<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission File No. 02532
FIFTH DIMENSION INC.
-------------------------------------------------------
(Name of Small Business Issuer in its Charter)
New Jersey 21-0717490
- -------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
801 New York Avenue, Trenton, New Jersey 08638-3982
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Issuer's Telephone Number (609) 393-8350
--------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock - $0.33-1/3
------------------------
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _____
-----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year (1995) were
$4,152,361.
As of February 28, 1996 the aggregate market value of the voting stock held
by non-affiliates of the Issuer was $1,189,540.
As of February 28, 1996 the Issuer had outstanding 1,093,636 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Shareholders Meeting to be held
April 24, 1996, are incorporated by reference into Part III.
Exhibit Index is located in Part IV, Page 30 and 31.
<PAGE>
PART I
Item 1. Description of Business
- ------ -----------------------
(a) Business Development
--------------------
(1) The Issuer was incorporated under the laws of the State of
New Jersey on May 1, 1959.
(2) No material changes have occurred in the Issuer's mode of
conducting business in the last three fiscal years.
(b) Business of Issuer
------------------
(1) The Issuer's business is limited to providing goods and services
relating to the electronics industry. The Issuer operates under two basic
product groups.
A. Development and manufacturing of "telemetry" (Slip Ring
Group);
B. Development and manufacturing of "components" (Mercury
Products Group).
TELEMETRY (Slip Ring Group)
---------------------------
Telemetry is the science of transmitting signals over a distance with
minimal distortion. Microwave transmission of telephone calls, information from
satellites, or the collection of data by a computer from sensors within a single
vehicle (an airplane for example) are examples of technologies using telemetric
science.
-1-
<PAGE>
PART I
Item 1. Description of Business
- ------ -----------------------
(b) Business of Issuer (continued)
------------------------------
The Issuer's Slip Ring Group manufactures custom built slip rings for
Applications such as Armored Vehicle Turrets, Inertial Measurement, Simulators,
Industrial Equipment, Radar Antennae, Aircraft and Fire Control Systems.
A typical Slip Ring consists of a brush or wiper that is always in
sliding electrical and mechanical contact with rings in rotation as part of a
rotor assembly. The Slip Ring assembly allows for the transmission of
electrical signals or power from a rotating member to a stationary member. In
addition, in some applications the transmission of pneumatic and/or hydraulic
fluid in a rotating member is also involved.
The Issuer is manufacturing custom slip ring assemblies for the
Trident Guidance System, the Abrams Tank Turret, radar pedestals, pharmaceutical
equipment, sophisticated amusement rides, robots for automobile manufacturing,
paper converting equipment and various other rotating applications. In
addition, the Issuer recently introduced a standard family of commercial slip
rings.
In 1985, procurement responsibility for the Trident Slip Ring Assembly
was transferred from Draper Laboratories to Kearfott Guidance and Navigation
Corporation ("KG&N"). The Issuer has negotiated production contracts with KG&N
periodically since 1985, and has contracts in place for delivery throughout 1995
and 1996. During 1995 revenues from these contracts amounted to $3,167,563 or
76.3% of the Issuer's sales.
-2-
<PAGE>
PART I
Item 1. Description of Business
- ------ -----------------------
(b) Business of Issuer (continued)
------------------------------
COMPONENTS (Mercury Products Group)
-----------------------------------
The Issuer designs, manufactures, and markets a family of Mercury
switches and relays to various military and commercial users. These switches
are of three types.
Tilt switches, which operate when the switch is physically rotated
about an axis, so that the Mercury makes or breaks an electrical contact as
required. Typical applications are for burglar alarms, telephones, household
appliances, toys, etc.
Magnetically actuated switches which operate when a magnetic field is
applied, either by a permanent magnet, or by an electromagnet. When operated by
an electromagnet, these are called relays. The Issuer's magnetically operated
Mercury switches are unique in that they are position insensitive (i.e. they may
be mounted to operate in any position, even while moving).
Impulse Switches are components which provide an electrical signal in
the event a shock of sufficient magnitude is encountered, such as by sudden
starting or stopping. Typical applications include fusing for ordnance,
vibration sensors, motion and similar security devices.
In 1989, a development program was undertaken by this group to
manufacture a mercury level sensor for the Paveway system. Paveway is the
"smart" bomb guidance system developed by Texas Instruments. Development of
Paveway III was completed in 1993 and included a new sensor package resulting in
significant cost reductions and quality improvement. This is an ongoing program
with substantial product shipped in 1995. Continued production through 1996 or
beyond is likely.
-3-
<PAGE>
PART I
Item 1. Description of Business
- ------ -----------------------
(b) Business of Issuer (continued)
------------------------------
(2) All products manufactured by the Issuer are shipped from the
factory as specified by the customer, either standard carrier or special
services.
(3) A press release is generally issued as a form of advertising
newly developed products.
(4) The Issuer experiences intense competition with respect to
most areas of its business. The Issuer competes primarily on the basis of
performance and reliability of its products, the ability of its products to
perform in severe environments encountered in military, aerospace and high
reliability commercial applications, prompt and responsive contract performance,
price, and the Issuer's technical competence. The Issuer believes that its
product lines and its ability to integrate its products into systems and sub-
systems, and to interface these systems with end-user applications, provide the
Issuer with an advantage over many of its competitors.
