SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1996
Commission File Number 0-12516
Dynamic Healthcare Technologies, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-3389871
(State of Incorporation) (IRS E.I.N.)
101 Southhall Lane, Suite 210, Maitland, Florida 32751
(Address of principal executive offices) (ZIP Code)
(407) 875-9991
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by checkmark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a Court.
Yes No
As of July 30, 1996, there were 6,681,786 shares outstanding,
par value $.01 per share, of the issuer's only class of common
stock.
This report consists of twenty (20) pages.
The index to exhibits appears on page nineteen (19).
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See attached statements following this item number.
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Dynamic Healthcare Technologies, Inc.
We have reviewed the condensed consolidated balance sheet of
Dynamic Healthcare Technologies, Inc. and subsidiary as of June
30, 1996, and the related condensed consolidated statements of
operations for the three and six month periods ended June 30,
1996 and 1995 and the related condensed consolidated statements
of cash flows for the six month periods ended June 30, 1996 and
1995. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of Dynamic
Healthcare Technologies, Inc. as of December 31, 1995, and the
related statements of operations, shareholders' equity, and cash
flows for the year then ended; and in our report dated March 6,
1996, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1995, is
fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
\S\KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Orlando, Florida
July 30, 1996
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
<S> <C> <C>
June 30,1996 December 31, 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 771,186 $2,290,366
Restricted cash - 50,000
Accounts receivable,
net of allowance for
doubtful accounts of
$283,739 at June 30,
1996, and $140,837 at
December 31, 1995 2,914,653 2,811,711
Unbilled receivables 322,860 307,693
Lease receivables - current 197,873 -
Other current assets 437,284 141,569
Total current assets 4,643,856 5,601,339
Property, equipment and
leasehold improvements,
net of accumulated
depreciation of$2,045,490
at June 30, 1996, and
$1,834,661 at December
31, 1995 1,412,438 1,119,278
Capitalized software
development costs, net of
accumulated amortization of
$2,202,179 at June 30,
1996, and $1,835,701 at
December 31, 1995 3,907,092 2,040,727
Goodwill, net of accumulated
amortization of $286,825 at
at June 30, 1996 and $209,479
at December 31, 1995 796,012 873,358
Lease receivables - non-current 256,489 -
Other assets 24,609 24,408
$11,040,496 $9,659,110
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses $2,444,019 $ 852,515
Deferred revenue 1,546,026 1,818,871
Advance billings 257,436 80,260
Notes payable - current
maturities 273,958 73,285
Total current liabilities 4,521,439 2,824,931
Notes payable 2,914,939 2,726,715
Other 6,855 43,053
Total liabilities 7,443,233 5,594,699
Shareholders' equity:
Series A preferred stock,
$0.01 par value
(liquidation preference
of $792,438); authorized
1,055,938 shares; issued
and outstanding 968,750
shares as of June 30,
1996 and December 31, 1995 9,688 9,688
Series B preferred stock,
$0.01 par value,
(liquidation preference of
$3,067,500); authorized
4,384,375 shares; issued
and outstanding 3,750,000
shares as of June 30, 1996
and December 31, 1995 37,500 37,500
Common stock, $0.01 par
value, authorized 20,000,000
shares; issued and outstanding
6,681,586 shares at June
30, 1996 and 6,611,646
shares at December 31, 1995 66,816 66,116
Additional paid-in capital 12,955,009 12,900,738
Deficit (9,471,750) (8,949,631)
Total shareholders'
equity 3,597,263 4,064,411
$11,040,496 $ 9,659,110
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Operating revenues
Computer system
equipment sales
and support $1,117,406 $354,409 $1,592,474 $742,442
Application
software
licenses 1,035,315 707,917 1,305,582 1,546,902
Software
support 1,285,850 914,729 2,295,014 1,696,422
Services and
other 568,980 290,245 1,124,319 515,724
Total operating
revenues 4,007,551 2,267,300 6,317,389 4,501,490
Operating expenses:
Cost of products
sold 955,050 293,131 1,359,361 658,939
Client services
expense 1,250,428 640,694 2,002,877 1,364,883
Software
development
costs 478,620 437,732 826,879 915,123
Sales and
marketing costs 852,478 540,459 1,536,152 1,117,632
General and
administrative
expense 564,041 491,762 1,008,644 947,682
Total operating
expenses 4,100,617 2,403,778 6,733,913 5,004,259
Operating income
(loss) (93,066) (136,478) (416,524) (502,769)
Other income
(expense):
Interest expense
and financing
costs (101,976) (88,848) (179,657) (167,623)
Loss on sale of
fixed assets - (62,283) - (62,283)
Miscellaneous 39,834 25,207 74,062 27,236
Total other
income (expense) (62,142) (125,924) (105,595) (202,670)
Net earnings (loss)
before income taxes (155,208) (262,402) (522,119) (705,439)
Income taxes - - - -
Net earnings (loss) $ (155,208) $(262,402) $ (522,119) $(705,439)
Net earnings (loss)
per share $ (.02) $ (.04) $ (.08) $ (.11)
Weighted average
number of common
and common
equivalent shares
outstanding 6,626,733 6,582,883 6,619,190 6,294,977
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
