##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|                                             |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|[X]                                          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|                                            
|For the quarterly period ended June 30, 2001
|                                            
|or                                          
|                                            
|[   ]                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|                                            
|For the transition period from  to          

Commission File Number: 001-16079

PracticeWorks, Inc.



---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-2259090                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                              
|                                                              
|                                                              
|                                                              
|1765 The Exchange, Suite 200 Atlanta, Georgia                  |  | 30339                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip code)                          

(770) 850-5006



---

(Registrants telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [   ] No

The number of outstanding shares of the Registrants common stock, par
value $.01 per share, was 9,117,408 as of August 8, 2001.





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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.                                           
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   



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##### Table of Contents



PRACTICEWORKS, INC.

INDEX TO CONTENTS

|                               |                                                                                                |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- |  |  | 
|DESCRIPTION OF CONTENTS       
|                               |                                                                                                | 
|PART I - Financial Information
|                              
|                              
|                              
|                              
|                               | Item 1 - Financial Statements                                                                 
|                              
|                              
|                              
|                              
|                               | Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations
|                              
|                              
|                              
|                              
|                               | Item 3 - Quantitative and Qualitative Disclosures About
Market Risk                           
|                              
|                              
|                              
|                              
|PART II - Other Information   
|                              
|                              
|                              
|                              
|                               | Item 1 - Legal Proceedings                                                                    
|                              
|                              
|                              
|                              
|                               | Item 2 - Changes in Securities and Use of Proceeds                                            
|                              
|                              
|                              
|                              
|                               | Item 3 - Defaults Upon Senior Securities                                                      
|                              
|                              
|                              
|                              
|                               | Item 4 - Submission of Matters to a Vote of Security Holders                                  
|                              
|                              
|                              
|                              
|                               | Item 5 - Other Information                                                                    
|                              
|                              
|                              
|                              
|                               | Item 6 - Exhibits and Reports on Form 8-K                                                     





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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |              |        |        |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | - | ------- | ----------- | ------ | ------------ | ------ | ------ |  | 
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         | June 30,    |        | December 31,
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         | 2001        |        | 2000        
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         | (UNAUDITED) |        |              |        |       
|ASSETS                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Current:                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Cash and cash equivalents                                                                                                                                                                                      |                            | $ | 4,748   |             |        | $            | 3,979  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Accounts receivable-trade, net of allowance of $1,479 and $1,103                                                                                                                                               |                            |   | 6,750   |             |        |              | 8,097  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Other receivables                                                                                                                                                                                              |                            |   | 1,514   |             |        |              | 979    |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Deferred tax assets                                                                                                                                                                                            |                            |   | 706     |             |        |              | 1,147  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Prepaid expenses and other current assets                                                                                                                                                                      |                            |   | 1,360   |             |        |              | 1,080  |       
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                | Total current assets       |   |         | 15,078      |        |              |        | 15,282 | 
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Property and equipment, net of accumulated depreciation of $3,887
and $1,930                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                | 6,182                      |   |         |             | 4,120  |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Goodwill, net of accumulated amortization of $30,207 and $19,643                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                | 43,889                     |   |         |             | 33,571 |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Other intangible assets, net of accumulated amortization of $1,459 and $588                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                | 16,227                     |   |         |             | 9,769  |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Deferred tax assets                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                | 4,651                      |   |         |             | 4,029  |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Advances to pending acquisition target                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                | 1,650                      |   |         |             | 1,550  |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Other assets                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                | 222                        |   |         |             | 201    |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  | $                                                                                                                                                                                                              | 87,899                     |   |         | $           | 68,522 |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Current liabilities:                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Accounts payable                                                                                                                                                                                               |                            | $ | 4,172   |             |        | $            | 1,483  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Accrued expenses                                                                                                                                                                                               |                            |   | 5,531   |             |        |              | 4,324  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Accrued restructuring costs                                                                                                                                                                                    |                            |   | 332     |             |        |              | 1,839  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Deferred revenue and customer deposits                                                                                                                                                                         |                            |   | 11,539  |             |        |              | 9,753  |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Current portion of long-term debt                                                                                                                                                                              |                            |   | 3,421   |             |        |              | 1,055  |       
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                | Total current liabilities  |   |         | 24,995      |        |              |        | 18,454 | 
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Long-term debt, less current portion                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                | 18,604                     |   |         |             | 20,239 |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Other liabilities                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                | 470                        |   |         |             |       |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                | Total liabilities          |   |         | 44,069      |        |              |        | 38,693 | 
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|Commitments and contingencies                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|Convertible redeemable preferred stock, $0.01 par value; 20,000,000 shares
authorized: Series A 6.5% convertible redeemable preferred; $32,000 liquidation
preference and redemption value; 32,000 shares issued and outstanding
at June 30, 2001; carrying value includes accrued dividends of $656
and is net of $10,305 unamortized discount |  |                                                                                                                                                                                                                | 22,351                     |   |         |             |       |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  | Series C convertible redeemable preferred; $5,000 liquidation preference
and redemption value; 100,000 shares issued and outstanding at June 30, 2001;
carrying value includes $299 accrued redemption premium |                            |   | 5,299   |             |        |              |       |       
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|Stockholders equity:                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Common stock $0.01 par value, 100,000,000 authorized,
9,117,239 issued and outstanding at June 30, 2001                                                                                                        |                            |   | 91      |             |        |              |       |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Additional paid-in capital (Note 1)                                                                                                                                                                            |                            |   | 28,250  |             |        |              |       |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | InfoCure Corporation equity                                                                                                                                                                                    |                            |   |        |             |        |              | 29,720 |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Accumulated deficit                                                                                                                                                                                            |                            |   | (11,890 | )           |        |              |       |       
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                |  | Accumulated other comprehensive (loss) income                                                                                                                                                                  |                            |   | (271    | )           |        |              | 109    |       
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                | Total stockholders equity |   |         | 16,180      |        |              |        | 29,829 | 
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |             
|                                                                                                                                                                                                                                                                                                                                                |  | $                                                                                                                                                                                                              | 87,899                     |   |         | $           | 68,522 |             
|                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                |                            |   |         |             |        |              |        |       

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents



PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |        |  
|-------------------------------------------------- | --------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | -
|                                                   |                                               |   | Three Months Ended |        | Six Months Ended
|                                                   |                                               |   | June 30,           |        | June 30,        
|                                                   |                                               |   |                    |        |                 
|                                                   |                                               |   | 2001               |        | 2000             |   | 2001   |        | 2000
|                                                   |                                               |   |                    |        |                  |   |        |        |     
|Revenue:                                           |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Recurring                                     |   | $                  | 10,415 |                  |   | $      | 6,918  |      |   | $       | 18,650 |  |   | $       | 12,345 |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Non-recurring                                 |   |                    | 4,641  |                  |   |        | 3,278  |      |   |         | 8,223  |  |   |         | 7,671  |  
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Total revenue                                      |                                               |   | 15,056             |        |                  |   | 10,196 |        |      |   | 26,873  |        |  |   | 20,016  |       
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Operating expense:                                 |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Hardware and other purchases for resale       |   |                    | 1,914  |                  |   |        | 1,555  |      |   |         | 3,361  |  |   |         | 2,851  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Selling, general and administrative           |   |                    | 12,324 |                  |   |        | 10,460 |      |   |         | 22,536 |  |   |         | 18,980 |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Research and development                      |   |                    | 301    |                  |   |        | 887    |      |   |         | 1,027  |  |   |         | 1,541  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Depreciation and amortization                 |   |                    | 6,958  |                  |   |        | 4,605  |      |   |         | 12,272 |  |   |         | 7,898  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Restructuring and other non-recurring charges |   |                    | 64     |                  |   |        | 38     |      |   |         | 2,184  |  |   |         | 816    |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Loss (gain) on disposal of fixed assets, net  |   |                    | 5      |                  |   |        | 8      |      |   |         | 5      |  |   |         | (632   | )
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Total operating expense                            |                                               |   | 21,566             |        |                  |   | 17,553 |        |      |   | 41,385  |        |  |   | 31,454  |       
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Operating loss                                     |                                               |   | (6,510             | )      |                  |   | (7,357 | )      |      |   | (14,512 | )      |  |   | (11,438 | )     
|                                                  
|                                                  
|                                                  
|                                                  
|Interest expense and other, net                    |                                               |   | 487                |        |                  |   | 580    |        |      |   | 1,112   |        |  |   | 959     |       
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Loss before income taxes                           |                                               |   | (6,997             | )      |                  |   | (7,937 | )      |      |   | (15,624 | )      |  |   | (12,397 | )     
|                                                  
|                                                  
|                                                  
|                                                  
|Income tax benefit                                 |                                               |   |                   |        |                  |   | (2,229 | )      |      |   |        |        |  |   | (3,731  | )     
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Net loss                                           |                                               |   | (6,997             | )      |                  |   | (5,708 | )      |      |   | (15,624 | )      |  |   | (8,666  | )     
|                                                  
|                                                  
|                                                  
|                                                  
|Accrued and accretive dividends on preferred stock |                                               |   | 1,317              |        |                  |   |       |        |      |   | 1,650   |        |  |   |        |       
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Net loss available to common shareholders          |                                               | $ | (8,314             | )      |                  | $ | (5,708 | )      |      | $ | (17,274 | )      |  | $ | (8,666  | )     
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Loss per share  basic and diluted                 |                                               | $ | (0.92              | )      |                  | $ | (0.69  | )      |      | $ | (1.95   | )      |  | $ | (1.05   | )     
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|Weighted average shares outstanding:               |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Basic and diluted                             |   |                    | 9,036  |                  |   |        | 8,317  |      |   |         | 8,860  |  |   |         | 8,222  |  
|                                                   |                                               |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |       