(5) The raw materials for the manufacture of the Issuer's
products are available from several sources, such as Carpenter Technology
Corporation and Engelhard Corporation, and generally are made to order.
(6) The Issuer's business and the products offered relate to the
electronics industry for use in defense, industrial, and commercial
applications.
Revenue from billings during 1995 and 1994, respectively on a series
of production contracts, currently in the Telemetry (Slip Ring) Group, with one
major domestic customer (Kearfott Guidance and Navigation Corporation), amounted
to 76.3% and 75.4% of total sales. The current contract will be completed in
1996 and there are no anticipated additional contracts from Kearfott Guidance
and Navigation Corporation at this time.
-4-
<PAGE>
PART I
Item 1. Description of Business
- ------ -----------------------
(b) Business of Issuer (continued)
------------------------------
(7) Many of the Issuer's products are patented. These include
patents on position insensitive mercury switches; normally open contact mercury
impulse sensors; and normally open or normally closed tilt switches. The Issuer
has two products trademarked. These are LOGCELL, a position insensitive mercury
relay and TORRKLEEN, a glass-to-metal seal terminal with the unique property of
solderability in the as sealed condition.
In 1983, a Licensing Agreement was signed with Saunders-Roe
Developments Limited (England), (now known as Saunders-Roe, Limited (England)),
for a ten year period, covering manufacture and sole source sales of the
Issuer's Tilt Switches, to Common Market countries, and non-sole source
marketing elsewhere, excluding the United States. The Issuer provided
technical data, equipment, engineering and start-up service in exchange for
licensing fees and an ongoing royalty. In 1987, the license was extended to
include the Issuer's LCII Switch. Revenues attributable to these royalties
amounted to $16,992 during 1995. Agreement has been reached which will extend
this license for a period of ten years (August 2003).
(8) Where products are manufactured that may have a military
application, approval for export is required from the Commerce Department or the
State Department.
(9) the Issuer provides information to applicable federal, state,
and local governments regarding compliance with all applicable laws. These
regulations require an ever increasing cost of doing business and result in
increasing product costs.
(10) Approximately $175,000 was spent by the Issuer on
Engineering and Research activities during 1995 as compared with $215,000 in
1994. This activity was primarily directed to new applications for existing
products, the development of new products, and process improvement. The Issuer
directly funds all Research and Development activity.
-5-
<PAGE>
PART I
Item 1. Description of Business
- ------ -----------------------
(b) Business of Issuer (continued)
------------------------------
(11) Compliance with Federal, State and local provision which
have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment or the
Issuer's employees, has had a material effect on the Issuer's earnings based
upon increases in time spent by the Issuer's employees and fees paid for outside
services to monitor and review environmental control. It has not had a material
effect on capital expenditures and the competitive position of the Issuer. The
costs to the Issuer to comply with Environmental Protection Agency Regulations
in 1995 amounted to approximately $39,885 in labor, equipment and materials
compared with $63,000 in 1994.
(12) The Issuer has a total of 63 full-time employees.
Item 2. Description of Property
- --------------------------------
(a) On September 1, 1983, the Issuer acquired the premises at 801 New
York Avenue, Trenton, New Jersey. This property had been leased by the Issuer
since 1980, and serves as the sole manufacturing and office facility of the
Issuer. The premises was purchased from Princeton Commerce Center, Inc., which
has no material relationship with the Issuer, at a purchase price of $425,000.
A down payment of $25,000 was made on September 1, 1983, and two Mortgage Notes
were held by the seller, the terms of which are as follows: $350,000 payable in
monthly installments over a ten (10) year period at 9% interest and $50,000
payable in monthly installments over a three (3) year period at 10% interest.
The $50,000 Note was paid in full during 1986. The balance of the $350,000 Note
was paid during 1993.
The building is a one story brick building containing 18,000 square
feet in good condition located in an industrial section on a well traveled
street with an ongoing Maintenance Program in place.
(b) the Issuer has made no Real Estate Investments.
-6-
<PAGE>
PART I
Item 3. Legal Proceedings
- --------------------------
(a) The U.S. Environmental Protection Agency ("EPA") has filed suit
against Princeton Gamma Tech ("PGT"), an unrelated third party, alleging that
releases of hazardous substances by PGT have contaminated two sites in New
Jersey. The Issuer occupied a facility destroyed by fire in 1974, which was
located in the general vicinity of the identified sites. PGT has filed a third
party complaint against the Issuer, among others, alleging that these parties
also caused the contamination.
Originally the EPA listed the Issuer as a potentially responsible
party; however, following their initial investigation, the EPA elected to file
suit against PGT only. In a January 17, 1996 letter, the United States
Environmental Protection Agency ("EPA") stated that it has information which
documents the release of hazardous substances from the property that Fifth
Dimension formerly occupied in Rocky Hill, New Jersey, that is affecting the
groundwater, and advised Fifth Dimension Inc. that it is potentially liable
under the Comprehensive Environmental Response, Compensation and Liability Act.
Based on the information, EPA stated that Fifth Dimension should perform some
response action, at the minimum an investigation to determine the nature, extent
and impact of contamination at the property. The Issuer is undertaking
additional investigation. The Issuer continues to believe that it did not
contribute to the contamination, and intends to vigorously defend this action.
