UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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: 0-8632
MEDICAL DYNAMICS, INC.
----------------------------------------------------
Exact name of Registrant as specified in its charter
Colorado 84-0631765
- ------------------------------ ----------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
99 INVERNESS DRIVE EAST, ENGLEWOOD, CO 80112
- -------------------------------------- -----
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 303-790-2990
------------
Former name, former address and former fiscal year, if changed
since last report: NA
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, as of May 14, 1998 is 9,787,683 shares, $.001 par value.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS March 31 September 30
1998 1997
----------- ------------
CURRENT ASSETS
Cash and equivalents $ 724,700 $ 836,400
Restricted cash 50,000 50,000
Trade receivables, less
allowance for doubtful
accounts of $144,000 and $5,000 356,500 127,500
Inventories 1,017,000 683,400
Prepaid expenses 26,100 15,700
----------- -----------
Total Current Assets 2,174,300 1,713,000
----------- -----------
PROPERTY AND EQUIPMENT
Demonstration equipment 369,200 296,700
Machinery and equipment 403,800 334,300
Furniture and fixtures 252,000 221,300
Leasehold improvements 54,500 54,500
----------- -----------
1,079,500 906,800
Less accumulated deprecia-
tion and amortization (778,400) (830,600)
----------- -----------
Property and Equipment, Net 301,100 76,200
----------- -----------
OTHER ASSETS
Software development
costs net of accumulated
amortization of $167,200 2,254,100 --
Non-compete agreement net of
accumulated amortization of $33,200 166,000 --
Debt issuance Costs net of
accumulated amortization of $36,800 181,200 --
Technical support
contracts net of accumulated
Amortization of $148,500 1,336,100 --
Goodwill, net of accumulated
amortization of $9,100 463,700 --
Patents, patents pending and
trademarks, net of accumulated
amortization of $742,900
and $734,300 52,600 49,700
Inventories 32,000 32,000
Other 27,000 46,000
----------- -----------
Total Other Assets 4,512,700 127,700
----------- -----------
TOTAL ASSETS $ 6,988,100 $ 1,916,900
=========== ===========
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 September 30
1998 1997
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 345,700 $ 297,600
Accrued expenses 334,600 72,100
Notes payable-related parties 400,000 --
Deferred revenue 354,000 --
------------ ------------
Total Current Liabilities 1,434,300 369,700
------------ ------------
CONVERTIBLE DEBENTURE 990,000 --
STOCKHOLDERS' EQUITY
Preferred stock, $.001
par value; authorized
5,000,000 shares; none
issued and outstanding -- --
Common stock, $.001 par
value; authorized
15,000,000 shares;
issued 9,646,016
and 7,627,300 shares 9,600 7,600
Additional paid-in capital 22,343,500 18,811,100
Accumulated deficit (17,789,300) (17,271,500)
------------ ------------
Total Stockholders' Equity 4,563,800 1,547,200
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,988,100 $ 1,916,900
============ ============
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Six months
March 31, ended March 31,
--------- ---------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Medical & Dental sales $ 454,800 $ 290,700 $ 1,042,600 $ 488,300
Cost of sales 290,300 226,800 802,100 372,100
----------- ----------- ----------- -----------
Gross profit 164,500 63,900 240,500 116,200
Software sales 572,200 -- 1,165,000 --
Cost of sales 84,900 -- 201,700 --
----------- ----------- ----------- -----------
Gross profit 487,300 -- 963,300 --
Software Support sales 310,700 -- 639,400 --
Cost of sales 74,200 -- 148,500 --
----------- ----------- ----------- -----------
Gross profit 236,500 -- 490,900 --
Other operating
revenue 8,700 10,000 9,400 16,800
----------- ----------- ----------- -----------
Total Operating Revenue 897,000 73,900 1,704,100 133,000
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and
administrative 1,038,100 298,200 2,142,700 635,600
Royalties 0 30,000 0 60,000
Research and
development 15,100 48,700 19,200 81,000
----------- ----------- ----------- -----------
Total Operating Exp 1,053,200 376,900 2,161,900 776,600
----------- ----------- ----------- -----------
Operating Loss (156,200) (303,000) (457,800) (643,600)
----------- ----------- ----------- -----------
Other income/(expense)
Interest income 12,200 15,700 26,100 26,900