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents



PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)

|                                                                  |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                  |  | Three Months Ended |        | Six Months Ended
|                                                                  |  | June 30,           |        | June 30,        
|                                                                  |  |                    |        |                 
|                                                                  |  | 2001               |        | 2000             |  | 2001 |        | 2000
|                                                                  |  |                    |        |                  |  |      |        |     
|Net loss                                                          |  | $                  | (6,997 | )                |  | $    | (5,708 | )    |  | $ | (15,624 | ) |  | $ | (8,666 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other comprehensive loss, foreign
currency translation adjustment |  |                    | (206   | )                |  |      |       |      |  |   | (380    | ) |  |   |       |  
|                                                                  |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  
|Comprehensive loss                                                |  | $                  | (7,203 | )                |  | $    | (5,708 | )    |  | $ | (16,004 | ) |  | $ | (8,666 | )
|                                                                  |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents



PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
(UNAUDITED)

|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |         |         |       | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ------- | ---------------- | ----- | ----- | ------- | ------- | ----- | 
|                                                             |                                                                                             |                                                                 |                                           |         | Six Months Ended
|                                                             |                                                                                             |                                                                 |                                           |         | June 30,        
|                                                             |                                                                                             |                                                                 |                                           |         |                 
|                                                             |                                                                                             |                                                                 |                                           |         | 2001             |       | 2000 
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |      
|CASH USED IN OPERATING ACTIVITIES:                           |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net loss                                                                                    |                                                                 | $                                         | (15,624 | )                |       | $     | (8,666  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Adjustments to reconcile net loss to cash flows used in
operating activities:               |                                                                 |                                           |         |                  |       |       |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             | Restructuring and other non-recurring charges                   |                                           |         | (944             | )     |       |         |        |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             | Depreciation and amortization                                   |                                           |         | 12,272           |       |       |         | 7,898   |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             | Provision for doubtful accounts                                 |                                           |         | 697              |       |       |         | 454     |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             | Loss (gain) on disposal of fixed assets                         |                                           |         | 5                |       |       |         | (632    | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             | Deferred taxes                                                  |                                           |         |                 |       |       |         | (5,281  | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             | Changes in current assets and liabilities, net of acquisitions: |                                           |         |                  |       |       |         |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             |                                                                 | Trade and other receivables               |         |                  | 913   |       |         |         | 3,135 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             |                                                                 | Prepaid expenses and other current assets |         |                  | (156  | )     |         |         | 63    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             |                                                                 | Accounts payable and accrued expenses     |         |                  | 2,643 |       |         |         | 645   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                             |                                                                 | Deferred revenue and customer deposits    |         |                  | (67   | )     |         |         | 475   | 
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                             |                                                                                             | Cash used in operating activities                               |                                           |         | (261             | )     |       |         | (1,909  | )    
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|CASH USED IN INVESTING ACTIVITIES:                           |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cash paid for acquisitions                                                                  |                                                                 |                                           | (2,313  | )                |       |       | (13,422 | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Additional purchase price consideration                                                     |                                                                 |                                           |        |                  |       |       | (4,400  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Property and equipment expenditures                                                         |                                                                 |                                           | (444    | )                |       |       | (1,044  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cash paid for intangible assets                                                             |                                                                 |                                           | (2,238  | )                |       |       | (1,275  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Advances to pending acquisition target                                                      |                                                                 |                                           | (100    | )                |       |       | (1,300  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                                                                       |                                                                 |                                           | (123    | )                |       |       | (343    | )      
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                             |                                                                                             | Cash used in investing activities                               |                                           |         | (5,218           | )     |       |         | (21,784 | )    
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|CASH PROVIDED BY FINANCING ACTIVITIES:                       |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net cash advances from InfoCure                                                             |                                                                 |                                           | 344     |                  |       |       | 15,131  |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Proceeds from sale of series C convertible redeemable preferred stock, net                  |                                                                 |                                           | 4,741   |                  |       |       |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Proceeds from issuance of common stock, net                                                 |                                                                 |                                           | 1,410   |                  |       |       |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Borrowings of long-term debt                                                                |                                                                 |                                           |        |                  |       |       | 10,950  |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Payment of loan costs                                                                       |                                                                 |                                           | (183    | )                |       |       |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Principal payments on long-term debt                                                        |                                                                 |                                           | (54     | )                |       |       |        |        
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                             |                                                                                             | Cash provided by financing activities                           |                                           |         | 6,258            |       |       |         | 26,081  |      
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                             |                                                                 | (10                                       | )       |                  |       |      |        
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|Net increase in cash and cash equivalents                    |                                                                                             |                                                                 | 769                                       |         |                  |       | 2,388 |        
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents, beginning of period               |                                                                                             |                                                                 | 3,979                                     |         |                  |       | 2,527 |        
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|Cash and cash equivalents, end of period                     |                                                                                             | $                                                               | 4,748                                     |         |                  | $     | 4,915 |        
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|NONCASH TRANSACTIONS:                                        |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Convertible redeemable preferred stock issued for acquisition, net of discount              |                                                                 | $                                         | 21,000  |                  |       | $     |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Issuance of 8,754,937 shares of common stock in exchange for
net assets at time of spin-off |                                                                 |                                           | 26,600  |                  |       |       |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred purchase price consideration                                                       |                                                                 |                                           | 771     |                  |       |       |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | InfoCure common stock issued for acquisitions                                               |                                                                 |                                           |        |                  |       |       | 2,386   |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Disposal of building under capital lease obligation                                         |                                                                 |                                           |        |                  |       |       | (1,109  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | InfoCure common stock issued to settle obligations                                          |                                                                 |                                           |        |                  |       |       | 400     |        
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|ADDITIONAL CASH FLOW INFORMATION:                            |                                                                                             |                                                                 |                                           |         |                  |       |       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest paid                                                                               |                                                                 | $                                         | 165     |                  |       | $     |        |        
|                                                             |                                                                                             |                                                                 |                                           |         |                  |       |       |        

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents



PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS  UNAUDITED

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

PracticeWorks, Inc. was incorporated in Delaware on August 10, 2000 as a
wholly owned subsidiary of InfoCure Corporation. On March 5, 2001 (the
Spin-Off Date), InfoCure completed the pro rata distribution of all of the
outstanding shares of PracticeWorks common stock to its stockholders in a
tax-free distribution (the Spin-Off). The Spin-Off was effected through the
dividend of one share of PracticeWorks common stock for every four shares of
InfoCure common stock held by InfoCure stockholders of record as of February
21, 2001. Immediately prior to the Spin-Off, InfoCure transferred to
PracticeWorks the assets and liabilities of its information management
technology business for dental, orthodontic and oral and maxillofacial surgery
practices, including its interests in all wholly owned subsidiaries engaged in
such business. Results of operations prior to the Spin-Off are those of
PracticeWorks, a division of InfoCure, considered the predecessor to
PracticeWorks, Inc. For purposes of these financial statements the term
PracticeWorks or the Company means PracticeWorks, a division of InfoCure
Corporation, for periods prior to the Spin-Off, and PracticeWorks, Inc. for
periods after the Spin-Off.

The information presented at June 30, 2001, and for the three and six
months ended June 30, 2001 and 2000 is unaudited, however, in the opinion of
management, includes all normal recurring adjustments necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows of PracticeWorks for the periods presented. All significant
intercompany balances and transactions have been eliminated in consolidation.
The results for the six month period ended June 30, 2001 are not necessarily
indicative of the results to be expected for the full year. Certain information
in footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission (the Commission). The consolidated financial
statements, notes thereto and other information should be read in conjunction
with the historical consolidated financial statements and related notes thereto
contained in PracticeWorks Annual Report on Form 10-K for the year ended
December 31, 2000, (the Form 10-K). The results for the six month period
ended June 30, 2000 and for the period through March 5, 2001 are not reflective
of PracticeWorks as a stand-alone entity, but as an operating division of
InfoCure. Accumulated deficit reflects activity from March 5, 2001. Certain
prior period amounts have been reclassified to conform to the current
presentation.

The Company is a provider of information management technology for
dentists, orthodontists and oral and maxillofacial surgeons throughout the
United States, and in Canada, Europe and Australia. The Companys offerings
include practice management applications, business-to-business e-commerce
services, electronic data interchange, or EDI, services, ongoing maintenance
and support and training. These systems and services





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are designed to increase
the quality and reduce the cost of providing care by allowing dentists and
physicians to manage their practices more efficiently and reduce the
administrative burdens created by an increasingly complex healthcare
environment. The Company is currently developing new practice management
applications, tailored to the needs of dental, orthodontic and oral and
maxillofacial surgery customers that can be delivered through its application
services provider, or ASP, delivery model and other Internet-based applications
and services.

