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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20659
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19875
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DMI, INC.
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(Exact name of registrant as specified in is charter)
Colorado 95-3500183
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1530 Monterey Street, San Luis Obispo, California 93401
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(Address of principal executive offices)
(805) 546-0444
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year if changed from last report)
Check whether the issuer (1) has filed all documents and 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 registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan conformed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, no par value: 70,050,748 shares outstanding as of September 30,
1997.
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DMI, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets as of September 30, 1997
(unaudited) and December 31, 1996 (audited) 3
Condensed consolidated statements of operations for the
three and nine months ended September 30, 1997 and 1996 4
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1997 and 1996 5
Notes to condensed consolidated financial statements 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSES OR PLAN OF OPERATION 8
PART II. OTHER INFORMATION:
Item 1. LEGAL PROCEEDINGS 10
Item 2. CHANGES IN SECURITIES 10
Item 3. DEFAULTS UPON SENIOR SECURITIES 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITY HOLDERS 10
Item 5. OTHER INFORMATION 10
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
</TABLE>
2
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PART I - FINANCIAL INFORMATION:
ITEM 1.- FINANCIAL STATEMENTS
DMI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
ASSETS (Unaudited) (Audited)
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 27,872 $ 9,302
Accounts receivable, net 400,012 --
Other current assets 61,132
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Total current assets 489,016 9,302
Property and equipment, net 125,161 --
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Total assets $ 614,177 $ 9,302
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 83,060 $ 6,216
Accrued expenses 281,881 119,101
Loan from stockholder 25,600 16,000
Credit cards payable 28,459 --
Notes payable 6,000 --
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Total current liabilities 425,000 141,317
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Non-Current Liabilities:
Deferred revenue 30,806 38,509
Deferred income taxes (14,000) --
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Total non-current liabilities 16,806 38,509
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Stockholders' Equity (Deficit):
Common stock, no par value, 1,000,000,000 shares authorized
70,050,748 and 8,762,843 issued and outstanding
4,934,689 4,117,083
Additional paid-in capital 350,000 350,000
Accumulated deficit (5,112,318) (4,637,607)
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Total stockholders' equity (deficit) 172,371 (170,524)
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Total liabilities and stockholders' equity (deficit)
$ 614,177 $ 9,302
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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DMI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues $ 45,327 $ 3,851 $ 45,327 $ 40,073
---------- --------- ---------- ----------
Costs and expenses:
Cost of sales -- -- -- 12,000
Selling, general and
administrative expenses 429,305 25,900 513,079 109,283
Depreciation expense 7,032 -- 7,032 --
---------- --------- ---------- ----------
Total cost and expenses 436,337 25,900 520,111 121,283
---------- --------- ---------- ----------
Loss from operations (391,010) (22,049) (474,784) (81,210)
Interest income, net 1 -- 73 232
---------- --------- ---------- ----------
Net loss $ (391,009) $ (22,049) $ (474,711) $ (80,978)
========== ========= ========== ==========
Loss Per Common Share $ (0.010) $ (0.003) $ (0.012) $ (0.007)
========== ========= ========== ==========
Weighted Average Number of Common
Shares Outstanding 39,831,795 8,721,639 39,406,795 8,719,958
========== ========= ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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DMI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended September 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(474,711) $ (80,978)
Adjustments to reconcile net loss to cash used for
operating activities:
Depreciation and amortization 7,032 11,134
Stock issued for services rendered 108,126 63,196
Issuance of stock previously committed -- (16,000)
Increase (decrease) from changes in assets and liabilities:
Accounts receivable 265,256 2,000
Inventories -- 20,100
Other assets (15,493) (6,000)
Accounts payable 16,990 (2,081)
Accrued expenses 51,293 123,208)
Other liabilities (8,481) --
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Net cash used by operating activities (49,988) (131,837)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition 13,093 --
Acquisition of property and equipment (9,635) --
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Net cash provided by investing activities 3,458 --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans 9,600 16,000
Proceeds from stock issuances 55,500 --
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Net cash provided by financing activities 65,100 16,000
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
18,570 (115,837)
CASH, BEGINNING OF PERIOD 9,302 164,338
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CASH, END OF PERIOD $ 27,872 $ 48,501
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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DMI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
As discussed in Note 1, during the nine months ended September 30, 1997, the
Company acquired 95.56% of the outstanding shares of DTI Technology, inc.
