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, 2000
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 12, 2000 were 13,247,026 shares, $.001 par value.
<PAGE>
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<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS 3/31/00 9/30/99
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 351,800 $ 180,000
Trade receivables, less allowance for
doubtful accounts of $71,000
and $67,300 46,500 254,400
Inventories 45,700 189,200
Prepaid expenses 1,200 21,100
----------- -----------
Total Current Assets 445,200 644,700
----------- -----------
SOFTWARE DEVELOPMENT AND SUPPORT:
Software development costs, net of
accumulated amortization of
$1,088,300 and $856,2000 2,181,700 2,345,600
Technical support contracts, net of
accumulated amortization of
$742,000 and $593,800 742,300 890,700
----------- -----------
Total Software Development and Support 2,924,000 3,236,300
----------- -----------
PROPERTY AND EQUIPMENT:
Demonstration equipment 438,200 438,200
Machinery and equipment 603,800 606,100
Furniture and fixtures 235,600 235,600
Leasehold improvements 54,500 54,500
1,332,100 1,334,400
----------- -----------
Less accumulated depreciation and
Amortization (972,900) (913,300)
----------- -----------
Property and Equipment, Net 359,200 421,100
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated
Amortization of $182,700 and $139,900 1,093,400 1,136,200
Non-compete agreement's net of accumulated
Amortization of $166,700 and $151,700 32,500 47,500
Debt issuance costs, net of accumulated --
Amortization of $538,300 and $481,000 22,800 80,100
Patents and trademarks, net of accumulated
Amortization of $795,500 and $785,900 3,200 12,800
Deposits and other 24,300 24,300
----------- -----------
Total Other Assets 1,176,200 1,300,900
----------- -----------
TOTAL ASSETS $ 4,904,600 $ 5,603,000
=========== ===========
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND STOCKHOLDERS' EQUITY 3/31/00 9/30/99
------------ ------------
CURRENT LIABILITIES:
Current maturities of notes payable &
convertible debentures $ 1,670,500 $ 943,700
Accounts payable 157,100 622,000
Accrued expenses 444,800 497,600
Unearned revenue 363,500 368,500
------------ ------------
Total Current Liabilities 2,635,900 2,431,800
------------ ------------
NOTES PAYABLE, net 166,500 207,600
CONVERTIBLE DEBENTURES, net -- 370,800
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value;
Authorized 5,000,000 shares; none
Issued and outstanding -- --
Common stock, $.001 par value; authorized
30,000,000 shares; issued & outstanding
13,247,000 and 12,214,300 shares 13,200 12,200
Additional paid-in capital 28,353,100 27,771,700
Accumulated deficit (26,264,100) (25,191,100)
------------ ------------
Total Stockholders' Equity 2,102,200 2,592,800
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,904,600 $ 5,603,000
============ ============
See Notes to Consolidated Financial Statements.
-3-
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<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended Six Months
March 31 March 31
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
Software & training $ 187,800 $ 1,176,700 $ 717,900 $ 2,334,900
Equipment & Installation 44,900 1,401,200 218,800 2,773,200
Support services 660,700 604,900 1,305,800 1,156,400
---------------------------------------------------------------------------
893,400 3,182,800 2,242,500 6,264,500
---------------------------------------------------------------------------
COST OF SALES:
Software & training 178,000 300,600 347,100 570,700
Equipment & Installation 105,200 1,042,700 356,000 1,930,800
Support services 161,600 272,100 350,000 532,500
---------------------------------------------------------------------------
444,800 1,615,400 1,053,100 3,034,000
---------------------------------------------------------------------------
GROSS PROFIT 448,600 1,567,400 1,189,400 3,230,500
---------------------------------------------------------------------------
OPERATING EXPENSES:
Selling & marketing 165,900 839,700 365,700 1,784,800
General & administrative 823,300 1,805,700 1,700,700 3,405,600
Stock based compensation 5,000 24,400 27,500
Research & development 2,100 -- 2,700
---------------------------------------------------------------------------
Total operating expenses 989,200 2,652,500 2,090,800 5,220,600
---------------------------------------------------------------------------
OPERATING LOSS (540,600) (1,085,100) (901,400) (1,990,100)
OTHER INCOME (EXPENSE):
Other income 3,800 20,800 3,800 25,200
Interest income 4,400 3,300 7,000 6,400
Interest expense (92,300) (241,500) (182,400) (343,400)
---------------------------------------------------------------------------
NET LOSS $ (624,700) $ (1,302,500) $ (1,073,000) $ (2,301,900)
===========================================================================
Earnings per share $ (0.05) $ (0.13) $ (0.09) $ (0.22)
===========================================================================
Weighted average number
Of shares outstanding 12,225,900 10,314,300 12,225,900 10,314,300
===========================================================================
See Notes to Consolidated Financial Statements.
