FORM 10K
                 SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, D.C.  20549

(Mark One)

X  Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)

For the fiscal year ended December 31, 1997 or 

___Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)

Commission File Number              012516										           

Dynamic Healthcare Technologies, Inc.	
(Exact name of registrant as specified in its charter)

Florida                   59-3389871	
(State of Incorporation)	(IRS E.I.N.)

101 Southhall Lane, Suite 210, Maitland, Florida  32751	
(Address of principal executive offices)	(ZIP Code)
 
(407) 8759991			
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock		
                                                            (Title of Class)

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 ____

The aggregate market value of the voting stock held by
nonaffiliates, based on the average bid and asked prices as of
March 10, 1998, was 38,966,000.  A total of 12,345,535 shares of
the Company's common stock were held by persons and entities
believed to be nonaffiliated on March 10, 1998, and the closing
bids and ask prices of the Company's common stock on this date
were $3.125 and $3.1875, respectively.

As of March 10, 1998, there were 18,034,260 shares outstanding
of the issuer's only class of common stock.

This report consists of fifty-four (54) pages.

The index to exhibits appears on page nineteen (18).

Documents Incorporated by Reference

(1)	Portions of the definitive proxy statement for the Company's
1998 Annual Meeting of Shareholders, to be filed within 120 days
of the end of the Company's fiscal year covered by this report,
pursuant to General Instruction G(3) to Form 10K.


                             1     
                              

 
                          FORM 10K
             DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                           PART I

Item 1.	Business

General

Dynamic Healthcare Technologies, Inc. ("Dynamic" or the
"Company") is a leading provider of enterprise-wide, multimedia
clinical and electronic medical record solutions.  These systems
enable hospitals, physician practice groups and integrated
delivery networks to capture, manage and share patient
information across the continuum of care.  The Company's
products enhance productivity, reduce costs and improve the
quality of patient care by providing on-line access to patient
information previously maintained on a variety of media,
including paper, X-ray film, magnetic disk, and video and audio
recordings.  The Company's product lines include solutions for
radiology, anatomic pathology, electronic health records, and
clinical laboratory.  The Company provides support for all of
its systems and provides integration and other consulting
services.

The company currently serves over 600 customers, most located in
the United States.  Key customers include the UCLA Medical
Center, Methodist Hospital of Memphis, Orlando Regional Health
System, 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 electronic health record solution, DynamicVisionr,
provides connectivity and enabling technologies that integrate
clinical and imaging information systems to create an open
architecture, multi-media electronic health record. 
DynamicVision provides prompt and simultaneous on-line access to
information stored in various systems and repositories located
at multiple sites.  This information can include documents,
medical images such as X-rays, MRIs and CAT scans, and video and
audio recordings. 

The Company was originally incorporated in California in 1977,
reincorporated in Nebraska in 1982 and subsequently
reincorporated in Florida in 1996.  The Company's executive
offices are located at 101 Southhall Lane, Suite 210, Maitland,
Florida 32751, its telephone number is (407) 875-9991 and its
World Wide Web address is http://www.dht.com.  The Company
currently maintains clinical solution centers in Waltham MA,
Apple Valley and Minnetonka MN.

Industry

The healthcare industry is undergoing rapid and significant
change.  Cost containment pressures, industry consolidation, the
movement toward managed care, and the rising standards of
healthcare quality represent fundamental trends in today's
healthcare operating environment.  Increasingly, the key to
effective cost control and quality management lies in the
collection, availability and analysis of medical records in
order to assess treatment patterns, resource utilization and
outcomes. As a result, the information demands in the healthcare
industry are rapidly increasing for caregivers, managers and
third party payers.  

Cost containment and quality management efforts in the
healthcare industry have historically been hampered by a lack of
integrated clinical and financial information and the fact that
a large amount of healthcare information exists on paper and is
not accessible by computer.  The paper-based storage of patient
information creates costly information management problems
including: (i) delays in accessing information; (ii) space and
personnel costs to store paper-based records; (iii) lost and
misfiled documents; (iv) single user access to relevant data;
and (v) errors in entering and reading information.  As
reimbursement is shifting more toward risk sharing and
capitation, providers and payers need to better manage risk by
controlling costs, demonstrating quality, measuring outcomes and
influencing utilization.

Healthcare providers have recently begun to view information
systems technology as a viable avenue for increasing
productivity and efficiency, measuring and managing costs, and
improving the quality of services delivered.  The 1997 Annual
Healthcare Information Management and Systems Society
("HIMSS")/Hewlett Packard Leadership Survey suggested that,
within the next two years, 20 percent of the respondents
organizations will increase their IT budgets by 50 percent or
more, and 49 percent expect their IT budgets to increase between
10 and 40 percent.


                             2




As the need for information continues to grow, hospitals,
providers and payers of all sizes are faced with the challenge
of implementing healthcare information management systems that
are scaleable, capable of working with existing multiple legacy
information systems and flexible to adapt to changes in the
healthcare marketplace.  These systems must be patient-centered,
integrating all aspects of managing the healthcare delivery
process.

Industry changes are resulting in fewer but larger healthcare
entities and the emerging organizational model is the integrated
delivery network ("IDN").  An IDN is a network of healthcare
organizations that assumes and manages healthcare risk, provides
coordinated care and is held financially and clinically
accountable for the health of the population it serves.  The
1997 HIMSS/Hewlett Packard Leadership Survey indicated that 25%
are now a part of an IDN and 35% are now or will soon be part of
an IDN.

IDN's require innovative information systems infrastructure to
support their multi-entity, enterprise environments.  Their
information systems must contribute to making the delivery of
healthcare services more efficient and effective across the
continuum of care.  They must deliver tangible cost reductions
and measurable productivity and quality improvements, making the
availability of complete, timely and cost-effective
patient-centered information essential.

The Company believes that its strategy for the delivery of
multimedia clinical information systems and its aggressive
movement toward  the electronic health record are consistent
with the needs of today's diverse provider environments.  These
beliefs are confirmed by the 1997 HIMSS/Hewlett Packard
Leadership Survey which shows that the implementation of new
clinical systems (16 percent), clinical data repositories (21
percent) and electronic medical records (19 percent) account for
more than half of the respondents' priorities for application
development in the next year.


                             3



Products and Services

The Company has a broad product line comprising a strategic mix
of applications, technologies and services that support the
restructuring of the healthcare delivery system. The Company
offers information solutions for radiology, anatomic pathology,
clinical laboratory and electronic health records.


<TABLE>

Products Generally Available 	Type of Solution 	Description 			

<S>         <C>                          <C>

Radiology 	 	 	 		
Maxifile    Radiology Information System  An voice and image-enabled 
                                          client/server radiology information
                                          system that manages clerical and
                                          administrative functions as well as
                                          patient scheduling and film tracking 
                                          for the radiology department.  			

PACsPlus+   PACS                          A picture archiving and 
                                          communication system (PACS) that 
                                          enables physicians and caregivers
                                          to access, review and manipulate 
                                          images from local and remote 
                                          locations.

OPTIMA      Mammography Management        Manages clerical and administrative
                                          functions for mammography services.

MedSpeak/   Continuous Speech             An IBM speech recognition system 
Radiology     Recognition                 supported by a radiology knowledge 
                                          base.  MedSpeak enables radiologists
                                          to quickly create and edit their own
                                          diagnostic reports.

WebSight    Teleradiology                 A point-to-point teleradiology
                                          solution that enables the transfer and
                                          reception of images via a local area
                                          network or wide area network.  Images
                                          can be displayed and manipulated at
                                          remote locations.

Electronic Health Records 	 				

DynamicVision  Electronic Health Record   An enterprise-wide, multi-media 
                                          electronic health records solution 
                                          that provides connectivity and a
                                          single sign-on to multiple systems,
                                          document imaging and management, 
                                          advanced workflow and business 
                                          process automation.

Monitrax    Perioperative Information     A client/server solution that 
               Management System          collects and organizes vital
                                          patient, surgical, and anesthesia
                                          data.  Monitrax facilitates 
                                          clinical and management
                                          decision-making as well as outcomes
                                          research.

NRIdentity  Biometric Authentication      A National Registry Inc. product 
                                          that allows physicians and other
                                          authorized users to log-on to
                                          systems via fingerprint recognition.

CoPath      Anatomic Pathology System     An image and voice enabled client/
                                          server solution that manages
                                          clerical and administrative functions
                                          of the cytology/pathology department.

AIMS        Image Management System       A product of AutoCyte Inc., AIMS 
                                          captures, stores and communicates
                                          high resolution digital microscope
                                          and gross images of  pathology 
                                          specimens.

MedSpeak/   Continuous Speech             An IBM speech recognition solution
Pathology      Recognition                that expedites pathology report 
                                          turnaround with hands-free, 
                                          eyes-free generation of dictated
                                          reports.

Clinical Laboratory 	 				

Premier Series   Laboratory Information   Manages clerical and administrative
                         System           functions in the laboratory including
                                          monitoring and controlling 
                                          specimens, ordering, tracking, and
                                          results reporting  			
</TABLE>


                             4



Multimedia Radiology Solution

The Company's solution set for radiology comprises new,
client/server architecture systems.  Dynamic offers an
integrated Radiology Information System (RIS) and Picture
Archiving and Communication System (PACS) solution coupled with
advanced voice and imaging technologies.    

Maxifile is a voice and image-enabled radiology information
system that computerizes the clerical, administrative, and
clinical aspects of the radiology department.  Modular in
design, Maxifile applications include patient scheduling and
tracking, film management, statistical reporting, quality
control and patient billing.  Maxifile schedules patient
appointments and automatically generates documents that are
available when the patient arrives. Maxifile monitors the
patient throughout the radiology process and offers time and
status reports.  Film management tracks film movement among
departments, film libraries, clinics and off-site locations.
Diagnostic reports can be approved electronically and then
printed, communicated via a network or automatically faxed
through Maxifile's AutoFAX capability.  Primary markets include
hospitals, clinics and independent diagnostic imaging centers.

PACsPlus+ is an enterprise-wide, picture archiving and
communications system that automates image capture, management
and distribution.  This client/server solution image-enables
Maxifile or any other RIS to allow access to complete historical
information and diagnostic reports. PACsPlus+ provides
physicians and caregivers local and remote access to review- and
diagnostic-quality images and includes a sophisticated image
viewing and manipulation toolset.  

WebSight is a point-to-point teleradiology solution that enables
the capture, storage and communication of medical images from
multiple locations.  WebSight's adaptive compression technology
scales images to high resolution, multi-monitor configurations
with image display up to 2K x 2.5 K resolution.  It also
features a broad range of image processing capabilities.

OPTIMA is a client/server radiology mammography manager which
performs clerical and administrative functions for mammography
services.  OPTIMA includes an on-line patient history, including
breast diagrams, and supports the American College of
Radiologists (ACR) standards of compliance.

IBM MedSpeak/Radiology(TM) continuous speech recognition system, in
conjunction with the Company's suite of radiology products,
enables the radiologist to speak continuously and at a natural
pace, with the text appearing instantaneously on the screen. 
With little or no special training on the system, radiologists
can dramatically reduce the time and cost of radiology report
generation.

Multimedia Anatomic Pathology Solution

The Company's solution set for anatomic pathology (A/P) is a
scalable, client/server A/P system that is enabled with advanced
voice and imaging capabilities.    

CoPathr Anatomic Pathology Information System provides pathology
departments with a complete clinical solution that incorporates
text, voice, images, and multi-media capabilities.  A unique
"window painter" enables users to customize report formats and
data entry windows.   A library of management reports tracks
daily workflow requirements, monthly statistics, CLIA
compliance, and billing.  Diagnosis coding follows either SNOMED
International or SNOMED II.  Reports can be signed out
electronically and automatically faxed to multiple locations
within the enterprise.  CoPath Client/Server configurations are
available on IBM RS/6000, Intel NT, or DEC Alpha NT servers,
with Microsoft Windows 95 or Windows NT clients.

IBM MedSpeak/Pathology(TM) continuous speech recognition solution
gives the pathologist a hands-free, eyes-free capability to
dictate pathology reports by speaking continuously and at a
natural pace, with the text appearing instantaneously on the
screen.  With little or no special training on the system,
pathologists can dramatically reduce the time and cost of
pathology report generation.

AIMS, an image management system from AutoCyte Inc, captures
high-resolution digital microscope and gross images of pathology
specimens.  Images are stored with patient and diagnostic data
in electronic folders and can be printed on CoPath reports. 
Images can be communicated to remote locations for
consultations, medical education, and tumor boards.  An
exclusive agreement with AutoCyte enables the Company to market
the AutoCyte Image Management solution in the anatomic pathology
and laboratory information system markets.



                             5



Electronic Health Records

DynamicVision, the Company's enterprise electronic health record
solution, provides connectivity to systems, as well as image,
voice and data repositories across a healthcare environment,
giving physicians, caregivers and other authorized individuals
prompt and simultaneous access to both current and historical
health information.  DynamicVision enables physicians,
clinicians and other health professionals to: (i) view records,
report results and worklist assignments; (ii) display and
manipulate document and diagnostic images; (iii) handle the
analysis and assignment of chart deficiencies and electronically
sign records; (iv) play video and audio recordings; and (v)
participate in video consultations.  The DynamicVision image
engine may optionally be IBM's Image Plus, an AS/400 product, or
EASTMAN SOFTWARE Imaging, a Microsoft NT based product.  A vital
component of DynamicVision is EASTMAN SOFTWARE Workflow.  It
provides business process automation capabilities which
streamline the flow of tasks and information throughout an
enterprise.  In addition, system administration capabilities
include security profiling and specific permissions for the
enterprise.  DynamicVision provides the connectivity and
enabling technologies that integrate Dynamic's imaging and
clinical information systems, as well as those from other
companies, into a virtual healthcare information systems
environment.

NRIdentity, NRI's finger imaging technology enables an
authorized individual to log on to DynamicVision with the touch
of a finger.  This action compares the finger image to a
previously recorded and stored "finger print", bringing systems
security to a new level.

Consulting, Systems Integration and other Services

The Company provides a full range of professional consulting
services including project management, implementation planning,
training and education.  The Company's technical services
includes network design, implementation and support, custom
software development, interfaces and modifications and systems
integration.  The Company also provides support services
including 24-hour telephone support, and software maintenance
and enhancements. 


Research and Development 

The Company's research and development program is designed to
extend the capabilities of existing products and develop new
healthcare application solutions.  The Company believes that a
substantial and sustained commitment to product development is
important to the long-term success of its business.  As of
February 28, 1998, 51 professional employees were engaged in
research and development activities.  During the years ended
December 31, 1995, 1996 and 1997, the Company spent $2,727,000,
$3,564,000 and $8,336,000 respectively, on research and
development.  The Company's research and development is
influenced by customer input and user group forums.  Currently,
the Company's research and development efforts are primarily
focused on the DynamicVision, Maxifile C/S, CoPath C/S,
PACsPlus+ and Monitrax product lines.

Major Clients

The Company does not have a dependence on any single customer
the loss of which would have a material adverse effect.  The
Company does generate revenue almost exclusively through sales
to the healthcare industry located in the United States.  Due to
this concentration, substantially all receivables of the Company
are from healthcare institutions which may be similarly affected
by changes in economic, regulatory or other industry related
conditions.  The Company currently has approximately 600
customers.  The majority of these customers are located within
the United States.

Backlog

The Company had contracts which it believed to be firm for the
delivery of systems and services ("backlog"), totaling
approximately $7.9 million on February 28, 1998, compared to
$8.7 million on March 20, 1997.  In addition, the Company as of
February 28, 1998 has contracts for the delivery of software
support services billable at an annual rate of $12.6 million,
compared to $11 million as of March 20, 1997.