NOTE 2. REVENUE

The Company reports two types of revenue: recurring and non-recurring
revenue. Recurring revenue includes contractual arrangements for maintenance
and support services, subscriptions and e-services (electronic data interchange
(EDI transactions) and royalties and other revenues from e-commerce and other
Internet-based services). Non-recurring revenue includes one-time sales of
licenses and systems and fees for training and implementation services.

NOTE 3. BUSINESS COMBINATIONS

As reported in the Companys Form 10-K, InfoCure completed three
acquisitions during the first quarter of 2000 and an additional three during
the second quarter of 2000. These acquisitions were accounted for as purchases
and attributed to the Company in conjunction with the Spin-Off.

On March 7, 2001, the Company acquired the membership interests of
SoftDent, LLC, or InfoSoft, the practice management subsidiary of Ceramco, Inc.
(Ceramco), a wholly owned subsidiary of DENTSPLY International, Inc.
(DENTSPLY), for which the aggregate consideration was approximately $32.7
million represented by 32,000 shares of the Companys series A convertible
redeemable preferred stock and transaction costs.

The following unaudited pro forma information presents the results of
operations of the Company as if the foregoing material acquisitions had
occurred as of the beginning of each of the periods presented. The pro forma
information is not necessarily indicative of what would have occurred had the
acquisitions been made as of such periods, nor is it indicative of future
results of operations. The pro forma amounts give effect to appropriate
adjustments for the fair value of the assets acquired, amortization of
intangibles, interest expense and income taxes.





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|                                          |  |                                          |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ---------------------------------------- | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                          |  | Three Months Ended                       |        | Six Months Ended
|                                          |  | June 30,                                 |        | June 30,        
|                                          |  |                                          |        |                 
|                                          |  | 2001                                     |        | 2000             |  | 2001 |        | 2000
|                                          |  |                                          |        |                  |  |      |        |     
|PRO FORMA AMOUNTS                         |  | (In thousands, except per share amounts)
|                                         
|Revenue                                   |  | $                                        | 15,056 |                  |  | $    | 12,487 |      |  | $ | 28,247  |   |  | $ | 27,045  |  
|                                         
|                                         
|                                         
|                                         
|Net loss available to common stockholders |  |                                          | (8,314 | )                |  |      | (8,476 | )    |  |   | (19,172 | ) |  |   | (15,159 | )
|                                         
|                                         
|                                         
|                                         
|Loss per common share  basic and diluted |  | $                                        | (0.92  | )                |  | $    | (1.02  | )    |  | $ | (2.16   | ) |  | $ | (1.84   | )

Additionally, during the second quarter of 2001, the Company completed two
immaterial acquisitions that were also accounted for as purchases. In
connection with these acquisitions, the Company paid cash consideration
aggregating $1.6 million and incurred non-interest bearing deferred purchase
consideration liabilities aggregating approximately $771,000.

PENDING ACQUISITION TARGET

In December 1999, InfoCure entered into a definitive agreement to acquire
Medical Dynamics, Inc. (Medical Dynamics), a dental practice management
company. As amended and modified, this agreement contemplates aggregate
consideration of approximately $8.2 million, comprised of the issuance of
shares of PracticeWorks common and preferred stock, issuance of shares of
InfoCure common stock and a small cash payment in exchange for all the
outstanding equity interests of Medical Dynamics. The transaction is expected
to close during the third quarter of 2001. In connection with this proposed
transaction, as of June 30, 2001, InfoCure has advanced Medical Dynamics $1.65
million under terms of a loan agreement dated October 1999. PracticeWorks has
assumed all obligations of InfoCure under the merger agreement except for
InfoCures obligation to issue approximately 878,000 shares of its common
stock. InfoCures issuance of these shares will be accounted for by
PracticeWorks as an equity contribution to recognize the substance of the
transaction as originally contemplated.

NOTE 4. RESTRUCTURING AND OTHER NON-RECURRING CHARGES

RESTRUCTURING

As reported in PracticeWorks Form 10-K, InfoCure announced on August 1,
2000 its plans to restructure each of its dental and medical operating
divisions, PracticeWorks and VitalWorks, respectively, through a plan of
employee reductions and consolidation of existing facilities. During the third
and fourth quarters of 2000, PracticeWorks closed or consolidated 11 facilities
and terminated approximately 145 employees. The following table sets forth
changes in the restructuring reserve during the three and six months ended June
30, 2001:





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|                                                                |       |   |          |       |             |   |          |      |       |   |                |      |          |   |      |       |       |   |         |      |   |   |         |      |   |   |     |     | 
|--------------------------------------------------------------- | ----- | - | -------- | ----- | ----------- | - | -------- | ---- | ----- | - | -------------- | ---- | -------- | - | ---- | ----- | ----- | - | ------- | ---- | - | - | ------- | ---- | - | - | --- | --- | 
|                                                                |       |   | RESERVE  |       |             |   |          |      |       |   |                |      | RESERVE  |   |      |       |       |   |         |      |   |   | RESERVE
|                                                                |       |   | BALANCE  |       |             |   |          |      | COSTS |   | BALANCE        |      |          |   |      |       | COSTS |   | BALANCE
|                                                                |       |   | DECEMBER |       | ADDITIONS/  |   | APPLIED  |      | MARCH |   | ADDITIONS/     |      | APPLIED  |   | JUNE
|                                                                |       |   | 31,      |       | ADJUSTMENTS |   | AGAINST  |      | 31,   |   | ADJUSTMENTS    |      | AGAINST  |   | 30, 
|                                                                |       |   | 2000     |       | TO RESERVE  |   | RESERVES |      | 2001  |   | TO RESERVE     |      | RESERVES |   | 2001
|                                                                |       |   |          |       |             |   |          |      |       |   |                |      |          |   |     
|                                                                |       |   |          |       |             |   |          |      |       |   | (IN THOUSANDS) |      |          |   |      |       |       |   |         |      |   |   |        
|Facility closure and
consolidation                              |       | $ | 1,222    |       |             | $ | (389     | )    |       | $ | (200           | )    |          | $ | 633  |       |       | $ | (264    | )    |   | $ | (72     | )    |   | $ | 297 |    
|                                                               
|                                                               
|                                                               
|                                                               
|Compensation costs
for severance and
other termination
benefits |       |   | 617      |       |             |   | 79       |      |       |   | (250           | )    |          |   | 446  |       |       |   | (370    | )    |   |   | (41     | )    |   |   | 35  |    
|                                                                |       |   |          |       |             |   |          |      |       |   |                |      |          |   |      |       |       |   |         |      |   |   |         |      |   |   |     |    
|                                                                | Total |   | $        | 1,839 |             |   | $        | (310 | )     |   | $              | (450 | )        |   | $    | 1,079 |       |   | $       | (634 | ) |   | $       | (113 | ) |   | $   | 332 | 
|                                                                |       |   |          |       |             |   |          |      |       |   |                |      |          |   |      |       |       |   |         |      |   |   |         |      |   |   |     |    

OTHER NON-RECURRING CHARGES

During the three and six months ended June 30, 2001, the Company recorded
other non-recurring charges of approximately $698,000 and $3.1 million,
respectively, related primarily to professional fees, printing and similar
costs in connection with completion of the Spin-Off.

NOTE 5. NOTES PAYABLE AND LONG TERM DEBT

On March 5, 2001, concurrent with the Spin-Off, the Company borrowed
approximately $21.6 million under a credit facility (the Credit Facility)
executed with FINOVA Capital Corporation (FINOVA) to repay amounts attributed
to the Company under InfoCures credit facility. The Credit Facility matures
June 30, 2003 and is collateralized by substantially all of the Companys
assets. Amounts outstanding will bear interest at a variable rate which,
through June 30, 2001, is a margin equal to 1.5% plus a base rate equal to the
higher of the prime rate as announced from time to time by Citibank N.A. or a
weighted average of the rates on overnight federal fund transactions plus 50
basis points. Subsequent to June 30, 2001, the margin increases to 1.75% and
after January 1, 2002 increases to 2.25%. The original outstanding principal
balance of the loan will amortize 5.0% per quarter beginning October 1, 2001,
and the remaining outstanding balance under the Credit Facility will be due in
full on June 30, 2003. At June 30, 2001, the interest rate was 8.25%.

The Credit Facility contains restrictions and covenants, including
limitations on our leverage, a minimum net worth requirement, a minimum current
ratio requirement and a minimum liquidity requirement.

