SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report Date of earliest event report) February 3, 1997
Commission File Number 0-12516
Dynamic Healthcare Technologies, Inc.
(Exact name of registrant as specified in its charter)
Florida 0-12516 59-3389871
(State or other jurisdiction (Commission File Number)(IRS E.I.N.)
of Incorporation)
101 Southhall Lane, Suite 210 Maitland, Florida 32751
(Address of principal executive offices) (ZIP Code)
(407) 875-9991
(Registrant's telephone, including area code)
None
(Former name of former address, if changed from last report)
This report consists of twenty (20) pages.
<PAGE>
FORM 8-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
DECEMBER 17, 1996
Item 7. Financial Statements and Exhibits
The following financial statements are being filed
pursuant to Item 7(a) and (b) of the Registrant's Form
8-K dated December 17, 1996.
(a) Financial Statements of Business Acquired
Index Page Number
Independent Auditors' Report on the 3
financial statements of Collaborative
Medical Systems, Inc. as of December 31,
1994 and 1995, and for the years then ended.
Independent Accountant's Report on the 4
Collaborative Medical Systems, Inc.
Statements of Operations, of Cash Flows
and of Changes in Stockholders' Equity
for the year ended December 31, 1993.
Balance sheets of Collaborative Medical 5
Systems, Inc. as of December 31, 1994 and
1995, and September 30, 1996 (unaudited).
Statements of Operations of Collaborative 6
Medical Systems, Inc. for the years ended
December 31, 1993, 1994 and 1995, and for
the nine months ended September 30, 1995
(unaudited) and 1996 (unaudited).
Statements of Changes in Stockholders' 7
Equity of Collaborative Medical
Systems, Inc. for the years ended December
31, 1993, 1994 and 1995.
Statements of Cash Flows of Collaborative 8
Medical Systems, Inc. for the years ended
December 31, 1993, 1994 and 1995, and for
the nine months ended September 30, 1995
(unaudited) and 1996 (unaudited).
Notes to Financial Statements. 9
2
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Collaborative Medical Systems, Inc.
We have audited the accompanying balance sheets of Collaborative
Medical Systems, Inc. as of December 31, 1994 and 1995, and the
related statements of operations, changes in stockholders'
equity, and cash flows for the years then ended included in this
Form 8-K. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Collaborative Medical Systems, Inc. as of December 31, 1994
and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted
accounting principles.
/S/ERNST & YOUNG LLP
Boston, Massachusetts
February 23, 1996
3
<PAGE>
Report of Independent Accountants
Board of Directors and Stockholders
Collaborative Medical Systems, Inc.
In our opinion, the statements of operations, of cash flows and
of changes in stockholders' equity for the year ended December
31, 1993 (appearing on pages 6 through 8 in this Form 8-K)
present fairly, in all materials respects, the results of
operations and cash flows of Collaborative Medical Systems, Inc.
for the year ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above. We have not audited the
financial statements of Collaborative Medical Systems, Inc. for
any period subsequent to December 31, 1993.
/S/PRICE WATERHOUSE LLP
Boston, MA
March 17, 1994
4
<PAGE>
<TABLE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Balance Sheets
<S> <C> <C> <C>
December 31, September 30,
Assets 1994 1995 1996
(Unaudited)
Current assets:
Cash and
cash equivalents $562,014 $1,248,906 $640,496
Available-for-sale
securities 505,625 -- --
Accounts receivable,
net of allowance for
doubtful accounts of
$75,000 and $80,000 as
of December 31, 1994
and 1995, respectively,
and $80,000 as of
September 30, 1996 2,328,505 1,964,768 1,555,991
Costs and estimated
earnings in excess of
