SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1997
Commission File Number 0-12516
Dynamic Healthcare Technologies, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-3389871
(State of Incorporation) (IRS E.I.N.)
101 Southhall Lane, Suite 210, Maitland, Florida 32751
(Address of principal executive offices) (ZIP Code)
(407) 875-9991
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by checkmark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a Court.
Yes No
As of July 24, 1997, there were 17,380,879 shares outstanding,
par value $.01 per share, of the issuer's only class of common
stock.
This report consists of twenty (20) pages.
The index to exhibits appears on page seventeen (17).
Page 1
PART 1. FINANCIAL INFORMATION
See attched statements following this item number
Page 2
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
December 31, 1996 June 30, 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $11,450,436 $7,297,158
Restricted cash 60,000 -
Accounts receivable, net 5,626,209 6,418,382
Unbilled receivables 2,111,813 2,338,318
Contracts receivable - current 336,499 1,246,897
Other current assets 1,069,705 835,992
Total current assets 20,654,662 18,136,747
Property and equipment, net 2,835,941 3,515,661
Capitalized software development costs, net 5,428,445 6,464,242
Goodwill, net 2,478,103 2,274,265
Contracts receivable - non-current 356,337 1,113,705
Other assets 71,727 60,811
$31,825,215 $31,565,431
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $2,830,130 $3,091,842
Deferred revenue 5,121,398 4,759,947
Advance billings 2,978,417 1,688,419
Other 533,377 373,306
Total current liabilities 11,463,222 9,913,514
Other 590,987 213,269
Total liabilities 12,054,309 10,126,783
Shareholders' equity:
Series CM preferred stock ($.01 par
value; 6,000 shares authorized, issued
and outstanding as of December 31, 1996
and June 30, 1997). 60 60
Common stock ($.01 par value; authorized
40,000,000 shares; issued and outstanding
17,007,153 and 17,375,729 shares as of
December 31, 1996 and June 30, 1997,
respectively). 170,072 173,757
Additional paid-in capital 43,701,731 44,157,058
Accumulated deficit (24,100,957) (22,892,227)
Total shareholders' equity 19,770,906 21,438,648
$31,825,215 $31,565,431
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Operating revenues
Computer system equipment
sales and support $1,246,347 $1,561,284 $1,764,731 $2,307,384
Application software licenses 1,769,314 1,712,912 2,394,885 7,222,652
Software support 1,495,854 2,682,690 2,703,183 5,241,801
Services and other 745,325 1,589,661 1,478,553 3,522,746
Total operating revenues 5,256,840 7,546,547 8,341,352 18,294,583
Operating expenses:
Cost of products sold 1,100,829 1,610,147 1,534,756 2,401,885
Client services expense 1,634,188 2,978,917 2,781,437 5,743,790
Software development costs 665,951 1,565,006 1,201,981 2,923,346
Sales and marketing costs 1,094,984 2,278,297 2,027,816 4,023,227
General and administrative
expense 647,007 1,045,556 1,166,543 2,329,572
Total operating expenses 5,142,959 9,477,923 8,712,533 17,421,820
Operating income (loss) 113,881 (1,931,376) (371,181) 872,763
Other income (expense):
Interest expense and financing
costs (115,443) (16,710) (197,510) (35,239)
Interest income and other 47,080 182,060 81,646 371,206
Total other income (expense) (68,363) 165,350 (115,864) 335,967
Net earnings (loss) before income
taxes 45,518 (1,766,026) (487,045) 1,208,730
Income tax expense/(benefit) - - - -
Net earnings (loss) $ 45,518 $(1,766,026) $ (487,045) $1,208,730
Net earnings (loss) available for
common shareholders $(39,420)$(1,766,026) $ (656,520) $1,208,730
Net earnings (loss) per common
share primary and fully diluted $ (0.01)$ (0.10) $ (0.10) $ 0.07
Weighted average number of common
and common equivalent shares
outstanding 6,876,733 17,328,473 6,869,190 17,864,395
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
June 30,
1996 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (487,045) $1,208,730
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 785,159 1,511,708
Changes in assets and liabilities:
Accounts receivable 525,267 (792,173)
Unbilled receivable 175,790 (226,505)
Contracts receivable 36,737 (1,667,766)
Other (307,189) (13,393)
Accounts payable and accrued expenses 550,909 261,712
Deferred revenues (157,440) (361,451)
Advance billings (252,836) (1,289,998)
Net cash provided (used) by operating activities 869,352 (1,369,136)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (719,957) (1,798,832)
Purchases of property and equipment (355,741) (1,126,604)
Restricted cash released from escrow 50,000 60,000
Purchase of net assets of Dimensional Medicine, Inc.(1,399,389) -
Net cash used by investing activities (2,425,087) (2,865,436)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 221,003 459,012
Preferred stock dividends paid (109,782) -
Other 157,383 (377,718)
Net cash flows provided (used) by
financing activities 268,604 81,294
Net increase (decrease) in cash and cash equivalents (1,287,131) (4,153,278)
Cash and cash equivalents, beginning of period 2,268,240 11,450,436
Cash and cash equivalents, end of period $ 981,109 $ 7,297,158
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997
(A) Unaudited Financial Statements:
The accompanying unaudited Condensed Consolidated Balance Sheet
as of June 30, 1997, Condensed Consolidated Statements of
Operations for the three and six month periods ended June 30,
1996 and 1997, and Condensed Consolidated Statements of Cash
Flows for the six month periods ended June 30, 1996 and 1997,
have been prepared by management in conformity with generally
accepted accounting principles for interim financial statements
and with instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all the disclosures required by
generally accepted accounting principles for complete financial
statements. All adjustments and accruals considered necessary
for fair presentation of financial information have been
included in the opinion of management. Operating results for
the three and six month periods ended June 30, 1997, are not
necessarily indicative of the operating results which may be
expected for the year ending December 31, 1997.
