SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2000
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.)
615 Crescent Executive Court, 5th Floor, Lake Mary, FL 32751
(Address of principal executive offices) (ZIP Code)
(407) 333-5300
(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 April 11, 2000, there were 18,880,508 shares outstanding, par
value $.01 per share, of the issuer's only class of common stock.
This report consists of twelve (12) pages.
1
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See attached statements following this item number.
2
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
December 31, 1999 March 31, 2000
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,818,209 $ 1,353,000
Accounts receivable, net 8,590,441 6,749,162
Unbilled receivables 2,989,547 3,337,072
Contracts receivable - current 155,344 299,884
Other current assets 717,578 696,472
Total current assets 14,271,119 12,435,590
Property and equipment, net 4,107,481 3,933,461
Capitalized software development costs, net 9,266,284 9,206,432
Goodwill, net 1,255,483 1,153,596
Contracts receivable - non-current 741,444 596,626
Other assets 18,114 26,480
$29,659,925 $27,352,185
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,041,799 $2,508,223
Deferred revenue 6,577,199 5,387,615
Advance billings 1,387,119 1,114,762
Line of Credit 700,000 700,000
Deferred lease incentives - current 190,231 190,231
Other 297,143 328,393
Total current liabilities 12,193,491 10,229,224
Deferred lease incentives - non-current 792,632 745,075
Other 752,538 725,726
Total liabilities 13,738,661 11,700,025
Shareholders' equity:
Series C redeemable convertible preferred
stock ($.01 par value; issued and outstanding
1,000,000 shares with an aggregate
liquidation preference of $2,000,000, as
of December 31, 1999, and March 31, 1999;
$.16 per share annual dividend). 1,811,327 1,811,327
Common stock ($.01 par value; authorized
40,000,000 shares; issued and outstanding
18,814,887 shares as of December 31, 1999 and
18,880,508 shares as of March 31, 2000). 188,149 188,805
Warrants 3,000 3,000
Additional paid-in capital 45,135,109 45,214,887
Deficit (31,216,321) (31,565,859)
Total shareholders' equity 15,921,264 15,652,160
$29,659,925 $27,352,185
See notes to condensed financial statements.
</TABLE>
3
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended March 31,
1999 2000
Operating revenues:
<S> <C> <C>
Computer system equipment sales and support $ 1,505,900 $ 417,996
Application software licenses 3,578,839 1,509,683
Software support 2,871,958 2,900,117
Services and other 1,886,729 1,754,282
Total operating revenues 9,843,426 6,582,078
Costs and expenses:
Cost of products sold 2,150,673 526,289
Software amortization 472,360 580,021
Client services expense 2,230,800 2,586,425
Software development costs 1,172,126 1,227,012
Sales and marketing 2,262,768 1,085,825
General and administrative 1,075,440 911,384
Total costs and expenses 9,364,167 6,916,956
Operating income (loss) 479,259 (334,878)
Other income (expense):
Interest expense and financing costs (67,384) (40,810)
Gain (loss) on disposal of property (11,382) (110)
Interest income 37,072 26,259
Total other income (expense) (41,694) (14,661)
Earnings (loss) before income taxes 437,565 (349,539)
Income taxes -- --
Net earnings (loss) $ 437,565 $ (349,539)
Net earning (loss) available for common shareholders $ 397,565 $ (389,539)
Earnings (loss) per common share
Basic and diluted $ 0.02 $ (0.02)
Weighted average number of common shares outstanding 18,375,978 18,859,357
Weighted average number of common and potential
common shares outstanding assuming full dilution. 18,520,442 18,859,357
See notes to condensed financial statements.
</TABLE>
4
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
Three Months Ended March 31,
1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) $ 437,565 $ (349,539)
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization 1,025,689 1,023,701
Loss or disposal of property and equipment 51,142 110
Issuance of common stock pursuant to employee
benefit plan 77,127 81,775
Changes in assets and liabilities:
Accounts receivable (788,728) 1,841,279
Unbilled receivables (515,309) (347,525)
Contracts receivable 784,391 278
Other 440,576 114
Accounts payable and accrued expenses (152,684) (533,576)
Deferred revenue (1,063,392) (1,189,584)
Advance billings (277,213) (272,357)
Net cash provided (used) by operating
activities 19,164 254,685
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (643,602) (520,169)
Purchases of property and equipment (74,578) (138,175)
Net cash used in investing activities (718,180) (658,344)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under line of
credit, net 1,144,000 0
Borrowings (repayments) under notes payable (50,629) (19,834)
Proceeds from issuance of common stock 49,572 38,659
Payment of preferred stock dividends (40,000) (40,000)
Borrowings (repayments) on long-term debt and
Capital lease obligations (36,603) (40,375)
Other 7,022 --
Net cash provided (used) by financing
activities 1,073,362 (61,550)
Net increase (decrease) in cash and cash
equivalents 374,346 (465,209)
Cash and cash equivalents, beginning of period 1,962,426 1,818,209
Cash and cash equivalents, end of period $ 2,336,772 $ 1,353,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 36,683 $ 27,798
See notes to condensed financial statements.