As this case is still in discovery, the Issuer's special counsel is unable to
predict an outcome of this matter at this time.
The Issuer's insurance carrier has agreed to pay a portion of the
costs attributable to the defense of this matter but has reserved its rights to
withdraw in the event it disclaims coverage. Management believes the insurance
company is liable for all costs and is actively seeking reimbursement.
Item 4. Submission Of Matters To Vote Of Security Holders.
- ----------------------------------------------------------
None.
-7-
<PAGE>
PART II
Item 5. Market For Common Stock and Related Stockholder Matters
- ----------------------------------------------------------------
(a) Market Information.
------------------
The Issuer's Common Stock is traded in the Over-the-Counter Market.
Effective August 31, 1987, the Issuer was accepted for inclusion by NASDAQ,
trading under the symbol "FIVD".
The following table provides information with respect to the high and
low bid quotations of the Registrant's Common Stock for each quarter during the
past two years.
BID QUOTATIONS
--------------
1995 1994
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 4-5/8 4-1/4 3-1/8 2
Second Quarter 4-1/4 2-1/4 3-1/2 2-5/8
Third Quarter 3-3/4 3-1/2 5 3-1/4
Fourth Quarter 3-3/4 2 5 4-3/8
The information provided above with respect to the bid quotations was
furnished by NASDAQ, 1735 K Street, Northwest, Washington, D.C. 20006.
(b) Holders
-------
The approximate number of stockholders of record as of February 28,
1996 is 414.
(c) Dividends.
---------
There was no dividend paid during the past two years. Payment of
dividends is not anticipated during the foreseeable future based on projections
of the capital requirements needed for the Issuer's growth.
-8-
<PAGE>
PART II
Item 6. Management's Discussion and Analysis
- ---------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
The Corporation spent $59,662 on capital additions during 1995 while
recording $125,661 of depreciation expense. This 1995 reduction in capital
additions will result in lower depreciation in future periods.
The loss from operations contributed to a slight decline in working capital
from $1,376,979 in 1994 to $1,256,218 at the end of 1995. Cash balances, while
lower at the end of 1995, were more than adequate to meet ongoing Corporate
needs. Based on anticipated reductions in inventory and receivables as the
major slip ring contract ends in late 1996, available cash balances are expected
to significantly improve. The cash will be used to pay down the Corporation's
credit line which had a balance of $175,000 at the end of 1995 out of a total
credit facility of $750,000. This pay down and the Corporation's low debt-to-
equity ratio is considered important, as the Corporation transitions into
different markets. As noted in the Registrant's Form 10-QSB quarterly report
for the period ended September 30, 1995, the Registrant's Kearfott Guidance and
Navigation Slip Ring Contract for the Trident IMU is scheduled for completion at
the end of 1996 and the Registrant does not believe that there will be a follow-
on contract. Although the loss of this contract will have a material adverse
effect on the Registrant's revenues and earnings, the Registrant continues to
aggressively pursue new business, markets and products to replace the
significant revenues of this contract.
RESULTS OF OPERATIONS
---------------------
Sales for 1995 increased 2.3% over 1994 to $4,152,361 as continued
shipments on a major slip ring contract and increased penetration of the
commercial slip ring market more than offset reductions in mercury switch
revenues. These two increasing factors are projected to continue for 1996 and
are expected to contribute to continued sales growth during this period.
-9-
<PAGE>
PART II
Item 6. Management's Discussion and Analysis
- ---------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------------------
Gross profit declined in 1995 to $1,051,093 versus $1,290,651 in 1994.
This decline is primarily attributable to production problems and delays in the
early part of 1995 on a major slip ring contract and low margins on slip ring
development contracts with commercial customers. Gross profit improvement is
anticipated for 1996 as production on the major slip ring contract is expected
to proceed without disruption and the slip ring development contracts from 1995
become part of normal production. Selling, general and administrative expenses
increased by 6.3% in 1995 primarily as a result of an extensive marketing
program undertaken to identify and pursue new slip ring markets. These expenses
are expected to stabilize in 1996 with only inflationary growth anticipated.
Financing costs increased from $17,445 in 1994 to $21,684 in 1995 as a
result of increased bank borrowing during production delay periods early in
1995.
The Company recorded various tax incentives and credits in 1995 resulting
in a deferred tax adjustment of $78,278. These credits are expected to improve
cash flow as they are utilized in 1996 and in future years.
The factors detailed above contributed to the $.08 per share net loss for
1995 versus a $.09 net income for 1994. The Company anticipates a return to
profitability in 1996 based on a year-end backlog of $4,394,385, improving
profit margins on the commercial slip ring product line and stable overhead
costs.
We regret to report the passing of Charles Wohlstetter, a loyal friend and
Chairman of the Board of Directors. Charles was an unending source of wisdom
and support since the Company's beginnings and his influence will continue to be
a positive force in our future.
-10-
<PAGE>
PART II
-------
Item 7. Financial Statements
- ------- --------------------
FIFTH DIMENSION INC.
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
FORM 10-KSB - ITEM 7
YEARS ENDED DECEMBER 31, 1995 AND 1994
PAGES 11 - 24
-11-
<PAGE>
Yohalem Gillman & Company
Certified Public Accountants
477 Madison Avenue
New York, NY 10022
(212) 371-2100
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Fifth Dimension Inc.