Strategic Relationships

The Company has entered into strategic relationships with
several leading technology developers, to gain access to certain
technologies that are integrated into the Company's systems. In
addition, through these strategic relationships the Company is
able to cross-market its internally developed or acquired
technologies to customers of its business partners.


                             6




IBM - In 1997, the Company acquired IBM's Medical Records/Plus
enterprise document imaging and management system. This AS/400
product is based on IBM's ImagePlus/400 image processing system
and offers DynamicVision customers an AS/400 document imaging
alternative. The Company has also integrated IBMr Med/Speak
Radiology(TM) solution into its Maxifiler radiology information
system, and MedSpeak/Pathology into its CoPath anatomic
pathology system.  This expands the Maxifiler and CoPath product
functionality to provide continuous speech recognition for
direct dictation of results into a database, bypassing the need
for transcription of diagnostic reports.  Continuous speech
recognition allows radiologists/pathologists to dictate at
normal rates of speech for instantaneous report production, with
little or no time lapse between the spoken and typed word. The
Company is also a re-marketer of IBM hardware.

Wang - The Company has a non-exclusive agreement with Wang to
market their Physicians' Workstation product.  This provides the
Company with a scalable, point-of-care patient record
application that facilitates the real-time capture of
information during the clinical encounter in the physician's
office.  

Eastman Software - The Company has a non-exclusive agreement
with Eastman Software to market their EASTMAN SOFTWARE Imaging
and EASTMAN SOFTWARE Workflow products as integral components of
the DynamicVision electronic health record solution.  This
offers DynamicVision customers a Microsoft Windows NT
alternative for document imaging and workflow. 

Dictaphone - The Company has a multi-media technology sharing
and marketing alliance with Dictaphone Corporation of Stratford,
CT, enabling it to incorporate Dictaphone's Integrated Voice and
Data Management ("IVDM") technologies into the Company's suite
of healthcare information systems.  The integration of IVDM
capabilities into DynamicVision creates a comprehensive voice,
text, data and imaging workstation.

The National Registry - The Company has a marketing agreement
with The National Registry, Inc. ("NRI") of Tampa, FL.  Through
this agreement, NRI's biometric authentication security
capability has been integrated into the Company's information
solutions.

Microsoft - The Company is a Microsoft Solution Provider
("MSP").  Through this program Microsoft works with the Company
to provide information, tools, and business development
assistance in implementing the successful use of Microsoft
Solutions Platform products such as Windows 95 and NT.

Sybase - The Company is an Open Solutions(TM) Partner with Sybase
Corporation.  This partnership enables Dynamic and Sybase to
deliver enterprise client/server solutions.

Sales and Marketing

As of February 28, 1998, the Company had sixty-six full time
employees in sales and marketing related functions.  The Company
had thirty-three sales employees and thirty-three marketing
employees.  The compensation of the sales employees is
substantially dependent on the achievement of individual sales
targets.  Marketing personnel  perform telemarketing, proposal
development, demonstration coordination, develop product
competitive analyses, sales collateral, audio and video
products, coordinate trade shows, advertising, public relations
activities, and administrative support.

The Company's sales cycle is typically six to eighteen months
and includes several steps: (i) initial contact and
qualification; (ii) development of proposal in response to
request for a proposal or direct sales lead; (iii) business
problem requirements definition; (iv) product demonstrations;
(v) site visits; and (vi) contract preparation and negotiations.
Members of the Company's professional services, product
management and sales support departments, and members of
executive management assist the sales force in completing the
proposal, conducting demonstrations and analyzing the
requirements.  In support of the sales efforts, the Company
advertises in trade journals, participates in trade shows,
publishes articles and provides speakers for industry shows and
conferences.  In addition, the Company receives qualified leads
as well as support in proposal development, demonstrations and
site visits from its strategic business partners, which include
IBM, Wang, Dictaphone, NRI and others. 

Customers

The Company currently supports over 600 customers, the majority
of which are located in the United States.  The Company
generates revenues almost exclusively through sales to the
healthcare industry located in the United States.  Due to this
concentration, substantially all receivables of the Company are
from healthcare institutions which may be similarly affected by
changes in economic, regulatory or other industry related
conditions.  Key customers include the UCLA Medical Center,
Methodist Hospital of Memphis, Orlando Regional Health System,
Ohio State University Hospital, University of Pittsburgh,


                             7


Temple University Hospital, University of Illinois at Chicago Medical
Center, Memorial Sloan-Kettering Cancer Center, Advocate Health
Care, Greater Dayton Area Hospital Association, The Mayo Clinic
and UniHealth.

Competition

The market for information technology in the healthcare industry
is intensely competitive.  Many of the Company's competitors
have significantly greater financial, research and development,
technical and marketing resources than the Company.  Competitors
vary in size and in the scope and breadth of the products and
services they offer.  The Company's systems compete both with
other technologies and with similar systems developed by other
companies.  Other major information management companies,
including the companies with whom the Company has strategic
relationships, may enter the markets in which the Company
competes.  Competitive pressures and other factors, such as new
system introductions by the Company's competitors, may result in
significant pricing pressures that could have a material adverse
effect on the Company.  In addition, in the professional and
technical consulting segment, the Company competes with the
consulting divisions of national accounting firms as well as
national and regional healthcare specialty consulting firms. 
The Company does not have a dependence on any single customer
the loss of which would have a material adverse effect.

Government Regulation

The United States Food and Drug Administration ("FDA") has
issued a draft guidance document addressing the regulation of
certain computer products as devices under the Federal Food,
Drug and Cosmetic Act ("FFDCA").  To the extent that computer
software is classified as a device under applicable regulations,
the manufacturers of such products could be required, depending
upon the product, to: (i) register and list their products with
the FDA, (ii) notify the FDA and demonstrate substantial
equivalence to other products on the market before marketing
such products or (iii) obtain FDA clearance by filing a
pre-market application that establishes the safety and
effectiveness of the product.  The Company has three products
considered devices under the FFDCA: Monitrax, PACsPlus+ and
Transfusion Service Manager ("TSM").  As a result of the
characterization of certain of the Company's products as
devices, the Company's manufacturing facilities are registered
with the FDA and its manufacturing operations regarding devices
are required to be in compliance with the FDA's rules and
regulations.  The FDA conducted on-site inspections at the
Maitland facility in May 1996 and at the Minnetonka facility in
June 1996.  Both inspections were concluded without incident. 
On December 19, 1997, the FDA issued a letter of Substantial
Equivalence to the Company for the TSM product.  This letter was
the positive outcome of the 510(k)  submission process begun in
March, 1996.  There can be no assurance that the Company will
ultimately be able to obtain or maintain required FDA approvals
to market its products.

Intellectual Property

The Company primarily relies upon trade secrets, copyright laws
and confidentiality agreements with employees and customers to
protect its rights in its software technology.  The Company does
not hold any patents nor has it filed copyrights with respect to
any of its software technology.  Due to the rapid pace of
innovation within the software industry, the Company believes
that patent, trade secret and copyright protection are less
significant than the Company's ability to further develop,
enhance and modify its current products and other clinical
information systems through the technology and creative skills
of its personnel.  To minimize the possibility of third parties
imitating the Company's systems, the Company only licenses
object code and does not license or otherwise distribute source
code.

The Company's employees are required to enter into
confidentiality agreements which prohibit the disclosure of
confidential information and require employees to report and
assign to the Company all concepts, developments, discoveries
and inventions conceived during their employment.

The Company has federal trademark registration for Maxifile,
CoPath, OPTIMA, DynamicVision, and PACsPlus+, and has applied
for federal trademark registration for Monitrax and WebSight.

There can be no assurance that the legal protections and
precautions taken by the Company will be adequate to prevent
misappropriation of the Company's technology.  In addition,
these protections do not prevent independent third-party
development of functionally equivalent or superior technologies
or services.  The Company does not believe that its operations
or products infringe on the intellectual property rights of
others.  There can be no assurance that others will not assert
infringement or trade secret claims against the Company with
respect to its current or future products or that the Company
will be successful in defending any such claim.


                             8



Employees

As of February 28, 1998, the Company had 324 full time
employees, of which 51 were employed in research and
development, 148 in client services, 59 in general and
administrative and 66 in sales and marketing.  None of the
Company's employees is represented by a labor union or subject
to a collective bargaining agreement.  The Company has never
experienced a work stoppage and believes that its employee
relations are good.

Factors Affecting Forward-Looking Statements

This report, and other reports, proxy statements and other
communications to stockholders, as well as oral statements made
by representatives of the Company, may contain forward-looking
statements and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission,
that are subject to risks and uncertainties, including, but not
limited to, the impact of competitive products and pricing
product demand and market acceptance, new product development,
reliance on key strategic alliances, availability of products
procured from third party vendors, the healthcare regulatory
environment, fluctuations in operating results and with respect
to, among other things the Company's future revenues, operating
income and earnings per share, as well as plans and objectives
of management.  Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof.  The Company
undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.  The following
are some, but not necessarily all, of the factors that may cause
the Company's actual results to vary materially from those which
are the subject of any such forward-looking statements.

An important element of the Company's business strategy has been
and will continue to be expansion through acquisitions, both to
extend its customer base and to acquire strategic technology. 
The Company's ability to expand successfully through
acquisitions depends on many factors including the
identification of appropriate acquisition opportunities,
negotiation of suitable terms and management's ability to
effectively integrate and operate the acquired businesses.  The
Company competes for acquisitions with other companies, certain
of which have significantly greater financial and management
resources.  The Company's financial performance will be subject
to the risks of the performance of the acquired businesses as
well as the financial effects associated with integration of
such businesses.

The healthcare industry is subject to changing political,
economic and regulatory influences, many of which relate to
control of healthcare costs.  Such changes may affect
operational aspects of the healthcare industry, including
procurement practices and the availability and/or allocation of
capital funds, which could result in greater selectivity, thus
adversely impacting the Company's ability to sell its products. 
The Company cannot predict with any certainty what impact, if
any, future regulation or healthcare reform might have on its
results of operations, financial condition or business.

The Company's quarterly revenues and results of operations have
varied significantly as a result of a number of factors,
including (i) the volume and timing of systems sales and
installations; (ii) the timing of client acceptances; (iii) the
length and complexity of the systems sales and installation
cycles; (iv) seasonal buying trends as a result of clients'
annual purchasing and budgeting practices; and (v) the Company's
sales commission practices.  The Company expects that these
variations will continue for the foreseeable future.  The
Company recognizes revenues from the software portion of system
sales on a percentage-of-completion method based upon completion
of specified milestones.  As a result, the timing of revenue
recognition varies considerably and could be impeded by a number
of factors, including availability of Company personnel, the
Company's need to allocate system installation resources to
other installations or to research and development activities,
availability of client personnel and other resources, and
complexity of the clients' needs and delays imposed by clients. 
Any trend of delays in progress toward completing a material
system installation or a number of smaller installations could
reduce the revenues recognized in any given period and could
have a material adverse effect on the Company's business and
results of operations.  Because a significant percentage of the
Company's expenses, particularly employee compensation, is
relatively fixed, variations in the timing of systems sales and
installations can cause significant variations in operating
results from quarter to quarter.  If total revenues are below
expectations in any period, the Company's inability to adjust
spending to compensate fully for the lower revenues may magnify
the adverse effect of such a shortfall on the Company's results
of operations.  Accordingly, the Company believes that
period-to-period comparisons of revenue and results of
operations are not necessarily meaningful and should not be
relied upon as indicators of future performance.

While the Company maintains insurance protecting against certain
asserted claims, there can be no assurance that its insurance
coverage would adequately cover any or all such claims asserted
against the Company.

The Company expects that the United States Food and Drug
Administration ("FDA") is likely to become increasingly active
in regulating computer software that is intended for use in
health care settings.  In March 1994, the FDA issued a letter
advising that the FDA considers medical devices to include
software products intended for use in the manufacture of blood
and blood 


                            9



components or for the maintenance of data used to
assist personnel in making decisions concerning the suitability
of blood donors and the release of blood or blood components for
transfusion or further manufacture.  As such, the FDA determined
that manufactures and distributors of these products, such as
the Company, are subject to FDA regulation.  The FDA can impose
extensive requirements governing pre- and post market conditions
such as device investigation, approval, labeling and
manufacturing.  Compliance with these new requirements and any
future requirements imposed by the FDA could be costly and could
delay or preclude the introduction of certain new products.  The
Company is unable to determine at this time the effect, if any,
that these requirements may have on its business.

Competition in the Company's industry is subject to continual
change in not only the products and services offered but also in
the manner in which vendors are selected by customers. 
Accordingly, the Company's continued success will be dependent
on its ability to develop new products and services on a timely
basis and at competitive prices.

The Company's systems include applications that may relate to
confidential medical histories and treatment plans.  Improper
disclosure of this information or any failure by the Company's
systems to provide accurate and timely information could result
in claims against the Company by its clients or their patients. 
A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the
Company's business or results of operations, and even
unsuccessful claims could result in the expenditure of
substantial funds in litigation and the diversion of management
time and resources.  There can be no assurance that the Company
will not be subject to such claims in the future, that such
claims will not result in liability in excess of any insurance
coverage maintained by the Company with respect to such claims,
that insurance will cover such claims or that appropriate
insurance will continue to be available to the Company at
commercially reasonable rates.

The Company must anticipate and adapt to evolving industry
standards and new technological developments.  The market for
the Company's products is characterized by continued and rapid
technological advances.  The Company's future success will
depend in part on its ability to be responsive to these
technological developments and challenges, which could also
lower the cost of products and services or otherwise result in
competitive pricing pressures.

The Company relies on a combination of trade secret, copyright
and trademark laws, together with nondisclosure, other
contractual provisions and technical measures to protect its
proprietary rights in its products.  There can be no assurance
that these protections will be adequate or that the Company
competitors will not independently develop technologies that are
equivalent or superior to the Company's technology.  Although
the Company believes that its products and other proprietary
rights do not infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not
assert infringement claims against the Company in the future.

The stock market has, from time to time, experienced extreme
price and volume fluctuations, particularly in the high
technology sector, which have often been unrelated to the
operating performance of particular companies.  The Company
experiences fluctuations in its stock price related to these
general market swings as well as announcements of technological
innovations, new product introductions by the Company or its
competitors, market conditions in the computer software or
hardware industries and healthcare reform measures.  These
fluctuations may adversely effect the Company's ability to make
acquisitions utilizing its stock

Item 2.	Properties

The Company's corporate headquarters are located at 101
Southhall Lane, Suite 210, in Maitland, Florida 32751.  The
Maitland location consists of approximately 23,700 square feet
of office space under a lease which expires March 31, 1999.  The
Company maintains an office at 10901 Bren Road East, Minnetonka,
Minnesota 55343 (the former Dimensional Medicine, Inc. facility)
as the Company's radiology technology center.  The Minnetonka
location consists of approximately 13,000 square feet under
lease which expires on July 31, 1999.  The Company also
maintains an office at 7300 W. 147th Street, Apple Valley,
Minnesota  55124 (the former Dynacor, Inc. facility).  The Apple
Valley location consists of approximately 12,800 square feet
under lease which expires on July 31, 1999.  In addition, the
Company also maintains an office at Two University Office Park,
51 Sawyer Road, Waltham, Massachusetts, 02154 (the former
Collaborative Medical Systems, Inc. facility) as the Company's
clinical solutions center.  The Waltham location consists of
approximately 30,000 square feet under lease which expires on
November 30, 1999.  During 1997, the Company entered into a six
year lease agreement which expires March 1, 2005, for
approximately 53,800 square feet of office space at 615 Crescent
Executive Court, Suite 600, Lake Mary, Florida  32746.  This
location will be the Company's new corporate headquarters
beginning on or about September 1, 1998 at which time the
Maitland location is intended to be sublet.


