FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995 or
___Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from _____________to____________
Commission File Number 0-12516
Dynamic Healthcare Technologies, Inc.
(Exact name of registrant as specified in its charter)
Nebraska 47-0643468
(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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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 check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by
non-affiliates, based on the average bid and asked prices as of
March 12, 1996, was $11,319,000. A total of 5,487,865 shares of
the Company's common stock were held by persons and entities
believed to be non-affiliated on March 12, 1996, and the closing
bids and ask prices of the Company's common stock on this date
were $2.00 and $2.125, respectively.
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 March 12, 1996, there were 6,611,646 shares outstanding of
the issuer's only class of common stock.
This report consists of fifty-seven (57) pages.
The index to exhibits appears on page twenty-two (22).
Documents Incorporated by Reference
(1) Portions of the definitive proxy statement for the
Company's 1995 Annual Meeting of Shareholders,to be
filed within 120 days of the end of the Company's
fiscal year covered by this report, pursuant to
General Instruction G(3) to Form 10-K.
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
PART I
Item 1. Business
Company Background
Dynamic Healthcare Technologies, Inc. ("Dynamic" or the "Company"),
(f/k/a Terrano Corporation), was incorporated in 1977
in California as a computer software consulting firm providing
comprehensive services to the healthcare industry. During the
early 1980's, the Company moved its operations to Nebraska,
realigned its strategy and began the development of proprietary
computer information systems for the medical industry. Its first
product, a stand-alone module of a total hospital information
system, was sold in 1982 under the name ILS-5 Clinical Laboratory
Information System. The ILS-5 operated on the Prime Computer,
Inc. ("Prime") 50-series hardware platform.
The Company's initial public stock offering of 750,000 common
shares was completed in 1983. The Company's net proceeds in this
offering were approximately $2.9 million. In attempting to
develop a total hospital information system, the Company's
working capital was depleted, requiring it to seek federal
bankruptcy protection in 1985. During 1986, the Company
reorganized its operations while operating as a debtor in
possession under Chapter 11 of the Bankruptcy Code. During this
period, the Company changed its product focus to the marketing
and further enhancement of the ILS-5 laboratory system. The
Company's reorganization plan was approved and fully implemented
by the end of 1986, and all claims against the Company were fully
satisfied by the end of 1987.
In 1988 the Company began development of its ILS-5 product now
known as LabPro 2000 (LabPro) operating on the IBM AS/400
computer platform. In 1990, the ILS-5 became one of the first
laboratory systems operational on the AS/400 platform.
The Company sold 350,000 shares of its common stock in a second
public offering in December 1991. The Company's net proceeds in
this sale were approximately $1 million. As part of the
offering, the Company also granted an option to the Underwriters
to purchase an additional 100,000 shares of common stock at the
public offering price to cover over-allotments. This option was
exercised in January 1992 and resulted in additional net proceeds
to the Company of approximately $290,000.
Prime announced during 1992 that it would discontinue its
operations, including the production and sales of the 50-series
computer systems and that ComputerVision Corporation, the
successor company to Prime, would provide hardware warranty and
maintenance services to all 50-series system users. As a direct
result of this announcement, the Company recorded a one time
charge of $2,000,000 in 1992. The Company continues to provide
support services to all its Prime based ILS-5 clients and has
developed plans to migrate these clients' ILS-5 systems to the
IBM AS/400 platform. In February 1995, all Prime clients were
notified by the Company that support services would terminate on
July 31, 1996. Management expects to obtain ongoing revenues
from this customer base from migration sales and continued
support services and to obtain operational cost efficiencies from
limiting support platforms. As such, the discontinuance of support
services to Prime based ILS-5 clients is not expected to
have significant detrimental impact on future operations. <PAGE>
On August 23,
1994, the Company, through its newly formed
wholly-owned subsidiary (then Dynamic Healthcare Technologies,
Inc.), acquired Dynamic Technical Resources, Inc. (DTR). The
transaction was consummated by acquiring all the outstanding
common stock of DTR in exchange for approximately 600,000 common
shares of the Company. The acquisition was accounted for using
the purchase method. DTR's primary business was professional and
technical consulting, support and maintenance services, document
imaging solutions and niche software products.
At the commencement of the third quarter 1994, the Company
appointed a prior outside director of the Company as the new
Chief Executive Officer (CEO). Upon completion of the merger
with DTR, the former management of DTR and the Company's newly
appointed CEO comprised the "new management".
This "new management", during their preliminary review of the
Company's operations, internal controls and financial accounting,
discovered what was initially believed to be misapplication and
errors in the application of generally accepted accounting
principles in the Company's method of recognizing income in its
previously issued financial statements. This information was
promptly communicated to the audit committee of the Board of
Directors, who acted to authorize an independent internal
investigation. As a result of the completion of the
investigation, and concurrence by the Company's then current
auditors, Deloitte & Touche LLP, the previously issued financial
statements for the years ended December 31, 1992 and 1993
required restatement. In addition,the interim previously
reported financial statements for the quarterly periods ended
March 31, June 30, and September 30, 1994 required restatement.
The Company filed an amended Form 10-KA for December 31, 1993 to
restate the financial statements for the years ended December 31,
1992 and 1993. In addition, the Company filed amended Forms
10-QA that included the restated financial statements for the
quarterly periods ended March 31, June 30, and September 30,
1994. The restatements were filed with the Securities and
Exchange Commission in January 1995.
As a result of the material nature of the changes reflected in
the restated financial statements, information learned during the
restatement process, and subsequent discoveries by the Company's
current management of inaccurate statements reported in the
Company's previously issued annual reports and Management's
Discussion and Analysis sections of Forms 10-Q and 10-K, the
Company engaged special legal counsel to further the internal
investigation and to assist management in preparing a detailed
plan of action. The recommendations of the special counsel,
which were ratified by the Company's Board of Directors, were to
dismiss the auditors Deloitte & Touche LLP, appoint new auditors and to
resolve any outstanding issues with the DTR shareholders
arising from the change in valuation utilized for the
acquisition, as a result of the restated financial statements.
Additionally, each individual that served in a management
capacity and a significant number of other individuals employed
prior to the acquisition of DTR no longer are employed by the
Company. This prompted the Board to relocate the Company's
headquarters to Florida (the domicile of DTR) and to rely heavily
on the operational support systems of the former DTR to avoid
business disruptions between the Company, its customers and
suppliers. The Company foresees that it will be placing
continued reliance upon the operational support systems of the
former DTR to maintain customer and supplier relationships and
avoid business disruptions. The Company will pursue any and all
recoveries available to the Company as a result of improprieties
that may have been perpetrated by members of prior management and
the prior auditors.
During March 1995, the Company issued 610,000 shares of common
stock as an adjustment related to the merger with DTR. This
issuance represents full settlement of all issues with the DTR
shareholders as a result of valuation utilized for the
acquisition and the restatement of financial statements. The DTR
shareholders represent the core executive management of the
Company. The Company received a general release from the DTR shareholders.
On July 31, 1995 the Company completed a Private Placement
Offering issuing $775,000 of Subordinated Convertible Notes,
bearing simple interest at 9% per annum, together with detachable
warrants to purchase 155,000 shares of the Company's common
stock. The warrants are exercisable at $1.00 per common share,
and are exercisable for five years from the date of issuance
(70,000 in June 1995 and 85,000 in July 1995). On November 28,
1995 all of the Subordinated Convertible Notes were converted
into 968,750 Series A Preferred Shares.
On December 5, 1995 the Company issued 3,375,000 Series B
Preferred Shares for $2.7 million, and on December 29, 1995
issued 375,000 Series B Preferred Shares for an additional
$300,000 in a Private Placement transaction.
In connection with the Private Placement of the Series B
Preferred Shares, the Board of Directors of the Company
authorized the issuance on December 5, 1995 of warrants to
purchase 210,000 shares of the Company's common stock for $1.00
per share to a financial consultant. These warrants are
exercisable for seven years from the date of issuance.
On February 6, 1996 the Company entered into an agreement
pursuant to which, subject to certain conditions, it will acquire
Dimensional Medicine, Inc. ("DMI") of Minnetonka, Minnesota. The
Company intends to close this transaction in April 1996. DMI
develops and markets radiology information management solutions
for hospitals, clinics and independent diagnostic imaging
centers. The Company anticipates benefitting from DMI's
radiology information system software package ("Maxifile"), an
advanced imaging and graphics workstation ("Maxiview"), and
diagnostic image capabilities that can be used in the Company's
DynamicVision product line, a customer list comprised of
America's leading medical centers, and a staff highly trained in
both healthcare and information systems. In addition, this
acquisition is intended to provide growth to both organizations
through the cross selling of products and services to a wider
customer base. Strategically, the acquisition of DMI will bridge
the Company's document imaging system with DMI's radiology
information system, linking document and clinical information in
the Company's DynamicVision.
<PAGE>
The Market
The Company develops, markets and supports clinical information
systems and electronic health record solutions in the healthcare
industry. The specific market segments in which the Company
participates include Clinical Workstations, Document Imaging,
Diagnostic Imaging, Laboratory Information Systems, Radiology
Information Systems, and Perioperative (Anesthesiology)
Information Systems. All of the Company's products are
complementary to and contribute to the creation and maintenance
of the electronic health record.
The Company's research shows that annual revenues in the current
healthcare information systems market are approximately $ 8
billion and are expected to grow to over $20 billion by the year
2000. The Company's strategic focus includes two high growth
sectors: 1) Electronic Health Records, with annual revenues
currently $100 million and expected to grow to $1.5 billion (a
70% Compounded Annual Growth Rate - CAGR) over the next five
years, and 2) Clinical information systems, with annual revenues
currently at $200 million and expected to grow to $1 billion (a
40% CAGR). All of the Company's products are in these two
segments. Other high growth sectors include resource management with annual
revenues at $500 million (estimated CAGR of 30%),
managed care systems with annual revenues at $300 million
(estimated CAGR of 25%), personal health management with annual
revenues at $60 million (estimated CAGR of 35%), and interactive
networks with annual revenues at $50 million (estimated CAGR of
70%).
The acceleration in information systems spending reflects the
process of re-engineering that is taking place in the healthcare
industry. In today's cost sensitive era, healthcare providers
are challenged to improve patient outcomes while lowering costs.
A recent industry survey cited managed care as the most
significant force driving increased computerization in
healthcare. In response to managed care and other cost containment
pressures, providers have formed Integrated Delivery
Networks (IDNs) in order to share resources and costs and
increase their power in contract negotiations. Today's systems
must be the information hubs for these IDNs and must make the
delivery of health services more efficient and effective across
the continuum of care. The most significant achievement will be
the formation of the electronic health record. Clinical
information systems and imaging systems will be used to create
these central repositories of information, and physicians and
care givers across an enterprise will be the beneficiaries.
Products and Services
Electronic Health Records
Clinical Workstation - DynamicVision (Trademark)
The Company's strategic product focus is the development,
marketing and installation of DynamicVision, a multi-media,
electronic health record solution which will ultimately enable
world-wide communication of information among healthcare
providers, payers, employers and other authorized individuals.
DynamicVision employs an open, client server architecture coupled
with media-independent software and information management
capabilities. Currently under development, it is designed to
support a comprehensive electronic information repository which
is accessible to physicians, care givers and other authorized
individuals across a healthcare delivery network. The first
application to be made available is a Microsoft (Registered)
Windows (Registered) 95 client workstation. Designed for use by
health professionals, it will allow viewing of both diagnostic
and document images, and will enable professionals to review
records and assignments, sign electronic documents, and handle
the analysis and assignment of record deficiencies. Currently in
the final stages of development, this workstation is scheduled
for general availability and first customer shipments in the
third quarter of 1996.
Document Imaging - Medical RecordsPlus/400
Medical RecordsPlus/400 is an enterprise-wide document imaging
solution that enables physicians, medical record personnel, and
other authorized individuals to access electronic record
information. Based on IBM's ImagePlus (Registered) image
processing system, Medical RecordsPlus/400 receives its
information from scanned paper documents or directly from
existing provider information systems. Through a business
agreement with IBM (Registered), Dynamic markets the product and
provides customer services and support as well as software
maintenance, support, and enhancements. Under the terms of the
agreement, the Company committed to the development of a set of
customer requested enhancements. This release was completed in
October 1995 and commenced being distributed during late first
quarter, 1996. In addition to the customer enhancements, the
Company added a graphical user interface to the product.
Currently in the final stages of development is a Microsoft
(Registered) Windows (Registered) 95 based client workstation,
which will be available for first customer shipment in the third
quarter of 1996. This new workstation, the first of a series of
functions is part of the DynamicVision clinical workstation which
gives Medical RecordsPlus/400 clients an option of using an IBM
OS/2 (Registered) or the Windows 95 desktop.
Diagnostic Imaging - Maxiview (Trademark)
Maxview (when acquired from DMI as elsewhere described) is an
advanced imaging and graphics workstation which accommodates two
and three dimensional image processing and is compatible with
imaging equipment from all major manufacturers. It enables a
physician to observe interrelationships of soft tissue and bone,
locate lesions and tumors more precisely, and perform a variety
of measurements. Additionally, the Workstation can display three-dimensional
anatomical images on a conventional high
resolution monitor. The Company also sells an image review
workstation, Maxiview Powerstation (MVP), which allows a
physician to access and review images from a remote location.
