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, 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, , Fifth Floor, Lake Mary, Florida 32746
--------------------------------------------------------------------------------
(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 July 19, 2000, there were 19,032,127 shares outstanding, par value $.01
per share, of the issuer's only class of common stock.
This report consists of fifteen (15) pages.
1
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See attached statements following this item number.
2
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1999 JUNE 30, 2000
------------------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,818,209 $ 2,134,555
Accounts receivable, net 8,590,441 5,211,967
Unbilled receivables 2,989,547 5,190,605
Contracts receivable - current 155,344 282,124
Prepaid expenses 546,502 497,021
Other current assets 171,076 268,852
------------------- ---------------
Total current assets 14,271,119 13,585,124
Property and equipment, net 4,107,481 3,628,604
Capitalized software development costs, net 9,266,284 9,227,524
Goodwill, net 1,255,483 1,051,708
Contracts receivable - non-current 741,444 550,310
Other assets 18,114 27,874
------------------- ---------------
$ 29,659,925 $ 28,071,144
=================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,041,798 $ 2,799,141
Deferred revenue 6,577,199 5,642,239
Advance billings 1,387,119 829,936
Line of credit 700,000 1,700,000
Deferred lease incentives - current 190,231 190,231
Other 297,143 335,281
------------------- ---------------
Total current liabilities 12,193,490 11,496,828
Deferred lease incentives - non-current 792,632 697,517
Other 752,538 637,484
------------------- ---------------
Total liabilities 13,738,660 12,831,829
------------------- ---------------
Shareholders' equity:
Series C redeemable convertible preferred stock ($.01 par value; 1,811,327 1,811,327
issued and outstanding 1,000,000 shares with an aggregate
liquidation preference of $2,000,000, as of December 31, 1999,
and June 30, 2000; $.16 per share annual dividend).
Common stock ($.01par value; authorized 40,000,000 shares; 188,149 189,529
issued and outstanding 18,814,887 shares as of December 31, 1999
and 18,952,944 shares as of June 30, 2000).
Warrants 3,000 3,000
Additional paid-in capital 45,135,109 45,280,623
Deficit (31,216,320) (32,045,164)
------------------- ---------------
Total shareholders' equity 15,921,265 15,239,315
------------------- ---------------
$ 29,659,925 $ 28,071,144
=================== ===============
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Computer system equipment sales and support $ 1,668,820 $ 155,510 $ 3,174,720 $ 573,506
Application software licenses 2,784,843 1,996,275 6,363,682 3,505,958
Software support 2,981,201 2,925,892 5,853,159 5,826,009
Services and other 2,490,233 1,388,350 4,376,963 3,142,631
------------ ------------ ------------ ------------
Total operating revenues 9,925,097 6,466,027 19,768,524 13,048,104
------------ ------------ ------------ ------------
Operating expenses:
Cost of products sold 2,311,397 456,776 4,462,070 983,065
Software amortization 505,957 569,462 978,319 1,149,483
Client services expense 2,584,280 2,560,281 4,815,080 5,146,707
Software development costs 1,095,538 1,123,561 2,267,662 2,350,572
Sales and marketing 1,803,343 1,141,630 4,066,111 2,227,456
General and administrative 1,015,094 1,046,330 2,090,535 1,957,713
------------ ------------ ------------ ------------
Total operating expenses 9,315,609 6,898,040 18,679,777 13,814,996
------------ ------------ ------------ ------------
Operating income (loss) 609,488 (432,013) 1,088,747 (766,892)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense and financing costs (81,158) (44,778) (148,542) (85,588)
Gain/Loss on fixed asset sales 549 (30,493) (10,833) (30,603)
Interest income 20,263 27,979 57,335 54,239
------------ ------------ ------------ ------------
Total other income (expense) (60,346) (47,292) (102,040) (61,952)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 549,142 (479,305) 986,707 (828,844)
------------ ------------ ------------ ------------
Income taxes - - - -
------------ ------------ ------------ ------------
Net earnings (loss) $ 549,142 $ (479,305) $ 986,707 $ (828,844)
============ ============ ============ ============
Net earnings (loss) $ 549,142 $ (479,305) $ 986,707 $ (828,844)
Preferred stock dividends (40,000) (40,000) (80,000) (80,000)
------------ ------------ ------------ ------------
Earnings (loss) available for common shareholders $ 509,142 $ (519,305) $ 906,707 $ (908,844)
============ ============ ============ ============
Weighted average number of common shares
outstanding - basic 18,457,709 18,913,561 18,417,069 18,886,459
Dilutive effect of options and warrants 573,011 - 369,304 -
------------ ------------ ------------ ------------
Weighted average number of common and potential
common shares outstanding assuming full dilution 19,030,720 18,913,561 18,786,373 18,886,459
