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 September 30, 1996
Commission File Number 0-12516
Dynamic Healthcare Technologies, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-3389871
(State of Incorporation) (IRS E.I.N.)
101 Southhall Lane, Suite 210, Maitland, Florida 32751
(Address of principal executive offices) (ZIP Code)
(407) 875-9991
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of October 28, 1996, there were 15,297,732 shares
outstanding, par value $.01 per share, of the issuer's only
class of common stock.
This report consists of seventeen (17) pages.
The index to exhibits appears on page sixteen (16).
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See attached statements following this item number.
2
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Balance Sheets
<S> <C> <C> <C>
Pro Forma
December 31, September 30, September 30,
1995 1996 1996
(Unaudited) (See Note F)
ASSETS
Current assets:
Cash and cash
equivalents $2,290,366 $ 546,102 $17,705,389
Restricted cash 50,000 - -
Accounts
receivable, net 2,811,711 2,769,644 2,769,644
Unbilled receivables 307,693 1,041,180 1,041,180
Lease receivables
- current - 185,447 185,447
Other current assets 141,569 392,343 392,343
Total current assets 5,601,339 4,934,716 22,094,003
Property, equipment
and leasehold
improvements, net 1,119,278 1,620,827 1,620,827
Capitalized software
development costs, net 2,040,727 4,044,350 4,044,350
Goodwill, net 873,358 757,339 757,339
Lease receivables
- non-current - 212,855 212,855
Deferred stock
issuance costs - 714,846 -
Other assets 24,408 25,253 25,253
$9,659,110 $12,310,186 $28,754,627
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable
and accrued
expenses $ 852,515 $2,767,178 $ 2,728,697
Preferred stock
dividends payable - 166,100 166,100
Deferred revenue 1,818,871 1,916,680 1,916,680
Advance billings 80,260 128,763 128,763
Bank note payable
- current 73,285 - -
Other - 210,857 210,857
Total current
liabilities 2,824,931 5,189,578 5,151,097
Bank note payable 2,726,715 2,743,882 -
Subordinated notes
payable - related parties - 1,000,000 -
Other 43,053 182,885 182,885
Total liabilities 5,594,699 9,116,345 5,333,982
Shareholders' equity:
Series A
preferred stock 9,688 - -
Series B
preferred stock 37,500 - -
Common stock 66,116 114,048 152,973
Additional paid-
in capital 12,900,738 12,795,239 32,983,118
Deficit (8,949,631) (9,715,446) (9,715,446)
Total shareholders'
equity 4,064,411 3,193,841 23,420,645
$ 9,659,110 $12,310,186 $28,754,627
</TABLE>
See notes to condensed financial statements.
3
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Statements of Operations
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
Operating revenues:
Computer system
equipment sales
and support $ 129,056 $ 874,086 $ 871,498 $2,466,560
Application
software
licenses 690,535 1,308,601 2,237,437 2,614,183
Software support 927,285 1,377,676 2,623,707 3,672,690
Services and other 466,520 660,152 982,244 1,784,471
Total operating
revenues 2,213,396 4,220,515 6,714,886 10,537,904
Operating expenses:
Cost of products
sold 96,480 771,904 755,419 2,131,265
Client services
expense 714,842 1,506,765 2,079,725 3,509,642
Software development
costs 336,404 657,979 1,251,526 1,484,858
Sales and
marketing costs 382,564 895,764 1,500,196 2,431,916
General and
administrative
expense 431,460 528,212 1,379,047 1,536,856
Total operating
expenses 1,961,750 4,360,624 6,965,913 1,094,537
Operating income
(loss) 251,646 (140,109) (251,027) (556,633)
Other income (expense):
Interest expense
and financing costs (106,580) (97,833) (274,203) (277,490)
Gain (loss) on
sale of fixed
assets 7,773 - (54,509) -
Miscellaneous (4,526) (5,754) 22,614 68,308
Total other
income (expense) (103,333) (103,587) (306,098) (209,182)
Net earnings
(loss) before
income taxes 148,313 (243,696) (557,125) (765,815)
Income taxes -
current - - - -
Net earnings
(loss) $ 148,313 $ (243,696) $ (557,125) $(765,815)
Net earnings
(loss) available
for common
shareholders
(See Note D) $ 148,313 $ (324,859) $ (557,125) $(1,016,853)
Net earnings
(loss) per
common share $ .02 $ (.05) $ (.09) $ (.15)
Weighted average
number of common
and common
equivalent shares
outstanding 6,589,071 6,888,153 6,394,085 6,709,498
</TABLE>
See notes to condensed financial statements.