billings on uncompleted
contracts 391,769 194,925 138,534
Prepaid expenses and
other current assets 267,064 232,877 223,824
Receivable from
stockholders 8,924 34,346 4,618
Total current assets 4,063,901 3,675,822 2,563,463
Fixed assets, net 611,065 633,232 829,557
Computer software
development costs,
net of accumulated
amortization of
$1,013,122 and
$1,176,022 as of
December 31, 1994
and 1995,
respectively, and
$1,244,509 as of
September 30, 1996 270,100 252,982 508,548
Restricted cash 60,000 60,000 60,000
Other assets 1,025 1,525 1,525
$ 5,006,091 $ 4,623,561 $ 3,963,093
Liabilities and stockholders' equity
Current liabilities:
Book overdraft $ 90,233 $ 161,030 $ 100,363
Line of credit 70,000 -- 88,000
Accounts payable 256,747 223,852 256,183
Accrued expenses 322,433 299,355 269,170
Billings in excess
of costs and estimated
earnings on uncompleted
contracts 1,395,864 620,826 561,251
Deferred revenue 1,448,407 2,135,318 1,813,411
Total current liabilities 3,583,684 3,440,381 3,088,378
Deferred revenue 92,794 324,237 153,745
Deferred rent 81,359 82,877 84,016
Stockholders' equity:
Common stock, no
par value; 12,500
shares authorized,
380.10 and 387.86
shares issued and
outstanding on
December 31, 1994
and 1995, respectively,
and 380.10 shares
issued and outstanding
on September 30, 1996 81,482 118,930 97,859
Retained earnings 1,166,772 657,136 539,095
Total stockholders' equity 1,248,254 776,066 636,954
$ 5,006,091 $ 4,623,561 $ 3,963,093
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Statements of Operations
Year Ended Nine Months Ended
December 31, September 30,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
(Unaudited) (Unauditded)
Operating Revenues:
Computer
system
equipment
sales and
support $1,049,623 $ 851,931 $ 640,784 $ 406,307 $ 293,621
Application
software
licenses 3,702,979 3,972,792 4,192,384 3,312,566 2,702,879
Software
support 2,230,926 2,844,910 3,292,240 2,410,831 2,709,284
Services
and other 1,061,850 1,241,946 811,059 651,038 693,471
Total
operating
revenues 8,045,378 8,911,579 8,936,467 6,780,742 6,399,255
Operating
Expenses:
Cost of
products
sold 946,779 701,023 512,317 388,698 254,352
Client
services
expense 2,389,615 2,734,833 2,557,681 1,936,335 1,769,030
Software
development
costs 1,704,569 2,564,575 2,864,622 2,158,431 2,274,703
Sales
and
marketing
costs 1,169,859 1,391,705 1,223,223 856,817 995,705
General and
administrative
expense 1,416,500 1,306,975 1,853,895 1,479,524 1,383,480
Total
operating
expenses 7,627,322 8,699,111 9,011,738 6,819,805 6,677,270
Income (loss)
from
operations 418,056 212,468 (75,271) (39,063) (278,015)
Interest
income 67,097 73,733 178,098 128,617 110,329
Interest
expense (13,460) (3,481) (236) -- --
Net income
(loss) $ 471,693 $ 282,720 $ 102,591 $ 89,554 $(167,686)
See accompanying notes.
</TABLE>
6
<PAGE>
<TABLE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Statements of Changes in Stockholders' Equity
<S> <C> <C> <C> <C>
Common Stock
Total
Number of Carrying Retained Shareholders'
Shares Value Earnings Equity
Balance at
December 31, 1992 368.46 $ 48,169 $ 706,771 $ 754,940
Exercise of stock
options 3.88 7,550 -- 7,550
Distribution to
stockholders -- -- (150,000) (150,000)
Net income -- -- 471,693 471,693
Balance at
December 31, 1993 372.34 55,719 1,028,464 1,084,183
Surrender of stock
to the Company (3.88) -- -- --
Exercise of stock
options 11.64 25,763 -- 25,763
Distribution to
stockholders -- -- (144,412) (144,412)
Net income -- -- 282,720 282,720
Balance at
December 31, 1994 380.10 81,482 1,166,772 1,248,254
Surrender of stock
to the Company (3.88) -- -- --
Exercise of stock
options 11.64 37,448 -- 37,448
Distribution to
stockholders -- -- (612,227) (612,227)
Net income -- -- 102,591 102,591
Balance at
December 31, 1995 387.86 $ 118,930 $ 657,136 $ 776,066
See accompanying notes.