                             10



Item 3.	Legal Proceedings

In February 1996, the Company instituted an action against James
A. Terrano ("Terrano"), the Company's former President and Chief
Executive Officer, in the District Court of Lancaster County,
Nebraska, alleging that Terrano (i) made fraudulent and
negligent representations to the Company's Board of Directors,
which resulted in the Company's acceptance of a handwritten
memorandum modifying Terrano's employment agreement, (ii)
breached his fiduciary duty to the Company and (iii) breached
his obligations under his employment agreement with the Company.
 The Company is seeking to recover damages in the amount of at
least $50,000 in addition to the declaratory judgment
determining that no severance pay is due Mr. Terrano and that
the handwritten memorandum is invalid and unenforceable and does
not modify the employment agreement.  Mr. Terrano has
counter-claimed that he has been defamed by the Company.  The
Company is a defendant in an action in which Mr. Terrano has a
demand for $280,000 in severance pay together with two years
worth of benefits unquantified to include the use of an
automobile, club dues and insurance policies.  The Company is
vigorously contesting this case.  It is not possible to evaluate
the likelihood of a favorable or unfavorable outcome at this
time.

The Company was a defendant in an action filed by a former
Vice-President in March, 1995 in the District Court of Lancaster
County, Nebraska, alleging that the Company did not lawfully
terminate her for cause, and, therefore, breached her employment
agreement.  The case was dismissed on August 8, 1997.

In July 1997, the Company commenced a declaratory judgement
action in Dakota County, Minnesota District Court seeking a
declaration that the Company had properly terminated the
services of an individual.  The individual filed a counterclaim
and demanded $200,000 in settlement of a claim alleging breach
of contract, promissory estoppel and fraud.  The parties are
engaged in discovery and trial is presently scheduled for July
1998.  The Company is vigorously defending all claims made by
the individual, and after consultation with its counsel has
assessed the likelihood of an unfavorable outcome as remote.

As of the date hereof, there are no other material legal
proceedings pending against the Company.


Item 4.		Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of the Company's security
holders during the fourth quarter of 1997.



                             11



                           FORM 10-K
              DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                            PART II

Item 5.  Market for Registrant's Common Stock and Related
         Stockholder Matter

(a)	The information called for by this item is incorporated
herein by reference from page fifty-five (53) of Exhibit 13 to
this Form 10K.

(b)	As of March 10, 1998, there were approximately 3,685
shareholders of the Company's Common Stock.

(c)	The Company has declared no cash dividends on its common
stock since its inception and plans to continue to invest all
earnings back into the Company in the foreseeable future.


Item 6.	  Selected Financial Data

The information required by this item is incorporated herein by
reference from page 24 of Exhibit 13 to this Form 10K.


Item 7.	Management's Discussion and Analysis of Financial
        Condition and Results of Operations

The information required by this item is incorporated herein by
reference from page 25 through page 34 of exhibit 13 to this Form 10K.


Item 8.	Financial Statements and Supplementary Data

The information required by this item is incorporated herein by
reference from page 35 through page 54 of	Exhibit 13 to this Form 10K.


Item 9.	Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure

There were no changes in and/or disagreements with accountants
on accounting and/or financial disclosures during 1996 or 1997.



                             12



                          FORM 10-K
              DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                           PART III

Item 10.	Directors and Executive Officers of the Registrant

The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders.


Item 11.	Executive Compensation

The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1998 Annual Meeting 
of Shareholders.


Item 12.	Security Ownership of Certain Beneficial Owners and
         Management

The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1998 Annual Meeting
of Shareholders.


Item 13.	Certain Relationships and Related Transactions

The information required by this item is incorporated herein by
reference from the Company's Proxy Statement for its 1998 Annual Meeting
of Shareholders.



                             13



                          FORM 10-K
              DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                           PART IV

Item 14.	Exhibits, Financial Statement Schedules, and Reports on
         Form 8K

(a)	The following documents are filed as a part of this report:

    1.	Financial Statements
       -Independent Auditors' Report on the financial statements.
       -Balance Sheets as of December 31, 1996 and 1997.
       -Statements of Operations for the years ended December 31, 1995,
        1996 and 1997.
       -Statements of Shareholders' Equity for the years ended December
        31, 1995, 1996 and 1997.
       -Statements of Cash Flows for the years ended December 31, 1995,
        1996 and 1997.
       -Notes to Financial Statements.

The Financial Statements listed above are all incorporated by
reference to pages 36 through 56 of Exhibit 13 to this Form 10K.

    2.	Financial Statement Schedules

               Index                               Schedule No.    Page No. 

Independent Auditors' Report on Financial
Statement Schedule                                       --             15

Valuation and Qualifying Accounts                        II             16


All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes thereto.

    3.	Exhibits

       Exhibit 11:  Statement regarding computation of per share earnings.
       Exhibit 13:  1997 Annual Report to Security Holders.

(b)	No reports were filed on Form 8-K during the quarter ended 
    December 31, 1997.


         
                             14



                   INDEPENDENT AUDITORS' REPORT



Board of Directors 
Dynamic Healthcare Technologies, Inc.:

Under date of February 27, 1998, we reported on the consolidated
balance sheets of Dynamic Healthcare Technologies, Inc. as of
December 31, 1996 and 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows
for each of the years in the three-year period ended December
31, 1997, as contained in the annual report on Form 10-K for the
year 1997.  In connection with our audits of the aforementioned
consolidated financial statements, we have also audited the
related 1995, 1996 and 1997 information in the consolidated
financial statement schedule as listed in the accompanying
index.  This consolidated financial statement schedule is the
responsibility of the Company's management.  Our responsibility
is to express an opinion on the 1995, 1996 and 1997 information
in this consolidated financial statement schedule based on our
audits.  

In our opinion, such 1995, 1996 and 1997 information in the
consolidated financial statement schedule, when considered in
relation to the basic 1995, 1996 and 1997 consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.  

                                  /S/KPMG PEAT MARWICK LLP
                                     KPMG PEAT MARWICK LLP

Orlando, Florida
February 27, 1998



                             15



              DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                VALUATION AND QUALIFYING ACCOUNTS
           YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
                            Schedule II

                  Balance At  Charged to  Write-off's                Balance
                  Beginning   Cost and    Retirements &   Other      At End of 
Description       of Year     Expenses 	  Collections 	   Additions  Year

<S>               <C>         <C>         <C>             <C>        <C>

Year Ended 
December 31, 1995: 	 	 	 	 	 

Allowance for 
Doubtful Accounts
Receivable         $ 250,000   $   --       $ 84,167   $   --      $   140,837

Accumulated
Amortization of
Capitalized Software
Development Costs 	$1,750,457  $  798,710   $     --   $   --       $2,549,167


Year Ended December 31, 1996: 	 	 	 	 	 

Allowance for
Doubtful Accounts
Receivable         $  140,837  $       --   $ 37,637   $222,902(1)  $  326,102 

Accumulated 
Amortization of
Capitalized Software
Development Costs  $2,549,167  $1,128,402   $309,269   $     --     $3,368,300


Year Ended December 31, 1997: 	 	 	 	 	 

Allowance for
Doubtful Accounts
Receivable        $   326,102  $       --   $ 19,046   $     --     $  307,056

Accumulated
Amortization of
Capitalized Software
Development Costs  $3,368,300  $1,484,276   $ 23,305   $     --     $4,829,271

</TABLE>

(1)  Other additions represents the valuation accounts of Dimensional Medicine,
     Inc. and Collaborative Medical Systems, Inc. acquired in acquisitions 
     accounted for as purchase business combinations.


                             16



                           FORM 10K
             DYNAMIC HEALTHCARE TECHNOLOGIES, INC.


                           SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
Commission File No. 012516
IRS E.I.N. 593389871

By:  /S/PAUL S. GLOVER          Date:  MARCH 24, 1998
     Paul S. Glover
     Vice President of Finance, 
     Chief Financial Officer
     and Secretary

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.

     Signature                  Title                                Date



/S/DAVID M. POMERANCE    Chairman of the Board                  March 26, 1998
David M. Pomerance

/S/MITCHEL J. LASKEY     President, CEO, Treasurer & Director   March 26, 1998
Mitchel J. Laskey

/S/PAUL S. GLOVER        Vice President of Finance, CFO 
Paul S. Glover           & Secretary                            March 26, 1998

/S/JERRY L. CARSON       Director                               March 26, 1998
Jerry L. Carson

/S/THOMAS J. MARTINSON   Director                               March 26, 1998
Thomas J. Martinson

/S/BRET R. MAXWELL       Director                               March 26, 1998
Bret R. Maxwell  

/S/DANIEL RAYNOR         Director                               March 26, 1998
Daniel Raynor 

/S/RICHARD W. TRUELICK   Director                               March 26, 1998
Richard W. Truelick  



                            17



                          FORM 10K
            DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                      INDEX TO EXHIBITS



                                                                        Page
               Description of Exhibits                                 Number

Exhibit 11     Statement regarding computation of per share earnings.    19

Exhibit 13     Annual Report to Shareholders of Dynamic Healthcare
               Technologies, Inc. for the fiscal year ended 
               December 31, 1997.                                        21



                             18



                          FORM 10K
            DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                         EXHIBIT 11




                     Statement Regarding
                       Computation of
                     Per Share Earnings



                             19




             DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
    COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                               AND
             EARNINGS PER SHARE FOR THE YEARS ENDED
               DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
                                              Years Ended December 31,
                                        1995(1)       1996(1)        1997(1)
<S>                                     <C>           <C>            <C>


Earnings (loss) available for
  common shareholders
     Net earnings (loss)              $ (589,842) 	 $(15,618,372)  	$1,042,958

     Preferred stock dividends           (24,844)       (251,037)           --

Earnings (loss) available for
  common shareholders                 $ (614,686)   $(15,869,409)  $ 1,042,958



Common and common equivalent
  Shares outstanding

Basic:
     Weighted average number of
       common shares outstanding       6,693,294       9,224,775    17,905,214

Diluted:
     Weighted average number of
       common shares outstanding       6,693,294       9,224,775    17,905,214
     Dilutive effect of options
       and warrants using average
       market price                           --              --       526,200
     Weighted average common and
       common equivalent shares
       outstanding assuming full
       dilution                        6,693,294       9,224,775    18,431,414


Earnings (loss) per share basic and
  diluted                             $    (0.09)     $    (1.72)  $      0.06

</TABLE>

(1)  Includes the operating results and related financial information
     of Dynacor, Inc. which merged with Dynamic Healthcare Technologies, Inc.
     on May 22, 1997 in a business combination accounted for as a pooling of
     interests.



                             20



                          FORM 10K
              DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                         EXHIBIT 13


 
                Annual Report to Shareholders
           of Dynamic Healthcare Technologies, Inc.
          for the Fiscal Year Ended December 31, 1997



                             21



                     OUTSIDE FRONT COVER



              Dynamic Healthcare Technologies, Inc.

                      1997 Annual Report



                             22



                      INSIDE FRONT COVER


Dynamic Healthcare Technologies, Inc. is a leader in providing
advanced information technologies for the healthcare industry. 
Dynamic's enterprise information solutions enable healthcare
providers to capture, manage and share electronic health
information across the continuum of care.


                             Contents

Company Profile 	

Selected Financial Data 	

Fellow Shareholders 	

Dynamic People 		

Management's Discussion and Analysis 		

Financial Statements and Notes 	

Independent Auditors' Report 	

Board of Directors and Officers 	

Shareholders Information 	




                             23




                  SELECTED FINANCIAL DATA
             FIVE YEARS ENDED DECEMBER 31, 1997

    (In thousands except per share data and current ratio)


The following selected financial data for the five years ended
December 31, 1997, were derived from the financial statements of
Dynamic Healthcare Technologies, Inc. and subsidiary.  These
data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations
and the financial statements, related notes and other financial
information included herein.

<TABLE>
                    1993(3)  1994(1)(3) 1995(1)(3) 1996(1)(2)(3) 1997(1)(2)(3)
<S>                 <C>      <C>        <C>        <C>           <C>

Operating Revenues  $12,095  $ 9,517    $12,088    $19,826       $36,545

Restructuring Charge      -      686          -          -             -

Net Earnings (Loss) 
from Continuing
Operations              542   (4,592)      (590)   (15,618)        1,043

Net Earnings (Loss)
Per Common Share       0.09    (0.79)     (0.09)     (1.72)         0.06

Working Capital       1,183   (2,976)     2,274      9,191         6,534

Current Ratio          1.31      .54       1.56       1.80          1.59

Total Assets          8,272    8,539     11,557     31,825        32,977

LongTerm Liabilities    100      869      2,786        591           454

Shareholders' Equity  4,391    1,168      4,703     19,771        21,423

</TABLE>

The Company has declared no cash dividends on common stock since
its inception.

(1) 	Includes the operating results and related financial
     information since the acquisition of Dynamic Technical
     Resources, Inc., accounted for as a purchase business
     combination, which occurred on August 23, 1994.

(2) 	Includes the operating results and related financial
     information since the acquisitions of Dimensional Medicine, Inc.
     ("DMI"), on May 1, 1996 and Collaborative Medical Systems, Inc.
     ("CoMed"), on December 17, 1996, including the non-recurring
     write off of in-process research and development of $15,057,569
     or $1.63 per common share, in connection with the CoMed
     acquisition.  Both of these acquisitions were accounted for as
     purchase business combinations.

(3) 	Includes the operating results and related financial
     information of Dynacor, Inc. which merged with Dynamic
     Healthcare Technologies, Inc. on May 22, 1997 in a business
     combination accounted for as a pooling of interests.



                            24



Item 7.

            MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS


ON MAY 22, 1997, DYNAMIC HEALTHCARE TECHNOLOGIES, INC. (THE
"COMPANY"), COMPLETED A MERGER WITH DYNACOR, INC. ("DYNACOR"),
IN A POOLING-OF-INTERESTS TRANSACTION.  ALL PRIOR PERIOD
INFORMATION HAS BEEN RESTATED TO INCLUDE THE ACCOUNTS AND
RESULTS OF OPERATIONS OF DYNACOR.

The Company is a leading provider of enterprise-wide,
patient-centered healthcare information systems.  These systems
enable hospitals, physician practice groups and integrated
delivery networks to capture, store, archive and retrieve
clinical, financial and administrative patient information.  The
Company's products enhance productivity, reduce costs and
improve the quality of patient care by providing on-line access
to patient information previously maintained on a variety of
media, including paper, X-ray film, magnetic disk, video and
audio.  The Company's current product lines include clinical
information systems for use in laboratory, anatomic pathology,
radiology and anesthesiology applications as well as imaging and
electronic health record solutions.  The Company provides
support for all of its systems and provides systems integration
and other consulting services to over 600 customers. Key
customers include the University of California at Los Angeles
Medical Center, University of Illinois at Chicago Medical
Center, Methodist Hospital of Memphis, Memorial Sloan-Kettering
Cancer Center, Ohio State University Hospital, Columbia/HCA,
Greater Dayton Area Hospital Association, Advocate Health Care,
Temple University Hospital, UniHealth and Orlando Regional
Health System.

