length-of-service plan will be granted at an exercise price equal to the fair market value of the underlying common stock on the date of grant and, generally, will fully vest on the fourth anniversary thereof. The term of options granted under the length-of-service plan may not exceed ten years. Employees lose all non-vested options upon leaving the employment of InfoCure. Employees who leave InfoCure may exercise their options, to the extent vested, within 30 days after leaving the employment of InfoCure, except in the case of a termination for cause, in which case the employees lose all vested options upon termination. Options are exercisable only by optionees during their lifetime and, except by will or the laws of descent or distribution, are non-transferrable. Upon certain events resulting in a change of control, all outstanding options under the length-of-service plan fully vest and become immediately exercisable. The length-of-service plan will continue in effect for a period of ten years or until all options outstanding thereunder have expired or been exercised. Effective October 23, 1998, the Board of Directors approved an amendment to the length-of-service plan which, subject to stockholder approval, increases the number of shares of common stock reserved for issuance under the length-of-service plan to 500,000 from 150,000. As of March 26, 1999, options to acquire 216,650 shares have been granted at a weighted average exercise price of $9.39 per share. Employment Agreements In July 1998, InfoCure entered into four-year employment agreements with Frederick L. Fine and James K. Price. Each agreement provides for an initial annual base salary of $125,000 and a severance payment equal to three times the then current annual base salary rate upon the termination of employment by InfoCure without cause or a voluntary termination in the event of a change of control of InfoCure. In addition, each agreement provides for incentive compensation pursuant to a program established by the Board of Directors, a cash bonus 42 payment in the event that InfoCure meets certain earnings thresholds and a restricted stock grant payable in ten years or earlier if InfoCure's common stock attains certain market price thresholds. See "--Restricted Stock Awards." A market price threshold was achieved in January 1999 resulting in an acceleration of vesting in the amount of 50% of the stock covered by this restricted stock award. See "Risk Factors--Our Financial Statements May Reflect Charges Associated With Acquisitions and Other Events." Both executives are entitled to participate in InfoCure's employee benefit programs. Richard E. Perlman entered into a four-year employment agreement with InfoCure in January 1998 which provides for an annual base salary of $120,000 and a severance payment equal to three times the then current annual base salary rate upon termination of employment by InfoCure without cause or a voluntary termination in the event of a change of control of InfoCure. Under the agreement, Mr. Perlman is eligible to receive incentive compensation pursuant to a program established by the Board of Directors, a cash bonus payment in the event InfoCure meets certain earnings thresholds and a restricted stock grant payable in ten years or earlier if InfoCure's common stock attains certain market price thresholds. See "--Restricted Stock Awards." A market price threshold was achieved in January 1999 resulting in an acceleration of vesting in the amount of 50% of the stock covered by this restricted stock award. See "Risk Factors--Our Financial Statements May Reflect Charges Associated With Acquisitions and Other Events." In addition, Mr. Perlman may participate in InfoCure's employee benefit program. As of July 10, 1997, InfoCure entered into a two-year employment agreement with Donald M. Rogers which provides for an annual base salary of $110,000. In February 1998, InfoCure entered into a two-year employment agreement with Kurt I. Lawrence which provides for an annual base salary of $110,000. Each of the foregoing employment agreements has a covenant that the executive may not compete with InfoCure for a period of one year following termination of employment. InfoCure has not adopted a formal bonus plan. However, all executive officers of InfoCure are eligible for a bonus, to be awarded at the sole discretion of the Board of Directors, which is dependent upon each executive officer's individual performance and the performance of InfoCure. Restricted Stock Awards In June 1998, the Board of Directors approved restricted stock awards for 35,000 shares to Mr. Fine, 30,000 shares to Mr. Price and 30,000 shares to Mr. Perlman. The total value of these restricted stock awards was approximately $1.1 million on the date of grant. The restricted stock awards vest ratably over a ten-year term but vesting can be accelerated upon the occurrence of certain events. One-half of the shares subject to the restricted stock awards vested in the first quarter of 1999 when the average closing price of InfoCure's common stock was $25.00 or more for 20 consecutive trading days. InfoCure will incur an estimated compensation charge of $500,000 in the first quarter of 1999 related to the restricted stock awards to reflect this accelerated vesting. The remaining shares will vest immediately at the time the average closing price of InfoCure's common stock is $40.00 or more for 20 consecutive trading days. It is possible that InfoCure will incur an additional charge of up to $580,000 if this second accelerated vesting occurs. InfoCure does not expect to grant additional restricted stock awards in the future and therefore does not expect to incur compensation charges relating to restricted stock awards in the future. Limitation of Liability and Indemnification of Officers and Directors Pursuant to InfoCure's Certificate of Incorporation and Bylaws, officers and directors shall be indemnified by InfoCure to the fullest extent allowed under Delaware law for claims brought against them in their capacities as officers or directors. Indemnification is not allowed if the officer or director does not act in good faith and in a manner reasonably believed to be in the best interests of InfoCure, or if the officer or director had no reasonable cause to believe his conduct was lawful. Accordingly, indemnification may occur for liabilities arising under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and controlling persons of InfoCure pursuant to the foregoing provisions or otherwise, InfoCure has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and, therefore, may be unenforceable. 43 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of InfoCure capital stock as of the date of this prospectus, and as adjusted to reflect the sale by InfoCure of the common stock being offered hereby, by: (a) each director; (b) each stockholder known by InfoCure to be beneficial owners of more than 5% of the outstanding shares of common stock; (c) the selling stockholders; and (d) all executive officers and directors of InfoCure as a group. Information with respect to "beneficial ownership" shown in the table below is based on information supplied by the respective beneficial owner or by other stockholders as well as filings made with the SEC or furnished to InfoCure. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. For purposes of calculating the percentage beneficially owned after the offering, the shares of common stock deemed outstanding include: . 8,888,936 shares outstanding as of March 26, 1999; . 1,000,070 shares issuable upon the conversion of the 850,060 shares of Series A Preferred concurrently with the effectiveness of the offering; . 100,644 shares issuable upon conversion of a note payable and other obligations concurrently with the effectiveness of the offering; and . shares issuable by InfoCure pursuant to warrants and options held by the respective person or group which may be exercised within 60 days following the date of this prospectus ("Presently Exercisable Options"). The shares outstanding exclude 47,500 shares that are issuable upon attainment of vesting goals applicable to restricted stock awards. See "Capitalization" and "Management--Restricted Stock Awards." For each person who beneficially owns shares of Series A Preferred, common stock ownership reflects the conversion of such Series A Preferred shares into shares of common stock at a conversion price of $8.50 per share. No shares of preferred stock will be outstanding after the offering. Presently Exercisable Options are deemed to be outstanding and to be beneficially owned by the person or group holding such options for the purpose of computing the percentage ownership of such person or group but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group. Shares of common stock beneficially owned by certain selling stockholders after this offering are registered pursuant the resale registration statement and will be immediately eligible to be sold in the public market either immediately or upon expiration of 30 or 90 day lock-up agreements executed by such selling stockholders. See "Shares Eligible For Future Sale." Unless otherwise specified, the mailing address of each beneficial owner is c/o InfoCure Corporation, 1765 The Exchange, Suite 450, Atlanta, Georgia 30339. 44
Common Common Stock Stock to Beneficially Owned be Sold Common Stock Prior to the in the Beneficially Owned Offering Offering After the Offering -------------------- -------- -------------------- Name and Address of Beneficial Owner Shares Percentage Shares Shares Percentage - ------------------- --------- ---------- -------- --------- ---------- Directors, Officers and 5% Stockholders: Frederick L. Fine(1)...... 527,718 5.9% -- 527,718 4.1% James K. Price(2)......... 525,300 5.9 -- 525,300 4.1 Richard E. Perlman(3)..... 352,055 3.9 -- 352,055 2.7 Michael E. Warren(4)...... 84,192 * -- 84,192 * James D. Elliott(5)....... 28,886 * -- 28,886 * Raymond H. Welsh(5)....... 23,000 * -- 23,000 * All directors and executive officers as a group (11 persons)(6).... 1,802,328 19.4 10,177 1,792,151 13.8 Crescent International Limited(7)............... 549,983 6.1 180,000 369,983 2.3 William Herbert Hunt Trust Estate(8)................ 548,932 6.0 -- 548,932 4.2 Reid W. Simmons(9)........ 466,036 5.2 -- 466,036 3.6 James D. Davis(9)......... 465,036 5.2 -- 465,036 3.6 Selling Stockholders(10): Bailey, Joe M............. 6,220 * 1,866 4,354 * Ball, George L............ 6,220 * 1,866 4,354 * Ball, Susan Huffard....... 6,220 * 1,866 4,354 * Barbour, Carol C.......... 3,109 * 933 2,176 * Brewster, John C. and Mar- ianna.................... 3,109 * 933 2,176 * Chadwick, Michael S....... 3,109 * 933 2,176 * Cockspur, Inc............. 6,220 * 1,866 4,354 * Cohn Holstead, Anne Lind- say...................... 6,220 * 1,866 4,354 * Cohn, Bobby Smith......... 6,220 * 1,866 4,354 * Cohn, Kirby............... 6,220 * 1,866 4,354 * Cohn, Morton A............ 43,543 * 13,063 30,480 * Colville, G. Christopher.. 3,109 * 933 2,176 * Cummings, Alan G.......... 6,220 * 1,866 4,354 * Custer, Thomas W.......... 6,220 * 1,866 4,354 * Davis, Charles L.(11)..... 1,555 * 466 1,089 * DeArman, William M........ 6,220 * 1,866 4,354 * DelHomme, Louis........... 6,220 * 1,866 4,354 * Dillard, Max M............ 6,220 * 1,866 4,354 * Drury, John E............. 12,441 * 3,732 8,709 * Duddlesten, Wayne B....... 12,441 * 3,732 8,709 * Elkins Jr., J.A. and Mar- garet W.................. 6,220 * 1,866 4,354 * Ellis, Leigh and Mimi G... 3,109 * 933 2,176 * Ener Corporation.......... 1,555 * 466 1,089 * Fitch, Don................ 6,220 * 1,866 4,354 * Flom, Joseph.............. 6,220 * 1,866 4,354 * Fordham, Scott............ 3,109 * 933 2,176 * Frost Family I, Ltd....... 6,220 * 1,866 4,354 * Gunther, Don J. and Rose- mary T................... 3,109 * 933 2,176 * Hagans, Fred.............. 6,220 * 1,866 4,354 * Hamblen III, Tolar........ 3,109 * 933 2,176 * Harter, Steve............. 6,220 * 1,866 4,354 * Hebert, L. Carl and Edith C........................ 6,220 * 1,866 4,354 * Herbold, William K. and Norma Rae................ 3,109 * 933 2,176 *
45
Common Common Stock Stock to Common Stock Beneficially be Sold Beneficially Owned Prior to in the Owned After the the Offering Offering Offering ----------------- -------- ----------------- Name and Address of Beneficial Owner Shares Percentage Shares Shares Percentage - ------------------- ------ ---------- -------- ------ ---------- Higdon Compton Insur- ance.................. 3,109 * 933 2,176 * Hopson, Courtney Lyle Cohn.................. 6,220 * 1,866 4,354 * Hutson, Miles A........ 3,109 * 933 2,176 * J-All Partnership...... 18,661 * 5,598 13,063 * James Ventures, L.P.... 74,646 * 22,394 52,252 * Johnson, Walter........ 3,109 * 933 2,176 * Jones, Austin and Mar- garet................. 6,220 * 1,866 4,354 * Jones, Samuel A........ 3,109 * 933 2,176 * Keenan, Ltd............ 6,220 * 1,866 4,354 * Keller, Susan K........ 3,109 * 933 2,176 * Kinder, Nancy G........ 6,220 * 1,866 4,354 * Kinder, Richard D...... 6,220 * 1,866 4,354 * Kinney, Robert Larry... 6,220 * 1,866 4,354 * Lary, Robert W......... 6,220 * 1,866 4,354 * Lawlor, Michael P. and Helen C............... 6,220 * 1,866 4,354 * Lay, Kenneth L. and Linda P............... 12,441 * 3,732 8,709 * Lindsey Spicer #1 Trust................. 6,220 * 1,866 4,354 * Lindstedt, Roger P..... 24,882 * 7,465 17,417 * Malanga, John H. and Jodi F................ 1,555 * 400 1,155 * McAninch, Ed........... 6,220 * 1,866 4,354 * McClanahan, Randy J. and Jennifer G........ 6,220 * 1,866 4,354 * McConnell, Michael H... 1,555 * 466 1,089 * McMaken, Bruce......... 1,555 * 466 1,089 * Mitchell, Michael...... 3,109 * 933 2,176 * MJ & DJ Management Com- pany, Ltd............. 6,220 * 6,220 -- -- Moorehead Jr., Donald F..................... 18,661 * 5,598 13,063 * Moorehead, George...... 3,109 * 933 2,176 * Moorehead, Shelley B... 18,661 * 5,598 13,063 * Morris, Ben T.(12)..... 6,220 * 1,866 4,354 * Mundy, John I.(12)..... 3,109 * 933 2,176 * O'Neill, Katherine Hal- liday................. 3,109 * 933 2,176 * O'Quinn, John M........ 24,882 * 7,465 17,417 * Platinum Business In- vestment Company, Ltd................... 31,102 * 9,331 21,771 * Poarch, Donald L....... 3,109 * 933 2,176 * Quigley, Leroy E....... 3,109 * 933 2,176 * Rauch, Leonard......... 6,220 * 1,866 4,354 * Reamer, R.E. Individual Retirement Account.... 3,109 * 933 2,176 * Rimmer, Roy T., Jr..... 6,220 * 1,866 4,354 * Rogers, Franelle....... 3,109 * 933 2,176 * Rome, Mark A........... 1,555 * 466 1,089 * Ross, Rex C. and Adrian T..................... 6,220 * 1,866 4,354 * Ryan, Nolan............ 6,220 * 1,866 4,354 * Sanders, Brad D........ 3,109 * 933 2,176 * Sanders, Bret D........ 3,109 * 933 2,176 * Sanders, Christine M... 3,109 * 933 2,176 * Sanders, Don A.(12).... 46,653 * 13,996 32,657 * Sanders, Katherine U... 31,102 * 9,331 21,771 *
46
Common Common Stock Stock to Beneficially Owned be Sold Common Stock Prior to the in the Beneficially Owned Offering Offering After the Offering ------------------ -------- ------------------ Name and Address of Beneficial Owner Shares Percentage Shares Shares Percentage - ------------------- ------- ---------- -------- ------- ---------- Sanders, Laura K...... 3,109 * 933 2,176 * Scott, Stephen D...... 31,102 * 9,331 21,771 * Slovin, Bruce......... 12,441 * 3,732 8,709 * Spicer, Sherri........ 6,220 * 1,866 4,354 * Tanglewood Family Lim- ited Part............ 3,109 * 933 2,176 * Tate, Paul and Lara M.................... 3,109 * 933 2,176 * Tompkins, Jack I...... 6,220 * 1,866 4,354 * Towery, David......... 3,109 * 933 2,176 * Weir, Don and Julie Ellen................ 3,109 * 933 2,176 * Weir, Eric G.......... 3,109 * 933 2,176 * Weir, Lisa Dawn....... 3,109 * 933 2,176 * Wolf Canyon, Ltd. .... 6,220 * 1,866 4,354 * Humphrey, Todd J.(13)............... 22,725 * 2,000 20,725 * Micro-Software De- signs, Inc.(14)...... 270,000 3.0 135,000 135,000 1.0 Lawrence, Karen A.(15)............... 99,456 1.1 10,177 89,279 * Stockholders who acquired shares in the Rovak acquisition: Schraut, Sherry J..... 15,368 * 10,652 4,716 * Vagle, Erik E......... 1,540 * 600 940 * Vagle, Melvin C....... 65,057 * 10,000 38,607 * Vagle, Ronald M....... 242,590 2.7 48,301 194,289 1.5 Vagle, Wade........... 628 * 628 -- -- Winkelman, Joe........ 911 * 911 -- -- Stockholders who acquired shares in the Millard-Wayne acquisition: George, M. Wayne...... 23,365 * 23,365 -- -- Stockholders who acquired shares in the KComp acquisition: Caputo, Donald E...... 1,411 * 600 811 * Gorman, Ruth.......... 1,424 * 1,424 -- -- Johnson, Dick......... 7,998 * 998 7,000 * Loukatos, Marsha...... 6,060 * 6,060 -- -- Teese, Charles F...... 4,186 * 2,093 2,093 * Stockholders who acquired shares in the RADMAN acquisition: Quiat, Barry.......... 18,227 * 6,000 12,227 * The Richard P. Koffler and Cheryl Bartlett Koffler Trust UTD August 24, 1995...... 23,562 * 12,500 11,062 * Stockholders who acquired shares in the OMSystems acquisition: Baker, Steve.......... 13,728 * 4,000 9,728 * Bolton, Harold D...... 18,304 * 9,152 9,152 * Case, Stephen Anthony.............. 13,728 * 5,000 8,728 * Gwaltney, Thomas M., Jr................... 23,795 * 21,416 2,379 *
47
Common Common Stock Stock to Common Stock Beneficially be Sold Beneficially Owned Prior to in the Owned After the the Offering Offering Offering ----------------- -------- ----------------- Name and Address of Beneficial Owner Shares Percentage Shares Shares Percentage - ------------------- ------ ---------- -------- ------ ---------- Haddad, Michael J..... 3,775 * 775 3,000 * Hofstetter, Joseph M., Jr................... 45,760 * 11,000 34,760 * Hornick, Keith........ 3,775 * 1,887 1,888 * Horton, Cyrus William.............. 11,440 * 4,440 7,000 * Sentell, Jane Elizabeth............ 1,144 * 144 1,000 * Sentell, Craig Martin............... 19,448 * 8,448 11,000 * Sexton, Jacob Paul.... 5,720 * 2,720 3,000 * Stuff, James Robert... 11,440 * 5,720 5,720 * ------- Total................ 770,000 =======
