<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-4748
DATA DIMENSIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0852458
(NAME OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
777 - 108TH AVENUE NE, SUITE 2070, BELLEVUE, WA 98004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (206) 688-1000
Indicate by check 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 .
------- -------
Indicate the number of shares outstanding of each of the issuers
classes of common stock, of the latest practicable date
Common Stock 3,793,812 shares as of November 6, 1996
Transitional small business disclosure format (check one).
YES NO X .
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The index to exhibits appears on Page 10.
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DATA DIMENSIONS, INC. and SUBSIDIARY
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations 5
for the three and nine month periods ended September 30, 1996
and September 30, 1995
Condensed Consolidated Statements of Cash Flow 6
for the nine month periods ended September 30, 1996
and September 30, 1995
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS 8
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8K 11
Signatures 12
Page 2 of 13
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DATA DIMENSIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 125 $ 65
Investments available for sale,
at fair value 13,315 -
Accounts receivable, less allowance
for doubtful accounts 2,830 1,448
Due from officer - 35
Notes receivable 310 -
Prepaid and other assets 638 90
Deferred income taxes 205 450
------- ------
TOTAL CURRENT ASSETS 17,423 2,088
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EQUIPMENT, FURNITURE AND
LEASEHOLD IMPROVEMENTS
Computers and equipment 567 222
Furniture 119 16
Leasehold improvements 21 21
------- ------
707 259
Less accumulated depreciation 151 93
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EQUIPMENT AND FURNITURE, NET 556 166
PRODUCT DEVELOPMENT COST, NET 650 -
------- ------
$18,629 $2,254
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------- ------
The accompanying notes are an integral part of these financial statements.
Page 3 of 13
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DATA DIMENSIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 1996 December 31, 1995
------------------ -----------------
(In thousands)
CURRENT LIABILITIES
Advance billing $ 583 $ 655
Advances from factor - 824
Accrued compensation 301 221
Accounts payable 657 211
Accrued payroll taxes 38 121
Accrued commissions 183 143
Dividends payable - 70
Accrued expenses 145 37
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TOTAL CURRENT LIABILITIES 1,907 2,282
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STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value;
20,000,000 shares authorized;
3,788,147 and 2,171,821 shares issued 4 2
Capital in excess of par value 18,006 1,524
Less 2,353 shares held in treasury at cost (83) -
Accumulated deficit (1,205) (1,554)
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Total Stockholders' Equity (Deficit) 16,722 (28)
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$18,629 $2,254
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The accompanying notes are an integral part of these financial statements.
Page 4 of 13
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DATA DIMENSIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
(In thousands, except per share data)
REVENUE $3,962 $1,524 $9,551 $3,912
DIRECT COSTS 2,164 860 5,339 2,256
------ ------ ------ ------
Gross Margin 1,798 664 4,212 1,656
GENERAL, ADMIN &
SELLING EXPENSES 1,648 558 3,921 1,310
------ ------ ------ ------
Income From Operations 150 106 291 346
OTHER INCOME (EXPENSE) 214 (50) 303 (158)
------ ------ ------ ------
INCOME BEFORE TAXES 364 56 594 188
INCOME TAXES 153 - 245 -
------ ------ ------ ------
NET INCOME $ 211 $ 56 $ 349 $ 188
------ ------ ------ ------
------ ------ ------ ------
NET INCOME PER SHARE $ .05 $ 0.02(1) $ 0.10 $ 0.08(1)
------ ------ ------ ------
------ ------ ------ ------
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,931 2,488(1) 3,395 2,475(1)
------ ------ ------ ------
(1) Adjusted to give effect to a 1 for 3 reverse stock split.
The accompanying notes are an integral part of these financial statements.
Page 5 of 13
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DATA DIMENSIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
Nine Month Period Ended September 30,
(In thousands)
1996 1995
-------- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 349 $ 188
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 61 22
Deferred income taxes 245 -
Changes in certain assets and liabilities
Accounts receivable (1,383) (293)
Prepaid and other assets (551) (28)
Notes receivable (310) -
Advance billings (72) (27)
Accounts payable 446 20
Accrued compensation 120 (38)
Accrued and withheld payroll taxes (83) (89)
Accrued expenses 108 (47)
-------- -----
Net Cash Used in Operating Activities (1,070) (292)
-------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments (45,903) -
Maturities and sales of investments 32,588 -
Purchases of equipment and furniture (447) (24)
Leasehold improvements - (14)
Due from officer - 124
Investment in product (650) -
-------- -----
Net Cash Provided by (Used in) Investing Activities (14,412) 86
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes and other payables to officers -0- (161)
Payments on dividend (35) 0
Repayment of advances from factor (824) 4
Proceeds from issuance of common stock 16,401 337
-------- -----
Net Cash Provided by Financing Activities 15,542 180
-------- -----
NET INCREASE (DECREASE) IN CASH 60 (26)
CASH, beginning of period 65 42
-------- -----
CASH, end of period $ 125 $ 16
-------- -----
-------- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6 of 13
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DATA DIMENSIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the nine month periods ended
September 30, 1996 and 1995 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the condensed
consolidated financial position, results of operations and cash flows for the
interim periods. The financial information as of December 31, 1995 is derived
from Data Dimensions, Inc.'s Annual Report to Shareholders which is incorporated
by reference into the Company's 1995 Form 10-KSB. The interim condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's 1995 Annual Report to Shareholders.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: ACCOUNTING POLICIES
Reference is made to Note 1 of Notes to Financial Statements in the
Company's Annual Report on Form 10-KSB for the summary of significant accounting
policies.