(B) Acquisition of Dynacor, Inc.:
On May 22, 1997, the Company completed the acquisition of
Dynacor, Inc. of Apple Valley, Minnesota ("Dynacor"), a
laboratory information system provider founded in 1978. Dynacor
stockholders received 250,000 common shares of the Company, in
exchange for all of the outstanding common shares of Dynacor.
The acquisition has been accounted for using the pooling of
interests method, and as such, all prior period amounts have
been restated to include the accounts and results of operations
of Dynacor.
The results of operations previously reported by the separate
enterprises and the combined amounts presented in the
accompanying consolidated financial statements are summarized as
follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Total Operating Revenues:
Dynamic Healthcare
Technologies, Inc. $4,007,551 $6,731,839 $6,317,389 $16,401,998
Dynacor, Inc. 1,249,289 814,708 2,023,963 1,892,585
Combined $5,256,840 $7,546,547 $8,341,352 $18,294,583
Net Earnings (loss):
Dynamic Healthcare
Technologies, Inc. $ (155,208) $(1,636,569) $(522,119) $ 1,395,675
Dynacor, Inc. 200,726 (129,458) 35,074 (186,945)
Combined $ 45,518 $(1,766,027) $(487,045) $ 1,208,730
</TABLE>
The unaudited condensed combined balance sheets presented give
effect to the issuance of 250,000 shares of the Registrants
common stock $0.01 par value, in exchange for all of the
outstanding common stock of Dynacor, Inc.
Results attributed to Dynacor occurred through May 22, 1997 (the
acquisition date). There were no significant transactions
between the Registrant and Dynacor prior to the combination.
Page 6
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 600 customers. 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 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 are performed. Software support revenues
principally include contracts for remote dial-up problem
diagnosis, maintenance and corrective support services, each of
which covers a specified period for which revenue is recognized
ratably over the corresponding contract period. Services and
other revenues include custom programming services,
post-contract support obligations and other services, which are
provided under separate contract and are recognized as services
are performed.
Cost of products sold includes the cost of hardware sold, costs
of third party software licenses and hardware support
subcontracts. Client service expense includes the direct and
indirect costs associated with implementation and support
personnel. Software development costs include the direct and
indirect salaries and wages of software research and development
personnel, direct research and development expenses, and
software amortization expense, reduced by capitalized software
development costs. Software development costs are expenses
until such time as technological feasibility is established and
then are capitalized in compliance with Statement of Financial
Accounting Standards No. 86 "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Sales and
marketing costs include direct and indirect salaries,
commissions, joint marketing costs, advertising, trade show
costs, user group costs and travel and entertainment expenses
related to the sale and marketing of the Company's products and
services. General and administrative expenses include salaries
and expenses for corporate administration, financial, legal and
human resources.
The sales cycle for the Company's systems is typically six to
eighteen months from initial contact to contract signing. The
product delivery cycle is variable. When application software
licenses are provided by modem, product delivery is immediate.
In other instances, product delivery is over two or more years,
particularly with enterprise-wide electronic healthcare record
solutions involving significant and continuing customer service
requirements. Accordingly, the product delivery cycle depends
upon the combination of products purchased and the
implementation plan defined by the customer in the master sales
agreement. Each customer contract is separately negotiated.
The installation schedule for a clinical information systems, or
departmental electronic healthcare record implementations,
typically require six to twelve months. Under its standard
master sales agreement, the Company generally receives a partial
payment upon execution of the agreement, a hardware installment
payment upon delivery of hardware, installation progress
payments upon the completion of defined milestones and final
payment upon system acceptance.
Page 7
In February 1997, the Company entered into a value added
re-marketing agreement with Sunquest Information Systems, Inc.
