SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1996
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)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by checkmark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a Court.
Yes No
As of April 22, 1996, there were 6,611,646 shares outstanding,
par value $.01 per share, of the issuer's only class of common
stock.
This report consists of thirteen (13) pages.
The index to exhibits appears on page twelve (12).
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See attached statements following this item number.
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DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Balance Sheets
<S> <C> <C>
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $2,164,646 $2,290,366
Restricted cash 50,000 50,000
Accounts receivable, net of allowance
for doubtful accounts of $140,837 at
March 31, 1996, and $140,837 at December
31, 1995 2,079,501 2,811,711
Unbilled receivables 282,319 307,693
Other current assets 234,340 141,569
Total current assets 4,810,806 5,601,339
Property, equipment and leasehold improvements,
net of accumulated depreciation of $1,932,566
at March 31, 1996, and $1,834,661 at December
31, 1995 1,173,032 1,119,278
Capitalized software development costs, net of
accumulated amortization of $1,982,347 at March
31, 1996, and $1,835,701 at December 31, 1995 2,179,496 2,040,727
Goodwill, net of accumulated amortization of
$248,152 at March 31, 1996, and $209,479 at
December 31, 1995 834,685 873,358
Other assets 66,416 24,408
$9,064,435 $9,659,110
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $1,041,695 $ 852,515
Deferred Revenue 1,480,646 1,818,871
Advance billings 66,849 80,260
Bank note payable - current maturities 70,268 73,285
Total current liabilities 2,659,458 2,824,931
Bank note payable 2,708,108 2,726,715
Other 24,213 43,053
Total liabilities 5,391,779 5,594,699
Shareholders' equity:
Series A preferred stock, $0.01 par value
(liquidation preference of $782,992);
authorized 1,055,938 shares; issued and
outstanding 968,750 shares as of March
31, 1996 and of December 31, 1995 9,688 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 March
31, 1996 and December 31, 1995 37,500 37,500
Common stock, $0.01 par value, authorized
20,000,000 shares; issued and outstanding
6,611,646 shares as of March 31, 1996 and
December 31, 1995 66,116 66,116
Additional paid-in capital 12,875,894 12,900,738
Deficit (9,316,542) (8,949,631)
Total shareholders' equity $3,672,656 $4,064,411
$9,064,435 $9,659,110
</TABLE>
See notes to condensed financial statements.
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<TABLE>
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DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Statements of Operations
(Unaudited)
<S> <C> <C>
Three Months Ended
March 31,
1996 1995
Operating revenues
Computer system equipment sales
and support $ 475,068 $ 388,033
Application software licenses 270,267 838,985
Software support 1,009,164 781,693
Services and other 555,339 225,479
Total operating revenues 2,309,838 2,234,190
Operating expenses:
Cost of equipment sold 404,311 365,808
Client services expense 752,449 724,189
Software development costs 348,259 477,391
Sales and marketing costs 683,674 577,173
General and administrative expense 444,603 455,920
Total operating expenses 2,633,296 2,600,481
Operating income (loss) (323,458) (366,291)
Other income (expense):
Interest expense and financing costs (77,681) (78,775)
Miscellaneous 34,228 2,029
Total other income (expense) (43,453) (76,746)
Net earnings (loss) before income taxes (366,911) (443,037)
Income taxes - current -- --
Net earnings (loss) $ (366,911) $ (443,037)
Net earnings (loss) per share $ (0.06) $ (0.07)
Weighted average number of common and
common equivalent shares outstanding 6,611,646 6,003,871
</TABLE>
See notes to condensed financial statements.
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<TABLE>
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DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
<S> <C> <C>
Three Months Ended
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (366,911) $ (443,037)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization 283,224 271,775
Changes in assets and liabilities:
Accounts receivable 732,210 251,079
Unbilled receivable 25,374 18,683
Other (134,779) 44,414
Accounts payable and accrued
expenses 189,180 277,076
Deferred revenues (338,225) (195,127)
Advance billings (13,411) (10,450)
Net cash provided (used) by operating
activities 376,662 214,413
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (285,415) (229,004)
Purchases of property and equipment (151,659) (124,875)
Net cash used in investing
activities (437,074) (353,879)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit -- 400,000
Repayment of bank note payable (21,624) --
Preferred stock dividends paid (24,844) --
Other (18,840) (12,607)
Net cash flows provided by
financing activities (65,308) 387,393
Net increase (decrease) in cash and
cash equivalents (125,720) 247,927
Cash and cash equivalents, beginning
of period 2,290,366 10,173
Cash and cash equivalents, end of period $2,164,646 $ 258,100
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Interest paid $ 77,681 $ 76,868
Income taxes paid (received) $ -- $ --
</TABLE>
See notes to condensed financial statements.