We have audited the accompanying balance sheet of Fifth Dimension Inc. As
of December 31, 1995 and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fifth Dimension Inc. at
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Yohalem Gillman & Company
New York, New York
February 9, 1996
-12-
<PAGE>
FIFTH DIMENSION INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS
Cash $ 141,013
Accounts receivable, less allowance
For doubtful accounts of $6,835 745,284
Inventories 853,134
Prepaid expenses and other current assets 52,270
----------
Total current assets 1,791,701
----------
Property, plant and equipment - at cost,
less accumulated depreciation and amortization 619,791
----------
Patent costs, less accumulated amortization 16,148
Deferred income taxes, net 40,022
----------
56,170
----------
$ 2,467,662
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 175,000
Current maturities of long-term obligations 50,000
Accounts payable 137,693
Accrued compensation 128,196
Accrued expenses 44,594
----------
Total current liabilities 535,483
----------
Long-term obligations, less current maturities 83,333
----------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Common stock, $.33-1/3 par value; authorized
1,800,000 shares; issued 1,094,808 shares 364,936
Additional paid-in capital 403,663
Retained earnings 1,080,851
----------
1,849,450
Less cost of treasury stock - 1,172 shares 604
----------
Total stockholders' equity 1,848,846
----------
$ 2,467,662
------------
See accompanying notes.
-13-
<PAGE>
FIFTH DIMENSION INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------ ------------
Net sales $4,152,361 $4,060,844
Cost of sales 3,101,268 2,770,193
---------- ----------
Gross profit 1,051,093 1,290,651
---------- ----------
Selling, general and administrative expenses 1,202,634 1,130,851
Unusual items - environmental costs 2,740 3,725
Interest expense 21,684 17,445
Interest and other income (5,047) (2,610)
---------- ----------
1,222,011 1,149,411
---------- ----------
(Loss) income before (benefit) provision for
income taxes (170,918) 141,240
(Benefit) provision for income taxes (78,278) 42,558
---------- ----------
Net (loss) income $ (92,640) $ 98,682
---------- ----------
(Loss) earnings per common share:
Primary $(.08) $.09
---------- ----------
Fully diluted $(.08) $.09
---------- ----------
Weighted average number of common shares
outstanding:
Primary 1,093,636 1,146,590
Fully diluted 1,093,636 1,154,903
-14-
<PAGE>
FIFTH DIMENSION INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Additional
Paid-in Retained Less
Common Stock Capital Earnings Treasury Stock Total
------------ ----------- -------- -------------- -----
Shares Amount Shares Amount
----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 1,094,808 $364,936 $403,663 $1,074,809 1,172 $604 $1,842,804
December 31, 1993
Net income 98,682 98,682
--------- -------- -------- ---------- ----- ---- ----------
Balance at
December 31, 1994 1,094,808 364,936 403,663 1,173,491 1,172 604 1,941,486
Net Loss (92,640) ( 92,640)
--------- -------- -------- ---------- ----- ---- ----------
Balance at 1,094,808 $364,936 $403,663 $1,080,851 1,172 $604 $1,848,846
--------- -------- -------- ---------- ----- ---- ----------
December 31, 1995
</TABLE>
-15-
<PAGE>
FIFTH DIMENSION INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
Cash flows from operating activities
Net (loss) income $ (92,640) $ 98,682
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating
activities
Depreciation and amortization expense 125,661 120,855
(Increase) decrease in accounts receivable (12,036) 51,726
Increase in inventories (23,227) (73,273)
(Increase) decrease in prepaid expenses and
other current assets (20,726) 76,214
(Decrease) increase in accounts payable (82,748) 40,698
(Decrease) increase in accrued expenses,
income taxes payable and deferred
income taxes (91,567) 64,807
--------- ---------
Net cash (used in) provided by
operating activities (197,283) 379,709
--------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (59,662) (119,050)
Increase in patent costs (7,704)
---------
Net cash used in investing activities (59,662) (126,754)
--------- ---------
Cash flows from financing activities
Proceeds from loans 175,000
Repayment of loans (50,000) (146,000)
--------- ---------
Net cash provided by (used in)
financing activities 125,000 (146,000)
--------- ---------
Net (decrease) increase in cash and cash equivalents (131,945) 106,955
Cash and cash equivalents - beginning of year 272,958 166,003
--------- ---------
Cash (and in 1994 cash equivalents) - end of year $ 141,013 $ 272,958
--------- ---------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Interest $ 20,541 $ 17,983
Income taxes 18,062 17,000
See accompanying notes.
-16-
<PAGE>
FIFTH DIMENSION INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fifth Dimension Inc. (the "Company") is a provider, to various
military and commercial users, of products relating to the electronics
industry. The Company designs, manufactures and markets a variety of
products which include mercury switches, relays, and signal processing and
data handling devices called commutators and slip rings.
Inventories
Inventories are stated at the lower of cost or market determined by
the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation for
financial reporting purposes is calculated primarily on a straight-line
basis over the estimated useful lives of the asset which are as follows:
Machinery, office furniture and equipment 3-10 years
Building improvements 10 years
Building 25 years
For income tax purposes, assets purchased after 1980 are depreciated
under either the accelerated cost recovery system (ACRS) or the modified
accelerated cost recovery system (MACRS).