</TABLE>
5
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 2000
(A) Unaudited Financial Statements:
The accompanying financial statements 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, and
are of a normal recurring nature. Quarterly results of operations are not
necessarily indicative of annual results. These statements should be read in
conjunction with the financial statements and the notes thereto included in
the Dynamic Healthcare Technologies, Inc. 1999 Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
(B) Line of Credit:
The Company's Revolving Line of Credit Agreement with Silicon Valley Bank, a
commercial bank ("Bank"), has been extended through April 30, 2001. As of
March 31, 2000, borrowings against this Line of Credit were $700,000, and
borrowings available under the Line of Credit were $2,177,000. Future
borrowing capacity is contingent on the Company's return to profitable
quarterly operations and maintaining an adequate quick ratio as defined. The
Line of Credit is secured by all existing Company assets.
(C) Earnings Per Share:
Basic earnings per share is computed on the basis of the weighted average
shares outstanding. Diluted earnings per share is computed on the basis of
the weighted average shares outstanding plus potential common stock which
would arise from the exercise of stock options and warrants if dilutive.
Potential common shares were not included in diluted earnings per share for
the three months ended March 31, 2000 as their effects are anti-dilutive.
The following is a reconciliation of basic net earnings (loss) per share for
the three months ended March 31:
<TABLE>
1999 2000
(Unaudited) (Unaudited)
<S> <C> <C>
Net earnings (loss) $ 437,565 $ (349,539)
Preferred stock dividends (40,000) (40,000)
Earnings (loss) available for common
shareholders $ 397,565 $ (389,539)
Weighted number of average shares outstanding
-Basic 18,375,978 18,859,357
Dilutive effect of options and warrants 144,464 --
Weighted average number of shares outstanding
-Diluted 18,520,442 18,859,357
Earnings (loss) per share
-Basic and diluted $ 0.02 $ (0.02)
</TABLE>
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
Dynamic Healthcare Technologies, Inc. ("Dynamic" or the "Company") develops,
markets and supports a broad product line of information system solutions for
radiology, anatomic pathology, clinical laboratory and electronic health
record applications. Dynamic's products are designed to enhance
productivity, reduce costs and improve the quality of patient care by
providing electronic storage and on-line access to patient information
previously maintained on a variety of media. The Company provides a full
range of professional consulting services including project management,
implementation, planning and support, custom software and interface
development and modifications, and system integration. Dynamic provides
support services including 24-hour telephone support, and software
maintenance and enhancements.
Dynamic currently serves approximately 600 customers, most of which are
located in the United States. Key customers include the UCLA Medical Center,
Methodist Hospital of Memphis, Orlando Regional Health Systems, Ohio State
University Hospital, University of Pittsburgh, Temple University Hospital,
University of Illinois at Chicago Medical Center, Memorial Sloan-Kettering
Cancer Center, Advocate Health Care, Borgess Health Alliance, The Mayo Clinic
and UniHealth.
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 is
expensed until such time as technological feasibility is established and then
is 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.