In February 1997, the Company entered into a value added
re-marketing agreement with Sunquest Information Systems, Inc.
(NASDAQ:  SUNQ) of Tucson, Arizona.  Under the terms of the
agreement Sunquest agreed to pay an initial licensing fee of
$3,000,000 to sub-license Dynamic's CoPath client server
anatomic pathology solution ("CoPath C/S") to their existing
customers.  New Sunquest customers licensing CoPath C/S will pay
a separate licensing fee, and Dynamic will receive ongoing
annual maintenance and monthly consulting fees for all
continuing services rendered under this agreement.

Also in February 1997, the Company signed an agreement under
which Dynamic will sell HealthPoint ACS(TM), an advanced clinical
system for the office-based physician in the ambulatory setting.
Under the terms of this agreement, Dynamic will also provide
implementation services, training and telephone support to its
HealthPoint ACS(TM) clients.

In March 1997, the Company announced the general availability of
CoPath C/S having placed the product in use at the University of
California, San Francisco Medical Center and at the New York
Hospital - Cornell Medical Center.  Both of these academic
medical centers were previously beta sites for CoPath C/S.

On May 22, 1997 , the Company completed the acquisition of
Dynacor, Inc. of Apple Valley, Minnesota ("Dynacor").  Dynacor,
a privately-held company founded in 1978, had concentrated on
the design and implementation of laboratory information systems
("LIS"), for hospitals, health maintenance organizations,
physician's office laboratories, and reference laboratories. 
This acquisition increased the Company's customer base to in
excess of 600 hospitals, strengthened the Company's position in
the laboratory information systems marketplace, and expanded the
Company's laboratory information system (LIS) development
resources.

In June 1997, the Company announced the appointment of Michael
L. Carlay to the newly created position of Senior Vice
President, Sales and Marketing.  Mr. Carlay has over twenty
years experience in the information systems business.  Prior to
joining the Company Mr. Carlay held the positions of Vice
President of Sales and Marketing for AMISYS Managed Care Systems
(now HBOC), Vice President of Sales for IBAX Healthcare Systems
(now HBOC), and was a sales executive with IBM's Health Industry
Marketing group.



                            25



On July 29, 1997 the Company announced General Services
Administration (GSA) approval for the direct sale of the
Company's CoPath anatomic pathology systems and services to
government agencies.  In 1995, CoPath was the first
Commercial-Off-The-Shelf (COTS) system to be integrated into the
Department of Defense's Composite Health Care System (CHCS)
network.  CoPath has been implemented at more than 50 military
treatment facilities around the world and is listed in the GSA
Advantage, an on-line electronic ordering system provided
exclusively for Federal Government Agencies.  The Company
continues to pursue similar listings for all of its products.

During August 1997, the Company introduced Maxifile
Client/Server, a new open architecture radiology information
system at the American Healthcare Radiology Administrators 25th
Annual National Meeting in Minneapolis, Minnesota.  Maxifile
Client/Server is a comprehensive radiology system that
computerizes the clinical, clerical, and administrative
functions in the radiology department.   The Company is in the
process of implementing Maxifile Client/Sever at its initial
site. 

On September 17, 1997 the Company announced the signing of a
joint marketing agreement with Daou Systems, Inc. of San Diego,
CA (NASDAQ: DAOU).  The focus of this agreement is to promote
customer awareness of the potential benefits of using the
Company's enterprise-wide image enabled electronic health record
solution, DynamicVision, coupled with Daou's expertise and
services in designing, implementing, supporting and managing
advanced computer network systems.  The agreement provides for
the payment of fees to each entity when qualified leads result
in contracted business.

On September 29, 1997 the Company announced purchase of IBM's
Medical Records Plus/400 document imaging software.  Recognized
as the industry-leading technology solution for the IBM AS/400
platform in healthcare environments, the software will now be
identified as "Dynamic Medical Records Plus."  Although the
Company's DynamicVision product is designed as platform
independent, acquiring Dynamic Medical Records Plus provides the
Company with the opportunity to extend development efforts for
increased responsiveness to customer and market needs, and
eliminate the payment of related royalties.  

On November 4, 1997 the Company signed an original equipment
manufacturer distribution agreement with AutoCyte, Inc. (NASDAQ:
ACYT) of Econ College, North Carolina.  Under the terms of this
agreement, Dynamic acquired the exclusive rights to sell the
AutoCyte Image Management System ("AIMS") within the laboratory
and anatomic pathology information systems market in the U.S.
and Canada as an OEM software contractor, permitting
diagnostic-quality images of medical specimens within the
laboratory to be captured and stored together with patient and
diagnostic data in electronic folders.

In December 1997, the Company announced the general availability
of Maxifile Client Server (C/S) Radiology Information System. 
Maxifile C/S  was formally introduced at the 83rd Scientific
Assembly and Annual Meeting of the Radiological Society of North
America (RSNA) in Chicago, Illinois.  The Company also featured
Maxifile C/S integrated with PACsPlus+ for image management and
distribution and WebSight or teleradiology at the RSNA.

In January 1998, the Company announced the appointment of Scott
E. Waldrop to the newly created position of Senior Vice
President and Chief Operating Officer.  As Vice President,
Information Systems Development for the world's largest
healthcare provider, he led a team of more than 450 people in
establishing information strategies, product development or
selection, and product support for all facilities and business
lines.

The Year 2000 issue is the result of computer programs being
written using two digits, rather than four, to define the
applicable year.  Any of the Company's programs, both those
which the Company produces and sells to its customers and those
programs which it uses to manage and administer its own affairs,
that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could
result in a major system failure or miscalculations.

During 1997, the Company made modifications to certain of its
existing resale software products which were not already Year
2000 compliant.  In addition, during 1997 the Company converted
its human resources, time tracking, general accounting and
payroll systems to systems which are Year 2000 compliant.  The
1997 effect of and the cost of the modifications and conversions
relative to the Year 2000 issue were not material and any future
costs relative to this issue are not expected to be material.



                             26



Overview

The Company's revenues are derived from (i) computer equipment
sales and support, (ii) application software licenses, (iii)
software support and (iv) services and other revenues.  The
Company generally recognizes revenues from computer equipment
sales at the time the products are 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 and 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 project
management, training, consulting, custom programming services,
post-contract support obligations and others services, which are
provided under separate contract and are recognized as services
are performed.  Revenue from professional services and
maintenance and support services typically increase as the
number of installed systems increases.

Cost of products sold includes the cost of hardware sold, costs
of third party software licenses and hardware support
subcontracts.  Client service expense includes the direct and
indirect costs associated with implementation and support
personnel.  Software development costs include the direct and
indirect salaries and wages of software research and development
personnel, direct research and development expenses, and
software amortization expense, reduced by capitalized software
development costs.  Software development costs are 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."  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 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.  Based on the customer's
implementation plan, product delivery may take 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 schedules for 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, which may vary with each contract.



                             27



Results of Operations

The following table sets forth, for each of the periods
indicated, certain selected statement of operations data
expressed as a percentage of total operating revenues:

<TABLE>
                                                  1995       1996       1997
<S>                                               <C>        <C>        <C>

Operating revenues: 	 	 	 

  Computer system equipment sales and support     10.4 %     20.0 %     14.1 %

  Application software licenses                   33.2       32.7       35.4

  Software support                                35.6       30.8       30.0

  Service and other                               20.8       16.5       20.5

     Total operating revenues                    100.0      100.0      100.0

Costs and expenses: 	 	  	 

  Cost of products sold                            8.3       18.0       14.5

  Client services expenses                        33.6       32.9       31.0

  Software development costs                      19.5       15.5       16.2

  Sales and marketing                             22.7       23.5       24.9

  General and administrative                      17.8       13.0       12.5

  In-process research and development               --       75.9         --

     Total costs and expenses                    101.9      178.8       99.1

  Operating income (loss)                         (1.9)     (78.8)       0.9

  Other income (expense)                          (2.9)       0.1        2.0

  Income taxes                                      --         --         --

  Net earnings (loss)                             (4.8)%    (78.7)%      2.9 %

</TABLE>


                             28



Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996

Revenues.  The Company's total consolidated revenues were
$36,545,000 for the year ended December 31, 1997, compared to
$19,826,000 for the corresponding period of 1996, representing
an increase of $16,719,000 or 84.3%.  During the year ended
December 31, 1997 the Company reported pathology revenues of
$15,784,000, representing an increase of $14,913,000 over
similar revenues in 1996, attributable to the acquisition of
CoMed in late 1996.  Radiology revenues resulting from the
Maxifile and PACsPlus+ product line acquired with DMI in May
1996, increased to $7,736,000 from $5,182,000 or by $2,554,000. 
Management attributes this increase to the expanded market reach
for the Company's product line that cross selling has provided
post acquisition of DMI and CoMed.  Laboratory information
system revenue for the year ended December 31, 1997, declined by
$872,000 to $8,004,000 compared to $8,876,000 reported for the
same period 1996.  LabPro 2000 installations during 1997
consisted of migrating customers from the prime platform to the
IBM AS400 platform.  Migration contracts typically have nominal
associated application software license revenue.   In addition,
imaging revenues declined by $263,000 to $3,382,000 and other
revenues increased by $387,000 to $1,639,000.  The Company has
experienced lengthened initial sales cycles for the
DynamicVision product released for general availability in
November 1996.  Other revenues have increased principally as a
result of converting add-on business from a customer base
expanded through acquisitions.

Computer system equipment sales and support revenues during the
year ended December 31, 1997 increased $1,182,000 to $5,154,000
compared to $3,972,000 for 1996, but declined as a percentage of
total revenues to 14.1% from 20.0% .  Management does expect a
higher continuing involvement in the delivery of computer
hardware to customers in connection with the DynamicVision,
pathology and radiology product lines, as a result of the
Company's emphasis on offering a sole source solution to
customers.  However, the increase in application software
license revenues during 1997 overshadowed the increase in
hardware revenues.  Hardware revenues can cause significant
fluctuations in top line performance, but traditionally have had
nominal impact on earnings due to its relatively low margins
compared with other sources of Company revenue.    

Application software license revenue during 1997 increased by
$6,443,000 or to 35.4% of total revenues compared to 32.7%
during 1996.  The Company recognized pathology application
software license revenue of $7,639,000 during 1997, while during
1996 there was $597,000 of pathology revenues.  The pathology
product line was acquired with CoMed in December of 1996. 
Imaging software application license revenues decreased
$268,000.  The DynamicVision product introduction announced in
November 1996 is now completing initial sales cycles.  Radiology
software application license revenues increased $128,000 as a
result of post acquisition cross-marketing capabilities, and
deliveries on a five site sale consummated during the third
quarter 1997.  The decline in laboratory software application
license revenues of approximately $467,000 is attributed to
installations of LabPro 2000 during 1997 consisting primarily of
migrating customers from the prime platform to the IBM AS400
platform.  Migration contracts typically have nominal associated
application software revenue.  Additionally, realignment of the
laboratory sales force after the acquisition of Dynacor,
including integration of the new Premier Series lab product,
contributed to this decrease by diverting attention from the
normal sales process.

Software support revenues increased $4,873,000 to $10,978,000
for 1997, compared to $6,105,000 for the same period one year
ago, an increase of 79.8%.  The acquisition of CoMed resulted in
1997 software support revenues from pathology of $4,363,000. 
Additionally, successful installations continue to result in
accretions in software support revenues.  As of December 31,
1997, the Company's recurring annualized billable support base
has increased to $12.6 million, and an additional $1.2 million
of annualized software support revenue is anticipated to be
generated from delivery of the Company's existing new systems
backlog.  

Service and other revenues increased by $4,221,000 to $7,496,000
from $3,275,000.  This increase principally results from the
training and implementation services in connection with
pathology system installations to the United States Department
of Defense Military Treatment Facilities, and the five site
radiology system sale closed during the third quarter of 1997.  

Cost of Products Sold.  Cost of products sold as a percent of
total revenues for 1997 decreased by 3.5% to 14.5% from 18.0%
for 1996.  Although, hardware revenues during 1997 decreased
5.9% to 14.1% from 20.0%, approximately $1,098,000 of costs
attributable to third party software licensing, or 3.0% of total
revenues, were included in the cost of products sold.  Third
party software licensing costs result from the purchase of the Mumps



                            29





operating system in connection with both the newly
acquired pathology and radiology product lines, and royalties to
IBM in connection with imaging sales.

Client Services Expense.  Client services expense for 1997
increased $4,790,000 to $11,321,000 from $6,531,000 for 1996. 
However, as a percentage of total revenues during the respective
periods, client services expense decreased to 31.0% from 32.9%. 
The Company previously reported increased staffing in connection
with the 1996 acquisitions of DMI and CoMed, the introduction of
the DynamicVision product line, and the general release of
CoPath C/S.  These increased costs were more than offset by the
increase in total revenues.   

Software Development Costs.  Software development costs for 1997
increased $2,839,000 to $5,914,000 from $3,075,000, an increase
of .7% of total revenues to 16.2% from 15.5% incurred during 
1996.  This department was reorganized during the fourth quarter
of 1996 to coordinate the talent of the DMI and CoMed
acquisitions.  The Company capitalized $3,906,000 of software
development costs during 1997 compared to $1,618,000 for 1996. 
As outlined in the Company's secondary offering in September
1996, the Company continues to significantly invest in
development efforts as part of the Company's overall growth
strategy. 

Sales and Marketing.  Sales and marketing costs for 1997
increased by $4,465,000 to $9,123,000 from $4,658,000, an
increase of 1.4% of total revenues to 24.9% from 23.5% for the
same period of 1996.  During late 1996 and the first half of
1997, the Company expanded and trained a national sales and
marketing force in connection with the Company's external growth
plans, in preparation for the launch of the Company's new
DynamicVision product line, and the general release of CoPath
C/S, Maxifile C/S, and PACsPlus+ product lines in 1997. 

General and Administrative Expenses.  General and administrative
expenses for 1997 increased by $1,976,000, to $4,554,000 from
$2,578,000 incurred during 1996, but decreased as a percentage
of total revenues by .5% to 12.5% from 13.0%.  The Company has
experienced considerable growth through the recent purchase
acquisitions of CoMed and DMI and the pooling of Dynacor. 
Additionally, $279,000 of compensation has been accrued and
expensed for 1997 under the management incentive compensation
plan.  There was no such expense incurred during the same period
in 1996.  Despite these cost increases, the Company has
experienced offsetting cost reductions, principally in finance
and administration, associated with consolidating the recent
acquisitions.

Other Income (Expense).   Net other income for 1997 increased by
$710,000 to income of $731,000, as compared to $21,000 for 1996.
Interest income increased by $441,000, and interest and other
expenses decreased by $269,000 for 1997 principally due to the
availability of proceeds resulting from the Company's successful
secondary offering completed in the fourth quarter of 1996.   


Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Operating Revenues.  The Company's total consolidated operating
revenues were $19,826,000 for the year ended December 31, 1996,
as compared to $12,088,000 for the corresponding period in 1995,
representing an increase of $7,738,000 or 64.0%.  This revenue
increase was attributable to the inclusion of $5,182,000 in
revenues from radiology systems sales resulting from the May
1996 acquisition of DMI, and $871,000 in revenues from anatomic
pathology system sales resulting from the December 1996
acquisition of Collaborative Medical Systems, Inc.  The balance
of this increase was principally attributable to $3,645,000 in
revenues from imaging system sales resulting from the
introduction in 1996 of the Company's new DynamicVision product
line, which more than offset the $2,360,000 decline in revenues
from laboratory information system ("LIS") sales.

