UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q-SB
Amendment No. 2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 Securities and
Exchange Commission File Number
000-26369
Dicom Imaging Systems, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0422026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 E. Flamingo Road
Suite 847
Las Vegas, NV 89119
(Address of principal executive offices, including zip code)
(877) 624-6243
(Registrant's Telephone Number, Including Area Code)
(520) 441-8755
(Registrant's Facsimile Number, Including Area Code)
Indicate by check mark 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
requirements for the past 90 days. YES ? NO X The number of issued and
outstanding shares of the Registrants Common Stock, $0.001 par value, as of
September 30, 1999, was 2,400,000.
DICOM IMAGING SYSTEMS, INC.
PART I-FINANCIAL INFORMATION
<TABLE>
<CAPTION> Page
<S> <C>
Item 1. Financial Statements:
Balance Sheet at September 30, 1999 4
Consolidated Statement of Operations for the period from 5
March 17, 1999 to September 30, 1999
Consolidated Statement of Operations for the interim period
from April 1, 1999 to September 30, 1999 6
Consolidated Statement of Operations for the three month period
ended September 30, 1999 7
Statement of Stockholders Equity for the interim period from
March 17, 1999 to September 30, 1999 8
Consolidated Statement of Cash Flows for the period from
March 17, 1999 to September 30, 1999 9
Consolidated Statement of Cash Flows for the interim period from
April 1, 1999 to September 30, 1999 10
Consolidated Statement of Cash Flows for the three month period
ended September 30, 1999 11
Notes to Un-audited Consolidated Financial Statements 12
Item 2. Management's Plan of Operation for the twelve month period
beginning September 30, 1999 14
PART II-OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
Responce Letter 15
Exhibit 27.1 Financial Data Schedule 16
</TABLE>
Information Required in Quarterly Report
Certain Forward-Looking Information
The information contained in this Quarterly Report includes forward-looking
statements. Since this information is based on current expectations which
involve risks and uncertainties, actual results could differ materially from
those expressed in the forward-looking statements.
Part I . Financial Information
Item 1. Financial Statements
DICOM IMAGING SYSTEMS, INC
CONSOLIDATED BALANCE SHEET
As of September 30, 1999, with comparative figures for March 31, 1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
<S> <C> <C>
Assets
Current Assets
Cash On Hand
Checking Accounts $ 76,300 $ 11,863
Savings Accounts 4,783 211,039
Petty Cash 128 --
---------------------------------
Total Cash On Hand 81,211 222,902
Stock Subscription Receivable -- 443,950
Accounts Receivable 2,669 --
Prepaid Expenses 21,947
Licensing Agreement Receivable -- 97,500
Dicom Software Loan Receivable 66,093 --
----------------------------------
Total Current Assets 171,920 764,352
----------------------------------
Long Term Assets
Deferred Income Tax -- 34,998
Computer Equipment
Comp Equip - Orig Cost 48,825 34,914
Comp Equip - Accum. Dep'n (8,087) 0
-------------------------------
Net Computer Equipment 40,738 34,914
-------------------------------
Demonstration Equipment
Demo Equip - Orig Cost 14,324 --
Demo Equip - Accum. Dep'n (1,366) --
-------------------------------
Net Demonstration Equipment
12,958 --
------------------------------
Total Long Term Assets 53,696 69,912
------------------------------
Total Assets $ 225,616 $ 834,264
==============================
Liabilities
Current Liabilities
Accounts payable $ 86,325 $ --
Deferred revenue 100,000 --
-----------------------------
Total Current Liabilities 186,325 --
-----------------------------
Tax Liabilities
Payroll Taxes 2,512 --
GST Collected (2,928) --
-----------------------------
Total Tax Liabilities (416) --
-----------------------------
Total Liabilities 185,909 --
-----------------------------
Equity
Owner's/Shareholder's Equity
Common Stock 2,400 2,400
Additional Paid In Capital 947,600 899,800
-----------------------------
Total Owner's/Shareholder's Equity 950,000 902,200
-----------------------------
Deficit accumulated during
the development stage (910,293) (67,936)
-----------------------------
Total Equity 39,707 834,264
-----------------------------
Total Liability & Equity $ 225,616 $ 834,264
============================
</TABLE>
DICOM IMAGING SYSTEMS, INC
