United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: September 30, 2000
Commission file number: 0-26449
DYNAMIC IMAGING GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0903895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3418 North Ocean Boulevard
Fort Lauderdale, Florida 33308
(Address of principal executive offices)
(Zip code)
(954) 564-1133
(Registrant's telephone number, including area code)
Indicate by check mark whether 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
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of September 30, 2000: 8,493,687 shares of common stock, $.001
par value per share.
<PAGE>
DYNAMIC IMAGING GROUP, INC.
FORM 10-QSB
QUARTERLY PERIOD ENDED September 30, 2000
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet (Unaudited)
September 30, 2000.................................................. 3
Consolidated Statements of Operations (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999............... 4
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999............... 5
Notes to Consolidated Financial Statements............................ 6-11
Item 2 -Management's Discussion and Analysis of Financial
Condition and Resultsof Operations............................ 11-14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings....................................... 15
Item 4 - Submission of Matters to a Vote of Security Holders..... 15
Item 6 - Exhibits and Reports on Form 8-K........................ 15
Signatures....................................................... 15
-2-
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
ASSETS
<S> <C>
CURRENT ASSETS:
Accounts Receivable $ 206,415
Inventories 19,327
----------
Total Current Assets 225,742
PROPERTY AND EQUIPMENT - Net 142,256
MARKETABLE EQUITY SECURITIES 24,000
DUE FROM RELATED PARTIES 40,585
GOODWILL - Net 288,437
SECURITY DEPOSITS 2,990
----------
Total Assets $ 724,010
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note and Debenture Payable $ 100,000
Accounts Payable and Accrued Expenses 436,696
Accrued Salaries 21,092
Payroll Taxes Payable 31,906
Customer Deposits 16,749
Due to Related Party 26,500
----------
Total Current Liabilities 632,943
----------
STOCKHOLDERS' DEFICIT:
Preferred Stock (No Par Value; 5,000,000 Shares
Authorized; No Shares Issued and Outstanding) -
Common Stock ($.001 Par Value; 50,000,000 Shares Authorized;
8,493,687 Shares Issued and Outstanding ) 8,494
Additional Paid-in Capital 2,547,159
Accumulated Deficit (2,457,086)
Less: Subscription Receivable (7,500)
----------
Total Stockholders' Deficit 91,067
----------
Total Liabilities and Stockholders' Deficit $ 724,010
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
--------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $ 414,710 $ 165,818 $ 833,012 $ 356,089
COST OF SALES 80,611 71,842 262,228 180,285
--------------- ---------------- ------------- ----------------
GROSS PROFIT 334,099 93,976 570,784 175,804
--------------- ---------------- ------------- ----------------
OPERATING EXPENSES:
Consulting Fees 33,300 - 164,970 -
Contract Labor 112,710 82,988 235,622 163,196
Depreciation and Amortization 12,876 6,000 25,063 9,000
Professional Fees 10,061 8,076 47,326 23,641
Rent 19,683 24,124 75,137 56,002
Salaries 197,106 114,551 429,302 349,126
Other Selling, General and Administrative 149,570 53,943 385,367 224,081
--------------- ---------------- ------------- ----------------
Total Operating Expenses 535,306 289,682 1,362,787 825,046
--------------- ---------------- ------------- ----------------
LOSS FROM OPERATIONS (201,207) (195,706) (792,003) (649,242)
OTHER EXPENSES:
Interest Expense 98,043 - 175,030 -
--------------- ---------------- ------------- ----------------
LOSS BEFORE PROVISION FOR INCOME TAXES (299,250) (195,706) (967,033) (649,242)
--------------- ---------------- ------------- ----------------
PROVISION FOR INCOME TAXES:
Current - - - -
Deferred - - - -
--------------- ---------------- ------------- ----------------
- - - -
--------------- ---------------- ------------- ----------------
NET LOSS $ (299,250) $ (195,706) $ (967,033) $ (649,242)
=============== ================ ============= ================
BASIC AND DILUTED:
Net Loss Per Common Share $ (0.04) $ (0.03) $ (0.15) $ (0.12)
=============== ================ ============= ================
Weighted Common Shares Outstanding 7,146,944 5,598,406 6,416,707 5,487,660
=============== ================ ============= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
-------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (967,033) $ (649,242)
Adjustments to Reconcile Net Loss to Net Cash Flows
Used in Operating Activities:
Depreciation and Amortization 25,063 9,000
Recognition of Officers Compensation on Donated Services - 60,000