Remote access to the images may be obtained either through the
use of a modem or through a network that may already be
functioning at the installation's site.
Clinical Information Systems
Radiology Information System - Maxifile (Registered)
Maxifile (Registered) (when acquired from DMI as elsewhere
described) computerizes the clerical and administrative functions
in the radiology department. Modular in design, Maxifile
applications include patient scheduling and tracking, film
management, statistical reporting, quality control, and patient
billing. Primary markets include hospitals, clinics, and
independent diagnostic imaging centers.
Laboratory Information System - LabPro 2000
LabPro 2000 is an IBM AS/400 based laboratory information system
that allows the laboratory to monitor and control the flow of
specimens through the department. It computerizes the process of
ordering, tracking and reporting results of procedures performed
by the clinical laboratory. Patient and management reporting
capabilities provide support for diagnostic and therapeutic
decision making.
During 1995, the Company completed the development of a
Laboratory Data Repository (LDR) capability. LDR captures order
and result information as well as patient demographics and stores
them in a repository which is available for management and
outcomes reporting through the use of off the shelf SQL query
tools.
Pathology/Cytology Information System - ANSIRS
Anatomic Surgical Information Retrieval System (ANSIRS) is a PC-LAN-based
cytology/pathology system. It can function
independently or be interfaced to LabPro 2000 to receive patient
demographics and allow clinical data inquiry. ANSIRS is
available in both server and client/server configurations,
suitable for both Metropolitan Area Network (MAN) and Wide Area
Network (WAN) environments. Major functional areas include
report transcription and word processing, quality assurance,
regulatory requirements and on-line access to patient history.
Perioperative Information System - Monitrax (Trademark)
Monitrax is a point-of-care clinical information system which
allows the collection and presentation of vital patient, surgical
and anesthesia data through every phase of the perioperative
process. The portable, pen-based Monitrax workstation saves
space in the anesthesia area and allows for entry of vital signs,
drugs, fluids and notes. Monitrax takes the data collected
during the perioperative process, organizes it, and displays it
in real-time to facilitate both clinical and management decision-
making. The anesthesia record is then available to become a part
of the electronic health record and the data elements are stored
in a repository of clinical information which becomes available
for query and outcomes reporting. During 1995, the Company
completed the first phase in the development of Monitrax. In
October 1995, the system was installed in a customer site and was
run in parallel to the manual system for a period of three weeks.
After successfully completing this "proof of concept", the
decision was made to expand the capabilities in several areas
including nursing pre-assessment and Post Anesthesia Care Unit
("PACU"), nursing turnover. The Company expects that the product
will be completed and available during early 1997.
Professional and Technical Consulting Services
The Company employs technical and healthcare professionals at all
levels of the organization. A full range of technical services
includes software maintenance, network design, implementation and
support, systems integration, and custom interfaces and
modifications. Professional consulting services include
implementation planning, training and education, and support
services provide 24 hour telephone support and software
maintenance and enhancements.
Dynamic Decision Support (DDS)
The Company, through the merger with DTR, acquired (by exclusive
license) the software assets of InforMED, Inc. The software
operates on the IBM AS/400 hardware. The applications were
designed specifically for the health industry and are currently
installed and operating at hospitals interfaced to various
hospital information system vendor systems. The Company will pay
InforMED licensing fees until a certain ceiling has been paid. Such fees
shall be paid as a percent of license revenues received by the Company and
shall continue until the earlier of the fourth (4th) anniversary of the
agreement or the payment of the aggregate amount.
DDS Applications Include:
Dynamic General Ledger communicates with existing patient
accounting, accounts payable and payroll systems. Flexible in
design, Dynamic General Ledger accommodates any number of
entities, maintains up to five years of historical data at a
summary level, and provides consolidated reporting.
Dynamic Budgeting and Forecasting System allows users to prepare
and maintain up to five different budget scenarios for the
current year, and up to five future years. The Revenue
Forecasting Module (RFM) allows hospitals to forecast patient
utilization statistics and gross revenues. Historical data is
maintained for up to five prior years and is used to predict
future patient utilization statistics. An executive summary
allows managers to focus on the top revenue producing services in
each department.
The Dynamic Expense Forecasting Module (EFM) is used to develop
budgets for hospital expenses based on the patient utilization
data computed using the RFM.
Standard Cost Accounting System allows hospitals to prepare and
maintain cost information by product (treatment profile) and by
service item/procedure. Cost data for individual service items
can be developed using engineered standards relative value units
(RVU's) or micro costing techniques. Additionally, Cost
Accounting provides a patient care unit (PCU) based "Executive
Level" costing function which allows managers to focus on the key
elements of cost while grouping miscellaneous items into a single
summary line.
Major Suppliers
LabPro can be operated on two hardware platforms: the IBM AS/400
line of mid-range computer systems and the Prime 50-Series family
of super minicomputers. The Prime based LabPro was introduced in
1982 and the IBM AS/400 based LabPro has been available since
1989. During 1992, Prime announced that it was discontinuing its
operations including the production and sale of the 50-Series
hardware platform. Hardware warranty and maintenance services
for the 50-Series machines are now being provided by
ComputerVision Corporation, the successor company to Prime. The
Company continues to provide software support services to its
Prime based LabPro clients while it carries out its plan to
provide a cost effective conversion option for those clients'
systems to the Company's IBM AS/400 platform on or before July
31, 1996. In certain instances, the Company has agreed to
support the Prime based platform beyond July 31, 1996 on a best
effort basis.
The Company no longer actively markets Prime based LabPro
systems, and plans to discontinue this platform once all its
Prime clients have converted to the AS/400 platform. During the
fourth quarter of 1992, the Company recorded a $2 million
provision for estimated losses and write-downs associated with the
discontinuance of this product line.
The Company primarily offers its LabPro and Image Product
Solutions on the IBM AS/400. IBM provides direct hardware
maintenance for the AS/400 system. The AS/400 provides the
Company's clients with flexibility and growth opportunities
through fully compatible upgrades. If IBM's AS/400 products
should become unavailable, the Company's business would be
adversely affected. Other product solutions of the Company
operate on IBM Compatible Personal Computers (PC). These PC's
can be purchased from a variety of vendors.
The Company maintains only a minimal amount of computer equipment
inventory since equipment configurations of systems sold by the
Company vary from client to client and delivery schedules from
its vendors are typically 60 days or less from the date of order.
Sources of Revenue
Hardware - Computer system equipment sales and support accounted
for 12.4% of total operating revenues during 1995 as compared to 26.8%
and 40.9% during 1994 and 1993, respectively. Customers
may purchase equipment from the Company or directly from the
equipment manufacturer. The Company is an IBM "National
Solution Provider" business partner and as such is an authorized
remarketer of the IBM AS/400 and IBM RISC 6000 hardware
components. In addition, the Company is an authorized remarketer
of personal computer equipment for IBM, Hewlett Packard, Compaq
and others. Computer system equipment purchases occur in
connection with new system sales and when existing clients
upgrade and/or add to their existing hardware configurations.
The Company also received hardware support revenue from one of
its vendors in 1995, 1994 and 1993 for providing hardware
troubleshooting services to some of its clients.
Application Software - Application software license revenues
accounted for 27.3% of total operating revenues during 1995 as
compared to 26.5% and 36.9% during 1994 and 1993, respectively.
Software license and sub-license revenues occur with new system
sales and when existing clients add application software products
to their existing systems. The Company directly licenses a
variety of software product offerings which are solely owned by
the Company. Additionally, the Company sub-licenses software
product offerings subject to joint marketing agreements and
sub-licensing agreements which are owned by others.
Software Support - Software support revenues accounted for 42.0%
of total operating revenues during 1995 as compared to 36.5% and 22.2% in
1994 and 1993, respectively. Software support revenues
are derived from the Company's customers who contract for these
services. The Company offers software support services for the
software products that it licenses and sub-licenses to customers, as well as
to customers of certain other healthcare information
system companies in which the Company has the specific
software/hardware, application knowledge, and available and
trained resources. In most instances, these services commence at
the time or the customer installs the software products or has
placed them in a production environment. The contracts may
include continuous (24) hour seven (7) day a week telephone and
dial up modem remote diagnostic support or some lesser specified
level of service. Customers may, in certain instances, contract
to receive periodic updates and enhancements to the licensed
software products.
Services and Other - Services and other revenues accounted for
18.3% of total operating revenues during 1995 as compared to
10.2% and 0.% during 1994 and 1993. These revenues represent
custom programming, technical consulting and other professional
services revenue principally resulting from the acquisition of
DTR in August of 1994.
Joint Marketing and Sub-License Agreements - The Company believes
that its ability to sell information systems solutions and
services to healthcare institutions is enhanced by forming
alliances with other healthcare information system vendors which
offer products, solutions and services complimentary to those of
the Company. Examples of these types of products might be
information systems for other ancillary departments within the
hospital such as pharmacy, medical records or nursing. They also
include large hospital information system products that do not
offer a fully featured laboratory system product, a document
imaging solution or anesthesia information system.
Joint Marketing Costs accounted for .6% of total operating
expenses during 1995 as compared to .2% and 3.7% during 1994 and 1993,
respectively. The Company entered into the first agreement
of this type with GTE Health Systems, Inc. (GTEHS) in 1992 to
market the Company's LabPro System to current and prospective
GTEHS clients. The Company's second agreement of this type was
entered into with IBAX (Trademark) Healthcare Systems during 1993
to market the Company's LabPro system to current and prospective
IBAX Series 3000 and 4000 system clients. The Company entered
into a third agreement of this type during March 1994 with First
Coast Systems, Inc. (FCS) to market the Company's LabPro System
to FCS's current and prospective APACS Hospital Information
System clients. All of these companies', hospital information
systems operate on the IBM AS/400. During 1994, GTEHS was
acquired by Shared Medical Systems, Inc., and IBAX was acquired
by HBO & Company. As a result of these mergers, both of the
agreements have been terminated. The agreement with FCS
continues to be in effect.
In 1994, the Company entered into an agreement with the IBM
Corporation to provide customer maintenance, support, and program
product enhancements for IBM's "Medical RecordsPlus/400" imaging
software product. Medical RecordsPlus/400 is a document imaging
software product that offers physicians, medical record
personnel, nurses, pharmacists, claims processors, and other
healthcare professionals, access to a central electronic medical
record. Based on IBM's ImagePlus Workfolder Application
Facility/400 (Registered) product, it is able to receive
information from scanned paper documents, or directly from
existing hospital information systems. Document images are
archived permanently and can be retrieved by multiple authorized
users within a healthcare network. The system benefits customers
by creating on-line access to information thereby streamlining
workflow procedures. The Company will be responsible for
providing maintenance, support and product enhancements and will
offer customers a wide range of additional services including
telephone and remote diagnostic assistance, problem resolution,
implementation, training and consulting services. Under the
terms of the agreement, IBM, a market leader in document image
solutions, will continue to maintain ownership and market the
product. The Company will also market the product. The Company
will be paid a license fee by IBM. It will be based on a
percentage of total license fees charged to all IBM customers for
this product.
The Company entered into an agreement with Bridger Systems, Inc.
(Bridger) during 1994 for the development of and exclusive
software license for Monitrax. Monitrax is a new perioperative
information management system which automates the entire
anesthesia care process. Monitrax allows for the collection and
presentation of patient, surgical and anesthesia data through
every phase of the perioperative process, produces a complete
anesthesia record and allows easy entry of vital signs,
medications, inhaled agents, fluids and notes. This system
utilizes a pen-based technology for its primary user interface.
Monitrax contains pre-operative, intra-operative, PACU, and
post-operative modules. It creates administrative reports,
monitors quality standards, and provides a patient oriented
database which can be queried for clinical research and patient
outcomes. The Company will license, install and support Monitrax
to its customers. The Company has acquired all right, title and
ownership interest in and to Monitrax.
The Company entered into an agreement with Healthcare
Communications, Inc. (HCI) to sell and sub-license their
Cloverleaf (Registered) integration engine technology.
Cloverleaf (Registered) is a data interchange system which solves
the complex problems of multiple hardware platforms, vendors and
standards existing in the same environment. It allows the
connection of disparate applications via an open architecture
concept, and provides the means to move data freely among them.
Under the terms of the agreement, the Company will sell
Cloverleaf (Registered), will provide first level maintenance
support to those licensed users, and may participate
in the product implementation process. HCI will provide second
level maintenance support.
The Company entered into a marketing agreement with Home Care
Information Systems, Inc. (HCIS). Under the terms of the
agreement, the Company and HCIS will work cooperatively to sell
the HCIS home health software to the Company's client base, and
HCIS will provide training, implementation, and support services.
HCIS is a leading supplier of software and services to the home
health market. Their software includes specialized modules for
home care as well as hospice providers; complete clinical systems
with an option for portable data collection devices; electronic
claims and remittances; scheduling; inventory; and a full range
of accounting packages. The software is available on a variety
of hardware platforms including networked and stand-alone PC's,
the IBM AS/400 (Registered) and the IBM RISC/6000 (Registered).