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DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(A) Unaudited Financial Statements:
The accompanying unaudited Condensed Balance Sheets as of March
31, 1996, Condensed Statements of Operations for the three month
periods ended March 31, 1996 and 1995, and Condensed Statements
of Cash Flows for the three month periods ended March 31, 1996
and 1995, have been prepared by management in conformity with
generally accepted accounting principles for interim financial
statements and with instructions to Form 10-Q and Regulation
S-X. Accordingly, they do not include all the disclosures
required by generally accepted accounting principles for
complete financial statements. All adjustments and accruals
considered necessary for fair presentation of financial
information have been included in the opinion of management.
Operating results for the three month period ended March 31,
1996, are not necessarily indicative of the operating results
which may be expected for the year ending December 31, 1996.
(B) Reclassifications:
Certain reclassifications have been made to the 1995 financial
statements to conform to classifications used in 1996.
(C) Preferred Dividends:
On March 4, 1996 the Company's Board of Directors declared and
paid the December 31, 1995 accumulated dividend on Series A and
Series B Preferred Stock of $6,394 and $18,450, respectively.
As of May 1, 1996 the March 31, 1996 accumulated dividend
preferences on Series A and Series B Preferred Stock of $17,438
and $67,500, respectively, had not been declared by the
Company's Board of Directors.
(D) Subsequent Event:
On May 1, 1996 the Company acquired all of the outstanding
common stock of Dimensional Medicine, Inc. of Minnetonka,
Minnesota ("DMI"), for approximately $550,000 in an acquisition
transaction valued inclusive of debt extinguished or assumed by
the Company, at approximately $3,000,000 under the purchase
method of accounting. The Company retired $600,000 of DMI's
senior debt and $500,000 under DMI's previously outstanding line
of credit. Additionally, approximately $1,350,000 of DMI's
other liabilities and costs were assumed in the transaction.
DMI reported revenues of $4,525,000 and net loss of
approximately $400,000 for the year ended March 31, 1996.
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Item 2. Management's discussion and analysis of financial
condition and results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
During the first quarter of 1996, the Company comprehensively
demonstrated the DynamicVision product line at the Healthcare
Information Management and Systems Society (HIMMS) Conference
and Exhibition held in Atlanta, GA. DynamicVision is an
enterprise-wide, multi-media electronic health record solution
which enables a physician or caregiver to view all the
components of a patient's current and historical health record
from a single workstation. As a direct result of these
demonstrations the Company signed a beta site agreement with the
University of Illinois at Chicago Medical Center for the
DynamicVision electronic record workstation. Intensified
development efforts and a strategic build up in sales and
marketing expenses required to launch the new product line
developments dominated the first quarter of 1996.
For the three months ended March 31, 1996, operating results
reported revenues of $2,310,000 marking the fifth consecutive
quarter in which the Company reported revenues in excess of two
million dollars. Upon completion of its Restructuring and
Refinancing Plans during 1995, the Company had returned to
profitability during the third and fourth quarters of 1995 at
revenue levels below the amount reported for the first quarter
of 1996. However, during the fourth quarter of 1995, Management
began the process of significantly increasing the sales and
marketing force in preparation of the launch of the Company's
new DynamicVision product line. As Management had projected,
this resulted in a $250,000 increase in sales and marketing
expenses during the first quarter of 1996, as compared to the
fourth quarter of 1995, and more than a $300,000 increase over
the level reported for the third quarter of 1995.
Management believes that the build up of costs in product
development and launch efforts, and in sales and marketing,
supports its business plan and will improve long term
competitiveness. A growing pipeline of potential sales
prospects is being seen by Management and momentum for
placements of new system sales has significantly increased in a
market that works with typically lengthy sales cycles of six to
eighteen months.
On March 28, 1996 the Company signed a comprehensive agreement
with Wang Laboratories, Inc. of Billerica, MA (NASDAQ: WANG).
Under the terms of the agreement, the Company will integrate
Wang's Physician Workstation product ("PWS"), into the
DynamicVision electronic health record solution. The PWS is a
scaleable, point-of-care patient record application designed by
physicians for use in hospital and ambulatory settings. PWS
communicates with existing information systems to capture
clinical and administrative information and build a
comprehensive patient record. The PWS can also receive
information by fax, scanning or directly from the physician
during the delivery of care. The agreement also allows the
Company to use Wang's complete suite of OPEN/software products
in the development of future DynamicVision capabilities.
On May 1, 1996, the Company acquired Dimensional Medicine, Inc.
of Minnetonka, MN ("DMI"), a previously publicly traded company
(LOTC:DIMM), which reported revenues of $4,525,000 and net loss
of approximately $400,000 for the year ended March 31, 1996.