June 30,
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Net earnings (loss) $ (522,119) $ (705,439)
Adjustments to reconcile net
earnings (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 654,653 536,805
Loss on sale of fixed assets - 62,283
Changes in assets and liabilities:
Accounts receivable 467,894 508,932
Unbilled receivable 183,498 (70,640)
Lease receivables 36,737 -
Other current assets 207,196 74,790
Accounts payable and
accrued expenses 451,509 55,440
Other current liabilities (250,000) -
Deferred revenues (362,004) (417,785)
Advance billings (98,702) (105,482)
Other assets 3,559 3,113
Net cash provided (used)
by operating activities 772,221 (57,983)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software
development costs (604,321) (447,121)
Purchases of property
and equipment (280,260) (232,693)
Proceeds from sale of
fixed assets - 26,646
Restricted cash released
from escrow 50,000 -
Purchase of net assets
of Dimensional Medicine, Inc. (1,399,389) -
Net cash used by
investing activities (2,233,970) (653,168)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit - 611,599
Repayments of bank note payable (38,669) -
Proceeds from subordinated
convertible notes payable - 350,000
Repayments of lease obligations (37,535) -
Repayment of other long term debt (36,198) (35,559)
Proceeds from issuance of common stock 28,683 -
Proceeds from exercise of
incentive stock options 136,070 10,818
Payment of preferred stock
dividends (109,782) -
Net cash flows provided
(used) by financing activities (57,431) 936,858
Net increase (decrease) in cash
and cash equivalents (1,519,180) 225,707
Cash and cash equivalents,
beginning of period 2,290,366 10,173
Cash and cash equivalents,
end of period $ 771,186 $ 235,880
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(A) Unaudited Financial Statements:
The accompanying unaudited Condensed Consolidated Balance Sheet
as of June 30, 1996, Condensed Consolidated Statements of
Operations for the three and six month periods ended June 30,
1996 and 1995, and Condensed Consolidated Statements of Cash
Flows for the six month periods ended June 30, 1996 and 1995,
have been prepared by management in conformity with generally
accepted accounting principles for interim financial statements
and with instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all the disclosures required by
generally accepted accounting principles for complete financial
statements. All adjustments and accruals considered necessary
for fair presentation of financial information have been
included in the opinion of management. Operating results for
the three and six month periods ended June 30, 1996, are not
necessarily indicative of the operating results which may be
expected for the year ending December 31, 1996.
(B) Acquisition of Dimensional Medicine, Inc.:
On May 1, 1996, Dimensional Medicine, Inc. ("DMI") was purchased
by and merged into DMI Acquisition Corporation ("DMIAC"), a
newly formed wholly owned subsidiary of the Registrant. The
transaction was consummated by purchasing all of the outstanding
common stock, and retiring and assuming certain debt obligations
of DMI. The funds used for purchase of DMI were obtained from
available cash and cash equivalents of the Registrant.
Components of the payment for the purchase of DMI on May 1, 1996
were:
Purchase of Common Stock $ 550,200
Satisfaction of DMI debt Obligations 879,636
Cash Paid 1,429,836
Less: Cash Acquired (30,447)
Purchase of DMI, net of cash acquired $1,399,389
The acquisition has been accounted for using the purchase
method. The purchase price was allocated to assets and
liabilities presented in the accompanying consolidated balance
sheet based upon their estimated fair values. A summary of
these allocations on May 1, 1996 is as follows:
Accounts Receivable, net of allowance for
doubtful accounts of $142,902 $ 570,836
Unbilled Receivables 198,665
Lease Receivables Current 205,981
Other Current Assets 502,911
Total Current Assets 1,478,393
Property & Equipment 223,729
Capitalized Software Development Costs 1,628,522
Lease Receivables 285,118
Other Assets 3,760
Total Assets Acquired 3,619,522
Accounts Payable and Accrued Expenses (1,139,995)
Deferred Revenue (89,159)
Advanced Billings (275,878)
Notes Payable - Current Maturities (458,858)
Total Current Liabilities (1,963,890)
Notes Payable (256,243)
Net Liabilities Assumed (2,220,133)
Purchase of DMI, net of cash acquired $ 1,399,389
<PAGE>
(C) Principle of Consolidation:
The consolidated financial statements include the accounts of
Dynamic Healthcare Technologies, Inc. and DMI Acquisition
Corporation, its newly formed wholly owned subsidiary from
inception of May 1, 1996 (collectively hereafter referred to as
the "Company" or "Registrant"). All significant intercompany
transactions and accounts have been eliminated in consolidation.
(D) Unaudited Pro Forma Combined Condensed Financial Information:
The unaudited pro forma combined financial information, for the
six months ended June 30, 1996 and 1995, presented below (in
thousands, except for per share information), gives effect to
the acquisition of DMI, as though it were effective at the
beginning of those periods. The pro forma information may not
be indicative of the results that would have occurred if the
acquisition had been effective on these dates, or of results
that may be obtained in the future.