Computer system equipment sales and support revenues were
$3,972,000 during the year ended December 31, 1996 as compared
to $1,249,000 for the same period in 1995, representing an
increase of $2,723,000 or 218%.  This increase was primarily
attributed to growth from imaging, radiology and pathology
system sales.  The Company anticipates a continued higher
involvement in the delivery of computer hardware to customers in
connection with the DynamicVision, pathology, and radiology
product lines due to the relative complexities associated with
the installation process as well as the Company's strategy of
offering a sole source solution to its customers. 

Application software license revenues were $6,475,000 for 1996,
as compared to $4,015,000 for 1995, representing an increase of
$2,460,000 or 61.3%.  The Company had no new LabPro 2000 systems
sales during 1996.  LabPro 




                             30




2000 installations during 1996
consisted solely of migrations converting from the prime
computer platform to the IBM AS/400 platform, for which the
Company did not charge any application license fees.  As a
result, LIS application software license revenues declined by
approximately $1,800,000.  However, during 1996, $2,360,000 of
radiology system application license revenues were recognized,
$1,361,000 of imaging software revenues were recognized, and
$597,000 of pathology software revenues were recognized, with no
such corresponding revenues recognized in 1995.

Software support revenues were $6,105,000 for 1996, as compared
to $4,306,000 for 1995, representing an increase of $1,799,000
or 41.8%.  This increase was primarily due to radiology systems
support revenues of $992,000 resulting from the acquisition of
DMI.  Continued successful clinical system installations also
increased software support revenues.

Services and other revenues for 1996 were $3,275,000, as
compared to $2,519,000 for 1995, representing an increase of
$756,000 or 30.0%.  This increase was primarily attributable to
a shift of resources to billable professional services from
non-billable customer support stabilization undertaken as part
of the Restructuring Plan in 1995, as well as additional
revenues from professional services efforts related to complex
systems integrations and implementations.

Cost of Products Sold.  The cost of products sold was $3,567,000
for 1996, as compared to $1,009,000 for 1995, representing an
increase of $2,558,000 or 253.5%.  This increase was primarily
attributable to a higher percentage of hardware revenues in
1996, the payment of approximately $381,000 of licensing fees to
IBM in connection with imaging software application revenues and
the inclusion of third party software products in radiology and
pathology system sales.

Client Services Expenses.  Client services expenses were
$6,531,000 in 1996 as compared to $4,063,000 in 1995, an
increase of $2,468,000 or 60.7%.  This increase was primarily
the result of client services expenses attributable to the
radiology product line acquired in 1996, and increased
professional staffing in anticipation of professional services
requirements associated with the related consolidation of DMI
and CoMed, and the general availability of DynamicVision and
PACsPlus+.

Software Development.  Software development costs were
$3,075,000 for 1996, as compared to $2,352,000 for 1995,
representing an increase of $723,000 or 30.7%.  During 1996
$1,618,000 of software development costs were capitalized, as
compared to $1,174,000 in 1995, representing an increase of
$444,000 principally due to intensified activity on
DynamicVision and PACsPlus+.  However, the consolidation of the
DMI development personnel and amortization of $229,000 in 1996
attributable to the acquisition of the radiology product line
resulted in the increased software development costs.

Sales and Marketing Expenses.  The Company's sales and marketing
expenses were $4,658,000 for 1996, as compared to $2,743,000 for
1995, representing an increase of $1,915,000 or 69.8%.  This
increase was primarily attributable to additional sales and
marketing personnel hired or employed in anticipation of the
general availability of DynamicVision, PACsPlus+, and inclusion
of similar costs acquired with DMI.

General and Administrative Expenses.  General and administrative
expenses were $2,578,000 for 1996, as compared to $2,155,000 for
1995, representing an increase of $423,000 or 19.6%.  Goodwill
resulting from the CMSI acquisition increased amortization by
$40,000.  The remaining $383,000 increase was incurred to
support the Company's growth including the consolidation of DMI
and CoMed.

In-Process Research and Development.  During 1996 a
non-recurring charge of $15,058,000 for in-process research and
development was taken in connection with the acquisition of CMSI.

Other Income (Expense).  Net other income for 1996 was $21,000,
as compared to a net other expense of ($355,000) for 1995, an
improvement of $376,000.  Interest expense and financing costs
decreased by $77,000 and interest income increased by $299,000
primarily as a result of $22,605,000 of net proceeds from a
secondary offering of 4,334,500 shares of common stock received
during October 1996.



                             31



Liquidity and Capital Resources

As of December 31, 1997 the Company had cash equivalents of
$6,466,000 and working capital of $6,534,000, and a working
capital ratio of 1.59 to 1.

Accounts receivable and unbilled receivables as of December 31,
1997 increased from similar balances on December 31, 1996 by
$440,000 and $789,000, or increases of 7.8% and 37.3%,
respectively.  These balances as a percentage of the Company's
total annualized revenues continue to decline.  As a result,
days sales outstanding in accounts receivable and unbilled
receivables has declined to 60.6 days and 29.0 days,
respectively, as of December 31, 1997.       

Contracts receivable as of December 31, 1997 increased
$2,399,000 to $3,092,000 as compared to the balance of $693,000
on December 31, 1996.  The Company entered into a licensing
agreement with Sunquest Information Systems, Inc. resulting in
initial licensing fees receivable in three installments of
$1,000,000 each.  The first installment was collected upon
signing on February 7, 1997.  As of December 31, 1997, the
remaining two installments are contractually due in February,
1998 and February, 1999, and had a carrying value of $1,908,000.
Subsequent to December 31, 1997 the 1998 installment was
received.  In addition, during 1997 the Company entered into an
agreement with a customer for a five site radiology system
installation priced on a "Per Procedure" basis.  The customer
committed to a minimum number of monthly procedures at a fixed
price per procedure for a period extending 60 months from
completion of installation.  The contract receivable was
established at the present value of the guaranteed minimum
payments and the estimated residual in accordance with generally
accepted accounting principles.  The guaranteed minimum payments
were sold during the fourth quarter of 1997 at an immaterial
gain to the Company.  The remaining change in contracts
receivable is attributable to scheduled collections on monthly
installment receivables from radiology information system
customers.  As of December 31, 1997 all contract receivables
were current with applicable payment terms.   

Other current assets as of December 31, 1997 declined $278,000
to $792,000 from the 1996 year end balance of $1,070,000, as a
result of realization of other asset balances acquired through
CoMed.  The cash surrender value of terminated life insurance of
approximately $110,000 collected by the Company, and vendor
advances returned to the Company of approximately $145,000
significantly accounted for this change.

During 1997 the Company capitalized $3,906,000 of software
development costs and purchased $1,841,000 of additional
property and equipment exclusive of the acquisition of Dynacor
in May 1997.  Development efforts resulted in the general
availability of CoPath Client Server during the first quarter of
1997, and significant enhancements to DynamicVision resulting in
three newly live installations as recently announced.  The
Company also continued to develop enhancements to PACsPlus+ and
began developing a client server version of Maxifile for
radiology.  Property purchases were made primarily to
accommodate the growth of the Company.   First, the Company
uniformly equipped the offices of the recently acquired CoMed
operation in Waltham, Massachusetts and Dynacor in Minneapolis,
Minnesota.  Additionally, the Company acquired computer
equipment for the sales force to automate sales pipeline
management, and a new telephone system.  The Company plans to
continue an aggressive internal and external growth strategy. 

Accounts payable and accrued expenses increased $193,000 to
$3,023,000 as of December 31, 1997 from $2,830,000 as of
December 31, 1996.  As of December 31, 1997 the Company accrued
$279,000 of compensation under an approved management incentive
compensation plan.  There were no such accrued costs during
1996. 

Deferred revenue as of December 31, 1997 increased by $1,303,000
to $6,456,000 from $5,153,000.  During the third quarter 1997,
the Company received a renewal for the Department of Defense
("DOD") military treatment facilities software support
agreement.  This support extends from October 1, 1997 through
September 30, 1998, and resulted in an increased deferred
revenue of $938,000 as of December 31, 1997.  In addition, as of
December 31, 1997, $216,000 of revenue under the multi-site
radiology sale was deferred pending final delivery and
completion of installation and training services.  The remaining
increase is principally attributable to a general increase in
revenue activity.



                             32




Advanced billings as of December 31, 1997 declined by $1,718,000
to $1,260,000 from the 1996 year end balance of $2,978,000. 
Deliveries to the DOD hospitals during 1997 were significantly
billed and paid in advance prior to December 31, 1996.

Other current and non-current liabilities as of December 31,
1997 decreased by an aggregate of $277,000 from the December 31,
1996 balance of  $1,092,000 to $815,000.  During the fourth
quarter of 1997 the Company pledged the estimated residual due
on the Per Procedure contract receivable, against an installment
promissory note payable with a balance of approximately $360,000
as of December 31, 1997.  This increase in other liabilities was
more than offset by the retirement of $391,000 of pre-existing
Dynacor debt post acquisition in May 1997, and other debt
repayments.  

During 1997, the Company received $609,000 in proceeds from the
exercise of employee options and warrants.

As of December 31, 1997 the Company had net operating loss
carryforwards for federal income tax purpose of approximately
$12.2 million, which can be used to offset Federal taxable
income in future years.  Future equity offerings combined with
sales of the Company's equity during the preceding years may
cause changes in ownership under Section 382 of the Internal
Revenue Code of 1986, as amended, which will limit the use of
the Company's net operating loss carryforward existing as of the
date of the ownership change.  In the event the Company has
taxable income in the future, a change of ownership under
Section 382 may result in the application of such limitations
and could have a material adverse effect on the Company.

The Company intends to continue to enhance its product and
service offerings and to seek market expansion opportunities
beyond the general release of DynamicVision in November 1996,
the 1996 acquisitions of CoMed and DMI, the general release of
CoPath C/S, Maxifile C/S and PACsPlus+, and the May 1997 merger
with Dynacor.

Management believes that existing cash and cash equivalents
together with funds generated by operations will be sufficient
to meet operating requirements for at least the next twelve
months.

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 materials sold and the related
selling price of software and hardware sales.

Recent Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per share" (Statement 128).  Statement 128 specifies
modifications to the computation of earnings per share from
those historically utilized by the Company.  Under Statement
128, "basic" earnings per share is computed based upon the
weighted average number of common shares actually outstanding,
and "diluted" earnings per share is computed based upon the
weighted average number of common shares and dilutive potential
common share equivalents.  Retroactive application of Statement
128 had no impact on earnings per share information as
previously reported.

In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement 130).  Statement 130 requires
companies to display, with the same prominence as other
financial statements, the components of other comprehensive
income.  Statement 130 requires that  an enterprise classify
items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance
sheet.  Statement 130 is effective for fiscal years beginning
after December 15, 1997.  During 1995, 1996 and 1997, the
Company did not have any components of other comprehensive
income as defined by Statement 130.

In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (Statement 131).  Statement 131 


      

                             33





requires that an enterprise disclose certain information about operating
segments.  Statement 131 is effective for financial statements
for periods beginning after December 15, 1997.

In October 1997, the AICPA issued Statement of Position (SOP)
97-2, Software Revenue Recognition, which supersedes SOP 91-1. 
SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements (i.e., software
products, upgrades/enhancements, postcontract customer support,
installation, training, etc.) to be allocated to each element
based on the relative fair values of the elements.  The Company
adopted SOP 97-2 for software transactions entered into
beginning January 1, 1998.  The impact of SOP 97-2 does not
materially alter the Company's revenue recognition methods.


                              34



                DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                    CONSOLIDATED BALANCE SHEETS
                    DECEMBER 31, 1996 AND 1997

<TABLE>
                                                     1996             1997
<S>                                                  <C>              <C>

ASSETS 	 	 	 
Current assets: 	 	 	 
  Cash and cash equivalents                      $ 11,450,436  	 	$  6,465,685
  Restricted cash                                      60,000               --
  Accounts receivable, net                          5,626,209        6,066,305
  Unbilled receivables                              2,111,813        2,900,702
  Contracts receivable - current                      336,499        1,409,571
  Other current assets                              1,069,705          792,038
     Total current assets                          20,654,662       17,634,301

Property and equipment, net                         2,835,941        3,699,761
Capitalized software development costs, net         5,428,445        7,830,349
Goodwill, net                                       2,478,103        2,070,581
Contracts receivable - non-current                    356,337        1,682,780
Other assets                                           71,727           59,258
                                                  $31,825,215  	  	$32,977,030

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses           $ 2,830,130      $ 3,023,349
  Deferred revenue                                  5,153,264        6,456,120
  Advance billings                                  2,978,417        1,259,876
  Other                                               501,511          361,107
     Total current liabilities                     11,463,322       11,100,452
Other                                                 590,987          453,788
     Total liabilities                             12,054,309       11,554,240

Shareholders' equity: 	 	 	 
  Series CM preferred stock ($.01 par value;
    issued and outstanding 6,000 shares as of 
    December 31, 1996).                                    60 	 	           --
  Common stock ($.01 par value; authorized 
    40,000,000 shares; issued and outstanding
    17,007,153 and 18,008,210 shares in 1996 
    and 1997, respectively).                          170,072          180,082
Additional paid-in capital                         43,701,731       44,300,707
Deficit                                           (24,100,957)     (23,057,999)

     Total shareholders' equity                    19,770,906       21,422,790
                                                  $31,825,215      $32,977,030

</TABLE>

See notes to consolidated financial statements.




                             35




              DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
              CONSOLIDATED STATEMENTS OF OPERATIONS
          YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
                                          1995          1996          1997
<S>                                       <C>           <C>           <C>
Operating revenues: 	 	 	 
  Computer system equipment sales
    and support                       $1,248,500     $ 3,971,549  	$ 5,154,256
  Application software licenses        4,014,533       6,474,674    12,917,390
  Software support                     4,306,053       6,104,933    10,977,540
  Services and other                   2,518,866       3,275,124     7,495,923
     Total operating revenues         12,087,952      19,826,280    36,545,109
Costs and expenses:
  Cost of products sold                1,009,046       3,566,608     5,321,053
  Client services expense              4,063,376       6,530,687    11,321,158
  Software development costs           2,351,639       3,074,728     5,913,550
  Sales and marketing                  2,743,348       4,658,070     9,123,366
  General and administrative           2,155,103       2,577,776     4,554,028
  In-process research and development         --      15,057,869            --
     Total costs and expenses         12,322,512      35,465,738    36,233,155
     Operating income (loss)            (234,560)    (15,639,458)      311,954
Other income (expense):
  Interest expense and financing costs  (397,563)       (320,685)      (51,661)
  Interest income and other               42,281         341,771       782,665
      Total other income (expense)      (355,282)         21,086       731,004
Earnings (loss) before income taxes     (589,842)    (15,618,372)    1,042,958
Income taxes                                  --              --            --
Net earnings (loss)                  $  (589,842)   $(15,618,372)   $1,042,958

Net earning (loss) available for 
  common shareholders                $  (614,686)   $(15,869,409)   $1,042,958

Earnings (loss) per common share 	 	 	 
  Basic and diluted                  $     (0.09)   $      (1.72)   $     0.06

Weighted average number of common
  shares outstanding                   6,693,294       9,224,775    17,905,214

</TABLE>

See notes to consolidated financial statements.