NOTE 6. INCOME TAXES

During the three and six months ended June 30, 2001, the Company generated
approximately $2.3 million and $7.5 million in taxable losses, respectively.
Approximately $3.2 million of these losses were generated prior to the Spin-Off
and will remain with InfoCure. The remaining $4.3 million were generated
subsequent to the Spin-Off and will be available to offset any future taxable
income the Company generates. At June 30, 2001, the Company reported deferred
tax assets of $5.4 million consisting of gross deferred tax assets of $8.4
million net of a valuation allowance of $3.0





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million. The gross deferred tax
assets consisted of $6.7 million in temporary differences in the book and tax
bases of certain assets and liabilities and $1.7 million in net operating loss
carryforwards. The Company has recorded a valuation allowance to reduce the
deferred tax assets to an amount that management believes is more likely than
not to be realized.

NOTE 7. STOCKHOLDERS EQUITY

Common Stock

The weighted average number of shares outstanding used in computing basic
and diluted net loss per share for the three and six months ended June 30, 2001
was 9,035,725 and 8,860,403, respectively. The weighted average number of
shares outstanding used in computing diluted net loss for the three and six
months ended June 30, 2001 excludes 482,253 of contingently issuable common
stock to WebMD Corporation (Note 10) and approximately 975,000 shares of
potentially issuable common stock assuming conversion of the series A preferred
stock because such inclusion would be antidilutive. Potentially dilutive
shares for the exercise of options and warrants of 114,436 and 109,450 for the
three and six months ended June 30, 2001, respectively, were also excluded from
the diluted loss per share calculation because they were antidilutive.

For purposes of computing the historical basic and diluted weighted
average per share amounts for periods prior to the Spin-Off, PracticeWorks used
the distribution ratio of 1/4 share of PracticeWorks common stock for every
outstanding share of InfoCure common stock.

Series A Convertible Redeemable Preferred Stock Issued to Ceramco

In connection with the acquisition of the InfoSoft division of DENTSPLY,
PracticeWorks issued 32,000 shares of series A convertible redeemable preferred
stock to Ceramco as consideration for the transfer of the membership interests
in SoftDent, LLC representing the assets which were used in DENTSPLYs business
of developing, marketing, licensing and supporting the SoftDent software
product. These preferred shares have a stated redemption value of $32.0
million, accrue dividends at an annual rate of 6.5%, are convertible into
approximately 9.8% of PracticeWorks outstanding common stock at the time of the
Spin-Off, or approximately 975,000 shares, and are redeemable at the option of
the holder after five years if not converted. Ceramco also received certain
registration rights in connection with this acquisition.

Series C Convertible Redeemable Preferred Stock Issued to Crescent

On March 6, 2001, the Company issued 100,000 shares of its series C
convertible redeemable preferred stock for $5.0 million to Crescent
International Ltd. (Crescent). If the series C convertible redeemable
preferred stock has not been converted after four years, the holders may
require the Company to redeem the series C convertible redeemable preferred
stock at a 175% premium to the liquidation preference. The





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Company will
recognize an accretive dividend of approximately $938,000 annually related to
this feature for four years which will impact earnings per share. The series C
convertible redeemable preferred stock is not convertible for one year after
issuance. Thereafter, the holders of the series C convertible redeemable
preferred stock can convert all or a portion of their shares based on a
floating conversion price which is a function of PracticeWorks common stocks
closing price. Holders will not be entitled to obtain more than 20% of the
Companys common stock in the aggregate upon conversion. Crescent also received
certain registration rights in connection with its investment.

Warrants

In connection with the Spin-Off, the Company issued to FINOVA a warrant to
purchase up to 98,750 shares of the Companys common stock at a price of $4.80
per share in connection with the antidilution provisions of existing warrants
to purchase InfoCure common stock. This warrant is immediately exercisable and
has an eight-year term. The estimated fair value of approximately $540,000 was
recorded as deferred loan costs in the first quarter of 2001 and is being
amortized over the life of the loan. No warrants had been exercised as of June
30, 2001.

In connection with the Spin-Off, the Company issued to Crescent a warrant
to purchase up to 50,000 shares of the Companys common stock at a price of
$18.40 per share in connection with the antidilution provisions of existing
warrants to purchase InfoCure common stock. The estimated fair value of this
grant is nil. This warrant is immediately exercisable and has a four-year term.
No warrants had been exercised as of June 30, 2001.

NOTE 8. SEGMENT INFORMATION

SFAS No. 131 establishes standards for the way in which public companies
are to disclose certain information about operating segments in their financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers.

The Company historically evaluated its business based on specialty group
(i.e. dental, orthodontic, and oral) clients. The Companys new business model
has changed and reshaped these bases for evaluation. Effective in the first
quarter of 2001, in connection with the Spin-Off, the Company changed the way
it evaluates its business to reflect the new business model. Although the
Companys products and services are similar, management believes that the
delineation between the Companys revenue streams provides definition for
reportable segments and is consistent with its newly adopted business model.
Consequently, the Company has identified two reportable operating segments
based on the criteria of SFAS No. 131: recurring revenue and non-recurring
revenue. Recurring revenue includes contractual arrangements for maintenance
and support services, subscriptions and e-services. Non-recurring revenue
includes one-time sales of licenses and systems and fees for training and
implementation services.





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The Companys President and Chief Executive Officer evaluates performance
based on measures of segment revenues and company-wide operating results.
Employee headcount and operating costs and expenses are managed by functional
areas, rather than by revenue segments. Moreover, the Company does not account
for or report to the President and CEO its assets or capital expenditures by
segments.

The Company also conducts operations in Europe and Australia. For the
three and six months ended June 30, 2001, less than 10% of the Companys total
revenues were generated outside the United States.

The accompanying statements of operations disclose the financial
information of the Companys reportable segments in accordance with SFAS No.
131 for the three and six months ended June 30, 2001 and 2000.

NOTE 9. LEGAL PROCEEDINGS

Pursuant to the Agreement and Plan of Distribution, executed in connection
with the Spin-Off, PracticeWorks agreed to assume any and all contingent
liability arising from the definitive resolution of the litigation filed on
June 21, 2000 against InfoCure by Joseph Hafner. On June 21, 2000, a lawsuit
styled Joseph Hafner v. InfoCure Corporation et al., was filed in the United
States District Court in and for the Eastern District of Pennsylvania. The
lawsuit alleges that InfoCure breached the terms of a registration rights
agreement whereby InfoCure was required, prior to a specified date, to effect
the registration for resale with the Securities and Exchange Commission of
shares of InfoCures common stock which the plaintiff owned. The complaint
further alleges breach of fiduciary duties owed to the plaintiff as a
stockholder of InfoCure and tort claims against InfoCure as a result of the
alleged failure to timely register shares for resale. The complaint seeks in
excess of $3.2 million in compensatory damages as a result of InfoCures
alleged breach of this agreement, as well as punitive damages and reimbursement
for the plaintiffs attorneys fees and associated costs and expenses of the
lawsuit. On March 30, 2001, the court denied the plaintiffs motions for
judgment on the pleadings with respect to plaintiffs claim that InfoCure
breached the terms of the registration rights agreement, and the court also
denied InfoCures motion to dismiss certain of the plaintiffs contract and
tort claims in the case. InfoCures management believes it has meritorious
defenses in this matter and intends to pursue these defenses vigorously.
Management of PracticeWorks believes that the ultimate resolution of this
matter will not have a material adverse effect on PracticeWorks financial
condition, liquidity or operating results.

NOTE 10. SUBSEQUENT EVENTS

Shares Issuable to WebMD

As previously disclosed, in connection with the Spin-Off, PracticeWorks
assumed InfoCures contingent obligation to issue to WebMD Corporation
(WebMD) up to





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482,253 shares of PracticeWorks common stock to WebMD in
satisfaction of pre-existing contractual obligations. These shares represent
the PracticeWorks common stock that WebMD would have been entitled to receive
in the Spin-Off had it owned the full number of shares of InfoCure common stock
on the record date. In July 2001,
PracticeWorks filed a registration statement on Form S-1 with
the Commission to register the foregoing shares so that any shares issued would be freely tradeable.

Medical Dynamics Acquisition

The Company completed
the acquisition of Medical Dynamics on August 8,
2001.

NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under
the new rules, goodwill will no longer be amortized but will be subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. Additionally, the
new standards prohibit the use of the pooling of interests method of accounting
for business combinations initiated after June 30, 2001 and require that
goodwill arising from a business combination completed after June 30, 2001 not
be amortized even though the new standards have not otherwise been adopted.

The Company will apply the new statements for goodwill and other intangible
assets beginning in the first quarter of 2002. The Company has not yet
determined what the effect of these statements will be on its earnings and financial
position.





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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

PracticeWorks, Inc. (PracticeWorks or we) is an information management
technology provider for dentists, orthodontists and oral and maxillofacial
surgeons. Our offerings include practice management applications, Internet-based
services, including electronic data interchange, or EDI, services,
business-to-business e-commerce services, and web-site development and hosting,
ongoing maintenance and support and training. These applications and services
are designed to automate the providers practice, resulting in greater
efficiency, lower costs and higher quality care. As of June 30, 2001, we had an
installed base of approximately 61,000 providers, including 49,000 dentists,
4,000 orthodontists and 4,000 oral and maxillofacial surgeons in the United
States and an additional 4,000 dentists worldwide.

