10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 2001 ---------------------- 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 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 November 13, 2001, there were 6,599,859 shares outstanding, par value $.01 per share, of the issuer's only class of common stock. This report consists of sixteen (16) pages. Page 1 of 16 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements See attached statements following this item number. Page 2 of 16 DYNAMIC HEALTHCARE TECHNOLOGIES, INC. BALANCE SHEETS

See notes to financial statements. Page 3 of 16 DYNAMIC HEALTHCARE TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to financial statements. Page 4 of 16 DYNAMIC HEALTHCARE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)

Page 5 of 16 DYNAMIC HEALTHCARE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 2001 (UNAUDITED) (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 financial statements and the notes thereto included in the Dynamic Healthcare Technologies, Inc. 2000 Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (B) NOTE RECEIVABLE - OFFICER: Mr. Christopher Assif, the Company's CEO and a member of its board of directors, has a promissory non-recourse note with the Company accruing interest at six percent (6.0%) per annum. The note is secured by common stock of the Company acquired by Mr. Assif. This note may be prepaid in whole or in part at any time without penalty or premium. As a result of the changes to the terms of the note receivable from a recourse to a non-recourse note, the underlying options are required to be treated as variable beginning June 15, 2001, in accordance with Financial Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB Opinion No. 25. Accordingly, any differences between the exercise price of the options and market price of the Company's common stock is recorded as compensation expense at each reporting period. There has been no compensation expense recorded to date for these options as the exercise price has been above the market price. (C) LINE OF CREDIT: On July 25, 2001, the Company renegotiated a new Line of Credit Agreement with Silicon Valley Bank, which expires on July 24, 2002. The new line of credit will provide for up to $2,500,000 of borrowings based on a maximum advanced ratio equal to 80% of qualified accounts receivable with a requirement to maintain a defined Quick Asset Ratio of 1.00 to 1.00. Interest is to accrue at a minimum finance rate of $7,000 a month or the Bank's prime rate plus 3.0%, which as of September 30, 2001 was 9.0%, and is due monthly in arrears. The balance under the line of credit was $0 at September 30, 2001. (D) LOSS PER SHARE: Loss per share is computed on the basis of the weighted average shares outstanding. Diluted loss per share is computed on the basis of the weighted average shares outstanding plus potential common shares which would arise from the exercise of stock options, warrants and conversion of the Series C preferred stock. Diluted loss per share for the nine months ended September 30, 2001 and 2000 does not include potential common shares, as their effect would be anti-dilutive. Potential common shares excluded from weighted average shares due to their anti-dilutive effect include:

Page 6 of 16 (E) REALIGNMENT COSTS: During the second quarter 2001, the Company adopted a formal plan to reallocate and eliminate selected mid-level management and duplicate staff positions in the Company. In connection with the plan, a total of thirty-six employees were terminated and the Company incurred a non-recurring charge in the amount of $465,204 related to termination and severance benefits. At September 30, 2001, $414,476 was paid and $50,728 of the remaining accrued severance and termination benefits will be paid by December 31, 2001. (F) REVERSE STOCK SPLIT: On June 28, 2001, the Company completed a one for three (1:3) reverse stock split with respect to its common stock. All common share information, included in the accompanying financial statements, has been retroactively adjusted to give effect to the reverse stock split. (G) PROPOSED MERGER On September 5, 2001, the Company entered into an Agreement and Plan of Merger with Cerner Corporation ("Cerner") and Cerner Holdings, Inc., a wholly-owned subsidiary of Cerner ("Cerner Holdings"), pursuant to which, among other things the Company, will be merged with and into Cerner Holdings, with Cerner Holdings as the surviving corporation. The Company has scheduled a special meeting of the shareholders for December 11, 2001 at which time the proposed merger agreement with Cerner Corporation will be submitted to those shareholders of record as of the close of business on November 5, 2001 for their approval (the "Record Date"). If approved by a majority of the Company's common shares outstanding on the Record Date, the merger transaction between the Company and Cerner is expected to close in the fourth quarter of the 2001 fiscal year Costs incurred AS OF September 30, 2001 for legal fees and fairness opinion fees relating to the proposed merger agreement with Cerner Corporation are $622,444. See Exhibit 2.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2001, which exhibit is incorporated herein by reference, for a complete description of the terms and conditions of the proposed merger agreement. Page 7 of 16 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 is a provider of mission-critical healthcare information systems for clinical services departments and facilities throughout North America. Dynamic's product line includes a suite of image-, voice-, and web-enabled systems for anatomic pathology, radiology, and laboratory information management systems. Dynamic's services include implementation and training, product management and client 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 client. 