SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event report) JULY 11, 1996
Commission File Number 0-12516
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 0-12516 47-0643468
(State or other jurisdiction (Commission File Number) (IRS E.I.N.)
of Incorporation)
101 SOUTHHALL LANE, SUITE 210 MAITLAND, FLORIDA 32751
(Address of principal executive offices) (ZIP Code)
(407) 875-9991
(Registrant's telephone, including area code)
NONE
(Former name of former address, if changed from last report)
This report consists of sixteen (16) pages.
<PAGE>
FORM 8-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
MAY 1, 1995
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements are being filed pursuant to Item 7(a) and (b)
of the Registrant's Form 8-K dated May 1, 1995.
(a) Financial Statements of Business Acquired
INDEX PAGE NUMBER
----- -----------
Independent Auditors' Report on the financial statements of
Dimensional Medicine, Inc. as of March 31, 1995 and 1996,
and for the years then ended. 3
Balance Sheets of Dimensional Medicine, Inc. as of March 31,
1995 and 1996. 4
Statements of Operations of Dimensional Medicine, Inc. for the
years ended March 31, 1995 and 1996. 6
Statements of Shareholders' Equity of Dimensional Medicine, Inc.
for the years ended March 31, 1995 and 1996. 7
Statements of Cash Flows of Dimensional Medicine, Inc. for the
years ended March 31, 1995 and 1996. 8
Notes to Financial Statements. 9
2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Dimensional Medicine, Inc.
We have audited the accompanying balance sheets of Dimensional Medicine, Inc. as
of March 31, 1996 and 1995, and the related statements of operations,
shareholder's equity and cash flows for each of 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 financial statements referred to above present fairly, in
all material respects, the financial position of Dimensional Medicine, Inc. at
March 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years then ended, in conformity with generally accepted
accounting principles.
Minneapolis, Minnesota
May 24, 1996
3
<PAGE>
DIMENSIONAL MEDICINE, INC.
BALANCE SHEETS
MARCH 31,
ASSETS 1996 1995
----------- -----------
Current assets:
Cash and cash equivalents $ 153,425 $ 71,215
Accounts receivable, less allowance
for doubtful accounts of $138,715
and $29,181 at March 31, 1996 and
1995, respectively 566,458 1,356,298
Unbilled and other receivables 244,057 344,296
Tax benefit receivable 64,627 172,044
Short-term lease receivables 101,677 111,960
Inventory 71,028 186,720
Other current assets 68,360 119,126
----------- -----------
Total current assets 1,269,632 2,361,659
Property 2,412,952 2,335,358
Accumulated depreciation (2,175,102) (2,060,015)
----------- -----------
237,850 275,343
Other Assets
Capitalized software 460,787 470,893
Long-term tax benefit receivable 119,542 --
Long-term lease receivables 182,032 284,876
----------- -----------
Total Assets $ 2,269,843 $ 3,392,771
=========== ===========
4
<PAGE>
MARCH 31,
1996 1995
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Borrowings under line of credit $ 500,000 $ 500,000
Accounts payable and other accrued expenses 504,568 543,424
Due to NCS 126,527 81,691
Accrued salaries and benefits 100,879 157,169
Deferred revenue 111,098 164,269
Customer deposits 106,625 59,715
Advance billings 108,583 45,835
Government overpayments 193,419 193,419
Rent abatement 35,561 106,683
Current portion - note payable to NCS 541,983 200,000
Current portion capital leases 19,104 7,032
Current portion other long-term debt 104,466 96,173
------------ ------------
Total current liabilities 2,452,813 2,155,410
Long-term note payable to NCS -- 655,000
Long-term note payable 153,426 257,891
Income taxes payable -- 68,875
Rent abatement long-term -- 35,561
Capital leases 10,972 2,287
------------ ------------
Shareholder's equity: 164,398 1,019,614
Common Stock, $.15 par value authorized
shares - 90,000,000 Issued and outstanding
shares - 32, 533,460 - 1996 and 1995 4,880,019 4,880,019
Additional paid-in capital 8,633,407 8,633,407
Deficit (13,860,794) (13,295,679)
------------ ------------
Total shareholders' equity (347,368) 217,747
------------ ------------
Total liabilities and shareholders' equity $ 2,269,843 $ 3,392,771
============ ============
SEE ACCOMPANYING NOTES.