Common Stock Issued for Services 148,851 2,000
Interest Expense Recognized for Issuance of Common Stock 135,000 -
(Increase) Decrease in:
Accounts Receivable (178,629) (53,208)
Inventories (13,864) -
Due from Related Parties 48,556 (195,190)
Security Deposits - (1,000)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 137,365 119,081
Accrued Salaries 237,094 210,000
Payroll Taxes Payable 31,906 -
Customer Deposits (690) 8,768
Due to Related Party 26,500 6,671
-------------- --------------
Net Cash Flows Used in Operating Activities (369,881) (483,120)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from Acquisition 1,276 -
Acquisition of Property and Equipment (29,945) (129,159)
-------------- --------------
Net Cash Flows Used in Investing Activities (28,669) (129,159)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Note and Debenture Payable 140,000 10,000
Decrease in Subscriptions Receivable 30,500 -
Proceeds from Issuance of Common Stock 224,700 595,735
-------------- --------------
Net Cash Flows Provided by Financing Activities 395,200 605,735
-------------- --------------
Net Increase (Decrease ) in Cash (3,350) (6,544)
Cash - Beginning of Period 3,350 10,047
-------------- --------------
Cash - End of Period $ - $ 3,503
============== ==============
SUPPLEMENTAL INFORMATION:
Cash Paid During Year for:
Interest and Taxes $ - $ -
============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Stock for Acquisition $ 295,000 $ -
============== ==============
Issuance of Common Stock for Subscription Receivable $ - $ 263,000
============== ==============
Issuance of Common Stock for Marketable Equity Securities $ 24,000 $ -
============== ==============
Issuance of Common Stock in Exchange for Debt $ 378,502 $ -
============== ==============
Details of Acquisition:
Fair value of assets $ 26,777 $ -
Liabilities (377) -
Common stock issued (26,400) -
-------------- --------------
Net cash paid for acquisition $ - $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The accompanying consolidated
financial statements for the interim periods are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the periods presented. The consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
These consolidated financial statements should be read in conjunction with the
financial statements for the year ended December 31, 1999 and notes thereto
contained in the Report on Form 10-KSB of Dynamic Imaging Group, Inc. (the
"Company") as filed with the Securities and Exchange Commission. The results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of the results for the full fiscal year ending December 31, 2000.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Since its inception, the Company
has continued to suffer recurring losses from operations that to date, total
$2,457,086. At September 30, 2000, the Company had a working capital deficit of
$407,201. These factors among others may indicate the Company will be unable to
continue as a going concern for a reasonable period of time. The accompanying
consolidated financial statements do not include any adjustments relating to the
outcome of this uncertainty.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis. The
Company's primary source of liquidity has been from the cash generated by its
operations and through the private placement of equity and debt securities. The
Company is presently developing its infrastructure and ramping up operations of
its business in order to eventually achieve profitable operations. However,
there can be no assurance that the Company will be successful in achieving
profitability or acquiring additional capital or that such capital, if
available, will be on terms and conditions favorable to the Company. Based upon
its current business plan, the Company believes it will generate sufficient cash
flow through operations and external sources of capital to continue to meet its
obligations in a timely manner.
NOTE 2- LOSS PER SHARE
Basic earnings per share is computed by dividing net loss by weighted average
number of shares of common stock outstanding during each period. Diluted loss
per share is computed by dividing net loss by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive.
-6-
<PAGE>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company advanced funds to certain companies affiliated through common
ownership. The advances are non-interest bearing and are payable on demand. At
September 30, 2000, advances to these companies amounted to $40,585.
Certain shareholders of the Company and a company related through common
ownership from time to time, advanced funds to the Company for operations. These
amounts are non-interest bearing, non-collateralized, and are payable on demand.
As of September 30, 2000, amounts due to these related parties amounted to
$26,500.