It is the policy of the Company to charge costs of maintenance and
repairs to operations as incurred and to capitalize expenditures for
replacement or renewals which extend the life of the asset. When assets
are sold or retired, the cost and related accumulated depreciation are
eliminated from the accounts, and any resulting gain or loss is reflected
in income for the period.
Revenue Recognition
Sales are recognized upon passage of title to the customer, which
usually coincides with physical delivery or customer acceptance, as
specified by contractual terms. Such sales are recorded based on the unit
selling price specified in the contract.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
-17-
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities.
Research and Development
Company-sponsored research and development expenditures are charged to
expense as incurred, the elements of which are allocated to cost of sales
and general and administrative expenses. Research and development
activities amounted to $175,000 and $215,000 for the years ended December
31, 1995 and 1994, respectively.
Earnings per Share
Earnings per share computations generally are based on the weighted
average number of common shares and common equivalent shares (relative to
stock options) outstanding during the year. In 1994, 52,954 equivalent
shares for primary earnings per share and 61,267 equivalent shares for
fully diluted earnings per share calculated using the treasury stock method
have been treated as outstanding. In 1995, loss per share is based on the
number of outstanding common shares because the effect of common equivalent
shares would be anti-dilutive.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
Required adoption of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," effective for the Company during the first
fiscal quarter of 1996, is not expected to have a material impact on the
financial statements of the Company.
-18-
<PAGE>
NOTE 2 - INVENTORIES
Inventories at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $269,866
Work in process 485,190
Finished goods 98,078
--------
Total $853,134
--------
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment as of December 31,
1995 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Land $ 49,111
Building 379,181
Machinery 897,011
Office furniture and equipment 258,277
Building improvements 245,549
----------
Total 1,829,129
Less accumulated depreciation
and amortization 1,209,338
----------
Net $ 619,791
----------
</TABLE>
Depreciation expense for the years ended December 31, 1995 and
1994 was $116,598 and $111,527, respectively.
NOTE 4 - PATENTS
The cost of patents is capitalized and amortized to operations on a
straight-line basis over a period of five (5) years. Accumulated
amortization at December 31, 1995 was $34,273 and amortization expense for
the years ended December 31, 1995 and 1994 was $9,063 and $9,328,
respectively.
NOTE 5 - CREDIT FACILITIES
Long-term obligations as of December 31, 1995 amounted to $133,333 and
consisted of a term loan due August 15, 1998 payable in monthly
installments of $4,167 plus interest at the prime rate plus one percent.
-19-
<PAGE>
Borrowings have the following scheduled maturities:
<TABLE>
<CAPTION>
<S> <C>
1996 $50,000
1997 50,000
1998 33,333
</TABLE>
The Company has available a working capital line of credit which
allows for a maximum borrowing of $750,000 through April 30, 1996. This
borrowing facility requires (1) a zero balance for thirty (30) consecutive
days; (2) accrues interest at prime plus .25 percent; (3) is secured by all
business assets; and (4) prohibits the Company from obtaining a mortgage on
its business premises. There were borrowings outstanding against this
credit line at December 31, 1995, in the amount of $175,000.
NOTE 6 - INCOME TAXES
The (benefit) provision for income taxes includes income taxes
currently payable and those deferred because of a temporary difference
between the financial statement and tax basis of assets and liabilities.
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1995 1994
------------ ----------
<S> <C> <C>
Federal income taxes:
Current $(34,158) $32,375
Deferred (23,497) 471
State income taxes:
Current
Deferred (20,623) 9,712
-------- -------
(Benefit) provision for
income taxes $(78,278) $42,558
-------- -------
</TABLE>
-20-
<PAGE>
The difference between the statutory federal income tax rate of 34% on
income (loss) before income taxes and the Corporation's effective tax rate
is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Statutory federal income taxes $(58,112) $ 48,021
State income tax, net of federal
benefit (15,337) 6,287
Research and other credits (19,524)
Graduated federal income tax
brackets 14,695 (11,750)
-------- --------
(Benefit) provision for
income taxes $(78,278) $ 42,558
-------- --------
Effective tax rate 28% 30%
</TABLE>
Deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory rates, applicable to
future years, to differences between financial reporting and the tax basis
of existing assets and liabilities. Temporary differences and
carryforwards for 1995 are as follows:
<TABLE>
<CAPTION>
Deferred Tax
------------
Asset Liability
--------- ------------
<S> <C> <C>
Depreciation $ -0- $ 66,014
Allowance for doubtful accounts
and vacation pay accruals 33,646 -0-
State net operating loss
carryforwards 38,960 17,859
Federal net operating loss
carryforwards 7,779 -0-
Credits available for carryforward 43,510 -0-
-------- ----------
$123,895 $ 83,873
-------- ----------
At December 31, 1995, the Company had available the following tax
carryforwards:
Year of
Type Amount Expiration
------- ----------- -------------
Federal net operating loss $ 27,781 2010
Federal research credit $ 19,524 2009
New Jersey net operating loss $519,465 1999-2002
New Jersey tax credits $ 23,986 1998-2001
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
401(k) Plan
Beginning July 1, 1995, the Company established a 401(k) plan to
replace the pension and profit sharing plans which were terminated during
1993. The plan covers all employees, ages 21 and over, with a minimum of
one year of service and provides for elective deferrals by the employees up
to 15% of compensation. Additionally, the Company, at its sole discretion,
may contribute additional amounts to the plan. Employer contributions
amounted to $11,488 for the year ended December 31, 1995.