- -------- * Less than one percent. (1) Includes 3,579 shares held by Mr. Fine for the benefit of his children and 1,193 shares held by a charitable trust over which he has sole voting and investment control. Also includes 17,500 shares held in a deferred compensation trust on behalf of Mr. Fine and 48,424 shares issuable upon the exercise of Presently Exercisable Options. (2) Includes 3,225 shares held by Mr. Price's brother as to which Mr. Price maintains voting control. Also includes 15,000 shares held in a deferred compensation trust on behalf of Mr. Price and 48,424 shares issuable upon the exercise of Presently Exercisable Options. (3) Includes (a) 195,691 shares held by Compass Partners, of which Mr. Perlman holds a majority interest; (b) 110,000 shares issuable to Compass Partners upon exercise of an outstanding warrant at an exercise price of $5.50 per share; (c) 15,000 shares held in a deferred compensation trust on behalf of Mr. Perlman; and (d) 47,364 shares issuable upon the exercise of Presently Exercisable Options. (4) Includes 34,330 shares issuable upon the exercise of Presently Exercisable Options. (5) Includes 5,000 shares issuable upon the exercise of Presently Exercisable Options. (6) Includes (a) 10,177 shares held by Karen A. Lawrence, the spouse of Kurt I. Lawrence, which are being sold in this offering and (b) an aggregate of 277,137 additional shares issuable upon the exercise of Presently Exercisable Options. (7) According to a Schedule 13D, as amended, filed by Crescent International Limited dated December 21, 1998, Crescent has sole voting and dispositive power as to the shares of common stock. The common stock total includes 100,000 shares issuable upon exercise of a warrant at an exercise price of $23.00 per share. Crescent's mailing address is c/o Greenlight (Switzerland) SA, 84, Av Louis-Casai, P.O. Box 42, 1216, Geneva, Cointrin, Switzerland. (8) According to a Schedule 13D filed by The William Herbert Hunt Trust Estate dated February 19, 1998, the Hunt Trust has sole voting and dispositive power as to the shares of common stock. The mailing address of the Hunt Trust is 3900 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201. (9) Mr. Simmons and Mr. James Davis were the principals of OMSystems, which merged with InfoCure in February 1999. (10) The number of shares beneficially owned by the selling stockholders after the offering reflects shares owned before any sale of shares that are being registered pursuant to the resale registration statement. (11) Mr. Charles Davis is a vice president of Sanders Morris Mundy Inc., which is an underwriter in this offering. Mr. Davis was personally involved with the private placement of the Series A Preferred, for which Sanders Morris Mundy Inc. acted as placement agent and Mr. Davis has been personally involved with the preparation of this offering. (12) Shares beneficially owned by these persons exclude 100,000 shares issuable upon the exercise of a warrant beneficially owned by Sanders Morris Mundy, Inc., over which they share the voting and dispositive powers. These persons are principals of Sanders Morris Mundy Inc., which is an underwriter 48 in this offering and which served as placement agent for the private placement of the Series A Preferred in February 1998. (13) Includes 22,000 shares issuable upon the exercise of a warrant at an exercise price of $9.13 per share. Mr. Humphrey was a principal of PACE, which was acquired by InfoCure in November 1997. (14) Micro-Designs was acquired by InfoCure in January 1998. (15) Includes 79,279 shares beneficially owned and 10,000 shares subject to Presently Exercisable Options held by Ms. Lawrence's spouse. 49 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering, there will be 12,942,150 shares of common stock outstanding. Of these shares, 12,813,315 shares, which include the 3,770,000 shares sold in this offering, will be freely tradable upon completion of this offering, subject to the lock-up agreements and Rule 144 restrictions relating to affiliates discussed below. Of these shares, 4,224,476 are registered in the resale registration statement. The remaining 128,835 shares of common stock outstanding are "restricted securities" under Rule 144 and are not freely tradable. InfoCure's shares will become eligible for sale in the public market as follows:
Date Shares Become Eligible for Resale in the Public Number of Shares: Market: ----------------- ---------------------------------------------------- 8,072,504............ These shares will be freely tradable without restriction immediately as of the date of this prospectus. 124,342.............. These shares are subject to 30-day lock-up agreements and will be freely tradable without restriction commencing 31 days after the date of this prospectus. None of the holders of these shares are affiliates of InfoCure as defined in Rule 144 and none of these shares will be subject to Rule 144 restrictions. 4,616,469............ These shares are subject to 90-day lock-up agreements and will be freely tradable without restriction commencing 91 days after the date of this prospectus, provided that 1,195,014 of such shares are held by affiliates and are subject to the provisions of Rule 144 that limit the amount of securities that may be sold in any three month period. 128,835.............. These shares are restricted. However, of these shares, 38,192 are eligible to be sold as of the date of this prospectus, pursuant to Rule 144 and the remainder will become eligible for sale at various dates thereafter.
The lock-up agreements provide that the holders of the shares may not sell or otherwise dispose of their shares for a period of 30 or 90 days after the date of this prospectus without the prior written consent of The Robinson-Humphrey Company, LLC. In addition, InfoCure has agreed not to sell any additional shares of common stock for 90 days after the date of this prospectus without the prior written consent of The Robinson-Humphrey Company, LLC. The Robinson- Humphrey Company, LLC may release InfoCure or the stockholders from these restrictions, in whole or in part, at any time in its sole discretion. In general, under Rule 144, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a stockholder, including an affiliate, who has beneficially owned restricted securities for at least one year is entitled to sell, within any three month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume in the common stock during a four calendar week period, provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted securities were acquired from InfoCure, or the date they were acquired from an affiliate of InfoCure, a stockholder who is not an affiliate of InfoCure at the time of sale and has not been an affiliate for at least three months prior to the sale is entitled to sell the shares immediately without compliance with the foregoing requirements under Rule 144. InfoCure has filed registration statements on Form S-8 under the Securities Act to register a total of 1,785,432 shares of common stock issuable under the American Medcare option plan, InfoCure's option plan, the length-of-service plan, the employee stock purchase plan, the directors' option plan and options granted 50 pursuant to certain individual option agreements. Shares issued upon the exercise of stock options or other rights thereunder after the effective date of the Form S-8 registration statements will be eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to affiliates of InfoCure and to the lock-up agreements noted above. InfoCure intends to file a registration statement on Form S-8 covering the remaining shares of common stock reserved for issuance under its stock option plans and certain other individual option agreements. This registration statement will be filed after InfoCure receives stockholder approval of such share reservations. No prediction 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 of the common stock. Nevertheless, sales of a large number of shares of common stock in the public market could adversely affect the market price of the common stock and could impair InfoCure's future ability to raise capital through an offering of its equity securities. See "Risk Factors--Future Sales of Shares Could Affect Our Stock Price." UNDERWRITING Subject to the terms and conditions stated in the underwriting agreement among InfoCure, the selling stockholders named herein and the underwriters named below, for whom The Robinson-Humphrey Company, LLC, SG Cowen Securities Corporation, William Blair & Company, L.L.C. and Sanders Morris Mundy Inc. are acting as representatives, InfoCure and the selling stockholders have agreed to sell, and the underwriters have severally agreed to purchase, the number of shares set forth opposite the name of such underwriter.
Number of Name Shares ---- --------- The Robinson-Humphrey Company, LLC................................. SG Cowen Securities Corporation.................................... William Blair & Company, L.L.C..................................... Sanders Morris Mundy Inc........................................... --------- Total.......................................................... 3,770,000 =========
The underwriting agreement provides that the obligations of the several underwriters to purchase the shares included in this offering are subject to approval of certain legal matters by counsel and to certain other conditions. The underwriters are obligated to purchase all the shares, other than those covered by the over-allotment option described below, if they purchase any of the shares. The underwriters propose to offer the shares directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share in sales to certain other dealers. After the offering, the public offering price and other selling terms may be changed. InfoCure has granted to the underwriters a 30-day option to purchase up to an additional 565,500 shares of common stock at the public offering price less the underwriting discount. The underwriters may exercise such option solely for the purpose of covering over-allotments, if any, in connection with this offering. If the underwriters exercise their over-allotment option, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares of common stock approximately proportionate to such underwriter's initial purchase commitment. InfoCure, its executive officers and directors and the selling stockholders have agreed that, for a period of 90 days from the date of this prospectus, they will not, without the prior written consent of The Robinson-Humphrey Company, LLC, offer, sell, contract to sell, or otherwise dispose of, any shares of common stock of 51 InfoCure or any securities convertible into, or exercisable or exchangeable for, common stock of InfoCure. The Robinson-Humphrey Company, LLC, in its sole discretion, may release any of the securities subject to these lock-up agreements at any time without notice. The common stock is listed on the Nasdaq Stock Market under the symbol "INCX." The following table shows the underwriting discounts and commissions to be paid to the underwriters by InfoCure and the selling stockholders in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriter's option to purchase additional shares of common stock.
Paid by Selling Paid by InfoCure Stockholders ----------------- ----------------- No Full No Full Exercise Exercise Exercise Exercise -------- -------- -------- -------- Per share................................ Total....................................
InfoCure expects to incur expenses of approximately $ in connection with this offering. In connection with the offering, The Robinson-Humphrey Company, LLC, on behalf of the underwriters, may over-allot, or engage in syndicate covering transactions, stabilizing transactions and penalty bids. Over-allotment involves syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing transactions consist of certain bids or purchases of common stock made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when The Robinson-Humphrey Company, LLC, in covering syndicate short positions or making stabilizing purchases, repurchases shares originally sold by that syndicate member. These activities may cause the price of the common stock to be higher than the price that otherwise would exist in the open market in the absence of such transactions. These transactions may be effected on the Nasdaq Stock Market or in the over-the- counter market or otherwise and, if commenced, may be discontinued at any time. InfoCure and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of any of those liabilities. SG Cowen Securities Corporation acted as financial adviser to InfoCure in connection with the HSD acquisition completed on October 23, 1998, and received a customary fee for its services in connection therewith. Sanders Morris Mundy Inc. acted as placement agent in connection with the private placement of the Series A Preferred completed in February 1998, and received as part of its compensation a warrant to acquire 100,000 shares of common stock, at an exercise price of $9.00 per share, in exchange for such services. The underwriters have reserved for sale at the public offering price up to 188,500 shares of common stock for employees, executive officers, directors and certain other persons who have a business relationship with InfoCure who have expressed an interest in purchasing such shares of common stock in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered hereby. The underwriters are aware of the "Free-Riding and Withholding" Conduct Rules of the National Association of Securities Dealers in connection with the sale of certain issuer-directed securities and will comply with those rules. 52 LEGAL MATTERS The validity of the issuance of the shares of the common stock offered hereby will be passed upon for InfoCure and the selling stockholders by Morris, Manning & Martin, L.L.P., Atlanta, Georgia. Employees of Morris, Manning & Martin, L.L.P. own an aggregate 57,760 shares of InfoCure's common stock. Certain legal matters in connection with the offering will be passed upon for the underwriters by King & Spalding, Atlanta, Georgia. EXPERTS The Consolidated Financial Statements of InfoCure as of December 31, 1997 and 1998 and for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998, incorporated herein by reference and included herein and the Financial Statements of DR Software, Inc., Millard- Wayne, Inc., Rovak, Inc. and KComp Management Systems, Inc. incorporated herein by reference have been audited by BDO Seidman, LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and incorporated herein by reference, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The Financial Statements of The Healthcare Systems Division of The Reynolds and Reynolds Company as of September 30, 1998 and September 30, 1997, and for the years ended September 30, 1998, 1997 and 1996, appearing in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE This prospectus is part of a registration statement on Form S-3 that InfoCure filed with the SEC. This prospectus does not contain all the information in that registration statement. For further information with respect to InfoCure and the securities offered by this prospectus, you should review the registration statement. You can obtain the registration statement from the SEC and the Nasdaq Stock Market at the public reference facilities we refer to below. The SEC allows InfoCure to "incorporate by reference" information into this prospectus. This means that InfoCure may refer you to important information about InfoCure provided in other documents on file with the SEC. The information incorporated by reference is considered to be part of this prospectus, unless that information has been updated in this prospectus. In addition, InfoCure may, from time to time, update information contained in this prospectus or in another document that is incorporated by reference. Whenever InfoCure files a document with the SEC that updates information in this prospectus or in any other document incorporated by reference, the new information will be considered to replace the old information. Any statement in this document that is subsequently updated will no longer be considered a part of this prospectus. The following documents are incorporated by reference into this prospectus:
Filing Period ------ ------ Registration Statement on Form SB-2 (with respect to audited financial statements contained therein) ....................................... Effective July 10, 1997 Definitive Proxy Statement (with respect to the description of the Series A Preferred contained therein)........................................ Filed on April 30, 1998 Annual Report on Form 10-KSB..................... Year Ended December 31, 1998 Current Report on Form 8-K (relating to the RADMAN acquisition)............................. Dated January 6, 1999 Registration Statement on Form 8-A (with respect to the description of the common stock contained therein)........................................ Filed on January 28, 1999 Current Report on Form 8-K (relating to the OMSystems merger)............................... Dated February 9, 1999
All documents filed by InfoCure pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of the registration statement containing this prospectus are also incorporated by reference into this prospectus as of the date such documents are filed with the SEC. 53 On request, InfoCure will provide, at no cost to each person who receives a copy of this prospectus, a copy of any or all of the documents incorporated by reference into this prospectus. InfoCure will not provide exhibits to any of such documents, however, unless such exhibits are specifically incorporated by reference into this prospectus. Written or telephonic requests for such copies should be addressed to InfoCure's principal executive offices, attention: Lance B. Cornell, Senior Vice President--Finance and Chief Financial Officer, 1765 The Exchange, Suite 450, Atlanta, Georgia 30339, telephone number (770) 221- 9990. WHERE YOU CAN FIND MORE INFORMATION InfoCure files reports, proxy statements and other information with the SEC. InfoCure has filed with the SEC a registration statement on Form S-3 under the Securities Act to register the offering of the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement. Prospective investors may read and copy the registration statement and its exhibits and schedules without charge at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Prospective investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, InfoCure is required to file electronic versions of these documents with the SEC through the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. 54 INFOCURE CORPORATION INDEX TO FINANCIAL STATEMENTS InfoCure Corporation Unaudited Pro Forma Combined Financial Statements Basis of Presentation................................................... F-2 Pro Forma Combined Balance Sheet........................................ F-3 Pro Forma Combined Statement of Operations.............................. F-4 Notes to Pro Forma Combined Financial Statements........................ F-5 InfoCure Corporation Consolidated Financial Statements Report of Independent Certified Public Accountants...................... F-9 Consolidated Balance Sheets............................................. F-10 Consolidated Statements of Operations................................... F-11 Consolidated Statements of Changes in Stockholders' Equity.............. F-12 Consolidated Statements of Cash Flows................................... F-13 Notes to Consolidated Financial Statements.............................. F-14 The Healthcare Systems Division of The Reynolds and Reynolds Company Independent Auditors' Report............................................ F-32 Balance Sheets.......................................................... F-33 Statements of Operations and Deficit in Divisional Net Assets........... F-34 Statements of Cash Flows................................................ F-35 Notes to Financial Statements........................................... F-36