-4-
</TABLE>
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31
--------------------------
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net Loss $(1,073,000) $(2,301,900)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Common stock options granted for compensation
and other services 24,400 27,500
Depreciation expense 59,600 77,300
Amortization of intangible assets 447,900 469,100
Amortization of debt discount and issuance costs 69,800 227,200
Conversion of accrued interest on
debentures to common stock -- 33,000
Provision for obsolete & slow moving inventories 88,400 200,000
Changes in operating assets and
Liabilities, net of effect
Of acquisitions:
Decrease (increase) in:
Trade receivable 207,900 88,200
Inventories 55,100 (325,400)
Prepaid expenses and other assets 19,900 (9,700)
Deposits and other 2,300 22,200
Increase (decrease) in:
Accounts payable (464,900) 393,700
Accrued expenses (52,800) 352,800
Unearned revenue (5,000) 37,100
----------- -----------
Net cash used in operating activities (620,400) (708,900)
----------- -----------
Cash Flows From Investing Activities:
Software development costs (68,200) (145,100)
Purchase of property and equipment -- (77,200)
----------- -----------
Net cash used in investing activities (68,200) (222,300)
----------- -----------
-5-
<PAGE>
Six Months Ended March 31
-------------------------
2000 1999
---------- ---------
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS,
CONTINUED
Cash Flows From Financing Activities:
Proceeds from borrowings 1,000,000 671,800
Principal payments related to:
Notes Payable (298,700) (426,800)
Capital lease obligations (25,200) (18,400)
Debt Issuance costs (53,300)
Proceeds from exercise of options of
common stock 184,300 89,100
Net proceeds from issuance of
Convertible debenture -- 767,100
----------- -----------
Net cash provided by (used in)
financing activities 860,400 1,029,500
----------- -----------
Net Increase/(decrease) in Cash and Equivalents 171,800 98,300
Cash and Equivalents, beginning of period 180,000 553,100
----------- -----------
Cash and Equivalents, end of period $ 351,800 $ 651,400
=========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid for interest $ 24,500 $ 36,500
=========== ===========
Supplemental Schedule of Non-cash
Investing and Financing Activities:
Conversion of debentures to common stock,
Net of discount $ 373,700 $ 640,000
Fair value of inducement related to
amendment to convertible debentures -- $ 259,400
Increase(decrease)in payables for capital
expenditures -- $ (17,300)
Debt issuance costs incurred for
Convertible debenture -- $ 40,000
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999. The results of operations for
the periods ended March 31, 2000 and March 31, 1999 are not necessarily
indicative of operating results for the full years.
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, 2000, MEDY had 3,295,071 of vested common stock
options and warrants outstanding. Total common stock options and warrants
outstanding (including both vested and unvested) were 4,040,071 at March 31,
2000.
NOTE 3. INVENTORIES
Inventories consist of the following at March 31, 2000 and September 30,
1999:
March 31 September 30
2000 1999
----------------------------------
Raw materials and replacement parts $ 186,700 $ 186,700
Finished goods 192,400 247,500
Allowance for obsolescence (333,400) (245,000)
---------------------------------
$ 45,700 $ 189,200
=================================
At March 31, 2000 total inventories have decreased $ 143,500 due to sales
of finished goods inventories and an increase in the allowance for obsolete
inventory. Net inventories have been reduced to liquidation values.
-7-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. UNEARNED REVENUE
Unearned revenue represents payments received on deferred software support
contracts, installation charges and training that have not been earned. The
amounts for deferred software support contracts are amortized into revenue on a
monthly basis using the straight-line method over the life of the contract.
Deferred amounts for installation and training are recognized when the services
are performed.
