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 June 30, 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
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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 August 10, 2000 were 13,247,026 shares, $.001 par value.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS 6/30/00 9/30/99
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 417,400 $ 180,000
Trade receivables, less allowance for
doubtful accounts of $54,800 and $67,300 28,200 254,400
Inventories 2,500 189,200
Prepaid expenses 800 21,100
----------- -----------
Total Current Assets 448,900 644,700
----------- -----------
SOFTWARE DEVELOPMENT AND SUPPORT:
Software development costs, net of
accumulated amortization of $1,205,000
and $856,200
2,065,000 2,345,600
Technical support contracts, net of
accumulated amortization of $816,500
and $593,800
668,000 890,700
----------- -----------
Total Software Development and Support 2,733,000 3,236,300
----------- -----------
PROPERTY AND EQUIPMENT:
Demonstration equipment 438,200 438,200
Machinery and equipment 606,100 606,100
Furniture and fixtures 235,600 235,600
Leasehold improvements 54,500 54,500
----------- -----------
1,334,400 1,334,400
Less accumulated depreciation and
Amortization (1,002,400) (913,300)
----------- -----------
Property and Equipment, Net 332,000 421,100
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated
Amortization of $204,100 and $139,900 1,072,000 1,136,200
Non-compete agreement's net of accumulated
Amortization of $174,200 and $151,700 25,000 47,500
Debt issuance costs, net of accumulated --
Amortization of $560,300 and $481,000 800 80,100
Patents and trademarks, net of accumulated
Amortization of $795,600 and $785,900 3,100 12,800
Deposits and other 22,000 24,300
----------- -----------
Total Other Assets 1,122,900 1,300,900
----------- -----------
TOTAL ASSETS $ 4,636,800 $ 5,603,000
=========== ===========
-2-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND STOCKHOLDERS' EQUITY 6/30/00 9/30/99
------------- ------------
CURRENT LIABILITIES:
Current maturities of notes payable &
convertible debentures
$ 2,003,200 $ 943,700
Accounts payable 97,000 622,000
Accrued expenses 501,100 497,600
Unearned revenue 299,300 368,500
------------ ------------
Total Current Liabilities 2,900,600 2,431,800
------------ ------------
NOTES PAYABLE, net 138,800 207,600
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 (26,768,900) (25,191,100)
------------ ------------
Total Stockholders' Equity 1,597,400 2,592,800
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,636,800 $ 5,603,000
============ ============
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended Nine Months
June 30 June 30
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
NET SALES:
Software & training $ 49,000 $ 1,013,300 $ 766,900 $ 3,348,200
Equipment & Installation 7,900 1,175,900 226,800 3,949,100
Support services 665,300 676,000 1,971,000 1,832,400
------------ ------------ ------------ ------------
722,200 2,865,200 2,964,700 9,129,700
------------ ------------ ------------ ------------
COST OF SALES:
Software & training 125,600 470,100 472,700 1,040,800
Equipment & Installation 60,400 960,300 416,300 2,891,100
Support services 179,000 95,700 529,000 628,200
------------ ------------ ------------ ------------
365,000 1,526,100 1,418,000 4,560,100
------------ ------------ ------------ ------------
GROSS PROFIT 357,200 1,339,100 1,546,700 4,569,600
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling & marketing 103,900 616,300 469,700 2,401,100
General & administrative 636,600 1,450,500 2,337,300 4,856,100
Stock based compensation -- 15,000 24,400 42,500
Research & development -- -- -- 2,700
------------ ------------ ------------ ------------
Total operating expenses 740,500 2,081,800 2,831,400 7,302,400
------------ ------------ ------------ ------------
OPERATING LOSS (383,300) (742,700) (1,284,700) (2,732,800)
OTHER INCOME (EXPENSE):
Other income -- 15,800 3,800 41,000
Interest income 3,100 4,700 10,100 11,100
Interest expense (124,600) (68,800) (307,000) (412,200)
------------ ------------ ------------ ------------
NET LOSS $ (504,800) $ (791,000) $ (1,577,800) $ (3,092,900)
============ ============ ============ ============
Earnings per share $ (0.04) $ (0.07) $ (0.12) $ (0.29)
============ ============ ============ ============
Weighted average number
Of shares outstanding 12,720,900 10,628,600 12,720,900 10,628,600