Six Months Ended June 30,
1996 1995
Total Operating Revenues $ 7,323 $ 7,242
Operating Income (Loss) $ (1,537) $ (475)
Net Income (Loss) $ (1,632) $ (733)
Net Income (Loss) Per Share $ (.25) $ (.12)
(E) Lease Receivables:
Prior to the merger date of May 1, 1996, DMI financed the sale
of computer equipment under lease contracts on behalf of certain
of its customers . These leases provided for monthly principal
and interest payments and typically provided for an initial five
year term. Lease receivables, as shown on the accompanying
financial statements, represent the minimum lease payments
receivable less unearned interest. The future minimum lease
payments to be received are summarized as follows:
For the Year Ending June 30, Amount
1997 $ 225,160
1998 171,973
1999 81,236
2000 11,094
2001 and thereafter -
$ 489,468
(F) Notes Payable:
Notes payable consists of the following (in thousands):
June 30, 1996 Dec. 31, 1995
First Union Note Payable $ 2,761 $ 2,800
Other Notes Payable 428 -
3,189 2,800
Less - Current Maturities (274) (73)
$ 2,915 $ 2,727
The First Union Note Payable is payable in fixed monthly
payments of principal and interest of $29,911, and a balloon
payment equal to the remaining unpaid principal balance and
accrued interest on March 31, 1998. Interest on the outstanding
principal balance accrues at First Union's prime rate plus two
percent per annum (10.25% as of June 30, 1996). Under the
applicable Credit Agreement, First Union has a security interest
in all the assets of the Company.
Other notes payable represent installment obligations payable in
monthly amounts of between $2,300 and $10,000 each. The notes
bear fixed rate interest ranging from 7.3% - 11% and are secured
by assignments of the lease receivables. (See also Note E).
<PAGE>
Maturities of long term debt at June 30, 1996 are anticipated to
approximate the following (in thousands):
For the Year Ending June 30, Amount
1997 $ 274
1998 2,853
1999 51
2000 11
2001 and thereafter -
$ 3,189
(G) Preferred Dividends:
On May 21, 1996 the Company's Board of Directors declared and
paid the March 31, 1996 accumulated dividend on Series A and
Series B Preferred Stock of $17,438 and $67,500, respectively.
As of July 31, 1996 the June 30, 1996 accumulated dividend
preferences on Series A and Series B Preferred Stock of $17,438
and $67,500, respectively, had not been declared by the
Company's Board of Directors.
(H) Subsequent Event:
On July 29, 1996 the Registrant merged with and into a newly
formed DHT Florida, Inc., a Florida corporation, then a wholly
owned subsidiary of the Registrant. DHT Florida, Inc. in
connection with the merger changed its name to Dynamic
Healthcare Technologies, Inc. Each outstanding share of the
Registrant's Common Stock, Series A and Series B Preferred Stock
immediately prior to the merger was converted into one share of
fully paid and non-assessable similar stock in the surviving
corporation upon identical terms and conditions. The purpose of
the merger was to effect a reincorporation in the State of
Florida for the Registrant as authorized by shareholders at the
Company's Annual Shareholders' Meeting May 21, 1996.
<PAGE>
Item 2. Management's discussion and analysis of financial
condition and results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading provider of enterprise-wide,
patient-centered healthcare information systems. These systems
enable hospitals, physician practice groups and integrated
delivery networks to capture, store, archive and retrieve
clinical, financial and administrative patient information. The
Company's products enhance productivity, reduce costs and
improve the quality of patient care by providing on-line access
to patient information previously maintained on a variety of
media, including paper, X-ray film, magnetic disk, video and
audio. The Company's current product lines include clinical
information systems for use in laboratory, anatomic pathology,
radiology and anesthesiology applications as well as imaging and
electronic health record solutions. The Company provides
support for all of its systems and provides systems integration
and other consulting services to over 300 customers in 44
states. Key customers include the University of California at
Los Angeles Medical Center, University of Illinois at Chicago
Medical Center, Methodist Hospital of Memphis, Memorial
Sloan-Kettering Cancer Center, Ohio State University Hospital,
Columbia/HCA, Greater Dayton Area Hospital Association, Advocate
Health Care, Temple University Hospital, UniHealth and Orlando
Regional Health System.
The Company's new electronic health record product,
DynamicVision, provides connectivity and enabling technologies
which integrate the Company's clinical and imaging information
systems, as well as those from other companies, to create an
open architecture, multi-media clinical workstation.
DynamicVision provides prompt and simultaneous on-line access to
information stored in various systems and data repositories
located at multiple sites. This information can include
documents, medical images such as X-rays, MRIs and CAT scans,
and video and audio recordings. DynamicVision is currently
being beta-tested and is scheduled for general availability by
the end of 1996.