5
<PAGE>
DIMENSIONAL MEDICINE, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31
1996 1995
------------ ------------
Revenues: $ 778,186 $ 1,198,860
Hardware revenue 672,012 993,894
Hardware application support revenue 1,438,753 2,012,618
Software support application revenue 1,192,924 1,150,216
Software support revenue 421,600 585,996
------------ ------------
Other revenue 4,503,475 5,941,584
Cost and expenses:
Cost of products sold 950,680 1,190,871
Client service expense 1,583,591 1,879,067
Software development 1,128,751 1,259,858
Sales and marketing 715,016 845,876
General and administrative 846,892 534,050
------------ ------------
Total operating expenses 5,224,930 5,709,722
------------ ------------
Operating (loss) income (721,455) 231,862
Other income (expense):
Interest expense (116,088) (129,649)
Other 23,662 37,641
------------ ------------
(92,426) (92,008)
------------ ------------
(Loss) income before income taxes (813,881) 139,854
Income tax benefit 248,766 34,610
------------ ------------
Net (loss) income $ (565,115) 174,464
============ ============
Net income (loss) per share $ (.02) $ .01
============ ============
Weighted average number of shares
outstanding during the year 32,553,460 32,553,460
============ ============
SEE ACCOMPANYING NOTES.
6
<PAGE>
DIMENSIONAL MEDICINE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS ESOP
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
---------- ------------ ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 32,533,460 $ 4,880,019 $ 8,690,454 $(13,470,143) $ (96,847) $ 3,483
ESOP allocation -- (57,047) -- 96,847 39,800
Net income -- -- -- 174,464 -- 174,464
---------- ------------ ------------ ------------ ---------- ---------
Balance at March 31, 1995 32,533,460 4,880,019 8,633,407 (13,295,679) -- 217,747
Net loss -- -- -- (565,115) -- (565,115)
---------- ------------ ------------ ------------ ---------- ---------
Balance at March 31, 1996 32,533,460 $ 4,880,019 $ 8,633,407 $(13,860,794) $ -- $(347,368)
========== ============ ============ ============ ========== =========
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
DIMENSIONAL MEDICINE, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
OPERATING ACTIVITIES 1996 1995
--------- ---------
<S> <C> <C>
Net (loss) income $(565,115) $ 174,464
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 297,103 285,986
Changes in operating assets and liabilities:
Decrease in receivables 991,081 114,539
(Increase) decrease in inventories and other current assets 166,458 (67,805)
Increase (decrease) in accounts payable and accrued expenses (119,185) 115,359
Other (50,196) (285,834)
--------- ---------
Net cash provided by operating activities 720,146 636,709
INVESTING ACTIVITIES
Purchases of property, plant and equipment (44,646) (151,957)
Capitalization of software development costs (171,910) (167,927)
--------- ---------
Net cash used in investing activities (216,556) (319,884)
FINANCING ACTIVITIES
Principal payments on notes payable and capitalized lease obligations (421,380) (285,233)
--------- ---------
Net cash used in financing activities (421,380) (285,233)
--------- ---------
Increase in cash 82,210 31,592
Cash at beginning of year 71,215 39,623
--------- ---------
Cash at end of year $ 153,425 $ 71,215
========= =========
</TABLE>
8
<PAGE>
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. FINANCIAL CONDITION AND RELATIONSHIP WITH NATIONAL COMPUTER SYSTEMS, INC.
During recent periods, National Computer Systems, Inc. (NCS) has provided
substantial financial support to the Company in the form of debt financing and
extended payment terms on payables to NCS. On December 20, 1993, NCS converted
$3,752,746 of notes and accounts payable into 27,533,441 common shares of the
Company, increasing NCS's ownership from 3% to 85%. Certain other indebtedness
to NCS was replaced by a $1,105,000 long-term note payable. The Company's bank
line of credit is guaranteed by NCS.
NCS and management continue to seek a buyer for the Company. The Company remains
dependent on the continuing financial support of NCS to operate as a stand-alone
entity until a buyer is found.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Systems Sales: Contracts for the sale of the Company's Maxifile systems
generally require modification of the systems to meet customer requirements, may
take up to twelve months to complete and require periodic progress payments
throughout the contract by the customer. Revenue is recognized based on
completion of contract milestones measured by the delivery of contractual
elements. Sales of the Company's Maxiview system are recognized upon delivery.