-21-
<PAGE>
Compensation for Future Absences
Employees of the Company are entitled to paid vacation and sick days
depending on length of service and other factors. The Company recognizes
these costs when earned by the employees.
Health Insurance Plan
The Company had a self-insured health plan covering all eligible
employees and their dependents. Pursuant to this plan, the Company was
liable for claims up to $20,000 per employee annually with a lifetime
maximum of $1,000,000 per employee. An excess loss insurance policy
provided both aggregate and individual ceilings on the amount of claims
payable by the plan. Excess claims were then reimbursed by the insurance
company. Self-insurance costs were accrued based upon the aggregate of the
liability for reported claims and an estimated liability for claims
incurred but not reported. Contributions made by employees partially
offset the cost of this plan to the Company. During 1994, this plan was
terminated and the Company currently offers all employees health insurance
through a commercial carrier.
NOTE 8 - STOCK OPTIONS
The Company, in April 1988, approved an incentive stock option plan
whereby eligible employees would be granted options to purchase up to
150,000 shares of the Company's common stock at the market value on the
date of the grant. The options are exercisable for a period beginning
three years and ending ten years after the date of the grant, subject to
certain limitations and other restrictions. During the years ended
December 31, 1988 and 1987, 12,375 and 37,500 options were granted to
employees at the price of $2.25 and $2.33, respectively, and none were
exercised. During the years ended December 31, 1995 and 1994, no options
were granted or exercised, and at December 31, 1995 options for 45,750
shares were exercisable.
In August 1987, the Board granted options to each of the Company's
five directors serving at that time to purchase 15,000 shares of Common
Stock, at the price of $2.67 per share (the fair market value of the shares
on the date of grant), in recognition of past and ongoing service to the
Company. The options terminate ten years from the date of grant and are
exercisable at any time before then. During the years ended December 31,
1995 and 1994, no additional shares were granted to directors and none of
the options granted have yet been exercised. At December 31, 1995, options
for 75,000 shares were exercisable.
The Company's president and chief executive officer, pursuant to
employment agreements, was granted nonqualified stock options to purchase
shares of the Company's common stock (based on the fair market value on the
date of grant), as follows:
<TABLE>
<CAPTION>
Number of Exercise
Date Shares Allowed Price Per
of Granted to be Purchased Share Exercise Period
- ---------- --------------- ----- -----------------
<S> <C> <C> <C>
July 27, 1993 15,000 $2.19 Expire on July 27, 2003
July 27, 1994 15,000 $3.75 Expire on July 27, 2004
July 27, 1994 75,000 $3.75 Subsequent to the first fiscal
year in which the Company
achieves net sales of $10 million
and has net income; expire July
27, 2004
July 27, 1994 75,000 $3.75 Subsequent to the first year in
which the Company achieves net
</TABLE>
-22-
<PAGE>
sales of $15 million and has net
income; expire July 27, 2004
As of December 31, 1995, none of these options were exercised and
options for 30,000 shares were exercisable.
During 1994, the Board granted options to purchase 5,000 shares each
of the Company's common stock, to two key executives, at the price of $3.75
per share (the fair market value of the shares on July 27, 1994, the grant
date) as incentive for performance of services. These options expire ten
years from the date of grant; none were exercised as of December 31, 1995
and 10,000 options were exercisable.
NOTE 9 - EXECUTIVE COMPENSATION
The Company has a Board-approved incentive compensation arrangement
with certain key executive officers whereby each officer receives a certain
percentage of pre-tax or post-tax earnings in addition to base pay. Such
incentives, in total, amounted to $-0- and $25,239 for the years 1995 and
1994, respectively.
The Company has an employment agreement with a key executive officer
which provides for continued employment for a term of two years following a
change of control, as defined, and for severance pay in case of voluntary
or involuntary termination of employment following a change of control, as
defined.
During 1994, the Company entered into an employment agreement with its
new president and chief executive officer which continues through April
1999. Among other provisions, the agreement provides for a base
compensation, incentives based on post-tax profits and stock options (see
Note 8).
NOTE 10 - UNUSUAL ITEMS
The Company incurred legal costs of $2,740 and $3,725 during 1995 and
1994, respectively, in connection with the environmental suit more fully
described in Note 11.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Contingency
The U.S. Environmental Protection Agency ("EPA") has filed suit
against Princeton Gamma Tech ("PGT"), an unrelated third party, alleging
that releases of hazardous substances by PGT have contaminated two sites in
New Jersey. Fifth Dimension Inc. occupied a facility, destroyed by fire in
1974, which was located in the general vicinity of the identified sites.
PGT has filed a third party complaint against the issuer, among others,
alleging that these parties also caused the contamination.