NOTE 4 - ACQUISITIONS
During January 2000, the Company acquired 100% of the outstanding stock of Digi
of Fort Lauderdale, Inc. in exchange for 33,000 shares of Company stock with a
fair value of $26,400. The Company accounted for this acquisition using the
purchase method of accounting. The purchase price equaled the fair value of net
liabilities assumed. The results of operations of Digi of Fort Lauderdale, Inc.
are included in the accompanying financial statements from January 1, 2000
(effective date of acquisition) to June 30, 2000. Digi of Fort Lauderdale, Inc.
commenced operations subsequent to June 30, 1999. Therefore, unaudited pro forma
consolidated results of operations have not been presented. On July 1, 2000, the
Company sold 50% of its interest in Digi of Fort Lauderdale, Inc. to a third
party and entered into a joint venture agreement. As consideration, the sum of
$20,000 shall be paid to the Company. The purchaser surrendered to the Company
10,000 shares of the Company's stock to be held in the third party's name for
nine months. The common shares may be sold by the Company at a value of $2.00
per share any time prior to the last day of the ninth month.
On May 15 2000, the Company acquired 100% of the outstanding stock of Peerless
Solutions, Inc. (Peerless) in exchange for 350,000 shares of Company stock with
a fair value of $175,000. As part of the acquisition, Peerless changed its name
to DIGI eSolutions, Inc. (eSolutions). In addition to these shares, the Peerless
shareholders shall be entitled to receive from the Company no later than June
30, 2003, his or her proportionate shares of contingent shares of common stock
of the Company. Said shares shall bear a restrictive Rule 144 legend according
to the Securities Act of 1933. The number of contingent shares is determined by
dividing the Contingent Sum by the Stipulated Value. The Contingent Sum is equal
to Five (5) times the average annual net earnings of DIGI eSolutions determined
for each of the following thirteen (13) and twelve (12) month periods beginning
on May 1, 2000 and ending on May 31, 2003. Peerless provides businesses with a
wide range of e-commerce services including development of business to business
applications, state of the art web technology and staff augmentation services.
The Company accounted for this acquisition using the purchase method of
accounting. The purchase price exceeded the fair value of net liabilities
assumed by $175,000. As of May 15, 2000, eSolutions did not have assets,
liabilities or operations. The excess has been applied to goodwill and is being
amortized on a straight-line basis over 10 years.
On August 24, 2000, the Company acquired 100% of ePublishing, Inc. in exchange
for 300,000 shares of common stock with a fair value of $120,000. These shares
bear a restrictive Rule 144 legend according to the Securities Act of 1933.
ePublishing is a concept company that will provide a service acknowledging
professionals in assorted categories through Who'sWhoDigest.com. The Company
accounted for this acquisition using the purchase method of accounting. As of
August 24, 2000, ePublishing did not have assets or liabilities but currently
has a website under construction. The excess has been applied to goodwill and is
being amortized on a straight-line basis over 10 years.
-7-
<PAGE>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 5 - MARKETABLE EQUITY SECURITIES
Marketable equity securities are classified into one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are
acquired and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold to maturity. All other securities not included in the
trading and held-to-maturity categories are available-for-sale securities.
Management determines the appropriate classifications of marketable equity
securities at the time they are acquired and evaluates the continuing
appropriateness of the classification at each balance sheet date. At September
30, 2000, the Company held only available-for-sale securities, which are
reported at fair value with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' deficit.
NOTE 6 - NOTES AND DEBENTURES PAYABLE
The Company has a note payable to an unaffiliated third party. The note is
non-interest bearing, non-collateralized, and due on April 1, 2000. As of
September 30, 2000, the note payable to this third party amounted to $50,000. In
connection with the note payable, the Company issued 50,000 restricted common
shares in 1999. The value of the consideration, $40,000 based on the fair value
price per share of $.80, was reflected as interest expense and charged to
operations in the year ended December 31, 1999. If the note is not repaid on
April 1, 2000, a penalty of 50,000 shares per month shall be paid to the third
party. During the quarter ended June 30, 2000, the Company issued 150,000 shares
of common stock in accordance with this note agreement. These shares were valued
at fair value of $.50 per share. During the quarter ended September 30, 2000,
the Company issued 150,000 shares of common stock in accordance with this note
agreement. These shares were valued at fair value of approximately $.40 per
share. As of November 1, 2000, the note had not been repaid.