============ ============ ============ ============
Earnings (loss) per common share basic and diluted $ 0.03 $ (0.03) $ 0.05 $ (0.05)
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 986,706 $ (828,844)
Adjustments to reconcile net earnings (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 1,742,320 1,921,611
Employer 401k contributions not requiring cash 199,975 173,635
Loss on disposal of property - 30,603
Changes in assets and liabilities:
Accounts receivable (1,880,219) 3,378,474
Unbilled receivables (1,055,010) (2,201,058)
Contracts receivable 805,893 64,354
Other 670,963 (59,058)
Accounts payable and accrued expenses 160,221 (242,658)
Deferred revenue (838,706) (934,960)
Advance billings (625,236) (557,183)
------------ ------------
Net cash provided (used) by operating activities 166,907 744,916
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (1,296,661) (1,110,723)
Purchases of property and equipment (83,693) (169,254)
------------ ------------
Net cash used in investing activities (1,380,354) (1,279,977)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings/(repayments) on line of credit 1,144,000 1,000,000
Borrowings/(repayments) under notes payable - (40,105)
Proceeds from issuance of common stock 32,875 53,259
Payment of preferred stock dividends (80,000) (80,000)
Borrowings/(repayments) on long-term debt and capital lease obligations (3,535) (81,747)
------------ ------------
Net cash provided (used) by financing activities 1,093,340 851,407
------------ ------------
Net increase (decrease) in cash and cash equivalents (120,107) 316,346
Cash and cash equivalents, beginning of period 1,962,426 1,818,209
------------ ------------
Cash and cash equivalents, end of period $ 1,842,319 $ 2,134,555
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 82,367 $ 55,999
============ ============
Income taxes paid/(received) $ - $ -
============ ============
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 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. In the opinion of
management, all adjustments and accruals considered necessary for fair
presentation of financial information have been included 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 consolidated 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) 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 and conversion of the
Series C preferred stock if dilutive.
(C) LEGAL PROCEEDINGS:
On February 23, 2000 the Company filed an action in the Circuit Court for the
11th Judicial Circuit of Florida against Sunquest Information Systems, Inc.
("Sunquest). On March 17, 2000 the case was removed to the United States
District Court for the Southern District of Florida. The action is alleging
breaches by Sunquest of the Valued Added Reseller Agreement (the "VAR") between
them and further seeks termination of that agreement. The lawsuit claims that
Sunquest tortiously interfered with the Company's current and prospective
contractual relations, and defamed and disparaged the Company, and seeks to
terminate the VAR and to recover damages of an unspecified amount.
On April 17, 2000 Sunquest brought a civil action in the United States District
Court for the Western District of Pennsylvania, alleging breaches by the Company
of the VAR. In Sunquest's suit, Sunquest seeks damages of an unspecified amount
and a declaration by the Court that the Company is obligated to perform its
contractual obligations under the VAR. On June 2, 2000 the Company filed a
motion to dismiss or in the alternative to stay these preceedings until venue is
determined.
On July 25, 2000 the United States District Court for the Southern District of
Florida ruled venue would be set in Florida.
At the present time, the Company is unable to determine the probable outcome of
the above mentioned proceedings. Management is of the opinion however, that the
resulting impact on the Company's financial position and results of operations
with respect to these proceedings will not be adverse nor material.
6
<PAGE>
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") is a provider
of Internet and image-, voice-, and web-enabled information systems for clinical
services departments and facilities. The Company's product line is a suite of
solutions for anatomic pathology, radiology, laboratory, surgical services and
health information management. In 1999, the Company launched a strategic
initiative to move into the e-Health arena by converging its traditional
clinical applications with emerging Internet technologies. The resulting
e-Health solutions enable physicians, clinicians, and departmental staff both
inside and outside the healthcare facility, to use the Company's systems over
the Internet, thereby extending their reach to remote hospitals, outreach
service locations, reference labs, physician offices and homes. The Company's
e-Health solution set positions the Company to participate in the business to
business (B2B) marketplace and transitions the Company toward delivering
software and services on a "fee-per-use" basis through an Application Solution
Provider (ASP) model.