</TABLE>
7
<PAGE>
<TABLE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Statements of Cash Flows
Year ended December 31, Nine Months Ended
September 30,
<S> <C> <C> <C> <C> <C>
Operating 1993 1994 1995 1995 1996
activities (Unaudited) (Unaudited)
Net income
(loss) $ 471,693 $ 282,720 $ 102,591 $ 89,554 $(167,686)
Adjustments
to reconcile
net income
to net cash
provided by
operating
activities:
Depreciation 197,039 235,389 286,755 200,049 222,141
Amortization
of computer
software
development
costs 125,825 477,688 162,900 122,066 68,487
Write-off
of computer
software
development
costs 74,810 -- -- -- --
Gain on
disposal
of fixed
assets (2,803) -- -- -- --
Bonus to
employees
in the form
of common
stock 3,775 25,763 37,448 -- --
Changes in
operating
assets and
liabilities:
Accounts
receivable,
net (113,415) (1,064,124) 363,737 1,065,035 408,777
Costs and
estimated
earnings
in excess of
billings on
uncompleted
contracts (23,090) (102,987) 196,844 61,244 56,391
Prepaid
expenses
and other
current
assets (88,499) (14,652) 34,187 87,177 9,053
Receivable
from
stock-
holders (130,000) 121,076 (25,422) 8,924 29,728
Other
assets 26,933 (1,025) (500) (1,809) --
Book
overdraft 29,169 (43,807) 70,797 (90,233) (60,667)
Accounts
payable (37,349) (9,005) (32,895) (205,607) 32,331
Accrued
expenses 54,470 167,201 (23,078) 10,035 (30,185)
Billings in
excess of
costs and
estimated
earnings on
uncompleted
contracts 107,463 508,285 (775,038) (656,456) (59,575)
Deferred
revenue 389,659 363,520 918,354 171,998 (492,399)
Deferred
rent -- 1,512 1 ,518 1,138 1,139
Net cash
provided by
operating
activities 1,085,680 947,554 1,318,198 863,115 17,535
Investing
activities
Purchase of
fixed
assets (159,465) (356,916) (308,922) (247,819) (418,466)
Computer
software
development
costs (448,486) (94,358) (145,782) (112,649) (324,053)
Sale
(purchase)
of
available-
for-sale
securities 9,834 (505,625) 505,625 476,407 --
Net cash
provided by
(used in)
investing
activities (598,117) (956,899) 50,921 115,939 (742,519)
Financing
activities
Proceeds
from
(payments
of) line
of credit -- 70,000 (70,000) (70,000) 88,000
Payments
of long-
term debt (84,975) (100,025) -- -- --
Proceeds
from
long-term
debt 125,000 -- -- -- --
Proceeds
from
issuance
(repurchase)
of common
stock 3,775 -- -- -- (21,071)
Contributions
from
(distribution
to)
stock-
holders (150,000) (144,412) (612,227) (99,453) 49,645
Net cash
provided
by (used
in)
financing
activities (106,200) (174,437) (682,227) (169,453) 116,574
Net increase
(decrease)
in cash
and cash
equivalents 381,363 (183,782) 686,892 809,601 (608,410)
Cash and
cash
equivalents
at the
beginning
of period 364,433 745,796 562,014 562,014 1,248,906
Cash and
cash
equivalents
at the end
of period $ 745,796 $ 562,014 $1,248,906 $1,371,615 $640,496
See accompanying notes.
</TABLE>
8
<PAGE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Notes to Financial Statements
December 31, 1995
1. Organization and Operations
Collaborative Medical Systems, Inc. (the Company) was
organized as a Massachusetts corporation on September 27,
1978. The Company designs, develops and markets information
processing systems for the medical industry. The systems
include proprietary software that operates on a wide variety
of industry standard computer platforms including personal
computers, workstations, mini-computers, networks and
servers.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investment purchases
with an original maturity of three months or less to be cash
equivalents. The Company invests in high-grade money market
accounts, commercial paper and treasury bills. Accordingly,
the Company believes the investments are subject to minimal
credit and market risk.
Available-for-Sale Securities
Effective January 1, 1994, the Company adopted the Statement
of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (FAS
115), to account for its securities. FAS 115 established
the accounting and reporting requirements for investments in
debt securities. All affected investment securities must be
classified as either held-to-maturity, trading or
available-for-sale. Held-to-maturity securities are carried
at amortized cost basis. Trading securities are carried at
fair value with unrealized holding gains and losses reported
in the statement of operations. Available-for-sale
securities are carried at fair value with unrealized holding
gains and losses reported as a component of stockholders'
equity. The adoption of FAS 115 had no material impact on
the Company's financial position.
At December 31, 1994, the Company's securities, with
maturities within one year, were classified as
available-for-sale securities and consisted of municipal
bonds. The cost of these securities was $505,625 at
December 31, 1994 which approximated fair market value.
Accordingly, there were no associated unrealized gains and
losses.
The Company did not hold any available-for-sale securities
at December 31, 1995.
Fixed Assets
Fixed assets are stated at cost and are depreciated using
accelerated methods over the useful lives of the related
assets ranging from five to seven years. Expenditures for
repairs and maintenance are charged to expense as incurred.
Computer Software Development Costs
The Company's policy is to capitalize certain software
development costs in accordance with Statement of Financial
Accounting Standards No. 86. Under the Statement, software
development costs shall be capitalized at the lower of cost
or net realizable value beginning upon the establishment of
technological feasibility of the related products as defined
in the statement.
Capitalized costs are amortized ratably over the estimated
useful life of the products, generally four years.
Deferred Rent
The Company's lease on the office facility included
scheduled base rent increases over the term of the lease.
The total amount of the base rent payments is being charged
to expense on the straight-line method over the term of the
lease. The Company has recorded a deferred credit to
reflect the excess of rent expense over the cash payments
since inception of the lease.