Costs of products sold include the estimated costs of post contract support.
Service and Support: Agreements for service and support are recognized over the
period in which support services are provided. The cost of providing these
services are presented in the costs and expenses section of the statement of
operations.
Other: All other revenue is recognized upon the performance of services.
WARRANTIES
Software products generally carry an initial 90 day warranty. Initial hardware
warranties are provided by the original manufacturer. An additional warranty is
available in the form of maintenance contracts for both software and hardware.
Revenue for these contracts is recognized over the contract life on a
straight-line basis.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The inventory balances at March 31, 1996 and 1995 were comprised of raw
materials and component parts.
SOFTWARE
Software costs capitalized include the cost of the Maxifile software system
purchased from NCS on March 31, 1987 (original cost of $1,275,000). The Company
amortizes the software costs based on the greater of the ratio of current
revenues to total expected revenues or the straight-line method over the
estimated economic life. Accumulated amortization was $1,280,000 and $1,204,000
at March 31, 1996 and 1995, respectively.
9
<PAGE>
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company capitalized software production costs related to additional products
of $172,000 and $168,000 in 1996 and 1995, respectively. The ongoing assessment
of recoverability of these costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
anticipated future gross product revenue, estimated economic life and changes in
software and hardware technology. Amortization of these costs is based on the
greater of the ratio of current revenues to total estimated revenues or the
straight-line method over the estimated economic life, but not to exceed five
years. Accumulated amortization was $657,892 and $551,000 at March 31, 1996 and
1995, respectively.
Amortization of software charged to cost of products sold in 1996 and 1995 was
$182,016 and $140,000, respectively.
LEASE RECEIVABLEs
Lease receivables represent product sold under sales-type leases with a
five-year term. The lease receivables are carried at their fair market value.
In addition, the Company has sold leases without recourse to NCS and other
financial institutions, subject to limited obligations by the Company.
Customers are in compliance with the lease contracts at March 31, 1996. At
March 31, 1996 $221,510 remains outstanding on these solld leases.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. The Company
provides for amortization and depreciation at rates calculated to amortize the
cost of the property over its estimated useful life using the straight-line
method.
LOSS/EARNINGS PER SHARE
Loss/earnings per share is computed by dividing the net loss/income for the
period by the weighted average number of common shares outstanding during the
period.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1996
presentation.
3. TRANSACTIONS WITH NATIONAL COMPUTER SYSTEMS, INC.
In June 1992, under a Debt Restructuring Agreement ("the 1992 Agreement") with
NCS, two outstanding promissory notes totaling $3,900,000 were replaced by a
single Promissory Note. Interest on the new note was charged at an annual rate
of 3%, such rate increasing to 8% if an event of default occurred (no interest
was charged on the Promissory Notes in the year ended March 31, 1992). The
Company defaulted on the principal and interest payments due April 30, 1993,
making the entire amount due on demand with an 8% interest rate after that date.
On December 20, 1993, the remaining balance on this note was part of a
restructuring under which NCS acquired 27,533,441 shares of the Company's common
stock in exchange for indebtedness totaling $3,752,746.
10
<PAGE>
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH NATIONAL COMPUTER SYSTEMS, INC. (CONTINUED)
Of the total amount remaining after the forgiveness ($1,169,627), $1,105,000 was
converted to a long-term note. The note was due in quarterly installments of
$50,000 plus interest at 6% beginning March 31, 1994 through September 30, 1995,
with the balance due December 31, 1995. This note was replaced at March 31, 1995
with a new note in the amount of the existing principal of $855,000. The note is
due in quarterly installments of $50,000 plus interest at 6% with the balance
due on April 30, 1996.
In connection with the 1993 stock purchase agreement with NCS, the Company
obtained concessions from third party vendors on accounts payable of
approximately $342,000. Under the 1992 Agreement, NCS agreed to forgive, against
accounts payable delinquent at the Agreement date ($464,000), an amount equal to
15% of the payables currently arising and due in a given month if such payables
were paid on a timely basis. Approximately $342,000 of such forgiveness was
included in the statement of operations as extraordinary gains in 1994.