The Company's revenues are derived from the licensing and sale
of systems comprised of internally developed software and third
party software and hardware, professional services, maintenance
and support services. The Company's services include
implementation and training, product management and customer
software development. Revenues from professional services and
maintenance and support services typically increase as the
number of installed systems increases. Computer system
equipment sales revenues are generally recognized when hardware
is shipped. Computer system equipment sales and support
revenues include hardware support contracts for a specific
period from which revenue is recognized ratably over the
corresponding contract period. Application software license
revenues are recognized when application software is delivered
to the customer. Installation and training service revenues,
included with application software licenses, are recognized as
the services performed. Software support revenues principally
include contracts for remote dial-up problem diagnosis,
maintenance and corrective support services, each of which
covers a specified period for which revenue is recognized
ratably over the corresponding contract period. Services and
other revenues include custom programming services,
post-contract support obligations and other services, which are
provided under separate contract and are recognized as services
are performed.
Cost of products sold includes the cost of hardware sold, costs
of third party software licenses and hardware support
subcontracts. Client service expense includes the direct and
indirect costs associated with implementation and support
personnel. Software development costs include the direct and
indirect salaries and wages of software research and development
personnel, direct research and development expenses, and
software amortization expense, reduced by capitalized software
development costs. Software development costs are expenses
until such time as technological feasibility is established and
then are capitalized in compliance with Statement of Financial
Accounting Standards No. 86 "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Sales and
marketing costs include direct and indirect salaries,
commissions, joint marketing costs, advertising, trade show
costs, user group costs and travel and entertainment expenses
related to the sale and marketing of the Company's products and
services. General and administrative expenses include salaries
and expenses for corporate administration, financial, legal and
human resources.
The sales cycle for the Company's systems is typically six to 18
months from initial contact to contract signing. The product
delivery cycle is variable. In instances to customer contracts
when application software licenses are provided by modem,
product delivery is immediate. In other instances, product
delivery is over two or more years, particularly with
enterprise-wide electronic healthcare record solutions involving
significant and continuing customer service requirements.
Accordingly, the product delivery cycle depends upon the
combination of products purchased and the implementation plan
defined by the customer in the master sales agreement. Each
customer contract is separately negotiated. The installation
schedule for a clinical information systems, or departmental
electronic healthcare record implementations, typically require
six to twelve months. Under its standard master sales
agreement, the Company generally receives a partial payment upon
execution of the agreement, a hardware installment payment upon
delivery of hardware, installation progress payments upon the
completion of defined milestones and final payment upon system
acceptance.
<PAGE>
In May, 1996, the Company completed the acquisition of
Dimensional Medicine, Inc. ("DMI"). This acquisition
strategically expands the Company's customer base as well as the
clinical information systems product offerings to include
Maxifile, a radiology information system, and Maxiview, a
diagnostic image and graphics workstation. Additionally, a new
product, PACsPlus+, a diagnostic image management and
distribution system integrates medical imaging into the
Company's newest product DynamicVision, an electronic health
record or can be implemented in a stand alone version with
integration to Maxifile or radiology information systems
marketed by other companies. The former DMI office in
Minnetonka, Minnesota has become the Company's Radiology
Technology Center.
During the second quarter 1996, the Company's attention was
centered on completing the DMI acquisition and the combining of
the businesses' research and development, operations, sales,
marketing and administrative functions. In addition, the
Company continued the activity begun in the first quarter of
significantly intensifying the development and strategically
building up the sales and marketing expenses required to launch
the new DynamicVision and PACsPlus+ product lines. Management
continues to believe that these efforts will support its
business plan and improve long term competitiveness and results.
On June 10, 1996 the Company announced the appointment of Mr.
Nick Bhatt as Senior Vice President and Chief Technical Officer.
Previously employed by IMNET Systems, Inc. of Atlanta, Georgia,
Mr. Bhatt has more than twenty (20) years of experience in the
image processing industry, specializing in software development,
engineering, and research and development. He was directly
responsible for the design and development of the IMNET MegaSAR
Microfilm Jukebox and personally holds numerous patents
including fifteen (15) in image processing and seven (7) in
biomedical engineering. Management believes that the addition
of Mr. Bhatt to the executive management team will enhance the
current research and development of new technologies and
products.
The following table sets forth, for the three and six month
periods ended June 30, 1996 and 1995, certain items in the
Company's statements of operations as a percentage of total
operating revenues:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Operating revenues:
Computer system
equipment sales
and support 27.9% 15.6% 25.2 % 16.5%
Application software
licenses 25.8 31.2 20.7 34.4
Software support 32.1 40.3 36.3 37.7
Services and other 14.2 12.8 17.8 11.5
Total revenues 100.0 100.0 100.0 100.0
Operating expenses:
Cost of products
sold 23.8 12.9 21.5 14.6
Client services
expense 31.2 28.3 31.7 30.3
Software development
costs 11.9 19.3 13.1 20.3
Sales and marketing 21.3 23.8 24.3 24.8
General and
administrative 14.1 21.7 16.0 21.1
Total operating
expenses 102.3 106.0 106.6 111.2
Operating income
(loss) (2.3) (6.0) (6.6) (11.2)
Other income (1.6) (5.6) (1.7) (4.5)
Net earnings (loss) (3.9)% (11.6)% (8.3)% (15.7)%
</TABLE>
<PAGE>
Results of Operations
(Three months ended June 30, 1996 compared to three months ended
June 30, 1995)
Revenues. During the quarter ended June 30, 1996, the Company
reported consolidated revenues of $4,008,000, marking the
highest quarterly revenues in Company history. Revenues
increased for the quarter by $1,740,000 over revenues for the
corresponding period in 1995. This revenue increase was
principally attributable to the inclusion of $1,380,000 in
revenues for the two months ended June 30, 1996 of the recently
acquired Dimensional Medicine, Inc. ("DMI"). On May 1, 1996 DMI
merged with and into DMI Acquisition Corporation, ("DMIAC"), a
newly formed wholly owned subsidiary of the Company. The
balance of this increase in revenues was attributable to an
increase in the Company's growth which principally included
laboratory system migrations, system upgrades, new imaging
system sales and increased services and software support
revenues.