F-1 INFOCURE CORPORATION PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited) BASIS OF PRESENTATION The unaudited pro forma combined financial statements present the balance sheet and income statement data from the consolidated financial statements of InfoCure Corporation ("InfoCure" or the "Company") and give effect to the acquisition by InfoCure (completed in October 1998) of substantially all the net assets of the Healthcare Systems Division ("HSD") of The Reynolds and Reynolds Company (the "HSD Acquisition"), the merger in February 1999 with OMSystems, Inc. ("OMSystems"), the offering, and certain other transactions. The unaudited pro forma combined statements of operations have been prepared for the year ended December 31, 1998. These statements give effect to the HSD Acquisition and the OMSystems merger as if such transactions had occurred on January 1, 1998. The unaudited pro forma combined balance sheet gives effect to the OMSystems merger, the offering, and certain other transactions as if such events had occurred on December 31, 1998. Additionally, the effects of the offering and other related transactions are also presented on an "as adjusted basis" as if they had occurred January 1, 1998. The unaudited pro forma combined financial statements are based on the historical financial statements of InfoCure and HSD 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. The unaudited pro forma combined financial statements also reflect the merger with OMSystems completed in February 1999. This business combination is to be accounted for as a pooling of interests and, although not significant for inclusion of separate financial statements, is presented to provide additional informative disclosure. The unaudited pro forma combined statements of operations for the year ended December 31, 1998 include InfoCure's results of operations for the year ended December 31, 1998 (which include the results of operations of HSD from October 23, 1998) with appropriate adjustments to reflect the HSD Acquisition for the period January 1 to October 23, 1998 and the effects of the OMSystems pooling. 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 the results that InfoCure would have obtained had the transactions which are the subject of pro forma adjustments occurred at the beginning of the applicable periods presented, as assumed, or to project the future results of InfoCure. 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 the "Risk Factors" included elsewhere in this prospectus. F-2 INFOCURE CORPORATION PRO FORMA COMBINED BALANCE SHEET December 31, 1998 (In thousands) (Unaudited)
InfoCure Historical Offering Pro Forma Consolidated OMSystems Subtotal Adjustments Ref Pro Forma Adjustments Ref As Adjusted ------------ --------- -------- ----------- --- --------- ----------- --- ----------- ASSETS Current: Cash and cash equivalents $ 8,552 $ 517 $ 9,069 $ -- $ 9,069 $ 66,752 (B) $ 10,000 (65,821) (D) Accounts receivable, net................... 22,648 1,631 24,279 -- 24,279 -- 24,279 Inventory.............. 2,043 1,006 3,049 -- 3,049 -- 3,049 Deferred tax asset..... 675 -- 675 -- 675 -- 675 Prepaid expense and other................. 1,233 148 1,381 -- 1,381 -- 1,381 -------- ------- -------- ------- -------- -------- -------- Total current assets.. 35,151 3,302 38,453 -- 38,453 931 39,384 Property and equipment, net of depreciation.... 8,103 1,035 9,138 -- 9,138 -- 9,138 Goodwill, net of accumulated amortization........... 72,203 -- 72,203 -- 72,203 -- 72,203 Other intangibles, net of accumulated amortization........... 7,308 -- 7,308 -- 7,308 (4,507) (D) 2,801 Deferred tax asset...... 5,019 -- 5,019 -- 5,019 -- 5,019 -------- ------- -------- ------- -------- -------- -------- Total assets.......... $127,784 $ 4,337 $132,121 $ -- $132,121 $ (3,576) $128,545 ======== ======= ======== ======= ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable........... $ 2,000 $ -- $ 2,000 $ -- $ 2,000 $ -- $ 2,000 Accounts payable....... 3,723 75 3,798 -- 3,798 -- 3,798 Accrued restructuring costs................. 283 -- 283 -- 283 (105) (C) 178 Accrued expense........ 5,951 456 6,407 -- 6,407 (45) (C) 6,362 Income taxes payable... 645 -- 645 -- 645 -- 645 Deferred revenue....... 9,185 1,594 10,779 -- 10,779 -- 10,779 Current portion of long-term debt........ 12,884 114 12,998 -- 12,998 (3,000) (D) 9,998 -------- ------- -------- ------- -------- -------- -------- Total current liabilities.......... 34,671 2,239 36,910 -- 36,910 (3,150) 33,760 Long-term debt, less current portion........ 68,358 1,195 69,553 -- 69,553 (604) (C) 6,728 (62,221) (D) -------- ------- -------- ------- -------- -------- -------- Total liabilities..... 103,029 3,434 106,463 -- 106,463 (65,795) 40,488 -------- ------- -------- ------- -------- -------- -------- Convertible, redeemable preferred stock........ 8,500 -- 8,500 -- 8,500 (8,500) (C) -- -------- ------- -------- ------- -------- -------- -------- Stockholders' equity: Common stock, $.001 par................... 8 1 9 -- 9 3 (B) 13 1 (C) Common stock issuable.. 1,975 -- 1,975 (1,975) (A) -- -- Additional paid-in capital............... 31,358 6,390 37,748 1,975 (A) 39,723 66,749 (B) 115,725 9,253 (C) Accumulated deficit.... (15,781) (5,488) (21,269) -- (21,269) (5,107) (D) (26,376) Deferred compensation.. (1,083) -- (1,083) -- (1,083) (1,083) Treasury stock......... (222) -- (222) -- (222) -- (222) -------- ------- -------- ------- -------- -------- -------- Total stockholders' equity................. 16,255 903 17,158 -- 17,158 70,899 88,057 -------- ------- -------- ------- -------- -------- -------- Total liabilities and stockholder's equity... $127,784 $ 4,337 $132,121 $ -- $132,121 $ (3,576) $128,545 ======== ======= ======== ======= ======== ======== ========
See notes to pro forma combined financial statements. F-3 INFOCURE CORPORATION PRO FORMA STATEMENT OF OPERATIONS Year Ended December 31, 1998 (In thousands, except for per share data) (Unaudited)
Pro Forma InfoCure, InfoCure Effects Subtotal HSD and Historical of HSD InfoCure OMSystems Acquisition Offering Consolidated Acquisition(1) and HSD OMSystems(2) Combined Adjustments Ref Pro Forma Adjustments Ref ------------ -------------- -------- ------------ --------- ----------- --- --------- ----------- --- Revenue: Systems and software....... $34,492 $ 18,440 $ 52,932 $10,440 $ 63,372 $ -- $ 63,372 $ -- Maintenance, support and services....... 29,231 19,775 49,006 4,512 53,518 -- 53,518 -- ------- -------- -------- ------- -------- -------- -------- ------- Total revenue.... 63,723 38,215 101,938 14,952 116,890 -- 116,890 -- Operating expense: Hardware and other items purchased for resale......... 12,567 6,511 19,078 3,902 22,980 -- 22,980 -- Selling, general and administrative.. 34,685 39,382 74,067 7,746 81,813 (15,361) (E) 66,452 -- Depreciation and amortization... 4,328 5,045 9,373 136 9,509 (2,388) (F) 7,121 -- Purchased research and development.... 9,000 -- 9,000 -- 9,000 -- 9,000 -- Compensatory stock awards... 57 -- 57 6,390 6,447 -- 6,447 -- Asset Impairment, restructuring and special charges........ 1,874 750 2,624 -- 2,624 -- 2,624 -- ------- -------- -------- ------- -------- -------- -------- ------- Total operating expense......... 62,511 51,688 114,199 18,174 132,373 (17,749) 114,624 -- Operating income (loss).......... 1,212 (13,473) (12,261) (3,222) (15,483) 17,749 2,266 -- Other expense (income): Interest, net... 3,488 (33) 3,455 137 3,592 4,861 (G) 8,453 (5,705) (I) Other, net...... (81) (1) (82) (63) (145) -- (145) -- ------- -------- -------- ------- -------- -------- -------- ------- Income (loss) before income taxes........... (2,195) (13,439) (15,634) (3,296) (18,930) 12,888 (6,042) 5,705 Income taxes (benefit)....... (334) (5,107) (5,441) -- (5,441) 3,645 (H) (1,796) 2,168 (J) ------- -------- -------- ------- -------- -------- -------- ------- Net income (loss).......... (1,861) (8,332) (10,193) (3,296) (13,489) 9,243 (4,246) 3,537 Accretive dividend........ 800 -- 800 -- 800 -- 800 -- ------- -------- -------- ------- -------- -------- -------- ------- Net income (loss) available to common stockholders.... $(2,661) $ (8,332) $(10,993) $(3,296) $(14,289) $ 9,243 $ (5,046) $ 3,537 ======= ======== ======== ======= ======== ======== ======== ======= Net (loss) per share: Basic and diluted........ $ (0.58) ======== Shares used in computing net (loss) per share (K): Basic and diluted........ 8,726 ======== Pro Forma As Adjusted ----------- Revenue: Systems and software....... $ 63,372 Maintenance, support and services....... 53,518 ----------- Total revenue.... 116,890 Operating expense: Hardware and other items purchased for resale......... 22,980 Selling, general and administrative.. 66,452 Depreciation and amortization... 7,121 Purchased research and development.... 9,000 Compensatory stock awards... 6,447 Asset Impairment, restructuring and special charges........ 2,624 ----------- Total operating expense......... 114,624 Operating income (loss).......... 2,266 Other expense (income): Interest, net... 3,040 Other, net...... (145) ----------- Income (loss) before income taxes........... (629) Income taxes (benefit)....... 261 ----------- Net income (loss).......... (890) Accretive dividend........ 800 ----------- Net income (loss) available to common stockholders.... $ (1,690) =========== Net (loss) per share: Basic and diluted........ $ (0.13) =========== Shares used in computing net (loss) per share (K): Basic and diluted........ 12,756 ===========
- ------- (1) Includes pro forma effect of HSD acquisition from January 1 to October 23, 1998. The audited historical financial statements of this acquisition are included elsewhere in this prospectus. (2) Represents the year ended December 31, 1998. OMSystems was not deemed significant at the date of acquisition and therefore inclusion of audited statements is unnecessary. F-4 INFOCURE CORPORATION NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited) 1. General InfoCure Corporation ("InfoCure" and, together with its subsidiaries, the "Company") was founded in 1996 to become a leading national provider of practice management software and services to targeted healthcare specialty practices. On July 10, 1997, InfoCure completed the initial public offering ("IPO") of its common stock (the "Common Stock") and simultaneously acquired in separate transactions six businesses (collectively the "Founding Companies"). Contemporaneously with the acquisition of the Founding Companies and the IPO, InfoCure merged with American Medcare Corporation ("AMC"). AMC is considered the predecessor to InfoCure and the accounting acquiror of the Founding Companies. Subsequent to the IPO and through September 30, 1998, the Company acquired seven practice management companies, all of which were accounted for as purchases. In October 1998, the Company completed the acquisition of substantially all of the net assets of the Healthcare Systems Division ("HSD") of The Reynolds and Reynolds Company (the "HSD Acquisition") in a transaction accounted for as a purchase. In December 1998, the Company completed a merger with Radiology Management Systems, Inc. ("RADMAN") in a transaction accounted for as a pooling of interests. Accordingly, the Company's historical financial statements have been restated for the effects of this pooling. In February 1999, the Company completed a merger with OMSystems, Inc. ("OMSystems") in a transaction accounted for as a pooling of interests. 2. Unaudited Pro Forma Combined Balance Sheet Adjustments Private placement (A) Records the January issuance of 80,000 shares of Common Stock under the terms of a private placement to an institutional investor (the "Institutional Placement"). Net proceeds of $1,975,000 had been received by the Company in December and recorded as common stock issuable. Offering adjustments (B) Records the proceeds from the issuance of 3,000,000 shares of Common Stock, net of estimated offering costs. Offering costs consist primarily of discounts and commissions, legal fees, accounting fees and printing expenses. (C) Records (i) the conversion of 850,060 shares of Series A Convertible, Redeemable Preferred Stock into 1,000,070 shares of Common Stock at the applicable conversion price, (ii) the conversion of a $603,566 note payable and applicable accrued interest into 85,487 shares of Common Stock at the applicable conversion price and (iii) the issuance of 13,768 shares of Common Stock in satisfaction of earnout commitments related to previous acquisitions. These transactions are provided for by the terms of the original applicable agreements. (D) Records estimated repayment of indebtedness in connection with the HSD and other acquisitions under the FINOVA Credit facility. F-5 INFOCURE CORPORATION NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued) 3. Unaudited Pro Forma Combined Statements of Operation Adjustments Acquisition adjustments (E) Records pro forma adjustments to compensation and certain other operating expenses pursuant to applicable provisions of the HSD acquisition agreement. In accordance with specific terms of the agreement certain operating units and certain specifically identified personnel and costs related thereto which were not part of the acquisition have been eliminated. These adjustments are summarized as follows:
Year Ended December 31, Description of adjustment 1998 ------------------------- -------------- (in thousands) Reduction in compensation and related expenses.................. $ 2,678 Net reductions in costs and expenses of operating activities/centers not acquired................................ 953 Elimination of HSD's corporate services overhead, including compensation of approximately $6.7 million, and related allocations not acquired....................................... 13,584 Increase in the Company's overhead expenses to integrate the HSD acquisition.................................................... (1,854) ------- $15,361 =======
The pro forma adjustment to compensation and related expenses is derived from position reductions at the four HSD operating centers. These reductions, which are specifically provided for in the acquisition and related agreements, aggregate 55 positions or approximately 20% of the total headcount prior to the acquisition. The position eliminations are duplicative in nature and attributable to administrative activities and redundancies in sales, support and research and development. The pro forma adjustment to eliminate net results of operating activities/centers not acquired is based on the exclusion, pursuant to specific terms of the acquisition agreement, of HSD's clinical product development center and its forms management operation. These activities generated minimal contribution, are not important to integration of the other operating centers and do not fit within the Company's overall strategy. The elimination of the corporate services overhead and related allocations reflects the rational adjustment to eliminate the excessive infrastructure costs. The expenditure of $15.0 million in overhead for an enterprise with revenue of $50.0 million clearly indicates that HSD's parent had made a significant investment in infrastructure intended to support a significantly larger organization. These reductions, which are specifically provided for in the acquisition and related agreements, aggregate 106 positions that are either duplicative in nature or unnecessary to support operations at current levels. In addition certain corporate overhead services allocated by The Reynolds and Reynolds Company were not continued by InfoCure under the terms of the acquisition and related agreements. It is management's opinion that the reductions will not materially adversely affect the Company's ability to continue service levels, sales efforts and other functions required to maintain sales levels comparable with those historically achieved and, assuming no unforeseen change in economic or other factors, that these levels could be maintained through the period required to achieve integration of the HSD Acquisition. Further, as indicated in the table summarizing pro forma adjustments, management has provided for an addition to the Company's overhead, including increases in appropriate corporate support and administrative personnel to facilitate integration of the HSD Acquisition. Assuming constant sales levels, management believes that no additional change in personnel is required, called for or anticipated. Any increase in personnel requirements would be related to increased activity from growth or the introduction of new products and services. The specifically negotiated reductions in the workforce give recognition to the economies of scale and synergies to be attained as a result of integration of the HSD Acquisition. F-6 INFOCURE CORPORATION NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued) (F) Records adjustment to depreciation and amortization expense as follows:
Year Ended December 31, Decrease due to: 1998 - ---------------- -------------- (in thousands) Elimination of amortization for other intangibles not acquired.. $1,880 Adjustment to depreciation and amortization for increase in basis and application of uniform lives of three to seven years.......................................................... 508 ------ $2,388 ======
Goodwill acquired totalled approximately $36.0 million and represents the excess of purchase price over identifiable tangible and intangible assets of HSD as reflected in the independent appraisal. The appraisal results indicated that the bulk of the value of these intangibles is pure goodwill including the significant value attributable to the relatively long life of the customer relationships. These findings are consistent with management's analysis of identifiable intangibles in previous acquisitions. Essentially, the value of intangibles, including developed technology, customers lists, software rights, trademarks, etc. are in the nature of goodwill. Goodwill is to be amortized over its estimated useful life of 15 years consistent with the Company's established policy and, with respect to the HSD Acquisition, is supported by the findings in the appraisal. The 15-year estimated useful life of goodwill is derived from management's analysis of: . the historical lives and future estimated lives of customer relationships which are the core of the Company's business; . the longevity and continuing use of the base practice management systems which comprise the Company's core products; and . the relatively minor impact of technological obsolescence on the Company's core products and services. (G) Records adjustment of interest expense related to debt incurred to effect the purchase of the HSD Acquisition. (H) Adjusts the provision for income taxes based on other pro forma adjustments. Offering adjustments (I) Records adjustment to interest expense based on (i) debt repaid from the proceeds of the Offering and (ii) conversion of debt concurrent with the Offering. (J) Adjusts the provision for income taxes based on offering adjustments. 4. Debt Extinguishment Costs As described in Adjustment D, the Company will repay certain indebtedness with a portion of the proceeds of the Offering. In connection therewith, the Company anticipates that by the end of the first quarter 1999, it will incur debt extinguishment costs of as much as $5.1 million including write-off of deferred loan costs, the estimated value of warrants granted to FINOVA and prepayment fees. F-7 INFOCURE CORPORATION NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(Continued) 5. Pro forma earnings per share (K) The weighted average number of shares used to calculate earnings per share (EPS) for pro forma and pro forma--as adjusted purposes included the following:
Year Ended December 31, 1998 -------------------- Pro Forma As Pro Forma Adjusted --------- ---------- Shares issued in conjunction with the Company's IPO...... 1,400,000 1,400,000 Shares issued to acquire the Founding Companies.......... 3,895,887 3,895,887 Shares issued in connection with Recent Acquisitions, including RADMAN and OMSystems.......................... 2,091,662 2,091,662 Shares issued in satisfaction of earnout commitments..... 398,123 398,123 Shares issued in payment of debt and other obligations, net..................................................... 236,273 236,273 Shares issued in connection with private placements...... 351,322 351,322 Shares issued in connection with exercise of options and warrants................................................ 257,437 257,437 Shares issued for restricted stock awards................ 95,000 95,000 Shares assumed issued from the Offering to repay debt and other obligations....................................... -- 2,931,193 Shares assumed issued to convert 850,060 shares of preferred stock......................................... -- 1,000,070 Shares issuable or assumed issued in satisfaction of earnout commitments..................................... -- 13,768 Shares assumed issued to convert note payable and accrued interest................................................ -- 85,487 --------- ---------- Estimated shares outstanding--basic and diluted.......... 8,725,704 12,756,222 ========= ==========