On July 10, 2000, the Company signed a convertible debenture and borrowed
$27,826 from a third party. The entire outstanding debt plus interest
aggregating $65,000 shall be due and payable on October 10, 2000. The aggregate
debt amounting to $65,000 shall be convertible, upon default, at the option of
the lender, into shares of the Company's common stock. On September 22, 2000,
the third party converted the entire debenture into 226,087 shares of common
stock at a conversion price of $.285, which represents fair value.
On September 7, 2000, the Company signed a convertible debenture and borrowed
$50,000 from a third party. Interest has been imputed at 12% per annum. The
entire outstanding debt plus interest shall be due and payable on March 7, 2001.
The aggregate debt shall be convertible, upon default, at the option of the
lender, into shares of the Company's common stock at a conversion price of $1.00
per share.
NOTE 7- STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors.
-8-
<PAGE>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 7- STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Common Stock
During July 2000, the Company issued 32,000 shares of common stock in exchange
for professional services rendered. These shares were valued at a fair value of
$.50 per share and charged to operations.
During August 2000, the Company issued 11,500 shares of restricted common stock
in exchange for professional services rendered. These shares were valued at a
fair value $.40 per share and charged to operations.
During August 2000, the Company issued 150,000 shares of restricted common stock
as payment of interest expense on a note payable. These shares were valued at
approximately $.40 per share, the fair values and charged to operations.
During August 2000, the Company issued 78,800 shares of restricted common stock
for proceeds of $19,700.
On August 24, 2000, the Company acquired 100% of ePublishing, Inc. in exchange
for 300,000 restricted shares of common stock. These shares were valued at a
fair value of $.40 per share.
On August 28, 2000, the Company issued 62,500 restricted shares of its common
stock in full satisfaction of certain indebtedness amounting to $25,000. These
shares were valued at approximately $.40 per share, the fair values.
On September 22, 2000, the Company issued 226,087 restricted shares of its
common stock in full satisfaction of certain indebtedness amounting to $65,000.
These shares were valued at approximately $.285 per share, the fair values.
On September 30, 2000, the Company issued 759,215 restricted shares of its
common stock in full satisfaction of accrued salaries amounting to $288,502.
These shares were valued at approximately $.38 per share, the fair values.
The Company has reserved 310,650 shares of common stock in the name of a vendor
as collateral for an accounts payable balance amounting to approximately
$255,000 as of September 30, 2000.
NOTE 8 -COMPREHENSIVE INCOME
The Company uses Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements for
disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"other comprehensive items," which represent certain amounts that are reported
as components of stockholders' equity in the accompanying balance sheet,
including foreign currency translation adjustments. For the nine months ending
September 30, 2000, the Company had no comprehensive income.
-9-
<PAGE>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 9 - SEGMENT INFORMATION
The Company operates in two reportable business segments - (1) sale of trade
show displays and graphics, and (2) e-commerce services including development of
business to business applications, state of the art web technology and staff
augmentation services. The Company's reportable segments are strategic business
units that offer different products. They are managed separately based on the
fundamental differences in their operations.