(NASDAQ: SUNQ) of Tucson, Arizona. Under the terms of the
agreement Sunquest will pay an initial licensing fee of
$3,000,000 to sub-license Dynamic's CoPath client server
anatomic pathology solution ("CoPath C/S") to their existing
customers. New Sunquest customers licensing CoPath C/S will pay
a separate licensing fee, and Dynamic will receive ongoing
annual maintenance and monthly consulting fees for all
continuing services rendered under this agreement.
Also in February 1997, the Company signed an agreement under
which Dynamic will sell HealthPoint ACS(TM), an advanced clinical
system for the office-based physician in the ambulatory setting.
Under the terms of this agreement, Dynamic will also provide
implementation services, training and telephone support to its
HealthPoint ACS(TM) clients.
In March 1997, the Company announced the general availability of
CoPath C/S having placed the product in use at the University of
California, San Francisco Medical Center and at the New York
Hospital - Cornell Medical Center. Both of these academic
medical centers were previously beta sites for CoPath C/S.
On May 22, 1997 , the Company completed the acquisition of
Dynacor, Inc. of Apple Valley, Minnesota ("Dynacor"). Dynacor,
a privately-held company founded in 1978, had concentrated on
the design and implementation of laboratory information systems
("LIS"), for hospitals, health maintenance organizations,
physician's office laboratories, and reference laboratories.
This acquisition increased the Company's customer base to in
excess of 600 hospitals, strengthened the Company's position in
the laboratory information systems marketplace, and expanded the
Company's laboratory information system (LIS) development
resources.
In June 1997, the Company announced the appointment of Michael
L. Carlay to the newly created position of Senior Vice
President, Sales and Marketing. Mr. Carlay has over twenty
years experience in the information systems business. Prior to
joining the Company Mr. Carlay held the positions of Vice
President of Sales and Marketing for AMISYS Managed Care Systems
(now HBOC), Vice President of Sales for IBAX Healthcare Systems
(now HBOC), and was a sales executive with IBM's Health Industry
Marketing group.
Page 8
The following table sets forth, for the three and six month
periods ended June 30, 1996 and 1997, certain items in the
Company's statements of operations as a percentage of total
operating revenues:
<TABLE>
Three Months Six Months
Ended Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1996 1997 1996 1997
Operating revenues:
Computer system equipment sales and support 23.7 % 20.7 % 21.2 % 12.6 %
Application software licenses 33.7 % 22.7 % 28.7 % 39.5 %
Software support 28.4 % 35.5 % 32.4 % 28.7 %
Services and other 14.2 % 21.1 % 17.7 % 19.2 %
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of products sold 20.9 % 21.3 % 18.4 % 13.1 %
Client services expense 31.1 % 39.5 % 33.3 % 31.4 %
Software development costs 12.7 % 20.7 % 14.4 % 16.0 %
Sales and marketing costs 20.8 % 30.2 % 24.3 % 22.0 %
General and administrative expense 12.3 % 13.9 % 14.0 % 12.7 %
Total operating expenses 97.8 % 125.6 % 104.4 % 95.2 %
Operating income (loss) 2.2 % (25.6)% (4.4)% 4.8 %
Other income (expense) (1.3)% 2.2 % (1.4)% 1.8 %
Net earnings (loss) 0.9 % (23.4)% (5.8)% 6.6 %
</TABLE>
Results of Operations
(Three months ended June 30, 1997 compared to three months ended
June 30, 1996)
Revenues. During the quarter ended June 30, 1997 the Company
reported revenues of $7,547,000, an increase of $2,290,000 over
revenues for the same period 1996. This increase represents an
increase of 44%, and is principally attributable to the
acquisition of Collaborative Medical Systems, Inc. ("CoMed"),
made on December 17, 1996, adding an anatomic pathology
information system product line to the Company's existing
product lines. Pathology revenues reported during the second
quarter of 1997 were $2,623,000. Laboratory information system
application software licenses revenue for the quarter ended June
30, 1997, declined by $555,000 compared to the same period 1996,
which offset aggregate gains in DynamicVision, radiology, and
other product lines. LabPro 2000 installations during the
second quarter of 1997 consisted of migrating customers from the
prime platform to the IBM AS400 platform. Migration contracts
typically have nominal associated application software license
revenue.
Computer system equipment sales and support revenues during the
quarter ended June 30, 1997 increased $315,000 to $1,561,000
compared to $1,246,000 for the second quarter of 1996.
Management does expect a higher involvement in the delivery of
computer hardware to customers in connection with the
DynamicVision, pathology and radiology product lines as a result
of emphasizing offering a sole source solution to customers.
Hardware revenues can cause significant fluctuations in top line
performance, but traditionally, have had nominal impact on
earnings due to the relatively low margins compared to the other
sources of revenue of the Company.