CONSOLIDATED PROFIT & LOSS STATEMENT For the period from
March 17, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income
Software/Support 55,134
Hardware 37,958
Miscellaneous 3,127
Freight Collected 2,758
Discounts (200)
Total Income $98,777
Cost of Sales 31,592
---------
Gross Profit $ 67,185
---------
Expenses
General & Administrative Exp
Salaries 79,902
Development 38,672
Total General & Administrative Exp $ 118,574
---------
Start-Up Expenses
NASD Filing 138,545
Video 5,217
Master CD 4,900
Initial Mailing 38,220
Equipment 1,171
Tradeshow Booth 1,184
Tradeshow Costs 40,751
Web Design 7,753
Ads 40,522
Travel 44,525
Legal 23,011
Investor relations -
Start-up Overhead 372,976
Contingency 42,000
Total Start-Up Expenses 760,775
---------
Overhead
Rent 5,524
Telephone 9,179
Office equipment lease 8,608
Consulting 8,083
Web Site Maintenance 2,969
Office Supplies 2,785
Miscellaneous 1,475
Printing 6,520
Courier 6,163
Mailings 10,409
Wages 25,288
Employer Payroll Tax Expense 1,723
Depreciation 9,452
Bank charges 822
Total Overhead $ 99,000
--------
Total Expenses
978,349
---------
Operating Profit (911,164)
---------
Interest Income 999
Foreign Exchange Gain (Loss) (128)
Net Income (Loss) Before Income Taxes $(910,293)
Benefit from Income Taxes -
Net Income (Loss) $(910,293)
==========
Net Income (Loss) Per Share (0.38)
==========
</TABLE>
DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED PROFIT & LOSS STATEMENT For the interim
period from April 1, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income
Software/Support 55,134
Hardware 37,958
Miscellaneous 3,127
Freight 2,758
Collected
Discounts (200)
Total Income $98,777
Cost of Sales 31,592
Gross Profit $ 67,185
--------
Expenses
General & Administrative Exp
Salaries 79,902
Development 38,672
Total General & Administrative Exp $ 118,574
---------
Start-Up Expenses
NASD Filing 138,545
Video 5,217
Master CD 4,900
Initial Mailing 38,220
Equipment 499
Tradeshow Booth 1,184
Tradeshow Costs 39,376
Web Design 7,753
Ads 28,346
Travel 44,525
Legal 23,011
Investor relations -
Start-up Overhead 283,977
Contingency 42,000
Total Start-Up Expenses 657,553
-------
Overhead
Rent 5,524
Telephone 9,179
Office equipment lease 8,608
Consulting 8,083
Web Site Maintenance 2,969
Office Supplies 2,784
Miscellaneous 1,475
Printing 6,520
Courier 6,163
Mailings 10,409
Wages 25,288
Employer Payroll Tax Expense 1,723
Depreciation 9,452
Bank charges 822
Total Overhead $ 98,999
--------
Total Expenses 875,126
---------
Operating Profit (807,941)
---------
Interest Income 710
Foreign Exchange Gain (Loss) (128)
Net Income (Loss) Before Income Taxes $ (807,359)
Valuation allowance for income tax asset recorded in March (34,998)
Net Income (Loss) $ (842,357)
===========
Net Income (Loss) Per Share (0.35)
===========
</TABLE>
DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED PROFIT & LOSS STATEMENT
For Months July - September 1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income
Software/Support 54,348
Hardware 37,274
Miscellaneous 3,127
Freight Collected 2,638
Discounts (200)
Total Income $97,187
Cost of Sales 31,052
Gross Profit $ 66,135
--------
Expenses
General & Administrative Exp
Salaries 79,902
Development 33,792
Total General & Administrative Exp $ 113,694
---------
Start-Up Expenses
NASD Filing 0
Video 3,423
Master CD 0
Initial Mailing 4,613
Equipment 0
Tradeshow Booth 0
Tradeshow Costs 30,124
Web Design 6,225
Ads 8,967
Travel 23,592
Legal 11,000
Investor relations 0
Start-up Overhead 6,617
Contingency 0
Total Start-Up Expenses 94,561
------
Overhead
Rent 5,524
Telephone 5,875
Office equipment lease 8,608
Consulting 8,083
Web Site Maintenance 2,969
Office Supplies 1,663
Miscellaneous 86
Printing 6,520
Courier 3,998
Mailings 10,409
Wages 18,550
Employer Payroll Tax Expense 1,270
Depreciation 4,616
Bank charges 822
Total Overhead $ 78,993
--------
Total Expenses 287,248
--------
Operating Profit (221,113)
---------
Interest Income 710
Foreign Exchange Gain (Loss) 71
---------
Net Income (Loss) Before Income Taxes $(220,332)
Benefit from Income Taxes -
---------
Net Income (Loss) $220,332)
=========
Net Income (Loss) Per Share (0.09)
=========
</TABLE>
DICOM IMAGING SYSTEMS, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period from March 17, 1999 to September 30,
1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Additional During
Paid in Development
Common stock Number of Shares Amount Capital Stage
- ------------ ---------------- ------ ---------- ------------
