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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File No.
0-2532
FIFTH DIMENSION INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
New Jersey 21-0717490
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation organization)
801 New York Avenue, Trenton, New Jersey 08638
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(Address of Principal Executive Office) (Zip Code)
Issuer's Telephone Number, Including Area Code (609) 393-8350
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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
filing requirement for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of June 30, 1998, the Registrant had outstanding 1,093,636 shares of
Common Stock $.33 1/3 par value.
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FIFTH DIMENSION INC.
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TABLE OF CONTENTS
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PERIOD ENDED JUNE 30, 1998
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PAGE
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PART 1 FINANCIAL INFORMATION
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Item 1 - Financial Statements
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Balance Sheet 1
Statement of Operations and Retained Earnings 2
Statement of Cash Flows 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial 5 , 6
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Condition and Results of Operations & 7
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FIFTH DIMENSION INC.
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BALANCE SHEET
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(UNADITED)
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ASSETS
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June 30, 1998
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CURRENT ASSETS:
Cash and Short-Term Investments $ 248,717
Accounts Receivable - Net 79,287
Inventories 348,691
Prepaid Expenses 45,928
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Total Current Assets 722,623
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PROPERTY, PLANT AND EQUPUIPMENT - Net of Accumulated Depreciation
460,678
PATENT COSTS, LESS ACCUMULATED AMORTIZATION 29,579
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TOTAL ASSETS $ 1,212,880
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES $ 58,793
Notes Payable - Current Portion 421,324
Accounts Payable 45,199
Accrued Expenses 170,394
Accrued Compensation and Vacation
Total Current Liabilities 695,710
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LONG TERM LIABILITIES:
Notes Payable - Long Term Portion 980,642
Subordinate Related Party Debt 436,000
Total Long - Term Liabilities 1,416,642
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TOTAL LIABILITIES 2,122,352
STOCKHOLDERS' EQUITY:
Common Stock - ($.33 1/3 Par Value) 364,936
Additional Paid-In Capital 403,663
Treasury Stock - At Cost ( 604)
Retained Earnings Deficit (1,667,467)
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TOTAL STOCKHOLDERS' EQUITY DEFICIT (899,472)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
DEFICIT $ 1,212,880
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FIFTH DIMENSION INC.
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STATEMENT OF OPERATIONS AND RETAINED EARNINGS
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(UNAUDITED)
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QUARTER ENDED SIX MONTHS ENDED QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
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<S> <C> <C> <C> <C>
NET SALES $ 440,271 $ 810,532 $ 388,919 $ 755,405
COST OF SALES 496,323 922,232 566,060 1,175,450
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GROSS PROFIT (LOSS) ON SALES (56,052) (111,700) (177,141) (420,045)
OPERATING EXPENSES 130,594 256,231 207,867 432,157
INTEREST EXPENSE 37,377 75,928 9,170 14,632
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OPERATING INCOME (LOSS) (224,023) (443,859) (394,178) (866,834)
OTHER INCOME --- --- 36,340 38,889
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INCOME (LOSS) BEFORE TAXES (224,023) (443,859) (357,838) (827,945)
PROVISION FOR INCOME TAXES (BENEFIT) --- --- (139,378) (322,485)
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NET INCOME (LOSS) (224,023) (443,859) (218,460) (505,460)
RETAINED EARNINGS (DEFICIT)
AT BEGINNING OF PERIOD (1,443,444) (1,223,608) 649,685 936,685
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RETAINED EARNINGS (DEFICIT)
AT END OF PERIOD $(1,667,467) $(1,667,467) $ 431,225 $ 431,225
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NET INCOME (LOSS) PER COMMON SHARE $(.21) $(.41) $(.20) $(.46)
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WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
SHARES OUTSTANDING 1,093,636 1,093,636 1,093,636 1,093,636
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FIFTH DIMENSION, INC.