Application software license revenue during the second quarter
of 1997, decreased by $56,000 or to 22.7% of total revenues
compared to 33.7% during the same period 1996. Favorably, the
Company recognized pathology application software license
revenue of $784,000 during the second quarter of 1997, while
during the second quarter of 1996, there were no such pathology
revenues. The pathology product line was acquired with CoMed in
December of 1996. Pathology revenues during the second quarter
1997 substantially offset declines in LIS, RIS, DynamicVision
and other software license revenues of $555,000, $181,000,
Page 9
$84,000, and $21,000, respectively. These decreases during the
second quarter of 1997, resulted from a temporary decrease in
deliverable system backlog, principally due to the
reorganization of the Company's sales force performed in the
first quarter of 1997. The Company reorganized the sales force
in response to expanded product offerings resulting from the
acquisitions of CoMed and Dimensional Medicine, Inc. ("DMI"), in
1996, and from the general release of the newly developed CoPath
C/S in March 1997. Sales cycles for the Company's product lines
typically range from six to eighteen months, and the second
quarter of 1997 elapsed in the initial phase of these
reorganized sales cycles.
Software support revenues increased $1,187,000 to $2,683,000 for
the second quarter of 1997, compared to $1,496,000 for the same
period one year ago, an increase to 35.5% of total revenues from
28.4%. The acquisition of CoMed resulted in second quarter 1997
software support revenues from pathology of $992,000.
Additionally, successful installations continued to result in
increased accretions in software support revenues. As of June
30, 1997, recurring annualized billable support base has
increased to $12.3 million, and an additional $1 million of
annualized software support revenue is anticipated to be
generated from delivery of the Company's existing new systems
backlog.
Service and other revenues increased by $845,000 to $1,590,000
from $745,000. This increase principally results from the
training and implementation services in connection with system
installations to the Department of Defense hospitals.
Cost of Products Sold. Cost of products sold as a percent of
total revenues for the second quarter of 1997 increased by .4%
to 21.3% from 20.9% for the same period 1996. Although,
hardware revenues during the second quarter of 1997 decreased to
20.7% of total revenues, a decrease of 3% from 23.7% for the
same period in 1996, approximately $298,000 of costs
attributable to third party software licensing were included in
the cost of products sold during the second quarter of 1997.
This results from the purchase of the mumps operating system in
connection with both newly acquired pathology and radiology
product lines, and royalties to IBM in connection with imaging
sales.
Client Services Expense. Client services expense for the second
quarter 1997 increased $1,345,000 to $2,979,000 from $1,634,000
for the second quarter 1996. In addition, as a percentage of
total revenues during the respective quarters, client services
expense increased to 39.5% from 31.1%. The Company previously
reported increased staffing in connection with the 1996
acquisitions of DMI and CoMed, the introduction of the
DynamicVision product line, and the general release of CoPath
C/S. In addition, the Company has been actively improving
customer reference sites in order to more actively support the
sales effort.
Software Development Costs. Software development costs for the
second quarter 1997 increased $899,000 to $1,565,000 from
$666,000, or by 8% of total operating revenues to 20.7% from
12.7% incurred during the second quarter 1996. This department
was reorganized during the fourth quarter of 1996 to coordinate
the talent of the DMI and CoMed acquisitions. Although the
Company capitalized $954,000 of software development costs
during the second quarter 1997 compared to $319,000 for the same
period of 1996, the Company, as outlined in the secondary
offering, continues to significantly invest in development
efforts as part of the Company's overall growth strategy.
Sales and Marketing. Sales and marketing costs for the second
quarter 1997 increased by $1,183,000 to $2,278,000 from
$1,095,000, or by 9.4% of total revenues for the quarter to
30.2% from 20.8% for the same period of 1996. During late 1996
and the first half of 1997, the Company expanded and trained a
national sales and marketing force in connection with the
Company's external growth plans, in preparation for the launch
of the Company's new DynamicVision product line, and the general
release of CoPath C/S.
General and Administrative Expenses. General and administrative
expenses for the second quarter of 1997 increased by $399,000,
to $1,046,000 from $647,000 incurred during the second quarter
1996, an increase of 1.6% of total revenues for the quarter from
12.3% from 13.9%. The increased expenses include approximately
$85,000 of non-recurring costs incurred in connection with the
acquisition of Dynacor in May 1997. In addition, during the
second quarter of 1997, the Company reached a settlement in
connection with an action filed by a former Vice President,
resulting in $33,000 of severance pay to the former employee and
approximately an additional $30,000 in non-recurring general and
administrative expenses. The remaining increase in general and
administrative expenses result principally from ongoing
management and administrative expenses resulting from the
acquisitions of DMI, CoMed and Dynacor.
Other Income (Expense). Net other income for the second
quarter 1997 increased by $233,000 to $165,000, as compared to
net other expense of approximately $68,000 for the same period
1996. Interest income increased by $139,000, and interest
expense decreased by $99,000 during the second quarter of 1997
principally due to the availability of proceeds resulting from
the Company's successful secondary offering completed in the
fourth quarter of 1996.