4
<TABLE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<S> <C> <C>
Nine Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1996
Net earnings (loss) $ (557,125) $ (765,815)
Adjustments to reconcile net
earnings (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 797,084 1,074,694
Loss on sale of fixed assets 110,402 -
Changes in assets and liabilities:
Accounts receivable 448,945 612,903
Unbilled receivable 114,545 (534,822)
Lease receivables - 92,797
Other current assets 109,941 252,137
Accounts payable and accrued
expenses (425,437) 292,960
Other current liabilities - (276,671)
Deferred revenues (504,307) 8,650
Advance billings (119,306) (227,375)
Other assets (31,963) 2,915
Net cash provided (used) by
operating activities (57,221) 532,373
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (612,430) (988,290)
Purchases of property and equipment (275,333) (623,307)
Restricted cash released from escrow - 50,000
Purchase of net assets of Dimensional
Medicine, Inc. - (1,399,389)
Net cash used by investing
activities (887,763) (2,960,986)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 611,599 -
Borrowings (repayments) under bank
note payable - (56,118)
Deferred stock issuance costs - (206,467)
Proceeds from subordinated convertible
notes payable 775,000 -
Proceeds from subordinated notes -
related parties - 1,000,000
Repayment of other debt (54,220) (114,411)
Proceeds from issuance of common stock 5,818 28,683
Proceeds from incentive stock options
exercises 5,000 142,444
Payment of preferred stock dividends - (109,782)
Net cash flows provided by financing
activities 1,343,197 684,349
Net increase (decrease) in cash and
cash equivalents 398,213 (1,744,264)
Cash and cash equivalents, beginning
of period 10,173 2,290,366
Cash and cash equivalents, end of
period $ 408,386 $ 546,102
</TABLE>
See notes to condensed financial statements.
5
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(A) Unaudited Financial Statements
The accompanying unaudited Condensed Balance Sheet as of
September 30, 1996, Condensed Statements of Operations for the
three and nine month periods ended September 30, 1995 and 1996,
and Condensed Statements of Cash Flows for the nine month
periods ended September 30, 1995 and 1996, have been prepared by
management in conformity with generally accepted accounting
principles for interim financial statements and with
instructions to Form 10-Q and Regulation S-X. Accordingly, they
do not include all the disclosures required by generally
accepted accounting principles for complete financial
statements. All adjustments and accruals considered necessary
for fair presentation of financial information have been
included in the opinion of management. Operating results for
the three and nine month periods ended September 30, 1996, are
not necessarily indicative of the operating results which may be
expected for the year ending December 31, 1996.
(B) Reporting Entity
On May 1, 1996 the Company through a newly formed wholly owned
subsidiary, DMI Acquisition Corporation ("DMIAC"), acquired all
of the outstanding common stock of Dimensional Medicine Inc.
("DMI"), in a transaction accounted for using the purchase
method. On September 25, 1996, DMIAC was merged with and into
the Company.
(C) Notes Payable
During August, 1996 the Company issued $1,000,000 of
subordinated notes payable to certain members of its Board of
Directors and affiliated entities on terms comparable to market.
The subordinated notes bear simple interest at 13% percent per
annum, and are payable in full together with accrued interest on
the earlier of (i) November 14, 1996 or (ii) the closing of any
sale of the Company's equity securities. Interest accrued on
the notes through September 30, 1996 was $15,051.
The subordinated notes payable and the bank note payable were
retired on October 2, 1996 upon settlement of the sale of the
Company's Common Stock (See Note F), and are referred as
non-current liabilities as of September 30, 1996.
(D) Mandatory Conversion/Preferred Stock Dividends Payable
The Company's registration of the common stock underlying
conversion of the Series A and Series B Preferred Stock was
declared effective on September 27, 1996. In connection
therewith, on September 26, 1996, the Board of Directors
declared accrued dividends through September 26, 1996 on Series
A and Series B Preferred Stock of $34,100 and $132,000
respectively to effect the mandatory conversion privileges
available to the Company. Total dividends on preferred stock
for the nine months ended September 30, 1996 were $251,038. As
such, on September 27, 1996, 968,750 shares of Series A and
3,750,000 shares of Series B Preferred Stock were converted on a
share for share basis to common stock.
(E) Subsequent Event - Common Stock Offering
On October 2, 1996 the Company received proceeds of $20,941,650
from the issuance of 3,892,500 shares of common stock at $5.75
per share net of underwriting concessions of $1,440,225.
Pursuant to the terms of the offering a portion of the proceeds
were immediately used to repay the subordinated notes payable of
$1,000,000, the bank note payable of $2,743,882, and accrued
interest on October 2, 1996 attributable to the notes payable of
$38,481.