Information with respect to these reportable business segments for the nine and
three months ended September 30, 2000 is as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 2000
-------------------------------------------------------------
Trade Show
Displays and E-commerce Consolidated
Graphics Solutions Total
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net Sales $ 555,905 $ 277,107 $ 833,012
Costs and Operating Expenses 1,478,704 146,311 1,625,015
Interest Expense 175,030 - 175,030
----------------- ----------------- -------------------
Net Income (Loss) $ (1,097,829) $ 130,796 $ (967,033)
================= ================= ===================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 2000
-------------------------------------------------------------
Trade Show
Displays and E-commerce Consolidated
Graphics Solutions Total
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net Sales $ 137,603 $ 277,107 $ 414,710
Costs and Operating Expenses 469,606 146,311 615,917
Interest Expense 98,043 - 98,043
----------------- ----------------- -------------------
Net Income (Loss) $ (430,046) $ 130,796 $ (299,250)
================= ================= ===================
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 2000
-------------------------------------------------------------
Trade Show
Displays and E-commerce Consolidated
Graphics Solutions Total
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net Sales $ 555,905 $ 277,107 $ 833,012
Costs and Operating Expenses 1,478,704 146,311 1,625,015
Interest Expense 175,030 - 175,030
----------------- ----------------- -------------------
Net Income (Loss) $ (1,097,829) $ 130,796 $ (967,033)
================= ================= ===================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 2000
-------------------------------------------------------------
Trade Show
Displays and E-commerce Consolidated
Graphics Solutions Total
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net Sales $ 137,603 $ 277,107 $ 414,710
Costs and Operating Expenses 469,606 146,311 615,917
Interest Expense 98,043 - 98,043
----------------- ----------------- -------------------
Net Income (Loss) $ (430,046) $ 130,796 $ (299,250)
================= ================= ===================
</TABLE>
During the nine and three months ended September 30, 1999, the e-commerce
segment was not in operations.
-10-
<PAGE>
DYNAMIC IMAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 10 - FUTURE EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as "derivatives"), and for hedging activities. The
statement requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. In June 1999, the FASB issued SFAS No.
137, which defers the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000. The company expects no immediate impact from SFAS No. 133
as it currently has no derivatives.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". With the exception of
certain provisions that required earlier application, this interpretation is
effective for all applicable transactions beginning July 1, 2000. We do not
expect that the adoption of this interpretation will have a material impact on
our financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
This report on Form 10-QSB contains certain forward-looking statements, which
are subject to risks and uncertainties which could cause actual results to
differ materially from those discussed in the forward-looking statements and
from historical results of operations. Among the risks and uncertainties which
could cause such a difference are those relating to our dependence upon certain
key personnel, our ability to manage its growth, our success in implementing the
business strategy, our success in arranging financing where required, and the
risk of economic and market factors affecting the us or our customers. Many of
such risk factors are beyond our control.
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999.
Net sales for the nine months ended September 30, 2000 were $833,012 as compared
to net sales for the nine months ended September 30, 1999 of $356,089. This
increase in net sales of $476,923 for the nine months ended September 30, 2000
is principally due to net sales from our e-commerce segment amounting to
$277,107 that was primarily derived from web site development. Net sales from
our trade show displays and graphics segment increased by $199,816 as compared
to the nine months ended September 30, 2000. We attribute this increase to
increased sales and marketing efforts.
Cost of sales is attributable to our trade show display and graphics segments.
For the nine months ended September 30, 2000, cost of sales amounted to $262,228
or 47% of net sales from our display and graphics segment as compared to
$180,285 or 51% of net sales for the nine months ended September 30, 1999. We
recognize a greater gross profit margin from graphic sales as compared to
display sales. Net sales and gross profits depend in part on the volume and mix
of display sales, graphic sales and rental sales. Graphic products have a higher
gross margin with a relatively lower sales transaction amount per customer,
while display sales have a comparably lower gross profit margin with a
relatively higher sales transaction amount per customer. During the nine months
ended September 30, 2000, display sales accounted for approximately 48% of net
sales as compared to approximately 80% of net sales for the nine months ended
September 30, 1999. Accordingly, we recognized gross profit margins of 53% for
the nine months ended September 30, 2000 as compared to gross profit margins of
49% for the nine months ended September 30, 1999.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations (Continued)
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999 (Continued)
Consulting fees were $164,970 for the nine months ended September 30, 2000 as
compared to $-0- for the nine months ended September 30, 1999. The increase is
primarily attributable to investment banking and other fees incurred in
connection with our stock sales. Additionally, during May and June 2000, we
issued 101,500 shares of common stock in exchange for professional and
consulting services rendered. These shares were valued at $.50 per share, the
fair values, and charged to consulting fees.
Contract labor expenses include costs and commissions related to our sales force
that is comprised of both direct employees of the Company (included in salaries)
and independent sales representatives. Contract labor also includes costs of
certain individuals related to administration and purchasing who are engaged on
a contractual basis. Contract labor expenses were $235,622 for the nine months
ended September 30, 2000 as compared to $163,196 for the nine months ended
September 30, 1999. The increase in contract labor is attributable to our growth
and need to support our existing products and service business as well as to
provide the infrastructure for future growth. Additionally, our e-commerce
segment uses independent contractors to perform certain web site development
services.