For the six months ended June 30, 2000 and through March 5, 2001, we
operated as a division of InfoCure Corporation (InfoCure). On March 5, 2001,
InfoCure completed the pro rata distribution (Spin-Off) of all of the
outstanding shares of PracticeWorks common stock to InfoCure stockholders.
InfoCure currently owns none of our outstanding common stock.

A substantial part of our growth has been achieved through acquisitions.
From July 10, 1997 through March 5, 2001, InfoCure completed 18 acquisitions
that were attributed to us in the Spin-Off. Subsequent to the Spin-Off, we
completed one acquisition in March 2001 and two immaterial acquisitions in the
second quarter of 2001. Given the significant number of acquisitions in the
periods presented, the results of operations from period to period may not
necessarily be comparable.

In December 1999, InfoCure entered into an agreement to acquire Medical
Dynamics, Inc. (Medical Dynamics). In connection with the Spin-Off,
PracticeWorks assumed all of InfoCures obligations under the Medical Dynamics
merger agreement except for InfoCures obligation to issue a specified number of
shares of InfoCure common stock. In connection with the proposed acquisition,
each Medical Dynamics stockholder of greater than 100 shares of Medical Dynamics
common stock will receive 0.017183 shares of PracticeWorks common stock, 0.07558
shares of PracticeWorks series B convertible redeemable preferred stock and
0.06873 shares of InfoCure common stock in exchange for each share of Medical
Dynamics common stock outstanding on the date of the merger. Each holder of 100
or fewer shares of Medical Dynamics common stock will receive $0.75 in cash for
each share of Medical Dynamics, which cash amount will be paid by PracticeWorks.
Assuming 13.2 million shares of Medical Dynamics are outstanding on the date of
the acquisition, PracticeWorks will issue approximately 219,500 shares of common
stock and approximately 965,000 shares of series B convertible redeemable
preferred stock (with a stated redemption value of $5.3 million) and will pay
approximately $325,000 in cash as consideration for the merger. Full conversion
of the PracticeWorks series B convertible redeemable preferred stock will
represent, in the aggregate, less than 2% of PracticeWorks outstanding common
stock at the time of the Spin-Off. InfoCure will issue approximately 878,000
shares of its common stock as a portion of the consideration for the merger. The
total estimated consideration for Medical Dynamics is $8.2 million consisting of approximately $2.6 million
in PracticeWorks and InfoCure common stock, approximately $5.3 million in
PracticeWorks series B convertible redeemable preferred stock and approximately
$325,000 in cash. The net consideration is approximately $7.5 million, including
$300,000 in estimated transaction costs, $500,000 estimated value assigned to
stock options being assumed and after giving effect to a $1.5 million discount
applied to reduce the series B convertible redeemable preferred stock to
approximate fair value. The





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purchase price will be allocated based on fair
values of tangible assets and total liabilities assumed. The $1.5 million
discount will be recognized over the five-year redemption period as an accretive
dividend. The Medical Dynamics acquisition closed on August 8, 2001.

SEGMENT AND MARKET INFORMATION

We report our results from operations in two segments: recurring revenue and
non-recurring revenue. Recurring revenue includes contractual arrangements for
maintenance and support services, subscriptions and e-services (including
electronic data interchange, or EDI transactions, and royalties and other
revenues from e-commerce and other Internet-based services). Non-recurring
revenue includes one-time sales of licenses and systems and fees for training
and implementation services.

CONSOLIDATED RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

REVENUE (In thousands)

|              |       |   |                             |        |                           |  |         |       |          |   |        |        |         |  |        |       |          |   |       |       |          |  |         |      |        |   |        |        |         |  |        |       |         |   |        |        |  |  |      |       |   |   |       |       |  |  |      |      |  
|------------- | ----- | - | --------------------------- | ------ | ------------------------- |  | ------- | ----- | -------- | - | ------ | ------ | ------- |  | ------ | ----- | -------- | - | ----- | ----- | -------- |  | ------- | ---- | ------ | - | ------ | ------ | ------- |  | ------ | ----- | ------- | - | ------ | ------ |  |  | ---- | ----- | - | - | ----- | ----- |  |  | ---- | ---- | -
|              |       |   | Three months ended June 30, |        | Six months ended June 30,
|              |       |   |                             |        |                          
|              |       |   |                             |        |                           |  | Percent |       |          |   |        |        | Percent |  | Dollar |       | Percent  |   |       |       |          |  | Percent |      |        |   |        |        | Percent |  | Dollar |       | Percent
|              |       |   | 2001                        |        | of total                  |  | 2000    |       | of total |   | change |        | change  |  | 2001   |       | of total |   | 2000  |       | of total |  | change  |      | change
|              |       |   |                             |        |                           |  |         |       |          |   |        |        |         |  |        |       |          |   |       |       |          |  |         |      |       
|Recurring     |       | $ | 10,415                      |        |                           |  | 69.2    | %     |          | $ | 6,918  |        |         |  | 67.9   | %     |          | $ | 3,497 |       |          |  | 50.5    | %    |        | $ | 18,650 |        |         |  | 69.4   | %     |         | $ | 12,345 |        |  |  | 61.7 | %     |   | $ | 6,305 |       |  |  | 51.1 | %   
|             
|             
|             
|             
|Non-recurring |       |   | 4,641                       |        |                           |  | 30.8    |       |          |   | 3,278  |        |         |  | 32.1   |       |          |   | 1,363 |       |          |  | 41.6    |      |        |   | 8,223  |        |         |  | 30.6   |       |         |   | 7,671  |        |  |  | 38.3 |       |   |   | 552   |       |  |  | 7.2  |     
|              |       |   |                             |        |                           |  |         |       |          |   |        |        |         |  |        |       |          |   |       |       |          |  |         |      |        |   |        |        |         |  |        |       |         |   |        |        |  |  |      |       |   |   |       |       |  |  |      |     
|              | Total |   | $                           | 15,056 |                           |  |         | 100.0 | %        |   | $      | 10,196 |         |  |        | 100.0 | %        |   | $     | 4,860 |          |  |         | 47.7 | %      |   | $      | 26,873 |         |  |        | 100.0 | %       |   | $      | 20,016 |  |  |      | 100.0 | % |   | $     | 6,857 |  |  |      | 34.3 | %
|              |       |   |                             |        |                           |  |         |       |          |   |        |        |         |  |        |       |          |   |       |       |          |  |         |      |        |   |        |        |         |  |        |       |         |   |        |        |  |  |      |       |   |   |       |       |  |  |      |     

Total Revenue. Total revenue for the three months ended June 30, 2001
increased as a result of organic growth of $1.9 million in the core elements of
our business and revenues of $3.0 million attributable to acquisitions,
consisting primarily of $2.5 million attributable to the InfoSoft acquisition
completed in the first quarter of 2001. Total revenue for the six months ended
June 30, 2001 increased as a result of organic growth of $1.1 million in the
core elements of our business and revenues of $5.8 million attributable to
acquisitions, consisting primarily of $3.5 million attributable to the InfoSoft
acquisition completed in the first quarter of 2001 and $1.8 million attributable
to acquisitions made in the first and second quarters of 2000.

Recurring Revenue. Recurring revenue derives from contractual arrangements
for maintenance and support services, subscriptions and e-services. Recurring
revenue for the three months ended June 30, 2001 increased primarily as a result
of increased e-services revenue of $2.5 million, which includes $1.6 million
attributable to acquisitions, increased subscription revenue of $700,000, and
increased maintenance revenue of $315,000. Recurring revenue for the six months
ended June 30, 2001 increased primarily as a result of increased e-services
revenue of $3.6 million, which includes approximately $2.2 million attributable
to acquisitions, increased subscription revenue of $1.5 million, and increased
maintenance revenue of $1.3 million. Increases in maintenance revenues for the
three and six months ended June 30, 2001 are largely attributable to
acquisitions. The increases in recurring revenue for the three and six months
ended June 30, 2001 are largely volume related





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and include the effects of
increased numbers of upgrade and new customers entering into subscription
agreements and expansion of e-services offered to existing customers.

Non-Recurring Revenue. Non-recurring revenue includes one-time sales of
licenses and systems and fees for training and implementation services.
Non-recurring revenue for the three months ended June 30, 2001 increased as a
result of a $769,000 increase in training and implementation revenues and
increased software sales of $597,000. Non-recurring revenue for the six months
ended June 30, 2001 increased as a result of increased training and
implementation revenues of $1.1 million and increased software sales of
$204,000, offset by decreases in hardware and other revenues of $729,000.
Increased training and implementation revenue is attributable to growth in our
core business as upgrade and new customers implement, primarily by subscription,
our newest practice management applications. Increases in net software sales are
substantially attributable to acquisitions. The increase in software sales
generated by acquisitions was offset by a reduction in software sales in the
core business and, together with the reduction in hardware sales, is the
expected result of lower unit sales of one-time licenses and systems as we
transition to subscription pricing for the majority of our products. The
decrease in hardware revenues is the expected result of an agreement we entered
into in August 2000 to essentially outsource hardware in certain business lines
in exchange for a marketing fee.