Interest expense (65,900) 0 (85,900) (500)
----------- ----------- ----------- -----------
(53,700) 15,700 (59,800) 26,400
----------- ----------- ----------- -----------
Net loss $ (209,900) $ (287,300) $ (517,600) $ (617,200)
=========== =========== =========== ===========
Earnings per share $ (0.02) $ (0.04) $ (0.06) $ (0.08)
=========== =========== =========== ===========
Weighted average
number of shares
outstanding 9,474,400 7,542,600 9,163,300 7,531,900
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
-4-
</TABLE>
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended March 31,
--------------------------
1998 1997
----------- -----------
Cash Flows From Operating
activities:
Net Loss $ (517,600) $ (617,200)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 86,400 51,400
Amortization 293,600 26,200
Fair value Common Stock Options 1,300 46,900
Common stock issued for
expense 35,800 --
Loss on disposal of loaner
equipment -- 41,600
Changes in operating assets
and liabilities, net of effects
from purchase of businesses:
Decrease (increase)in:
Trade receivable 44,800 (24,500)
Inventories (182,900) (123,700)
Prepaid expenses 18,900 --
Other Assets 19,000 (14,400)
Increase (decrease) in:
Accounts payable (128,400) (51,900)
Accrued expenses 40,300 (44,500)
Deferred revenue (10,700) --
Accrued royalties -- 60,000
----------- -----------
Net cash used in operating
activities (299,500) (650,100)
----------- -----------
Cash Flows From Investing
activities:
Payment for acquisition of
businesses (564,400) --
Additions to patents (10,900) (9,100)
Purchase of property and
equipment (226,500) (24,800)
Deposits and other -- (30,000)
----------- -----------
Net Cash used in
investing activities (801,800) (63,900)
----------- -----------
Cash Flows from Financing
activities:
Principal payments on long
term debt (26,300) --
Proceeds from exercise of options
to purchase common stock 29,600 1,046,300
Net proceeds from issuance
of convertible debenture 986,300 --
----------- -----------
989,600 1,046,300
----------- -----------
-5-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six Months Ended March 31,
--------------------------
1998 1997
----------- -----------
Net Decrease in Cash and
Equivalents (111,700) 332,300
Cash and Equivalents
Beginning of period 836,400 993,200
----------- -----------
Cash and Equivalents
end of period $ 724,700 $ 1,325,500
=========== ===========
Supplemental Disclosures of
Cash Flow Information:
Cash paid for interest $ -- $ 500
=========== ===========
Supplemental Schedule of
Noncash Investing and
Financing Activities:
Common stock issued for
acquisition of businesses 3,230,100 --
Notes payable for
acquisition of businesses 400,000 --
Debt issuance costs incurred
for convertible debenture 113,700 --
Debt assumed in business
combinations 59,900 --
Fair value of warrants issued
for debt issuance costs 120,000 --
Conversion of debentures to
common stock 110,000 --
Demonstration equipment
transfers from inventories $ -- $ 102,000
See Notes to Consolidated Financial Statements
-6-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with Medical Dynamics, Inc.'s ('MEDY' or the 'Company')
Form 10-KSB for the year ended September 30, 1997. The results of operations for
the periods ended March 31, 1998 and March 31, 1997 are not necessarily
indicative of operating results for the full years.
In October 1997, the Company completed the acquisition of Computer Age
Dentist, Inc. (CADI). In addition, the Company also completed the acquisition of
Information Presentation Systems, Inc. (IPS)in February, 1998. Accordingly, the
accompanying statements of operations include the accounts of CADI beginning
October 1, 1997 and IPS beginning February 1, 1998.
The Consolidated Financial Statements and other information furnished
herein reflect all adjustments which are, in the opinion of management of MEDY,
necessary for a fair presentation of the results of the interim periods covered
by this report. Adjustments to the financial statements were of a normal
recurring nature.
Note 2. EARNINGS PER SHARE
Shares issuable under common stock options and warrants were excluded from
the computation of fully diluted earnings per share because the effect was
anti-dilutive. At March 31, 1998, MEDY had 1,480,400 of vested common stock
options outstanding. Total common stock options outstanding (including both
vested and unvested) were 3,915,852 at March 31, 1998.