Page 10
(Six months ended June 30, 1997 compared to six months ended
June 30, 1996)
Revenues. The Company's total consolidated revenues were
$18,295,000 for the first six months of 1997, compared to
$8,341,000 for the corresponding period of 1996, representing an
increase of $9,954,000 or 119.3%. During the six months ended
June 30, 1997 the Company reported pathology revenues of
$9,592,000 attributable to the 1996 acquisition of CoMed in late
1996, and RIS revenues resulting from the Maxifile product line
acquired with DMI in May 1996, increased to $2,029,000 from
$1,380,000 or by $649,000. Laboratory information system
application software licenses revenue for the six months ended
June 30, 1997, declined by $704,000 compared to the same period
1996, which offset aggregate gains in DynamicVision, radiology,
and other product lines. LabPro 2000 installations during the
first half of 1997 consisted of migrating customers from the
prime platform to the IBM AS400 platform. Migration contracts
typically have nominal associated application software license
revenue.
Computer system equipment sales and support revenues during the
six months ended June 30, 1997 increased $542,000 to $2,307,000
compared to $1,765,000 for the second quarter of 1996, but
declined as a percentage of total revenues to 12.6% from 21.2% .
Management does expect a higher continuing involvement in the
delivery of computer hardware to customers in connection with
the DynamicVision, pathology and radiology product lines, as a
result of emphasizing offering a sole source solution to
customers. However, the increase in application software
license revenues, during the first six months of 1997,
overshadowed the increase in hardware revenues. Hardware
revenues can cause significant fluctuations in top line
performance, but they traditionally have had nominal impact on
earnings due to the relatively low margins compared to the other
sources of revenue of the Company.
Application software license revenue during the first six months
of 1997, increased by $4,828,000 or to 39.5% of total revenues
compared to 28.7% during the same period 1996. The Company
recognized pathology application software license revenue of
$5,620,000 during the first six months of 1997, while during the
first six months of 1996, there were no such pathology revenues.
The pathology product line was acquired with CoMed in December
of 1996. Pathology revenues during the first six months of
1997 substantially offset declines in LIS, RIS, DynamicVision
and other software license revenues of $704,000, $19,000,
$48,000, and $21,000, respectively, as compared to the first six
months of 1996. These decreases during the first six months of
1997, resulted from a temporary decrease in deliverable system
backlog, principally due to the reorganization of the Company's
sales force performed in the first quarter of 1997. The Company
reorganized the sales force in response to expanded product
offerings resulting from the acquisitions of CoMed and DMI in
1996, and from the general release of the newly developed CoPath
C/S in March 1997. Sales cycles for the Company's product lines
typically range from six to eighteen months, and the first six
months of 1997 elapsed in the initial phase of these reorganized
sales cycles.
Software support revenues increased $2,539,000 to $5,242,000 for
the first six months of 1997, compared to $2,703,000 for the
same period one year ago, an increase of 93.9%. The acquisition
of CoMed resulted in first half 1997 software support revenues
from pathology of $1,933,000. Additionally, successful
installations continued to result in accretions in software
support revenues. As of June 30, 1997, recurring annualized
billable support base has increased to $12.3 million, and an
additional $1 million of annualized software support revenue is
anticipated to be generated from delivery of the Company's
existing new systems backlog.
Service and other revenues increased by $2,044,000 to $3,523,000
from $1,479,000. This increase principally results from the
training and implementation services in connection with system
installations to the DOD hospitals.
Cost of Products Sold. Cost of products sold as a percent of
total revenues for the first half of 1997 decreased by 5.3% to
13.1% from 18.4% for the same period 1996. Although, hardware
revenues during the six months of 1997 decreased 8.6% to 12.6%
from 21.2%, approximately $428,000 of costs attributable to
third party software licensing, or 2.3% were included in the
cost of products sold. This results from the purchase of the
mumps operating system in connection with both the newly
acquired pathology and radiology product lines, and royalties to
IBM in connection with imaging sales.
Client Services Expense. Client services expense for the first
six months of 1997 increased $2,963,000 to $5,744,000 from
$2,781,000 for the first six months of 1996. However, as a
percentage of total revenues during the respective six month
periods, client services expense decreased to 31.4% from 33.3%.
The Company's previously reported increased staffing in
connection with the 1996 acquisitions of DMI and CoMed, the
introduction of the DynamicVision product line, and the general
release of CoPath C/S was more than offset by the increase in
total revenues.
Software Development Costs. Software development costs for the
first six months of 1997 increased $1,721,000 to $2,923,000 from
$1,202,000, or by 1.6% of total operating revenues to 16.0% from
14.4% incurred during the second quarter 1996. This department
was reorganized during the fourth quarter of 1996 to coordinate
the talent of the DMI and CoMed acquisitions. Although the
Company capitalized $1,799,000 of software development costs
during the first six months of 1997 compared to $604,000 for the
same period of 1996, the Company, as outlined in the secondary
offering, continues to significantly invest in development
efforts as part of the Company's overall growth strategy.