9
<PAGE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenue from consulting, programming and software license
contracts is recognized pursuant to the related agreements
based on progress towards completion of the contract. Labor
hours are used to measure such progress. Payments received
under these agreements prior to the completion of the
related work are recorded as billings in excess of costs and
estimated earnings on uncompleted contracts.
Maintenance fees are billed in advance. Such revenue is
recognized ratably over the term of the maintenance
agreement and unearned fees are recorded as deferred
revenue.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from these estimates.
Concentration of Credit Risk
Two customers accounted for approximately 25% and 31% of the
Company's revenue during 1994 and 1995, respectively. In
addition, these customers represented 8% and 14% of trade
accounts receivable at December 31, 1994 and 1995,
respectively.
Income Taxes
The Company provides for income taxes using the liability
method as required by Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes."
Under FAS 109, tax provisions and credits are recorded at
statutory rates for taxable items included in the statement
of operations regardless of the period for which such items
are reported for tax purposes. Deferred income taxes are
recognized for temporary differences between financial
statement and income tax bases of assets and liabilities
which will be recognized for income tax return purposes in
future years. Deferred tax assets are reduced by a
valuation allowance when the Company cannot make the
determination that it is more likely than not that some
portion or all of the related tax asset will be realized.
Reclassification
Certain amounts were reclassified in 1993 and 1994 to permit
comparison with 1995.
3. Fixed Assets
Fixed assets consisted of the following at December 31:
<TABLE>
<S> <C> <C>
1994 1995
Office equipment and fixtures $ 514,323 $ 559,385
Computer equipment 1,149,363 1,411,504
Leasehold improvement 101,474 103,193
1,765,160 2,074,082
Less accumulated depreciation 1,154,095 1,440,850
$ 611,065 $ 633,232
</TABLE>
10
<PAGE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Notes to Financial Statements (continued)
4. Line of Credit
The Company has a working capital line of credit under which
it can borrow up to the lesser of $850,000 or 70% of
eligible accounts receivable with interest payable monthly
at the bank's prime rate plus .75% (9.25% at December 31,
1995). The principal balance is payable on demand and is
secured by all of the Company's assets. In connection with
the line of credit, the Company is required to comply with
certain covenants, the most restrictive of which require the
Company to maintain minimum amounts of profitability,
working capital and tangible net worth. The Company was in
compliance with all covenants at December 31, 1994, and at
December 31, 1995.
Availability under the line of credit was reduced by
borrowings of $70,000 during the year ended December 31,
1994. The Company had no borrowings against the line of
credit at December 31, 1995.
5. Income Taxes
No provision for federal income tax is required since the
Company has elected, with consent of its stockholders, to be
treated as an S Corporation under the provision of the
Internal Revenue Code. Under Subchapter S, the stockholders
include their respective share of Company income in their
individual income tax returns for federal and certain state
purposes. For the years ended December 31, 1993, 1994 and
1995, the provision for state income taxes was fully offset
with the utilization of current and carryforward state tax
credits.
The Company's principal temporary differences result
primarily from differences between the carrying amounts of
assets and liabilities related to software contracts for
financial reporting purposes and the amounts used for income
tax purposes. These amounts were not material for the years
ended December 31, 1993, 1994, nor 1995.
The Company had state research and development tax credit
carryforwards which may be used to reduced future state
income tax liability. These credits total approximately
$23,000, $62,000 and $94,000 at December 31, 1993, 1994, and
1995 respectively. The state research and development tax
credit carryforwards expire in 2009.
6. Defined Contribution Plan
In 1985, the Company adopted a defined contribution plan
(the Plan), which meets the requirements of Section 401K of
the Internal Revenue Code. All full-time employees who are
at least 21 years of age are eligible to participate in the
Plan . The Plan allows employees to contribute up to 20% of
their salaries and the Company matches 30% of employees
contributions up to 6% of employees' contributions or a
maximum of $750 annually, whichever is higher.
Additionally, the Company may make an annual profit sharing
contribution to this plan at the discretion of the Board of
Directors. No such discretionary contribution was made in
1993, 1994, or 1995. The Company made total contributions
of $60,164, $65,564, and $70,590 for the years ended
December 31, 1993, 1994, and 1995, respectively.
7. Common Stock
Stock Option and Bonus Plan
In December 1992, the Company adopted the Stock Option and
Bonus Plan (the Option Plan). The Option Plan provides for
the granting of stock options to specified key employees of
the Company. The Option Plan allows for a maximum of 34.92
shares of common stock to be issued by December 31, 1995.
At December 31, 1995, there were no shares available for
future grant.
Options are exercisable during specific option periods at a
price equal to the book value per share as of the close of
fiscal year preceding the particular option period.