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STATEMENT OF CASH FLOWS
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(UNAUDITED)
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SIX MONTHS ENDED JUNE 30
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net Income (Loss) $(443,859) $(505,460)
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ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED
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(USED) BY OPERATING ACTIVITIES:
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Depreciation Expense 49,970 57,900
(Increase) Decrease in Accounts Receivable 178,876 (5,975)
(Increase) Decrease in Inventory 47,164 77,655
(Increase) Decrease in Prepaid Expenses and Taxes (9,013) (10,936)
Increase (Decrease) in Accounts Payable 11,421 49,540
Increase (Decrease) in Accrued Expenses and Compensation 84,935 2,400
Increase (Decrease) in Accrued/Deferred Income Taxes --- (322,660)
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363,353 (152,076)
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Net Cash Provided (Used) by Operating Activities (80,506) (657,536)
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CASH FLOWS FROM INVESTING ACTIVITIES
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Capital Expenditures --- (7,910)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from Loans 321,000 492,053
Reduction in Notes Payable (15,736) (16,664)
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Net Cash Provided by Financing Activities 305,264 475,389
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 224,758 (190,057)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,959 296,777
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 248,717 $ 106,720
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FIFTH DIMENSION INC.
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NOTES TO FINANCIAL STATEMENTS
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JUNE 30, 1998
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Note #1 Inventories
On an interim basis, the cost of goods sold and resulting inventory
valuation is calculated using the gross profit method. A physical
inventory is taken December 31 of each year and a distribution into
raw materials, work in process and finished goods is only available at
that time.
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FIFTH DIMENSTION INC.
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PERIOD ENDED JUNE 30, 1998
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PART 1 - ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Registrant reported net losses of $224,023 and $445,859 for the second
quarter and first half of 1998 on sales revenue of $440,271 and $810,532,
respectively. This compares with a 1997 second quarter loss before tax effect
of $357,838 on sales revenue of $388,919 and a first half 1997 loss before tax
effect of $827,945 on sales revenue of $755,405. The decline in the operating
losses is a result of overhead reductions instituted during 1997 and 1998.
Despite the significant overhead reductions, the inability of the sales levels
and gross profit margins to cover the remaining manufacturing overhead and
expenses relating to the development of the patent pending brushless slip ring
technology resulted in gross profit deficits during the various time periods.
The company reduced operating expenses by 41% during the first half of 1998
versus the first half of 1997. This reduction was primarily the result of lower
personnel costs although various other expense categories were also reduced.
Interest costs were significantly higher during the current periods based on
additions to outstanding debt balances. Income tax benefits were accrued during
the 1997 periods based on the projected future tax reductions anticipated to
result from carryover of the operating losses. This accrual of tax benefits was
not made in 1998 due to the uncertainty of the future use of the carryover
losses.
The financial condition of the Registrant was stable during the latest quarter
as borrowing form private sources financed operating losses. The Company
anticipates reduced financing requirements during the third quarter of 1998 as a
result of settlement proceeds on a major contract received in June.
The Company, during 1996, was advised by Kearfott Guidance and Navigation
Corporation ("Kearfott") of sample test failures within a production lot
containing approximately 283 units that were returned to the Company for repair
and/or manufacture. In the second quarter of 1998, the Company reached
settlement terms with Kearfott, pursuant to which, Kearfott retained the units
and paid the Company $121,759 in cash in the second quarter, which was accounted
for as a sale.
In addition, in the second quarter of 1998, the Company received $172,260 as
partial payment of the settlement that it had reached in regards to the ACALA
Tank & Turret Slip Ring Contract cancellation. The Company expects payment of
the $32,880 balance under the settlement in the third quarter of 1998.
The return to profitable operations is dependent on the sales of the brushless
slip ring technology which to date has been favorable received by various
potential customers. The survival of the company, however, is dependent on its
ability to secure the financing required to complete development, manufacture
and market this new technology. The Registrant purchased no fixed assets during
the quarter, while charging $24,985 against income for depreciation purposes.