OPERATING COSTS AND EXPENSES (In thousands)

|                                              |  |                             |        |                           |  |         |      |          |  |        |        |         |  |        |       |          |  |      |       |          |  |         |        |        |  |   |        |         |  |        |      |         |  |   |        |   |  |  |       |   |  |   |       |   |  |  |        |  
|--------------------------------------------- |  | --------------------------- | ------ | ------------------------- |  | ------- | ---- | -------- |  | ------ | ------ | ------- |  | ------ | ----- | -------- |  | ---- | ----- | -------- |  | ------- | ------ | ------ |  | - | ------ | ------- |  | ------ | ---- | ------- |  | - | ------ | - |  |  | ----- | - |  | - | ----- | - |  |  | ------ | -
|                                              |  | Three months ended June 30, |        | Six months ended June 30,
|                                              |  |                             |        |                          
|                                              |  |                             |        |                           |  | Percent |      |          |  |        |        | Percent |  | Dollar |       | Percent  |  |      |       |          |  | Percent |        |        |  |   |        | Percent |  | Dollar |      | Percent
|                                              |  | 2001                        |        | of sales                  |  | 2000    |      | of sales |  | change |        | change  |  | 2001   |       | of sales |  | 2000 |       | of sales |  | change  |        | change
|                                              |  |                             |        |                           |  |         |      |          |  |        |        |         |  |        |       |          |  |      |       |          |  |         |        |       
|Hardware and other purchases for resale       |  | $                           | 1,914  |                           |  |         | 12.7 | %        |  | $      | 1,555  |         |  |        | 15.3  | %        |  | $    | 359   |          |  |         | 23.1   | %      |  | $ | 3,361  |         |  |        | 12.5 | %       |  | $ | 2,851  |   |  |  | 14.2  | % |  | $ | 510   |   |  |  | 17.9   | %
|                                             
|                                             
|                                             
|                                             
|Selling, general and administrative           |  |                             | 12,324 |                           |  |         | 81.9 |          |  |        | 10,460 |         |  |        | 102.6 |          |  |      | 1,864 |          |  |         | 17.8   |        |  |   | 22,536 |         |  |        | 83.9 |         |  |   | 18,980 |   |  |  | 94.8  |   |  |   | 3,556 |   |  |  | 18.7   |  
|                                             
|                                             
|                                             
|                                             
|Research and development                      |  |                             | 301    |                           |  |         | 2.0  |          |  |        | 887    |         |  |        | 8.7   |          |  |      | (586  | )        |  |         | (66.1  | )      |  |   | 1,027  |         |  |        | 3.8  |         |  |   | 1,541  |   |  |  | 7.7   |   |  |   | (514  | ) |  |  | (33.4  | )
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |  |                             | 6,958  |                           |  |         | 46.2 |          |  |        | 4,605  |         |  |        | 45.2  |          |  |      | 2,353 |          |  |         | 51.1   |        |  |   | 12,272 |         |  |        | 45.7 |         |  |   | 7,898  |   |  |  | 39.5  |   |  |   | 4,374 |   |  |  | 55.4   |  
|                                             
|                                             
|                                             
|                                             
|Restructuring and other non-recurring charges |  |                             | 64     |                           |  |         | 0.4  |          |  |        | 38     |         |  |        | 0.4   |          |  |      | 26    |          |  |         | 68.4   |        |  |   | 2,184  |         |  |        | 8.1  |         |  |   | 816    |   |  |  | 4.1   |   |  |   | 1,368 |   |  |  | 167.6  |  
|                                             
|                                             
|                                             
|                                             
|Interest expense, net                         |  |                             | 487    |                           |  |         | 3.2  |          |  |        | 580    |         |  |        | 5.7   |          |  |      | (93   | )        |  |         | (16.0  | )      |  |   | 1,112  |         |  |        | 4.1  |         |  |   | 959    |   |  |  | 4.8   |   |  |   | 153   |   |  |  | 16.0   |  
|                                             
|                                             
|                                             
|                                             
|Income tax benefit                            |  |                             |       |                           |  |         |     |          |  |        | (2,229 | )       |  |        | (21.9 | )        |  |      | 2,229 |          |  |         | (100.0 | )      |  |   |       |         |  |        |     |         |  |   | (3,731 | ) |  |  | (18.6 | ) |  |   | 3,731 |   |  |  | (100.0 | )

Hardware and Other Purchases for Resale. Hardware and other purchases for
resale consist of costs incurred to purchase hardware and includes costs of
processing, forms and postage for EDI claims and statements and other
e-services, outsourced hardware maintenance, third-party software and other
items for resale in connection with the sales of new systems and software.
Hardware and other purchases for resale for the three and six months ended June
30, 2001, compared to the three and six months ended June 30, 2000, increased in
the aggregate due to the growth in e-services but decreased as a percentage of
sales because the increases in e-services are from higher margin transactions
and because of a decrease in lower margin hardware sales.

Selling, General and Administrative, or SG&A. SG&A expense includes salaries
and benefits, product maintenance and support, variable commissions and bonuses,
marketing, travel, communications, facilities, insurance and other
administrative expenses. SG&A expense for the three and six months ended June
30, 2001, compared to the three and six months ended June 30, 2000, increased
primarily as a result of the InfoSoft acquisition, completed in the first
quarter of 2001, and the several acquisitions completed in the second quarter of
2000. Excluding the effects of these acquisitions, SG&A decreased by $500,000
for the three months ended





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June 30, 2001 compared to the three months ended June
30, 2000 due to the net effect of principally payroll and facilities cost
reductions resulting from the August 2000 restructuring.

Research and Development. Research and development expenses consist
primarily of salaries and benefits, supplies, facilities and other
administrative expenses associated with making enhancements to existing products
and developing new products. Research and development expense decreased for the
three and six months ended June 30, 2001, compared to the three and six months
ended June 30, 2000, primarily due to a higher proportion of software
development costs qualifying for capitalization. We capitalize development costs
incurred from the time a new product reaches technological feasibility until it
is available for general release. Software costs capitalized for the three and
six months ended June 30, 2001 totaled $430,000 and $609,000, respectively.
Software costs capitalized for the three and six months ended June 30, 2000
totaled $35,000 and $128,000, respectively. The higher level of capitalized
costs in 2001 compared to 2000 reflects the state of development of a variety of
projects, including new e-services applications and major upgrade versions of
several practice management applications that are part of our core product
offerings.

Depreciation and Amortization. Depreciation and amortization expense
increased for the three and six months ended June 30, 2001, compared to the
three and six months ended June 30, 2000, due principally to the additional
goodwill amortization expense from the acquisitions completed in the first and
second quarters of 2000 and the InfoSoft acquisition completed in the first
quarter of 2001. Goodwill amortization expense for the three and six months
ended June 30, 2001, was $5.9 million and $10.7 million, respectively, compared
to $4.2 million and $7.2 million for the three and six months ended June 30,
2000, respectively. The remainder of depreciation and amortization expense
related to depreciation on fixed assets and amortization of capitalized software
development costs.

Restructuring and Other Non-Recurring Charges. In the three and six months
ended June 30, 2001, we incurred approximately $698,000 and $3.1 million,
respectively, in non-recurring charges relating primarily to professional fees,
printing and similar costs in connection with the completion of the Spin-Off
from InfoCure. These costs were offset by a $634,000 and a $944,000 reduction in
accrued restructuring costs for the three and six months ended June 30, 2001,
respectively, relating to the re-negotiation of terminated facility leases and
the reduction in severance payments resulting from the early departure of
employees eligible to receive these payments. During the six months ended June
30, 2000, we incurred restructuring charges of approximately $816,000, of which
$778,000 related primarily to costs associated with contingent consideration
payable to former stockholders of entities whose products were discontinued as
part of the 1999 restructuring plan.

Interest Expense, net. Interest expense for the three months ended June 30,
2001 declined in comparison to the same period of 2000 while, for the six months
ended June 30, 2001, it was slightly more than the comparable period of 2000.
This variance reflects the effects of additional borrowings in 2000 to finance
several acquisitions and the more recent downward trend in interest rates.

Income Tax Benefit. For the three months ended June 30, 2001, we generated
net pre-tax losses for financial reporting purposes of approximately $8.3
million and taxable net operating losses of approximately $2.3 million. For the
six months ended June 30, 2001, we generated net pre-tax losses for financial
reporting purposes of approximately $17.3 million and taxable net operating
losses of approximately $7.5 million. The financial reporting losses differ from
the taxable losses primarily due to book versus tax differences in goodwill
amortization, including non-deductible amounts. Approximately $3.2 million of
these taxable losses were generated prior to the Spin-Off and remained with
InfoCure. The remaining $4.3 million of these taxable losses





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generated
subsequent to the Spin-Off, are attributable to us and will be available to
offset any future taxable income we generate. These net operating loss
carryforwards create a deferred tax asset of approximately $1.7 million.
Additionally, certain of the assets and liabilities transferred to us in the
spin-off had temporary differences between their book and tax bases which
carried over to us. As a result, our deferred tax assets at June 30, 2001
relating to temporary differences approximate $6.7 million. Total deferred tax
assets at June 30, 2001, including the net operating loss carryforwards and
temporary differences in the book and tax bases of assets and liabilities
aggregate $8.4 million.