Professional fees were $47,326 for the nine months ended September 30, 2000 as
compared to $23,641 for the nine months ended September 30, 1999. The increase
is attributable to the fact that we incurred additional legal and accounting
fees in connection with the filing of our registration statement on Form 10-SB,
as filed and subsequently amended, during fiscal 2000.
Rent expense was $75,137 for the nine months ended September 30, 2000 as
compared to $56,002 for the nine months ended September 30, 1999. The increase
was directly attributable to the acquisition of our wholly owned subsidiary,
Digi of Fort Lauderdale, Inc. in January 2000. On July 1, 2000, we sold a 50%
interest in this subsidiary to a third party. Accordingly, we ceased paying rent
on this facility.
Salaries were $429,302 for the nine months ended September 30, 2000 as compared
to $349,126 for the nine months ended September 30, 1999. The increase in salary
was directly attributable to the addition of our e-commerce subsidiary with
salaries amounting to $79,165. Salary figures for our display and graphics
business have remained comparatively steady over the periods. We anticipate head
count to remain consistent. We will continue to use contract labor as necessary
to complete projects and to generate sales.
Other selling, general and administrative expenses, which include travel and
entertainment, insurance, auto, telephone and other expenses, were $385,367 for
the nine months ended September 30, 2000 as compared to $224,081 for the nine
months ended September 30, 1999. The increase is primarily attributable to
increased selling and marketing efforts. Additional, we have incurred additional
travel and entertainment expenses related to our SEC filings, stock registration
and investment banking activities.
Interest expense was $175,030 for the nine months ended September 30, 2000,
respectively, as compared to $-0- for the nine months ended September 30, 1999.
The increase was directly attributable to our issuance 300,000 shares of common
stock as payment of interest expense on a note payable. These shares were valued
at prices ranging from $.50 to $.40 per share, the fair values.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations (Continued)
Three months ended September 30, 2000 compared to three months ended September
30, 1999.
Net sales for the three months ended September 30, 2000 were $414,710 as
compared to net sales for the three months ended September 30, 1999 of $165,818.
This increase in net sales of $248,892 for the three months ended September 30,
2000 is principally due to net sales from our e-commerce segment amounting to
$259,562 that was primarily derived from web site development. Net sales from
our trade show displays and graphics segment decreased by $10,670 as compared to
the three months ended September 30, 2000.
Cost of sales is attributable to our trade show display and graphics segments.
For the three months ended September 30, 2000, cost of sales amounted to $80,611
or 52% of net sales from our display and graphics segment as compared to $71,842
or 43% of net sales for the three months ended September 30, 1999.
Consulting fees were $33,300 for the three months ended September 30, 2000 as
compared to $-0- for the three months ended September 30, 1999. The increase is
primarily attributable to investment banking and other fees incurred in
connection with our stock sales.
Contract labor expenses include costs and commissions related to our sales force
that is comprised of both direct employees of the Company (included in salaries)
and independent sales representatives. Contract labor also includes costs of
certain individuals related to administration and purchasing who are engaged on
a contractual basis. Contract labor expenses were $112,710 for the three months
ended September 30, 2000 as compared to $82,988 for the three months ended
September 30, 1999. The increase in contract labor is attributable to our growth
and need to support our existing products and service business as well as to
provide the infrastructure for future growth. Additionally, our e-commerce
segment uses independent contractors to perform certain web site development
services.
Professional fees were $10,061 for the three months ended September 30, 2000 as
compared to $8,076 for the three months ended September 30, 1999. The increase
is attributable to the fact that we incurred additional legal and accounting
fees in connection with the filing of our registration statement on Form 10-SB,
as filed and subsequently amended, during fiscal 2000.
Salaries were $197,106 for the three months ended September 30, 2000 as compared
to $114,551 for the three months ended September 30, 1999. The increase in
salary was directly attributable to the addition of our e-commerce subsidiary
with salaries amounting to $79,165. Salary figures for our display and graphics
business have remained comparatively steady over the periods. We anticipate head
count to remain consistent. We will continue to use contract labor as necessary
to complete projects and to generate sales.