The Company's financial statements include the accounts of Data Dimensions,
Inc. and its subsidiary, Data Dimensions Ireland Limited. Significant
intercompany transactions and balances have been eliminated.
Product development costs are those costs relating to the conceptual
formulation and design of products and processes. The Company capitalizes costs
incurred to establish product and process technology for products in development
which are considered to have attained technological feasibility, as such term is
defined and interpreted in accordance with generally accounting principles.
Capitalized costs are amortized on a straight line basis over the estimated
productive life of the product.
The Company considers all liquid interest-earning investments with the
maturity of three months or less at the date of purchase to be cash equivalents.
Short-term investments generally mature between three months and eighteen
months from the purchase date and are classified as available for sale and are
recorded at fair value.
Page 7 of 13
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Management's Discussion and Analysis
of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue for the three months ended September 30, 1996 was $3,962,000,
compared to $1,524,000 for the three months ended September 30, 1995, an
increase of $2,438,000, or 160%. This increase was primarily attributable to an
increase in the general awareness of the millennium problem and demand for
millennium consulting services and the Company's expanded marketing efforts.
Gross margin for the three months ended September 30, 1996 was $1,798,000,
compared to $664,000 for the three months ended September 30, 1995, an increase
of $1,134,000, or 171%. Gross margin as a percentage of revenue for the three
months ended September 30, 1996 was 45.4%, compared to 43.5% for the like period
in 1995, an increase of 1.9%. This percentage increase was primarily the result
of an increase in the amount of licensee income which has a higher gross margin
contribution.
General, administrative and selling expenses for the three months ended
September 30, 1996 were $1,648,000, compared to $558,000 for the three months
ended September 30, 1995, an increase of $1,090,000 or 195%. General,
administrative and selling expenses as a percentage of revenue for the three
months ended September 30, 1996 were 41.6%, compared to 36.6% for the three
months ended September 30, 1995, an increase of 5.0%. Approximately $700,000 of
this increase in cost was the result of additions to the Company's
administrative and support staff and related operating costs and the
reorganization of its domestic operations into three regions in the last four
months of 1995. The remaining increase in cost was related to adding support
and sales staff, the acquisition and training cost of increased sales and
technical staff and increased marketing costs.
Other income for the three months ended September 30, 1996 was $214,000,
compared to other expense of $50,000 for the three months ended September
30, 1995. The income for the three months in 1996 was attributable to interest
earned from investments. The other expense for the three months in 1995 was
attributable to accounts receivable factored and the related finance charges.
The Company reported a net income of $211,000 for the three months ended
September 30, 1996, compared to a net income of $56,000 for the three months
ended September 30, 1995.
Page 8 of 13
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COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue for the nine months ended September 30, 1996 was $9,551,000,
compared to $3,912,000 for the nine months ended September 30, 1995, an increase
of $5,639,000, or 144%. This increase was primarily attributable to an increase
of the general awareness of the millennium problem and demand for millennium
consulting services and the Company's continued expanded marketing efforts.
Gross margin for the nine months ended September 30, 1996 was $4,212,000,
compared to $1,656,000 for the six months ended June 30, 1995, an increase of
$2,556,000, or 154%. Gross margin as a percentage of revenue for the nine
months ended September 30, 1996 was 44.1%, compared to 42.3% for the like period
in 1995, an increase of 1.8%. This percentage increase was primarily the result
of an increase in the amount of licensee income.
General, administrative and selling expenses for the nine months ended
September 30, 1996 were $3,921,000, compared to $1,310,000 for the nine months
ended September 30, 1995, an increase of $2,611,000 or 199%. General,
administrative and selling expenses as a percentage of revenue for the four
months ended September 30, 1996 were 41.0%, compared to 33.5% for the nine
months ended September 30, 1995, an increase of 7.5%. Approximately $1,975,000
of this increase in cost was the result of additions to the Company's
administrative and support staff and related operating costs and the
reorganization of its domestic operations into three regions in the last four
months of 1995. In addition, during the nine months of 1996, additional support
staff, personnel training and recruiting costs, and marketing costs were
incurred to support the Company's continued growth.