Originally, the EPA listed the Company as a potentially responsible
party; however, following their initial investigation, the EPA elected to
file suit against PGT only. In a January 17, 1996 letter, the United
States Environmental Protection Agency ("EPA") stated that it has
information which documents the release of hazardous substances from the
property that Fifth Dimension formerly occupied in Rocky Hill, New Jersey,
that is affecting the groundwater, and advised Fifth Dimension Inc. that it
is potentially liable under the Comprehensive Environmental Response,
Compensation and Liability Act. Based on the information, EPA stated that
Fifth Dimension should perform some response action, at the minimum an
investigation to determine the nature, extent and impact of contamination
at the property. The Company is undertaking additional investigation;
however, they continued to believe that it did not contribute to the
contamination, and intends
-23-
<PAGE>
to vigorously defend this action. As this case is till in discovery, the
Company's special counsel is unable to predict an outcome of this matter at
this time.
The Company's insurance carrier has agreed to pay a portion of the
costs attributable to the defense of this matter but has reserved its
rights to withdraw in the event they disclaim coverage. Management
believes the insurance company is liable for all costs and is actively
seeking reimbursement.
Backlog
Backlog at December 31, 1995 was $4,394,385 as compared to $7,326,000
at December 31, 1994.
NOTE 12 - SEGMENT INFORMATION AND CONCENTRATIONS OF REVENUE AND CREDIT RISK
The Company's business and the products relate to the electronics
industry and are used in defense, industrial and consumer applications.
Net sales during 1995 and 1994 resulting from a series of production
contracts with one major domestic customer amounted to 76.3% and 77.3% of
total sales, respectively. Accounts receivable from the Company's major
customer amounted to 72.1% and 78.8% of total accounts receivable at
December 31, 1995 and 1994, respectively.
The option for additional production on the current contract with the
major domestic customer expired without being exercised. No new contracts
for this program are under discussion; shipments against the current
contract are anticipated to be made through November 1996. Management does
not believe that there will be a follow-on contract beyond the current
contract which is scheduled for completion at the end of 1996. Management
continues to seek new business and programs to replace the significant
revenues of this contract.
-24-
<PAGE>
PART II
Item 8. Changes In and Disagreements With Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
None
-25-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- -------- -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
(a) Directors and persons chosen to become directors.
The information contained on Pages 4 and 5 of Fifth Dimension Inc.'s
Proxy Statement dated March 28, 1996, with respect to directors of the Issuer,
is incorporated herein by reference in response to this item.
(b) Executive Officers of the Issuer
<TABLE>
<CAPTION>
Age Present Position or Office
---
of Issuer Held
-------------------------------------
<S> <C> <C>
Craig E. Ebner 56 President and Chief Executive Officer
Sheldon Bitko 68 Vice President, Mercury Products
Alfred R. Senni 67 Vice President, Slip Rings
Elaine H. Cain 67 Vice President, Administration and
Secretary-Treasurer
</TABLE>
On April 28, 1993, Craig E. Ebner was appointed President and Chief
Executive Officer of the Corporation; Sheldon Bitko was appointed Vice
President, Mercury Products and Alfred R. Senni was appointed Vice President,
Slip Rings. Prior to this appointment, Sheldon Bitko had served as President
and Alfred R. Senni had served as Executive Vice President and Chief Executive
Officer. Both Mr. Bitko and Mr. Senni have been employed continuously by the
Issuer in excess of five years.
-26-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ------- -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act. (continued)
---------------------------------------------------------------
On March 2, 1978, Mrs. Elaine H. Cain was appointed Secretary; on
April 24, 1984 Mrs. Cain was appointed Treasurer and on December 19, 1990, she
was appointed Vice President Administration and Secretary-Treasurer of the
Issuer. Mrs. Cain had been employed continuously by the Issuer in excess of
five years, primarily as Executive Secretary, prior to her appointment to the
position of Secretary of the Issuer.
There is no family relationship between or among any of the Issuer's
directors or officers, and nor is there any arrangement between any of them and
any other person pursuant to which any were selected as an officer or director.
The officers serve at the pleasure of the board, in their respective capacities
without specified terms of office.
Item 10. Executive Compensation.
- -------- -----------------------
The information contained on Pages 6, 7, 8, 9 and 10 of the Issuer's
Proxy Statement dated March 28, 1996 with respect to executive compensation and
transactions, is incorporated herein by reference in response to this item.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
The information contained on Pages 1, 2 and 3 of the Issuer's Proxy
Statement dated March 28, 1996 with respect to security ownership of certain
beneficial owners and management, is incorporated herein by reference in
response to this item.
Item 12. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The information contained on Page 5 of the Issuer's Proxy Statement
dated March 28, 1996 with respect to Certain Relationships and Related
Transactions, is incorporated herein by reference in response to this item.
-27-
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8K
- -------- -------------------------------
2. (a) Exhibits
-------------
Exhibit (3) Articles of Incorporation and By-Laws
-------------------------------------------------
(a) Articles of Incorporation
------------------------------
3.1 Certificate of Incorporation of the Issuer filed May 1,
1959.**
3.2 Amendment to the Certificate of Incorporation of the
Issuer filed May 14, 1959.**
3.3 Amendment to the Certificate of Incorporation of the
Issuer filed June 25, 1959.**
3.4 Amendment to the Certificate of Incorporation of the
Issuer filed April 5, 1961.**
3.5 Amendment to the Certificate of Incorporation of the
Issuer filed May 23, 1961.**
3.6 Amendment to the Certificate of Incorporation of the
Issuer filed May 10, 1988.**
(b) By-Laws
--- -------
3.7 By-Laws of the Issuer as adopted and restated as of
February 23, 1991 filed under Form 8-K March 11, 1991.***
- ---------------------
** Incorporated by reference to Exhibits to the Issuer's Report on Form 10-K
for the fiscal year ended December 31, 1988.