NOTE 3. INCOME TAXES
Under the provisions of the Internal Revenue Code, MEDY has available net
operating loss and research and development tax credit carryforwards of
approximately $18,000,000 and $170,000, respectively, which expire in varying
amounts from 1998 through 2011.
The net operating loss and business tax credit carryforwards described
above give rise to a deferred tax asset of approximately $7,300,000. This asset
is recorded net of a valuation allowance of the same amount. Therefore no
amounts are reflected in the accompanying balance sheets.
-7-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4. INVENTORIES
Inventories consist of the following at March 31, 1998 and September 30,
1997:
March 31, September 30,
1998 1997
----------- -----------
Raw materials, and
replacement parts $ 864,000 $ 723,900
Finished goods 757,700 422,300
Work in process 67,800 126,000
Allowance for obsolescence (640,500) (556,800)
Less inventory classified
as long term (32,000) (32,000)
----------- -----------
$ 1,017,000 $ 683,400
=========== ===========
At March 31, 1998 medical products inventories have increased $50,100 while
other inventories have increased $283,500 due to the purchase of CADI and IPS
for a net inventory increase of $333,600 or 48.8%. Management continues its
efforts to reduce inventory and inventory carrying costs while maintaining
enough inventory to meet sales requirements.
NOTE 5. DEFERRED REVENUE
Deferred revenue primarily represents payments received on deferred
maintenance contracts that has not been earned. The amounts are amortized into
revenue on a monthly basis using the straight-line method over the life of the
contract.
Costs for maintenance and customer support are charged to expense when the
related revenue is recognized or when those costs are incurred, whichever occurs
first.
-8-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
As discussed in Note 2 to the audited financial statements as of September
30, 1997, (see MEDY's form 10-KSB dated September 30, 1997 and the accompanying
audited financial statements), MEDY has suffered recurring losses and negative
cash flows from operations. Without significant sales increases, MEDY
anticipates negative cash flow from operations for fiscal 1998. MEDY believes
that its existing capital resources are sufficient for the current fiscal year,
and MEDY is not seeking any additional debt or equity financing at this time.
However there are 1,480,400 vested common stock options outstanding as of March
31, 1998, and if exercised (of which there can be no assurance), these options
would provide additional working capital to MEDY.
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the actual results in future periods to differ materially from
forecasted results. These risks and uncertainties include, among other things,
product demand, market competition, risks inherent in MEDY's international
operations and the possibility that contemplated acquisitions will not occur.
These and other risks are described elsewhere herein and in the Company's other
filings with the Securities and Exchange Commission.
-9-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
Financial Condition. (March 31, 1998 as compared to September 30, 1997)
During the six month period ended March 31, 1998, MEDY's net working capital
decreased approximately $603,300. Principal changes in the components of net
working capital for the fiscal quarter ended March 31, 1998 consist of:
March September W/C
31, 1998 30, 1997 Effect
-------- -------- ------
Cash & Equivalents $774,700 $ 886,400 $(111,700)
Trade Receivables 356,500 127,500 229,000
Inventories 1,017,000 683,400 333,600
Pre-paids 26,100 15,700 10,400
--------- --------- -------
Current Assets: 2,174,300 1,713,000 461,300
Accounts Payable 345,700 297,600 (48,100)
Accrued Expenses 334,600 72,100 (262,500)
Notes payable-
related parties 400,000 -- (400,000)
Deferred revenue 354,000 -- (354,000)
--------- -------- ---------
Current Liabilities 1,434,300 369,700 (1,064,600)
Working Capital $ 740,000 $1,343,300 $(603,300)
========= ========== ===========
The components of the decrease in working capital include negative cash
flow from operations of $299,500, payments of the cash portions of the
consideration for the acquisitions of Computer Age Dentist, Inc. (CADI) and
Information Presentation Systems, Inc. (IPS) of $300,000 plus $64,400 for
acquisition costs, and $200,000 respectively, and other capital expenses
incurred by MEDY during the six month period ended March 31, 1998.
Offsetting the expenditures of cash for operations and in investing
activities, MEDY raised net proceeds of $986,300 from the sale of $1,100,000 of
convertible debentures during the first quarter, as well as proceeds from the
exercise of options held by employees which provided additional working capital
to MEDY.