The strategic acquisition expands the Company's clinical
information systems product offerings to include Maxifile, a
radiology information system, and Maxiview, a diagnostic image
management and distribution solution, and integrates
radiographic image capabilities into the DynamicVision
multi-media electronic health record. The former Dimensional
Medicine, Inc. office in Minnetonka, MN is planned to become the
Company's Radiology Technology Center.
The Company intends to continue to enhance its product and
services offerings and to seek market expansion opportunities
beyond the launch of DynamicVision, the Wang agreement and the
acquisition of Dimensional Medicine, Inc.
Quarter Ended March 31, 1996
Operating revenues for the first quarter of 1996 were $2,310,000
representing a modest increase of 3.4% or $76,000 over revenues
reported for the first quarter 1995. Although revenues appear
to be relatively similar, there were substantial differences in
the revenue mix and in underlying operational parameters.
The Company's largest increase in revenues during the first
quarter of 1996 as compared to the first quarter of 1995 came
from services revenue which increased by $330,000 or 146.3%.
Management expects DynamicVision system sales to be more service
revenue intensive than LabPro 2000 system sales historically
have been, due to the integration complexities of the required
implementation. As part of the Restructuring Plan completed in
1995, Management staffed to provide for the anticipated
increased demand for professional services and the Company's
sales staff has utilized these resources in the "team" sales
process.
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The Company's revenues from system sales vary from quarter to
quarter as a result of the volume and timing of system sales and
customer deliveries. During the first quarter of 1996, delivery
of two hardware systems were delayed due to conditions outside
the control of the Company. These deliveries resulted in
deferred revenue recognition of approximately $226,000 of
hardware sales.
Application software revenue for the three months ended March
31, 1996 declined to $270,000 compared to $839,000 for the same
period of 1995. The Company redesigned the sales department
during the fourth quarter of 1995 to align team selling efforts
with the Company's new DynamicVision product line. The process
of re-targeting the sales group and the emergence of
DynamicVision has caused, in Management's opinion, a temporary
decline in software application revenue. Although, there were
no new LabPro 2000 system sales in the first quarter of 1996,
the Company did close five contracts for LabPro 2000 customers
migrating from the Prime platform to the IBM AS400 platform.
Software support revenues during the first quarter of 1996
increased by $227,000 to $1,009,000 compared to $782,000 for the
first quarter of 1995. The increase is primarily caused by
successful deliveries of and acceptance by customers of the
Company's software products, and the resulting commencement of
their software support and maintenance services. 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.
Hardware revenues increased by $87,000 during the first quarter
of 1996 as compared to the same period one year prior. In
addition, over the same comparable period, margin on hardware
sales increased to 14.9% from 5.7%. Although hardware revenues
during the first quarter of 1996 principally consisted of
laboratory system hardware migrations from the Prime platform to
IBM AS400s, a fundamental transformation is also occurring. The
Company's historical revenues had been derived principally from
laboratory system sales, a relatively mature marketplace
characterized by thinning hardware margins associated with
saturated competition. Conversely, introduction of the
Company's DynamicVision product line positions the Company in a
relatively new marketplace characterized by higher margins on
newer hardware components and less competition.
Software development costs for the three months ended March 31,
1996 decreased by $129,000 as compared to the three months ended
March 31, 1995. Capitalized costs increased by $56,000 during
the same comparable periods principally due to the intensified
efforts associated with the DynamicVision product line.
Additionally, completion of the Restructuring Plan completed in
1995 continue to provide positive results.
Sales and marketing costs for the three months ended March 31,
1996 increased by $107,000 over the same period one year ago, by
$250,000 over the same incurred during the fourth quarter of
1995, and by over $300,000 more than the third quarter of 1995.
During the fourth quarter of 1995, Management began the process
of significantly increasing the sales and marketing force in
preparation for the launch of the Company's new DynamicVision
product line. A growing pipeline of potential sales prospects
is being seen by Management and momentum for placements of new
system sales has significantly increased in a market that works
with typically lengthy sales cycles of six to eighteen months.
Net other expense recognized during the three months ended March
31, 1996 decreased by $33,000 principally as a result of
interest earned on cash equivalents generated by completion of
the Company's Refinancing Plan during the fourth quarter of
1995. During the period the Company maintained interest bearing
cash equivalent investments of approximately $2,100,000 yielding
approximately 5.5%.
Liquidity and Capital Resources
As of March 31, 1996 the Company had cash equivalents of
$2,165,000 and working capital of approximately $2,200,000.