The Company entered into a marketing agreement with ShowCase
Corporation for the distribution and sub-license of their
ShowCase VISTA Pro product. This product provides tools to
enable database queries to be incorporated into the Company's
AS/400 software products as well as enable the Company's
customers to construct their own database queries.
The Company has an agreement with First Data Bank (FDB) to sell
and sub-license their National Drug Data File (NDDF) and their
American Hospital Formulary System (AHFS). Both of these are
pharmacy drug data base and informational files which incorporate
drug product information, indications, complications and other
clinical information used by pharmacists and other clinicians in
their use of advanced information systems. The Company in some
instances incorporates the delivery and periodic updates of this
data for use with other vendors software product solutions and in
other cases offers a stand alone version to its customers.
Major Clients
The Company does not have a dependence on any single customer the
loss of which would have a material adverse effect. The Company
does generate revenue almost exclusively through sales to the
healthcare industry located in the United States. Due to this
concentration, substantially all receivables of the Company are
from healthcare institutions which may be similarly affected by
changes in economic, regulatory or other industry related
conditions. The Company currently has approximately 200
customers. The majority of these customers are located within
the United States.
Backlog
The Company had contracts which it believed to be firm for the
delivery of systems and services ("backlog"), totaling
approximately $2.6 million on March 22, 1996. In addition, the
Company as of March 22, 1996 has contracts for the delivery of
software support services billable at an annual rate of $4.0
million.
Competition
The Company's competition comes from multiple sources as the
Company participates in various segments of the healthcare
information systems industry. The nature of the competition
often depends on the market segment in which the Company is
competing, as well as, on the size of the system sale and the
size of the healthcare institution involved. Competitors include
large hospital information system ("HIS") vendors selling
laboratory, image, radiology, anesthesia, other departmental
information software products to existing clients or as an
adjunct to the HIS sale, laboratory information system ("LIS")
vendors offering fully-featured systems, and LIS vendors selling
networked microcomputer systems, image system ("IS") vendors
offering fully-featured systems, radiology information system
("RIS") vendors offering fully-featured systems, and RIS vendors
selling networked microcomputer systems, and anesthesia
information system ("AIS") vendors offering fully-featured
systems. Additionally, in the professional and technical
consulting segment, the Company competes with the national big
six consulting firms as well as a few national and regional
healthcare specialty consulting firms.
Hospital information system vendors, including Medical
Information Technology, Inc., HBO & Company, First Data
Corporation, Cerner Corporation and Shared Medical Systems, Inc.,
occasionally compete with the Company. These vendors often have
an advantage over the Company when a hospital is searching for a
complete HIS solution, and are often in a position to offer
substantial discounts for the purchase of an ancillary LIS, IS,
RIS, or AIS system. Nevertheless, the Company has developed and
installed interfaces between its systems and many of these HIS
systems.
The Company also competes with other LIS and RIS vendors that
offer fully-featured systems on computer platforms such as
Digital Equipment Corporation's VAX systems, Hewlett Packard
systems, and IBM Corporation's RS/6000 and AS/400 systems. These
companies include Cerner Corporation, Sunquest Information
Systems, Dynacor, Inc., 3M Health Information Systems, Citation
Corporation, Advanced Laboratory Systems, Inc., Antrim
Corporation, IDX, ADAC, Consort and Soft Computer Consultants.
Dynacor, Inc. is the only other laboratory system vendor known
to the Company to offer an IBM AS/400 based Laboratory
Information System. Cerner, Sunquest, Citation, IDX, ADAC and
Dynacor compete with the Company in the majority of new accounts
and are considered by the Company to be its principal
competitors. Some of these companies have a larger installed
base and greater financial resources than does the Company.
The Company primarily markets its image solutions in conjunction
with IBM, and in many instances as a joint proposal to customers.
IBM is a market leader in document image solutions. There are
HIS vendors as well as other specialty image vendors such as
Imnet Systems, LanVision and MedPlus who offer fully-featured
image systems.
The Company has not entered the active marketing and sales of its
Monitrax product, as development is in the final stages and beta
validation sites need to be implemented. A variety of vendors
offer AIS that are fully-featured and with which the Company will
compete for market share.
Product Development
The Company's expenditures relative to the enhancement of
existing software products and the development of new software
products continues to be one of the Company's most significant
investments. As has been true for the last several years, the
enhancement of existing products continues to be the Company's
largest development activity. Other development projects during
the last three years include, but were not limited to:
- The redesign of the Company's Anatomic Surgical
Information Retrieval System (ANSIRS) on a networked
PC-based stand-alone system.
- The Laboratory Data Repository which aids decision
support through database linkages, laboratory data storage, query
and reporting utilizing standard SQL database concepts,
- The development of Monitrax, the new anesthesia
information system. This is a pen-based point-of-care
system developed in cooperation with anesthesiologists,
nurses and clinicians. The entire perioperative process is
automated with this technology. A clinical database is
captured for future query and analysis.
Actual expenditures for software development activities were
$2,439,000, $2,629,000 and $2,369,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. These amounts
represent total expenditures for research and development
activities and ignore the accounting impact of the capitalization
of software development costs.
Government Regulation
The healthcare facilities that comprise the primary market for
the Company's products must comply with various federal, state
and local statutes and regulations. One of the Company's LabPro
products, the Transfusion Service Manager, ("TSM"), is considered
to be a "medical device" by the FDA. This subjects the Company
to FDA registration, compliance with Current Good Manufacturing
Practices, ("CGMP"), adverse event reporting, and other medical
device reporting and registration regulations. It is possible
that in the future, some or all of the Company's other software
systems may be subject to approval or inspection by the Food and
Drug Administration. In such event, there can be no assurance
that the Company will be able to secure the required Food and
Drug Administration approval for its products in a timely manner.
Delays in obtaining necessary governmental approval could have a
material adverse impact on the introduction of the Company's
future software systems. The Company is now devoting the
resources necessary to comply with FDA regulations and is in
process of submission for TSM's 510K.
Patents and Trade Secrets
The Company does not have patent protection for any of its
systems and it has chosen not to seek copyright protection for
any of its application software products. The Company relies on
trade secrets laws, internal access controls, and the
confidentiality and proprietary information provisions of its
systems sales contracts to protect its systems. In addition, the
Company's policy and procedure manual requires all employees and
contractors to execute standard confidentiality and trade secret
agreements, as well as conform to the written policies in effect.
The Company has applied for a trademark with the United States
Patent and Trademarks office for the Monitrax Anesthesiology
Information System and the DynamicVision product line.
Employees
The Company had 91 full time employees on March 15, 1996, as
compared to ninety-five on March 24, 1995. None of the Company's
employees are covered by collective bargaining agreements. The
Company requires all employee to execute a standard employee
confidentiality and trade secret agreement. In addition, each
employee is furnished with the Company's standard policy manual
and is expected to comply with all of its provisions. The
Company believes that employee relations are good.
Item 2. Properties
The Company's corporate offices were relocated during the 2th
quarter of 1995 from Longwood, Florida to Maitland, Florida. The Maitland
location consists of approximately 17,000 square feet of
office space under lease which expires March 31, 1999. The
Company believes that the current spaces under lease will be
sufficient to meet the Company's needs for the foreseeable
future. If additional space is required, the Company believes it
will be able to obtain such space. The Company owns no real
property.
Item 3. Legal Proceedings
The Company has instituted an action against James A. Terrano,
the Company's former President and Chief Executive Officer, in
the District Court of Lancaster County, Nebraska, alleging that
Mr. Terrano made fraudulent and negligent representations to the
Company's Board of Directors which resulted in the Company's
acceptance of a handwritten memorandum modifying Terrano's
employment agreement, breached his fiduciary duty to the Company
and breached his obligations under his employment agreement with
the Company. The Company is seeking to recover damages in the
amount of at least $50,000 in addition to a declaratory judgment
determining that no severance pay is due Mr. Terrano and that the
handwritten memorandum is invalid and unenforceable and does not
modify the employment agreement. Mr. Terrano has counter claimed
that he has been defamed by the Company, although no litigation
has been instituted.
The Company is a defendant in an action in which Mr. Terrano has
a demand for $280,000 in severance pay together with two years
worth of benefits unquantified to include the use of an
automobile, club dues and insurance policies. The Company is
vigorously contesting this case.
In another matter, the Company is a defendant in an action filed
by the Company's former Vice President, in the District Court of
Lancaster County, Nebraska, alleging that the Company did not
lawfully terminate her for cause, and therefore, the Company is
in breach of her employment agreement. The former employee is
seeking severance payment. The Company is vigorously contesting
this case.
The Company is also a defendant in a claim by a customer for
$250,000 compensatory damages and punitive damages alleging that
the Company breached express and implied warranties and committed
fraud in connection with the sale of a laboratory information
system. Management intends to vigorously contest the allegations
although the Company maintains an ongoing amicable business
relationship with the customer.
These cases are in the early stages of discovery and it is not
possible to evaluate the likelihood of a favorable or unfavorable
outcome of either case at this time.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security
holders during the fourth quarter of 1995.<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
(a) The information called for by this item is
incorporated herein by reference from pages
51-56 of Exhibit 13 to this Form 10-K.
(b) As of March 12, 1995, there were 474
shareholders of record of the Company's Common
Stock.
(c) The Company has declared no cash dividends on
its common stock since its inception and plans
to continue to invest all earnings back into the
Company in the foreseeable future.
Item 6. Selected Financial Data
The information required by this item is incorporated herein
by reference from page 28 of Exhibit 13 to this Form 10-K.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The information required by this item is incorporated herein by
reference from page 29 through page 36 of Exhibit 13 to this
Form 10-K.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference from page 37 through page 52 of Exhibit 13 to this
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The information required by this item is incorporated by
reference to the February 14, 1995 Form 8-KA filed by the
Company.<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
PART III
Item 10. Directors and Executive Officers of the
Registrant
The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) The following documents are filed as a part of this
report:
1. Financial Statements
-Independent Auditors' Report on the financial
statements as of and for the years ended December
31, 1995 and 1994.
-Independent Auditor's Report on the financial
statements as of and for the year ended December
31, 1993.
-Balance Sheets as of December 31, 1995 and 1994.
-Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.
-Statements of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
-Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
-Notes to Financial Statements.
The Financial Statements listed above are all incorporated by
reference to pages 37 through 54 of Exhibit 13 to this
Form 10-K.
2. Financial Statement Schedules
Index Schedule No. Page No.
Independent Auditors' Report on Financial
Statement Schedules as of and for the
Years Ended December 31, 1995 and 1994. --- 18
Independent Auditors' Report on Financial
Statement Schedules as of and for the Year
Ended December 31, 1993. --- 19
Valuation and Qualifying Accounts II 20
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes thereto.
3. Exhibits
Exhibit 11: Statement regarding computation of per share
earnings.
Exhibit 13: 1995 Annual Report to Security Holders.
(b) The following reports on Form 8-K were filed by the
Registrant during the quarter ended December 31, 1995:
Item Reported Date of Report
Designation of Series A and
Series B Preferred Stock November 28, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dynamic Healthcare Technologies, Inc.:
Under date of March 6, 1996, we reported on the balance sheets of
Dynamic Healthcare Technologies, Inc. as of and for the years
ended December 31, 1995 and 1994 and and the related statements
of operations, shareholders' equity and cash flows for the years
then ended, as contained in the annual report on Form 10-K for
the year 1995. In connection with our audits of the aforementioned
financial statements, we have also audited the
related 1995 and 1994 information in the financial statement
schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the 1995 and
1994 information in this financial statement schedule
based on our audits.