(F) Pro Forma Balance Sheet
The Pro Forma Balance Sheet presentation gives effect to the
September 30, 1996 Balance Sheet of the issuance of common
stock, the receipt and the immediate application of the proceeds
as more fully described in Footnote (E) above, and the
realization of deferred stock issuance costs of $714,846, as if
the transactions had occurred on September 30, 1996.
6
(G) Pro Forma Combined Condensed Financial Information
The pro forma combined financial information, for the nine
months ended September 30, 1995 and 1996, presented below (in
thousands, except for per share information), gives effect to
the acquisition of Dimensional Medicine, Inc., as though it were
effective at the beginning of those periods. The pro forma
information may not be indicative of the results that would have
occurred if the acquisition had been effective on these dates,
or of results that may be obtained in the future.
<TABLE>
<S> <C> <C>
Nine Months Ended September 30,
(Unaudited)
1995 1996
Total operating revenues $ 10,788 $ 11,543
Operating income (loss) $ (263) $ (1,678)
Net earnings (loss) $ (620) $ (1,876)
Net earnings (loss) available
for common shareholders $ (620) $ (2,127)
Net earnings (loss) per
common share $ (.10) $ (.32)
</TABLE>
7
Item 2. Management's discussion and analysis of financial
condition and results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading provider of enterprise-wide,
patient-centered healthcare information systems. These systems
enable hospitals, physician practice groups and integrated
delivery networks to capture, store, archive and retrieve
clinical, financial and administrative patient information. The
Company's products enhance productivity, reduce costs and
improve the quality of patient care by providing on-line access
to patient information previously maintained on a variety of
media, including paper, X-ray film, magnetic disk, video and
audio. The Company's current product lines include clinical
information systems for use in laboratory, anatomic pathology,
radiology and anesthesiology applications as well as imaging and
electronic health record solutions. The Company provides
support for all of its systems and provides systems integration
and other consulting services to over 300 customers in 44
states. Key customers include the University of California at
Los Angeles Medical Center, University of Illinois at Chicago
Medical Center, Methodist Hospital of Memphis, Memorial
Sloan-Kettering Cancer Center, Ohio State University Hospital,
Columbia/HCA, Greater Dayton Area Hospital Association, Advocate
Health Care, Temple University Hospital, UniHealth and Orlando
Regional Health System.
The Company's new electronic health record product,
DynamicVision, provides connectivity and enabling technologies
which integrate the Company's clinical and imaging information
systems, as well as those from other companies, to create an
open architecture, multi-media clinical workstation.
DynamicVision provides prompt and simultaneous on-line access to
information stored in various systems and data repositories
located at multiple sites. This information can include
documents, medical images such as X-rays, MRIs and CAT scans,
and video and audio recordings. DynamicVision is currently
being beta-tested and is scheduled for general availability by
the end of 1996.
The Company's revenues are derived from the licensing and sale
of systems comprised of internally developed software and third
party software and hardware, professional services, maintenance
and support services. The Company's services include
implementation and training, product management and customer
software development. Revenues from professional services and
maintenance and support services typically increase as the
number of installed systems increases. Computer system
equipment sales revenues are generally recognized when hardware
is shipped. Computer system equipment sales and support
revenues include hardware support contracts for a specific
period from which revenue is recognized ratably over the
corresponding contract period. Application software license
revenues are recognized when application software is delivered
to the customer. Installation and training service revenues,
included with application software licenses, are recognized as
the services performed. Software support revenues principally
include contracts for remote dial-up problem diagnosis,
maintenance and corrective support services, each of which
covers a specified period for which revenue is recognized
ratably over the corresponding contract period. Services and
other revenues include custom programming services,
post-contract support obligations and other services, which are
provided under separate contract and are recognized as services
are performed.
Cost of products sold includes the cost of hardware sold, costs
of third party software licenses and hardware support
subcontracts. Client service expense includes the direct and
indirect costs associated with implementation and support
personnel. Software development costs include the direct and
indirect salaries and wages of software research and development
personnel, direct research and development expenses, and
software amortization expense, reduced by capitalized software
development costs. Software development costs are expenses
until such time as technological feasibility is established and
then are capitalized in compliance with Statement of Financial
Accounting Standards No. 86 "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Sales and
marketing costs include direct and indirect salaries,
commissions, joint marketing costs, advertising, trade show
costs, user group costs and travel and entertainment expenses
related to the sale and marketing of the Company's products and
services. General and administrative expenses include salaries
and expenses for corporate administration, financial, legal and
human resources.
8
The sales cycle for the Company's systems is typically six to 18
months from initial contact to contract signing. The product
delivery cycle is variable. In instances to customer contracts
when application software licenses are provided by modem,
product delivery is immediate. In other instances, product
delivery is over two or more years, particularly with
enterprise-wide electronic healthcare record solutions involving
significant and continuing customer service requirements.