<S> <C> <C> <C> <C>
Issued for cash
March 17, 1999 1,400,000 $1,400 $803,300
Issued for licensing
and distribution
agreement
March 31, 1999 1,000,000 $1,000 $96,500
(Net Loss)
March 17, 1999 ($67,936)
(Inception) to
March 31, 1999
---------------------------------------------------------
Balance
March 31, 1999 2,400,000 $2,400 $899,800 ($67,936)
Additional paid
in capital received
April 5, 1999 97,800
Share issue costs (50,000)
(Net Loss) April 1, 1999
to September 30, 1999 (842,357)
Balance
September 30, 1999 2,400,000 $2,400 $947,600 (910,293)
</TABLE>
DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS For the period from
March 17, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
(Net loss) $ (910,293)
Depreciation
9,452
Changes in non-cash working capital:
Increase in deferred revenue 100,000
Increase in accounts receivable (2,669)
Increase in prepaid expenses (21,947)
Increase in accounts payable 86,325
Decrease in tax liabilities (416)
---------
Net Cash (Used) In Operating Activities (739,548)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (63,148)
--------
CASH FLOW FROM FINANCING ACTIVITIES
Share issue costs (50,000)
Increase in short term loan to Dicom Software (66,093)
Receipt of Proceeds for Common Stock 2,400
Receipt of Additional Paid in Capital 997,600
--------
Net Cash Flow from Financing Activities 883,907
Net increase (decrease) in cash 81,211
Cash, March 17, 1999 -
Cash, September 30, 1999 $81,211
=======
</TABLE>
DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS For the interim
period from April 1, 1999 to September 30,
1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
(Net loss) $ (842,357)
Depreciation 9,453
Valuation allowance for income tax 34,998
asset recorded in March
Changes in non-cash working capital:
Increase in deferred revenue 100,000
Increase in accounts receivable (2,669)
Increase in prepaid expenses (21,947)
Increase in accounts payable 86,325
Decrease in tax liabilities (416)
---------
Net Cash (Used) In Operating Activities (636,613)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (28,235)
--------
CASH FLOW FROM FINANCING ACTIVITIES
Share issue costs (50,000)
Increase in short term loan to Dicom Software (66,093)
Receipt of Licensing Agreement 97,500
Receipt of Additional Paid in Capital 97,800
Receipt of Stock Subscription Receivable 443,950
--------
Net Cash Flow from Financing Activities 523,157
Net increase (decrease) in cash (141,691)
Cash, April 1, 1999 222,902
-------
Cash, September 30, 1999 $81,211
=======
</TABLE>
DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For Months July - September 1999
(Unaudited)
(Development Stage Company)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
(Net loss) $ (220,332)
Depreciation 4,616
Changes in non-cash working capital:
Increase in deferred revenue 100,000
Increase in accounts receivable (2,669)
Increase in prepaid expenses (21,947)
Increase in accounts payable 80,677
Decrease in tax liabilities (1,298)
---------
Net Cash (Used) In Operating Activities (60,953)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,043)
---------
CASH FLOW FROM FINANCING ACTIVITIES
Share issue costs (25,000)
Increase in short term loan to Dicom Software (11,581)
---------
Net Cash Flow from Financing Activities (36,581)
Net increase (decrease) in cash (101,577)
Cash July 1, 1999 182,788
--------
Cash, September 30, 1999 $81,211
========
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 1 - September 31, 1999
Note 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was incorporated March 17, 1999
under the laws of the State of Nevada. The Company was organized to engage in
any lawful activity. The Company currently has limited operations and, in
accordance with SFAS #7, is considered a development stage company. In March of
1999 the Company entered into a license and distribution agreement with
Torchmark Holdings to secure rights to image archiving and retrieval software
for use in dental diagnostic procedures and for other applications.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The un-audited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of management of the Company, the
un-audited consolidated financial statements include all adjustments, which
consist only of normal recurring accruals, necessary to present fairly the
financial information for such periods. The un-audited consolidated financial
statements include the financial information of the wholly owned subsidiary