Costs for software support contracts, installation and training, are
charged to expense when those costs are incurred.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
General Discussion
- ------------------
Medical Dynamics, Inc., a Colorado corporation ( NASDAQ Small Cap - MEDY)
incorporated in March 1971 ("MEDY" or the "Company"), is engaged in the
development and marketing of practice management software and related products
for the dental profession. MEDY's principal products are practice management
software, patient education systems, digital x-ray systems and a wide variety of
ancillary products utilized by the dental profession.
As discussed in Note 2 to the audited financial statements as of September
30, 1999, (see MEDY's form 10-KSB for the year ended September 30, 1999 and the
accompanying audited financial statements) the Company has suffered recurring
losses and negative cash flows from operations which generated a working capital
deficit of $1,840,900 at September 30, 1999 (and a working capital deficit of
$2,190,700 at March 31, 2000). Unless the Company can obtain additional debt,
raise additional equity, or complete the announced transaction with InfoCure
Corporation as described below, this raises substantial doubt as to the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Item 6 of the September 30, 1999 Form 10-KSB,
in Note 2 of the above noted audited financial statements and also in the
-8-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
following paragraphs. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
On December 21, 1999 the Company entered into an Agreement and Plan of
Merger and Reorganization with InfoCure Corporation (NASDAQ National Market
System - INCX) wherein INCX will exchange its shares for 100% of the outstanding
common stock of Medical Dynamics. If the MEDY shareholders approve the
transaction when presented, MEDY shareholders will receive one share of INCX
common stock for each .05672 shares of MEDY common stock held. This conversion
ratio will be subject to certain adjustments to the extent the price of InfoCure
common stock in the public market increases above $22.04 per share or decreases
below $13.22 per share (On April 24, 2000, the price of InfoCure stock was $8.56
per share). INCX will assume all options, warrants and debentures of MEDY
outstanding on the Closing Date, adjusted for the appropriate exchange rate. The
transaction will require MEDY's shareholder approval at a meeting which we
currently expect to hold on June 20, 2000. Shareholder approval will only be
solicited pursuant to a proxy statement which is a part of a registration
statement on Form S-4 which was filed by INCX with the Securities and Exchange
Commission on April 14, 2000.
Since October 28, 1999, INCX has lent the Company $1,300,000 at an interest
rate of 12%, due at maturity, for the purpose of repayment of debt and for
working capital. Only $1,000,000 of the loan was outstanding as of the March 31,
2000 Balance Sheet reflected in this report. As collateral for said loan, the
Company pledged substantially all of its assets. The $1,300,000 loan plus
accrued interest owed to InfoCure will be due and payable on the earlier of (I)
the date which is 120 days from the termination date of the Agreement by MEDY or
(II) January 31, 2001.
This report on form 10-QSB, including the information incorporated by
reference herein, contains forward-looking statements within the meaning of the
-9-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
Private Securities Litigation Reform Act of 1995. Certain statements contained
in this report using the term "may", "expects to", and other terms denoting
future possibilities, are forward looking statements. These statements include,
but are not limited to, those statements relating to development of new
products, the financial condition of MEDY, the ability to increase distribution
of MEDY's products, integration of new businesses MEDY has acquired during the
1998 fiscal year, approval of MEDY's products as and when required by the Food
and Drug Administration ("FDA") in the United States and similar regulatory
bodies in other countries. The accuracy of these statements cannot be guaranteed
as they are subject to a variety of risks which are beyond the Company's ability
to predict or control and which may cause actual results to differ materially
from the projections or estimates contained herein. The business and economic
risks faced by MEDY and MEDY's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
as described herein.
Financial Condition. (March 31, 2000 as compared to September 30, 1999) During
the six month period ended March 31, 2000, MEDY's net working capital decreased
$403,600 and, consequently, at March 31, 2000 MEDY had a working capital deficit
of $2,190,700 where its current assets were less than its current liabilities.