Accordingly, the product delivery cycle depends upon the
combination of products purchased and the implementation plan
defined by the customer in the master sales agreement. Each
customer contract is separately negotiated. The installation
schedule for a clinical information systems, or departmental
electronic healthcare record implementations, typically require
six to twelve months. Under its standard master sales
agreement, the Company generally receives a partial payment upon
execution of the agreement, a hardware installment payment upon
delivery of hardware, installation progress payments upon the
completion of defined milestones and final payment upon system
acceptance.
In March 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
Physicain 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 via fax, scanning
or directly from the physician during 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.
In May, 1996, the Company completed the acquisition of
Dimensional Medicine, Inc. ("DMI"). This acquisition
strategically expands the Company's customer base as well as the
clinical information systems product offerings to include
Maxifile, a radiology information system, and Maxiview, a
diagnostic image and graphics workstation. Additionally, a new
product, PACsPlus+, a diagnostic image management and
distribution system integrates medical imaging into the
Company's newest product DynamicVision, an electronic health
record or can be implemented in a stand alone version with
integration to Maxifile or radiology information systems
marketed by other companies. The former DMI office in
Minnetonka, Minnesota has become the Company's Radiology
Technology Center.
On June 10, 1996 the Company announced the appointment of Mr.
Nick Bhatt as Senior Vice President and Chief Technical Officer.
Previously employed by IMNET Systems, Inc. of Atlanta, Georgia,
Mr. Bhatt has more than twenty (20) years of experience in the
image processing industry, specializing in software development,
engineering, and research and development. He was directly
responsible for the design and development of the IMNET MegaSAR
Microfilm Jukebox and personally holds numerous patents
including fifteen (15) in image processing and seven (7) in
biomedical engineering. Management believes that the addition
of Mr. Bhatt to the executive management team will enhance the
current research and development of new technologies and
products.
During the third quarter 1996, the Company's attention was
centered on completing the DMI transition and the combining of
the businesses' research and development, operations, sales,
marketing and administrative functions. The Company also
continued the activity begun in the first quarter of 1996 of
significantly intensifying development and the strategic
expansion of the sales and marketing expenses required to launch
the new DynamicVision and PACsPlus+ product lines. In July 1996,
the Company began beta site installation of DynamicVision and
PACsPlus+ product lines. The Company was pleased to also
announce during the third quarter of 1996 the first
enterprise-wide DynamicVision system sale in the amount of
$1,700,000. Management continues to believe that these efforts
will support its business plan and improve long term
competitiveness and results.
On September 27, 1996 the Company's registration of a common
stock offering, and concurrent registration of common stock
underlying conversion of the Series A and Series B preferred
stock, were declared effective. On October 2, 1996 the Company
received proceeds of $20,942,000 from the issuance of 3,892,500
shares of common stock. On September 26, 1996 the Company's
Board of Directors declared payable the accrued dividends on
Series A and Series B Preferred Stock of $34,100 and $132,000,
respectively, in order to effect the mandatory conversion
privilege available to the Company. On September 27, 1996 all
of the previously outstanding preferred stock was converted to
common stock.
The following table sets forth, for the three and nine month
periods ended September 30, 1995 and 1996, certain items in the
Company's statements of operations as a percentage of total
operating revenues:
9
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1995 1996 1996 1996
Operating revenues:
Computer system equipment
sales and support 5.8% 20.7% 13.0 % 23.4%
Application software
licenses 31.2 31.0 33.3 24.8
Software support 41.9 32.7 39.1 34.9
Services and other 21.1 15.6 14.6 16.9
Total revenues 100.0 100.0 100.0 100.0
Operating expenses:
Cost of products
sold 4.4 18.3 11.2 20.2
Client services
expense 32.3 35.7 31.0 33.3
Software development
costs 15.2 15.6 18.6 14.1
Sales and marketing 17.3 21.2 22.3 23.1
General and
administrative 19.5 12.5 20.5 14.6
Total operating
expenses 88.7 103.3 103.6 105.3
Operating income (loss) 11.3 (3.3) (3.6) (5.3)
Other income (expense) (4.7) (2.5) (4.6) (2.0)
Net earnings (loss) 6.6% (5.8)% (8.2)% (7.3)%
</TABLE>
Results of Operations
(Three months ended September 30, 1996 compared to three months
ended September 30, 1995)
Revenues. During the quarter ended September 30, 1996, the
Company reported revenues of $4,221,000, marking the second
consecutive record setting quarterly revenues for the Company.
Revenues for the three months ended September 30, 1996 increased
by $2,007,000 over revenues for the same quarter in 1995. This
revenue increase was principally due to third quarter 1996
radiology system and services revenues of $2,019,000
attributable to the recently acquired Dimensional Medicine, Inc.