(d.b.a. Dega Technology, Inc.) in exchange for 57,000,000 shares of the
Company's common stock. This non-cash acquisition had the following effects on
the Company's financial statements:
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Increase in cash $ 13,093
Increase in accounts receivable, net 665,268
Increase in other assets 45,639
Increase in property and equipment 122,558
Increase in accounts payable 59,854
Increase in accrued liabilities 111,486
Increase in credit cards payable 29,460
Decrease in other liabilities 8,222
Increase in common stock 653,980
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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DMI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the interim financial statements include all adjustments considered
necessary for a fair presentation of the Company's financial position and its
results of operations and cash flows. The results of operations for the three
and nine month periods are not necessarily indicative of the results to be
expected for the full fiscal year. For further information, refer to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
In July 1997, the Company closed a stock purchase agreement with certain
stockholders of DTI Technology, Inc. (d.b.a. Dega Technology, Inc.) whereby the
Company acquired 95.56% of the outstanding shares of Dega Technology, Inc. in
exchange for 57,000,000 shares of the Company's common stock. Dega Technology,
Inc. develops computer software which primarily transforms paper catalogs into
digital documents located on CD-ROM's and provides electronic parts catalogs and
service manuals for vehicle, equipment and machine maintenance. The acquisition
was accounted for using the purchase method of accounting. As the fair value of
the net assets acquired by the Company approximated their carrying value on the
date of acquisition, no goodwill was recorded in connection with this
acquisition.
The condensed consolidated financial statements as of September 30, 1997 and for
the periods then ended include the accounts of DMI, Inc. and the accounts of DTI
Technology, Inc. (d.b.a. Dega Technology, Inc.) from July 21, 1997, the date of
acquisition. All significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE 2 - CONTINGENCIES
The Company does not have product liability insurance. Thus, the Company can be
held liable for all damages or other losses resulting from the use of its
products. Presently, management is unaware of any potential liabilities or
contingencies resulting from product liability.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
The results of operations for the three and nine months ended September 30,
1996, which primarily reflect the Company's transformation from a developer and
seller of document imaging systems to a software licenser seeking a merger
partner, are not directly comparable to the results of operations for the three
and nine months ended September 30, 1997. The operations for the three and nine
months ended September 30, 1996 included some results of operations from the
Company's wholly owned subsidiary DMI, CARS, Inc. which was dissolved in 1996,
and the last sales of the Company's remaining inventory. The operations for the
three and nine months ended September 30, 1997 include the results of DTI
Technology, Inc. (d.b.a. Dega Technology, Inc. ) ("Dega") from the date of its
acquisition, July 21, 1997.
Due to the above, and because the results only include the operations of Dega
from the date of its acquisition, July 21, 1997, the results of the operations
for the three and nine months ended September 30, 1997 are not an indication of
any future results of operations.
In May of 1996, the Company entered into a joint venture agreement with Unicomp,
Inc. to establish a distribution channel for remanufactured Toshiba telephone
system in Vietnam, Laos, Cambodia, and China. By the terms of the Agreement, the
Company was to receive 25% of the gross profits. The agreement was rescinded in
1997 in favor of a $250,000 note receivable at 8% annualized interest, due
October 21, 1997. As of the date of this report, no amounts have been collected
on this note. Due to the uncertainty regarding the ultimate collectibility of
this note, no amounts have been recorded in the accompanying condensed
consolidated financial statements relating to this note.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 as Compared to the Three Months Ended
September 30, 1996
The Company had revenues of $45,327 during the three months ended September 30,
1997 as compared to revenues of $3,857 for the three months ended September 30,
1996. The increase in revenues is directly related to the acquisition of Dega in
July 1997 which accounted for 100% of the Company's current quarter revenue.