The acquisition of CADI, the placement of the convertible debentures, and
the acquisition of IPS during the first and second quarters of fiscal 1998 were
extraordinary transactions which have no parallel in prior periods. Due to the
fundamental requirement for MEDY to achieve a positive cash flow from operations
and net income, MEDY will continue to direct it's efforts toward eliminating or
-10-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
minimizing expenses, reviewing and improving product profit margins, and
increasing revenues from the sale of products with higher profit margins. In an
effort to increase sales revenues from higher-margin products, MEDY acquired
CADI in October 1997, IPS on February 6, 1998 and Command Dental Systems, Inc.,
of Farmington Hills, MI., on April 1,1998. These acquisitions are expected to
substantially increase MEDY's revenues, cash flows from operations, and future
profitability, although no assurances of those facts can be given.
To continue MEDY's objective of curtailing operating losses, negative cash
flow from operations and liquidity erosion further, management is continually
reviewing product profit margins and general expense accounts, and will reduce
or eliminate all nonessential expenditures. Purchasing procedures are also in
place to ensure minimized product costs and to avoid excess inventory levels.
The Company also entered into a revised license agreement with Dr. Edwin Adair
during fiscal 1997 resulting in reduced patent maintenance and other associated
costs.
Although the acquisitions of CADI, and IPS, have resulted in (and are
expected to continue to generate) significant increases in revenues to MEDY
during the current fiscal year, MEDY still anticipates negative cash flow from
operations during fiscal 1998. During fiscal 1997 and fiscal 1996, cash flow
deficits were funded by employee, officer, and consultant stock option exercises
and by equity placements and loans from the Company's chairman. However, MEDY's
ability to fund its operations will be dependent upon achieving profitability
and in generating in the future a positive cash flow from operations. Unless
MEDY is able to increase sales revenues, and achieve and maintain profitability
during fiscal 1998, MEDY may be facing significant working capital shortages
beginning in fiscal year 1999. There can be no assurance that MEDY will be able
to avoid future working capital shortages. If needed, it is not known whether
any debt or equity financing will be available on reasonable terms.
MEDY believes that its existing capital resources are sufficient for the
remainder of the current fiscal year. MEDY's goal is to become the 'Single
Source Technology Solution' for dental practices moving into the complex
digital/computer age. MEDY completed the acquisition of Command on April 9,
1998, with an effective date of April 1, 1998. Command develops and markets
turnkey computer systems for the efficient management of dental practices and
-11-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
has more than 550 clients. For the period ended September 30, 1997, Command
Dental Systems, Inc. is estimated to have achieved gross revenues of
approximately $1.4 million. MEDY intends to consolidate Command with it's
Computer Age Dentist, Inc.(CADI) subsidiary. Command's existing client base
offers a significant opportunity for the cross-selling of CADI's new
Windows-based software and other dental technology products. With the purchases
of IPS and Command, CADI now offers a comprehensive range of products to the
dental industry - practice management software, electronic claims processing,
image capture software, intra-oral cameras, multi-operatory video/digital
networks, and digital x-ray systems. Although as noted, Management believes
that, even after the acquisitions of CADI, IPS and Command, MEDY has sufficient
capital resources for the current fiscal year and beyond, MEDY is reviewing
other possible acquisition candidates. If MEDY seeks to complete another
acquisition (of which there can be no assurance), MEDY may need additional
capital. MEDY is not seeking any additional capital at this time, and there can
be no assurance that MEDY will attempt another acquisition or that if MEDY needs
additional financing, it will be available on reasonable terms, if at all. MEDY
is not seeking additional debt or equity capital at this time, although there
are 1,480,400 vested common stock options outstanding as of March 31, 1998, and
if exercised (of which there can be no assurance), these options would provide
varying amounts of additional working capital to MEDY. These options have
various exercise prices which range between $1.00 and $4.00 per share and at May
13, 1998 the price of MEDY's common stock was approximately $3.00. If MEDY does
obtain additional capital (of which there can be no assurance), MEDY will be
able to allocate more resources to sales and marketing efforts, further
acquisitions, as well as research and development.
-12-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
Results of Operations. As an aid to understanding MEDY's operating results,
the following table indicates the percentage relationships of principal revenue
and expense items to total net sales included in the Consolidated Statements of
Operations for the six month periods ended March 31, 1998 and 1997 and the
percentage changes in those items for the same periods.