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30
--------------------------------------
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net Loss $(1,577,800) $(3,092,900)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Common stock options granted for compensation
and other services 24,400 42,000
Depreciation expense 89,100 117,200
Amortization of intangible assets 667,900 529,700
Amortization of debt discount and issuance costs 117,000 202,000
Conversion of accrued interest on debentures
to common stock -- 83,700
Provision for obsolete & slow moving inventories (31,600) 230,000
Changes in operating assets and Liabilities, net
of effect of acquisitions:
Decrease (increase) in:
Trade receivable 226,200 386,700
Restricted Cash -- 50,000
Inventories 218,300 (205,800)
Prepaid expenses and other assets 22,600 (8,300)
Deposits and other -- (36,800)
Increase (decrease) in:
Accounts payable (525,000) 345,700
Accrued expenses 3,500 391,200
Unearned revenue (69,200) (29,800)
----------- -----------
Net cash used in operating activities (834,600) (995,400)
----------- -----------
Cash Flows From Investing Activities:
Software development costs (68,200) (156,000)
Purchase of property and equipment -- (83,600)
----------- -----------
Net cash used in investing activities (68,200) (239,600)
----------- -----------
-5-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Nine Months Ended June 30
-----------------------------------
2000 1999
--------- --------
Cash Flows From Financing Activities:
Proceeds from borrowings 1,300,000 671,800
Principal payments related to:
Notes Payable (304,700) (486,000)
Capital lease obligations (39,400) (28,800)
Debt Issuance costs (58,000)
Proceeds from exercise of options of
common stock 184,300 124,400
Net proceeds from issuance of
Convertible debenture -- 767,100
----------- -----------
Net cash provided by (used in) financing activities
1,140,200 990,500
----------- -----------
Net Increase/(decrease) in Cash and Equivalents
237,400 (244,500)
Cash and Equivalents, beginning of period 180,000 553,100
----------- -----------
Cash and Equivalents, end of period $ 417,400 $ 308,600
=========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid for interest $ 24,800 $ 47,800
=========== ===========
Supplemental Schedule of Non-cash
Investing and Financing Activities:
Conversion of debentures to common stock,
Net of discount $ 373,700 $ 1,140,000
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-
</TABLE>
<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 June 30, 2000 and June 30, 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 June 30, 2000, MEDY had 2,596,737 of vested common stock
options and warrants outstanding. Total common stock options and warrants
outstanding (including both vested and unvested) were 3,316,737 at June 30,
2000.
NOTE 3. INVENTORIES
Inventories consist of the following at June 30, 2000 and September 30,
1999:
June 30 September 30
2000 1999
----------- ----------
Raw materials and replacement parts $ 186,700 $ 186,700
Finished goods 29,200 247,500
Allowance for obsolescence (213,400) (245,000)
------------ ----------
$ 2,500 $ 189,200
============ ==========
At June 30, 2000 total inventories have decreased $ 186,700 due to
liquidated sales of finished goods inventories.
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.
-7-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 an increased working capital
deficit of $2,451,700 at June 30, 2000). Unless the Company can obtain
additional debt, raise additional equity, or complete the announced transaction
with InfoCure Corporation as described below, there is 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 financial statements included in the Form 10KSB, and
also in the 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 0.05672 shares of
INCX common stock for each share 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 August 2, 2000, the price of InfoCure stock was $4.69
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 August 15, 2000. Shareholder approval has been
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.
-8-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
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. 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 September 30, 2000 or 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
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.