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The Registrant continued to operate under protection of Chapter 11 of the
Bankruptcy Code which was initially filed for on January 6, 1998. This filing
has enabled the company to delay payment on approximately $400,000 of current
vendor accounts payable and to structure a payment plan on outstanding long-term
debt.
As previously disclosed, the Environmental Protection Agency ("EPA") has
asserted that the Company bears some level of responsibility for contaminated
groundwater that was discovered at a facility that the Company had previously
occupied. The Company has been notified that the EPA has filed a proof of claim
in the amount of $15,000,000 with the bankruptcy court. Although the Company
maintains its position that it is not responsible for the contamination, in
light of its financial condition and the bankruptcy proceeding, its bankruptcy
counsel is attempting to negotiate a settlement with EPA, although there is no
assurance that a satisfactory settlement may be reached.
Although the Company hopes to obtain additional financing and emerge from
bankruptcy, there is no assurance that the Company will be able to retain the
additional financing, or, even if the financing is obtained, that it will be
sufficient, for the Company to successfully reorganize under the bankruptcy
proceeding.
No other changes have occurred which would have a material affect on liquidity,
financial condition or results of operations of the Registrant.
YEAR 2000 COMPLIANCE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" problem. The
Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations.
The Company's hardware investigations have revealed that none of its
PC's are currently in compliance with the Year 2000. The Company is
investigating available software to correct the problem. As a contingency, the
Company may be required to purchase new hardware that is Year 2000 compliant.
The Company's software investigations have disclosed that its current business
requirement software is not Year 2000 compliant. The Company is investigating
new software systems, as well as an upgrade of its existing system. If extensive
hardware or software replacement or upgrades are required, it will have a
material adverse impact on the Company.
The Company has contacted all its suppliers, vendors and banks with a
questionaire to determine their current state of Year 2000 compliance and their
plans to achieve compliance. A second follow-up letter has been forwarded which
states that the Company will seek alternative sources for those parties that do
not respond.
The Company anticipates that it will achieve hardware and software
Year 2000 compliance by March 31, 1999 although, due to the Company's bankruptcy
proceeding and limited capital resources, the Company may lack sufficient
capital to implement its Year 2000 plan. The Company has spent less than $2000
on the Year 2000 project through June 30, 1998 and, based on the Company's
current knowledge and investigations, the expense of the Year
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2000 project is expected to cost approximately $100,000 between July 1, 1998 and
March 31, 1999. The Company's failure to implement its Year 2000 plan would make
the Company's operations significantly more difficult.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements with regards to the financing and operations of Imark. The forward
looking statements involve certain risks and uncertainties particularly in
regards to the Company's financial condition and liquidity, ability to
reorganize under Chapter 11 of the Bankruptcy Code, ability to obtain additional
financing, ability to implement and success of its Year 2000 program and
resolution of the EPA matters. The Company is under no obligation and
specifically discloses any obligation to update any forward looking statements.
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FIFTH DIMENSION INC.
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SIGNATURES
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In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIFTH DIMENSION INC.
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(Registrant)
DATE: August 17, 1998 BY: /S/ Craig Ebner
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Craig Ebner
President
TCO/FITZGERALDR/377/@h01!.DOC/8/14/98
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 248,717
<SECURITIES> 0
<RECEIVABLES> 79,287
<ALLOWANCES> 0
<INVENTORY> 348,691
<CURRENT-ASSETS> 722,623
<PP&E> 460,678
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,212,880
<CURRENT-LIABILITIES> 695,710
<BONDS> 0
0
0
<COMMON> 767,995
<OTHER-SE> (1,667,467)
<TOTAL-LIABILITY-AND-EQUITY> 1,212,880
<SALES> 440,271
<TOTAL-REVENUES> 440,271
<CGS> 496,323
<TOTAL-COSTS> 496,323
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,377
<INCOME-PRETAX> (224,023)
<INCOME-TAX> 0
<INCOME-CONTINUING> (224,023)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,443,444)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