The Company experienced a $763,000 increase in computer system
equipment sales and support revenues during the quarter ended
June 30, 1996 as compared to the second quarter of 1995.
Radiology system sales accounted for $547,000 of this increase
and the Company's new system sales for laboratory migrations and
imaging product lines principally provided the remaining growth.
The Company anticipates a continued higher involvement in the
delivery of computer hardware to customers in connection with
the DynamicVision, PACsPlus+, imaging and radiology product
lines due to the relative complexities associated with the
installation process as well as the Company's strategy of
offering a sole source solution to its customers.
Application software license revenues during the second quarter
1996 increased by $327,000 over software application license
revenues of the second quarter of 1995. Included in this
increase are $526,000 of Maxifile application software license
revenues for the two months ended June 30, 1996. LabPro 2000
application revenues declined as installations during the
quarter consisted principally of migrating customers from the
Prime platform to the IBM AS400 platform which have
comparatively nominal application license revenues. Imaging
software revenues of $280,000 were recognized during the quarter
ended June 30, 1996, while there were no such revenues
recognized during the second quarter of 1995.
Software support revenues for the quarter ended June 30, 1996
increased by $371,000 as compared to the second quarter of 1995.
Radiology system support revenues for the two months ended June
30, 1996 were $242,000 and LabPro 2000 support revenues
increased by approximately $129,000 due to completion of system
deliveries. The Company presently supports products that it
develops as well as software products that it sub-licenses or
jointly markets for and with its business partners.
Services and other revenues during the second quarter of 1996
increased by $279,000 over the same reported for the second
quarter of 1995. As part of the Restructuring Plan completed in
1995, Management staffed to provide for anticipated increased
demand for professional services. The DynamicVision product
line is expected to be more service intensive due to the
integration complexities associated with the typical
installation. The Company's sales staff continues to use these
resources in the team sales process, and service revenues have
grown principally as a result of professional consulting, custom
programming services and system integration services delivered
by the Company.
Cost of Products Sold. Cost of products sold as a percentage of
total operating revenues increased to 23.8% during the three
months ended June 30, 1996 as compared to 12.9% during the
second quarter of 1995. Hardware revenues similary increased
from 16.5% to 25.2% of total operating revenues due to the
increased involvement in third party hardware sales in
connection with radiology product lines previously discussed.
The overriding factor was the inclusion of imaging software
licensing fees incurred in cost of products sold during the
period. Revenue from the sale of these licenses are included in
application software licenses and there were no such revenues
recognized during the second quarter of 1995.
Client Services Expenses. Client services expense for the three
months ended June 30, 1996 increased by $610,000 as compared to
the second quarter of 1995. DMIAC contributed $362,000 of
client services expenses for the two months ended June 30, 1996.
The Company also increased professional staffing in
anticipation of additional managerial burdens associated with
the DMI consolidation process, and the introduction of the new
DynamicVision product line.
Software Development Costs. Software development costs for the
three months ended June 30, 1996 exceeded similar costs incurred
for the comparable period in 1995 by $41,000. This increase
includes $77,000 of DMIAC's software development costs. DMIAC's
software development costs include $51,000 of software
amortization of the newly acquired Maxifile and Maxiview
software for the two months ended June 30, 1996.
<PAGE>
Sales and marketing costs. Sales and marketing costs increased
during the second quarter of 1996 by $312,000 over the second
quarter of 1995. DMIAC added $43,000 of sales and marketing
expenses for the two months ended June 30, 1996. Despite this
increase of $312,000 in sales and marketing costs for the second
quarter 1996, these costs as a percentage of total operating
revenues, decreased from 23.84% to 21.27% as compared to the
same period one year prior. As previously reported, Management
began the process of significantly increasing the sales and
marketing force in preparation for the launch of the Company's
new DynamicVision product line during the fourth quarter of 1995.
General and Administrative Expenses. General and administrative
expenses for the three months ended June 30, 1996 increased by
$72,000 over the second quarter 1995. As a result of the
acquisition of DMI during the quarter the Company modestly added
salaries and wages to general and administrative functions.