*** Incorporated by reference to the Issuer's Report on Form 10-K for the
fiscal year ended December 31, 1991.
-28-
<PAGE>
PART IV
Exhibit (10) Material Contracts
------------ ------------------
10.1 Purchase Order Number P109020703 dated January 7, 1993
between Fifth Dimension Inc. and Texas Instruments.**
10.2 Purchase Order Number NG5527 dated July 5, 1994
between Fifth Dimension Inc. and Kearfott Guidance and
Navigation Corporation.***
Exhibit (11) Statement Regarding Computation of Per Share Earnings
------------ -----------------------------------------------------
11.1 Statement of Computation of Per Share Earnings.*
Exhibit (23) Consent of Experts and Counsel
------------ ------------------------------
23.1 Consent of Independent Certified Public Accountants.*
- -----------------------
* Exhibits filed herewith.
** Incorporation by reference to Exhibits to the Issuer's Report on Form 10-
KSB for the fiscal year ended 1993.
*** Incorporation by reference to Exhibits to the Issuer's Report on Form 10-
KSB for the fiscal year ended 1994.
3. (b) Reports on Form 8-K
------------------------
None
-29-
<PAGE>
Exhibit (11) Statement Regarding Computation of Per Share Earnings
- ------------ -----------------------------------------------------
FIFTH DIMENSION INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
PRIMARY
- ------------------------------
<S> <C> <C>
Net (loss) income for
primary (loss)
income per common share $ (92,640) $ 98,682
---------- ----------
Weighted average number
of common shares outstanding
during the year 1,093,636 1,093,636
Add: Common equivalent
shares (determined using the
"treasury stock" method)
representing shares issuable
upon exercise of employee
stock options -0- 52,954
---------- ----------
Weighted average number
of shares used in
calculation of primary
income per share 1,093,636 1,146,590
---------- ----------
Primary (loss) income per
common share $ (.08) $ .09
---------- ----------
FULLY DILUTED
-------------
Net (loss) income for
fully diluted net
income per common share $ (92,640) $ 97,682
---------- ----------
Weighted average number
of shares used in calculating
primary income per common
share 1,093,636 1,146,590
Add: Additional shares
issuable upon exercise
of stock options based
on ending market price -0- 8,313
---------- ----------
Weighted average number
of shares used in
calculation of fully diluted
income per share 1,093,636 1,154,903
---------- ----------
Fully diluted (loss)
income per common share $ (.08) $ .09
---------- ----------
</TABLE>
-30-
<PAGE>
Exhibit (23) Consent of Experts and Counsel
- -------------------------------------------
23.1 Consent of Independent Certified Public Accountants
Yohalem Gillman & Company
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Fifth Dimension Inc. of our report dated February 9, 1996.
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the Employee Incentive Stock Plan and the
Board of Directors Stock Option Plan of Fifth Dimension Inc., and the related
Prospectuses of our report dated February 9, 1996 included and incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1995.
Yohalem Gillman & Company
New York, New York
February 9, 1996
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Issuer has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIFTH DIMENSION INC.
--------------------
(Registrant)
By: /s/Craig E. Ebner By: /s/Sheldon Bitko
------------------------- ------------------------------
Craig E. Ebner Sheldon Bitko
President and Chief Vice President, Mercury
Executive Officer Products
Director Director
By: /s/Alfred R. Senni By: /s/Elaine H. Cain
------------------------- -------------------------------
Alfred R. Senni Elaine H. Cain
Vice President, Slip Vice President, Administration
Rings Secretary-Treasurer
Director
Dated: March 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
FIFTH DIMENSION INC.
--------------------
(Registrant)
By: /s/Charles Davidoff By: /s/Charles E. Rausch
------------------------- ---------------------------
Charles Davidoff Charles E. Rausch
Director Director
By: /s/Peter N. Heydon By: /s/Frederick C. Scherer
------------------------- ---------------------------
Peter N. Heydon Frederick C. Scherer
Director Director
By: /s/Lee R. Marks
-------------------------
Lee R. Marks
Director
Dated: March 18, 1996
-32-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Company's Statements of Cash Flows, Stockholders' Equity and Operations for
the year ended December 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 141013
<SECURITIES> 364936
<RECEIVABLES> 745284
<ALLOWANCES> 6835
<INVENTORY> 853134
<CURRENT-ASSETS> 1791701
<PP&E> 619791
<DEPRECIATION> 0
<TOTAL-ASSETS> 2467662
<CURRENT-LIABILITIES> 535483
<BONDS> 0
364936
0
<COMMON> 0
<OTHER-SE> 1483910
<TOTAL-LIABILITY-AND-EQUITY> 2467662
<SALES> 4152361
<TOTAL-REVENUES> 4147314
<CGS> 3101268
<TOTAL-COSTS> 4303902
<OTHER-EXPENSES> 2740
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21684
<INCOME-PRETAX> (170918)
<INCOME-TAX> (78278)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92640)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