-9-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
Financial Condition. (June 30, 2000 as compared to September 30, 1999)
During the nine month period ended June 30, 2000, MEDY's net working capital
decreased $664,600 and, consequently, at June 30, 2000 MEDY had a working
capital deficit of $2,451,700 where its current assets were less than its
current liabilities. Principal changes in the components of net working capital
(W/C) for the nine months ended June 30, 2000 consist of:
<TABLE>
<CAPTION>
June 30 September 30 W/C
2000 1999 Effect
----------- ----------- -----------
<S> <C> <C> <C>
Cash & Equivalents 417,400 $ 180,000 $ 237,400
Trade Receivables 28,200 254,400 (226,200)
Inventories 2,500 189,200 (186,700)
Pre-paid Expenses 800 21,100 (20,300)
----------- ----------- -----------
Total Current Assets 448,900 644,700 (195,800)
Current maturities of notes
payable
2,003,200 943,700 (1,059,500)
Accounts payable 97,000 622,000 525,000
Accrued expenses 501,100 497,600 (3,500)
Deferred Revenue 299,300 368,500 69,200
----------- ----------- -----------
Current liabilities: 2,900,600 2,431,800 (468,800)
----------- ----------- -----------
Working capital $(2,451,700) $(1,787,100) $ (664,600)
=========== =========== ===========
</TABLE>
Cash Used In Operating Activities. For the nine month periods ended June
30, 2000 and 1999 cash used in operating activities were $834,600 and 995,400,
respectively, for a decrease of $160,800 or 16.2%. The decrease is partly due to
a lower net loss this period over the same period last year. The Company's net
loss amounted to $1,577,800 and $3,092,900 for nine month periods ended June 30,
2000 and 1999, respectively, which includes $781,400 and $688,900 of non-cash
charges for depreciation, amortization and stock compensation expense.
Cash Used In Investing Activities. For the nine month periods ended June
30, 2000 and 1999 cash used in investing activities were $68,200 and $239,600,
respectively, for a decrease of $171,400 or 71.5% The decrease is due to reduced
software development costs and reduced purchases of property and equipment.
-10-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
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 $1,300,000 from InfoCure and $184,400 from the
exercise of employee stock options. Uses of cash for financing activities
included $304,700 for principal payments on debt obligations.
The following schedule outlines convertible debenture activity:
<TABLE>
<CAPTION>
Balance Balance
Debenture: 9/30/99 Additions Conversions Amortized 6/30/00
--------- --------- ----------- --------- -------
<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 24,000 (800)
---------------------------------------------------------------------------------------
Total (54,200) - 28,900 24,500 (800)
---------------------------------------------------------------------------------------
Net: $ 645,800 - $(373,700) $ 24,500 $ 296,600
=======================================================================================
</TABLE>
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 fiscal quarter.
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 last three months of fiscal 2000 and possibly beyond.
During the first three quarters 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.
-11-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
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.
There are 2,596,737 vested common stock options and warrants outstanding as
of June 30, 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 August 2, 2000, the price of MEDY's stock was approximately
$0.47 per share. 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.
-12-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
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
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 nine month period ended June 30, 2000 to $(1,577,800) as compared to a
net loss of $(3,092,600) for the nine month period ended June 30, 1999.
Revenue. Software and training sales for the nine month periods ended June
30, 2000 and 1999 were $766,900 and $3,348,200, respectively, for a decrease of
$2,581,300 or 77.1%. Software and training sales for the three month periods
ended June 30, 2000 and 1999 were $49,000 and $1,013,300, respectively, for a
decrease of $964,300 or 95.2%.
Equipment and installation sales for the nine month periods ended June 30,
2000 and 1999 were $226,800 and $3,949,100, respectively, for a decrease of
$3,722,300 or 94.3%. Equipment and installation sales for the three month
periods ended June 30, 2000 and 1999 were $7,900 and $1,175,900, respectively,
for a decrease of $1,168,900 or 99.3%.
Decreased sales for both software/training and equipment/installation sales
are attributable to reductions to the Company's sales force and a deemphasis on
marketing the CADI brand of software in anticipation of MEDY's merger with
InfoCure Corporation. 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.