In our opinion, such 1995 and 1994 information in the financial
statement schedule, when considered in relation to the basic 1995
and 1994 financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Orlando, Florida
March 6, 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dynamic Healthcare Technologies, Inc.:
We have audited the statements of operations, shareholders'
equity, and cash flows of Terrano Corporation for the year ended
December 31, 1993, and have issued our report thereon dated March
16, 1994 (January 11, 1995 as to the 1993 restated financial
statements); such financial statements and report are included
elsewhere in this 1995 annual report on Form 10-K. Our audit also
included the 1993 information in the financial statement
schedule of Terrano Corporation listed in Item 14. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the
1993 information in this financial statement schedule based on
our audit. In our opinion, the 1993 information included in
such financial statement schedule, when considered in relation to
the basic 1993 financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
/S/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Orlando, Florida
March 16, 1994
(January 11, 1995 as to the restated Allowance for Doubtful Accounts
Receivable Information)
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Schedule II
<S> <C> <C> <C> <C>
Description Balance At Charged To Write-Offs, Balance At
Beginning Costs and Retirements End of
of Year Expenses & Collections Year
Year Ended December 31, 1993:
Allowance for
Doubtful Accounts
Receivable $ 200,000 $ 29,389 $ 39,717 $ 189,672
Accumulated
Amortization of
Capitalized
Software
Development
Costs $ 458,968 $ 384,569 $ - $ 843,537
Year Ended December 31, 1994:
Allowance for
Doubtful Accounts
Receivable $ 189,672 $ 179,409 $ 119,081 $ 250,000
Accumulated
Amortization of
Capitalized
Software Development
Costs $ 843,537 $ 505,613 $ 76,055 $1,273,095
Year Ended December 31, 1995:
Allowance for
Doubtful Accounts
Receivable $ 250,000 $ (12,498) $ 96,665 $ 140,837
Accumulated
Amortization of
Capitalized
Software
Development
Costs $1,273,095 $ 562,606 $ - $1,835,701
</TABLE>
<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Commission File No. 0-12516
IRS E.I.N. 47-0643468
By /S/PAUL S. GLOVER Date March 29, 1996
Paul S. Glover, Vice President of Finance and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/S/THOMAS J. MARTINSON Chairman of the Board March 29, 1996
Thomas J. Martinson
/S/DAVID M. POMERANCE CEO,Secretary & Director March 29, 1996
David M. Pomerance
/S/MITCHEL J. LASKEY President, COO, March 29, 1996
Mitchel J. Laskey Treasurer & Director
/S/PAUL S. GLOVER Vice President of Finance, March 29, 1996
Paul S. Glover CFO
/S/JERRY L. CARSON Director March 29, 1996
Jerry L. Carson
/S/KENNETH C. COON Director March 29, 1996
Kenneth C. Coon
<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
INDEX TO EXHIBITS
Page
Description of Exhibits Number
Exhibit 11 Statement regarding computation
of per share earnings. 23
Exhibit 13 Annual Report to Shareholders
of Dynamic Healthcare Technologies,
Inc. for the fiscal year ended
December 31, 1995. 25
<PAGE>
<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
EXHIBIT 11
Statement Regarding
Computation of
Per Share Earnings
<PAGE>
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
AND
EARNINGS PER SHARE FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C>
Years Ended December 31,
1995 1994 1993
Earnings (loss) available for
common shareholders:
Net earnings (loss) $ (512,623) $(4,307,500) $ 245,684
Preferred stock dividend
arrearage (24,844) - -
Earnings (loss) available
for common shareholders $ (537,467) $(4,307,500) $ 245,684
Weighted average common
and common equivalent shares
outstanding:
Primary:
Weighted average number
of common shares
outstanding 6,443,294 5,536,202 5,275,160
Dilutive effect of options
and warrants using average
market price - - 87,465
Weighted average common
and common equivalent shares
outstanding 6,443,294 5,536,202 5,362,625
Fully diluted:
Weighted average number of
common shares outstanding 6,443,294 5,536,202 5,275,160
Dilutive effect of options
and warrants using the
greater of average market
price or period end market
price - - 107,070
Weighted average common
and common equivalent
shares outstanding
assuming full dilution 6,443,294 5,536,202 5,382,230
Earnings (loss) per share
primary and fully diluted: $ (0.08) $ (0.78) $ 0.05
</TABLE>
<PAGE>
<PAGE>
FORM 10-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
EXHIBIT 13
Annual Report to Shareholders
of Dynamic Healthare Technologies, Inc.
for the Fiscal Year Ended December 31, 1995
<PAGE>
<PAGE>
OUTSIDE FRONT COVER
Dynamic Healthcare Technologies, Inc.
1995 Annual Report
<PAGE>
<PAGE>
INSIDE FRONT COVER
Dynamic Healthcare Technologies, Inc. develops, markets, installs
and supports clinical information systems, document image solutions and
DynamicVision , an enterprise-wide, multi-media
software and services solution that integrates health-related
data from many sources into a comprehensive electronic health
record.
Contents
Selected Financial Data
To Our Shareholders
Dynamics of the Healthcare Industry
Management's Discussion and Analysis
Financial Statements and Notes
Independent Auditors' Report
Board of Directors and Officers
Shareholders Information
<PAGE>
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
FIVE YEARS ENDED DECEMBER 31, 1995
(In thousands except per share data and current ratio)
The following selected financial data for the five years ended
December 31, 1995, were derived from the financial statements
of Dynamic Healthcare Technologies, Inc. These data should be
read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements,
related notes and other financial information included herein.
<S> <C> <C> <C> <C> <C>
1995 (1) 1994 (1) 1993 1992 1991
Operating Revenues $ 8,886 $ 6,987 $9,688 $8,411 $8,687
Loss from
Discontinuance of
Product Line - - - 2,000 -
Restructuring Charge - 686 - - -
Net Earnings (Loss)
from Continuing
Operations (513) (4,308) 246 (2,118) 1,070
Net Earnings (Loss)
Per Common Share (0.08) (0.78) 0.05 (0.40) 0.22
Working Capital 2,776 (2,871) 918 1,215 2,561
Current Ratio 1.98 .50 1.27 1.45 2.44
Total Assets 9,659 7,000 6,803 5,940 6,803
Long-Term Liabilities 2,770 723 - - -
Shareholders' Equity 4,064 502 3,462 3,210 5,024
The Company has declared no cash dividends on common stock since
its inception.
(1) Include the operating results and related financial
information since the acquisition of Dynamic Technical
Resources, Inc., accounted for as a purchase business
combination, whichoccurred on August 23, 1994.
</TABLE>
<PAGE>
<PAGE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
THREE YEARS ENDED DECEMBER 31, 1995
Overview
During the year ended December 31, 1995, the Company completed
the Restructuring Plan begun during 1994, developed and executed
a Refinancing Plan and returned to profitability in the third and
fourth quarters of 1995. In addition, the Company officially
changed its name to Dynamic Healthcare Technologies, Inc. and
developed a new corporate vision of providing the healthcare
industry with a comprehensive electronic health record. The
restructured, refinanced Company introduced a new "DynamicVision"
product strategy.
The Restructuring Plan was completed in June 1995 and resulted in
the closing of the Lincoln, Nebraska facility, which was
responsible for the laboratory product line. Restructuring also
resulted in relocation of sales, marketing, accounting and
administration to Orlando, Florida, and the organization of a
national support center in Orlando, Florida. Throughout the
restructuring process, Management maintained a commitment to
preserving the customer base by improving customer satisfaction.
As such, the Restructuring Plan included a re-engineering of the
lab product line, a revamped product quality control process,
product deliveries on a timely and scheduled basis, and a
commitment to deliver on all of the outstanding customer
contractual obligations.
During the restructuring process, Management determined that
additional financing was required. The Company was then in
continuing default of the financial covenants contained in the
Demand Line of Credit Security Agreement with its bank, and as a
result of rejecting initial financing proposals, the Company was
delisted from the NASDAQ stock market for failure to meet the
continuing minimum maintenance requirements for such listing. In
connection with funding new development efforts, to providing
additional working capital and expanding the Company's
opportunities for growth through acquisitions, among other
objectives, the Company began a Refinancing Plan (the "Plan").
On July 31, 1995, the Company closed a Private Placement
transaction as completion of Phase One of the Plan. Through the
issuance of Subordinated Convertible Notes (the "Notes") and
detachable warrants, the Company raised $775,000 of funding. On
November 28,1995 all of the Notes were converted into an equity
investment consisting of 968,750 of the Company's newly
designated Series A Preferred Shares. On December 5, 1995 the
Company closed on $2,725,000 of additional new equity investment
in exchange for 3,375,000 newly designated Series B Preferred
Shares and 210,000 common stock warrants. The final phase of the
Plan included refinancing the Demand Line of Credit as a Long
Term Note payable to the Bank payable in monthly installments
reflecting a 17 1/2 year amortization with a balloon in March 1998.
The Plan was completed on December 29, 1995 with an additional $300,000 of
investment in Series B Preferred Shares. In the
aggregate, the Plan raised $3,800,000 in new equity through the
issuance of Series A and B Preferred Shares and warrants,
refinanced the $3,400,000 demand Line of Credit on a long term
basis after reducing it to $2,800,000, and the Company regained
listing on the NASDAQ stock market.
The restructured and refinanced Company returned to profitability
during the last two quarters of 1995. In addition, the Company
reported revenues in excess of $2,000,000 for each quarter during
1995. The cumulative results of the Company's activities
culminated in a $3.3 million improvement in operating results for
the year ended December 31, 1995 as compared to the prior year.
The Company, through its name change, restructuring and
refinancing, began to focus strategically on participating in
the fast growing market segment for the development of the
electronic health record. Utilizing the Company's health
industry experience, underlying document imaging technology and
customer focus groups, the Company announced DynamicVision as a
new product strategy. DynamicVision is a multi-media software
and services solution that visually and logically integrates
health-related data from many sources into a comprehensive
electronic health record. Physicians, caregivers, and other
authorized individuals across a healthcare delivery network
are able to use a single workstation to access the data,
documents, audio, video, graphics, text and diagnostic images
comprising a patient's lifetime health record.
During December 1995, the Company signed a Letter of Intent to
acquire Dimensional Medicine, Inc. (DMI) of Minneapolis,
Minnesota. During February 1996, definitive agreements have been
executed with the planned closing for late April 1996. Anticipated benefits
from the DMI acquisition include a radiology
information system software system, diagnostic image capabilities
that can be integrated into the Company's DynamicVision product
line, a customer list comprised of America's leading medical
centers, and a staff highly trained in both healthcare and
information systems. In addition, this acquisition is intended
to provide growth to both organizations through the cross
selling of products and services to a wider customer base.
Strategically, the acquisition of DMI will bridge the Company
DynamicVision.
<PAGE>
<PAGE>
YEAR ENDED DECEMBER 31, 1995
During the year ended December 31, 1995, the Company reported revenues of
$8,886,000 representing a 27% increase over the $6,987,000 reported for the
prior year. The Company also reported four consecutive quarterly revenue
figures in excess of $2,000,000 during 1995.
Although 1995 computer equipment sales decreased by $772,000 from
the 1994 level, this decrease was more than offset by the
$1,181,000 increase in software support revenues. The Company
has fewer new system placements of its laboratory product line
and thinning margins on hardware as a result of competitive
pricing in this mature market. In addition, the Company
increased its focus on perfecting customer product delivery and
developing new market sectors. The significant increase in
software support revenues of $1,181,000 during 1995 results
principally from continued successful laboratory system
installations, the acquisition in August 1994 of Dynamic
Technical Resources, Inc. ("DTR"), and the inclusion for a full
year in 1995 of approximately $400,000 of Hospital Information
System support therefrom, and the IBM contract entered into in
1995 for exclusive support of IBM's Medical Records Plus software
installations.
Application software license revenue for 1995 also increased by
$580,000. As part of the Restructuring Plan completed in 1995,
the Company has continued to focus on shortening product delivery
cycles by improving interdepartmental communication and a re-engineered
installation process. Additionally, the Company
continues to sell add-on modules to its laboratory information
system customers. Application software license revenues are
expected to become a more significant component of the Company's
total operating revenue as the Company's newer software
products and solutions are brought to the market. These include
DynamicVision software solutions together with IBM Medical
RecordsPlus/400 document management imaging system, Monitrax, the
new anesthesia information system, the Company's decision support
products, and other software developed or acquired from other
companies.
Services and other revenues during the year ended December 31,
1995 also increased by approximately $910,000 over the levels
reported for the same period a year ago. This increase results
principally from the acquisition in August 1994 of DTR, which has
expanded the Company's custom programming, technical consulting,
and other professional services revenue.
Although cost of equipment sold for the year ended December 31,
1995 declined by $667,000 over the same reported for the
preceding year, gross margin on equipment declined by only
$106,000, reflecting the declining significance of hardware
sales. The Company expects to increase future hardware sales as
the new product offerings, principally imaging systems and
Monitrax installations, begin penetrating relatively unsaturated
markets requiring more sophisticated hardware integration and
full system placements with anticipated higher margins.
Client services expense for 1995 increased by $224,000 or 9% over
the same for 1994. The acquisition of DTR in August of 1994
results in a full year inclusion of related costs for 1995.
Estimated 1995 DTR related client services expenses, based on
annualizing these costs incurred for the four months of 1994,
would have yielded an increase of $830,000. This proforma
increase was offset principally by restructured operations, which
eliminated duplicate job functions and revamped product quality
control processes. Restructuring client services was designed
to streamline future product deliveries while increasing customer
responsiveness and overall customer satisfaction.
The decrease in software development costs incurred for the year
ended December 31, 1995 of $132,000 results principally from the
effects of restructuring operations. A reassignment of this department's
staff to assist in product delivery, support and
installation activities more than offset the increase
attributable to the annualized inclusion of DTR. Capitalized
software development activities initially slowed during
restructuring, but continued enhancements to LabPro 2000, and
development activities on Monitrax, imaging solutions and
DynamicVision resulted in $781,000 of new capitalized costs
during 1995 compared to $854,000 for 1994. Software amortization
expenses of $562,000 and $506,000 were incurred for 1995 and 1994
respectively, reflecting the inclusion of DTR for a full year.