("DMI"). On May 1, 1996 DMI merged with and into DMI
Acquisition Corporation, ("DMIAC"), a newly formed wholly owned
subsidiary of the Company. Subsequently, on September 25, 1996,
DMIAC was merged into the Company.
Computer system equipment sales and support revenues for the
third quarter 1996 increased by $745,000 as compared to similar
revenues reported for the third quarter 1995. Radiology system
equipment sales were $502,000 for the third quarter 1996 and
imaging equipment sales were $216,000. The Company reported no
equipment revenues from these product lines during the third
quarter 1995 as the radiology product line was acquired from
DMI in May 1996 as previously discussed, and DynamicVision, the
Company's imaging product line, was introduced in March 1996.
Application software license revenues for the third quarter 1996
increased by $618,000 over software application revenues of the
third quarter of 1995. LabPro 2000 application revenues
declined by $440,000 as installations during the quarter
consisted principally of migrating customers from the Prime
platform to the IBM AS/400 platform which have comparatively
nominal application license revenues. This decrease was more
than offset by $1,035,000 of Maxifile radiology application
software license revenues for the three months ended September
30, 1996.
Software support revenues for the quarter ended September 30,
1996 increased by $450,000 as compared to the third quarter of
1995. Radiology system support revenues for the three months
ended September 30, 1996 were $359,000 and imaging support
revenues increased by $83,000 due primarily to system
enhancements. The Company presently supports products that it
develops as well as software products that it sub-licenses or
jointly markets for and with its business partners.
10
Services and other revenues during the third quarter of 1996
increased by $194,000 over the same reported for the third
quarter of 1995. As part of the Restructuring Plan completed in
1995, Management staffed to provide for anticipated increased
demand for professional services. The DynamicVision product
line is expected to be more service intensive due to the
integration complexities associated with the typical
installation. The Company's sales staff continues to use these
resources in the team sales process, and service revenues have
grown principally as a result of professional consulting, custom
programming services and system integration services delivered
by the Company.
Cost of Products Sold. Cost of products sold as a percentage of
total operating revenues increased to 18.3% during the three
months ended September 30, 1996 as compared to 4.4% during the
third quarter of 1995. Hardware revenues similarly increased
from 5.8% to 20.7% of total operating revenues due to the
increased involvement in third party hardware sales in
connection with radiology and imaging product lines. Due to the
relative complexity involved in radiology and imaging system
integration, customers prefer to involve the Company in the
procurement of hardware. Cost of products sold as a
percentage of computer system and equipment sales and support
for the third quarter of 1996 increased from 74.8% for the third
quarter 1995 to 88.3%. The overriding factor was the inclusion
of third party radiology and imaging software licensing fees
incurred in cost of products sold during the period. Revenue
from the sale of these licenses are typically included in
application software licenses and there were only nominal image
software licensing revenues recognized during the third quarter
of 1995.
Client Services Expenses. Client services expense for the three
months ended September 30, 1996 increased from 32.3% of total
revenues in 1995 to 35.7% . The Company increased professional
staffing in anticipation of additional managerial burdens
associated with the DMI consolidation process, and the
introduction of the new DynamicVision product line.
Software Development Costs. Software development costs for the
three months ended September 30, 1996 increased from 15.2% of
total revenues in 1995 to 15.6%. The department was
restructured during the quarter to coordinate the talent of the
recently acquired DMI personnel. Additionally, desired
enhancements to the acquired Maxifile and PACsPlus+ radiology
system software, continued development of the DynamicVision
product line, and preparation for the AHIMA and RSNA tradeshows
were established priorities during the quarter.
Sales and marketing costs. Sales and marketing costs increased
during the third quarter of 1996 by $513,000 over the third
quarter of 1995. Management began the process during the fourth
quarter of 1995 of expanding and training a national sales and
marketing force in preparation for the launch of the Company's
new DynamicVision product line.
General and Administrative Expenses. General and administrative
expenses as a percentage of total revenues decreased from 19.5%
for the three months ended September 30, 1995 to 12.5% for the
three months ended September 30, 1996. As a result of the
acquisition of DMI during the quarter, the Company modestly
added salaries and wages to general and administrative
functions.
(Nine months ended September 30, 1996 compared to nine months
ended September 30, 1995)
Revenues. The Company's total revenues were $10,538,000 for the
first nine months of 1996, as compared to $6,715,000 for the
corresponding period in 1995, representing an increase of
$3,823,000, or 56.9%. This increase was primarily attributable
to the inclusion of $3,398,000 in revenues for the five months
ended September 30, 1996 resulting from the May 1996 acquisition
of DMI.