Principal changes in the components of net working capital (W/C) for the six
months ended March 31, 2000 consist of:
March 31 September 30 W/C
2000 1999 Effect
------------------------------------------
Cash & Equivalents 351,800 $ 180,000 $ 171,800
Trade Receivables 46,500 254,400 (207,900)
Inventories 45,700 189,200 (143,500)
Pre-paid Expenses 1,200 21,100 (19,900)
------------------------------------------
Total Current Assets 445,200 644,700 (199,500)
Current maturities of notes
payable 1,670,500 943,700 (726,800)
Accounts payable 157,100 622,000 464,900
Accrued expenses 444,800 497,600 52,800
Deferred Revenue 363,500 368,500 5,000
-------------------------------------------
Current liabilities: 2,635,900 2,431,800 (204,100)
-------------------------------------------
Working capital $(2,190,700) $(1,787,100) $ (403,600)
===========================================
-10-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
Cash Used In Operating Activities. For the six month periods ended March
31, 2000 and 1999 cash used in operating activities were $620,400 and 708,900,
respectively, for a decrease of $88,500 or 12.5%. The decrease is primarily due
to decreased operating losses this period over the same period last year. The
Company's net loss amounted to $1,073,000 and $2,301,900 for six month periods
ended March 31, 2000 and 1999, respectively, which includes $531,900 and
$573,900 of non-cash charges for depreciation, amortization and stock
compensation expense.
Cash Used In Investing Activities. For the six month periods ended March
31, 2000 and 1999 cash used in investing activities were $68,200 and $222,300,
respectively, for a decrease of $154,100 or 69.3% The decrease is due to reduced
software development costs and reduced purchases of property and equipment.
Cash Generated in Financing Activities. Offsetting the expenditures of cash
used for operating and investing activities, was cash generated from financing
activities by borrowings of $1,000,000 from InfoCure and $184,400 from the
exercise of employee stock options. Uses of cash for financing activities
included $298,700 for principal payments on debt obligations.
The following schedule outlines convertible debenture activity:
<TABLE>
<CAPTION>
Balance Balance
9/30/99 Additions Conversions Amortization 3/31/00
------- --------- ----------- ------------ -------
<S> <C> <C>
July 98 300,000 - (300,000) - -
November 98 400,000 - (102,600) - 297,400
-------------------------------------------------------------------------------------
Total 700,000 - (402,600) - 297,400
-------------------------------------------------------------------------------------
Discount:
July 98 (21,500) - 21,000 500 -
November 98 (32,700) - 7,900 3,500 (21,300)
------------------------------------------------------------------------------------
Total (54,200) - 28,900 4,000 (21,300)
------------------------------------------------------------------------------------
Net: $645,800 - $(373,700) $4,000 $276,100
====================================================================================
</TABLE>
11
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
To continue MEDY's objective of curtailing operating losses, negative cash
flow from operations and further liquidity erosion, management is continually
reviewing product profit margins and general expense accounts, and will reduce
or eliminate all non-essential expenditures. However, MEDY anticipates that the
costs associated with finalizing and completing the announced InfoCure
transaction will result in a significant increase in its general and
administrative expenses during the next two fiscal quarters.
Although the decreases in lower margin revenues and the expenses associated
with those revenues have had a positive effect on net operating losses during
the current quarter, MEDY expects to continue to experience negative cash flow
from operations during the second six months of fiscal 2000 and possibly beyond.
During the first quarter of fiscal 2000, cash flow deficits were funded by
employee stock option exercises and by the loans from InfoCure. However, MEDY's
ability to fund its operations will be dependent upon achieving profitability
and generating a positive cash flow from operations in the future. Unless MEDY
is able to achieve and maintain positive operating cash flow during fiscal 2000,
MEDY may continue to face significant working capital shortages during the
fiscal year 2000. There can be no assurance that MEDY will be able to solve its
working capital shortage or that it will be able to finance working capital
shortages in the future.
Management of the Company does not believe that its existing capital
resources are sufficient for the balance of the 2000 fiscal year if it doesn't
begin to generate positive operating cash flow. The Company's plan in this
regard is to complete the merger transaction described with InfoCure Corporation
to alleviate the ongoing need for additional capital. The Company will also seek
to continue its efforts in cost cutting and gross margin improvement to improve
cash flow from operations as described below. If the Company is unable to
complete the announced transaction with InfoCure or generate significant
additional cash flow, the Company's financial condition and working capital
deficit are likely to deteriorate significantly because of the costs associated
with attempting to complete the InfoCure transaction as well as normal business
expenses.