-13-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
Software support services sales for the nine month periods ended June 30,
2000 and 1999 were $1,971,000 and $1,832,400, respectively, for an increase of
$138,600 or 7.6%. Software support services sales for the three month periods
ended June 30, 2000 and 1999 were $665,300 and $676,000, respectively, for an
decrease of $10,700 or 1.6%.
Increased support services sales for the nine month period ended June 30,
2000 over the same period last year can be attributed to the increased installed
base of software users utilizing support services.
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.
Please refer to the schedules below for a summary of revenues, cost of
sales, and gross margins.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
-------------------------------- -------------------------------
June 30, Percent of June 30, Percent of
2000 Sales 1999 Sales
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Software and training:
Sales $ 766,900 100.0% $ 3,348,200 100.0%
Cost of sales 472,700 61.6% 1,040,800 31.1%
----------- -------- ----------- --------
Gross margin $ 294,200 38.4% $ 2,307,400 68.9%
=========== ======== =========== ========
Equipment & installation:
Sales $ 226,800 100.0% $ 3,949,100 100.0%
Cost of sales 416,300 183.6% 2,891,100 73.2%
----------- -------- ----------- --------
Gross margin $ (189,500) (83.6)% $ 1,058,000 26.8%
=========== ======== =========== ========
Support services:
Sales $ 1,971,000 100.0% $ 1,832,400 100.0%
Cost of sales 529,000 26.8% 628,200 34.3%
----------- -------- ----------- --------
Gross margin $ 1,442,000 73.2% $ 1,204,200 65.7%
=========== ======== =========== ========
Total Sales $ 2,964,700 100.0% $ 9,129,700 100.0%
Total Cost of Sales 1,418,000 47.8% 4,560,100 49.9%
----------- -------- ----------- --------
Total Gross Margin 1,546,700 52.2% $ 4,569,600 50.1%
=========== ======== =========== ========
-14-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
Three Months Ended Three Months Ended
------------------------------- -------------------------------
June 30, Percent of June 30, Percent of
2000 Sales 1999 Sales
---------- ---------- ---------- -----------
Software and training:
Sales $ 49,000 100.0% $1,013,300 100.0%
Cost of sales 125,600 256.3% 470,100 46.4%
---------- -------- ---------- --------
Gross margin $ (76,600) (156.3)% $ 543,200 53.6%
========== ======== ========== ========
Equipment & installation:
Sales $ 7,900 100.0% $1,175,900 100.0%
Cost of sales 60,400 764.6% 960,300 81.7%
---------- -------- ---------- --------
Gross margin $ (52,500) (664.6)% $ 215,600 18.3%
========== ======== ========== ========
Support services:
Sales $ 665,300 100.0% $ 676,000 100.0%
Cost of sales 179,000 26.9% 95,700 14.2%
---------- -------- ---------- --------
Gross margin $ 486,300 73.1% $ 580,300 85.8%
========== ======== ========== ========
Total Sales $ 722,200 100.0% $2,865,200 100.0%
Total Cost of Sales 365,000 50.5% 1,526,100 53.3%
---------- -------- ---------- --------
Total Gross Margin $ 357,200 49.5% $1,339,100 46.7%
========== ======== ========== ========
</TABLE>
-15-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
Cost of Sales. Cost of sales of software and training for the nine month
periods ended June 30, 2000 and 1999 as a percent of software and training
revenue were 61.6% and 31.1%, respectively. Cost of sales of software and
training for the three month periods ended June 30, 2000 and 1999 as a percent
of software and training revenue were 256.3% and 46.4%, 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
nine months ended June 30, 2000 and 1999, respectively, cost of sale
expenditures were $472,700 and $1,040,800 respectively or a decrease of
$568,100. For the three month periods ended June 30, 2000 and 1999 cost of sale
expenditures were $125,600 and $470,100, respectively, or a decrease of
$344,500. 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 nine month periods
ended June 30, 2000 and 1999 as a percent of equipment and installation revenue
were 183.6% and 73.2%, respectively. Cost of sales of equipment and installation
for the three month periods ended June 30, 2000 and 1999 as a percent of
equipment and installation revenue were 764.6% and 81.7%, respectively. The
increase in the cost of sales percentages are due to liquidation sales of
inventory at lower than list prices. At June 30, 2000 net inventory was reduced
to a liquidation value of only $2,500.