Although the Company has two existing licensing agreements with value added
resellers, the Company has not yet earned any revenues from such agreements.
Selling, general and administrative expenses and depreciation expense for the
three months ended September 30, 1997 also increased from prior year amounts due
to the Dega acquisition. As DMI had only one employee for the current quarter,
substantially all selling, general and administrative expenses, and all
depreciation expense, related to the operations of Dega. Additionally, the
Company issued 2,838,000 shares of the Company's common stock to various
consultants and recognized related compensation expenses of $108,126.
As a result, the Company recorded a net loss of ($391,009) or ($.010) per share,
for the three months ended September 30, 1997 as compared to a net loss of
($22,049) or ($.003) per share for the three months ended September 30, 1996.
8
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Nine Months Ended September 30, 1997 as Compared to the Nine Months Ended
September 30, 1996
The Company had revenues of $45,327 during the nine months ended September 30,
1997 as compared to revenues of $40,073 for the nine months ended September 30,
1996. The increase in revenues resulted from the Company's acquisition of Dega
in July 1997, which accounted for 100% of the Company's revenues during the nine
months ended September 30, 1997. Although the Company has two existing licensing
agreements with value added resellers, the Company has not yet earned any
revenues from such agreements. Prior year revenues related primarily to sales of
the Company's existing document imaging inventory which was completely
liquidated in 1996.
Selling, general and administrative expenses and depreciation expense for the
nine months ended September 30, 1997 increased to $513,079 from $109,283 during
the nine months ended September 30, 1996. The increase is related to the
Company's July 1997 acquisition of Dega as DMI had only two employees during
most of 1996. Additionally, the Company recorded compensation expenses of
$108,126 in connection with the issuance of 2,838,000 shares of the Company's
common stock to various consultants.
As a result, the Company recorded a net loss of ($474,711) or ($.012) per share,
for the nine months ended September 30, 1997 as compared to a net loss of
($80,978) or ($.007) per share for the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $64,016. At September
30, 1997, the Company had $27,872 in business checking and money market
accounts. These funds resulted primarily from the operations of Dega, current
year sales of the Company's common stock and stockholder loans.
Although the Company believes that the operations of Dega will generate some
amount of cash, the Company recognizes the need for additional financing to
expand the business activities of Dega. No such sources of financing have yet
been secured. The Company believes that cash generated from the operations of
Dega and available cash as of September 30, 1997 will be sufficient to fund its
operating needs through the balance of the fiscal year.
9
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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
See item 2 above.
Item 5. - OTHER INFORMATION
None
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 -- Financial Data Schedule.
1. Form 8-K, dated April 2, 1997, was filed regarding the acquisition
of DTI Technology, Inc. (d.b.a. Dega Technology, Inc.).
2. Form 8-K/A, dated July 21, 1997, was filed regarding a change in
control of the Company, an amendment to the Dega Technology, Inc.
stock purchase agreement and a change in the Company's directors.
3. Form 8-K, dated July 31, 1997, was filed regarding the Company's
appointment of Haskell & White LLP as the Company's auditors.
10
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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.
DMI, INC.
(Registrant)
12/15/97 By: /s/ J.P. MAKEYEV
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Date J.P. Makeyev
Chief Executive Officer
11
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EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,872
<SECURITIES> 0
<RECEIVABLES> 400,012
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 489,016
<PP&E> 125,161
<DEPRECIATION> 0
<TOTAL-ASSETS> 614,177
<CURRENT-LIABILITIES> 425,000
<BONDS> 0
0
0
<COMMON> 4,934,689
<OTHER-SE> (5,112,318)
<TOTAL-LIABILITY-AND-EQUITY> 614,177
<SALES> 45,327
<TOTAL-REVENUES> 45,327
<CGS> 0
<TOTAL-COSTS> 513,079
<OTHER-EXPENSES> 7,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (474,784)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 474,711
<EPS-PRIMARY> (0.012)
<EPS-DILUTED> 0
</TABLE>