7
The following table sets forth, for the three month periods ended March 31,
1999 and 2000, certain items in the Company's statements of operations as a
percentage of total operating revenues:
<TABLE>
Three Months Ended
March 31,
1999 2000
Operating revenues:
<S> <C> <C>
Computer system equipment sales and support 15.3 % 6.4 %
Application software licenses 36.4 % 22.9 %
Software support 29.2 % 44.1 %
Services and other 19.1 % 26.6 %
Total revenues 100.0 % 100.0 %
Operating expenses:
Cost of products sold 21.8 % 8.0 %
Software amortization 4.8 % 8.8 %
Client services expense 22.7 % 39.3 %
Software development costs 11.9 % 18.6 %
Sales and marketing 23.0 % 16.5 %
General and administrative 10.9 % 13.8 %
Total operating expenses 95.1 % 105.0 %
Operating income (loss) 4.9 % (5.0)%
Other income (expense) (0.4)% (0.3)%
Net earnings (loss) 4.5 % (5.3)%
</TABLE>
8
Results of Operations
(Three months ended March 31, 2000 compared to three months ended
March 31, 1999)
Revenues. During the quarter ended March 31, 2000 the Company reported
revenues of $6,582,000 a decrease of $3,261,000 from revenues for the same
period 1999. Revenues from new system implementations declined significantly
due to the lingering effects of customers year 2000 remediation focus.
Combined revenues from computer system equipment sales, application software
licenses, and services and other revenues declined by $3,289,000, reflecting
this decrease in new system implementations, while software support revenues
increased modestly by $28,000. The Company's radiology revenues decreased by
$1,729,000 from $3,181,000 recognized during the first quarter of 1999 to
$1,452,000 recognized during the first quarter of 2000. Pathology revenues
for the first quarter of 2000 decreased $702,000 to $2,829,000 from
$3,531,000 during the same period of 1999. Similarly, the RecordsPlus
product line, and laboratory information system and other revenues for the
first quarter of 2000 also decreased by $396,000 and $433,000, respectively,
as compared to similar revenues for the first quarter of 1999.
Computer system equipment sales and support revenues decreased by $1,088,000
to 6.4% of total revenues for the first quarter of 2000, compared to 15.3%
for the first quarter of 1999. Management attributes the decrease to the
decreased implementation of new system sales by customers focused on year
2000 remediation and system validation efforts.
Application software license revenue during the first quarter of 2000,
decreased by $2,069,000 over the same period a year ago, from $3,579,000 to
$1,510,000, and similarly service and other revenues decreased by $133,000 to
$1,754,000 from $1,887,000. These decreases principally result from the
decreased implementation of new system sales previously reported.
Software support revenues increased by $28,000 to $2,900,000 for the first
quarter of 2000, compared to $2,872,000 for the same period one year ago. As
of March 31, 2000, the recurring annualized billable support base was $12.3
million. An additional $2.3 million of annualized software support revenue is
anticipated to be generated from delivery of the Company's existing new
systems backlog.
Cost of Products Sold. Cost of products sold as a percent of total revenues
for the first quarter of 2000 decreased to 8.0% from 21.8% for the same
period 1999. Hardware and application software license revenues during the
first quarter 2000 similarly decreased to 29.3% from 51.7% of total revenues
for the first quarter 1999, due to the significant decrease in new system
implementations.
Software Amortization. Software amortization increased during the first
quarter of 2000 to $580,000 from $472,000 amortized during the first quarter
of 1999. As initial implementations of the new product introductions were
completed during 1999 amortization began.
Client Services Expense. Client services expense for the first quarter 2000
increased $355,000 to $2,586,000 from $2,231,000 for the first quarter 1999,
increasing as a percentage of sales from 22.7% to 39.3%. During late 1999
and continuing through the first quarter of 2000 the Company transitioned
various development personnel to support and new system implementation roles,
consistent with the maturing of the recent new product releases.
Software Development Costs. Software development expense reported for the
first quarter of 2000 increased by $55,000 to $1,227,000, compared to
$1,172,000 reported for the first quarter of 1999. This nominal increase
reflects a real departmental decrease in costs of $69,000 and a $124,000
reduction in capitalized software development costs. Although development
efforts continue as part of the Company's overall growth strategy, including
enhancements to existing product lines and toward completion of the Company's
SurgiPlus product, this reduction in the level of investment in new product
development reflects the relatively recent wholesale product line
introductions made by the Company.
Sales and Marketing. Sales and marketing costs for the first quarter 2000 as
a percentage of total revenues, decreased to 16.5% from 23.0% for the same
period of 1999. This represents a decrease of $1,177,000 from $2,263,000 to
$1,086,000 in sales and marketing expenses. This decrease includes a
$469,000 decrease in sales commissions as a result of a reduction in the
relative sales bookings, and a base sales and marketing cost reduction of
approximately $708,000, attributed to the sales realignment and cost
reduction programs completed in 1999.