During the fourth quarter of 1995, the Company began the process
of significantly increasing the sales and marketing force. The
sales organization was restructured to align team selling efforts
with the Company's new DynamicVision product line and to provide
emphasis both within the existing customer base and toward
developing new business markets. In addition, during 1995, the
Company took on a new corporate name Dynamic Healthcare
Technologies, Inc. and began to roll out a new corporate image as
team Dynamic which required a re-engineering of all marketing and
sales collateral materials. As such, during 1995, sales and
marketing costs were $190,000 higher than 1994. Increasing market
exposure while improving customer service remain the principal
objectives of restructuring this department. It is anticipated
that the build up of costs in this department will continue
during the first quarter of 1996 in an effort to build momentum
for placements of new system sales and thereby increase future
revenues.
General and administrative expenses for the year ended December
31, 1995 decreased by $451,000 principally as a result of
centralization after consolidating with DTR. A reduction in
executive and administrative management directly reduced general
and administrative salaries and wages from $1,164,000 to $712,000
from 1994 to 1995. Professional service fees including legal,
accounting and other financial consulting fees increased in 1995
over 1994 by $172,000; substantially due to the financial
restatement and restructuring process undertaken during 1995.
Amortization of goodwill increased from $55,000 in 1994 to
$155,000 during 1995 in direct proportion to the period of amortization
used during each year. During 1994 the goodwill
balance attributable solely to the DTR acquisition, was amortized for
approximately four months. During 1995, a full year of
goodwill amortization was charged. A reduction in bad debts
expense of $131,000 also occurred in 1995. During the year the
Company implemented tighter revenue recognition controls, which
include more continuous customer contact by both project
management and accounting, and resulted in an improved cash
collection cycle. The revamped quality control process with its
focus on customer responsiveness has also improved customer
communication and reduced costs.
Interest expense and financing fees increased by $235,000 for the
year 1995 over 1994. Substantially all of the $3,400,000 Bank
line of credit was outstanding for most of 1995. On November 28,
1995, the Company refinanced the demand line of credit by making
a $600,000 principal reduction and issuing a $2,800,000 long term
note payable. The $3,400,000 balance represents approximately
$2,000,000 of additional debt financing required by the Company's
post acquisition with DTR in August of 1994 to fund
restructuring. In addition, during the second quarter of 1995
the Company completed a Private Placement transaction issuing
$775,000 of Convertible Subordinated Notes bearing interest at 9%
per annum. Interest was paid through conversion to Series A
Preferred Shares on November 28, 1995.
<PAGE>
<PAGE>
YEAR ENDED DECEMBER 31, 1994
Total operating revenues decreased by 27.9% to $6,987,000 in 1994
as compared with $9,688,000 in 1993. The reduction was comprised
of significantly less revenue from sales of computer system
equipment and support as well as from a reduction in application
software licenses, although, there was a major increase in
software support and maintenance revenues. The Company sold
significantly fewer new customer LabPro laboratory information
systems (LIS) during 1994 as compared to 1993, and was further
impacted as more new customers either purchased their hardware
from sources other then the Company or operated the systems on a
co-resident machine already existing at the customer location.
Computer system equipment sales and support revenues decreased by
52.7% in 1994 to $1,873,000 as compared to 1993. This reduction
was caused by fewer new customer sales, coupled with increased
sales in which the Company's customers either operate the
software on an IBM AS/400 in a co-resident environment with that
of another vendor's software or where the customer has purchased
the computer system directly from IBM or an IBM authorized
dealer.
Application software license revenue decreased by 48.3% to
$1,849,000 as compared to 1993. This reduction was primarily
caused by fewer new customer sales as well as customer discounts
necessary to contract new business in a more competitive
environment. The Company continues to sell some add-on modules
to its LIS customers.
Software support revenues increased by 18.7% to $2,550,000 as
compared to 1993. The increase is primarily related to
additional Company customers who have successfully completed the
installation process of their application software products and
have commenced their software support and maintenance services.
In addition, service and other revenues increased by $715,000 in
1994. These service revenues are related to the acquisition of
DTR in August of 1994. The Company presently supports software
products that it develops as well as software products that it
sub-licenses or joint markets for and with its business partners.
Cost of equipment sold decreased by 51.0% to $1,547,000 as
compared to 1993 primarily as a direct result of a reduction in
computer system equipment sales. Hardware margins declined in
1994 by approximately 3% as compared to 1993. As a percentage of
total revenues, cost of equipment sold was 22.1% in 1994 and
32.6% in 1993. This reflects both the continued competitive
marketplace for hardware and the resulting lower margins
available to remarketers, and the Company's commitment to
enhancing its software product line upon which anticipated
marginal revenues are larger.
Client services expense is the Company's cost of installing,
maintaining, and providing training and support for its
software products. It also includes the cost of services for the
Company's professional and technical consulting engagements. The
costs associated with the support of software products
sub-licensed and joint marketed by the Company are also included.
The increase of 80.1% to $2,601,000 in 1994 as compared to 1993
in client services expense is primarily comprised of two factors.
First is the inclusion of the acquired DTR costs of $415,000 for
the eighteen (18) weeks after the acquisition. Secondly and more
material were the staffing levels and resultant costs and
operational inefficiencies that existed in the Company's
laboratory product line. As detailed elsewhere, this product
line was restructured and re-engineered to align operational
processes, staffing levels and other costs more directly to the
product line revenue.
<PAGE>
<PAGE>
Software development costs increased 24.5% to $1,775,000, or
25.4% of total revenues in 1994 compared to $1,437,000, or 14.7%
of total revenues in 1993. The cost of producing software
product masters subsequent to establishing technological
feasibility is capitalized. All other development and research
costs are expensed. Capitalized software development costs are
amortized primarily using the straight line method over the five
year estimated economic life of the product. Actual expenditures
for software development activities, which ignore the accounting
effects of capitalization and amortization, were $2,123,000 in
1994 and $1,927,000 in 1993. Of these amounts, $854,000 and
$887,000 respectively, were capitalized. In addition, during
1994 and in connection with the restructuring, current management
evaluated the net realizable value by reviewing the economic
remaining life of certain software products. As a result, the
Company took a charge to operations of approximately $121,000
by reducing the carrying value of certain software products.
Sales and marketing expense is the Company's cost of taking its
products and services to market and selling to its customers.
Sales and marketing expenses remained relatively constant in
terms of dollars expended $1,695,000 in 1994 and $1,676,000 in
1993. However, in terms of a percentage of total revenues, the
aggregate costs increased to 24.3% in 1994 as compared with 17.3%
in 1993. The increase is related to decreased revenues and to
higher fixed operating costs as it relates to sales and marketing
costs of some new market segments as a result of new software
products and services. In addition, the Company incurred added
costs to change the image of the Company in the marketplace and
to enhance its sales force.
Joint marketing costs are the amounts paid to other computer
system vendors (business partners) as a result of joint marketing
agreements for the Company's software products and other related
systems. The costs during 1994 of $22,000 were significantly
less than $356,000 incurred during 1993 as a result of the
Company primarily marketing directly to its customers and not
relying on its business partners to market its systems. This was
caused as the Company's two largest business partners were merged
into other companies during the year and their joint marketing
agreements have both since been terminated.
General and administrative expenses increased by 60.6% to
$2,219,000 during 1994 as compared to $1,382,000 during
1993. This increase can be attributed to a variety of factors:
(1) The decision by the Board of Directors to elect a new
CEO and add the additional costs thereby for the six months of
actual employment during 1994. (2) The acquisition of DTR on
August 23, 1994 and the inclusion of the related consolidated
costs including amortization of goodwill. And, (3) The increase
in legal and accounting costs as a result of the acquisition and
the issues surrounding the required restatement of prior periods.
On November 15, 1994, the Company adopted a plan to restructure
operations. The plan included the consolidation of sales,
marketing, accounting, administration and national support to the
Orlando, Florida location. In addition, it included the planned
closing of the Lincoln, Nebraska location and the re-engineering
of the laboratory product line. Accordingly, the Company in 1994
had incurred or provided $686,000 to write down assets to the net
realizable value and to cover the costs associated with this
action. These costs have been identified as "Restructuring
Costs" in the Consolidated Statement of Operations.
The Company's Board of Directors determined that an adjustment to
the consideration given to the former DTR shareholders in
connection with the acquisition was required due principally to
breaches in the representations and warranties contained in the
applicable merger agreement. On March 5, 1995, the Board of
Directors agreed to issue an aggregate of 610,000 additional
shares of common stock of the Company to be distributed among the
former shareholders of DTR on a pro-rata basis, with the same
rights, privileges and restrictions as the original consideration
received by such shareholders in connection with the acquisition.
Such former DTR shareholders, in turn, agreed to release the
Company from any claims they may have against the Company, its
current officers and directors and to cooperate and assist the
Company in the event the Company elects to file a civil lawsuit
against any professional or other third parties for damages
resulting from the events and matters that led to the Company's
restated financial statements. The additional shares were issued
on March 27, 1995. A charge to operations for the year ended
December 31, 1994 in the amount of $610,000 was recorded
representing market value of the additional shares at the date of
issuance. The recorded cost of the acquired enterprise was not
affected by the issuance of these additional shares.
Liquidity and Capital Resources
As of December 31, 1995, the Company has working capital of
$2,776,000. This represents a $5,647,000 improvement over
working capital one year ago. Cash and cash equivalents together
with trade receivables total $5,410,000 as of December 31, 1995,
in excess of six times accounts payable and accrued expenses of
$853,000 as of the same date. The Company's Refinancing Plan
completed during 1995 raised $3,800,000 in new equity principally
through the issuance of Series A and Series B Preferred Shares,
and refinanced the Demand Line of Credit as a Long Term Note
payable to the Bank in monthly installments reflecting a 17 1/2
year amortization and a balloon payment in March 1998.
Operating results during 1995 significantly improved as a result
of the Restructuring Plan begun during the fourth quarter of
1994, and completed during the second quarter of 1995. Even with
the acquisition of DTR occurring in August of 1994, total
operating expenses exclusive of cost of equipment sold decreased
by $832,000 for the 1995 year as compared to 1994. While costs
were being reduced during 1995, revenues increased by nearly
$2,000,000 over the levels attained in 1994. The cumulative
results of the Company's activities culminated in a $3,300,000
improvement in operating results for the year ended December 31,
1995 as compared to the prior year.
The Company anticipates that it will continue to make significant
investments in property and equipment in the future. Most of
these purchases will be for computer equipment for development,
software support and client education purposes. From January 1,
1993 through December 31, 1995 the Company acquired $1,074,000 of
property and equipment, which includes $220,000 from the
acquisition of DTR. The Company believes it is essential to
maintain at least one of every central processor type and
peripheral equipment model that it sells to its customers at
its corporate headquarters. The Company intends to continue to
offer its systems for use with the newest equipment technology
available which will require it to make significant investments
in computer equipment for its own use.
The Company will continue to develop new products and to keep
existing software investments competitive while it attempts to
build market share. These existing and new markets will also
require continued research and development efforts. Between
January 1, 1993 and December 31, 1995, the Company expended
$5,984,000 on software development, of which $2,594,000 was
capitalized. Evolving products include Monitrax, a new
anesthesia information systen and DynamicVision, a multi-media
software solution supporting a comprehensive electronic
healthcare record. All will need continued management involvement
and capital resources to reach marketability and market
penetration. The investment in product development requires a
substantial utilization of cash, as well as the impact to account
for the amortization of these costs on reported earnings from
operations each year. Amortization of capitalized software
development will continue to be a significant portion of the
Company's software development expenses.
An additional impact on the Company's earnings and cash flows is
its net operating loss carryforward (NOL). The Company had
unused tax operating loss carryforwards of approximately
$9,801,000 at December 31, 1995, which can be utilized to reduce
taxable income in future periods, and therefore, substantially
reduce cash requirements for taxes. While the Company had
profitable operations for some periods reported, it has not been
required to pay significant Federal or state income tax, due to
the use of its NOL.
On February 6, 1996, the Company signed a definitive Merger
Agreement ("Agreement"), with Dimensional Medicine, Inc. ("DMI"),
of Minnetonka, Minnesota. As of December 31, 1995 restricted
cash of $50,000 represented an escrowed deposit on the
acquisition pursuant to a Letter of Intent with DMI. Under the
terms of the Agreement, the Company will acquire through a wholly
owned newly created subsidiary DMI Acquisition Corporation on or
before May 17, 1996, all of the outstanding common shares of DMI.
Additionally, the Agreement requires the Company to pay
approximately $550,000 for 100% of the outstanding DMI stock,
$600,000 to retire DMI's senior indebtedness and requires that
DMI's majority shareholder be released from its guarantee of an
estimated additional $820,000 of DMI indebtedness. The total of
$1,970,000 is the estimated financial requirement of this
acquisition before other acquisition related costs. It is
anticipated to be funded from existing Company cash, cash
equivalents, restricted cash, through continued borrowing
relationships with existing DMI creditors, substitute guarantor
relationships, indemnification agreements and alternative debt
financings. In addition, the Company has evaluated and will
continue to evaluate the acquisition of complementary businesses
and products.
The Company believes that its cash and cash equivalents together
with cash generated by operations and additional sources of
liquidity, including possible further debt or equity financing,
will be sufficient to fund anticipated cash requirements. In
addition, the Company's ability to meet its cash requirements on
a long-term basis will depend on the Company's ability to
maintain profitable operations.