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, reduced by capitalized software development costs. Software development costs are expensed until such time as technological feasibility is established and then are capitalized in compliance with Statement of Financial Accounting Standards No. 86 "Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Software amortization is separately stated. Sales and marketing costs include direct and indirect salaries, commissions, joint marketing costs, advertising, trade show costs, user group cost and travel and entertainment expenses related to the sale and marketing of Dynamic's products and services. General and administrative expenses include salaries and expenses for corporate administration, financial, legal and human resources. The sales cycle for Dynamic's systems is typically six to eighteen months from initial contact to contract signing. The product delivery cycle is variable. Based on the client's implementation plan, product delivery may take two or more years, particularly with enterprise-wide electronic healthcare record solutions involving significant and continuing client service requirements. Accordingly, the product delivery cycle depends upon the combination of products purchased and the implementation plan defined by the client in the master sales agreement. Each client contract is separately negotiated. The installation schedules for clinical information systems, or departmental electronic healthcare record implementations, typically require six to twelve months. Under its standard master sales agreement, Dynamic 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, which may vary with each contract. This Management's Discussion and Analysis of Financial Condition and Results of Operations presents a review of the financial condition of the Company at December 31, 2000 and September 30, 2001, and the results of operations for the three and nine months ended September 30, 2000 and 2001. This discussion and analysis is intended to assist in understanding the financial condition and results of operations of the company. Accordingly, this section should be read in conjunction with the financial statements and the related notes contained herein. Page 8 of 16 RESULTS OF OPERATIONS The following table sets forth, for the three-month and nine-month periods ended September 2000 and 2001, certain items in the Company's statements of operations as a percentage of total operating revenues:

Page 9 of 16 RESULTS OF OPERATIONS (THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000) Revenues. During the quarter ended September 30, 2001 the Company's revenues were $6,788,000 an increase of $608,000 from revenues for the same period of 2000. Revenues from new system implementations increased principally due to supplemental service revenues not included under existing support contracts. Combined revenues from computer system equipment sales, application software licenses, and services and other revenues increased by $412,000, reflecting this increase in new system implementations, while software support revenues increased modestly by $196,000. Computer system equipment sales and support revenues decreased by $94,000 to 3.1% of total revenues for the third quarter of 2001, compared to 5.0% for the third quarter of 2000. Management attributes this decrease to the growing number of clients directly sourcing new system equipment. Application software license revenue during the third quarter of 2001, increased modestly by $20,000 over the same period one year ago, from $1,693,000 to $1,713,000, and service and other revenues increased by $485,000 to $1,728,000 from $1,243,000. The increase in software license revenue and service and other revenues principally resulted from implementation of new contract work and an increase in the number of supplemental service contracts obtained during the quarter. Software support revenues increased by $196,000 to $3,135,000 for the third quarter of 2001, compared to $2,938,000 for the same period one year ago as a result of extensions for the Company's CoPath and Radiology M based clients. As of September 30, 2001, the recurring annualized billable support base was $12.3 million as compared to 12.1 at September 30, 2000. Cost of Products Sold. Cost of products sold as a percent of total revenues for the third quarter of 2001 decreased to 7.8% from 10.3% for the same period in 2000. Hardware revenues during the third quarter of 2001 similarly decreased to 3.1% from 5.0% of total revenues for the third quarter 2000, directly decreasing third party hardware and support cost as a percent of revenue for the Company. Software Amortization. Software amortization decreased during the third quarter of 2001 to $304,000 from $349,000 during the third quarter of 2000. During October 2000 the Company discontinued marketing of several products for strategic reasons and wrote-off the related capitalized software development costs. As a result of the product restructuring, overall recurring amortization for software was reduced while some software products have become fully amortized. Client Services Expense. Client services expense for the third quarter of 2001 decreased $320,000 to $2,152,000 from $2,472,000 for the third quarter of 2000, decreasing as a percentage