Management believes the book value per share approximates
fair value. Once an option is granted, all shares under
such option period must be exercised during that year. The
difference between the book value and the exercise price at
the exercise date is charged to expense in that period.
During 1993, options for 3.88 shares were granted and
exercised at a price of $1.946 per share. As allowed under
the terms of the Option Plan, the option holders elected to
receive 1.94 shares as a bonus and the remaining 1.94 shares
were purchased.
11
<PAGE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Notes to Financial Statements (continued)
7. Common Stock (continued)
Stock Option and Bonus Plan (continued)
During 1994, options for 11.64 shares were granted and
exercised at a price of $2,213 per share. As allowed under
the terms of the Option Plan, the option holders elected to
received 11.64 shares as a bonus.
During 1995, options for 3.88 shares were surrendered to the
Company and 11.64 shares were subsequently granted and
exercised at a price of $3, 217 per share. As allowed under
the terms of the Option Plan, the option holders elected to
receive 3.88 shares as a bonus.
Stockholder Agreement
The Company and its stockholders are parties to a stock
purchase agreement. The terms of the agreement require the
Company to purchase the stockholders' shares of the Company
in the event of death or termination of the stockholder.
The purchase price per share is the net book value per
share, as defined by the agreement.
To facilitate this repurchase, the Company has purchased
insurance policies on the lives of the major stockholders.
In the event of the death of the stockholder, the lesser of
the proceeds from the insurance policy or the repurchase
price will be paid at the closing date, as defined in the
agreement. In any event, not less than 10% of the
repurchase price will be paid at closing. The balance, if
any, of the repurchase price will be paid within four years
of the closing in quarterly installments of principal, plus
interest at prime rate plus 2%.
8. Distribution to Stockholders
The Company made payments to stockholders amounting to
$150,000, $144,412 and $612,227 in 1993, 1994 and 1995,
respectively, which were made to cover personal income tax
liabilities of the stockholders relating to their share of
the Company's profits.
9. Commitments
Operating Leases
The Company leases its operating facility and certain office
equipment under noncancelable operating leases. Future
minimum commitments under these noncancelable leases are
approximately as follows:
Year Ending December 31,
<TABLE>
<C> <C>
1996 $ 533,000
1997 513,000
1998 505,000
1999 463,000
$2,014,000
</TABLE>
Rent expense amounted to $535,200, $528,546 and $528,546 in
1993, 1994 and 1995, respectively.
Letter of Credit
At December 31, 1994 and 1995, the Company has an
outstanding letter of credit in the amount of $60,000
securing future health benefits. This letter of credit is
secured by a certificate of deposit which is included in
restricted cash at December 31, 1994 and 1995.
12
<PAGE>
COLLABORATIVE MEDICAL SYSTEMS, INC.
Notes to Unaudited Condensed Financial Statements
Nine Months Ended September 30, 1995 and 1996
1. Unaudited Financial Statements
The accompanying unaudited Condensed Balance Sheet as of
September 30, 1996, and Condensed Statements of Operations
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 in accordance with 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.
All adjustments made were of a normal recurring nature.
Operating results for the nine month periods ended September
30, 1996, are not necessarily indicative of the operating
results which may be expected for the year December 31,
1996.
2. Subsequent Events
On December 17, 1996, the Company was merged into
Collaborative Medical Systems Corporation a wholly owned
subsidiary of Dynamic Healthcare Technologies, Inc.
("Dynamic"). The shareholders of the Company received
$8,500,000, plus 1,000,000 common shares of Dynamic, and up
to 600,000 contingently issuable common shares of Dynamic
evidenced by 6,000 shares of non-voting, Convertible Series
CM Preferred Stock of Dynamic, in exchange for all of the
outstanding shares of the Company's common stock.
13
<PAGE>
FORM 8-K
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
DECEMBER 17, 1996
(b) Pro Forma Financial Information
On May 1, 1996, as previously reported on Form 8-K, pursuant
to the terms of a Merger Agreement by and among Dimensional
Medicine, Inc. (LOTC:DIMM) of Minnetonka, Minnesota ("DMI"),
National Computer Systems, Inc. (the principal shareholder
of DMI), DMI Acquisition Corp. (a wholly owned subsidiary of
the Registrant, hereafter "DMIAC"), and the Registrant, DMI
was merged with and into DMIAC. The acquisition was
accounted for as a purchase transaction for an aggregate
purchase price including assumed indebtedness of $3,673,000.
On December 17, 1996 pursuant to the terms of a Merger
Agreement by and among Collaborative Medical Systems, Inc.
of Waltham, Massachusetts ("CoMed"), Collaborative Medical
Systems Corporation (a wholly owned subsidiary of the
Registrant, hereafter "Newco"), and the Registrant, CoMed
was merged with and into Newco. Under the terms of the
Merger Agreement the Registrant paid $8,500,000 cash, issued
1,000,000 shares of restricted common stock, and 6,000
shares of Series CM Non-Voting, Convertible Preferred Stock
("Series CM Preferred Stock") to the shareholders of CoMed.