Additionally, post acquisition professional services and travel
costs associated with integrating the newly acquired DMI
resulted in this increase.
(Six months ended June 30, 1996 compared to six months ended
June 30, 1995)
Revenues. The Company's total consolidated revenues were
$6,317,000 for the first six months of 1996, as compared to
$4,501,000 for the corresponding period in 1995, representing an
increase of $1,816,000, or 40.3%. This increase was primarily
attributable to the inclusion of $1,380,000 in revenues for the
two months ended June 30, 1996 resulting from the May 1996
acquisition of DMI. The balance of this increase was primarily
attributable to growth in laboratory system sales and upgrades,
new imaging system sales and increased services and software
support revenues.
Computer system equipment and sales support revenues were
$1,592,000 for the first six months of 1996, as compared to
$742,000 for the corresponding period in 1995, representing an
increase of $850,000 or 114%. System sales for laboratory
migrations, imaging and radiology primarily accounted for this
increase.
Application software license revenues were $1,306,000 for the
first six months of 1996, as compared to $1,547,000 for the
comparable period in 1995, representing a decrease of $241,000
or 15.6%. Several significant factors during the first six
months of 1996 influenced this application software license
revenue decrease. First, LabPro 2000 migration installations
during the first six months of 1996 have no associated
application license revenues. Additionally, during the first
six months of 1996, $526,000 of radiology system application
license revenues were recognized and $280,000 of imaging
software revenues were recognized, with no such corresponding
revenues recognized during the first six months of 1995.
Software support revenues were $2,295,000 for the first six
months of 1996, as compared to $1,696,000 for the corresponding
period in 1995, representing an increase of $599,000 or 35.3%.
Radiology system support revenues attributable to the DMI
acquisition in May 1996 were $242,000 and LabPro 2000 support
revenues increased by $150,000 during the first six months of
1996, primarily due to the completion of system deliveries. The
balance of the software support revenues increase was primarily
comprised of increases in imaging support revenues of $140,000
and health information system support revenues of $59,000.
Services and other revenues for the first six months of 1996
were $1,124,000, as compared to $516,000 for the comparable
period in 1995, representing an increase of $608,000 or 117.9%.
This increase was primarily attributable to the allocation of
Company personnel resources to billable professional services
during the first six months of 1996, as compared to the
utilization of these resources during the first six months of
1995 on non-billable customer support stabilization undertaken
as part of the Restructuring Plan. Additionally, the Company's
newer product lines, including PACsPlus+ and imaging products
require greater professional service efforts due to the
complexities of integration involved with typical installations.
Costs of Product Sold. The cost of products sold were
$1,359,000 for the first six months of 1996, as compared to
$659,000 for the comparable period in 1995, representing an
increase of $700,000 or 106.2%. As a percentage of total
operating revenues, costs of products sold during the first six
months of 1996 were 21.5%, as compared to 14.6% for the
comparable period in 1995. This increase was primarily
attributable to a higher percentage of revenues associated with
hardware sales and the payment of licensing fees to IBM with
respect to the imaging software licenses.
Client Services Expenses. Client services expenses were
$2,003,000 for the first six months of 1996, as compared to
$1,365,000 for the comparable period in 1995, representing an
increase of $638,000 or 46.7%. Of this increase, $362,000 was
attributable to DMI and its client services expense for the two
months ended June 30, 1996. Additionally, the Company increased
professional staffing in anticipation of professional services
requirements associated with the DMI consolidation and the
introduction of the DynamicVision and PACsPlus+ product lines.
<PAGE>
Software Development Costs. Software development costs were
$827,000 for the first six months of 1996, as compared to
$915,000 for the comparable period in 1995, representing a
decrease of $88,000 or 9.6%. This decrease was primarily
attributable to the increase in the capitalization of software
development costs during 1996 as well as costs incurred in 1995
in completing software development for delivery to customers as
part of the Restructuring Plan, which was not capitalized.
Sales and Marketing Costs. The Company's sales and marketing
costs were $1,536,000 for the first six months of 1996, as
compared to $1,118,000 for the comparable period in 1995,
representing an increase of $418,000 or 37.4%. This increase
was primarily attributable to additional sales and marketing
personnel retained during 1996 in preparation for the launch of
the Company's DynamicVision, PACsPlus+ and imaging product
lines. As a result of the DMI acquisition, sales and marketing
costs were increased by $43,000, as compared to 1995, for costs
attributable to DMI. Generally, sales and marketing expenses
increase during periods of increased revenues.
General and Administrative Expenses. General and administrative
expenses were $1,009,000 for the first six months of 1996, as
compared to $948,000 for the comparable period in 1995,
representing an increase of $61,000 or 6.4%. A modest portion
of this increase was attributable to new employees resulting
from the DMI acquisition. During the first six months of 1995,
a loss of $62,000 was recognized attributable to the sale of
fixed assets resulting from the closing of the Company's
Lincoln, Nebraska office with no corresponding loss during 1996.
As a percentage of total revenues, general administrative
expenses were 16.0% for the six months ended June 30, 1996, as
compared to 21.1% for the six months ended June 30, 1995.