                           36



          DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
       YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
                                                         Additional
                  Series A  Series B  Series CM  Common  Paid-In
                  Preferred Preferred Preferred  Stock   Capital    Deficit
<S>               <C>       <C>       <C>        <C>     <C>        <C>

Balance, January 1,
 1995, as previously
 Reported          $    -   $     -   $  -   $ 59,678 $ 8,879,296 $ (8,437,008)
Adjustment in
 connection with
 pooling of 
 Interests              -         -      -      2,500     119,425      544,265
Balance, January 1,
 1995, as restated      -         -      -     62,178   8,998,721   (7,892,743)

  Common stock
   issued to resolve
   acquisition
   contingency          -         -      -      6,100     603,900            -
  Conversion of
   Subordinated
   Convertible
   Notes            9,688          -     -          -     760,062            -
  Issuance of Series
   B Preferred Stock    -     37,500     -          -   2,601,005            -
  Issuance of Warrants  -          -     -          -      25,000            -
  Exercise of Stock
   Options              -          -     -         50       4,950            -
  Employee Stock
   Purchase Plan        -          -     -        288      26,525            -
  Issuance of common
   stock                -          -     -          -      50,000            -
  Net Loss              -          -     -          -           -     (589,842)
Balance,
 December 31, 1995  9,688     37,500     -     68,616  13,070,163   (8,482,585)

  Conversion of 
   Series A 
   Preferred Stock (9,688)         -     -      9,688           -            -
  Conversion of
   Series B
   Preferred Stock      -    (37,500)    -     37,500           -            -
  Preferred Stock
   Dividends            -          -     -          -    (275,881)           -
  Issuance of Common
   Stock                -          -     -     43,345  22,673,919            -
  Exercise of Stock
   Options              -          -     -        609     142,434            -
  Employee Stock
   Purchase Plan        -          -     -        314     101,156            -
  Common Stock
   issued to effect
   CMSI acquisition     -          -     -     10,000   4,990,000            -
  Issuance of Series
   CM Preferred Stock
   in connection with 
   the CoMed
   acquisition          -          -    60          -   2,999,940            -
  Net loss              -          -     -          -           -  (15,618,372)
Balance, 
 December 31, 1996      -          -    60    170,072  43,701,731  (24,100,957)

  Conversion of Series
   CM Preferred Stock   -          -   (60)     5,650      (5,590)           -
  Exercise of Stock
   Options & Warrants   -          -     -      3,721     384,387            -
  Employee Stock 
   Purchase Plan        -          -     -        639     220,179            -
  Net income            -          -     -          -           -    1,042,958
Balance,
 December 31, 1997  $   -     $    -   $ -   $180,082 $44,300,707 $(23,057,999)

</TABLE>

See notes to consolidated financial statements.




                              37



                DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
             YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>

                                          1995          1996            1997 
<S>                                       <C>           <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES: 	 	 	 
Net earnings (loss)                   $ (589,842)   $(15,618,372)   $1,042,958
Adjustments to reconcile net
 earnings (loss) to net cash
 provided (used) by operating 
 activities:
  Depreciation and amortization        1,353,230       1,900,211     3,016,713
  Book value of disposed property             --          64,875        20,074
  Purchased in-process research
   and development                            --      15,057,869            --
Changes in assets and liabilities:
  Accounts receivable                   (869,611)      1,017,582      (440,096)
  Unbilled receivables                   213,345      (1,371,029)     (788,889)
  Contracts receivable                        --        (201,737)   (2,399,515)
  Other                                   39,690         169,619        73,144
  Accounts payable and accrued expenses (333,753)        (53,683)      193,219
  Deferred revenue                       504,923         372,217     1,302,856
  Advance billings                      (283,540)     (1,005,682)   (1,718,541)
     Net cash provided (used)
      by operating activities             34,442         331,870       301,923

CASH FLOWS FROM INVESTING ACTIVITIES: 	 	 	 
  Purchase of net assets of
   Dimensional Medicine Inc.                  --      (1,349,389)           --
  Purchase of Collaborative
   Medical Systems, Inc.                      --      (6,591,075)           --
  Capitalized software development 
   costs                              (1,173,577)     (1,618,060)   (3,906,254)
  Purchases of property and equipment   (393,603)     (1,098,553)   (1,841,306)
  Restricted cash released/(deposited)   (50,000)             --        60,000
     Net cash used in investing
      activities                      (1,617,180)     10,657,077)   (5,687,560)

CASH FLOWS FROM FINANCING ACTIVITIES: 	 	 	 
  Borrowings (repayments) under line
   of credit, net                     (2,788,401)             --            --
  Borrowings (repayments) under bank
   note payable                        2,800,000      (2,800,000)           --
  Proceeds from issuance of common
   stock                                  81,813      22,961,777       608,926
  Proceeds from issuance of 
   Subordinated Convertible Notes        775,000              --            --
  Proceeds from issuance of Series
   B Preferred Stock                   2,638,505              --            --
  Proceeds from issuance of warrants      25,000              --            --
  Payment of preferred stock dividends        --        (275,881)           --
  Borrowings (repayments) on longterm
   debt and capital lease obligations    215,720        (400,619)     (208,040)
  Other                                   (5,250)             --            --

     Net cash provided (used) by
      financing activities             3,742,387      19,485,277       400,886
 
Net increase (decrease) in cash and
 cash equivalents                      2,159,649       9,160,070    (4,984,751)
Cash and cash equivalents, beginning
 of year                                 130,717       2,290,366    11,450,436
Cash and cash equivalents, end of 
 year                                 $2,290,366     $11,450,436   $ 6,465,685

SUPPLEMENTAL DISCLOSURES OF CASH 
 FLOW INFORMATION:
  Interest paid                       $  397,563     $   320,685   $    51,661

  Income taxes paid (received)        $        0     $         0   $         0


</TABLE>

See notes to consolidated financial statements.



                             38



             DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997


A.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business  Dynamic Healthcare Technologies, Inc. develops,
markets and supports clinical information systems and electronic
health record solutions in the healthcare industry.  The
specific market segments in which the Company participates
include Clinical Workstations, Document Imaging, Diagnostic
Imaging, Laboratory Information Systems, Radiology Information
Systems, Pathology Information Systems and Perioperative
(Anesthesiology) Information Systems.  All of the Company's
products are complementary with and contribute to the creation
and maintenance of the electronic health record.

Basis of Consolidation - The consolidated financial statements
include the accounts of Dynamic Healthcare Technologies, Inc.
and its wholly-owned subsidiary, Collaborative Medical Systems
Corp. which was incorporated on November 27, 1996 (collectively
the "Company" or the "Registrant").  All significant
intercompany transactions and accounts have been eliminated in
consolidation.

On May 1, 1996, Dimensional Medicine, Inc. ("DMI") was purchased
by and merged into DMI Acquisition Corporation ("DMIAC"), a
newly formed wholly owned subsidiary of the Registrant.  The
transaction was consummated by purchasing all of the outstanding
common stock and retiring and assuming certain debt obligations
of DMI.  The acquisition has been accounted for using the
purchase method.  On September 2, 1996, DMIAC was merged with
and into the Company.

On December 17, 1996, Collaborative Medical Systems, Inc.
("CoMed") was purchased by an merged into Collaborative Medical
Systems Corp. ("CMSI"), a newly formed wholly owned subsidiary
of the Registrant.  The transaction was consummated by
purchasing all of the outstanding stock of CoMed using both
available cash, and common and preferred stock of the Company. 
The acquisition was accounted for using the purchase method. 
Upon consummation of the transaction the Company wrote off the
acquired in-process research and development (see also Note H).

Accounts Receivable - Accounts receivable is stated at net book
value less an allowance for doubtful accounts of $326,100 and
$307,000 for the years ended December 31, 1996 and 1997,
respectively.  Bad debt expense for each of the years ended
December 31, 1995, 1996, and 1997 was $0, $0, and $0,
respectively.

Property and Equipment  Property and equipment is stated at cost
less accumulated depreciation and amortization.  The cost of
property and equipment is depreciated and amortized over the
estimated useful lives of the related assets, ranging from five
to ten years, using the straightline method.

Software Development Costs  Costs incurred to establish the
technological feasibility of computer software products are
research and development costs and are charged to expense as
incurred.  Costs of producing product masters subsequent to
establishing technological feasibility, including coding and
testing, are capitalized.  Capitalization of computer software
costs ceases when the product is available for general release
to customers. Amortization of capitalized software development
costs for the years ended December 31, 1995, 1996 and 1997 were
$798,710, $1,128,402, and  $1,484,276 respectively.  Accumulated
amortization of capitalized software development costs is
$3,368,000 and $4,829,000 at December 31, 1996 and 1997,
respectively.  Capitalized software development costs are
amortized using either the straightline method over the
estimated economic life of the products (currently five years)
or the ratio of current revenues to current and anticipated
revenues for the product, whichever results in the greater
amount of amortization.  Unamortized capitalized costs of a
computer software product in excess of its estimated net
realizable value of that asset are expensed.  No such expense
has been recorded for the years ended December 31, 1995, 1996
and 1997.



                            39




Goodwill  Goodwill is stated at cost less accumulated
amortization.  Goodwill is amortized using the straight line
method over a period of seven years.  Amortization of goodwill
for the years ended December 31, 1995, 1996, and 1997 was
$155,000, $165,000, and $408,000, respectively.  Accumulated
goodwill amortization for the years ended December 31, 1996 and
1997 is $375,000 and $782,000, respectively.  The Company
assesses the recoverability of goodwill based upon projected
operations over a period which represents the approximate
remaining life of goodwill.  The Company evaluates the
recoverability of goodwill based on this forecast of future cash
from operations and income, and using a discount rate that
reflects the Company's average cost of funds.

Revenues  Revenues are derived from the sale of computer
hardware, licensing and sublicensing of software, professional
and technical consulting services, and maintenance and support
services.  Each customer contract is negotiated separately. 
Application software licenses and computer system equipment
revenues are recorded when hardware and application software are
delivered.  Installation and training revenues, which are
included with application software licenses revenues in the
statements of operations are recognized as the services are
performed.  Software support revenues principally include
contracts for continuing support services which cover a specific
period, and from which revenue is recognized ratably over the
period of the contract.  Also included in software support
revenue are revenues from other significant continuing
obligations and post contract support obligations, which are
typically under separate contract and are recognized as the
services are performed.  Services revenues are recognized as the
services are performed.   

Employee Benefit Plan  The Company has a 401(k) defined
contribution savings plan covering all fulltime employees. 
Eligible employees may elect to defer up to 20% of their
compensation, but limited to the maximum allowed by the Internal
Revenue Code.  Company contributions are made at the discretion
of the Board of Directors and amounted to $85,216, $186,829 and
$420,487 in 1995, 1996 and 1997, respectively.

Stock-Based Employee Compensation Plans - The Company's employee
stock option plans are accounted for under APB Opinion 25,
Accounting for stock issued to employees, and related
interpretations.

Income Taxes  Deferred income taxes are provided on items that
are recognized in different reporting periods for financial
accounting and income tax purposes using the then enacted tax
rates. 

Earnings Per Share - Basic earnings per share is computed on the
basis of the weighted average number of shares outstanding. 
Diluted earnings per share is computed on the basis of the
weighted average number of shares outstanding plus the common
stock equivalents which would arise for the exercise of stock
options and warrants, if dilutive.

Cash Equivalents  For purposes of the statement of cash flows,
the Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.

Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period.  Significant estimates
relate to revenue recognition on contracts and to the
recoverability of software development costs and goodwill. 
Actual results could differ from those estimates.

Concentration of Credit Risk - The Company generates revenue
primarily through sales to entities operating within the
healthcare industry located throughout the United States.  Due
to this concentration, substantially all receivables at December
31, 1996 and 1997, are from healthcare institutions which may be
similarly affected by changes in economic, regulatory or other
conditions.  The Company performs ongoing credit evaluations of
its customers and generally does not require collateral.  The
Company maintains reserves for potential credit losses and such
losses have been within management's expectations.

The Company invests its excess cash in deposits with major
financial institutions, in U.S. government agency securities and
in commercial paper of companies with strong credit ratings. 
Generally, the investments mature within 90 days and, therefore,
are subject to little risk.  The Company has not experienced
losses related to these investments.





                             40



Fair Value of Financial Instruments - The following methods and
assumptions were used to estimate the fair value of the
Company's financial instruments: The fair value of cash and cash
equivalents approximates its carrying amounts because of the
short maturity of those instruments.  The fair value of contract
receivables approximates its carrying value, and is estimated by
discounting the guaranteed minimum payments and unguaranteed
contract residuals at the imputed incremental borrowing rates of
the related customers (see also Note D herein).  The fair value
of bank note payable is estimated based on the current rates
available to the Company for debt of the same remaining
maturities and approximates its carrying amount.

Reclassifications  Certain prior year balances have been
reclassified to conform to the 1997 presentation.


Merger with Dynacor, Inc.

On May 22, 1997, the Company merged with Dynacor, Inc. in a
business combination accounted for as a pooling-of-interests. 
Dynacor, Inc. engaged in the production and sale of software
used in hospitals and large clinic laboratories.  The Company
issued 250,000 shares of common stock ($.01 par value) in
exchange for all of the outstanding common stock (no par value)
of Dynacor.  The accompanying financial statements for 1997 are
based on the combined companies for the full year, and financial
statements for 1995 and 1996 have been restated to give effect
to the combination.

Summarized results of operations of the separate companies for
the period from January 1, 1997 through March 31, 1997, the
interim period nearest the date of acquisition, are as follows:

                                    Company as reported          Dynacor, Inc.
Total operating revenue             $9,670,159                   $1,077,877

Net earnings (loss)                 $3,032,243                   $  (57,487)


The summarized assets and liabilities of the separate companies
on March 31, 1997, the interim period nearest the date of
acquisition, were as follows:
<TABLE>
                                    Company as reported          Dynacor, Inc.
<S>                                 <C>                          <C>
Cash and equivalents                $ 10,760,706                 $  168,817
Accounts receivable, net               4,206,732                    513,685
Other current assets                   4,044,882                    133,136
Property and equipment, net            2,884,502                    240,805
Capitalized software, net              4,952,008                    862,782
Other assets                           3,642,130                      7,664
                                      30,490,960                  1,926,889
Current liabilities                  ( 7,481,890)                (1,339,828)
Long-term liabilities                (   177,198)                (  360,104)
                                    $ 22,831,872                $   226,957

</TABLE>

Following is a reconciliation of the amounts of operating
revenue and net earnings (loss)  previously reported for 1995
and 1996 with restated amounts:

<TABLE>
                                           Year ended December 31,
                                         1995                       1996
<S>                                  <C>                       <C>

Operating revenue:
     As previously reported          $ 8,886,336               $ 16,570,208
     Acquired company                  3,201,616                  3,256,072
     As restated                     $12,087,952               $ 19,826,280

Net earnings(loss):
     As previously reported          $  (512,623)              $(15,151,342)  
     Acquired company                   ( 77,219)               (   467,030)
     As restated                     $  (589,842)              $(15,618,372)

</TABLE>

                             41



B.		RESTRICTED CASH

As of December 31, 1996 restricted cash of $60,000 represents a
certificate of deposit required to secure a standby letter of
credit.  The letter of credit is required by the former health
insurance provider of Collaborative Medical Systems Inc. and
expired on March 10, 1997.


C.	PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
                                                       December 31,
                                                   1996            1997
<S>                                            <C>             <C>
Furniture and fixtures                         $  743,640 	    $  845,992

Equipment                                       4,461,326       6,161,529

Leasehold improvements                            142,772         181,523

                                                5,347,738       7,189,044

Less accumulated depreciation and amortization  2,511,797       3,489,283

                                              $ 2,835,941     $ 3,699,761


D.  			CONTRACTS RECEIVABLE:

Contracts receivable represent receivables from customers under
long-term financing arrangements.