The Series CM Preferred Stock shall be automatically
convertible into shares of the Registrant's common stock at
the close of business on August 29, 1997 ("Contingent
Shares"), pursuant to a formula based upon the average
closing bid and ask price of the Registrant's common stock
as quoted on the National Market for the five (5) trading
day period ending August 29, 1997 (the "CSAVG"). If the
CSAVG is greater than or equal to $8.00, an aggregate of 100
shares of the Registrant's common will be issued as
Contingent Shares: if the CSAVG is less than or equal to
$5.00, then an aggregate of 600,000 shares of the
Registrant's common stock will be issued as Contingent
Shares: and if the CSAVG is greater than $5.00 but less
than $8.00, then the number of shares of the Registrant's
common stock to be issued as Contingent Shares will be
pro-rated accordingly. Funds for the transactions came from
the Registrant's cash resources. Terms of the Merger
Agreement were based upon arms length negotiations.
Both Newco, and DMIAC were formed through the issuance of
100 common shares $.01 par value of each entity to the
Registrant for $100. On September 25, 1996, DMIAC was
merged with and into Dynamic Healthcare Technologies, Inc.
Pro Forma Condensed Combined Balance Sheet
The following unaudited pro forma condensed combined balance
sheet as of September 30, 1996 has been prepared based upon
certain pro forma adjustments to the September 30, 1996
balance sheet of Dynamic Healthcare Technologies, Inc. (the
"Company"), as described below, including giving effect to
the merger of CoMed into Newco as if the transaction had
occurred on September 30, 1996. The pro forma condensed
combined balance sheet should be read in conjunction with
the notes thereto and the historical financial statements of
the Company previously filed on Form 10-Q for the period
ending September 30, 1996, and of CoMed included elsewhere
in this Form 8-K.
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Company Pro Forma Company CoMed CoMed Combined
As Stock Pro As Purchase Pro
Reported Issue Forma Reported Adjustments Reference Forma
Sept. 30 Adjustments Sept. 30 Sept. 30, Sept. 30,
1996 (1) 1996 1996 1996
Assets
Current
assets:
Cash
and
equivalents
$ 546,102 $17,159,287 $17,705,389 $640,496 ($9,326,414)(2) $9,019,471
Accounts
receivable,
net 2,769,644 2,769,644 $1,555,991 4,325,635
Unbilled receivables 1,041,180 1,041,180
138,534 1,179,714
Lease receivables - current 185,447 185,447
0 185,447
Other 392,343 392,343
228,442 620,785
Total current assets 4,934,716 22,094,003
2,563,463 15,331,052
Fixed assets, net 1,620,827 1,620,827 829,557
2,450,384
Capitalized software, net 4,044,350 4,044,350
508,548 (138,548) (4) 4,414,350
Goodwill, net 757,339 757,339 0 1,770,000
(4) 2,527,339
Lease receivables - non current 212,855
212,855 0 212,855
Deferred stock issuance costs 714,846 (714,846) 0
0 0
Other 25,253 25,253
61,525 185,000 (4) 271,778
$12,310,186 $28,754,627 $3,963,093
$25,207,758
Liabilities & Equity
Current liabilities:
Accounts payable & accrued expenses $2,767,178
(38,481) $2,728,697 $625,716 184,361 (2)
$3,538,774
Preferred stock dividends payable 166,100
166,100 0 166,100
Deferred revenue 1,916,680 1,916,680
1,813,411 3,730,091
Advanced billings 128,763 128,763 561,251
690,014
Other 210,857 210,857
88,000 298,857
Total current liabilities 5,189,578 5,151,097
3,088,378 8,423,836
Bank note payable 2,743,882 (2,743,882) 0 0
0
Subordinated notes payable - related parties 1,000,000
(1,000,000) 0 0 0
Other liabilities 182,885 182,885
237,761 420,646
9,116,345 5,333,982 3,326,139
8,844,482
Stockholders' equity:
Series CM preferred stock 0 0 0 60 (3)
60
Common stock 114,048 38,925 152,973 97,859
(87,859) (3) 162,973
Additional paid-in capital 12,795,239
20,187,879 32,983,118 0 7,990,440 (3)
40,973,558
Retained earnings/(deficit) (9,715,446)
(9,715,446) 539,095 (15,596,964) (5)
(24,773,315)
Total shareholders' equity 3,193,841 23,420,645
636,954 16,363,276
$12,310,186 $28,754,627 $3,963,093
$25,207,758
See accompanying notes.