Liquidity and Capital Resources
As of June 30, 1996 the Company had cash equivalents of $771,000
and working capital of $122,000.
On May 1, 1996 the Company purchased all of the outstanding
stock of Dimensional Medicine, Inc. of Minnetonka, Minnesota
("DMI"), previously a publicly traded company (LOTC: DIMM). DMI
was merged with and into DMI Acquisition Corporation ("DMIAC"),
a newly formed wholly owned subsidiary of the Registrant. The
purchase price for DMI net of the cash acquired was $1,399,000
and was funded from available cash and cash equivalents of the
Registrant.
Two significant factors combined to both increase the net
balance of accounts receivable as of June 30, 1996 by $103,000
over the net accounts receivable balance as of December 31,
1995, and to account for the decrease in deferred revenue of
$273,000 during the same period . First, net receivables
increased by $1,177,000 and deferred revenue increased by
$198,000 as of June 30, 1996 as a result of the acquisition of
DMI. The net other declines in accounts receivable and deferred
revenue balances as of June 30, 1996 were due principally to the
seasonal billing fluctuation associated with a concentration of
renewal laboratory software support contracts with a January 1
start date. These contracts were billed in December 1995.
The Company continues to improve communication between
accounting and project management involved in the billing and
collection process. As communication links between departments
has improved, unbilled receivables have typically decreased.
The increase in unbilled receivables as of June 30, 1996
compared to the balance as of December 31, 1995 of $15,000 is
principally due to the inclusion, for the first time of DMI's
radiology system related unbilled receivables of $173,000 as of
June 30, 1996.
The increases in notes payable including current maturities, and
in lease receivables as of June 30, 1996, as compared to levels
as of December 31, 1995 of $389,000 and $454,000, respectively,
primarily relate to the acquisition of DMI. Acquired in the
purchase of DMI were lease contracts financing previous system
sales. These leases provide for monthly principal and interest
payments and were assigned to lenders in exchange for borrowings
under installment notes payable prior to the acquisition. The
above mentioned increases represent the related unamortized
balances as of June 30, 1996.
The increase in other current assets as of June 30, 1996
compared to the balance at December 31, 1995 of $296,000 is
principally related to deferred licenses. On March 26, 1996 the
Company signed a comprehensive agreement with Wang Laboratories,
Inc. of Billerica, MA (NASDAQ: WANG). Under the terms of the
Agreement, the Company will integrate Wang's Physician
Workstation product ("PWS"), into the DynamicVision electronic
health record solution. Additionally, under the Agreement the
Company was required to prepay $223,319 for the purchase of
initial Wang software licenses for resale. The increase is
also attributable to other current assets of the acquired
radiology business as of June 30, 1996 of $107,000.
<PAGE>
During the quarter ended June 30, 1996 the Company capitalized
$366,000 of software development costs and purchased $115,000 of
additional property and equipment in addition to the assets
acquired in the purchase of DMI. The Company plans to continue
to develop the DynamicVision product line and to enhance its
other software product offerings at comparable levels during
succeeding quarters. The property acquisitions during the
second quarter represent furniture, fixtures, leasehold
improvement and equipment purchases which were made to
accommodate the personnel growth in sales and marketing, and in
preparation of the planned acquisition of DMI.
Accounts payable and accrued expenses as of June 30, 1996
increased by $1,592,000 from December 31, 1995. This increase
is primarily associated with DMIAC's reported $1,347,000 in
accounts payable and accrued expenses as of June 30, 1996.
The Company reported cash provided by operating activities of
$396,000 for the quarter ended June 30, 1996 and $772,000 for
the six months ended June 30, 1996. Additionally, proceeds from
the exercise of employee stock options provided $136,000 of cash
during the second quarter of 1996.
On May 21, 1996 the Company's Board of Directors declared and
paid the March 31, 1996 accumulated dividend on Series A and
Series B Preferred Stock of $17,438 and $67,500, respectively.
As of July 31, 1996 the June 30, 1996 accumulated dividend
preferences on Series A and Series B Preferred Stock of $17,438
and $67,500, respectively, had not been declared by the
Company's Board of Directors.
The Company intends to continue to enhance its product and
services offerings and to seek market expansion opportunities
beyond the launch of DynamicVision, the Wang agreement and the
acquisition of Dimensional Medicine, Inc. Future working
capital requirements are dependent on the Company's ability to
restore and maintain profitable operations or to obtain suitable
additional financing.
Inflation and Changing Prices
The Company believes that the general state of the economy and
inflationary trends have only a limited effect on its business.
Historically, inflation has not had a material effect on the
Company's operations or its financial condition. Changing
prices of computer hardware could have a material effect on the
cost of materials sold and the related selling price of software
and hardware sales.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in existing or
pending legal proceedings involving the Company.
Item 2. Changes in Securities
The information required by this item is incorporated
by reference to Footnote (H) of the condensed consolidated
financial statements included in Part 1
therein, and Form 8-B filed by the Company on August 7,
1996.