-12-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
There are 3,295,071 vested common stock options and warrants outstanding as
of March 31, 2000, 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 $.875 and $5.00
per share and at April 24, 2000 the price of MEDY's common stock was
approximately $0.66. If MEDY does obtain additional capital (of which there can
be no assurance), MEDY will be able to fund operating losses until such time as
positive cash flow can be achieved, although no assurances of that fact can be
given.
Results of Operations. The Company is continuing its efforts in reducing
the size and operating expense of the organization in the form of personnel and
facilities in order to slow its growth and downsize the operation to such an
extent that it can continue to operate off its own internally generated cash
flow. No assurance can be given as to the success of such measures or whether
they can be accomplished in a time frame that would allow the Company to remain
an ongoing entity. Beginning in the third quarter of fiscal 1999, the Company
has made efforts to delete non-profitable operations and reduce expenses as a
method of creating positive cash flow and eventual profitability in the future.
In April of 1999, the Company ceased the manufacture of its intra oral camera
products at its Englewood, Colorado facility resulting in the termination of ten
employees and a $200,000 write down of impaired inventory. The Company intends
to purchase third party products from other vendors as opposed to manufacturing
its own brand. Gross Margins resulting from the sale of third party products are
expected to be similar, if not higher, than the Company was able to generate
from its own manufacturing capability, although no assurance of that fact can be
given.
In June and July of 1999 the Company ceased the majority of its operations
in its Marietta, Georgia facility where order fulfillment and installation was
coordinated for Dental Equipment Sales. The Company was able to eliminate seven
employees at the Marietta facility and additional employees throughout the
country involved in the installation and service of Dental Equipment including
computer hardware. These operations were consolidated into the Company's Los
Angeles operation utilizing significantly less personnel and the Company has
downsized the Dental Equipment portion of its revenues and related operating
expenses during the current quarter.
In August of fiscal 1999, the Company consolidated its accounting
operations into its Los Angeles office creating a decrease of three accounting
personnel. All of these efforts, along with a general attempt to decrease
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
company wide operating expenses, are designed to downsize the Company's lower
margin revenues and related expenses in such a fashion as to return it to
positive cash flow and eventual profitability, although no assurance of that
fact can be given.
As a result of these and a number of other actions MEDY has taken during
the current and past fiscal year, MEDY has been able to reduce its net losses
for the six month period ended March 31, 2000 to $(1,073,000) as compared to a
net loss of $(2,301,900) for the six months ended March 31, 1999.
Revenue. Software and training sales for the six month periods ended March
31, 2000 and 1999 were $717,900 and $2,334,900, respectively, for a decrease of
$1,617,000 or 69.3%. Software and training sales for the three month periods
ended March 31, 2000 and 1999 were $187,800 and $1,176,700, respectively, for a
decrease of $988,900 or 84.0%.
Equipment and installation sales for the six month periods ended March 31,
2000 and 1999 were $218,800 and $2,773,200, respectively, for a decrease of
$2,554,400 or 92.1%. Equipment and installation sales for the three month
periods ended March 31, 2000 and 1999 were $44,900 and $1,401,200, respectively,
for a decrease of $1,356,300 or 96.8%.
Decreased sales for both software/training and equipment/installation sales
are attributable to the elimination of a portion of the Company's direct sales
force and replacing them with a network of Value Added Resellers (VAR). This
action has had the effect of decreasing sales, but at the same time eliminating
significant selling and overhead expenses. Decreased sales in these categories
is also attributable to the closure of operations in Marietta, Georgia in July
of 1999 where order fulfillment and installation was coordinated. These
operations were significantly downsized with fewer hardware product lines and
consolidated into the Company's Los Angeles operation utilizing considerably
less personnel and related operating expenses with planned reduced revenues.
Software support services sales for the six month periods ended March 31,
2000 and 1999 were $1,305,800 and $1,156,400, respectively, for an increase of
$149,400 or 12.9%. Software support services sales for the three month periods
ended March 31, 2000 and 1999 were $660,700 and $604,900, respectively, for an
increase of $55,800 or 9.2%.
-14-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
Increased support services sales can be attributed to the increased
installed base of software users utilizing support services over the same period
last year.