Page 11
Sales and Marketing. Sales and marketing costs for the first
half of 1997 increased by $1,995,000 to $4,023,000 from
$2,028,000, but declined by 2.3% of total revenues for the first
six months to 22.0% from 24.3% for the same period of 1996.
During late 1996 and the first half of 1997, the Company
expanded and trained a national sales and marketing force in
connection with the Company's external growth plans, in
preparation for the launch of the Company's new DynamicVision
product line, and the general release of CoPath C/S. These
increases in sales and marketing costs have been more than
offset by the Company's growth in total revenues.
General and Administrative Expenses. General and administrative
expenses for the first six months of 1997 increased by
$1,163,000, to $2,330,000 from $1,167,000 incurred during the
first six months of 1996, but decreased as a percentage of total
revenues by 1.3% to 12.7% from 14.0% for the first six months of
1996. The Company has experienced some cost reductions in
finance and administration associated with consolidating recent
acquisitions.
Other Income (Expense). Net other income for the first six
months of 1997 increased by $452,000 to income of $336,000, as
compared to net other expense of approximately $116,000 for the
same period 1996. Interest income increased by $293,000, and
interest expense decreased by $162,000 during the second quarter
of 1997 principally due to the availability of proceeds
resulting from the Company's successful secondary offering
completed in the fourth quarter of 1996.
Liquidity and Capital Resources
As of June 30, 1997 the Company had cash equivalents of
$7,297,000, working capital of $8,223,000, and a working capital
ratio of 1.83 to 1.
Accounts receivable as of June 30, 1997 increased by $792,000
from the balance on December 31, 1996, principally as a result
of seasonal billing fluctuations associated with a concentration
of renewal software support contracts for radiology information
systems with a July 1 start date, which were billed in June.
Contracts receivable as of June 30, 1997 increased $1,668,000 to
$2,361,000 as compared to the balance of $693,000 on December
31, 1996. The Company entered into a licensing agreement with
Sunquest resulting in initial licensing fees receivable in three
installments of $1,000,000 each. The first installment was
collected upon signing on February 7, 1997. The remaining two
installments are due no later than February 7, 1998 and February
7, 1999, and as of June 30, 1997 had a carrying value of
$1,835,000. The remaining change is attributable to scheduled
collections on monthly installment receivables from radiology
information system customers.
Other current assets as of June 30, 1997 declined $234,000 to
$836,000 from the 1996 year end balance of $1,070,000, as a
result of realization of other asset balances acquired through
CoMed. The cash surrender value of terminated life insurance of
approximately $110,000 collected by the Company, and vendor
advances returned to the Company of approximately $145,000
significantly accounted for this change.
During the first six months of 1997 the Company capitalized
$1,799,000 of software development costs and purchased
$1,127,000 of additional property and equipment exclusive of the
acquisition of Dynacor in May 1997. Development efforts
resulted in the general availability of CoPath Client Server
during the first quarter of 1997. The Company also continued to
develop enhancements to DynamicVision, PACsPlus+ and began
developing a client server version of Maxifile for radiology.
Property purchases were made primarily to accommodate the growth
of the Company. First, the Company uniformly equipped the
offices of the recently acquired CoMed operation in Waltham,
Massachusetts and Dynacor in Minneapolis, Minnesota.
Additionally, the Company acquired computer equipment for the
sales force to automate pipeline management, and a new telephone
system. The Company plans to continue an aggressive internal
and external growth strategy.
Accounts payable and accrued expenses increased $262,000 to
$3,092,000 as of June 30, 1997 from $2,830,000 as of December
31, 1996. This fluctuation results primarily from the thorough
review of all vendor payments during transition of the Dynacor
accounting systems to Maitland. This resulted in initially
extending the payment cycle.
Deferred revenue as of June 30, 1997 decreased by $361,000 to
$4,760,000 from $5,121,000. Although July 1 is a significant
support contract renewal date for RIS customers, January 1 is a
much larger Company-wide software support contract renewal date.
Billings for these renewals occurs prior to the renewal date,
and results in periodic fluctuations in deferred revenues.
Page 12
Advanced billings as of June 30, 1997 declined by $1,290,000 to
$1,688,000 from the 1996 year end balance of $2,978,000.
Deliveries to the DOD hospitals during the first six months of
1997 were significantly billed and paid in advance prior to
December 31, 1996.
Other current and non-current liabilities as of June 30, 1997
decreased by an aggregate of $537,000 from the December 31, 1996
balance of $1,124,000 to $587,000, principally as a result of
retiring Dynacor pre-existing debt after acquisition in May 1997.
During the first six months of 1997 the Company received
$459,000 in proceeds from the exercise of employee options and
warrants.