company, 527403 B. C. Ltd. 527403 B. C. Ltd. was incorporated in the Province of
British Columbia, Canada, and is responsible for providing software support
services to the present company, DICOM Imaging Systems, Inc. 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates. Property and equipment Property and
equipment is stated at cost. Depreciation is recorded using the straight-line
method over the estimated useful life. Computer hardware and equipment is
depreciated over a period of three years. Income Taxes Income Taxes are provided
for using the liability method of accounting in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS #109) "Accounting for Income
Taxes." A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities. Research and Development Research and development costs are
expensed as incurred.
NOTE 3 - INCOME TAXES
At September 30, 1999 the Company has net operating loss carryforwards for
federal income tax purposes of $910,293, which are available to offset future
taxable income through 2019. By applying the U.S. federal income tax rate of
34%, the company would have a deferred tax asset of $309,500. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which the related
temporary differences become deductible. Since the Company is still in the
development stage, management is uncertain as to the realizability of the
deferred tax asset. The Company has therefore recorded a valuation allowance for
the full amount of the deferred tax asset as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset from loss carryforwards: $309,500
Valuation allowance (309,500)
-------------
Net deferred tax asset $0
-------------
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of the Company consists of 50,000,000 shares
with a par value of $0.001 per share. Issued and outstanding common stock shares
equal to 2,400,000 were issued on March 31, 1999. Preferred Stock The authorized
preferred stock of the Company consists of 10,000,000 shares with a par value of
$0.001 per share. No preferred stock shares were issued and outstanding at
September 30, 1999
NOTE 5 - REVENUE RECOGNITION
THE REVENUE OF THE AMENDED AND RESTATED LICENSE AGREEMENT IS CONTINGENT ON
THE COMPANY MEETING CERTAIN MILESTONES. THERE CAN BE NO ASSURANCE THAT SUCH
MILESTONES WILL BE MET. In July of 1999, Dicom had entered into a Software
Agreement with Knowledge Systems International ("Software Agreement") whereby
Knowledge Systems International would pay a License Fee of $400,000 for a
license to certain Dicom software. Knowledge Systems International breached this
Software Agreement in August, 1999 due to non-payment. The Licensee of the
Amended and Restated License Agreement desired to engage in a collaboration,
joint venture or equity arrangement with Dicom Imaging Systems, Inc. Upon
learning that Knowledge Systems International had breached its Software
Agreement with Dicom due to non-payment, the Licensee desired to negotiate a
License to assume some of the profits that Knowledge Systems International would
have earned under the Software Agreement. Dicom and Licensee negotiated a
License Agreement and then an Amended and Restated License Agreement, whereby
Licensee would earn up to $50,000 in royalties for a License to the Image
Explorer Software in exchange for payment of a License Fee of $600,000. Only
$100,000 of the License Fee has been paid to date. There are certain milestones
that must be reached in order for the remaining $500,000 to be paid. The first
Milestone is that Dicom must have its application to trade on the NASD OTC
Bulletin Board approved by January 31, 2000. In addition, Dicom has represented
to Licensee that there will be total sales of at least $400,000 of the Licensed
Software by January 31, 2000, total sales of at least $600,000 by March 31,
2000,total sales of at least $800,000 by May 31, 2000 and total sales of
$1,000,000 by June 30, 2000 ("Sales Milestones"). If any of the Sales Milestones
are not met, Licensee is entitled to (1) cancel the License and (2) request a
refund of License Fees paid to date, less any paid Royalty Payments. Dicom must
pay the Licensee 50% of its gross revenue from the sale of the Image Explorer
Software for the three year term of the License, up to a maximum of the total of
the License Payments plus $50,000. While management anticipates that all of the
milestones will be met, there can be no assurance that this will be the case.