MEDY believes that profit from these activities will improve as MEDY's
general and administrative expenses are consolidated and decreased and it's
operations become more efficient. There can be no assurance these positive
changes will ever result in an increase in cash flow or net income from MEDY's
operations (as compared to MEDY's historical net losses). Because of MEDY's
significant working capital deficit and negative cash flow, MEDY is attempting
to make these adjustments quickly, although there can be no assurance that MEDY
will be able to do so.
-15-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
Please refer to the schedules below for a summary of revenues, cost of sales,
and gross margins.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
-----------------------------------------------------------------------
March 31, Percent of March 31, Percent of
2000 Sales 1999 Sales
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software and training:
Sales $ 717,900 100.0% $ 2,334,900 100.0%
Cost of sales 347,100 48.4% 570,700 24.4%
----------- ------- ----------- -------
Gross margin $ 370,800 51.6% $ 1,764,200 75.6%
=========== ======= =========== =======
Equipment & installation:
Sales $ 218,800 100.0% $ 2,773,200 100.0%
Cost of sales 356,000 162.7% 1,930,800 69.6%
----------- ------- ----------- -------
Gross margin $ (137,200) (62.7)% $ 842,400 30.4%
=========== ======= =========== =======
Support services:
Sales $ 1,305,800 100.0% $ 1,156,400 100.0%
Cost of sales 350,000 26.8% 532,500 46.0%
----------- ------- ----------- -------
Gross margin $ 955,800 73.2% $ 623,900 54.0%
=========== ======= =========== =======
Total Sales $ 2,242,500 100.0% $ 6,264,500 100.0%
Total Cost of Sales 1,053,100 47.0% 3,034,000 48.4%
----------- ------- ----------- -------
Total Gross Margin 1,189,400 53.0% $ 3,230,500 51.6%
=========== ======= =========== =======
</TABLE>
-16-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
-------------------------------------------------------------------------
March 31, Percent of March 31, Percent of
2000 Sales 1999 Sale
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software and training:
Sales $ 187,800 100.0% $1,176,700 100.0%
Cost of sales 178,000 94.7% 300,600 25.5%
---------- ------- ---------- -------
Gross margin $ 9,800 5.3% $ 876,100 74.5%
========== ======= ========== =======
Equipment & installation:
Sales $ 44,900 100.0% $1,401,200 100.0%
Cost of sales 105,200 234.3% 1,042,700 74.4%
---------- ------- ---------- -------
Gross margin $ (60,300) (134.3)% $ 358,500 25.6%
========== ======= ========== =======
Support services:
Sales $ 660,700 100.0% $ 604,900 100.0%
Cost of sales 161,600 23.9% 272,100 45.0%
---------- ------- ---------- -------
Gross margin $ 499,100 76.1% $ 332,800 55.0%
========== ======= ========== =======
Total Sales $ 893,400 100.0% $3,182,800 100.0%
Total Cost of Sales 444,800 49.1% 1,615,400 50.8%
---------- ------- ---------- -------
Total Gross Margin $ 448,600 50.9% $1,567,400 49.2%
========== ======= ========== =======
</TABLE>
Cost of Sales. Cost of sales of software and training for the six month
periods ended March 31, 2000 and 1999 as a percent of software and training
revenue were 48.4% and 24.4%, respectively. Cost of sales of software and
training for the three month periods ended March 31, 2000 and 1999 as a percent
of software and training revenue were 94.7% and 25.5%, respectively.
Although the cost of sales percentage increased over the same periods last
year, actual cost of sales expenditures decreased over these periods. For the
six months ended March 31, 2000 and 1999, respectively, cost of sale
-17-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
expenditures were $347,100 and $570,700 respectively or a decrease of $223,600.
For the three month periods ended March 31, 2000 and 1999 cost of sale
expenditures were $178,000 and $300,600, respectively, or a decrease of
$122,600. The decrease in the gross margin percentage this period over the same
period last year is attributable to decreased sales. Sales decreased in greater
proportion than the decrease in cost of sales expenditures.
Cost of sales of equipment and installation for the six month periods ended
March 31, 2000 and 1999 as a percent of equipment and installation revenue were
162.7% and 69.6%, respectively. Cost of sales of equipment and installation for
the three month periods ended March 31, 2000 and 1999 as a percent of equipment
and installation revenue were 234.3% and 74.4%, respectively. The decrease in
the gross margin percentages are due to liquidation sales of inventory at lower
than list prices and increasing reserves for obsolete inventory. At March 31,
2000 net inventory was reduced to a liquidation value of $45,700.