The Company intends to continue to enhance its product and
service offerings and to seek market expansion opportunities
beyond the general release of DynamicVision in November 1996,
the 1996 acquisitions of CoMed and DMI, the general release of
CoPath Client Server product during the first quarter of 1997,
and the most recent acquisition of Dynacor.
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.
Page 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the second quarter 1997, the Company reached a settlement
in connection with an action filed by a former Vice President,
resulting in $33,000 of severance pay to the former employee and
approximately an additional $30,000 in non-recurring general and
administrative expenses.
There were no other material developments in existing or
pending legal proceedings involving the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
The Company's Annual Meeting of Shareholders was held on June
3, 1997, in Maitland, Florida. Seven directors were elected to
the Company's Board. A listing of those directors follows:
Name and Principal Occupation Number of Votes Received
Jerry L. Carson
Executive Vice President, CFO
Evans Enterprises 13,804,018
Mitchel J. Laskey
President and CEO
Dynamic Healthcare Technologies, Inc. 13,803,622
Thomas J. Martinson
President
Martinson & Company, Ltd. 13,804,447
Bret Maxwell
Vice Chairman
First Analysis Corporation 13,804,518
David M. Pomerance
President
MMRI, Inc. 13,803,747
Daniel Raynor
Managing Partner
The Argentum Group 13,804,518
Richard W. Truelick
President
Truelick Associates 13,804,018
Page 14
A proposal to engage KPMG Peat Marwick, LLP as the Company's
independent public accountants for the fiscal year ending
December 31, 1997 passed by a vote of 13,808,518 to 25,800 with
12,902 votes abstaining.
A proposal to authorize a change in the Company's Articles of
Incorporation to increase the authorized number of shares of
Common Stock from 20,000,000 shares to 40,000,000 shares passed
by a vote of 13,477,737 to 343,809 with 25,674 votes abstaining.
A proposal to adopt an amendment to the 1993 Incentive Stock
Option Plan ("ISO Plan") to increase the issuable shares
pursuant to the ISO Plan from 600,000 shares to a total of
1,500,000 shares passed by a vote of 7,745,160 to 1,543,005 with
69,901 votes abstaining.
A proposal to adopt amendment to the Directors and Management
employees ("D & M Plan") to increase the issuable shares under
the D & M Plan from 250,000 shares to a total of 650,000 shares
passed by a vote of 7,932,628 to 1,589,192 with 63,086 votes
abstaining.
A proposal to adopt an amendment to the Employee Stock Purchase
Plan ("ESP Plan") to increase the issuable shares under the ESP
Plan from 200,000 shares to a total of 600,000 shares passed by
a vote of 8,245,094 to 1,275,046 with 64,766 votes abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3: Amendment to Articles of Incorporation
Exhibit 11: Statement Regarding Computation of Per Share Earnings.
(b) Reports on Form 8-K:
The Registrant filed a Form 8-K dated May 22, 1997 with the
Commission reporting the acquisition of Dynacor, Inc.
The Registrant filed a Form 8-K dated July 16, 1997 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 22, 1997. Dynacor, Inc.'s Balance Sheets as of
June 30, 1996 and March 31, 1997, and Statements of Operations,
Shareholders' Equity and Cash Flows for the years ended June 30,
1996 and the nine months ended March 31, 1996 and 1997, were
reported therein.
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Registrant)
Date: August 1, 1997 /S/MITCHEL J. LASKEY
Mitchel J. Laskey
President, CEO
Date: August 1, 1997 /S/PAUL S. GLOVER
Paul S. Glover
Vice President of Finance, CFO
Page 16
FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Index to Exhibits
Description of Exhibit Page Number
Exhibit 3: Amendment to Articles of Incorporation 18
Exhibit 11: Statement regarding computation of per share earnings 20
Page 17
[BORDER]
State of Florida
[PICTURE]
Department of State
I certify the attached is a true and correct copy of the
Articles of Amendment, filed on June 25, 1997 to Articles of
Incorporation for DYNAMIC HEALTHCARE TECHNOLOGIES, INC., a
Florida corporation, as shown by the records of this office.
I further certify the document was electronically received under
FAX audit number H97000010374. This certificate is issued in
accordance with section 15.16, Florida Statutes, and
authenticated by the code noted below.
The document number of this corporation is P96000041145.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capital, this the
Twenty-sixth day of June, 1997
Authentication code: 497A00033811-062697-P96000041145-1/1
[SEAL] /S/ SANDRA B. MORTHAM
CR2E022 (1-95) Sandra B. Mortham
Secretary of State
Page 18
H97000010374
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
a Florida Corporation
Pursuant to Sections 607.1003 and 607.1006, Florida Business
Corporation Act, the undersigned, a Florida corporation, adopts
the following Articles of Amendment to its Articles of
Incorporation:
1. The name of the corporation is Dynamic Healthcare
Technologies, Inc. (the "Corporation").