The impact of the assumed exercise of the Company's stock options and warrants would be anti-dilutive for the year ended December 31, 1998 and have not been presented. F-8 Report of Independent Certified Public Accountants Board of Directors and Shareholders of InfoCure Corporation Atlanta, Georgia We have audited the accompanying consolidated balance sheets of InfoCure Corporation and its subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1998, the eleven months ended December 31, 1997 and the year ended January 31, 1997. 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. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of InfoCure Corporation and its subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for the year ended December 31, 1998, the eleven months ended December 31, 1997 and the year ended January 31, 1997 in conformity with generally accepted accounting principles. BDO Seidman, LLP Atlanta, Georgia February 19, 1999 F-9 InfoCure Corporation Consolidated Balance Sheets
December 31, December 31, 1997 1998 ------------ ------------ ASSETS (Note 8): Current Cash and cash equivalents....................... $ 1,625,757 $ 8,552,217 Accounts receivable--trade, net of allowance of $51,000 and $633,000........................... 4,885,460 22,244,180 Other receivables............................... 233,082 403,756 Inventory....................................... 587,336 2,043,268 Deferred tax assets (Note 12)................... 1,160,000 675,000 Prepaid expense and other current assets........ 784,396 1,233,059 ------------ ------------ Total current assets.......................... 9,276,031 35,151,480 Property and equipment, net of accumulated depreciation (Note 5)............................ 1,529,317 8,102,495 Goodwill, net of accumulated amortization of $404,888 and $3,467,000 (Notes 3 and 4).......... 17,013,526 72,202,999 Other intangible assets (Note 6).................. 1,322,768 7,308,382 Deferred tax assets (Note 12)..................... 1,983,000 5,019,000 ------------ ------------ $ 31,124,642 $127,784,356 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities Note payable (Note 8)........................... $ -- $ 2,000,000 Accounts payable................................ 1,889,922 3,723,248 Accrued expense (Note 7)........................ 1,214,186 5,950,996 Accrued restructuring costs (Note 4)............ 3,172,066 282,916 Income taxes payable............................ -- 644,956 Deferred revenue and customer deposits.......... 5,281,832 9,184,940 Current portion of long-term debt (Note 8)...... 2,061,393 12,883,684 ------------ ------------ Total current liabilities..................... 13,619,399 34,670,740 Long-term debt, less current portion (Note 8)..... 7,288,745 68,357,932 Other liabilities (Note 9)........................ 6,585,526 -- ------------ ------------ Total liabilities............................. 27,493,670 103,028,672 ------------ ------------ Commitments (Note 10) Convertible, redeemable preferred stock (Note 11).............................................. -- 8,500,600 ------------ ------------ Stockholders' equity (Note 11) Common stock.................................... 6,258 7,622 Common stock issuable........................... -- 1,975,000 Additional paid-in capital...................... 16,860,489 31,358,016 Accumulated deficit............................. (13,119,871) (15,780,949) Deferred compensation........................... -- (1,083,000) Treasury stock, at cost......................... (115,904) (221,605) ------------ ------------ Total stockholders' equity.................... 3,630,972 16,255,084 ------------ ------------ $ 31,124,642 $127,784,356 ============ ============
See accompanying notes to consolidated financial statements. F-10 InfoCure Corporation Consolidated Statements of Operations
Year Ended Eleven Months Year Ended January Ended December 31, December 31, 31, 1997 1997 1998 ---------- ------------- ----------- Revenue: Systems and software.................. $3,857,142 $ 9,733,619 $34,491,904 Maintenance, support and services..... 2,494,151 8,540,814 29,231,668 ---------- ------------ ----------- Total revenue........................... 6,351,293 18,274,433 63,723,572 ---------- ------------ ----------- Operating expense: Hardware and other items purchased for resale............................... 1,192,338 4,327,396 12,566,865 Selling, general and administrative... 5,427,284 11,653,369 34,741,989 Depreciation and amortization......... 236,528 1,091,848 4,328,423 Purchased research and development (Note 3)............................. -- -- 9,000,000 Asset impairment and restructuring costs (Note 4)....................... -- 11,136,027 1,874,032 ---------- ------------ ----------- Total operating expense................. 6,856,150 28,208,640 62,511,309 ---------- ------------ ----------- Operating (loss) income................. (504,857) (9,934,207) 1,212,263 Other expense (income): Interest, net......................... 82,900 344,146 3,488,225 Other, net............................ (5,805) (223,123) (80,884) ---------- ------------ ----------- Loss before income taxes................ (581,952) (10,055,230) (2,195,078) Income tax benefit (Note 12)............ (868,000) (1,324,142) (334,000) ---------- ------------ ----------- Net income (loss)....................... 286,048 (8,731,088) (1,861,078) Accretive dividend (Note 11)............ -- -- 800,000 ---------- ------------ ----------- Net income (loss) available to common stockholders........................... $ 286,048 $ (8,731,088) $(2,661,078) ========== ============ =========== Net loss per share--basic and diluted (Note 2)............................... $ (1.79) $ (0.39) ============ ===========
See accompanying notes to consolidated financial statements F-11 InfoCure Corporation Consolidated Statements of Changes in Stockholders' Equity
Shares --------------------- Common Accrued Stock Additional Common Treasury Common Treasury Stock Stock Purchase Deferred Paid-in Stock Stock Stock Stock Issuable Repurchase Warrant Compensation Capital ----------- -------- -------- --------- ---------- ---------- --------- ------------ ----------- Balance, at February 1, 1996.. 49,914,496 (228,489) $ 49,914 $(100,000) $ -- $ -- $ 500,000 $ -- $ 1,627,612 Issuance of common stock..... 13,387,440 -- 13,388 -- -- -- -- -- 1,424,580 Cancellation of warrant.......... -- -- -- -- -- -- (500,000) -- 450,000 Issuance of warrant.......... -- -- -- -- -- -- 80,000 -- -- Issuance of stock options.......... -- -- -- -- -- -- -- -- 30,000 Capital contribution..... -- -- -- -- -- -- -- -- 110,000 Pending repurchase of common stock..... -- -- -- -- -- (65,000) -- -- -- Net income........ -- -- -- -- -- -- -- -- -- ----------- -------- -------- --------- ---------- -------- --------- ----------- ----------- Balance, at January 31, 1997.......... 63,301,936 (228,489) 63,302 (100,000) -- (65,000) 80,000 -- 3,642,192 Issuance of common stock..... 800,000 -- 800 -- -- -- -- -- 279,200 Stock repurchase....... (114,933) -- (115) -- -- 65,000 -- -- (64,885) Conversion of common stock upon formation of Company (Note 1)......... (60,501,333) 228,489 (60,501) 100,000 -- -- -- -- (41,670) Issuance of common stock, net of related expense for: Initial public offering....... 1,400,000 -- 1,400 -- -- -- -- -- 5,727,064 Acquisition of Founding Companies...... 907,585 -- 908 -- -- -- -- -- 4,990,811 Payment of debt and other obligations.... 276,716 -- 277 -- -- -- -- -- 1,521,662 Exercise of warrants....... 111,296 -- 111 -- -- -- (80,000) -- 201,159 Recent Acquisitions... 76,748 -- 76 -- -- -- -- -- 577,315 Issuance of stock options and warrants......... -- -- -- -- -- -- -- -- 27,641 Purchase of treasury stock... -- (21,073) -- (115,904) -- -- -- -- -- Net loss.......... -- -- -- -- -- -- -- -- -- ----------- -------- -------- --------- ---------- -------- --------- ----------- ----------- Balance, at December 31, 1997.............. 6,258,015 (21,073) 6,258 (115,904) -- -- -- -- 16,860,489 Issuance of common stock, net of related expense for: Recent Acquisitions... 373,547 -- 374 -- -- -- -- -- 4,158,903 Private Placements..... 351,322 -- 351 -- -- -- -- -- 4,777,149 Exercise of stock options and warrants... 146,141 -- 146 -- -- -- -- -- 314,024 Earnout commitments.... 398,123 -- 398 -- -- -- -- -- 2,329,178 Restricted stock award.......... 95,000 -- 95 -- -- -- -- (1,140,000) 1,139,905 Common stock issuable in private placement ....... -- -- -- -- 1,975,000 -- -- -- -- Issuance of stock options and warrants......... -- -- -- -- -- -- -- -- 1,778,368 Accretive dividend......... -- -- -- -- -- -- -- -- -- Purchase of treasury stock... -- (19,370) -- (105,701) -- -- -- -- -- Amortization of deferred compensation..... -- -- -- -- -- -- -- 57,000 -- Net loss.......... -- -- -- -- -- -- -- -- -- ----------- -------- -------- --------- ---------- -------- --------- ----------- ----------- Balance, at December 31, 1998.............. 7,622,148 (40,443) $ 7,622 $(221,605) $1,975,000 $ -- $ -- $(1,083,000) $31,358,016 =========== ======== ======== ========= ========== ======== ========= =========== =========== Deficit ------------- Balance, at February 1, 1996.. $ (4,674,831) Issuance of common stock..... -- Cancellation of warrant.......... -- Issuance of warrant.......... -- Issuance of stock options.......... -- Capital contribution..... -- Pending repurchase of common stock..... -- Net income........ 286,048 ------------- Balance, at January 31, 1997.......... (4,388,783) Issuance of common stock..... -- Stock repurchase....... -- Conversion of common stock upon formation of Company (Note 1)......... -- Issuance of common stock, net of related expense for: Initial public offering....... -- Acquisition of Founding Companies...... -- Payment of debt and other obligations.... -- Exercise of warrants....... -- Recent Acquisitions... -- Issuance of stock options and warrants......... -- Purchase of treasury stock... -- Net loss.......... (8,731,088) ------------- Balance, at December 31, 1997.............. (13,119,871) Issuance of common stock, net of related expense for: Recent Acquisitions... -- Private Placements..... -- Exercise of stock options and warrants... -- Earnout commitments.... -- Restricted stock award.......... -- Common stock issuable in private placement ....... -- Issuance of stock options and warrants......... -- Accretive dividend......... (800,000) Purchase of treasury stock... -- Amortization of deferred compensation..... -- Net loss.......... (1,861,078) ------------- Balance, at December 31, 1998.............. $(15,780,949) =============
See accompanying notes to consolidated financial statements F-12 InfoCure Corporation Consolidated Statements of Cash Flows
Eleven Months Year Ended Ended Year Ended January 31, December 31, December 31, 1997 1997 1998 ----------- ------------- ------------ Cash provided by (used in) operating activities: Net income (loss).................. $ 286,048 $(8,731,088) $ (1,861,078) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Purchase of in-process research and development.................. -- -- 9,000,000 Asset impairment and restructuring costs............................ -- 11,136,027 1,874,032 Depreciation and amortization..... 236,528 1,091,848 4,328,423 Allowance for doubtful accounts... (55,086) 16,000 582,000 Net gain on sale of property and equipment........................ -- -- (9,160) Stock-based compensation.......... 30,000 27,500 86,155 Option cancellation expense....... 110,000 -- -- Deferred income taxes............. (868,816) (1,369,991) (1,633,000) Changes in current assets and liabilities--net of effects of acquisitions: Accounts receivable............. (37,192) (1,077,338) (7,469,327) Inventory, prepaid expense and other current assets........... 130,301 (493,087) (131,035) Accounts payable and accrued expense........................ (442,901) (2,107,821) 2,380,458 Deferred revenue................ (511,122) 817,046 (1,039,001) ----------- ----------- ------------ Net cash provided by (used in) operating activities........... (1,122,240) (690,904) 6,108,467 ----------- ----------- ------------ Cash used in investing activities: Net cash paid for acquisition of Founding Companies................ (150,000) (3,745,113) -- Net cash paid for acquisition of Recent Acquisitions............... -- (4,795,408) (60,161,254) Property and equipment expenditures...................... (48,966) (297,472) (2,557,791) Net proceeds from disposal of property and equipment............ -- -- 327,679 Cash paid for other intangible assets............................ (237,377) (76,093) (3,505,628) Proceeds from collection of notes and other receivables............. -- 375,201 -- ----------- ----------- ------------ Net cash used in investing activities.......................... (436,343) (8,538,885) (65,896,994) ----------- ----------- ------------ Cash provided by financing activities: Proceeds from issuance of common stock............................. 1,320,402 6,008,464 6,752,500 Proceeds from exercise of options and warrants...................... -- 121,270 314,170 Net borrowings under acquisition credit facility................... -- 7,188,095 55,200,788 Proceeds from issuance of long-term debt.............................. 296,066 -- -- Payment of loan costs.............. -- (299,879) (2,519,308) Proceeds from issuance of convertible preferred stock....... -- -- 7,819,952 Repayment of notes payable to stockholders...................... -- -- (143,848) Principal payments on long-term debt.............................. (155,282) (2,262,115) (603,566) Proceeds from note payable to stockholder....................... 108,545 -- -- Repurchase of common stock warrant........................... (50,000) -- -- Purchase of treasury stock......... -- (115,904) (105,701) ----------- ----------- ------------ Net cash provided by financing activities.......................... 1,519,731 10,639,931 66,714,987 ----------- ----------- ------------ Net change in cash and cash equivalents......................... (38,852) 1,410,142 6,926,460 Cash and cash equivalents, beginning of period........................... 254,467 215,615 1,625,757 ----------- ----------- ------------ Cash and cash equivalents, end of period.............................. $ 215,615 $ 1,625,757 $ 8,552,217 =========== =========== ============
See accompanying notes to consolidated financial statements. F-13 InfoCure Corporation Notes to Consolidated Financial Statements 1. Organization and Basis of Presentation InfoCure Corporation ("InfoCure") was founded in November 1996 to develop, market and service practice management systems for use by health care providers throughout the United States. On July 10, 1997, InfoCure closed an initial public offering of its common stock, par value $.001 per share, (the "Common Stock") (the "July Offering") and simultaneously acquired the following six operating companies: (i) International Computer Solutions, Inc. ("ICS"), (ii) Health Care Division, Inc. ("HCD"), (iii) Millard-Wayne, Inc. ("Millard- Wayne"), (iv) KComp Management Systems, Inc. ("KComp"), (v) DR Software, Inc. ("DR Software") and (vi) Rovak, Inc. ("Rovak") (collectively the "Founding Companies"). American Medcare Corporation ("AMC"), a holding company and parent of ICS, HCD, and Millard-Wayne, originally incorporated on January 11, 1983, was merged with and into InfoCure at the time the Offering became effective and is considered a predecessor company to InfoCure and the accounting acquirer of all the companies. All outstanding shares of AMC were converted into approximately 3.0 million shares of InfoCure Common Stock concurrently with the consummation of the Offering. The aggregate consideration paid for the Founding Businesses was approximately $3.7 million in cash and 907,000 shares of Common Stock for an aggregate value of $8.7 million including fees and other acquisition related costs. Subsequent to the consummation of the Offering and the acquisition of the Founding Companies, InfoCure acquired substantially all the assets or all the outstanding equity securities of the following companies: (i) Professional On- Line Computer, Inc. ("POLCI"); (ii) Commercial Computers, Inc. ("CCI"); (iii) SoftEasy Software, Inc. ("SoftEasy"); (iv) Pace Financial Corporation ("PACE"); and (v) the orthodontic business unit of HALIS Services, Inc. ("OPMS"). POLCI, CCI and SoftEasy were acquired with effect from October 1, 1997; PACE was acquired with effect from November 1, 1997 and OPMS was acquired with effect from December 1, 1997. Aggregate consideration for these acquisitions completed in the eleven months ended December 31, 1997 was approximately 77,000 shares of Common Stock and $11.7 million cash and debt, for an aggregate value of $12.4 million. Additionally, in the year ended December 31, 1998, InfoCure acquired substantially all the assets, subject to the assumption of certain liabilities, of Micro-Software Designs, Inc. ("MDI") and Healthcare Systems Division ("HSD") of The Reynolds and Reynolds Company and acquired the outstanding equity securities of Medical Software Integrators, Inc. ("MSI"). These acquisitions were effective from January 1, 1998 with respect to MDI and MSI and October 23, 1998 for HSD. Aggregate consideration for these acquisitions completed in 1998 was approximately 373,000 shares of Common Stock and $73.0 million cash and debt for an aggregate value of $77.1 million. These acquisitions, together with the acquisitions described in the preceding paragraph, are collectively referred to as the "Recent Acquisitions." In December 1998, InfoCure completed a merger with Radiology Management Systems, Inc. ("RADMAN"). The Company exchanged approximately 497,000 shares of InfoCure in the transaction. This acquisition was accounted for as a pooling of interests. Accordingly, the accompanying consolidated financial statements include the financial position, results of operations and cash flows of RADMAN for all periods. With the exception of the RADMAN transaction, the acquisitions of the Founding Companies as well as the Recent Acquisitions, have been accounted for using the purchase method of accounting. InfoCure, the Founding Companies, the Recent Acquisitions and RADMAN are referred to collectively as the Company. The Company changed its fiscal reporting period to December 31 effective February 1, 1997. The accompanying financial statements have been presented on a consolidated basis for the eleven months ended December 31, 1997, and the year ended December 31, 1998, including InfoCure, and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The accompanying consolidated financial statements include AMC (InfoCure's predecessor) and its subsidiaries, RADMAN, ICS F-14 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) and HCD for the period from February 1, 1997; the Founding Companies for the period from July 11, 1997, and the Recent Acquisitions from their respective dates of acquisition. For the year ended January 31, 1997, the accompanying financial statements present the consolidated financial position, results of operation and cash flows of AMC and its wholly owned subsidiaries, RADMAN, ICS and, with effect from December 3, 1996, HCD, which was acquired as of that date. 2. Summary of Significant Accounting Policies 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 reported period. Actual results could differ from those estimates. Revenue Recognition Revenue from software sales is recognized upon shipment in instances where the Company has evidence of a contract, the fee charged is fixed and determinable and collection is probable. Hardware resales are recognized upon product shipment. Revenue from support and maintenance contracts, which are typically one year in length, is recognized ratably over the life of the contract. Revenue from other services is recognized as the services are provided. Cash and Cash Equivalents The Company considers all highly liquid investments with maturity dates of three months or less from the date of purchase to be cash equivalents. Concentrations of Credit Risk The Company's credit concentrations are limited due to the wide variety of customers in the health care industry and the geographic areas into which the Company's systems and services are sold. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Bad debt expense was approximately $142,000, $159,000 and $862,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998, respectively. Corresponding write-offs of uncollectible accounts receivable were approximately $197,000, $143,000 and $280,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998, respectively. At certain times during the year, the Company maintains cash and cash equivalents in bank accounts in amounts above the federally insured limits. Fair Value of Financial Instruments The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. Management estimates that the carrying amounts of the Company's financial instruments included in the accompanying consolidated balance sheets are not materially different from their fair values. Inventories Inventory consists primarily of peripheral computer equipment and related supplies. Inventory is accounted for on the first-in, first-out basis and reported at the lower of cost or market. F-15 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) Property and Equipment Property and equipment are 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 primarily accelerated methods for income tax purposes. Substantial betterments to property and equipment are capitalized and repairs and maintenance are expensed as incurred. Capitalized Software Costs Software development costs are expensed as incurred prior to establishing the technological feasibility of a product. For the period between the establishment of technological feasibility and the time a product is available for general release, such costs are capitalized. Capitalized software costs are amortized using the straight-line method over the estimated lives of the related products (generally 48 months). Goodwill and Other Intangible Assets Intangible assets consist primarily of goodwill, which represents the excess of cost over the fair value of assets acquired in business combinations accounted for under the purchase method. All goodwill is amortized on a straight-line basis over an estimated useful life of 15 years. The 15-year estimated useful life reflects management's analysis that goodwill is derived principally from the true value of the historical and estimated future life of its customer relationships, the longevity and continuing use of its core products and the relatively minor impact of technological obsolescence on these core products. Other intangible assets consist primarily of deferred loan costs which are being amortized over the life of the respective loans at rates which approximate the interest method. Asset Impairment 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, effective for years beginning after December 15, 1995, requires that long- lived assets and certain intangibles to be held and used by the Company be reviewed for impairment. The Company periodically assesses whether there has been a permanent impairment of its long-lived assets, in accordance with SFAS No. 121. A write-down of assets due to impairment was required for the eleven months ended December 31, 1997, in the amount of approximately $7.8 million (Note 4). Income Taxes The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates. Restructuring Costs The Company records the costs of consolidating existing Company facilities into acquired operations, including the external costs and liabilities to close redundant Company facilities and severance and relocation costs related to the Company's employees in accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring). Earnings Per Share The Company has adopted the provisions of SFAS No. 128, Earnings Per Share, which is effective for fiscal years ending after December 15, 1997. Basic earnings per share for the eleven months ended F-16 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) December 31, 1997 is calculated based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share include the dilutive effect of Common Stock equivalents. Earnings per share (EPS) for the year ended January 31, 1997, has not been presented as it is not considered meaningful due to the acquisitions of the Founding Companies and the Company's initial public offering in conjunction with the formation of the Company during the period ended December 31, 1997. Weighted average number of shares outstanding used in computing basic EPS for the eleven months ended December 31, 1997, were 4,880,455. Weighted average number of shares outstanding used in computing basic EPS for the year ended December 31, 1998, were 6,780,437. The impact of the assumed exercise of the Company's stock options and warrants and convertible preferred stock would have been antidilutive for the eleven months ended December 31, 1997, and the year ended December 31, 1998, and, therefore, diluted EPS data have not been presented. The impact of the assumed exercise of these instruments may have a dilutive effect in the future. Reclassification Certain prior year amounts have been reclassified to conform with the current year presentation. New Accounting Pronouncements SFAS No. 130, Reporting Comprehensive Income, became effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purposes financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company addressed the requirements of SFAS No. 130 and there was no impact on the financial statements as a result. SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, became effective in 1998. It establishes standards for reporting information about operating segments in annual financial statements and interim financial reports issued to shareholders. Generally, certain financial information is required to be reported on the basis that is used internally for evaluating performance of and allocation of resources to operating segments. The Company has determined that this standard did not impact its current practice of reporting operating information. Statement of Position ("SOP") 97-2, Software Revenue Recognition, issued by the American Institute of Certified Public Accountants, became effective in 1998. This Statement provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and establishes certain criteria for revenue recognition. The revenue recognition criteria stated in the pronouncement had no material impact on the Company's financial statements. SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, issued in April 1998, provides guidance on accounting for the costs of computer software developed or obtained for internal use and determining whether computer software is for internal use. This statement is effective for fiscal years beginning after December 15, 1998. Adoption of this statement is not expected to have a significant impact on infoCure's financial statements. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in F-17 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. Historically, the Company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standard on January 1, 2000, to affect its financial statements. 3. Business Combinations In December 1996, AMC, the predecessor to the Company, through its wholly- owned subsidiary HCD, acquired certain assets and assumed certain liabilities of a division of InfoSystems of North Carolina, Inc. ("ISI"). Aggregate consideration was $1.7 million comprised of $150,000 cash and a $1.55 million note payable to ISI. As described in Note 1, the Company, in conjunction with the July Offering, acquired the six Founding Companies. The Recent Acquisitions, also described in Note 1, included POLCI, CCI and SoftEasy, acquired with effect from October 1, 1997; PACE, acquired with effect from November 1, 1997; and OPMS, acquired with effect from December 1, 1997. Additionally, the Recent Acquisitions described in Note 1 also included the fiscal 1998 acquisitions of MSI and MDI, acquired with effect from January 1, 1998, and HSD, acquired October 23, 1998. Also as described in Note 1, the Company merged with RADMAN in December 1998. This acquisition was accounted for as a pooling of interests. Accordingly, the accompanying consolidated financial statements include the financial position, results of operations and cash flows of RADMAN for all periods. All of the companies acquired have long-term marketing rights to and/or ownership of licensed software in various segments of the healthcare industry. Except for the RADMAN acquisition, all of the acquisitions of the Company and its predecessor have been accounted for under the purchase method of accounting and the acquired companies' results of operations from the respective acquisition dates are included in the accompanying consolidated financial statements. The separate results of operations of InfoCure and RADMAN for the periods presented follow. The amounts for the year ended January 31, 1997 are for AMC (InfoCure's predecessor).
Year Ended Eleven Months Year Ended January Ended December 31, December 31, 31, 1997 1997 1998 ---------- ------------- ----------- Revenue InfoCure............................. $2,494,563 $15,755,072 $59,235,474 RADMAN............................... 3,856,730 2,519,361 4,488,098 ---------- ----------- ----------- $6,351,293 $18,274,433 $63,723,572 ========== =========== =========== Net income (loss) InfoCure............................. $ 254,094 $(8,569,498) $(2,881,712) RADMAN............................... 31,954 (161,590) 1,020,634 ---------- ----------- ----------- $ 286,048 $(8,731,088) $(1,861,078) ========== =========== ===========
The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisitions had occurred as of the beginning of the immediately preceding period. The F-18 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) pro forma information is not necessarily indicative of what would have occurred had the acquisitions been made as of such periods, nor is it indicative of future results of operations. The pro forma amounts give effect to appropriate adjustments for the fair value of the assets acquired, reductions in personnel costs and other operating expenses not assumed as part of the acquisitions, amortization of intangibles, interest expense and income taxes.
Eleven Months Year Ended Ended Year Ended January 31, December 31, December 31, Pro Forma Amounts 1997 1997 1998 ----------------- ----------- ------------- ------------ (In Thousands Except Share Data) Revenue............................. $48,589 $ 89,056 $101,938 Net income (loss) available to common stockholders ............... 1,499 (18,174) (3,002) Loss per share--basic and diluted... (2.52) (0.34)
The pro forma amounts for net income and earnings per share for the eleven months ended December 31, 1997 include the impact of asset impairment and restructuring charges as described in Note 4. Pro forma earnings per share for the year ended January 31, 1997 are not considered meaningful and have not been presented. The following tables summarize the fair values of the assets acquired, liabilities assumed and consideration given in connection with the foregoing acquisitions accounted for as purchases:
Year Ended Eleven Months Year Ended January Ended December 31, December 31, 31, 1997 1997 1998 ---------- ------------- ----------- Accounts receivable.................. $ 154,358 $ 3,218,513 $10,642,067 Inventory............................ -- -- 1,426,186 Prepaid expenses..................... -- -- 347,374 Property and equipment............... 60,000 1,216,574 4,831,662 Goodwill............................. 1,926,717 21,644,540 56,148,495 Capitalized software................. -- 1,717,956 420,082 Other assets......................... 8,902 1,321,316 707,381 Deferred revenue..................... (432,324) (2,690,051) (4,942,109) Accounts payable..................... (14,305) (933,630) (692,577) Notes payable........................ -- (1,650,173) -- Other liabilities.................... (3,348) (2,744,090) (742,118) ---------- ----------- ----------- Net assets acquired.................. 1,700,000 21,100,955 68,146,443 Purchased research and development... -- -- 9,000,000 ---------- ----------- ----------- Total acquisition.................... $1,700,000 $21,100,955 $77,146,443 ========== =========== ===========
These acquisitions were funded as follows:
Year Ended Eleven Months Year Ended January Ended December 31, December 31, 31, 1997 1997 1998 ---------- ------------- ----------- Common stock........................... $ -- $ 5,569,110 $ 4,159,277 Note payable and other payables........ 1,550,000 6,991,324 12,825,912 Cash................................... 150,000 8,540,521 60,161,254 ---------- ----------- ----------- Total consideration.................... $1,700,000 $21,100,955 $77,146,443 ========== =========== ===========
F-19 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) In addition to the foregoing consideration, certain of the purchase acquisition agreements provided for additional purchase consideration based on attaining certain revenue or operating income goals. The additional consideration will be accounted for as additional purchase price or compensation expense if and when earned. Maximum contingent consideration payable with respect to the Founding Companies originally aggregated $4.7 million. As more fully described in Note 4, the Company's restructuring plans affected certain of the acquired companies such that portions of the contingent consideration related thereto was deemed earned and payable as of December 31, 1997. Accordingly, approximately $2.5 million of such consideration was included as part of the Company's restructuring costs for the eleven months ended December 31, 1997, in settlement of estimated contingent consideration obligations related to the affected companies. In the year ended December 31, 1998, the Company finalized negotiations with respect to contingent consideration for one affected company. As a result the Company agreed to an additional $750,000 of purchase consideration which is included in its restructuring costs for the year ended December 31, 1998. Maximum contingent consideration payable with respect to the Recent Acquisitions completed in 1998 aggregates $12.4 million. In 1998 contingent consideration of approximately $1.1 million was earned and has been recorded as additional purchase price pursuant to the terms of the original purchase agreement, as amended. Total remaining contingent consideration outstanding at December 31, 1998 is approximately $10.9 million. Purchased Research and Development Through its acquisition of HSD, the Company acquired three in-process physician practice management system research and development projects. The Company assigned an aggregate value of $9.0 million to the projects, based on the results of an independent appraisal. The appraisal value was determined using a discounted cashflow model with a risk adjusted discount rate of 28%. The valuation also incorporated a stage of completion methodology where the value was adjusted based on the technology's percentage of completion. Based on the appraisal results, the three projects had an aggregate pre-acquisition cost of $9.9 million, an estimate of $900,000 cost to complete and were approximately 90% complete at the acquisition date. As of the acquisition date, technological feasibility had not been established and there were no alternative future uses for the projects. Therefore, the Company expensed the $9.0 million related to these in process research and development projects. 4. Impairment of Assets and Restructuring Costs Effective December 1, 1997, the Company determined to restructure through a plan to consolidate existing facilities and acquired operations. This restructuring plan enabled the Company to more effectively leverage its present and planned acquisitions, streamline its offering of products and services and respond more effectively to changing market conditions. In connection therewith, management also reevaluated the Company's investment in goodwill and capitalized software in light of current market conditions and the restructuring plan. Management determined that, based on current market conditions and an analysis of projected undiscounted future cash flows calculated in accordance with the provisions of SFAS No. 121, the carrying amount of certain long-lived assets, principally of Rovak and DR Software, may not be recoverable. The resultant impairment of long-lived assets, due principally to the impact of the Company's new acquisitions (Note 3), necessitated a write-down of approximately $7.8 million as follows: (i) $3.5 million and $2.8 million of goodwill representing the excess of cost over net assets of the acquisition of Rovak and DR Software, respectively, acquired in July 1997 and (ii) $1.5 million of capitalized software related to products whose future utility is diminished based on market conditions. The estimated fair values of these long-lived assets were determined by calculating the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved. In connection with effecting the consolidation and restructuring, the Company has also recorded costs and accrued liabilities to close redundant facilities, cancel leases and other executory contracts and recognize F-20 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) contingent consideration earned or deemed as payable under terms of certain acquisition agreements for acquired companies affected by the consolidation and restructuring. The restructuring plan, which was completed in the second quarter of 1998, also included termination of certain redundant staff positions. Details of this element of the restructuring plan were finalized and communicated in the first quarter of 1998. Accordingly, compensation costs, including severance and other termination benefits, and other future costs related to the restructuring aggregating $1.1 million, were recognized in the first quarter of 1998 in accordance with EITF No. 94-3. Asset impairment and restructuring costs for the eleven months ended December 31, 1997 and the year ended December 31, 1998, are as follows:
Eleven Months Ended Year Ended December 31, December 31, Cost related to 1997 1998 --------------- ------------- ------------ Write-off of goodwill............................ $ 6,360,063 $ -- Write-off of capitalized software development costs........................................... 1,460,943 -- Facility closure and consolidation............... 460,808 -- Compensation costs for severance and other termination benefits............................ -- 1,124,032 "Earn-out" compensation for contingent consideration earned or deemed payable to former stockholders of entities affected by the consolidation and restructuring................. 2,558,169 750,000 Other asset write-downs and costs................ 296,044 -- ----------- ---------- Total asset impairment and restructuring costs... $11,136,027 $1,874,032 =========== ==========
As of December 31, 1998, approximately 50 employee terminations were related to restructuring actions. Accrued restructuring at December 31, 1998 totaled approximately $283,000, which is considered adequate to cover the facilities related costs which remain as a result of the 1997 restructuring plan. 5. Property and Equipment Major classes of property and equipment consisted of the following:
Estimated Useful Lives December 31, December 31, (Years) 1997 1998 ------------ ------------ ------------ Office and computer equipment....... 3-5 $2,017,013 $ 6,765,489 Furniture and fixtures.............. 5-7 492,414 1,684,816 Equipment under capital lease obligations........................ 3-5 161,732 1,233,876 Leasehold improvements.............. 3-5 76,029 333,320 ---------- ----------- 2,747,188 10,017,501 Less accumulated depreciation....... 1,217,871 1,915,006 ---------- ----------- $1,529,317 $ 8,102,495 ========== ===========
Depreciation expense was approximately $78,000, $231,000 and $651,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998, respectively. In connection with the restructuring plan described in Note 4, the Company disposed of property and equipment, primarily office and computer equipment, with a net book value of approximately $155,000. F-21 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) 6. Other Intangible Assets Other intangible assets consisted of:
December 31, December 31, 1997 1998 ------------ ------------ Unamortized loan costs............................. $ 299,879 $4,655,739 Capitalized software development costs............. 859,877 2,602,027 Capitalized costs of future acquisitions........... 611,880 401,746 Other.............................................. 196,992 417,425 ---------- ---------- 1,968,629 8,076,937 Less accumulated amortization...................... 645,861 768,555 ---------- ---------- $1,322,768 $7,308,382 ========== ==========
As described in Note 4, approximately $1.5 million of capitalized software was written-off during the eleven month period ended December 31, 1997. Amortization of capitalized software charged to operations was approximately $101,000, $331,000 and $112,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997, and the year ended December 31, 1998, respectively. 7. Accrued Expense Accrued expense consisted of the following:
December 31, December 31, 1997 1998 ------------ ------------ Interest........................................... $ 85,174 $1,677,195 Compensation....................................... 645,549 1,420,875 Additional purchase price consideration............ -- 1,100,000 Taxes, other than income........................... 55,979 484,249 Professional fees.................................. 169,000 146,849 Other.............................................. 258,484 1,121,828 ---------- ---------- $1,214,186 $5,950,996 ========== ==========
8. Notes Payable and Long-Term Debt The Company has a $2 million short-term note payable given in connection with an acquisition. The note bears interest at 12% per annum. The first installment of $1 million was due in January 1999 and the second installment is due and payable in February 1999. Long-term debt consisted of the following:
December December 31, 31, 1997 1998 ------------ ----------- Notes payable, FINOVA Capital Corporation ("FINOVA") (1).................................... $7,188,095 $68,350,807 Subordinated notes payable, remainder of purchase price for acquisitions (2)........................ 1,207,132 10,603,566 Subordinated notes payable to stockholders; interest varies between 7% and 10%; maturing at various dates through 2001........................ 618,328 180,058 Other.............................................. 336,583 2,107,185 ---------- ----------- 9,350,138 81,241,616 Less current portion............................... 2,061,393 12,883,684 ---------- ----------- $7,288,745 $68,357,932 ========== ===========
F-22 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) (1) At December 31, 1997, the Company had a $10 million credit facility with FINOVA for the purpose of funding its acquisition program. The credit facility is collateralized by substantially all of the Company's assets and the accounts receivable, cash flows and assets of future acquisition companies. This facility has a five-year term and accrues interest at an annual rate of prime plus 1.25% to 2%, depending on the Company achieving certain debt service ratios. This facility also included a contingent obligation payment, due in 2001 or upon full prepayment, based on the Company achieving certain operating cash flows in excess of a base operating cash flow, as defined. At December 31, 1997, the interest rate was 10.5% per annum and the contingent obligation payment was indeterminable. In February 1998, an amendment to the credit facility and a new loan increased the available credit under this facility to $30 million and, in October 1998, another amendment and new loan increased the available credit under this facility to $70 million. In connection with the amendments and increases, the interest rates were prime plus 0.5% to 1% (8.75% at December 31, 1998) on the $20 million loan and fixed at 9.5% on the $40 million and $10 million loans. Principal is due on all the loans in quarterly installments, beginning at $2,777,000, increasing ratably to $6,777,000, before the final installment of $13,777,000 in October 2002. In addition, with the October 1998 amendment and increase, the Company agreed to pay fees and costs of approximately $2.5 million and issued warrants to the lender to acquire up to 245,000 shares of Common Stock. The estimated value of these warrants is $1.5 million, which is included in other intangible assets and is being amortized as interest expense over the remaining term of the loan. A portion of these fees and costs were in substitution of the contingent obligation payment described above. (2) The notes payable for the remainder of purchase price for acquisitions consist of two notes at December 31, 1998. One note, for $10 million, is due in equal installments of principal over five years. The initial interest rate is eight percent per annum and increases each year to a maximum of 14 percent per annum. The note is convertible, at the Company's option during the first year of the term, into shares of Common Stock at a rate based on the price per share of an underwritten public offering or the market value of the Common Stock. The remaining $603,566 note bears interest at six percent per annum and is due October 1, 2000. This note is convertible into shares of Common Stock upon the closing of a public offering of the Common Stock (Note 14). The conversion price is $7.59 or $8.25 per share if the conversion occurs in 1999 or 2000, respectively. As of December 31, 1998, future maturities of these obligations are as follows:
Year Amount ---- ----------- 1999......................................................... $12,883,684 2000......................................................... 14,217,296 2001......................................................... 13,592,420 2002......................................................... 38,473,429 2003......................................................... 2,074,787 ----------- Total...................................................... $81,241,616 ===========
9. Other Liabilities At December 31, 1997, other liabilities consisted primarily of approximately $6.3 million representing the balance payable in connection with the acquisition of PACE effective November 1, 1997. This amount was paid in the first quarter of 1998 from proceeds of long-term debt. 10. Commitments Operating Leases The Company leases its office facilities and certain equipment under operating leases having terms ranging from one to seven years. F-23 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) Approximate future minimum rentals, by year and in the aggregate, under noncancellable operating leases with remaining terms of more than one year are as follows:
Year Amount ---- ---------- 1999.......................................................... $2,838,000 2000.......................................................... 2,393,000 2001.......................................................... 2,002,000 2002.......................................................... 1,847,000 2003.......................................................... 560,000 Thereafter.................................................... 203,000 ---------- Total....................................................... $9,843,000 ==========
Rent expense was approximately $140,000, $468,000 and $1,338,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997, and the year ended December 31, 1998, respectively. Employee Benefit Plan In January 1998, the Company implemented a qualified 401(k) savings plan ("the Plan") covering all employees meeting certain age and years of service eligibility requirements. Eligible employees may contribute up to 15% of their annual salary to the Plan, subject to certain limitations. The Company may make matching contributions and may also provide profit-sharing contributions at its sole discretion. Employees become fully vested in any employer contributions after five years of service. During the eleven months ended December 31, 1997, the companies comprising the Founding Companies and the Recent Acquisitions had separate benefit plans for employee retirement. As of January 31, 1998, all previous plans were rolled into the newly adopted plan. Contributions to employee benefit plans for the year ended January 31, 1997, the eleven months ended December 31, 1997, and the year ended December 31, 1998, were approximately $0, $34,000, and $435,000, respectively. The contribution for the year ended December 31, 1998 will be in Common Stock. 11. Stockholders' Equity Common Stock In connection with the formation of the Company and concurrent with completion of its initial public offering, all of the approximately 52 million outstanding shares of AMC common stock were converted into approximately 3.0 million shares of Common Stock. The Company had 15,000,000 shares of $.001 par value Common Stock and 2,000,000 shares of $.001 par value Preferred Stock authorized at December 31, 1998. Shares of Common Stock issued and outstanding were 6,236,942 and 7,581,705, respectively, at December 31, 1997 and December 31, 1998. Institutional Investor Under the terms of a private placement agreement with an institutional investor (the "Investor"), the Company can exercise options ("Put Options") with the Investor. Generally, upon exercise of a Put Option, the Investor must tender the amount designated by the Company (the "Investment Amount"). The number of shares to be issued upon exercise of a Put Option is based on a nominal discount of the stock's average closing price, as defined. The Investor has committed to invest up to $10 million. The Company has exercised $7 million in three installments from September 28 through December 31, 1998. The most recent installment, for $2 million, was initiated in December 1998, closed in January 1999, and is reflected as common stock issuable in the accompanying financial statements. A total of 351,322 shares were issued in the first two installments and 80,000 shares were issued in the third installment. F-24 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) The Company also granted the Investor warrants to acquire 100,000 shares of common stock (see below). Convertible Redeemable Preferred Stock In February 1998, the Company completed the sale of 850,060 shares of its Convertible Redeemable Preferred Stock in a private placement for approximately $8.5 million which netted the Company $7.8 million after commissions and offering expenses. These proceeds were used primarily for funding future acquisitions and related expenses. The Preferred Stock is not currently entitled to any set level of dividends; however, in the event the Company should pay any dividend or make any other distribution in respect of its Common Stock, a dividend in a like amount must be paid in respect to the Preferred Stock based on the number of shares of Common Stock into which the Preferred Stock could then be converted. Shares of the Redeemable Preferred Stock are immediately convertible into shares of Common Stock. Until February 6, 1999, the shares can be converted into that number of Common Stock shares determined by dividing the initial price of $10.00 per share by a conversion price of $8.50. On February 6, 1999, the conversion price will be reset for the lesser of $8.50 per share or the trailing 30-day average closing price of the Common Stock, subject to a minimum of $6.75 per share. All unconverted shares of Preferred Stock will be redeemed by the Company for $10 per share plus accumulated and unpaid dividends in February 2003. The holders of Preferred Stock are entitled to vote together as a single class with the holders of Common Stock on all matters submitted to a vote of stockholders, except to the extent a separate class vote is required. The holders of Preferred Stock have one vote for each share of Common Stock that could then be acquired on conversion of their Preferred Stock. Upon any dissolution, liquidation or winding-up of the Company, before any payments are made to any holders of Common Stock or any other class or series the Company's capital stock then outstanding, the holders of Preferred Stock are entitled to receive an amount equal to $10.00 per share of Preferred Stock or, in the event the holders of Common Stock would be entitled to a greater payment, the holders of Preferred Stock are entitled to participate equally with the holders of Common Stock, on an as-converted basis, in such liquidating distribution. The Preferred Stock is not entitled to cumulative voting and has no preemptive rights. There is no sinking fund in respect of the Preferred Stock. In connection with the immediate conversion feature the Company recognized $800,000 as an accretive dividend attributable to the Preferred Stock issuance including commissions and the estimated value of warrants granted to the placement agent (see below). Stock Compensation Plans The Company has stock option plans that provide for the granting of incentive and non-qualified options to purchase the Company's Common Stock to selected officers, other key employees, directors, and consultants. These plans include the InfoCure Corporation 1996 Stock Option Plan, the InfoCure Corporation Length-of-Service Nonqualified Stock Option Plan, and the InfoCure Corporation Directors Stock Option Plan. The Company also assumed the stock options of AMC, its predecessor, which were outstanding at July 10, 1997. Such options were converted at the same rate used in connection with the conversion of AMC's common stock. Under the InfoCure Corporation 1996 Stock Option Plan 3,000,000 shares of Common Stock of the Company have been reserved for option grants to directors, officers, other key employees, and consultants. Employees of the Company may be granted Incentive Stock Options (ISOs) within the dollar limitations under F-25 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) Section 422(d) of the Internal Revenue Code. The exercise price of all ISOs shall not be less than the fair market value of the Common Stock as of the option grant date (110% of such value for 10% shareholders). Options granted to directors and consultants must be nonqualified stock options. Options vest ratably over the four year period beginning on the grant date. Under the InfoCure Corporation Length-of-Service Nonqualified Stock Option Plan, 500,000 shares of Common Stock of the Company have been reserved for issuance to employees of the Company. Employees are granted nonqualified stock options based on years of service with the Company and are fully vested four years from the grant date. The exercise price of options issued pursuant to this plan shall be no less than the fair market value of the Common Stock as of the grant date. Under the InfoCure Corporation Directors Stock Option Plan, 100,000 shares of Common Stock of the Company have been reserved for issuance as nonqualified stock options to Directors of the Company who are not employees of the Company. Upon appointment to the Board of Directors, a director receives an option grant of 10,000 shares and may receive an additional option grant of 2,500 shares on each anniversary date. One-half of the options granted pursuant to this plan vests after one year of service following the grant date and the other one-half vests after two years of service following the grant date. In 1998, the Company implemented the InfoCure Employee Stock Purchase Plan. This plan allows employees of the Company to purchase Common Stock through payroll deductions for 85% of fair market value. As of December 31, 1998, there are 150,000 shares of Common Stock reserved for issuance under this plan. In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, Accounting for Stock-Based Compensation, effective for InfoCure beginning February 1, 1996. SFAS No. 123 defines a "fair value method" of accounting for employee stock options. It also allows accounting for such options under the "intrinsic value method" in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. If a company elects to use the intrinsic value method, then pro forma disclosures of earnings and earnings per share are required as if the fair value method of accounting was applied. The effects of applying SFAS No. 123 in the pro forma disclosures are not necessarily indicative of future amounts because the pro forma disclosures do not take into account the amortization of the fair value of awards prior to 1995. Additionally, InfoCure is expected to grant additional awards in future years. The Company has elected to account for its stock options under the intrinsic value method as outlined in APB No. 25. The fair value method requires use of option valuation models, such as the Black-Scholes option valuation model, to value employee stock options, upon which a compensation expense is based. The Black-Scholes option valuation model was not developed for use in valuing employee stock options. Instead, this model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because InfoCure's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management's opinion that the existing models do not necessarily provide a reliable measure of the fair value of its employee stock options. Under the intrinsic value method, compensation expense is only recognized if the exercise price of the employee stock option is less than the market price of the underlying stock on the date of grant. In accordance with SFAS No. 123, the fair value for the Company's employee stock options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted F-26 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) average assumptions for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998.