LabPro 2000 system revenues declined by $724,000 as
installations during the first three quarters of 1996 consisted
principally of migrating customers from the Prime platform to
the IBM AS400 platform. Migrations have comparatively nominal
application system revenues. This decrease was more than offset
by an increase in revenues from imaging sales during the nine
months ended September 30, 1996 of $1,411,000 over similar
revenues for the nine months ended September 30, 1995,
attributable to the release in March 1996 of the Company's new
DynamicVision product line.
Computer system equipment and sales support revenues for the
first nine months of 1996 increased by $1,595,000 as compared to
the corresponding period in 1995 or 183%. Laboratory migrations
from the Prime platform to the IBM AS400 platform increased
laboratory system revenues by $250,000. The Company's newly
acquired radiology product line contributed $1,049,000 of
equipment sales and DynamicVision contributed $296,000.
Application software license revenues were $2,614,000 for the
first nine months of 1996, as compared to $2,237,000 for the
comparable period in 1995, representing an increase of $377,000
or 16.9%. Several significant factors during the first nine
months of 1996 influenced this application software license
revenue increase. First, LabPro 2000 application revenues
declined by $1,602,000. LabPro system installations during the
nine months ended September 30, 1996 consisted principally of
migrations which have no associated application license
revenues. Radiology system application revenues during the five
months ended September 30, 1996, post the May 1, 1996
acquisition, of $1,562,000 were recognized. Additionally,
$353,000 of imaging software revenues were recognized, with no
such corresponding revenues recognized during the first nine
months of 1995.
11
Software support revenues were $3,673,000 for the first nine
months of 1996, as compared to $2,624,000 for the corresponding
period in 1995, representing an increase of $1,049,000 or 40.0%.
Radiology system support revenues attributable to the DMI
acquisition in May 1996 were $601,000 and LabPro 2000 support
revenues increased by $138,000 during the first nine months of
1996, primarily due to the completion of system deliveries. The
balance of the software support revenues increase was comprised
of increases in imaging support revenues of $234,000 and
increases in health information system support revenues of
$76,000.
Services and other revenues for the first nine months of 1996
were $1,784,000, as compared to $982,000 for the comparable
period in 1995, representing an increase of $802,000 or 81.7%.
This increase was partially attributable to the allocation of
Company personnel resources to billable professional services
during the first nine months of 1996, as compared to the
utilization of these resources during the first nine months of
1995 on non-billable customer support stabilization undertaken
as part of the 1995 Restructuring Plan. Additionally, the
Company's newer product lines, including PACsPlus+ and imaging
products require greater professional service efforts due to the
complexities of integration involved with typical installations.
Radiology service and other revenues during the five months
ended September 30, 1996, post the May 1, 1996 acquisition, of
$189,000 were recognized. Additionally, $493,000 of imaging
service revenues were recognized, with no such corresponding
revenues recognized during the first nine months of 1995.
Costs of Product Sold. The cost of products sold were
$2,131,000 for the first nine months of 1996, as compared to
$755,000 for the comparable period in 1995, representing an
increase of $1,376,000 or 182.3%. As a percentage of total
operating revenues, costs of products sold during the first nine
months of 1996 were 20.2%, as compared to 11.2% for the
comparable period in 1995. This increase was primarily
attributable to a higher percentage of revenues associated with
hardware sales and the payment of licensing fees to IBM with
respect to the imaging software licenses. Hardware revenues
similarly increased from 13.0% to 23.4% of total operating
revenues due to the increased involvement in third party
hardware sales in connection with radiology and imaging product
lines. Due to the relative complexity involved in radiology and
imaging system integration customers prefer to involve the
Company in the procurement of hardware.
Client Services Expenses. Client services expenses as a
percentage of total revenue increased to 33.3% for the first
nine months of 1996, as compared to 31.0% for the comparable
period in 1995. The Company increased professional staffing in
anticipation of professional services requirements associated
with the DMI consolidation and the introduction of the
DynamicVision and PACsPlus+ product lines.
Software Development Costs. Software development costs as a
percentage of total revenue decreased to 14.1% for the first
nine months of 1996, as compared to 18.6% for the comparable
period in 1995. This decrease was primarily attributable to
the restructuring of the department to consolidate development
efforts and talent of the recently acquired DMI personnel.
Additionally, desired enhancements to the acquired Maxifile and
PACsPlus+ radiology system software, and continued development
of the DynamicVision product line were included in capitalized
costs during the nine months ended September 30, 1996 of
$988,000 compared to $612,000 during the same period of 1995.