Cost of sales for software support services for the nine month periods
ended June 30, 2000 and 1999 as a percent of equipment and installation revenue
were 26.8% and 34.3%, respectively. Cost of sales for software support service
for the three month periods ended June 30, 2000 and 1999 as a percent of
software support services revenue were 26.9% and 14.2%, respectively. The
decrease in the cost of sales percentage for the nine month period ended June
30, 2000 over the same period last year 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 nine month periods ended June 30, 2000 and 1999
were 15.8% and 26.3%, respectively, or a decrease of $1,931,400. Selling and
marketing expenses as a percentage of net sales for the three month periods
ended June 30, 2000 and 1999 were 14.4% and 21.5%, respectively or a decrease of
$512,400.
-16-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
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 as a percentage
of net sales the nine month periods ended June 30, 2000 and 1999 were 78.8% and
53.2%, respectively. G & A expenses as a percentage of net sales the three month
periods ended June 30, 2000 and 1999 were 88.1% and 50.6%, 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 nine month
periods ended June 30, 2000 and 1999 G & A expenses were $2,337,300 and
$4,856,100, respectively or a decrease of $2,518,800 or 51.9%. For the three
month periods ended June 30, 2000 and 1999 G & A expenses were $636,600 and
$1,450,500, respectively or a decrease of $813,900 or 56.1%. Decreased costs are
the result of the implementation of management's cost cutting measures, however,
General and Administrative expenses will remain high 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 nine month periods ended
June 30, 2000 and 1999, R & D expenses were $0 and $2,700, respectively. For the
three month periods ended June 30, 2000 and 1999, no R & D expenditures were
incurred.
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 nine month periods ended June 30, 2000 and 1999 software
development costs capitalized were $68,200 and $171,100, respectively. For the
three month periods ended June 30, 2000 and 1999 software development costs
capitalized were $0 and $36,000, respectively.
-17-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation. (Continued)
Interest Income and Expense. For the nine month periods ended June 30,
2000 and 1999, interest income was $10,100 and $11,100, respectively. For the
three month periods ended June 30, 2000 and 1999, interest income was $3,100 and
$4,700, respectively. Interest income is a function of current cash invested for
the period.
Interest expense for the nine month periods ended June 30, 2000 and 1999
were $307,000 and $412,200, respectively. Interest expense for the three month
periods ended June 30, 2000 and 1999 were $124,600 and $68,800, respectively.
Decreased interest expense for the nine month period ended June 30, 2000 over
the same period last year is attributable to more non-cash charges for debt
discounts and debt issue costs being amortized as interest expense for the nine
months ended June 30, 1999 than the same period for fiscal year 2000. In
contrast to the three month periods ended June 30, 2000 and 1999 whereby more
non-cash charges were amortized to interest expense for the quarter ended June
30, 2000 over the same quarter ended last year.
-18-
<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.
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.
On June 30, 2000 there were $296,600 in 8% Convertible Debentures
outstanding, net of debt discount to The Tailwind Fund, Ltd. 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 now payable in cash on each 5th day of January and July during the
term. The Debenture and any unpaid interest 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 and
interest are no longer convertible. 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 and a 15% premium, 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.
-19-
<PAGE>
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:
May 22, 2000 describing an amendment to the Definitive Merger Agreement
with InfoCure Corporation which provided that InfoCure may pay persons who
hold 1,000 or fewer shares of MEDY cash rather than issuing them shares of
InfoCure common stock if the Merger is completed.
June 22, 2000 describing an amendment to the Definitive Merger Agreement
with InfoCure Corporation wherein the outside completion date was extended
to August 31, 2000.
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: August 10, 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
-20-