of sales from 40.0% to 31.7%. The Company previously reported a decrease in duplicative staffing and a reallocation of various resources in connection with the realignment plan completed in 2001. Product installation, delivery and support services were standardized along all product lines as the Company focuses on revenue generating functions. Software Development Costs. Software development expense reported for the third quarter of 2001 decreased by $296,000 to $1,033,000 compared to $1,329,000 reported for the third quarter of 2000. This decrease reflects $486,000 in reduced and reallocated resources to various departments as a result of the realignment in April 2001 and other departmental decrease in costs of $309,000. These decreases were offset by a $499,000 reduction in capitalized software development costs. Although development efforts continue as part of the Company's overall strategy, these efforts related to the Company's e-Business initiatives and other projects were not capitalized since the development of the products have not yet reached technological feasibility. Sales and Marketing. Sales and marketing costs for the third quarter of 2001 as a percentage of total revenues, increased to 17.6% from 17.5% for the same period of 2000. This represents an increase of $114,000 from $1,084,000 to $1,198,000 in sales and marketing expenses. This increase includes a $143,000 increase in sales commissions as a result of an increase in the relative sales bookings offset by a $29,000 decrease primarily due to reduced business travel post September 11, 2001. General and Administrative Expenses. General and administrative expenses for the third quarter of 2001 decreased by $38,000. This decreased expense includes a $233,000 decrease in direct salaries and wages as a result of the reduction in administrative personnel and management positions, and a net overall reduction of $27,000 in expense associated to telephone, rent and general business activities, offset by an increase of $222,000 for bad debt expense primarily related to one customer. Page 10 of 16 Merger Costs. During the three months ended September 30, 2001 the Company incurred $622,000 in legal fees and fees associated in obtaining a fairness opinion in connection with the proposed merger with Cerner Corporation dated September 5, 2001. Other Income (Expense). The Company incurred $12,000 of net other expense for the third quarter of 2001 compared to $23,000 of net other expense reported for the third quarter of 2000. Net interest expense decreased by $44,000 principally due to the Company's ability to maintain zero borrowings under the line of credit during the third quarter of 2001. (NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000) Revenues. During the nine months ended September 30, 2001 the Company reported revenues of $19,340,000, an increase of $112,000 from revenues of $19,228,000 for the same period in 2000. Revenues from new system implementations declined slightly principally due to a general market slowdown caused by reduced capital procurement by healthcare providers in the first quarter of 2001. Combined revenues from computer system equipment sales, application software licenses, and services and other revenues declined by $38,000, reflecting this decrease in new system implementations, while software support revenues increased by $150,000. Computer system equipment sales and support revenues decreased by $131,000 to 3.9% of total revenues for the nine month period ended 2001, compared to 4.6% for the nine months ended 2000. Management attributes the decrease to the clients' procurement of needed hardware directly from the manufacturer. Application software license revenue during the nine months ended September 30, 2001 decreased by $238,000 over the same period one year ago, from $5,199,000 to $4,961,000, and while service and other revenues increased by $331,000 to $4,717,000 from $4,386,000. The decrease in software licenses revenue was primarily related to the reduction of new laboratory product sales while increases to service and other revenues principally resulted from the increased number of clients requiring billable service above existing support contracts. Software support revenues modestly increased by $150,000 to $8,914,000 for the nine months ended September 30, 2001, compared to $8,764,000 for the same period one year ago. Management expects support revenues to continue to grow with the implementation of new systems. As of September 30, 2001, the recurring annualized billable support base was $12.3 million. Cost of Products Sold. Cost of products sold as a percent of total revenues for the nine months ended September 30, 2001 decreased to 8.0% from 8.4% for the same period in 2000. Hardware and third party application software license revenues during the first nine months of 2001 similarly decreased to 29.5% from 31.6% of total revenues for the first nine months of 2000, due to the overall increase in the number of clients directly procuring equipment. Client Services Expense. Client services expense for the nine months ended September 30, 2001 decreased $743,000 to $6,876,000 from $7,619,000 for the nine months ended September 30, 2000, decreasing as a percentage of sales from 39.6% to 35.6%. The Company previously reported a decrease in duplicative staffing and a reallocation of various resources in connection with the realignment plan completed in 2001. Product installation, delivery and support services were standardized along all product lines as the Company focuses on revenue generating functions. Software