Therefore, in accordance with generally accepted accounting principals, we have
not recognized revenue under the license agreement. It was the intention of the
parties that the milestones would be waived, but there can be no assurance of
the same. Therefore, we are recognizing $100,000 of initial cash received as
deferred revenue.
Item 2.
Management's Plan of Operation over the twelve month period beginning June
30, 1999 Dicom Imaging Systems, Inc., a Nevada Corporation ("Dicom" or "DIS" or
the "Company") is a development stage software provider to the dental industry
and associated groups. It is the plan of Dicom to capture market share of
imaging software in dentistry by producing and distributing, free of charge, an
imaging software application known as Image Explorer and Image Editor ("Image
Explorer") to dentists, dental specialists, dental laboratories, dental
insurance companies, and educational facilities throughout North America. Dicom
requires registration of its Image Explorer product by its customers through a
telephone registration system. At the point of registration of Image Explorer,
it is anticipated that Dicom representatives will market a series of value added
software modules, support services and select imaging hardware devices to its
software registrants. The core Image Explorer product functions primarily as a
means for dental professionals to categorize, manage and manipulate patient
images by means of a visual interface. The value added software modules each
provide products to assist dental professionals with a specific area of image
management and manipulation, such as cosmetic whitening procedures on teeth. The
value added software modules can be added and integrated as dental professionals
become more familiar with the Dicom's Image Explorer technology. Dicom had not
yet commenced sales of its Image Explorer product at June 30, 1999. Sales of the
Image Explorer product were commenced in July, 1999. Dicom's plan of operation
over the next twelve months is to continue to develop and improve the Software
throughout the year, responding to customer comments and requests and producing
an updated version of the core product, Image Explorer. Dicom intends to
aggressively capture market share over the next twelve months through attendance
at nearly every significant dental tradeshow held in Canada and the United
States. We plan to staff our booths at these tradeshows with Dicom personnel who
can explain and market our product to the dentists in attendance. In addition,
Dr. Gane plans an aggressive lecture, seminar campaign, where he will speak to
audiences of dental professionals throughout Canada about dental imaging in
general and Image Explorer in particular. Because Dr. Gane receives a number of
invitations to speak throughout the year to dental professionals eager to
improve and develop their practices, we feel that these events provide him with
an opportunity to promote Image Explorer throughout the year to a large number
of dental professionals. Dicom intends over the next twelve months to negotiate
supply relationships with most of the major dental product distributors in North
America and to greatly expand the number of distributors who stock the Dicom
product. Dicom has planned an aggressive advertising campaign in Dental Products
Report and other dental trade magazines to continue to promote Image Explorer
throughout the year to dental professionals. Dicom intends to purchase the
license rights to the medical version of the Image Explorer product from
Torchmark. Originally, Dicom had anticipated purchasing and commencing
development on the medical version of the Image Explorer software in October,
1999. Presently, management anticipates that his will occur by December, 1999.
Management intends to spend the balance of the next twelve months developing and
marketing the medical version of Image Explorer to medical professionals. Dicom
intends to develop and enhance its web site over the next twelve months and to
drive traffic to the site by pursuing links with other dental related sites and
by purchasing banner advertisements on dental product sites. Dicom is currently
in discussions with various Internet consultants to add multimedia and enhanced
functionality to the web site, as well as improve graphic design elements. Dicom