The Company is a leader in providing diagnostic workflow and collaborative
solutions in acute care hospitals, ambulatory care centers, reference
laboratories and imaging centers. The Company currently serves more than 650
customers, most located in the United States. Key customers include
Massachusetts General Hospital, Methodist Hospital of Memphis, Orlando Regional
Health System, University of North Carolina Hospitals, University of Pittsburgh
Medical Center Health System, University of Illinois at Chicago Medical Center,
Memorial Sloan-Kettering Cancer Center, Advocate Health Care, Borgess Health
Alliance, The Mayo Clinic and Medical College of Virginia. The Company's
systems automate ordering, scheduling, specimen and procedure tracking, data /
image acquisition from diagnostic equipment, store and archive results. For
years, the Company has provided the processing backbone for clinical information
within the key clinical departments of pathology, radiology and laboratory, and
has provided electronic integration with diagnostic images and voice dictation.
The Company is expanding its e-Health initiatives with a new service offering
entitled "CoMed" as part of its commitment to changing the way clinicians'
access and use information for the benefit of their patients and communities.
CoMed has been designed to automate the daily workflow and communication needs
of healthcare participants and improve the delivery of patient care within
healthcare communities. CoMed is a secure, members only web site providing
physicians and other clinicians access to the most current pathology, radiology
and laboratory results - the most important diagnostic components of today's
medical record. CoMed will also be a place where physicians can obtain current
relevant medical reference material, initiate e-commerce, participate in virtual
communities and with other physicians in discussion forums, as well as obtain
the wealth of lifestyle and business information available on the World Wide
Web.
A key differentiator of CoMed is that it is designed to support the local
healthcare brands of integrated delivery networks, thereby positioning them to
sponsor the implementation and subscription to the product. CoMed is intended
to help healthcare delivery channels communicate effectively with their client
population, to improve health outcomes, to increase revenues through new
referrals, and decrease administrative costs by eliminating paper pushing and
faxes. CoMed enhances connectivity to other lab, radiology and health plan
oriented systems, creates virtual private communities and delivers value added
Internet content and context to physicians located throughout these integrated
delivery networks. CoMed intends to leverage the Company's existing installed
base of prestigious hospitals, laboratories, and diagnostic imaging centers as
well as the related clinical transaction volume and aggregate patient database,
providing a significant opportunity to extend its reach to physicians and other
clinicians as a result of these relationships and the existing knowledge base.
7
<PAGE>
Today, physicians have a need and are demanding Internet access to clinical
information including test results, comparative studies, and treatment plans to
provide more efficient and effective patient care. CoMed will enable timely
information exchange and collaboration among healthcare participants, minimize
administrative costs associated with healthcare business-to-business
transactions, reduce unauthorized and non-reimbursed patient care, decrease the
waiting time and delivery costs for diagnostic test results and provide access
to online medical and other content. Internet transactions are far less costly
than manual chart pulls, pushed faxes, report distribution, couriered or mailed
charts. In addition to the direct cost reductions associated with these
improved efficiencies, Internet-connected providers make more prudent clinical
decisions. CoMed will allow convenient access to information supporting
analysis across multiple cases, to relevant medical reference material, and to
historical patient data anytime, anywhere and on a securitized basis.
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, and direct
research and development expenses, 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 most instances, product delivery for new clinical
information systems requires three to six months. However, product delivery can
span 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
three to six 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.
8
<PAGE>
The following table sets forth, for the three and six month periods ended June
30, 1999 and 2000, certain items in the Company's statements of operations as a
percentage of total operating revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ---------------
1999 2000 1999 2000
------- ------- ------- ------
<S> <C> <C> <C> <C>
Operating revenues:
Computer system equipment sales and support 16.8 % 2.4% 16.1 % 4.4%
Application software licenses 28.1 % 30.9% 32.2 % 26.9%
Software support 30.0 % 45.2% 29.6 % 44.6%
Services and other 25.1 % 21.5% 22.1 % 24.1%
------- ------- ------- ------
Total revenues 100.0 % 100.0 % 100.0 % 100.0%
------- ------- ------- ------
Operating expenses:
Cost of products sold 23.4 % 7.1% 22.6 % 7.5%
Software amortization 5.1% 8.8% 5.0% 8.8%
Client services expense 26.0 % 39.6% 24.5 % 39.5%
Software development costs 11.0 % 17.4% 11.5 % 18.0%
Sales and marketing costs 18.2 % 17.6% 20.3 % 17.1%
General and administrative expense 10.2 % 16.2% 10.6 % 15.0%
------- ------- ------- ------
Total operating expenses 93.9 % 106.7% 94.5 % 105.9%
------- ------- ------- ------
Operating income (loss) 6.1 % (6.7)% 5.5 % (5.9)%
Other income (expense) (.6)% (.7)% (.5)% (.5)%
------- ------- ------- ------
Net earnings (loss) 5.5 % (7.4)% 5.0 % (6.4)%
======= ======= ======= ======
</TABLE>
RESULTS OF OPERATIONS
(THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999)
Revenues. During the quarter ended June 30, 2000 the Company reported revenues
of $6,466,000 a decrease of $3,459,000 from revenues for the same period in
1999. Revenues from new system implementations declined significantly
principally due to the effects of customers' year 2000 remediation focus.