Sales and Marketing Costs. The Company's sales and marketing
costs were $2,432,000 for the first nine months of 1996, as
compared to $1,500,000 for the comparable period in 1995,
representing an increase of $932,000 or 62.1%. This increase
was primarily attributable to additional sales and marketing
personnel retained during 1996 in preparation for the launch of
the Company's DynamicVision, PACsPlus+ and imaging product
lines.
General and Administrative Expenses. General and administrative
expenses as a percentage of total revenue decreased to 14.6% for
the first nine months of 1996, as compared to 20.5% for the
comparable period in 1995. As a result of the acquisition of
DMI during 1996 the Company modestly added salaries and wages to
general and administrative functions.
Liquidity and Capital Resources
On September 27, 1996 the Company's registration of the common
stock underlying conversion of the Series A and Series B
preferred stock, and the Company's concurrent common stock
offering were declared effective. On October 2, 1996 the
Company received proceeds of $20,942,000 from the issuance of
3,892,500 shares of common stock. Pursuant to the terms of the
offering a portion of the proceeds were immediately used to
repay the subordinated notes payable of $1,000,000 and the bank
note payable of $2,744,000 together with accrued interest
thereon of $38,000. As of September 30, 1996, on a pro forma
basis giving effect to the settlement of the offering and the
immediate application of the proceeds as discussed above, the
Company reported cash equivalents of $17,705,000 and working
capital of $16,943,000.
12
On May 1, 1996 the Company purchased all of the outstanding
stock of Dimensional Medicine, Inc. of Minnetonka, Minnesota
("DMI"), previously a publicly traded company (LOTC: DIMM). DMI
was merged with and into DMI Acquisition Corporation ("DMIAC"),
a newly formed wholly owned subsidiary of the Registrant. The
purchase price for DMI net of the cash acquired was $1,399,000
and was funded from available cash and cash equivalents of the
Registrant.
The Company continues to improve communication between
accounting and project management involved in the billing and
collection process. As communication links between departments
has improved, unbilled receivables have typically decreased.
The increase in unbilled receivables as of September 30, 1996
compared to the balance as of December 31, 1995 of $733,000 is
principally due to hardware delivery on two radiology system
contracts in advance of a billable milestone. These deferred
billing contract terms were inherited in the DMI acquisition and
are not policy of the Company.
The increases in other liabilities including current maturities,
and in lease receivables as of September 30, 1996, as compared
to levels as of December 31, 1995 of $351,000 and $398,000,
respectively, primarily relate to the acquisition of DMI.
Acquired in the purchase of DMI were lease contracts financing
previous system sales. These leases provide for monthly
principal and interest payments and were assigned to lenders in
exchange for borrowings under installment notes payable prior to
the acquisition. The above mentioned increases represent the
related unamortized balances as of September 30, 1996.
The increase in other current assets as of September 30, 1996
compared to the balance at December 31, 1995 of $251,000 is
principally related to deferred licenses. On March 26, 1996 the
Company signed a comprehensive agreement with Wang Laboratories,
Inc. of Billerica, MA (NASDAQ: WANG). Under the terms of the
Agreement, the Company will integrate Wang's Physician
Workstation product ("PWS"), into the DynamicVision electronic
health record solution. Additionally, under the Agreement the
Company was required to prepay $223,319 for the purchase of
initial Wang software licenses for resale.
During the quarter nine months ended September 30, 1996 the
Company capitalized $988,000 of software development costs and
purchased $623,000 of additional property and equipment in
addition to the assets acquired in the purchase of DMI. The
Company plans to continue to develop the DynamicVision product
line and to enhance its other software product offerings at
comparable levels during succeeding quarters. The property
acquisitions during the nine months ended September 30, 1996
represent furniture, fixtures, leasehold improvement and
equipment purchases which were made to accommodate the personnel
growth in sales, marketing, and client services, and in
preparation of the planned acquisition of DMI.
Accounts payable and accrued expenses as of September 30, 1996
increased by $1,915,000 from December 31, 1995. This increase
is primarily associated with the acquisition of DMI (balance was
$1,140,000 on the date of acquisition), and $508,000 of accrued
issuance costs in connection with the Company's common stock
offering.
The Company reported cash provided by operating activities of
$532,000 for the nine months ended September 30, 1996 as
compared to a $57,000 cash used by operations for the nine
months ended September 30, 1995. Additionally, proceeds from
the exercise of options under employee stock plans provided
$171,000 of cash during the nine months ended September 30,
1996.
On September 26, 1996 the Company's Board of Directors declared
payable accumulated dividends on Series A and Series B Preferred
Stock of $34,100 and $132,000, respectively, in order to effect
mandatory conversion of all then outstanding preferred stock to
common stock on September 27, 1996. The Company does not
currently intend to issue any preferred stock, and as such no
further preferred dividends will accrue.