Cost of sales for software support services for the six month periods ended
March 31, 2000 and 1999 as a percent of equipment and installation revenue were
26.8% and 46.0%, respectively. Cost of sales for software support service for
the three month periods ended March 31, 2000 and 1999 as a percent of equipment
and installation revenue were 23.9% and 45.0%, respectively. The increase in the
gross margin percentage is attributable to higher sales combined with lower cost
of sale expenditures due to cost cutting measures.
Selling & Marketing Expenses. Selling and marketing expenses as a
percentage of net sales for the six month periods ended March 31, 2000 and 1999
were 16.3% and 28.4%, respectively or a decrease of $1,419,100. Selling and
marketing expenses as a percentage of net sales for the three month periods
ended March 31, 2000 and 1999 were 18.6% and 26.4%, respectively or a decrease
of $673,800.
The decrease in selling and marketing expenditures is due to a reduction in
sales personnel, the closure of sales offices and reduced advertising
expenditures.
General and Administrative Expenses (G & A). G & A expenses for as a
percentage of net sales the six month periods ended March 31, 2000 and 1999 were
-18-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation. (Continued)
75.8% and 54.4%, respectively. G & A expenses for as a percentage of net sales
the three month periods ended March 31, 2000 and 1999 were 92.1% and 56.7%,
respectively. Although the percentage of G & A expenses relative to sales
increased over the same periods last year, actual G & A expenditures decreased.
For the six month periods ended March 31, 2000 and 1999 G & A expenses were
$1,700,700 and $3,505,600, respectively or a decrease of $1,704,900 or 50.1%.
For the three month periods ended March 31, 2000 and 1999 G & A expenses were
$823,300 and $1,805,700, respectively or a decrease of $982,400 or 54.4%.
Decreased costs are the result of the implementation of management's cost
cutting measures. Additional expense reductions have been implemented subsequent
to March 31, 2000 in proportion to decreased sales. General and Administrative
expenses will remain high, however, as the Company uses management time and
professional services necessary to complete the proposed transaction with
InfoCure.
Research and Development Costs (R & D). For the six month periods ended
March 31, 2000 and 1999, R & D expenses were $2,100 and $2,700, respectively.
For the three month periods ended March 31, 2000 and 1999, R & D expenses were
$0 and $2,100, respectively.
The Company's policy is to fund R & D as it deems appropriate to maintain
or gain a competitive advantage. Note that software development costs are not
included in R & D costs. After technological feasibility of products is
established, software development costs are capitalized then amortized to cost
of sales. For the six month periods ended March 31, 2000 and 1999 software
development costs capitalized were $68,200 and $120,000, respectively. For the
three month periods ended March 31, 2000 and 1999 software development costs
capitalized were $20,200 and $60,000, respectively.
Interest Income and Expense. For the six month periods ended March 31, 2000
and 1999, interest income was $7,000 and $6,400, respectively. For the three
month periods ended March 31, 2000 and 1999, interest income was $4,400 and
$3,300, respectively. Interest income is a function of current cash invested for
the period.
Interest expense for the six month periods ended March 31, 2000 and 1999
were $182,400 and $343,400, respectively. Interest expense for the three month
periods ended March 31, 2000 and 1999 were $92,300 and $241,500, respectively.
Decreased interest expense is attributable to several reasons. First, reduced
interest bearing debt at March 31, 2000 as compared to the same date last year.
Second, more non-cash charges for debt discounts and debt issue costs were
amortized as interest expense during the six months ended March 31, 1999 than
the same period for fiscal year 2000. Third, a larger portion of the interest
bearing debt was outstanding for more months during the six month period ended
March 31, 1999 as compared to the same period during fiscal year 2000.
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal or regulatory proceedings against MEDY
or CADI, and neither is aware of any that are known to be contemplated. From
time to time, CADI receives threatened or actual litigation from clients and
suppliers. In most instances, these cases are settled amicably for minimal
dollar amounts or for the additional contribution of CADI staff's time and are
considered to be in the ordinary course of CADI's business. Management has
created a Legal Reserve for such instances in the amount of $66,500, which it
believes is more than sufficient to cover these miscellaneous items.