Combined revenues from computer system equipment sales, application software
licenses, and services and other revenues declined by $3,404,000, reflecting
this decrease in new system implementations, while software support revenues
decreased modestly by $55,000. The Company's radiology system revenues
decreased by $940,000, from $2,605,000 recognized during the second quarter of
1999 to $1,665,000 recognized during the second quarter of 2000. Pathology
revenues for the second quarter of 2000 decreased by $1,639,000 to $2,638,000
from $4,277,000 during the same period of 1999. Similarly, laboratory
information system revenues for the second quarter of 2000 also decreased by
$309,000 to $1,883,000 from $2,192,000 during the second quarter of 1999. In
addition, Records Plus product line revenues decreased by $468,000 from $748,000
reported for the second quarter of 1999 to $280,000 for the second quarter of
2000.
Computer system equipment sales and support revenues decreased by $1,513,000 to
2.4% of total revenues for the second quarter of 2000, compared to 16.8% for the
second quarter of 1999. Management attributes the decrease to the decreased
implementation of new systems by customers focused on year 2000 remediation and
system validation efforts.
Application software license revenue during the second quarter of 2000,
decreased by $789,000 over the same period a year ago, from $2,785,000 to
$1,996,000, and similarly service and other revenues decreased by $1,102,000 to
$1,388,000 from $2,490,000. These decreases principally result from the
decreased implementation of new systems.
Software support revenues decreased by $55,000 to $2,926,000 for the second
quarter of 2000, compared to $2,981,000 for the same period one year ago.
During 1999, the Company discontinued support for a limited offering of legacy
laboratory and financial products in connection with Year 2000 remediation
efforts. Management expects support revenues to grow with the implementation of
new systems. As of June 30, 2000, the recurring annualized billable support
base was $12.1 million. An additional $2.1 million of annualized software
support revenue is anticipated to be generated from delivery of the Company's
existing new systems backlog.
9
<PAGE>
Cost of Products Sold. Cost of products sold as a percent of total revenues for
the second quarter of 2000 decreased to 7.1% from 23.4% for the same period in
1999. Hardware and application software license revenues during the second
quarter of 2000 similarly decreased to 33.3% from 44.9% of total revenues for
the second quarter 1999, due to the significant decrease in new system
implementations.
Client Services Expense. Client services expense for the second quarter 2000
decreased $24,000 to $2,560,000 from $2,584,000 for the second quarter 1999,
however, two significant transitions within client services have occurred.
First, the Company decreased staffing in connection with the re-engineering and
cost reduction plans previously completed. In addition, 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
second quarter of 2000 increased by $28,000 to $1,124,000, compared to
$1,096,000 reported for the second quarter of 1999. This nominal increase
reflects a real departmental decrease in costs of $62,000 which was offset by a
$90,000 reduction in capitalized software development costs. 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 and e-Business initiatives.
Sales and Marketing. Sales and marketing costs for the second quarter 2000 as a
percentage of total revenues, decreased to 17.6% from 18.2% for the same period
of 1999. This decrease of $661,000 from $1,803,000 to $1,142,000 in sales and
marketing expenses results from sales and marketing cost reduction attributed to
the sales realignment and cost reduction programs completed in 1999.
(SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999)
Revenues. During the six months ended June 30, 2000 the Company reported
revenues of $13,048,000 a decrease of $6,720,000 or 34% from revenues of
$19,768,000 for the same period 1999. Revenues from new system implementations
declined significantly due to the effects of customers' year 2000 remediation
focus. Combined revenues from computer system equipment sales, application
software licenses, and services and other revenues declined by $6,693,000,
reflecting this decrease in new system implementations, while software support
revenues decreased modestly by $27,000. The Company's radiology system revenues
decreased by $2,670,000, from $5,786,000 recognized during the first six months
of 1999 to $3,116,000 recognized during the first six months of 2000. Pathology
revenues for the six months ended June 30, 2000 decreased by $2,341,000 to
$5,467,000 from $7,808,000 during the same period of 1999. Similarly,
laboratory information system revenues for the six months ended June 30, 2000
also decreased by $696,000 to $3,837,000 from $4,533,000 during the first six
months of 1999. Revenues from the Records Plus product line decreased by
$864,000 from $1,492,000 to $628,000, comparing the six months ended 1999 to the
same period of 2000, respectively.
Computer system equipment sales and support revenues decreased by $2,601,000 to
4.4% of total revenues for the six months ended June 30, 2000 compared to 16.1%
for the six months ended June 30, 1999. Management attributes the decrease to
the decreased implementation of new systems by customers focused on year 2000
remediation and system validation efforts.
Application software license revenue during the six months ended June 30, 2000,
decreased by $2,858,000 over the same period a year ago, from $6,364,000 to
$3,506,000, and similarly service and other revenues decreased by $1,234,000 to
$3,143,000 from $4,377,000. These decreases principally result from the
decreased implementation of new systems.
Software support revenues modestly decreased by $27,000 to $5,826,000 for the
six months ended June 30, 2000, compared to $5,853,000 for the same period one
year ago. During 1999 the Company discontinued support for a limited offering
of legacy laboratory and financial products in connection with Year 2000
remediation efforts. Management expects support revenues to continue to grow
with the implementation of new systems. As of June 30, 2000, the recurring
annualized billable support base was $12.1 million, and an additional $2.1
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 six months ended June 30, 2000 decreased to 7.5% from 22.6% for the same
period 1999. Hardware and application software license revenues during the
first six months of 2000 similarly decreased to 31.3% from 48.3% of total
revenues for the first six months of 1999, due to the significant decrease in
new system implementations.
10
<PAGE>
Client Services Expense. Client services expense for the six months ended June
30, 2000 increased $332,000 to $5,147,000 from $4,815,000 for the six months
ended June 30, 1999, increasing as a percentage of sales from 24.5% to 39.5%.
The Company previously reported decreased staffing in connection with the
re-engineering and cost reduction plan completed in 1998. Product installation,
delivery and support services were standardized along all product lines as the
Company centralized these functions. 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 costs for the six months ended
June 30, 2000 increased to 18.0% of total operating revenues from 11.5% incurred
during the six months ended June 30, 1999. The $83,000 increase in software
development expense reported for the six months ended June 30, 2000 of
$2,351,000, compared to $2,268,000 reported for the six months ended June 30,
1999, reflects a $186,000 reduction in capitalized software development costs
offset by a real reduction in total software departmental costs of $103,000.
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 and its e-Business initiatives.
Sales and Marketing. Sales and marketing costs for the six months ended June
30, 2000 as a percentage of total revenues, decreased to 17.1% from 20.3% for
the same period of 1999. This decrease of $1,839,000 from $4,066,000 to
$2,227,000 in sales and marketing expenses results principally from cost
reductions attributed to the sales realignment programs completed in 1999.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of June 30, 2000 the Company had cash and cash equivalents of $2,135,000,
line of credit draws of $1,700,000, working capital of $2,088,000, and a working
capital ratio of 1.18 to 1. As of June 30, 2000 the Company had a total
contract backlog of $23.4 million, which consisted of $9.2 million of new system
sales and $14.2 million of annualized billable support under contract.
Comparably, the Company's total contract backlog at December 31, 1999 was $25.9
million, which consisted of $11.2 million of new system sales and $14.7 million
of annualized billable support under contract. In addition, the Company has
been cash positive from operations for seven consecutive quarters.
Accounts receivable as of June 30, 2000 decreased by $3,378,000 from similar
balances as of December 31, 1999, principally as a result of decreased system
implementations in progress. However, unbilled receivables as of June 30, 2000,
increased by $2,201,000 as compared to the unbilled receivable balance as of
December 31, 1999 due to a significant number of period end deliveries.