Accounts receivable as of March 31, 1996 decreased by $732,000
from the balance on December 31, 1995. This principally
resulted from the seasonal billing fluctuation associated with a
concentration of renewal software support contracts with a
January 1 start date. These contracts were billed in December
of 1995. This seasonal fluctuation also accounted for the
$338,000 decline in deferred revenue as of March 31, 1996 as
compared to December 31, 1995. As of March 31, 1996, the
Company continues to bill software support contracts at an
annualized rate of $4.1 million.
Other current assets increased by $92,771 during the three
months ended March 31, 1996 substantially due to the March 28,
1996 marketing agreement with Wang Laboratories, Inc. The
agreement calls for a minimum PWS licensing fee commitment of
$223,000 and required a prepayment of licensing fees of $70,000
which was paid upon signing. The remaining $153,000 is due on
or before June 26, 1996.
During the quarter ended March 31, 1996 the Company capitalized
$285,000 of software development costs and purchased $152,000 of
additional property and equipment. The Company plans to
continue to develop the DynamicVision product line and to
enhance its other software products at comparable levels during
succeeding quarters. The property acquisitions during the first
quarter 1996
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represent furniture, fixture, leasehold improvement
and equipment purchases which were made to accommodate the
personnel growth in sales and marketing, and in preparation for
the planned acquisition of DMI.
Accounts payable and accrued expenses as of March 31, 1996
increased by $189,000 over the December 31, 1995 balance
principally as a result of the timing of payment processing.
The March end of month disbursement transactions were processed
and paid on Monday April 1, 1996.
On March 4, 1996 the Company's Board of Directors declared and
the Company paid the December 31, 1995 accumulated dividend on
Series A and Series B Preferred Stock of $6,394 and $18,450,
respectively. Calendar quarterly dividends accrue and
accumulate until paid on Preferred Series A and Series B
Preferred Stock at the rate of $17,438 and $67,500,
respectively. As of May 1, 1996 the March 31, 1996 accumulated
dividend preferences on Series A and Series B Preferred Stock
has not been declared by the Company's Board of Directors.
On May 1, 1996 the Company acquired Dimensional Medicine, Inc.
of Minnetonka, MN ("DMI"), previously a publicly traded company
(LOTC: DIMM). The closing required an outlay of cash of
approximately $1,400,000 and the assumption of approximately
$1,600,000 of DMI's operational indebtedness. For the year
ended March 31, 1996, DMI reported revenues of $4,525,000 and
net loss of approximately $400,000. Additionally, DMI has
reported a May 1, 1996 software and system revenue backlog of
in excess of $2.5 million and reportedly bills software support
contracts at an annualized rate of in excess of $2.0 million.
The Company intends to continue to enhance its product and
services offerings and to seek market expansion opportunities
beyond the launch of DynamicVision, the Wang agreement and the
acquisition of Dimensional Medicine, Inc. Future working
capital requirements are dependent on the Company's ability to
restore and maintain profitable operations or to obtain suitable
additional financing.
Inflation and Changing Prices
The Company believes inflation has not had a material effect on
the Company's operations or its financial condition. Changing
prices within the marketplace could have a material effect upon
the cost of materials sold and the related price of software and
hardware sales.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in existing or pending
legal proceedings involving the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
(a) Indebtedness:
None
(b) Dividend Arrearage:
The information required by this item is incorporated by
reference to Footnote C of the financial statements included in
Part I herein.
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11: Statement Regarding Computation of Per Share
Earnings.
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Registrant)
Date May 8, 1996 /S/MITCHEL J. LASKEY
Mitchel J. Laskey
President, Chief Operating Officer
and Treasurer
Date May 8, 1996 /S/PAUL S. GLOVER
Paul S. Glover
Vice President of Finance, CFO
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FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Index to Exhibits
Description of Exhibit Page Number
Exhibit 11: Statement regarding computation
of per share earnings 13
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FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Exhibit 11
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Computation of Weighted Average Number of Shares Outstanding and
Per Share Earnings
Three Months Ended
March 31, (Unaudited)
1996 1995
<S> <C> <C>
Earnings (loss) available for
common shareholders:
Net earnings (loss) $ (369,911) $ (443,037)
Weighted average number of common
shares outstanding and earnings
per share:
Primary:
Weighted average number of common
shares outstanding 6,611,646 6,003,871
Dilutive effect of options and
warrants using treasury stock
method -- --
Weighted average number of common
and common equivalent shares
outstanding 6,611,646 6,003,871
Earnings (loss) per share - primary $ (0.06) $ (0.07)
Fully diluted:
Weighted average number of
common shares outstanding 6,611,646 6,003,871
Dilutive effect of options and
warrants using treasury
stock method -- --
Weighted average number of common
and common equivalent shares
outstanding assuming full dilution 6,611,646 6,003,871
Earnings (loss) per share - fully diluted $ (0.06) $ (0.07)
</TABLE>