We reported deferred tax assets at June 30, 2001 of approximately $5.4
million representing essentially amounts attributable to us based solely on
reversing temporary differences as recorded by InfoCure through December 31,
2000. Management believes that it is more likely than not that these deferred
tax assets will be realized based on our financial projections, sales backlog
and other operational factors. These factors indicate we will generate taxable
income within the next three to five years sufficient to realize the tax
benefits represented by these future deductible temporary differences. As of
June 30, 2001, we have recorded a valuation allowance of approximately $3.0
million to reduce the total deferred tax assets to the amount that we believe is
more likely than not to be realized.

Net Loss. As a result of the foregoing, we had a net loss of $7.0 million
for the three months ended June 30, 2001, and a net loss of $15.6 million for
the six months ended June 30, 2001.

Accrued and Accretive Dividends on Preferred Stock. For the three and six
months ended June 30, 2001, we recorded accrued and accretive dividends related
to the series A convertible redeemable preferred stock of $1.1 million and $1.4
million, respectively, to recognize accrual of the 6.5% preferred dividend and
amortization of the $11.0 million estimated valuation discount. For the three
and six months ended June 30, 2001, we recorded accretive dividends of $234,000
and $312,000, respectively, related to accretion of the redemption premium for
the series C convertible redeemable preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirements have been to fund:



| |  |  | acquisitions;                                              
| | - |  | -----------------------------------------------------------
|
| |  |  | working capital;                                           
|
| |  |  | capitalized software development costs; and                
|
| |  |  | capital expenditures for furniture, fixtures and equipment.

During the six months ended June 30, 2001, we used $261,000 of cash in
operating activities relating primarily to (1) a net loss of $15.6 million
offset by non-cash charges of $12.3 million in depreciation and amortization,
(2) an increase in accounts payable and accrued expenses of $2.6 million and (3)
a decrease in trade and other receivables of $913,000. The increase in accounts
payable and accrued expenses is primarily due to non-recurring charges relating
to the Spin-Off. The decrease in trade and other receivables is primarily due to
improved cash collections. During the six months ended June 30, 2000, we used
$1.9 million of cash in operating activities relating primarily to (1) a net
loss of $8.7 million offset by non-cash charges of $7.9 million





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for depreciation
and amortization and reduced by a non-cash benefit of $5.3 million associated
with deferred taxes and (2) a decrease in accounts receivable of $3.1 million.

During the six months ended June 30, 2001, we used $5.2 million of cash in
investing activities primarily relating to cash paid for acquisitions of $2.3
million, cash paid for capitalized software and other intangibles of $2.2
million and cash paid for property and equipment expenditures of $444,000.
During the six months ended June 30, 2000, we used $21.8 million of cash in
investing activities primarily representing cash used for acquisitions and
related expenditures of $13.4 million, additional purchase price consideration
of $4.4 million, advances to Medical Dynamics of $1.3 million, cash paid for
other intangibles of $1.3 million and capital expenditures of $1.0 million.

During the six months ended June 30, 2001, we generated cash from financing
activities of $6.3 million consisting primarily of the sale of series C
convertible redeemable preferred stock, net of transaction costs, for $4.7
million, proceeds from the issuance of our common stock of $1.4 million and net
cash advances from InfoCure of approximately $344,000, offset by the payment of
deferred loan costs of $183,000. During the six months ended June 30, 2000, we
generated cash from financing activities of $26.1 million consisting primarily
of borrowings attributed to us of $11.0 million from InfoCures line of credit
and $15.1 million in cash advances from InfoCure.

In connection with the Spin-Off, we entered into a credit facility with
FINOVA Capital Corporation (FINOVA) under which we incurred approximately
$21.6 million of indebtedness to repay InfoCures long-term indebtedness
relating to our business. The FINOVA credit facility contains restrictions and
covenants, including limitations on our leverage, a minimum net worth
requirement, a minimum current ratio requirement and a minimum liquidity
requirement. Management believes that the covenants that have the greatest
likelihood of potentially restricting our operations are quarterly tests for
minimum net worth and minimum liquidity. Minimum net worth has been defined to
include the two completed convertible redeemable preferred stock issuances in
the first quarter of 2001, and the planned issuance to the stockholders of
Medical Dynamics in the third quarter of 2001. The minimum net worth requirement
ranges from a high of approximately $41.8 million at the quarter ended June 30,
2001, to a low of approximately $18.1 million at the quarter ending March 31,
2002. Minimum liquidity has been defined as cash and cash equivalents, plus
amounts up to $2.5 million available, but not drawn, under our equity line
(discussed below). The minimum liquidity requirement is approximately $5.4
million at the quarter ended June 30, 2001 and ranges from a high of
approximately $11.1 million at the quarter ending March 31, 2003, to a low of
approximately $2.8 million at the quarter ending March 31, 2002. The levels for
the quarterly tests for minimum net worth and liquidity have been computed based
on discussions with the lender regarding our business plan. The credit facility
prohibits payment of cash dividends on, or redemption of, our capital stock.
Amounts outstanding under the credit agreement bear interest at a variable rate
which, through June 30, 2001, is a margin equal to 1.5% plus a base rate equal
to the higher of the prime rate as announced from time to time by Citibank N.A.
and a weighted average of the rates on overnight federal fund transactions plus
50 basis points. Subsequent to June 30, 2001, the margin increases to 1.75% and
after January 1, 2002 increases to 2.25%. The original outstanding principal
balance of the loan will amortize 5.0% per quarter beginning October 1, 2001,
and the remaining outstanding balance under the facility will be due in full on
June 30, 2003. We were in compliance with all of the loan covenants at June 30,
2001. At June 30, 2001, the interest rate was 8.25%.

In connection with the Spin-Off, on March 6, 2001, we entered into an equity
line agreement with Crescent International Ltd. (Crescent) that allows us to
issue and sell, and requires Crescent to purchase, upon our





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request, shares of
our common stock for consideration of up to $35.0 million (minus applicable fees
and expenses). Under this agreement, we can, from time to time at our option,
issue and sell shares of our common stock with an aggregate purchase price of up
to twice the average daily trading value of our common stock during the 22-day
trading period immediately preceding the date of the notice to Crescent.
However, in no event may we require Crescent to purchase more than $2.5 million
at one time. The purchase price for shares of common stock sold to Crescent
under this equity line will be 94% of the average of the lowest three
consecutive bid prices during the 22-day trading period immediately preceding
the applicable sale. Management does not currently believe that it will be
necessary to draw any amounts under the Crescent equity line in the foreseeable
future.

In connection with the Spin-Off, on March 6, 2001, we issued 100,000 shares
of our series C convertible redeemable preferred stock for $5.0 million, less
transaction costs of approximately $300,000, to Crescent in a private placement.
The series C convertible redeemable preferred stock is not convertible for one
year after issuance. Thereafter, the holders can convert all or a portion of the
shares of series C convertible redeemable preferred stock based on a floating
conversion price that is a function of our common stocks closing price. In no
event will the holders of series C convertible redeemable preferred stock be
entitled to obtain, in the aggregate for all conversions, more than 20% of our
common stock upon conversion. We will have the right to either redeem in cash at
a premium or require the conversion of the shares of series C convertible
redeemable preferred stock, provided certain conditions are met. The redemption
premiums will increase proportionately each year from 115% of the liquidation
preference during the first year after issuance of the preferred stock to 160%
of the liquidation preference following the fourth anniversary year of issuance.
If the series C convertible redeemable preferred stock has not been converted
after four years, the holders may require us to redeem the series C convertible
redeemable preferred stock at a redemption price equal to 175% of the
liquidation preference, or $8.75 million. If the price of our common stock
decreases following the Spin-Off, we may be required to redeem the shares of
series C convertible redeemable preferred stock at a significant premium in
order to prevent a dilutive conversion of the series C convertible redeemable
preferred stock into shares of our common stock. We may not have the necessary
funds to redeem any shares of the series C convertible redeemable preferred
stock or be permitted to do so under the FINOVA credit facility.

In the third quarter of 2001, we intend to issue shares of our series B
convertible redeemable preferred stock to the stockholders of Medical Dynamics
as part of the merger consideration. Once issued, we will be required to redeem
for cash the shares of series B convertible redeemable preferred stock on the
fifth anniversary of issuance. The redemption price of the series B convertible
redeemable preferred stock will be equal to $5.3 million plus accrued and unpaid
dividends.

In addition, the holders of the shares of series A convertible redeemable
preferred stock may require the redemption in cash of their shares of series A
convertible redeemable preferred stock at any time following the fifth
anniversary of issuance. The redemption price of the series A convertible
redeemable preferred stock is equal to $32.0 million plus accrued and unpaid
dividends. We may not have the necessary funds to redeem any such shares of our
convertible redeemable preferred stock or be permitted to do so under the FINOVA
credit facility.