Other selling, general and administrative expenses, which include travel and
entertainment, insurance, auto, telephone and other expenses, were $149,570 for
the three months ended September 30, 2000 as compared to $53,943 for the three
months ended September 30, 1999. The increase is primarily attributable to
increased sale and marketing efforts. Additionally, we have incurred additional
travel and entertainment expenses related to our SEC filings, stock registration
and investment banking activities.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations (Continued)
Three months ended September 30, 2000 compared to three months ended September
30, 1999 (Continued)
Interest expense was $98,043 for the three months ended September 30, 2000 as
compared to $-0- for the three months ended September 30, 1999. The increase was
directly attributable to our issuance 150,000 shares of common stock during the
three month period ended September 30, 2000 as payment of interest expense on a
note payable. These shares were valued at $.40 per share, the fair values.
Additionally, we incurred interest expense on a debenture payable.
As a result of the foregoing factors, we incurred losses of $967,033 or ($.15)
per share for the nine months ended September 30, 2000 as compared to a loss of
$649,242 or ($.12) per share for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred losses of approximately $2,457,159. Our
operations and growth have been funded by the sale of common stock with gross
proceeds of approximately $1,049,000 and working capital borrowings amounting to
$50,000. Additionally, we signed convertible debentures and borrowed
approximately $125,000 from third parties and related parties. These funds were
used for working capital and capital expenditures. During August and September
2000, we issued common stock in exchange for debt aggregating $90,000. On
September 30, 2000, we issued common stock in exchange for accrued salaries
amounting to $288,502. We believe that the conversion of this debt to equity
will help our cash flow position.
We have no other material commitments for capital expenditures. We believe that
we have sufficient liquidity to meet all of our cash requirements for the next
twelve months through cost reductions and increased marketing efforts together
with additional proceeds from common stock sales. A key element of our strategy
is to continue to expand our sales force and to evaluate opportunities to expand
through acquisition of companies engaged in similar and related complementary
businesses. During May 2000, we acquired 100% of the outstanding stock of
Peerless Solutions, Inc. (Peerless) in exchange for 350,000 shares of Company
stock with a fair value of $175,000. As part of the acquisition, Peerless
changed its name to DIGI eSolutions, Inc. (eSolutions). Esolutions provides
businesses with a wide range of e-commerce services including development of
business to business applications, state of the art web technology and staff
augmentation services. We expect eSolutions to generate revenues and cash flow
aggregating $400,000 during the fourth quarter of the calendar year. Any
additional acquisitions may require additional capital, although there can be no
assurances that any acquisitions will be completed. Also, we believe that
additional funding will be necessary to expand our market share.
During the nine months ended September 30, 2000, our operating cash requirement
was $369,881 attributable to a net loss of $967,033 mitigated by non-cash
charges for depreciation and amortization of $25,063, stock based compensation
of $148,851 and interest expense of $135,000. The net remaining shortfall was
primarily funded by the net sale of common stock for $255,200 and proceeds from
notes and debentures payable for $140,000 received during the nine months ended
September 30, 2000. Partially offsetting this funding were capital expenditures
of $29,945.
During the nine months ended September 30, 1999, our operating cash requirement
was $483,120 attributable to a net loss of $649,242 mitigated by non-cash
charges for depreciation and amortization of $9,000, stock based compensation of
$2,000 and the recognition of officers compensation on donated services of
$60,000. The net remaining shortfall was primarily funded by the sale of common
stock for $595,735 received during the nine months ended September 30, 1999.
Partially offsetting this funding were capital expenditures related to the
acquisitions of trade show displays to be used in our display rental business of
$129,159.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not involved in any material litigation
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) There were no current reports on Form 8-K filed by us during the
nine months ended September 30, 2000.
.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNAMIC IMAGING GROUP, INC.
Dated: November 15, 2000 By:/s/Gary Morgan
------------------------------------
Gary Morgan, Chief Executive Officer
Dated: November 15, 2000 By:/s/Roland Breton
------------------------------------
Roland Breton, President
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
1 Financial Data Schedule