Inflation and Changing Prices
The Company believes that the general state of the economy and
inflationary trends may 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 on computer hardware could have a material effect on the
cost of materials sold and the related selling price of software
and hardware sales.
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<S> <C> <C>
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $2,290,366 $ 10,173
Restricted cash (Note K) 50,000 -
Accounts receivable, net of
allowance for doubtful accounts
of $140,837 and $250,000 in 1995
and 1994, respectively 2,811,711 2,166,813
Unbilled receivables 307,693 528,372
Other current assets 141,569 199,651
Total current assets 5,601,339 2,905,009
Property and equipment, net
(Notes B and C) 1,119,278 1,212,969
Capitalized software development
costs, net of accumulated amortization
of $1,835,701 and $1,273,095 in 1995
and 1994, respectively (Note A) 2,040,727 1,821,917
Goodwill, net of accumulated
amortization of $209,479 and $54,787
at December 31, 1995 and 1994,
respectively (Note A) 873,358 1,028,050
Other assets 24,408 32,171
$ 9,659,110 $7,000,116
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit
(Note C) $ - $ 2,788,401
Accounts payable and accrued
expenses (Note F) 852,515 1,182,450
Deferred revenue 1,818,871 1,452,895
Advance billings 80,260 351,835
Bank note payable - current maturities 73,285 -
Total current liabilities 2,824,931 5,775,581
Bank note payable (Note C) 2,726,715 -
Accrued liability - Acquisition
contingency (Note G) - 610,000
Other (Note J) 43,053 112,569
Total liabilities 5,594,699 6,498,150
Shareholders' equity (Note E):
Series A preferred stock, $0.01 par
value (liquidation preference of
$782,992); authorized 1,055,938shares;
issued and outstanding 968,750 shares
as of December 31, 1995 9,688 -
Series B preferred stock, $0.01 par
value, (liquidation preference of
$3,023,062) authorized 4,384,375 shares;
issued and outstanding 3,750,000 shares
as of December 31, 1995 37,500 -
Common stock, $0.01 par value, authorized
20,000,000 shares; issued and outstanding
6,611,646 and 5,967,819 shares in 1995
and 1994, respectively 66,116 59,678
Additional paid-in capital 12,900,738 8,879,296
Deficit (8,949,631) (8,437,008)
Total shareholders' equity 4,064,411 501,966
$ 9,659,110 $7,000,116
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C>
1995 1994 1993
Operating revenues (Note A):
Computer system equipment
sales and support $1,101,017 $1,873,393 $3,961,164
Application software
licenses 2,428,928 1,848,522 3,577,868
Software support 3,731,149 2,549,761 2,148,675
Services and other 1,625,242 715,466 -
Total operating revenues 8,886,336 6,987,142 9,687,707
Costs and expenses:
Cost of equipment sold 880,639 1,547,453 3,158,671
Client services expense 2,824,987 2,600,913 1,437,204
Software development costs 1,642,825 1,774,897 1,425,083
Sales and marketing 1,885,362 1,695,486 1,675,809
Joint marketing costs 45,816 22,487 356,060
General and administrative 1,768,005 2,218,807 1,381,973
Restructuring costs (Note F) - 686,439 -
Total costs and expenses 9,047,634 10,546,482 9,434,800
Operating income (loss) (161,298) (3,559,340) 252,907
Other income (expense):
Acquisition contingency
(Note G) - (610,000) -
Interest expense and
financing costs (378,043) (143,412) (18,615)
Miscellaneous 26,718 5,252 11,392
Total other expense (351,325) (748,160) (7,223)
Earnings (loss) before
income taxes (512,623) (4,307,500) 245,684
Income taxes (Note H) - - -
Net earnings (loss) $ (512,623)$(4,307,500) $ 245,684
Weighted average number of
common shares outstanding 6,443,294 5,536,202 5,362,625
Earnings (loss) per common
share
Primary and fully diluted $ (0.08)$ (0.78) $ 0.05
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C> <C> <C>
Series Series Additional
A B Common Paid-In
Preferred Preferred Stock Capital Deficit
Balance,
December
31, 1992 $ - $ - $ 52,713 $7,532,617 $(4,375,192)
Exercise
of stock
options - - 65 6,435 -
Net
earnings - - - - 245,684
Balance,
December
31, 1993 - - 52,778 7,539,052 (4,129,508)
Common
stock
issued
to effect
merger - - 6,000 1,194,000 -
Exercise
of stock
options - - 822 135,142 -
Employee
stock
purchase
plan - - 78 11,102 -
Net loss - - - - (4,307,500)
Balance,
December
31, 1994 - - 59,678 8,879,296 (8,437,008)
Common
stock
issued
to resolve
acquisition
contingency - - 6,100 603,900 -
Conversion
of
Subordinated
Convertible
Notes 9,688 - - 760,062 -
Issuance of
Series B
Preferred
Stock - 37,500 - 2,601,005 -
Issuance of
Warrants - - - 25,000 -
Exercise of
Stock
Options - - 50 4,950 -
Employee
Stock
Purchase
Plan - - 288 26,525 -
Net Loss - - - - (512,623)
Balance,
December
31, 1995 $ 9,688 $37,500 $66,116 $12,900,738 $(8,949,631)
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C>
1995 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss) $ (512,623) $(4,307,500) $ 245,684
Adjustments to reconcile
net earnings (loss) to
net cash provided by
(used in)
Operating Activities:
Depreciation and
amortization 1,081,694 1,036,740 677,441
Acquisition contingency - 610,000 -
Changes in assets and
liabilities
Accounts receivable (644,898) (1,096,151) (634,020)
Unbilled receivables 220,679 1,949,552 -
Other 65,845 (17,844) 19,891
Accounts payable and
accrued expenses (329,935) (95,206) 80,360
Deferred revenue 365,976 99,940 291,140
Advance billings (271,575) (45,236) -
Net cash provided
by (used in)
operating
activities (24,837) (1,865,705) 680,496
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Dynamic
Technical Resources - 286,586 -
Capitalized software
development costs (781,416) (796,024) (943,595)
Purchases of property
and equipment (270,705) (445,065) (237,238)
Restricted cash deposit (50,000) - -
Net cash used in
investing activities (1,102,121) (954,503) (1,180,833)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings (repayments)
under line of credit,
net (2,788,401) 1,874,401 239,000
Borrowings under bank
note payable 2,800,000 - -
Proceeds from issuance
of common stock 31,813 147,144 6,500
Other (5,250) 20,084 (46,392)
Proceeds from issuance
of Subordinated
Convertible Notes 775,000 - -
Proceeds from issuance
of Series B Preferred
Stock 2,638,505 - -
Proceeds from issuance
of warrants 25,000 - -
Principal payments
on long-term debt and
capital lease obligations (69,516) (311,390) -
Net cash provided by
financing activities 3,407,151 1,730,239 199,108
Net increase (decrease) in
cash and cash equivalents 2,280,193 (1,089,969) (301,229)
Cash and cash equivalents,
beginning of year 10,173 1,100,142 1,401,371
Cash and cash equivalents,
end of year $2,290,366 $ 10,173 $1,100,142
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid 375,434 $ 102,354 $ 16,284
Income taxes paid (received)$ 0 $ 0 $ (3,823)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Dynamic Healthcare Technologies, Inc. develops,
markets and supports clinical information systems and electronic
health record solutions in the healthcare industry. The specific
market segments in which the Company participates include
Clinical Workstations, Document Imaging, Diagnostic Imaging,
Laboratory Information Systems, Radiology Information Systems,
and Perioperative (Anesthesiology) Information Systems. All of
the Company's products are complementary to and contribute to the
creation and maintenance of the electronic health record.
Property and Equipment - Property and equipment is stated at cost
less accumulated depreciation and amortization. The cost of
property and equipment is depreciated and amortized over the
estimated useful lives of the related assets, ranging from five
to ten years, using the straight-line method.
Software Development Costs - Costs incurred to establish the
technological feasibility of computer software products are
research and development costs and are charged to expense as
incurred. Costs of producing product masters subsequent to
establishing technological feasibility, including coding and
testing, are capitalized. Capitalization of computer software
costs ceases when the product is available for general release to
customers. Amortization of capitalized Software Development Costs for the
years ended December 31, 1995, 1994 and 1993 were
$562,606, $505,613 and $384,569, respectively, and write downs to
net realizable value of $0, $121,535 and $0. Capitalized
software development costs are amortized using either the
straight-line method over the estimated economic life of the
product (currently five years) or the ratio of current
revenues to current and anticipated revenues for the product
whichever results in the greater amount of amortization.
Unamortized capitalized costs of a computer software product in
excess of its net realizable value of that asset are expensed.
Goodwill - Goodwill is stated at cost less accumulated
amortization. Goodwill is amortized using the straight
line method over a period of seven years. The Company assesses
the recoverability of goodwill based upon projected operations
over a period which represents the approximate remaining life of
goodwill. The Company evaluates the recoverability of goodwill
based on this forecast of future operations and income, and using
a discount rate that reflects the Company's average cost of
funds.
Revenues - Revenues are derived from the sale of computer
hardware, licensing and sub-licensing of software, professional
and technical consulting services, and maintenance and support
services. Each customer contract is negotiated separately.
Application software licenses and computer system equipment
revenues are recorded when hardware and application software are
delivered. Installation and training revenues, which are
included with application software licenses revenues in the
statements of operations are recognized as the services are
performed. Software support revenues principally include
contracts for continuing support services which cover
a specific period, and from which revenue is recognized ratably
over the period of the contract. Also included in software
support revenue are revenues from other significant continuing
obligations and post contract support obligations, which are
typically under separate contract and are recognized as the
services are performed. Services revenues are recognized as the
services are performed.
Joint Marketing Costs - Joint marketing costs include amounts
incurred as a result of joint marketing efforts of the Company's
LabPro 2000 laboratory information system and related systems
with other vendors. These vendors offer application software
products which are complementary to the Company's products.
Employee Benefit Plan - The Company has a 401(k) savings plan
covering all full-time employees. Eligible employees may elect
to defer 20% of their compensation up to the maximum allowed by
the Internal Revenue Code. Company contributions are made at the
discretion of the Board of Directors and amounted to $63,390,
$75,545 and $52,576 in 1995, 1994 and 1993, respectively.
Stock-Based Employee Compensation Plans - The Company's employee
stock option plans are accounted for under APB Opinion 25,
Accounting for stock issued to employees, and related
interpretations.
Income Taxes - Deferred income taxes are provided on items that
are recognized in different reporting periods for financial
accounting and income tax purposes using the then enacted tax
rates.
Earnings Per Share - Earnings per share is computed on the basis
of the weighted average number of shares outstanding plus the
common stock equivalents which would arise from the exercise of
stock options and warrants if dillutive. Fully diluted earnings
per share do not differ significantly from primary earnings per
share.
Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Concentration of Credit Risk - The Company generates revenue
primarily through sales to the healthcare industry located
throughout the United States. Due to this concentration,
substantially all receivables at March 31, 1995 and 1994, are
from healthcare institutions which may be similarly affected by
changes in economic, regulatory or other conditions. The Company
performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have
been within management's expectations.
The Company invests its excess cash in deposits with major
financial institutions, in U.S. government agency securities and
in commercial paper of companies with strong credit ratings.
Generally, the investments mature within 90 days and, therefore,
are subject to little risk. The Company has not experienced
losses related to these investments.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of the Company's financial instruments: The fair value
of cash and cash and equivalents approximates its carrying
amounts because of the short maturity of those instruments. The
fair value of Bank Note Payable is estimated based on the current
rates available to the Company for debt of the same remaining
maturities and approximates its carrying amount.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. The Statement, which is effective for fiscal
years beginning after December 15, 1995, provides that an entity
review long-lived assets and certain identifiable intangibles, to
be held and used, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. The Company will adopt this standard in 1996
and does not expect compliance with such standard to have a
material effect, if any, on the Company's financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation. The Statement, which is effective
for fiscal years beginning after December 15, 1995, provides that
companies must either charge the value of stock options granted
to their income statement or provide pro forma equivalent
information in a footnote disclosure. The Company will adopt
this standard in 1996 by providing pro forma equivalent
information in a footnote disclosure.
Reclassifications - Certain prior year balances have been
reclassified to conform to the 1995 presentation.
<PAGE>
<PAGE>
<TABLE>
B. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<S> <C> <C>
December 31,
1995 1994
Furniture and fixtures $ 208,434 $ 264,424
Equipment 2,696,946 2,778,373
Leasehold improvements 48,559 110,150
2,953,939 3,152,947
Less accumulated
depreciation and
amortization 1,834,661 1,939,978
$ 1,119,278 $ 1,212,969
</TABLE>
C. BANK NOTE PAYABLE
On December 8, 1995 the Company entered into a $2,800,000
Promissory Note payable to the Bank (the "Note"), and discharged
the Line of Credit. The Line of Credit was due on demand and
accrued interest payable monthly at the Bank's prime plus one
percent per annum. The terms of the Note require fixed monthly
payments of principal and interest of $29,911 beginning January
1, 1996, and a balloon payment equal to the remaining unpaid
principal balance and accrued interest on March 31, 1998.