Other income for the nine months ended September 30, 1996 was $303,000,
compared to other expense of $158,000 for the like nine months in 1995. The
other income for the nine months in 1996 was attributable to investment income
during the second and third quarter of 1996, offset by costs related to accounts
receivable factored during the first quarter of 1996. The other expense for the
nine months in 1995 was attributable to accounts receivable factored and related
finance charges for nine months.
The Company reported a net income of $349,000 for the nine months ended
September 30, 1996, compared to a net income of $188,000 for the nine months
ended September 30, 1995.
LIQUIDITY AND CAPITAL COMMITMENTS
During the nine months ended September 30, 1996, the Company generated cash
primarily through proceeds from an underwritten public offering of Common Stock.
The net proceeds to the Company from this stock offering were approximately
$16,300,000. The Company used a portion of the proceeds to eliminate reliance
on advances from its accounts receivable factor and to pay accrued dividends on
previously outstanding Preferred Stock. In addition, the Company established an
international production facility in Ireland, where code and data conversion is
being performed.
Page 9 of 13
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At September 30, 1996, the Company had working capital of $15,516,000
compared to a working capital deficit of $194,000 on December 31, 1995.
During the quarter ended September 30, 1996, the Company invested
approximately $875,000 in capitalized product development cost in personnel,
equipment and other related expenses to develop an advanced Year 2000 product
based upon its current proprietary Year 2000 methodology. The product, named
ARDES 2K, will be sold directly to clients and to third-party providers,
including computer and software companies, systems integrators, and consultants.
The Company is continuing development work on the product and does not expect
any significant revenue from ARDES 2K prior to the first quarter of 1997.
On September 16, 1996, the Company announced that it had signed a letter
of intent to acquire Millennium U.K., Ltd., a current licensee located in
Bournemouth, England. Anticipated terms of the transaction are an initial
payment of cash and stock, with an earn-out for stock over two years. Final
terms and closing of the transaction are contingent upon completion of a
definitive agreement. As of the filing date of this 10-QSB no definitive
agreement has been signed.
During the next six months, the Company plans to invest additional funds
to continue the development and marketing of ARDES 2K. Based upon the Company's
current operating plan, it believes that its cash, cash equivalents on hand and
investments available for sale will be sufficient to meet its current working
capital needs, capital expenditure requirements, additional investment in
product development and the possible acquisition of Millennium U.K., Ltd.
Page 10 of 13
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended September 30,
1996. The exhibits filed as a part of this report are listed below.
Exhibit No.
11. Calculations of Net Income Per Share
Page 11 of 13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA DIMENSIONS, INC.
(Registrant)
- -------------------- By: /s/ Larry W. Martin
Date -----------------------------------
Larry W. Martin, President and
Chief Executive Officer
(Principal Executive Officer)
- -------------------- By: /s/ William H. Parsons
Date -----------------------------------
William H. Parsons, CFO
(Principal Financial and
Accounting Officer)
Page 12 of 13
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EXHIBIT 11
DATA DIMENSIONS, INC.
CALCULATIONS OF NET INCOME PER SHARE (1)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actual weighted average shares 3,777,000 2,301,000 3,243,000 2,301,000
outstanding for period
Dilutive common stock options 154,000 187,000 152,000 173,000
using the treasury stock method
--------- --------- --------- ---------
Total shares used in per share 3,931,000 2,488,000(1) 3,395,000 2,475,000
calculations
--------- --------- --------- ---------
Net Income $ 211,000 $ 56,000 $ 349,000 $ 188,000
--------- --------- --------- ---------
Net income per share (2) $ 0.05 $ 0.02(1) $ 0.10 $ 0.08(1)
--------- --------- --------- ---------
</TABLE>
(1) Adjusted to give effect to a 1 for 3 reverse stock split
(2) Fully diluted earnings per share is not disclosed on the consolidated
statement of operations for the three month and nine month periods ended
September 30, 1996 and 1995, since it is not more than three percent
different from primary earnings per share.
Page 13 of 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 125
<SECURITIES> 13,315
<RECEIVABLES> 2,830
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,423
<PP&E> 707
<DEPRECIATION> 151
<TOTAL-ASSETS> 18,629
<CURRENT-LIABILITIES> 1,907
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,629
<SALES> 9,551
<TOTAL-REVENUES> 9,551
<CGS> 5,339
<TOTAL-COSTS> 5,339
<OTHER-EXPENSES> 3,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 594
<INCOME-TAX> 245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