During the quarter ended March 31, 1997, the Company entered
into a value-added re-marketing agreement with Sunquest
Information Systems, Inc. ("Sunquest") for the non-exclusive
sale of CoPath Client/Server product licenses.  The initial
license fee of $3,000,000 is receivable in three (3) annual
installments of $1,000,000 due in February 1997, 1998 and 1999. 
As of December 31, 1997 contract receivables includes $1,908,311
under this contract representing the present value of the two
remaining installments with an imputed interest rate of 8.25%. 
Subsequent to December 31, 1997 the 1998 installment was
collected.

On July 5, 1997, the Company entered into a multi-site radiology
information system sale payable in varying monthly installments
extending through March 2002.  Total minimum installments due
under this contract aggregate $5,754,000.  Deferred revenue
equal to the present value of the minimum payments and estimated
residual value discounted at an imputed rate of 8.5%, of
$3,618,000 was initially recorded.  During 1997, $3,402,000 of
revenue was recognized upon implementation of the system and
$125,000 of interest income was recognized on the related
contract receivable.  On November 28, 1997 the Company assigned
its rights to receive minimum payments under this contract to a
third party in exchange for cash.

Also included in contracts receivable are other amounts due from
customers in monthly installments of principal and interest with
initial terms ranging from one to five years.  The future
minimum principal payments to be received under contract
receivables as of December 31, 1997 are summarized as follows:


</TABLE>
<TABLE>
                 For the Years Ending December 31, 	
                 <C>                    <C>

                 1998                   $1,409,571
                 1999                    1,076,233
                 2000                      117,135 
                 2001                      103,426
                 2002                       23,261
                 Thereafter                362,725
                 Total                  $3,092,351

</TABLE>

                             42



E.		LEASES

The Company leases certain equipment and office space under
non-cancelable operating leases.  The leases call for monthly
payments over terms of three to five years and include renewal
options.  With respect to the equipment leases, the Company is
liable for all taxes, repairs and insurance.  Total rent expense
on all operating leases was $309,000, $603,000 and $1,217,000
for the years ended December 31, 1995, 1996 and 1997,
respectively.

In August 1997 the Company entered into a lease for a new
corporate headquarters which begins in 1998 and has a six year
term.

The future minimum rental payments under operating leases as of
December 31, 1997 are as follows:

<TABLE>
                  Year Ending December 31,
                  <C>           <C>
                  1998          $1,292,988 
                  1999           1,702,836
                  2000           1,028,179
                  2001           1,045,920
                  2002           1,064,109
                  Thereafter     2,365,932
                  Total         $8,499,964

</TABLE>

F.	NOTE PAYABLE

Included in other current and long-term liabilities is a note
payable (the "Note").  The Note is payable in fixed monthly
installments of $7,228, bears fixed interest at a rate of 8.74%,
and matures on February 1, 2003.  On December 31, 1997 current
and long-term portions on the Note were $57,600 and $302,000,
respectively.

The Note was issued subject to the terms of the sale of the
Company's right to receive minimum payments under a radiology
system contract (the "Contract") (see also Note D).  The Note
plus any accrued interest becomes immediately due should any of
the following occur:  1) the Company fails to make a scheduled
installment payment, 2) any default in the agreement governing
the sale of the minimum payments occurs, or 3) the customer
defaults on the terms of the Contract.  The Note is secured by
all the hardware and software included in the Contract plus any
payments due to the Company under the Contract other than the
minimum payments sold.

As of December 31, 1997, maturities pursuant to the Note are as
follows:

<TABLE>
  
                  Year ending December 31,
                  <C>             <C>

                  1998            $ 57,600
                  1999              62,800
                  2000              68,500
                  2001              74,800
                  2002              81,600
                  Thereafter        14,300
                  Total          $ 359,600


</TABLE>


                             43





G.		CAPITAL STOCK, WARRANTS AND OPTIONS

During 1993, the shareholders approved and the Company adopted a
stock warrant and option plan for directors and management
employees (the "D&M Plan"), whereby 250,000 shares of common
stock were reserved for issuance.  During 1997, the shareholders
approved increasing shares reserved for issuance pursuant to the
D&M Plan to 650,000.  Under the D&M Plan directors' and
management employee warrants are five year warrants which vest
under varying terms and are issued at an exercise price equal to
the market price of the Company's common stock on the date of
grant.  During 1995, the shareholders approved an amendment to
the D&M Plan to conform the terms of vesting to 40% upon grant
plus 20% per year for each of three years thereafter, and to
provide for early vesting upon death or employment termination
without cause for all future options granted under the D&M Plan.
 Additionally, annual warrants are issued to certain outside
directors at the beginning of that director's third consecutive
term in office.  Each annual warrant is for 5,000 shares of the
Company's Common Stock, has a five year term, has an exercise
price equal to the average of the closing bid and ask prices of
the Company's Common Stock on the date of issuance, and is fully
vested upon issuance.  At December 31, 1997 the Company had
stock warrants and options outstanding to purchase shares of its
common stock under the D&M Plan as follows:

<TABLE>
            Number        Presently       Price         Year        Expiration
            of Shares     Exercisable     Per Share     Granted     Date
<S>         <C>           <C>             <C>          <C>          <C> 
Directors'
Warrants:     5,000       5,000           $2.25        1993	        June 1998
             25,500      25,500           $2.06        1993         Jan. 1998
             10,000      10,000           $1.93        1994         June 1999
              5,000       5,000           $2.25        1994         June 1999
             15,000      15,000           $1.00        1995         June 2000
             15,000      15,000           $1.97        1996         Mar. 2001
             76,500      45,900           $6.06        1996         May  2001
             10,000       4,000           $5.88        1997         June 2002
Management
Employees'
Options:     32,000      19,200           $4.75        1996         Dec. 2001
             99,999      40,000           $5.44        1997         May  2002
            293,999     184,600


</TABLE>

The Company adopted an incentive stock option plan in 1983 for
key employees whereby 400,000 shares of common stock were
reserved for issuance under the Plan.  Options granted vest 40%,
30% and 30% on the first, second and third anniversaries of
their issuance, respectively and expire ten years after the date
of grant.  At December 31, 1997, the Company had granted options
of 355,040 shares, of which options for 118,240 shares had been
exercised, 231,800 expired unexercised and options for 5,000
shares were exercisable at a weighted average exercise price of
$1.81 per share and a weighted average remaining contractual
life of 1.9 years.  No new options will be granted or were
granted after 12/31/92 under the terms of this Plan.

During 1993, the shareholders approved and the Company adopted a
new ten year incentive stock option plan for employees whereby
100,000 shares of common stock were reserved for issuance under
the Plan.  The terms of this 1993 ISO Plan are similar to the
1983 Plan.  During 1995 and 1997, the shareholders approved
increasing shares reserved for issuance pursuant to the 1993 ISO
Plan to 600,000 then 1,500,000, respectively.  At December 31,
1997, the Company had granted options of 1,032,957 shares,
73,350 options had been exercised, 103,360 options were
terminated and options for 210,911 shares were exercisable at a
weighted average exercise price of $3.19 and a weighted average
remaining contractual life of 8.2 years.  As of December 31,
1997 options for 856,047 shares were outstanding with a weighted
average exercise price of $3.84 per share and a weighted average
contractual life of 8.8 years.   Under both the 1983 Plan and
the 1993 Plan, the exercise price for stock options may not be
less than the market price of the Company's common stock at date
of grant.

As of January 1, 1997 and December 31, 1997, the weighted
average exercise prices of options outstanding under the ISO
Plans were $3.11 and $3.82, respectively.  Additionally, during
1997 the weighted average exercise prices of options exercised,
granted and canceled under the ISO Plans were $1.21, $4.47 and
$3.56, respectively.



                             44



Incentive stock option activity under the 1983 and 1993 Plans
and price information follows:

<TABLE>
                                                                  Stock Option
                                            Shares                Price Range	  
<S>                                         <C>                   <C>
Balance at December 31, 1993                371,050               $1.00-$3.06
  Exercised                                 (56,750)              $1.00-$2.25
  Granted                                    34,575               $1.9375
  Canceled                                 (246,125)              $1.00-$3.06

Balance at December 31, 1994                102,750               $1.00-$2.25
  Exercised                                  (5,000)              $1.00
  Granted                                   153,000               $1.00-$1.125
  Canceled                                  (57,700)              $1.00-$2.25

Balance at December 31, 1995                193,050               $1.00-$2.25	
  Exercised                                 (35,410)              $1.00-$2.25
  Granted                                   447,500               $1.97-$5.38
  Canceled                                  (28,300)              $1.00-$1.97

Balance at December 31, 1996                576,840               $1.00-$5.38
  Exercised                                 (51,940)              $1.00-$1.97
  Granted                                   397,707               $3.59-$5.19
  Canceled                                  (61,360)              $1.00-$5.00

Balance at December 31, 1997                861,247               


</TABLE>


During 1993 the shareholders approved and the Company adopted an
Employee Stock Purchase Plan effective for a five year period
beginning January 1, 1994.  The Company reserved 200,000 shares
of common stock for issuance under the Plan.  During 1997, the
shareholders approved increasing shares reserved for issuance to
600,000 shares.  The Plan operates in one or more phases of six
months each and is open for enrollment by employees working at
least 20 hours per week and who have completed at least five
months of service.  A summary of plan activity is as follows:

<TABLE>

Phase #         Phase Ending Date         Shares Issued           Price
<C>             <C>                       <C>                     <C>
1               June 30, 1994               5,274                 $1.650
2               December 31, 1994           2,535                 $ .980
3               June 30, 1995               6,256                 $ .930
4               December 31, 1995          22,575	                $ .930
5               June 30, 1996              14,026                 $2.045
6               December 31, 1996          17,321                 $4.202
7               June 30, 1997              24,005                 $4.20
8               December 31, 1997          40,116                 $3.01
                                          132,108
</TABLE>

On July 6, 1994, the Company's Board of Directors, in connection
with an employment agreement, granted options to Mr. David
Pomerance, the Company's then CEO (now Chairman of the Board),
for 250,000 shares of common stock.  The options are exercisable
for five years from the date of grant in accordance with a
vesting schedule of 40% upon grant plus 20% per year for each of
three years thereafter at an exercise price equal to the fair
market value on the date of the grant of $1.875 per share.  On
August 23, 1994, the Company's Board of Directors, in connection
with an employment agreement, granted options to Mitchel J.
Laskey, the Company's President and then COO (now CEO), for
250,000 shares of common stock under similar terms at an
exercise price equal to the fair market value on the date of the
grant of $1.6875.  On September 13, 1995, the Company's Board of
Directors reduced the exercise price on Mr. Laskey's and Mr.
Pomerance's employment options to $1.00 per share.  On May 16,
1996, the Company's Board of Directors, in connection with an
employment agreement, granted options to Mr. Nikhil Bhatt, the
Company's Senior Vice President and Chief Technical Officer, for
150,000 shares of common 



                             45




stock under similar terms at an
exercise price of $4.8125 which was the average bid and ask
price on the date of grant.  On December 17, 1996 the Company's
Board of Directors, in connection with various other employment
agreements, granted options covering 96,000 shares of common
stock under similar terms at an exercise price equal to fair
market value on the date of the grant of $5.00.  On January 1,
1997 the Company's Board of Directors granted additional
employment options to Mitchel J. Laskey for 50,000 shares of
Common Stock under similar terms at an exercise price of $4.63
which represents the fair market value on the date of grant. 
All of these employment option agreements provide for early
vesting upon death or employment termination without cause and
were issued at exercise prices no less than the fair market
value of the shares on the date of grant.  As such, in
accordance with APB 25 no corresponding compensation expense was
recognized.

The Articles of Incorporation authorize 20,000,000 shares of
$.01 par value common stock.  During 1997, the Company's
shareholders approved increasing the number of authorized common
shares to 40,000,000.

The Articles of Incorporation authorize 10,000,000 shares of
$.01 par value preferred stock, in such series and variations in
the relative rights and preferences, including voting rights, if
any, between series as the Board of Directors shall determine. 

On July 31, 1995 the Company completed a Private Placement
Offering issuing $775,000 of Subordinated Convertible Notes,
bearing simple interest at 9% per annum, together with
detachable warrants to purchase 155,000 shares of the Company's
common stock, ("debt warrants").  The warrants are exercisable
at $1.00 per common share, and are exercisable for five years
from the date of issuance (70,000 in June 1995 and 85,000 in
July 1995).  On November 28,1995 all of the Subordinated
Convertible Notes were converted into 968,750 shares of Series A
Preferred Stock.  As of December 31, 1996, none of the debt
warrants were exercised.

On December 5, 1995 the Company issued 3,375,000 shares of
Series B Preferred Stock for $2.7 million, and on December 29,
1995 issued 375,000 shares of Series B Preferred Stock for an
additional $300,000 in Private Placement transactions.

In connection with the Private Placement of the shares of Series
B Preferred Stock, the Board of Directors of the Company
authorized the issuance on December 8,1995 of warrants to
purchase 210,000 shares of the Company's common stock for $1.00
per share to a financial consultant ("Series B warrants") for
$25,000.  These warrants are exercisable for five years from the
date of issuance.  As of December 31, 1996, none of the Series B
warrants were exercised.

As of December 31, 1996 dividends declared and paid on Series A
and Series B Preferred Stock were $57,931 and $217,950,
respectively.  The Company's registration of the common stock
underlying conversion of the Series A and Series B Preferred
Stock was declared effective on September 27, 1996.  As such on
September 27, 1996, 968,750 shares of Series A and 3,750,000
shares of Series B Preferred Stock were converted on a share for
share basis to common stock.

On October 2, 1996 the Company received proceeds of $20,941,650
in a common stock offering from the issuance of 3,892,500 shares
of common stock at $5.75 per share net of underwriting
commissions of $1,440,225.  Stock issuance costs incurred
amounted to $714,846.  Pursuant to the terms of the offering a
portion of the proceeds were immediately used to repay the
subordinated notes payable of $1,000,000 (see also Note K), the
bank note payable of $2,743,882, and related accrued interest.

On October 30, 1996 the underwriters exercised their options to
cover over-allotments made in connection with the common stock
offering.  Upon exercise, the Company received additional
proceeds of $2,377,960 from the issuance of 442,000 shares of
common stock at $5.75 per share net of underwriting commissions
of $163,540.

On December 17, 1996, in connection with the acquisition of
CoMed, the Company issued 1,000,000 common shares and 6,000
shares of Series CM Preferred Stock, $.01 par value, to the
former shareholders of CMSI.  The Series CM Preferred Stock was
automatically converted into 564,996 shares of the Registrant's
common stock at the close of business on August 29, 1997
("Contingent Shares"), pursuant to a formula based upon the
average closing bid and ask price of the Registrants common
stock as quoted on the National Market for the five (5) trading
day period ending August 29, 1997 (the "CSAVG").  The CSAVG
during this period was $5.175 and the number of shares of the
Registrant's common stock issued as Contingent Shares was
pro-rated accordingly.



                             46



H.			IN-PROCESS RESEARCH AND DEVELOPMENT

In-process research and development ("IPR&D"), costs identified
with the purchase of CoMed on December 17, 1996, principally
development efforts in connection with the CoPath client server
product and client server development tool-kit, totaling
$15,057,869, were expensed immediately following the
acquisition.  The fair value of the acquired IPR&D was
determined by independent appraisers under the income approach. 
The income approach attempts to measure the income-producing
capability of the acquired in-process activities and calculates
the present value of the future economic benefits expected to be
derived by successful completion of the IPR&D, net of allocable
expenses and discounted to account for the level of risk
associated with the purchased research.