intends to streamline its customer support functions over the next twelve months
through extensive scripting of commonly experienced technical and product usage
problems as they are encountered by our customer support staff. In addition,
Dicom intends to begin its intensive telemarketing campaign and to continue it
throughout the next twelve months, with a goal of contacting by telephone all
leads generated by our presence at trade shows, Dr. Gane's lectures, through our
web site and through reader responses to our advertisements in dental trade
magazines. In addition to developing an upgraded version of the core Image
Explorer product during the next twelve months, Dicom intends to develop other
value-added software modules and other methods for enhancing its revenue stream,
including corporate partnering agreements and agreements to bundle the Image
Explorer core product with other manufacturer's hardware products. Under the
terms of Dicom's stock subscription agreements with its common shareholders,
Dicom is prohibited from raising additional capital through the sale of new
equity in the company or through the undertaking of any material indebtedness
without the consent of the shareholders. Dicom intends, however, to obtain a
waiver of this prohibition in November of 1999, at which point Dicom intends to
undertake a limited offering of its securities. Management has not yet
determined the terms or amount of such a potential offering. Liquidity and
Capital Resources Dicom requires additional capital to conduct and expand its
business. Management intends to aggressively market large corporate transactions
which will involve substantial payments by large corporate licensors, which
could possibly be sufficient to meet Dicom's financial needs. Nevertheless,
there can be no assurance that this will happen. In the event that corporate
transactions are not sufficient, Dicom intends to conduct both private
placements and follow-on offerings of its common stock to raise funds for future
growth. We intend to finance our obligations under the revised license agreement
out of the appropriate percentage of sales.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In July of 1999, Dicom had entered into a Software Agreement with Knowledge
Systems International ("Software Agreement") whereby Knowledge Systems
International would pay a License Fee of $400,000 for a license to certain Dicom
software. Knowledge Systems International breached this Software Agreement in
August, 1999 due to non-payment. Dicom negotiated an Amended and Restated
License Agreement in September, 1999 with another party for a $600,000 license
fee. This license fee is contingent on Dicom meeting certain Milestones. The
first Milestone is that Dicom must have its application to trade on the NASD OTC
Bulletin Board approved by January 31, 2000. In addition, Dicom has represented
to Licensee that there will be total sales of at least $400,000 of the Licensed
Software by January 31, 2000, total sales of at least $600,000 by March 31,
1999, total sales of at least $800,000 by May 31, 1999 and total sales of
$1,000,000 by June 30, 1999 ("Sales Milestones"). If any of the Sales Milestones
are not met, Licensee is entitled to (1) cancel the License and (2) request a
refund of License Fees paid to date, less any paid Royalty Payments. Dicom must
pay the Licensee 50% of its gross revenue from the sale of the Image Explorer
Software for the three year term of the License, up to a maximum of the total of
the License Payments plus $50,000. While management anticipates that all of the
milestones will be met, there can be no assurance that this will be the case.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Amended and Restated License Agreement between Registrant and
Douglas Campbell effective September 29, 1999.
Exhibit 27.1 Financial Data Schedule
(b) Reports on 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
DICOM IMAGING SYSTEMS, INC.
(Registrant)
Date: November 7, 1999
By: /s/ David Gane
David Gane
President and Chief Executive Officer
<PAGE>
AMENDED AND RESTATED
SOFTWARE LICENSE AGREEMENT
This Amended and Restated Software License Agreement ("Agreement") is
effective as of September 29 , 1999 by and between Dicom Imaging Systems, Inc.,
a Nevada corporation ("Dicom") and Douglas Campbell ("Licensee").