Principal payments are anticipated to approximate $73,000,
$76,000, and $2,651,000 during the years ending December 31,
1996, 1997 and 1998, respectively. Interest on the outstanding
principal balance accrues at the Bank's prime rate plus two
percent per annum (10.5% as of December 31, 1995). Under the
applicable Credit Agreement, the Bank has a security interest in
all the assets of the Company.
D. LEASES
The Company leases certain equipment and office space under
noncancelable operating leases. The leases call for monthly
payments over terms of three to five years and include renewal
options. With respect to the equipment leases, the Company is
liable for all taxes, repairs and insurance. Total rent expense
on all operating leases was $161,835, $208,000 and $204,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The future minimum rental payments under operating leases as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
1996 $257,026
1997 240,718
1998 249,390
1999 62,890
Total $810,024
</TABLE>
<PAGE>
E. CAPITAL STOCK, WARRANTS AND OPTIONS
During 1993, the shareholders approved and the Company adopted a
stock warrant and option plan for directors and management
employees (the "D&M Plan"), whereby 250,000 shares of common
stock are reserved for issuance. Under the D&M Plan directors'
warrants are five year warrants which vest under varying terms
and are issued at an exercise price equal to the market price of
the Company's common stock on the date of grant. Management
employee options expire ten years after the first anniversary of
the date of issuance and are issued at an exercise price of no
less than 85% of the market price of the Company's common stock
on the date of grant. During 1995, the shareholders approved an
amendment to the D&M Plan to conform the terms of vesting to 40%
upon grant plus 20% per year for each of three years thereafter,
and to provide for early vesting upon death or employment
termination without cause for all future options granted under
the D&M Plan. Additionally, annual warrants are issued to
certain outside directors at the beginning of that director's
third consecutive term in office. Each annual warrant is for
5,000 shares of the Company's Common Stock, has a five year term,
has an exercise price equal to the average of the closing bid and
ask prices of the Company's Common Stock on the date of
issuance and is fully vested upon issuance. At December 31,
1995, the Company had Board stock warrants and options
outstanding to purchase shares of its common stock under the D&M
Plan as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Number Presently Price Year Expiration
of Shares Exercisable Per Share Granted Date
Directors'
Warrants: 25,500 25,500 $3.06 1991 May 1996
5,000 5,000 $2.25 1993 June 1998
25,500 25,500 $2.06 1993 Jan. 1998
15,000 15,000 $1.93 1994 June 1999
5,000 5,000 $2.25 1994 June 1999
15,000 15,000 $1.00 1995 June 2000
Management
Employees'
Options: - -
91,000 91,000
</TABLE>
As part of a public offering of common shares in December 1991,
the Company granted warrants to an underwriter of its offering
for 35,000 shares of common stock. These underwriter warrants
are exercisable at any time after the first anniversary of their
issuance date up to and including the fifth anniversary date. As
of December 31, 1995 the exercise price was $4.32 per share and
none of these warrants have been exercised.
The Company adopted an incentive stock option plan in 1983 for
key employees whereby 400,000 shares of common stock were
reserved for issuance under the Plan. Options granted vest 40%,
30% and 30% on the first, second and third anniversaries of their
issuance, respectively and expire ten years after the date
of grant. At December 31, 1995, the Company had granted options
of 355,040 shares, of which options for 104,240 shares had been
exercised and options for 19,000 shares were exercisable at
between $1.00 and $1.9375 a share. No new options will be
granted under the terms of this Plan.
During 1993, the shareholders approved and the Company adopted a
new ten year incentive stock option plan for employees whereby
100,000 shares of common stock were reserved for issuance under
the Plan. The terms of this 1993 ISO Plan are similar to the 1983
Plan. During 1995, the shareholders approved increasing shares
issuable pursuant to the 1993 ISO Plan to 600,000. At December
31, 1995, the Company had granted options of 177,750 shares, no
options had been exercised, 13,700 options were terminated and
options for 14,670 shares were exercisable between $1.93 and
$2.25 a share. Under both the 1983 Plan and the 1993 Plan, the
exercise price for stock options may not be less than the market
price of the Company's common stock at date of grant.
<PAGE>
<PAGE>
<TABLE>
Incentive stock option activity under the 1983 and 1993 Plans and
price information follows:
<S> <C> <C>
Stock Option
Shares Price Range
Balance at December 31, 1992 321,050 $1.00 - $3.06
Exercised (6,500) $1.00
Granted 58,500 $2.25
Canceled (2,000) $1.53
Balance at December 31, 1993 371,050 $1.00 - $3.06
Exercised (56,750) $1.00 - $2.25
Granted 34,575 $1.9375
Canceled (246,125) $1.00 - $3.06
Balance at December 31, 1994 102,750 $1.00 - $2.25
Exercised (5,000) $1.00
Granted 143,000 $1.00 - $1.125
Cancelled (57,700) $1.00 - $2.25
Balance at December 31, 1995 183,050 $1.00 - $2.25
</TABLE>
During 1993 the shareholders approved and the Company adopted an
Employee Stock Purchase Plan effective for a five year period
beginning January 1, 1994. The Company reserved 200,000 shares
of common stock for issuance under the Plan. The Plan operates
in one or more phases of six months each and is open for
enrollment by employees working at least 20 hours per week and
who have completed at least five months of service. A summary of
plan activity is as follows:
Phase # Phase Ending Date Shares Issued Price
1 June 30, 1994 5,274 $1.65
2 December 31, 1994 2,535 $ .98
3 June 30, 1995 6,256 $ .93
4 December 31, 1995 22,575 $ .93
36,640
On July 6, 1994, the Company's Board of Directors, in connection
with an employment agreement, granted options to Mr. David
Pomerance, the Company's CEO, covering 250,000 shares of common
stock. The options are exercisable through July 6, 1999 in
accordance with a vesting schedule of 40% upon grant plus 20% per
year for each of three years thereafter at an exercise price
equal to the fair market value on the date of the grant of
$1.875 per share. On August 23, 1994, the Company's Board of
Directors, in connection with an employment agreement, granted
options to Mitchel J. Laskey, the Company's President and COO,
covering 250,000 shares of common stock under similar terms at an
exercise price equal to the fair market value on the date of the
grant of $1.6875. Both option agreements provide for early
vesting upon death or employment termination without
cause. On September 13, 1995, the Company's Board of Directors
reduced the exercise price on these employment options to $1.00
per share.
The Articles of Incorporation authorize 10,000,000 shares of $.01
par value preferred stock, in such series and variations in the
relative rights and preferences, including voting rights, if any,
between series as the Board of Directors shall determine.
On November 15, 1995 the Company was authorized by the Board of
Directors to reserve for issuance 1,055,938 Shares of 9% Series A
Cumulative Convertible Preferred Stock $.01 par value ("Series A
Preferred Stock"), and 4,384,375 shares of 9% Series B Cumulative
Convertible Preferred Stock $.01 par value ("Series B Preferred
Stock"), (collectively, "Preferred Stock"), with the following
attributes:
(1) Rank. The Preferred Stock shall, with respect to
dividend rights and voluntary or involuntary liquidation,
winding-up, dissolution, merger and combination, rank prior to
all classes of Common Stock.
(2) Dividends. The holders of record of any outstanding
shares of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to cumulative dividends on a pari passu basis
at the rate per share of nine (9%) percent per annum payable
quarterly in arrears, on March 31, June 30, September 30 and
December 31 of each year.
(3) Liquidation Rights. Upon the liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Preferred Stock will be entitled
to receive and to be paid out of the assets of the Corporation
available for distribution a liquidation distribution in cash in
an amount equal to $.80 per share plus accrued and unpaid
dividends thereon to the date of such distribution.
(4) Conversion Rights. The holders of shares of Preferred
Stock have the right at their option to receive on a share for
share basis Common Stock of the Corporation plus any dividends
accrued and unpaid on any shares of Preferred Stock surrendered
for conversion.
(5) Mandatory Conversion. Each share of Series A Preferred
Stock shall automatically be converted into one share of Common
Stock if i) the Company's Common Stock current market price shall
have traded above $1.20 for 20 consecutive trading days on any
nationally recognized stock exchange or NASDAQ and ii) the
underlying common shares have been registered under the
Securities Act of 1933.
Each share of Series B Preferred Stock shall automatically be
converted into one share of Common Stock if I) the Company's
Common Stock current market price shall have traded above $2.80
for 20 consecutive trading days on any nationally recognized
stock exchange or NASDAQ and ii) the average weekly trading
volume during such 20 consecutive trading days is equal to or
greater than 150,000 shares of Common Stock and iii) either the
underlying common shares have been registered under the
Securities Act of 1933 or eligible to be sold by the Series B
holders pursuant to Rule 144 promulgated under the Securities
Act.
(6) Redemption. The shares of the Series A Preferred Stock
are not subject to redemption on or prior to June 30, 1998, or if
any Series B Preferred Stock is outstanding. After June 30, 1998
the Series A Preferred Stock is redeemable in whole or in part,
at any time at the option of the Corporation, at the following
redemption prices: (i) if redeemed on or before June 30, 1999 -
$.90 per share, and (ii) $.80 per share thereafter, plus an
amount in cash equal to all accrued and unpaid dividends thereon
to the date fixed for redemption. If less than all of the
outstanding shares of Series A Preferred Stock are to be
redeemed, the Corporation will redeem such shares on a pro rata
basis. Redemption of Series B Preferred Stock is at the options
of the holder(s) upon the occurrence of a liquidating
consolidation or merger, or a sale of substantially all of the
Company's assets. There is no mandatory redemption or sinking
fund obligation with respect to the Preferred Stock.
(7) Voting Rights. The holders of shares of the Series A
Preferred Stock are not entitled to any voting rights except as
required by law or as described below. In the event quarterly
dividends are in arrears for two calendar quarters the holder of
shares of the Series A Preferred Stock shall have the same voting
rights as if such shares of Series A Preferred Stock had been
converted into shares of Common Stock.
The holders of shares of Series B Preferred Stock are entitled to
vote on all matters, in the same manner and with the same effect
as holders of Common Stock as one class. Additionally, the
Company requires approval of two-thirds of the Series B holders
voting as a separate class with respect to certain matters,
including i) to authorize, alter, create or issue any class or
series of capital stock; ii) merge or consolidate with and or
into any other entity; or iii) permit the occurrence of a change
in control as defined.
On July 31, 1995 the Company completed a Private Placement
Offering issuing $775,000 of Subordinated
Convertible Notes, bearing simple interest at 9% per annum,
together with detachable warrants to purchase 155,000 shares of
the Company's common stock, ("debt warrants") (see also Note I).
The warrants are exercisable at $1.00 per common share, and are
exercisable for five years from the date of issuance (70,000 in
June 1995 and 85,000 in July 1995). On November 28,1995 all of
the Subordinated Convertible Notes were converted into 968,750
shares of Series A Preferred Stock.
On December 5, 1995 the Company issued 3,375,000 shares of Series
B Preferred Stock for $2.7 million, and on December 29, 1995
issued 375,000 shares of Series B Preferred Stock for an
additional $300,000 in a Private Placement transaction.
In connection with the Private Placement of the shares of Series
B Preferred Stock, the Board of Directors of the Company
authorized the issuance on Decmber 8,1995 of warrants to purchase
210,000 shares of the Company's common stock for $1.00 per share
to a financial consultant ("Series B warrants") for $25,000.
These warrants are exercisable for five years from the date of
issuance.
As of December 31, 1995 no dividends have been declared, and
arrearages on Series A and Series B Preferred Stock were $6,394
and $18,450, respectively. Additionally, as of December 31, 1995
none of the debt warrants nor the Series B warrants were
exercised.
F. RESTRUCTURING
On November 15, 1994, the Company adopted a plan to restructure
certain of its operations and to re-evaluate certain other
activities. The Company's plan included reduction in the
workforce, restructuring of the sales compensation program,
relocation of the corporate office and the closing of the
Lincoln, Nebraska operation. Accordingly, the Company provided or
incurred $686,439 during the year ended December 31, 1994 to
write down assets to the net realizable value and to cover the
costs associated with the restructuring. The costs associated
with this action have been identified as "Restructuring Costs" in
the Statement of Operations for the year ended December 31, 1994,
and are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Accrual Accrual
November 15, Paid or Accrual December 31,
1994 Incurred Adjustments 1994
Excess costs
attributable
to exit
activities $ 254,430 $(213,930) $ 0 $ 40,500
Noncancelable
lease
termination
costs 206,357 (28,738) 0 177,619
Involuntary
employee
termination
benefits 95,060 (68,215) 0 26,845
Employee costs
after operations
cease 130,592 (54,592) 0 76,000
$ 686,439 $(365,475) $ 0 $ 320,964
Accrual Accrual
November 15, Paid or Accrual December 31,
1994 Incurred Adjustments 1995
Excess costs
attributable
to exit
activities $ 40,500 $ 0 $ (40,500) $ 0
Noncancelable
lease
termination
costs 177,619 (187,375) 9,756 0
Involuntary
employee
termination
benefits 26,845 (23,235) (3,610) 0
Employee costs
after operations
cease 76,000 (110,354) 34,354 0
$ 320,964 $(320,964) $ 0 $ 0
</TABLE>
<PAGE>
The Company completed the plan of restructure during the second
quarter of 1995, and all employee groups were restructured. As
of December 31, 1995 actual involuntary termination benefits of
$91,450 were paid to 31 terminated employees.