I.				INCOME TAXES

The components of income tax expense (benefit) are as follows:

<TABLE>
                                                Year Ended December 31,
                                           1995         1996         1997
<S>                                        <C>          <C>          <C> 
Current income tax expense (benefit)
  before operating loss carry forward      $(312,000) 	 $(347,000) 	 $      --
Tax effects of temporary differences, 
  net of changes in related valuation
  allowance                                   76,000  	   123,000      725,000
Non-recognition of benefits of operating 
  loss carry forward                         236,000      224,000           --
Benefits of operating loss carry forward          --           --     (725,000)
                                           $      --    $      --    $      --

</TABLE>

Deferred income taxes reflect the net tax effects of operating
loss and tax credit carryforwards and temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.  The tax effects of significant items comprising the
Company's net deferred tax as of December 31, 1996 and 1997, are
as follows:  

<TABLE>

                                             1996               1997
<S>                                          <C>                <C>

Deferred tax asset: 	 	 
  Net operating loss carryforwards           $4,158,000         $4,883,000
  Tax credit carryforwards                      704,000            655,000
  Other                                         457,000            282,000
                                              5,319,000          5,820,000

Deferred tax liabilities: 	 	 
  Capitalized software development costs     (1,549,000)        (2,553,000)
  Other                                          (9,000)           (20,000)
Net deferred tax asset                        3,761,000          3,247,000
Valuation allowance                          (3,761,000)        (3,247,000)
Net deferred tax                            $        --        $        --


</TABLE>

                             47



The net deferred tax asset is reduced by a valuation allowance
due to the uncertainty associated with the realization of the
net deferred tax asset.  The valuation allowance decreased
$514,000 from the allowance of $3,761,000 at January 1, 1997.

The provisions for Federal income taxes differs from the amount
computed by applying the statutory rate to net earnings (loss)
before income taxes for each of the three years in the period
ended December 31, 1997 as follows:

<TABLE>
                                                      Amount of Tax
                                          1995         1996           1997
<S>                                       <C>          <C>            <C>

Computed expected tax expense (benefit)   $(201,000)   $(5,310,000) 	 $355,000

State taxes, net of federal benefit         (35,000)       (34,000)         --

In-process research & development
  not deductible for tax                         --      5,120,000          --

Non-recognition (recognition) of benefits
  of operating loss carryforward and 
  related valuation allowance change        236,000        224,000    (355,000)
                                           $     --       $     --  	$      --


</TABLE>

At December 31, 1997, the Company had unused net operating loss
carryforwards for tax and alternative minimum tax purposes of
approximately $12,207,000 and $10,633,000, respectively, and
unused tax credits of approximately $655,000.  These operating
loss carryforwards and tax credits expire in varying amounts
during 1998 through 2012.


J.				RELATED PARTY TRANSACTIONS

In connection with the private placement offering of
subordinated convertible notes in June 1995 three of the
Company's directors, David Pomerance, Mitchel Laskey and Thomas
Martinson, purchased notes in the principal amount of $100,000,
$100,000 and $50,000, respectively, and received warrants to
purchase 20,000, 20,000 and 10,000 shares of Common Stock,
respectively.  See "Description of Securities - Warrants." 
These notes were converted into Series A Preferred Stock on
November 28, 1995 at $0.80 per share.

In December 1995, in connection with the private placement of
Series B Preferred Stock, The Argentum Group was paid a
financial consulting fee of $175,000 and purchased warrants to
purchase 210,000 shares of Common Stock for $25,000.  Mr. Daniel
Raynor, a director of the Company, is the President of a general
partner of The Argentum Group.

On August 16, 1996, Messrs. Pomerance, Laskey, Maxwell and
certain other shareholders of the Company made unsecured loans
to the Company in an aggregate amount of $1,000,000, pursuant to
which the Company executed unsecured notes.  The unsecured notes
provided for payment, in full, at the earlier of the completion
of a Common Stock offering or November 14, 1996, together with
interest at a rate of 13% per annum.  The unsecured notes were
retired on October 2, 1996 upon settlement of the sale of the
Company's stock (see Note E)

The Company expensed $0, $165,000 and $159,000 during 1995, 1996
and 1997, respectively, for consulting and advisory fees paid to
MMRI, Inc. which is majority owned by its Chairman of the Board,
David Pomerance.



                              48





K.				LITIGATION

In February 1996, the Company instituted an action against James
A. Terrano ("Terrano"), the Company's former President and Chief
Executive Officer, in the District Court of Lancaster County,
Nebraska, alleging that Terrano (i) made fraudulent and
negligent representations to the Company's Board of Directors,
which resulted in the Company's acceptance of a handwritten
memorandum modifying Terrano's employment agreement, (ii)
breached his fiduciary duty to the Company and (iii) breached
his obligations under his employment agreement with the Company.
The Company is seeking to recover damages in the amount of at
least $50,000 in addition to the declaratory judgment
determining that no severance pay is due Mr. Terrano and that
the handwritten memorandum is invalid and unenforceable and does
not modify the employment agreement.  Mr. Terrano has
counter-claimed that he has been defamed by the Company.  The
Company is a defendant in an action in which Mr. Terrano has a
demand for $280,000 in severance pay together with two years
worth of benefits unquantified to include the use of an
automobile, club dues and insurance policies.  The Company is
vigorously contesting this case.  It is not possible to evaluate
the likelihood of a favorable or unfavorable outcome at this
time.

The Company was a defendant in an action filed by a former
Vice-President in March, 1995 in the District Court of Lancaster
County, Nebraska, alleging that the Company did not lawfully
terminate her for cause, and, therefore, breached her employment
agreement.  The case was dismissed on August 8, 1997 when the
Company agreed to pay the former employee $50,000 for severance
and litigation costs.

In July 1997, the Company commenced a declaratory judgement
action in Dakota County, Minnesota District Court seeking a
declaration that the Company had properly terminated the
services of an individual.  The individual filed a counterclaim
and demanded $200,000 in settlement of a claim alleging breach
of contract, promissory estoppel and fraud.  The parties are
engaged in discovery and trial is presently scheduled for July
1998.  The Company is vigorously defending all claims made by
the individual, and after consultation with its counsel has
assessed the likelihood of an unfavorable outcome as remote.

As of the date hereof, there are no other material legal
proceedings pending against the Company.  In the opinion of
management, the legal proceedings in which the Company is
involved will not have a material effect on the Company's
consolidated financial statements.


L.			STOCK BASED COMPENSATION PRO FORMA INFORMATION

Options granted to the Company's directors and employees under
the 1983 and 1993 Incentive Stock Option Plans, various
employment agreements, and the D&M Stock Option Plan (hereafter,
the "Plans"), are accounted for under APB Opinion 25,
Accounting for Stock Issued to Employees, and related
interpretations.  The exercise price of each option granted
under these Plans is at least equal to the market price of the
Company's stock on the date of grant.  Accordingly, no
compensation has been recognized for directors and employees
under these Plans.  Had compensation cost for the Plans been
determined based on the fair value of the options at the grant
dates consistent with the method of Statement of Financial
Accounting Standards 123, Accounting for StockBased Compensation
(SFAS 123), the Company's net earnings (loss) and  net earnings
(loss) per share would have been reduced to the pro forma
amounts indicated below.

<TABLE>
                                            1996                1997
<S>                       <S>           <C>                 <C>

Net earnings (loss)       As reported   $(15,618,372)       $1,042,958
                          Pro forma     $(16,226,837)       $  173,536

Net earnings (loss)
available to common
shareholders              As reported   $(15,869,409)       $1,042,958
                          Pro forma     $(16,477,874)       $  173,536
	
Basic and diluted	
earnings (loss) per
share                     As reported   $(      1.72)       $     0.06
                          Pro forma     $(      1.79)       $     0.01

</TABLE>

The fair value of each option grant under SFAS 123 is estimated
on the date of grant using the BlackScholes optionpricing model.
 Volatility was computed based on the daily common stock high,
low and close information provided by NASDAQ for the twenty days
prior to the close of trading on the date of each option grant,
and range from 58%  122% for options granted during 1995, 33% 
165% for options granted during 1996 and 61% - 114% 



                               49



for options granted during 1997.  Risk free rates of 6.5% for options
granted with a ten year exercise period, and 6% for options
granted with a three to five year exercise period were used. 
The forfeiture rate under the 1993 ISO Plan was assumed to be
30%, under the D&M Plan 15%, and range between 0% and 15% for
options granted in connection with continuing employment
agreements.  In addition, valuation of 1993 ISO Plan options
were reduced by 20%, and the valuation of NonISO Plan options
were reduced by 35%, to reflect the respective transfer
restrictions.  The weighted average grant date fair value of
options granted during 1996 and 1997, were $2.04 and $2.32,
respectively.


M.			UNAUDITED QUARTERLY INFORMATION

Quarterly operating results are summarized as follows (in
thousands, except per share data):					

<TABLE>
                                              Three Months Ended
                                                  (Unaudited)
                                   (1)        (1)(3)      (1)(3)     (1)(2)(3)
 1996                            March 31     June 30     Sept. 30     Dec. 31
 <S>                             <C>          <C>         <C>          <C>
 
 Total Operating Revenues        $3,085       $5,257      $4,785       $ 6,700

 Operating Income (Loss)           (485)         114        (449)      (14,819)

 Net Earnings (Loss)               (533)          46        (565)      (14,566)

 Net Earnings (Loss) Per Share     (.09)        (.01)      (0.09)        (1.53)

 Shareholders' Equity             4,146        4,328       3,659        19,771

</TABLE>

(1)	Results include the purchase acquisition of Dimensional
    Medicine, Inc. on May 1, 1996.
(2)	Results include the purchase acquisition of Collaborative
    Medical Systems, Inc. on December 17, 1996, and a non-recurring
    write off of in-process research and development of $15,058,000.
(3)	Results include the accounts of Dynacor, Inc., with which
    the Company merged in a transaction accounted for as a
    pooling-of-interests on May 22, 1997.  


<TABLE>
                                               Three Months Ended
                                                   (Unaudited) 				
                                    (1)          (1)      
 1997 	                           March 31     June 30     Sept. 30    Dec. 31
 <S>                              <C>          <C>         <C>         <C>

 Total Operating Revenues         $10,748      $ 7,547     $10,554     $ 7,696

 Operating Income (Loss)            2,804       (1,931)        683      (1,244)

 Net Earnings (Loss)                2,974       (1,766)        886      (1,051)

 Net Earnings (Loss) Per Share        .17         (.10)        .05        (.06)

 Shareholders' Equity              23,059       21,439      22,349      21,423

</TABLE>

(1)	 Results include the accounts of Dynacor, Inc., with which
     the Company merged in a transaction accounted for as 
     a pooling-of-interests on May 22, 1997.




                             50




                  INDEPENDENT AUDITORS' REPORT



The Board of Directors
Dynamic Healthcare Technologies, Inc.:


We have audited the accompanying consolidated balance sheets of
Dynamic Healthcare Technologies, Inc. as of December 31, 1996
and 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1997.  These
consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an
opinion on those consolidated financial statements based on our
audits.  

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements.  An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Dynamic Healthcare Technologies, Inc. as of December
31, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended
December 31, 1997 in conformity with generally accepted
accounting principles.



                                       /S/KPMG PEAT MARWICK LLP
                                          KPMG PEAT MARWICK LLP


Orlando, Florida
February 27, 1998





                              51



                     CORPORATE INFORMATION
                      Board of Directors


David M. Pomerance                        Mitchel J. Laskey, C.P.A. 
Chairman                                  President, Chief Executive Officer 
Dynamic Healthcare Technologies, Inc.     Dynamic Healthcare Technologies, Inc.

Jerry L. Carson                           Thomas J. Martinson
Executive Vice President and              President 
Chief Financial Officer                   Martinson & Company. Ltd.
Evans Enterprises

Bret R. Maxwell                           Daniel Raynor
Managing Director                         Managing Partner 
First Analysis                            The Argentum Group

Richard W. Truelick
President 	 
Truelick Associates 	 


                        Executive Officers

Mitchel J. Laskey                         Scott E. Waldrop
President, Chief Executive                Senior Vice President
Officer and Treasurer                     Chief Operating Officer 

Michael L. Carlay                         Paul S. Glover 
Senior Vice President                     Vice President, Finance 
Sales and Marketing                       Chief Financial Officer and Secretary


                        Corporate Officers 	

Steven J. Akerson                         Brian M. Paige 
Vice President, Corporate Operations      Vice President, Development

Mary Lu Lander                            Matthew P. Lawton
Vice President, Marketing                 Vice President, Major Accounts

John Faris 	 
Vice President 	 
Client Sales 	 



                          Legal Counsel
          Cohen, Berke, Bernstein, Brodie & Kondell, P.A.
                       2601 S. Bayshore Drive
                     Miami, Florida  33133-5460
                          (305)8545900

Transfer Agent                              Independent Auditors 
Norwest Bank Minnesota, N.A.                KPMG Peat Marwick, LLP
161 North Concord Exchange                  111 North Orange Avenue, Suite 1600
St. Paul, Minnesota 55075                   Orlando, Florida 32801
(612)450-4064                               (407)423-3426 





                             52





                  STOCK TRADING INFORMATION

The Common Stock of Dynamic Healthcare Technologies, Inc. is
traded on the NASDAQ National Market System under the NASDAQ
symbol DHTI.

                   COMMON STOCK INFORMATION

The number of stockholders of record of the Company's Common
Stock on March 10, 1998, was approximately 3,685.  High and low
bid quotations for the Common Stock for the last eight quarters
are presented below:

<TABLE>
                                       1996                      1997
<S>                               <C>        <C>            <C>        <C>
Quarter Ended                     High       Low            High       Low
March 31                          $2.625     $1.750         $8.6250    $4.5000
June 30                            7.625      2.250          7.8125     4.0625
September 30                       7.625      3.750          6.0000     4.0000
December 31                        6.125      3.875          6.5000     3.0630

</TABLE>

The foregoing quotations reflect interdealer prices without
retail markup, markdown, or commission and may not necessarily
represent actual transactions.


                   ANNUAL REPORT ON FORM 10K, WITHOUT EXHIBITS

Dynamic Healthcare Technologies, Inc.'s annual filing with the
Securities and Exchange Commission (Form 10K) is available upon
request without charge to shareholders by writing to:

                               Cynthia Sucher
                        Investor Services Department
                    Dynamic Healthcare Technologies, Inc.
                       101 Southhall Lane, Suite 210
                         Maitland, Florida 32751
                             (407) 875-9991


                             ANNUAL MEETING

The Annual Meeting of Shareholders of Dynamic Healthcare
Technologies, Inc. will be held on June 4, 1998, in Maitland,
Florida.



                              53




                  INDEPENDENT AUDITORS' CONSENT




The Board of Directors
Dynamic Healthcare Technologies, Inc.:


We consent to incorporation by reference in the registration
statements (No. 33 72684 and 3372764) on Form S8 of Dynamic
Healthcare Technologies, Inc. of our reports dated February 27,
1998, relating to the consolidated balance sheets of Dynamic
Healthcare Technologies, Inc. as of December 31, 1996 and 1997,
and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1997, and related
schedule, which reports appear in the December 31, 1997 report
on Form 10K of Dynamic Healthcare Technologies, Inc.



                             /S/KPMG PEAT MARWICK LLP
                                KPMG PEAT MARWICK LLP


Orlando, Florida
March 24, 1998




                             54