WHEREAS, Dicom and Licensee previously entered into that certain Software
License Agreement ("Previous Agreement") of even date herewith; and WHEREAS,
Dicom and Licensee desire to amend and restate the Previous Agreement in the
form of this Agreement; and
WHEREAS, Due to covenants Dicom has made to certain holders of its common
shares, no new equity issuance may be made by Dicom at the present time;
WHEREAS, Licensee desires to have a strategic alliance with Dicom which
both parties anticipate will lead to a future equity investment by Licensee into
Dicom and Licensee's entering into this Agreement is explicitly conditioned upon
Dicom's meeting certain corporate milestones necessary to facilitate this
strategic alliance and equity investement;
WHEREAS, Licensee understands that Dicom has presented Licensee with an
opportunity to purchase a License tocertain Dicom software which Licensee
desires to purchase;
NOW THEREFORE, in consideration of the mutual covenants the sufficiency of
which is hereby acknowledged, the parties agrees as follows:
1. License. In consideration for the Payment Amount, as noted below,
Licensee is hereby granted an exclusive license ("License") to the Dicom
software product known as Image Explorer ("Licensed Software"). Dicom agrees
that it may not sell or sublicense the Image Explorer, except under the terms of
this License. Licensee acknowledges that it takes this License subject to the
conditions and exclusions of the License Agreement between Dicom and Torchmark
Holdings, Ltd. and that Licensee has been provided a copy of the same.
2. Payment Amount. In consideration for the License, Licensee agrees to pay
Dicom $600,000 (the "Payment Amount") in accordance with this Section 2.
$100,000 of the Payment Amount shall be paid by Licensee immediately upon
execution of this Agreement ("Initial Payment"). The remaining Payment Amounts
shall be due in equal installments on the 30th of November, 1999; the 31st of
January, 2000 and the 31st of March, 2000 ; the 31st of May; and the 31st of
July ("Subsequent Payments"). Licensee's obligation to make Subsequent Payments
is subject to Section 4 of this Agreement.
3. Royalty Payments.
a. Exclusivity of Resale. Dicom and the Licensee acknowledge that the
Licensee is not in the business of dental software and the only practical
method for Licensee to sell the Licensed Software is via Dicom and its
value added resellers or via a third party distributor or value added
reseller. Although Licensee would be free to sell the Licensed Software
through a third party or other value added resellers not affiliated with
Dicom, in consideration for the Royalty Payment, as defined below, Licensee
agrees not to do so.
b. Best Efforts to Sell Licensed Software. Dicom agrees, covenants and
warrants use its best efforts to cause the Licensed Software to be sold to
retail or wholesale purchasers.
c. Royalty Payment. Dicom agrees to pay fifty percent of the gross
revenue received and collected, less returns, from the sale of the Licensed
Software to Licensee as a Royalty Payment. Such a Royalty Payment shall
continue until extinguished in accordance with Section 4 of this Agreement.
d. Payment Schedule. Dicom shall make the Royalty Payment to Licensee
within fifteen days of the end of each calendar month in which a sale of
the Licensed Software is made by Dicom ("Due Date"). Dicom agrees that any
payments not tendered by the Due Date shall be subject to a Late Payment
Charge of 1.5% per month until paid in full.
e. Right of Inspection. Dicom agrees to allow the Licensee to inspect
the books and records of Dicom from time-to-time and upon at least
thirty-six hours of advance notice in order to insure compliance with this
Section 3.
4. Corporate Relationship and Milestones. The Parties understand that
their mutual obligations hereunder are conditioned upon the fulfillment of
certain agreed upon milestones which are elaborated in this Section 4.