<TABLE>
<CAPTION>
As a percent of
total revenue
for the six
month period Percentage
ended March 31, change from
--------------- the prior years'
1998 1997 Revenue/Expense Items comparable period
---- ---- --------------------- -----------------
<S> <C> <C> <C>
36.5% 96.7% Medical /Dental Sales 113.5%
(28.1%) (73.7%) COS Medical/Dental 115.6%
8.4% 23.0% Gross Profit Medical/Dental 107.0%
40.8% 0.0% Software Sales n/a
(7.1%) 0.0% COS Software n/a
33.7% 0.0% Gross Profit Software n/a
22.4% 0.0% Software Support Sales n/a
(5.2)% 0.0% COS Software Support n/a
17.2% 0.0% Gross Profit Software Support n/a
0.3% 3.3% Other Operating Revenue (44.0%)
75.0% 125.8% Selling, General and Administrative 237.1%
0.0% 11.9% Royalties (100.0%)
.7% 16.0% Research and Development (76.3%)
0.9% 5.3% Interest Income ( 3.0%)
3.0 % 0.1% Interest Expense 17080.0%
(18.1%) (122.2%) Net Loss -16.1%
</TABLE>
Revenue. Medical/Dental sales for the six months ended March 31, 1998
and 1997 were $1,042,600 and $488,300 respectively, for an increase of $554,300
or 113.5%. Medical/ Dental sales for the three months ended March 31, 1998 and
1997 were $454,800 and $290,700 respectively, for an increase of $164,100 or
56.4%. The increase in sales was due to MEDY's sale of computer hardware,
multi-operatory video/digital networks, and digital x-ray systems ('hardware'),
which is a new product line resulting from the acquisition of IPS. There were no
sales of hardware during the comparable periods of fiscal 1997.
Software sales were $1,165,000 for the six months ended March 31, 1998 and
$572,200 for the three months ended March 31, 1998. Software support sales were
$639,400 for the six months ended March 31, 1998 and $310,700 for the three
months ended March 31, 1998.
-13-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
All of these sales were attributable to CADI, which was acquired in October
1997, therefore, there were no software or software support sales during the
comparable periods of fiscal 1997.
Total sales attributable to CADI, both hardware and software related, for
the six months ended March 31, 1998 were $2,197,000 or 77.2% of MEDY's total
sales. Total sales attributable to CADI, both hardware and software related, for
the three months ended March 31, 1998 were $1,193,000 or 90.2% of MEDY's total
sales.
MEDY anticipates that revenues will increase further as the result of the
acquisition of IPS in February 1998 and the expansion of MEDY's market for
dental office management products through the acquisition of Command Dental
Systems, Inc. in April of 1998. MEDY believes that gross profit from these
activities will also improve as MEDY's general and administrative expenses are
consolidated and it's operations become more efficient. There can be no
assurance that these positive changes will ever result in an increase in cash
from MEDY's operations or net income (as compared to MEDY's historical net
losses), but MEDY's goal is to achieve profitability on at least a quarterly
basis during latter fiscal 1999.
Please refer to the schedule below for a more detailed breakdown of revenues.
Quarter Ended Six Months Ended
------------- ----------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
---------- --------- ---------- --------
Medical/Dental Sales $ 454,800 $290,700 $1,042,600 $488,300
Software Sales 572,200 -- 1,165,000 --
Software Support Sales 310,700 -- 639,400 --
Other Operating Revenue 8,700 10,000 9,400 16,800
---------- -------- ---------- --------
Total Revenue: $1,346,400 $300,700 $2,856,400 $505,100
========== ======== ========== ========
Cost of Sales. Cost of sales for Medical/Dental products for the six months
ended March 31, 1998 and 1997 as a percent of gross Medical/Dental sales were
76.9% and 76.2%,resulting in gross margin percentages of 23.1% and 23.8%,
respectively. Cost of sales for Medical/Dental products for the three months
ended March 31, 1998 and 1997 as a percent of gross Medical/Dental sales were
63.8% and 78.0%, resulting in gross margin percentages of 36.2% and 22.0%,
respectively. The cost of sales of Medical/Dental percentages for the six months
-14-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
ended March 31, 1998 and 1997 show a .07% variance due to higher margin medical
product sales in 1997 having been replaced by higher margin hardware sales in
1998. The cost of sales percentage drop of 14.2% for the quarter is due to the
product mix of higher margin hardware sales versus lower margin dental camera
sales.