</TABLE>
15
<PAGE>
Notes To Unaudited Pro Forma Condensed Combined Balance Sheet
The unaudited pro forma condensed combined balance sheet gives
effect to the following pro forma adjustments:
(1) 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. The Pro Forma Stock Issue
Adjustments gives effect to the October 2, 1996 issuance of
common stock, the receipt and immediate application of the
proceeds as more fully described above, and the realization of
the deferred stock issuance costs of $714,846, as if these
transactions had occurred on September 30, 1996.
(2) Reflects the payment of $8,500,000 to the shareholders of
CoMed plus $826,414 of costs directly related to the acquisition
of CoMed, and estimated accruals of $184,361 as of September
31,1996.
(3) Reflects the issuance of 6,000 shares of the Company's
Series CM Non-voting Convertible Preferred Stock, par value
$.01, 1,000,000 shares of the Company's Common Stock, par value
$.01, for a total consideration of $8,000,500, and the
elimination of the previously outstanding common stock of CoMed.
(4) Reflects basis adjustments to the carrying value of
capitalized software, goodwill and other intangibles created by
the acquisition.
(5) Reflects the elimination of the previous retained earnings
of CoMed, and the write off of in process research and
development of $15,057,569 related to the acquisition of CoMed.
16
<PAGE>
Pro Forma Condensed Consolidated Statements of Operation
The following unaudited pro forma condensed consolidated
statements of operations have been prepared based upon certain
pro forma adjustments to the historical financial statements of
Dynamic Healthcare Technologies, Inc., of DMI and of CoMed
included elsewhere in this Form 8-K.
The historical information for the year ended December 31, 1995
combines operating information for Dynamic Healthcare
Technologies, Inc. previously reported on Form 10-K for its year
ending December 31, 1995, with operating information of DMI for
the first nine months of December 31, 1995 (of its fiscal year
ended March 31, 1996), previously reported on its Form 10-QSB
for the nine months ended December 31, 1995, and the fourth
quarter of its fiscal year ended March 31, 1995, previously
reported on its Form 10-KSB for the year ended March 31, 1995,
and with the operating information of CoMed for its year ended
December 31, 1995 included elsewhere in this Form 8-K. The
historical consolidated operating information for the nine
months ended September 30, 1996 combines the first three
quarters of audited consolidated information of Dynamic
Healthcare Technologies, Inc. the fourth quarter of DMI's fiscal
year ended March 31, 1996 previously reported on its Form 10-KSB
for the year ended March 31, 1996, DMI's unaudited operations
from April 1, 1996 until May 1, 1996 (the acquisition date), and
CoMed's operations for the nine months ended September 30, 1996
included elsewhere in this Form 8-K.
The pro forma condensed consolidated statements of operations
for the year ended December 31, 1995 and for the nine months
ended September 30, 1996 give effect to the acquisitions of DMI
and CoMed as if the transaction had occurred on January 1, 1995.
The material nonrecurring write off of in process research and
development of $15,057,569 related to the CoMed acquisition is
not considered in the pro forma condensed consolidated
statements of operation.
Year Ended December 31, 1995
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Company DMI CoMed
As As As ProForma
Reported Reported Reference Adjustments Reference Pro Forma
Operating
revenues:
Computer
system
equipment
sales $1,101,017 $1,518,397 $ 640,784 $ $3,260,198
Application
software
licenses 2,428,928 2,048,080 4,192,384 8,669,392
Software
support 3,731,149 1,166,292 3,292,240 8,189,681
Services
& other 1,625,242 530,451 811,059 2,966,752
Total
operating
revenue 8,886,336 5,263,220 8,936,467 0 23,086,023
Operating
expenses:
Cost of
products
sold 880,639 1,005,926 512,317 2,398,882
Client
services
expenses 2,824,987 1,609,263 2,557,681 (83,000) (2) 6,908,931
Software
development
cost 1,642,825 1,254,533 2,864,622 (900) (2)&(3) 5,761,080
Sales &
marketing 1,931,178 773,259 1,223,223 (26,000) (2) 3,901,660
General &
admin.
expense 1,768,005 636,169 1,853,895 211,857 (2)&(6) 4,469,926
Total
operating
expenses 9,047,634 5,279,150 9,011,738 101,957 23,440,479
Income
(loss)
from
operations (161,298) (15,930) (75,271) (101,957) (354,456)
Other
income
(expense) (351,325) (163,693) 177,862 88,000 (4) (249,156)
Income
(loss)
before
taxes (512,623) (179,623) 102,591 (13,957) (603,612)
Provision
for income
taxes 0 180,969 0 (180,969) (5) 0
Net
earnings
(loss) $ (512,623) $ 1,346 $102,591 $(194,926) (8) $ (603,612)
Net
earnings
(loss)
available
for common
share-
holders $ (537,467) $(628,456)
Net
earnings
(loss)
per
common
share $ (.08) $ (.08)
Weighted
average
number
of common
and common
equivalent
shares
out-
standing 6,443,294 0 1,000,000 (7) $7,443,294
See accompanying notes.