CADI was very recently served with a third party complaint arising out of a
civil action filed in the district court of the 135th Judicial District, Refugio
County, Texas. The third party plaintiff (who is defendant in the original
action which CADI has not yet seen), is seeking, among other things, damages for
certain alleged misrepresentations, economic damages, exemplary damages, and
rescission. CADI has not had an opportunity to consult with Texas counsel or
analyze the facts associated with this case.
Item 2. Changes in Securities and Use of Proceeds.
On March 18, 1999, Resonance Ltd., an unaffiliated company located in the
Isle of Man, British Isles, purchased 523,834 shares of MEDY common stock for
$800,000. MEDY subsequently obtained effectiveness of a registration statement
related to those shares and additional shares of common stock underlying
warrants issued to Resonance. In addition, MEDY agreed to issue "additional
shares" to Resonance at various "determination dates." The determination dates
are two, four, and six months after the registration statement for the shares
issued to Resonance becomes effective. The number of additional shares to be
issued to Resonance are intended to compensate Resonance for one-third of the
decrease (if any) in market price of MEDY common stock during the period
following the original purchase. MEDY is obligated to issue no more than
2,060,033 shares and warrants pursuant to this obligation (the "Future Priced
Securities Cap"). On the third "determination date", November 5, 1999, MEDY
issued Resonance, Ltd. 77,866 additional shares. No underwriter was involved in
this transaction; no compensation was paid, and the Company received no proceeds
from this transaction.
-20-
<PAGE>
Convertible Securities Issued To Tail Wind
On March 31, 2000 there were $276,100 in 8% Convertible Debentures outstanding,
net of debt discount. In each case, the debentures contain a contractual
restriction preventing Tailwind from converting the debentures or exercising
warrants such that at any time it owns more than 4.99% of the Company's
outstanding common stock. These debentures are due November 16, 2003. Debentures
outstanding at maturity will automatically convert into common stock, at the
Company's option. Interest is payable in cash or MEDY common stock at Company's
option on each 5th day of January and July during the term. The Debenture is (by
its terms) convertible into not more than 1,880,000 shares of MEDY common stock.
In satisfaction of previous conversion requests, Tail Wind has received
1,880,000 shares (including 317,857 shares issued on conversion in January 2000)
and the remaining debentures are no longer convertible. Interest is payable in
cash or, at MEDY's discretion, shares of MEDY's common stock. Because of MEDY's
contractual inability to permit Tail Wind to convert all of the debentures in
January 2000, the remaining amount due, plus interest, is due on Tail Wind's
demand, but not before July 6, 2000.
Both Resonance and Tail Wind are domiciled outside the United States and
have represented to MEDY that each is an accredited investor. All securities
issued to either Resonance or Tail Wind have been issued pursuant to Regulation
D or S under the Securities Act of 1933.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial data schedule.
(b) Reports on Form 8-K:
The Company's Current Report on Form 8-K reporting events
of:
April 10, 2000 describing an amendment to the Definitive
Merger Agreement with InfoCure Corporation wherein the
outside completion date was extended to July 31, 2000 and
the parties eliminated the pooling of interest requirement
of the transaction.
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 12, 2000 /s/ Van A. Horsley
---------------------------------
Van A. Horsley, President,
Principal Executive Officer,
and Principal Financial Officer
/s/ Peter Tatar
---------------------------------
Peter Tatar
Controller and Principal
Accounting Officer
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 351,800
<SECURITIES> 0
<RECEIVABLES> 117,500
<ALLOWANCES> 71,000
<INVENTORY> 45,700
<CURRENT-ASSETS> 445,200
<PP&E> 1,332,100
<DEPRECIATION> 972,900
<TOTAL-ASSETS> 4,904,600
<CURRENT-LIABILITIES> 2,635,900
<BONDS> 0
0
0
<COMMON> 13,200
<OTHER-SE> 2,089,000
<TOTAL-LIABILITY-AND-EQUITY> 4,904,600
<SALES> 2,242,500
<TOTAL-REVENUES> 2,253,300
<CGS> 1,053,100
<TOTAL-COSTS> 3,143,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,400
<INCOME-PRETAX> (1,073,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,073,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,073,000)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