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.
Inflation and Changing Prices
The Company believes that the general state of the economy and
inflationary trends have only a limited effect on its business.
Historically, inflation has not had a material effect on the
Company's operations or its financial condition. Changing
prices of computer hardware could have a material effect on the
cost of materials sold and the related selling price of software
and hardware sales.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in existing or
pending legal proceedings involving the Company.
Item 2. Changes in Securities
The information required by this item is incorporated
by reference to Footnotes (D) and (E) of the condensed
financial statements included in Part I therein, and
Form 8-B filed by the Company on August 7, 1996.
Item 3. Defaults Upon Senior Securities
(a) Indebtedness:
None
(b) Dividend Arrearage:
The information required by this item is
incorporated by reference to Footnote (D) of the
condensed consolidated 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:
The Registrant filed a Form 8-K dated July
11, 1996 with the Commission reporting the
financial statements of the business acquired
pursuant to Items 7(a) and (b) of the
Registrant's Form 8-K dated May 1, 1996.
Dimensional Medicine, Inc.'s Balance Sheets
as of March 31, 1996 and 1995, and Statements
of Operations, Shareholders' Equity and Cash
Flows for the years ended March 31, 1996 and
1995, were reported therein.
14
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: October 30, 1996 \S\MITCHEL J. LASKEY
Mitchel J. Laskey
President, CEO
Date: October 30, 1996 \S\PAUL S. GLOVER
Paul S. Glover
Vice President of Finance, CFO
15
FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Index to Exhibits
Description of Exhibit Page Number
Exhibit 11: Statement regarding computation
of per share earnings 17
16
<TABLE>
FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Exhibit 11
Computation of Weighted Average Number of Shares Outstanding and
Per Share Earnings
Three Months Ended Nine Months Ended
September 30,(Unaudited) September 30, (Unaudited)
<S> <C> <C> <C> <C>
1995 1996 1995 1996
Earnings (loss) available for common shareholders:
Net earnings
(loss) $ 148,313 $ (243,696) $ (557,125) $(765,815)
Dividends on
preferred
stock - (81,163) - (251,038)
Earnings (loss)
available
for common
share-
holders $ 148,313 $ (324,859) $ (557,125) $(1,016,853)
Weighted average number of common shares outstanding and
earnings per share:
Primary:
Weighted
average
number of
common shares
outstanding 6,589,071 6,888,153 6,394,085 6,709,498
Dilutive
effect of
options and
warrants
using
treasury
stock
method - - - -
Weighted
average
number of
common and
common
equivalent
shares
outstanding 6,589,071 6,888,153 6,394,085 6,709,498
Earnings
(loss) per
share -
primary $ 0.02 $ (0.05) $ (0.09) $ (0.15)
Fully diluted:
Weighted
average
number of
common
shares
outstanding 6,589,071 6,888,153 6,394,085 6,709,498
Dilutive
effect of
options and
warrants
using
treasury stock
method - - - -
Weighted
average
number of
common and
common
equivalent
shares
outstanding
assuming full
dilution 6,589,071 6,888,153 6,394,085 6,709,498
Earnings
(loss) per
share -
fully
diluted $ 0.02 $ (0.05) $ (0.09) $ (0.15)
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 2,214,646 771,186 546,102
<SECURITIES> 0 0 0
<RECEIVABLES> 2,220,338 3,198,392 3,025,559
<ALLOWANCES> 140,837 283,739 255,915
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 4,810,806 4,643,856 4,934,716
<PP&E> 3,105,598 3,457,928 3,800,976
<DEPRECIATION> 1,932,566 2,045,490 2,180,149
<TOTAL-ASSETS> 9,064,435 11,040,496 12,310,186
<CURRENT-LIABILITIES> 2,659,458 4,521,439 5,189,578
<BONDS> 2,732,321 2,921,794 3,926,767
<COMMON> 66,116 66,816 114,048
0 0 0
47,188 47,188 0
<OTHER-SE> 3,559,352 3,483,259 3,079,793
<TOTAL-LIABILITY-AND-EQUITY> 9,064,435 11,040,496 12,310,186
<SALES> 475,068 1,872,179 2,466,560
<TOTAL-REVENUES> 2,309,838 6,317,389 10,537,904
<CGS> 404,311 1,359,361 2,131,265
<TOTAL-COSTS> 2,633,296 6,733,913 11,094,537
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 77,681 179,657 277,490
<INCOME-PRETAX> (366,911) (522,119) (765,815)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (366,911) (522,119) (765,815)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (366,911) (522,119) (765,815)
<EPS-PRIMARY> (.06) (.08) (.15)
<EPS-DILUTED> (.06) (.08) (.15)
</TABLE>