In February 1993, NCS exercised its right under the 1992 Agreement to have all
cash received in the Company's bank lockbox account transferred to a collateral
account under the control of NCS. Through March 31, 1996, NCS continues to
advance monies to the Company from the collateral account receipts.
NCS provides field engineering services and other services to the Company at
specified fees, which are not significantly different from the fees charged to
unrelated parties. Fees for field engineering services provided by NCS for
maintenance of hardware for all installed systems totaled approximately $234,000
and $429,000 in 1996 and 1995, respectively.
The components of the amounts owed National Computer Systems, Inc. are as
follows:
MARCH 31,
1996 1995
------- --------
Due to National Computer Systems, Inc:
Current portion of notes payable $541,983 $200,000
Accounts payable 126,527 81,691
Net receivable for income tax benefit (Note7) (187,169) (103,169)
$484,341 $178,522
======== ========
Long-term notes payable $ - $655,000
======== ========
The promissory note and accounts payable to NCS are secured by substantially all
assets of the Company.
Total interest paid, including interest paid on capital leases, for the years
ended March 31, 1996 and 1995 was approximately $116,000 and $130,000,
respectively.
11
<PAGE>
4. NOTES PAYABLE
The Company has obtained a bank line of credit through June 30, 1996 with a
total credit facility of $500,000. The outstanding balance at March 31, 1996 was
$500,000. This line is unsecured, bears interest at the bank's base rate and is
guaranteed by NCS.
The Company has a note payable to a finance company with a balance of $257,892
at March 31, 1996 (current portion of $104,466). The note has an effective
interest rate of 8.3%, is payable in monthly installments of $10,163 through
July 1998, is secured by the proceeds of a customer financing lease and is
guaranteed by NCS.
5. STOCK OPTIONS
Under the Company's stock option plans, options to acquire up to 1,000,000
shares of the Company's Common Stock may be granted to officers and key
employees at no less than 100% of the fair market value on the grant date.
Additionally, the Company has granted non-qualified stock options outside of the
plans to a director and a former president. Information concerning options
outstanding is as follows:
OPTIONS
OUTSTANDING PRICE PER SHARE
Balance March 31, 1994 728,082 $.125 to $.53125
Options granted -
Options canceled (130,833) .125 to .53125
-------
Balance March 31, 1995 597,249 .125 to .50
Options granted -
Options canceled (360,999) .125 to .50
-------
Balance March 31, 1996 236,250 $.25 to $.34375
=======
At March 31, 1996, outstanding options covering 236,250 shares were exercisable
at $.25 to $.34375 per share (566,863 shares at $.125 to $.50 per share at March
31, 1995). At March 31, 1996, 600,500 shares remain available for grant.
A total of 836,750 shares were reserved for options at March 31, 1996.
6. OPERATING LEASE
The Company leases office space and manufacturing facilities under a
non-cancelable operating lease having a remaining term through July 1996. The
lease provided for an abatement of base rent payments through January 1992 and
an abatement of the lessee's share of real estate taxes and operating expenses
through July 1991. The Company is recognizing the benefit of these abatements on
a straight-line basis over the life of the lease. In addition, the Company has
entered into other operating leases for office equipment.
Future minimum base rental payments under these operating leases consist of
the following at March 31, 1996:
Year ending March 31:
1997 $94,000
1998 2,000
-------
$96,000
=======
Total rental expenses to unrelated third parties for the years ended March 31,
1996 and 1995 was approximately $272,000 and $267,000, respectively.
12
<PAGE>
7. INCOME TAXES
As a result of the issuance of stock to NCS in December 1993, the Company had a
change in ownership under the net operating loss limitation rules. Net operating
losses incurred through the change in ownership date are no longer available to
offset future taxable income.
Subsequent to December 20, 1993, the Company is included in the consolidated
income tax return of NCS. Under a tax sharing agreement between the Company and
NCS, the Company will be reimbursed for its share of tax return savings
resulting from the use of its operating losses. Pursuant to the agreement, NCS
owes the Company $65,000 on or before October 15, 1996 and $120,000 before
October 15, 1997.