</TABLE>
17
<PAGE>
<TABLE>
Nine Months Ended September 30, 1996
<S> <C> <C> <C> <C> <C> <C>
Company DMI CoMed
As As As Pro Forma
Reported Reported Reported Adjustments Reference Pro Forma
Operating
revenues: (9)
Computer
system
equipment
sales $2,466,560 $ 445,017 $ 293,621 $ $3,205,198
Application
software
licenses 2,614,183 162,454 2,702,879 (128,610) 5,350,906
Software
support 3,672,690 433,444 2,709,284 6,815,418
Services
& other 1,784,471 92,845 693,471 2,570,787
Total
operating
revenue 10,537,904 1,133,759 6,399,255 (128,610) (1) 17,942,309
Operating expenses:
Cost of
products
sold 2,131,265 378,387 254,352 2,764,004
Client
services
expenses 3,509,642 580,582 1,769,030 (41,000) (2) 5,818,254
Software
development
cost 1,484,858 373,550 2,274,703 (5,987) (2) & (3) 4,127,124
Sales &
marketing 2,431,916 213,225 995,705 (15,000) (2) 3,625,846
General &
admin.
expense 1,536,856 565,995 1,383,480 168,143 (2) & (6) 3,654,474
Total
operating
expenses 11,094,537 2,111,740 6,677,270 106,156 19,989,702
Operating
income (loss) (556,633) (977,981) (278,015) (234,766) (2,047,393)
Other income
(expense) (209,182) (33,556) 110,329 44,000 (4) (88,409)
Income
(loss)
before
taxes (765,815) (1,011,535) (167,686) (190,766) (2,135,802)
Provision
for income
taxes 0 293,884 0 (293,884) (5) 0
Net earnings
(loss) $ (765,815) $ (717,651) $(167,686) $(484,650) (8) $(2,135,802)
Net earnings
(loss)
available
for common
share-
holders $(1,016,853) $(2,386,840)
Net earnings
(loss) per
common
share $ (.15) $ (.31)
Weighted
average
number of
common and
common
equivalent
shares
outstanding 6,709,498 0 1,000,000 (7) 7,709,498
See accompanying notes.
</TABLE>
18
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
The pro forma condensed consolidated statements of operations
give effect to the following pro forma adjustments:
(1) Reflects an adjustment to conform the revenue recognition
principles of DMI to those of the Company.
(2) Reflects the decrease in depreciation expense resulting from
the change in the depreciable basis of the assets of DMI and
CoMed assumed acquired on January 1, 1995, for the year ended
December 31, 1995 of $(111,000) and $(106,000), respectively,
and for the nine months ended September 30, 1996 of $(37,000)
and $(86,000), respectively.
(3) Reflects the increase (decrease) in the amortization of
software development costs resulting from the change in the
amortizable basis of DMI and CoMed acquired on January 1, 1995,
for the year ended December 31, 1995 of $153,000 and $(88,900),
respectively, and for the nine months ended September 30, 1996
of $51,000 and $(12,987), respectively.
(4) Reflects the elimination of interest expense from interest
bearing debt of DMI extinguished by the assumed purchase of DMI,
net of the elimination of interest earned on cash equivalents
used by the assumed purchase.
(5) Reflects the elimination of the income tax benefit
previously recognized by DMI through a tax sharing agreement
with DMI's previous majority owner.
(6) Reflects the increased expense of $254,857 and $191,143,
resulting principally from the amortization of goodwill acquired
by the assumed purchase of CoMed on January 1, 1995, for the
year ended December 31, 1995 and the nine months ended September
30, 1996, respectively.
(7) Reflects the additional 1,000,000 shares of common stock
issued in connection with the acquisition of CoMed. No shares
were issued in connection with the acquisition of DMI.
(8) The pro forma net earnings (loss) does not reflect the write
off of in process research and development of $15,057,869
acquired in the CoMed merger.
(9) Reflects DMI's results for the period from January 1, 1996
through May 1, 1996 (the acquisition date), only. Results of
operations subsequent to acquisition are included in the
operating results of the Company as reported.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Registrant)
Date: February 3, 1997 /S/MITCHEL J. LASKEY
Mitchel J. Laskey
President, CEO
Date: February 3, 1997 /S/PAUL S. GLOVER
Paul S. Glover
Vice President of Finance, CFO
20
<PAGE>