Eleven Months Year Ended Ended Year Ended January 31, December 31, December 31, 1997 1997 1998 ----------- ------------- ------------ Risk-free interest rate............. 7.5% 5.7-6.2% 6% Dividend yield...................... 0.0% 0.0% 0.0% Volatility factor................... 0.0% 19.7% 58% Weighted average expected life (in years)............................. 5-10 5 4 For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information, excluding earnings per share for year ended January 31, 1997 which are not considered meaningful, follows: Eleven Months Year Ended Ended Year Ended January 31, December 31, December 31, 1997 1997 1998 ----------- ------------- ------------ (In Thousands Except Share Data) Net income (loss) available to common stockholders As reported....................... $286 $ (8,731) $(2,661) Pro forma......................... 46 (8,835) (3,803) Basic and diluted loss per share As reported....................... $ (1.79) $ (0.39) Pro forma......................... (1.81) (0.56)
A summary of stock option activity, and related information for the year ended January 31, 1997, the eleven months ended December 31, 1997, and the year ended December 31, 1998 follows:
Weighted- Average exercise Options price --------- --------- Outstanding at February 1, 1996......................... 238,640 $12.78 Granted............................................... 138,710 4.05 Exercised............................................. (29,830) 0.02 Forfeited or canceled................................. (178,980) 16.76 --------- Outstanding at January 31, 1997......................... 168,540 3.63 Granted............................................... 985,471 4.23 Exercised............................................. -- -- Forfeited or canceled................................. (2,983) 1.67 --------- Outstanding at December 31, 1997........................ 1,151,028 4.15 Granted............................................... 1,697,475 12.64 Exercised............................................. (50,887) 1.22 Forfeited or canceled................................. (251,829) 8.26 --------- Outstanding at December 31, 1998........................ 2,545,787 9.74 Options exercisable at January 31, 1997................. 36,542 1.74 Options exercisable at December 31, 1997................ 68,236 2.91 Options exercisable at December 31, 1998................ 361,232 4.22
F-27 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) The weighted average fair value of options granted for the year ended January 31, 1997, the eleven months ended December 31, 1997, and the year ended December 31, 1998, were $0.11, $1.34 and $6.81, respectively. The following table summarizes information about the Company's outstanding stock options at December 31, 1998.
Options Outstanding Options Exercisable ------------------------------------- ------------------------ Weighted- Number Average Weighted- Number Weighted- Range of Outstanding at Remaining Average Exercisable at Average Exercise December 31, Contractual Exercise December 31, Exercise Prices 1998 Life (Years) Price 1998 Price -------- -------------- ------------ --------- -------------- --------- $ 1.68- 4.13 708,696 2.6 $ 4.01 266,211 $3.81 4.19- 9.81 454,742 2.7 7.55 95,021 5.31 10.00-13.50 1,320,549 3.8 13.29 -- -- 13.63-26.44 61,800 3.6 15.77 -- -- ------------ --------- --- ------ ------- ----- $ 1.68-26.44 2,545,787 3.2 $ 9.74 361,232 $4.22 ============ ========= === ====== ======= =====
Restricted Stock Award In 1998, the Board approved a restricted stock award aggregating 95,000 shares as part of an incentive compensation package to three executives. The fair value of this award at the grant date, approximately $1.1 million, is deferred compensation amortizable over its ten year vesting period; however, the vesting can be accelerated upon the occurrence of certain events. Under the terms of the agreement, 50% of shares not vested will automatically vest upon the Company's stock having an average closing price of $25 per share over a 20-day period. The remainder of shares not vested will automatically vest upon the Company's stock having an average closing price of $40 per share over a 20- day period. Based on these criteria, approximately $500,000 vested in the first quarter of 1999 and it is possible that the remaining portion will also vest during the first quarter 1999. Warrants In 1997, the Company issued to an investment advisory firm a warrant to acquire 110,000 shares of Common Stock at $5.50 per share. This warrant was in lieu of approximately $330,000 payable to the investment advisory firm principally for services in connection with the Company's acquisition program. An executive/director is associated with this investment advisory firm. In connection with the acquisition of PACE, the Company issued to the former owners of PACE warrants to acquire 186,000 shares of Common Stock at an exercise price of $9.13 per share. These warrants have a ten-year term. In connection with the Redeemable Preferred Stock private placement in February 1998, the Company granted to the placement agent a ten-year warrant to acquire 100,000 shares of Common Stock at an exercise price of $9.00 per share. The $219,000 estimated value of this warrant was recorded as part of the accretive dividend attributed to the preferred stockholders. In connection with a private placement arrangement with the Investor, the Company granted a warrant to acquire 100,000 shares of Common Stock at $23.00 per share. This warrant has a five-year term and is immediately exercisable. F-28 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) In connection with the October 1998 loan which increased the Company's credit facility, the lender was granted the right to acquire up to 245,000 shares of Common Stock at $12 per share. At December 31, 1998, an immediately exercisable warrant for 225,000 shares had been issued with a ten-year term. The $1.5 million estimated value of this warrant has been recorded as deferred loan costs. None of the foregoing warrants have been exercised. 12. Income Taxes The components of income tax expense (benefit) are as follows:
Eleven Months Year Ended Ended Year Ended January December 31, December 31, 31, 1997 1997 1998 ---------- ------------- ------------ Current: Federal........................... $ 696 $ 38,849 $ 1,064,000 State............................. 120 7,000 235,000 --------- ----------- ----------- Total current....................... 816 45,849 1,299,000 --------- ----------- ----------- Deferred: Federal........................... (168,146) (1,406,741) (1,104,000) State............................. (29,670) (248,250) (244,000) --------- ----------- ----------- Total deferred...................... (197,816) (1,654,991) (1,348,000) --------- ----------- ----------- Change in deferred tax asset valuation allowance................ (671,000) 285,000 (285,000) --------- ----------- ----------- Net income tax benefit.............. $(868,000) $(1,324,142) $ (334,000) ========= =========== ===========
Deferred taxes result from temporary differences between the bases of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The sources of the temporary differences and their effect on deferred tax assets and liabilities are as follows:
December 31, December 31, 1997 1998 ------------ ------------ Current: Deferred tax assets Allowance for doubtful accounts............... $ 20,000 $ 247,000 Deferred revenue and customer deposits........ 617,000 235,000 Accrued restructuring costs................... 309,000 72,000 Credit carryforwards.......................... 60,000 -- Accrued expense............................... 154,000 76,000 Other......................................... -- 45,000 ---------- ---------- 1,160,000 675,000 ---------- ---------- Noncurrent: Deferred tax assets Basis difference of goodwill, capitalized software costs, property and equipment and other assets................................. 1,620,000 4,760,000 Net operating loss carryforwards.............. 648,000 259,000 ---------- ---------- 2,268,000 5,019,000 ---------- ---------- Subtotal.......................................... 3,428,000 5,694,000 Valuation allowance............................... (285,000) -- ---------- ---------- $3,143,000 $5,694,000 ========== ==========
F-29 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) The Company's effective income tax rate varied from the U.S. federal statutory rate as follows:
Eleven Months Year Ended Ended Year Ended January December 31, December 31, 31, 1997 1997 1998 ---------- ------------- ------------ Expected tax benefit................ $(198,000) $(3,419,000) $(746,000) Increase (decrease) in income taxes resulting from: State income benefit.............. (35,000) (603,000) (154,000) Nondeductible goodwill............ (14,000) 2,306,000 724,000 Other, net........................ 50,000 106,858 127,000 Change in deferred tax asset valuation allowance.............. (671,000) 285,000 (285,000) --------- ----------- --------- Net income tax benefit.............. $(868,000) $(1,324,142) $(334,000) ========= =========== =========
As of December 31, 1998, the Company and its subsidiaries have net operating loss carryforwards for federal income tax purposes of approximately $761,000 which expire at various dates to 2013. 13. Supplemental Cash Flow Information Cash payments for interest amounted to approximately $99,000, $309,000 and $1,906,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997, and the year ended December 31, 1998, respectively. The Company made cash payments for income taxes of approximately $0, $5,000 and $1,200,000 for the year ended January 31, 1997, the eleven months ended December 31, 1997 and the year ended December 31, 1998, respectively. During the year ended January 31, 1997, the Company acquired certain assets and assumed certain liabilities of HCD for consideration of a note in the amount of $1,550,000 and cash of $150,000. During the eleven months ended December 31, 1997, the Company issued Common Stock with an aggregate fair value of approximately $5.6 million and incurred notes payable and other liabilities of approximately $7.0 million in connection with acquisition of the Founding Companies and the Recent Acquisitions. During the year ended December 31, 1998, the Company issued Common Stock with an aggregate fair value of approximately $4.2 million and incurred notes payable and other liabilities of approximately $12,800,000 in connection with acquisitions completed during the period. During the year ended January 31, 1997, and year ended December 31, 1998, the Company issued stock warrants with an aggregate value of approximately $190,000 and $1.7 million, respectively, for services rendered to the Company. 14. Subsequent Events In January 1999, the Company filed a registration statement to offer to the public 3 million shares of its Common Stock. The Company intends to use the proceeds to repay amounts outstanding on the FINOVA credit facility and notes payable to The Reynolds and Reynolds Company from the purchase of HSD. The balance of the proceeds will be used for working capital and other general corporate purposes. In connection with planned extinguishment of outstanding debt, the Company will incur debt extinguishment costs of as much as $5.1 million, representing write-off of deferred loan costs, including costs paid after December 31, 1998. In two separate transactions in February 1999, the Company merged with OMSystems, Inc. ("OMS") and Macon Systems Management, LLC ("MSM") in business combinations to be accounted for as pooling of interests. The Company exchanged approximately 1,144,000 shares of Common Stock in the OMS transaction F-30 InfoCure Corporation Notes to Consolidated Financial Statements--(Continued) and 83,000 shares of Common Stock in the MSM transaction. OMS and MSM provide practice management software for orthodontists and dermatologists, respectively. Pro forma unaudited results of operations assuming the OMS merger occurred on February 1, 1996 are as follows:
Eleven Months Year Ended Ended Year Ended January 31, December 31, December 31, 1997 1997 1998 ----------- ------------- ------------ (In Thousands Except Share Data) Net revenue............................ $16,037 $29,617 $78,676 Net income (loss) available to common stockholders.......................... 1,628 (7,124) (5,957) Net loss per share--basic and diluted.. (1.18) (0.75)
Earnings per share for the year ended January 31, 1997, has not been presented as it is not considered meaningful due to the acquisitions of the Founding Companies and the Company's initial public offering in conjunction with the formation of the Company during the period ended December 31, 1998. The pro forma information presented does not include the results of operations of MSM as this merger was not considered significant. F-31 INDEPENDENT AUDITORS' REPORT Board of Directors The Reynolds and Reynolds Company: We have audited the accompanying balance sheets of the Healthcare Systems Division ("HSD") of The Reynolds and Reynolds Company ("R&R") as of September 30, 1998 and 1997, and the related statements of operations and deficit in divisional net assets, and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of R&R and HSD'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, such financial statements present fairly, in all material respects, the financial position of HSD at September 30, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Dayton, Ohio January 15, 1999 F-32 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997 (In thousands)
1998 1997 -------- -------- CURRENT ASSETS: Cash and cash equivalents................................ $ 4 $ 74 Accounts receivable (less allowance for doubtful accounts of $958--1998 and $974--1997)........................... 11,946 11,423 Inventories--finished goods.............................. 1,607 1,836 Prepaid expenses and other assets........................ 566 649 -------- -------- Total current assets................................... 14,123 13,982 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Leasehold improvements................................... 700 572 Computer and other equipment............................. 5,977 4,871 Furniture and other...................................... 1,881 1,645 Construction in progress................................. 1 90 -------- -------- Total property, plant and equipment.................... 8,559 7,178 Less accumulated depreciation............................ 4,987 3,671 -------- -------- Net property, plant and equipment...................... 3,572 3,507 -------- -------- INTANGIBLE ASSETS: Goodwill, net............................................ 8,824 9,852 Software licensed to customers, net...................... 5,071 5,997 Other, net............................................... 1,447 3,374 -------- -------- Total intangible assets................................ 15,342 19,223 -------- -------- OTHER ASSETS............................................... 921 2,133 -------- -------- TOTAL ASSETS............................................... $ 33,958 $ 38,845 ======== ======== CURRENT LIABILITIES: Accounts payable: Trade................................................... $ 2,122 $ 2,340 Other................................................... 1,024 1,727 Accrued liabilities: Compensation and related items.......................... 2,466 3,033 Other................................................... 1,335 1,543 Deferred revenues........................................ 210 867 -------- -------- Total current liabilities.............................. 7,157 9,510 -------- -------- Other liabilities: Postretirement medical.................................. 402 222 Pensions................................................ 1,655 1,143 Other................................................... 41 797 -------- -------- Total other liabilities................................ 2,098 2,162 -------- -------- ADVANCES FROM PARENT, NET.................................. 35,789 47,907 -------- -------- DEFICIT IN DIVISIONAL NET ASSETS........................... (11,086) (20,734) -------- -------- TOTAL LIABILITIES AND DEFICIT IN DIVISIONAL NET ASSETS..... $ 33,958 $ 38,845 ======== ========
See notes to financial statements. F-33 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY STATEMENTS OF OPERATIONS AND DEFICIT IN DIVISIONAL NET ASSETS YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (In thousands)
1998 1997 1996 -------- -------- ------- NET SALES AND REVENUES: Products......................................... $ 23,194 $ 22,651 $24,259 Services......................................... 24,874 17,796 16,412 -------- -------- ------- Total net sales and revenues................. 48,068 40,447 40,671 -------- -------- ------- COSTS AND EXPENSES Cost of sales: Products....................................... 18,541 18,935 16,701 Services....................................... 14,639 8,917 7,986 -------- -------- ------- Total cost of sales.......................... 33,180 27,852 24,687 -------- -------- ------- Selling, general and administrative expenses..... 32,650 42,815 24,339 Restructuring charge............................. -- 1,427 -- -------- -------- ------- Total costs and expenses..................... 65,830 72,094 49,026 -------- -------- ------- OPERATING LOSS..................................... (17,762) (31,647) (8,355) -------- -------- ------- OTHER CHARGES (INCOME): Interest expense................................. 1 3 1 Interest income.................................. (51) (49) (16) Other............................................ (23) (20) 7 -------- -------- ------- Total other income........................... (73) (66) (8) -------- -------- ------- LOSS BEFORE INCOME TAX BENEFIT..................... (17,689) (31,581) (8,347) INCOME TAX BENEFIT................................. (6,603) (10,847) (2,900) -------- -------- ------- NET LOSS........................................... (11,086) (20,734) (5,447) DEFICIT IN DIVISIONAL NET ASSETS: Beginning of period.............................. (20,734) (5,447) (2,458) Advance from parent.............................. 20,734 5,447 2,458 -------- -------- ------- End of period.................................... $(11,086) $(20,734) $(5,447) ======== ======== =======
See notes to financial statements. F-34 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (In thousands)
1998 1997 1996 -------- -------- ------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net loss......................................... $(11,086) $(20,734) $(5,447) Adjustments to reconcile net loss to net cash used in operating activities: Purchased in-process research and development costs.......................................... 11,000 Depreciation and amortization................... 7,095 5,587 3,387 Loss on sales of assets......................... 138 4 Changes in operating assets and liabilities, net of assets acquired: Accounts receivable............................. (523) 686 (2,998) Inventories..................................... 229 (526) 247 Prepaid expenses, intangible and other assets... 1,340 379 (258) Accounts payable................................ (921) 194 1,485 Accrued and other liabilities................... (1,917) (1,083) 675 -------- -------- ------- Net cash used in operating activities.......... (5,783) (4,359) (2,905) -------- -------- ------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Business combinations, net of cash acquired...... (494) (17,524) Capital expenditures............................. (1,425) (1,244) (2,478) Net proceeds from sales of assets................ 34 19 622 Capitalization of software licensed to customers....................................... (1,018) (1,065) (888) -------- -------- ------- Net cash used in investing activities.......... (2,903) (19,814) (2,744) -------- -------- ------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Advances from parent, net........................ 8,616 26,015 5,349 Principal payment on debt........................ (1,769) (10) -------- -------- ------- Net cash provided by financing activities...... 8,616 24,246 5,339 -------- -------- ------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS....... (70) 73 (310) CASH AND EQUIVALENTS--Beginning of year........... 74 1 311 -------- -------- ------- CASH AND EQUIVALENTS--End of year................. $ 4 $ 74 $ 1 ======== ======== ======= SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION - Advance from parent.............................. $ 20,734 $ 5,447 $ 2,458 ======== ======== =======
See notes to financial statements. F-35 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (In thousands) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business--The financial statements include the accounts of the Healthcare Systems Division ("HSD" or the "Division") of The Reynolds and Reynolds Company ("R&R"). HSD sells computer systems including both hardware and software to a wide range of entities that operate in the healthcare industry. HSD also receives service revenue from hardware and software maintenance as well as training and installation services. Because HSD is operated as a segment of R&R, these financial statements may not necessarily be representative of results that would have been attained if HSD had operated as a separate entity. Use of Estimates--The financial statements are prepared in conformity with generally accepted accounting principles and include amounts based on management's best estimates and judgments. The use of estimates and judgments may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Cash and Cash Equivalents--For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, cash deposits and investments with maturities of three months or less at the time of purchase. The carrying amount of these short-term investments approximates fair value. Concentrations of Credit Risk--The Company is a leading provider of information management systems to entities in the healthcare industry. A significant portion of accounts receivable are due from such entities. Inventories--Inventories, which consist primarily of computer equipment, are stated at the lower of cost or market. Cost is determined by specific identification. Market is based on net realizable value. Property, Plant and Equipment--Property, plant and equipment are stated at cost. Depreciation and amortization are provided over the estimated useful service lives of the assets or asset groups, principally on the straight-line method for financial reporting purposes. Estimated asset lives are:
Years ------ Lease improvements.................................................... 3 - 5 Computer and other equipment.......................................... 3 - 5 Furniture and other................................................... 3 - 15
Intangible Assets--The excess of cost over the fair value of net assets of companies acquired is recorded as goodwill and is amortized on a straight-line basis over primarily seven years. Amortization expense was $2,261, $1,878 and $1,803 for the years ended September 30, 1998, 1997 and 1996, respectively. At September 30, 1998 and 1997, accumulated amortization was $7,328 and $5,067, respectively. The Company capitalizes certain costs of developing its software products. Upon completion of a software product, amortization is determined based on the larger of the amounts computed using (a) the ratio that current gross revenues for each product bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product, primarily five years. Amortization expense for software licensed to customers was $1,943, $1,103 and $116 for the years ended September 30, 1998, 1997 and 1996, respectively. Amortization expense, which is included in cost of goods sold, for the year ended September 30, 1998 includes a $750 write-off of capitalized software, which F-36 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY NOTES TO FINANCIAL STATEMENTS--(Continued) was determined to be impaired based on management's analysis of undiscounted future cash flows. In addition, amortization expense for the year ended September 30, 1997 included $648 from special charges (see Note B). At September 30, 1998 and 1997 accumulated amortization was $13,742 and $11,799, respectively. Other intangible assets are amortized over periods ranging from two to fifteen years. Amortization expense was $1,564, $1,473 and $534 for the years ended September 30, 1998, 1997 and 1996, respectively. At September 30, 1998 and 1997 accumulated amortization was $6,846 and $5,282, respectively. The carrying values of goodwill and other intangible assets are reviewed if the facts and circumstances indicate potential impairment of their carrying value. Any impairment in the carrying value of such intangibles is recorded when identified in accordance with APB Opinion No. 17, "Intangible Assets" and Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Revenue Recognition--Revenues consist of both product sales and service revenues. Products sales, including computer hardware and software licenses, are recorded upon shipment to customers. Service revenues, which include computer hardware maintenance, software support and training are recorded ratably over the contract period or as services are performed. Lease Obligations--The Division, along with other divisions at R&R, leases premises and equipment under various capital and operating lease agreements. However, the Division has not entered into significant leasing arrangements separate from other R&R divisions; therefore, future minimum rental commitments are not significant. Rental expenses allocated to the Division were $2,383, $2,001 and $1,397 for the years ended September 30, 1998, 1997 and 1996, respectively. Research and Development Costs--The Company expenses research and development costs as incurred. These costs were $4,092, $14,676 and $3,240 for the years ended September 30, 1998, 1997 and 1996, respectively. These costs are included in selling, general and administrative expenses in the accompanying statements of operations. Included in the year ended September 30, 1997 are $11,000 of purchased in-process research and development costs. In-process research and development acquired in business combinations represented software development costs for which technological feasibility was not established and for which there was no alternative future use. Income Taxes--The results of operations of HSD are included in a consolidated federal income tax return with R&R. Federal income tax benefits allocable to the operations of HSD are calculated as if it had filed separate income tax returns, state income taxes are allocated based on R&R's overall effective state tax rate. Income tax benefits are charged against advances from parent, net. No deferred tax assets or liabilities are allocated by R&R to the Division. Reclassifications--Certain amounts in the 1997 financial statements have been reclassified to conform to the 1998 presentation. B. RESTRUCTURING AND SPECIAL CHARGES During the year ended September 30, 1997, the Division recorded a pretax charge of $13,075 consisting of a $1,427 restructuring charge and $11,648 of other special charges. After income tax benefits, the charges F-37 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY NOTES TO FINANCIAL STATEMENTS--(Continued) increased net loss by $9,530. The income tax rate on the combined charges represented a 27.1% effective tax rate because not all of the charges were tax deductible. Major components of the charges are listed on the following table:
Restructuring Special Total Charge Charges Charges ------------- ------- ------- Employee termination benefits.................... $1,427 $ $ 1,427 In-process research and development.............. 11,000 11,000 Discontinued products............................ 648 648 ------ ------- ------- Totals......................................... $1,427 $11,648 $13,075 ====== ======= =======
Restructuring Charge--Employee termination benefits consisted of involuntary severance benefits and voluntary retirement benefits for 23 employees. Through September 30, 1998, all involuntary termination benefits had been paid. See Note E to the financial statements for a discussion of voluntary retirement benefits. Special Charges--In-process research and development expenses resulted from two recent computer services business combinations and represented software development costs for which technological feasibility was not established and for which there were no alternative future use. The balance of special charges represented primarily the write-off of discontinued software licensed to customers. Special charges increased cost of sales $648 and selling, general and administrative expenses $11,000. C. BUSINESS COMBINATIONS In fiscal year 1997, the Division purchased two healthcare computer services businesses for $17,524, paid from R&R's available cash. One of the businesses, acquired June 30, 1997, provided information systems to physician practices with primary emphasis on practice management systems for hospital-based physicians. The other business, acquired February 28, 1997, has capabilities in electronic medical records and clinical management. These businesses had annual sales of about $10,000. Based on management's analysis of cash flows and an appraisal, $11,000 of the purchase price was allocated to in-process research and development, representing software development costs for which technological feasibility was not established and for which there was no alternative future use. Through September 30, 1998, no amounts have been capitalized for software development relating to these projects. Recorded liabilities of acquired companies included the costs to exit duplicate facilities. Key elements of the costs accrued for exiting duplicate facilities were involuntary termination benefits of $398 and lease costs of $219. Involuntary termination benefits represent severance payments and outplacement services for 54 employees. Through September 30, 1998, all severance benefits were paid and the Division bought out its remaining lease obligation. Costs paid approximated those reserved. All business combinations were accounted for as purchases and the accounts of the acquired businesses were included in the Division's financial statements since the dates of acquisition. In connection with the business combinations, the Division recorded goodwill of $2,889 in 1997. This goodwill is being amortized on a straight-line basis over seven years. Pro Forma Information (Unaudited)--On a pro forma basis, assuming that the 1997 business combinations were made as of October 1, 1995, the revenues of HSD would have increased by $9,700 and $13,500 for the years ended September 30, 1997 and 1996, respectively. Net loss would have decreased by $7,700 for the year-ended September 30, 1997 and increased by $2,300 for the year-ended September 30, 1996. The in-process research and development charge was excluded from both 1997 and 1996. These pro forma results of operations include pre- acquisition results of the businesses acquired and may not be indicative of the results of operations that actually would have been obtained if the business combination had been in effect or that may be obtained in the future. F-38 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY NOTES TO FINANCIAL STATEMENTS--(Continued) D.INCOME TAX BENEFIT
1998 1997 1996 ------ ------- ------ Provision for Income Tax Benefit Federal................................................ $5,288 $ 8,618 $2,301 State and local........................................ 1,315 2,229 599 ------ ------- ------ Income tax benefit....................................... $6,603 $10,847 $2,900 ====== ======= ======
1998 1997 1996 --------------- ---------------- --------------- Amount Percent Amount Percent Amount Percent ------ ------- ------- ------- ------ ------- Reconciliation of Income Tax Rates Statutory federal income taxes...................... $6,191 35.0 % $11,053 35.0 % $2,921 35.0 % State and local taxes less federal income tax effect.. 855 4.8 1,449 4.6 390 4.7 Goodwill amortization and write-off.................. (371) (2.1) (323) (1.0) (313) (3.7) In-process research and development................ (1,401) (4.4) Other....................... (72) (0.4) 69 0.1 (98) (1.3) ------ ---- ------- ---- ------ ---- Income tax benefit............ $6,603 37.3 % $10,847 34.3 % $2,900 34.7 % ====== ==== ======= ==== ====== ====
E.POSTRETIREMENT BENEFITS Pension benefits for the majority of the Division's employees are provided through plans that are maintained by R&R. Pension benefits are based primarily on years of service and compensation. R&R's funding policy is to make annual contributions to the pension plan sufficient to meet or exceed the minimum statutory requirements. The Division also participates in the R&R sponsored defined benefit medical plan for employees who retired before October 1, 1993. Future retirees may purchase postretirement medical insurance from R&R. Discounts from the market price of postretirement medical insurance will be provided to certain retirees based on age and length of remaining service as of October 1, 1993. R&R also sponsors a defined benefit life insurance plan in which substantially all of the Division's employees participate. Medical and life insurance benefits are funded on a pay as you go basis. The Division was allocated $1,128, $1,691, and $656, respectively of pension expense and $59, $171, and $25, respectively, of postretirement medical and life insurance benefits expense for the years ended September 30, 1998, 1997 and 1996. During the year ended September 30, 1997, the Division expensed $769 of special termination benefits in connection with a voluntary retirement program. F. RELATED PARTY TRANSACTIONS All of HSD's financing requirements are provided by R&R. These financial statements do not include any long-term debt or interest expense because the Division has not guaranteed the debt nor pledged any of its assets against the debt. Such amounts are included in advances from parent, and will be increased or decreased based on cash flows of the Division. R&R has allocated to the Division costs related to employee benefits, data processing and other corporate overhead of $2,077, $1,475 and $1,115 for the years ended September 30, 1998, 1997 and 1996, respectively, which are included in selling, general and administrative expenses. Management believes that the amounts allocated are reasonable; however, the amounts that would have been or will be incurred on a separate company basis could differ from the estimated amounts due to economies of scale realized by R&R and differences in management techniques and organization. F-39 THE HEALTHCARE SYSTEMS DIVISION OF THE REYNOLDS AND REYNOLDS COMPANY NOTES TO FINANCIAL STATEMENTS--(Continued) G. ACCOUNTING STANDARDS In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The new SOP will be effective for transactions entered into in fiscal years beginning after December 15, 1997. Management believes the adoption of this pronouncement will reduce revenues in the period of adoption. The effect on net sales and revenue has not yet been determined. The adoption will not effect the Division's future cash flows. H. SUBSEQUENT EVENT On October 23, 1998, R&R sold substantially all the assets of the Division, net of certain liabilities to be assumed, to InfoCure Corporation for approximately $50.0 million. * * * * * * F-40 Inside back cover: The top, left-hand corner of the page bears the caption "InfoMine. Point. Click. Know." On the left-hand side of the page there is a stylized image of the human body with bones, musculature, organs and nerves exposed. The human body image is superimposed over a computer screen from InfoCure's InfoMine product. On the right-hand side of the page there are three pictures arranged vertically down the page. The first picture shows a computer screen from the InfoMine product. Beneath the image is the word "Point." The second picture shows a computer mouse. Beneath the image is the word "Click." The third picture shows three computer screens from the InfoMine product, each screen depicting different graphical representations of data. Beneath this picture is the word "Know." The bottom of the page bears the caption "What if you could examine your practice as thoroughly as you do your patients? Now you can." - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- You may rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of common stock means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these shares of common stock in any circumstances under which the offer or solicitation is unlawful. -------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 The Company.............................................................. 12 Use of Proceeds.......................................................... 14 Price Range of Common Stock.............................................. 15 Dividend Policy.......................................................... 15 Capitalization........................................................... 16 Dilution................................................................. 17 Selected Historical Consolidated Financial Data.......................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 20 Business................................................................. 29 Management............................................................... 38 Principal and Selling Stockholders....................................... 44 Shares Eligible for Future Sale.......................................... 50 Underwriting............................................................. 51 Legal Matters............................................................ 53 Experts.................................................................. 53 Incorporation of Certain Documents by Reference.......................... 53 Where You Can Find More Information...................................... 54 Index to Financial Statements............................................ F-1
-------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,770,000 Shares [LOGO OF INFOCURE APPEARS HERE] Common Stock ------------- PROSPECTUS ------------- The Robinson-Humphrey Company SG Cowen William Blair & Company Sanders Morris Mundy -------------- , 1999 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II Item 14. Other Expenses of Issuance and Distribution Securities and Exchange Commission registration fee................. $ 41,721 National Association of Securities Dealers, Inc. fee................ $ 15,508 Nasdaq Stock Market listing fee..................................... $ 17,500 Accountants' fees and expenses...................................... * Legal fees and expenses............................................. * Transfer Agent's fees and expenses.................................. * Printing and engraving expenses..................................... * Miscellaneous....................................................... * Total Expenses...................................................... $1,000,000
- -------- *To be completed by amendment. All fees other than the SEC registration fee, the NASD fee and the Nasdaq Stock Market listing fee are estimated. None of the expenses of the issuance and distribution of the common stock being offered will be borne by the selling stockholders. Item 15. Indemnification of Directors and Officers InfoCure's Bylaws effectively provide that InfoCure shall, to the full extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as amended from time to time ("Section 145"), indemnify all persons whom it may indemnify pursuant thereto. In addition, InfoCure's Certificate of Incorporation eliminates personal liability of its directors to the full extent permitted by Section 102(b)(7) of the General Corporation Law of the State of Delaware, as amended from time to time ("Section 102(b)(7)"). Section 145 permits a corporation to indemnify its directors and officers against expenses (including attorney's fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit, or proceeding brought by a third party if such directors or officers acted in good faith and in a manner they 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 reason to believe their conduct was unlawful. In a derivative action, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interest of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant officers or directors are reasonably entitled to indemnity for such expenses despite such adjudication of liability. Section 102(b)(7) provides that a corporation may eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such 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) for willful or negligent conduct in paying dividends or repurchasing stock out of other than lawfully available funds or (iv) for any transaction from which the director derived an improper benefit. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. Section 8 of the Underwriting Agreement (filed as Exhibit 1.1 to this registration statement) provides that the underwriters severally and not jointly will indemnify and hold harmless InfoCure, the selling stockholders and each director, officer and controlling person of InfoCure from and against any liability caused by any statement or omission in the registration statement, in the prospectus, in any preliminary prospectus or in any amendment or supplement thereto, in each case to the extent that the statement or omission was made in reliance upon and in conformity with written information furnished to InfoCure by the underwriters expressly for use therein. II-1 Item 16. Exhibits
Exhibit Number Description ------- ----------- 1.1+ Form of Underwriting Agreement. 3.1 Amended Certificate of Incorporation of InfoCure (incorporated by reference to Exhibit 4.1 filed with InfoCure's Registration Statement on Form S-8) (Registration No. 333-74773). 3.2+ Amended and Restated Bylaws of InfoCure. 4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended Certificate of Incorporation and Bylaws of InfoCure defining rights of the holders of common stock of InfoCure. 4.2 Specimen Certificate for shares of common stock (incorporated by reference to Exhibit of the same number filed with InfoCure's Registration Statement on Form SB-2) (Registration No. 333-18923). 5.1+ Opinion of Morris, Manning & Martin, L.L.P., counsel to InfoCure, as to legality of the shares being registered. 23.1+ Consent of BDO Seidman, LLP 23.2+ Consent of Deloitte & Touche, LLP 23.4 Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1) 24.1 Powers of Attorney (included on signature page) 27.1+ Financial Data Schedule
- -------- +Previously filed Item 17. Undertakings (a) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the SEC, 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. (c) The undersigned registrant hereby undertakes that: (i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained II-2 in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (ii) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia on the 31st day of March, 1999. INFOCURE CORPORATION /s/ Frederick L. Fine By: _________________________________ Frederick L. Fine President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Frederick L. Fine President, Chief Executive March 31, 1999 ______________________________________ Officer and Director Frederick L. Fine (Principal Executive Officer) * Executive Vice President, March 31, 1999 ______________________________________ Secretary and Director James K. Price * Chairman, Treasurer and March 31, 1999 ______________________________________ Director Richard E. Perlman * Senior Vice President-- March 31, 1999 ______________________________________ Finance and Chief Lance B. Cornell Financial Officer (Principal Financial Officer) * Vice President and March 31, 1999 ______________________________________ Director Michael E. Warren * Vice President--Finance, March 31, 1999 ______________________________________ Assistant Secretary and Gary W. Plumer Assistant Treasurer (Principal Accounting Officer) * Director March 31, 1999 ______________________________________ James D. Elliot * Director March 31, 1999 ______________________________________
Raymond H. Welsh /s/ Frederick L. Fine * By: __________________________ Frederick L. Fine Attorney-in-Fact II-4 -----END PRIVACY-ENHANCED MESSAGE-----