Deferred income taxes are due to temporary differences between the carrying
values of certain assets and liabilities for financial reporting and income tax
purposes. Significant components of deferred taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
DEFERRED ASSETS: 1996 1995
------- -------
<S> <C> <C>
Accrued vacation $ 31,000 $ 36,000
Rental abatement 12,000 50,000
Allowance for doubtful accounts 49,000 10,000
Inventory reserve 195,000 134,000
Other 35,000
-------- --------
287,000 265,000
Deferred liabilities:
Capitalized software 161,000 165,000
Other 11,000 18,000
-------- --------
172,000 183,000
-------- --------
Net deferred tax assets before valuation allowance 115,000 82,000
Valuation allowance for net deferred tax assets (115,000) (82,000)
-------- --------
Net deferred taxes $ - $ -
======== ========
</TABLE>
8. EMPLOYEE STOCK OWNERSHIP PLAN
Effective September 28, 1990, the Dimensional Medicine, Inc. Employee Stock
Ownership Plan and Trust was established. Employees who have completed six
consecutive months of employment and have met other criteria are eligible to
participate. Prior to March 31, 1995, officers, certain members of senior
management and commission based salespersons were not eligible to participate.
The Plan was amended at March 31, 1995 to allow participation by these employee
groups.
Contributions to the Plan are at the discretion of the Company and may be in the
form of cash or Company stock. There were 300,000 shares allocated to the Plan
in prior years, with no contributions to the Plan in 1996. Shares held by the
ESOP are included in the weighted average shares outstanding for purposes of
computing earnings per share.
If Company securities are not readily tradable on an established market, Plan
participants have the right to require the Company to repurchase shares at book
value.
13
<PAGE>
9. SIGNIFICANT CUSTOMERS
Revenues under contracts with U.S. Government facilities approximated 9% and 11%
of total revenues in fiscal 1996 and 1995, respectively.
10. SUBSEQUENT EVENTS
On April 29, 1996, the shareholders of the Company voted to merge with Dynamic
Healthcare Technologies, Inc. The shareholders of the Company received $550,000
in exchange for all of the outstanding shares of the Company's common stock.
Effective April 29, 1996, the Employee Stock Ownership Plan and Trust (ESOP) of
Dimensional Medicine, Inc. will terminate and the Plan shall distribute to each
participant his or her ESOP account in a single lump sum following the effective
date of the merger between DMI and Dynamic Healthcare Technologies, Inc.
14
<PAGE>
(B) PRO FORMA FINANCIAL INFORMATION
On May 1, 1996 pursuant to the terms of a Merger Agreement by and among
Dimensional Medicine, Inc. (LOTC:DIMM) of Minnetonka, Minnesota ("DMI"),
National Computer Systems, Inc. (the principal shareholder of DMI), DMI
Acquisition Corp. (a wholly owned subsidiary of the Registrant, hereafter
"Newco"), and the Registrant, DMI was merged with and into Newco. Under the
terms of the Merger Agreement the Registrant paid DMI's shareholders in the
aggregate $550,200, retired approximately $600,000 of DMI's senior debt and
$500,000 of DMI's previously outstanding Line of Credit, and agreed to assume
approximately $1,350,000 of DMI's other liabilities and costs. DMI shareholders
maintain no continuing interest in the future of DMI or Newco. Funds for the
transactions came from the Registrant's cash resources. Terms of the Merger
Agreement were based upon arms length negotiations.
The acquisition has been accounted for as a purchase transaction for an
aggregate purchase price including assumed indebtedness of $3,673,000. The
historical valuation of the net assets acquired required no material adjustments
other than increasing the basis in capitalized software by $1,198,749.
Capitalized software is to be amortized based on the greater of the ratio of
current revenues to total expected revenues or the straight-line method over the
estimated economic life, not to exceed five years. Estimated additional software
amortization to be recognized over the five years ending December 31, 2000 is
summarized as follows:
1996.00 $159,833
1997.00 239,750
1998.00 239,750
1999.00 239,750
2000.00 239,750
Additionally, DMI Acquisition Corp. was formed through the issuance of 100
common shares $.01 par value to DHTI for $100.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Registrant)
Date: JULY 11, 1996 \S\MITCHEL J. LASKEY
-----------------
Mitchel J. Laskey
President, CEO
Date: JULY 11, 1996 \S\PAUL S. GLOVER
---------------------------
Paul S. Glover
Vice President Finance, CFO
16