2. The following is the amendment to the Articles of
Incorporation which has been adopted. Article VI of the
Articles of Incorporation of Corporation is amended in its
entirety to read as follows:
ARTICLE VI
The Corporation is authorized to issue Forty Million
(40,000,000) shares of Common Stock at $.01 par value per share.
The Corporation is authorized to issue Ten Million (10,000,000)
shares of Preferred Stock, at $.01 par value per share, in such
series and variations in the relative rights and preferences,
including voting rights, if any, between such series as the
Board of Directors shall determine. All or a designated voting group of
shareholders are entitled to cumulate their votes for directors.
2. The above amendment was adopted and approved by a
sufficient number of votes of the shareholders and
by all directors of the Corporation on June 3, 1997.
IN WITNESS WHEREOF, the undersigned, as Secretary of the
Corporation, has executed these Articles of Amendment as
of June 3, 1997.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
By: /S/ PAUL S. GLOVER
Paul S. Glover, Secretary
Prepared by:
Karen Z. Rosen, Esq.
Florida Bar No. 357197
2601 So. Bayshore Drive, 19th FL
Miami, Florida 33133
(305)854-5900
H97000010374
Page 19
FORM 10-Q
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Exhibit 11
Computation of Weighted Average Number of Shares Outstanding and
Per Share Earnings
<TABLE>
Three Months Ended Six Months Ended
June 30, (Unaudited) June 30,(Unaudited)
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Net earnings (loss) $ 45,518 $(1,766,026) $(487,045) $1,208,730
Dividends on preferred stock (84,938) - (169,875) -
Earnings (loss) available for
common shareholders $(39,420) $(1,766,026) $(656,920) $1,208,730
Weighted average number of
common shares outstanding and
earnings per share:
Primary:
Weighted average number of
common shares outstanding 6,876,733 17,328,473 6,869,190 17,286,218
Dilutive effect of options
and warrants using treasury
stock method - - - 578,177
Weighted average number of
common and common equivalent
shares outstanding 6,876,733 17,328,473 6,869,190 17,864,395
Earnings (loss) per share -
primary $ (0.01) $ (0.10) $ (0.10) $ 0.07
Fully diluted:
Weighted average number of
common shares outstanding 6,876,733 17,328,473 6,869,190 17,286,218
Dilutive effect of options and
warrants using treasury stock
method - - - 578,177
Dilutive effect of contingently
issuable shares - - - 418,750
Weighted average number of common
and common equivalent shares
outstanding assuming full
dilution 6,876,733 17,328,473 6,869,190 18,283,145
Earnings (loss) per share
fully diluted $ (0.01) $ (0.10) $ (0.10) $ 0.07
</TABLE>
Page 20
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1997
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 MAR-31-1997
<CASH> 2,219,497 981,109 844,052 11,510,436 10,929,523
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 2,545,183 3,756,496 3,293,649 5,952,311 5,046,519
<ALLOWANCES> 140,837 283,739 255,915 326,102 326,102
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 5,341,589 5,564,242 5,680,692 20,654,662 19,827,958
<PP&E> 3,504,098 3,865,475 4,211,769 5,347,738 5,843,221
<DEPRECIATION> 2,049,987 2,176,520 2,325,158 2,511,797 2,717,914
<TOTAL-ASSETS> 10,866,237 13,155,260 14,229,506 31,825,215 32,417,849
<CURRENT-
LIABILITIES> 3,975,433 5,619,565 6,188,438 11,463,322 8,821,718
<BONDS> 2,744,829 3,208,135 4,382,315 590,987 537,302
<COMMON> 68,616 69,316 116,548 170,072 173,149
<PREFERRED-
MANDATORY> 0 0 0 0 0
47,188 47,188 0 60 60
<OTHER-SE> 4,030,171 4,211,056 3,542,205 19,600,774 22,885,620
<TOTAL-LIABILITY
- -AND-EQUITY> 10,866,237 13,155,260 14,229,506 31,825,215 32,417,849
<SALES> 518,384 1,764,731 2,732,828 3,971,549 746,100
<TOTAL-REVENUES> 3,084,512 8,341,352 13,126,499 19,826,280 10,748,036
<CGS> 433,927 1,534,756 2,346,155 3,566,608 791,738
<TOTAL-COSTS> 3,569,574 8,712,533 13,946,517 35,465,738 7,943,898
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 82,067 197,510 310,828 320,685 18,529
<INCOME-PRETAX> (532,563) (487,045) (1,052,376)(15,618,372) 2,974,756
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING>(532,563) (487,045) (1,052,376)(15,618,372) 2,974,756
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (532,563) (487,045) (1,052,376)(15,618,372) 2,974,756
<EPS-PRIMARY> (0.09) (0.10) (0.19) (1.72) 0.17
<EPS-DILUTED> (0.09) (0.10) (0.19) (1.72) 0.16
</TABLE>