G. ACQUISITION CONTINGENCY/RESTATEMENT
In connection with the acquisition of Dynamic Technical
Resources, Inc. (DTR) in August 1994, due principally to breaches
in the representations and warranties contained in the applicable
merger agreement, the Company's Board of Directors determined
that an adjustment to the consideration given to the former DTR
shareholders was required. On March 5, 1995, the Board of
Directors agreed to issue an aggregate of 610,000 additional
shares of common stock of the Company to be distributed among the
former shareholders of DTR on a pro-rata basis, with the same
rights, privileges and restrictions as the original consideration
received by such shareholders in connection with the acquisition.
Such former DTR shareholders, in turn, agreed to release the
Company from any claims they may have against the Company, its
current officers and directors and to cooperate and assist the
Company in the event the Company elects to file a civil lawsuit
against any professional or other third parties for damages
resulting from the events and matters that led to the Company's
restated financial statements. The additional shares were issued
on March 27, 1995. A charge to operations for the year ended
December 31, 1994 in the amount of $610,000 was recorded
representing market value of the additional shares at the date of
issuance. As a result of review by and consultation with the
staff of the Securities and Exchange Commission, the Company
restated its 1994 consolidated financial statements to reflect an
accrual for this acquisition settlement in the amount of
$610,000. The amount of $610,000 represents the market value of
the additional shares at the date of their issuance. The
recorded cost of the acquired enterprise was not affected by the
issuance of these additional shares.
H. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1995 1994 1993
Current income tax
expense (benefit)
before operating loss
carry forward $(281,000) $(1,523,000) $ 3,000
Tax effects of
temporary differences 76,000 44,000 96,000
Non-recognition of
benefits of operating
loss carry forward 205,000 1,479,000 --
Benefits of operating
loss carry forward -- -- (99,000)
$ -- $ -- $ --
</TABLE>
Deferred income taxes reflect the net tax effects of operating
loss and tax credit carryforwards and temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income
tax purposes. The tax effects of significant items comprising
the Company's net deferred tax as of December 31, 1995, are as
follows:
<PAGE>
<TABLE>
<S> <C> <C>
1995 1994
Deferred tax asset:
Operating loss carryforwards $3,920,000 $3,365,000
Tax credit carryforwards 717,000 701,000
Other 57,000 85,000
4,694,000 4,151,000
Deferred tax liabilities:
Capitalized software
development costs (816,000) (729,000)
Other -- (46,000)
Net deferred tax asset 3,878,000 3,376,000
Valuation allowance (3,878,000) (3,376,000)
Net deferred tax $ -- $ --
</TABLE>
The net deferred tax asset is reduced by a valuation allowance
due to the uncertainty associated with the realization of the
net deferred tax asset. The valuation allowance increased
$502,000 from the allowance of $3,376,000 at January 1, 1995.
The provisions for Federal income taxes differs from the amount
computed by applying the statutory rate to net earnings (loss)
before income taxes for each of the three years in the period
ended December 31, 1995, as follows:
<TABLE>
<S> <C> <C> <C>
Amount of Tax
1995 1994 1993
Computed expected tax
expense (benefit) $ (174,000) $(1,465,000) $ 84,000
State taxes, net of
federal benefit (31,000) (222,000) 15,000
Acquisition
consideration not
deductible for tax -- 208,000 --
Non-recognition of
benefits of operating
loss carryforward 205,000 1,479,000 --
Benefits of operating
loss carryforward -- -- (99,000)
$ -- $ -- $ --
</TABLE>
At December 31, 1995, the Company had unused operating loss
carryforwards for tax and alternative minimum tax purposes of
approximately $9,801,000 and $9,423,000, respectively, and
unused tax credits of approximately $717,000. These operating
loss carryforwards and tax credits expire in varying amounts
during 1996 through 2009.
<PAGE>
I. UNAUDITED QUARTERLY INFORMATION
Quarterly operating results are summarized as follows (in
thousands, except per share data):
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended
(Unaudited)
1995 March 31 June 30 Sept. 30 Dec. 31
Total Operating
Revenues $2,234 $2,267 $2,213 $2,172
Operating Income
(Loss) (366) (136) 252 89
Net Earnings (Loss) (443) (262) 148 44
Net Earnings (Loss)
Per Share (.07) (.04) .02 .01
Shareholders'
Equity 674 417 566 4,064
</TABLE>
<TABLE>
Three Months Ended
(Unaudited)
<S> <C> <C> <C> <C>
1994 March 31 June 30 Sept. 30 Dec. 31*
Total Operating
Revenues $2,254 $1,401 $1,676 $1,656
Operating Income
(Loss) (198) (674) (706) (1,981)
Net Earnings
(Loss) (204) (691) (737) (2,676)
Net Earnings
(Loss) Per Share (.04) (.13) (0.13) (0.48)
Shareholders'
Equity 3,298 2,652 3,133 502
</TABLE>
*Results reported for the fourth quarter of 1994 include the
fluctuations resulting from the accrual of restructuring costs
and the acquisition contingency (See also Notes F and G).
J. RELATED PARTY TRANSACTIONS
In connection with the Private Placement Offering Messrs. David
M. Pomerance (CEO and Director), Mitchel J. Laskey (President,
COO and Director) and Thomas J. Martinson (Chairman) each
purchased $100,000, $100,000 and $50,000 of Subordinated
Convertible Notes and received 20,000, 20,000 and 10,000
detachable debt warrants, respectively. These notes were wholly
converted to Series A Preferred Stock on November 28, 1995 at
$.80 per share.
Included in other non-current liabilities is an installment
obligation payable in connection with a deferred compensation
agreement with the Company's current President assumed in
connection with the acquisition of Dynamic Technical Resources,
Inc. and is payable in 19 remaining monthly installments of
$4,167 at an imputed interest rate of 8.25%.
The Company expensed airline transportation charges from DDK
Enterprises LLC ("DDK") on terms which approximate fair market
value of $65,000 during the year ended December 31, 1995. DDK is
majority owned by Mr. David Pomerance ("CEO").
<PAGE>
K. SUBSEQUENT EVENT/RESTRICTED CASH
On December 8, 1995 the Company signed a Letter of Intent
agreeing in principle to acquire all of the outstanding
common shares of Dimensional Medicine, Inc. ("DMI"), of
Minnetonka, Minnesota. As of December 31, 1995 restricted cash
of $50,000 represents an escrow deposit on the transaction
pursuant to this Letter of Intent.
On February 6, 1996 the Company signed a definitive Merger
Agreement (the "Agreement") with DMI. Under the terms of the
Agreement, the Company will acquire through a wholly owned newly
created subsidiary DMI Acquisition Corporation, on or before May
17, 1996, all of the outstanding common shares of DMI and retire
$600,000 of DMI's senior debt. The transaction is subject to
approval at a special meeting of the shareholders of DMI
scheduled for April 29, 1996. The Company and DMI are
coordinating joint management of DMI operations through the
anticipated closing. DMI develops and markets radiology
information management solutions for hospitals, clinics, and
independent diagnostic imaging centers. DMI's two major products
are Maxfile , which computerizes the clerical and administrative
functions in the radiology department; and Maxiview , an advanced
imaging and graphics workstation.
DMI also sells an image review workstation, Maxiview Powerstation
(MVP), which allows a physician to access and review images from
a remote location. Remote access to the images may be obtained
either through the use of a modem or through a network that may
already be functioning at the installation's site.
DMI is publicly traded on the over the counter market under the
symbol DIMM. As reported in DMI's unaudited Form 10-Q for the
nine months ended December 31, 1995, DMI reported a $64,000 net
loss on revenues of $3,700,000.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Dynamic Healthcare Technologies, Inc.:
We have audited the accompanying balance sheets of Dynamic
Healthcare Technologies, Inc. as of December 31, 1995 and
1994, and the related statements of operations, shareholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 financial statements referred
to above present fairly, in all material respects, the financial
position of Dynamic Healthcare Technologies, Inc. as of December
31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally
accepted accounting principles.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Orlando, Florida
March 6, 1996
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Terrano Corporation:
We have audited the statements of operations, shareholders'
equity, and cash flows of Terrano Corporation for the year ended
December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. Our
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 1993 financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Terrano Corporation for the year
ended December 31, 1993, in conformity with generally accepted
accounting principles.
The accompanying financial statements for the year ended December
31, 1993 have been restated.
/S/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Orlando, Florida
March 16, 1994
(January 11, 1995 as to the 1993 restated financial statements)
<PAGE>
<PAGE>
CORPORATE INFORMATION
Board of Directors
David M. Pomerance Mitchel J. Laskey, C.P.A.
Chief Executive Officer President and Chief
Dynamic Healthcare Operating Officer
Technologies, Inc. Dynamic Healthcare
Technologies, Inc.
Thomas J. Martinson, Chairman Kenneth C. Coon
President Chairman and Chief
Martinson & Company, Ltd. Executive Officer
Acceptance Insurance
Companies, Inc.
Jerry L. Carson
Executive Vice President and Chief Financial Officer
Evans Enterprises
Officers
David M. Pomerance Mitchel J. Laskey, C.P.A.
Chief Executive Officer President and Chief
Secretary Operating Officer
Treasurer
Philip R. Kneeland Mary Lu Lander
Vice President Vice President
Technical Operations Marketing
Matthew P. Lawton Bruce B. Sherr
Vice President Vice President
Customer Sales Sales
Linda A. Moline, R.R.A. Paul S. Glover
Vice President Vice President of Finance
Professional Services Chief Financial Officer
Steven J. Akerson
Vice President
Clinical Products
Transfer Agent and Registrar Auditors
Norwest Bank Minnesota, N.A. KPMG Peat Marwick, LLP
161 North Concord Exchange 111 North Orange Avenue,
St. Paul, Minnesota 55075 Suite 1600
(612)450-4064 Orlando, Florida 32801
(407)423-3426
Legal Counsel
Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, P.A.
2601 S. Bayshore Drive
Miami, Fl 33133-5460
(305)854-5900
<PAGE>
<PAGE>
STOCK TRADING INFORMATION
The Common Stock of Dynamic Healthcare Technologies, Inc. is
traded on the NASDAQ System under the NASDAQ symbol DHTI.
COMMON STOCK INFORMATION
The number of stockholders of record of the Company's Common
Stock on March 28, 1996, was 474. High and low bid
quotations for the Common Stock for the last eight quarters are
presented below:
<TABLE>
<S> <C> <C> <C> <C>
1995 1994
Quarter Ended High Low High Low
March 31 $ 1.3750 $.8750 $2.7500 $2.0000
June 30 1.0000 .8750 2.1250 1.7500
September 30 1.0000 .6250 1.8750 1.5000
December 31 2.3125 .8750 2.0000 1.0000
</TABLE>
The foregoing quotations reflect inter-dealer prices without
retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions.
ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS
Dynamic Healthcare Technologies, Inc.'s annual filing with the
Securities and Exchange Commission (Form 10-K) is available upon
request without charge to shareholders by writing to:
Gail E. Carter
Investor Services Department
Dynamic Healthcare Technologies, Inc.
101 Southhall Lane, Suite 210
Maitland, Florida 32751
(407) 875-9991
ANNUAL MEETING
The Annual Meeting of Shareholders of Dynamic Healthcare
Technologies, Inc. will be held on May 21, 1996, in Maitland,
Florida.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Dynamic Healthcare Technologies, Inc.:
We consent to incorporation by reference in the registration
statements (No. 33 -72684 and 33-72764) on Form S-8 of Dynamic
Healthcare Technologies, Inc. of our report dated March 6, 1996,
relating to the balance sheets of Dynamic Healthcare
Technologies, Inc. as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders'
equity, and cash flows for the years then ended, and related
schedule, which reports appear in the December 31, 1995 annual
report on Form 10-K of Dynamic Healthcare Technologies, Inc.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Orlando, Florida
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,290,366
<SECURITIES> 0
<RECEIVABLES> 3,260,241
<ALLOWANCES> 140,837
<INVENTORY> 0
<CURRENT-ASSETS> 5,601,339
<PP&E> 2,953,939
<DEPRECIATION> 1,834,661
<TOTAL-ASSETS> 9,659,110
<CURRENT-LIABILITIES> 2,824,931
<BONDS> 2,726,715
<COMMON> 66,116
0
47,188
<OTHER-SE> 3,951,107
<TOTAL-LIABILITY-AND-EQUITY> 9,659,110
<SALES> 1,101,017
<TOTAL-REVENUES> 8,886,336
<CGS> 880,639
<TOTAL-COSTS> 9,047,634
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,043
<INCOME-PRETAX> (512,623)
<INCOME-TAX> 0
<INCOME-CONTINUING> (512,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (512,623)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