Development Costs. Software development costs for the nine months ended September 30, 2001 decreased to 16.5% of total operating revenues from 19.1% incurred during the nine months ended September 30, 2000. The $478,000 decrease in software development expense reported for the nine months ended September 30, 2001 of $3,201,000, compared to $3,679,000 reported for the nine months ended September 30, 2000, reflects a $1,553,000 reduction in capitalized software development costs offset by other reductions in total software departmental costs of $2,031,000 through the reduction and reallocation of personnel to various departments. Although development efforts continue as part of the Company's overall strategy, the focus has been less on enhancements to existing product lines and more towards completion of the Company's e-Business initiatives. Cost incurred in connection with the Company's e-Business initiatives were not capitalized since the development of the products have not yet reached technological feasibility. Page 11 of 16 Sales and Marketing. Sales and marketing costs for the nine months ended September 30, 2001 as a percentage of total revenues, increased to 20.1% from 17.2% for the same period of 2000. This increase of $573,000 from $3,311,000 to $3,884,000 in sales and marketing expenses results principally from the increase of $460,000 in sales commissions paid as a result of an increase in the relative sales bookings during the first and second quarters. The remaining $113,000 increase is primarily due to increased marketing activity to promote the Company's new CoMed product and market awareness of existing products. General and Administrative. General and Administrative expenses for the nine months ended September 30, 2001 increased $259,000 to $3,284,000 from $3,025,000 for the nine months ended September 30, 2000. The increase of $259,000 in expense is associated with direct increases in travel and entertainment, bad debt, legal, supplies, and the company's business activities specifically relating to compliance with NASDAQ. Realignment Costs. During the second quarter 2001, the company adopted a formal plan to reallocate and eliminate selected mid-level management and supplicate staff positions in the Company. In connection with the plan, a total of thirty-six employees were terminated and the company incurred a non-recurring charge in the amount of $465,204 related to termination and severance benefits. At September 30, 2001 $414,725 was paid and $50,728 of the remaining accrued severance and termination benefits will be paid by December 31, 2001. Merger Costs. During the three months ended September 30, 2001 the Company incurred $622,000 in legal fees and fees associated in obtaining a fairness opinion in connection with the proposed merger with Cerner Corporation dated September 5, 2001. Other Income (expense). The Company incurred $76,000 of net other expense for the nine months ended September 30, 2001 compared to $85,000 of net other expense reported for the nine months ended September 30, 2000. The net decrease of $9,000 in other expense is principally due to a $15,000 decrease in other income and a reduction of $24,000 for loss on disposal of fixed assets. LIQUIDITY AND CAPITAL RESOURCES ---------------------------------- As of September 30, 2001 the Company had cash and cash equivalents of $2,160,503, availability under the line of credit of $2,500,000, and a working capital deficit of $18,000. In addition, the Company has experienced positive cash flow from operations for twelve consecutive quarters. Accounts receivable as of September 30, 2001 increased by $174,000 from the balance on December 31, 2000, principally as a result of the increased activities for support renewals and increase in new system installations. Unbilled receivables increased by $14,000 due principally to the timing of billable milestones on implementations. During the first nine month of fiscal year 2001 the Company capitalized $69,000 of software development costs and purchased $345,000 of additional property and equipment. Development efforts capitalized during the first three quarters of 2001 included enhancements to the Company's existing product line and the advancement of workflow integration with our CoPathPlus system. Property purchases were made primarily for office equipment at levels similar to the prior year with the exception of purchasing a new trade show booth. Accounts payable and accrued expenses increased $93,000 to $3,154,000 as of September 30, 2001 from $3,061,000 as of December 31, 2000. Deferred revenue as of September 30, 2001 increased by $247,000 to $6,176,000 from $5,929,000 reported as of December 31, 2000. The Company has a concentration of calendar year annual client 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 September 30, 2001 increased by $1,259,000 to $2,456,000 from the 2000 year end balance of $1,197,000. The increase in sales bookings for the nine month period ended September 30, 2001 resulted in a higher level of client contract deposits received. Page 12 of 16 The Company's line of credit with Silicon Valley Bank was renegotiated on July 25, 2001 and expires in July 24, 2002. The new line of credit will provide for up to $2,500,000 of borrowings based on a maximum advanced ratio equal to 80% of qualified accounts receivable. Borrowings as of November 13, 2001 were $0. Future borrowing capacity is contingent on the Company's compliance with a minimum quick asset ratio (as defined) of 1.00 to 1.00. Due to the cyclical nature of the Company's operations, the Company faces the risk of non-compliance with the quick asset ratio requirement, which could result in the reduction or removal of the Company's available line of credit. Management believes that existing cash and funds available under its existing line of credit, together with funds expected to be generated by operations will be sufficient to meet operating requirements. However, the Company's ability to meet its future working capital requirements is dependent on the Company's ability to continue to generate positive cash flow from operations and to have availability under its existing line of credit. 