Cost of sales for software sales, the major component of which is the
amortization expense of software development costs, decreased over the prior
period by 27.3%. The decrease is approximately equal to $31,000, the amount of
software development amortization expense attributable to the $513,500 decrease
in capitalized software development costs. Capitalized software development
costs were reduced to reflect a more conservative approach to the book valuation
of the asset. Cost of sales of software sales for the six and three month
periods ended March 31, 1998 as a percent of gross software sales were 17.3% and
14.8%, resulting in gross margin percentages of 82.7% and 85.2%, respectively.
Cost of sales for software support sales, the only component of which is the
amortization expense of technical support contracts, remains flat as a dollar
amount but will fluctuate as a percentage of gross software support sales as
support revenue increases or decreases. Cost of sales of software support sales
for the six and three month periods ended March 31, 1998 as a percent of gross
software support sales were 23.2% and 23.9%, resulting in gross margin
percentages of 76.8% and 76.1%, respectively.
Selling, General and Administrative Expenses (S,G&A). S,G&A expenses for
the six month period ended March 31, 1998 and 1997 were $2,056,000 and $558,000,
respectively for an increase of $1,498,000 or 268.5%. The acquisitions of CADI
and IPS and their related expense streams, as well as their depreciation and
amortization, account for $1,519,300 of the total S,G&A expenses. The remaining
S,G&A expenses of $536,700, attributable to MEDY, represents a $21,300 or 3.8%
favorable variance over the same six month period in 1997. S,G&A expenses for
the quarter ended March 31, 1998 and 1997 were $998,800 and $259,400,
respectively, for an increase of $739,400 or 285.0%. The acquisition of CADI and
IPS and their related expense streams, as well as their depreciation and
amortization, also accounted for the majority of this increase.
-15-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
Research and Development Costs (R&D). For the six months ended March 31,
1998 and 1997 R & D expenses were $19,200 and $81,000 respectively, for a
decrease of $61,800 or 76.3%. For the quarter ended March 31, 1998 and 1997, R &
D expenses were $15,100 and $48,700 respectively, for a decrease of $33,600 or
69.0%. The Registrant's policy is to fund research and development as it deems
appropriate to maintain or gain a competitive advantage.
Interest Income and Expense. Interest income is a function of current cash
invested for the period; the balances for the three months ended March 31, 1998
and 1997 was $12,200 and $15,700, respectively. Interest income for the six
months ended March 31, 1998 and 1997 was $26,100 and $26,900 respectively.
Interest expense for the six months ended March 31, 1998 totaled $85,900. The
components of year to date interest expense are: interest of $13,300 ($2,667 per
month) on $400,000 of notes payable to related parties (at 8.0% interest due
October 1998, to the principals of CADI for the CADI acquisition), interest on
the convertible debentures of $35,800, and $36,800 for interest on debt issuance
costs.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial data schedule.
(b) Reports on Form 8-K: Filed, dated October 23,1997, October 31,
1997, January 5, 1998 and April 20,1998.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1998 /s/ Van A. Horsley
-------------------------------------
Van A. Horsley, President,
Principal Executive Officer,
and Principal Financial Officer
-17-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 724,700
<SECURITIES> 50,000
<RECEIVABLES> 500,500
<ALLOWANCES> (144,000)
<INVENTORY> 1,017,000
<CURRENT-ASSETS> 2,174,300
<PP&E> 1,079,500
<DEPRECIATION> (778,400)
<TOTAL-ASSETS> 6,988,100
<CURRENT-LIABILITIES> 1,434,300
<BONDS> 990,000
0
0
<COMMON> 9,600
<OTHER-SE> 4,554,200
<TOTAL-LIABILITY-AND-EQUITY> 6,988,100
<SALES> 2,847,000
<TOTAL-REVENUES> 2,856,400
<CGS> 1,152,300
<TOTAL-COSTS> 3,314,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,900
<INCOME-PRETAX> (517,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (517,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (517,600)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
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