Contracts receivable as of June 30, 2000 decreased by $64,000 to $832,000 as
compared to the balance of $896,000 on December 31, 1999, due principally from
scheduled collections on monthly installment receivables from radiology
information system customers.
During the first half of fiscal 2000 the Company capitalized $1,111,000 of
software development costs and purchased $169,000 of additional property and
equipment. Development efforts during the first half of 2000 included
enhancements to the Company's existing product line, advancement of SurgiPlus
and the Company's e-Business initiatives. Management expects to invest
significantly into e-Business initiatives beginning in the third quarter 2000.
Current property purchases of approximately $500,000 are planned.
Deferred revenue as of June 30, 2000 decreased by $935,000 to $5,642,000 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 start dates,
which typically results in quarterly volatility to the deferred revenue balance.
Advanced billings as of June 30, 2000 declined by $557,000 to $830,000 from the
1999 year end balance of $1,387,000.
The decline in new systems sales bookings and implementations during 2000
resulted in a lower level of customer contract deposits and advance payments
received.
The Company's line of credit with Silicon Valley Bank has been renewed through
May 4, 2001. The line of credit provides for the availability of the lessor of
$5,000,000 or 70% of qualified accounts receivable, as defined ($1,728,000 as of
June 30, 2000).
11
<PAGE>
During the first six months of 2000 the Company received $53,259 in proceeds
from the exercise of director and employee options, and paid $80,000 in
dividends on the Series C Preferred Stock.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
----------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to recognize
all derivative contracts as either assets or liabilities in the balance sheet
and to measure them at fair value. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, we have not entered into derivative contracts and do not expect to
have any hedging activities in the future. Accordingly SFAS 133 is not expected
to affect our financial statements.
During the fourth quarter of 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The provisions of SAB No. 101 are required to be adopted no later
than the fourth quarter of the fiscal year beginning after December 15, 1999.
Management believes that SAB No. 101 does not materially alter the Company's
revenue recognition methods.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44), Accounting for Certain Transactions Involving Stock
Compensation, and Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequences of various
modification to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
We believe that the impact of FIN 44 will not have a material effect on our
financial position or results of operations.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this item is incorporated by reference
to footnote (c) of the condensed consolidated financial statements
included in Part I herein.
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
The Company's Annual Meeting of Shareholders was held on
June 8, 2000, in Lake Mary, Florida. Five directors were elected
to the Company's Board. A listing of those directors follows:
<TABLE>
<CAPTION>
NUMBER OF VOTES RECEIVED
------------------------
NAME AND PRINCIPAL OCCUPATION FOR AGAINST/WITHHELD ABSTENTIONS BROKER NON-VOTES
------------------------------------- ---------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Jerry L. Carson 14,101,427 3,890,899 0 0
Executive Vice President, CFO
Evans Enterprises
Mitchel J. Laskey 11,627,128 6,365,198 0 0
President and CEO
Dynamic Healthcare Technologies, Inc.
Thomas J. Martinson 14,524,395 3,467,931 0 0
President
Martinson & Company, Ltd.
Bret Maxwell 14,075,875 3,916,451 0 0
Vice Chairman
First Analysis Corporation
Daniel Raynor 14,101,975 3,890,351 0 0
Managing Partner
The Argentum Group
</TABLE>
A proposal to engage BDO Seidman, LLP, as the Company's independent certified
public accounts for the fiscal year ending December 31, 2000 passed by a vote of
17,132,539 to 779,360 with 80,427 votes abstaining.
A proposal to amend the terms of the 1993 Incentive Stock Option Plan, creating
a new 2000 Incentive Stock Option Plan and increasing the shares issuable
pursuant to the new plan by 1,000,000 shares passed by a vote of 6,092,343 to
5,271,081 with 86,161 votes abstaining and 6,542,741 broker non-votes.
A proposal to increase the authorized common shares available to fulfill the
employer matching contribution to the employee 401K plan by 200,000 shares
passed by a vote of 10,021,502 to 1,299,895 with 128,188 votes abstaining and
6,542,741 broker non-votes.
Item 5. Other Information
None
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
----------------------------------------
(Registrant)
Date: July 27, 2000 /S/ MITCHEL J. LASKEY
--------------- -----------------------
Mitchel J. Laskey
President, CEO and Treasurer
Date: July 27, 2000 /S/ PAUL S. GLOVER
--------------- -----------------------
Paul S. Glover
Vice President of Finance,
CFO and Secretary
15
<PAGE>