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 believes that the realignment plan adopted in April 2001 to eliminate and reallocate resources will be accretive in future periods both in cash and operational savings. The Company has incurred costs of $622,444 as of September 30, 2001 for legal and fairness opinion fees in connection with the proposed Merger Agreement with Cerner Corporation dated September 5, 2001. The Company expects to incur additional cost in connection with the merger agreement, but does not believe these costs will have a material effect on the Company's financial condition. INFLATION AND CHANGING PRICES -------------------------------- The Company believes that the general state of the economy and inflationary trends have only a limited effect on its business. Historically, inflation has not had a material effect on the Company. Changing prices of computer hardware could have a material effect on the cost of the materials sold and the related selling price of software and hardware sales. RECENT ACCOUNTING PRONOUNCEMENTS ---------------------------------- In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 41 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill and reassess the useful lives of other existing recognized intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of September 30, 2001, the net carrying amount of goodwill is $558,393. Amortization expense during the nine -month period ended September 30, 2001 was $289,541. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. 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, 2000. Page 13 of 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its variable rate line of credit used to finance the Company's short-term working capital needs and general corporate purposes. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earning and cash flows and to lower its overall borrowing costs. The Company's market risks associated with its line of credit borrowings outstanding is that the interest rate under the line of credit agreement is based on the prime rate plus (3.0%) (9.0% as of September 30, 2001). The line of credit agreement expires on July 14, 2002. Fair value of the line of credit as of September 30, 2001 was equal to its carrying value of $-0-. Page 14 of 16 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 On September 5, 2001, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Cerner Corporation., a Delaware corporation ("Cerner"), and Cerner Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Cerner ("Cerner Holdings"), pursuant to which the Company will be merged with and into Cerner Holdings (the "Merger"). Concurrently with the execution of the Merger Agreement, on September 5, 2001, the Company entered into a Stock Option Agreement with Cerner (the "Stock Option Agreement") and certain of the Company's Series C Preferred Shareholders entered into a Shareholder Agreement ("Shareholder Agreement") with Cerner whereby they agreed to vote their preferred shares in favor of the Merger. For additional information regarding the terms and conditions of the Merger Agreement, the Stock Option Agreement, and the Shareholder Agreement, see the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "Commission") on September 12, 2001 as referenced in Item 6(b) of this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 2.1 -- Agreement and Plan of Merger, dated September 5, 2001, by and among Cerner Corporation, Cerner Holdings, Inc., and Dynamic Healthcare Technologies, Inc., incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on form 8-K filed with the Commission on September 12, 2001. 10.1 -- Stock Option Agreement, dated September 5, 2001, by and between Cerner Corporation and Dynamic Healthcare Technologies, Inc., incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on form 8-K filed with the Commission on September 12, 2001. 10.2 -- Shareholder Agreement, dated September 5, 2001, by and between Cerner Corporation and certain holders of Series C Preferred Stock, incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on form 8-K filed with the Commission on September 12, 2001. (b) Reports A Current Report on Form 8-K was filed by the Company with the Commission on September 12, 2001 pursuant to Item 5 thereof to report the execution of a definitive Agreement and Plan of Merger, dated September 5, 2001, by and between the Company, Cerner, and Cerner Holdings, pursuant to which the Company will be merged with and into Cerner Holdings. The Company also reported on the Form 8-K the execution of the Stock Option Agreement and the Shareholder Agreement. Page 15 of 16 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: November 14, 2001 /S/CHRISTOPHER ASSIF -------------------- --------------------- Christopher Assif Chief Executive Officer Date: November 14, 2001 /S/BRIAN GRECO -------------------- --------------- Brian Greco Vice President of Finance and Secretary Page 16 of 16

DYNAMIC HEALTHCARE TECHNOLOGIES INC 10-Q