Furthermore, the Parties are contemplating a future strategic alliance
whereby Licensee would make an equity investment in Dicom. Licensee's
obligations hereunder and this future relationship are conditioned upon
Dicom's meeting certain corporate milestones at outlined in this Section
4.
a. Public Company Status. Dicom has represented to Licensee and
Licensee has specifically relied upon Dicom's representation that Dicom is
a fully reporting public entity, filing timely periodic reports under the
Securities and Exchange Act of 1934. Dicom also represents that its common
shares will be trading on the National Association of Securities Dealers'
("NASD") Over the Counter Bulletin Board Exchange within sixty days from
the effective date of this Agreement. In the event that Dicom should be
approved for such trading by the NASD ("Approval"), the payment due on
November 30, 1999 under Section 2 of this Agreement shall be immediately
due and payable. If the NASD has not approved Dicom's application for
trading by November 30, 1999, Licensee may elect to withhold Subsequent
Payments under this Agreement until such time as Approval has been granted.
If Approval has not been granted by January 31, 2000, Licensee may elect to
terminate this Agreement pursuant to section 5 hereof.
b. Corporate Milestones. Dicom has represented to Licensee that there
will be total sales of at least $400,000 of the Licensed Software by
January 31, 2000, total sales of at least $600,000 by March 31, 1999, total
sales of at least $800,000 by May 31, 1999 and total sales of $1,000,000 by
June 30, 1999 ("Sales Milestones"). If any of the Sales Milestones are not
met, Licensee may immediately terminate this Agreement pursuant to section
5 below.
5. Termination. The term of this Agreement is three years. At the end
of three years, any Royalty Payments due Licensee shall cease and
Licensee's rights hereunder, including the License, shall be extinguished.
This Agreement may be terminated by either party pursuant to a specific
provision of this Section 5 as described below.
a. Termination by Dicom. Dicom may terminate this Agreement at any
time by refunding the Initial Payment, the Subsequent Payments (to the
extent that these have been tendered) and an early Termination Fee of
$50,000. Any payments due by Dicom under this Section shall be offset by
the amount of any Royalty Payments actually made by Dicom to Licensee.
b. Termination by Licensee. Licensee may terminate this agreement as
indicated in section 4 of this Agreement. If Licensee elects to terminate
this Agreement, he is entitled to receive the return of the Initial Payment
and any Subsequent Payments made, less any Royalty Payments actually made
by Dicom to Licensee. The Licensee's rights hereunder, and the Royalty
Obligations of Dicom, are not extinguished until the refund amount is paid
in full. Dicom agrees that the sums due under this Section 5 (b) are to be
paid within 30 days of termination under this Section 5 (b).
6. Legal Obligation. Licensee understands that this Agreement is a
legal obligation of Licensee enforceable in accordance with its terms.
Furthermore, Licensee specifically understands and agrees that he will be
obligated to make the full amount of the Initial Payment and Subsequent
Payments provided that Dicom satisfies the conditions in Section 4 of this
Agreement.
7. Miscellaneous Provisions. This Agreement shall inure to the benefit
of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the Parties hereto. This Agreement represents the entire
agreement and understanding between the Parties concerning the subject
matter hereof, including any transactions ever entered into or contemplated
between the Parties and supersedes and replaces any and all prior
agreements and understandings concerning the same. This Agreement may only
be amended in writing signed by the Parties. This Agreement shall be
governed by the laws of the State of Nevada. This Agreement may be executed
in counterparts, and each counterpart shall have the same force and effect
as an original and shall constitute an effective, binding agreement on the
part of each of the undersigned.
<PAGE>
IN WITNESS WHEREOF, the undersigned respective parties have caused
this Agreement to be executed in their names effective as the day and year
first above written.
On behalf of Dicom Imaging Ssytems, Inc.
Dicom Imaging Systems, Inc.
a Nevada corporation
By: ........................
Title ......................
Licensee:
............................
Douglas Campbell
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 81,211
<SECURITIES> 0
<RECEIVABLES> 2,669
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 171,920
<PP&E> 53,696
<DEPRECIATION> 0
<TOTAL-ASSETS> 225,616
<CURRENT-LIABILITIES> 186,325
<BONDS> 0
0
0
<COMMON> 1,000,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 225,616
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 978,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (910,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (910,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (910,293)
<EPS-BASIC> 1.569
<EPS-DILUTED> 1.035
</TABLE>