At June 30, 2001, we had total cash and cash equivalents of $4.7 million and
a working capital deficit of $9.9 million (including the effect of deferred
revenue and customer deposits of $11.5 million). We expect the transition to a
subscription pricing model will continue to adversely impact our cash flow until
revenue from subscription fees replaces revenue from software license fees and
hardware sales. Based on current business





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plans, it is anticipated that
subscription fees will comprise approximately 10.0% of total revenues for 2001.
We anticipate the growth in subscription fees and other revenue, coupled with
the cost reductions from our 2000 restructuring, will enable us to continue to
generate positive earnings before interest, income taxes, depreciation and
amortization (EBITDA). We believe that our existing cash and anticipated
future operating cash flow, combined with availability of funds from other
sources of financing as described above, will be sufficient to fund our working
capital requirements both in the short term, which means the next twelve months,
and in the long term, which means a reasonable period of time thereafter.
However, if sufficient funds are not available, we may not be able to increase
our marketing and sales expenses and grow our businesses or effectively compete
in any of our markets, which could materially harm our business, financial
condition and results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivatives and Hedging Activities,
as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
Historically, we have not entered into derivative contracts either to hedge
existing risks or for speculative purposes. This standard was adopted on January
1, 2001. Adoption of this standard did not have an effect on our financial
statements.

SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities  a Replacement of FASB Statement No. 125
was issued in September 2000 to address securitizations and other transfers of
financial assets and collateral, and requires specified new disclosures.
Specified disclosure provisions are effective for fiscal years ending after
December 15, 2000 with the accounting for transfers and servicing of financial
assets and extinguishments of liabilities effective for transactions occurring
after June 30, 2001. Adoption of this new standard did not have an effect on our
financial statements.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Acquired intangible assets
will be required to be recognized apart from goodwill if the acquired intangible
assets meet certain criteria. Other intangible assets will continue to be
amortized over their useful lives. Additionally, the new standards prohibit the
use of the pooling of interests method of accounting for business combinations
initiated after June 30, 2001 and require that goodwill arising from a business
combination completed after June 30, 2001 not be amortized even though the new
standards have not otherwise been adopted.

We will apply the new statements for goodwill and other intangible assets
beginning in the first quarter of 2002. We have not yet determined what the
effect of these statements will be on our earnings and financial position.

CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS

This discussion contains forward-looking statements that reflect
managements current assumptions and estimates of future performance, the
development and timing of PracticeWorks release of new applications and
services, the rate of adoption of its new applications and services by new and
existing customers, its success in





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establishing business relationships, the
growth of its business, and general economic conditions. You can find many of
these statements by looking for words such as believes, expects,
anticipates, estimates, plans, intends or similar expressions. Any
forward-looking statements are subject to risks, uncertainties and assumptions
that may cause actual results and future trends to differ materially from those
projected, stated, or implied by the forward-looking statements. PracticeWorks
results and the accuracy of the forward-looking statements could be affected by
many factors, including, in particular, those discussed above, and those
discussed in the section entitled Risk Factors and elsewhere in PracticeWorks
Annual Report on Form 10-K for the year ended December 31, 2000. These risks,
uncertainties and assumptions include:



| |  |  | PracticeWorks has a limited operating history as an independent company,
which may make it difficult to evaluate its historical and future
financial performance.                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | PracticeWorks has a recent history of losses, and it may never achieve or
maintain profitability.                                                                                                                       
|
| |  |  | PracticeWorks may be unable to refinance its obligations on favorable
terms, or at all.                                                                                                                                 
|
| |  |  | PracticeWorks may not successfully complete the development of its new
applications and services, which would affect its ability to implement
its growth strategy.                                                      
|
| |  |  | PracticeWorks ASP offerings and subscription pricing model are
unproven, and if customers do not respond favorably to these new
applications and services, then its revenues and profitability may be
harmed.          
|
| |  |  | PracticeWorks and its officers and directors had, and may prospectively
have, conflicts of interest with respect to the Spin-Off.                                                                                       
|
| |  |  | InfoCure could incur a substantial corporate income tax liability in
connection with the Spin-Off, and PracticeWorks may be required to
indemnify InfoCure for all or a portion of this tax liability.                  
|
| |  |  | Recent issuances, and proposed issuances of PracticeWorks securities, as
well as the potential conversion of outstanding PracticeWorks preferred
stock, may subject PracticeWorks stockholders to significant dilution.
|
| |  |  | PracticeWorks credit facility imposes limitations and financial
covenants that may adversely affect its ability to operate its business.                                                                               
|
| |  |  | PracticeWorks has expanded and plans to expand rapidly, and it may be
unable to manage its growth.                                                                                                                      
|
| |  |  | PracticeWorks may have to assert or defend its intellectual property
rights, which may be costly and time-consuming to the company.                                                                                     
|
| |  |  | Market acceptance of the Internet, and/or Internet security concerns and
system failures, could adversely affect PracticeWorks business.                                                                               
|
| |  |  | PracticeWorks is subject to governmental regulation, and it must comply
with the rules and regulations of the American Stock Exchange.                                                                                  





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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risks include fluctuations in interest rates and
variability in interest rate spread relationships, such as prime to LIBOR
spreads. Approximately $21.6 million of PracticeWorks outstanding debt at June
30, 2001 related to long-term indebtedness under our credit facility with FINOVA
that was used to repay InfoCures long-term indebtedness related to our business
at the time of the Spin-Off. Amounts outstanding bear interest equal to 1.75%
plus a base rate equal to the higher of the prime rate as announced from time to
time by Citibank N.A. and a weighted average of the rates on overnight federal
fund transactions plus 50 basis points. The rate base is incremented for margins
specified in the agreement. Thus, PracticeWorks interest rate is subject to
market risk in the form of fluctuations in interest rates. The effect of a
hypothetical one percentage point increase across all maturities of variable
rate debt would result in an increase of approximately $216,000 in pre-tax net
loss assuming no further changes in the amount of borrowings subject to variable
rate interest from amounts outstanding at June 30, 2001. PracticeWorks does not
trade in derivative financial instruments.

PracticeWorks also conducts operations in Europe and Australia. Accordingly,
PracticeWorks is subject to risk for exchange rate fluctuations between such
local currencies and the U.S. dollar. For the three and six months ended June
30, 2001, less than 10% of PracticeWorks total revenues were earned outside the
United States and collected in the local currency. Related operating expenses
were also paid in such corresponding local currencies. PracticeWorks does not
conduct any currency hedging activities.

The financial statements of PracticeWorks non-U.S. subsidiaries are
translated into U.S. dollars using current rates of exchange, with gains or
losses included in the foreign currency translation adjustment account, a
component of stockholders equity. As of June 30, 2001, PracticeWorks had a
cumulative translation adjustment of $(271,000).




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of our business. Aside from the litigation
filed by Joseph Hafner against InfoCure Corporation, which litigation is
described in more detail in our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001, there are no material legal proceedings to which we are a
party and our management is unaware of any contemplated actions against us.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On April 23, 2001, we sold 333,334 shares of our Common Stock, par value
$0.01 per share, at an offering price of $4.50 per share. The aggregate purchase
price was approximately $1.5 million. The shares were sold to eight individuals
or entities represented by Sanders Morris Harris Inc., a registered
broker-dealer acting as placement agent. We believe our offering and sale of the
shares is exempt from registration under Section 4(2) of the 1933 Securities
Act.





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We believe, and each investor represented to us in writing, that each
investor was an accredited investor within the meaning of Rule 501 promulgated
under the Act. In addition, the investors each agreed to acquire the securities
for investment and not with a view to their distribution. The certificates
representing the securities issued to the investors contain a legend to the
effect that such securities were not registered under the Act and may not be
transferred except pursuant to a registration statement that has become
effective under the Act, or pursuant to an exemption from such registration
requirement.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES



| |      
| | -----
| | None.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



| |      
| | -----
| | None.




ITEM 5. OTHER INFORMATION



| |      
| | -----
| | None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:



| |      
| | -----
| | None.

(b)  Reports on Form 8-K:

On March 22, 2001, PracticeWorks filed a Current Report on Form 8-K
containing the following disclosure: (i) Item 2 disclosure announcing the
consummation of PracticeWorks acquisition of all of the assets of SoftDent,
LLC, or InfoSoft, the practice management software subsidiary of Ceramco, Inc.,
a wholly owned subsidiary of DENTSPLY International, Inc.; and (ii) Item 5
disclosure announcing the consummation of InfoCures Spin-Off of PracticeWorks.
The definitive agreements entered into by PracticeWorks in connection with the
Spin-Off were filed as exhibits thereto.

On April 26, 2001, PracticeWorks filed an amendment to this Current Report
on Form 8-K to include audited financial statements of InfoSoft and pro forma
financial statements giving effect to the acquisition.





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 10th day of August, 2001.

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| |  | PRACTICEWORKS, INC.                                                                                            
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| |  | /s/ James K. Price                                                                                             
| |  |                                                                                                                
| |  | James K. Price
President and Chief Executive Officer
(Principal Executive Officer)                             
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| |  | /s/ James A. Cochran                                                                                           
| |  |                                                                                                                
| |  | James A. Cochran
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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