General and Administrative Expenses. General and administrative expenses for
the first quarter of 2000 decreased by $164,000. The decreased expenses
include a $155,000 reduction in amounts accrued under the Company's
Management Incentive Compensation Plan ("MIC Plan").
9
Other Income (Expense). The Company incurred $15,000 of net other expense
for the first quarter of 2000 compared to $42,000 of net other expense
reported for the first quarter of 1999. Net interest expense declined by
$15,000 principally due to the cash provided by operations during 1999 and
the first quarter of 2000.
Liquidity and Capital Resources
As of March 31, 2000 the Company had cash equivalents of $1,353,000, line of
credit draws of $700,000, working capital of $2,206,000 and a working capital
ratio of 1.22 to 1.
Accounts receivable as of March 31, 2000 decreased by $1,841,000 from the
balance on December 31, 1999, principally as a result of the decreased new
system installations in progress. Unbilled receivables increased by $348,000
however, due principally to the timing of billable milestones on
implementations and contract work which began later than normal during the
quarter as a result of the aftermath of year 2000 remediation efforts
focused on by the Company's customers.
During the first quarter 2000 the Company capitalized $520,000 of software
development costs and purchased $138,000 of additional property and
equipment. Development efforts during the first quarter of 2000 included
enhancements to the Company's existing product line, web enabling results for
each of the Company's clinical information systems, and the advancement of
SurgiPlus. Property purchases were made primarily for office equipment at
levels similar to the prior year.
Accounts payable and accrued expenses decreased $534,000 to $2,508,000 as of
March 31, 2000 from $3,042,000 as of December 31, 1999. The lower level of
system implementations resulted in a lower level of accrued third party
product costs.
Deferred revenue as of March 31, 2000 decreased by $1,189,000 to $5,388,000
from $6,577,000 reported as of December 31, 1999. The Company has a
concentration of calendar year annual customer support contracts with January
1 and July 1 start dates, which typically results in quarterly volatility to
the deferred revenue balance.
Advanced billings as of March 31, 2000 declined by $272,000 to $1,115,000
from the 1998 year end balance of $1,387,000. The decline in sales bookings
for the first quarter of 2000 resulted in a lower level of customer contract
deposits received.
The Company's line of credit with Silicon Valley Bank has been renewed
through April 30, 2001. The line of credit provides for the availability of
the lessor of $5,000,000 or 70% of qualified accounts receivable, as defined
($2,177,000 as of March 31, 2000).
During the first quarter of 2000 the Company received $39,000 in proceeds
from the exercise of director and employee options and fulfilled the
employers contribution to the 401K Plan by issuing another $82,000 in common
stock at an average price of $2.11 per share.
The Company intends to continue to enhance its product and service offerings
and to seek market expansion opportunities beyond the recent product
releases. The Company's ability to meet its future working capital
requirements is dependent on the Company's ability to maintain profitable
operations or to obtain suitable additional financing.
Inflation and Changing Prices
The Company believes inflation has not had a material effect on the Company's
operations or its financial condition. Changing prices within the
marketplace could have a material effect upon the cost of materials sold and
the related price of software and hardware sales.
Forward-Looking Statements
This report contains certain forward-looking statements, which are qualified
by the risks and uncertainties described from time to time in the Company's
reports filed with the Securities and Exchange Commission, including the
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
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:
None
(b) Reports on Form 8-K:
None
11
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: April 27, 2000 /S/MITCHEL J. LASKEY
Mitchel J. Laskey
President, CEO and Treasurer
Date: April 27, 2000 /S/PAUL S. GLOVER
Paul S. Glover
Vice President of Finance, CFO and Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,353,000
<SECURITIES> 0
<RECEIVABLES> 6,929,281
<ALLOWANCES> 180,119
<INVENTORY> 0
<CURRENT-ASSETS> 12,435,590
<PP&E> 9,835,491
<DEPRECIATION> 5,902,030
<TOTAL-ASSETS> 27,352,185
<CURRENT-LIABILITIES> 10,229,224
<BONDS> 228,909
0
1,811,327
<COMMON> 188,805
<OTHER-SE> 13,652,185
<TOTAL-LIABILITY-AND-EQUITY> 27,352,185
<SALES> 417,996
<TOTAL-REVENUES> 6,582,078
<CGS> 526,289
<TOTAL-COSTS> 6,916,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 40,810
<INCOME-PRETAX> 349,539
<INCOME-TAX> 0
<INCOME-CONTINUING> 349,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349,539
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