Item 3. Defaults Upon Senior Securities
(a) Indebtedness:
None
(b) Dividend Arrearage:
The information required by this item is incorporated
by reference to Footnote (G) of the condensed
consolidated financial statements included in Part I
herein.
Item 4. Submission of Matters to a Vote of Securities Holders
The Company's Annual Meeting of Shareholders was held
on May 21, 1996, in Maitland, Florida. Seven directors
were elected to the Company's Board. A listing of
those directors follows:
Name and Principal Occupation Number of Votes Received
Jerry L. Carson
Executive Vice President, CFO
Evans Enterprises 9,216,874
Mitchel J. Laskey
President and CEO
Dynamic Healthcare Technologies, Inc. 9,213,565
Thomas J. Martinson
President
Martinson & Company, Ltd. 9,214,465
Bret Maxwell
Managing Director
First Analysis Corporation 9,218,174
David M. Pomerance
Managing Partner
Martin Magnetic Imaging 9,213,565
Daniel Raynor
Managing Partner
The Argentum Group 9,218,174
Richard W. Truelick
President
Truelick Associates 9,218,174
<PAGE>
A proposal to engage KPMG Peat Marwick, LLP as the Company's
independent public accountants for the fiscal year ending
December 31, 1996 passed by a vote of 9,182,483 to 27,303 with
29,903 votes abstaining.
A proposal to authorize a change in the Company's state of
incorporation from Nebraska to Florida passed by a vote of
7,277,710 to 46,805 with 51,788 votes abstaining and 1,863,386
broker non votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11: Statement Regarding Computation of Per
Share Earnings.
(b) Reports on Form 8-K:
The Registrant filed a Form 8-K dated May 1, 1996 with
the Commission reporting the acquisition of Dimensional
Medicine, Inc.
The Registrant filed a Form 8-K dated July 11, 1996 with the
Commission reporting the financial statements of the business
acquired pursuant to Items 7(a) and (b) of the Registrant's Form
8-K dated May 1, 1996. Dimensional Medicine, Inc.'s Balance
Sheets as of March 31, 1996 and 1995, and Statements of
Operations, Shareholders' Equity and Cash Flows for the years
ended March 31, 1996 and 1995, were reported therein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Registrant)
Date: August 14, 1996 \S\MITCHEL J. LASKEY
Mitchel J. Laskey
President, CEO
Date: August 14, 1996 \S\PAUL S. GLOVER
Paul S. Glover
Vice President of Finance, CFO
<PAGE>
FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Index to Exhibits
Description of Exhibit Page Number
Exhibit 11: Statement regarding computation
of per share earnings 20
<PAGE>
FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Exhibit 11
<TABLE>
Computation of Weighted Average Number of Shares Outstanding and
Per Share Earnings
Three Months Ended Six Months Ended
June 30, (Unaudited) June 30, (Unaudited)
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Net earnings (loss) $(155,208) $(262,402) $(522,119) $(705,439)
Weighted average number
of common shares
outstanding and
earnings per share:
Primary:
Weighted average
number of common
shares
outstanding 6,626,733 6,582,883 6,619,190 6,294,977
Dilutive effect
of options and
warrants using
treasury stock
method - - - -
Weighted average
number of common
and common
equivalent shares
outstanding 6,626,733 6,582,883 6,619,190 6,294,977
Earnings (loss)
per share -
primary $ (0.02) $ (0.04) $ (0.08) $ (0.11)
Fully diluted:
Weighted average
number of common
shares outstanding 6,626,733 6,582,883 6,619,190 6,294,977
Dilutive effect
of options and
warrants using
treasury stock
method - - - -
Weighted average
number of common
and common equivalent
shares outstanding
assuming full
dilution 6,626,733 6,582,883 6,619,190 6,294,977
Earnings (loss)
per share - fully
diluted $ (0.02) $ (0.04) $ (0.08) $ (0.11)
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 2,214,646 771,186
<SECURITIES> 0 0
<RECEIVABLES> 2,220,338 3,198,392
<ALLOWANCES> 140,837 283,739
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,810,806 4,643,856
<PP&E> 3,105,598 3,457,928
<DEPRECIATION> 1,932,566 2,045,490
<TOTAL-ASSETS> 9,064,435 11,040,496
<CURRENT-LIABILITIES> 2,659,458 4,521,439
<BONDS> 2,732,321 2,921,794
<COMMON> 66,116 66,816
0 0
47,188 47,188
<OTHER-SE> 3,559,352 3,483,259
<TOTAL-LIABILITY-AND-EQUITY> 9,064,435 11,040,496
<SALES> 475,068 1,872,179
<TOTAL-REVENUES> 2,309,838 6,317,389
<CGS> 404,311 1,359,361
<TOTAL-COSTS> 2,633,296 6,733,913
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 77,681 179,657
<INCOME-PRETAX> (366,911) (522,119)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (366,911) (522,119)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (366,911) (522,119)
<EPS-PRIMARY> (.06) (.08)
<EPS-DILUTED> (.06) (.08)
</TABLE>
